Hyatt Hotels Corporation (NYSE: H) today reported second-quarter 2018 financial results. Net income attributable to Hyatt was $77 million, or $0.66 per diluted share, in the second quarter of 2018, compared to $103 million, or $0.81 per diluted share, in the second quarter of 2017. Adjusted net income attributable to Hyatt was $84 million, or $0.72 per diluted share, in the second quarter of 2018, compared to $65 million, or $0.51 per diluted share, in the second quarter of 2017. Refer to the table on page 4 of the schedules for a summary of special items impacting Adjusted net income and Adjusted earnings per share in the three months ended June 30, 2018.
Mark S. Hoplamazian, president and chief executive officer of Hyatt Hotels Corporation, said, "Strong second-quarter results demonstrate continued upward momentum in our management and franchising business, underpinned by 4.0% comparable system-wide RevPAR growth and 7.4% net rooms growth. Management and franchise fees grew approximately 13% in the quarter on a constant-currency basis, fueling the evolution of our earnings to be increasingly fee-driven."
Second quarter of 2018 financial highlights as compared to the second quarter of 2017 are as follows:
- Net income decreased 24.6% to $77 million.
- Adjusted EBITDA decreased 2.7% to $218 million, down 3.1% in constant currency.
- Comparable system-wide RevPAR increased 4.0%, including an increase of 4.1% at comparable owned and leased hotels. Excluding the impact of Easter holiday timing, comparable system-wide and comparable owned and leased RevPAR increased 3.7%.
- Comparable U.S. hotel RevPAR increased 3.4%; full service and select service hotel RevPAR increased 4.0% and 2.1%, respectively. Excluding the impact of Easter holiday timing, comparable U.S. hotel RevPAR increased 3.0%; full service and select service U.S. hotel RevPAR increased 3.4% and 2.1%, respectively.
- Net rooms growth was 7.4%.
- Comparable owned and leased hotel operating margin increased 160 basis points to 27.2%.
- Adjusted EBITDA margin of 34.2% increased 280 basis points in constant currency.
Mr. Hoplamazian continued, "Disciplined execution of our long-term growth strategy continues to drive strong operating results and new hotel openings, sustaining solid earnings growth and meaningful shareholder capital returns as we pivot to an asset-lighter business model. Based on current booking trends, we expect a solid finish to 2018 and have raised our guidance accordingly."
Second quarter of 2018 financial results as compared to the second quarter of 2017 are as follows:
Management, Franchise and Other Fees
Management, franchise and other fees increased 9.6% (8.9% in constant currency) to $142 million, driven by improved performance at existing hotels, new hotels added to the system, and hotel conversions from owned to managed. Base management fees increased 13.5% to $59 million and incentive management fees increased 12.3% to $38 million. Franchise fees increased 15.4% to $35 million. Other fees decreased 23.9% to $10 million, reflecting a $5 million conversion fee for a hotel that converted to a franchise in the second quarter of 2017.
Americas Management and Franchising Segment
Americas management and franchising segment Adjusted EBITDA increased 4.2% (4.3% in constant currency). RevPAR for comparable Americas full service hotels increased 4.0%; occupancy increased 70 basis points and ADR increased 3.1%. RevPAR for comparable Americas select service hotels increased 2.6%; occupancy increased 40 basis points and ADR increased 2.2%. Revenue from management, franchise and other fees increased 2.6% (2.8% in constant currency).
Transient rooms revenue at comparable U.S. full service hotels increased 1.6%; room nights decreased 2.3% and ADR increased 4.0%. Group rooms revenue at comparable U.S. full service hotels increased 4.9%; room nights increased 1.8% and ADR increased 3.1%.
Americas net rooms increased 6.3% compared to the second quarter of 2017.
Southeast Asia, Greater China, Australia, South Korea, Japan and Micronesia (ASPAC) Management and Franchising Segment
ASPAC management and franchising segment Adjusted EBITDA increased 6.6% (1.8% in constant currency). RevPAR for comparable ASPAC full service hotels increased 4.2%, driven by increased occupancy across the region, most notably in Greater China. Occupancy increased 220 basis points and ADR increased 1.1%. Revenue from management, franchise and other fees increased 11.7% (7.8% in constant currency).
ASPAC net rooms increased 8.8% compared to the second quarter of 2017.
Europe, Africa, Middle East and Southwest Asia (EAME/SW Asia) Management and Franchising Segment
EAME/SW Asia management and franchising segment Adjusted EBITDA increased 50.3% (48.4% in constant currency). RevPAR for comparable EAME/SW Asia full service hotels increased 6.5%, driven primarily by Russia, Switzerland, and France. Occupancy increased 230 basis points and ADR increased 2.9%. Revenue from management, franchise and other fees increased 20.6% (19.8% in constant currency).
EAME/SW Asia net rooms increased 11.9% compared to the second quarter of 2017.
Owned and Leased Hotels Segment
Total owned and leased hotels segment Adjusted EBITDA decreased 12.1% (12.2% in constant currency) including a 3.4% decrease in pro rata share of unconsolidated hospitality ventures Adjusted EBITDA. The decrease in segment Adjusted EBITDA was driven by transaction activity in 2017 and 2018. Refer to the table on page 17 of the schedules for a detailed list of portfolio changes and the year-over-year net impact to total owned and leased hotels segment Adjusted EBITDA.
Owned and leased hotels segment revenues decreased 15.8% (16.4% in constant currency). RevPAR for comparable owned and leased hotels increased 4.1%. Occupancy increased 100 basis points and ADR increased 2.8%.
Corporate and Other
Corporate and other Adjusted EBITDA increased 7.4% (consistent in constant currency).
Corporate and other revenues increased 21.0% (consistent in constant currency), primarily driven by the acquisition of Exhale Enterprises, Inc. ("exhale") in August 2017.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses decreased 8.0%, inclusive of rabbi trust impact and stock- based compensation. Adjusted selling, general, and administrative expenses decreased 5.9%, primarily due to marketing initiatives completed during 2017. Refer to the table on page 10 of the schedules for a reconciliation of selling, general, and administrative expenses to Adjusted selling, general, and administrative expenses.
OPENINGS AND FUTURE EXPANSION
Seventeen hotels (or 4,686 rooms) were added in the second quarter of 2018. The Company's net rooms increased 7.4%, compared to the second quarter of 2017. The Company is on pace to add approximately 60 hotels in the 2018 fiscal year.
As of June 30, 2018, the Company had executed management or franchise contracts for approximately 340 hotels, or approximately 73,000 rooms, consistent with expectations at the end of the first quarter. This represents development pipeline growth of approximately 10%, compared to the second quarter of 2017.
SHARE REPURCHASE / DIVIDEND
During the second quarter of 2018, the Company repurchased a total of 6,505,807 shares for approximately $513 million, consisting of 4,078,807 shares of Class A common stock and 2,427,000 shares of Class B common stock. The Company ended the second quarter with 43,489,266 Class A and 68,069,643 Class B shares issued and outstanding. Year to date through June 30, 2018, the Company repurchased approximately $588 million of common stock, excluding $20 million in the first quarter of 2018 related to the settlement of the November 2017 accelerated share repurchase plan.
From July 1 through July 27, 2018, the Company repurchased 237,408 shares of Class A common stock for an aggregate purchase price of approximately $19 million. As of July 27, 2018, the Company had approximately $257 million remaining under its share repurchase authorization.
The Company's board of directors has declared a cash dividend of $0.15 per share for the third quarter of 2018. The dividend is payable on September 20, 2018 to Class A and Class B stockholders of record as of September 6, 2018.
CAPITAL STRATEGY UPDATE
There were no material transactions in the second quarter of 2018. However, subsequent to the end of the quarter, the Company completed the following transaction:
- On July 19, 2018, the Company acquired the 693-room Hyatt Regency Phoenix, Arizona for approximately $140 million. Hyatt previously operated the hotel under a management agreement due to expire in December 2020. The acquisition was part of the Company's ongoing asset recycling program.
The Company remains on track to successfully execute plans to sell approximately $1.5 billion of real estate by the end of 2020 as part of its capital strategy. To date, the Company has sold approximately $1.1 billion of real estate under the program.
BALANCE SHEET / OTHER ITEMS
As of June 30, 2018, the Company reported the following:
- Total debt of $1,440 million.
- Pro rata share of unconsolidated hospitality venture debt of approximately $560 million, substantially all of which is non-recourse to Hyatt and a portion of which Hyatt guarantees pursuant to separate agreements.
- Cash and cash equivalents, including investments in highly-rated money market funds and similar investments, of $628 million, short-term restricted cash of $254 million and short-term investments of $154 million.
- Undrawn borrowing availability of $1.5 billion under Hyatt's revolving credit facility.
The Company is revising the following information for the 2018 fiscal year:
- Net income is expected to be approximately $508 million to $550 million, compared to previous expectation of $495 million to $553 million.
- Adjusted EBITDA is expected to be approximately $775 million to $785 million, compared to previous expectation of approximately $765 million to $785 million. These estimates include a favorable impact from foreign currency of approximately $0 to $5 million, compared to previous expectation of $5 million to $10 million. Refer to the table on page 3 of the schedules for a reconciliation of Net Income Forecast to Adjusted EBITDA Forecast.
- Comparable system-wide RevPAR is expected to increase approximately 3.0% to 4.0% compared to previous expectation of 2.0% to 3.5%.
- The Company expects to return approximately $800 million to shareholders, compared to a previous expectation of at least $700 million, through a combination of share repurchases and cash dividends on its common stock.
The Company is reaffirming the following information for the 2018 fiscal year:
- Adjusted selling, general, and administrative expenses are expected to be approximately $300 million, consistent with previous guidance. This excludes approximately $32 million of stock-based compensation expense, which reflects a $2 million to $3 million decrease from the Company's previous expectation, and any potential expenses related to benefit programs funded through rabbi trusts.
- Depreciation and amortization expense is expected to be approximately $320 million to $324 million.
- Interest expense is expected to be approximately $76 million.
- Other income (loss), net is expected to be negatively impacted by approximately $65 million to $75 million related to performance guarantee expense for the four managed hotels in France.
- The effective tax rate is expected to be approximately 27% to 29%.
- The Company expects to grow net rooms by approximately 6.5% to 7.0%. The number of hotel openings remains at approximately 60.
- Capital expenditures are expected to be approximately $375 million.
No additional disposition or acquisition activity beyond what has been completed as of the date of this release has been included in the outlook. The Company's outlook is based on a number of assumptions that are subject to change and many of which are outside the control of the Company. If actual results vary from these assumptions, the Company's expectations may change. There can be no assurance that Hyatt will achieve these results.
About Hyatt Hotels Corporation
Hyatt Hotels Corporation, headquartered in Chicago, is a leading global hospitality company with a portfolio of 14 premier brands. As of June 30, 2018, the Company's portfolio included more than 750 properties in more than 55 countries across six continents.
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