Hyatt Hotels Corporation NYSE: H) yesterday reported third-quarter 2018 financial results. Net income attributable to Hyatt was $237 million, or $2.09 per diluted share, in the third quarter of 2018, compared to $18 million, or $0.14 per diluted share, in the third quarter of 2017. Adjusted net income attributable to Hyatt was $37 million, or $0.33 per diluted share, in the third quarter of 2018, compared to $29 million, or $0.24 per diluted share, in the third 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 September 30, 2018.
Mark S. Hoplamazian, president and chief executive officer of Hyatt Hotels Corporation, said, "We reported another quarter of solid growth, led by a 9% increase in management and franchise fees and 5% RevPAR growth at our owned and leased hotels, both on a constant-currency basis. Our outlook for the remainder of 2018 remains positive, including comparable system-wide RevPAR growth of 3.5% at the mid-point of our full-year guidance range."
Third quarter of 2018 financial highlights as compared to the third quarter of 2017 are as follows:
- Net income increased to $237 million, aided by gains on sales of real estate.
- Adjusted EBITDA decreased 0.9% to $175 million, an increase of 0.1% in constant currency.
- Comparable system-wide RevPAR increased 2.8%, including an increase of 5.3% at comparable owned and leased hotels.
- Comparable U.S. hotel RevPAR increased 1.4%; full service hotel RevPAR increased 2.5% and select service hotel RevPAR decreased 1.1%.
- Net rooms growth was 7.6%.
- Comparable owned and leased hotel operating margin increased 70 basis points to 21.8%.
- Adjusted EBITDA margin of 29.7% increased 240 basis points in constant currency.
Mr. Hoplamazian continued, "We are continuing to execute our long-term growth strategy while returning meaningful capital to shareholders, enabled in part by our sell-down of real estate. Earlier this month, we announced plans to acquire Two Roads Hospitality, a high-end lifestyle hotel management company which we expect will expand the growth of our management and franchising business. We also increased our shareholder capital return expectations for 2018 to approximately $1.0 billion inclusive of share repurchases and dividends, and have a new $750 million share repurchase authorization."
Third quarter of 2018 financial results as compared to the third quarter of 2017 are as follows:
Management, Franchise and Other Fees
Management, franchise and other fees increased 7.6% (8.7% in constant currency) to $133 million, driven by new hotels added to the system, hotel conversions from owned to managed, and strong operating performance at existing hotels. Base management fees increased 8.8% to $55 million and incentive management fees increased 6.4% to $33 million. Franchise fees increased 7.8% to $33 million. Other fees increased 4.5% to $12 million.
Americas Management and Franchising Segment
Americas management and franchising segment Adjusted EBITDA increased 1.0% (1.5% in constant currency). RevPAR for comparable Americas full service hotels increased 3.0%, occupancy decreased 20 basis points, and ADR increased 3.2%. RevPAR for comparable Americas select service hotels decreased (0.7)%, occupancy decreased 180 basis points, and ADR increased 1.5%. Revenue from management, franchise, and other fees increased 0.4% (0.8% in constant currency).
Transient rooms revenue at comparable U.S. full service hotels decreased 0.1%, room nights decreased 4.6%, and ADR increased 4.8%. Group rooms revenue at comparable U.S. full service hotels increased 4.9%, room nights increased 3.5%, and ADR increased 1.3%.
Americas net rooms increased 6.2% compared to the third 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 15.9% (18.4% in constant currency). RevPAR for comparable ASPAC full service hotels increased 2.5%, driven by increased occupancy across the region which was partially offset by certain natural disasters affecting Southeast Asia and Japan, and renovation activity. Occupancy increased 150 basis points and ADR increased 0.6%. Revenue from management, franchise, and other fees increased 11.4% (13.2% in constant currency).
ASPAC net rooms increased 12.1% compared to the third 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 16.0% (21.2% in constant currency). RevPAR for comparable EAME/SW Asia full service hotels increased 11.0%, driven primarily by strong growth in Russia, Western Europe, and Turkey. Occupancy increased 360 basis points and ADR increased 5.0%. Revenue from management, franchise, and other fees increased 17.0% (21.1% in constant currency).
EAME/SW Asia net rooms increased 9.0% compared to the third quarter of 2017.
Owned and Leased Hotels Segment
Total owned and leased hotels segment Adjusted EBITDA decreased 12.5% (12.0% in constant currency), including a 3.8% (0.6% in constant currency) 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 18 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 13.3% (12.9% in constant currency), reflecting the transaction activity referenced above. RevPAR for comparable owned and leased hotels increased 5.3%, reflecting mid single-digit RevPAR growth at U.S. hotels and high single-digit RevPAR growth at international hotels. Occupancy increased 190 basis points and ADR increased 2.8%.
Corporate and Other
Corporate and other Adjusted EBITDA increased 14.6% (14.5% in constant currency).
Corporate and other revenues increased 7.7% (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 7.7%, inclusive of rabbi trust impact and stock- based compensation. Adjusted selling, general, and administrative expenses decreased 7.6%, primarily due to non-recurring marketing spending and severance costs incurred in 2017. Refer to the table on page 11 of the schedules for a reconciliation of selling, general, and administrative expenses to Adjusted selling, general, and administrative expenses.
OPENINGS AND FUTURE EXPANSION
Twelve hotels (or 2,608 rooms) were opened in the third quarter of 2018. The Company's net rooms increased 7.6%, compared to the third quarter of 2017. The Company is on pace to open approximately 60 hotels in the 2018 fiscal year.
As of September 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 second quarter. This represents development pipeline growth of approximately 6%, compared to the third quarter of 2017.
ACQUISITION OF TWO ROADS HOSPITALITY LLC
On October 8, 2018, Hyatt announced an agreement to acquire Two Roads Hospitality LLC ("Two Roads"), a rapidly growing hotel management company for a base purchase price of approximately $480 million. Through the addition of Two Roads, Hyatt will expand its presence in 23 new markets and offer an expanded portfolio of high-quality lifestyle brands including Destination Hotels, Joie de Vivre, Thompson Hotels, Alila, and tommie, further supporting the Company's evolution to a more fee-based enterprise. The Company expects to assume the management agreements for the majority of Two Roads' 85 properties, equivalent to approximately 14,000 rooms. The acquisition is expected to close in November 2018, with the potential for Hyatt to invest up to an additional $120 million in the aggregate, contingent upon certain terms to be defined after closing.
SHARE REPURCHASE / DIVIDEND
During the third quarter of 2018, the Company repurchased a total of 844,218 Class A shares for approximately $66 million. The Company ended the third quarter with 43,625,629 Class A and 67,119,482 Class B shares issued and outstanding. Year to date through September 30, 2018, the Company repurchased approximately $674 million of common stock, including $20 million in the first quarter of 2018 related to the settlement of the November 2017 accelerated share repurchase plan.
From October 1 through October 26, 2018, the Company repurchased 872,695 shares of Class A common stock for an aggregate purchase price of approximately $63 million. As of October 26, 2018, the Company had approximately $147 million remaining under its share repurchase authorization.
Consistent with the Company's ongoing commitment to return meaningful capital to stockholders while continuing to invest in growth opportunities, the Company's board of directors has approved a new $750 million share repurchase authorization, and declared a cash dividend of $0.15 per share for the fourth quarter of 2018. The dividend is payable on December 10, 2018, to Class A and Class B stockholders of record as of November 28, 2018.
CAPITAL STRATEGY UPDATE
In the Company's second quarter 2018 earnings release dated July 31, 2018, the Company reported:
- On July 19, 2018, the Company acquired the 693-room Hyatt Regency Phoenix for approximately $140 million. The Company previously operated the hotel under a management agreement.
In an 8-K filing dated October 1, 2018, the Company announced the following transactions:
- On August 29, 2018, the Company acquired the 530-room Hyatt Regency Indian Wells from an unrelated third party for approximately $120 million. The Company previously operated the hotel under a management agreement.
- On September 28, 2018, the Company sold shares of the entity that owned the 755-room Hyatt Regency Mexico City for approximately $405 million, inclusive of an investment in an unconsolidated hospitality venture and an adjacent land parcel valued at approximately $40 million. The land parcel will be developed by the new owner as Park Hyatt Mexico City. Both properties are subject to long-term management agreements.
All three transactions formed 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 $1.14 billion of real estate under the program including $40 million of cash proceeds associated with the land parcel upon which Park Hyatt Mexico City will be built.
BALANCE SHEET / OTHER ITEMS
As of September 30, 2018, the Company reported the following:
- Total debt of $1,633 million.
- Pro rata share of unconsolidated hospitality venture debt of approximately $554 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 $1,014 million, restricted cash of $23 million and short-term investments of $217 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 $726 million to $771 million, compared to previous expectation of $680 million to $729 million.
- Comparable system-wide RevPAR is expected to increase approximately 3.25% to 3.75% compared to previous expectation of 3.0% to 4.0%. The mid-point of the range remains unchanged.
- Depreciation and amortization expense is expected to be approximately $319 million to $323 million, compared to previous expectation of approximately $323 million to $327 million.
- Other income (loss), net is expected to be negatively impacted by approximately $60 million to $65 million related to performance guarantee expense for the four managed hotels in France. This compares to previous expectation of approximately $65 million to $75 million.
- The effective tax rate is expected to be approximately 21% to 23% compared to previous expectation of approximately 23% to 25%, largely due to the tax impact of the Hyatt Regency Mexico City transaction referenced above.
- Capital expenditures are expected to be approximately $325 million, compared to previous expectation of approximately $375 million, as certain hotel development-related spending has been deferred to 2019.
- The Company expects to return approximately $1.0 billion to shareholders, compared to previous expectation of approximately $800 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 EBITDA is expected to be approximately $765 million to $775 million.
- Interest expense is expected to be approximately $76 million to $77 million.
- Adjusted selling, general, and administrative expenses are expected to be approximately $300 million, consistent with previous guidance. This excludes approximately $30 million of stock-based compensation expense, which reflects a change compared to previous expectation of approximately $32 million and any potential expenses related to benefit programs funded through rabbi trusts.
- The Company expects to grow net rooms by approximately 6.5% to 7.0%. The number of hotel openings remains at approximately 60.
No additional disposition or acquisition activity beyond what has been completed as of the date of this release has been included in the outlook. Therefore, the outlook does not include the acquisition of Two Roads Hospitality LLC, which is expected to close in November 2018. 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 September 30, 2018, the Company's portfolio included more than 750 properties in more than 55 countries across six continents.
Logos, product and company names mentioned are the property of their respective owners.