Hyatt Hotels Corporation (NYSE: H) today reported third quarter 2017 financial results. Net income attributable to Hyatt was $16 million, or $0.13 per diluted share, in the third quarter of 2017, compared to $62 million, or $0.47 per diluted share, in the third quarter of 2016. Adjusted net income attributable to Hyatt was $32 million, or $0.26 per diluted share, in the third quarter of 2017, compared to $61 million, or $0.47 per diluted share, in the third quarter of 2016. 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, 2017.
Mark S. Hoplamazian, president and chief executive officer of Hyatt Hotels Corporation, said, "Our third quarter results reflect continued, upward momentum in our business, with solid systemwide RevPAR growth, a double-digit percentage increase in our fee revenue and an expansion of our development pipeline. We continue to have sustained growth in our base of hotel rooms and remain on track for a record number of hotel openings in 2017. Given these results, we have increased the midpoint of our full-year outlook for RevPAR and Adjusted EBITDA."
Third quarter of 2017 financial highlights as compared to the third quarter of 2016 are as follows:
- Net income decreased 73.4% to $16 million.
- Adjusted EBITDA decreased 6.2% to $180 million, down 6.7% in constant currency.
- Comparable systemwide RevPAR increased 1.6%, including a decrease of 1.1% at comparable owned and leased hotels. Excluding the impacts of Jewish holiday timing and natural disasters, comparable systemwide RevPAR increased 2.6% and comparable owned and leased RevPAR increased 0.5%.
- Comparable U.S. hotel RevPAR decreased 0.1%; full service and select service hotel RevPAR decreased 0.7% and increased 1.4%, respectively. Excluding the impacts of Jewish holiday timing and natural disasters, comparable U.S. hotel RevPAR increased 1.3%; full service and select service hotel RevPAR increased 1.2% and 1.7%, respectively.
- Comparable owned and leased hotels operating margins decreased 40 basis points to 23.0%.
- Adjusted EBITDA margin decreased 260 basis points to 27.5%, in constant currency.
- Net hotel and net rooms growth was 9.0% and 6.5%, respectively.
Mr. Hoplamazian continued, "With the recent sale of two hotels and the completion of nearly $250 million of share repurchases in the third quarter, we are fulfilling our commitment to be a net seller of assets in 2017 and return substantial capital to shareholders. Looking ahead, we plan to extend this strategy to sell roughly $1.5 billion of real estate over the next three years, which we are confident will unlock additional shareholder value and drive the growth of our business."
Third quarter of 2017 financial results as compared to the third quarter of 2016 are as follows:
Owned and Leased Hotels Segment
Total owned and leased hotels segment Adjusted EBITDA decreased 13.8% (14.3% in constant currency) including a 38.0% decrease in pro rata share of unconsolidated hospitality ventures Adjusted EBITDA. The decrease in total segment Adjusted EBITDA was driven by the lapping of the 2016 Olympic Games, transaction activity, natural disasters, and the shift in the timing of certain Jewish holidays to the third quarter in 2017, from the fourth quarter in 2016. 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 2.7% (3.2% in constant currency). RevPAR for comparable owned and leased hotels decreased 1.1%. Occupancy decreased 160 basis points and ADR increased 1.0%.
Management and Franchise Fees
Total fee revenue increased 12.2% (11.9% in constant currency) to $122 million, driven by new hotels and improved performance at existing hotels. Base management fees increased 5.4% to $51 million and incentive management fees increased 21.4% to $30 million. Franchise fees increased 11.9% to $30 million. Other fee revenues increased 23.4% to $11 million.
Americas Management and Franchising Segment
Americas management and franchising segment Adjusted EBITDA increased 6.8% (6.5% in constant currency). RevPAR for comparable Americas full service hotels decreased 0.3%; occupancy decreased 30 basis points and ADR increased 0.2%. RevPAR for comparable Americas select service hotels increased 1.7%; occupancy increased 110 basis points and ADR increased 0.4%. Revenue from management, franchise and other fees increased 5.9% (5.7% in constant currency).
Transient rooms revenue at comparable U.S. full service hotels increased 1.5%; room nights increased 2.9% and ADR decreased 1.3%. Group rooms revenue at comparable U.S. full service hotels decreased 6.6%; room nights decreased 8.0% and ADR increased 1.5%. Group demand was negatively impacted by Jewish holiday timing and natural disasters.
The following seven hotels were added to the portfolio in the third quarter:
- Carlton Hotel Newport Beach, a Hyatt Affiliated Hotel (franchised, 343 rooms). Hyatt expects this hotel to be rebranded as a Hyatt Regency.
- Hyatt Regency Lake Washington at Seattle’s Southport (managed, 347 rooms)
- Hyatt Centric Guatemala City, Guatemala (franchised, 138 rooms)
- Hyatt Place Eugene / Oakway Center (franchised, 130 rooms)
- Hyatt Place Santa Cruz (franchised, 106 rooms)
- Hyatt Place St. Petersburg / Downtown (franchised, 175 rooms)
- Hyatt House Chicago / Oak Brook (franchised, 144 rooms)
One hotel was removed from the portfolio in the third quarter.
Southeast Asia, Greater China, Australia, South Korea, Japan and Micronesia (ASPAC) Management and Franchising Segment
ASPAC management and franchising segment Adjusted EBITDA increased 19.9% (21.2% in constant currency). RevPAR for comparable ASPAC full service hotels increased 6.3%, driven by strong RevPAR growth in Greater China. Occupancy increased 430 basis points and ADR increased 0.2%. Revenue from management, franchise and other fees increased 17.8% (18.8% in constant currency).
The following hotel was added to the portfolio in the third quarter:
- Grand Hyatt Changsha, China (managed, 345 rooms)
Europe, Africa, Middle East and Southwest Asia (EAME/SW Asia) Management and Franchising Segment
EAME/SW Asia management and franchising segment Adjusted EBITDA increased 41.3% (36.1% in constant currency). RevPAR for comparable EAME/SW Asia full service hotels increased 3.5%, driven by improved performance in Western Europe and Turkey. Occupancy increased 160 basis points and ADR increased 0.9%. Revenue from management, franchise and other fees increased 18.6% (15.6% in constant currency).
The following hotel was added to the portfolio in the third quarter:
- Hyatt Regency Lucknow, India (managed, 206 rooms)
Corporate and Other
Corporate and other Adjusted EBITDA decreased 25.9% (consistent in constant currency), primarily driven by increased selling, general, and administrative expenses.
Corporate and other revenues increased 175.6% (consistent in constant currency), primarily driven by wellness business acquisitions (Miraval and Exhale Enterprises, Inc. ("exhale")) and increased revenues related to the Company's co-branded credit card program.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses increased 20.2%, inclusive of rabbi trust impact and stock- based compensation. Adjusted selling, general, and administrative expenses increased 19.5%, primarily driven by payroll and related expenses, master brand marketing spend in support of the launch of the World of Hyatt platform, and additional expenses related to the acquisitions of Miraval and exhale. 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
Nine hotels (or 1,934 rooms) were added in the third quarter of 2017, each of which is listed above. The Company's net rooms increased 6.5%, compared to the third quarter of 2016. The Company is on pace to add at least 60 hotels in the 2017 fiscal year.
As of September 30, 2017, the Company had executed management or franchise contracts for approximately 315 hotels (or approximately 69,000 rooms), compared to the expectation for 300 hotels and 66,000 rooms as of June 30, 2017. The executed contracts represent important potential entry into several new countries and expansion into new markets or markets in which Hyatt is under-represented.
During the third quarter of 2017, the Company repurchased 4,012,093 shares of common stock for an aggregate purchase price of approximately $247 million. Repurchase activity included 1,813,459 Class B shares at $59.29 per share, 1,401,787 Class A shares at $57.07 per share, and 796,847 Class A shares which settled as the final tranche of the March 2017 accelerated share repurchase (ASR). Under the March 2017 ASR, the Company repurchased a total of 5,393,669 shares at a weighted average share price of $55.62. The Company ended the third quarter with 47,426,878 Class A and 74,123,330 Class B shares outstanding.
No additional share repurchases have been made to date in the fourth quarter of 2017. As of October 27, 2017, Hyatt had approximately $302 million remaining under its share repurchase authorization.
CORPORATE FINANCE / ASSET RECYCLING
During the third quarter, the Company completed the following transactions:
- Made a minority investment in Oasis Luxury Rentals, Inc., a private accommodations company, and acquired exhale, which provides spa services and high-quality fitness classes. Neither of these transactions was material to the Company.
Subsequent to the end of the third quarter, the Company completed the following portfolio transaction:
- Sold Royal Palms Resort and Spa in Phoenix, Arizona (119 rooms) and Hyatt Regency Scottsdale Resort & Spa at Gainey Ranch (493 rooms) for approximately $305 million. The hotels continue to be Hyatt-branded under long-term management agreements.
CAPITAL STRATEGY UPDATE
The Company is announcing plans to sell approximately $1.5 billion of real estate over the next three years. This represents an evolution of Hyatt's capital strategy to unlock additional shareholder value and provide funds for future growth investments, while maintaining balance sheet capacity that will continue to fuel growth. These plans will also accelerate the shift to a more fee-driven business model.
BALANCE SHEET / OTHER ITEMS
As of September 30, 2017, the Company reported the following:
- Total debt of $1.8 billion.
- Pro rata share of unconsolidated hospitality venture debt of $571 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 $383 million, restricted cash of $224 million and short-term investments of $56 million.
- Undrawn borrowing availability of $1.2 billion under Hyatt's revolving credit facility.
The Company is reaffirming the following information for the 2017 fiscal year:
- Adjusted selling, general, and administrative expenses are expected to be approximately $310 million. This excludes approximately $31 million of stock-based compensation expense and any potential expenses related to benefit programs funded through rabbi trusts.
- Other income (loss), net is expected to be negatively impacted by approximately $80 million related to performance guarantee expense for the four managed hotels in France.
- Interest expense is expected to be approximately $80 million.
- The effective tax rate is expected to be approximately 36% to 38%.
The Company is revising the following information for the 2017 fiscal year:
- Comparable systemwide RevPAR is expected to increase approximately 2.5% to 3%, compared to fiscal year 2016. The Company's previous expectation was 1% to 3%.
- Net income is expected to be approximately $193 million to $210 million, compared to the previous expectation of $173 million to $201 million.
- Adjusted EBITDA is expected to be approximately $805 million to $815 million, compared to the previous expectation of $795 million to $815 million. These estimates reflect an approximate $6 million reduction related to hotel dispositions completed at the beginning of the fourth quarter 2017. These estimates also include a negative impact from foreign currency of approximately $5 million (low end of the forecast) to $0 (high end of the forecast), compared to previous expectation of $10 million to $5 million. Refer to the table on page 3 of the schedules for a reconciliation of Hyatt's forecast for Net Income to Adjusted EBITDA.
- Capital expenditures are expected to be approximately $300 million, compared to the previous expectation of $350 million. The decrease is attributable to a shift in the timing of certain hotel renovations and recent hotel dispositions.
- Depreciation and amortization expense is expected to be approximately $365 million to $369 million, compared to the previous expectation of $362 million to $366 million.
- The Company expects to open at least 60 hotels, compared to the previous expectation of approximately 60 hotels.
Hyatt'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 13 premier brands. As of September 30, 2017 the Company's portfolio included 739 properties in 57 countries.
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