Hyatt Hotels Corp. has reported its Q2 financial results, which President/CEO Mark Hoplamazian described as "solid."
"Strong transient demand drove 1.3 percent systemwide [revenue per available room] growth, and fees and net rooms grew at a double-digit pace inclusive of the Two Roads Hospitality LLC acquisition," said Hoplamazian. "We expect the key drivers of growth across our lodging business to continue to drive results within the context of our reduced RevPAR guidance. Separately, we are reducing expectations for full-year adjusted EBITDA to primarily reflect construction-related issues in our Miraval business, as well as increased transaction adjustments and foreign currency headwinds."
Hyatt specifically cited strong transient demand as a key driver in its RevPAR growth, helping offset weak results in the group segment. In its management and franchising segment, transient rooms revenue at comparable full-service hotels in the United States increased 3.9 percent as room nights rose 3.9 percent and average daily rate dipped 0.1 percent. Comparatively, group rooms revenue at its managed and franchised full-service hotels decreased 2.9 percent as room nights dropped 3.7 percent and ADR increased 0.9 percent.
In a call with investors, Hoplamazian highlighted the performance of the World of Hyatt loyalty program. “We believe engagement of World of Hyatt members fueled our transient demand and contributed to our market-share gains during the second quarter,” said Hoplamazian. While he added the company’s partnerships with Small Luxury Hotels of the World, American Airlines and Lindblad Expeditions have played a part in driving people to sign up, he said the majority of enrollments occurred on-property, or digitally through Hyatt’s website or app. Overall, enrollments in World of Hyatt were up 37 percent over Q2 2018.
By the Numbers
Net income attributable to Hyatt was $86 million in Q2, compared to $77 million in the year-ago period, an increase of 10.6 percent. Adjusted net income attributable to Hyatt in Q2 was $82 million compared to $84 million in Q2 2018. Total management, franchise and other fees increased 10.5 percent to $158 million during the quarter. this year.
RevPAR for comparable Americas full-service hotels increased 2.5 percent, while occupancy increased 80 basis points and ADR increased 1.5 percent.
Notably, RevPAR was driven by strength in certain resort locations outside the U.S. RevPAR for comparable Americas select-service hotels decreased 2.4 percent, occupancy decreased 80 basis points and ADR decreased 1.4 percent. Total Americas management and franchising adjusted revenues increased 26 percent, including revenue from the residential management operations acquired as part of Two Roads.
For the Southeast Asia, Greater China, Australia, South Korea, Japan and Micronesia (ASPAC) management and franchising segment, RevPAR for comparable full service hotels increased 1.2 percent, driven by strong results in Southeast Asia and Japan and partially offset by weaker results in Greater China, where full-service RevPAR dipped 2.8 percent. Occupancy increased 110 basis points and ADR decreased 0.4 percent. Revenue from management, franchise and other fees increased 8.9 percent.
In Greater China specifically, which represents about 10 percent of Hyatt's guestrooms, Hyatt CFO Joan Bottarini said the decrease was “entirely driven by certain hotels in Hong Kong and Macau.” Hoplamazian attributed this decline in part to the ongoing anti-extradition bill . protests in Hong Kong. The company expects a difficult third quarter in Greater China, with some recovery in the fourth quarter. Hoplamazian said the company’s positive Q4 RevPAR forecast “assumes economic conditions improve, in part, as a result of economic stimulus that was initiated at the beginning of this year and that we see a reduction in the disruptions caused by demonstrations in Hong Kong.” He added conditions could further improve if a trade deal between the U.S. and China is put into place during the second half of the year.
In the Europe, Africa, Middle East and Southwest Asia (EAME/SW Asia) management and franchising segment, RevPAR for comparable full-service hotels increased 3.7 percent, driven primarily by strong growth in Western Europe and Southwest Asia, offset partially by weaker performance in the Middle East as well as Russia, which hosted the FIFA World Cup in 2018. Occupancy increased 310 basis points and ADR decreased 1 percent. Revenue from management, franchise and other fees decreased 1.5 percent (2 percent increase in constant currency), driven by lower incentive fees due to lacking the FIFA World Cup along with weaker conditions in the Middle East.
Unit Growth
Twenty-two hotels (with 3,909 rooms) opened in Q2, contributing to a 12.6 percent increase in net rooms compared to Q2 2018. Excluding the impact of the Two Roads acquisition, net rooms increased 6.9 percent compared to the year-ago period.
Americas net rooms increased 11.2 percent compared to Q2 2018, or 4.4 percent excluding Two Roads.
ASPAC net rooms increased 17.4 percent compared to last year's comparable quarter, or 12.5 percent excluding Two Roads. EAME/SW Asia net rooms increased 13.7 percent compared to Q2 2018, or 12.5 percent excluding Two Roads.
Hoplamazian reiterated the company's portfolio grew "at a solid pace" in the quarter, adding, "Developer demand for our brands remains strong, with our base of executed contracts for future openings increasing by 1,000 rooms in the quarter net of opening of nearly 4,000 rooms," As of June 30, the company had executed management or franchise contracts for approximately 460 hotels, or approximately 92,000 rooms. This compares to approximately 455 hotels, or approximately 91,000 rooms as of March 31.
Based on this development activity and an increase in conversions of hotels to Hyatt brands, the company now expects to open approximately 85 hotels in the 2019 fiscal year for net rooms growth of 7.25 percent to 7.75 percent. This is an increase from the prior expectation of approximately 80 hotels, or net rooms growth of 7 percent to 7.5 percent.
Looking Ahead
For the remainder of 2019, comparable systemwide RevPAR is expected to increase approximately 1 percent to 2 percent compared to fiscal year 2018. This compares to a prior range of approximately 1 percent to 3 percent. Net income is expected to be approximately $231 million to $275 million. This compares to a prior range of approximately $144 million to $183 million.
According to the company, adjusted EBITDA is expected to be approximately $755 million to $775 million, compared to prior expectations of approximately $780 million to $800 million, reflecting a $25 million reduction at the mid-point. These revised estimates are primarily driven by two factors, according to Hyatt. Construction-related issues at Miraval properties in Austin, Texas and Lenox, Mass., are affecting operations at both properties. On a combined basis, these two properties are expected to account for nearly two-thirds of the $25 million reduction at the mid-point of the range of adjusted EBITDA guidance. At the same time, the impact of two recent transactions, including the sale of Hyatt's interest in a joint venture that holds a hotel in San Francisco and the sale of a retail property adjacent to Grand Hyatt San Francisco. On a combined basis, these transactions are expected to impact 2019 adjusted EBITDA by approximately $5 million, the company reported.
In an email to investors, Michael Bellisario, a senior research analyst at RW Baird, noted the reduced 2019 outlook was "likely" to weigh on near-term sentiment. "We expect investors' focus to be on the slight 2Q19 adjusted EBITDA miss versus consensus expectations (and a larger miss versus our model with the difference being weaker-than-forecasted owned/leased earnings) and all of the moving pieces in the company's reduced full-year adjusted EBITDA guidance," he wrote. "However, our view of 2Q19 results and operating performance is not as negative as the miss versus our adjusted EBITDA estimate might suggest."
The company's RevPAR growth nearly matched expectations, he added.