After Q1, Two Roads acquisition, Hyatt eyes what's next

With the addition of five established lifestyle brands—Alila, Destination, Joie de Vivre, Thompson and tommie—Hyatt has expanded its brand presence into 23 new markets.
The Alila Yangshuo joined Hyatt as part of last year's Two Roads Hospitality deal. Photo credit: Hyatt Hotels Corp.

As he opened Hyatt Hotels Corp.'s first-quarter 2019 financial results earnings call, President/CEO Mark Hoplamazian shared a mixed bag of numbers.

Net income attributable to Hyatt was $63 million in Q1 compared to $411 million in Q1 2018, a drop of 84.6 percent, which the company credited to some gains for the sale of assets in the prior-year period. The company's adjusted EBITDA for the quarter was $187 million, reflecting a decrease of 7.3 percent (6.1 percent in constant currency) from the prior-year period and adjusted net income in Q1 was $48 million compared to $40 million in the year-ago period. Systemwide RevPAR increased 1.8 percent, led primarily by increases in average daily rate, with a small increase in occupancy.

The company also reported net rooms growth of 7.3 percent on a year-over-year basis, excluding the Two Roads hotels acquired last year. "This represents the sixth consecutive quarter of year-over-year net rooms' growth of at least 7 percent," Hoplamazian told the investors, adding he expects the pace to continue. "Including the Two Roads hotels, our net rooms' growth was 13.7 percent and the new Two Roads brands significantly expand our future growth potential."

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Two Roads, One Company

Hyatt completed its acquisition of Two Roads Hospitality LLC  for $405 million in December, and since then, said Hoplamazian, the company has been "very deliberate and very comprehensive in how we can provide the full complement of chain services to these hotels." A top priority, he added, is simplifying the chain services model. 

"When I say chain services, what I include there is technology distribution sales and marketing primarily," he told the investors. "Providing better transparency and visibility to what services owners pay for and linking that to results is actually an opportunity for us that we're not going to squander. The reason why we have mapped this out over the course of an entire year, as opposed to doing it faster, is because we want to take the opportunity now to put our sales in a better situation...It's unambiguous in our mind that we're going to be able to drive better margins and better profitability for the hotels." 

Still, he said, Hyatt does expect a net reduction in the overall portfolio. "We came into this transaction with very high visibility into the nature and profile of the ownership groups and also specific property-level dynamics that led us to expect and model attrition," he said. An anticipated reduction of 10 percent to 11 percent in net rooms over the course of the first year is consistent with what Hyatt came into the deal expecting, he added. "The good news is that I think we'll probably do better on the new signings over the course of the year than we might have expected," Hoplamazian added. "All things considered, we're where we expected to be with a positive upside surprise on the revenue side, post-integration of the Thompson Hotels."

Rooms and Pipeline Growth

The company's pipeline of signed deals grew to approximately 91,000 rooms, including Two Roads hotels. an increase of about 25 percent compared to the same time last year. On a sequential basis, Hyatt's pipeline increased by 2,000 rooms, even after opening over 2,000 net rooms during the quarter. The company's pipeline accounts for more than 42 percent of its existing portfolio.

During the call, Hoplamazian said "a significant amount of capital" remains that is dedicated to (or available for) asset sales on a global basis, and interest in the properties that Hyatt is looking to divest has been high. "I don't see any significant difference in, say, the interest that we saw when we sold properties in the first quarter of last year in terms of initial indications of interest and people's interest in spending time, looking at the properties that we're pursuing the sale of," he told investors, noting buyer interest depends on the markets and on the assets being sold.

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