If the second quarter of 2017 wasn’t everything Hyatt hoped it would be, the first half of the year was certainly a positive one. The peak Easter travel season fell during the first quarter of the year, costing the company some valuable numbers in Q2—but Hyatt’s numbers for the second quarter were strong and its growth looks promising. Six months after acquiring the wellness-focused Miraval brand and with a keen focus on attracting a "high-end" demographic, the company has plenty to be pleased about.
Compared to the second quarter of 2016, Hyatt reported some solid increases for the same period in 2017. Net income increased 30.5 percent to $87 million, while comparable systemwide RevPAR increased 2.9 percent. In the U.S., RevPAR increased 1.4 percent while full-service and select-service hotel RevPAR increased 1.3 percent and 1.5 percent, respectively.
Adding (and Recycling)
Net hotel and net rooms growth was 10 percent and 7 percent, respectively. A full 22 hotels with 3,366 rooms were added in the second quarter of 2017 for a net rooms increase of 7 percent compared to the second quarter of 2016. Fourteen hotels were added to the portfolio across the Americas during the quarter (all, it should be noted, under the Hyatt House and Hyatt Place brands), while six were added in the Asia-Pacific region (five of these were Hyatt House or Hyatt Place properties). The Hyatt Regency Amsterdam and the Hyatt Place Rameswaram in India also joined the portfolio.
“We’ve been expanding share in Hyatt House and Hyatt Place for 20 months,” Mark Hoplamazian, president and CEO of Hyatt Hotels Corporation, said, calling the brands’ growth “significant.”
“We were aggressive through the use of capital to expand those brands,” Hoplamazian said during a call with analysts. “We did that to penetrate the urban markets...The use of capital in getting into new markets and expanding the brand does matter to long-term performance, momentum and developer and owner confidence. We are very happy with our core operating performance, but in some measure, it’s because of how we’ve been able to grow brands—in part because of how we grow capital.”
In order to get enough capital to expand these brands, the company was looking to “asset recycling,” and sold off some large hotels during the quarter. The 815-guestroom Hyatt Regency Grand Cypress went for $202 million, while the 393-guestroom Hyatt Regency Louisville was sold for $65 million. The hotels will keep their brands, with Hyatt Regency Grand Cypress operating under a long-term management agreement and Hyatt Regency Louisville operating under a long-term franchise agreement. Four other hotels are scheduled to sell by the end of the year, two of which subject to regulatory approvals. Hoplamazian predicted that the properties will bring in $220 million in sales proceeds.
“We’re looking at key gateway cities,” Hoplamazian said of the company's expansion plans. “We’re looking at opportunities on the group/convention side and resorts. In every one of these cases, we are dedicated to self-funding all of it. We are not looking to expand our portfolio by investments. If we find something meaningful, we will be aggressive in pursuing it.”
Distribution Channels
As the love-hate relationship with OTAs continues, Hyatt is not turning away from any opportunity to bring in bookings. For example, Hoplamazian said, the company extended the My Hyatt rate to new markets, optimized its website and added new features to the app. “We recognize the value OTAs play in keeping the company top-of-mind for other travelers,” he said.
To that end, Hyatt recently agreed to build an existing relationship with Booking.com to increase flexibility while driving demand. The company is also in discussions with Expedia and has discussed “enhancing” that partnership. “We value our partnerships and remain focused on…optimizing outcomes for hotel owners,” Hoplamazian said.
High-End Emphasis
With the growth of Airbnb and unique accommodations, Hyatt’s growth should not be limited to “the traditional space,” Hoplamazian said. “We’re on a mission to satisfy high-end needs,” he analysts during the call. “We can do so by extending brand beyond traditional hotels.” Miraval has “exceeded expectations” for Hyatt, he said, and the company is on track with expansion plans for the wellness-focused brand.
“Another space is private accommodations,” he said, “That’s a good fit with our brand position.” Last week, Hyatt invested in the Oasis Collection to improve the company’s familiarity with the segment. “It’s still in the early stage, but the category has potential to add meaningfully to Hyatt’s growth over time,” he said.
Updating the Forecast
As of June 30, the Company had executed management or franchise contracts for approximately 300 hotels (or approximately 66,000 rooms), compared to the expectation for 305 hotels and 66,000 rooms (unchanged) as of March 31, 2017, largely focused on markets where Hyatt is either underrepresented or does not have a presence at all. The company is on pace to add approximately 60 hotels in the 2017 fiscal year alone. "We will not be growing on owned side, but on the franchised and managed side," Hoplamazian said.
Hyatt also adjusted some earlier predictions for the rest of 2017. Comparable systemwide RevPAR is expected to increase approximately 1 percent to 3 percent over 2016 (its previous expectation was 0 percent to 2 percent) while net income is expected to be approximately $173 million to $201 million, compared to the previous expectation of $123 million to $159 million.