In spite of headwinds, Starwood, Hyatt deliver above-par first quarters

First Quarter

The first quarter is over but Q1 earnings calls are in high gear. Two of the largest hotel companies checked in today: Starwood Hotels & Resorts and Hyatt Hotels Corp.

Following Q1 announcements by Hilton Worldwide and Marriott International, both Starwood and Hyatt had punches of prosperity.

Due to its pending merger with Marriott, Starwood did not hold a call, but did deliver color.

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Starwood Highlights

  • Worldwide systemwide RevPAR increased 1.0 percent compared to the same time last year.
  • Management fees, franchise fees and other income increased 6.7 percent.
  • In Q1, Starwood signed 44 management and franchise contracts, representing some 7,000 rooms. It opened 18 hotels/3,700 rooms.
  • It completed the sale of the Hotel Imperial, a Luxury Collection Hotel, Vienna for $80 million, subject to a long-term management agreement.
  • Overall, Starwood posted a profit of $90 million, down from $99 million a year earlier. Revenue edged down 0.8 percent to $1.4 billion.

Still, according to CEO Thomas Mangas, Q1 was successful—not made any easier by the bidding war between Marriott and Anbang for control of the company. “We had a very strong quarter, despite facing a tough macroeconomic environment and the distraction of a very public bidding war for our company," Mangas said. “We achieved these results by staying focused on execution. Our results speak to the strength of our people, our brands and innovative spirit, the value of SPG and the power of our global systems.”

Once the merger between Marriott and Starwood closes, expected later this year, it will create the world's largest hotel chain with more than 1 million rooms.

On the Hyatt Side

Hyatt, meanwhile, increased its net income in the quarter to $34 million compared to $22 million at the same time last year—an increase of 55 percent. Revenue increased 3.3 percent to $1.09 billion.For owned and leased hotels, RevPar increased 2.4 percent on strength at owned hotels in Mexico City, Orlando and San Francisco.

Unlike Starwood, Hyatt did hold an earnings call with analysts, where Hyatt CEO Mark Hoplamazian credited cost management and robust demand for the company's select-service products as reasons for a successful first quarter.

Net hotel and net rooms growth was 9 percent and 7 percent, respectively. "Developers have confidence in our brands," Hoplamazian said, adding that some 60 news hotels should open in 2016.

Hoplamazian also credited a solid Q1 to solid transient business. In the U.S., transient room revenue at full-service hotels was up 9.8 percent. Hoplamazian said that Hawaii and San Franciso helped lead to growth, while New York was still soft.

However, unlike other hotel companies that have been seeing increased revenue off corporate travel, Hyatt said that revenue from business travel was 3.5 percent for the quarter, but that the timing of Easter was a factor.

Meanwhile, Hoplamazian continued to promote Hyatt's relatively new soft brand, Unbound Collection, which now includes five hotels: The Driskill in Austin, Texas; Hotel du Louvre in Paris; Carmelo Resort in Uruguay; Coco Palms in Kauai, Hawaii; and the newly acquired Thompson Miami Beach, renamed The Confidante.

"It's a collection of stays, focused on the stay and occasion, instead of the actual product," Hoplamazian said.

Globally, France was weak for Hyatt with hotels there suffering double-digit losses in RevPAR due, in part, to the November terrorist attack. "France has been very weak," Hoplamazian said.

Beyond the hit from terrorism, other reason for the dip was due to the renovation of the 950-room Hyatt Regency Etoile 950 rooms, which has had to take rooms out for the renovation, expected to be completed next year.

Real Estate View

While the collective hospitality industry has walked down an asset-light path, Hyatt still has real estate interests, none bigger than the Park Hyatt New York, which opened in late 2014, in a very competitive market. According to Hoplamazian, the company is in no hurry to sell.

"The hotel has done a great job coming into the market and establishing a presence," he said. "Yes, it’s competitive, but we always felt this hotel would be an asset that endures from a value perspective. I’m not anxious at the moment. It's unique and retains value no matter the timing of the cycle."

Pressed on who the sellers are in the overall market, Hoplamazian pointed to individual owners and private capital. "There are a lot of initiatives by developers or owners who aren’t in it long-term," he said. "There is more supply on market driven by those owners. There was a brief peak of activity earlier in the year that was REIT driven. We are now seeing individual private capital."

On the buy side, Hoplamazian said the REITs are still on the sideline. "They are not really active in deals we are pursuing," he said. "There is some private equity, both U.S. and global and high-net-worth and family office.

"There is ongoing demand from the Middle East and China." Here, Hoplamazian made a distinction. "They tend to be more after marquee properties, not necessarily trophy assets. They are concerned with securing yields coming out of high-barrier-to-entry markets."

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