Hyatt zeroes in on $1.5B asset disposition goal

Hyatt sold the Hyatt Regency Scottsdale to Orlando-based REIT Xenia Hotels & Resorts last year. Photo credit: Hyatt Hotels

Hyatt's asset disposition strategy is still in high gear. Last fall, Mark Hoplamazian, president and CEO of Hyatt Hotels Corporation, said that, in order to accelerate a shift toward fee-based earnings, Hyatt would supplement its asset recycling program with a targeted reduction in its owned real estate portfolio. At the time, the sales were expected to generate approximately $1.5 billion in gross cash proceeds by 2020.

They only have $1.2 billion to go. During the fourth quarter of 2017, Hyatt sold the 493-room Hyatt Regency Scottsdale Resort & Spa at Gainey Ranch and the 119-room Royal Palms Resort and Spa in Phoenix, Arizona for approximately $305 million as part of the reduction program.

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The company also sold the 550-room Hyatt Regency Monterey Hotel & Spa on Del Monte Golf Course for approximately $58 million as part of its ongoing asset recycling strategy. All three hotels will continue to be Hyatt-branded, with Hyatt Regency Scottsdale and Royal Palms operating under long-term management agreements and Hyatt Regency Monterey operating under a long-term franchise agreement.

The next tranche of hotels to be offloaded as part of the disposition program include the Andaz Maui at Wailea and Grand Hyatt San Francisco, which are being marketed for sale as part of a three-hotel portfolio. Similar to the Hyatt Regency Monterey sale, the Hyatt Regency Coconut Point will be sold as part of the asset recycling strategy. This property, CFO Pat Grismer said, was originally going to be included in a tranche of four properties, but it was a better value than the other three combined. The value of the three properties combined is greater than $700 million—which would further help the company reach their 2020 goal.

“We expect that the proceeds of the sales, when combined with the proceeds of the sales from the Royal Palms and the Hyatt Regency Scottsdale, will surpass $1 billion in proceeds,” Grismer said, noting that brokers have been working with potential buyers on the portfolio, and that the first round of bids were in line with the company’s expectations. The company is finalizing agreements to sell the assets in the near future, and Grismer expects to close no later than the second quarter of this year.

“We will use the proceeds from these sales for investments and return of capital,” Grismer added, noting that the company is seeking investment opportunities that could include hotel portfolios.

The anticipated benefits of this disposition activity include higher EBITDA growth rate in both the short and medium term, a higher mix of fee-based earnings, lower earnings volatility, lower ongoing capex and increased capacity for growth investments and return of capital to shareholders.

Openings

2017 wasn’t just about offloading assets. Hyatt opened a record 71 hotels during the year, up from 59 in 2016. The company had planned to open some properties in January of this year, but rapid construction brought the openings to 2017’s umbrella instead.

Net hotel and net rooms growth was 9.8 percent and 7.0 percent in 2017, respectively, compared to growth of 9.6 percent and 7.3 percent, respectively, in 2016. Looking ahead, the company expects its net rooms growth for 2018 to be 6.0 percent-6.5 percent (due to those hotels that opened in December instead of January), and Hyatt’s 2019 projection predicts net rooms growth of 7.5 percent. This growth, Hoplamazian said, fell in line with the company’s expansion since 2013. “We’ve had 126 percent compounded growth in our pipeline since our IPO in 2009, and you can see we have had tremendous momentum in signing new contracts for hotels,” he said. “The opportunity to continue to broaden our portfolio remains robust as there are a large number of markets where we have a modest presence. Our development momentum has been a source of strength.”

As of December 31, 2017, the company's pipeline consisted of approximately 330 hotels with approximately 70,000 rooms, compared to approximately 305 hotels with 66,000 rooms as of December 31, 2016.

Looking Back at 2017

For the year, Hyatt’s net income increased 22.3 percent to $249 million. Hyatt’s Q4 net income was $76 million, compared to $41 million in the fourth quarter of 2016. The numbers included a $217-million gain from the sale of Avendra, an equity method investment, and $110 million of incremental tax attributable to recent U.S. tax reform.

"We had a strong finish to the year, delivering full-year comparable RevPAR growth of 3.3 percent and net hotel rooms growth of 7 percent,” Hoplamazian said. “Double-digit growth in management and franchising fees more than offset an earnings decline in our owned and leased segment, which reflected more than $900 million in asset dispositions."