Hyatt U.S. and Systemwide Comparable RevPAR Increased 3.0% and 3.8% During Q4

Hyatt Reports Fourth Quarter 2017 Results

Hyatt Hotels Corporation (NYSE: H) today reported fourth quarter 2017 financial results. Net income attributable to Hyatt was $76 million, or $0.62 per diluted share, in the fourth quarter of 2017, compared to $41 million, or $0.31 per diluted share, in the fourth quarter of 2016. Net income in the fourth quarter of 2017 included a $217 million gain from the sale of Avendra, LLC, an equity method investment, and $110 million of incremental tax attributable to recent U.S. tax reform. Adjusted net income attributable to Hyatt was $29 million, or $0.23 per diluted share, in the fourth quarter of 2017, compared to $39 million, or $0.29 per diluted share, in the fourth quarter of 2016. Refer to the table on page 4 of the schedules for a summary of special items impacting Adjusted net income and Adjusted earnings per share in the three months ended December 31, 2017.

Mark S. Hoplamazian, president and chief executive officer of Hyatt Hotels Corporation, said, “We had a strong finish to the year, delivering full-year comparable RevPAR growth of 3.3% and net hotel rooms growth of 7.0%, fueled by a record-setting 71 new hotels added to our system in 2017. 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.”

Fourth quarter of 2017 financial results as compared to the fourth quarter of 2016 are as follows:

  • Net income increased 87.4% to $76 million.
  • Adjusted EBITDA increased 4.0% to $179 million, up 3.0% in constant currency.
  • Comparable systemwide RevPAR increased 3.8%, including an increase of 4.1% at comparable owned and leased hotels. Excluding the benefit from the timing of the Jewish holiday, comparable systemwide RevPAR increased 3.2%, and comparable owned and leased hotels RevPAR increased 3.0%.
  • Comparable U.S. hotel RevPAR increased 3.0%; full service and select service hotel RevPAR increased 2.9% and 3.2%, respectively.
  • Comparable owned and leased hotels operating margin increased 150 basis points to 23.7%.
  • Adjusted EBITDA margin decreased 20 basis points to 26.7%.

Fiscal year of 2017 financial results as compared to the fiscal year of 2016 are as follows:

  • Net income increased 22.3% to $249 million.
  • Adjusted EBITDA increased 3.9% to $816 million, up 4.0% in constant currency.
  • Comparable systemwide RevPAR increased 3.3%, including an increase of 0.9% at comparable owned and leased hotels.
  • Comparable U.S. hotel RevPAR increased 2.2%; full service and select service hotel RevPAR increased 2.1% and 2.4%, respectively.
  • Comparable owned and leased hotels operating margin decreased 20 basis points to 24.3%.
  • Adjusted EBITDA margin decreased 70 basis points to 29.5%.
  • The Company opened a record 71 hotels during 2017, compared to 59 hotels in 2016.
  • Net hotel and net rooms growth was 9.8% and 7.0% in 2017, respectively, compared to growth of 9.6% and 7.3%, respectively, in 2016.
  • As of December 31, 2017, the Company’s pipeline consisted of approximately 330 hotels or approximately 70,000 rooms. This compared to approximately 305 hotels or approximately 66,000 rooms as of December 31, 2016.
  • The Company repurchased 12,186,308 shares of common stock for $723 million in 2017, compared to 5,631,557 shares for $272 million in 2016.

Mr. Hoplamazian continued, “We believe we are well-positioned to execute our long-term growth strategy of maximizing our core business focused on high-end travelers, integrating new growth platforms and optimizing capital deployment. Plans to sell roughly $1.5 billion of real estate by the end of 2020 are underway. We remain confident that these actions will support growth in our business and further unlock shareholder value, as evidenced by our initiation of a quarterly cash dividend as well as the increase in our share repurchase authorization.”

Fourth quarter of 2017 financial results as compared to the fourth quarter of 2016 are as follows:

Owned and Leased Hotels Segment

Total owned and leased hotels segment Adjusted EBITDA decreased 8.1% (8.8% in constant currency) including a 34.0% decrease in pro rata share of unconsolidated hospitality ventures Adjusted EBITDA. The decrease in total segment Adjusted EBITDA was primarily driven by transaction activity, partially offset by benefits related to the timing of the Jewish holiday. Refer to the table on page 19 of the schedules for a detailed list of portfolio changes and the year-over-year net impact to fourth quarter owned and leased hotels segment Adjusted EBITDA. Owned and leased hotels segment revenues decreased 2.5% (3.6% in constant currency).

RevPAR for comparable owned and leased hotels increased 4.1%. Occupancy increased 120 basis points and ADR increased 2.4%.

The following hotel was added to the portfolio in the fourth quarter:

  • Hyatt House Irvine / John Wayne Airport (owned, 149 rooms)

The following three hotels were removed from the owned and leased hotels portfolio as they were sold in the fourth quarter:

  • Hyatt Regency Scottsdale Resort & Spa at Gainey Ranch (493 rooms), Royal Palms Resort and Spa (119 rooms) and Hyatt Regency Monterey Hotel & Spa on Del Monte Golf Course (550 rooms). The hotels 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.

Management and Franchise Fees

Total fee revenues increased 12.8% (11.9% in constant currency) to $131 million. Base management fees increased 9.5% to $52 million and incentive management fees increased 13.9% to $36 million, driven by new hotels and improved performance at existing hotels. Franchise fees increased 7.6% to $29 million. Other fee revenues increased 38.9% to $14 million, including $8 million of deferred gains.

Americas Management and Franchising Segment

Americas management and franchising segment Adjusted EBITDA increased 6.5% (6.3% in constant currency). RevPAR for comparable Americas full service hotels increased 3.3%; occupancy increased 110 basis points and ADR increased 1.7%. RevPAR for comparable Americas select service hotels increased 4.5%; occupancy increased 170 basis points and ADR increased 2.1%. Revenue from management, franchise and other fees increased 5.2% (5.1% in constant currency).

Group rooms revenue at comparable U.S. full service hotels increased 3.4%; room nights increased 0.8% and ADR increased 2.6%. Group demand was favorably impacted by the timing of the Jewish holiday. Transient rooms revenue at comparable U.S. full service hotels increased 2.0%; room nights increased 0.5% and ADR increased 1.5%.

The following 16 hotels were added to the portfolio during the fourth quarter:

  • Park Hyatt St. Kitts, Saint Kitts and Nevis (managed, 126 rooms)
  • Grand Hyatt Baha Mar, The Bahamas (managed, 1,800 rooms)
  • Holston House Nashville, The Unbound Collection by Hyatt (franchised, 191 rooms)
  • Spirit Ridge, The Unbound Collection by Hyatt, Canada (franchised, 226 rooms)
  • Hyatt Place Ann Arbor (franchised, 142 rooms)
  • Hyatt Place Athens / Downtown (franchised, 190 rooms)
  • Hyatt Place Houston-Northwest / Cy-Fair (franchised, 107 rooms)
  • Hyatt Place Keystone, Indiana (franchised, 103 rooms)
  • Hyatt Place Knoxville / Downtown (franchised, 165 rooms)
  • Hyatt Place Long Island City / New York City (franchised, 108 rooms)
  • Hyatt Place Marlborough / Apex Center, Massachusetts (franchised, 137 rooms)
  • Hyatt Place St. George / Convention Center, Utah (franchised, 104 rooms)
  • Hyatt House Irvine / John Wayne Airport (owned, 149 rooms)
  • Hyatt House Jersey City (franchised, 258 rooms)
  • Hyatt House Raleigh / RDU / Brier Creek (franchised, 130 rooms)
  • Hyatt House Washington DC / The Wharf (franchised, 237 rooms)

Four hotels were removed from the portfolio during the fourth quarter.

Southeast Asia, Greater China, Australia, South Korea, Japan and Micronesia (ASPAC) Management and Franchising Segment

ASPAC management and franchising segment Adjusted EBITDA increased 17.9% (15.7% in constant currency). RevPAR for comparable ASPAC full service hotels increased 4.3%, driven by strong growth in Greater China and Southeast Asia. Occupancy increased 180 basis points and ADR increased 1.8%. Revenue from management, franchise and other fees increased 16.7% (15.0% in constant currency).

The following seven hotels were added to the portfolio during the fourth quarter:

  • Andaz Singapore, Singapore (managed, 342 rooms)
  • Hyatt Place Bangkok Sukhumvit, Thailand (managed, 222 rooms)
  • Hyatt Place Shanghai Hongqiao CBD, China (managed, 252 rooms)
  • Hyatt Place Shanghai New Hongqiao, China (managed, 194 rooms)
  • Hyatt Place Zhuhai Jinshi, China (managed, 190 rooms)
  • Hyatt House Shanghai Hongqiao CBD, China (managed, 126 rooms)
  • Hyatt House Shanghai New Hongqiao, China (managed, 101 rooms)

Europe, Africa, Middle East and Southwest Asia (EAME/SW Asia) Management and Franchising Segment

EAME/SW Asia management and franchising segment Adjusted EBITDA increased 36.9% (31.7% in constant currency). RevPAR for comparable EAME/SW Asia full service hotels increased 3.8%, driven by growth in most European markets and partially offset by weak performance in the Middle East. Occupancy increased 200 basis points and ADR increased 0.7%. Revenue from management, franchise and other fees increased 15.8% (12.4% in constant currency).

The following six hotels were added to the portfolio during the fourth quarter:

  • Hyatt Regency Moscow Petrovsky Park, Russia (managed, 298 rooms)
  • Hyatt Centric Gran Via Madrid, Spain (managed, 159 rooms)
  • Hyatt Centric La Rosière, France (franchised, 69 rooms)
  • Hyatt Place Hyderabad / Banjara Hills, India (managed, 147 rooms)
  • Hyatt House Dusseldorf / Andreas Quarter, Germany (franchised, 102 rooms)
  • Hyatt House Gebze, Turkey (managed, 158 rooms)

Corporate and Other

Corporate and other Adjusted EBITDA increased 8.6% (consistent in constant currency). Corporate and other revenues increased 228.9% (consistent in constant currency), primarily driven by new business platforms, including Miraval and exhale in the wellness space, while also driven by increased revenues related to the Company’s co-branded credit card.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses increased 30.2%. Adjusted selling, general, and administrative expenses increased 21.4%, reflecting increased payroll and related costs, including severance charges, acquisitions and certain marketing initiatives in 2017. Refer to the table on page 10 of the schedules for a reconciliation of selling, general, and administrative expenses to Adjusted selling, general, and administrative expenses.

OPENINGS AND FUTURE EXPANSION

Twenty-nine hotels (or 6,533 rooms) were added in the fourth quarter of 2017, each of which is listed above. The Company’s net rooms were 7.0% higher in the fourth quarter of 2017, compared to the fourth quarter of 2016. During the 2017 fiscal year, the Company opened a record 71 hotels, representing 13,698 rooms. Six hotels, representing 1,520 rooms, were removed from the portfolio during the 2017 fiscal year.

As of December 31, 2017, the Company had executed management or franchise contracts for approximately 330 hotels (approximately 70,000 rooms), compared to the expectation for 315 hotels and 69,000 rooms as of September 30, 2017. The pipeline of executed contracts represent important potential entry into several new countries and expansion into new markets or markets in which Hyatt is under-represented. Refer to the table on page 18 of the schedules for a breakdown of the pipeline.

DIVIDEND / SHARE REPURCHASE

As part of the Company’s commitment to return meaningful capital to shareholders, the Company is initiating a quarterly cash dividend of $0.15 per share, representing an annualized dividend of $0.60 per share. The initial dividend will be payable on March 29, 2018 to Class A and Class B shareholders on record as of March 22, 2018.

During the 2017 fiscal year, the Company repurchased a record $723 million of shares, consisting of 12,186,308 shares of common stock (9,096,871 Class A shares and 3,089,437 Class B shares), at a weighted average price of $59.34 per share. During the fourth quarter of 2017, the Company repurchased 2,693,579 shares of common stock (1,417,601 Class A shares and 1,275,978 Class B shares) for an aggregate purchase price of $188 million. The Company ended the fourth quarter with 48,231,149 Class A and 70,753,837 Class B shares issued and outstanding.

From January 1 through February 9, 2018, the Company repurchased 277,760 shares of Class A common stock for an aggregate purchase price of $23 million. This includes a final tranche of Class A shares that settled as part of a November 2017 accelerated share repurchase program. As of February 9, 2018, the Company had approximately $861 million remaining under its share repurchase authorization.

CAPITAL STRATEGY UPDATE

During the fourth quarter, the Company completed the following transactions:

  • Sold Hyatt Regency Scottsdale Resort & Spa at Gainey Ranch (493 rooms) and Royal Palms Resort and Spa in Phoenix, Arizona (119 rooms) for approximately $305 million. The hotels continue to be Hyatt-branded under long-term management agreements.
  • Sold Hyatt Regency Monterey Hotel & Spa on Del Monte Golf Course (550 rooms) for approximately $58 million. The sale was part of the Company’s ongoing asset recycling strategy. The hotel continues to be Hyatt-branded under a long-term franchise agreement.

The Company continues to execute plans to sell approximately $1.5 billion of real estate by the end of 2020 as part of its long-term growth strategy. The disposition of Hyatt Regency Scottsdale Resort & Spa at Gainey Ranch and Royal Palms Resort and Spa in the fourth quarter of 2017 reflects progress towards this goal. Additional properties are being actively marketed for sale.

BALANCE SHEET / OTHER ITEMS

As of December 31, 2017, the Company reported the following:

  • Total debt of $1.5 billion.
  • Pro rata share of unconsolidated hospitality venture debt of $580 million, substantially all of which is non-recourse to Hyatt and a portion of which Hyatt guarantees pursuant to separate agreements.
  • Cash and cash equivalents, including investments in highly-rated money market funds and similar investments, of $503 million, short-term investments of $49 million and restricted cash of $234 million.
  • Undrawn borrowing availability of $1.5 billion under its revolving credit facility.

2018 OUTLOOK

The Company is providing the following information for the 2018 fiscal year:

  • Net income is expected to be approximately $176 million to $215 million.
  • Adjusted EBITDA is expected to be approximately $805 million to $825 million. These estimates also include a favorable impact from foreign currency of approximately $0 (low end of the forecast) to $5 million (high end of the forecast). Refer to the table on page 3 of the schedules for a reconciliation of Net Income to Adjusted EBITDA.
  • Comparable systemwide RevPAR is expected to increase approximately 1% to 3%, as compared to fiscal year 2017.
  • Adjusted selling, general, and administrative expenses are expected to be approximately $300 million. This excludes approximately $35 million to $36 million of stock-based compensation expense and any potential expenses related to benefit programs funded through rabbi trusts.
  • Capital expenditures are expected to be approximately $350 million.
  • Depreciation and amortization expense is expected to be approximately $367 million to $371 million.
  • Interest expense is expected to be approximately $75 million to $76 million.
  • Other income (loss), net is expected to be negatively impacted by approximately $65 million to $75 million related to performance guarantee expense for the four managed hotels in France.
  • The effective tax rate is expected to be approximately 27% to 31%, reflecting estimated impacts from recent U.S. tax reform.
  • The Company expects to grow units, on a net rooms basis, by approximately 6.0% to 6.5%, reflecting approximately 60 new hotel openings.
  • The Company expects to return at least $300 million to shareholders through a combination of cash dividends on its common stock and share repurchases.

The above does not reflect anticipated changes resulting from the adoption of the new revenue recognition standard in 2018. The Company is in the process of finalizing the adoption impact and restatement of prior year results. As previously disclosed, the most material non-cash impact to Adjusted EBITDA relates to the change in accounting for deferred gains which would result in a reduction of $25 million in 2017 and an anticipated reduction of approximately $31 million in 2018.

The Company plans to update its 2018 Outlook in connection with its first quarter earnings release to reflect the impact of the new revenue recognition standard.

The Company’s outlook is based on a number of assumptions that are subject to change and many of which are outside the control of the Company. If actual results vary from these assumptions, the Company’s expectations may change. There can be no assurance that Hyatt will achieve these results.

Hyatt Hotels Corporation, headquartered in Chicago, is a leading global hospitality company with a portfolio of 14 premier brands. As of December 31, 2017, the Company’s portfolio included more than 700 properties in more than 50 countries across six continents.