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Another in-line Q for another lodger; renovations to impact 1Q


 

“In the fourth quarter, we saw solid growth in demand and RevPAR, especially in our international and select-service properties. Continued focus on flow through led to significant operating margin improvement at our owned hotels.”

“In 2010 we achieved improvements in key drivers of brand value -- namely associate engagement, customer satisfaction, and our Gold Passport program, which demonstrates our loyalty to our best customers. We also expanded our ability to serve more of our guests when they travel as we opened over 30 hotels across all brands and expanded the number of executed contracts for future hotels. Looking ahead, we continue to focus on our key strategies and goals, reinvest in our hotels, and pursue many opportunities for expansion with existing and new owners. We are focused on creating value over the long-term and are excited about our prospects around the world.”

-Mark S. Hoplamazian, president and chief executive officer of Hyatt Hotels Corporation

HIGHLIGHTS FROM THE RELEASE

Q4

  • Owned and Leased:
    • RevPar +4.1% vs consensus +5.5%
      • Constant currency: +4.4%
      • Due to the renovations at 5 properties, RevPAR for comparable owned and leased hotels was estimated to have been negatively impacted by approximately 400 bps.
    • Revenues: $470MM vs. consensus of $479.6MM
    • Sold three Chicago-area properties (Hyatt Lisle, Hyatt Deerfield, and Hyatt Rosemont) for $51 million and entered into a franchise agreement for each property.
    • Sold Grand Hyatt Tampa Bay for $59 million. The Company continues to manage the property.
  • NA Management and Franchising:
    • Full service RevPAR: +3.9% vs. 7.3% consensus
      • Constant currency: +3.8%
    • Select service RevPAR: +9.5% vs. 6.7% consensus
    • Added to portfolio:
      • Hyatt Place Des Moines/Downtown (franchised, 95 rooms)
      • Hyatt Place Pittsburgh-North Shore (franchised, 178 rooms)
      • Hyatt Place Houston/Sugar Land (managed, 214 rooms)
      • Hyatt Escala Lodge at Park City (managed, 153 rooms)
  • International Management and Franchising:
    • RevPAR: +11.7% vs. 13.5% consensus
      • Constant currency: 9.2%
    • Added to portfolio:
      • Hyatt Regency Dusseldorf, Germany (managed, 303 rooms)
      • Hyatt Regency Pune, India (managed, 219 rooms)
  • Total Management and franchising revenues: $73MM vs. 70.6MM consensus
  • Adjusted EBITDA was $118MM (in-line with consensus)
    • Owned and leased $87M
    • NA management and franchising $36M
    • International management and franchising $27M
  • 140 executed contracts (32k rooms) for future expansion; 70% are international
  • Debt of $771MM, cash: $1.1BN; ST investments: $524MM; undrawn RC: $1.1BN.

2011 Guidance

  • Capex: $380-400MM; expects renovations will adversely impact owned/leased segment through 3Q 2011: 300-350bps on owned/leased Revpar and 20-25MM of EBITDA (front-loaded in 1Q)--40/30/30 split among 3 quarters
  • D&A: $280-290MM
  • Interest expense: $50MM


CONF CALL

  • Focused on "long-term value", not quarter to quarter volatility
  • "Good growth"- expansion into undeveloped markets
  • Positive customer feedback on recent hotel renovations
  • Margin improvement impressive given most of RevPAR gains were related to occupancy
  • Market share gains in select-service hotels
  • Gold Passport program increased 15% in enrollment
  • New York: 3 more hotels to open in next few years (currently 3 hotels)
  • Increased number of high brands represented from New York from just one to four
  • Andaz: 12 under development (incl. one in Shanghai)
  • Park Hyatt: 40 under development
  • Sold 6 properties for $240MM in 2010
  • Signed contracts:
    • Increase of over 15% in terms of hotel and over 18% in terms of rooms
    • 8 new markets
    • 3/4 of projects require no or little firm capital
  • 70% of hotels worldwide showed improvements in ADR
  • Sold 4 hotels for $110MM
    • Blended cap rate of 5%
  • Owned and Leased segment:
    • Q4 Margins were negatively impacted by 150bps due to renovations
  • NA mgmt & franc segment:
    • 70% growth driven by ADR
    • Stronger corporate/hospitality business
    • 70% of group business on books - in-line with expectations
    • Group rev of 2011, up 20% (Q4 2011 compared with Q4 2010); 50%/50% - occ/ADR driven
    • Transient - slightly higher rate resulted in higher revenues compared to the 4Q 2009
    • Corporate negotiated rate business: represent 10% of NA
      • Mid-to-high rates for 2011, in-line with previous forecast
    • 40% of NA full-service hotels paid incentive fees; peak in 2007 was 59%
  • Int. mgmt & franchise segment:
    • Asia region continues to ramp up; China RevPar up 30% (World Expo); S'pore, Korea, and Indonesia also strong
    • F&B and other rev represent 50% of international revs
    • 80% of international hotels paid incentive fees (similar to 2009); peak in 2007 was " a little north of 90%"
  • 2 special items:
    • $37MM - impairment on timeshare inventory and 2 JVs
    • $20MM gain as a result of the sale of three assets during the quarter.
  • 2011 Capex: not normal run-rate due to renovations
  • Expect to open 15 hotels in 2011--most are new
  • Lock-up shares: 12.8MM registration request with SEC; further details in 10K

Q&A

  • 2011 SG&A forecast:
    • Inflation will impact costs
    • Adding Real Estate/Finance/Legal headcount
  • 2011 renovation:
    • 5-6% of owned revs
  • 2011 Capex: 20% are for maintenance
    • Traditionally, maintenance capex (80-100MM)
    • Expect normalized levels after 2011
  • Current business conditions: NA slightly hit by weather; international continues to push higher
  • Select service portfolio: as source of capital; will not be owned forever
  •  Business booked:
    • Traditionally, 40% and 25% in 2012 and 2013, respectively
  • 4Q international business:
    • Segment margin: 64-65% 
    • For 2011, should be smoother margins
    • Pipeline:
      • Higher in full-service project
      • India/China: 50% of selling contracts
  • 2011 Owned Property level cost comments: "increase slightly"; healthcare costs up in NA; instituting solar programs - Hyatt Regency in Scottdale; increase in F&B costs due to high commodity prices
  • Mid-week business transient and weekend family business strong