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A surprising disappointment from a hotel company

 

“We look forward to continued progress in 2012 given the dedication of our people, the ongoing cyclical recovery in lodging evidenced by strong occupancy levels, limited new supply growth in the U.S., and increasing preference for our brands among developers, hotel owners, and guests. In addition, we are excited about our recently announced organizational re-alignment intended to enhance our effectiveness and support our growth in this decade and beyond.” - Mark S. Hoplamazian, president and chief executive officer of Hyatt Hotels Corporation

 

CONF CALL

  • 2012 off to a good start
  • Look forward to further rate growth in 2012
  • Leisure & Business segments have been strong in Latin America
  • Will look to recycle the purchased Mexico City hotel in the future
  • Industry dynamics relatively good: US supply low; global travel continues to grow; China/India markets are robust

Q&A

  • 1Q SG&A-broadly in-line with internal expectations
    • 1/3 cost allocation: 1x brand launch expenses, legal fees on a hotel
    • 1/3 cost allocation: global recruitment expansion 
    • 1/3 cost allocation: base-line costs
  • SG&A Guidance: Low teens growth for the rest of the year, excludes the 1x items
  • Mexico City hotel deal
    • wanted to establish presence in new gateway city
    • post-renovation will have 734 rooms
    • will close transaction in May
    • EBITDA $8-10MM for the remainder of the year
    • travel patterns from US to Mexico has been strong - both leisure and business
    • re-branding will have a significant impact
    • $40MM renovation investment will help Group business
    • will retain mgmt contract upon any sale
  • Sees select-service opportunities in Latin America
  • Europe: continues to look for opportunities
  • Group business: mainly driven by rate growth; in the quarter bookings were up 30%
  • Many bookings were booked within 90 days
  • Group business:
    • Strong segments: Consulting, technology, IT 
    • Weak segments: financials, farm land business
    • Too early for 2013 Group trends
  • Andaz: traction has been good; about 6 in the pipeline (mostly international); 
  • Lodgeworks: tracking ahead of $40MM EBITDA goal; in 1Q, had $10MM EBITDA
  • Renovation projects: NYC/San Francisco hotels doing well
  • Rio: pre-opening development costs will continue 
  • Comparable margins: +190bps driven by the 5 big renovations; -60bps from a couple of other renovations and select service hotels
  • Cost per occupied room were lower in 1Q
  • Large hotels seeing double digits gains in group business-mostly due to associations
  • Financial segment was 'reasonable' both for transient and group demand
  • Hotel transaction market: hearing more of 'potential transactions' as opposed to transaction actually going through but saw a little more M&A recently. Do not see a fundamental shift. Debt markets are stable. Financing for some projects (i.e. those with great locations, key cities) have improved.
  • Park Hyatt NY: construction progress going well; look to complete in early 2014
  • Worker contracts in 2012-2014 - still in negotiations with labor unions; difficult to forecast
  • Non-Europeans in Europe customer base: 40%

HIGHLIGHTS FROM THE RELEASE

  • 1Q Owned and Leased hotels:
    • RevPAR +8.3% (8.7% excluding FX impact)
    • "Excluding expenses related to benefit programs funded through Rabbi Trusts and non-comparable hotel expenses, expenses increased 6.0%.. primarily due to higher payroll and related expenses as a result of higher occupancy levels."
  • Management and Franchising RevPAR: 
    • NA Full service RevPAR: +8.1%
    • NA Select service RevPAR: +7.2%
    • International REVPAR up 5.7% (6.5% excluding FX impact)
  • “Over the last year, we increased both development resources and financial capital dedicated to expanding our presence. Results of these investments are becoming more visible, as our base of executed agreements for future hotels has increased by 15% during that time period."
  • Announced $190MM acquisition of 756-room hotel in the Polanco area of Mexico City, which upon closing, will be re-branded as Hyatt Regency Mexico City. Hyatt will invest $40MM in the renovation over the property over the next 3 years. 
  • "Group rooms revenue at comparable North American full service hotels increased approximately 9% in the first quarter of 2012... as a result of strong corporate demand offset by slightly lower association demand."
  • "Transient rooms revenue at comparable North American full service hotels also increased approximately 9% in the first quarter of 2012...driven by strength from corporate customers."
  • 6 hotels were added (4 in N.A. and 2 outside of N.A.)/ 1 was removed (outside N.A.)
    • Hyatt North Houston (franchised, 335 rooms)
    • Hyatt Place Raleigh West (franchised, 132 rooms)
    • Hyatt Place San Jose / Downtown (franchised, 234 rooms)
    • Hyatt Place New Orleans / Convention Center (franchised, 170 rooms)
    • Park Hyatt Ningbo Resort and Spa (managed, 214 rooms)
    • Park Hyatt Hyderabad (managed, 209 rooms)
  • March 31, 2012  pipeline: 170 hotels (>38,000 rooms).  Approximately 70% of the future expansion is expected to be located outside North America.
  • SG&A increased by 32.9%, excluding the impact of the Rabbi Trust impact SG&A increased by $17MM or 25.8%. "Approximately one-third of the $17 million increase relates to brand launch expenses, bad debts, and legal fees."
  • 1Q Capex: $95MM
    • Maintenance: $23MM
    • Enhancements to existing properties: $52MM
    • Investment in new properties: $20MM (mostly land)
  • Corporate finance: 
    • Debt: $1.2 BN ($1.4BN available RC)
    • Cash & cash equivalents: $540MM
    • Short-term investments: $510MM
  • 2012 Information:
    • Capex: $360MM 
      • "The increase in capital expenditures as compared to previously announced 2012 information relates to the recently announced construction of Hyatt Place Omaha Downtown/Old Market."
    • D&A: $350MM
    • Interest expense: $70-75MM
    • Expects to open over 20 hotels