Weak owned and leased margins and international headwinds produce an uninspiring quarter


“Looking ahead, we are focused on growing our market share, increasing owned and leased margins, improving results at recently renovated and newly acquired hotels, and continuing to support expansion of our brand presence around the world. We expect that there will be headwinds in some markets, but given our concentration of earnings in the U.S., and the diversity of our business model, we look forward to a year of stable growth"


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




  • 4Q demonstrated strength in some areas and challenges in others
  • RevPAR outside the US was more muted and varied.  Market specific factors, non-recurring events (China gov't transition), and difficult comps negatively impacted the Q
  • 9 hotels will be converted to their management by mid-2013 in Europe, including 4 in France. 
  • Host JV marks their first new investment in timeshare in the last several years 
  • Anticipating several more years of growth in the lodging cycle
  • Invested ~$250MM in hotels developments this year that will help grow their management fees over the next few years
  • Anticipated earning low teens returns on their New Orleans hotel but now think it will be in the high teens
  • Cash on Cash yield is already over 10% on the California assets they had acquired (they had expected 10%).
  • On Lodgeworks, they earned $45MM net of overhead in EBITDA, better than their expectation
  • Earned over $10MM in EBITDA and expect over 2x that in 2013 on Hyatt Regency Mexico City  
  • Hyatt Birmingham in England - think that they can exceed $5MM in EBITDA in 2013 which is what they originally underwrote. 
  • Group pace for 2013 is up about 4%. December was their busiest group production month since 2007 and January was good as well.  40% of the group production in January was for the next 90 days.  The booking window is beginning to lengthen although close-in bookings still account for a large portion.
  • ADRs are still below prior peak levels in nominal levels
  • Renovated hotels will provide them outsized growth in RevPAR in the future
  • Expect a margin impact from the renovation of hotels, some new supply growth in certain international markets like Baku, high insurance growth, lower F&B growth...expect more impact in the beginning of the year and think it will lessen as the year progresses
  • They are marketing a portfolio of 6 US hotels that generate $25MM of EBITDA.  If they sell the assets, they will maintain management contracts. 
  • Plan to make acquisitions as well and JV investments in the US, Latin America and Europe.  Looking to put over $100MM in these types of projects. The market is more active than what it was before.
  • Their focus is to invest in gateway cities to increase their presence but are open to other types of investments.  The acquisiton of Hyatt Birmingham for less than 9x EBITDA is a good example. 


  • Why are comparable hotel margins down in light of the good RevPAR growth?
    • Non-operating items like insurance and taxes impacted margins by 200bps, about 50% of which is non-recurring.  Excluding these items, margins would have been flat
    • F&B spend is also weak as groups are still cautious on what they spend
    • Also faced tough comps from last year
    • If you look at CostPAR, its been flat since 2007.  So they have found enough productivity measure to maintain flat costs for their full service hotels. For select service, their CostPAR has actually declined.
    • That said, there will be volatility Q to Q but more stable results over the course of the year
  • Are large groups the weakest segment of group?
    • Seeing strength in tech, retail, and manufactoring sectors
    • January is up 7% in bookings relative to last year
  • The net impact of Sandy was negligible
  • EMEA - growth ex bad debt would have been 50% less of a decline. The recovery was $2MM.
  • Why don't they pay dividends?
    • Think about their capital as a means to grow their business as their first objective
    • Have project capex commitments of over $500MM to be deployed over the next few years
    • They did repurchase stock in 2011 and 2012
    • They will consider all forms of capital returns to shareholders
  • Repurchase activity is opportunistic
  • IRR threshold varies depending on the form of the investment and project type/location.  Make sure that investments are good on a risk/reward basis and increasing their presence in key markets.
  • Expect to make $100-120MM of JV projects
  • $550MM of JV debt
  • Class B shares are not only owned by Pritzer shareholders, including Goldman.  Have 2 Pritzers on their Board of 12 members. The Pritzer family members do not have any access to information that other Board members don't have and non-board members have the same information as all other shareholders.
  • Continue to focus on SG&A and margin improvements
  • Openings this year should be 50/50 between US/international and 2/3 should be managed
  • Mid-summer 2013 for the opening of their Grand Wailea property- 2 Q's behind schedule - they changed the composition of rooms and suites and started selling residentials.
  • Park Hyatt NY should open in 2Q14
  • Why were incentive management fees down in 4Q?
    • Weaker results in certain international markets
    • Renovations in their managed portfolio
    • Continued bumpiness in 2013 to be expected
  • Slowdown in capex corresponds to the fact that their owned hotel renovations are substantially complete; hence, the slowdown in 2013.  Maintenance remains at 5% of revenues.
  • Birmingham - purchased at 50% of replacement cost.  Only have 3 properties in all of the UK.  Lots of group activity at that hotel. The hotel was in receivership when they bought it. Want to control their presence in that market.
  • Expect continued issues in Baku and India. Some markets in China have oversupply as well. 
  • They are seeing more of a barbell distribution on the short end of the booking end and also a year or 2 out - largely associations. 
  • Group strength is in the smaller meeting sizes and smaller groups. Large groups are lagging.
  • Demand in NY is holding up quite well despite supply growth
  • Given the Sandy premiums coming through, it's likely that insurance premiums will continue to rise
  • The insurance amounts had a true up in the Q 
  • December was one of the best Decembers that they've had since 2007. They do feel better about group now than last Q
  • While the booking window is lengthening, they still see a major amount of activity for the next 90 days.
  • Have had a more pronounced drop in government business on the group side



  • 4Q highlights:
    • Adjusted EBITDA of $147MM and adjusted EPS of $0.20
    • Comparable owned and leased hotel RevPAR increased 7.5%
      • "Benefited from solid demand and to a limited extent from renovations completed in prior periods"
    • Owned and leased hotel operating margins decreased 10bps
    • Comparable U.S. full service hotel RevPAR increased 5.8%
    • 6 properties opened
    • Repurchased 2,779,038 shares of Class A stock at a weighted average price of $36.34 per share, for approximately $101 million
  • Expect to open over 30 hotels in 2013, including the conversion of four iconic hotels in Paris, Nice and Cannes to Hyatt brands
    • ~1,700 rooms, "more than double our presence in France and is a meaningful expansion of our coverage in continental Europe"
  • "Revenue for comparable owned and leased hotels was negatively impacted by weak performance in certain international markets and lower relative growth in non-room revenue at U.S. hotels"
  • "Excluding expenses related to benefit programs funded through rabbi trusts and non-comparable hotel expenses, expenses increased 4.3% ....Comparable expenses were negatively impacted by insurance costs."
  • Changes to the owned & leased portfolio in 4Q:
    • Hyatt Regency Birmingham (owned, 319 rooms): $43MM purchase price
    • Andaz Amsterdam (leased, 122 rooms)
    • Closed on the sale of 8 select service hotels (1,043 rooms) for approximately $87MM and will continue to manage these hotels under long-term agreements.
  • Americas Mgmt & Franchise segment:
    • Group rooms revenue at comparable U.S. full service hotels increased 3.3%. Group room nights increased 0.4% and group ADR increased 2.9%
    • Transient rooms revenue at comparable U.S. full service hotels increased 6.9%. Transient
      room nights increased 2.1% and transient ADR increased 4.7%
    • Portfolio changes in the Q:
      • LA Hotel Downtown (franchised, 469 rooms): This property is expected to be rebranded Hyatt Regency Los Angeles Downtown upon completion of a renovation
      • Hyatt Place Los Angeles/LAX/El Segundo (franchised, 143 rooms)
      • Hyatt Place San Jose/Pinares (managed, 120 rooms)
      • 3 properties were removed
  • Southeast Asia, China, Australia, South Korea and Japan (ASPAC) Mgmt and Franchising Segment:
    • Adjusted EBITDA increased 7.1%
    • RevPAR for comparable ASPAC hotels increased 3.1% (2.9% excluding the effect of currency)
    • Revenue from management and franchise fees was flat
    • 1 property was removed
  • Europe, Africa, Middle East and Southwest Asia (EAME/SW Asia) Management Segment
    • Adjusted EBITDA decreased 36.4, impacted by a bad debt recovery in the fourth quarter of 2011
    • RevPAR decreased 0.8% (increased 1.1% excluding the effect of currency), "negatively impacted by lower performance in markets in the Middle East and in Gulf Cooperation Council countries"
    • Revenue from management and franchise fees decreased 5.3% 
    • Additions: Park Hyatt Chennai (managed, 201 rooms); Andaz Amsterdam (leased, 122 rooms); Hyatt Place Hampi (managed, 115 rooms)
  • Adjusted selling, general, and administrative expenses decreased by 2.6%
  • "As of December 31, 2012 this effort was underscored by executed management or franchise contracts for approximately 200 hotels (or approximately 45,000 rooms) across all brands"
  • Capex of $91MM: Maintenance ($42MM); Enhancements ($39MM); Investment ($10MM)
  • From January 1 - February 8, Hyatt repurchased 12,123 shares of Class A common stock at a weighted average price of $37.95 per share, for approximately $0.5MM. "The Company has approximately $63 million remaining under its current share repurchase authorization."
  • In 4Q, Hyatt "formed a joint venture with Host Hotels & Resorts to develop and operate a Hyatt Residence Club in Maui, Hawaii. The Company expects to invest approximately $40 million in the vacation ownership property"
  • "Subsequent to the end of the quarter, the Company closed on the sale of three select service hotels, with an aggregate of 426 rooms, for approximately $36 million"
  • Total Debt: $1.2BN, Cash: $413MM and short-term investments of $514MM
  • 2013 guidance: 
    • Adjusted SG&A: $305MM
    • Capex: "$300 million, including approximately $120 million for investment in new properties, such as Grand Hyatt Rio de Janeiro, Hyatt Place Omaha and other properties"
    • D&A: $340MM
    • Interest expense: $70MM

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