In preparation for HYATT's F3Q 2013 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.
- In the quarter for the year bookings up about 7%, and pace for 2014 is roughly flat at this time.
- Overall, over the short-term and consistent with what we stated last quarter, we expect group demand to continue to be positive but not as strong as transient demand.
- Over the next 18 months, we expect Atlanta and Washington D.C. to continue to be challenging markets, while we expect others such as Chicago and Orlando to be stronger.
4 HOTELS IN FRANCE CONVERSION FEES
- Over the first 12 months, post conversion, we expect to earn €5 million of base fees and €5 million to €10 million of incentive fees from these hotels. There will likely be sequential quarter-to-quarter volatility in incentive fees due to the structure of the agreements. In fact, we expect to earn most of the incentive fees in the second and third quarters during the high seasonal months for these hotels.
- Because the annual guarantee is measured on a quarterly basis, we may be required to fund up to the guarantee level in a particular quarter, which could negatively impact incentive fees in such a quarter. Again, we're on track to earn €10 million to €15 million of total fees over the first 12 months of operations of these hotels.
- Northern China has been the weakest year-to-date. Eastern China is next in line, and Southern China is actually relatively positive. It's somewhat positive in RevPAR. So what you see is a contraction of business. And I think one of the reasons why Northern China which includes Beijing, is relatively more negatively impacted, is that is because of the austerity program. And while we've seen RevPAR contract, I'm happy to report that we maintain comp set leadership in our hotels in Beijing. So I would say that while the overall story is somewhat challenging, our relative performance has been encouraging in terms of our maintenance of our number one position in our respective comp sets.
- We continue to have confidence in the long-term prospects in China, but anticipate that this year will continue to be challenging.
HOTEL TRANSACTIONS IMPACT
- Hotel transactions are expected to negatively impact our owned and leased EBITDA in the second half of this year. Specifically, we benefited from acquisitions, such as the Hyatt Regency Mexico City and The Driskill, which mostly offset the impact of asset sales through our second quarter. During the second half of 2013, however, we expect the earnings from recently sold hotels to have a negative impact on reported results, net of acquisitions due to the timing of these transactions and seasonality.
- Key owned hotels, particularly Baku and London are expected to have difficult comparisons in the third quarter. In Baku, we continue to face challenges related to significant increases in supply in this market. In London, our results last year benefited from the Diamond Jubilee, the Summer Olympics and the Farnborough Airshow. In London, we've grown market share year-to-date.
- During the third quarter, we expect to acquire an approximate 20% equity stake in Playa for $100 million, and purchase convertible preferred equity for $225 million. As to earnings associated with this transaction, in 2014, we would expect to earn in the range of $18 million to $20 million of EBITDA that will be reflected as JV EBITDA excluding franchise fees. We expect these earnings to grow over time as the resorts ramp-up, post renovations and re-branding. I would say the second half of this year is probably quite modest (Playa contribution).
- Our expected level of return on our investment is in the mid-teens percentage range, and represents a strong risk-weighted return. The minimum expected return on our convertible preferred equity investment is 10%, and we expect to achieve a higher return on our common equity investment. In addition to these returns, we expect to earn franchise fees from the six resorts that we plan to convert.
- We believe the market continues to be healthy for transactions and have not seen any significant changes in buyer interest or pricing. And on the select service front, we have been, and I'll reiterate it again, we continue to be very active to look for potential deals and in some cases involving more than one or two properties. So bigger portfolio deals.
- Government remains weak. We've seen a decline in room nights, and part of that is revenue management, and part of it is underlying demand. Group remains somewhat weak at this point as 2014 paces down a bit. In D.C., we own the Park Hyatt Washington, D.C. We manage the Grand Hyatt and the Hyatt Regency. Both of those hotels have had some renovation impact this year.
- New York was strong for us. We were up in the high single digits, mostly rate driven, we outperformed our comp sets, and it was really driven again by strong transient demand.
- We have two other hotels coming, The Hyatt Times Square, which will open later this year; and the Park Hyatt New York, which will open next year.
- We are really represented in key gateway cities, which has helped us through the downtime in Europe right now. Europe is up in the range of about 3% from a RevPAR perspective. The U.K. is a little bit behind that. Again, in Europe, we predominantly operate in the luxury segment, our owned properties in Europe, our owned luxury segment.
RE-UP STOCK REPURCHASE AUTHORIZATION?
- We will continue to evaluate it.
- Our actual capital expenditure guidance for the year is down from $275 million to $250 million, a lot of that is timing but that's our true capital expenditure budget.
- The large owned hotel renovations are substantially complete, and so we'll see sort of rolling off of major renovation activity both owned and managed properties by the end of this year. Our investment spending guidance which is really new investments in new projects and new hotels is now $500 million, which is an increase from our prior guidance because we've now included the $325 million planned investment in Playa as well as the $85 million acquisition which is already closed of The Driskill Hotel in the first quarter.
- The Andaz Wailea which we expect to open in the third quarter. The Andaz in Papagayo in Costa Rica, we've got a new project in Thailand that we'll open later this year, and we've got a newly constructed new opening in Sanya in Sunny Bay, in China.