HYATT: THE FIRST Q OUT OF THE BOX

Hoping for more disclosure.  Here is our preview.

Hyatt is scheduled to have its first earnings release as a public company this Thursday.  Results should look similar to HST’s, although Hyatt has a little less exposure to the convention business.  While we expect Hyatt to talk about the opportunity to grow its management and franchise business, especially in select service and international, most of its earnings still come from owned hotels.  Every other hotel company already told us that EBITDA for owned hotels will be down in 2010.  Hyatt should sing the same song.

We thought that the disclosure in the S1 filing was fairly poor, so hopefully there will be more detail this quarter and in the 10K filing.  We have no idea on how to model their substantial JV EBITDA.  To get to Hyatt’s “Adjusted EBITDA” we have to make some odd adjustments to calculated and historically reported segment EBITDA.

Anyway – below is our best guess of what results will look like this quarter, as well as our projections for 2010.

4Q09 Thoughts:

  • We project Hyatt to report $482MM of revenues (excluding pass-through revenues from managed properties) and $53MM of “Reported Consolidated Adjusted EBITDA”
  • Our EBITDA calculation excluding JV’s is $37MM (down 54% y-o-y).
  • We expect Owned & Leased Revenues of $438MM and  EBITDA of $31MM, driven by the assumptions below:
    • Full Service RevPAR down 9.5% and Select Service RevPAR down 12.5%, with 100% of the decrease driven by ADR
    • CostPAR (cost per occupied room) -6% (this compares to a decline of 6.7% decline in 3Q09 and a 2.1% decline in 1H09)
    • EBITDA margins down 630 bps for a margin of 12%, compared to a margin decline of 820 bps in 3Q09 and a 910 bps decline in 1H09
  • Management and Franchisee fees of $31MM and associated EBITDA of $25MM
  • A deduction of $25MM for corporate and other to get to “Consolidated Adjusted EBITDA”
  • Other assumptions:
    • Timeshare and other revenues of $13MM
    • Other direct costs of $6MM
    • SG&A of $53MM
    • D&A of $69MM
    • Interest expense of $8MM

 

2010 Outlook

  • We’re projecting EBITDA of $333MM for next year (on an as Reported Basis) compared to consensus of $352MM.  Consensus projections assume flat y-o-y EBITDA despite guidance from other lodging companies of another year of EBITDA declines in 2010 due to contracting margins.
  • We expect a similar outlook to HST, although Hyatt probably has a little convention exposure so RevPAR may be a little better in 1H09.
  • The company is likely to steer investor focus on growth opportunities given their:
    • underleveraged balance sheet and “coming” of distressed properties on the market … despite not seeing a lot of bargains “yet”
    •  “under-penetration”  of their brands especially on the select service side
      •  It’s hard to understand why companies equate under-penetration of their brands with demand> supply…that makes sense for huge networks where travelers accumulate significant loyalty points through work travel that they utilize for personal travel… but that “loyalty” traveler is a very small % of the total travelers for a company like Hyatt… and it’s hard to argue that the there is excess demand for hotels now.  Limited service is also going to be a tough sector to grow due the lack of credit available for construction
  • Since Hyatt has a smaller base of management and franchise business, given the law of small numbers, they may experience bigger growth in this segment of their business than other lodging peers but it still may not move the needle over the near term