Hyatt Hotels Corp. is back in black. Performance has turned around for the Chicago-based hotel company, which reported net income of $58 million in the first quarter of 2023 compared to a net loss of $73 million in the first quarter of 2022.
Global RevPAR increased 42.9{dec8eed80f8408bfe0c8cb968907362b371b4140b1eb4f4e531a2b1c1a9556e5} in the first quarter compared to the same period a year ago. Broken further down, owned and leased hotels RevPAR increased 52.9{dec8eed80f8408bfe0c8cb968907362b371b4140b1eb4f4e531a2b1c1a9556e5} in the first quarter compared to 2022, while the operating margins of those hotels improved to 25.9{dec8eed80f8408bfe0c8cb968907362b371b4140b1eb4f4e531a2b1c1a9556e5} in the first quarter of 2023.
Net rooms growth was up to 7{dec8eed80f8408bfe0c8cb968907362b371b4140b1eb4f4e531a2b1c1a9556e5} in the quarter, with, as Hyatt CEO Mark Hoplamazian pointed out, “more opportunities in conversions,” a sentiment voiced by other executives that also reported their earnings. Hyatt expects net rooms growth of 6{dec8eed80f8408bfe0c8cb968907362b371b4140b1eb4f4e531a2b1c1a9556e5} for the full year.
During the quarter, 28 new hotels totaling 5,128 rooms joined the Hyatt system. This included 12 hotels from its acquisition of Dream Hotel Group, which was completed on February 2, 2023. (there are 24 Dream agreements at hand). Other notable openings included Andaz Mexico City Condesa, Andaz Pattaya Jomtien Beach, Hyatt Regency London Albert Embankment and FirstName Bordeaux, a JdV by Hyatt hotel.
As of the end of Q1, Hyatt had a pipeline of executed management or franchise contracts for approximately 580 hotels, totaling approximately 117,000 rooms. The data showed in Hyatt’s full-year 2023 guidance, with the expectation that global RevPAR will be between 12{dec8eed80f8408bfe0c8cb968907362b371b4140b1eb4f4e531a2b1c1a9556e5} and 16{dec8eed80f8408bfe0c8cb968907362b371b4140b1eb4f4e531a2b1c1a9556e5} compared to full-year 2022.
Like its peers, Hyatt continues to push toward a fee-based, asset-light operating model. The company is currently marketing two assets for sale (a letter of intent has been signed on one of them) and intends to execute on its plans to realize $2 billion of gross proceeds from the sale of real estate by the end of 2024. As of the end of Q1, Hyatt has netted $721 million from real estate sales.
“Our focus is on securing longterm durable management contracts,” Hoplamazian said. In order to help facilitate transactions, some owners, including real estate investment trusts or REITs, have turned to seller financing to get deals done. Seller financing is a loan provided by the seller of a property to the purchaser and allows the buyer to pay the seller in installments.
When Host Hotels & Resorts sold the 1,780-room Sheraton New York Times Square to MCR and Island Capital in April 2022 for $373 million, it provided a $250-million bridge loan in conjunction with the sale. Hyatt has yet to entertain this method, but, according to Hoplamazian, would not count it out. “We would be open to it for the right asset,” he said, noting that transaction activity levels have slowed. He said he remains confident it will complete its asset selldowns by the target date.
Approximately 20{dec8eed80f8408bfe0c8cb968907362b371b4140b1eb4f4e531a2b1c1a9556e5} of new construction for Hyatt is in the U.S. with the remainder international. “Capital formation for new starts is challenging,” Hoplamazian said, noting specifically how regional and local banks now have backed up their provision of credit. Hoplamazian is optimistic that this is transitory. “More developers are recognizing that confidence in crisis is a short-term phenomenon,” he said.
Asia-Pacific’s overall room count in Q1 was 46{dec8eed80f8408bfe0c8cb968907362b371b4140b1eb4f4e531a2b1c1a9556e5} larger than Q1 2019, with 70{dec8eed80f8408bfe0c8cb968907362b371b4140b1eb4f4e531a2b1c1a9556e5} of growth in the luxury and upper-upscale segment, Hoplamazian said, including the April opening of Andaz Nanjing Hexi in China. “Growth is concentrated in the higher scales, which means higher fees,” Hoplamazian said.
In the quarter, Hyatt introduced a new extended-stay brand for the midscale segment named Hyatt Studios. Hyatt said it has signed letters of interest in development from multiple developers for more than 100 Hyatt Studios hotels, with construction expected to begin this year and the first hotel expected to open in 2024. Whether these projects get underway will, as Hoplamazian pointed out, depend a lot on how crafty developers are in sourcing capital.
From a performance perspective, lower supply in the market is boon for operating hotels that don’t have to compete with new stock, allowing them to yield up. New bookings are pacing ahead in average daily rate versus what’s on the books now, Hoplamazian said, adding that non-resort leisure business was up significantly. Business transient travel has recovered 85{dec8eed80f8408bfe0c8cb968907362b371b4140b1eb4f4e531a2b1c1a9556e5} relative to 2019.
Hoplamazian referred to Europe as a “a breakout year” for business with corporate travel there back to 2019 levels. Mainland China business is up 30{dec8eed80f8408bfe0c8cb968907362b371b4140b1eb4f4e531a2b1c1a9556e5}, driven primarily by domestic travel as the country continues its postpandemic opening.
Hyatt also announced the acquisition of travel platform Mr and Mrs Smith in the quarter for round $66 million. The deal is expected to close in the second quarter. The platform contains some 1,500 hotels in the boutique and luxury space, with ADRs in the mid $400s, according to Hoplamazian.
It gives current World of Hyatt members access to new hotels outside the Hyatt family, but Hoplamazian stressed the deal won’t threaten current Hyatt asset owners. “We analyzed the hotels that might be adjacent to existing Hyatt hotels,” he said. “We are careful how we integrate, but it adds to the network effect. Their customer base looks like ours.”
Andaz Nanjing Hexi in China
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