Hyatt Hotels Corporation (“Hyatt” or the “Company”) (NYSE: H) today reported third quarter 2016 financial results. Net income attributable to Hyatt was $62 million, or $0.47 per diluted share, in the third quarter of 2016, compared to $25 million, or $0.18 per diluted share, in the third quarter of 2015. Adjusted net income attributable to Hyatt was $61 million, or $0.47 per diluted share, in the third quarter of 2016 compared to $42 million, or $0.30 per diluted share, in the third quarter of 2015. Refer to the table on page 3 of the schedules for a summary of special items impacting Adjusted net income and Adjusted earnings per share in the three months ended September 30, 2016.
Mark S. Hoplamazian, president and chief executive officer of Hyatt Hotels Corporation, said, “We reported another quarter of solid growth, propelled by the strength of our brands. Adjusted EBITDA grew about 12% in the quarter, excluding the impact of transactions and foreign currency translation. Once again, we saw relative strength in the Americas region, driven primarily by group business. Our outlook for the overall business for the remainder of 2016 is positive, and we reconfirm our expectations for comparable systemwide RevPAR growth in a range of approximately 2% to 3% for the year.”
Third quarter 2016 financial highlights as compared to the third quarter of 2015 are as follows:
- Net income increased 148% to $62 million.
- Adjusted EBITDA increased 12.3% to $192 million, up 12.9% in constant currency.
- Comparable systemwide RevPAR increased 2.5%, including an increase of 1.0% at comparable owned and leased hotels.
- Comparable U.S. hotel RevPAR increased 3.8%; full service and select service hotel RevPAR increased 3.4% and 4.6%, respectively.
- Net hotel and net rooms growth was 9% and 7%, respectively.
- Comparable owned and leased hotels segment operating margins increased 80 basis points to 23.2%.
Mr. Hoplamazian continued, “Looking ahead, we believe we are well positioned to deliver against our growth strategy, by serving the needs of high-end travelers. Additionally, given our executed contract base of approximately 61,000 rooms, or more than 35% of our current room base, we believe our portfolio of high-quality brands is poised for meaningful and sustainable growth. Last week, we announced an exciting new loyalty program, World of Hyatt, which we expect will drive even higher levels of guest preference once it officially launches in March of next year. With the positive momentum we see in our business, we expect another year of solid growth in 2017.”
Third quarter 2016 segment results as compared to the third quarter of 2015 are as follows. Hyatt evaluates segment operating performance using segment revenue and segment Adjusted EBITDA.
Owned and Leased Hotels Segment
Total owned and leased hotels segment Adjusted EBITDA increased 9.1% (10.1% in constant currency) including a 9.5% increase in pro rata share of unconsolidated hospitality ventures Adjusted EBITDA. Refer to the table on page 17 of the schedules for a detailed list of portfolio changes and the year-over-year net impact to third quarter owned and leased hotels segment Adjusted EBITDA. Owned and leased hotels revenue increased 3.8% (4.6% in constant currency) and expenses increased 4.4%.
RevPAR for comparable owned and leased hotels increased 1.0%. Occupancy increased 100 basis points and ADR decreased 0.3%.
Comparable owned and leased hotels revenue increased 1.2%. Excluding expenses related to benefit programs funded through rabbi trusts and non-comparable hotel expenses, expenses increased 0.3%. Comparable owned and leased hotels segment operating margins increased 80 basis points to 23.2%, largely due to non-operational items. Refer to the table on page 11 of the schedules for a reconciliation of comparable owned and leased hotels expenses to owned and leased hotels expenses.
The following hotel was added to the portfolio in the third quarter:
- Royal Palms Resort and Spa in Arizona, part of The Unbound Collection by Hyatt (owned, 119 rooms)
The following hotel was removed from the owned and leased hotels portfolio due to the sale in the third quarter:
- Hyatt Regency Birmingham in the United Kingdom (319 rooms). The Company entered into a long-term management agreement with the buyer; therefore, the hotel remains in the Hyatt system.
Management and Franchise Fees
Total fee revenue increased 6.8% (consistent with change in constant currency) to $110 million. Base management fees increased 4.3% to $49 million and incentive management fees increased 8.7% to $25 million. Franchise fees increased 12.5% to $27 million, primarily due to new and converted hotels and improved performance at existing hotels in the Americas. Other fee revenues were flat at $9 million.
Americas Management and Franchising Segment
Americas management and franchising segment Adjusted EBITDA increased 4.1% (consistent with change in constant currency). RevPAR for comparable Americas full service hotels increased 3.8%; occupancy increased 70 basis points and ADR increased 2.9%. RevPAR for comparable Americas select service hotels increased 4.6%; occupancy increased 80 basis points and ADR increased 3.6%. Revenue from management, franchise and other fees increased 5.9% (consistent with change in constant currency).
Group rooms revenue at comparable U.S. full service hotels increased approximately 6%, with most of the increase coming from ADR. Group revenue in the third quarter benefited from the timing of Jewish holidays which shifted into October this year from September last year. The year-over-year comparison benefit of these holiday shifts is likely to reverse in the fourth quarter. Transient rooms revenue at comparable U.S. full service hotels increased approximately 2%, driven primarily by increased ADR.
The following eight hotels were added to the portfolio in the third quarter:
- Royal Palms Resort and Spa, part of The Unbound Collection by Hyatt (owned, 119 rooms)
- Andaz Ottawa Byward Market, Canada (managed, 200 rooms)
- Hyatt Place Arlington / Courthouse Plaza (franchised, 168 rooms)
- Hyatt Place Houston / Katy (franchised, 130 rooms)
- Hyatt Place Salt Lake City / Farmington / Station Park (franchised, 108 rooms)
- Hyatt Place St. Paul / Downtown (franchised, 149 rooms)
- Hyatt House at Anaheim Resort / Convention Center (franchised, 262 rooms)
- Hyatt House Portland / Downtown (managed, 203 rooms)
Southeast Asia, Greater China, Australia, South Korea, Japan and Micronesia (ASPAC) Management and Franchising Segment
ASPAC management and franchising segment Adjusted EBITDA increased 16.7% (consistent with change in constant currency). RevPAR for comparable ASPAC full service hotels increased 1.8%, driven by strength in Southeast Asia, Hong Kong, and the Pacific, offset by softness in Japan. RevPAR growth in China was broadly in-line with the overall segment. Occupancy increased 300 basis points and ADR decreased 2.4%. Revenue from management, franchise and other fees increased 9.5% (consistent with change in constant currency).
The following three hotels were added to the portfolio in the third quarter:
- Park Hyatt Hangzhou, China (managed, 242 rooms)
- Grand Hyatt Sanya Haitang Bay Resort and Spa, China (managed, 435 rooms)
- Hyatt Regency Xi’an, China (managed, 298 rooms)
Europe, Africa, Middle East and Southwest Asia (EAME/SW Asia) Management Segment
EAME/SW Asia management segment Adjusted EBITDA increased 14.3% (consistent with change in constant currency). RevPAR for comparable EAME/SW Asia full service hotels decreased 7.8%, driven by softness in France, Switzerland, and Turkey, and offset by strength in Eastern Europe and India. Segment RevPAR growth was favorably impacted by approximately 300 basis points driven by the removal of the 950-room Hyatt Regency Paris Étoile from the comparable set, due to the longer-than-expected renovation period. Occupancy increased 80 basis points and ADR decreased 8.8%. Revenue from management and other fees decreased 6.3% (consistent with change in constant currency).
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses increased 37.0%. Adjusted selling, general, and administrative expenses decreased 6.0%, due in part to a reduction in professional fees. Refer to the table on page 10 of the schedules for a reconciliation of Adjusted selling, general, and administrative expenses to selling, general, and administrative expenses.
OPENINGS AND FUTURE EXPANSION
Eleven hotels (or 2,314 rooms) were added in the third quarter of 2016, each of which is listed above. The Company’s net rooms increased 7%, compared to the third quarter of 2015. Hyatt is on pace to add more than 60 hotels in the 2016 fiscal year.
As of September 30, 2016, the Company had executed management or franchise contracts for approximately 285 hotels (or approximately 61,000 rooms), consistent with Hyatt’s previous expectation. The executed contracts represent important potential entry into several new countries and expansion into new markets or markets in which the Company is under-represented.
During the third quarter of 2016, the Company repurchased 2,607,434 shares of common stock (725,798 Class A, and 1,881,636 Class B) at a weighted average price of $52.54 per share, for an aggregate purchase price of approximately $137 million. As of September 30, 2016, the Company had approximately $111 million remaining under its share repurchase authorization, and 23,592,340 Class A and 107,247,326 Class B shares issued and outstanding. There have been no share repurchases to-date in the fourth quarter.
CORPORATE FINANCE / ASSET RECYCLING
In the third quarter, the Company completed the following transactions:
- Completed the acquisition of the Royal Palms Resort and Spa in Arizona (119 rooms) for approximately $88 million and added the hotel to The Unbound Collection by Hyatt.
- Sold the shares of the company that owns Hyatt Regency Birmingham in the United Kingdom (319 rooms) for approximately $51 million. The Company continues to manage the hotel under a long-term management contract.
- In separate transactions, two unconsolidated hospitality ventures in which the Company holds or held an ownership interest each sold one Hyatt Place hotel to third parties, for which Hyatt received combined proceeds of approximately $7 million. The hotels continue to be Hyatt-branded.
BALANCE SHEET / OTHER ITEMS
As of September 30, 2016, the Company reported the following:
- Total debt of $1.5 billion.
- Pro rata share of unconsolidated hospitality venture debt of $799 million, substantially all of which is non-recourse to Hyatt and a portion of which Hyatt guarantees pursuant to separate agreements.
- Cash and cash equivalents, including investments in highly-rated money market funds and similar investments, of $544 million, short-term investments of $46 million and restricted cash of $66 million.
- Undrawn borrowing availability of $1.5 billion under its revolving credit facility.
The Company is reaffirming the following information for the 2016 fiscal year:
- Comparable systemwide RevPAR is expected to increase approximately 2% to 3%, as compared to fiscal year 2015.
- Adjusted selling, general, and administrative expenses are expected to be approximately $280 million. This excludes approximately $30 million of stock-based compensation expense and any potential expense impact related to benefit programs funded through rabbi trusts.
- Depreciation and amortization expense is expected to be approximately $340 million.
- Interest expense is expected to be approximately $75 million.
- In addition to the capital expenditures described below, the Company intends to continue a strong level of investment spending. Investment spending includes acquisitions, equity investments in unconsolidated hospitality ventures, investments in debt securities, management and franchise agreement intangibles or other investments.
- The Company expects to open more than 60 hotels in 2016.
The Company is revising the following information for the 2016 fiscal year:
- Capital expenditures are expected to be approximately $250 million (compared to previous expectation of approximately $260 million), including approximately $75 million (compared to previous expectation of approximately $80 million) for investment in new properties under development or recently opened.
CONFERENCE CALL INFORMATION
The Company will hold an investor conference call today, November 3, 2016, at 10:00 a.m. CT. All interested persons may listen to a simultaneous webcast of the conference call, which may be accessed through the Company’s website at www.hyatt.com and selecting the Investor Relations link located at the bottom of the page, or by dialing 647.788.4901 or toll-free 877.201.0168, passcode #89581652, approximately 10 minutes before the scheduled start time. For those unable to listen to the live broadcast, a replay will be available from 1:00 p.m. CT on November 3, 2016 through November 4, 2016 at midnight by dialing 404.537.3406, passcode #89581652. Additionally, an archive of the webcast will be available on the Company’s website for 90 days.
AVAILABILITY OF INFORMATION ON HYATT’S WEBSITE
Investors and others should note that Hyatt Hotels Corporation routinely announces material information to investors and the marketplace using SEC filings, press releases, public conference calls, webcasts and the Hyatt Investor Relations website. While not all of the information that the Company posts to the Hyatt Investor Relations website is of a material nature, some information could be deemed to be material. Accordingly, the Company encourages investors, the media, and others interested in Hyatt Hotels Corporation to review the information that it shares at the Investor Relations link located at the bottom of the page on www.hyatt.com.
Adjusted Earnings Before Interest Expense, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) and EBITDA
We use the terms Adjusted EBITDA and EBITDA throughout this earnings release. Adjusted EBITDA and EBITDA, as the Company defines them, are non-GAAP measures.
We define consolidated Adjusted EBITDA as net income attributable to Hyatt Hotels Corporation plus its pro rata share of unconsolidated hospitality ventures Adjusted EBITDA based on its ownership percentage of each venture, adjusted to exclude the following items:
- equity earnings (losses) from unconsolidated hospitality ventures;
- stock-based compensation expense;
- asset impairments;
- gains (losses) on sales of real estate;
- other income (loss), net;
- depreciation and amortization;
- interest expense; and
- provision for income taxes.
Effective January 1, 2016, our definitions of Adjusted EBITDA and Adjusted selling, general, and administrative expenses, as defined below, have been updated to exclude stock-based compensation expense, to facilitate comparison with our competitors. We have applied this change in the definition of Adjusted EBITDA to 2015 historical results to allow for comparability between the periods presented.
We calculate consolidated Adjusted EBITDA by adding the Adjusted EBITDA of each of our reportable segments to corporate and other Adjusted EBITDA.
Our board of directors and executive management team focus on Adjusted EBITDA as a key performance and compensation measure both on a segment and on a consolidated basis. Adjusted EBITDA assists us in comparing our performance over various reporting periods on a consistent basis because it removes from our operating results the impact of items that do not reflect our core operating performance both on a segment and on a consolidated basis. Our president and chief executive officer, who is the chief operating decision maker, also evaluates the performance of each of our reportable segments and determines how to allocate resources to those segments, in significant part, by assessing the Adjusted EBITDA of each segment. In addition, the compensation committee of our board of directors determines the annual variable compensation for certain members of our management based in part on consolidated Adjusted EBITDA, segment Adjusted EBITDA or some combination of both.
We believe Adjusted EBITDA is useful to investors because it provides investors the same information that the Company uses internally for purposes of assessing operating performance and making compensation decisions.
Adjusted EBITDA and EBITDA are not substitutes for net income attributable to Hyatt Hotels Corporation, net income, cash flows from operating activities or any other measure prescribed by generally accepted accounting principles (GAAP). There are limitations to using non-GAAP measures such as Adjusted EBITDA and EBITDA. Although we believe that Adjusted EBITDA can make an evaluation of our operating performance more consistent because it removes items that do not reflect our core operations, other companies in our industry may define Adjusted EBITDA differently than we do. As a result, it may be difficult to use Adjusted EBITDA or similarly named non-GAAP measures that other companies may use to compare the performance of those companies to our performance. Because of these limitations, Adjusted EBITDA should not be considered as a measure of the income generated by our business or discretionary cash available to us to invest in the growth of our business. Our management compensates for these limitations by reference to its GAAP results and using Adjusted EBITDA supplementally.
Adjusted Selling, General, and Administrative Expenses
Adjusted selling, general, and administrative expenses, as we define it, is a non-GAAP measure. Adjusted selling, general, and administrative expenses exclude the impact of expenses related to benefit programs funded through rabbi trusts and stock-based compensation expense. Adjusted selling, general, and administrative expenses assist us in comparing our performance over various reporting periods on a consistent basis since it removes from our operating results the impact of items that do not reflect our core operating performance, both on a segment and consolidated basis.
Comparable Owned and Leased Hotels Segment Operating Margin
We define Comparable Owned and Leased Hotels Segment Operating Margin as the difference between comparable owned and leased hotels revenues and comparable owned and leased hotels expenses. Comparable owned and leased hotels revenues is calculated by removing non-comparable hotels revenues from owned and leased hotels revenues as reported in our condensed consolidated statements of income. Comparable owned and leased hotels expenses is calculated by removing both non-comparable owned and leased hotels expenses and the impact of expenses funded through rabbi trusts from owned and leased hotels expenses as reported in our condensed consolidated statements of income. Comparable Owned and Leased Hotels Segment Operating margin, as we define it, is an operating segment performance metric.
“Comparable systemwide hotels” represents all properties we manage or franchise (including owned and leased properties) and that are operated for the entirety of the periods being compared and that have not sustained substantial damage, business interruption or undergone large scale renovations during the periods being compared or for which comparable results are not available. We may use variations of comparable systemwide hotels to specifically refer to comparable systemwide Americas full service or select service hotels for those properties that we manage or franchise within the Americas management and franchising segment, comparable systemwide ASPAC full service or select service hotels for those properties that we manage or franchise within the ASPAC management and franchising segment, or comparable systemwide EAME/SW Asia full service or select service hotels for those properties that we manage within the EAME/SW Asia management segment. “Comparable operated hotels” is defined the same as “comparable systemwide hotels” with the exception that it is limited to only those hotels we manage or operate and excludes hotels we franchise. “Comparable owned and leased hotels” represents all properties we own or lease and that are operated and consolidated for the entirety of the periods being compared and have not sustained substantial damage, business interruption or undergone large scale renovations during the periods being compared or for which comparable results are not available. Comparable systemwide hotels and comparable owned and leased hotels are commonly used as a basis of measurement in our industry. “Non-comparable systemwide hotels” or “non-comparable owned and leased hotels” represent all hotels that do not meet the respective definition of “comparable” as defined above.
Constant Dollar Currency
We report the results of our operations both on an as reported basis, as well as on a constant dollar basis. Constant dollar currency, which is a non-GAAP measure, excludes the effects of movements in foreign currency exchange rates between comparative periods. We believe constant dollar analysis provides valuable information regarding our results as it removes currency fluctuations from our operating results. We calculate constant dollar currency by restating prior-period local currency financial results at the current period’s exchange rates. These adjusted amounts are then compared to our current period reported amounts to provide operationally driven variances in our results.
Revenue per Available Room (RevPAR)
RevPAR is the product of the average daily rate (ADR) and the average daily occupancy percentage. RevPAR does not include non-room revenues, which consist of ancillary revenues generated by a hotel property, such as food and beverage, parking, telephone and other guest service revenues. Our management uses RevPAR to identify trend information with respect to room revenues from comparable properties and to evaluate hotel performance on a regional and segment basis. RevPAR is a commonly used performance measure in our industry.
RevPAR changes that are driven predominantly by changes in occupancy have different implications for overall revenue levels and incremental profitability than do changes that are driven predominantly by changes in average room rates. For example, increases in occupancy at a hotel would lead to increases in room revenues and additional variable operating costs (including housekeeping services, utilities and room amenity costs), and could also result in increased ancillary revenues (including food and beverage). In contrast, changes in average room rates typically have a greater impact on margins and profitability as there is no substantial effect on variable costs.
Average Daily Rate (ADR)
ADR represents hotel room revenues, divided by the total number of rooms sold in a given period. ADR measures average room price attained by a hotel and ADR trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels. ADR is a commonly used performance measure in our industry, and we use ADR to assess the pricing levels that we are able to generate by customer group, as changes in rates have a different effect on overall revenues and incremental profitability than changes in occupancy, as described above.
Occupancy represents the total number of rooms sold divided by the total number of rooms available at a hotel or group of hotels. Occupancy measures the utilization of a hotel’s available capacity. We use occupancy to gauge demand at a specific hotel or group of hotels in a given period. Occupancy levels also help us determine achievable ADR levels as demand for hotel rooms increases or decreases.
Forward-Looking Statements in this press release, which are not historical facts, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include statements about our plans, strategies, occupancy, ADR and growth trends, market share, the number of properties we expect to open in the future, our expected adjusted SG&A expense, our estimated comparable systemwide RevPAR growth, maintenance and enhancement to existing properties capital expenditures, investments in new properties capital expenditures, depreciation and amortization expense and interest expense estimates, financial performance, prospects or future events and involve known and unknown risks that are difficult to predict. As a result, our actual results, performance or achievements may differ materially from those expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as “may,” “could,” “expect,” “intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” “likely,” “will,” “would” and variations of these terms and similar expressions, or the negative of these terms or similar expressions. Such forward-looking statements are necessarily based upon estimates and assumptions that, while considered reasonable by us and our management, are inherently uncertain. Factors that may cause actual results to differ materially from current expectations include, among others, general economic uncertainty in key global markets and a worsening of global economic conditions or low levels of economic growth; the rate and the pace of economic recovery following economic downturns; levels of spending in business and leisure segments as well as consumer confidence; declines in occupancy and average daily rate; limited visibility with respect to future bookings; loss of key personnel; hostilities, or fear of hostilities, including future terrorist attacks, that affect travel; travel-related accidents; natural or man-made disasters such as earthquakes, tsunamis, tornadoes, hurricanes, floods, oil spills, nuclear incidents and global outbreaks of pandemics or contagious diseases or fear of such outbreaks; our ability to successfully achieve certain levels of operating profits at hotels that have performance guarantees in favor of our third party owners; the impact of hotel renovations; our ability to successfully execute our common stock repurchase program; the seasonal and cyclical nature of the real estate and hospitality businesses; changes in distribution arrangements, such as through Internet travel intermediaries; changes in the tastes and preferences of our customers, including the entry of new competitors in the lodging business; relationships with colleagues and labor unions and changes in labor laws; financial condition of, and our relationships with, third-party property owners, franchisees and hospitality venture partners; the possible inability of third-party owners, franchisees or development partners to access capital necessary to fund current operations or implement our plans for growth; risks associated with potential acquisitions and dispositions and the introduction of new brand concepts; the timing of acquisitions and dispositions; failure to successfully complete proposed transactions (including the failure to satisfy closing conditions or obtain required approvals); unforeseen terminations of our management or franchise agreements; changes in federal, state, local or foreign tax law; increases in interest rates and operating costs; foreign exchange rate fluctuations or currency restructurings; lack of acceptance of new brands or innovation; our ability to successfully implement our new global loyalty program; general volatility of the capital markets and our ability to access such markets; changes in the competitive environment in our industry, including as a result of industry consolidation, and the markets where we operate; cyber incidents and information technology failures; outcomes of legal or administrative proceedings; violations of regulations or laws related to our franchising business; and other risks discussed in the Company’s filings with the U.S. Securities and Exchange Commission, including our Annual Report on Form 10-K, which filings are available from the SEC. We caution you not to place undue reliance on any forward-looking statements, which are made only as of the date of this press release. We do not undertake or assume any obligation to update publicly any of these forward-looking statements to reflect actual results, new information or future events, changes in assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable law. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.