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Hyatt: Franchising to grow but ownership still key

Column: industry Tag: Hyatt Hotels,franchising,second-quarter earnings Published: 2017-08-07 13:54 Source: Author:

The 815-room Hyatt Regency Grand Cypress in Orlando, Florida, is one of two owned hotels sold by Hyatt Hotels Corporation during the second quarter. (Hyatt Hotels Corporation)

CHICAGO—In a hotel industry where several more brands are spinning off and divesting their owned assets, analysts continue to be curious to see if Hyatt Hotels Corporation will adopt a similar strategy.

But during the company’s second-quarter earnings call, company officials stressed they still see the importance of strategically owning and developing real estate, even if their fee-based franchising and management businesses are where they see the most growth in the future.

Several hotel companies have announced, planned or completed spinoffs of their owned real estate of late, including La Quinta Holdings, which plans to spin its owned assets into a real estate investment trust called CorePoint Lodging. Wyndham Worldwide unveiled plans Thursday to split its hotel business—Wyndham Hotel Group—from its timeshare ventures Wyndham Vacation Ownership and Wyndham Destination Network.

To clarify Hyatt’s stance on the issue, President and CEO Mark Hoplamazian pointed to the growth and success of the company’s two select-service brands—Hyatt Place and Hyatt House.

“That’s not by happenstance,” he said. “That’s not by coincidence or luck. We actually were aggressive through the use of capital to significantly expand those brands, and we did it in a deliberate way to reach critical mass and penetrate urban markets.”

Part of what gave analysts and investors pause during the quarter was the planned sale of six owned assets and the declaration, made on the call by CFO Pat Grismer, that Hyatt would be a net seller in 2017.

The company completed the sale of two of the six hotels during the second quarter: the 815-room Hyatt Regency Grand Cypress, in Orlando, Florida, and the 393-room Hyatt Regency Louisville, in Louisville, Kentucky.

The Grand Cypress was converted to a long-term management contract through the sale and the Louisville property signed a long-term franchise agreement.

Grismer said he expects outsized growth for Hyatt’s fee-based business going forward, but noted the company’s position as a net seller has more to do with the fact Hyatt was a net buyer in 2015 and 2016 than a long-term strategic shift away from ownership and development.

Q2 performance

A stronger-than-expected second quarter led Hyatt officials to increase their guidance for full-year 2017.

Across the company’s portfolio, hotels saw a 2.9% year-over-year increase in revenue per available room during the second quarter, and U.S. hotels reported a 1.4% RevPAR increase.

The company had previously projected full-year RevPAR growth to either stay flat or climb as much as 2%, but guidance has been increased to 1% to 3%.

Performance among the company’s owned and leased properties was considerably weaker, though, with RevPAR declining 1.2% for the quarter.

Hyatt officials touted strong unit growth for the quarter with 22 hotels, comprising 3,366 rooms, opening in the Q2, marking a net rooms increase of 7%.

As of press time, Hyatt’s stock was trading at $59.93, a year-to-date increase of 8.5%. The Baird/STR Hotel Stock Index?was up 23.6% for the same time period.

Distribution update

Hoplamazian gave a brief update on his company’s distribution strategy, which followed weeks of reports of back-and-forth between his company and online travel agent Expedia.

Hoplamazian confirmed Hyatt has reached an agreement in principal with Expedia and expects his company’s hotels to remain listed on the online travel agency as the two sides work to finalize that deal.

“We’ve agreed to build on our relationship with Booking.com, a new initiative to increase flexibility while driving demand,” he said. “And we’ve had productive discussions with Expedia.”

Noting his company’s priority is finding ways drive direct bookings, Hoplamazian said working with the OTAs is key in reaching potential guests.

“We’ll remain focused on providing the best guest experience while optimizing our channel mix,” Hoplamazian said.

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