Hyatt Hotels Corporation (NYSE: H) reported first-quarter 2019 financial results. Net income attributable to Hyatt was $63 million, or $0.59 per diluted share, in the first quarter of 2019, compared to $411 million, or $3.40 per diluted share, in the first quarter of 2018. Adjusted net income attributable to Hyatt was $48 million, or $0.45 per diluted share, in the first quarter of 2019, compared to $40 million, or $0.33 per diluted share, in the first quarter of 2018. Refer to the table on page 14 of the schedules for a summary of special items impacting Adjusted net income and Adjusted earnings per share in the three months ended March 31, 2019.
Mark S. Hoplamazian, president and chief executive officer of Hyatt Hotels Corporation, said, "We had a strong start to the year, highlighted by continued growth of management and franchising fees. The integration of the Two Roads brands remains on track and is expected to fuel future growth in our managed and franchised business. We are pleased to see continued demand for our brands among developers which drove sequential expansion of our pipeline of executed contracts even as we maintained industry-leading net rooms growth."
First quarter of 2019 financial highlights as compared to the first quarter of 2018 are as follows:
- Net income decreased 84.6% to $63 million.
- Adjusted EBITDA decreased 7.3% to $187 million, a decrease of 6.1% in constant currency.
- Comparable system-wide RevPAR increased 1.8%, including an increase of 2.7% at comparable owned and leased hotels. Excluding the benefit from the timing of the Easter holiday, comparable RevPAR at system-wide hotels and comparable owned and leased hotels would have increased 1.4% and 2.2%, respectively.
- Comparable U.S. hotel RevPAR decreased 0.3%; full service hotel RevPAR increased 0.1% and select service hotel RevPAR decreased 1.3%.
- Net rooms growth was 13.7%, or 7.3% excluding the acquisition of Two Roads Hospitality LLC in the fourth quarter of 2018.
- Comparable owned and leased hotels operating margin increased 120 basis points to 24.7%.
- Adjusted EBITDA margin of 28.5% decreased 220 basis points in constant currency.
Mr. Hoplamazian continued, "Our outlook for the balance of 2019 is consistent with our views at the beginning of the year based on underlying business trends. We expect growth in both system-wide RevPAR and hotel rooms to sustain upward momentum in our lodging fees as we continue to evolve to an asset-lighter business model."
First quarter of 2019 financial results as compared to the first quarter of 2018 are as follows:
Management, Franchise and Other Fees
Total management, franchise and other fees increased 6.9% (8.8% in constant currency) to $141 million, driven by hotels added to the system, inclusive of Two Roads, and conversions from owned to managed. Base management fees increased 18.2% to $63 million and incentive management fees increased 0.3% to $34 million. Franchise fees increased 13.9% to $32 million. Other fees decreased 26.3% to $12 million, reflecting $8 million in fees reported in the first quarter of 2018 related to a franchise agreement termination for an unopened property. Excluding other fees, management and franchise fees increased 11.8% (14.1% in constant currency) to $129 million.
Americas Management and Franchising Segment
Americas management and franchising segment Adjusted EBITDA increased 5.3% (5.8% in constant currency). The increase was driven by higher management, franchise, and other fees and notably, a $5 million positive impact from the residential management operations acquired as part of the Two Roads acquisition driven by seasonal strength in that business. RevPAR for comparable Americas full service hotels increased 3.1%, occupancy decreased 30 basis points, and ADR increased 3.4%. RevPAR was driven by strength in certain resort locations outside of the United States. RevPAR for comparable Americas select service hotels decreased 1.5%, occupancy decreased 90 basis points, and ADR decreased 0.2%. Total Americas management and franchising revenue increased 40.8% (41.4% in constant currency) including revenue from the aforementioned residential management operations.
Transient rooms revenue at comparable U.S. full service hotels increased 0.4%, room nights decreased 0.9%, and ADR increased 1.4%. Group rooms revenue at comparable U.S. full service hotels decreased 0.7%, room nights decreased 3.8%, and ADR increased 3.2%.
Americas net rooms increased 13.6% compared to the first quarter of 2018, or 5.9% excluding Two Roads.
Southeast Asia, Greater China, Australia, South Korea, Japan and Micronesia (ASPAC) Management and Franchising Segment
ASPAC management and franchising segment Adjusted EBITDA increased 6.5% (11.9% in constant currency). RevPAR for comparable ASPAC full service hotels increased 1.2%, driven by strong demand in Japan and Southeast Asia, partially offset by weaker results in Greater China. Occupancy increased 80 basis points and ADR was flat. Revenue from management, franchise, and other fees increased 6.2% (10.2% in constant currency).
ASPAC net rooms increased 17.1% compared to the first quarter of 2018, or 12.1% excluding Two Roads.
Europe, Africa, Middle East and Southwest Asia (EAME/SW Asia) Management and Franchising Segment
EAME/SW Asia management and franchising segment Adjusted EBITDA increased 0.8% (7.3% in constant currency). RevPAR for comparable EAME/SW Asia full service hotels increased 3.0%, driven primarily by strong growth in Europe and Southwest Asia. Occupancy increased 260 basis points and ADR decreased 0.8%. Revenue from management, franchise, and other fees decreased 2.6% (2.8% increase in constant currency), driven by lower incentive fees due to weaker conditions in the Middle East.
EAME/SW Asia net rooms increased 9.5% compared to the first quarter of 2018, or 8.3% excluding Two Roads.
Owned and Leased Hotels Segment
Total owned and leased hotels segment Adjusted EBITDA decreased 10.0% (9.3% in constant currency), including an 8.3% (15.4% in constant currency) increase in pro rata share of unconsolidated hospitality ventures Adjusted EBITDA. The decrease in segment Adjusted EBITDA was driven by transaction activity in 2018. Refer to the table on page 11 of the schedules for a detailed list of portfolio changes and the year-over-year net impact to total owned and leased hotels segment Adjusted EBITDA.
Owned and leased hotels segment revenues decreased 9.6% (8.5% in constant currency), also driven by the transaction activity referenced above. RevPAR for comparable owned and leased hotels increased 2.7%, including an approximate 50 basis point benefit from the timing of the Easter holiday. Occupancy decreased 50 basis points and ADR increased 3.4%.
Corporate and Other
Corporate and other Adjusted EBITDA decreased 29.6% (29.9% in constant currency), inclusive of $5 million of integration related expenses from the Two Roads acquisition.
Corporate and other adjusted revenues increased 8.4% (consistent in constant currency).
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses increased 33.4%, inclusive of rabbi trust impact and stock-based compensation. Adjusted selling, general, and administrative expenses increased 9.9%, or $8 million, including approximately $9 million from the acquisition of Two Roads, of which $5 million is considered to be one-time integration related expenses. Refer to the table on page 15 of the schedules for a reconciliation of selling, general, and administrative expenses to Adjusted selling, general, and administrative expenses.
OPENINGS AND FUTURE EXPANSION
Sixteen hotels (or 3,120 rooms) opened in the first quarter of 2019, contributing to a 13.7% increase in net rooms compared to the first quarter of 2018. Excluding the impact of the Two Roads acquisition, net rooms increased 7.3% compared to the first quarter of 2018. The Company is on pace to open over 80 hotels in the 2019 fiscal year.
As of March 31, 2019, the Company had executed management or franchise contracts for approximately 455 hotels, or approximately 91,000 rooms, compared to approximately 445 hotels or approximately 89,000 rooms at December 31, 2018.
SHARE REPURCHASE
During the first quarter of 2019, the Company repurchased a total of 1,452,858 Class A shares for $102 million. The Company ended the first quarter with 38,401,176 Class A and 67,115,828 Class B shares issued and outstanding.
From April 1 through April 26, 2019, the Company repurchased 208,047 shares of Class A common stock for an aggregate purchase price of approximately $16 million. As of April 26, 2019, the Company had approximately $550 million remaining under its share repurchase authorization.
CAPITAL STRATEGY UPDATE
At the March 5, 2019 Investor Day, the Company described the evolution of its capital strategy and its commitment to grow in an asset-light manner, accelerating the mix of earnings from managed and franchised fees. This included a $1.5 billion expansion of its asset sell-down program over the next three years, assuming market conditions allow for the sale of assets on attractive terms to create shareholder value. To date, there have been no sales of real estate under this recently announced expanded program.
BALANCE SHEET / OTHER ITEMS
As of March 31, 2019, the Company reported the following:
- Total debt of $1,752 million.
- Pro rata share of unconsolidated hospitality venture debt of approximately $550 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 $547 million, restricted cash of $24 million, and short-term investments of $54 million.
- Undrawn borrowing availability of $1.4 billion under Hyatt's revolving credit facility.
2019 OUTLOOK
The Company is revising the following information for the 2019 fiscal year:
- Net income is expected to be approximately $144 million to $183 million, and primarily reflects changes in expected Other (income) loss, net and Equity losses from unconsolidated hospitality ventures. Please refer to table on page 13 of the schedules for revised ranges.
The Company is reaffirming the following information for the 2019 fiscal year:
- Comparable system-wide RevPAR is expected to increase approximately 1% to 3%, as compared to fiscal year 2018.
- Adjusted EBITDA is expected to be approximately $780 million to $800 million. These estimates include an unfavorable impact from foreign currency of approximately $7 million (low end of the forecast) to $2 million (high end of the forecast). Refer to the table on page 13 of the schedules for a reconciliation of Net Income to Adjusted EBITDA.
- Adjusted EBITDA contribution from the Two Roads acquisition prior to non-recurring integration-related costs is estimated to be approximately $20 million to $25 million.
- Interest expense is expected to be approximately $78 million to $79 million.
- Adjusted selling, general, and administrative expenses are expected to be approximately $345 million inclusive of $25 million of expenses related to one-time integration costs for Two Roads. Adjusted selling, general, and administrative expenses exclude approximately $35 million of stock-based compensation expense and any potential impact related to benefit programs funded through rabbi trusts.
- The Company expects to grow units, on a net rooms basis, by approximately 7.0% to 7.5%, reflecting over 80 new hotel openings.
- Depreciation and amortization expense is expected to be approximately $347 million to $352 million.
Other income (loss), net is expected to be negatively impacted by approximately $40 million to $50 million related to performance guarantee expense for the four managed hotels in France. - The effective tax rate is expected to be approximately 28% to 30%.
- Capital expenditures are expected to be approximately $375 million.
- The Company expects to return approximately $300 million to shareholders through a combination of cash dividends on its common stock and share repurchases.
No additional disposition or acquisition activity beyond what has been completed as of the date of this release has been included in the outlook. The Company's outlook is based on a number of assumptions that are subject to change and many of which are outside the control of the Company. If actual results vary from these assumptions, the Company's expectations may change. There can be no assurance that Hyatt will achieve these results.
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