Hyatt Benefits From Higher Average Day Rates And Occupancy Levels In Q2
Hyatt Hotels (NYSE:H) in the second quarter posted 6% growth in revenues and 9% growth in EBITDA. Adjusted earnings were $0.47 per share as compared to $0.43 per share in the prior year period. The company saw continued growth in the third party owned hotels segment. Total management fees increased 7% during the quarter. However, owned and leased hotels results were negatively impacted by the timing of Easter, which was in the second quarter of 2014 and the first quarter of 2013. This led to a mere 1.5% growth in group revenues for U.S. full service hotels during the quarter. Earlier, in the first quarter, the company benefited from this shift and the growth in group revenues was 5% for first half of 2014. Hyatt has given guidance of 8% growth for 2015, while it expects low single digit growth in the group business for rest of the year. [1] We estimate the owned and leased hotel revenues to be around $2.4 billion in 2014, while the income from third party owned hotels to be north of $500 million, representing growth of 15% over 2013.
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Owned And Leased Hotels See Higher ADR And Occupancy Levels
Owned and leased hotels account for approximately 30% of Hyatt’s value, according to our estimates. The hotel revenues are primarily dependent on ADR (Average Day Rates) and occupancy levels at the hotel properties. The hotel ADR has been on an uptrend for quite some time now and grew to $194 in the second quarter as compared to $187 in the prior year period. [2] We estimate this figure will grow to $197 towards the end of the year. Similarly, the occupancy level at owned and leased properties has been increasing in the past few years. It stood at 80.2% in the second quarter as compared to 79.2% in the prior year period. We expect it to be around 77% towards the end of the year. Most of this growth in ADR and occupancy level will be driven by the better macroeconomic situation that will boost business travel. Growth in tourism and international travel will further boost group bookings, translating into estimated owned and leased hotel revenues of $2.39 billion and EBITDA of over $530 million in 2014.
Growth In Third Party Owned Hotels Drives Management Fees Higher
Hyatt manages and franchises third party owned hotels and charges fees for this service. Third party owned hotel business accounts for 70% of Hyatt’s value, according to our estimates. The high value contribution can be attributed to Hyatt’s margins from managed and franchised hotels, which are 3.5 times higher than that of its owned and leased hotels. In 2013, the estimated third party owned hotels margins stood at 81% as compared to 22% for owned and leased hotels. This significant difference is due to reimbursement of costs and expenses by third party property owners to Hyatt, which otherwise the company has to bear for its owned properties.
Management and franchise fee and other revenues were $126 million for the quarter as compared to $117 million in the prior year period. ADR also improved to $189 as compared to $182 in the prior year period for Americas full service hotels. [2] We generate estimates for the management and franchise fee as a percentage of room revenues for America, Asia Pacific and Europe. The management fee is much higher for America than all the other regions combined. The estimated fee as a percentage of America room revenues was 6.5% in 2013 and our forecast for 2014 currently stands at 7%. This will translate into $338 million in fees from the region and drive segment revenue north of $500 million by end of the year. It must be noted that Hyatt’s management fee is primarily dependent on the revenues and profits of the hotels it manages. An uptrend in ADR and occupancy levels will ensure growth in the hotel business and boost the management and franchise fees for Hyatt.
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- Hyatt Hotels’ (H) CEO Mark Hoplamazian on Q2 2014 Results – Earnings Call Transcript, Seeking Alpha, Jul 31, 2014 [↩]
- Hyatt Hotels’ SEC Filings [↩] [↩]