Higher ADR And Occupancy Levels Likely Boosted Hyatt’s Q4 Earnings

Hyatt Hotels (NYSE:H) will report its Q4 2014 earnings on February 18th. Earlier in the third quarter, the company saw 13% growth in EBITDA driven by higher average daily rates (ADR) and occupancy levels. Management fees have been growing strongly and were up 15% for the first nine months of 2014. ^[1] This can be attributed to a combination of a recovery in the U.S. economy, growth seen in emerging nations such as China, India and Indonesia, and the economic recovery in other developed markets such as Japan. We believe these factors likely drove Hyatt’s earnings in the fourth quarter as well. It must be noted that Hyatt derives 45% of its revenues from group bookings, which were up 9% in the U.S. during the previous quarter. ^[2]

We estimate revenues of $4.90 billion for Hyatt in 2015, with non-GAAP EPS of $1.53, which is slightly lower than the market consensus of $0.81 to $1.60 compiled by Thomson Reuters. We currently have a $58 price estimate for Hyatt, which we will update after the fourth quarter earnings announcement.

See our complete analysis for Hyatt Hotels

Expect Continued Growth In ADR And Occupancy

Owned and leased hotels account for approximately 30% of Hyatt’s value, according to our estimates. The hotel revenues are primarily dependent on ADR and occupancy levels at the hotel properties. The segment ADR has been on an uptrend and stood at $193 by the end of Q3 2014. We estimate this figure should be around $196 for the full year. Similarly, the occupancy level at owned and leased properties has been increasing in the recent past and stood at 77% by end of September 2014. We expect it to be around 78% for the full year. Most of this growth in ADR and occupancy level will be driven by better macroeconomic conditions that will boost business travel and higher group bookings. U.S. economy grew at 2.7% pace in 2014, the fastest in the past four years. Moreover, tourism in the U.S. is also on an uptrend, with 7% growth in total arrivals for 2014. ^[3] Continued growth in tourism likely boosted the demand for rooms and aided to Hyatt’s overall growth.

Growth In Third Party Owned Hotel Room Revenues Likely Drove Management Fees

Hyatt manages and franchises third party owned hotels and charges a fee for this service. Third party owned hotel business accounts for 70% of Hyatt’s value, according to our estimates. For a hotel operator, management fees are primarily dependent on the revenues and profits of the hotels it manages. The estimated Americas third party hotels room revenues have increased from $3.26 billion in 2010 to $4.47 billion in 2013. We expect the uptrend to continue driven by growth in the economy and higher guest spending. International tourism is also growing and overseas visitation in the U.S. increased 7.6% in 2014. ^[3] The rise in international tourism likely aided the overall demand for rooms in the region. Given these trends, we forecast room revenues grew to $4.70 billion and management fees for the America region to be around $320 million for the full year 2014. We will look for the confirmation with the earnings announcement.

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1. Hyatt Hotels’ SEC Filing [↩]
2. Hyatt Hotels’ (H) CEO Mark Hoplamazian on Q3 2014 Results – Earnings Call Transcript, Seeking Alpha, Oct 29, 2014 [↩]
3. 2014 Monthly Tourism Statistics, Office of Travel & Tourism Industries [↩] [↩]