Hyatt Hotels’ Revenues To Drop To A 10-Year Low In 2020

May 18th, 2020 by Trefis Team
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H: Hyatt Hotels logo
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Hyatt Hotels

Hyatt Hotels’ (NYSE: H) Management & Franchise Hotels (M&F) segment, which manages third-party owned hotels, has seen revenues expand consistently over the last decade from $1.6 billion in 2010 to $3 billion in 2019. However, these revenues are expected to contract by 32% to $2 billion in 2020 due to the coronavirus pandemic, with the ongoing social distancing measures and stringent travel restrictions severely impacting the travel & hospitality industry. Coupled with a 25% decline in its Owned & Leased Hotels (O&L) segment, this works out to total revenues of just $3.4 billion for the global hotel chain in 2020 – down from a little over $5 billion in 2019.

Despite the sharp decline expected in the revenues of Hyatt’s M&F segment, it remains the most critical part of the company’s long-term growth strategy as the company plans to raise $1.5 billion from owned-hotel sales by 2022 and shift focus on the M&F segment as we detail in our interactive dashboard on Hyatt Hotels’ Revenues. While the company’s asset-light strategy has helped it increase its total room portfolio by 30% in the last three years, the current downturn is likely to affect the near-term implementation of the company’s divestiture plans as low occupancy rates have caused a slump in real estate prices.

 

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A Quick Overview of Hyatt Hotels’ Revenues

Hyatt Hotels is a global hospitality company that manages, franchises, owns, and develops the Hyatt portfolio of hotels, resorts, and residential and vacation ownership properties around the world. In 2019, the company’s worldwide portfolio consisted of 913 properties, with 223,111 rooms. Hyatt’s full-service hotels and resorts operate under five established brands: Park Hyatt, Andaz, Hyatt, Grand Hyatt, and Hyatt Regency. The company also has two select-service brands: Hyatt Place and Hyatt House.

Hyatt Hotels reported $5.02 billion in Total Revenues for full-year 2019 from three segments:

  • Owned & Leased Hotel Revenues: $1.78 billion in FY2019 (35% of Total Revenues). These represent revenues from hotel operations such as room rentals and food & beverage sales from properties that are owned or leased by Hyatt.
  • Management & Franchise Hotel Revenues: $3.09 billion in FY2019 (62% of Total Revenues). These represent fees from properties where Hyatt has a long-term management agreement or has franchised one of its brands. (Note: The figure includes costs incurred by Hyatt on behalf of owners of the properties such as payroll, marketing, loyalty program, etc.)
  • Corporate & Other Revenues: $150 million in FY2019 (3% of Total Revenues). These represent revenues from co-branded credit cards, Exhale, and other corporate functions.

 

Hyatt Hotels generates a 62% of its total revenues from M&F Segment, which is likely to reach 70% By 2022

  • In 2016, the company operated a total of 171k rooms with 21k rooms of the owned and leased category.
  • In 2019, the total room portfolio increased to 223k room with 15k room of the owned and leased category.
  • Thus, the M&F segment room portfolio increased by 57k rooms, and the O&L room portfolio reduced by 6k rooms since 2016.
  • The expansion of the M&F segment has been associated with the sale of O&L properties and subsequent allocation of capital towards debt reduction and share repurchases.
  • Also, with the disruption in the global hospitality industry by companies such as Airbnb & Oyo Rooms, the Management & Franchise segment offers a lower risk expansion opportunity as the third-party property owners are liable for operational expenditure while the company charges a fee for managing daily operations on their behalf.
  • Until March 2019, the company received $1.45 billion of gross proceeds from hotel sales along with a target of $1.5 billion of additional proceeds by March 2022.
  • Therefore, the share of the M&F segment is expected to grow further and reach 70% by 2022.
  • The divestiture of $1.5 billion of owned hotel assets is expected to add another 89k rooms to the total room portfolio.
  • As the current recessionary environment has been a deterrent for the real-estate industry, Trefis expects’ the company’s divestiture plans to shift further and affect near-term growth until the travel and hospitality industries recover.

Additional details about how Hyatt Hotels’ total room portfolio has changed over the years are available in our interactive dashboard. Trefis estimates Hyatt Hotels’ stock to have a fair value of $66, which is roughly 10% higher than the current market price.

While hotels have taken a significant hit from the coronavirus outbreak, another sector that has been hurt badly is the airline industry, with players like Southwest Airlines (known for their profitable business model) also being forced to slash costs to stay afloat.

 

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