Hyatt CEO explains reasons for lowering net room guidance

CHICAGO — When explaining why Hyatt had to lower its net rooms growth downward (from 5.5-6% to 4-4.5%) as part of its third-quarter earnings, Hyatt Hotels Corp. President and CEO Mark Hoplamazian said part of it was room “slippage” into 2025, but another reason was the company had to kick a higher-than-normal amount of hotels out of its system.

“Part of that has to do with just discipline and maintaining standards and elevating the quality of our portfolio,” he said during Hyatt’s third-quarter earnings call on Thursday.

Hoplamazian said the attrition of rooms came in higher than Hyatt expected (the number was approaching something like 1.5%, whereas the typical rate is between 0.5-1%) and about 40% of that had to do with brand standards and market-specific issues that affected renewal or agreements to move forward with certain hotels in its portfolio.

“There was a relatively higher number of hotels that were coming to end of life or PIP requirements that were not met,” he said. “So, maybe we had a bit of a blip here heading into the fourth quarter.”

Hoplamazian said part of the problem for Hyatt is that if a hotel doesn’t meet brand standards, there really isn’t anywhere for it to go inside the brand family.

If you look at the structure of our brand portfolio, we do not at this point have a brand into which we would encourage owners who want to downgrade their hotels to something that’s at a lower level.

Mark Hoplamazian

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“If you look at the structure of our brand portfolio, we do not at this point have a brand into which we would encourage owners who want to downgrade their hotels to something that’s at a lower level [so that we could] just maintain those rooms in our portfolio, and that’s different than our competitors,” he said. “So, some of this is just maintaining brand integrity across our brands as they stand today.”

CFO Joan Bottarini, who was also on the earnings call, said the company knows with respect to brand standards, there is an opportunity to potentially keep some of those hotels down the line.

“It’s something we’ve been looking at ever since the beginning of time, actually, and we constantly listen to our owners and take their feedback and consider that into how we think about brand standards,” she said. “It’s also true that serving the high end of each segment that we serve requires investment to the property that we have… That’s why our attrition has historically been so low because owners have invested in the properties and they’ve been performing. I think this is a bit of an anomaly… We don’t expect those levels to continue going forward.”

Hoplamazian said gross openings were also affected by a slippage of over 2,000 rooms that the company originally expected to open in 2024 but now will most likely slip into 2025.

“The overall momentum, though, remains intact, and we’re looking at the first quarter of 2025 where gross openings are tracking to a year-over-year net,” he said.

As part of its deal with Grupo Piñero, Hyatt will soon manage the Bahia Principe Fantasia Tenerife in Spain.

For the Grupo Piñero deal, Hyatt said it is investing €359 million at closing for 50% of the joint venture plus an additional €60 million when certain conditions are met. Upon closing, this transaction will add 23 Bahia Principe all-inclusive resorts (or approximately 12,000 rooms) to Hyatt’s managed portfolio.

That JV will affect the percentage of the company’s leisure demand and dramatically change the number of all-inclusive rooms.

“Right now, we’re tracking between 50-55% leisure and this will take it up a little bit,” Hoplamazian said. “It’s a 30% increase in all-inclusive rooms, but relative to the totality, it’s about a 4% increase in our leisure rooms overall. These are hotels that trade at a lower net-package revenue rate because they’re 4.5-star hotels in the main, and therefore, it won’t have as much as a 4% impact on our total mix.”

During the quarter, Hyatt continued its asset-light strategy, disposing of the Hyatt Regency Orlando and acquiring Standard International in addition to the planned JV to manage Bahia Principe-branded hotels and resorts. The model has led to the return of over $1.2 billion to shareholders through share repurchases and dividends so far this year, and the company has realized $2.6 billion of gross proceeds, net of acquisitions, at a 13.3x multiple over the three-year period and expects to exceed 80% asset-light earnings mix in 2025.

Hoplamazian said that the strategy would continue. “Our third quarter results reflect the strength of our asset-light business model,” he said. “While we’ve completed our third disposition commitment, we expect to continue to reduce our hotel ownership with the Hyatt Grand Central New York and Andaz Liverpool Street both remain under contract for redevelopment….  Additionally, we are actively engaged in other discussions and expect to sell more hotels in 2025 and beyond.

“Seven years ago, we committed to permanently reducing our earnings from owned hotels while investing in asset-light growth,” he said. “The results of our transformation into an asset-light business have been highly accretive to shareholder value. We’ve realized $5.6 billion of gross proceeds, net of acquisitions, from asset sales at a multiple of 15x, which exceeds the overall multiple at which Hyatt has historically traded.”

What analysts said

Analyst Michael Bellisario of R.W. Baird said his company’s view of the earnings is neutral despite a lot of moving pieces and a negative first day stock reaction.

“Hyatt's core management and franchising business continues to perform relatively well, and the fundamental outlook remains directionally positive, in our view,” he said.

Analyst Patrick Scholes of Truist Securities said he remains encouraged by further anticipated owned/leased asset sales and the continued growth of the all-inclusive space.

“There are other tailwinds that we are also looking more to hearing about in 2025, including the growth of Standard's pipeline and Hyatt Studios,” he said. “Long-term, we believe [Hyatt] is in a strong position if they can remove 1.5% of inventory with the confidence of bringing on superior rooms product.”