Portfolio acquisitions, 10-15% RevPAR projections inform Hyatt’s guidance; Host sees single-digit RevPAR gains after a strong Q1, supported by the return of group business.
Both Hyatt and Host Hotels & Resorts offered Wall Street some consensus-beating numbers in their 4Q22 and full-year 2022 earnings calls on Thursday. But after a year when analysts’ expectations anticipated strong performance, even record-smashing results made it hard to get outlook ratings out of neutral.
Record cash flow, new platforms position Hyatt
The Chicago-based giant closed the books on 2022 with a record cash flow from operations of $674 million, above-expectation net rooms growth of 6.7%, organic growth that led the industry for the sixth consecutive year and Q422 EBITDA of $275 million, significantly above the $231 million consensus. Adjusted EBITDA actuals of $232 million for the quarter also outpaced consensus, set at $217 million, while full-year. Full-year adjusted EBITDA was $908 million. Apple Leisure Group (ALG) contributed $43 million of adjusted EBITDA in Q422 and $231 million for the full year.
Calling 2022 “a truly transformative year,” Mark Hoplamazian, president and CEO of Hyatt, reported Q422 net income of $294 million and full-year results of $455 million. Hyatt closed out the final quarter with adjusted net income of $278 million. Full-year adjusted net income was $365 million.
Although comparable systemwide RevPAR rose 2.4% in the final quarter, it wasn’t enough to prevent a 6.1% full-year decline fueled largely by tourism slowdowns in greater China. Overall, 2022 saw marked improvement over 2021: $88 million in 2022 versus $57 million the
Q422 $226 million fees were in line with expectations, while owned and leased segment earnings of $71 million beat estimates in the mid-$60-million range. RevPAR from owned and leased hotels jumped 41.7% in the quarter and 87.6% for 2022 overall compared with 2021. These hotels also turned in strong margin gains: 27.9% for Q422 and 17.1% for the full year. Hyatt reported an $8 million increase in adjusted EBITDA, or
10%, “when adjusted for the net impact of transactions,” in 2022 compared to 2019.
Continued strength in leisure transient revenue helped Hyatt’s
owned and leased hotels improve comparable operating margins to 27.9%
in the fourth quarter. Strong operational execution and rises in ADR were credited as primarydrivers for that increase. In addition, group room revenue
outpaced 2019 levels by 1.3%.
Fourth-quarter results for Asia Pacific’s managed and
franchised properties slipped below 2019 levels, mired down by Greater China’s
tourism restrictions. Accelerated demand fed performance momentum in South Korea,
Japan and Southeast Asia.
EMEA/SW Asia’s results were anchored by “strong” fee generation
in the Middle East, driven in large part by the World Cup in Qatar. Leisure
demand throughout Europe helped push segment results above 2019 levels.
ALG delivered solid margins. The all-inclusive luxury management company built on continued strength in the leisure travel market as well as “favorable pricing and airlift that remains above 2019 levels” to contribute net package RevPAR growth in line with projections for the Americas and profits of $51 million versus $25 million consensus. Its only miss came in Europe with package RevPAR of $87 well below modeling of just over $100.
New openings contributed to a strong close last year, with 57 new hotels totaling 10,784 hotels entering Hyatt’s portfolio. "Notable" openings included 31 franchised hotels, predominantly those added in Germany as part of Hyatt's recently signed strategic agreement with Lindner Hotels & Resorts. Overall, 2022 saw 120 new hotels join Hyatt's system, including 48 that converted to a Hyatt brand.
Other highlights included pipeline growth to 117,000, a new record. Watch for growth to continue in 2023 as part of the ongoing execution of Hyatt's asset-light acquisitions strategy, Hoplamazian said. Proceeds from previous asset sales will continue to fund growth. He said Hyatt will stay firmly focused on the luxury, high-end resort and lifestyle markets as it considers further portfolio plays and other acquisitions.
ALG and Dream Hotel Group as well as the strategic alliance with Lindner Hotels & Resorts will help drive this year’s projected 6% growth. So will franchising. “We’re increasing our franchise base in Europe in particular and finding opportunities in other markets, most notably South America,” Hoplamazian said. “You’ll see a growth in our franchise percentage over time. We are still predominantly a management business, but I think franchise will be a grower.”
China may still be the question mark in terms of expansion plans. Hoplamazian said that although restrictions have been lifted, "some of the private developers who are not government-controlled or owned are digesting two things: the aftermath of Evergrande [the second largest property developer in China which defaulted on its debt at the end of 2021] and some of the debt formation challenges that exist in China." Then, there's the government's focus on giving residential real estate a soft landing to cushion what is a major investment for its citizens. "The normal cadence of hotel construction could return in the first quarter of 2024," he said.
Hyatt will continue implementing its asset light strategy. The company reported $721 million of proceeds from the net disposition of real estate as of the end of 2022. Two assets are currently on the market and Hyatt intends to work toward a goal of realizing $2.0 billion of gross proceeds from real estate sales, net of acquisitions.
Host Hotels &
Resorts 4Q22 results topped expectations on better margin performance, despite
coming up a bit short on revenue expectations.
Total RevPAR (vs. 2019) was +0.1%; Adjusted FFO/share was $0.44 (vs. Street $0.420; Adjusted EBITDA was $364 million (vs. Street $355 million) and EBITDA for 4Q was $373 million, again beating Street estimates.
The company’s bottom line in 4Q22 totaled $147 million, or $0.20 per share. This compares with $320 million, or $0.45 per share, in last year’s fourth quarter. The company’s revenue for the quarter rose 26.3% to $1.26 billion from $998 million last year. For the year, the company reported funds from operations of $1.29 billion, or $1.79 per share, significantly up from the prior year’s 61 cents. Revenue was reported as $4.91 billion, an increase of 69.8% year over year.
Looking ahead, Host’s reported guidance for 2023 varied widely as a result of expense pressures (wage inflation, higher staffing levels, higher insurance and utility expenses, lower attrition and cancelation fees), and uncertainty about macroeconomic conditions in the second half of the year. RevPAR growth for 1Q23 is forecasted to be between 24% and 27%. For the full year, excluding the hurricane-stricken Hyatt Regency Coconut Point and The Ritz-Carlton Naples, low-end guidance RevPAR will decline low-single-digits for the remaining three quarters of the year. On the high end, Host said RevPAR could increase low-single-digits.
Host added that The Ritz-Carlton is scheduled to reopen in phases beginning in Summer 2023. It is insured for $325 million and with a $15 million deductible sees a potential insurance recovery of approximately $310 million. Host has already received $50 million of insurance proceeds.
Host is forecasting RevPAR growth and Total RevPAR growth of 5% and 4%, respectively, at the full-year guidance midpoints. However, Host President and CEO James Risoleo said improving group business remains a bright spot as 4Q22 group revenue exceeded the same period in 2019 by 2% (rate driven) and 3.8 million group rooms sold for the year, which represents 84% of 2019 numbers. “We currently have 2.9 million definite group room nights on the books, which represents 80% of full year 2022 group room nights,” he said. “This compares to 71% on the books at the same time last year.” He added group rates on the books for 2023 is up nearly 6% versus the same time last year and group revenue pace is up approximately 17% versus the same time last year.