Between recent acquisitions and brand launches, Hyatt Hotels Corp. is looking to expand its ownership community and give franchisees more options to grow within its system. But in order to make that happen, hotel developers must be able to find capital.
Speaking during the company's first-quarter 2023 earnings call today, Hyatt President and CEO Mark Hoplamazian said he remains optimistic that is possible even as issues in the banking sector and steady cadence of interest rate increases from the Federal Reserve make financing more scary for commercial real estate.
"We maintained the percentage of rooms under construction relative to our pipeline across a diverse number of countries and markets," he said. "And despite a more difficult lending environment, we continue to see developers start construction for their properties in the U.S. and around the globe."
Hyatt currently has its largest-ever pipeline, with 117,000 hotel rooms in the first quarter — a figure maintained despite enough openings to drive 7% rooms growth — and has recently added brands to its portfolio to add fuel to the unit-growth fire.
Hyatt closed on the acquisition of Dream Hotel Group — which includes the Dream Hotels, The Chatwal and Unscripted Hotels brands — in February and in April announced the launch of the company's first domestic midscale brand Hyatt Studios, the first of which is slated to open in 2024.
With strong operating fundamentals and a general sense of optimism across the hotel industry despite macroeconomic issues, Hoplamazian said continued growth is a matter of developers being so eager that they keep look for alternative funding to get projects off the ground or at least remain hopeful capital markets will open up soon.
"The capital formation for new starts is very challenging because regional and local banks backed up their provision of credit," he said. "Having said that, in discussions with a number of developers with respect to our new brand, more and more developers are recognizing that this crisis of confidence in banking right now is almost certainly a short-term phenomenon."
The Hyatt Studios brand already has 100 properties tied to letters of interest, and Hoplamazian said developers are willing to "over-equitize or otherwise get more creative about how to source capital."
Hyatt has also maintained unit growth by looking beyond the U.S. Hoplamazian said 80% of the company's under-construction pipeline is outside the U.S., which he added has been the case for the past several quarters.
Transactions Slow Down
While Hyatt still seeks to sell off $2 billion in owned real estate by the end of 2024, Hoplamazian said the current market conditions have caused the company to be more careful about how it markets assets it hopes to sell.
Hyatt has sold $721 million worth of owned hotels since making the $2 billion pledge in August 2021, but didn't transact on any hotels in the first quarter. The company did, however, close the aforementioned Dream Hotel Group acquisition, with an initial price tag of $125 million, which could increase another $175 million based on growth incentives.
First-Quarter Performance
Hyatt recorded its fourth consecutive quarter of significant revenue increases, logging a 42.9% year-over-year increase in revenue per available room globally.
This turnaround also drove large jumps in profitability and earnings. Hyatt's net income for the first quarter came in at $58 million, which was up from a $73 million loss in the first quarter of 2022. Adjusted earnings before interest, taxes, depreciation and amortization for the first quarter was $268 million, compared to $169 million in the same period the year prior.
The company repurchased $106 million of its own shares in the quarter.
As of press time, Hyatt's stock was trading at $116.15 per share, up 28.4% year to date. The NYSE Composite was down 0.4% for the same period.