Hyatt Hotels Corp. had an active first quarter in terms of deals, announcing the sale of a majority stake in the Unlimited Vacation Club, along with more than $500 million in closed or planned hotel asset sales.
During Hyatt's fourth-quarter and full-year 2023 earnings call, President and CEO Mark Hoplamazian discussed his company's decision to sell 80% of Unlimited Vacation Club for $80 million to an unnamed buyer while retaining control of the business through a "long-term management agreement and license and royalty agreement."
"We've been working on this transaction for more than six months, and we're very pleased to continue to manage UVC under a long-term management agreement," he said. "This will ensure a seamless transition for colleagues, UVC members and hotel owners."
Part of the impetus to sell Unlimited Vacation Club came from continued confusion within the investment community about the membership-based business's accounting metrics, Hoplamazian said. The sale and restructuring of the business will simplify Hyatt's own accounting and reporting, eliminating the need to report things such as net deferrals and net financed contracts and instead boil it down to revenues from management and royalty fees between the club and Hyatt's Inclusive Collection.
Unlimited Vacation Club bills itself as "an exclusive travel club whose members enjoy guaranteed preferred rates and benefits" at Hyatt's all-inclusive resorts in the Caribbean and Mexico.
While still built around travel, Unlimited Vacation Club is a fundamentally different business than the fee-based hotel management and franchising business that is Hyatt's bread and butter. Members pay a five-figure fee — that is typically financed — to join on a decades-long contract and then are given discounts on stays and amenities at resorts along with premium services.
UVC originally came into Hyatt's portfolio through its 2021 purchase of Apple Leisure Group and caused waves of confusion among investors and analysts around the time of the deal related to the differing accounting practices.
Hoplamazian said he feels good about the deal in large part because Hyatt and the new majority owner remain incentivized to grow the business, and the club will still be tied into the World of Hyatt loyalty program.
"That's why a long-term management agreement where we continue to manage the platform and where it's exclusive to our all-inclusive brands are key elements of the structure of the deal," he said. "Being able to secure that and being able to render the cash generated for Hyatt every year in a very simplified way through fees we believe has the benefit of simplifying this tremendously and really eliminating any potential confusion. No matter how much progress I think we made with a lot of people understanding it, there really remains some measure of confusion and, frankly, extra work."
Hotel Asset Sales
Hyatt officials said they closed on the sale of the Hyatt Regency Aruba Resort Spa and Casino in early February for $240 million to an unspecified buyer. The deal included $41 million in seller financing and a long-term management agreement for Hyatt.
Analysts remarked that the property seemed to sell at a lower earnings multiple than other recent Hyatt asset sales, and Hoplamazian said there are "two key factors" behind that.
"First of all, it's a leasehold, not a freehold, and second there are some local market factors that we and the buyer have very high visibility to that will create a headwind with respect to earnings that will apply a couple of years from now," he said.
Counting that deal, Hyatt has now sold $961 million of the $2 billion in owned assets executives are committed to selling by the end of 2024. Company leaders originally announced that plan in August 2021.
In addition to the Hyatt Regency Aruba, Hoplamazian said the company has signed agreements in place to sell two more hotels for roughly $310 million, is actively marketing another hotel for sale and is in "off-market discussions" about two other hotels.
"We are confident we will achieve our disposition commitment at attractive valuations while securing durable long-term management and franchise agreements," he said.
Earnings Performance
Hoplamazian said Hyatt's recent strong results underscore its approach despite not being near the industry brand leaders in total room counts.
"While net rooms growth may grab headlines, leading the industry in growth for seven straight years while growing fees per room is what differentiates Hyatt and creates value for shareholders," he said. "We don't need to be the biggest in the industry to be the best because we have, and we will continue to play the game differently."
For full-year 2023, Hyatt reported 17% growth in revenue per available room, which exceeded its outlook for the year. RevPAR grew 9.1% in the fourth quarter.
The company reported $220 million in net income for the year, with adjusted earnings before interest, taxes, depreciation or amortization of slightly more than $1 billion. Net rooms growth for the year was 5.9%.
As of publication time, Hyatt's stock was trading at $150.34 a share, an increase of 15.3% year to date and 10.9% on the day. Analysts on the company's earnings call remarked that the short-term jump in stock price could be attributed to the market reacting to the UVC deal and resulting simplified accounting.
The NYSE composite was up 4.7% on the year and just 0.4% on the day.