Owners begin spending

The future looks bright for hotel companies Hyatt and Host, with both expressing excitement for the coming months, as they reported first quarter results climbing from a low base.  

Host, effectively a pure landlord, has already started buying as it sees opportunities in the market for large scale US hotels. And Hyatt CEO Mark Hoplamazian declared his glass was definitely more than half full: “I can confidently say that this is the most optimistic I’ve been since the onset of this pandemic. I am encouraged by the sequential uptick in demand that coincides with improved travel sentiment and widening vaccine availability.” 

At Hyatt, first quarter systemwide RevPAR was 49% down versus 2020, but March was 54% higher than January, said Hoplamazian: “Roughly double the rate of growth we typically experience over this time frame in a stabilized environment.” Occupancy was looking good, too in some places: “Our resorts in the continental US approached 70% over a seven-day stretch in late March with significant average rate growth of 15% over 2019 levels. And we’re encouraged to see future bookings for business transient guests improve to approximately 35% of 2019 levels in recent weeks.” At the group’s Chinese hotels, “revpar has more than 90% recovered as rates are within 10% of 2019 levels, despite virtually no higher rated international inbound travel into China.” 

For Host, with a portfolio of large US hotels dependent on group business, it was more about spotting upside after the bottom of the pandemic dip, and looking ahead. “We expect RevPAR to continue increasing sequentially throughout the year, but we expect growth to be driven by occupancy in the second and third quarters,” said CFO Sourav Ghosh.  

“We think business transient will continue to make slow and steady progress during the year,  with the anticipated return to office late in the third quarter, driving a ramp-up in business transient demand after Labor Day. We expect traditional groups, corporate and associations to begin ramping up meaningfully in the fourth quarter.” 

Hyatt had a strong quarter of openings, taking its portfolio to 1,000 hotels and adding a net 6.5% rooms growth. It expects to keep up the pace for the full year, pencilling in an expectation of net growth for the full year above 5%. “We’ve more than doubled the number of hotels and brands in a span of about eight years,” said Hoplamazian. “We continue to grow at an industry leading rate.” 

While both companies deploy capital to acquire properties, there are significant differences in strategy. For Host, having maintained a strong liquidity position, the current environment is a buying opportunity. In March, the group paid USD161m for the 448 room Hyatt Regency Austin, in an off-market deal. And in May it acquired the Four Seasons resort at Walt Disney World Orlando, paying USD610m for the 444 room property, as well as buying golf course land next to its Hyatt Regency in Maui.  

CEO Jim Risoleo detailed: “The Hyatt Regency Austin’s purchase price represents a 20- 25% discount to estimated pre-covid pricing, and a 40% discount to replacement cost. The hotel was profitable in the first quarter of 2021 and is expected to outperform our underwriting expectations into the second quarter.” 

Hyatt, meanwhile, is sticking to a commitment to complete USD1.5bn of disposals from its owned portfolio – but it’s not done with investing in hotels, confirmed Hoplamazian. Two upcoming disposals were on the cards, he promised: “”They are unsurprisingly in compelling resort destinations and that the values that we see through indications of interest through our negotiations are at or above our pre-pandemic estimates. They are opportunities for us to realize proceeds from sale and also an opportunity for a new owner to deploy additional capital in those properties, which do include some developable land in both cases to further expand those operations, by the way, which would enhance our fee base going forward as well.” 

But at the same time, Hyatt is still prepared to oil wheels with funds, where necessary. Hoplamazian said the current environment made it difficult for developers to secure finance: “We’re at a point where we’re starting to see the very first signs of banks, mostly regional, not necessarily money center banks, starting to make proposals that are getting closer to a debt stack that could make sense for a developer.” 

“We have provided preferred capital over the last two years to some developer partners of ours who have developed Hyatt Place and Hyatt House hotels. We’re evaluating how we could do something that’s got more impact by maybe seeding an opportunity to put some capital together with some third parties to help provide some additional construction financing in the short-term, because we have a significant number of deals that are either in LOI stage or signed that we don’t count in our pipeline by virtue of the fact that we don’t see the financing in place to actually start the construction. I think that will evolve and thaw over the course of the summer.” 

HA Perspective [by Chris Bown]: Look at the pandemic through a US prism, and it’s mostly over. The nation shambled its way through the crisis, but now looks to be at a point where normal life can mostly return – giving hotel companies confidence to look at investment opportunities. And, in the case of Host, to plan for the return of large scale conferencing and business events.  

And Hyatt, with its industry-leading current pace of growth, looks to be in a good place to keep the momentum going. With a nuanced approach to investing in its pipeline, it could well unblock some of those pipeline developments that are stumbling, as banks wait to clear their non-performing hotel loans, before returning to the market. That issue is bound to hold up the other brands, who resolutely stick to their asset light model.  

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