Recent offers by Pebblebrook (PEB – not covered) and Blackstone (BX – not covered) to acquire LaSalle (LHO – not covered) seem like positive developments for Hyatt’s (H) valuation, in our opinion. Hyatt is Outperform rated and our top pick in lodging. Recently Pebblebrook increased its offer for LaSalle to $5.0B (80% equity and 20% cash), which represents 15.6x 2019 consensus EBITDA. This week LaSalle reaffirmed its intention to stick with Blackstone’s offer of $4.6B (100% cash), which represents 14.5x 2019 consensus EBITDA. We believe the high-end valuation and interest LaSalle is generating is positive for Hyatt, and specifically Hyatt’s ability to sell additional assets at attractive multiples. For perspective, Hyatt is currently trading at 12.8x 2019 consensus EBITDA, well below the offer prices for LaSalle, despite nearly 60% of Hyatt’s EBITDA coming from asset-light management and franchising (M&F) agreements. If we assume Hyatt’s M&F segment deserves 14x 2019 EBITDA then it implies to us the market is assigning only about 11x to Hyatt’s owned/leased EBITDA, a substantial discount to the LaSalle offers. Also, frequently overlooked is the idea that if Hyatt were to sell assets it would also gain additional M&F EBITDA from establishing management/franchising agreements upon the sales, which we think could be worth another $63M in EBITDA, or $882M in value at a 14x multiple (9% of Hyatt’s market cap).
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Shares of RCL are down 23% since the peak back in January, and its forward P/E multiple has contracted by 28% from 15.2x to 10.9x mostly due to rising oil/USD and concerns about future supply growth. RCL has undeservedly been hit the hardest in the group, in our view, which we attribute to more exposure to the Caribbean. We think RCL’s valuation has created a very attractive risk/reward and we have three charts to illustrate our view.
We looked at stock ownership for CEOs in our coverage and compared the results to other CEOs in the S&P 500. We also looked at prior periods of open market purchases by C-Level executives, and both charts are shown below. We believe stock ownership is the single best form of shareholder alignment. When executives take this a step further and use their own capital to buy stock in the open market – rather than just accumulating stock options – it’s even more bullish, as executives at that point are also confident enough in the direction of the business based on forward data that only they can see.
May TravelClick data was released this morning (5/31/2018) and showed firm and stable trends in NTM combined bookings/rates in the top 25 North American markets. The average NTM revenue y/y of the three segments was up 4.6% versus 4.2% last month, and the 4.6% is also the highest growth rate of the year. NTM leisure transient combined bookings/rate y/y growth accelerated by 180bp sequentially from last month. NTM business transient combined bookings/rate y/y growth accelerated by 100bp sequentially from last month. NTM group combined bookings/rate y/y growth decelerated by 180bp from last month. For this month’s data and all past data click here.
Lodging fundamentals have been strong and the stocks have been outperformers YTD despite broad macro concerns that the cycle feels toppy and despite weakness from other cyclical industries like cruise lines, for example. We think there are four key reasons why lodging stocks continue to work: 1) supply growth is likely peaking this year and the pipeline has stopped increasing; 2) demand trends have been modestly improving led by corporate travel; 3) inflation and rising oil prices are generally positive for RevPAR; and 4) lodging REIT M&A has sparked incremental interest.
Yesterday (5/2/2018) after the close H reported 1Q adjusted EBITDA of $202M, vs. consensus of $194M and our $188M estimate. RevPAR grew 4.3% y/y, above our expectation of about 2.5%.
April TravelClick data was released this morning (04/24/18) and showed steady trends in NTM combined bookings/rates in the top 25 North American markets. The average NTM revenue y/y of the three segments was up 4.2% versus 4.3% last month. NTM business transient combined bookings/rate y/y growth decelerated by 20bp sequentially from last month. NTM leisure transient combined bookings/rate y/y growth decelerated by 250bp sequentially from last month. NTM group combined bookings/rate y/y growth accelerated by 260bp from last month. For this month’s data and all past data click here.
This morning (04/11/18) it was reported by Reuters that H is bidding to acquire HNA’s 29.5% stake in NH Hotel Group (NHH), which could cost around $800M. NHH is public and trades on the Madrid Stock Exchange.
This is a 26 page note we write each quarter where we update our thesis for each industry and each company into earnings and for the remainder of the year. We hope you will join us at our quarterly investor lunch we’re hosting in NYC on Friday.
In this note we place a value on each one of H’s 28 owned hotels and their 26 hotels owned proportionately through joint ventures. Our analysis shows H’s 28 owned hotels could be sold for $5B, which implies H’s total owned hotels are worth just under 16x EBITDA (14x after tax). That seems like a big multiple, but the implied price/key looks more reasonable to implied valuations for other REITs, like HST, because H has trophy assets at lower margin EBITDA (Exhibit 4). In our sum of the parts we assume the entire owned/leased segment is only worth 11x EBITDA, and that much lower multiple still produces our $96 target price.
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