EUR 850.00 For Business Accounts Only

Morningstar | Hyatt Seeing Near-Term External U.S. and China Headwinds, but Its Brand Continues to Strengthen

We expect Hyatt to expand room and revenue share in the hotel industry over the next decade, driven by a favorable next-generation traveler position supported by its newer House and Place brands (28% of total rooms), resulting in an intangible brand advantage. We see the company’s room growth averaging in the midsingle digits over the next decade (above the long-term supply growth average of 2%).In addition to an intangible brand advantage, Hyatt has switching cost barriers through its managed or franchised rooms, which was 53% of total EBITDA (excluding corporate expense) in 2018. These asset-light rooms not only offer high returns on invested capital, but also provide contract lengths of 20-30 years that are costly to terminate.We expect Hyatt's intangible brand advantage to strengthen, driven by new hotel brands (since 2006, Hyatt has grown from five to 16 brands) that target the next-generation traveler. Hyatt's growing brand advantage is witnessed by its managed and franchised unit growth that has averaged more than 11% annually the past five years (2014-18), well above long-term U.S. supply growth of 2%.The higher ownership exposure presents increase exposure to fluctuations in economic growth and is the main risk to prospective shareholders. An additional risk is the Pritzker family having over 90% voting interest of the shares outstanding. Although the Pritzker family is required to vote based on the board of director recommendations, the family controls board seat elections. This structure significantly reduces the ability of minority shareholders to dictate change in the operations of the business. Further, the Pritzker family is allowed to sell up to 25% of its shares in a given year, which present an overhanging risk to shares.