Morningstar | Hyatt's Brand Continues to Strengthen, Driven by Its Select-Service and Lifestyle Brands
Hyatt reported a solid quarter with revenue per available room growth of 4% (matching Hilton's increase) and net unit growth of 7.4% (industry-leading), supporting our view that its brand advantage (source of its narrow moat) is strengthening. We plan a modest raise to our $72 fair value estimate for the time value of money, and slightly higher increases to our 2018 revPAR and 2019-20 room growth forecasts, leaving shares slightly overvalued.Hyatt's U.S. region posted revPAR growth of 3.4%, tracking in line with peer Hilton's 3.5% result; all other regions showed mid-single-digit increases. Booking trends remain solid, supported by improving group performance, leading Hyatt to increase its 2018 revPAR guidance to 3%-4% from 2%-3.5%. We plan to lift our 3% revPAR estimate toward 4% for the year.
Development growth is also healthy, witnessed by 7.4% net unit growth in the quarter and maintained net opening guidance lift of 6.5%-7% for 2018, tracking in line with our 7.1% forecast. The outlook for continued room growth is solid, supported by 10% pipeline growth to 73,000 rooms, representing 38% of the existing room base, second only to Hilton's industry-leading 41% ratio. Hyatt's select-service and lifestyle brands continue to resonate with travelers, as seen by Place (23% of total rooms), House (7%), Centric (2%), and Unbound's (2%) room growth of 11%, 13%, 40%, and 329%, respectively. While we still model a mid-single-digit percentage lift on average annually over the next 10 years, well above the 2% long-term average of the U.S. industry, we plan to slightly increase our forecast for 2019-21 to account for pipeline strength.
Finally, Hyatt remains on track to sell $1.5 billion of owned assets by 2020, having sold $1.1 billion to date (no transactions during the second quarter). This will leave it with a less capital-intensive asset-light room base, aiding increasing ROICs averaging in the midteens the next five years versus 6.5% during the past three years.
Hyatt Hotels is a hospitality company engaged in the development, ownership, operation, management, franchising, licensing or provision of services to a portfolio of properties, consisting of full service hotels, select service hotels, resorts, and other properties, including spas and fitness studios, timeshare, fractional, and other forms of residential and vacation properties. The company also manages, provides services to, or licenses its trademarks with respect to residential ownership units that are often adjacent to a Hyatt-branded hotel. Additionally, for condominium ownership units, the company provides services and/or manage the rental programs or homeowner associations associated with such units.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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