Name: Hyatt CEO Mark Hoplamazian on the Business Strategy Behind Hotels
Uploaded: 2024-04-03T12:35:00Z
Duration: 10 min 46 s
Description: Hyatt CEO Mark Hoplamazian sits down for an extended interview to discuss the hotel company’s “asset-light” strategy and what this means for Hyatt’s future. Photo: Hyatt, Ryan Kolegas

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Hyatt CEO Mark Hoplamazian sits down for an extended interview to discuss the hotel company’s “asset-light” strategy and what this means for Hyatt’s future. Photo: Hyatt, Ryan Kolegas

https://m.wsj.net/video/20240403/4169767e-8844-4844-a170-8d1d4f9b1a51/1/hls/manifest-hd-wifi.m3u8

Hyatt CEO Mark Hoplamazian on the Business Strategy Behind Hotels

Narrator: Hyatt Hotels is undergoing a billions of dollars shift in its business model. By selling off the majority of its properties to outside owners, Hyatt is now able to reinvest in other areas of its business, and each deal it's making has one focus in mind. Luxury. Hyatt's CEO, Mark Hoplamazian, sat down with the Wall Street Journal to discuss the strategy behind the company's recent acquisitions.

There was a decision to sell off 2 billion in hotel properties. How did that come about? What sort of spurred that decision?

So back in 2017, we set a direction to go asset-lighter to be selling off properties, and to be less intensively a property owner and more of a management franchise company. And we've executed that over time, such that we've sold in the aggregate over $4 billion worth of properties. We've reinvested a large portion of that back into buying new platforms. So the idea was to make our business less capital intensive on an ongoing basis by way of reinvesting in hotel properties, real estate, and redeploying the capital to actually extend and expand our offering for the customer base that we were serving. Because all of the brands that we bought serve higher end customers. We bought Miraval, we bought Two Roads Hospitality, we bought Apple Leisure Group, and we recently bought Dream Hotel Group. And in the aggregate, over that period of time, we've doubled the number of luxury hotels that we have. We've tripled the number of resorts that we have. And we've quadrupled the number of lifestyle hotels that we have. And we have a much broader offering, much more diverse offering, both geographically and by property type.

When making these decisions, how did you consider Marriott and Hilton as your sort of competitors?

Well, it's interesting. No hotel company that I know of started without real estate. Hilton, they had a vast real estate portfolio until they spun off Park Hotels a few years ago. So I would say that, I guess history's repeating itself or something like that. But our competitors were extraordinarily heavy investors in real estate for much of their lifetimes as they grew their companies, even some of our competitors who were the most of valid asset-light promoters, they went and actually started investing in real estate even after they declared that asset-light was the only way to be. Why? Because they had to in order to build a brand. So all I would tell you is that it's commonplace to actually invest behind real estate in order to build a brand, and then over time, sell down real estate. So it's a playbook that I think has played out many times over. We wanted to do it in a very deliberate way to make sure that the total size of our earning space was maintained through that process. Secondly, we didn't want to do it in a wholesale fashion, and basically accept discounts for speed when we thought a more deliberate approach would actually pay off for our shareholders.

Did waiting a bit longer allow you to be more deliberate in making decision?

No question about it. If you go into any transaction and someone thinks that you're a motivated seller, do you think you're gonna get top dollar? Not necessarily. Especially if you're trying to do a big volume all at one time. Most of our assets were unique, either in location or in quality, but we also track and have been valuing our various assets with outside broker help for a long time. Maybe one property that we've sold, large number of properties that we've sold were below any of those estimates. We've sold our properties at an average of a 16 multiple, and we've bought new platforms at average multiple of eight. So there's been huge value creation with almost $4 billion invested. And that's really been the transformative nature of what we've done over the last six or seven years. And we did make a new commitment when we bought Apple Leisure Group to sell an incremental $2 billion worth of real estate by the end of '24.

When you started this transition, what risks did you have to weigh going into it?

Well, we thought there was a clear preference, I would say, amongst investors to operate in a more asset-light fashion. And the simple math is that more of the earnings that you have, that you report, flow into cash flow by virtue of the fact that your capital requirements for reinvesting in real estate go down. So a bigger management and franchise base and a smaller owned hotel base means a higher translation of earnings into cash flow. That's the simple math of it. My own personal observation would be that we are dramatically better managers as a company by virtue of the fact that we ate our own cooking and continue to eat our own cooking every day. I think it allows us to practice a lot of empathy with existing owners and share the practices that we're putting into place for our own hotels to make them more money. First. Secondly, a lot of people, I think, misvalued our real estate base. I think a lot of people were looking at the value of our real estate with reference to say, where REITs were trading or other reference points. We always had confidence that we had a great deal of asset value built up. We just needed to actually demonstrate it. And I think we have conclusively demonstrated it. I think we're on the right path, and we will continue to get asset-lighter. It doesn't mean we're not gonna be deploying capital and looking for other things to acquire, to add to our portfolio, but not real estate. That's just the difference.

What are the biggest operating costs for Hyatt Hotels?

Well, the number one, if cost category is people. That is by virtue of the fact that it is a people-intensive business. That offers us a lot of opportunities to offer career paths for people who are coming out of underserved communities. We launched a program called RiseHY, and our commitment was to hire 10,000 so-called opportunity youth. These are young people who are out of school and out of work to bring them into the workforce. And we're well over half the way there now. But to answer your question specifically, it's people. That's the number one cost.

How large is the Hyatt workforce, and how does it roughly break down based on types of positions?

In the aggregate, we have about 200,000 colleagues around the world. And I would say about one and a half to 2% of those are above property corporate technology call center. So the vast majority, 98%, 99% of the total is at the property level.

How many Hyatt hotels does Hyatt operate, and how many are franchisees that are operated independently?

So we have about 1,300 hotels around the world, and the mix of managed versus franchised hotels is about... 50% to 55% franchised, and 45% managed in terms of number of properties. If you looked at it on a room count basis, because most of our franchise properties are in the select service category, that's where the concentration of our franchise base is. The room count is more like 30% franchised and 70% managed.

How has this changed with Hyatt over the last five years?

We've grown our franchise base significantly over the last five years, partly by virtue of the fact that Hyatt House and Hyatt Place have grown significantly. That's really a concentration of our franchise properties. But it's also true that for the first time we started franchising in Europe, and those properties, they're smaller hotels, sometimes they're boutique hotels, independent hotels. And we've moved in that direction, partly because we want our guests to have the choice and diversity of offerings. At the same time, we recognize that in Europe, there are a lot of owner operators that want to continue to operate their hotels. So we've figured out a way to be able to do that and maintain a sense of care that's infused.

What made it so this substantial growth was possible? Was there a catalyst?

The category that where we have a concentration of franchise properties has been really the highest growth category over the last five to 10 years, which is that upscale select service category. And upper mid-scale has been either neck and neck with that or just behind that in terms of actual growth rate. So part of it is that we're growing in the segments that are growing the fastest, and we're growing alongside that, which has really expanded the franchise base. By the way, the backdrop for that is that those operations have dramatically fewer touch points and offerings by virtue of the fact that they're designed for a person who wants a great room to stay in and a quick option for breakfast, but they don't need other things. The operating model's very, very straightforward, and it's susceptible to having a diverse set of managers who can manage those properties and stay on brand.

I'm curious how you think about the era of Airbnb. Lately, we've heard from a lot of customers that the price point of Airbnb now just doesn't make sense as much as it used to where, now, people are going back to hotels.

The companies that are providing a rental opportunity for an apartment or a room in an apartment or a house. It's existed for a long, long time. I think Airbnb popularized it, and they created a very, very strong, really good front end. But it's a different business. They're in sort of the shelter business. We're in the hospitality business. So I think, first and foremost, there's a big difference between what we do and what they do. I believe that people will be looking for more diverse experiences and not just stay experiences. Not just different types of hotel brands to stand, but different experiences. Wellbeing experiences or experiential things that they can do through, say, an affiliation with a brand like ours.

Hyatt’s CEO on the Strategy Behind Selling $2 Billion in Assets

Get insights into hotel management strategy and the economics of hotel growth in this video series.

Hyatt’s CEO on the Strategy Behind Selling $2 Billion in Assets

Economics of Hotels

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