Robert LaFleur Comments: Pritzker Family’s Hyat Is No Luxury Stock

December 8, 2012, Crain’s

Even as Mark Hoplamazian emphasizes a long-term vision, the CEO of Hyatt Hotels Corp. has an immediate problem on his hands: investors who are souring on the hotel company’s performance.

Three years after Hyatt’s initial public offering, the Chicago company is still playing catch-up to competitors better positioned in key hotel markets such as New York and wrestling with how to leverage its strong balance sheet to lock in hotel contracts. Hyatt is betting on growth abroad, especially in Asia, but faces slowing economies and stiff competition there from more aggressive rivals.

Investors don’t see a quick fix. After flirting with its 52-week low in November, Hyatt shares are down 3.2 percent this year. By comparison, the stock prices of Starwood Hotels & Resorts Worldwide Inc. and Marriott International Inc., Hyatt’s biggest publicly traded rivals, have gained 13.2 percent and 21.5 percent, respectively. Though Hyatt stock has risen 30 percent since its 2009 IPO, it lags behind the two over the longer haul as well.

Nikhil Bhalla, an analyst at FBR Capital Markets & Co. in Arlington, Va., says Hyatt “has somewhat underperformed expectations. That’s the bottom line.”

Mr. Hoplamazian isn’t helping himself with his standoffish approach to Wall Street. Analysts say there’s a sense that Hyatt, 57.2 percent of which is owned by members of Chicago’s Pritzker family, is still run like the private company it used to be, providing little guidance about earnings. As a result, the company has surprised—and dismayed—analysts, reporting higher-than-anticipated expenses in the first quarter and earnings that missed analysts’ expectations two out of three quarters.

“They have a major controlling shareholder,” says C. Patrick Scholes, managing director in the New York office of SunTrust Robinson Humphrey Inc., who lowered his rating on Hyatt’s stock to “neutral” from “buy” after the company missed earnings expectations last quarter. “How do you balance that when dealing with the rest of the investors out there?”

Mr. Hoplamazian, who declines to be interviewed, asks for patience. During his most recent conference call with investors on Oct. 31, he said Hyatt’s “long-term focus is more relevant today than ever, given the volatility of economies around the world and ongoing waves of uncertainty.”

In an emailed statement, he says, “We have made significant progress since our IPO and have increased earnings, expanded our presence in key markets and gained share in many locations.”

Mr. Hoplamazian, 49, who has worked for Pritzker business interests for decades, has been adding properties overseas only incrementally. The company, which began in 1957 with a hotel in Los Angeles, had 460 hotels around the world at the end of last year; 110, or 24 percent, were outside North America. In 2006, 101 of its 369 hotels were abroad, or 27 percent.

At an investors conference last summer, though, Mr. Hoplamazian said Hyatt has signed contracts for more than 170 hotels, with about 70 percent of them outside North America and 50 percent of the total in either China or India. This year the company announced plans for hotels in Manila, Philippines, and in the Indian cities of Gurgaon and Kochi, among others.

He may be choosing the wrong moment to go abroad, some analysts say, because the U.S. market is picking up while Europe and Asia slow. That helps Marriott, with its domestic focus. “What used to be a problem for companies like Marriott is now seen as a benefit, and what was an asset for Hyatt and Starwood is now seen as a liability,” says Robert LaFleur, senior managing director at New York-based Cantor Fitzgerald & Co.

In New York, Hyatt has four hotels, and two more will debut soon, while Marriott offers more than 30 properties and Starwood has more than 20, according to the companies’ websites. “In major markets, Hyatt is sort of underrepresented across the brand spectrum,” SunTrust’s Mr. Scholes says.

Hyatt does have assets. David Loeb, managing director at R.W. Baird & Co. in Milwaukee, describes its balance sheet as “pristine.” Particular strengths, he says, include a $1.5 billion line of undrawn credit and $446 million in cash at the end of the third quarter.

GETTING FASTER

The company earned $72 million in 2012’s first three quarters, up 22 percent from $59 million in the year-earlier period. Nine-month revenue increased 9 percent, to $2.95 billion from $2.71 billion.

Mr. Loeb would like to see Hyatt more aggressively use that balance sheet to cut deals like its $190 million purchase of a 756-room hotel in Mexico City, a transaction that closed last spring. “As far back as the IPO, they’ve talked about this basic process,” Mr. Loeb says. “I would love to see them speed that up.”

That will happen, as investors have learned, only if the Pritzker family agrees.