Mike Arnold
Long only, small-cap, tech, growth at reasonable price

Hyatt Hotels Shows Off Operating Leverage, Evolving To A More Asset-Light Franchise Model

Like many other capital-intensive hotel businesses, Hyatt Hotels (NYSE:H) is leveraging its asset base to unlock value for shareholders. Key to the investment thesis is a shift from exclusively-owned and operated hotels towards a blended approach, which includes a managed/franchise model that allows Hyatt to collect high-margin fees and offload the capital-intensive parts of the business to the hotel owners.

The results have been impressive since Hyatt's IPO in 2009. Adjusted EBITDA increased at a 14% compound annual growth rate ("CAGR") to $680 million in 2013, and operating margins on the owned/operated hotels expanded from 18% to 24%. The number of managed hotels increased 100% to 240 hotels at year-end 2013, and the composition of EBITDA is shifting...

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