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Baron Funds Comments on Hyatt Hotels

August 24, 2012 | About:
Holly LaFon

Holly LaFon

From Baron Funds' second quarter commentary:

Hyatt Hotels Corp. (H), a global lodging company with brands including Park Hyatt, Andaz, and Grand Hyatt, declined 13.0% in the second quarter. The company's expenses were above analysts' expectations due to the company's recent acquisitions and growth initiatives. Revenue per available room increased 8.3% in the first quarter while margins improved 220 basis points. RevPar in the second quarter gained 7.6% which we regard as consistent with these results and shows Hyatt's core business remains strong. We continue to believe that Hyatt's spending related to the company's growth initiatives will ultimately improve profitability. We like its opportunities to expand throughout Asia with franchisees and management contracts. Costs to build and operate iconic, urban hotel properties in Asia are much less than it would cost to build and operate such properties in America. Rooms are also much cheaper. Management recently initiated a $200 million share repurchase program since it regards its share price as unusually attractive.At present, Hyatt shares are valued for 11 times current year estimated EBITDA and at a substantial discount to replacement cost of its properties. Its shares are also at levels substantially below that of private hotel transactions. (David Baron)

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