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Hyatt Hotels Corp. 10-Q Summary: Period Ended June 30, 2010

Business Context and Reporting Period

This is a Quarterly Report (Form 10-Q) for Hyatt Hotels Corporation for the three and six months ended June 30, 2010. Hyatt operates a global portfolio of 445 properties (126,047 rooms/units) across three primary segments: Owned and Leased Hotels, North American Management and Franchising, and International Management and Franchising. The company reported a return to profitability in the second quarter of 2010, driven by improved occupancy rates and RevPAR (Revenue Per Available Room) across all segments following the economic downturn of 2009.

Key Financial Metrics

Note: Net Debt is calculated as Total Debt less Cash, Cash Equivalents, and Short-term Investments.

Material Changes vs. Prior Period

• Revenue Growth: Consolidated revenues increased 5% ($42 million) for the quarter and 6% ($94 million) for the six months compared to the same periods in 2009. This was driven by higher occupancy levels and increased management/franchise fees.
• Profitability Turnaround: The company reported Net Income of $25 million for the quarter, a significant improvement from a Net Loss of $50 million in the prior year quarter. This turnaround was aided by the absence of the $93 million debt settlement costs incurred in Q2 2009.
• Segment Performance:
  • Owned and Leased: RevPAR increased 9.6% (quarter) and 9.7% (six months), driven by occupancy gains of 7.3% and 7.4% respectively.
  • International Management: Showed the strongest growth with revenues up 25% (quarter) and 22.5% (six months), fueled by a 21.4% RevPAR increase in full-service hotels.
• Discontinued Operations: The company recognized a $6 million gain on the sale of the "Residences" property in Q2 2010. The Amerisuites Orlando property remains classified as held for sale.

Outlook, Risks, and Unusual Items

• Management Commentary: Management cites a strong capital base with approximately $1.1 billion in unused credit facility capacity. They anticipate continued recovery in average room rates, particularly in group business, though rates remain below 2009 levels in some North American markets.
• Unusual Items:
  • Deed in Lieu of Foreclosure: A subsidiary (Hyatt Regency Princeton) did not have sufficient cash flow to meet mortgage interest requirements. The company agreed to a deed in lieu of foreclosure, reclassifying $45 million of long-term debt to current maturities.
  • Asset Impairments: Recorded $3 million in asset impairments for the quarter, primarily related to property and equipment in the owned and leased segment.
  • Investment Portfolio: The company began investing excess cash into a portfolio of highly-rated commercial paper, corporate notes, and U.S. treasuries in Q2 2010, resulting in a net loss of $9 million on marketable securities for the quarter due to market performance.
• Risks: Key risks include the cyclical nature of the hospitality industry, potential declines in occupancy and ADR, foreign currency fluctuations, and the financial condition of third-party property owners.

Investor Verification Checklist

• Debt Restructuring: Verify the status and timeline of the deed in lieu of foreclosure for the Hyatt Regency Princeton and the impact on future debt service obligations.
• Rate Recovery: Monitor the trajectory of Average Daily Rates (ADR) in North America, which remain below 2009 levels despite occupancy gains.
• Discontinued Operations: Confirm the final sale price and closing date for the Amerisuites Orlando property currently held for sale.
• Investment Returns: Review the performance of the new short-term investment portfolio and its impact on "Other income (loss), net" in future quarters.
• Capital Expenditures: Track the $90 million in capital expenditures for the six months, specifically the $33 million allocated to the new New York property, to ensure alignment with cash flow generation.