Hyatt Hotels Corp quarterly report, Q2 FY2023

Hyatt Hotels Corporation — Q2 2023 Form 10-Q

Reporting period: Three and six months ended June 30, 2023. Amounts are in millions of dollars except per-share and operating statistics. Hyatt operates owned and leased hotels, manages and franchises hotels, and provides travel distribution, destination management, and vacation-club services. At quarter-end, its hotel portfolio comprised 1,297 hotels with 311,171 rooms.

Financial performance and liquidity

Metric	Q2 2023	Q2 2022	Six months 2023	Six months 2022
Total revenue	$1,705	$1,483	$3,385	$2,762
Net income attributable to Hyatt	$68	$206	$126	$133
Diluted EPS	$0.63	$1.85	$1.16	$1.19
Adjusted EBITDA (non-GAAP)	$273	$255	$541	$424

Q2 revenue rose 15.0%; six-month revenue rose 22.5%. Revenue includes reimbursements for costs incurred on behalf of managed and franchised properties, with corresponding costs largely offsetting those amounts.
Q2 net income fell $138 versus 2022, principally because the prior-year quarter included $251 of gains on real estate sales. Six-month net income was down $7. Adjusted EBITDA increased 6.9% for Q2 and 27.5% for the first half.
Comparable system-wide RevPAR increased 15.0% in Q2 in constant currency. Leisure demand remained strong, business transient demand improved, and system-wide group room revenue rose 14%. Management attributed particularly strong ASPAC results to Greater China’s recovery after travel restrictions eased.
Six-month operating cash flow was $371, compared with $383 in 2022. Capital expenditures were $80, versus $104; operating cash flow less capital expenditures was $291. Investing activities used $238 and financing activities used $263. Cash, cash equivalents, and restricted cash ended at $931, including $882 of cash and cash equivalents.
June 30 total debt was $3,099, cash and short-term investments were $906, and net debt was $2,193, up from $1,964 at year-end 2022. Net debt to total capital was 32.3%, versus 28.8%. The revolving facility had $1,496 of available capacity and no balance outstanding.
Hyatt repurchased $214 of shares in the first half and paid $16 in dividends. It reported $1.4 billion remaining under its share repurchase authorizations. Current assets were $1,990 and current liabilities $2,621; contract liabilities included substantial deferred revenue.

Material changes and notable items

Growth in management and franchise fees reflected stronger demand and rates, with the largest increase in ASPAC. For the first half, management, franchise, license, and other fees rose 33.7%; distribution and destination management revenue rose 19.8%.
Q2 2023 included no real estate sale gains, compared with $251 of pre-tax gains in Q2 2022 from four hotel dispositions. Those sales also reduced non-comparable owned-hotel revenue and earnings in 2023.
Hyatt acquired Dream Hotel Group in February for $125 cash plus contingent consideration valued at $107 at acquisition, payable up to $175 through 2028 subject to milestones. It acquired Mr & Mrs Smith in June for approximately $72 cash, including cash acquired. Both acquisitions contributed insignificant reported revenue and expenses through June 30.
On July 6, 2023, Hyatt issued $600 of 5.750% senior notes due 2027 and received approximately $597 net proceeds. The company said it intended to use the proceeds, with cash on hand, to repay the 2023 notes at or before maturity.

Outlook, risks, and contingencies

The filing provides no specific financial guidance. Management said cash, short-term investments, operating cash flow, revolver capacity, and capital-market access should be adequate for funding needs and capital deployment objectives.
Hyatt reiterated its August 2021 commitment to realize $2.0 billion of proceeds from net dispositions of owned assets by the end of 2024; it had realized $721 million as of August 3, 2023.
Key stated risks include economic and travel-demand uncertainty, inflation and labor costs, booking visibility, geopolitical events and health crises, climate and other disasters, currency and interest-rate movements, labor relations, cyber and technology incidents, and acquisition integration and execution risks.
A pending U.S. tax dispute concerns the treatment of loyalty-program contributions. If the IRS position is upheld, Hyatt estimates a payment of $243, including $85 of estimated interest, for assessed years; the company says it has recorded an adequate uncertain tax liability. The outcome and potential near-term change in the liability are not estimable.
At June 30, Hyatt reported $356 of commitments to lend, provide consideration, or invest under certain conditions; performance guarantees with $110 of remaining maximum exposure; and debt repayment guarantees with $309 maximum potential payments and $221 maximum exposure net of recoverability. Hyatt said it had no notice that covered borrowers were delinquent on debt service.
The company said ordinary-course litigation was not expected to have a material effect. It disclosed a separate Indian service-tax assessment with maximum exposure not expected to exceed $18 and stated that it did not believe a loss was probable.

Important facts for investors to verify

Confirm repayment or refinancing of the 2023 notes following the July 2023 bond issuance.
Track the loyalty-program tax litigation, potential liability, and any developments in the U.S. Tax Court.
Monitor Dream Hotel Group contingent consideration, acquisition integration, and delivery of development milestones.
Assess whether RevPAR and fee growth persist, particularly in Greater China, and whether owned-hotel costs and ALG expenses affect earnings conversion.
Reconcile capital returns and net debt changes against operating cash generation, acquisitions, and the owned-asset disposition commitment.