Hyatt Hotels Corporation — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Amounts are in U.S. dollars; financial figures are in millions unless noted. Hyatt operated a portfolio of 1,194 hotels with 290,987 rooms at quarter-end. Apple Leisure Group (ALG), acquired in November 2021, is reported as a separate segment.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $1,483 | $663 | $2,762 | $1,101 |
| Net income (loss) | $206 | $(9) | $133 | $(313) |
| Diluted EPS | $1.85 | $(0.08) | $1.19 | $(3.07) |
| Adjusted EBITDA (non-GAAP) | $255 | $55 | $424 | $35 |
- Q2 revenue increased 123.6% year over year; management attributed the improvement to recovery in hotel operations and ALG, which contributed $355 of Q2 revenue. Revenue includes substantial reimbursed property costs, which are largely offset by related expenses.
- Q2 net income included $251 of gains on real estate sales. Four hotel dispositions generated gains of $137, $51, $40, and $24. The San Antonio sale also resulted in a $7 goodwill impairment and $8 loss on debt extinguishment.
- Six-month operating cash flow was $383, versus cash used of $58 in 2021. Investing cash flow was $201 and financing cash flow was $(142); cash, cash equivalents, and restricted cash increased $453 to $1,518. Operating cash flow benefited in part from ALG customer booking deposits.
- At June 30, cash and cash equivalents were $1,428 and short-term investments were $527. Total debt was $3,804, down from $3,978 at year-end 2021; reported net debt was $1,849, versus $2,791. Net debt is a non-GAAP measure and excludes Hyatt’s share of unconsolidated venture debt.
- Hyatt had a new $1.5 billion senior unsecured revolving facility maturing in May 2027, with $1,496 of available capacity and no borrowings. The company reported covenant compliance. Shareholders received $101 through repurchases; no dividends were paid.
Changes versus the prior comparable period
- Comparable system-wide RevPAR rose 81.7% in Q2 in constant dollars to $130, approaching Q2 2019 levels. Leisure demand remained strong, with group and business transient travel improving.
- Recovery was uneven: ASPAC select-service RevPAR fell 22.6% in Q2, with COVID-related restrictions in Greater China weighing on results. Americas and EAME/SW Asia results improved strongly.
- Q2 consolidated Adjusted EBITDA rose $200 to $255. The owned and leased and Americas management/franchising segments contributed $99 and $117, respectively; ALG contributed $54.
- The six-month comparison also reflects the 2021 deferred-tax valuation allowance, which contributed to the prior-year loss, and the inclusion of ALG in 2022 results.
Outlook, risks, and unusual items
- No quantified earnings, revenue, or RevPAR guidance is provided. Management described continued recovery, led by leisure demand and growing group and business transient momentum, while cautioning that demand may be uneven.
- Management cited risks from COVID-19 variants and travel restrictions, inflation, labor and supply-chain constraints, higher construction costs, economic uncertainty, interest and foreign-exchange movements, and the integration and realization of expected ALG benefits. The Russia-Ukraine conflict had not materially affected Q2 results; the affected markets represented less than 1% of managed and franchised hotels and fee revenue.
- A pending U.S. Tax Court matter concerning loyalty-program tax treatment could result in an estimated $227 payment, including interest, if the IRS position is upheld. Hyatt recorded $216 of unrecognized tax benefits and said the possible change over the next 12 months could not be estimated.
- At quarter-end, commitments to lend, invest, or provide consideration to ventures were up to $317. Performance guarantees had $111 of remaining maximum exposure, excluding acquired ALG guarantees with potential payments not reasonably estimable. Debt repayment guarantees had $248 of maximum exposure net of stated recoverability.
- Hyatt expected to realize $2.0 billion of net proceeds from owned-asset dispositions by the end of 2024; it reported $681 realized as of August 9, 2022. On August 3, 2022, it acquired Hotel Irvine for approximately $135.
- Management concluded disclosure controls were effective. The company was integrating ALG into internal-control processes; no other material quarterly change in internal control was reported.
Key facts for investors to verify
- How much of reported earnings and cash generation is recurring hotel and fee performance versus asset-sale gains, investment marks, and customer deposits.
- Whether recovery in RevPAR and business/group travel can continue, particularly amid uneven regional demand and Greater China restrictions.
- ALG integration progress, segment profitability, membership-contract deferrals, and the collectability of its financed contracts.
- Potential exposure and timing of the loyalty-program tax litigation, performance guarantees, and debt repayment guarantees.
- Disposition proceeds and capital allocation against the $2.0 billion target, including debt reduction, repurchases, and the Hotel Irvine acquisition.