Hyatt Hotels Corporation — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Amounts are in millions of dollars, except per-share data and operating statistics. Hyatt operates, manages, franchises, and licenses hotels and related businesses worldwide. The COVID-19 pandemic materially disrupted travel demand and hotel operations.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $399 | $1,215 | $1,642 | $3,745 |
| Net income (loss) | $(161) | $296 | $(500) | $445 |
| Basic EPS | $(1.59) | $2.84 | $(4.93) | $4.23 |
| Adjusted EBITDA (non-GAAP) | $(48) | $163 | $(79) | $563 |
| Cash from operating activities | Not separately stated for quarter | $(463) | $274 |
- Q3 revenue fell 67.2% year over year. Owned and leased hotel revenue declined 81.4%, while management, franchise, and other fees fell 65.0% to $52; net fees after customer-payment amortization were $45, down 68.3%.
- System-wide RevPAR was $38, down 72.0% in constant currency year over year. Comparable owned and leased hotel RevPAR fell 83.1%.
- Q3 operating results included $22 of restructuring expenses related to pandemic-driven operational changes. For the first nine months, Hyatt recorded $52 of asset impairments, including $38 of goodwill impairment and $14 related to property, lease, and definite-lived intangible assets.
- Q3 2019 included $373 of real estate sale gains; Q3 2020 had none. Nine-month 2020 real estate gains were $8.
Liquidity, debt, and cash flow
- At September 30, 2020, cash and cash equivalents were $1,778 and short-term investments were $310. Hyatt reported $2,088 of combined cash and short-term investments, versus $961 at year-end 2019.
- Consolidated debt was $3,241, up from $1,623 at December 31, 2019; net consolidated debt was $1,153, versus $662. Total debt to total capital rose to 49.2% from 29.1%.
- Hyatt issued $750 of floating-rate notes due 2022, $450 of 5.375% notes due 2025, and $450 of 5.750% notes due 2030 during 2020. It had no revolver borrowings and $1,499 of available revolver capacity at September 30.
- Nine-month cash flows included $1,527 provided by financing activities, primarily reflecting debt issuance, and $318 used in investing activities. Cash, cash equivalents, and restricted cash increased $747 to $1,810.
- Capital expenditures were $104 for the nine months, down from $244. The company said cash burn declined in Q3 versus Q2, primarily due to improved operating cash flow and lower capital and investment spending.
Material changes, outlook, and risks
- Hyatt attributed the sharp year-over-year deterioration to COVID-19, travel restrictions, suspended hotel operations, reduced group and transient demand, and cost containment. At September 30, operations had resumed at 92% of system-wide hotels; 87% of owned and leased hotels were open.
- Management reported triple-digit percentage RevPAR growth in each segment from Q2 to Q3, but described recovery as uneven and difficult to predict. Preliminary October system-wide RevPAR showed modest sequential improvement from Q3. Hyatt expected business transient and group demand to remain minimal in the near term; leisure demand might hold near Q3 levels or gradually improve.
- No quantified earnings or revenue guidance was provided. Management stated it did not expect material improvement until traveler confidence improves and travel restrictions and other precautions ease. It expected lower revenues and continuing fixed costs at owned hotels to weigh on Adjusted EBITDA, partly offset by reduced payroll and non-essential spending.
- Hyatt said its liquidity, excluding proceeds from the 2022 notes, was sufficient to fund operations at Q3 2020 demand levels for more than 36 months. It also stated that cash, investments, operating cash flow, revolver capacity, and capital-market access should meet funding needs for the foreseeable future. These statements depend on uncertain pandemic and market conditions.
- Share repurchases and dividends were suspended; the revolver amendment restricts them through Q1 2021. Hyatt had realized more than $950 of proceeds toward its announced $1.5 billion real-estate disposition goal by March 2022.
- COVID-related risks include renewed restrictions, prolonged weak travel demand, owner or franchisee financial distress, reduced fee collections, guarantee funding, future impairments, delayed development, and higher financing costs. Hyatt disclosed an approximately 35% permanent workforce reduction across regions.
- Contingencies include commitments to lend, invest, or provide consideration of up to $282; performance guarantees with $52 maximum remaining exposure; and debt repayment guarantees with $464 maximum potential payments, or $294 net of expected recoveries. Recorded debt-guarantee liabilities were $39.
- An IRS dispute over loyalty-program tax treatment could require $198 of tax and estimated interest, partially offset by a deferred tax asset; $74 would affect the effective tax rate if recognized. Hyatt stated it believes its recorded uncertain-tax liability is adequate.
- The company resolved a Texas antitrust lawsuit in October 2020 without either party admitting liability; a related Illinois case remained pending. Management did not expect the litigation or ordinary-course claims to have a material financial effect.
Most important facts for investors to verify
- Whether hotel openings, RevPAR, group bookings, and travel restrictions support the company’s stated recovery expectations.
- Cash burn, cash and investment availability, revolver capacity, and compliance with amended debt covenants as demand changes.
- Future debt service costs and the impact of increased leverage and any further credit-rating changes.
- Potential owner/franchisee distress, guarantee exposures, credit losses, and recoverability of receivables and investments.
- Whether additional goodwill, intangible, property, or lease impairments—or the IRS loyalty-program tax assessment—could materially affect results.
- Progress toward the real-estate sale target and the timing of any resumption of dividends or share repurchases.