Hyatt Hotels Corporation — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; comparisons are with Q1 2014 unless noted. Dollar amounts are in millions except per-share data. Hyatt operates, manages and franchises hotels worldwide and also owns and leases properties. At quarter-end, its portfolio comprised 599 properties with 156,875 rooms and units across 50 countries.
Financial performance and position
| Metric | Q1 2015 | Q1 2014 / prior date |
|---|---|---|
| Total revenue | $1,054 | $1,074 |
| Income before tax | $34 | $80 |
| Net income attributable to Hyatt | $22 | $56 |
| Diluted EPS | $0.15 | $0.36 |
| Adjusted EBITDA | $169 | $172 |
| Operating cash flow | $15 | $49 |
| Capital expenditures | $61 | $41 |
| Cash and cash equivalents | $563 | $685 at Dec. 31, 2014 |
| Cash plus short-term investments | $643 | $815 at Dec. 31, 2014 |
| Total debt | $1,379 | $1,390 at Dec. 31, 2014 |
| Net debt, as reported | $736 | $575 at Dec. 31, 2014 |
Revenue declined 2%; net income fell 61%. Net margin, calculated from reported revenue and net income, was approximately 2.1%, versus 5.2% a year earlier. The effective tax rate was 35.3%, compared with 30.1%. The filing reports no consolidated operating-margin figure. Adjusted EBITDA is a non-GAAP measure and is not a substitute for GAAP earnings or cash flow.
Cash declined by $122 during the quarter. Operating cash flow was reduced by working-capital timing and distributions from unconsolidated ventures. Investing activities provided $41, including $69 of net proceeds from the Hyatt Regency Indianapolis sale; financing activities used $193, principally for share repurchases. Hyatt reported approximately $1.5 billion of undrawn revolving-credit availability and stated it was in compliance with debt covenants. Reported net debt excludes Hyatt’s share of unconsolidated venture debt, approximately $655.
Material changes and operating trends
- Owned and leased hotel revenue fell $39, including $13 of unfavorable currency effects and lower revenue from property dispositions. Comparable owned-hotel RevPAR rose 3.8% (6.5% excluding currency effects).
- Management and franchise fees increased $16 to $105, supported by new and converted hotels and improved Americas performance. Americas comparable RevPAR rose 7.5% at full-service hotels and 10.1% at select-service hotels.
- Comparable RevPAR was flat in ASPAC, or up 5.8% excluding unfavorable currency effects. EAME/SW Asia RevPAR declined 8.1%, but increased 1.4% excluding currency effects.
- Consolidated Adjusted EBITDA decreased $3. Americas management and franchising increased $13; EAME/SW Asia declined $5, corporate and other declined $10, and owned and leased hotels declined $1.
- Q1 2015 included an $8 gain on the sale of Hyatt Regency Indianapolis for $69 net proceeds. Q1 2014 included $61 of gains on sales of ten hotels, making the prior-year earnings comparison notably favorable.
- Hyatt repurchased 3.19 million shares for $187 at a weighted-average price of $58.67; $257 remained under the authorization at quarter-end.
Outlook, commentary and risks
- No numerical earnings or revenue guidance is provided. Management said cash, investments, operating cash flow, credit capacity and capital-market access should be adequate for foreseeable funding needs. It expected 2015 payments under the French hotel performance guarantee not to significantly affect liquidity and capital resources.
- The four managed hotels in France generated $16 of performance-guarantee expense in Q1. Remaining maximum exposure under performance guarantees was $415, including €362 million (reported as $388) for those hotels; that guarantee has no annual cap.
- Other commitments include up to $239 of potential lending or investment. Debt-repayment guarantees had a $234 maximum amount; Hyatt estimated net exposure at $103 assuming recovery under partner and third-party agreements.
- Hyatt reported $126 of financing receivables on non-accrual status and a $101 allowance against $146 of gross financing receivables. The filing says no loan impairment charges were recorded in the quarter.
- Foreign-exchange movements affected reported results, including a $55 foreign-currency translation loss in other comprehensive income and $7 of foreign-currency losses in other loss, net. Hyatt uses forward contracts, primarily for intercompany exposures.
- Management cited risks including economic and travel demand changes, occupancy and room-rate declines, currency fluctuations, performance guarantees, labor matters, owner and franchisee financial condition, competition, cyber and technology risks, and legal proceedings. It reported no material change to previously disclosed risk factors and did not expect pending claims and litigation to have a material effect.
- Hyatt announced the Hyatt Centric brand and continued hotel openings and development plans. The first Hyatt Centric hotel opened in April 2015; one additional opening was planned for Q2.
Key facts for investors to verify
- Whether the improvement in Americas hotel demand and fee growth can offset currency pressure, dispositions and weaker EAME/SW Asia performance.
- The duration, cash-payment likelihood and potential exposure from the uncapped French hotel guarantee and other guarantees.
- Whether operating cash flow recovers from working-capital timing while capital spending and share repurchases continue.
- The assumptions supporting the valuation and recoverability of the $101 financing-receivable allowance and the $282 Level 3 Playa preferred-share investment.
- How much of reported net debt and liquidity is affected by restricted cash, venture debt, future investment commitments and the remaining repurchase authorization.