Hyatt Hotels Corporation — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; unaudited. Comparisons are with Q1 2012 unless otherwise noted. Hyatt managed, franchised, owned, and leased hotels globally; its portfolio comprised 508 properties with 137,051 rooms and units at quarter-end.
Financial performance
- Revenue: $975 million, up 1.8% from $958 million. Owned and leased hotel revenue rose $19 million to $492 million, while management and franchise fees declined $4 million to $75 million. Revenue also included $388 million of managed-property reimbursements, offset by equivalent costs.
- Earnings and margins: Net income attributable to Hyatt was $8 million, or $0.05 per diluted share, versus $10 million, or $0.06, a year earlier. Net margin was approximately 0.8%, compared with 1.0%. Adjusted EBITDA, a company-defined non-GAAP measure, increased 4.8% to $131 million (approximately 13.4% of revenue). Income before taxes fell to $3 million from $14 million.
- Cash flow: Operating cash flow was $27 million, down from $61 million, primarily reflecting greater working-capital outflows. Investing cash outflow was $103 million, including the $85 million Driskill acquisition; financing cash outflow was $18 million, including $27 million of share repurchases. Cash and cash equivalents declined $83 million to $330 million.
- Liquidity and debt: Cash, cash equivalents, and short-term investments totaled $787 million, versus $927 million at year-end 2012. Consolidated debt was $1.242 billion; net debt after cash and short-term investments was $455 million. Net debt to total capital increased to 7.5% from 5.1%. The $1.5 billion revolving facility had no borrowings and approximately $1.4 billion of undrawn availability, after letters of credit.
- Balance sheet: Total assets were $7.722 billion and total liabilities $2.908 billion at March 31, 2013. Current assets were $1.696 billion and current liabilities $583 million.
Changes versus prior year and operating developments
- Revenue grew modestly, but pretax income declined $11 million. Results included an $8 million property impairment and $2 million of other income, compared with $12 million in Q1 2012; the earlier period included $8 million of marketable-security gains.
- The $5 million income-tax benefit in 2013, versus $4 million of tax expense in 2012, reflected a $4 million deferred-tax adjustment and a $2 million benefit from tax-audit settlements. The reported effective tax rate was negative 214.8%, making the quarterly comparison sensitive to tax items.
- Comparable owned and leased hotel RevPAR rose 4.5%; Americas full-service and select-service systemwide RevPAR increased 2.6% and 6.4%, respectively. EAME/SW Asia RevPAR increased 4.6%, while ASPAC RevPAR fell 2.6% (0.4% excluding currency effects).
- Hyatt acquired the Driskill hotel in Austin for approximately $85 million and sold three Hyatt Place hotels for $36 million, retaining long-term management agreements. It also entered management agreements for four hotels in France.
- Segment Adjusted EBITDA increased to $95 million for owned and leased hotels, $48 million for Americas, and $8 million for EAME/SW Asia; ASPAC declined to $9 million. Corporate and other improved to a $29 million loss.
Outlook, risks, and unusual items
- Management said available cash, operating cash flow, revolving credit capacity, and capital-market access should meet foreseeable funding needs. No specific earnings or revenue guidance was provided.
- Management expected renovations at several large ASPAC hotels, particularly in China, to affect management fees in varying degrees through 2013 and into 2014. It cited weaker Chinese corporate travel and group demand, including the effect of government austerity measures.
- Subsequent to quarter-end, Hyatt announced redemption of its $250 million 2015 Notes for an expected approximately $281 million on May 10, 2013, and a cash tender offer for its $250 million 2019 Notes, subject to financing and other conditions. The board also authorized up to an additional $200 million of share repurchases.
- Remaining maximum potential hotel performance-guarantee payments were $505 million. This includes a new France-related guarantee with a maximum commitment of $483 million; Hyatt recorded a $115 million liability and matching contract-acquisition intangible. Management said a significant payment under the guarantee in 2013 was unlikely.
- Other commitments included up to $536 million to lend or invest in ventures, including an approximately $250 million share of a conditional New York hotel purchase and $36 million remaining for a Hawaii hotel development. Debt-repayment guarantees had $288 million maximum exposure, reduced to $153 million assuming partner-sharing agreements are enforced; $10 million was accrued.
- Hyatt recorded an $8 million property impairment. It disclosed that a 10% change in certain assumptions could produce an additional approximately $20 million impairment, and that a 10% change in certain goodwill valuation assumptions could impair the entire $14 million goodwill balance of one reporting unit.
- Other risks include hotel demand and rates, group-booking visibility, owner and franchisee financial capacity, renovations, foreign exchange and interest rates, performance guarantees, and litigation. The filing reported no material change to previously disclosed risk factors and said the referenced litigation was not expected to have a material effect.
Most important facts for investors to verify
- Whether operating cash flow recovers from the Q1 working-capital-driven decline and how liquidity changes after the announced debt redemption and tender offer.
- Actual operating performance and fee impact of hotel renovations, especially in ASPAC, and whether RevPAR growth continues across regions.
- Final Driskill purchase-price allocation and the performance of acquired and newly managed properties.
- Exposure and potential cash requirements under hotel performance guarantees, venture commitments, and debt-repayment guarantees.
- Whether impairment indicators, tax benefits, and other unusual or non-recurring items affect subsequent reported earnings; assess Adjusted EBITDA alongside GAAP results and cash flow.