Hyatt Hotels Corporation — FY 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. This is an annual filing, not a standalone fourth-quarter report; quarterly figures are included in the filing. Dollar amounts are in U.S. dollars.
Business context
Hyatt manages, franchises, owns and develops hotels, resorts, and residential and vacation ownership properties. At year-end, its portfolio comprised 548 properties and 147,388 rooms and units in 48 countries. The portfolio included managed and franchised hotels, owned and leased hotels, and two newly introduced all-inclusive resorts. The company’s strategy emphasizes growing management and franchise agreements while selectively investing in and selling hotel assets.
Financial and operating performance
| Metric | FY 2013 | FY 2012 | Change / context |
|---|---|---|---|
| Total revenue | $4.184 billion | $3.949 billion | Up 6% |
| Net income attributable to Hyatt | $207 million | $88 million | Up 135%; diluted EPS was $1.30 versus $0.53 |
| Adjusted EBITDA | $680 million | $606 million | Up 12.2%; non-GAAP measure |
| Operating cash flow | $456 million | $499 million | Down $43 million |
| Capital expenditures | $232 million | $301 million | Down $69 million |
| Cash and short-term investments | $484 million | $927 million | Year-end balance |
| Total debt | $1.483 billion | $1.233 billion | Debt to total capital 23.7%, versus 20.4% |
| Net debt, after cash and short-term investments | $999 million | $306 million | Net debt to total capital 16.0%, versus 5.1% |
Reported revenue includes $1.622 billion of reimbursed managed-property costs, matched by expenses and with no profit impact. Reported net income included a $125 million gain on real estate sales, a $29 million gain on artwork, and $50 million of cost-method investment income; it also included $22 million of impairment charges and $35 million of debt settlement costs. The effective tax rate rose to 36.2% from 8.3% in 2012.
Comparable owned and leased hotel RevPAR rose 5.9% to $139, with occupancy up 0.8 percentage points to 75.7% and ADR up 4.8% to $183. Regional comparable systemwide RevPAR was up 5.6% in Americas full service and 5.2% in Americas select service; EAME/SW Asia rose 3.7%, while ASPAC fell 2.6% as reported, but increased 1.3% excluding currency effects.
Year-end cash was $454 million and short-term investments were $30 million. Hyatt had $1.4 billion of available borrowing capacity under its revolving credit facility, net of letters of credit. The January 2014 restated facility is $1.5 billion and matures in January 2019. The company reported no revolver borrowings at year-end and compliance with debt covenants.
Material changes versus the prior year
- Revenue grew 6% and Adjusted EBITDA rose 12.2%; all four operating segments reported higher Adjusted EBITDA, although corporate and other costs increased.
- Net income more than doubled, substantially reflecting real estate and investment-related gains and other unusual items, alongside a higher tax provision.
- Operating cash flow declined to $456 million. Cash and short-term investments fell by $443 million, while debt increased by $250 million and net debt rose by $693 million.
- Hyatt acquired the former Peabody Orlando for approximately $716 million, The Driskill for approximately $85 million, and the remaining interest in the Grand Hyatt San Antonio ownership entity. It invested $325 million in Playa, an all-inclusive resort company.
- Hyatt sold seven full-service and four select-service hotels, generally retaining a presence through long-term management or franchise agreements. Selected sales produced recognized real estate gains; other gains were deferred over management-contract terms.
- The company repurchased $275 million of common stock in 2013. It redeemed $250 million of 2015 notes for $278 million, repurchased $54 million principal of 2019 notes for $66 million, and issued $350 million of 3.375% notes due 2023.
Outlook, commentary, risks and unusual items
- Outlook: The filing provides no clear quantified company-wide revenue, earnings or cash-flow guidance. Management said group bookings for 2014 and beyond were strong and expected further group-business improvement, while noting continued uncertainty and regional pressures.
- Operating conditions: Management cited transient growth and improving group bookings in the Americas. ASPAC faced renovation-related disruption, weak conditions in parts of Asia and increased supply in China; renovations were expected to continue into 2014. Europe’s economic uncertainty and concerns in India remained headwinds. Currency movements also affected reported results.
- French hotel performance guarantee: A seven-year guarantee for four hotels has a maximum commitment of €377 million (approximately $519 million), with no annual cap. The recorded guarantee liability was approximately $118 million; Hyatt said it did not expect any 2014 payment to be significant. Across all performance guarantees, the filing reports $123 million of guarantee liabilities and a separate $6 million contingent liability.
- Other commitments and liquidity uses: Hyatt disclosed $458 million of commitments to lend or invest, net of related letters of credit, including approximately $253 million for its share of a New York hotel purchase through a venture. It also intended to exercise its $190 million option to purchase the Hyatt Regency Grand Cypress in 2014. These plans and commitments compete for capital alongside development, renovation and repurchases.
- Principal risks: Hospitality demand is cyclical and exposed to economic, travel, geopolitical, disaster and public-health shocks. Fixed hotel costs, owned-property exposure, labor costs, currency volatility, renovations, owner or franchisee financial stress, development execution, impairment, cyber and technology risks, and changes in capital access may affect results. Hyatt also disclosed legal and tax contingencies, but did not expect currently reported litigation to have a material financial effect.
- Governance and stock: Pritzker family interests controlled approximately 74.8% of voting power as of January 2014 through the dual-class share structure. Potential sales of restricted shares and Class B conversions could affect the public float and stock price.
Most important facts for investors to verify
- How much of FY 2013 earnings growth came from recurring hotel and fee operations versus the real estate, artwork and investment gains, and how the 36.2% tax rate compares with normalized expectations.
- Underlying cash generation, including the decline in operating cash flow and the substantial drop in cash and short-term investments; distinguish unrestricted liquidity from restricted cash.
- Exposure, assumptions and potential funding needs under the French performance guarantee and other performance or debt guarantees.
- Returns and valuation assumptions for the $325 million Playa investment, including the Level 3 preferred-share valuation and the company’s resort-growth plans.
- Funding needs and execution of announced 2014 property purchases, sales, renovations, and the New York venture commitment, alongside debt maturities and repurchases.
- Whether stated group-booking strength and regional RevPAR trends persist, especially given ASPAC renovations, China supply, European uncertainty and foreign-exchange effects.