Hyatt Hotels Corporation — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020; filed August 4, 2020. Hyatt operates, manages, franchises, and licenses hotels and related hospitality businesses worldwide. The filing attributes the severe deterioration in results to COVID-19, travel restrictions, and hotel closures.
Financial performance
| Metric (USD millions, except per-share data) | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $250 | $1,289 | $1,243 | $2,530 |
| Net income (loss) attributable to Hyatt | $(236) | $86 | $(339) | $149 |
| Diluted EPS | $(2.33) | $0.80 | $(3.35) | $1.39 |
| Adjusted EBITDA (non-GAAP) | $(117) | $213 | $(31) | $400 |
| Operating cash flow | Not separately stated for the quarter | $(330) | $179 |
Q2 revenue declined 80.6% year over year. Owned and leased hotel revenue fell to $19 million from $490 million, while net management, franchise, and other fees fell to $13 million from $152 million. Revenue includes substantial reimbursement of costs incurred for managed and franchised properties, which is generally offset by corresponding expenses. The filing does not provide a clear standalone operating-margin figure.
System-wide comparable RevPAR fell 89.4% in Q2 to $15. Comparable owned-and-leased hotel RevPAR fell 97.4%. Hyatt reported Q2 asset impairments of $49 million, including $38 million of goodwill impairment, and $47 million of restructuring costs. Interest expense was $35 million, versus $20 million a year earlier.
Liquidity, debt, and capital
- At June 30, cash and cash equivalents were $1.438 billion; short-term investments were $65 million. Cash, cash equivalents, and restricted cash totaled $1.479 billion.
- Consolidated debt was approximately $2.5 billion, up from $1.623 billion at December 31, 2019. Net debt, as defined by Hyatt, was $997 million versus $662 million; debt-to-total-capital was 41.7%, compared with 29.1%.
- Hyatt issued $450 million of 5.375% notes due 2025 and $450 million of 5.750% notes due 2030, receiving approximately $890 million net. It repaid outstanding revolving-credit borrowings; none were outstanding at quarter-end, and $1.499 billion of capacity remained available.
- Six-month capital expenditures were $88 million, versus $146 million in 2019. Operating cash use reflected weaker business performance and a $61 million settlement of interest-rate locks.
- Hyatt paid a first-quarter dividend of $20 million and repurchased $69 million of stock during the first half, but suspended dividends and repurchases thereafter. The credit amendment restricts both through Q1 2021.
Changes, outlook, and risks
- Hyatt said the pandemic’s effects began in Q1 and continued into Q2 and Q3; it cautioned that interim results are unlikely to be comparable with past performance or indicative of future performance. At June 30, operations had resumed at 80% of system-wide hotels, versus 75% at March 31; owned-and-leased hotels were particularly affected.
- Management reported modest month-to-month RevPAR improvement during Q2 and a slight further improvement in preliminary July results, but described recovery as uncertain, uneven, and dependent on travel restrictions, consumer confidence, corporate travel, and the broader economy. Hyatt expected no material improvement until confidence improves and restrictions are lifted. It gave no specific earnings or revenue guidance.
- Hyatt said cash burn in Q2 was lower than expected and believed available cash, investments, operating cash flow, borrowing capacity, and capital-market access would fund requirements for the foreseeable future. Assuming no improvement from Q2 demand levels, it estimated liquidity could support operations for at least 36 months.
- Cost actions included staffing and payroll reductions, lower hotel and owner-related expenses, reduced discretionary capital spending, and eliminating non-essential spending. Management expected lower revenue and continuing fixed costs at owned hotels to pressure Adjusted EBITDA for the rest of 2020, partly offset by lower corporate expenses.
- Hyatt remained on track with its plan to sell approximately $1.5 billion of real estate by March 2022 and reported more than $950 million of proceeds realized by June 30.
- Contingencies include up to $277 million of conditional commitments to lend, invest, or provide consideration; $60 million maximum remaining exposure under performance guarantees; and $457 million of maximum potential future payments under debt repayment and other guarantees ($287 million net of stated recoverability). Hyatt recorded a $13 million credit loss reserve for a Brazil guarantee.
- A tax dispute over loyalty-program contributions could result in a $196 million payment, including estimated interest, if the IRS position is upheld; Hyatt said it believes its recorded uncertain-tax liability is adequate. It also reported no material change in previously disclosed risk factors and said it did not expect pending lawsuits to materially affect its financial position, results, or liquidity.
Important facts for investors to verify
- Whether hotel openings and RevPAR recovery continued after the July 2020 update, and how recovery affected demand, fees, and owned-hotel cash flows.
- Liquidity assumptions, including the stated 36-month runway at Q2 demand levels, available revolver capacity, debt maturities, and covenant terms.
- Further impairment, credit-loss, restructuring, or guarantee charges as COVID-19 conditions and hotel-owner finances evolve.
- Timing and proceeds from the real-estate disposition plan, and whether restrictions on dividends and repurchases change after Q1 2021.
- Developments in the loyalty-program tax litigation and the potential $196 million exposure.