Hyatt Hotels Corporation — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Unless stated otherwise, dollar amounts are in millions. Hyatt operates, manages, franchises, and licenses hotels and related hospitality businesses worldwide. COVID-19 materially disrupted travel and hotel demand during the quarter.
Financial performance and liquidity
- Revenue: $993, down 19.9% from $1,241. Owned and leased hotel revenue fell $147 to $323; net management, franchise, and other fees declined $34 to $102. Reimbursement revenue, largely pass-through costs, was $533 versus $590.
- Profitability: Net loss attributable to Hyatt was $103, compared with net income of $63; diluted loss per share was $1.02 versus earnings per share of $0.59. The filing does not provide a consolidated GAAP operating margin. Adjusted EBITDA, a non-GAAP measure, was $86, down 54.3% from $187.
- Segment Adjusted EBITDA: Owned and leased hotels $34 (down from $103); Americas management and franchising $68 (down from $93); ASPAC $8 (down from $20); EAME/SW Asia $1 (down from $10); corporate and other $(27), compared with $(40).
- Cash flow: Operating cash use was $100, versus $13 provided in Q1 2019. Investing activities provided $13, including proceeds from property-related transactions; capital expenditures were $55 versus $66. Financing provided $253, including $350 net revolver borrowings, while Hyatt also repurchased $69 of stock and paid $20 in dividends.
- Liquidity and debt: Cash and cash equivalents were $1,194; short-term investments were $68; cash, cash equivalents, and restricted cash totaled $1,232. Consolidated debt was $1,962, and net debt was $700. Hyatt had $1,149 of available revolver capacity at March 31, net of letters of credit. Management said liquidity was adequate for at least 30 months assuming no improvement in operating conditions.
- Other metrics: System-wide comparable RevPAR declined 28.1% for the quarter; March alone fell 66.6%. Total assets were $8,298 and total liabilities $4,590 at March 31.
Material changes versus Q1 2019
- COVID-19 drove steep March demand declines, hotel suspensions, and lower hotel, management, and franchise revenues. Results in January and February were comparatively stronger in several regions; the pandemic’s effects intensified in March.
- Other income (loss), net swung to a loss of $81 from income of $51, principally reflecting $81 of unrealized losses on Hyatt’s Playa Hotels & Resorts shares and higher performance-guarantee expense. Separately, rabbi-trust investment losses were offset across expense and income statement lines and had no net income effect.
- Foreign-currency translation and derivative activity contributed to a $76 other comprehensive loss, versus a $10 loss in Q1 2019.
- Hyatt borrowed $400 and repaid $50 on its revolver during the quarter. Net debt rose to $700 from $662 at year-end 2019.
Outlook, risks, and unusual items
- Hyatt expected significant disruption in Q2, with recovery beginning in Q3, but said timing and pace were difficult to predict. It did not provide numerical full-year guidance. Management cited travel demand, consumer confidence, government restrictions, and the global economy as key uncertainties.
- At April 30, system-wide occupancy averaged approximately 15% at hotels still operating; approximately 35% of system-wide hotels and 82% of owned and leased hotels had suspended operations. Hyatt anticipated a material Q2 RevPAR decline.
- Hyatt reduced discretionary spending and capital expenditures, furloughed or reduced work for colleagues, and stopped share repurchases on March 3. It suspended dividends and buybacks through Q1 2021; the amended credit terms also restrict them during that period.
- On April 21, 2020, after quarter-end, Hyatt amended its revolver and issued $450 of 5.375% notes due 2025 and $450 of 5.750% notes due 2030, receiving approximately $890 net. It settled $275 of interest-rate locks for $61.
- Hyatt reported no goodwill or indefinite-lived intangible impairment at March 31, but said a 10% decline in projected cash flows or a 1% increase in discount or terminal capitalization rates could create up to $38 of impairment at two reporting units.
- Contingencies include performance guarantees with $194 maximum remaining exposure; debt repayment guarantees with $444 maximum potential payments and $279 maximum exposure net of third-party recoveries; and a disputed loyalty-program tax matter with potential payments of $194, including estimated interest, partly offset by a deferred tax asset. Hyatt said it believes its recorded tax liability is adequate.
Most important facts for investors to verify
- Whether hotel reopening, occupancy, RevPAR, and booking trends recover in line with management’s expectations, especially after the April conditions cited in the filing.
- Whether cash burn, available revolver capacity, and the post-quarter debt issuance are sufficient if weak operating conditions persist.
- Potential effects of the credit agreement amendment and higher debt on interest expense, covenants, and future access to capital.
- Whether performance guarantees, owner or franchisee financial distress, and the loyalty-program tax dispute create additional cash needs or liabilities.
- Whether changes in valuation assumptions lead to impairment charges, particularly for the two goodwill reporting units identified as sensitive.