Hyatt Hotels Corporation — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; comparisons are with Q1 2018 unless otherwise noted. Amounts are in millions of dollars except per-share data. Hyatt operates, manages, franchises, and licenses hotels and related hospitality businesses. At quarter-end, its worldwide hotel portfolio comprised 856 full- and select-service hotels with 210,459 rooms across 61 countries.
Financial performance and liquidity
- Revenue: $1,241, up $132 (11.9%). Growth reflected the Two Roads acquisition and expansion of the managed and franchised portfolio. Reimbursements of managed-property costs rose to $590 from $456; these revenues are largely offset by corresponding expenses. Net management, franchise, and other fees rose 7.0% to $136. Owned and leased hotel revenue fell 8.9% to $470, primarily because of 2018 dispositions.
- Profit: Net income attributable to Hyatt was $63, or $0.60 basic and $0.59 diluted per share, versus $411, or $3.47 basic and $3.40 diluted. The prior-year quarter included a $529 pretax gain on sales of three hotels. Q1 2019 also included $25 of income from releasing Two Roads contingent consideration and $17 from release and amortization of debt-guarantee liabilities. The reported net margin was approximately 5.1%, versus 37.1% in Q1 2018; the comparison is heavily affected by the prior-year property-sale gain.
- Adjusted EBITDA: $187, down 7.3% from $202. Owned and leased hotels segment Adjusted EBITDA declined $12 to $101, mainly from dispositions; Americas management and franchising rose $5 to $92, while corporate and other worsened by $8 to $(37), including Two Roads integration costs. Adjusted EBITDA is a non-GAAP measure.
- Hotel trends: Comparable system-wide RevPAR increased 1.8% in constant dollars. Comparable owned and leased hotel RevPAR rose 2.7%, with occupancy down 0.5 percentage points and ADR up 3.4%. Americas select-service RevPAR declined 1.5%; management cited U.S. supply growth outpacing demand.
- Cash flow: Operating cash flow was $13, versus $54, with the decline attributed primarily to timing of receivables, payables, and accrued expenses. Investing used $39, including $66 of capital expenditures and $15 for land; financing used $5. Cash, cash equivalents, and restricted cash ended at $591, down $31 from year-end. Q1 2018 investing cash flow included $992 of net proceeds from hotel sales.
- Debt and liquidity: Consolidated debt was $1,752 and net consolidated debt was $1,151, up from $948 at year-end; debt-to-capital was 32.6%, versus 30.8%. Hyatt had $547 of cash and cash equivalents, $54 of short-term investments, and $1.4 billion available under its $1.5 billion revolving facility, with $120 drawn. Hyatt said cash, operating cash flow, borrowing capacity, and capital-market access should be adequate for foreseeable funding needs. It reported compliance with debt covenants.
- Leases: Adoption of the new lease standard on January 1, 2019 resulted in initial recognition of $512 of operating lease right-of-use assets and $452 of lease liabilities. At March 31, operating lease liabilities were $439; this accounting change did not materially affect the income statement or cash flows.
Material changes versus the prior period
- Total revenue increased, while net income and Adjusted EBITDA decreased. Net income’s sharp decline chiefly reflects the $529 hotel-sale gain recorded in Q1 2018, rather than a like-for-like operating comparison.
- Management and franchise fees increased by $9, supported by Two Roads and hotel conversions from owned to managed. Two Roads also contributed residential-management revenue and costs; Hyatt reported $5 of integration costs in the quarter.
- Share repurchases were $102, compared with $75 reported in Q1 2018; Hyatt paid $20 in dividends, versus $18. The quarterly dividend per share rose to $0.19 from $0.15. $566 remained under the repurchase authorization at March 31.
Outlook, commentary, risks, and contingencies
- Outlook: The filing provides no quantified earnings, revenue, or RevPAR guidance. Management noted that group revenue booked during 2019 for 2019 stays was lower than the prior-year comparison, while group revenue booked for future-year stays was higher. Hyatt highlighted strong group and transient ADR in the Americas and demand in certain ASPAC and EAME/SW Asia markets, alongside weaker select-service RevPAR in the Americas and weaker results in Greater China.
- Business risks: Hyatt identified exposure to economic weakness, travel demand and booking uncertainty, occupancy and ADR declines, labor and operating-cost pressures, foreign exchange and interest rates, owner and franchisee financial health, acquisitions and dispositions, hotel renovations, competition, cybersecurity, and legal or regulatory matters. It said risk factors had not materially changed from its 2018 Form 10-K.
- Guarantees and commitments: Hyatt was committed, subject to conditions, to lend or invest up to $433. Maximum exposure on performance guarantees was $260, including $202 related to four managed hotels in France; recorded performance-guarantee liabilities were $46. Debt and other guarantees had $492 of maximum potential payments and $260 maximum exposure net of recoverability, with $32 recorded in long-term liabilities.
- Tax contingency: The IRS loyalty-program tax dispute could result in $182 of tax and estimated interest for assessed years if the IRS position is upheld, partially offset by a deferred tax asset. Hyatt said it had recorded an adequate uncertain tax liability. It was also appealing an Indian service-tax assessment, with stated maximum exposure of $18, and had not recorded a liability because it did not consider a loss probable.
- Other items: Hyatt reported antitrust lawsuits and other ordinary-course claims but did not expect their outcomes to have a material effect. It was integrating Two Roads into internal controls; management said disclosure controls were effective and no material control change had occurred. The Two Roads acquisition involved a seller indirectly affiliated with the Executive Chairman’s brother.
Important facts for investors to verify
- Separate underlying operating trends from the prior-year $529 hotel-sale gain and from Q1 2019 gains on securities and liability releases; review GAAP results alongside non-GAAP Adjusted EBITDA.
- Track whether Two Roads delivers sustained fee and EBITDA growth after integration costs, and whether the acquired agreements and preliminary purchase-price allocations change.
- Monitor operating cash generation and working-capital timing, net debt, revolver usage, capital spending, and shareholder returns.
- Assess hotel demand indicators—especially Americas select-service performance, future group bookings, and conditions in Greater China—against Hyatt’s commentary and later filings.
- Review developments in the loyalty-program tax dispute, hotel guarantees and commitments, and litigation; compare potential exposures with amounts accrued.