Hyatt Hotels Corporation — 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. The filing also reports unaudited fourth-quarter results. Amounts are in U.S. dollars; financial statement figures are generally in millions.
Business context
Hyatt operates, manages, franchises, licenses, and owns hotels and related hospitality and wellness businesses. At year-end, its portfolio included 719 full- and select-service hotels with 182,913 rooms, plus all-inclusive resorts, wellness resorts, residential and vacation ownership properties. Growth priorities include expanding management and franchise agreements, adding wellness offerings, and recycling capital through selected property sales.
Financial performance and liquidity
| Metric | 2017 | 2016 |
|---|---|---|
| Total revenue | $4.685 billion | $4.429 billion |
| Net income attributable to Hyatt | $249 million | $204 million |
| Diluted EPS attributable to Hyatt | $1.97 | $1.52 |
| Adjusted EBITDA | $816 million | $785 million |
| Cash from operating activities | $620 million | $489 million |
| Cash and cash equivalents | $503 million | $482 million |
| Short-term investments | $49 million | $56 million |
| Consolidated debt | $1.451 billion | $1.564 billion |
| Net debt | $899 million | $1.026 billion |
- Revenue rose about 6%, net income about 22%, and Adjusted EBITDA about 4%. Adjusted EBITDA is a non-GAAP measure; the filing cautions that similarly named measures may not be comparable across companies.
- Systemwide comparable RevPAR increased 3.3%; comparable owned-and-leased hotel RevPAR rose 1.0%. RevPAR growth reflected stronger transient demand and ADR, with regional variation.
- Reported revenue includes $1.918 billion of reimbursements for managed- and franchised-property costs, recorded with corresponding expenses and no added margin; this inflates reported revenue without increasing profit.
- Cash and short-term investments totaled $552 million, with $1.5 billion of available revolving-credit capacity at year-end. Restricted cash was a separate $234 million.
- Operating cash flow was $620 million. Investing activities provided $266 million, including property-sale proceeds and the Avendra distribution; financing activities used $858 million, including share repurchases.
- Capital expenditures were $298 million, up from $211 million. Total current assets were $1.327 billion and current liabilities $966 million.
- Total debt excludes Hyatt’s share of unconsolidated venture debt: approximately $580 million at year-end, substantially non-recourse, though some is guaranteed. Debt-to-total-capital was 29.2%; net-debt-to-total-capital was 18.1%.
Material changes and unusual items
- Hyatt acquired Miraval for $237 million and exhale for approximately $16 million, expanding into wellness. These acquisitions contributed to higher revenue and expenses.
- The sale of Avendra generated a $217 million liquidating distribution and gain recorded in equity earnings from unconsolidated ventures. Total equity earnings from those ventures were $220 million, versus $68 million in 2016.
- Hyatt sold several hotels and retained management or franchise agreements for certain properties. Sales generated recognized real-estate gains of $51 million; some gains on properties sold with continuing management agreements were deferred and recognized over the contract terms.
- The 2017 income tax provision was $323 million, including provisional tax-reform effects. The effective tax rate was 56.3%, versus 29.5% in 2016; the rate included a 16.9 percentage-point effect from revaluing deferred taxes and a 2.3-point deemed-repatriation tax effect. Hyatt expected a lower global effective rate beginning in 2018, but its tax-reform analysis was ongoing.
- Hyatt repurchased 12.2 million shares for an aggregate purchase price of $723 million during 2017. Approximately $864 million remained authorized at year-end.
- For the fourth quarter, revenue was $1.184 billion and net income attributable to Hyatt was $76 million, compared with $1.087 billion and $41 million, respectively, in fourth-quarter 2016. Diluted EPS was $0.62 versus $0.31.
Outlook, risks, and contingencies
- Hyatt targeted approximately $1.5 billion of gross proceeds from a reduction in owned real estate by the end of 2020, in addition to its ongoing asset-recycling activity. Proceeds were intended for growth investment, shareholder returns, and a less capital-intensive earnings mix; execution, timing, and sale values are uncertain.
- Hyatt expected approximately $65 million to $75 million of 2018 expense related to performance guarantees for four managed hotels in France. Remaining maximum exposure under those guarantees was $269 million at year-end; total performance-guarantee commitments were $323 million.
- Total debt-repayment and other guarantees were $708 million, making total guarantee commitments $1.031 billion. These are commitments, not necessarily expected cash payments; some exposures have recovery arrangements or other mitigating terms.
- Other key risks include hotel demand and economic cycles, labor and operating-cost increases, competition and online distribution, cyber and technology incidents, foreign-exchange exposure, property-sale and development execution, and owners’ ability to finance and maintain properties.
- The company reported an IRS dispute concerning whether loyalty-program contributions were taxable for 2009–2011. The asserted liability was $126 million including estimated interest, partly offset by a deferred tax asset; Hyatt said it had recorded an adequate liability. Routine legal claims were not expected by management to have a material effect.
- The $1.5 billion revolving facility was refinanced in January 2018, extending maturity to January 2023. A first-quarter 2018 dividend of $0.15 per share was declared. No quantified full-year 2018 operating guidance is provided in the filing text.
Most important facts for investors to verify
- How much of 2017’s earnings and cash flow is repeatable after separating the Avendra gain, property-sale gains, Playa-related income and realized losses, and tax-reform effects.
- Progress and realized proceeds toward the $1.5 billion property-disposition target, and the effect of retained management or franchise agreements on future earnings.
- The cost and cash-payment outlook for the French hotel performance guarantees and other guarantee exposures.
- Underlying hotel trends by region, including RevPAR, occupancy, ADR, and group-booking performance, alongside the growth of the managed and franchised portfolio.
- Liquidity and capital allocation after substantial share repurchases, planned investment, debt maturities, and the refinancing of the credit facility.
- Final tax-reform accounting, the IRS loyalty-program dispute, and the potential effects of accounting-standard changes scheduled to take effect after year-end.