Hyatt Hotels Corporation — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; comparisons are with Q1 2015 unless otherwise noted. Hyatt operated or franchised 612 hotels with 161,572 rooms across its global portfolio. Amounts are in U.S. dollars.
Financial performance and liquidity
- Revenue: $1.089 billion, up 3.3% (4.3% excluding currency effects). This includes $457 million of managed-property reimbursements, largely offset by related costs.
- Profit: Net income attributable to Hyatt was $34 million versus $22 million; diluted EPS was $0.25 versus $0.15. Pretax income was $50 million, and the effective tax rate was 31.7% versus 35.3%.
- Adjusted EBITDA: $194 million, up 4.9%. This is a non-GAAP measure; Hyatt changed its definition to exclude stock-based compensation and recast the comparative period.
- Cash flow: Operating cash flow was $51 million versus $15 million; investing activities used $12 million versus providing $41 million; financing provided $264 million versus using $193 million. Cash rose $314 million to $771 million. Management attributed the operating cash-flow improvement primarily to timing of receivables, payables and accrued expenses.
- Debt and liquidity: Consolidated debt was $1.706 billion, versus $1.370 billion at year-end; cash and short-term investments totaled $826 million, resulting in net debt of $880 million. Net debt to total capital was 15.4%, versus 16.2%. Hyatt reported approximately $1.5 billion of available revolver capacity and no revolver balance at quarter-end; it was in compliance with applicable covenants.
- Capital allocation: Capital expenditures were $38 million versus $61 million. Hyatt repurchased $63 million of stock at a weighted-average $41.37 per share, with $316 million remaining under its authorization.
The filing does not provide a clear consolidated operating-margin figure.
Performance versus the prior period
- Comparable systemwide RevPAR increased 0.6% as reported and 2.2% in constant currency. Owned and leased comparable RevPAR rose 2.4% as reported and 3.7% in constant currency.
- Americas select-service RevPAR grew 6.7%; Americas full-service RevPAR grew 1.3%. ASPAC full-service RevPAR fell 1.6% as reported but rose 1.9% in constant currency. EAME/SW Asia full-service RevPAR fell 10.0% as reported and 5.9% in constant currency.
- Adjusted EBITDA increased in owned and leased hotels ($131 million versus $124 million), Americas management and franchising ($76 million versus $73 million), and EAME/SW Asia management ($8 million versus $7 million); ASPAC was flat at $12 million. Corporate and other adjusted EBITDA declined to $(33) million from $(31) million.
- Net income benefited from higher equity earnings from ventures and lower other loss, while Q1 2015 included an $8 million gain on sale of Hyatt Regency Indianapolis. The improvement in net income also reflects the lower effective tax rate.
Outlook, commentary and key risks
- Management said current ASPAC and EAME/SW Asia trends were expected to continue affecting 2016 results, with quarterly RevPAR comparisons also affected by prior-year growth patterns. No specific full-year earnings or revenue guidance is provided in the filing.
- Americas performance reflected stronger transient demand and rates; group demand was lower in Q1 partly due to Easter timing, while long-term bookings continued to show positive growth. ASPAC faced increased hotel supply and restrictions on inbound travel to Hong Kong. EAME/SW Asia weakness reflected lower demand after terrorist attacks in Paris and Istanbul, along with regional supply, oil-price and travel pressures.
- Performance guarantees had a maximum remaining exposure of $419 million, including $392 million related to four managed hotels in France; Hyatt recorded net guarantee liabilities of $97 million. The France guarantee has no annual cap. Hyatt also reported $377 million of maximum debt-repayment guarantees; stated exposure could be $260 million assuming recovery arrangements with partners and third parties are successful.
- Hyatt was monitoring property and equipment for a possible future impairment of approximately $25 million if its plans change; no impairment was recorded in Q1. It also recorded a $3 million liability for a 2015 cybersecurity malware issue and expected insurance coverage to exceed its deductible.
- After quarter-end, Hyatt redeemed $250 million of 2016 Notes for $254 million on April 11, 2016, and acquired Thompson Miami Beach for approximately $238 million on April 25 from an entity indirectly owned by a partnership affiliated with the Executive Chairman’s brother. The hotel was rebranded The Confidante.
- Management said it believed cash, operating cash flow, revolver capacity and capital-market access would meet foreseeable funding needs. General risks include travel demand, economic conditions, currency and interest-rate movements, labor costs, owner and franchisee financial health, guarantees, cyber incidents and legal proceedings. Hyatt reported no material change in previously disclosed risk factors and no expected material effect from current litigation.
Important facts for investors to verify
- How much of reported revenue growth and managed-property revenue reflects fee growth versus pass-through reimbursements, and whether RevPAR trends persisted after Q1.
- The assumptions and possible loss exposure underlying the France performance guarantees, other guarantees and recovery agreements.
- The likelihood and timing of any property impairment, and the valuation sensitivity of Hyatt’s $328 million Playa preferred-share investment, which is Level 3 and estimated using significant unobservable inputs.
- The effect on leverage and liquidity of the April 2016 note redemption and $238 million hotel acquisition, including the related-party transaction terms.
- Cash-flow sustainability: Q1 operating cash flow benefited from working-capital timing, while debt increased following the issuance of $400 million of 2026 Notes.