Hyatt Hotels Corporation — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015; comparison with the corresponding 2014 periods. Amounts are in millions of dollars except per-share data and percentages.
Business context
Hyatt operates, manages, franchises, licenses, develops, and owns hospitality properties worldwide. At June 30, 2015, its portfolio comprised 618 properties with 160,205 rooms and units across 51 countries. Its reportable segments are owned and leased hotels; Americas management and franchising; ASPAC management and franchising; and EAME/SW Asia management.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Total revenue | $1,112 | $1,158 | $2,166 | $2,232 |
| Income before taxes | $80 | $121 | $114 | $201 |
| Net income attributable to Hyatt | $40 | $74 | $62 | $130 |
| Diluted EPS attributable to Hyatt | $0.27 | $0.48 | $0.42 | $0.83 |
| Adjusted EBITDA (non-GAAP) | $210 | $231 | $379 | $403 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $184 | $253 |
Q2 revenue declined 4% and six-month revenue declined 3%. Q2 net income attributable to Hyatt fell 46%; the six-month figure fell 52%. Reported effective tax rates were 50.0% for Q2 and 45.6% for the first half of 2015, compared with 37.8% and 34.7%, respectively, in 2014.
At June 30, cash and cash equivalents were $644; short-term investments were $80 and restricted cash was $204. Current assets were $1,483 and current liabilities $772. Debt was $1,391, including $72 of current maturities; net debt after cash and short-term investments was $667. Total debt to capital was 24.3%, and net debt to capital was 11.7%. Undrawn revolving credit availability was approximately $1.5 billion; there were no revolver borrowings, and Hyatt reported compliance with its debt covenants.
First-half investing cash flow was $111, including $122 of capital expenditures and proceeds from property sales and investment maturities. Financing cash flow was negative $344, primarily reflecting $344 of share repurchases. Cash declined $41 during the period.
Material changes and operating trends
- Revenue pressure reflected unfavorable currency effects and hotel dispositions. Management cited net unfavorable foreign-exchange impacts of $22 in Q2 and $38 in the first half.
- Management and franchise fees increased 9% in Q2 to $112 and 13% in the first half to $217, supported by new and converted hotels, stronger Americas performance, and deferred-gain amortization.
- Comparable Americas full-service RevPAR grew 6.3% in Q2 and select-service RevPAR grew 7.2%. ASPAC RevPAR declined 4.2% as reported but increased 2.2% excluding currency. EAME/SW Asia RevPAR declined 13.2% as reported and 0.2% excluding currency.
- Owned and leased hotels Adjusted EBITDA fell $17 in Q2 and $18 in the first half, mainly due to dispositions and weaker unconsolidated venture results. Americas management and franchising Adjusted EBITDA rose $2 in Q2 and $15 in the first half.
- Equity results from unconsolidated hospitality ventures shifted to losses of $23 in Q2 and $29 in the first half, from earnings of $23 and $16, respectively. 2015 losses included $28 in Q2 and $33 in the first half from two foreign joint ventures. The 2014 comparison benefited from a $20 joint-venture hotel-sale gain.
- First-half 2014 results included $62 of real-estate sale gains, versus $9 in 2015. Hyatt sold Hyatt Regency Indianapolis in 2015 for $69 net of closing costs, recognizing an $8 gain, and sold other property interests for additional gains.
Outlook, risks, contingencies, and unusual items
- The filing provides no quantified revenue, earnings, or RevPAR guidance. Management said cash, operating cash flow, available credit, and capital-market access should be adequate for foreseeable funding needs. It expected 2015 payments under the French hotel performance guarantee not to significantly affect liquidity.
- Hyatt anticipated selling an entity holding an interest in a foreign-currency joint venture in the second half of 2015. On sale or substantial liquidation, it estimated that approximately $20 of accumulated currency translation losses could be reclassified through equity earnings, based on then-current exchange rates.
- Performance guarantees had a remaining maximum exposure of $429, including $403 for four managed hotels in France; recorded net guarantee liabilities were $89. Debt repayment guarantees had a stated maximum exposure of $231; Hyatt estimated exposure at $101 assuming recovery arrangements with partners and third parties were enforceable.
- Hyatt was committed, subject to conditions, to lend or invest up to $223 in business ventures. It also disclosed $56 of outstanding letters of credit and $23 of surety bonds. Management said ordinary-course litigation was not expected to have a material effect, while noting outcomes remain uncertain.
- On July 30, 2015, the board authorized up to an additional $400 of share repurchases. Hyatt reported approximately $475 of authorization remaining at July 31, after repurchasing about $25 of shares in July.
- Principal stated risks include global economic conditions, travel demand and hotel rates, foreign exchange, labor and operating costs, performance guarantees, third-party owner and franchisee financial health, competition, disasters or security events, cyber risks, and legal or regulatory matters.
Investor facts to verify
- Whether the sharp decline in earnings and Adjusted EBITDA persists after separating currency, dispositions, venture losses, taxes, and prior-year sale gains.
- Underlying hotel demand and pricing trends by region, particularly continued Americas strength versus weakness in EAME/SW Asia and currency-sensitive ASPAC results.
- Cash conversion and capital allocation: operating cash flow fell to $184 while Hyatt repurchased $344 of stock and increased authorized repurchases after quarter-end.
- Potential cash and earnings effects of the French performance guarantee, foreign joint-venture exposures, and the estimated $20 translation-loss reclassification.
- Debt maturities, liquidity availability, and the degree to which disclosed guarantee exposures could become payable; unconsolidated venture debt is excluded from reported consolidated debt.