Hyatt Hotels Corporation — Q1 2021 Form 10-Q
Business context and period. Reports the three months ended March 31, 2021, compared with the same period in 2020. Hyatt operates, manages, franchises, owns and leases hotels and related hospitality businesses worldwide. Its portfolio included 993 full- and select-service hotels in 68 countries. COVID-19 continued to materially disrupt travel and hotel demand; results are not considered comparable to historical performance or indicative of long-term results.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $438 million | $993 million |
| Net loss attributable to Hyatt | $304 million | $103 million |
| Loss per diluted share | $2.99 | $1.02 |
| Adjusted EBITDA, non-GAAP | $(20) million | $86 million |
| Cash used in operating activities | $91 million | $100 million |
- Revenue declined 55.9% year over year. Owned and leased hotel revenue fell 67.8%, net management, franchise and other fees fell 46.3%, and reimbursed property costs revenue fell 51.2%. Reimbursements are generally offset by related expenses.
- System-wide comparable RevPAR was $46, down 48.9% in constant currency; it remained well below the $132 reported for Q1 2019. Comparable owned and leased hotel RevPAR was $48, down 64.4%.
- The net loss widened despite a smaller pretax loss: the $186 million income-tax provision included a $193 million non-cash valuation allowance against U.S. federal and state deferred tax assets. The effective tax rate was (156.6)%.
- Equity earnings from unconsolidated hospitality ventures included a $69 million pretax gain from acquiring the remaining interest in the entities owning Grand Hyatt São Paulo. Excluding the gain, reported earnings were materially affected by pandemic-era operating conditions and investment-market gains and losses.
- No conventional operating margin is stated in the supplied filing text. Adjusted EBITDA was negative $20 million, versus positive $86 million a year earlier.
Balance sheet, liquidity and debt
- At March 31, 2021, cash and cash equivalents were $1.078 billion, short-term investments $550 million, and total cash, cash equivalents and restricted cash $1.106 billion. Cash plus short-term investments were $1.628 billion.
- Long-term debt was $2.982 billion and current maturities were $260 million, or $3.242 billion in consolidated debt. Net consolidated debt, as defined by Hyatt, was $1.614 billion, up from $1.362 billion at year-end 2020. Net debt to total capital increased to 26.3% from 21.1%.
- The $1.5 billion revolving facility had no borrowings and $1.499 billion of available capacity, net of letters of credit. Hyatt reported compliance with applicable debt covenants.
- Cash used in investing activities was $31 million; financing activities used $14 million. Capital expenditures were $19 million, down from $55 million.
Changes, outlook and risks
- Management reported sequential demand improvement during the quarter, primarily from leisure travel in certain markets. At quarter-end, 96% of system-wide hotels were open. Recovery remained uneven and uncertain; management did not provide specific financial guidance.
- Management expected near-term demand to remain uneven and did not expect material improvement until business-traveler and consumer confidence improved and travel restrictions eased. Leisure demand could remain steady or improve moderately, while group and business travel were expected to recover gradually.
- Hyatt expected to maintain conservative capital expenditure levels during 2021. Its previously announced goal was to realize approximately $1.5 billion from real estate sales by March 2022; approximately $1 billion had been realized by March 31, 2021.
- Dividends and share repurchases remained suspended. The credit-facility amendment extended covenant relief through January 1, 2022, added a minimum fixed-charge coverage covenant for Q1 2022, and restricts dividends and repurchases until Q1 2022.
- Material uncertainties include pandemic duration and variants, vaccine distribution and acceptance, travel restrictions, recovery in group and corporate travel, third-party owners’ financial health, and the ability to achieve hotel operating targets. Hyatt stated its COVID-19 estimates remain subject to uncertainty.
- Hyatt expects an approximately $250 million IRS refund related to carrying back 2020 tax losses; it was recorded as prepaid income taxes. A disputed loyalty-program tax matter could result in a $218 million payment, including estimated interest, if the IRS position is upheld; Hyatt says it has recorded an adequate uncertain-tax liability.
- Other exposures include up to $335 million of conditional commitments to lend, invest or provide consideration; $41 million maximum remaining exposure under performance guarantees; and $265 million maximum exposure net of recoverability on debt repayment guarantees. Hyatt reported no awareness that relevant borrowers were delinquent on guaranteed debt service.
- Hyatt said ordinary-course claims and litigation were not expected to have a material effect based on information then available. It disputes a putative hotel-industry antitrust class action and an Indian service-tax assessment; the latter had maximum exposure of up to $18 million.
Important facts for investors to verify
- Whether operating results and RevPAR continue to recover, especially in group and corporate travel, and how performance compares with pre-pandemic levels.
- Whether cash burn, liquidity and net debt remain manageable as debt maturities and covenant requirements approach.
- The tax implications of the deferred-tax-asset valuation allowance, expected IRS refund and loyalty-program tax dispute.
- Whether the $1.5 billion real-estate disposition target is achieved by March 2022 and at acceptable values.
- Potential changes in guarantee and commitment exposures, hotel-owner credit quality, and the timing of any dividend or repurchase resumption.