Hyatt Hotels Corporation — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; comparisons are with Q1 2013 unless noted. Hyatt operates, manages, and franchises hotels worldwide. At quarter-end, its portfolio comprised 554 properties with 148,239 rooms and units.
Financial performance and liquidity
| Metric | Q1 2014 | Q1 2013 / comparison |
|---|---|---|
| Total revenue | $1.074 billion | $975 million; up 10% |
| Income before taxes | $80 million | $3 million |
| Net income attributable to Hyatt | $56 million; diluted EPS $0.36 | $8 million; diluted EPS $0.05 |
| Adjusted EBITDA (non-GAAP) | $172 million | $131 million; up 31% |
| Operating cash flow | $49 million | $27 million |
| Capital expenditures | $41 million | $43 million |
| Cash and cash equivalents | $765 million | $454 million at December 31, 2013 |
| Debt | $1.487 billion | $1.483 billion at December 31, 2013 |
| Net debt, after cash and short-term investments | $692 million | $999 million at December 31, 2013 |
Reported revenue includes $416 million of managed-property reimbursements, offset by corresponding costs. Hyatt’s reported net income benefited materially from a $61 million pretax gain on hotel sales. The effective tax rate was 30.1%, versus a tax benefit in the prior-year quarter. Total debt to capital was 23.8%; net debt to capital was 11.1%. Hyatt reported $1.4 billion of available revolving-credit capacity, net of letters of credit, and stated its liquidity was adequate for foreseeable funding needs.
Changes and operating trends
- Management and franchise fees increased $14 million, to $89 million, primarily from new and converted hotels, especially in the Americas.
- Owned and leased hotel revenue rose $56 million; $37 million came from non-comparable hotels and $19 million from comparable hotels. Comparable owned-hotel RevPAR increased 6.5%.
- Comparable systemwide RevPAR rose 7.7% in Americas full service and 7.0% in Americas select service. ASPAC increased 2.4% and EAME/SW Asia 3.0%; currency headwinds reduced reported growth in both regions.
- Adjusted EBITDA increased across the operating segments, led by owned and leased hotels (+$30 million) and Americas management and franchising (+$8 million). Corporate and other EBITDA declined $2 million.
- Operating cash flow improved, but the increase in net income did not translate proportionately into operating cash because earnings included the real-estate-sale gain. Investing cash flow was $329 million, mainly reflecting dispositions and related exchange transactions; financing cash outflow was $66 million.
Outlook, risks, and unusual items
- Management described stronger group demand and rate trends, while noting that Easter’s shift into Q2 boosted the Q1 comparison. No specific numerical earnings or RevPAR guidance is provided in the filing text.
- Hyatt sold nine select-service and one full-service hotel for net proceeds of $308 million after cash transferred at closing. The properties remain Hyatt-branded under long-term agreements. Proceeds were used in a like-kind exchange to acquire Hyatt Regency Orlando.
- Q1 included $17 million of performance-guarantee expense, largely associated with four managed hotels in France. The recorded guarantee liability was $122 million, with an additional $15 million contingent liability; maximum remaining potential payments were $546 million. Hyatt said expected 2014 payments were not expected to significantly affect liquidity.
- Other commitments included up to $441 million for investments and loans, including approximately $253 million of Hyatt’s share of a New York hotel purchase commitment. Hyatt also exercised an option to buy Hyatt Regency Grand Cypress for $190 million, expected to close in Q2.
- Debt repayment guarantees had a maximum exposure of $288 million; Hyatt’s stated exposure assuming partner agreements are enforced was $162 million. The company reported compliance with debt covenants.
- In April, an unconsolidated venture sold Hyatt Place Austin Downtown; Hyatt received $25 million and expected to recognize an approximate $18 million gain in Q2.
- Risks cited include economic and travel demand uncertainty, occupancy and rate declines, seasonality, foreign exchange, hotel-owner and partner financial health, performance guarantees, acquisitions and dispositions, political instability, and litigation. Management reported no material change in previously disclosed risk factors. A hotel-industry antitrust action was no longer pending against Hyatt.
Investor verification priorities
- Separate recurring operating performance from the $61 million hotel-sale gain and assess the sustainability of the increase in net income.
- Review the assumptions, payment triggers, and potential cash exposure for the French hotel performance guarantees and other guarantee commitments.
- Track the funding and closing requirements for the Grand Cypress and New York hotel purchases, including use of sale proceeds and like-kind exchanges.
- Assess operating trends excluding the Easter timing benefit and foreign-exchange effects, particularly by region and hotel type.
- Confirm liquidity and capital deployment after share repurchases, with $128 million remaining under the repurchase authorization at quarter-end.