Hyatt Hotels Corporation — Q2 2012 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2012. Amounts are in millions of dollars except per-share data and operating statistics. Hyatt manages, franchises, owns and leases hotels and related hospitality businesses worldwide; its portfolio comprised 492 properties with 135,327 rooms and units at quarter-end.
Financial performance
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Total revenue | $1,014 | $936 | $1,972 | $1,811 |
| Income before taxes | $57 | $35 | $71 | $51 |
| Net income attributable to Hyatt | $39 | $37 | $49 | $47 |
| Diluted EPS attributable to Hyatt | $0.24 | $0.22 | $0.30 | $0.28 |
| Adjusted EBITDA | $180 | $151 | $305 | $260 |
| Operating cash flow | Not separately reported for quarter | $231 | $210 |
Q2 revenue increased 8.3% (9.2% excluding currency effects); six-month revenue rose 8.9%. Growth reflected hotel acquisitions and renovations, stronger occupancy and rates, and higher management and franchise fees. Revenue also includes reimbursed managed-property costs, recorded with matching expenses and no added margin.
Q2 Adjusted EBITDA increased 19.2%, with gains led by owned and leased hotels (+$18) and North American management and franchising (+$10). Six-month Adjusted EBITDA increased 17.3%. These are non-GAAP measures and are not substitutes for GAAP earnings or cash flow. Q2 comprehensive income attributable to Hyatt was $15, down from $54, mainly reflecting a $23 foreign-currency translation loss.
Comparable owned and leased hotel RevPAR rose 7.6% in Q2, including 8.0% for full-service and 5.4% for select-service hotels. Comparable North American systemwide RevPAR increased 8.7% for full-service hotels and 6.4% for select-service hotels. International full-service RevPAR increased 3.8%, or 8.5% excluding currency effects.
Balance sheet, liquidity and cash flow
- At June 30, cash and cash equivalents were $404; short-term investments were $502; and restricted cash was $43. Cash plus short-term investments totaled $906, versus $1,122 at year-end 2011.
- Total debt was $1,224, approximately unchanged from $1,225 at year-end. Net debt after cash and short-term investments was $318, compared with $103. Debt-to-capital was 20.1%; net debt-to-capital was 5.2%.
- Current assets were $1,440 and current liabilities $611. The company reported $1.4 billion of undrawn borrowing availability under its $1.5 billion revolving credit facility; $99 of letters of credit reduced facility availability. No revolver borrowings were outstanding.
- For the first half, operating cash flow was $231; investing cash outflow was $353; and financing cash outflow was $3. Cash declined $130 to $404. Investing included $157 of capital expenditures, $179 of acquisitions net of acquired cash, $41 of investment contributions and $52 of notes receivable issued.
- Capital expenditures were $157 for the first half: $84 for property enhancements, $43 for maintenance and $30 for new properties. Hyatt reported compliance with debt and revolver covenants.
Material changes, outlook and risks
- Hyatt acquired the company owning the Hyatt Regency Mexico City for approximately $201, including $11 of acquired cash; net purchase price was $190. The hotel contributed $5 of revenue and $1 of continuing income after acquisition. The transaction added $30 of goodwill.
- Management cited continued positive demand, particularly North American transient business, rising occupancy and rates, and strong Asia Pacific and Latin American performance. It reported North American full-service occupancy approaching historic highs at quarter-end. The filing provides no specific financial or RevPAR guidance.
- The company announced a corporate and regional operating realignment expected to be completed by Q4 2012. First-half realignment costs were $7. On August 1, 2012, the board authorized up to $200 of common-stock repurchases, funded from balance-sheet cash; the program is discretionary and may be suspended or discontinued.
- Interest expense rose to $17 in Q2 from $14 and to $35 for the first half from $27, primarily reflecting $500 of senior notes issued in August 2011. The company also holds $549 of its share of unconsolidated venture debt, substantially all non-recourse.
- Commitments to lend or invest under specified conditions totaled up to $536, including an approximately $250 share of a New York hotel purchase commitment and an $81 remaining Hawaii development commitment. Letters of credit totaled $120. Maximum potential payments under certain hotel profitability agreements were $27; maximum exposure under various loan, lease-completion and repayment guarantees was $109, or an estimated $81 assuming partner-sharing agreements are enforceable.
- Management identified hotel-property assets for which a 10% change in certain cash-flow assumptions could result in an impairment charge of approximately $26; no impairment was recorded in the quarter. Unrecognized tax benefits totaled $175; up to $46 could be reduced within twelve months. Management did not expect ordinary-course litigation and claims to have a material effect, based on information available.
- Key risks cited include economic conditions and travel demand, occupancy and room rates, owner and franchisee financial health, labor and operating costs, foreign exchange and interest rates, disasters or hostilities, competition, execution of the realignment, and acquisition, legal and tax risks.
Important facts for investors to verify
- Whether RevPAR, occupancy and rate gains persist, and how much growth reflects acquisitions, renovations or currency movements.
- Cash availability after acquisition spending, capital expenditures, restricted cash and the announced repurchase authorization.
- Credit quality and recoverability of financing receivables: the allowance was $91, including $76 against unsecured financing; non-accrual balances were $118.
- Progress on the realignment, related costs, the New York and Hawaii commitments, and guarantee exposure.
- Potential property impairment sensitivity and the timing and outcome of tax audits or other uncertain tax positions.