Hyatt Hotels Corporation — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Amounts are in millions of dollars except per-share data and RevPAR. Hyatt operates, manages, franchises, leases, and owns hotels and related hospitality businesses; its portfolio included 1,028 hotels in 69 countries at quarter-end.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $851 | $399 | $1,952 | $1,642 |
| Net income (loss) | $120 | ($161) | ($193) | ($500) |
| Diluted EPS | $1.15 | ($1.59) | ($1.89) | ($4.93) |
| Adjusted EBITDA (non-GAAP) | $110 | ($48) | $145 | ($79) |
- Q3 revenue rose 113% year over year, reflecting hotel recovery and higher management and franchise activity. Revenue includes reimbursements for managed-property costs, largely offset by related expenses; the filing does not provide a clear comparable consolidated operating-margin figure.
- Q3 results included $307 million of gains on real estate and other sales, principally the $305 million gain on the sale of Hyatt Regency Lake Tahoe. The nine-month total was $412 million, including the $104 million gain on Lost Pines.
- System-wide comparable RevPAR was $94 in Q3, up 137.8% year over year, but below the $137 reported for Q3 2019. 99% of system-wide hotels were open at September 30.
- Nine-month operating cash flow was $209, versus cash used of $463 a year earlier. Investing cash flow was $738 and financing cash flow was $300; the net increase in cash, cash equivalents, and restricted cash was $1,244. Operating cash flow benefited in part from a $254 tax refund.
- At September 30, cash and cash equivalents were $2,418, short-term investments $357, and current assets $3,239, against current liabilities of $876. Debt was $2,988; net debt, as defined by Hyatt, was $213, compared with $1,362 at December 2020. The $1.5 billion revolving facility was undrawn, with $1.5 billion available at quarter-end.
Material changes and significant transactions
- Recovery improved results versus the pandemic-affected 2020 period, with leisure travel leading. Q3 consolidated Adjusted EBITDA improved by $158; owned and leased hotels and Americas management and franchising were the main contributors.
- Hyatt sold Lake Tahoe and Lost Pines and completed its previously announced commitment to realize $1.5 billion in real-estate proceeds. It announced a further goal of $2.0 billion of proceeds from owned-asset dispositions by the end of 2024.
- In Q3, Hyatt issued 8.05 million Class A shares and received $575 million net, primarily to help fund its planned Apple Leisure Group (ALG) acquisition. It did not repurchase shares or pay dividends during the nine months.
- After quarter-end, Hyatt completed the $2.7 billion ALG acquisition on November 1, funded with cash, $1 billion of new debt proceeds, the $575 million stock offering proceeds, and $210 million drawn on the revolver. On October 1 it issued $1.75 billion of senior notes and on October 15 redeemed the $750 million 2022 Notes. The preliminary purchase-price allocation was incomplete at filing.
Outlook, risks, and contingencies
- Hyatt gave no specific financial earnings or revenue guidance in the supplied filing text. Management expected near-term demand to remain uneven, while leisure demand remained strong and business-transient and group bookings showed momentum. Group booking activity remained below pre-pandemic levels; COVID-19 variants, travel restrictions, and recovery uncertainty could disrupt demand.
- Management expected conservative capital expenditures during 2021 because of continued pandemic-related demand pressure. Nine-month capital expenditures were $65 million, down from $104 million.
- The ALG acquisition adds integration, execution, and indebtedness risks. Hyatt warned anticipated benefits may not be realized on schedule or at all. S&P lowered Hyatt’s credit rating to BB+ from BBB- on November 3, 2021.
- Hyatt recorded a $176 million valuation allowance against U.S. federal and state deferred tax assets. A pending IRS dispute over loyalty-program contributions could result in $221 million of tax and estimated interest if the IRS position prevails; Hyatt said it had recorded an adequate uncertain-tax liability.
- At September 30, maximum exposure under debt repayment and other guarantees was $415 million before estimated recoveries and $285 million net of recoverability; recorded liabilities were $51 million. Performance guarantees had $93 million of remaining maximum exposure. Hyatt also had up to $332 million of conditional commitments to lend, invest, or provide consideration.
Key facts for investors to verify
- How much Q3 and nine-month earnings depended on asset-sale gains, and how operating performance progresses without those gains.
- Post-acquisition debt, liquidity, covenant capacity, and credit-rating implications after the ALG purchase and related financing.
- ALG integration costs, purchase-price allocation, contingent consideration, and progress toward expected strategic benefits.
- Hotel demand recovery by region and segment, including RevPAR relative to 2019 and the return of group and business-transient travel.
- Resolution and potential cash impact of the IRS loyalty-program tax dispute, valuation-allowance changes, and guarantee exposures.