Hyatt Hotels Corporation — Q3 2015 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2015; compared with the corresponding 2014 periods. Hyatt is a global hotel owner, manager and franchisor, with 589 hotels in its worldwide portfolio at quarter-end.
Financial performance
| Metric ($ millions, except per-share data) | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Total revenue | 1,053 | 1,104 | 3,219 | 3,336 |
| Income before taxes | 45 | 63 | 159 | 264 |
| Net income attributable to Hyatt | 25 | 32 | 87 | 162 |
| Diluted EPS attributable to Hyatt | $0.18 | $0.21 | $0.60 | $1.05 |
| Adjusted EBITDA (non-GAAP) | 172 | 179 | 551 | 582 |
| Operating cash flow | Not separately stated for Q3 | 396 | 362 |
Quarterly revenue fell 5%, while Hyatt-attributable net income declined 22% and Adjusted EBITDA declined 4%. For the nine-month period, revenue decreased 4%, net income attributable to Hyatt fell 46%, and Adjusted EBITDA declined 5%. The filing attributes much of the revenue decline to hotel dispositions and unfavorable foreign exchange; the profit decline also reflects sharply lower equity earnings from unconsolidated ventures and fewer real-estate gains than in 2014.
Q3 management and franchise fees increased 10% to $103 million; owned and leased hotel revenue decreased 10% to $500 million. Americas comparable RevPAR rose 4.0% at full-service hotels and 7.2% at select-service hotels. ASPAC and EAME/SW Asia comparable RevPAR declined 5.6% and 7.5%, respectively, in reported dollars, but increased 3.1% and 6.2% excluding currency effects. Hyatt reported no separate consolidated operating margin figure.
Cash, debt and liquidity
- At September 30, cash and cash equivalents were $569 million and short-term investments were $65 million, totaling $634 million, down from $815 million at year-end 2014.
- Consolidated debt was $1.377 billion; net debt after cash and short-term investments was $743 million. Net debt to total capital rose to 13.5% from 9.6% at December 31, 2014.
- Current maturities of long-term debt were $318 million, versus $9 million at year-end. The filing identifies $250 million of senior notes due in 2016.
- Available borrowing capacity under the revolving credit facility was approximately $1.5 billion; no revolver borrowings were outstanding. Hyatt said it was in compliance with applicable debt covenants.
- Nine-month operating cash flow was $396 million; investing activities provided $24 million and financing activities used $534 million, including $539 million of common-stock repurchases. Capital expenditures were $185 million.
Business changes, outlook and risks
- Hyatt cited improved U.S. hotel demand and rates, stronger Americas franchise fees from new and converted hotels, and continued group booking growth. Currency movements reduced reported results across regions.
- Owned-hotel Adjusted EBITDA declined 11% in Q3, mainly due to dispositions; Americas management and franchising Adjusted EBITDA increased 12%. Corporate and other costs also weighed on results.
- Hyatt sold Hyatt Regency Indianapolis and a Hyatt House property during the nine months, recording $9 million of combined gains; the Indianapolis buyer entered a long-term franchise agreement. No acquisitions were reported in the period.
- Management said cash, operating cash flow, credit capacity and capital-market access should cover funding needs and capital deployment for the foreseeable future. It expected performance guarantees not to have a significant liquidity impact in 2015; the filing provides no quantified earnings guidance.
- Performance guarantees had a maximum remaining exposure of $429 million, including $404 million related to four managed hotels in France; recorded net guarantee liabilities were $85 million. Debt repayment guarantees had maximum exposure of $222 million, or $100 million assuming specified partner and third-party recovery arrangements are enforced.
- The IRS proposed an adjustment concerning the Hyatt Gold Passport Fund’s tax treatment. Hyatt disagrees and intends to pursue available remedies. If sustained, the proposal would create an additional current tax liability of $127 million, including interest, primarily offset by a deferred tax asset. Unrecognized tax benefits were $106 million.
- Other cited risks include foreign-exchange movements, hotel demand and rates, labor costs and relations, owner and partner financial condition, performance guarantees, and legal, tax and regulatory matters. Management reported no material change in previously disclosed risk factors and did not expect current litigation to materially affect results or liquidity.
Investor verification priorities
- Assess the extent to which declines in earnings and owned-hotel results reflect dispositions, currency, and recurring operating performance; review comparable-property trends by region.
- Review the IRS Gold Passport dispute, potential cash-tax consequences, and any changes in the recorded tax reserve or appeal status.
- Track the 2016 note maturity, the increase in current debt maturities, and the adequacy of liquidity after substantial share repurchases.
- Evaluate exposure under the France hotel performance guarantee and other guarantees, including the assumptions behind potential partner and third-party recoveries.
- Reconcile Adjusted EBITDA to GAAP net income and cash flow; Adjusted EBITDA is a company-defined non-GAAP measure, not a measure of discretionary cash.