Hyatt Hotels Corporation — FY 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. Unless noted otherwise, financial amounts are in U.S. dollars and millions.
Business context
Hyatt operates a global hotel business through ownership, leasing, management, franchising and licensing. At year-end, its portfolio comprised 657 hotels and 171,133 rooms in 56 countries. Hyatt reported four segments: owned and leased hotels, Americas management and franchising, ASPAC management and franchising, and EAME/SW Asia management and franchising. A substantial portion of reported revenue consists of managed-property cost reimbursements that have no added margin.
Financial results and liquidity
| Metric | FY 2016 | FY 2015 | Change |
|---|---|---|---|
| Total revenue | $4,429 | $4,328 | +2.3% |
| Net income attributable to Hyatt | $204 | $124 | +$80; +64.5% |
| Diluted earnings per share | $1.52 | $0.86 | +$0.66 |
| Adjusted EBITDA | $785 | $750 | +4.7% |
| Cash from operating activities | $489 | $538 | -$49 |
| Capital expenditures | $211 | $269 | -$58 |
Managed-property reimbursements were $1,833, up from $1,786, and are matched by expenses without profit margin. Excluding these pass-through amounts, revenue growth reflects hotel operations, fees and other revenue. Income before taxes was $289 versus $194; the effective tax rate declined to 29.5% from 36.2%, aided by certain one-time tax benefits.
Year-end cash and cash equivalents were $482; short-term investments were $56, for combined cash and short-term investments of $538. Consolidated debt was $1,564 and net debt was $1,026; net debt to total capital was 18.8%, compared with 16.2% a year earlier. Hyatt had $1.4 billion of available borrowing capacity under its revolving facility, with $100 million drawn. Current assets were $1,139 and current liabilities were $924.
Hyatt reported no cash dividends. It repurchased $272 of common stock during 2016 and had approximately $357 remaining under its repurchase authorization at year-end.
Changes versus the prior period
- Revenue increased 2.3%, while net income rose 64.5% and Adjusted EBITDA rose 4.7%. Net income benefited from a $132 improvement in equity earnings from unconsolidated ventures, which moved from a $64 loss to $68 of earnings; the comparison included venture refinancing distributions, foreign-exchange effects and a step-acquisition gain.
- Operating cash flow declined to $489 from $538. Hyatt attributed the decrease partly to the prior year’s release of $82 of restricted cash and timing of accruals, offset in part by lower tax payments.
- Comparable owned and leased hotel RevPAR increased 1.2%; Americas full-service and select-service RevPAR rose 2.3% and 5.3%, respectively, and ASPAC rose 1.9%. EAME/SW Asia full-service RevPAR fell 7.6%.
- Segment Adjusted EBITDA was $516 for owned and leased hotels, $318 for Americas, $57 for ASPAC and $33 for EAME/SW Asia. Corporate and other Adjusted EBITDA loss widened to $139 from $131.
- Hyatt issued $400 of 4.85% notes due 2026 and redeemed its $250 of 2016 notes. Total debt and net debt increased year over year.
Outlook, risks and unusual items
- Management expected moderate year-over-year RevPAR growth in 2017, while noting industry RevPAR growth had slowed amid softer demand and pricing power in some markets. Regional results remained uneven, with softness in parts of Europe, the Middle East and Turkey linked to market conditions, new supply and security concerns.
- Management expected 2017 capital expenditures of approximately $430, including investment in Miraval assets, corporate development projects, the new headquarters and owned-property renovations.
- The performance guarantee for four managed hotels in France generated $64 of expense in 2016. Hyatt expected approximately $80 of related expense in 2017 and described 2017 as the peak year; remaining maximum exposure for all performance guarantees was $346 at year-end.
- Moving to the new Chicago headquarters was expected to produce an approximately $25 cease-use liability in third-quarter 2017.
- In January 2017, Hyatt acquired Miraval Group and subsequently acquired the Cranwell Spa & Golf Resort, for approximately $235 combined. This is a subsequent event, not a 2016 operating result.
- Hyatt stated that a full redemption of remaining Playa preferred shares could provide approximately $290 of cash proceeds and lead to approximately $93 of interest income and $40 of realized losses; timing and amounts were contingent on the transaction and could change.
- Principal disclosed risks include economic and travel-demand cyclicality, relatively fixed hotel costs, owned-real-estate exposure, currency movements, competition from online intermediaries and alternative lodging, labor costs, cybersecurity, owner and franchisee financing, guarantee obligations, and the execution and acceptance of World of Hyatt, scheduled to launch March 1, 2017.
- Other items to note: Hyatt recorded a $23 loss on the sale of Andaz 5th Avenue; no asset impairment charge was recorded in 2016. A tax authority’s proposed adjustment concerning the Hyatt Gold Passport Fund could create $140 of additional current tax liability if sustained, which Hyatt disputes. Ordinary-course litigation was not expected by management to have a material effect.
Important facts for investors to verify
- Reconcile reported revenue growth with pass-through managed-property reimbursements and review the underlying fee and hotel revenue trends.
- Assess the sustainability of the 2016 earnings increase, including venture-related gains and distributions, tax benefits and other nonrecurring effects.
- Track 2017 RevPAR and segment trends, especially continued weakness in EAME/SW Asia and the company’s moderate-growth outlook.
- Review the France performance-guarantee exposure, expected 2017 expense, debt guarantees and the timing and recoverability of guarantee payments.
- Monitor liquidity and leverage after acquisitions, planned capital spending, share repurchases and debt maturities; confirm covenant compliance and the status of the Playa transaction.
- Evaluate Miraval integration and spending, World of Hyatt’s launch and the potential $25 headquarters charge.