Hyatt Hotels Corporation — Q2 2013 Form 10-Q
Business context and period. Hyatt operates, manages, franchises, owns and develops hospitality properties worldwide. The filing covers the quarter and six months ended June 30, 2013; amounts are in U.S. dollars unless noted. At quarter-end, Hyatt’s portfolio comprised 524 properties and 141,778 rooms and units.
Financial performance
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $1,092 million | $1,014 million | $2,067 million | $1,972 million |
| Adjusted EBITDA | $212 million | $180 million | $343 million | $305 million |
| Net income attributable to Hyatt | $112 million | $39 million | $120 million | $49 million |
| Diluted EPS | $0.70 | $0.24 | $0.75 | $0.30 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $162 million | $231 million |
Q2 revenue increased 8% and Adjusted EBITDA increased 17.8%. For the first half, revenue increased 5% and Adjusted EBITDA increased 12.5%. Revenue includes reimbursements of managed-property costs that have no added margin.
- Operating trends: Comparable owned and leased hotel RevPAR rose 7.1% in Q2, with occupancy of 79.8% and ADR of $184. Americas comparable systemwide RevPAR rose 5.5%; EAME/SW Asia rose 5.3%; ASPAC fell 3.5%, or 0.7% excluding currency effects.
- Cash flows and investment: First-half operating cash flow declined to $162 million from $231 million, including a $104 million negative impact from working-capital changes and other items. Investing activities provided $312 million, principally reflecting investment maturities and asset-sale proceeds; capital expenditures were $92 million.
- Liquidity and debt: At June 30, cash and cash equivalents were $718 million and short-term investments $87 million; combined, $805 million, versus $927 million at year-end 2012. Total debt was $1.279 billion, net debt after cash and short-term investments was $474 million, and net debt to total capital was 7.9% (5.1% at year-end). The $1.5 billion revolving facility had no borrowings and approximately $1.4 billion of undrawn availability after letters of credit. Hyatt reported compliance with applicable debt covenants.
Material changes and unusual items
- Reported earnings benefited from $99 million of real-estate sale gains, including $55 million on Hyatt Fisherman’s Wharf and $44 million on Hyatt Santa Barbara. A further $29 million gain came from an artwork sale.
- Other income included $35 million of debt-settlement costs and a $20 million charitable contribution, partly offset by the artwork gain. The 2015 Notes were redeemed for $278 million, including a make-whole premium; Hyatt issued $350 million of 3.375% notes due 2023 and repurchased $54 million principal of its 2019 Notes for $66 million.
- Hyatt repurchased 5.43 million shares for $223 million in the first half; approximately $40 million remained under its repurchase authorization at June 30.
- Hyatt acquired The Driskill hotel for approximately $85 million and sold three Hyatt Place properties for $36 million. It classified another hotel, with $95 million of assets, as held for sale and recorded a $3 million impairment.
- Balance-sheet liquidity includes $151 million of restricted cash, which is not included in the $805 million cash-and-short-term-investment figure.
Outlook, risks and contingencies
- The filing provides no formal numerical earnings or revenue guidance. Management stated that cash, operating cash generation, revolving-credit capacity and capital-markets access should be adequate for foreseeable funding needs.
- Management expected renovations and weak market conditions in China to continue affecting management fees to varying degrees through 2013 and into 2014. It cited strong Middle East group business, but competitor supply weighed on certain CIS markets; group-booking visibility and travel demand remain risks.
- In July 2013, Hyatt announced a planned $325 million investment in Playa Hotels & Resorts during the second half of 2013, for an all-inclusive resort portfolio of 13 resorts and approximately 5,800 rooms.
- Hyatt had $490 million of commitments to lend or invest, including an approximately $250 million share of a planned New York hotel purchase, contingent on contractual milestones. Its maximum remaining performance-guarantee exposure was $512 million, including a new uncapped annual guarantee for four French hotels with a $490 million maximum commitment; management said significant payment under that guarantee in 2013 was unlikely.
- Maximum debt-repayment guarantees were $291 million, with $10 million recorded as a liability; Hyatt estimated exposure at $155 million assuming partner agreements are successfully enforced. Management did not expect ordinary-course litigation and claims to have a material effect. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- How much of the increase in GAAP net income reflects recurring hotel operations versus the $99 million real-estate gains and $29 million artwork gain, and how recurring the related costs are.
- Whether operating cash flow recovers from the first-half decline and working-capital outflow, and how capital spending and the planned Playa investment will be funded.
- Progress on debt refinancing, future interest expense, and remaining share-repurchase authorization after the $223 million first-half spend.
- Performance of China and other renovation-affected hotels, the sustainability of EAME/SW Asia incentive fees, and exposure to performance guarantees and hotel-development commitments.
- Adjusted EBITDA is a company-defined non-GAAP measure and should be assessed alongside GAAP earnings and cash flows.