Hyatt Hotels Corporation — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; comparisons are with Q1 2011 unless otherwise noted. Amounts are in U.S. dollars and millions except per-share data. Hyatt operates, manages and franchises hotels and related hospitality businesses worldwide.
Business context and results
- At quarter-end, Hyatt reported a portfolio of 488 properties with 133,689 rooms and units. Its three reportable segments are owned and leased hotels, North American management and franchising, and international management and franchising.
- Management cited stronger demand, occupancy and average daily rates, benefits from completed renovations, and properties acquired in 2011 as drivers of growth. Revenue also includes reimbursed costs from managed properties, generally recorded with corresponding costs and no added margin.
Key financial metrics
| Metric | Q1 2012 | Q1 2011 / comparison |
|---|---|---|
| Total revenue | $958 | $875; up $83, or 9.5% |
| Income before income taxes | $14 | $16 |
| Net income attributable to Hyatt | $10 | $10 |
| Basic and diluted EPS | $0.06 | $0.06 |
| Adjusted EBITDA (non-GAAP) | $125 | $109; up 14.7% |
| Cash provided by operating activities | $61 | $41 |
| Capital expenditures | $95 | $46 |
- Revenue growth was led by owned and leased hotel revenue, up $41 to $473, and North American management and franchising revenue, up $39 to $431. Management and franchise fees increased $9 to $79; other revenues from managed properties rose $30 to $389.
- Segment Adjusted EBITDA: owned and leased hotels $93, up $18; North American management and franchising $46, up $6; international management and franchising $20, unchanged; corporate and other $(34), compared with $(26).
- Consolidated net income was flat despite higher revenue and Adjusted EBITDA. Selling, general and administrative expense increased $23 to $93, depreciation and amortization increased $15 to $86, and interest expense increased $5 to $18. Interest expense reflected the 2011 issuance of $500 million of senior notes. Adjusted EBITDA is a non-GAAP measure and is not a substitute for GAAP earnings or cash flow.
- Derived net margin was approximately 1.0% in both periods, using net income attributable to Hyatt divided by total revenue. This measure includes reimbursed managed-property revenues.
- At March 31, cash and cash equivalents were $542, short-term investments $509, and restricted cash $38. Cash plus short-term investments totaled $1,051, down from $1,122 at December 31, 2011. Total debt, including current maturities, was $1,224; net debt after cash and short-term investments was $173, versus $103 at year-end. Total debt to total capital was 20.1%; net debt to total capital was 2.8%.
- Hyatt reported approximately $1.4 billion of undrawn borrowing availability. Its $1.5 billion revolving credit facility had no borrowings outstanding; $99 million of letters of credit reduced facility availability. Current assets were $1,581 and current liabilities $548.
- Investing cash use was $49, including $95 of capital expenditures, partly offset by proceeds from marketable securities. Financing cash flow was insignificant; cash increased $8 after a $4 foreign-exchange effect.
Material changes and notable items
- Comparable owned and leased hotel RevPAR increased 8.3%; North American full-service systemwide RevPAR rose 8.1%, North American select-service 7.2%, and international full-service 5.7%. Hyatt attributed performance to a mix of improved occupancy and rates, varying by segment.
- Q1 2012 included a $5 release of interest reserves related to prior renovation-cost tax treatment, partly offset by approximately $4 of increased uncertain-tax-position reserves, including interest and penalties. The effective tax rate was 32.8%, versus 37.8%.
- Other income, net increased to $12 from $3, principally due to marketable-securities gains. The company stated that gains and losses on securities funding benefit programs were offset by related compensation costs and did not affect earnings overall.
- In Q1 2012, Hyatt agreed to acquire a company owning a full-service Mexico City hotel for approximately $190, subject to customary closing conditions; it expected closing in Q2 2012. It also announced a corporate and regional operations realignment, expected to be completed by the end of September 2012.
Outlook, risks and contingencies
- Hyatt gave no quantified financial guidance in the provided filing text. Management said cash, short-term investments, operating cash flow, revolving-credit capacity and capital-markets access were expected to be adequate for foreseeable funding needs and capital deployment objectives.
- Management highlighted ongoing North American transient and group demand, with corporate travel strong and group bookings improving. Forward-looking results remain exposed to economic conditions, occupancy and rates, travel disruptions, labor costs, owner and franchisee financial health, foreign exchange, interest rates, competition, acquisitions, and execution and costs of the realignment.
- Commitments to lend or invest in business ventures totaled up to $759, net of related letters of credit. Notable components included an approximately $250 share of a planned New York hotel purchase, the approximately $190 Mexico City acquisition, and up to $97 remaining commitment for a Hawaii joint-venture hotel.
- Maximum potential payments under certain hotel profitability agreements were $28; $2 was accrued under a separate agreement and a $2 charge was recorded in Q1. Maximum exposure under loan, lease-completion and repayment guarantees was $61, or $57 assuming enforcement of a partner-sharing agreement; this includes a $25 Hyatt Regency Minneapolis loan guarantee.
- Unrecognized tax benefits were $175, of which $51 would affect the effective tax rate if recognized. Hyatt reported various ordinary-course claims and lawsuits and did not expect their resolution to materially affect financial position, results or liquidity. It reported compliance with debt and credit-facility covenants.
Investor verification points
- Confirm the durability and composition of RevPAR, fee and Adjusted EBITDA growth, including the contribution from acquired hotels, renovations and reimbursed managed-property revenues.
- Review cash deployment and capital spending, including the $95 of quarterly capex and the change in net debt, and assess liquidity after planned acquisitions and investment commitments.
- Track closing and financing of the Mexico City acquisition, the New York hotel commitment, and the remaining Hawaii development commitment.
- Monitor the corporate realignment’s costs, timing and effects on personnel and operations; the filing provides no quantified cost estimate.
- Assess collectability of financing receivables: $90 allowance against $461 gross financing receivables, including $75 allowance on $93 of unsecured hotel-owner financing.