Hyatt Hotels Corporation — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Financial amounts are in millions of dollars unless stated otherwise. Hyatt operates and franchises hotels and resorts, and provides travel distribution, destination management, and vacation-club services. Its portfolio comprised 1,310 hotels with 313,257 rooms at quarter-end.
Financial results and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $1,622 | $1,541 | $5,007 | $4,303 |
| Net income attributable to Hyatt | $68 | $28 | $194 | $161 |
| Diluted EPS | $0.63 | $0.25 | $1.80 | $1.44 |
| Adjusted EBITDA (non-GAAP) | $247 | $252 | $788 | $676 |
| Operating cash flow | Not stated for quarter | $426 | $403 |
Q3 revenue rose 5.2%; net income increased $40 million, while Adjusted EBITDA declined $5 million. For the nine months, revenue grew 16.4%, net income increased $33 million, and Adjusted EBITDA grew 16.6%. Revenue growth reflected higher demand, rates, and management and franchise fees; Q3 distribution and destination management revenue fell as unusually strong 2022 demand did not recur. Reimbursed property costs are included in both revenue and expenses, so reported revenue includes substantial pass-through amounts.
Comparable system-wide RevPAR increased 8.9% in Q3 in constant currency. ASPAC led the recovery, with comparable ASPAC RevPAR up 41.6% in Q3, including improvement in Greater China after travel restrictions eased. Q3 group room revenue grew 10% year over year. ALG segment Adjusted EBITDA fell to $50 million from $78 million, partly reflecting nonrecurring high demand and credits in the prior-year quarter and higher expenses and strategic investment.
At September 30, cash and cash equivalents were $701 million, short-term investments $26 million, and restricted cash $13 million. Total debt was $3,055 million; net debt, as defined by Hyatt, was $2,328 million, up from $1,964 million at year-end 2022. The net-debt-to-total-capital ratio increased to 35.1% from 28.8%. Hyatt had $1,496 million of available revolver capacity and no revolver borrowings. Cash, cash equivalents, and restricted cash declined $349 million over the first nine months, to $718 million.
Material changes and notable items
- Hyatt issued $600 million of 5.750% senior notes due 2027 and used the proceeds, together with cash, to repay its 1.300% notes due 2023. The company reported compliance with debt covenants.
- Q3 included a $19 million pretax gain from selling Destination Residential Management. The prior-year nine-month period included $252 million of gains from hotel dispositions, materially affecting year-over-year comparisons.
- Hyatt repurchased $358 million of shares and paid $32 million in dividends during the first nine months. Approximately $1.3 billion remained under share repurchase authorizations at September 30.
- Acquisitions included Dream Hotel Group and Mr & Mrs Smith. Dream’s acquisition consideration included a $107 million fair-value contingent liability, with up to $175 million of potential payments through 2028. The Mr & Mrs Smith acquisition involved approximately $72 million of cash consideration.
- Capital expenditures were $134 million for the nine months. Hyatt reported $721 million of net disposition proceeds toward its target of $2.0 billion of gross proceeds from dispositions of owned assets, net of acquisitions, by the end of 2024.
Outlook, risks, and contingencies
The filing provides no specific numerical earnings or revenue guidance. Management said it expects its cash, operating cash flow, revolver capacity, and capital-markets access to meet funding needs and capital deployment objectives. It described continued travel demand and growth in group travel, while noting weaker-than-prior-year ALG distribution demand in Q3.
Management highlighted risks including economic weakness, inflation and labor or construction costs, changes in occupancy and average daily rates, geopolitical conflict and travel disruption, foreign exchange and interest-rate movements, labor relations, owner and franchisee financial health, acquisitions and integration, and legal, tax, cyber, and climate-related events. The filing specifically cited the Israel-Gaza conflict and Maui wildfires.
A significant tax contingency concerns IRS treatment of loyalty-program contributions. A Tax Court opinion issued October 2, 2023 required about $12 million of net taxable income recognition for 2009–2011 but rejected about $228 million relating to earlier years. Hyatt was evaluating appeal options. If it appeals and the ruling is upheld, estimated tax and interest for 2009–2011 is $5 million; estimated payment for 2012–2023 would be $211 million, including $30 million of interest, net of federal benefit. Hyatt stated it believes its recorded tax liability is adequate and does not expect a material effect from the matter.
Other exposures include up to $351 million of commitments to lend, invest, or provide consideration under specified conditions; $108 million of remaining maximum exposure under performance guarantees; and $219 million of maximum exposure net of recoverability under debt repayment guarantees. Hyatt said it was not aware of guarantee-backed borrowers being delinquent. The company reported no material change in previously disclosed risk factors and no material effect expected from ordinary-course litigation.
Investor verification points
- Assess the durability of travel demand and RevPAR growth, especially the recovery in Greater China and the Q3 slowdown in ALG distribution revenue.
- Separate recurring operating performance from disposition gains, investment-related volatility, and other non-GAAP adjustments; review Hyatt’s Adjusted EBITDA reconciliation.
- Monitor net debt, the 2024 senior-note maturity, refinancing costs, and cash use for repurchases and dividends.
- Track the loyalty-program tax litigation, possible appeal, and potential payments for later tax years.
- Review contingent acquisition payments, guarantees, and the assumptions supporting fair values of contingent consideration and acquired intangibles.
- Check progress toward the 2024 disposition target and the effects of acquisitions and portfolio changes on reported comparisons.