Hyatt Hotels Corporation — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. The filing was signed February 13, 2013. This is an annual report, not a standalone fourth-quarter filing; quarterly figures are noted below where relevant.
Business context
Hyatt manages, franchises, owns and leases hotels, and operates vacation-ownership and branded-residential businesses. At year-end, its portfolio comprised 500 properties and 135,144 rooms and units across 46 countries. The company reorganized its regional operations effective October 1, 2012, establishing Americas, ASPAC and EAME/SW Asia management and franchising segments alongside owned and leased hotels.
Financial and operating performance
| Metric | 2012 | 2011 |
|---|---|---|
| Total revenue | $3.949 billion | $3.698 billion |
| Income from continuing operations | $87 million | $111 million |
| Net income attributable to Hyatt | $88 million | $113 million |
| Diluted EPS | $0.53 | $0.66 |
| Adjusted EBITDA (non-GAAP) | $606 million | $538 million |
| Cash from operating activities | $499 million | $393 million |
| Capital expenditures | $301 million | $331 million |
- Revenue increased 6.8%, while net income attributable to Hyatt fell 22%. Adjusted EBITDA rose 12.6%. Calculated net margin was approximately 2.2%, down from 3.1%; Adjusted EBITDA was 15.3% of revenue, up from 14.5%. Revenue includes reimbursed managed-property costs that carry no added margin.
- Comparable owned-and-leased hotel RevPAR rose 7.0%, to $135, on 2.7 percentage points higher occupancy and 3.2% higher ADR. Americas full-service and select-service RevPAR rose 6.5% and 7.0%; ASPAC rose 6.7%. EAME/SW Asia RevPAR fell 2.9% reported, but increased 2.5% excluding unfavorable currency effects.
- 2012 fourth-quarter revenue was $1.000 billion versus $990 million in fourth-quarter 2011; net income attributable to Hyatt was $16 million versus $52 million. Fourth-quarter 2012 included $22 million of impairment charges, including $18 million related to two hospitality ventures and $4 million on a held-to-maturity investment. Fourth-quarter 2011 benefited from a $28 million tax benefit.
Liquidity, debt and capital allocation
- At year-end, cash and cash equivalents were $413 million and short-term investments were $514 million, totaling $927 million. Total debt was $1.233 billion; net debt after cash and short-term investments was $306 million. Debt-to-total-capital was 20.4%, and net debt-to-total-capital was 5.1%.
- The $1.5 billion revolving facility had no borrowings and $1.4 billion of available capacity after letters of credit. Hyatt reported compliance with applicable debt covenants. Operating cash flow exceeded capital expenditures by $198 million, calculated from reported figures.
- Hyatt repurchased $136 million of Class A shares in 2012 under a $200 million authorization. It spent $190 million net on the Mexico City hotel acquisition, acquired the Hyatt Regency Birmingham for $43 million net, and sold eight select-service hotels for $87 million and two joint-venture interests for $52 million.
Outlook, commentary and material risks
- Management reported RevPAR growth across all four operating segments in 2012 and expected further group-business improvement, citing strong year-end bookings for 2013. It also expected ASPAC growth, but flagged China growth variability and renovations at several large hotels. In the Americas, group customers remained cautious about discretionary spending; owned-hotel insurance and property-tax pressures could continue into 2013. EAME/SW Asia faced continuing Eurozone and India economic concerns. The filing gives no quantified company-wide 2013 earnings or revenue guidance.
- A notable subsequent commitment is a seven-year performance guarantee tied to four hotels in France acquired by a third party in January 2013. The guarantee has no annual cap; its maximum total commitment was estimated at €377 million ($511 million). Hyatt said the likelihood of a significant payment in 2013 was low. The estimated fair-value liability and offsetting intangible asset were about €90 million ($122 million) at February 1, 2013.
- Other key exposures include hospitality cyclicality and fixed hotel costs; owned-real-estate and renovation risks; performance guarantees and loans to hotel owners; foreign exchange and interest-rate movements; impairment risk; and dependence on third-party owners and franchisees. Hyatt disclosed a putative antitrust class action concerning hotel and online travel company practices, which it said it would defend and did not expect to have a material effect. It also reported certain activities subject to Iran-related disclosure requirements; details are in Exhibit 99.3.
- Corporate realignment costs were $21 million in 2012. The effective tax rate was 8.3%, versus a tax benefit and effective rate of (33.9%) in 2011, so year-over-year net income comparisons were affected by tax items. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Reconcile the 22% decline in GAAP net income with higher Adjusted EBITDA, including the tax-rate change, higher depreciation and amortization, interest expense, and venture impairments; review the company’s non-GAAP reconciliation.
- Assess the France performance guarantee’s terms, exposure and potential cash-funding scenarios, as well as Hyatt’s other guarantees and commitments.
- Check the composition, liquidity and credit quality of the $514 million short-term investment balance, and the maturity and refinancing profile of the $1.233 billion debt balance.
- Evaluate regional RevPAR trends, especially EAME/SW Asia’s reported decline, currency effects, group-booking visibility, China demand and planned hotel renovations.
- Review the full notes for impaired hotel-owner financing receivables, the $277 million Waikiki venture mortgage receivable due in 2013, and the $99 million allowance for financing-receivable losses.
- Consider governance and share-supply risks: Pritzker family interests controlled approximately 75.2% of voting power, and contractual share-sale restrictions and registration rights could affect Class A share supply.