Hyatt Hotels Corp - Quarter Report: 2021 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 001-34521
HYATT HOTELS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 20-1480589 | |||||||||||||||||||
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
150 North Riverside Plaza
8th Floor, Chicago, Illinois 60606
(Address of Principal Executive Offices) (Zip Code)
(312) 750-1234
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | |||||||||||||||
Class A Common Stock, $0.01 par value | H | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ | ||||||||||||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||||||||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
At October 29, 2021, there were 50,301,183 shares of the registrant's Class A common stock, $0.01 par value, outstanding and 59,653,271 shares of the registrant's Class B common stock, $0.01 par value, outstanding.
HYATT HOTELS CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2021
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION | ||||||||
Item 1. | ||||||||
Item 2. | ||||||||
Item 3. | ||||||||
Item 4. | ||||||||
PART II – OTHER INFORMATION | ||||||||
Item 1. | ||||||||
Item 1A. | ||||||||
Item 2. | ||||||||
Item 3. | ||||||||
Item 4. | ||||||||
Item 5. | ||||||||
Item 6. | ||||||||
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
HYATT HOTELS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In millions of dollars, except per share amounts)
(Unaudited)
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | ||||||||||||||||||||
REVENUES: | |||||||||||||||||||||||
Owned and leased hotels | $ | 263 | $ | 80 | $ | 558 | $ | 422 | |||||||||||||||
Management, franchise, and other fees | 113 | 52 | 269 | 180 | |||||||||||||||||||
Contra revenue | (9) | (7) | (26) | (20) | |||||||||||||||||||
Net management, franchise, and other fees | 104 | 45 | 243 | 160 | |||||||||||||||||||
Other revenues | 28 | 7 | 69 | 45 | |||||||||||||||||||
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties | 456 | 267 | 1,082 | 1,015 | |||||||||||||||||||
Total revenues | 851 | 399 | 1,952 | 1,642 | |||||||||||||||||||
DIRECT AND SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES: | |||||||||||||||||||||||
Owned and leased hotels | 208 | 131 | 506 | 495 | |||||||||||||||||||
Depreciation and amortization | 71 | 80 | 219 | 233 | |||||||||||||||||||
Other direct costs | 31 | 9 | 78 | 50 | |||||||||||||||||||
Selling, general, and administrative | 69 | 69 | 250 | 217 | |||||||||||||||||||
Costs incurred on behalf of managed and franchised properties | 465 | 278 | 1,117 | 1,068 | |||||||||||||||||||
Direct and selling, general, and administrative expenses | 844 | 567 | 2,170 | 2,063 | |||||||||||||||||||
Net gains (losses) and interest income from marketable securities held to fund rabbi trusts | (1) | 22 | 35 | 23 | |||||||||||||||||||
Equity earnings (losses) from unconsolidated hospitality ventures | (12) | (20) | 8 | (45) | |||||||||||||||||||
Interest expense | (40) | (35) | (123) | (87) | |||||||||||||||||||
Gains on sales of real estate and other | 307 | — | 412 | 8 | |||||||||||||||||||
Asset impairments | — | — | (2) | (52) | |||||||||||||||||||
Other income (loss), net | (3) | (19) | 34 | (114) | |||||||||||||||||||
INCOME (LOSS) BEFORE INCOME TAXES | 258 | (220) | 146 | (688) | |||||||||||||||||||
BENEFIT (PROVISION) FOR INCOME TAXES | (138) | 59 | (339) | 188 | |||||||||||||||||||
NET INCOME (LOSS) | 120 | (161) | (193) | (500) | |||||||||||||||||||
NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS | — | — | — | — | |||||||||||||||||||
NET INCOME (LOSS) ATTRIBUTABLE TO HYATT HOTELS CORPORATION | $ | 120 | $ | (161) | $ | (193) | $ | (500) | |||||||||||||||
EARNINGS (LOSSES) PER SHARE—Basic | |||||||||||||||||||||||
Net income (loss) | $ | 1.17 | $ | (1.59) | $ | (1.89) | $ | (4.93) | |||||||||||||||
Net income (loss) attributable to Hyatt Hotels Corporation | $ | 1.17 | $ | (1.59) | $ | (1.89) | $ | (4.93) | |||||||||||||||
EARNINGS (LOSSES) PER SHARE—Diluted | |||||||||||||||||||||||
Net income (loss) | $ | 1.15 | $ | (1.59) | $ | (1.89) | $ | (4.93) | |||||||||||||||
Net income (loss) attributable to Hyatt Hotels Corporation | $ | 1.15 | $ | (1.59) | $ | (1.89) | $ | (4.93) | |||||||||||||||
See accompanying Notes to condensed consolidated financial statements.
1
HYATT HOTELS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions of dollars)
(Unaudited)
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | ||||||||||||||||||||
Net income (loss) | $ | 120 | $ | (161) | $ | (193) | $ | (500) | |||||||||||||||
Other comprehensive income (loss), net of taxes: | |||||||||||||||||||||||
Foreign currency translation adjustments, net of tax benefit (provision) of $— for the three and nine months ended September 30, 2021 and $(1) for the three and nine months ended September 30,2020, respectively. | (24) | 15 | (53) | (17) | |||||||||||||||||||
Unrealized gains (losses) on available-for-sale debt securities, net of tax benefit (provision) of $— for the three and nine months ended September 30, 2021 and September 30, 2020 | — | — | (1) | — | |||||||||||||||||||
Unrealized gains (losses) on derivative activity, net of tax benefit (provision) of $— for the three and nine months ended September 30, 2021 and $— and $9 for the three and nine months ended September 30, 2020, respectively. | 1 | 2 | 5 | (24) | |||||||||||||||||||
Other comprehensive income (loss) | (23) | 17 | (49) | (41) | |||||||||||||||||||
COMPREHENSIVE INCOME (LOSS) | 97 | (144) | (242) | (541) | |||||||||||||||||||
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS | — | — | — | — | |||||||||||||||||||
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO HYATT HOTELS CORPORATION | $ | 97 | $ | (144) | $ | (242) | $ | (541) |
See accompanying Notes to condensed consolidated financial statements.
2
HYATT HOTELS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions of dollars, except share and per share amounts)
(Unaudited)
September 30, 2021 | December 31, 2020 | ||||||||||
ASSETS | |||||||||||
CURRENT ASSETS: | |||||||||||
Cash and cash equivalents | $ | 2,418 | $ | 1,207 | |||||||
Restricted cash | 15 | 11 | |||||||||
Short-term investments | 357 | 675 | |||||||||
Receivables, net of allowances of $58 and $56 at September 30, 2021 and December 31, 2020, respectively | 373 | 316 | |||||||||
Inventories | 9 | 9 | |||||||||
Prepaids and other assets | 59 | 64 | |||||||||
Prepaid income taxes | 8 | 281 | |||||||||
Total current assets | 3,239 | 2,563 | |||||||||
Equity method investments | 249 | 260 | |||||||||
Property and equipment, net | 2,876 | 3,126 | |||||||||
Financing receivables, net of allowances of $57 and $114 at September 30, 2021 and December 31, 2020, respectively | 31 | 29 | |||||||||
Operating lease right-of-use assets | 455 | 474 | |||||||||
Goodwill | 288 | 288 | |||||||||
Intangibles, net | 363 | 385 | |||||||||
Deferred tax assets | 15 | 207 | |||||||||
Other assets | 1,961 | 1,797 | |||||||||
TOTAL ASSETS | $ | 9,477 | $ | 9,129 | |||||||
LIABILITIES AND EQUITY | |||||||||||
CURRENT LIABILITIES: | |||||||||||
Current maturities of long-term debt | $ | 10 | $ | 260 | |||||||
Accounts payable | 109 | 102 | |||||||||
Accrued expenses and other current liabilities | 305 | 200 | |||||||||
Current contract liabilities | 306 | 282 | |||||||||
Accrued compensation and benefits | 116 | 111 | |||||||||
Current operating lease liabilities | 30 | 29 | |||||||||
Total current liabilities | 876 | 984 | |||||||||
Long-term debt | 2,978 | 2,984 | |||||||||
Long-term contract liabilities | 666 | 659 | |||||||||
Long-term operating lease liabilities | 360 | 377 | |||||||||
Other long-term liabilities | 1,008 | 911 | |||||||||
Total liabilities | 5,888 | 5,915 | |||||||||
Commitments and contingencies (see Note 12) | |||||||||||
EQUITY: | |||||||||||
Preferred stock, $0.01 par value per share, 10,000,000 shares authorized and none outstanding at September 30, 2021 and December 31, 2020 | — | — | |||||||||
Class A common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 50,287,596 issued and outstanding at September 30, 2021, and Class B common stock, $0.01 par value per share, 391,647,683 shares authorized, 59,653,271 shares issued and outstanding at September 30, 2021. Class A common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 39,250,241 issued and outstanding at December 31, 2020, and Class B common stock, $0.01 par value per share, 394,033,330 shares authorized, 62,038,918 shares issued and outstanding at December 31, 2020 | 1 | 1 | |||||||||
Additional paid-in capital | 630 | 13 | |||||||||
Retained earnings | 3,196 | 3,389 | |||||||||
Accumulated other comprehensive loss | (241) | (192) | |||||||||
Total stockholders' equity | 3,586 | 3,211 | |||||||||
Noncontrolling interests in consolidated subsidiaries | 3 | 3 | |||||||||
Total equity | 3,589 | 3,214 | |||||||||
TOTAL LIABILITIES AND EQUITY | $ | 9,477 | $ | 9,129 |
See accompanying Notes to condensed consolidated financial statements.
3
HYATT HOTELS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions of dollars)
(Unaudited)
Nine Months Ended | |||||||||||
September 30, 2021 | September 30, 2020 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
Net loss | $ | (193) | $ | (500) | |||||||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||||||
Depreciation and amortization | 219 | 233 | |||||||||
Gains on sales of real estate and other | (412) | (8) | |||||||||
Amortization of share awards | 49 | 24 | |||||||||
Amortization of operating lease right-of-use assets | 20 | 23 | |||||||||
Deferred income taxes | 210 | (59) | |||||||||
Asset impairments | 2 | 52 | |||||||||
Equity (earnings) losses from unconsolidated hospitality ventures | (8) | 45 | |||||||||
Contra revenue | 26 | 20 | |||||||||
Unrealized (gains) losses, net | (20) | 36 | |||||||||
Working capital changes and other | 316 | (329) | |||||||||
Net cash provided by (used in) operating activities | 209 | (463) | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
Purchases of marketable securities and short-term investments | (693) | (622) | |||||||||
Proceeds from marketable securities and short-term investments | 1,002 | 399 | |||||||||
Contributions to equity method and other investments | (28) | (57) | |||||||||
Return of equity method and other investments | 25 | 5 | |||||||||
Acquisitions, net of cash acquired | (237) | — | |||||||||
Capital expenditures | (65) | (104) | |||||||||
Issuance of financing receivables | (20) | (11) | |||||||||
Proceeds from sales of real estate, net of cash disposed | 759 | 78 | |||||||||
Other investing activities | (5) | (6) | |||||||||
Net cash provided by (used in) investing activities | 738 | (318) | |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
Proceeds from debt, net of issuance costs of $— and $15, respectively | — | 2,035 | |||||||||
Repayments of debt | (258) | (405) | |||||||||
Repurchases of common stock | — | (69) | |||||||||
Proceeds from issuance of Class A common stock, net of offering costs of $25 and $—, respectively | 575 | — | |||||||||
Dividends paid | — | (20) | |||||||||
Other financing activities | (17) | (14) | |||||||||
Net cash provided by financing activities | 300 | 1,527 | |||||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | (3) | 1 | |||||||||
NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | 1,244 | 747 | |||||||||
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—BEGINNING OF YEAR | 1,237 | 1,063 | |||||||||
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—END OF PERIOD | $ | 2,481 | $ | 1,810 | |||||||
See accompanying Notes to condensed consolidated financial statements.
Supplemental disclosure of cash flow information:
September 30, 2021 | September 30, 2020 | ||||||||||
Cash and cash equivalents | $ | 2,418 | $ | 1,778 | |||||||
Restricted cash (1) | 15 | 12 | |||||||||
Restricted cash included in other assets (1) | 48 | 20 | |||||||||
Total cash, cash equivalents, and restricted cash | $ | 2,481 | $ | 1,810 | |||||||
(1) Restricted cash generally represents debt service on bonds, escrow deposits, and other arrangements. |
Nine Months Ended | |||||||||||
September 30, 2021 | September 30, 2020 | ||||||||||
Cash paid during the period for interest | $ | 116 | $ | 73 | |||||||
Cash paid (received) during the period for income taxes, net | $ | (244) | $ | 54 | |||||||
Cash paid for amounts included in the measurement of operating lease liabilities | $ | 27 | $ | 32 | |||||||
Non-cash investing and financing activities are as follows: | |||||||||||
Non-cash contributions to equity method and other investments (see Note 6, Note 12) | $ | 42 | $ | 33 | |||||||
Change in accrued capital expenditures | $ | 1 | $ | (7) | |||||||
Non-cash right-of-use assets obtained in exchange for operating lease liabilities (see Note 6) | $ | 16 | $ | 14 | |||||||
See accompanying Notes to condensed consolidated financial statements.
4
HYATT HOTELS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In millions except share and per share amounts)
(Unaudited)
Common Shares Outstanding | Common Stock Amount | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Noncontrolling Interests in Consolidated Subsidiaries | Total | |||||||||||||||||||||||||||||||||||||||||
Class | Class | Class | Class | ||||||||||||||||||||||||||||||||||||||||||||
A | B | A | B | ||||||||||||||||||||||||||||||||||||||||||||
BALANCE—January 1, 2020 | 36,109,179 | 65,463,274 | $ | 1 | $ | — | $ | — | $ | 4,169 | $ | (209) | $ | 5 | $ | 3,966 | |||||||||||||||||||||||||||||||
Total comprehensive loss | — | — | — | — | — | (103) | (76) | — | (179) | ||||||||||||||||||||||||||||||||||||||
Noncontrolling interests | — | — | — | — | — | — | — | (2) | (2) | ||||||||||||||||||||||||||||||||||||||
Repurchase of common stock | (827,643) | — | — | — | (12) | (57) | — | — | (69) | ||||||||||||||||||||||||||||||||||||||
Employee stock plan issuance | 16,654 | — | — | — | 1 | — | — | — | 1 | ||||||||||||||||||||||||||||||||||||||
Share-based payment activity | 271,863 | — | — | — | 11 | — | — | — | 11 | ||||||||||||||||||||||||||||||||||||||
Cash dividends of $0.20 per share (see Note 13) | — | — | — | — | — | (20) | — | — | (20) | ||||||||||||||||||||||||||||||||||||||
BALANCE—March 31, 2020 | 35,570,053 | 65,463,274 | 1 | — | — | 3,989 | (285) | 3 | 3,708 | ||||||||||||||||||||||||||||||||||||||
Total comprehensive loss | — | — | — | — | — | (236) | 18 | — | (218) | ||||||||||||||||||||||||||||||||||||||
Employee stock plan issuance | 35,338 | — | — | — | 2 | — | — | — | 2 | ||||||||||||||||||||||||||||||||||||||
Class share conversions | 2,435,243 | (2,435,243) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Share-based payment activity | 74,047 | — | — | — | 1 | — | — | — | 1 | ||||||||||||||||||||||||||||||||||||||
BALANCE—June 30, 2020 | 38,114,681 | 63,028,031 | 1 | — | 3 | 3,753 | (267) | 3 | 3,493 | ||||||||||||||||||||||||||||||||||||||
Total comprehensive loss | — | — | — | — | — | (161) | 17 | — | (144) | ||||||||||||||||||||||||||||||||||||||
Employee stock plan issuance | 11,628 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Class share conversions | 331,083 | (331,083) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Share-based payment activity | 9,506 | — | — | — | 4 | — | — | — | 4 | ||||||||||||||||||||||||||||||||||||||
BALANCE—September 30, 2020 | 38,466,898 | 62,696,948 | $ | 1 | $ | — | $ | 7 | $ | 3,592 | $ | (250) | $ | 3 | $ | 3,353 | |||||||||||||||||||||||||||||||
BALANCE—January 1, 2021 | 39,250,241 | 62,038,918 | $ | 1 | $ | — | $ | 13 | $ | 3,389 | $ | (192) | $ | 3 | $ | 3,214 | |||||||||||||||||||||||||||||||
Total comprehensive loss | — | — | — | — | — | (304) | (45) | — | (349) | ||||||||||||||||||||||||||||||||||||||
Employee stock plan issuance | 10,992 | — | — | — | 1 | — | — | — | 1 | ||||||||||||||||||||||||||||||||||||||
Class share conversions | 800,169 | (800,169) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Share-based payment activity | 462,103 | — | — | — | 22 | — | — | — | 22 | ||||||||||||||||||||||||||||||||||||||
BALANCE—March 31, 2021 | 40,523,505 | 61,238,749 | 1 | — | 36 | 3,085 | (237) | 3 | 2,888 | ||||||||||||||||||||||||||||||||||||||
Total comprehensive income | — | — | — | — | — | (9) | 19 | — | 10 | ||||||||||||||||||||||||||||||||||||||
Directors compensation | — | — | — | — | 2 | — | — | — | 2 | ||||||||||||||||||||||||||||||||||||||
Employee stock plan issuance | 9,603 | — | — | — | 1 | — | — | — | 1 | ||||||||||||||||||||||||||||||||||||||
Class share conversions | 614,831 | (614,831) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Share-based payment activity | 11,150 | — | — | — | 8 | — | — | — | 8 | ||||||||||||||||||||||||||||||||||||||
BALANCE—June 30, 2021 | 41,159,089 | 60,623,918 | 1 | — | 47 | 3,076 | (218) | 3 | 2,909 | ||||||||||||||||||||||||||||||||||||||
Total comprehensive income | — | — | — | — | — | 120 | (23) | — | 97 | ||||||||||||||||||||||||||||||||||||||
Employee stock plan issuance | 12,129 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Class share conversions | 970,647 | (970,647) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Share-based payment activity | 95,731 | — | — | — | 8 | — | — | — | 8 | ||||||||||||||||||||||||||||||||||||||
Issuance of Class A common stock | 8,050,000 | — | — | — | 575 | — | — | — | 575 | ||||||||||||||||||||||||||||||||||||||
BALANCE—September 30, 2021 | 50,287,596 | 59,653,271 | $ | 1 | $ | — | $ | 630 | $ | 3,196 | $ | (241) | $ | 3 | $ | 3,589 | |||||||||||||||||||||||||||||||
See accompanying Notes to condensed consolidated financial statements.
5
HYATT HOTELS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions of dollars, unless otherwise indicated)
(Unaudited)
1. ORGANIZATION
Hyatt Hotels Corporation, a Delaware corporation, and its consolidated subsidiaries (collectively "Hyatt Hotels Corporation") provides hospitality and other services on a worldwide basis through the operation, management, franchising, ownership, development, and licensing of hospitality businesses. We operate, manage, franchise, own, lease, develop, license, or provide services to a portfolio of properties. At September 30, 2021, (i) we operated or franchised 505 full service hotels, comprising 169,567 rooms throughout the world, (ii) we operated or franchised 523 select service hotels, comprising 75,312 rooms, of which 438 hotels are located in the United States, and (iii) our portfolio included 9 franchised all-inclusive Hyatt-branded resorts, comprising 3,591 rooms. At September 30, 2021, our portfolio of properties operated in 69 countries around the world. Additionally, through strategic relationships, we provide certain reservation and/or loyalty program services to hotels that are unaffiliated with our hotel portfolio and operate under other tradenames or marks owned by such hotels or licensed by third parties.
As used in these Notes and throughout this Quarterly Report on Form 10-Q, (i) the terms "Hyatt," "Company," "we," "us," or "our" mean Hyatt Hotels Corporation and its consolidated subsidiaries, (ii) the term "hotel portfolio" refers to our full service hotels, including our wellness resorts, and our select service hotels, (iii) the terms "properties," "portfolio of properties," or "property portfolio" refer to our hotel portfolio; all-inclusive resorts; and residential, vacation, and condominium ownership units that we operate, manage, franchise, own, lease, develop, license, or to which we provide services or license our trademarks, including under the Park Hyatt, Miraval, Grand Hyatt, Alila, Andaz, The Unbound Collection by Hyatt, Destination by Hyatt, Hyatt Regency, Hyatt, Hyatt Ziva, Hyatt Zilara, Thompson Hotels, Hyatt Centric, Caption by Hyatt, JdV by Hyatt, Hyatt House, Hyatt Place, UrCove, and Hyatt Residences Club brands, and (iv) the term "hospitality ventures" refers to entities in the hospitality industry in which we own less than a 100% equity interest.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information, the instructions to Form 10-Q, and Article 10 of Regulation S-X. Accordingly, they do not include all information or footnotes required by GAAP for complete annual financial statements. As a result, this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying Notes in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the "2020 Form 10-K").
We have eliminated all intercompany accounts and transactions in our condensed consolidated financial statements. We consolidate entities under our control, including entities where we are deemed to be the primary beneficiary.
Management believes the accompanying condensed consolidated financial statements reflect all adjustments, which are all of a normal recurring nature, considered necessary for a fair presentation of the interim periods.
Impact of the COVID-19 Pandemic
The COVID-19 pandemic and related travel restrictions and containment efforts have had a significant impact on the travel industry and, as a result, on our business. The impact began in the first quarter of 2020 and has continued in 2021. As a result, our financial results for the current interim period, and for the foreseeable future, are not comparable to past performance or indicative of long-term future performance.
The extent, duration, and magnitude of the COVID-19 pandemic's effects will depend on various factors, all of which are highly uncertain and difficult to predict, including, but not limited to, the impact of the pandemic on global and regional economies, travel, and economic activity; actions taken by governments, businesses, and individuals in response to the pandemic, any additional resurgence, or COVID-19 variants; and the distribution, efficacy, and broad acceptance of COVID-19 vaccines.
We are required to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying Notes. Our estimates and assumptions are subject to inherent risk and uncertainty due to the ongoing impact of the COVID-19 pandemic, and actual results could differ materially from our estimated amounts.
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2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Future Adoption of Accounting Standards
Reference Rate Reform—In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update No. 2020-04 ("ASU 2020-04"), Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions that we can elect to adopt, subject to meeting certain criteria, regarding contract modifications, hedging relationships, and other transactions that reference the London Inter-bank Offered Rate for deposits of U.S. dollars ("LIBOR") or another reference rate expected to be discontinued by June 30, 2023 because of reference rate reform. The provisions of ASU 2020-04 are available through December 31, 2022, and we are currently assessing the impact of adopting ASU 2020-04.
3. REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregated Revenues
The following tables present our revenues disaggregated by the nature of the product or service:
Three Months Ended September 30, 2021 | |||||||||||||||||||||||
Owned and leased hotels | Americas management and franchising | ASPAC management and franchising | EAME/SW Asia management and franchising | Corporate and other | Eliminations | Total | |||||||||||||||||
Rooms revenues | $ | 167 | $ | — | $ | — | $ | — | $ | — | $ | (5) | $ | 162 | |||||||||
Food and beverage | 64 | — | — | — | — | — | 64 | ||||||||||||||||
Other | 37 | — | — | — | — | — | 37 | ||||||||||||||||
Owned and leased hotels | 268 | — | — | — | — | (5) | 263 | ||||||||||||||||
Base management fees | — | 41 | 10 | 7 | — | (8) | 50 | ||||||||||||||||
Incentive management fees | — | 6 | 4 | 3 | — | (3) | 10 | ||||||||||||||||
Franchise fees | — | 35 | — | 1 | — | — | 36 | ||||||||||||||||
Other fees | — | 3 | 2 | 1 | 11 | — | 17 | ||||||||||||||||
Management, franchise, and other fees | — | 85 | 16 | 12 | 11 | (11) | 113 | ||||||||||||||||
Contra revenue | — | (5) | (1) | (3) | — | — | (9) | ||||||||||||||||
Net management, franchise, and other fees | — | 80 | 15 | 9 | 11 | (11) | 104 | ||||||||||||||||
Other revenues | — | 24 | — | — | 3 | 1 | 28 | ||||||||||||||||
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties | — | 412 | 26 | 18 | — | — | 456 | ||||||||||||||||
Total | $ | 268 | $ | 516 | $ | 41 | $ | 27 | $ | 14 | $ | (15) | $ | 851 |
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Nine Months Ended September 30, 2021 | |||||||||||||||||||||||
Owned and leased hotels | Americas management and franchising | ASPAC management and franchising | EAME/SW Asia management and franchising | Corporate and other | Eliminations | Total | |||||||||||||||||
Rooms revenues | $ | 346 | $ | — | $ | — | $ | — | $ | — | $ | (11) | $ | 335 | |||||||||
Food and beverage | 127 | — | — | — | — | — | 127 | ||||||||||||||||
Other | 96 | — | — | — | — | — | 96 | ||||||||||||||||
Owned and leased hotels | 569 | — | — | — | — | (11) | 558 | ||||||||||||||||
Base management fees | — | 87 | 27 | 13 | — | (17) | 110 | ||||||||||||||||
Incentive management fees | — | 11 | 15 | 8 | — | (4) | 30 | ||||||||||||||||
Franchise fees | — | 80 | 1 | 1 | — | — | 82 | ||||||||||||||||
Other fees | — | 11 | 8 | 3 | 25 | — | 47 | ||||||||||||||||
Management, franchise, and other fees | — | 189 | 51 | 25 | 25 | (21) | 269 | ||||||||||||||||
Contra revenue | — | (14) | (3) | (9) | — | — | (26) | ||||||||||||||||
Net management, franchise, and other fees | — | 175 | 48 | 16 | 25 | (21) | 243 | ||||||||||||||||
Other revenues | — | 60 | — | — | 8 | 1 | 69 | ||||||||||||||||
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties | — | 966 | 70 | 46 | — | — | 1,082 | ||||||||||||||||
Total | $ | 569 | $ | 1,201 | $ | 118 | $ | 62 | $ | 33 | $ | (31) | $ | 1,952 | |||||||||
Three Months Ended September 30, 2020 | |||||||||||||||||||||||
Owned and leased hotels | Americas management and franchising | ASPAC management and franchising | EAME/SW Asia management and franchising | Corporate and other | Eliminations | Total | |||||||||||||||||
Rooms revenues | $ | 43 | $ | — | $ | — | $ | — | $ | — | $ | (2) | $ | 41 | |||||||||
Food and beverage | 20 | — | — | — | — | — | 20 | ||||||||||||||||
Other | 19 | — | — | — | — | — | 19 | ||||||||||||||||
Owned and leased hotels | 82 | — | — | — | — | (2) | 80 | ||||||||||||||||
Base management fees | — | 12 | 7 | 2 | — | (2) | 19 | ||||||||||||||||
Incentive management fees | — | — | 5 | 2 | — | (1) | 6 | ||||||||||||||||
Franchise fees | — | 15 | — | — | — | — | 15 | ||||||||||||||||
Other fees | — | 2 | 5 | 1 | 4 | — | 12 | ||||||||||||||||
Management, franchise, and other fees | — | 29 | 17 | 5 | 4 | (3) | 52 | ||||||||||||||||
Contra revenue | — | (5) | — | (2) | — | — | (7) | ||||||||||||||||
Net management, franchise, and other fees | — | 24 | 17 | 3 | 4 | (3) | 45 | ||||||||||||||||
Other revenues | — | 4 | — | — | 3 | — | 7 | ||||||||||||||||
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties | — | 234 | 18 | 14 | 1 | — | 267 | ||||||||||||||||
Total | $ | 82 | $ | 262 | $ | 35 | $ | 17 | $ | 8 | $ | (5) | $ | 399 | |||||||||
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Nine Months Ended September 30, 2020 | |||||||||||||||||||||||
Owned and leased hotels | Americas management and franchising | ASPAC management and franchising | EAME/SW Asia management and franchising | Corporate and other | Eliminations | Total | |||||||||||||||||
Rooms revenues | $ | 236 | $ | — | $ | — | $ | — | $ | — | $ | (10) | $ | 226 | |||||||||
Food and beverage | 128 | — | — | — | — | — | 128 | ||||||||||||||||
Other | 68 | — | — | — | — | — | 68 | ||||||||||||||||
Owned and leased hotels | 432 | — | — | — | — | (10) | 422 | ||||||||||||||||
Base management fees | — | 60 | 16 | 10 | — | (12) | 74 | ||||||||||||||||
Incentive management fees | — | 1 | 8 | 4 | — | (1) | 12 | ||||||||||||||||
Franchise fees | — | 47 | 1 | — | — | — | 48 | ||||||||||||||||
Other fees | — | 13 | 17 | 3 | 13 | — | 46 | ||||||||||||||||
Management, franchise, and other fees | — | 121 | 42 | 17 | 13 | (13) | 180 | ||||||||||||||||
Contra revenue | — | (13) | (2) | (5) | — | — | (20) | ||||||||||||||||
Net management, franchise, and other fees | — | 108 | 40 | 12 | 13 | (13) | 160 | ||||||||||||||||
Other revenues | — | 33 | — | — | 12 | — | 45 | ||||||||||||||||
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties | — | 904 | 62 | 46 | 3 | — | 1,015 | ||||||||||||||||
Total | $ | 432 | $ | 1,045 | $ | 102 | $ | 58 | $ | 28 | $ | (23) | $ | 1,642 |
Contract Balances
Our contract assets, included in receivables, net on our condensed consolidated balance sheets, were insignificant at both September 30, 2021 and December 31, 2020. As our profitability hurdles are generally calculated on a full-year basis, we expect our contract assets to be insignificant through year end.
Contract liabilities were comprised of the following:
September 30, 2021 | December 31, 2020 | ||||||||||
Deferred revenue related to the loyalty program | $ | 792 | $ | 733 | |||||||
Advanced deposits | 59 | 44 | |||||||||
Initial fees received from franchise owners | 42 | 41 | |||||||||
Deferred revenue related to insurance programs | 4 | 47 | |||||||||
Other deferred revenue | 75 | 76 | |||||||||
Total contract liabilities | $ | 972 | $ | 941 |
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The following table summarizes the activity in our contract liabilities:
2021 | 2020 | ||||||||||
Beginning balance, January 1 | $ | 941 | $ | 920 | |||||||
Cash received and other | 238 | 311 | |||||||||
Revenue recognized | (201) | (336) | |||||||||
Ending balance, June 30 | $ | 978 | $ | 895 | |||||||
Cash received and other | 152 | 114 | |||||||||
Revenue recognized | (158) | (120) | |||||||||
Ending balance, September 30 | $ | 972 | $ | 889 |
Revenue recognized during the three months ended September 30, 2021 and September 30, 2020 included in the contract liabilities balance at the beginning of each year was $83 million and $57 million, respectively. Revenue recognized during the nine months ended September 30, 2021 and September 30, 2020 included in the contract liabilities balance at the beginning of the year was $230 million and $215 million, respectively. This revenue primarily relates to the loyalty program, which is recognized net of redemption reimbursements paid to third parties.
Revenue Allocated to Remaining Performance Obligations
Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Contracted revenue expected to be recognized in future periods was approximately $110 million at September 30, 2021, of which we expect to recognize approximately 15% of the revenue over the next 12 months and the remainder thereafter.
4. DEBT AND EQUITY SECURITIES
Equity Method Investments
Equity method investments were $249 million and $260 million at September 30, 2021 and December 31, 2020, respectively.
The following table presents summarized financial information for all unconsolidated hospitality ventures in which we hold an investment accounted for under the equity method:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
Total revenues | $ | 89 | $ | 27 | $ | 171 | $ | 211 | |||||||||||||||
Gross operating profit (loss) | 36 | (11) | 31 | 34 | |||||||||||||||||||
Loss from continuing operations | (5) | (57) | (91) | (143) | |||||||||||||||||||
Net loss | (5) | (57) | (91) | (143) |
During the nine months ended September 30, 2021, we received $17 million of proceeds related to sales activity of certain equity method investments and recognized an insignificant net loss in equity earnings (losses) from unconsolidated hospitality ventures within the owned and leased hotels segment on our condensed consolidated statements of income (loss).
During the nine months ended September 30, 2021, we purchased our partner's interest in the entities that own Grand Hyatt São Paulo for $6 million of cash, and we repaid the $78 million third-party mortgage loan on the property. We recognized a $69 million pre-tax gain in equity earnings (losses) from unconsolidated hospitality ventures on our condensed consolidated statements of income (loss) (see Note 6).
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Marketable Securities
We hold marketable securities with readily determinable fair values to fund certain operating programs and for investment purposes. We periodically transfer available cash and cash equivalents to purchase marketable securities for investment purposes.
Marketable Securities Held to Fund Operating Programs—Marketable securities held to fund operating programs, which are recorded at fair value on our condensed consolidated balance sheets, were as follows:
September 30, 2021 | December 31, 2020 | ||||||||||
Loyalty program (Note 8) | $ | 584 | $ | 567 | |||||||
Deferred compensation plans held in rabbi trusts (Note 8 and Note 10) | 543 | 511 | |||||||||
Captive insurance company (Note 8) | 184 | 226 | |||||||||
Total marketable securities held to fund operating programs | $ | 1,311 | $ | 1,304 | |||||||
Less: current portion of marketable securities held to fund operating programs included in cash and cash equivalents and short-term investments | (192) | (238) | |||||||||
Marketable securities held to fund operating programs included in other assets | $ | 1,119 | $ | 1,066 | |||||||
Marketable securities held to fund operating programs included $128 million and $82 million of available-for-sale ("AFS") debt securities at September 30, 2021 and December 31, 2020, respectively, with contractual maturity dates ranging from 2021 through 2069. The fair value of our AFS debt securities approximates amortized cost. Additionally, marketable securities held to fund operating programs include $88 million and $70 million of equity securities with a readily determinable fair value at September 30, 2021 and December 31, 2020, respectively.
Net unrealized and realized gains (losses) from marketable securities held to fund operating programs recognized on our condensed consolidated financial statements were as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
Unrealized gains (losses), net | |||||||||||||||||||||||
Net gains (losses) and interest income from marketable securities held to fund rabbi trusts | $ | (4) | $ | 16 | $ | 19 | $ | 11 | |||||||||||||||
Other income (loss), net (Note 18) | (3) | 1 | (8) | 15 | |||||||||||||||||||
Other comprehensive loss (Note 13) | — | — | (1) | — | |||||||||||||||||||
Realized gains, net | |||||||||||||||||||||||
Net gains (losses) and interest income from marketable securities held to fund rabbi trusts | $ | 3 | $ | 6 | $ | 16 | $ | 12 | |||||||||||||||
Other income (loss), net (Note 18) | 1 | 1 | 1 | 5 | |||||||||||||||||||
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Marketable Securities Held for Investment Purposes—Marketable securities held for investment purposes, which are recorded at cost or fair value, depending on the nature of the investment, on our condensed consolidated balance sheets, were as follows:
September 30, 2021 | December 31, 2020 | ||||||||||
Interest-bearing money market funds (1) | $ | 1,114 | $ | 107 | |||||||
Time deposits | 495 | 657 | |||||||||
Common shares in Playa N.V. (Note 8) | 100 | 72 | |||||||||
Total marketable securities held for investment purposes | $ | 1,709 | $ | 836 | |||||||
Less: current portion of marketable securities held for investment purposes included in cash and cash equivalents and short-term investments | (1,609) | (764) | |||||||||
Marketable securities held for investment purposes included in other assets | $ | 100 | $ | 72 | |||||||
(1) Proceeds from our common stock issuance and asset dispositions were reinvested in interest-bearing money market funds at September 30, 2021 (see Note 6 and Note 13). |
We hold common shares in Playa Hotels & Resorts N.V. ("Playa N.V."), which are accounted for as an equity security with a readily determinable fair value as we do not have the ability to significantly influence the operations of the entity. We did not sell any shares of common stock during the nine months ended September 30, 2021 or September 30, 2020. Net unrealized gains (losses) recognized on our condensed consolidated statements of income (loss) were as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
Other income (loss), net (Note 18) | $ | 10 | $ | 7 | $ | 28 | $ | (51) |
Fair Value—We measure marketable securities held to fund operating programs and held for investment purposes at fair value on a recurring basis:
September 30, 2021 | Cash and cash equivalents | Short-term investments | Other assets | ||||||||||||||||||||
Level One - Quoted Prices in Active Markets for Identical Assets | |||||||||||||||||||||||
Interest-bearing money market funds | $ | 1,299 | $ | 1,299 | $ | — | $ | — | |||||||||||||||
Mutual funds | 631 | — | — | 631 | |||||||||||||||||||
Common shares in Playa N.V. | 100 | — | — | 100 | |||||||||||||||||||
Level Two - Significant Other Observable Inputs | |||||||||||||||||||||||
Time deposits | 500 | 145 | 352 | 3 | |||||||||||||||||||
U.S. government obligations | 230 | — | — | 230 | |||||||||||||||||||
U.S. government agencies | 60 | — | — | 60 | |||||||||||||||||||
Corporate debt securities | 138 | — | 5 | 133 | |||||||||||||||||||
Mortgage-backed securities | 25 | — | — | 25 | |||||||||||||||||||
Asset-backed securities | 29 | — | — | 29 | |||||||||||||||||||
Municipal and provincial notes and bonds | 8 | — | — | 8 | |||||||||||||||||||
Total | $ | 3,020 | $ | 1,444 | $ | 357 | $ | 1,219 |
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December 31, 2020 | Cash and cash equivalents | Short-term investments | Other assets | ||||||||||||||||||||
Level One - Quoted Prices in Active Markets for Identical Assets | |||||||||||||||||||||||
Interest-bearing money market funds | $ | 327 | $ | 327 | $ | — | $ | — | |||||||||||||||
Mutual funds | 581 | — | — | 581 | |||||||||||||||||||
Common shares in Playa N.V. | 72 | — | — | 72 | |||||||||||||||||||
Level Two - Significant Other Observable Inputs | |||||||||||||||||||||||
Time deposits | 662 | — | 659 | 3 | |||||||||||||||||||
U.S. government obligations | 208 | — | 3 | 205 | |||||||||||||||||||
U.S. government agencies | 65 | — | — | 65 | |||||||||||||||||||
Corporate debt securities | 159 | — | 13 | 146 | |||||||||||||||||||
Mortgage-backed securities | 24 | — | — | 24 | |||||||||||||||||||
Asset-backed securities | 35 | — | — | 35 | |||||||||||||||||||
Municipal and provincial notes and bonds | 7 | — | — | 7 | |||||||||||||||||||
Total | $ | 2,140 | $ | 327 | $ | 675 | $ | 1,138 |
During the three and nine months ended September 30, 2021 and September 30, 2020, there were no transfers between levels of the fair value hierarchy. We do not have non-financial assets or non-financial liabilities required to be measured at fair value on a recurring basis.
Other Investments
HTM Debt Securities—We hold investments in held-to-maturity ("HTM") debt securities, which are investments in third-party entities that own or are developing certain of our hotels. The securities are mandatorily redeemable between 2021 and 2027. At September 30, 2021 and December 31, 2020, HTM debt securities recorded within prepaids and other assets and other assets on our condensed consolidated balance sheets were as follows:
September 30, 2021 | December 31, 2020 | ||||||||||
HTM debt securities | $ | 100 | $ | 102 | |||||||
Less: allowance for credit losses | (31) | (21) | |||||||||
Total HTM debt securities, net of allowances | $ | 69 | $ | 81 |
The following table summarizes the activity in our HTM debt securities allowance for credit losses:
2021 | 2020 | ||||||||||
Allowance at January 1 | $ | 21 | $ | 12 | |||||||
Credit losses (1) | 8 | 4 | |||||||||
Allowance at June 30 | $ | 29 | $ | 16 | |||||||
Credit losses (1) | 2 | 4 | |||||||||
Allowance at September 30 | $ | 31 | $ | 20 | |||||||
(1) Credit losses were partially or fully offset by interest income recognized in the same periods (see Note 18). |
We estimated the fair value of HTM debt securities to be approximately $98 million and $100 million at September 30, 2021 and December 31, 2020, respectively. The fair values, which are classified as Level Three in the fair value hierarchy, are estimated using internally developed discounted cash flow models based on current market inputs for similar types of arrangements. The primary sensitivity in these models is based on the selection of appropriate discount rates. Fluctuations in these assumptions could result in different estimates of fair value.
Equity Securities Without a Readily Determinable Fair Value—At both September 30, 2021 and December 31, 2020, we held $12 million of investments in equity securities without a readily determinable fair value, which represent investments in entities where we do not have the ability to significantly influence the operations of the entity.
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5. RECEIVABLES
Receivables
At September 30, 2021 and December 31, 2020, we had $373 million and $316 million of net receivables, respectively, on our condensed consolidated balance sheets.
The following table summarizes the activity in our receivables allowance:
2021 | 2020 | ||||||||||
Allowance at January 1 | $ | 56 | $ | 34 | |||||||
Provisions | 5 | 14 | |||||||||
Other | (3) | (10) | |||||||||
Allowance at June 30 | $ | 58 | $ | 38 | |||||||
Provisions | 1 | 7 | |||||||||
Other | (1) | 1 | |||||||||
Allowance at September 30 | $ | 58 | $ | 46 |
Financing Receivables
September 30, 2021 | December 31, 2020 | ||||||||||
Unsecured financing to hotel owners | $ | 96 | $ | 145 | |||||||
Less: current portion of financing receivables, included in receivables, net | (8) | (2) | |||||||||
Less: allowance for credit losses | (57) | (114) | |||||||||
Total long-term financing receivables, net of allowances | $ | 31 | $ | 29 | |||||||
Allowance for Credit Losses—The following table summarizes the activity in our unsecured financing receivables allowance:
2021 | 2020 | ||||||||||
Allowance at January 1 | $ | 114 | $ | 100 | |||||||
Provisions | 6 | 5 | |||||||||
Allowance at June 30 | $ | 120 | $ | 105 | |||||||
Write offs (1) | (60) | — | |||||||||
Provisions | — | 5 | |||||||||
Foreign currency exchange, net | (3) | — | |||||||||
Allowance at September 30 | $ | 57 | $ | 110 | |||||||
(1) The amount written off relates to a financing arrangement with a hotel owner, which was legally waived during the three months ended September 30, 2021. | |||||||||||
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Credit Monitoring—Our unsecured financing receivables were as follows:
September 30, 2021 | |||||||||||||||||||||||
Gross loan balance (principal and interest) | Related allowance | Net financing receivables | Gross receivables on nonaccrual status | ||||||||||||||||||||
Loans | $ | 92 | $ | (54) | $ | 38 | $ | 46 | |||||||||||||||
Other financing arrangements | 4 | (3) | 1 | — | |||||||||||||||||||
Total unsecured financing receivables | $ | 96 | $ | (57) | $ | 39 | $ | 46 | |||||||||||||||
December 31, 2020 | |||||||||||||||||||||||
Gross loan balance (principal and interest) | Related allowance | Net financing receivables | Gross receivables on nonaccrual status | ||||||||||||||||||||
Loans | $ | 83 | $ | (54) | $ | 29 | $ | 53 | |||||||||||||||
Other financing arrangements | 62 | (60) | 2 | 58 | |||||||||||||||||||
Total unsecured financing receivables | $ | 145 | $ | (114) | $ | 31 | $ | 111 | |||||||||||||||
Fair Value—We estimated the fair value of financing receivables to be approximately $62 million and $44 million at September 30, 2021 and December 31, 2020, respectively. The fair values, which are classified as Level Three in the fair value hierarchy, are estimated using discounted future cash flow models. The principal inputs used are projected future cash flows and the discount rate, which is generally the effective interest rate of the loan.
6. ACQUISITIONS AND DISPOSITIONS
Acquisitions
Land—During the three months ended September 30, 2021, we acquired $7 million of land through an asset acquisition from an unrelated third party to develop a hotel in Tempe, Arizona.
Alila Ventana Big Sur—During the nine months ended September 30, 2021, we completed an asset acquisition of Alila Ventana Big Sur for $146 million, net of closing costs and proration adjustments, which primarily consisted of $149 million of property and equipment. The seller is indirectly owned by a limited partnership affiliated with the brother of our Executive Chairman. The acquisition was identified as replacement property in a potential reverse like-kind exchange; however, we sold the property before a suitable replacement property was identified.
During the three months ended September 30, 2021, we sold the property to an unrelated third party for approximately $148 million, net of closing costs and proration adjustments, and accounted for the transaction as an asset disposition. Upon sale, we entered into a long-term management agreement for the property. The sale resulted in a $2 million pre-tax gain, which was recognized in gains on sales of real estate and other on our condensed consolidated statements of income (loss) during the three months ended September 30, 2021. The operating results and financial position of this hotel during our period of ownership remain within our owned and leased hotels segment.
Grand Hyatt São Paulo—We previously held a 50% interest in the entities that own Grand Hyatt São Paulo, and we accounted for the investment as an unconsolidated hospitality venture under the equity method. During the nine months ended September 30, 2021, we purchased the remaining 50% interest for $6 million of cash. Additionally, we repaid the $78 million third-party mortgage loan on the property, and we were released from our debt repayment guarantee (see Note 12). The transaction was accounted for as an asset acquisition, and we recognized a $69 million pre-tax gain related to the transaction in equity earnings (losses) from unconsolidated hospitality ventures on our condensed consolidated statements of income (loss). The pre-tax gain is primarily attributable to a $42 million reversal of other long-term liabilities associated with our equity method investment and a $22 million reclassification from accumulated other comprehensive loss (see Note 13).
15
Net assets acquired were determined as follows:
Cash paid | $ | 6 | |||
Repayment of third-party mortgage loan | 78 | ||||
Fair value of our previously-held equity method investment | 6 | ||||
Net assets acquired | $ | 90 |
Upon acquisition, we recorded $101 million of property and equipment and $11 million of deferred tax liabilities within our owned and leased hotels segment on our condensed consolidated balance sheet.
Dispositions
Hyatt Regency Lake Tahoe Resort, Spa and Casino—During the three months ended September 30, 2021, we sold Hyatt Regency Lake Tahoe Resort, Spa and Casino to an unrelated third party for approximately $343 million, net of closing costs and proration adjustments, and accounted for the transaction as an asset disposition. Upon sale, we entered into a long-term management agreement for the property. The sale resulted in a $305 million pre-tax gain, which was recognized in gains on sales of real estate and other on our condensed consolidated statements of income (loss) during the three months ended September 30, 2021. The operating results and financial position of this hotel prior to the sale remain within our owned and leased hotels segment.
Hyatt Regency Lost Pines Resort and Spa—During the nine months ended September 30, 2021, we sold Hyatt Regency Lost Pines Resort and Spa to an unrelated third party for approximately $268 million, net of closing costs and proration adjustments, and accounted for the transaction as an asset disposition. Upon sale, we entered into a long-term management agreement for the property. The sale resulted in a $104 million pre-tax gain, which was recognized in gains on sales of real estate and other on our condensed consolidated statements of income (loss) during the nine months ended September 30, 2021. The operating results and financial position of this hotel prior to the sale remain within our owned and leased hotels segment.
Hyatt Centric Center City Philadelphia—During the nine months ended September 30, 2020, an unrelated third party invested in certain of our subsidiaries that developed Hyatt Centric Center City Philadelphia and adjacent parking and retail space in exchange for a 58% ownership interest, resulting in the derecognition of the nonfinancial assets of the subsidiaries. As a result of the transaction, we received $72 million of proceeds, recorded our 42% ownership interest as an equity method investment, and recognized a $4 million pre-tax gain in gains on sales of real estate and other on our condensed consolidated statements of income (loss) during the nine months ended September 30, 2020. Our $22 million equity method investment was recorded at fair value based on the value contributed by our partner to the unconsolidated hospitality venture. As additional consideration, we received a $5 million investment in an equity security without a readily determinable fair value.
Building—During the nine months ended September 30, 2020, we sold a commercial building in Omaha, Nebraska for $6 million, net of closing costs and proration adjustments. In conjunction with the sale, we entered into a lease for a portion of the building and accounted for the transaction as a sale and leaseback and recorded a $4 million operating lease right-of-use asset and related lease liability on our condensed consolidated balance sheet. The sale resulted in a $4 million pre-tax gain, which was recognized in gains on sales of real estate and other on our condensed consolidated statements of income (loss) during the nine months ended September 30, 2020. At September 30, 2020, the operating lease had a weighted-average remaining term of 9 years and a weighted-average discount rate of 3.25%. The lease includes an option to extend the lease term by 5 years.
Like-Kind Exchange Agreements
Periodically, we enter into like-kind exchange agreements upon the disposition or acquisition of certain properties. Pursuant to the terms of these agreements, the proceeds from the sales are placed into an escrow account administered by a qualified intermediary and are unavailable for our use until released. The proceeds are recorded as restricted cash on our condensed consolidated balance sheets and released (i) if they are utilized as part of a like-kind exchange agreement, (ii) if we do not identify a suitable replacement property within 45 days after the agreement date, or (iii) when a like-kind exchange agreement is not completed within the remaining allowable time period.
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7. GOODWILL AND INTANGIBLES, NET
At both September 30, 2021 and December 31, 2020, we had $288 million of goodwill on our condensed consolidated balance sheets. During the nine months ended September 30, 2020, we determined that the carrying values of two reporting units were in excess of the fair values, which were Level Three fair value measurements, and we recognized $38 million of goodwill impairment charges in asset impairments on our condensed consolidated statements of income (loss) within our owned and leased hotels segment.
September 30, 2021 | Weighted- average useful lives in years | December 31, 2020 | |||||||||||||||
Management and franchise agreement intangibles | $ | 349 | 18 | $ | 354 | ||||||||||||
Brand and other indefinite-lived intangibles | 130 | — | 130 | ||||||||||||||
Advanced booking intangibles | 6 | 3 | 6 | ||||||||||||||
Other definite-lived intangibles | 8 | 6 | 8 | ||||||||||||||
Intangibles | 493 | 498 | |||||||||||||||
Less: accumulated amortization | (130) | (113) | |||||||||||||||
Intangibles, net | $ | 363 | $ | 385 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
Amortization expense | $ | 6 | $ | 7 | $ | 20 | $ | 21 |
8. OTHER ASSETS
September 30, 2021 | December 31, 2020 | ||||||||||
Marketable securities held to fund rabbi trusts (Note 4) | $ | 543 | $ | 511 | |||||||
Management and franchise agreement assets constituting payments to customers (1) | 538 | 470 | |||||||||
Marketable securities held to fund the loyalty program (Note 4) | 436 | 441 | |||||||||
Marketable securities held for captive insurance company (Note 4) | 140 | 114 | |||||||||
Common shares in Playa N.V. (Note 4) | 100 | 72 | |||||||||
Long-term investments (Note 4) | 74 | 93 | |||||||||
Other | 130 | 96 | |||||||||
Total other assets | $ | 1,961 | $ | 1,797 | |||||||
(1) Includes cash consideration as well as other forms of consideration provided, such as debt repayment or performance guarantees. |
9. DEBT
Long-term debt was $2,978 million and $2,984 million at September 30, 2021 and December 31, 2020, respectively.
Senior Notes—During the three months ended September 30, 2020, we issued $750 million of three-month LIBOR plus 3.000% senior notes due 2022 (the "2022 Notes") at par with interest payable quarterly on March 1, June 1, September 1, and December 1 of each year. We received approximately $745 million of net proceeds from the sale, after deducting $5 million of underwriting discounts and other offering expenses, which we used for general corporate purposes. At September 30, 2021, the 2022 Notes were classified as long-term on our condensed consolidated balance sheet as the debt was refinanced in October 2021 (see Note 19).
During the nine months ended September 30, 2020, we issued $450 million of 5.375% senior notes due 2025 (the "2025 Notes") and $450 million of 5.750% senior notes due 2030 (the "2030 Notes") at par. We received approximately $890 million of net proceeds from the sale, after deducting $10 million of underwriting discounts and other offering expenses. We used a portion of the proceeds from these issuances to repay all outstanding borrowings on our revolving credit facility and settle the outstanding interest rate locks, and the remainder was used for general corporate purposes. Interest is payable semi-annually on April 23 and October 23 of each year.
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Debt Repayment—During the three months ended September 30, 2021, we repaid the outstanding $250 million of 5.375% senior notes due 2021 (the "2021 Notes") at maturity for approximately $257 million, inclusive of $7 million of accrued interest.
Revolving Credit Facility—During the three months ended September 30, 2021, we entered into a Fourth Amendment to Second Amended and Restated Credit Agreement (the "Fourth Revolver Amendment"). The Fourth Revolver Amendment, among other things, (i) modified the negative investments covenant to permit the acquisition of Apple Leisure Group ("ALG") (see Note 19), (ii) incorporated certain metrics consistent with ALG's covenants, (iii) amended certain negative covenants to permit certain existing transactions by ALG, and (iv) included a post-closing covenant requiring certain ALG entities to become guarantors under the revolving credit facility, subject to certain conditions. The effectiveness of the Fourth Revolver Amendment, including the amendments described herein, was subject in all respects to the substantially concurrent consummation of the acquisition of ALG.
During the nine months ended September 30, 2021, we entered into a Third Amendment to Second Amended and Restated Credit Agreement (the "Third Revolver Amendment"). The Third Revolver Amendment, among other things, (i) extended the current covenant relief period through January 1, 2022 (the "Covenant Relief Period"), (ii) added a new minimum fixed charge coverage ratio covenant applicable to the first quarter of 2022, and (iii) increased the maintenance level of the leverage ratio covenant for the second, third, fourth, and fifth quarters following the end of the Covenant Relief Period. The Third Revolver Amendment also included an option, at our election, to extend the maturity date of $1.45 billion of revolving credit commitments by one year on the terms specified in the Third Revolver Amendment. The terms of the Third Revolver Amendment restrict, among other things, our ability to repurchase shares and pay dividends until the first quarter of 2022.
The $1.5 billion aggregate commitment amount under our revolving credit facility remains unchanged under the Fourth Revolver Amendment and Third Revolver Amendment.
During the nine months ended September 30, 2021 and September 30, 2020, we had $0 and $400 million, respectively, of borrowings and repayments on our revolving credit facility. The weighted-average interest rate on these borrowings was 1.71% at September 30, 2020. At both September 30, 2021 and December 31, 2020, we had no balance outstanding. At September 30, 2021, we had $1.5 billion of borrowing capacity available under our revolving credit facility.
Fair Value—We estimate the fair value of debt, which consists of the 2022 Notes, 2025 Notes, 2030 Notes, and the notes below (collectively, the "Senior Notes"), bonds, and other long-term debt.
•$350 million of 3.375% senior notes due 2023 (the "2023 Notes")
•$400 million of 4.850% senior notes due 2026 (the "2026 Notes")
•$400 million of 4.375% senior notes due 2028 (the "2028 Notes")
Our Senior Notes and bonds are classified as Level Two due to the use and weighting of multiple market inputs in the final price of the security. We estimated the fair value of other debt instruments using a discounted cash flow analysis based on current market inputs for similar types of arrangements. Based on the lack of available market data, we have classified our revolving credit facility and other debt instruments as Level Three. The primary sensitivity in these models is based on the selection of appropriate discount rates. Fluctuations in our assumptions will result in different estimates of fair value.
September 30, 2021 | |||||||||||||||||||||||||||||
Carrying value | Fair value | Quoted prices in active markets for identical assets (Level One) | Significant other observable inputs (Level Two) | Significant unobservable inputs (Level Three) | |||||||||||||||||||||||||
Debt (1) | $ | 3,002 | $ | 3,252 | $ | — | $ | 3,214 | $ | 38 | |||||||||||||||||||
(1) Excludes $7 million of finance lease obligations and $21 million of unamortized discounts and deferred financing fees.
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December 31, 2020 | |||||||||||||||||||||||||||||
Carrying value | Fair value | Quoted prices in active markets for identical assets (Level One) | Significant other observable inputs (Level Two) | Significant unobservable inputs (Level Three) | |||||||||||||||||||||||||
Debt (2) | $ | 3,261 | $ | 3,561 | $ | — | $ | 3,518 | $ | 43 | |||||||||||||||||||
(2) Excludes $9 million of finance lease obligations and $26 million of unamortized discounts and deferred financing fees.
Interest Rate Locks—During the three and nine months ended September 30, 2020, we recognized $0 and $37 million of pre-tax losses, respectively, in unrealized gains (losses) on derivative activity on our condensed consolidated statements of comprehensive income (loss) related to interest rate locks that were settled in April 2020. Upon settlement, we recorded a $61 million loss within accumulated other comprehensive loss. This loss is amortized into interest expense on our condensed consolidated statements of income (loss) over the term of the 2030 Notes. The $61 million settlement is included as a cash outflow from operating activities on our condensed consolidated statements of cash flows for the nine months ended September 30, 2020, as our policy is to classify cash flows from derivative instruments in the same category as the item being hedged.
10. OTHER LONG-TERM LIABILITIES
September 30, 2021 | December 31, 2020 | ||||||||||
Deferred compensation plans funded by rabbi trusts (Note 4) | $ | 543 | $ | 511 | |||||||
Income taxes payable | 174 | 166 | |||||||||
Guarantee liabilities (Note 12) | 89 | 31 | |||||||||
Deferred income taxes (Note 11) | 78 | 48 | |||||||||
Self-insurance liabilities (Note 12) | 64 | 67 | |||||||||
Other | 60 | 88 | |||||||||
Total other long-term liabilities | $ | 1,008 | $ | 911 |
11. INCOME TAXES
The provision for income taxes for the three and nine months ended September 30, 2021 was $138 million and $339 million, respectively, compared to the benefit for income taxes of $59 million and $188 million for the three and nine months ended September 30, 2020, respectively. The changes in our benefit (provision) for income taxes for the three and nine months ended September 30, 2021, compared to the three and nine months ended September 30, 2020, were primarily attributable to the tax impact of the sale of Hyatt Regency Lake Tahoe Resort, Spa and Casino combined with the impact of recording a full valuation allowance on U.S. federal and state deferred tax assets in the first quarter of 2021 and the impact of unbenefited foreign losses.
During the year ended December 31, 2020, we generated significant pre-tax losses driven by the COVID-19 pandemic business disruption, and during the three months ended March 31, 2021, we entered into a three-year cumulative U.S. pre-tax loss position. Therefore, in the first quarter of 2021, we assessed the need for a valuation allowance against our deferred tax assets, considering both positive and negative evidence, including the cumulative three-year pre-tax loss position. We considered sources of positive evidence including recent favorable recovery trends in the hospitality industry and the indefinite carryforward period of any U.S. tax losses generated. Accounting Standards Codification 740, Income Taxes, prescribes that a recent cumulative pre-tax loss position is strong objectively verifiable negative evidence that is difficult to overcome and little or no weight is placed on future projections of pre-tax income, and therefore, our forecasts did not have an impact on our assessment. Based on the weight of all available evidence, we recorded a full valuation allowance against our U.S. federal and state deferred tax assets during the three months ended March 31, 2021. We continue to assess the valuation allowance on a quarterly basis, and at September 30, 2021, our valuation allowance was $176 million.
At January 1, 2021, we had no U.S. federal net operating loss carryforwards, as the net operating losses we generated in 2020 were carried back to prior years, as described below. To measure the valuation allowance, we estimated the years in which our deferred tax assets and liabilities would reverse using systematic and logical methods to determine reversal patterns. If we generate losses in future periods, additional valuation allowances may be required that could have an adverse impact on our net income (loss). Conversely, if pre-tax income returns to normalized levels, we expect to see these allowances reverse, which would result in an increase in reported net income. We will continue to reassess the realizability of our U.S. deferred tax asset balances in future periods.
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During the nine months ended September 30, 2021, we filed a U.S. refund claim, which carried back the taxable loss generated in 2020 to 2015, 2016, and 2017 as allowed under the provision of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). In July 2021, we received a $254 million refund from the Internal Revenue Service ("IRS"), which was included in prepaid income taxes on our condensed consolidated balance sheet at December 31, 2020.
We are subject to audits by federal, state, and foreign tax authorities. U.S. tax years 2009 through 2011 are before the U.S. Tax Court concerning the tax treatment of the loyalty program. We are currently under field exam by the IRS for tax years 2015 through 2017. During the nine months ended September 30, 2021, we received a Notice of Proposed Adjustment for those tax years related to the loyalty program issue currently in the U.S. Tax Court. As a result, U.S. tax years 2009 through 2017 are pending the outcome of the issue currently in U.S. Tax Court. If the IRS' position to include loyalty program contributions as taxable income to the Company is upheld, it would result in an income tax payment of $221 million (including $63 million of estimated interest, net of federal tax benefit) for all assessed years. We believe we have an adequate uncertain tax liability recorded in connection with this matter.
At September 30, 2021 and December 31, 2020, total unrecognized tax benefits recorded in other long-term liabilities on our condensed consolidated balance sheets were $150 million and $146 million, respectively, of which $146 million and $49 million, respectively, would impact the effective tax rate if recognized.
12. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, we enter into various commitments, guarantees, surety bonds, and letter of credit agreements.
Commitments—At September 30, 2021, we are committed, under certain conditions, to lend or provide certain consideration to, or invest in, various business ventures up to $332 million, net of any related letters of credit.
Performance Guarantees—Certain of our contractual agreements with third-party hotel owners require us to guarantee payments to the owners if specified levels of operating profit are not achieved by their hotels. At September 30, 2021, our performance guarantees have $93 million of remaining maximum exposure and expire between 2022 and 2036. Our most significant performance guarantee, related to four managed hotels in France, expired in April 2020.
At September 30, 2021 and December 31, 2020, we had $48 million and $16 million of total performance guarantee liabilities, respectively, which included $38 million and $6 million recorded in other long-term liabilities, respectively, on our condensed consolidated balance sheets. At both September 30, 2021 and December 31, 2020, we had $10 million recorded in accrued expenses and other current liabilities on our condensed consolidated balance sheets.
Four managed hotels in France | Other performance guarantees | All performance guarantees | ||||||||||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||||||
Beginning balance, January 1 | $ | — | $ | 20 | $ | 16 | $ | 13 | $ | 16 | $ | 33 | ||||||||||||||||||||||||||
Initial guarantee obligation liability | — | — | 34 | — | 34 | — | ||||||||||||||||||||||||||||||||
Amortization of initial guarantee obligation liability into income | — | (4) | (1) | (2) | (1) | (6) | ||||||||||||||||||||||||||||||||
Performance guarantee expense, net | — | 26 | 5 | 13 | 5 | 39 | ||||||||||||||||||||||||||||||||
Payments during the period | — | (15) | (7) | (11) | (7) | (26) | ||||||||||||||||||||||||||||||||
Foreign currency exchange, net | — | (1) | — | — | — | (1) | ||||||||||||||||||||||||||||||||
Ending balance, June 30 | $ | — | $ | 26 | $ | 47 | $ | 13 | $ | 47 | $ | 39 | ||||||||||||||||||||||||||
Amortization of initial guarantee obligation liability into income | — | — | (1) | (1) | (1) | (1) | ||||||||||||||||||||||||||||||||
Performance guarantee expense | — | — | 3 | 8 | 3 | 8 | ||||||||||||||||||||||||||||||||
Payments during the period | — | (7) | (1) | (7) | (1) | (14) | ||||||||||||||||||||||||||||||||
Foreign currency exchange, net | — | 1 | — | — | — | 1 | ||||||||||||||||||||||||||||||||
Ending balance, September 30 | $ | — | $ | 20 | $ | 48 | $ | 13 | $ | 48 | $ | 33 | ||||||||||||||||||||||||||
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Additionally, we enter into certain management contracts where we have the right, but not an obligation, to make payments to certain hotel owners if their hotels do not achieve specified levels of operating profit. If we choose not to fund the shortfall, the hotel owner has the option to terminate the management contract. At September 30, 2021 and December 31, 2020, we had $6 million and $3 million, respectively, recorded in accrued expenses and other current liabilities on our condensed consolidated balance sheets related to these performance cure payments.
Debt Repayment and Other Guarantees—We enter into various debt repayment and other guarantees in order to assist hotel owners and unconsolidated hospitality ventures in obtaining third-party financing or to obtain more favorable borrowing terms.
Property description | Maximum potential future payments | Maximum exposure net of recoverability from third parties | Other long-term liabilities recorded at September 30, 2021 | Other long-term liabilities recorded at December 31, 2020 | Year of guarantee expiration | ||||||||||||
Hotel properties in India (1) | $ | 197 | $ | 197 | $ | 36 | $ | — | 2024 | ||||||||
Hotel properties in Tennessee (2), (3) | 56 | 20 | 6 | 8 | various, through 2024 | ||||||||||||
Hotel properties in California (2) | 38 | 15 | — | 2 | various, through 2022 | ||||||||||||
Hotel property in Pennsylvania (2), (4) | 28 | 11 | 1 | 1 | various, through 2023 | ||||||||||||
Hotel property in Massachusetts (2), (4) | 27 | 14 | 2 | 4 | various, through 2022 | ||||||||||||
Hotel properties in Georgia (2) | 27 | 13 | 3 | 4 | various, through 2024 | ||||||||||||
Hotel property in Oregon (2) | 21 | 8 | 1 | 1 | 2022 | ||||||||||||
Other (2), (3) | 21 | 7 | 2 | 5 | various, through 2025 | ||||||||||||
Total | $ | 415 | $ | 285 | $ | 51 | $ | 25 |
(1) Debt repayment guarantees are denominated in Indian rupees and translated using exchange rates at September 30, 2021. We have the contractual right to recover amounts funded from an unconsolidated hospitality venture, which is a related party. We expect our maximum exposure to be approximately $100 million, taking into account our partner's 50% ownership interest in the unconsolidated hospitality venture. Under certain events or conditions, we have the right to force the sale of the properties in order to recover amounts funded.
(2) We have agreements with our unconsolidated hospitality venture partners, the respective hotel owners, or other third parties to recover certain amounts funded under the debt repayment guarantee; the recoverability mechanism may be in the form of cash or HTM debt security.
(3) If certain funding thresholds are met or if certain events occur, we have the ability to assume control of the property.
(4) We are subject to completion guarantees whereby the parties agree to substantially complete the construction of the project by a specified date. At September 30, 2021, the maximum potential exposure under the completion guarantees is insignificant.
At September 30, 2021, we are not aware, nor have we received any notification, that our unconsolidated hospitality ventures or hotel owners are not current on their debt service obligations where we have provided a debt repayment guarantee.
Guarantee Liabilities Fair Value—We estimated the fair value of our guarantees to be approximately $116 million and $66 million at September 30, 2021 and December 31, 2020, respectively. Based on the lack of available market data, we have classified our guarantees as Level Three in the fair value hierarchy.
Insurance—We obtain commercial insurance for potential losses for general liability, workers' compensation, automobile liability, employment practices, crime, property, cyber risk, and other miscellaneous coverages. A portion of the risk is retained on a self-insurance basis primarily through a U.S.-based and licensed captive insurance company that is a wholly owned subsidiary of Hyatt and generally insures our deductibles and retentions. Reserve requirements are established based on actuarial projections of ultimate losses. Reserves for losses in our captive insurance company to be paid within 12 months are $36 million and $37 million at September 30, 2021 and December 31, 2020, respectively, and are recorded in accrued expenses and other current liabilities on our condensed consolidated balance sheets. Reserves for losses in our captive insurance company to be paid in future periods are $64 million and $67 million at September 30, 2021 and December 31, 2020 and are recorded in other long-term liabilities on our condensed consolidated balance sheets.
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Collective Bargaining Agreements—At September 30, 2021, approximately 23% of our U.S.-based employees were covered by various collective bargaining agreements, generally providing for basic pay rates, working hours, other conditions of employment, and orderly settlement of labor disputes. Certain employees are covered by union-sponsored, multi-employer pension and health plans pursuant to agreements between us and various unions. Generally, labor relations have been maintained in a normal and satisfactory manner, and we believe our employee relations are good.
Surety Bonds—Surety bonds issued on our behalf were $44 million at September 30, 2021 and primarily relate to workers' compensation, taxes, licenses, construction liens, and utilities related to our lodging operations.
Letters of Credit—Letters of credit outstanding on our behalf at September 30, 2021 were $272 million, which relate to our ongoing operations, hotel properties under development in the U.S., collateral for estimated insurance claims, and securitization of our performance under our debt repayment guarantees associated with the hotel properties in India, which are only called on if we default on our guarantees. The letters of credit outstanding do not reduce the available capacity under our revolving credit facility (see Note 9).
Capital Expenditures—As part of our ongoing business operations, expenditures are required to complete renovation projects that have been approved.
Other—We act as general partner of various partnerships owning hotel properties that are subject to mortgage indebtedness. These mortgage agreements generally limit the lender's recourse to security interests in assets financed and/or other assets of the partnership(s) and/or the general partner(s) thereof.
In conjunction with financing obtained for our unconsolidated hospitality ventures and certain managed hotels, we may provide standard indemnifications to the lender for loss, liability, or damage occurring as a result of our actions or actions of the other unconsolidated hospitality venture partners or respective hotel owners.
As a result of certain dispositions, we have agreed to provide customary indemnifications to third-party purchasers for certain liabilities incurred prior to sale and for breach of certain representations and warranties made during the sales process, such as representations of valid title, authority, and environmental issues that may not be limited by a contractual monetary amount. These indemnification agreements survive until the applicable statutes of limitation expire or until the agreed upon contract terms expire.
We are subject, from time to time, to various claims and contingencies related to lawsuits, taxes, and environmental matters, as well as commitments under contractual obligations. Many of these claims are covered under our current insurance programs, subject to deductibles. Although the ultimate liability for these matters cannot be determined at this point, based on information currently available, we do not expect the ultimate resolution of such claims and litigation to have a material effect on our condensed consolidated financial statements.
During the year ended December 31, 2018, we received a notice from the Indian tax authorities assessing additional service tax on our operations in India. We appealed this decision and do not believe a loss is probable, and therefore, we have not recorded a liability in connection with this matter. At September 30, 2021, our maximum exposure is not expected to exceed $18 million.
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13. EQUITY
Accumulated Other Comprehensive Loss
Balance at July 1, 2021 | Current period other comprehensive income (loss) before reclassification | Amount reclassified from accumulated other comprehensive loss | Balance at September 30, 2021 | ||||||||||||||||||||
Foreign currency translation adjustments | $ | (174) | $ | (24) | $ | — | $ | (198) | |||||||||||||||
Unrealized gains (losses) on AFS debt securities | — | — | — | — | |||||||||||||||||||
Unrecognized pension cost | (7) | — | — | (7) | |||||||||||||||||||
Unrealized gains (losses) on derivative instruments (1) | (37) | — | 1 | (36) | |||||||||||||||||||
Accumulated other comprehensive loss | $ | (218) | $ | (24) | $ | 1 | $ | (241) | |||||||||||||||
(1) The amount reclassified from accumulated other comprehensive loss included realized losses recognized in interest expense, net of insignificant tax impacts, related to the settlement of interest rate locks (see Note 9). | |||||||||||||||||||||||
Balance at January 1, 2021 | Current period other comprehensive income (loss) before reclassification | Amount reclassified from accumulated other comprehensive loss | Balance at September 30, 2021 | ||||||||||||||||||||
Foreign currency translation adjustments (2) | $ | (145) | $ | (33) | $ | (20) | $ | (198) | |||||||||||||||
Unrealized gains (losses) on AFS debt securities | 1 | (1) | — | — | |||||||||||||||||||
Unrecognized pension cost | (7) | — | — | (7) | |||||||||||||||||||
Unrealized gains (losses) on derivative instruments (3) | (41) | — | 5 | (36) | |||||||||||||||||||
Accumulated other comprehensive loss | $ | (192) | $ | (34) | $ | (15) | $ | (241) | |||||||||||||||
(2) The amount reclassified from accumulated other comprehensive loss related to the acquisition of the remaining interest in the entities which own Grand Hyatt São Paulo (see Note 6) and the disposition of our ownership interest in certain unconsolidated hospitality ventures. | |||||||||||||||||||||||
(3) The amount reclassified from accumulated other comprehensive loss included realized losses recognized in interest expense, net of significant tax impacts, related to the settlement of interest rate locks (see Note 9). We expect to reclassify $7 million of losses over the next 12 months. | |||||||||||||||||||||||
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Balance at July 1, 2020 | Current period other comprehensive income (loss) before reclassification | Amount reclassified from accumulated other comprehensive loss | Balance at September 30, 2020 | ||||||||||||||||||||
Foreign currency translation adjustments | $ | (215) | $ | 15 | $ | — | $ | (200) | |||||||||||||||
Unrealized gains (losses) on AFS debt securities | 1 | — | — | 1 | |||||||||||||||||||
Unrecognized pension cost | (9) | — | — | (9) | |||||||||||||||||||
Unrealized gains (losses) on derivative instruments (4) | (44) | — | 2 | (42) | |||||||||||||||||||
Accumulated other comprehensive loss | $ | (267) | $ | 15 | $ | 2 | $ | (250) | |||||||||||||||
(4) The amount reclassified from accumulated other comprehensive loss included realized losses recognized in interest expense, net of insignificant tax impacts, related to the settlement of interest rate locks (see Note 9). | |||||||||||||||||||||||
Balance at January 1, 2020 | Current period other comprehensive income (loss) before reclassification | Amount reclassified from accumulated other comprehensive loss | Balance at September 30, 2020 | ||||||||||||||||||||
Foreign currency translation adjustments | $ | (183) | $ | (17) | $ | — | $ | (200) | |||||||||||||||
Unrealized gains (losses) on AFS debt securities | 1 | — | — | 1 | |||||||||||||||||||
Unrecognized pension cost | (9) | — | — | (9) | |||||||||||||||||||
Unrealized gains (losses) on derivative instruments (5) | (18) | (27) | 3 | (42) | |||||||||||||||||||
Accumulated other comprehensive loss | $ | (209) | $ | (44) | $ | 3 | $ | (250) | |||||||||||||||
(5) The amount reclassified from accumulated other comprehensive loss included realized losses recognized in interest expense, net of insignificant tax impacts, related to the settlement of interest rate locks (see Note 9). |
Common Stock Issuance—During the three months ended September 30, 2021, we completed an underwritten public offering of our Class A common stock at a price of $74.50 per share (the "common stock issuance"). We issued and sold 8,050,000 shares, including 1,050,000 shares issued in connection with the full exercise of the underwriters' over-allotment option.
We received $575 million of net proceeds from the common stock issuance, after deducting approximately $25 million of underwriting discounts and other offering expenses. We used the proceeds from the common stock issuance to fund a portion of the purchase of ALG (see Note 19).
Share Repurchase—During 2019 and 2018, our board of directors authorized the repurchase of up to $750 million and $750 million, respectively, of our common stock. These repurchases may be made from time to time in the open market, in privately negotiated transactions, or otherwise, including pursuant to a Rule 10b5-1 plan or an accelerated share repurchase transaction, at prices we deem appropriate and subject to our financial condition, capital requirements, market conditions, restrictions under the terms of our revolving credit facility, applicable law, and other factors deemed relevant in our sole discretion. The common stock repurchase program applies to our Class A and Class B common stock. The common stock repurchase program does not obligate us to repurchase any dollar amount or number of shares of common stock, and the program may be suspended or discontinued at any time.
During the nine months ended September 30, 2021, we did not repurchase common stock.
During the nine months ended September 30, 2020, we repurchased 827,643 shares of Class A common stock. The shares of common stock were repurchased at a weighted-average price of $84.08 per share for an aggregate purchase price of $69 million, excluding insignificant related expenses. The shares repurchased during the nine months ended September 30, 2020 represented approximately 1% of our total shares of common stock outstanding at December 31, 2019.
The shares of Class A common stock repurchased on the open market were retired and returned to the status of authorized and unissued shares. At September 30, 2021, we had $928 million remaining under the share repurchase authorization.
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Dividend—During the nine months ended September 30, 2021, Hyatt did not declare or pay dividends to Class A or Class B shareholders of record. On February 13, 2020, our board of directors declared a cash dividend of $0.20 per share for the first quarter of 2020, which was paid on March 9, 2020 to Class A and Class B shareholders of record on February 26, 2020. For the nine months ended September 30, 2020, $7 million and $13 million of cash dividends were paid for Class A and Class B common stock, respectively.
14. STOCK-BASED COMPENSATION
As part of our Long-Term Incentive Plan ("LTIP"), we award time-vested stock appreciation rights ("SARs"), time-vested restricted stock units ("RSUs"), and performance-vested restricted stock units ("PSUs") to certain employees and non-employee directors. In addition, non-employee directors may elect to receive their annual fees and/or annual equity retainers in the form of shares of our Class A common stock. Compensation expense and unearned compensation presented below exclude amounts related to employees of our managed hotels and other employees whose payroll is reimbursed, as this expense has been and will continue to be reimbursed by our third-party hotel owners and is recognized within revenues for the reimbursement of costs incurred on behalf of managed and franchised properties and costs incurred on behalf of managed and franchised properties on our condensed consolidated statements of income (loss). Stock-based compensation expense recognized in selling, general, and administrative expenses on our condensed consolidated statements of income (loss) related to the LTIP awards was as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
SARs | $ | — | $ | — | $ | 10 | $ | 10 | |||||||||||||||
RSUs | 3 | 3 | 19 | 17 | |||||||||||||||||||
PSUs | 3 | — | 13 | (7) | |||||||||||||||||||
Total | $ | 6 | $ | 3 | $ | 42 | $ | 20 |
The nine months ended September 30, 2020 included a reversal of previously recognized stock-based compensation expense based on our assessment at the time of the expected achievement relative to the applicable performance targets related to certain PSU awards.
SARs—During the nine months ended September 30, 2021, we granted 396,889 SARs to employees with a weighted-average grant date fair value of $28.68. During the nine months ended September 30, 2020, we granted 1,250,434 SARs to employees with a weighted-average grant date fair value of $8.88.
RSUs—During the nine months ended September 30, 2021, we granted 423,079 RSUs to employees and non-employee directors with a weighted-average grant date fair value of $80.12. During the nine months ended September 30, 2020, we granted 628,407 RSUs to employees with a weighted-average grant date fair value of $49.33.
PSUs—During the nine months ended September 30, 2021, we granted 153,256 PSUs to employees with a weighted-average grant date fair value of $82.02. During the nine months ended September 30, 2020, we did not grant any PSUs under our LTIP.
Our total unearned compensation for our stock-based compensation programs at September 30, 2021 was $2 million for SARs, $18 million for RSUs, and $17 million for PSUs, which will primarily be recognized in stock-based compensation expense over a weighted-average period of three years with respect to SARs and PSUs and two years with respect to RSUs.
15. RELATED-PARTY TRANSACTIONS
In addition to those included elsewhere in the Notes to our condensed consolidated financial statements, related-party transactions entered into by us are summarized as follows:
Legal Services—A partner in a law firm that provided services to us throughout the nine months ended September 30, 2021 and September 30, 2020 is the brother-in-law of our Executive Chairman. We incurred $5 million and $2 million of legal fees with this firm during the three months ended September 30, 2021 and September 30, 2020, respectively. We incurred $7 million of legal fees with this firm during each of the nine months ended September 30, 2021 and September 30, 2020. At September 30, 2021 and December 31, 2020, we had $5 million and insignificant amounts due to the law firm, respectively.
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Equity Method Investments—We have equity method investments in entities that own, operate, manage, or franchise properties for which we receive management, franchise, or license fees. We recognized $3 million and $1 million of fees during the three months ended September 30, 2021 and September 30, 2020, respectively. During the nine months ended September 30, 2021 and September 30, 2020, we recognized $7 million and $5 million of fees, respectively. In addition, in some cases we provide loans (see Note 5) or guarantees (see Note 12) to these entities. At September 30, 2021 and December 31, 2020, we had $12 million and $15 million of receivables due from these properties, respectively. Our ownership interest in these unconsolidated hospitality ventures varies from 24% to 50%. See Note 4 for further details regarding these investments.
Class B Share Conversion—During the three and nine months ended September 30, 2021, 970,647 and 2,385,647 shares of Class B common stock, respectively, were converted on a share-for-share basis into shares of Class A common stock, $0.01 par value per share. During the three and nine months ended September 30, 2020, 331,083 and 2,766,326 shares of Class B common stock were converted on a share-for-share basis into shares of Class A common stock, $0.01 par value per share. The shares of Class B common stock that were converted into shares of Class A common stock have been retired, thereby reducing the shares of Class B common stock authorized and outstanding.
16. SEGMENT INFORMATION
Our reportable segments are components of the business which are managed discretely and for which discrete financial information is reviewed regularly by the chief operating decision maker ("CODM") to assess performance and make decisions regarding the allocation of resources. Our CODM is our President and Chief Executive Officer. We define our reportable segments as follows:
•Owned and leased hotels—This segment derives its earnings from owned and leased hotel properties located predominantly in the United States but also in certain international locations, and for purposes of segment Adjusted EBITDA, includes our pro rata share of the Adjusted EBITDA of our unconsolidated hospitality ventures, based on our ownership percentage of each venture. Adjusted EBITDA includes intercompany expenses related to management fees paid to the Company's management and franchising segments, which are eliminated in consolidation. Intersegment revenues relate to promotional award redemptions earned by our owned and leased hotels related to our co-branded credit card program and are eliminated in consolidation.
•Americas management and franchising—This segment derives its earnings primarily from a combination of hotel management and licensing of our portfolio of brands to franchisees located in the United States, Latin America, Canada, and the Caribbean as well as revenues from residential management operations. This segment's revenues also include the reimbursement of costs incurred on behalf of managed and franchised properties. These reimbursed costs relate primarily to payroll at managed properties where the Company is the employer, as well as costs associated with sales, reservations, technology, and marketing services (collectively, "system-wide services") and the loyalty program operated on behalf of owners of managed and franchised properties. The intersegment revenues relate to management fees earned from the Company's owned and leased hotels and are eliminated in consolidation.
•ASPAC management and franchising—This segment derives its earnings primarily from a combination of hotel management and licensing of our portfolio of brands to franchisees located in Southeast Asia, Greater China, Australia, New Zealand, South Korea, Japan, and Micronesia. This segment's revenues also include the reimbursement of costs incurred on behalf of managed and franchised properties. These reimbursed costs relate primarily to system-wide services and the loyalty program operated on behalf of owners of managed and franchised properties.
•EAME/SW Asia management and franchising—This segment derives its earnings primarily from a combination of hotel management and licensing of our portfolio of brands to franchisees located in Europe, Africa, the Middle East, India, Central Asia, and Nepal. This segment's revenues also include the reimbursement of costs incurred on behalf of managed and franchised properties. These reimbursed costs relate primarily to system-wide services and the loyalty program operated on behalf of owners of managed and franchised properties. The intersegment revenues relate to management fees earned from the Company's owned and leased hotels and are eliminated in consolidation.
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Our CODM evaluates performance based on owned and leased hotels revenues; management, franchise, and other fees revenues; and Adjusted EBITDA. Adjusted EBITDA, as we define it, is a non-GAAP measure. We define Adjusted EBITDA as net income (loss) attributable to Hyatt Hotels Corporation plus our pro rata share of unconsolidated owned and leased hospitality ventures' Adjusted EBITDA based on our ownership percentage of each owned and leased venture, adjusted to exclude interest expense; benefit (provision) for income taxes; depreciation and amortization; amortization of management and franchise agreement assets and performance cure payments, which constitute payments to customers ("Contra revenue"); revenues for the reimbursement of costs incurred on behalf of managed and franchised properties; costs incurred on behalf of managed and franchised properties that we intend to recover over the long term; equity earnings (losses) from unconsolidated hospitality ventures; stock-based compensation expense; gains (losses) on sales of real estate and other; asset impairments; and other income (loss), net.
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The table below shows summarized consolidated financial information by segment. Included within corporate and other are results from our co-branded credit card program, the results of the Exhale spa and fitness business, which was sold during the year ended December 31, 2020, and unallocated corporate expenses.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
Owned and leased hotels | |||||||||||||||||||||||
Owned and leased hotels revenues | $ | 268 | $ | 82 | $ | 569 | $ | 432 | |||||||||||||||
Intersegment revenues (1) | 5 | 2 | 11 | 10 | |||||||||||||||||||
Adjusted EBITDA | 51 | (56) | 34 | (100) | |||||||||||||||||||
Depreciation and amortization | 58 | 63 | 175 | 182 | |||||||||||||||||||
Americas management and franchising | |||||||||||||||||||||||
Management, franchise, and other fees revenues | 85 | 29 | 189 | 121 | |||||||||||||||||||
Contra revenue | (5) | (5) | (14) | (13) | |||||||||||||||||||
Other revenues | 24 | 4 | 60 | 33 | |||||||||||||||||||
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties | 412 | 234 | 966 | 904 | |||||||||||||||||||
Intersegment revenues (1) | 10 | 3 | 20 | 12 | |||||||||||||||||||
Adjusted EBITDA | 74 | 16 | 156 | 81 | |||||||||||||||||||
Depreciation and amortization | 5 | 5 | 16 | 15 | |||||||||||||||||||
ASPAC management and franchising | |||||||||||||||||||||||
Management, franchise, and other fees revenues | 16 | 17 | 51 | 42 | |||||||||||||||||||
Contra revenue | (1) | — | (3) | (2) | |||||||||||||||||||
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties | 26 | 18 | 70 | 62 | |||||||||||||||||||
Adjusted EBITDA | 6 | 9 | 21 | 15 | |||||||||||||||||||
Depreciation and amortization | — | 1 | 2 | 3 | |||||||||||||||||||
EAME/SW Asia management and franchising | |||||||||||||||||||||||
Management, franchise, and other fees revenues | 12 | 5 | 25 | 17 | |||||||||||||||||||
Contra revenue | (3) | (2) | (9) | (5) | |||||||||||||||||||
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties | 18 | 14 | 46 | 46 | |||||||||||||||||||
Intersegment revenues (1) | 1 | — | 1 | 1 | |||||||||||||||||||
Adjusted EBITDA | 5 | (2) | 4 | (12) | |||||||||||||||||||
Depreciation and amortization | — | 1 | — | 1 | |||||||||||||||||||
Corporate and other | |||||||||||||||||||||||
Revenues | 14 | 7 | 33 | 25 | |||||||||||||||||||
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties | — | 1 | — | 3 | |||||||||||||||||||
Intersegment revenues (1) | (1) | — | (1) | — | |||||||||||||||||||
Adjusted EBITDA | (26) | (15) | (71) | (65) | |||||||||||||||||||
Depreciation and amortization | 8 | 10 | 26 | 32 | |||||||||||||||||||
Eliminations | |||||||||||||||||||||||
Revenues (1) | (15) | (5) | (31) | (23) | |||||||||||||||||||
Adjusted EBITDA | — | — | 1 | 2 | |||||||||||||||||||
TOTAL | |||||||||||||||||||||||
Revenues | $ | 851 | $ | 399 | $ | 1,952 | $ | 1,642 | |||||||||||||||
Adjusted EBITDA | 110 | (48) | 145 | (79) | |||||||||||||||||||
Depreciation and amortization | 71 | 80 | 219 | 233 |
(1)Intersegment revenues are included in management, franchise, and other fees revenues, owned and leased hotels revenues, and other revenues and eliminated in Eliminations.
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The table below provides a reconciliation of our net income (loss) attributable to Hyatt Hotels Corporation to EBITDA and a reconciliation of EBITDA to our consolidated Adjusted EBITDA:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
Net income (loss) attributable to Hyatt Hotels Corporation | $ | 120 | $ | (161) | $ | (193) | $ | (500) | |||||||||||||||
Interest expense | 40 | 35 | 123 | 87 | |||||||||||||||||||
(Benefit) provision for income taxes | 138 | (59) | 339 | (188) | |||||||||||||||||||
Depreciation and amortization | 71 | 80 | 219 | 233 | |||||||||||||||||||
EBITDA | 369 | (105) | 488 | (368) | |||||||||||||||||||
Contra revenue | 9 | 7 | 26 | 20 | |||||||||||||||||||
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties | (456) | (267) | (1,082) | (1,015) | |||||||||||||||||||
Costs incurred on behalf of managed and franchised properties | 465 | 278 | 1,117 | 1,068 | |||||||||||||||||||
Equity (earnings) losses from unconsolidated hospitality ventures | 12 | 20 | (8) | 45 | |||||||||||||||||||
Stock-based compensation expense (Note 14) | 6 | 3 | 42 | 20 | |||||||||||||||||||
Gains on sales of real estate and other (Note 6) | (307) | — | (412) | (8) | |||||||||||||||||||
Asset impairments | — | — | 2 | 52 | |||||||||||||||||||
Other (income) loss, net (Note 18) | 3 | 19 | (34) | 114 | |||||||||||||||||||
Pro rata share of unconsolidated owned and leased hospitality ventures' Adjusted EBITDA | 9 | (3) | 6 | (7) | |||||||||||||||||||
Adjusted EBITDA | $ | 110 | $ | (48) | $ | 145 | $ | (79) |
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17. EARNINGS (LOSSES) PER SHARE
The calculation of basic and diluted earnings (losses) per share, including a reconciliation of the numerator and denominator, is as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
Numerator: | |||||||||||||||||||||||
Net income (loss) | $ | 120 | $ | (161) | $ | (193) | $ | (500) | |||||||||||||||
Net income (loss) attributable to noncontrolling interests | — | — | — | — | |||||||||||||||||||
Net income (loss) attributable to Hyatt Hotels Corporation | $ | 120 | $ | (161) | $ | (193) | $ | (500) | |||||||||||||||
Denominator: | |||||||||||||||||||||||
Basic weighted-average shares outstanding | 102,298,714 | 101,277,404 | 101,910,558 | 101,312,741 | |||||||||||||||||||
Share-based compensation | 1,688,833 | — | — | — | |||||||||||||||||||
Diluted weighted-average shares outstanding | 103,987,547 | 101,277,404 | 101,910,558 | 101,312,741 | |||||||||||||||||||
Basic Earnings (Losses) Per Share: | |||||||||||||||||||||||
Net income (loss) | $ | 1.17 | $ | (1.59) | $ | (1.89) | $ | (4.93) | |||||||||||||||
Net income (loss) attributable to noncontrolling interests | — | — | — | — | |||||||||||||||||||
Net income (loss) attributable to Hyatt Hotels Corporation | $ | 1.17 | $ | (1.59) | $ | (1.89) | $ | (4.93) | |||||||||||||||
Diluted Earnings (Losses) Per Share: | |||||||||||||||||||||||
Net income (loss) | $ | 1.15 | $ | (1.59) | $ | (1.89) | $ | (4.93) | |||||||||||||||
Net income (loss) attributable to noncontrolling interests | — | — | — | — | |||||||||||||||||||
Net income (loss) attributable to Hyatt Hotels Corporation | $ | 1.15 | $ | (1.59) | $ | (1.89) | $ | (4.93) |
The computations of diluted net earnings (losses) per share for the three and nine months ended September 30, 2021 and September 30, 2020 do not include the following shares of Class A common stock assumed to be issued as stock-settled SARs and RSUs because they are anti-dilutive.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
SARs | 4,500 | 390,900 | 1,242,900 | 706,600 | |||||||||||||||||||
RSUs | 3,400 | 540,200 | 562,800 | 499,200 |
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18. OTHER INCOME (LOSS), NET
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
Transaction costs | $ | (19) | $ | — | $ | (19) | $ | — | |||||||||||||||
Restructuring expenses | (3) | (22) | (3) | (69) | |||||||||||||||||||
Performance guarantee expense (Note 12) | (3) | (8) | (8) | (47) | |||||||||||||||||||
Credit losses (Note 4 and Note 5) | (2) | (8) | (12) | (26) | |||||||||||||||||||
Foreign currency gains (losses), net | — | (1) | 7 | (3) | |||||||||||||||||||
Performance guarantee liability amortization (Note 12) | 1 | 1 | 2 | 7 | |||||||||||||||||||
Depreciation recovery | 4 | 6 | 13 | 18 | |||||||||||||||||||
Unrealized gains (losses), net (Note 4) | 7 | 8 | 20 | (36) | |||||||||||||||||||
Interest income | 7 | 6 | 21 | 23 | |||||||||||||||||||
Other, net | 5 | (1) | 13 | 19 | |||||||||||||||||||
Other income (loss), net | $ | (3) | $ | (19) | $ | 34 | $ | (114) |
During the three and nine months ended September 30, 2021, we recognized $19 million of transaction costs related to the acquisition of ALG (see Note 19).
During the three and nine months ended September 30, 2020, we recognized $22 million and $69 million, respectively, of restructuring expenses, including severance, insurance benefits, outplacement, and other related costs, due to operational changes as a result of the COVID-19 pandemic.
During the nine months ended September 30, 2020, as a result of existing economic conditions, in part due to the COVID-19 pandemic and the developer's inability to complete construction and meet its debt service, we recognized a $14 million credit loss related to a debt repayment guarantee for a residential property in Brazil.
19. SUBSEQUENT EVENTS
Acquisition—On August 14, 2021, we agreed to acquire 100% of the outstanding limited partnership interests in Casablanca Global Intermediate Holdings L.P., doing business as Apple Leisure Group, and 100% of the outstanding ordinary shares of Casablanca Global GP Limited, its general partner, a leading luxury resort management services, travel, and hospitality group (the "ALG acquisition"), pursuant to a definitive Securities Purchase Agreement (the "Purchase Agreement") for $2.7 billion of total consideration, subject to customary adjustments set forth in the Purchase Agreement related to working capital, cash, and indebtedness. The Purchase Agreement also provides for contingent consideration following the closing of the transaction upon the achievement, if ever, of certain targets related to ALG's outstanding travel credits. We closed on the transaction on November 1, 2021 and paid cash of $2.7 billion. The transaction was funded with a combination of cash on hand, $1 billion of proceeds from new debt described below, $575 million of proceeds from the common stock issuance (see Note 13), and $210 million of borrowings on the revolving credit facility. Given that the transaction recently closed, the preliminary purchase price allocation is in process and is incomplete as of this filing date.
Senior Notes Issuance—On October 1, 2021, we issued $700 million of 1.300% senior notes due 2023 at an issue price of 99.941% (the "2023 Fixed Rate Notes"), $300 million of floating rate senior notes due 2023 (the "2023 Floating Rate Notes") at par, and $750 million of 1.800% senior notes due 2024 at an issue price of 99.994% (the "2024 Fixed Rate Notes") (collectively, the "senior notes issuance"). We received approximately $1.7 billion of net proceeds, after deducting underwriting discounts and other offering expenses.
We used the net proceeds from the senior notes issuance to (i) fund a portion of the purchase price for the ALG acquisition, (ii) refinance the 2022 Notes as described below, and (iii) pay fees and expenses related to the senior notes issuance.
Debt Redemption—On October 15, 2021, utilizing the proceeds from the senior notes issuance, we redeemed the 2022 Notes for approximately $753 million, inclusive of $750 million of aggregate principal and $3 million of accrued interest outstanding.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
This quarterly report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include statements about the Company's plans, strategies, and financial performance; the impact of the COVID-19 pandemic and pace of recovery; the amount by which the Company intends to reduce its real estate asset base and the anticipated timeframe for such asset dispositions; and prospective or future events. Forward-looking statements involve known and unknown risks that are difficult to predict. As a result, our actual results, performance, or achievements may differ materially from those expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as "may," "could," "expect," "intend," "plan," "seek," "anticipate," "believe," "estimate," "predict," "potential," "continue," "likely," "will," "would," and variations of these terms and similar expressions, or the negative of these terms or similar expressions. Such forward-looking statements are necessarily based upon estimates and assumptions that, while considered reasonable by us and our management, are inherently uncertain. Factors that may cause actual results to differ materially from current expectations include, but are not limited to: the factors discussed in our filings with the SEC, including our Annual Report on Form 10-K; risks associated with the consummation of the ALG acquisition, including the related incurrence of material additional indebtedness; our ability to successfully integrate ALG's employees and operations into ours; the ability to realize the anticipated benefits of the acquisition of ALG as rapidly or to the extent anticipated; the duration of the COVID-19 pandemic and the pace of recovery following the pandemic, any additional resurgence, or COVID-19 variants; the short and longer-term effects of the COVID-19 pandemic, including the demand for travel, transient and group business, and levels of consumer confidence; the impact of the COVID-19 pandemic, any additional resurgence, or COVID-19 variants, and the impact of actions that governments, businesses, and individuals take in response, on global and regional economies, travel limitations or bans, and economic activity, including the duration and magnitude of its impact on unemployment rates and consumer discretionary spending; the broad distribution and efficacy of COVID-19 vaccines and wide acceptance by the general population of such vaccines; the ability of third-party owners, franchisees, or hospitality venture partners to successfully navigate the impacts of the COVID-19 pandemic, any additional resurgence, or COVID-19 variants; general economic uncertainty in key global markets and a worsening of global economic conditions or low levels of economic growth; the rate and the pace of economic recovery following economic downturns; global supply chain constraints and interruptions; risks affecting the luxury, resort, and all-inclusive lodging segments; levels of spending in business, leisure, and all-inclusive segments as well as consumer confidence; declines in occupancy and average daily rate ("ADR"); limited visibility with respect to future bookings; loss of key personnel; domestic and international political and geo-political conditions, including political or civil unrest or changes in trade policy; hostilities, or fear of hostilities, including future terrorist attacks, that affect travel; travel-related accidents; natural or man-made disasters such as earthquakes, tsunamis, tornadoes, hurricanes, floods, wildfires, oil spills, nuclear incidents, and global outbreaks of pandemics or contagious diseases, such as the COVID-19 pandemic, or fear of such outbreaks; our ability to successfully achieve certain levels of operating profits at hotels that have performance tests or guarantees in favor of our third-party owners; the impact of hotel renovations and redevelopments; risks associated with our capital allocation plans, share repurchase program, and dividend payments, including a reduction in, or elimination or suspension of, repurchase activity or dividend payments; the seasonal and cyclical nature of the real estate and hospitality businesses; changes in distribution arrangements, such as through internet travel intermediaries; changes in the tastes and preferences of our customers; relationships with colleagues and labor unions and changes in labor laws; the financial condition of, and our relationships with, third-party property owners, franchisees, and hospitality venture partners; the possible inability of third-party owners, franchisees, or development partners to access capital necessary to fund current operations or implement our plans for growth; risks associated with potential acquisitions and dispositions and the introduction of new brand concepts; the timing of acquisitions and dispositions and our ability to successfully integrate completed acquisitions with existing operations; failure to successfully complete proposed transactions (including the failure to satisfy closing conditions or obtain required approvals); our ability to successfully execute on our strategy to expand our management and franchising business while at the same time reducing our real estate asset base within targeted timeframes and at expected values; declines in the value of our real estate assets; unforeseen terminations of our management or franchise agreements; changes in federal, state, local, or foreign tax law; increases in interest rates and operating costs; foreign exchange rate fluctuations or currency restructurings; lack of acceptance of new brands or innovation; general volatility of the capital markets and our ability to access such markets; changes in the competitive environment in our industry, including as a result of the COVID-19 pandemic, industry consolidation, and the markets where we operate; our ability to successfully grow the World of Hyatt loyalty program and ALG's membership offering; cyber incidents and information technology failures; outcomes of legal or administrative proceedings; and violations of regulations or laws related to our franchising business.
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These factors are not necessarily all of the important factors that could cause our actual results, performance, or achievements to differ materially from those expressed in or implied by any of our forward-looking statements. Other unknown or unpredictable factors also could harm our business, financial condition, results of operations, or cash flows. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements speak only as of the date they are made, and we do not undertake or assume any obligation to update publicly any of these forward-looking statements to reflect actual results, new information or future events, changes in assumptions, or changes in other factors affecting forward-looking statements, except to the extent required by applicable law. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
The following discussion should be read in conjunction with the Company's condensed consolidated financial statements and accompanying Notes, which appear elsewhere in this Quarterly Report on Form 10-Q.
Executive Overview
We provide hospitality and other services on a worldwide basis through the operation, management, franchising, ownership, development, and licensing of hospitality businesses. We operate, manage, franchise, own, lease, develop, license, or provide services to a portfolio of properties consisting of full service hotels, select service hotels, all-inclusive resorts, and other properties, including timeshare, fractional, and other forms of residential, vacation, and condominium ownership units.
At September 30, 2021, our worldwide hotel portfolio consisted of 1,028 hotels (244,879 rooms), including:
•427 managed properties (131,821 rooms), all of which we operate under management and hotel services agreements with third-party property owners;
•529 franchised properties (88,307 rooms), all of which are owned by third parties that have franchise agreements with us and are operated by third parties;
•30 owned properties (12,906 rooms) (including 1 consolidated hospitality venture), 1 finance leased property (171 rooms), and 6 operating leased properties (2,087 rooms), all of which we manage;
•25 managed properties and 2 franchised properties owned or leased by unconsolidated hospitality ventures (8,132 rooms); and
•8 franchised properties (1,455 rooms) that are operated by an unconsolidated hospitality venture in connection with a master license agreement by Hyatt, 3 of these properties (669 rooms) are leased by the unconsolidated hospitality venture.
Our worldwide property portfolio also included:
•9 all-inclusive resorts (3,591 rooms), all of which are owned by a third party in which we hold common shares and which operates the resorts under franchise agreements with us;
•16 vacation ownership properties under the Hyatt Residence Club brand and operated by third parties;
•34 residential properties, which consist of branded residences and serviced apartments. We manage all of the serviced apartments and those branded residential units that participate in a rental program with an adjacent Hyatt-branded hotel; and
•39 condominium ownership properties for which we provide services for the rental programs and/or homeowners associations (including 1 unconsolidated hospitality venture).
Additionally, through strategic relationships, we provide certain reservation and/or loyalty program services to hotels that are unaffiliated with our hotel portfolio and operate under other tradenames or marks owned by such hotels or licensed by third parties.
We report our consolidated operations in U.S. dollars. Amounts are reported in millions, unless otherwise noted. Percentages may not recompute due to rounding, and percentage changes that are not meaningful are presented as "NM." Constant currency disclosures used throughout Management's Discussion and Analysis of Financial Condition and Results of Operations are non-GAAP measures. See "—Non-GAAP Measures" for further
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discussion of constant currency disclosures. We manage our business within four reportable segments as described below:
•Owned and leased hotels, which consists of our owned and leased full service and select service hotels and, for purposes of segment Adjusted EBITDA, our pro rata share of the Adjusted EBITDA of our unconsolidated hospitality ventures, based on our ownership percentage of each venture;
•Americas management and franchising ("Americas"), which consists of our management and franchising of properties located in the United States, Latin America, Canada, and the Caribbean, as well as our residential management operations;
•ASPAC management and franchising ("ASPAC"), which consists of our management and franchising of properties located in Southeast Asia, Greater China, Australia, New Zealand, South Korea, Japan, and Micronesia; and
•EAME/SW Asia management and franchising ("EAME/SW Asia"), which consists of our management and franchising of properties located in Europe, Africa, the Middle East, India, Central Asia, and Nepal.
Within corporate and other, we include the results from our co-branded credit card program, the results of the Exhale spa and fitness business, which was sold during the year ended December 31, 2020, and unallocated corporate expenses. See Part I, Item 1 "Financial Statements—Note 16 to the Condensed Consolidated Financial Statements" for further discussion of our segment structure.
Overview of the Impact of the COVID-19 Pandemic
The global spread of the COVID-19 pandemic and its impacts are complex and continue to evolve, resulting in significant disruption to our business, the lodging and hospitality industries, and the global economy. The pandemic and its impacts have significantly reduced global travel, demand for hotel rooms, and travel experiences, and have had a material impact on global commercial activity across the travel, lodging, and hospitality industries, which has had, and is expected to continue to have, a material impact on our business, results of operations, cash flows, and financial condition. While recovery from the pandemic is underway, we expect demand for hospitality services could continue to be uneven in the near term as there remains uncertainty as to the pace of recovery of demand for lodging and travel-related experiences.
We have seen improvement in our comparable system-wide RevPAR for the quarter ended September 30, 2021 compared with the quarter ended June 30, 2021, led by strong leisure demand. As business traveler and consumer confidence improves and government and corporate restrictions on travel and freedom of movement are lifted, we expect to continue to see increased demand for business transient and group travel. However, as cases of COVID-19 persist in various regions around the globe and new COVID-19 variants emerge, restrictions still remain in certain markets, which has created, and may continue to create, demand volatility.
We have, at times, suspended operations at certain hotels across our portfolio in response to government restrictions and low levels of demand, but as restrictions have been lifted and demand has increased, we have re-opened the majority of our hotels. At September 30, 2021, 99% of our system-wide hotels were open.
Overview of Financial Results
For the quarter ended September 30, 2021, we reported net income attributable to Hyatt Hotels Corporation of $120 million, representing a $281 million increase, compared to the quarter ended September 30, 2020, driven by improved operating performance and a pre-tax gain on the sale of Hyatt Regency Lake Tahoe Resort, Spa and Casino, partially offset by an increase in tax expense.
Consolidated revenues increased $452 million, or 113.3% ($451 million, or 112.8%, excluding the impact of currency), during the quarter ended September 30, 2021 compared to the quarter ended September 30, 2020. The increases in owned and leased hotels revenues; management, franchise, and other fees; other revenues; and revenues for the reimbursement of costs incurred on behalf of managed and franchised properties of $183 million, $61 million, $21 million, and $189 million, respectively, for the quarter ended September 30, 2021, compared to the quarter ended September 30, 2020, were driven by continuing recovery in operating performance as compared to the prior year, largely driven by leisure travel within certain markets.
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During the quarter ended September 30, 2021, compared to the same period in 2020, we have seen group bookings production improve at our full service managed hotels in the Americas, including owned and leased hotels, with September gross production at the highest level since the onset of the COVID-19 pandemic, though still significantly lower than pre-COVID-19 pandemic levels. During the quarter, we experienced positive net booking production for 2021. In certain locations, revenues associated with group booking demand could be dependent on travel restrictions related to gatherings being lifted and confidence from meeting planners and businesses that their attendees are comfortable traveling.
Our consolidated Adjusted EBITDA for the quarter ended September 30, 2021 increased $158 million, compared to the third quarter of 2020, driven by the aforementioned increases in revenues due to the ongoing recovery from the prior year impacts of the COVID-19 pandemic. The increase in Adjusted EBITDA was primarily driven by our owned and leased hotels segment and Americas management and franchising segment, which increased $107 million and $58 million, respectively, for the quarter ended September 30, 2021, compared to the same period in the prior year. See "—Segment Results" for further discussion. See "—Non-GAAP Measures" for an explanation of how we utilize Adjusted EBITDA, why we present it, and material limitations on its usefulness, as well as a reconciliation of our net income (loss) attributable to Hyatt Hotels Corporation to EBITDA and a reconciliation of EBITDA to consolidated Adjusted EBITDA.
During the quarter ended September 30, 2021, there were no returns of capital to our shareholders through share repurchases, and there was no quarterly dividend payment as we suspended all share repurchase activity and dividend payments beginning in March 2020.
During the quarter ended September 30, 2021, we completed our 2019 commitment to realize $1.5 billion of proceeds through the sale of real estate and announced an additional commitment to realize $2.0 billion of proceeds from the disposition of owned assets by the end of 2024.
Hotel Chain Revenue per Available Room ("RevPAR") Statistics.
RevPAR | ||||||||||||||||||||
Three Months Ended September 30, | ||||||||||||||||||||
(Comparable locations) | Number of comparable hotels (1) | 2021 | vs. 2020 (in constant $) | |||||||||||||||||
System-wide hotels | 876 | $ | 94 | 137.8 | % | |||||||||||||||
Owned and leased hotels | 33 | $ | 117 | 428.3 | % | |||||||||||||||
Americas full service hotels | 213 | $ | 114 | 303.1 | % | |||||||||||||||
Americas select service hotels | 409 | $ | 94 | 102.4 | % | |||||||||||||||
ASPAC full service hotels | 111 | $ | 64 | 5.7 | % | |||||||||||||||
ASPAC select service hotels | 25 | $ | 36 | (4.1) | % | |||||||||||||||
EAME/SW Asia full service hotels | 100 | $ | 83 | 162.6 | % | |||||||||||||||
EAME/SW Asia select service hotels | 18 | $ | 46 | 106.7 | % | |||||||||||||||
(1) The number of comparable hotels presented above includes owned and leased hotels and hotels that had temporarily suspended operations for a portion of 2020 and/or 2021 due to the COVID-19 pandemic. |
System-wide RevPAR increased 137.8% during the three months ended September 30, 2021, compared to the three months ended September 30, 2020, driven by increased demand due to the continued recovery from the COVID-19 pandemic. Leisure demand continues to lead the recovery as travel restrictions have eased in certain markets. See "—Segment Results" for discussion of RevPAR by segment.
Our comparable system-wide hotels RevPAR of $94 and $39 for the three months ended September 30, 2021 and September 30, 2020, respectively, remain significantly below pre-COVID-19 pandemic levels of previously reported comparable system-wide hotels RevPAR of $137 for the three months ended September 30, 2019. While uncertainty surrounding the recovery remains, we have experienced growing momentum in our business transient and group business, and it is our expectation that both will continue to improve over the coming months. Leisure transient demand is expected to remain durable, but demand may be varied and uneven in the current environment.
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Results of Operations
Three and Nine Months Ended September 30, 2021 Compared with Three and Nine Months Ended September 30, 2020
Discussion on Consolidated Results
For additional information regarding our consolidated results, refer to our condensed consolidated statements of income (loss) included in this quarterly report. Consolidated results were impacted significantly by the COVID-19 pandemic during the three and nine months ended September 30, 2021 and September 30, 2020. See "—Segment Results" for further discussion.
The impact from our investments in marketable securities held to fund our deferred compensation plans through rabbi trusts was recognized on the various financial statement line items discussed below and had no impact on net income (loss).
Owned and leased hotels revenues.
Three Months Ended September 30, | |||||||||||||||||||||||||||||
2021 | 2020 | Better / (Worse) | Currency Impact | ||||||||||||||||||||||||||
Comparable owned and leased hotels revenues | $ | 220 | $ | 49 | $ | 171 | 348.0 | % | <