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HHC

Hyatt Hotels Corporation “ HCC” (NYSE: H ) Residual Enterprise Income Model Meghan Shevlin February 19, 2014. HHC. Hyatt: global hospitality company engaged in management, franchising, ownership and development of Hyatt-branded hotels, resorts, residences

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HHC

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  1. Hyatt Hotels Corporation“HCC” (NYSE: H)Residual Enterprise Income Model Meghan Shevlin February 19, 2014

  2. HHC • Hyatt: global hospitality company engaged in management, franchising, ownership and development of Hyatt-branded hotels, resorts, residences • Highly competitive industry with 21M rooms available • Hyatt owns 500 properties (135,144 rooms) in 42 countries • Hotel industry still suffering from the recession • Industry growth of 3.3% expected through 2018

  3. DCF Model

  4. Residual Enterprise Income Model • Residual income: income generated by a firm after accounting for it’s true cost of capital. It is the earnings in excess of return on NEA • REI model is algebraically derived from the FCF model but anchors the valuation process on the book value of NEA and emphasizes accounting information • REI model is a better indicator of value than the DCF because more value is captured in the short horizon while DCF emphasizes the terminal value

  5. REI Model • Takes into account the finite horizon taking into accounting forecasts of REI and the second horizon is the period beyond 2021 taking into consideration a continuing value • We assume that the growth rate in sales and the growth rate in residual enterprise income will converge (firm’s growth is driven by its ability to grow sales)

  6. REI Model • Since the hotel industry was hit hard by the recession altering assumptions such as EPM, EATO, and Sales growth was necessary • As Hyatt didn’t go public until 2009 there is not prior-recession information to estimate EPM, EATO or Sales Growth. • Industry information was used to forecast the following model • Analysts expect sales growth to increase in the next five years

  7. REI Model

  8. Conclusion • Overall the REI model is a better indicator of value because more value is known with certainty (in short horizon) while the DCF model relies more on terminal value • Many manipulations were performed based on the highly volatile market Hyatt is in

  9. Questions?

  10. Sources • Hyatt Hotel Corporation Annual Report 2012 • Hyatt Hotel Corporation Investor Fact Book 2012 • Valuation for Financial and Accounting Professionals: A Guide to Valuation and Financial Statement Analysis, Easton, Sommers • www.nasdaq.com/symbol/h • www.yahoo.com

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