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HHC

Hyatt Hotels Corporation “ HCC” (NYSE: H ) Cost of Capital and Valuation Meghan Shevlin February 12, 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)Cost of Capital and Valuation Meghan Shevlin February 12, 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) • Hotel industry still suffering from the recession • Industry growth of 3.3% expected through 2018

  3. Overview • Bloomberg Information • Beta Estimate • Cost of Capital using CAPM • Cost of Debt • Weighted Average Cost of Capital • DCF with updated WACC

  4. Beta • Measure of the risk from general market movements that cannot be diversified away • Returns for the market and Hyatt through 2014 for regression purposes • Hyatt went public November 2009 • r=

  5. Beta Estimate con’t Beta Estimate 95% confidence that Beta is between .92 and 1.62 Beta > 1 suggests price movements are correlated to market movements

  6. Beta Estimate • Since no estimates of Beta fell outside of the range in the regression the average was taken: • Beta: 1.30 • Hyatt is 30% more volatile than the overall market

  7. Cost of Equity using CAPM Risk premium • Market return is typically between 9-13% • An equity investor requires an 11.93% rate of return when they invest in Hyatt • Requires a higher return because the risk in equity is driven by both enterprise risk and changes in cost of debt

  8. Cost of Debt • Rates on perceived level of risk • Cost of Debt: 4.62% • Used FEAT/Avg NFL because it takes more into account (i.e. interest income, gain AFS sec) than Interest Expense/Debt

  9. WACC • WACC: risk-adjusted discount rate • Hyatt has excess cash on hand and an interest expense on borrowing • Cash on hand is generating a negative return (could invest elsewhere or pay off debt) • WACC: 10.30%

  10. DCF • Enterprise Value was previously $5.985 B @ 10% rate • Slight increase in WACC caused a roughly 300M decrease in Enterprise Value

  11. Conclusion • Cost of debt and equity capital are used to estimate enterprise capital but are not sources of risk for the enterprise • Risks relate to operations and borrowing

  12. Questions?

  13. 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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