Hyatt Hotels Corporation “ HCC” (NYSE: H ) Abnormal Sales Growth Model Meghan Shevlin March 17, 2014

1. Hyatt Hotels Corporation“HCC” (NYSE: H)Abnormal Sales Growth Model Meghan ShevlinMarch 17, 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

4. Alternative growth models • DCF model analyzes the free cash flow of a project and discounts them back to the present • DCF model places emphasis on the terminal value of a project • 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. Abnormal Sales Growth Model • Anchors on capitalized next period EPAT • The continuing value is the expected difference between intrinsic value and capitalized earnings of the enterprise operations at the horizon • All models yield the same value if steady state is achieved: • 1. Sales grow at a constant rate • 2. EPAT from each dollar of sales is constant • 3. NEA required for each dollar of sales is constant • To achieve a steady state in abnormal enterprise income growth requires two years of NEA growing at sales growth rate

6. Assumptions • 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 no prior-recession information to base a forecast of EPM, EATO or Sales Growth on • Industry information as well as analyst expectations were used to forecast the following model • Beta of 1.58 suggests the hospitality industry in highly susceptible to changes in the market

7. NEA issues • Hyatt holds a large amount of PPE on their balance sheet compared to industry competitors • NEA growth of 6% would not be feasible • Because of this, NEA was assumed to be held constant until 2020 when it finally grows by the continuing value

9. H Value estimate based on Horizon

10. Conclusion • All models will yield the same value ($6.98 B) if steady state is achieved • Abnormal enterprise income growth model is driven by FCF being equal to EPAT adjusted for the change in NEA • Abnormal income growth model captures 96% of H’s income in the short term

11. Questions?

12. 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