Asset sales after Hyatt’s Playa deal will be key

INTERNATIONAL REPORT — With Hyatt’s $2.6 billion acquisition of Playa Hotels & Resorts closer to completion, there’s the sale and then there’s THE SALE (of the real estate, that is).

Once Hyatt owns all ordinary shares of Playa (on or about June 17, according to a release from the company on Friday), the next shoe to drop will be when Hyatt announces the asset sales that will fund much of this purchase.

That will be the key to a deal where Hyatt has been “threading a needle,” according to Michael Bellisario, an analyst for R.W. Baird.

“Hyatt is not buying Playa to sell two of the 15,” he said. “They want to sell the vast majority of the real estate. So, is it 12 hotels? Is it 13? Is it 15? I hope it’s somewhere in that range and not six, seven or eight [of the hotels].”

Our understanding, our reading of the body language — and Hyatt is obviously keeping it close to the vest — is that there is a deal in hand to be signed, probably to be announced when the deal is closed.

Michael Bellisario

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Hyatt is in an interesting position, Bellisario said, because it can’t announce any purchase or sales agreements until it technically owns the company. The working assumption is that there are deals out there that will be announced soon after the Playa acquisition, but no one really knows for sure, Bellisario said.

“Our understanding, our reading of the body language — and Hyatt is obviously keeping it close to the vest — is that there is a deal in hand to be signed, probably to be announced when the deal is closed,” he said.

The real estate sales will help everyone do the math on how this deal is ultimately perceived, Bellisario said.

“They’re gonna end up paying $2.6-ish billion… for really incremental fees that are $25, $30, $35 million,” he said. “The resulting math of what is your incremental fee versus your remaining equity is so dependent on what you sell the real estate for because a 5% change in the real estate value, which is 80% of the business, is a 20% to 25% change in the remaining piece.”

The primary motivation of this deal, Bellisario said, is to flip the below-market franchise agreement to a market value and allow Hyatt to charge a higher per-room management agreement while also extending the contracts, especially for the Hyatt Ziva and Hyatt Zilara properties, which are roughly 70% to 75% of the revenues, fees and EBITDA for Playa.

“The economics of the deal will be determined by how much the real estate is sold for and what the remaining fees are now,” Bellisario said. “It gets into this math of what the public market values. Well, we value fees. Hyatt [could] push for a little less real estate value and a little bit more fee [value], all else equal, because that’s what the public market values.”

So, if Hyatt gets $25 million of incremental fees, as an example, which could multiply out to $400 million in value, then the hope would be that the real estate would sell for $2.3-2.4 billion to get the math to equal out.

Bellisario said it’s all assumptions at this point and they are all over the place. He said the hope is that investors will start getting some answers soon after the Playa deal is finalized (hopefully next week).

The economics of the deal will be determined by how much the real estate is sold for and what the remaining fees are now.

Michael Bellisario

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“We can finally put all the puzzle pieces together to say, ‘This is what they bought. This is what we thought in December… and this is where we ultimately ended up six months later,’” he said.

Until then, Bellisario said there’s still at least “eight days of risk.”

Details of the deal

Hyatt Hotel Corp.’s previously announced $2.6 billion acquisition of Playa Hotels & Resorts is closer to completion after both companies stated that all required regulatory approvals have been finished.

On Sunday, Playa Hotels & Resorts announced that all required approvals about anti-competition filings for the pending sale to Hyatt Hotels Corp. had been granted. The antitrust approval in Mexico was the final regulatory approval required to complete the transaction.

On Friday, Hyatt also said all required regulatory approvals have been obtained for its cash tender offer to purchase all of the outstanding ordinary shares of Playa Hotels & Resorts N.V. for $13.50 per share in cash, less any applicable withholding taxes and without interest.

The offer is being made under the previously announced purchase agreement from February 9 among Hyatt, HI Holdings Playa B.V. and Playa.

On Tuesday of this week, Hyatt will commence a subsequent offering period for the tender offer for any Playa ordinary shares not already tendered, which will expire on June 16. Following this subsequent offering period and the related transactions required by the purchase agreement, Hyatt expects to own all ordinary shares of Playa on or about June 17.

In addition, Playa also announced that it has submitted written notice to Nasdaq of its intention to voluntarily delist its ordinary shares from Nasdaq. The voluntary delisting is subject to and conditioned upon the expiration of the Hyatt tender offer and the acquisition by Hyatt of all ordinary shares validly tendered and not withdrawn adequately by the purchase agreement.

In February, when the deal was publicized, Hyatt said it intended to identify third-party buyers for Playa’s owned properties. Following the close of the transaction, Hyatt anticipates realizing at least $2 billion of proceeds from asset sales by the end of 2027 and expects asset-light earnings to exceed 90% on a pro-forma basis in 2027.

Hyatt said earlier this year that it expects to fund 100% of the acquisition with new debt financing and pay down over 80% of the new debt financing proceeds from asset sales. During its first-quarter earnings call in May, Hyatt President and CEO Mark Hoplamazian said the company issued $1 billion of senior notes and closed on a $1.7 billion delayed-draw term loan for the deal.