Hyatt’s Jim Chu offers insights on how a 12-hotel lifestyle group can help this giant connect key dots, optimize operational income and drive loyalty.
How far can 12 hotels and a 24-property pipeline move the needle for an international hotel company with more than 1,200 properties open, more than 540 under development and 25 brands? Hyatt Hotels Corp.’s recently announced plans for the $125 million acquisition of the Dream Hotel Group will test that out.
Chicago-based Hyatt’s leadership is acquiring Sant Singh Chatwal’s upmarket hotel lifestyle hotel brand and management platform that includes the Dream Hotels, The Chatwal Hotels and Unscripted Hotels brands. Deal terms for the cash transaction payable at closing also cover the possible add-on of another $175 million over the next six years as properties come online and open.
According to the statement announcing the deal, “Stabilized management fees associated with the base purchase price of $125 million are anticipated to be approximately $12 million and, to the extent the contingent purchase price of $175 million is paid, additional stabilized management fees are anticipated to be up to approximately $27 million. The total base purchase price plus the contingent purchase price represents an attractive acquisition multiple in the high-single digits on projected stabilized earnings”.
But, as Mark Hoplamazian, Hyatt’s president and CEO pointed out, the deal driver for Hyatt was more than just margins and new markets. It was about a unique slant on lifestyle hotel expertise. New York City-based Dream Hotel Group, founded by Chatwal and guided by CEO Jay Stein, has punched above its weight throughout its 30-plus-year history. High style and a talent for maximizing F&B and entertainment revenues created an in-the-know cachet around this niche independent. Building a solid New York City presence and going international in its early years also underscored its credibility as a bespoke group to watch.
“Right now, high interest rates and looming inflation in the United States have introduced challenges for the industry, but we anticipate demand for new hotels to continue increasing, along with cash transactions.”
Jim Chu
To get the buy side perspective, Hotel Investment Today asked Hyatt Senior Vice President and Chief Growth Officer Jim Chu about the “why” factors that see this brand tapping new revenue streams.
Hotel Investment Today (HIT): Which specific factors pushed Dream Hotel Group to the top of the possible acquisition list for Hyatt? What optimizes the bang for the buck to make a small niche portfolio like this move the needle for a brand as big as Hyatt?
Jim Chu (JC): This deal is an excellent opportunity to bring in management of highly valued assets in markets like Hollywood, Miami and New York City. It aligns with our asset-light earnings strategy, and we anticipate expansion of the Dream Hotel Group brands to continue in key markets through long-term management agreements.
It also lets us continue to grow our capabilities and expertise in Hyatt’s lifestyle division, bringing guests more dining and nightlife options. Furthermore, the planned acquisition represents a natural cultural fit, as both Hyatt and Dream Hotel Group attract the high-end traveler – making our integration an inherent fit, and ultimately introducing Dream Hotel Group’s guests to more Hyatt brands.
HIT: Was Hyatt buying the performance, the portfolio, or the pipeline? Analysts were positive about the deal but some questioned how many of the 24 management contracts would get signed. What’s the strategy and the desired outcome?
JC: Through this asset-light acquisition, we forecast opportunities for continued growth through Dream Hotel Group’s existing portfolio and pipeline in key markets. Upon closing, Hyatt will pay a base purchase price of $125 million. An additional $175 million will be paid based on certain milestones being reached with respect to signed agreements.
HIT: Hyatt has been opportunistic in acquisitions, moving from mega-deals such as the Apple Leisure Group acquisition to this niche play. What kinds of deals do you see coming on the radar for 2023-25 and how will they figure into building out Hyatt’s brand family?
JC: Each of our strategic acquisition moves shares the common thread of enriching our growth pipeline and the breadth of experiences for our guests. We remain committed to both organic growth and strategic acquisitions as part of Hyatt’s asset-light growth strategy while also seeking new revenue sources that are a natural fit.
HIT: Are market conditions creating some urgency to put capital out to work now?
JC: Right now, high interest rates and looming inflation in the United States have introduced challenges for the industry, but we anticipate demand for new hotels to continue increasing, along with cash transactions.
HIT: What are the growth targets for Dream? How will you keep it from cannibalizing Thompson, Andaz and Hyatt’s other lifestyle brands?
JC: Hyatt is committed to scale without saturation, and we believe that the Dream Hotel Group properties entering the Hyatt portfolio will be complementary to our existing brand footprint, with limited overlap in geography and stay occasion. With this acquisition, we will be increasing our lifestyle guest base and introducing new, complementary audiences – including younger demographics – to the Hyatt brand portfolio.
HIT: Will the executive team of Dream and its on-property teams stay in place or how will that structure change?
JC: Upon closing, we look forward to welcoming our Dream Hotel Group colleagues to the Hyatt family from property and above-property. Key Dream Hotel Group leadership will join Hyatt when the transaction is complete, including CEO Jay Stein as head of Dream Hotels, Chief Development Officer David Kuperberg as head of development – Dream Hotels, and Michael Lindenbaum as global head of operations – Dream Hotels. Integrating Dream Hotel Group’s leadership into Hyatt’s dedicated lifestyle division will allow us to preserve the DNA of each of the Dream Hotel Group brands while utilizing Hyatt’s capabilities to optimize property performance.
What the analysts say
Michael Bellisario, senior research analyst for R.W. Baird, likes the fact that “it gives Hyatt more dots on the map”— something the world’s eighth largest hotel company (ranked by number of rooms — more than 300,000 at the end of 2022 versus nearly 1.5 million for Marriott and more than 1 million for Hilton) — needs to do to gain ground on the top-tier giants.
The big question about this tuck-in play centers on how Hyatt grows the brand. “Are they just buying 11 or 12 hotels plus the pipeline? In five years’ time, are they still going to have the same number of hotels or do they see how to grow? What is the Dream brand going to be? Hyatt already has Thompson. It has Andaz. It needs to identify what’s different about Dream’s brands,” Bellisario said.
That also opens speculation about how many deals in that robust pipeline will get done, and how many owners will remain loyal to Dream. Then there’s the big-business status of Hyatt which could be a pro or con depending on the owner’s or developer’s point of view and the twin specters of inflation and high interest rates.
Overall, the deal is getting good marks for both seller and buyer. “I think the price is fine for now based on let’s call it roughly a 10-times multiple for the base purchase price. That’s pretty much in line with other tuck-in type of M&A deals and multiples we've seen over the last five years. But there’s a reason they [Hyatt] didn't give us a stabilized rate in 2023,” Bellisario concluded.