Hyatt Regency Orlando selling for $1.02B: Report

ORLANDO — The over $1 billion sale of the Hyatt Regency Orlando in Florida is on track to close by the end of this week, according to analyst Michael Bellisario of R.W. Baird. That eye-popping amount would make it the largest hotel sale of 2024.

A joint venture between Los Angeles-based Ares Management and Houston-based Rida Development will acquire the 1,641-key Hyatt Regency Orlando from Hyatt Hotels Corp. for $1.02 billion (or approximately $622,000 per key). Bloomberg first reported the deal last week.

According to Bellisario, the JV is financing the acquisition with a $620 million floating-rate CMBS loan, and Hyatt will retain a $265 million preferred equity interest — $100 million of which can be reduced to $0 if renovations are completed or the hotel does not achieve certain net operating income hurdles.

“[Hyatt’s] deal is ‘structured,’ which is boosting the headline sale price and allowing the deal to be consummated,” Bellisario wrote in his note about the deal.

According to Bellisario, the price represents about 12.25x EBITDA for the trailing 12 months (which includes Hyatt’s management fee) and a 7.3% net operating income cap rate.

Hyatt purchased the hotel, located next to the Orange County Convention Center, for $717 million in 2013 and spent $117 million on renovations in 2016. It has been executing an asset-light strategy and Hyatt President and CEO Mark Hoplamazian said last week during the company’s second-quarter earnings call that this sale (which he didn’t name specifically) would complete Hyatt’s $2 billion asset sell-down commitment.

According to Bellisario, there is an entitled development parcel that is adjacent to the property that does not appear to be part of the financing, “Assuming the land is sold separately, the gross proceeds to Hyatt would be higher (net proceeds will reflect the ‘seller financing’ and cash taxes that will be owed on the gain),” he said.

The hotel has about 351,000 square feet of meeting space and, for the trailing 12 months, generated $83.3 million in hotel EBITDA and $74.6 million in NOI (which is 2% higher than 2023 and 17% higher than 2019), which includes Hyatt’s management fee of 3%. Its RevPAR was $182 (which is 15% higher than 2019).

The JV is entering into a new 30-year management agreement (with two 10-year extensions) with Hyatt. Bellisario said that based on trailing 12-month numbers, that would earn Hyatt approximately $6.5 million on base management fees.

Details of the financing

According to Bellisario, the $620 million floating-rate CMBS loan has a five-year fully extended term (a two-year initial term plus three one-year extensions and an estimated interest rate of secured overnight finance rate +2.95%. The loan-to-value ratio is 61% of the full purchase price.

Bellisario said Hyatt’s $265 million in preferred equity has four tranches: a $165 million senior preferred equity at 7.45% (which is reduced to 6% when renovations are completed) plus $60 million in junior A and B preferred equity, which will be converted to senior preferred equity if certain cash flow requirements are satisfied. It can also be reduced to $0 if NOI hurdles aren’t met by 2032. There is also $40 million in “renovation preferred equity,” which can be reduced to $0 once renovations are completed. Bellisario said the JV is planning about $60 million in elective improvements scheduled to be completed by the second half of 2025 or 2026.

One of the buyers, Ares Management, in May acquired from London’s Land Securities Group a 21-hotel portfolio in the U.K. for £400 million ($501 million). All hotels are let by AccorInvest, who has agreed to surrender the leases and transfer operations to Ares. The properties are predominantly economy and midscale, with a majority residing in the London area. Landsec said it was selling because it does not have scale or focus in the sector and wants to use resources where it has more of a competitive advantage.