Speed as important as price in Hyatt sale

CHICAGO — Hyatt Hotels Corp.’s $2 billion sale of 15 Playa assets to Tortuga Resorts was notable for several reasons. It features a huge sales figure that further propels the company in its asset-light model. It reinforces the brand’s position in the all-inclusive space, surpassing even larger hotel companies, and also helps offset a significant portion of the original $2.55 billion price paid for Playa Hotels & Resorts in the first place.

But one thing stands above the rest: the speed with which it happened.

“I don’t think anybody was quite expecting less than two weeks to sell the whole entire thing,” said C. Patrick Scholes, an analyst with Truist Securities. “That also says to me, obviously, this has been in the works for quite some time. The ink was barely dry on the finalization of the sale before this happened.”

“The bigger takeaway is they sold all of it at once,” said Michael Bellisario, analyst at R.W. Baird. “There was some, not concern, but just discussion around how long it would take for them to sell [the properties] and whether they would have to sell these individually?”

Was $2B enough?

While the total sales price to Tortuga Resorts, an affiliate of Denver-based KSL Capital Partners and a Mexican family office, Rodina, was less than what some had projected, there were several intangibles associated with that number, notably removing the risk of owning those assets from the board for Hyatt and its investors.

“It was a little bit less than I would have expected,” Scholes said, noting two caveats.

Could [Hyatt] perhaps have waited and taken a longer process of selling these assets individually?. It’s certainly possible they could have gotten more proceeds for them, but that takes on a lot of risk and that’s really not what Hyatt wants to do.

Patrick Scholes

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One is the potential for $143 million in a future earnout for Hyatt (the details of which have not been specified), and another is the $200 million in preferred equity that Hyatt is retaining as part of this transaction.

“The headline is $2 billion, but you have to add back that they do get this preferred equity and the potential for $143 million more, but… that tends to be illiquid, whereas they’re getting $2 billion cash today… Investors always prefer cash,” Scholes said.

Ultimately, it’s all about striking a balance between risk and reward.

“Could [Hyatt] perhaps have waited and taken a longer process of selling these assets individually?” Scholes pondered. “It’s certainly possible they could have gotten more proceeds for them, but that takes on a lot of risk and that’s really not what Hyatt wants to do: be a multi-year holder of Caribbean real estate.”

Bellisario said he had projected the value of the real estate higher, but also had the annual fees lower than what Hyatt projected.

“We had thought that the value of the real estate could be like $2.1-2.2 billion, but we were modeling $40-45 million of fees. Now there’s $60-65 million of fees. So, rightfully so, a little less of the real estate value,” he said. “Overall, it’s a good execution and a good deal for them, and it helps them be become even more asset-light.”

Importance of all-inclusive

The deal, which includes the rebranding of several properties to Hyatt a few weeks ago, also gives the company a sizable portion of its portfolio in the all-inclusive space (Hyatt says through Q1, it has over 55,000 all-inclusive rooms, approximately 16% of its global portfolio), with the majority located in the CALA region. Hyatt was an early adopter, especially compared to other major hotel companies.

“What’s interesting, too, is Hyatt was sort of first,” Bellisario said. “They were the ones who were willing to create a new all-inclusive brand, which is how they got the relationship with Playa.”

[Hyatt is] smaller than Hilton and Marriott, and in order to better compete, they are offering something to consumers that is different and arguably better, because their peers just don’t have as much inventory there. This is a way they are growing and growing differently.

Michael Bellisario

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Now, Hyatt has a foothold in a big post-pandemic trend.

“Marriott has all-inclusive now. Hilton has all-inclusive… Wyndham introduced a new brand… and they have other brands that are all-inclusive. So, everyone’s doing it now,” Bellisario said.

This is also a way for Hyatt to differentiate itself against larger competitors.

“Hyatt is doing this for this reason. Obviously, they think they’re going to get good returns and it’s strategically important for the brand and their loyalty program and things like that,” Bellisario said. “They are smaller than Hilton and Marriott, and to better compete, they are offering something to consumers that is different and arguably better, because their peers just don’t have as much inventory there. This is a way they are growing and growing differently, which I know customers appreciate anecdotally."

Another important aspect of the deal is that Hyatt has entered into 50-year management agreements for 13 of the 15 properties, which projects continued fee growth in the future, essential for the company’s asset-light strategy. There are two hotels without long-term agreements: the Wyndham Alltra Playa del Carmen resort in Mexico that was the only one of the Playa assets not branded or rebranded to Hyatt and the Jewel Grande Montego Bay in Jamaica. They will both be sold fully unencumbered and eventually exit Hyatt’s system (the Jewel Grande is currently bookable through the Hyatt system but it’s not participating in the company’s loyalty program and will not be part of Hyatt when it’s sold, according to Bellisario).