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Deal pace accelerates with big Hyatt sale

Hotel-transaction volume continues to accelerate with Hyatt Hotels Corp. on Friday announcing Hyatt affiliates have agreed to sell 38 hotels to a company organized by Lone Star Funds, the Dallas-based private-equity firm founded by billionaire John Grayken, for approximately US$590 million.

The portfolio consists of Hyatt Place and Hyatt House hotels totaling 4,950 rooms. As part of the sale expected to close in November, Hyatt will enter into franchise agreements with Lone Star, with all hotels maintaining their existing Hyatt Place and Hyatt House branding. Lone Star intends to spend approximately US$50 million in additional capital expenditures across the portfolio, while Aimbridge Hospitality will take over management of the hotels.

Since the establishment of its first fund in 1995, Lone Star has organized 13 private equity funds with aggregate capital commitments totaling over US$52 billion.

“Hyatt utilized its strong balance sheet and industry expertise to launch the Hyatt Place and Hyatt House brands. We are now leveraging that brand equity to recycle capital while maintaining a long-term brand presence in multiple markets,” said Steve Haggerty, global head of capital strategy, franchising and select service for Hyatt. “We believe the renovations planned for the portfolio will help maintain the brands’ reputation as the leading brands in their segments, and we look forward to deepening our relationship with Lone Star and Aimbridge.”

Hyatt also noted that it continues to market six additional select-service hotels for sale.

In analyzing the deal, David Loeb of R.W. Baird said this deal “further demonstrates Hyatt’s successful strategy of acquiring hotels, converting them to the Hyatt brandand later selling them encumbered by management or franchise agreements.”

Loeb further stated that R.W. Baird estimates Hyatt has nearly US$1 billion of cash and expects the company to continue targeting full-service and select-service hotels in key gateway and urban markets. “However, if the company is unable to find attractive investment opportunities, Hyatt had US$319 million remaining on its share repurchase authorization as of July 25, and we believe the company would return excess cash to shareholders,” he said.

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