Host Hotels & Resorts on Wednesday during its Q4 2017 earnings call stated it is under contract to acquire three assets from Hyatt Hotels Corp. for US$1 billion (about US$703,000 per key).
The purchase price of the 301-room Andaz Maui, the 668-room Grand Hyatt San Francisco and the 454-room Hyatt Regency Coconut Point represents a 5% NOI cap rate and 17x EBITDA multiple on forward projections.
R.W. Baird Senior Research Analyst Michael Bellisario said the while pricing appears relatively full on an absolute basis, management sees plenty of growth and ROI opportunities. He added that proceeds from recent low cap rate dispositions are the source of funds for the portfolio acquisition, which investors generally will view positively, especially in light of management’s revised strategy and capital allocation focus.
“Andaz Maui, Grand Hyatt San Francisco, and Hyatt Regency Coconut Point are exactly the type of iconic real-estate we target and are located in what we believe are some of the best near-term growth markets in the U.S.,” said James Risoleo, president and CEO for Host. “Given our recent and announced sales and our existing cash balance, this purchase is an accretive use of capital that we believe will benefit stockholders in the long-term. Further, by opportunistically monetizing a great piece of real estate in Washington D.C. (Host sold the Key Bridge Marriott for US$190 million) and reducing our exposure in New York (Host is currently under contract to sell the W New York for US$190 million), we are putting into action key pillars of our revised strategy that we believe will create additional value for stockholders over time.”
The hotels will continue to be managed by Hyatt pursuant to long-term management agreements. The properties have recently received significant capital investments and are expected to require relatively minimal near-term capital expenditures from Host.
C. Patrick Scholes, analyst with SunTrust Robinson Humphrey, called the deal a positive development for Hyatt as the assets sold above where it is currently trading (15.2x 2018 EBITDA). “We estimate this transaction adds approximately US$1 share in equity value to Hyatt,” Scholes said.
The deal is also in keeping with Hyatt’s stated plan to shift its mix more toward managed and franchised hotels versus owned and leased.
“Gaining long-term management contracts for Hyatt dispositions makes financial sense to us,” Scholes added. “We believe with the attractive pricing that Hyatt may find more opportunities for disposition candidates as some of the traditional real estate buyers in this current market environment (PE, sovereigns, other Lodging REITS) lost the opportunity for this deal.”