Furthering its plan to move to a fee-based model and leaning in to the more COVID-friendly leisure space, Hyatt Hotels Corp. on Sunday reported it entered into a deal to acquire for US$2.7 billion in cash Apple Leisure Group (ALG) from its private equity owners KKR & Co and KSL Capital Partners. KKR and KSL bought the Pennsylvania-based resort operator, which today has some 33,000 rooms (approximately 100 upscale and luxury hotels) in 10 countries, in 2017 from Bain Capital. The deal is expected to close in Q4 2021.
Hyatt added that it anticipates finalizing its plan to sell US$1.5 billion of hotel real estate in 2021 with another US$2 billion in asset sales planned by the end of 2024. CEO Mark Hoplamazian said Hyatt will reach 80% fee-based earnings by the end of 2024. Hyatt also said that based on 2023 estimates, it expects its portfolio to generate more than 50% of its room revenues from leisure demand, which will differentiate its platform and customer profile from peers Hilton and Marriott.
Hyatt said it expects to fund more than 80% of the purchase with a combination of US$1 billion of cash on hand and new debt financings, and the remainder with about US$500 million from equity financing. It has secured a US$1.7 billion financing commitment from JP Morgan.
The transaction includes several businesses, including the following:
- AMResorts brand management platform. The AMR Collection brand portfolio includes Secrets, Dreams, Breathless, Zoëtry, Alua, Sunscape and Now;
- Unlimited Vacation Club, a membership program with 110,000-plus members;
- ALG Vacations travel distribution and packaged tour business that includes B2C brands (CheapCaribbean.com and BeachBound), B2B brands (Apple Vacations, Funjet Vacations, among others), and airline vacation brands (Southwest and United);
- Amstar, a destination management company for tour circuits, customized travel itineraries and corporate meetings); and
- Trisept Solutions and VAX VacationAccess, technology solutions platforms for travel merchandising, distribution and travel agents.
Following the completion of the transaction, ALG’s business will continue to be led by current CEO Alejandro Reynal, who will become a member of Hyatt’s executive leadership team and report to Hoplamazian.
Apple Leisure Group’s portfolio contains over 33,000 rooms (approximately 100 upscale and luxury hotels) in 10 countries. ALG’s development pipeline contains 24 executed deals and currently, 60% of the executed pipeline is under construction. Hyatt’s global network of developers and its operational experience is expected to further accelerate growth of ALG brands. Hyatt plans to apply the combined strength of the teams to expand beyond ALG’s current pipeline in new geographies in which ALG does not currently have hotels.
ALG has more than 13,000 rooms at the end of 2020 in Greece and Spain, which will grow Hyatt’s European footprint by 60%. It will also double Hyatt’s global resort footprint, make it the leader in luxury all-inclusive resorts, as well as the largest operator of luxury hotels in Mexico and the Caribbean.
However, the duration and terms/quality of the management contracts vary across the industry, which led Bank of America analysts to warn on some level of attrition upon change of control.
Analysts at R.W. Baird & Co. added, “We see significant qualitative benefits to the transaction (e.g., improved competitive positioning of Hyatt’s broader brand platform and the addition of a significant amount of “dots on the map” for leisure travelers); however, no financial details or valuation metrics were provided.”