With the company “two to three weeks” away from closing on its acquisition of Two Roads Hospitality, Hyatt Hotels Corporation President and CEO Mark Hoplamazian said owners of Two Roads properties have plenty of reasons for optimism.
CHICAGO—With Hyatt Hotels Corporation executives expecting their deal to acquire Two Roads Hospitality to close within “two to three weeks,” analysts were looking for clarity on exactly how that deal will come together and what it will ultimately mean in the short and long terms.
Speaking during his company’s third-quarter earnings call, Hyatt President and CEO Mark Hoplamazian expressed optimism about the acquisition. He noted the addition of the Alila, Destination, Joie de Vivre, Thompson and Tommie brands will bring the company’s portfolio to 19 brands focusing on high-end travelers.
“We’re adding an impressive collection of luxury and lifestyle properties, and acquiring a portfolio of 14,000 hotel rooms,” he said.
The deal is valued at $480 million, which could grow to $600 million based on “certain terms on management agreements and conversions,” Hoplamazian said.
Analysts questioned whether that $120 million cushion accounts for the possibility of some legacy Two Roads properties exiting the system in reaction to the deal, in a way not dissimilar to how some hotels left the Kimpton Hotels & Restaurants brand following the acquisition by InterContinental Hotels Group. But Hoplamazian said owners are highly incentivized to stay.
“We can’t really go into details … of what’s being worked through, but we believe based on how we have assessed the current portfolio and how it’s performing that these brands are working,” he said. “Then you look at our ability to leverage sales and revenue management systems and processes.
“We believe the application of World of Hyatt will have an impact. And the customer base similarity will help make an immediate impact. … On the distribution channel front, we can both improve mix and commission structures. A number of these things will be implemented rapidly.”
He pledged not to “rush through” the integration process and said the company will seek to bring owners “as much stability as we can muster.”
Of the five brands the company is acquiring, four are currently in operations while Tommie has two properties under development. Hoplamazian called out that brand specifically, saying he is excited to enter the “micro-lifestyle” segment.
He also said the company plans to continue operating each of the brands, and there are no plans to “retire or consolidate” any of them. The company is looking into how to best provide structure around its new brands, he said.
“We’re working through how we’re going to organize the brands,” he said. “We’re moving toward establishing a lifestyle management division within the company.”
The Two Roads purchase is indicative of how the company is reshaping itself, Hoplamazian said. Funded by the sale of a portfolio of owned real estate earlier in the year, the deal “further accelerates (Hyatt’s) evolution to fee-driven earnings” as the company continues to put more emphasis on its franchising and management businesses over its owned real estate, he said.
The company does plan to maintain a pool of owned hotels through its long-standing capital recycling program to secure or protect key locations for various brands.
In the third quarter, the company made two real estate transactions, the $120 million purchase of the 530-room Hyatt Regency Indian Wells Resort and Spa and a $405-million sale of “shares of the entity that owned the 755-room Hyatt Regency Mexico City,” according to the company’s Q3 earnings news release.
Hoplamazian said the company purchased the Indian Wells property in California because the existing management contract was nearing its end.
“It was a combination of contract term issues, reasonable pricing and the future opportunity to enhance value,” he said.
Q3 performance and guidance
Hyatt saw system-wide comparable revenue per available room grow 2.8% year over year for the quarter, with U.S. hotels up 1.4%. Full-service hotels fared better in the U.S. with 2.5% RevPAR growth compared to select service hotels, which saw a 1.1% RevPAR decrease.
Hoplamazian attributed that poor performance among U.S. select-service properties to a short-term spike in supply growth in the segment, which he said he expects to level off in 2019.
The company also saw net rooms growth of 7.6% for the quarter and net income of $237 million, driven partially by real estate sales.
As of press time, Hyatt was trading at $69.20 a share, down 5.9% since the beginning of the year. The Baird/STR Hotel Stock Index is down 12.7% for the same period.