Hyatt’s $2.7 Billion Apple Leisure Group Acquisition Fuels European Growth

It didn’t take long for Hyatt to move ahead with a planned expansion into Europe.

The Chicago-based hotel company announced Sunday night plans to buy Apple Leisure Group for $2.7 billion. The acquisition of the company behind resort brands like Dreams, Secrets, and Zoëtry expands Hyatt’s brand footprint into 11 new European markets and doubles the company’s global resort footprint.

Hyatt’s overall European footprint would also grow by 60 percent with the deal. Roughly 100 existing hotels and a 24-property development pipeline across Europe and the Americas are included in the deal.

The move is the latest chapter in Hyatt’s ongoing initiative to become increasingly asset light and own less of its hotel real estate. ALG is a resort management services, travel, and hospitality group — the kind of business Hyatt is trying to be in its push away from real estate ownership.

Hyatt is underway with a plan to sell off $1.5 billion of its owned hotels, and the company announced a new initiative to sell off another $2 billion on top of the ALG acquisition.

“With the asset-light acquisition of Apple Leisure Group, we are thrilled to bring a highly desirable independent resort management platform into the Hyatt family,” Hyatt CEO Mark Hoplamazian said in a statement. “Importantly, the combination of this value-creating acquisition and the $2 billion increase in our asset sale commitment will transform our earnings profile, and we expect Hyatt to reach 80 percent fee-based earnings by the end of 2024.”

The Strategy: Hyatt’s play for ALG checks off two major boxes for a major hotel company like Hyatt. Hoplamazian indicated on an investor call earlier this month any acquisition the company made in the near-term would likely be about gaining a bigger presence in Europe, likely through smaller brands or “groupings of hotels” in the region.

“We feel that we’ve come through the pandemic and [are] now into recovery mode at a healthy clip with respect to earnings and cashflow,” he added. “As always, growing the company in a very deliberate, strategic way is our top priority.”

The acquisition, slated to close by the end of the year, also gives Hyatt a bigger presence with all-inclusive resorts, vacation packages, and vacation clubs. ALG sells packages under brands like Apple Vacations and CheapCaribbean.com. The vacation club and timeshare sector is highly appealing to traditional hotel companies as well as the general travel industry.

Many of the major hotel companies see these sectors as ripe opportunities to add bigger brand affiliation as ways for loyalty members to redeem points. Existing operators in these sectors are either smaller in scale or independent.

Both Marriott and Hilton have beefed up their all-inclusive offerings in recent months, and the company formerly known as Wyndham Destinations acquired Travel + Leisure to become the Travel + Leisure Co., an acquisition largely fueled around the media brand’s vacation club component.

“Combining Hyatt’s deep expertise and global brand footprint with ALG’s strong resort brands, operating capabilities and robust development plans will elevate our differentiated position and create a leader in luxury leisure travel,” Apple Leisure Group CEO Alejandro Reynal said.

The Floodgates Open on Hotel Dealmaking

Money and hotel deeds are finally changing hands after more than a year of industry analysts wondering when, if ever, a wave of pandemic deals would come through.

U.S. hotel investment volume was up 134 percent in the second quarter from last year — the largest percentage gain of any commercial real estate sector tracked by CBRE. Admittedly, the comparison is a little unfair given transaction activity catastrophically slowed down due to the early months of the pandemic in 2020, but this is a major boost of optimism to investors who have been waiting more than a year for opportunities in the hotel sector.

The second quarter surge in investment activity is likely just the beginning, eager investors say.

“Although there’s a lot of capital chasing potential acquisition opportunities, we believe that the markets are going to shift as you get into the fourth quarter of this year, as well as the first half of next year, when there’s going to be probably an increase in potential acquisition opportunities,” Peachtree Hotel Group CEO Greg Friedman said in an interview with Skift. “A lot of groups are going to start taking assets out to market.”

The Atlanta-based real estate private equity firm acquired over the last 14 months more than $1 billion in hotel assets, ranging from mortgage debt secured by a hotel asset to the actual real estate. Peachtree’s flurry of deals comes as several major hotel assets hit the market across the country in what many see as a test to investors who have supposedly been waiting on the sidelines for deals.

The Opportunities: Brokerage firm JLL is representing the Brashears family and Acor capital in putting Chicago’s historic Drake Hotel on the market, Bloomberg reports. The 535-room hotel is expected to land more than $250 million in a sale.

Host Hotels & Resorts is putting two of its Marriott-affiliated properties on the market: a 1,220-room Sheraton in Boston as well as the 305-room W Hollywood in Los Angeles. The Boston property’s sale price could fetch $244 million — or $200,000 per room — according to Real Estate Alert by way of the Boston Business Journal. The Los Angeles hotel is expected to price somewhere around $183 million, or $600,000 per room.

The three hotels are early indicators of where investors and analysts expect most opportunities to emerge. While all three properties are in historically top-25 hotel markets, all three cities have been among the most negatively impacted from the pandemic due to their reliance on business and international travel.

For context: the Godfrey Hotel, a 242-room boutique hotel in a less desirable neighborhood than the Sheraton, sold six years ago for nearly $174 million — or a little more than a half-million per key as the expected sale of the Host-owned hotel today.

“A corporate-type market, or a market that’s, you know, heavy on group, and meeting travel — those are the ones that you’ll see the most activity,” Friedman said of where he expects the next wave of hotel deals to be.

The Drawbacks: There are still some headwinds keeping a full flood of deals to come through, namely when it comes to pricing discrepancies.

The city hotels previously mentioned may be a deal, especially if corporate and international travel revive sooner rather than later. But most owners are still pricing assets above what buyers are willing to shell out, hotel executives have repeatedly said over the last few months.

“I think the biggest thing right now is the difference between buyer expectations and sellers,” Leeny Oberg, Marriott’s chief financial officer, said last month with respect to why there hasn’t been a major wave of acquisitions to date during the pandemic.

The buyer-seller price expectation disparity, along with various rounds of federal pandemic relief and lender flexibility, are all factors in why owners are holding onto their hotel assets. Rescue financing deals during the pandemic also play a part in owners holding onto assets, as the terms of these deals mean interest for a full duration of the deal has to get paid back even if the hotel were to sell.

“I’ve got to pay them a fixed amount, no matter what,” Ashford Hospitality Trust CEO Rob Hays, whose company got a $350 million lifeline from Oaktree Capital late last year, said in an interview with Skift last week. “So if I think asset values are going up, why would I sell it today, when I could sell it 12 months from now and use those excess proceeds to pay them down? I might as well wait for a higher value.”

Ashford Trust leaders also noted on their most recent earnings call they “by and large” like the assets they have in their portfolio following a turbulent 2020 and don’t feel compelled to sell anything off at the moment.

Delta and Dealmaking

Whether hotel CEOs like to admit it or not, evidence continues to stack up that performance this fall won’t live up to expectations in light of surging new case counts around the world due to the Delta variant of the virus. Major events have been called off, international borders largely remain closed, and occupancy rates tanked over the last two weeks in China.

“It’s going to be choppy, and I am really nervous about this fall,” Hays said of the recovery in the U.S. “It seems like the U.S. is hanging up in the high-60s to 70 percent occupancy levels, and I don’t think it’s gonna go back to 30 percent like it is in China. But it’s going to have a hard time staying [where it is today.]”

Wavers in occupancy may be one thing, but that is unlikely to have much of an impact on other aspects of hotels like investments and even labor.

On the transaction front, less committed investors may look elsewhere amid a rise in new cases impacting business, Friedman said. But it could also lead to more deals in light of existing hotel owners getting fatigue about the continued uncertainty in the hotel recovery.

“Most hotel investors, or investors in general, are going to get comfortable that the variants are more of a speed bump at this point in time,” Friedmand said. “It’s not a question  if the hotel industry is going to recover. It’s more of a question of when the hotel industry is going to recover.”

Labor Pains: Hotel workers should also take solace in more investors taking the long view of the recovery. The labor shortage crisis continues to ravage hotel operations this summer, with owners making due with limited staffing. But what happens if another wave begins to impact business? Don’t expect furloughs and layoffs like last year, Hays says.

“Given what we’ve been through over the past 18 months, we kind of know what this looks like now,” he added. “It’s going to come in. It’s going to peak. It’s going to get stopped for a month, and then we’ll kind of come back at it. So I think it gives people the ability to see through it versus when it was last April.”

While hotel owners will be cautious about costs over the next month or two amid the case surge, they’re also highly unlikely to make the same mistake and encourage workers to look for jobs in other industries — as well-intentioned as it may have been — that might lead to permanent opportunities.

“Most hotels are in difficult spots right now in trying to rebuild their staff and rebuild their teams and retrain people, and, frankly, bringing in whole new groups of people into the industry because we’ve had a lot of people that just have left and aren’t coming back,” Hays said. “Hotels are going to be extremely cautious over the next 60 days to manage through this for both the safety of their people and their guests. But they are not going to get too short-minded in terms of managing costs.”