Hyatt Hotels Corp. President and CEO Mark Hoplamazian said his company's recently completed acquisition of Apple Leisure Group has been greeted by an even greater level of optimism from Apple Leisure's owners than he was expecting, adding they welcomed the deal as a sign that more institutional capital will soon be moving in the all-inclusive resort space.
Speaking during the company's third quarter earnings call, Hoplamazian said he's been strongly encouraged by the owners meetings he's had since closing the Apple Leisure deal Tuesday. He added he's already met with owners who represent "between 90% and 95%" of the Apple Leisure portfolio.
"The response has been phenomenal, actually, even stronger than I had hoped," he said.
Hyatt doubled its resort portfolio through the $2.7 billion purchase of Apple Leisure Group from KKR and KSL Capital Partners. The all-inclusive resort business includes 100 properties across 10 countries, primarily in the Caribbean, Mexico and Europe, along with a portfolio of related businesses that cover packaged vacations, travel distribution platforms, destination management and technology.
Chief among the sources of owner optimism are the network effect of becoming part of the World of Hyatt loyalty and distribution platform and the credibility the deal gives the asset class, Hoplamazian said.
"We do believe we'll be able to drive down channel costs by increasing direct channel access even as we continue to optimize what's available through the ALG vacations platform," he said.
He said 80% of Apple Leisure owners hold more than one property under their brands, and they are excited for "the validation of the segment."
"They believe, especially the owners in the Americas, that this is the beginning of what will become the institutionalization of the ownership of all-inclusive assets," he said. "If you look backwards in time, this is a segment that has not been widely owned by institutional owners in the Americas."
He described owners in the Americas as mostly "wealthy families and large, private organizations."
"That expansion of institutional interest, they believe, is a significant step for them to be able to monetize some of their assets so they can turn around and invest behind new developments," Hoplamazian said.
Hyatt Flips Ventana Big Sur
Just months after acquiring the property at one of the biggest per-room prices on record, Hyatt officials announced they had completed the sale of the newly converted Alila Ventana Big Sur in a deal that included a long-term management contract for Hyatt.
Hyatt purchased the 59-room property in June for $148 million and resold it this month for $150 million to real estate investment trust Host Hotels & Resorts.
Hoplamazian said his company came up with what executives view as a "very compelling plan" for investing into the property to make it more profitable in the long term and decided to hand the property over to a trusted partner like Host to execute on those plans.
"They actually saw the same opportunity that we did, and they have experience executing on these kinds of property improvements," he said. "We have confidence that they'll be able to do that."
While its hold was short, Hyatt's purchase was an extremely successful investment, Hoplamazian said.
"We earned a mid-teens return while we owned it, and we sold it for a profit despite keeping a very long-term management agreement," he said. "So from our perspective, we just ended up securing a very long-term presence in this impossible-to-replace asset with a partner who's going to put money in and enhance the proposition of the asset for our customer base and also the returns going forward. It felt like a triple win for us."
The company also announced the completed sale of the 422-room Hyatt Regency Lake Tahoe Resort, Spa and Casino in Incline Village, Nevada, for $350 million, marking the successful completion of the company's previously announced plans to sell off $1.5 billion in real estate assets by March 2022. Hoplamazian said the company now intends to sell an additional $2 billion in assets by the end of 2024, a target he said he is comfortable the company can hit.
Third Quarter Performance
During the call, Hoplamazian said Hyatt's earnings are expected to hit roughly 70% of pre-pandemic numbers for 2021, with a return of demand largely fueled by leisure but with some signs of life in group and corporate transient demand.
According to the company's quarterly earnings release, net income for the third quarter was $120 million, with adjusted earnings before interest, taxes, depreciation and amortization of $110 million.
Systemwide revenue per available room was $93.70 in the quarter, down 31.8% from the same period in 2019. Net rooms growth was up 6.9% year over year.
As of press time, Hyatt's stock was trading at $88.5 a share, up 24.8% year to date. The NYSE Composite was up 17.9% for the same period.