Skift Take
You might think “asset-light” means “we don’t own stuff.” In Hyatt’s case, it means: “We don’t own hotels, except when we occasionally buy some so we can flip them at a profit and help fund our M&A.”
Hyatt has nearly shifted to an asset-light model, reaching its target of 80-85% fee-based earnings from properties it doesn’t own. But the hotel group hasn’t declared “mission accomplished” just yet.
Hyatt’s top executives said Thursday they had more hotels to sell. They also plan to supplement their asset-light strategy with tuck-in deals, like their recent acquisition of Mr & Mrs Smith, a hotel booking site.
That’s according to Hyatt’s top execs, who spoke Thursday at the Bank of America Gaming & Lodging Conference.
Moving to Asset Light
- In 2021, Hyatt said it would target $2 billion in gross proceeds from selling real estate by the end of 2024. It said Thursday it had met its pledge.
- But Hyatt execs aren’t swearing off asset ownership. CEO and President Mark Hoplamazian said Hyatt will continue to selectively buy, renovate, and sell properties to enhance its brand portfolio.
- Case in point: the recently revamped Hyatt Regency Irvine, which the company plans to flip in the coming year. “We completely renovated the hotel, but we also added … a redesigned and much bigger pool area with activities and activations and a new specialty restaurant, which opens up onto that space,” said Hoplamazian.
- This strategy has paid off handsomely. Since 2017, Hyatt has generated $5.6 billion in gross proceeds from asset sales at an average 15x multiple, said Joan Bottarini, executive vice president and chief financial officer.
- Hyatt buys and sells hotel assets to generate cash to fund non-hotel acquisitions, such as its recent purchase of Mr & Mrs Smith, a hotel booking site, and the brands (but not the properties) of Standard International.
- The company has invested $3.4 billion in asset-light acquisitions at claimed 9-9.5x multiples.
- Hoplamazian believes keeping a residual owned portfolio will let Hyatt incubate concepts and maintain brand standards through hands-on testing.
Hotel Demand, By the Numbers
- Leisure now accounts for 55% of Hyatt’s revenue, up from high 30s prepandemic. Leisure demand remains robust, especially in luxury segments, with Hyatt maintaining 2023 levels despite tough year-over-year comparisons.
- Business travel is rebounding strongly. The second quarter saw 12% revenue growth.
- Group bookings are pacing ahead, with 4% growth for the remainder of 2024 and 7% for 2025.
Hyatt Sees Gains From Mr & Mrs Smith Deal
- Hyatt executives’ comments on Thursday built on ones they made in June about the company’s acquisition of Mr & Mrs Smith.
- The deal caters to Hyatt’s high-end clientele. Mr & Mrs Smith hotels have an average daily rate of $500, aligning with Hyatt’s luxury portfolio. Hyatt reports strong engagement from loyalty members booking and paying for these unique properties, not just redeeming points for stays.
- In the longer term, Hyatt sees potential to convert some Mr & Mrs Smith hotels to franchised Hyatt brands. The company touts its track record of preserving brand identity when absorbing lifestyle and luxury hotels, which could eventually allow it to earn higher fees from these properties than its current arrangement.
- However, challenges remain. The average Mr & Mrs Smith hotel has just 42 rooms, limiting franchise potential. Hyatt will likely focus conversion efforts on larger properties within the portfolio.
- Overall, the deal exemplifies how major hotel companies use asset-light growth strategies to expand their networks and loyalty programs rapidly. It gives Hyatt differentiated inventory to offer its valuable World of Hyatt loyalty members, potentially driving greater engagement and market share gains.
- All of the public hotel groups larger than Hyatt have moved to asset-light. They rarely own or long-term lease hotel real estate. Instead, they mostly run properties through management or franchised contracts, leaving the ownership of buildings and land to families, investment firms, or real-estate investment trusts.
- What to watch: Hyatt’s continued expansion into lifestyle hotels and all-inclusive resorts — plus potential smaller acquisitions to fill portfolio gaps.
Accommodations Sector Stock Index Performance Year-to-Date
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