Hyatt Hotels (H, Financial) has become a very interesting case study within the hospitality industry. After weathering the Covid-19 storm, the company has undertaken a series of initiatives to make the most out of the expected recovery in travel and tourism as well as transform its balance sheet completely.
On the verge of bankruptcy, the company has been actively divesting properties to increase its liquidity and transform into a more asset-light business model. As per their last report, they already had close to $1.7 billion in cash and short-term investments which is being used to fund the acquisition of asset-light hospitality player Apple Leisure. There is a lot changing with Hyatt, which could make in an interesting opportunity, in my opinion.
Hyatt Hotels is the world's largest owner and operator of hotels. The company is headquartered in Chicago, Illinois, which is the home of the Pritzker family who owns close to 59% of the company’s stock and about 90% of the voting power. Hyatt was founded way back in 1957 and is one of the top names in the global hospitality industry today. However, since virtually all of the voting power is in the hands of the Pritzker family, investors don't really have any control over the compay's direction, which could pose an additional risk.
The company looks to combine style, innovation and the highest level of convenience to create an easy-to-navigate experience for tourists across the globe. The company has a vast brand portfolio that includes names like Park Hyatt, Miraval, Grand Hyatt, Alila, Andaz, Hyatt Regency, Thompson Hotels, Hyatt Centric, Joie de Vivre, Hyatt House, Hyatt Place, Hyatt Ziva, Hyatt Zilara, UrCove, Hyatt Residence Club, Hyatt Residences and Hyatt Resorts. It has close to 1,000 hotels in its portfolio. The company is also known for a particularly attractive loyalty program that rewards points that can be redeemed for hotel nights and other rewards.
The Apple Leisure Group acquisition
Hyatt Hotels recently announced that it entered into a deal to buy a resort company called Apple Leisure Group. The purchase will be made from Apple Leisure’s current private equity owners KKR & Co. and travel and leisure professionals KSL Capital Partners for a sum of $2.7 billion in an all-cash deal. Hyatt intends to fund about 80% of the purchase with a combination of $1 billion of cash from its balance sheet and new debt financing, while the remaining $500 million will be through equity financing. Hyatt will double its global resort footprint after the completion of the deal.
The management of Hyatt believes that the acquisition of Apple Leisure Group's asset-light business will significantly increase the earnings and percentage of revenues that the company will generate from fees. They also reaffirmed their plans to sell $1.5 billion of hotel real estate in 2021 to generate significant cash flows. The management believes that this strategy should generate an additional $2 billion in earnings from the sale of hotel real estate by the end of 2024. Besides, the cash proceeds from the $2 billion asset sale program are expected to be used to lower the company’s capital gearing, including paying down the debt incurred to fund the acquisition.
Hyatt's Collaboration with GoPuff
Hyatt Hotel recently announced a collaboration between GoPuff and the Hyatt Place brand. GoPuff is a go-to platform for things like snacks, over-the-counter medications, home and baby care products, drinks, alcohol and pet care. Recent surveys suggest that around 60% of travelers forget to pack essential items such as toiletries and first aid kits while traveling on business or leisure trips. Leveraging data from the same survey, Hyatt and GoPuff have identified the most often forgotten and most likely to purchase products and collaborated to create in-app categories, such as Spa Retreat, Travel Essentials, Office on the Go, Movie Night and more. This pilot program will provide the guests with an additional layer of comfort and convenience by offering fast and free delivery of necessary items at the participating hotels.
The management claims that guests at participating properties will get their necessary items from GoPuff's local micro-fulfillment center within 30 minutes. It is also expected that the collaboration will expand Hyatt Place brand's Necessities program, which allows guests to keep, borrow and buy a wide range of essentials, including toothpaste, headphones, cell phone chargers and more. Through this collaboration, guests of participating hotels may enjoy various benefits. Overall, this collaboration is expected to provide customers a seamless and comfortable experience at the Hyatt Place brand's participating hotels and help the company on its path to recovery.
Hyatt’s stock has shown a strong upswing from the rock-bottom levels during 2020, and the market already seems to be factoring in future recovery. This is evident from the fact that the company’s stock is trading at an enterprise-value-to-revenue ratio as high as 4.93 despite the slow recovery in global travel. Hyatt is still a work-in-progress and has yet to start delivering on its asset-light model after disposing of some of its real estate for cash. Based on all of this, despite the promise of the recent acquisition and the GoPuff collaboration, I believe that Hyatt is best avoided at current levels.