CHICAGO—Taking advantage of the relatively frothy market for select-service assets these days and fortifying its commitment to its asset recycling strategy, Hyatt Hotels Corporation recently agreed to sell 38 of its select-service hotels.
The properties—which are being acquired by an affiliate of Lone Star Funds for some $590 million—are comprised of the upscale Hyatt Place and extended-stay Hyatt House brands, and the deal is expected to close in November.
Steve Haggerty, global head of capital strategy, franchising and select-service for Hyatt, noted the publicly traded company originally stated its intention to sell the portfolio in March. He further detailed its long-term strategy with regards to the assets. “We used our capital base to acquire and develop these hotels, improved operations and financial results and sold them at an attractive price,” Haggerty told Hotel Business.
As part of the sale, Hyatt will enter into franchise agreements with Lone Star, and all hotels will maintain their existing brands. The properties are located throughout the U.S., with the majority focused on the coasts, primarily in suburban markets. Major city locations include Hyatt Place hotels in Atlanta; Chicago; Charlotte, NC; Denver; Cleveland and Cincinnati, OH; Memphis and Nashville, TN; Omaha, NE; Pittsburgh, PA; and Tampa, FL.
Lone Star—which is a private-equity investment firm that generally invests in distressed assets—has stated that it intends to invest approximately $50 million in renovations across the 4,950-room portfolio over the next 24 months. Haggerty maintained that was a critical component of the agreement. “Lone Star’s commitment to invest capital into these hotels, while maintaining the same standards of quality and service that guests have come to expect from Hyatt ,was certainly a factor in our decision, but not the only one,” he said.
Another critical component to consummating the deal was that Dallas-based Aimbridge Hospitality will manage the hotels for Lone Star. Aimbridge is one of the largest operators in the U.S. with a management portfolio of more than 200 hotels. “There are many factors that influence the owners and operators with whom Hyatt chooses to do business. We believe that Aimbridge, the operating partner, shares Hyatt’s values,” said Haggerty.
The Hyatt Place brand was launched in 2006 and has gained strong momentum in the marketplace, reaching the 200-property milestone this past August. According to the company, Hyatt Place also has more than 100 executed contracts for hotels in up to 21 countries, 15 of which are new markets for the brand. Property sizes typically range from 125 to 200 rooms, and are located in urban, airport and suburban areas. Signature features of Hyatt Place include The Gallery, which offers a coffee and wine bar; a guest kitchen that’s open 24/7, with snacks and entrees; and daily complimentary continental breakfast.
Hyatt House, meanwhile, was launched in 2012 as the company’s answer to competitive extended-stay brands such as Residence Inn by Marriott and Homewood Suites by Hilton. Hyatt converted its Summerfield Suites and Hotel Sierra-branded hotels to the new brand, which now include more than 50 properties in the U.S. The all-suite, residential-style properties typically range from 125 to 200 rooms, and offer fully equipped kitchens, flat-panel HDTVs and free high-speed Internet access. The public space features facilities such as a pool, a fitness center and a business center.
Haggerty further outlined the company’s overall strategy when it comes to owning real estate. “This transaction is consistent with our asset-recycling strategy, which we have been successfully executing since the company went public. This strategy is not meant to make us an asset-light company. Rather, recycling our asset base allows the company to strategically grow the Hyatt-branded presence in certain markets. These are typically high-barrier-to-entry markets—where our brands are underrepresented,” he said.
One such market is Washington, DC, where the company executed its strategy in another deal earlier this month. An affiliate of Hyatt sold the 216-room Park Hyatt Washington to a venture comprised of Westmont Hospitality Group and Thomas Tan, a member of the Bestford Hospitality Group. The hotel was sold for approximately $100 million, or $463,000 per key, according to the company. The buyers intend to invest approximately $5.5 million in additional capital expenditures over the next three years.
In yet another deal earlier this year, the company sold a portfolio of 10 properties—which included the Hyatt, Hyatt Place and Hyatt House brands—to RLJ Lodging Trust for approximately $313 million. Hyatt continues to market six additional select-service hotels in its current portfolio.
The company is expected to release its third-quarter earnings report later this month. In Q2 2014 results, adjusted EBITDA for Hyatt was $231 million compared to $212 million in the same period in 2013, an increase of 9%. In addition, comparable system-wide RevPAR increased 5.5% in the second quarter of 2014 compared to the second quarter of 2013. The company also announced it was on track to open approximately 40 hotels this year.