coleslaw

That sounds rather pessimistic/drastic given that it's (literally) day one. The deal hasn't even closed yet. They've also made it clear that this will be run as a separate business for the foreseeable future.

itsallgood

LOL! You're correct. I should have specified whether it was good or bad diversification, but I suppose that's in the eye of the beholder.
Diversification into low end properties allows more people to hit top tier with very little spend.

itsallgood

I take it you weren't a Marriott member pre-Sorenson. The biggest knock was that it was a bland, predictable brand. Now it's as crappy as Hilton. And they trashed SPG in the process.
I diversified into Hyatt and Fairmont when the changes started taking place. Unfortunately, Accor killed the Fairmont experience pretty quickly so I abandoned them.
So yes, there's a reason why I'm pessimistic.

Hyatt is shifting from being a quality upper end product to emphasizing margins above all else. If you don't think Hyatt's change in direction will result in a death by a thousand cuts, you haven't stayed at other hotel chains when they went through this change. I really hope that I'm wrong but I've seen this crapshow before.
We are witnessing the death of the hotel experience (across all brands) just like the airline experience died a few decades ago. And even first class isn't a safe haven anymore.

GUWonder

It does in ways. For example, it means I may have to spend more time having to figure out what to expect from a property in the group — and potentially consider alternatives — than simply assuming that the group affiliation means consistency at the group property that at passing glance seems conveniently enough located for my purpose.

GUWonder

Aren’t a bunch of these seasonal properties such that their ADR is for the part of the year when they are operating, even as then some of the properties are closed in part or entirely for some weeks/months of the year?

Higher ADR at an all-inclusive is going to have properties run into issues of staffing costs and food costs and some other stuff that traditional business city-center Hyatt properties don’t necessarily face in the same exact way. But since Hyatt already got its feet wet with this kind of business, getting in deeper shouldn’t be surprising.

59Impala

I read quite a lot of negativity here.
I sent the link to my wife and she has been browsing a couple of hours today through many hotels and she is fascinated. There are a lot of beautiful hotels that fit perfectly into the portfolio of Hyatt. Have not browsed the ones in Europe yet. But all those in the Caribbean, Panama, Costa Rica look gorgeous. Already making plans…. Only needs to be integrated into WoH…. And that travel opens up again…..

It seems many in this thread are hotel experts. I am sure though that Hyatt has thought this through thoroughly before acquiring… they can‘t be that „wrong“. They have made a couple of wise decisions lately…

MarkOK

I probably would have said the same thing 10 years ago. "I don't like it, but never tried it." But now, sometimes I want a trip where there is no planning, no budgeting, no commitments. Just a book, on a beach, where I can lose all sense of time and place. Is it the only thing I want? Heck no, but I've had enough trips where I get worn-out from the constant sorting out where the good local food is vs the tourist -slop immitators, sort out what activities we will do, calculate how much cash to convert and where not to get ripped off, strategize what time a certain site has less crowds, etc. I find myself dreaming (literally) more in images and feelings I had on low-end Carnival cruises where I had no care in the world for a week, than anything else.

And this purchase really blows open the door when it comes to the number of locations (especially) in Mexico where I can earn/burn within WOH (where I am most interested from a ease-to-get-to stand point, not sure why this thread is so focused on the Spanish resorts...)

And if this isn't something that suites you now, then that is that. Not sure why there is this much negativity about 100 some resorts coming into the WoH family....

Carolina2Cali

Came for Europe, ended up at the beach. The Caribbean is boring people. But yay for Spain???

lowfareair

Most of the all-inclusives run year-round unless there is a big renovation going on (when they'll close now through November to do it). Off season they rotate through restaurants (so maybe half are open each night) to match occupancy.

As you say with your second line, luxury AIs have been around for years. They are not just profitable, they generally are higher margin than the budget AIs. Look at the ADRs in the deck I linked upthread, ALG's top range AI brand is 3x ADR than the bottom one. Additionally, this is a fee model where Hyatt licenses out the brands to other owners, the resort's profitability has little direct impact on Hyatt's bottom line (although long term they obviously want the resorts profitable so owners stay with them).

TerryK

ALG will be run separately from Hyatt. I suppose there will be no brand integration. I wonder how much participation in WoH for ALG properties?

https://www.cnbc.com/2021/08/16/hyat...re-group-.html

itsallgood

I've seen that before. IHG stated that Kimpton would be run separately from the rest of their hotels. Now? Not so much.
There's a decent amount of savings by reducing the overhead staff.

notquiteaff

Since I commented on that… it’s my disappointment that the anticipated European acquisition and expansion is essentially a whole bunch of hotels on Spanish island, a few on the mainland and three in Greece. Which is probably fine for a couple of trips for me in a few years, but probably doesn’t make Hyatt more viable for me as a loyalty program to focus on.

WasKnown

Thanks for the great post. I agree in every regard.

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Most of the posts here talking about the final acquisition price are highly questionable. Estate planning? For M&A... what? Can't even think about what this is in reference to. Carried interest? That does not matter for Hyatt the firm. Pass-through tax entities? It does not matter. Even if ALG were really a VIE in Cayman, the purchase price is the purchase price. The only somewhat reasonable thing mentioned is leverage but even that is incorrect in the context in which it was discussed. Leverage can make a deal more profitable. It does not make it cheaper in any sense other than TVM (which relies on many external factors we will discuss below).

Few thoughts: Like Hilton, ALG is a PE darling (but to a much smaller extent). Bain Capital sold it to KKR (a REPE mega fund by any definition of the term) and KSL in 2016. Hyatt is now acquiring the ALG from these funds in a deal that is largely expected to be paid through:

$1b cash
$500m equity financing
Remaining in debt

So yes, this is a VERY expensive deal for Hyatt. Please do not let anyone tell you otherwise.

JPM is financing $1.7b with most of this debt expected to be paid off with Hyatt's $2b asset sale. This is a pretty aggressive bet on Hyatt's ability to sell these assets effectively and a shift to generating more of its topline through fees on F&M vs. O&L properties. TBH, it's probably a good move financially. However, I challenge people on FlyerTalk to consider the implications this shift has on the guest experience. AFAIK, this transition always results in weaker brand standards and elite benefit delivery. Only time will tell but, personally, I wouldn't be going out of my way for lifetime Hyatt Globalist these days.

Also, just saying: the biggest thing that killed Starwood Hotels (even more so than their topline stagnation relative to peers) was their inability to sell off their hotel assets quickly enough. Will that happen here? Probably not (or certainly not to the extent that Starwood experienced). It's something to chew on though.

Adelphos

Hyatt will be able to get the $2 billion. They will get at least $1 billion from these alone:

Park Hyatt New York
Park Hyatt Paris
Park Hyatt Zurich
Ventana Big Sur
Miraval Phoenix
Confidante Miami Beach

Besides these they own some larger Hyatt Regency (Orlando, Phoenix) and interests in a few Hyatt Place that will get some attention.

So few brands (even luxury brands) own the actual real estate anymore that I think that it is not a distinction worth following that closely. Four Seasons owns 0 hotels.

WasKnown

It doesn't matter if Hyatt owns hotels worth more than $2 billion. What matters is their ability to sell these assets quickly and effectively. Starwood didn't fail because its real estate did not have intrinsic value. It failed because it could not sell these assets quickly enough. However, Hyatt has done a reasonable job of selling its hotels so far so I am confident it will continue to do so (as mentioned originally). I just think there is some innate risk to financing a highly expensive deal like this. It is not expensive in the sense that they overpaid for what they're getting (the valuation for ALG is actually surprisingly fair, would be curious to see KKR's models on this sale). It is, however, expensive in the sense that Hyatt is committing a ton of its resources on this specific deal. I don't think this should be understated or dismissed. This is an undeniably big bet for Hyatt. If you want insight into the future of the Hyatt, this M&A deal is basically it. This is where Hyatt is heading. Interpret that for whatever it's worth.

It's actually the complete opposite. Hyatt is definitely not distinct for being asset-light because it has historically been quite asset-heavy. As you and many others on this forum have noted, the move to F&M over O&L has been a trend in the industry for years (and again, Starwood's inability to adapt to this quickly enough was a huge contributing factor in its sale). This entire deal is actually centered around that premise. They are selling O&L properties to finance a deal that would increase their fee-driven topline dramatically.

So yeah, there is no asset-light distinction for Hyatt. Rather, Hyatt is distinct because it was traditionally one of the most asset-heavy major players in this space. They have done a lot to sell off O&L inventory over the past few years but, up until very recently (not privy to what is concrete with this newly announced $2b sale), its O&L hotel segment was still disproportionately large vs. a firm like Marriott.

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In the long run, I think this has the potential to be a highly profitable move for Hyatt. However, I don't think many customers will be happy with what the Hyatt guest experience becomes as Hyatt increases its profitability.