Hyatt goes against the tide with resort buy
Hyatt goes against the tide with resort buy
22 JULY 2013 8:53 AM

Hyatt taps the all-inclusive segment by acquiring a stake in Playa Hotels & Resorts.

GLOBAL REPORT—Hyatt Hotels Corporation continues to use its balance sheet to fund portfolio growth, this time acquiring a stake in Playa Hotels & Resorts and introducing itself to a new customer base of all-inclusive consumers.

The Chicago-based owner-operator announced Friday it has agreed to purchase a 20% ownership stake in Playa Hotels & Resorts for $100 million and will spend an additional $225 million for convertible preferred stock in Playa. Six of Playa’s 13 resorts will be rebranded as Hyatts.

The “relationship-driven” deal aligns Hyatt with a partner in the Caribbean that has a strong management team and expertise in the all-inclusive segment, said Farley Kern, Hyatt’s VP of corporate communications. “The agreement gives us the ability to scale up quickly in the segment,” she said in an email to Hotel News Now.

In today’s hotel investment landscape, many of the U.S.-based brands have chosen to sell off their real estate portfolios and move to a more fee-based model. Hyatt in the recent past has “decided to use its own balance sheet to pursue an asset-right strategy,” said Jonathan Kracer, managing principal with Sion Capital and HNN columnist.

“They’ve done that in order to grow into new segments and high-barrier-to-entry markets,” he said. “One example would be Latin America, where last year Hyatt acquired the 756-room Hotel Nikko in Mexico City, which is now the Hyatt Regency, in order to grow their brand presence in the high-barrier Latin America market.”

“Hyatt wants to expand its global brand footprint and is happy to use real estate ownership as a way to do that,” said David Loeb, senior research analyst with R.W. Baird. “They are much smaller than their global brand peers and can use their strong balance sheet to grow the brand by buying real estate or investing in (joint ventures).”

Unique competition
While all-inclusive resorts for decades have been a mainstay in tropical destinations such as the Caribbean and Latin America, the large global chains traditionally have remained on the sidelines. Hard Rock International agreed in late 2011 to convert three Palace Resorts properties in Cancun, Puerto Vallarta and Riviera Maya into Hard Rock Hotels, which at the time was viewed as a sign of broader things to come.

“All-inclusive is a rapidly growing segment that is popular with many guests who are not currently Hyatt guests, as well as a good many of our current guests,” Kern said. “It also aligns with our goal of expanding our resort presence in desirable markets, specifically the Caribbean and Mexico where we are currently underrepresented.”

She described the competition from global Western brands as “limited.”

The major Western brands are present in the Caribbean and Latin America, but they typically aren’t all-inclusive, Kracer said. Starwood Hotels & Resorts Worldwide has experimented with the all-inclusive model in Costa Rica, and Hilton Worldwide recently introduced its first fully planned all inclusive in Puerto Vallarta, but traditionally the U.S.-based brands have not been successful or aggressive in the space.

However, there are very well positioned and much larger and experienced all-inclusive operators in the Caribbean and Latin America, many of which are based in Europe. There also are a number of regional or specialized brands in the Caribbean, as well as a handful of emerging brands that have spun off and are going global, such as Karisma Hotel & Resorts and AM Resorts.

“In an apples–to-apples comparison, really with this move Hyatt takes the lead,” Kracer said. “Nevertheless, you cannot neglect these regionalized or specialized global brands—they have a lot of experience. They have really perfected the model, which is efficient and cost-centric.”

New customers for global Hyatt
One of the reasons entering the all-inclusive space was attractive for Hyatt was the new customer base it will bring to the global brand.

“Research with Hyatt Gold Passport members indicated an overwhelmingly positive response to the prospect of a Hyatt branded all-inclusive experience,” Kern said. “We are delighted to be able to offer Hyatt Gold Passport members new resort options and to bring a Hyatt experience to a new segment of travelers we haven't served before.” 

Having all-inclusives in Hyatt’s portfolio also may drive new guests to traditional Hyatt properties throughout the world.

“We are confident that we can create a Hyatt all-inclusive experience that is highly differentiated and distinctive, especially by drawing on our strength in (food and beverage),” Kern said. “Doing that successfully should certainly attract guests whose first exposure to Hyatt is through an all-inclusive brand to stay with us on other occasions as well.”

Resorts are great for keeping loyal guests loyal, Loeb said. “They can also attract group business, levering off of corporate sales,” he said.

Operating model challenges
Kracer said Hyatt must truly embrace the all-inclusive operation model if it hopes to be successful.

“Don’t do it as a hybrid—don’t think of these as hotels and then treat it as all you can eat and all you can drink,” he suggested.

He stressed the fact that all-inclusive properties have a unique operating model.

“They’re highly cost-centric,” he said. “They’re very different than traditional European-plan hotels."

Kracer said the acquisition will require Hyatt to build a specialized team with an all-inclusive mindset.

”It’s too early to tell what specifically they’re going to do, but what it will require is creating a definitely standalone unit with a standalone team with the right mindset and skill set,” he said. “Hyatt will certainly mitigate this learning curve risk through Playa's all-inclusive expertise and asset management capabilities.”

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