Hyatt Hotels Corp. (NYSE: H) is making a bold bet on the recovery of global leisure travel. The hotel operator is acquiring Apple Leisure Group in an all-cash deal that values the leading luxury resort operator at $2.7 billion. The transaction will expand its global presence in the luxury leisure travel segment. It's also a sign it sees that category recovering as increasingly widespread vaccine distribution enables more people to travel worldwide.
A transformational transaction
Hyatt is buying Apple Leisure Group from affiliates of private equity firms KKR and KSL Capital Partners, which took the company private in 2016. Apple operates more than 100 properties with 33,000 rooms in 10 counties. In addition, it has a membership program, Unlimited Vacation Club, with more than 110,000 members, as well as a travel distribution platform.
The deal will accelerate Hyatt's transformation into an asset-light business, as Apple doesn't own the real estate of the hotels it operates. Further, the transaction will double the number of resorts in the Hyatt system, increase its global footprint, and accelerate its growth, given Apple's large pipeline of signed hotel agreements and deals in advanced stages of negotiation.
Hyatt plans to sell some of its hotel real estate following this transaction to further shift its strategy toward generating fees. The company intends to fulfill its existing promise to sell $1.5 billion of hotel real estate this year. In addition, it now plans to sell another $2 billion of hotel real estate by the end of 2024. That will shift its mix of fee-based earnings from 57% in 2019 to 80% by 2024 as it completes the Apple deal and sells off additional hotels.
Betting big on a global travel rebound
Aside from accelerating its transition to an asset-light hotel management company, the Apple deal will further strengthen Hyatt's position in the global leisure luxury travel industry. It will become the largest operator of luxury hotels in Mexico and the Caribbean, the largest operator of all-inclusive luxury resorts globally, and the second-largest luxury operator in the world.
That will enable Hyatt to benefit from the expected recovery in global luxury leisure travel. While 2020 was an awful year for hotels, forecasters expect luxury leisure travel to grow at an 11% rate from 2021 through 2027. Several factors drive that view.
For one, Americans have accumulated $2.3 trillion in excess savings during the pandemic, with the highest amounts saved among high-income earners. Combine that with the fact that leisure travel is the top spending priority for 70% of Americans, and Hyatt sees a coming global travel boom.
It will now be in an even better position to capture this demand by adding Apple's resort portfolio to its footprint. In addition, the company will benefit from Apple's vacations brand portfolio. It's one of the largest tour operators/packagers in North America. Those brands will now have access to double the number of resorts to build tours and packages for travelers by adding Hyatt's existing hotels to the mix. The company will also have the opportunity to leverage Apple's vacation club to drive higher occupancy across its hotel portfolio.
Traveling in style
Hyatt believes that global leisure travel will recover from the pandemic led by the luxury sector. That's leading it to buy Apple Leisure Group to expand its global presence in that sector. It sees that deal as the perfect fit for its asset-light strategy, which should generate an increasing amount of higher-margin fee income -- something for investors to consider.