Benzinga | Aug 15, 2021 06:39PM EDT

Hyatt Confirmed it Will Acquire Apple Leisure Group for $2.7B in Cash

Hyatt Hotels Corporation(NYSE:H) today announcedthatHyatthas entered intoadefinitiveagreement to acquireApple Leisure Group(ALG), a leading leisure travel and resort brand management company and top-ten operator of luxury hotels,from affiliates of each of KKR and KSL Capital Partners, LLCfor$2.7 billion in cash.The transaction is anticipated to close in the fourth quarter of 2021,subject to customary closingconditions.

ALG's resort brand management platform AMResorts(r) provides management services to the largest portfolio of luxury all-inclusive resorts in the Americas under the AMRTM Collection brand portfolio, including well known brands Secrets(r) Resorts & Spa, Dreams(r) Resorts & Spas, Breathless(r) Resorts & Spas and Zotry(r) Wellness & Spa Resorts as well as the fast-growing Alua(r) Hotels & Resorts brand, which is expanding in European leisure destinations. The acquisition also includes ALG's membership offering, Unlimited Vacation Club(r), travel distribution business ALG Vacations(r), as well as destination management services and travel technology assets. Following the completion of the transaction, ALG's business will continue to be led by current ALG CEO Alejandro Reynal and the current ALG leadership team. Mr. Reynal will become a member of Hyatt's executive leadership team and report to Hyatt CEO Mark Hoplamazian.

"With the asset-light acquisition of Apple Leisure Group, we are thrilled to bring a highly desirable independent resort management platform into the Hyatt family," said Mark Hoplamazian, president and chief executive officer, Hyatt. "The addition of ALG's properties will immediately double Hyatt's global resorts footprint. ALG's portfolio of luxury brands, leadership in the all-inclusive segment and large pipeline of new resorts will extend our reach in existing and new markets, including in Europe, and further accelerate our industry-leading net rooms growth. Importantly, the combination of this value-creating acquisition and the $2 billion increase in our asset sale commitment will transform our earnings profile, and we expect Hyatt to reach 80% fee-based earnings by 2024."

ALG's hotel portfolio consists of over 33,000 rooms operation in 10 countries. The portfolio has grown from nine resorts in 2007 to approximately 100 properties by the end of 2021 and has a pipeline of 24 executed deals with a large number of additional hotels in the development process. ALG's Unlimited Vacation Club(r) is an exclusive travel club whose participants enjoy preferred rates and other benefits at AMR(tm) Collection properties. With over 110,000 members, Unlimited Vacation Club(r) membership has grown at a compounded annual growth rate of 18% over the last five years.

"Combining Hyatt's deep expertise and global brand footprint with ALG's strong resort brands, operating capabilities and robust development plans will elevate our differentiated position and create a leader in luxury leisure travel," said Alejandro Reynal, chief executive officer, Apple Leisure Group. "On behalf of everyone at ALG, I am grateful to our partners at KKR and KSL who supported us in building the platform into what it is today. I am excited to have our team join the Hyatt family and I anticipate a robust growth journey ahead as the industry expands and we are able to provide a best-in-class leisure offering to an even larger group of travelers around the world."

"Today is a great milestone in what has been a story of growth, resilience, and dedication to world-class leisure experiences by an outstanding team at Apple Leisure Group," said Chris Harrington and Rich Weissman, partners at KKR and KSL Capital Partners, respectively. "There is simply no better home for ALG to continue on its growth trajectory than being part of Hyatt."

Strategic Rationale

Expandfootprint inluxury andresorttravel:The acquisition will expand Hyatt's presence in luxury leisure travel and immediately add approximately 100 hotels andapipelineof 24 executed dealsin Europe and the Americas to its portfolio.Following completionof the transaction, Hyatt willoffer the largest portfolioof luxury all-inclusive resorts in the world,willdoubleits global resort footprint,will bethelargest operatorof luxury hotels in Mexico and the Caribbean,and will expand its European footprint by 60 percent.Theacquisitionwill extendHyatt'sbrandfootprintinto11 new European markets, greatly enhancingHyatt's growth potential in Europe, a critical region for global growth in leisure travel. Expandplatform for growth: ALG's strong developer and owner basewillexpandHyatt'srelationships with deeply committed partners in key complementary geographies.Hyatt'sglobal network of developers anditsoperational expertise is expected to further accelerate growth of ALG brands. Hyattplans toapply the combined strength of the teams to expand beyond ALG's current pipeline innew geographies in which ALG does not currentlyhave hotels. Benefit owners:Access to ALG's owned distributionplatformsand its extensive experience in leisure travel are expected to provide significant opportunities for Hyatt'sexisting resorts.Owners of AMRTM Collection properties willreceive increased access toa much broader collection ofbrands, and the backing of Hyatt's global distribution, sales and marketing. Increase choice and experiences for guests:The combined resources of ALG and Hyatt will open up expanded offerings and experiences for the benefit of the combined companies' high-end guest and customer base.ALG's exclusive membership offering, Unlimited Vacation Club(r), will bring more than 110,000 highly passionate travelers closer to Hyattwhen traveling for avariety of stay occasionsapartfrom vacations.Followingcompletion of thetransaction, Hyatt will determine ways in which World of Hyatt and Unlimited Vacation Club(r)can bring added value and unique loyalty benefits to theirmember bases while benefitting hotelowners.

Enhanceend-to-endleisure travel offeringsthrough:ALG Vacations(r)as one ofthelargest packaged tourprovidersandleisuretravel distributionplatformsinNorthAmericaservingMexicoand the Caribbean, Amstar,aleadingdestinationservicesmanagement companyin Mexico and the Caribbean,andits Hawaii-focused counterpartWorldstar, and TriseptSolutions(r), its unique leisure travel technology platform. Accelerate asset-light strategy: The acquisition of ALG's asset-light business will meaningfully increase the percentage of revenues and earnings Hyatt will generate from fees. Additionally, Hyatt anticipatesfulfillingitscurrentcommitment to sell$1.5 billionof hotel real estate in2021,resulting in a total ofover$3 billionof proceeds realized sincethe asset-sale strategy wasannounced in 2017 at a combined multipleof over 17x EBITDAas compared to Hyatt's original estimate of 13x to 15x.Hyatt is further committing to anadditional$2 billionin proceeds from the sale of hotel real estate by the end of 2024. Financing

At closing, Hyatt expects to fund more than 80 percent of the purchase with a combination of $1.0 billion of cash on hand and new debt financings, and the remainder with approximately $500 million from equity financing. Hyatt has secured a $1.7 billion financing commitment from J.P. Morgan. Cash proceeds from the $2 billion asset sale program are expected to be used to pay down debt, including debt incurred to fund the acquisition. Hyatt is committed to maintaining an investment grade profile and to continue managing the balance sheet prudently after the transaction.

Investor Presentation, Conference Call, Webcast

Hyatt will hold a conference call and webcast today, August 16, 2021, at 7:30 a.m. CDT to discuss the transaction. Interested parties may listen to a simultaneous webcast of the conference call, which may be accessed through the Company's website at investors.hyatt.com. Alternatively, participants may access the live call by dialing 833-238-7946 (U.S. Toll-Free) or 647-689-4468 (International Toll Number) using conference ID# 1771444 approximately 15 minutes prior to the scheduled start time. An archive of the webcast will be available on the Company's website for 90 days.

Advisors

In connection with the transaction, BDT& Company, LLCandJ.P.Morganserved as financial advisors to Hyatt, andLatham&WatkinsLLP acted as its legal advisor.PJT Partnersserved as financial advisors to KKR and KSL Capital Partners, andSimpsonThacher& BartlettLLP acted as their legal advisor.