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A wholly owned subsidiary of hotelier Hyatt Hotels Corp. (H - Snapshot Report) recently announced its plan to buy The Peabody Orlando hotel for $717 million. Once rebranded, this 1,641-guestroom Orlando property will be unveiled as Hyatt Regency Orlando Convention Center. The deal is expected to be sealed by Oct 1, 2013.

We view the deal as strategically positive for both parties. We believe that the owner of Peabody Orlando hotel has been offered a fair price for this buyout. On the other hand, this big-ticket acquisition will strengthen the Hyatt’s presence in the dynamic Orlando market -- the second largest hotel market in the US with a significant number of convention and leisure travelers.

This property will be the sixth Hyatt-branded hotel in Orlando, but the first large convention hotel for the company.  The hotel is strategically positioned in a market, which is quite popular among associations and corporate groups. This prompted the company to transform the asset to the Hyatt Regency brand, which is known globally for its meeting facilities.

Further, the hotel is attached to the Orange County Convention Center, which presently has a strong convention booking calendar ahead. The Orange County Convention Center alone boasts over two million square feet of space. The new Hyatt Regency plans to add another 200,000 square feet of meeting space, thus making it the biggest in terms of convention facility offered by any Hyatt Regency hotel in the U.S. Quite evidently, the new property is all set to garner huge convention business in the coming years.

Moreover, the hotel recently underwent a $440 million multi-year expansion and renovation program. This implies that Hyatt does not have to invest extensively on refurbishments. All these attributes in Peabody Orlando property make it a lucrative acquisition target. Hyatt expects the hotel to generate EBITDA of approximately $10 million in the fourth quarter of 2013 and approximately $55 million in 2014.

Of late, Hyatt has been active on the acquisition front. In Mar 2013, Hyatt declared acquisition of The Driskill Hotel under Destination Hotels & Resorts brand in Austin, Texas for $85 million.

Competition in the Orlando market is intense. Several other hoteliers including Marriott International Inc. (MAR - Analyst Report), Wyndham Worldwide Corp. (WYN - Analyst Report) and Starwood Hotels & Resorts Worldwide Inc. (HOT - Analyst Report) are also making their presence felt in the market.
 

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