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Hyatt Hotels Corporation (H - Snapshot Report) recently announced that one of its wholly owned subsidiaries has inked a deal to purchase an asset portfolio from LodgeWorks for $802 million in cash. LodgeWorks is a private hotel development, ownership and management company, and is a private equity partner of Hyatt. The majority of these assets will be purchased by Hyatt in the third and fourth quarters of 2011 and the remaining by the first quarter of 2012.

The purchase deal includes LodgeWorks 24 hotels of which 17 operate under the Hotel Sierra brand, 4 under AVIA Hotels, 1 under AVIA Hotels and 2 as Hyatt Summerfield Suites. Apart from these brands, related assets, including management, franchise and intellectual property rights are covered by the deal. Following the acquisition, key professionals of the LodgeWorks will continue to operate under the Hyatt brand.

The hotels under purchase consideration are placed in markets that have high barriers to entry. Hence, this acquisition will enable Hyatt-branded hotels to enter nine markets it has never served before. Hyatt will also strengthen its presence in 16 markets through this deal.

Hyatt does not expect the transaction to be accretive to 2011 full-year adjusted EBITDA. But it will likely generate approximately $50 million of adjusted EBITDA during 2012. Most of the benefit from this conversion and re-branding effort will be realized in 2013 and beyond.

Post transaction, 16 Hotel Sierra hotels will be branded as Hyatt Summerfield Suites, taking the number of hotels in that portfolio from 38 to 54. Five properties, including AVIA Hotels, are expected to be converted to full-service Hyatt brands. The brand affiliations of Hyatt Summerfield Suites and Hyatt Place properties in the LodgeWorks portfolio will remain unchanged.

Hyatt currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. The major competitors of Hyatt include Marriott International Inc. (MAR - Analyst Report) and Starwood Hotels & Resorts Worldwide Inc. (HOT - Analyst Report).

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