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Hyatt Buys Two Roads Hospitality, Continues With Expansion

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Hyatt Hotels Corporation (H - Free Report) closed its previously announced acquisition deal with lifestyle hotel management company Two Roads Hospitality. The acquisition took place under the financial advice from Goldman Sachs (GS - Free Report) .

On the completion of the acquisition, Hyatt has been able to expand its presence in 23 new markets, with management and license agreements for 74 operating hotels across North America and Asia. Further, Hyatt’s portfolio now includes five established lifestyle brands namely Alila, Destination, Joie de Vivre, Thompson and Tommie.

Notably, before the transaction ended, the purchase price was revised to $405 million from $480 million. Moreover, the aggregate potential additional consideration from Hyatt was revised to $96 million from $120 million. Subsequently, Hyatt expects 2019 adjusted EBITDA contribution, excluding non-recurring integration-related costs, of approximately $20 million to $25 million, slightly lower than $25 million to $30 million mentioned earlier.

The move not only reflects Hyatt’s consistent expansion strategies but also is part of the company’s ongoing asset-recycling program. Backed by a strong portfolio of differentiated brands, shares of Hyatt have marginally decreased in the past year compared with the industry’s collective decline of 17.8%.

Expansion — Key Growth Driver

Hyatt aims to differentiate its brands from one another by providing distinct travel experiences. The company is consistently trying to expand its presence worldwide. It also has expansion plans for the Asia Pacific, Europe, Africa, the Middle East and Latin America.

To this end, the company recently announced the opening of Hyatt Place Riyadh Al Sulaimania in Saudi Arabia and Hyatt Regency Aqaba Ayla Resort in Jordan. Its new signings across its brands, globally, consistently outpaced its openings. This trend is expected to continue in 2018. The company’s development pipeline grew roughly 6% in the third quarter compared with the prior-year quarter. For 2018, it expects units on a net room basis to grow roughly 6.5-7%, reflecting 60 hotel openings.

Acquisitions & Divestitures Continue

Acquisition of Two Roads Hospitality is in line with Hyatt’s acquisitions and divestiture-related efforts. In 2017, it acquired Miraval Group, which extended the Hyatt brand beyond traditional hotel stays into a wellness category that resonates well with the high-end travelers. Moreover, the company is increasing its focus on private accommodations, which is another fast-growing travel segment.

Prior to this, Hyatt acquired Hyatt Regency Phoenix, AZ, with 693 rooms, for roughly $140 million, which was previously operated under a management agreement.

These acquisitions are part of Hyatt’s ongoing asset recycling program. In an effort to strengthen its financial flexibility and focus more on core operation, the company is focusing on the sale of assets. The sale of assets is helping Hyatt grow through management and licensing arrangements instead of direct ownership of selective assets. However, it continues to manage the properties post sale. Notably, a higher concentration of franchise fees reduces earnings volatility and provides more stable growth profile.

Expansion to Fend Off Competition

We believe that Hyatt’s relentless expansion into various markets is an endeavor to mitigate intense competition in the industry. The company is constantly subjected to competitive pressure from the likes of Marriott (MAR - Free Report) and Hilton (HLT - Free Report) , each of which has their own aggressive expansion in place.

Increasingly, the company faces competition from new channels of distribution in the travel industry.Unless Hyatt counters these competitions with appropriate strategies, it may pose a concern to the company’s future profitability.

Hyatt currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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