Hyatt Hotels Corporation acquired Miraval and the Exhale spa brand last year, but the Chicago-based hotelier isn’t done growing yet. Today, the company announced that it has signed an agreement to acquire Two Roads Hospitality, an international lifestyle hotel management company headquartered in Denver.
Through the addition of Two Roads, its established lifestyle brands and the management agreements for the majority of its 85 properties in eight countries, Hyatt will expand its brand presence into 23 new markets. Once completed, the acquisition will bring more than 16,450 new guestrooms into Hyatt's portfolio for a total of more than 210,000 guestrooms across 835 hotels worldwide.
Under the terms of the transaction, all of Two Roads’ hotel brands—Alila Hotels & Resorts, Destination Hotels, Joie de Vivre Hotels, Thompson Hotels and tommie—will join Hyatt’s global portfolio. Hyatt will also assume management of the other properties in the portfolio of Two Roads' parent company Geolo Capital, including Carmel Valley Ranch, Ventana Big Sur, The Chicago Athletic Association Hotel, Thompson Seattle and The Beekman, A Thompson Hotel in New York. Currently, Two Roads' hotels represent $2 billion in total property revenues under management.
While Geolo, based in San Francisco, will no longer be a principal shareholder of Two Roads Hospitality, it will remain the largest owner of hotels managed by Hyatt.
“Hyatt and Two Roads share a commitment to genuine care and delivering distinctive experiences to discerning travelers. We are pleased to be coming together, and are dedicated to learning from each other and taking the best of both organizations forward,” Mark Hoplamazian, president and CEO of Hyatt Hotels Corporation, said in a statement. “Two Roads’ passionate team members, strong brands, global footprint and robust development pipeline will expand our lifestyle offerings and grow Hyatt’s brand presence in more places where our guests and World of Hyatt members want to travel. Importantly, combining Two Roads’ meaningful brand presence and development plans in Asia with Hyatt’s already strong position in this region will allow us to accelerate expansion in this critically important and fast-growing part of the world.”
The acquisition consists of a base purchase price of $480 million, with the potential for Hyatt to invest up to an additional $120 million in the aggregate, contingent on the outcome of certain terms to be individually defined after closing. The base plus contingent total purchase price is expected to reflect an earnings before interest, taxes, depreciation and amortization multiple of approximately 12-13 times stabilized 2021 earnings, which Hyatt considers the best indicator of valuation based on anticipated synergies and growth.
Hyatt’s investment in a high-growth, capital-light platform accelerates the company’s evolution to a more fee-driven enterprise, funded by proceeds from an asset disposition program in which real estate has been monetized at an average multiple of approximately 16.5 times EBITDA to date. Notably, Hyatt is making this growth investment in a year in which it has committed to return approximately $800 million of shareholder capital through a combination of share repurchases and a cash dividend.
After the close of the transaction, which is expected later this year, Hyatt will create a dedicated lifestyle division as a catalyst to bring together the operations of Two Roads’ and Hyatt’s lifestyle brands.
But some insiders are predicting a somewhat bumpy transition. Michael J. Bellisario, a senior research analyst at RW Baird, noted that while brand/management transactions typically do not require owners’ approval, he foresees “some risk” that certain owners could choose to exit the Two Roads system following the pending transaction given the shorter-term nature of their management contracts (similar to the Kimpton-IHG terminated contracts post-transaction announcement). “Also, radius restrictions and areas of protection must be considered and could cause flag changes to occur or Hyatt to compensate existing owners,” he said in a statement. “Overall, we believe the going-in multiple is likely much higher than the quoted 12x-13x 2021 EBITDA multiple due to potential contract turnover and the additional pipeline growth included in 2021 estimates. We expect some integration-related noise in the near term given potential contract turnover, but this transaction and its qualitative benefits for the brand represent a long-term bet for Hyatt.”