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On Monday, Morgan Stanley (NYSE:MS) reiterated an Equalweight rating and a price target of $157.00 on Hyatt Hotels Corporation (NYSE:H), following the company’s announcement that it has entered into an agreement to acquire all outstanding shares of Playa Hotels & Resorts (NASDAQ:PLYA). Hyatt currently owns 9.4% of Playa’s outstanding shares and will purchase the remaining shares for $13.50 each, a 40% premium over the closing price on December 20, 2024. The acquisition, valued at roughly $2.6 billion, is expected to be accretive to Hyatt’s earnings.
Hyatt plans to fund the acquisition entirely through new debt financing and anticipates paying down over 80% of this new debt with proceeds from the sale of assets. The company currently operates with a moderate debt level, maintaining a debt-to-equity ratio of 0.93, which suggests room for additional leverage. Playa’s portfolio includes 24 resorts with 8,627 rooms, which represent about 3% of Hyatt’s total supply. Hyatt intends to sell 16 of these hotels, consisting of 6,004 rooms, to third-party buyers.
Resort assets in the Caribbean, similar to those owned by Playa, have historically sold for multiples around 10.5x EV/EBITDA, or $565,000 per key, potentially valuing the assets between $3 billion and $4 billion before taxes. However, due to significant EBITDA growth and higher interest rates, current valuations may be lower, as evidenced by the sale of the Hyatt Regency Aruba in February 2024 for 7.5x EV/EBITDA or $700,000 per key.
Hyatt anticipates generating at least $2.0 billion from asset sales by the end of 2027. With these sales, the company expects its asset-light earnings to exceed 90% on a pro-forma basis in 2027. According to Morgan Stanley, the acquisition strengthens Hyatt’s all-inclusive offerings and creates synergy opportunities with properties from the ALG acquisition and its joint venture with Grupo Pinero. The move could also enable Hyatt to renegotiate for higher cobrand credit card fees, benefiting from a more balanced portfolio between business and leisure travel.
Nevertheless, the deal introduces near-term complexity due to a challenging high-end development environment where Hyatt’s construction pipeline has contracted compared to pre-COVID levels. The company will have to navigate asset sales, manage competing brand interests, and adapt to normalizing trends in the Caribbean market. InvestingPro data shows Hyatt maintains a "GREAT" overall financial health score of 3.24, suggesting strong fundamentals to weather these challenges. Discover comprehensive analysis and 1,400+ detailed Pro Research Reports, including Hyatt’s complete financial health assessment, exclusively on InvestingPro.
In other recent news, Hyatt Hotels Corporation is set to acquire Playa Hotels & Resorts in a deal valued at approximately $2.6 billion, according to announcements from both companies. The transaction, which includes around $900 million of debt, is anticipated to finalize later this year. Stifel analysts, who maintained their hold rating on Hyatt stock, suggest the deal could bolster Hyatt’s presence in key markets. Simultaneously, Truist Securities maintained a hold rating on Playa, expressing confidence in the transaction’s successful closure.
Citi analysts raised their price target for Playa shares to $13.00, maintaining a neutral stance on the stock amidst the ongoing acquisition negotiations. They anticipate that post-acquisition, Hyatt might divest some holdings in line with its lighter asset portfolio strategy.
Bernstein analysts reiterated an outperform rating on Hyatt, with a price target of $188.00, expressing optimism about the company’s prospects for 2025 and beyond. Meanwhile, Mizuho (NYSE:MFG) Securities also showed confidence in Hyatt by increasing the company’s price target to $207, maintaining an outperform rating. They anticipate robust net unit growth and potential improvement in revenue per available room for Hyatt. These recent developments underline the strategic moves and potential growth within the hospitality industry.
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