Since late 2010, transition to an “asset light” business model has gained momentum in the hotels and REIT industry. Hoteliers such as Hyatt Hotels Corporation (H), Starwood Hotels & Resorts Worldwide Inc. (HOT), Red Lion Hotels Corporation (RLH) and Morgans Hotel Group Co. (MHGC) have embarked on such a strategy.
The asset sale is part of the companies' long-term strategy to improve financial flexibility, which in turn will maximize shareholder value. The companies aim to unlock real estate value by giving away ownership of selective assets. A higher concentration of franchise fee reduces earnings volatility and provides a more stable growth profile. Companies use the sale proceeds to invest in brand positioning as well as to restructure their balance sheet that often includes debt repayment.
As part of this asset-light strategy, Hyatt recently offloaded the 451-room Hyatt Regency Denver Tech Center property to an affiliate of JMI Realty for $60.0 million. Post sale, the property will be managed by Davidson Hotels & Resorts under the Hyatt Regency brand.
Despite the divestiture, Hyatt will be able to retain its brand presence in the Denver Tech Center area and increase its capital. The property’s meeting space underwent an extensive makeover recently. The renovated space is likely to be a prime location for meetings and events at the Denver Tech Center.
This Zacks Rank #2 (Buy) company has adopted this strategy of divesting properties to grow in a less capital-intensive way. In Jun 2013, the hotelier divested a San Francisco-based property, Hyatt Fisherman's Wharf, to Chesapeake Lodging Trust for $103.5 million.
Earlier in March, a Manhattan-based Hyatt branded property, Hyatt Place New York Midtown South, was sold to Chesapeake for $76.2 million. In addition to this, Chesapeake owns two other Hyatt-branded hotels – Hyatt Regency Boston and Hyatt Regency Mission Bay Spa & Marina – in the U.S.