Hyatt Sells San Francisco-Based Asset

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Hyatt Hotels Corp. (H) recently divested a San Francisco-based property -- Hyatt Fisherman's Wharf -- to Chesapeake Lodging Trust (CHSP) for $103.5 million. Post sale, the property will be managed by Evolution Hospitality.

Hyatt is continuously adopting a strategy of franchising its hived-off properties to grow in a less capital-intensive way. After the conclusion of the sale, this 313-room hotel will operate under the Hyatt brand name and the company will enjoy a fee from the franchised property.

Strategically positioned at North Point Street in the Fisherman’s Wharf, the hotel is in proximity to many renowned sights and attractions of the city, such as Ghirardelli Square, the Cannery, Pier 39, North Beach, Chinatown, Alcatraz and the Maritime National Historic Park.

Given the strength of the Hyatt Hotels brand and the compelling growth opportunity of the San Francisco market, Chesapeake finds it a lucrative acquisition. After the sale is finalized, the property will undergo a renovation worth $8 million during the fourth quarter of 2014.

The divesture will further strengthen the long term relation between Hyatt and Chesapeake. Earlier in March, one more 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.

We believe these asset sales are part of Hyatt’s strategy to strengthen its financial flexibility, which in turn will maximize shareholder value. This Zacks Rank #3 (Hold) company aims to unlock the real estate value by giving away ownership of selective assets. A higher concentration of franchise fees reduces earnings volatility and provides a more stable growth profile.

Nowadays, transition to an “asset light” business model has gained momentum in the hotels and real estate investment trust (:REIT) industry. Many other hoteliers including Starwood Hotels & Resorts Worldwide Inc. (HOT) and Morgans Hotel Group Co. (MHGC) have embarked on this strategy.

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