Another round
Sandals is on the market again after a prior sale exploration stalled at the beginning of the pandemic, the Wall Street Journal reports. A potential deal is expected to go for billions of dollars (Hyatt’s recent Playa Hotels & Resorts acquisition went for about $2.6 billion) and is expected to stir interest from broader hotel industry players as well as private equity.
Sandals operates a mix of Caribbean all-inclusive resorts across its eponymous brand name as well as the Beaches flag, which caters more toward families. While traditional hotel and resort operators like Marriott and Hyatt are now major players in the all-inclusive resort space, Sandals has been the poster child for all-inclusive resorts thanks to its significant brand awareness in the U.S.
It may not be the largest operator of all-inclusive resorts, but it is certainly among the best-known brands in the sector — a potential windfall for whatever company might acquire Sandals.
A representative with Sandals noted the company “does not comment on speculation” when contacted by Hospitality Investor.
The argument against
But there is a case as to why hotel companies like Marriott and Hilton might not be interested in Sandals.
“We saw that it was for sale, but it looks like they want to sell the entire business,” said Richard Clarke, a managing director at Bernstein covering the hotel sector. “I just can't see any of my coverage companies wanting to take the whole thing on.”
If you listen to any of the earnings calls of the biggest publicly traded hotel brands these days, there’s frequent chest beating over how “asset-light” their respective business has become.
In short: Hotel companies like Marriott and Hilton perform well because they don’t own the real estate where their brand flags fly. Instead, they’re increasingly in the business of franchising and management and use the money made off the real estate to grow their brand reach around the world.
Wall Street clearly favours the strategy, as Hyatt — a more recent adopter of the asset-light model — was more than 80 percent asset-light in early February and was closing in on nearly $6 billion in asset sales, the company’s senior vice president of investor relations told Hospitality Investor earlier this year.
An all-in acquisition for Sandals that includes the underlying real estate behind the brand family would go against the hotel industry’s asset-light push. While the market appears to like Hyatt’s long-term plan to beef up its leisure travel offerings with all-inclusive resort brands and lifestyle hotel options, there were analyst rumblings following Hyatt’s planned Playa acquisition announcement that there might be short-term weakening of shareholder capital returns amid Hyatt taking on more real estate ownership — even if it is short-lived.
“I can't imagine that any of the companies will want take on this pretty onerous restructuring of the real estate, especially because Hyatt is busy doing it with Playa,” Clarke said. “I think the market would just go crazy if they did that one and just did another straight afterwards.”
Hyatt leaders estimated they would generate at least $2 billion in asset sales from the Playa deal and still have asset-light earnings surpass 90% by 2027.
The argument for
But don’t totally rule out the hotel industry’s biggest names from staking out Sandals — especially if a partner is involved.
“If someone could separate the brand off, I think someone would snap up Sandals,” Clarke added. “Caribbean demand is pretty strong, and the best locations [for a resort] are kind of gone. If you’ve got those locations, that’s valuable. But I don’t think anyone would want it as an asset-heavy business.”
Others say it isn’t out of the realm of possibility for a hotel company like Hyatt or Marriott to come in and use their balance sheet to buy the entire Sandals portfolio and quickly turn around and sell off the real estate. Hyatt purchased Alila Ventana Big Sur for $148 million in 2021 and then sold it months later for $150 million.
There are a variety of reasons as to why a hotel company would do this, including wanting to make sure a hotel remains in the brand family and not cede ground to a competitor.
“That’s a strategic example of a hotel company using their balance sheet to preserve the brand and management fee income by buying the property and then flipping out the real estate,” LW Hospitality Advisors CEO Daniel Lesser said.
But hotel companies can also do this with potential brand acquisitions, especially in an environment where Wall Street measures hotel company performance by growing room counts.
“At the end of the day, you pick up a portfolio like this and it’s achieving an instant critical mass,” Lesser said. “Development takes a long time. It's risky. All sorts of things can happen. Whereas here you're buying existing known assets in prime locations.”
By Cameron Sperance
