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Why is Hyatt Selling Its Properties?

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Jan. 1 2016, Updated 10:06 a.m. ET

Hyatt sells owned hotels

Hyatt (H) has been selling its properties in last three years. The total number of properties that were owned or leased by the company to run hotels under its ownership model has decreased from 96 in 2010 to 43 in 2014. In 2014 alone, Hyatt sold its hotel properties that ran select service hotels. The deal also specified that the purchaser would continue to run select service hotels in each of these hotels. The company also sold four

In 2014 alone, Hyatt sold its hotel properties that ran select service hotels. The deal also specified that the purchaser would continue to run select service hotels in each of these hotels. The company also sold four full-service hotel properties in 2014.

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Asset-light model

Hyatt is adapting an asset-light model, in which the company sells its less profitable properties and focuses on expansion by using management and franchise models. However, the company reported that it will continue to own hotels in key locations that have high profitability.

Hyatt plans to increase its franchise and managed hotels as they require less capital and less risk. The franchise and management model also gives relatively more stable revenues to the company than the ownership model.

The hotel sector is generally capital intensive and has high fixed costs. A small change in revenue during an economic downturn would have a much larger impact on the bottom line. Having low assets makes the costs more variable with the revenues, resulting in less volatile profits.

Investors can gain exposure to the lodging sector by investing in the iShares US Consumer Services ETF (IYC). IYC invests 11.5% in the lodging sector, which includes 0.5% in Marriott (MAR), 0.4% in Starwood (HOT), and 0.39% in Hilton (HLT).

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