All Inclusive Resorts are Valuable Investments

Updated: Aug 23rd, 2018

Investors are betting on the value of some of the the best all inclusive resorts in the Caribbean.

Two of the most prominent all-inclusive resort companies last week said they will be getting investments from private equity firms, reflecting a sector poised for growth amid a strengthening dollar, continued increases in international travel and the possible continued opening of Cuba tourism.

Playa Hotels & Resorts, which owns and operates 13 resorts totaling nearly 6,200 rooms in the Dominican Republic, Jamaica and Mexico, will go public next year with the help of the private equity firm TPG and will launch a new brand in 2017.

Playa, which operates Hyatt Hotels’ Ziva and Zilara all-inclusive properties, will sell its shares to the public after merging with TPG’s Pace Holding Corp. division.

The move will enable Playa to receive an equity infusion of $500 million, Playa CEO Bruce Wardinski said.

“The No. 1 motivation is growth,” said Wardinski, who estimated that the company will more than double its resort count within five years and might add management-only contracts, as well. “There are amazing opportunities in the all-inclusive segment.”

Meanwhile, AMResorts’ parent, Apple Leisure Group, currently owned by Bain Capital, said last week that it will be acquired by KSL Capital Partners and KKR for an undisclosed price. AMResorts oversees almost 60 resort under such brands as Dreams, Secrets, Zoetry and Breathless throughout Mexico, South and Central America and the Caribbean.

“We have spent several years searching for the right opportunity in the Caribbean and could not be more pleased to partner with Apple Leisure Group,” KSL partner Richard Weissmann said in a statement. The company declined to comment further last week.

The investments would appear to counter the trend of travelers increasingly seeking more authentic and immersive tourism experiences, since all-inclusive, beachfront properties offer a sanitized version of a locale and are often walled off from the surrounding area.

Still, Mark Lunt, hospitality leader for EY’s (formerly Ernst & Young) Southeast, Latin America and Caribbean region, said there is enough pent-up demand for all-inclusive properties to support the kind of growth the sector’s newest investors expect. The logic, he said, is that the properties offer a hedge of sorts when it comes to the global economy’s impact on travel spending.

“When folks are feeling wealthy, the vacation in the Caribbean is more affordable,” said Lunt, who added that some of the higher-end, all-inclusive resorts are offering guests more opportunities to venture outside of the properties’ confines.

“When things get tight, the no-surprises nature [of all-inclusives] appeals to the more budget-minded,” Lunt said.

As a result, the all-inclusive sector’s annual revenue appears to be on the rise. While industrywide revenue figures are hard to come by (Apple Leisure Group and Sandals Resorts International are both private and don’t disclose financial results), Playa Hotels’ 2015 revenue rose 11%, to $408.3 million, the company said in a late-September filing with the Securities and Exchange Commission.

Through June 30, Playa’s revenue jumped 34%, to $287.3 million, and while its resorts’ occupancy rate fell 2.5 percentage points from a year earlier, to 80.4%, average room rates rose 12%, to $271 a night.

With that in mind, the private-equity groups appear to be looking to complement existing investments in other slices of the travel market.

TPG (formerly Texas Pacific Group) has invested in companies such as Norwegian Cruise Line Holdings, Caesars Entertainment, Sabre, Hotwire and Airbnb.

In Playa, TPG is investing in a company that was launched in 2006 and whose resorts at one time flew under the Barcelo brand as well as AMResorts’ Secrets and Dreams brands. In 2013, Playa reached an agreement with Hyatt to rebrand six of its resorts under the new Ziva and Zilara brands.

As part of that agreement, Hyatt invested $325 million in Playa, including $100 million for an approximate 20% equity stake and $225 million for convertible preferred stock.

As part of the Playa-Pace Holding merger, Hyatt will sell its preferred stock and keep its common stock, which will be worth about 11% of the combined company.

Meanwhile KSL, whose travel investments include California-based ski resort company Squaw Valley Alpine Meadows and the Monarch Beach Resort in Dana Point, Calif., continues to broaden its exposure to the tropical-resort sector. Last month it reached an agreement to acquire Honolulu-based Outrigger Hotels and Resorts.

With an investment in Apple Leisure Group, KSL gets a company whose Apple Vacations and Amstar divisions provide a vertically integrated group of complementary brands.

Whether Cuba represents additional opportunity for Playa and AMResorts remains to be seen. Overseas-based companies such as Iberostar and Melia have properties there, but U.S.-based hotel operations are currently limited to one hotel under Marriott’s Four Points brand.

“We expect to be there, but it’s probably premature to plan that,” Playa’s Wardinski said.

Lunt added: “Walking into a Havana hotel feels like what 50 years of deferred maintenance feels like. It’s certainly a growth area for all-inclusives, but it’s probably a long time coming.”

About Jake Johnson 172 Articles
Jake Johnson is a full-time travel bum, who prefers warm climates where the women wear less clothing. We've tried to teach him things like manners and diplomacy, but we've given up and simply rely on our editors to remove the most offensive bits from his articles. We take no responsibility for his inane ramblings opinions - they are his own.