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Despite stalled growth in China, Brazil and Russia, a wave of newly middle-class travelers from the BRICs and beyond will start visiting international destinations in the coming decades — dwarfing the numbers we’ve seen thus far.
La Quinta Holdings Inc., the mid-priced hotel chain backed by Blackstone Group LP, raised $650 million in its U.S. initial share sale, pricing the shares below the marketed range.
La Quinta, based in Irving, Texas, sold 38.25 million shares for $17 each, according to a person with knowledge of the sale who asked not to be identified because the process is private. The hotel chain had offered 37.2 million shares for $18 to $21 apiece.
La Quinta priced its offering below the proposed range after stocks tumbled in recent days. U.S. stocks fell yesterday, pushing the Nasdaq 100 Index to its biggest three-day retreat since 2011 and erasing the year’s gains in the Standard & Poor’s 500 Index, as technology shares extended last week’s selloff. The S&P dropped more than 1 percent on April 4 and April 7, before rebounding slightly today.
Christine Anderson, a spokeswoman for Blackstone, declined to comment on La Quinta’s IPO.
Blackstone has taken public three lodging companies in the past six months including La Quinta, as real estate values rise and hotel shares climb. The firm’s Hilton Worldwide Holdings Inc. and Extended Stay America Inc., co-owned with Centerbridge Partners LP and Paulson & Co., have both risen since their initial public offerings.
The decline in the U.S. jobless rate, growth in salaries and increase in business travel have helped fuel a hotel- industry recovery since the recession ended in late 2009, said Jan Freitag, senior vice president at STR Inc., a lodging- research firm based in Hendersonville, Tennessee.
“We sold more rooms than ever before in 2013,” Freitag said in a telephone interview. “We’re seeing demand holding up pretty well. Unemployment is coming down slowly, personal income is going up and debt-service ratios for private consumers are at an all-time low. A lot of people had to cut back and now might be the time for travel again.”
More About La Quinta and Blackstone:
- La Quinta Poised to Raise $780 Million in Another Blackstone Hotel IPO
- Blackstone Goes to the Well Again As La Quinta Confidentially Files IPO Documents
- Choice Hotels Leads Bidders for Blackstone’s La Quinta Chain
U.S. hotels sold a record 1.11 billion room nights last year, up from 1.08 billion in 2012 and 940.5 million in 2009, the recession low, according to STR. By 2011, room sales had surpassed the pre-crisis high of 1.03 billion nights, in 2007.
La Quinta operates and franchises more than 800 hotels in the U.S., Canada and Mexico, according to its website. Proceeds from the IPO will be used to repay debt, the prospectus shows.
At $17 a share, La Quinta would have a market value of $2.1 billion, based on the original terms of the offering. That’s 47 times last year’s earnings of $44.5 million, and compares with an average price-to-earnings multiple of about 29 for seven U.S. lodging companies including Hyatt Hotels Corp. and Choice Hotels International Inc., data compiled by Bloomberg show.
“Limited-scale, mid-price properties are probably in the sweet spot in attracting middle-income America from the leisure standpoint” and business travel, Freitag said.
Revenue per available room, an industry measure of room rates and occupancy, rose 6.6 percent in the U.S. in the two months ended February, after gaining 5.4 percent for all of last year, according to STR. Revpar for mid-price hotels such as La Quinta’s was up 6.5 percent this year through February, following a 4.1 percent increase last year, according to STR.
While occupancy growth drove gains in revpar coming out of the recession, higher room prices has also contributed in the past two years, Freitag said.
Blackstone acquired La Quinta in January 2006 for about $3 billion. The New York-based buyout firm explored a sale of the company before opting instead for an IPO, people with knowledge of the matter said in November.
La Quinta planned to sell 30 percent of its shares in the IPO, according to its prospectus. Blackstone will beneficially own about 67 percent of the common stock after the share sale, the March filing shows. Even at the lower offering price, Blackstone will roughly triple its investment in the company, according to the person familiar with the pricing details.
JPMorgan Chase & Co. and Morgan Stanley managed the sale.
The Bloomberg U.S. Lodging Index increased 44 percent, including dividends, in the 12 months through today. That compares with a 21 percent total return for the S&P 500.
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