Posted 11/25/2009 - 2:16:27 PM
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CHICAGO—While many in the industry were stunned when Hyatt Hotel Corp. recently raised an impressive $950 million on its first day of trading following its IPO earlier this month, those who closely follow hospitality as it relates to the public markets were anything but surprised.
“We weren’t surprised that there was significant interest in the Hyatt offering,” explained John Arabia, senior lodging analyst and managing director of Newport Beach, CA-based Green Street Advisors. “Our understanding is that the offering was many times over subscribed, meaning the amount of interest was far in excess of how many shares were offered. The stock traded up nicely in the first couple of days of trading. We think there will continue to be significant interest in the company.”
The strength of the Hyatt name was a persuasive factor in the IPO’s success, noted Bjorn Hanson, clinical associate professor at the New York University Tisch Center for Hospitality, Tourism and Sports Management and former hospitality industry leader for PricewaterhouseCoopers. “From the institutional investors we’ve spoken to, they liked that there are very few non-public hotel brands of the renown—meaning name recognition and quality level—of Hyatt,” Hanson said.
“The offering represented more than the income stream from the current management agreements, licensing agreements and so on. There were some unique attributes there,” he continued.
The Hyatt IPO was the 18th IPO by an operating company on the NYSE this year and the second largest after Banco Santander (Brasil) SA, which raised $7 billion on its first day of trading in October.
Hyatt had forecast that it would price the stock at between $23 and $26 a share and ended up pricing it at $25 for a Class A share. At the end of that first day of trading on Nov.5, the stock closed at $28 a share, an increase of 12%, reflecting investors’ enthusiasm for the offering. By Nov. 23, the price had inched up a bit further, closing at $28.85.
Hyatt had determined that the initial offering would be 38 million shares, but provided the IPO’s three underwriters with the option of acquiring an additional 5.7 million Class A shares. Goldman Sachs & Co., Deutsche Bank Securities, Inc., and J.P. Morgan Securities, Inc., were the underwriters. By Nov. 6, they had exercised their option in full, netting Hyatt proceeds of approximately $127.3 million. On Nov. 10, Hyatt officially announced that the IPO was closed.
Hyatt CEO Mark Hoplamazian expressed satisfaction with the outcome of the IPO and in a statement said the company would “continue to work to drive guest preference for our brands.” Hyatt declined to comment further, citing the continuing quiet period around the IPO.
As of Sept. 30, Hyatt had 415 owned, managed, or franchised hotels in its portfolio worldwide, representing roughly 120,000 rooms. Hyatt operates in 45 countries. Its brands include Park Hyatt, Grand Hyatt, Hyatt Regency, Hyatt Resorts, Hyatt Summerfield Suites, and Hyatt Place. Its newest full-service brand, Andaz, is due to gain major visibility in 2010, when two properties open in New York. Hyatt also operates a vacation ownership business known as Hyatt Vacation Club.
Founded in 1957 by Jay Pritzker, Hyatt has been privately held for most of the 52 years since then, controlled by and large by Pritzker’s descendants, including the company’s current chairman Thomas Pritzker and his cousin, board member Penny Pritzker. In mid-2007, the family sold roughly 15% of the company to a private investment firm called Madrone Capital Partners for close to $1 billion. The catalyst for the IPO was apparently the desire of members of the Pritzker family to monetize the value of the roughly 85% they still owned.
The IPO, however, doesn’t mean the Pritzkers are relinquishing control of the company. To the contrary, the way the transaction is structured, the Pritzkers retain ownership of Class B shares that have a 10:1 voting ratio, compared to the Class A shares floated in the IPO.
Arabia doesn’t view the IPO’s success as a sign of confidence in the larger lodging industry, however, at least not in the short term. “Clearly, the public markets are valuing Hyatt and other public hotel companies, assuming the companies can undergo a turnaround in profits and significant growth in those profits in outer years, 2011-2015,” he said.
Companies aren’t being valued by the stock market based on their present performance. “If they were being valued solely on current economics, you’d quickly come to the conclusion that the share prices being paid are too expensive,” Arabia continued. “But we think it’s fair to pay high multiples, considering there most likely will be significant growth in those outer years. The medium to long-term outlook for hotels is very positive.”
In the wake of Hyatt’s IPO, the industry shouldn’t expect to see a wave of other public offerings, Hanson cautioned. “There will likely be multiple secondary offerings, meaning more stock being sold by existing public companies. In fact, that’s already started,” he said. “Some second and third-tier companies may look at IPOs, but I don’t think this signals that we’ll have a wave of them as much as it means existing lodging companies will be able to return to the markets to raise capital.”
Three other hotel companies have already filed for public offerings of their own, but they are what Arabia calls “blind pool” REITs, meaning they don’t yet have any assets. They stand in contrast to Hyatt, where the brand and assets are well known. “They would raise capital through the public markets with the intent of then going out and acquiring assets,” Arabia explained. “Investors don’t know what assets management is going to buy. You’re basically investing on the faith, reputation, and skills of that management team.”
