Hotel Chain La Quinta Makes Subdued Market Debut

April 9, 2014

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Shares of hotel chain La Quinta Holdings made a subdued market debut as investors took the view that the stock was fully priced in a crowded IPO market.

La Quinta's shares, which priced below the expected range at USD$17, fell by 4 percent in early trading before recovering their losses to trade up more than 2 percent.

At USD$17, the company is valued at just over USD$2 billion.

"(La Quinta's) offer price is reflecting a very high price-earnings ratio for a company in a very competitive industry," said Jay Ritter, an IPO expert at the University of Florida.

Based on the offer price, the company has a trailing price-to-earnings (P/E) ratio of more than 46, almost double the industry average of 24 percent.

Analysts also said La Quinta's offering comes at a time when investors, with so much to choose from, are becoming more selective.

La Quinta - which operates or franchises more than 830 hotels in 46 US states, Canada and Mexico - was bought by Blackstone Group in 2006 for USD$2.3 billion plus debt.

The hotel chain had about USD$2.10 billion in debt on a pro- forma basis as of December 31.

Blackstone, which did not sell any shares in the offering, will hold a stake of about 64 percent in La Quinta after the IPO if the underwriters fully exercise their option to buy additional shares.


The IPO marks the third hotel chain offering in the past six months by the private equity firm, which is the biggest owner of hotels in the United States.

Blackstone took Hilton Worldwide Holdings public in December in the biggest-ever hotel IPO that raised USD$2.34 billion. In November, the IPO of Extended Stay America raised USD$566 million.

Shares of both Hilton and Extended Stay, which is co-owned with Centerbridge Partners and Paulson, have risen since their IPOs.

La Quinta, which owns and operates hotels under the La Quinta Inn & Suites and La Quinta Inns brands, raised USD$650 million from the offering of 38.25 million shares.

The company's revenue rose 11 percent to USD$909 million on a pro-forma basis in 2013. Net income was USD$44.9 million, compared with a loss of USD$35.8 million a year earlier.

La Quinta, founded in 1968 by real estate entrepreneur Sam Barshop and his brother Phil, has more than doubled the number of its hotels since Blackstone took the company private.

US business travel grew more than expected in 2013 and spending will likely rise by almost 7 percent to about USD$290 billion in 2014, according to the Global Business Travel Association, a trade group for business travel managers.

IPO activity during the first quarter was USD$47.2 billion, an increase of 98 percent from last year at this time and the strongest annual start for global IPOs since 2010.

About 75 percent of US IPOs in the first quarter were from companies backed by private equity firms, according to a report by PricewaterhouseCoopers.