National Report – La Quinta Holdings, the hotel chain backed by Blackstone Group, filed with U.S. regulators to raise up to $100 million in an initial public offering of its common stock.
According to some reports, the deal size is likely just a placeholder, and the company could raise at least $200 million.
Blackstone last took Hilton Worldwide public in the biggest-ever hotel IPO in December. Extended Stay America, another Blackstone-owned company, went on the public market in November 2013.
Picture: The deal size of $100 million is a placeholder, with Blackstone standing to raise as much as $200 million.
Before the IPO announcement, Blackstone explored other options for La Quinta, which it took private in a $3.4-billion deal in 2006. The hotel operator is expected to use the proceeds to repay debt.
La Quinta operates more than 830 hotels with around 84,000 rooms. The operations are a mix of company-owned and franchised hotels.
The filing, underwritten by J.P. Morgan and Morgan Stanley, did not reveal how many shares La Quinta planned to sell or which stock exchange it intends to apply for listing.
Sean Hennessey, founder and CEO of Lodging Advisors, speculated that investor interest in La Quinta’s IPO will be strong, citing attractive hotel industry fundamentals and a strengthening economy. However, he expects investors to be less interested in La Quinta than in Blackstone’s earlier Hilton IPO. This could be due to Hilton’s ownership of numerous trophy assets, which represent a significant upside to investors looking to get involved with the company.
At the current time, it is unclear how much money Blackstone stands to make from the offering. “It depends on how much of [La Quinta] they decide to sell,” Hennessey said. “Blackstone only sold 12 percent of Hilton in its IPO, and it acquired La Quinta for $3 billion or so.”
Hennessey also said that the La Quinta IPO is indicative of Blackstone’s strategy of seeking out undervalued assets, managing for growth and reaping investment profits when market conditions become attractive. “I don’t see this as a sign that Blackstone is leaving the hotel sector,” Hennessey said. “It is more of a sign that it is the right time to monetize these particular investments.”
The listing comes at a propitious time for the company, as the hotel industry continues to speed along at a healthy pace. The deal will not have a real effect on the industry, besides allowing the public to invest in the midscale hotel operator. La Quinta properties will continue to trade per usual.
Picture: Blackstone originally took La Quinta private in 2006 for $3.4 billion. Pictured above is the La Quinta Inn & Suites Cancun.
La Quinta is currently being audited by the Internal Revenue Service for 2010 and 2011, and may be required to pay additional taxes for those years. The IRS gave notice of a proposed adjustment of $158 million for those years as of January 9.
The IRS claims the rents charged to units for hotel leases exceeded arm’s-length rates, according to the filing. La Quinta said the rent payable under such lease is based on a study prepared by an expert firm, and that rent has been on an arm’s-length basis.
La Quinta initially filed confidentially on December 23, 2013.