Positive hotel industry fundamentals are drawing more hotel companies into the public markets spotlight.
GLOBAL REPORT—While not occurring at a breakaway clip, the market for global hotel public offerings has brightened during 2014.
So far in 2014, at least 10 hotel-related companies have gone through an initial public offering, representing a total market capitalization of approximately $6.1 billion, according to Hotel News Now research.
Chalet hotels IPO review
By comparison in 2013, at least six hotel companies went public, representing a total market capitalization of approximately $32.8 billion. Hilton Worldwide Holdings, and its market cap of nearly $25 billion, represents much of the 2013 total.
Guy Langford, vice chairman and head of the travel, hospitality and leisure practice in the United States for Deloitte, said the capital markets environment is not exactly the most robust period in history, but those who are able to bring a company through an initial public offering are seeing positive results.
“When you talk about taking assets to market,” Langford said, “now is a good time.”
Baird & Company, said positive industry fundamentals are drawing companies into considering taking assets public.
Looking at U.S. public hotel stocks, the R.W. Baird/STR Hotel Stock Index is up nearly 17% year to date.
“Valuation is pretty solid,” Loeb said, adding, “It’s at least the time to start thinking about an exit.”
Kirk Kinsell, president of the Americas for InterContinental Hotels Group, agreed with the analysts’ assessment.
“It’s giving confidence to the broader investment community in the hotel sector,” he said.
“The hotel sector outlook continues to look positive in terms of the fundamentals, with a managed amount of new supply, strong, developing demand.
“We continue to see occupancy increases in both the leisure and corporate demand side. Room rates are tracking with some level of inflation, if not ahead.
… It’s a strong investor outlook for the sector,” Kinsell said.
Of the 10 hotel companies that have gone public so far in 2014, half have seen positive performance in their stocks since their IPO date.
Lobbies and loyalty programs both may get revamped
As of 3 November, the biggest gainer has been economy hotel company Safestay, which is traded on the London Stock Exchange FTSE Index. Its stock was up earlier this week by more than 55% since its 2 May IPO.
The biggest decline so far this year belongs to economy hotel company EasyHotel, which also went public on 2 May and has seen its stock drop by nearly 17%, as of earlier this week.
Officials at Safestay and EasyHotel did not reply to messages for comment prior to deadline.
Of the 25 hotel industry IPOs tracked since 2009, 14 have seen positive performance in their stock price.
“Positive trends in the underlying travel industry are providing a positive climate for hotels,” Langford said.
New entries to the hotel capital markets have occurred across the globe, including in the European market, which has been saddled with macroeconomic issues of late, sources said.
For the first time in a decade, Europe’s IPO market opened its doors to a notable degree, Tim Lloyd-Hughes, head of European hotel, leisure and gaming investment banking at Deutsche Bank, wrote in an email.
He said the continuing financial struggles on the continent means the IPO market is likely closed again for the remainder of the year.
“I would hope and expect that the market will open again next year,” he said.
There are several keys to a successful IPO, Lloyd-Hughes said. They include:
- a strong management team;
- an investment case that spans at least three solid years;
- an appropriate capital structure; and
- a sustainable dividend.
“Timing as always is crucial, especially as we are now in Year Five of the hotel recovery cycle, and at some point investors will be beginning to think that the best has already been,” he said.
While the market seems to be at least somewhat conducive to IPOs, challenges still abound, sources said.
Lloyd-Hughes said past performance also can be a sticking point.
He pointed to the misevaluation of real estate in Europe pre-financial crisis as still sticking in the heads of some investors.
One of the primary challenges in going forward with an IPO, Langford said, is that it is a time-consuming process.
“It’s not something you can say, ‘Hey, let’s go public,’” he said. “It can’t just be a capital play.
You have to be able to show growth.
You have to have a certain scale.”
Loeb said the appetite for real estate IPOs should continue.
“I think hotels are no exception to that,” he said.
“We will continue to see the emergence of companies who want to become public companies.”
But just as Lloyd-Hughes predicted for Europe, Langford said he expects additional hotel companies to continue to step forward into a new life as public companies.
“We’ll still see several more,” he said. “They may not be of the size and scale of (other recent IPOs).
We won’t see anything like Hilton.”
HNN’s Terence Baker and Patrick Mayock contributed to this report.