Hyatt Plans $1 Billion IPO as Property Companies Raise Cash

By Nadja Brandt

Aug. 6 (Bloomberg) -- Hyatt Hotels Corp., the lodging company controlled by Chicago’s Pritzker family, plans to raise up to $1.15 billion in an initial share sale to shore up its finances and fund acquisitions at a time of scarce credit.

The offering may be the largest in the U.S. this year, according to data compiled by Bloomberg, and comes two years after Hyatt sold a $1 billion stake to investors including Goldman Sachs Capital Partners and Madrone Capital LLC, a firm that has been affiliated with Wal-Mart Stores Inc. Chairman Rob Walton.

About 50 publicly traded real estate businesses have raised $15.7 billion through equity sales in the first half, according to the National Association of Real Estate Investment Trusts. Hyatt is going public as the global recession has sapped demand for travel, cutting into its revenue and profitability. U.S. hotel occupancies sank 11 percent and room rates slid 8.7 percent through June, according to Smith Travel Research.

“In this environment they don’t fit the criteria for a successful IPO,” said Francis Gaskins, publisher of IPODesktop.com in Marina del Rey, California. “The ones that have been successful have had top-line revenue growth, high gross margins and positive cash flow.”

Hyatt, which runs 413 Hyatt-brand hotels with 119,509 rooms, plans to list the shares on the New York Stock Exchange under the symbol “H,” the Chicago-based company said in a regulatory filing yesterday. The Pritzker family controls Hyatt with an 85 percent stake. Investment funds affiliated with Goldman Sachs Group Inc. own a 7.5 percent stake. Madrone and affiliates have 6.1 percent, according to the filing.

Net Loss

Goldman Sachs will manage the sale with Deutsche Bank Securities Inc. and J.P. Morgan Securities Inc.

Hyatt reported a first-half net loss of $36 million, or 14 cents a share, compared with a profit of $173 million, or 68 cents, in the same period a year-earlier. Consolidated revenue fell 19 percent to $1.64 billion, the company said.

The company amended its five-year $1 billion credit line with Wachovia Bank last month and said $370 million is due in June 2010, with the remaining available credit due in June 2012.

Hyatt said it may use some of the proceeds to make acquisitions and said the lack of available credit has constrained the hotel industry in the past year.

Scarce credit helped drive Host Hotels & Resorts Inc. and DiamondRock Hospitality Corp. to secondary share sales this year as the recession cut revenue and pushed some hotel owners to default on loans.

Raising Cash

“This could be a way for them to raise cash instead of going to the more expensive debt markets,” said Patrick Scholes, senior equity research analyst at FBR Capital Markets & Co. “Banks aren’t exactly lending much money these days. Hyatt is probably looking at the recent successful stock sales” and hoping investors will be as receptive, he said.

Hyatt spokeswoman Farley Kern declined to comment.

A dozen U.S. companies conducted IPOs this year, raising $2.69 billion. The largest was the $828 million sale in February of Mead Johnson Nutrition Co., formerly a unit of Bristol-Myers Squibb Co. and the world’s biggest maker of baby formula.

Lodging IPOs in the past year raised $99.9 million, according to Bloomberg data. Enjoy SA, which owns hotels and casinos in Chile, raised $42.1 million July 8. Mahindra Holidays & Resorts India Ltd. pulled in $57.8 million in June.

A third of the $8.6 billion in securities backed by hotel loans due in 2010 are at risk of defaulting, data compiled Realpoint LLC in Horsham, Pennsylvania, show.

Pritzker Family

Hyatt was founded more than a century ago by the great grandfather of Penny Pritzker, who served as President Barack Obama’s campaign finance chairwoman.

A potential obstacle to a share sale was removed in 2005 when the family settled a lawsuit brought by two of Jay Pritzker’s grandchildren over the handling of their trust for $560 million.

Hyatt, which employs 45,000 people worldwide, said Mark S. Hoplamazian will be chief executive officer and Thomas Pritzker will be executive chairman. The company’s brands include Park Hyatt, Grand Hyatt, Andaz, Hyatt Regency and Hyatt Place.

The Standard & Poor’s 500 Hotel Index climbed 30 percent this year after falling 50 percent in 2008. Its members are Carnival Corp., Marriott International Inc., Starwood Hotels & Reports Worldwide Inc. and Wyndham Worldwide Corp.

“I’m surprised they’d do it this early,” Brian McGill, senior analyst at Janney Montgomery Scott LLC in Philadelphia, said of Hyatt’s timing. “While hotel stocks have performed well these last two or three weeks, investors will be skeptical of the industry’s fundamentals.”

To contact the reporter on this story: Nadja Brandt in Los Angeles at nbrandt@bloomberg.net.