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Summary

  • A leading owner, operator and franchisor of select-service hotels primarily serving the midscale and upper-midscale segments.
  • Comparing 2013 vs 2012 top line revenue grew only 4%, EBITDA grew only 4% and cash from operations declined 6%.
  • LQ looks fully priced compared to the sector, at the price range mid-point.

Based in Irving, TX, La Quinta Inns & Suites (NYSE:LQ) scheduled a $725 million IPO on the NYSE with a market capitalization of $2.4 billion at a price range midpoint of $19.50 for Wednesday, April 9, 2014.

The full IPO calendar is available at IPOpremium.

SEC Documents
Manager, Joint managers: J.P. Morgan, Morgan Stanley

Co-Managers: BofA Merrill Lynch, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, Wells Fargo Securities, Blackstone Capital Markets, EA Markets, Evercore Partners, JMP Securities, Lebenthal, Loop Capital Markets, Mischler Financial Group, Ramirez & Co., Inc, Raymond James, RBC Capital Markets, Stifel

End of lockup (180 days): Monday, October 6, 2014

End of 25-day quiet period: Monday, May 5, 2014

Summary
LQ is a leading owner, operator and franchisor of select-service hotels primarily serving the midscale and upper-midscale segments under the La Quinta brand.

According to data provided by STR, La Quinta is the fastest growing principal select-service hotel brand in the United States primarily serving these segments in terms of percentage growth of number of hotels over the last ten years ended December 31, 2013, significantly outpacing the percentage growth of its main STR competitive set in percentage terms.

Valuation

Glossary

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

Dividend

Cap (MM)

Sls

Erngs

BkVlue

TanBV

Yield

La Quinta Holdings (LQ)

$3,617

4.0

80.4

4.9

4.4

none

InterContinental (NYSE:IHG)

$8,220

4.3

22.1

-100.2

-9.8

2.16%

Hyatt Hotels (NYSE:H)

$8,580

2.1

41.4

1.8

2.1

none

Starwood Hotels & Resorts (NYSE:HOT)

$15,460

2.5

24.3

4.6

11.6

1.74%

Hilton Worldwide (NYSE:HLT)

$21,680

2.2

52.2

5.0

-2.3

none

Conclusion
Neutral. LQ looks fully priced compared to the sector.

Although LQ has the lowest market capitalization, it has

  • the second highest price-to-sales ratio,
  • the highest price-to-earnings ratio,
  • the second highest price-to-book ratio, and
  • LQ doesn't pay a dividend. IGH and HOT both pay dividends.

Comparing 2013 vs 2012 top line revenue grew only 4%, EBITDA grew only 4% and cash from operations declined 6%.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business

LQ is a leading owner, operator and franchisor of select-service hotels primarily serving the midscale and upper-midscale segments under the La Quinta brand.

According to data provided by STR, La Quinta is the fastest growing principal select-service hotel brand in the United States primarily serving these segments in terms of percentage growth of number of hotels over the last ten years ended December 31, 2013, significantly outpacing the percentage growth of its main STR competitive set in percentage terms.

LQ's system-wide portfolio, as of December 31, 2013 (other than its discontinued operations) consisted of 830 hotels representing 83,000 rooms located predominantly across 46 U.S. states, as well as in Canada and Mexico, of which 339 hotels were owned and operated and 491 were franchised or managed.

LQ also has a pipeline of 187 franchised hotels in the United States, Mexico, Canada, Colombia and Honduras. LQ primarily derives its revenues from owned hotel operations and fees generated from franchised hotels.

All of its long-lived assets are located in the United States and, in 2013, LQ derived over 99% of its revenue from within the United States.

LQ's operating segments are components of the business which are managed discretely and for which discrete financial information is reviewed regularly by its chief operating decision maker to assess performance and make decisions regarding the allocation of resources. LQ's chief operating decision maker is its Chief Executive Officer. LQ defines its reportable segments as follows:

Owned hotels - This segment derives its earnings from the operation of owned hotel properties located in the United States.

Franchise and management - This segment derives its earnings primarily from fees earned under various license, franchise and management agreements relating to LQ's owned, franchised and managed hotels.

These agreements provide for LQ to earn compensation for the licensing of its brand to franchisees, for providing certain services (including hotel management services) and for providing access to certain shared services and marketing programs such as reservations, La Quinta Returns, and property management systems.

Other than with respect to the Previously Managed Portfolio, which is reflected as managed hotels in this "Management's discussion and analysis of the financial condition and results of operations" section, LQ does not currently generate, and did not generate over the periods presented, any revenue from the management of hotel operations for third parties.

This segment includes intercompany fees, which are charged to its owned portfolio to reflect that certain functions, such as licensing and management, are included in the franchise and management segment.

LQ has historically charged aggregate fees of 2.0% (0.33% license fee for trademark rights and 1.67% management fee for management services) to its owned hotels (as well as having certain cost reimbursement arrangements).

Upon effectiveness of the IPO, LQ intends to enter into a new franchise agreement, which will cover certain services as well as trademark rights, and a new management agreement and will terminate the existing agreements.

Under the two new agreements, the intercompany fees will be 7.0% (4.5% franchise fee and 2.5% management fee) for LQ's owned hotels.

LQ sets the franchise fee on a basis that reflects the services and rights covered by the new franchise agreement and because, as a public company with two segments that may be valued differently by investors, LQ believes it is meaningful to investors to show a franchise fee on its owned portfolio that is consistent with the franchise fee LQ charges its franchisees.

LQ sets the management fee on a basis that reflects current market rates for select service hotels and the current composition of its owned portfolio.

Dividend Policy

No dividends are planned.

Intellectual Property

All of the intellectual property used for the La Quinta brand is owned by La Quinta Worldwide, LLC, a wholly owned subsidiary of the Issuer.

"La Quinta," "La Quinta Inn," "La Quinta Inn & Suites," "LQ Instant Hold," "LQ" and "Returns" are LQ's primary trademarks. LQ's material trademarks and many secondary marks are registered in various combinations of word and logo marks with the U.S. Patent and Trademark Office ("USPTO") for hotel and motel services. In the United States, certain of LQ's marks are subject to an agreement with the owner of a resort known as "La Quinta Resort & Club," located in La Quinta, California.

Competition

As of December, 2013 the U.S. hotel sector comprised approximately 53,000 hotels with more than 4.9 million rooms.

Of these rooms, approximately 69% were affiliated with a brand. The hotel industry is highly fragmented, with no one entity controlling a majority of hotel rooms in the U.S.

Publicly hotel competitors include Hilton Worldwide, Hyatt Hotels, InterContinental, Starwood Hotels & Resorts.

5% stockholders

Blackstone 95.8%

Use of proceeds

LQ expects to net $678 million from its IPO.

Net proceeds of this offering, available cash from debt financing transactions, and other available cash will be used to repay approximately $2.7 billion of outstanding indebtedness and pay a portion of the purchase price for the acquisition of the WIH La Quinta Inn Hotels.

Any remaining net proceeds from this offering will be used for general corporate purposes.

Disclaimer: This LQ IPO report is based on a reading and analysis of LQ's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: La Quinta Inns & Suites