• Hyatt IPO timing a surprise

Hyatt's filing of a prospectus to list on the New York Stock Exchange has been long expected but the timing at first sight is something of a surprise.

But as a huge owner of hotel assets, the cash raising mirrors what other large property groups are currently engaged in.

In August, for example, Starwood Capital's Starwood Property Trust raised $931.5m in an IPO for a fund set up to swoop on distressed opportunities But the bulk of money being raised is by existing property companies on both sides of the Atlantic.

In many cases, this fund raising has more to do with shoring up the balance sheet than raising funds for opportunistic acquisitions. But some plan to use the cash to buy troubled assets at knock down prices thanks to the absence of debt.

Hyatt, which wants to raise $1.15bn, said that it may use part of the proceeds from the listing to buy new properties or businesses. The company had, at June 30, just $612m debt and $968m in cash. In addition, it has the capacity to borrow an additional $1.5bn. When added together, this gives the group $3bn of firepower.

The listing will also present an opportunity for Hyatt's existing shareholders to realise some cash. This is particularly important for some members of the Pritzker family who together own 85% of the group.

Also able to sell would be Goldman Sachs, which owns 7.5%, and Madrone Capital Partners, the vehicle controlled by Wal-Mart heir Rob Walton, which has 6.1%.

Out of the 413 properties in the Hyatt portfolio, 102 are owned or leased and these are mostly the largest upscale and luxury assets.

These owned and leased properties generated $156m of the total of $210m EBITDA the group made in the first six months of this year. EBITDA was down 49.6% comparing the first half of this year with the first half of 2008.

Revpar for full-service was down 24.6% and for select service by 19.4% for comparable owned and leased properties.

As well as the currently weak trading performance, what might scare off some would-be investors from the IPO is the split share structure which will leave the Pritzker family firmly in control regardless of its economic holding in the company. Class A shares will have only one vote compared to the 10 votes of each Class B share.

The dilution of economic control by the Pritzker family will take time as family members can only sell 20% of their holdings each year until 2015. But by issuing shares, the agreement to divide up the family empire among 11 adult cousins by 2011 will be fulfilled.

The Pritzker family holdings, and that of Goldman and Madrone, are locked into voting with Hyatt's board on any issues regarding takeovers or asset sales.


HA Perspective: If Hyatt fails to make acquisitions within a year or so of the IPO, then it will have severely dented the wealth of the Pritzker family in order to settle the feud. There is unlikely to be a better time to deploy cash firepower and that must surely be a key focus for the management team lead by CEO Mark Hoplamazian.

But even in the absence of acquisitions, the IPO will help continue the company's progress into a more focused hotels business. Hoplamazian has previously spoken about how preparations for the IPO have sharpened operations within the business by forcing it be structured in a more coherent fashion.

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