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Is Global Hyatt About to Go Public?

By Michael Arndt Seventeen months ago, Chicago's Pritzker family announced it would combine its U.S. and overseas Hyatt hotel chains into a new holding company, Global Hyatt, as a first step toward a possible initial public offering. Now, the Chicago-based outfit may be close to taking that leap. And with business and vacation travel on the rebound, the timing could be just about right.

Talk of a Hyatt IPO picked up after the Chicago Tribune reported on July 31 that it had obtained a company document that said Global Hyatt could go public as soon as early next year. Hyatt spokeswoman Lori Armon disavows the document as a pitch sent out by an executive search firm and says Hyatt's billionaire owners have no timetable on their next step. She adds, though, that they're still discussing an IPO sometime.

They might want to act soon. After a slump that began with the September 11 terrorist attacks and was prolonged by recession, war, and the SARS epidemic, the hotel industry is finally coming back. The biggest U.S.-based hotel companies -- Marriott International (MAR), Starwood Hotels & Resorts (HOT), and Hilton Hotels (HLT) -- all just posted better-than-forecast quarterly results, thanks mostly to an increase in business travelers.

TAKING THE LEAP. Starwood's numbers were particularly impressive. The White Plains (N.Y)-based company, which owns the Sheraton, Westin, and W chains, had indicated that its second-quarter revenue per available room (RevPAR) would climb by between 11% and 12% in the U.S., and that it would pocket $77.5 million from continuing operations, excluding one-time items. Instead, RevPAR rose 16%, while earnings jumped to $107.5 million. "It's fun to be full again," Chairman and Chief Executive Barry Sternlicht told investors.

Moreover, the industry should prosper through 2005, predicts analyst William Marks of JPM Securities in San Francisco. Travel spending should at least keep pace with overall economic growth, he says. Hotel chains, particularly those with luxury properties like Hyatt, also should be able to raise prices because the industry isn't adding many rooms, he says. Through 2000, the number of U.S. hotel rooms grew by between 3% and 4% a year. Now, the rate is just 1.5%.

Other hotel owners are already cashing in by going public. Strategic Hotel Capital (SLH), a Chicago-based real estate investment trust (REIT) that owns 14 high-end properties, issued its first shares on June 24 at $14 apiece. They closed at $14.50 on Aug. 3. Two other REITs -- Capital Lodging (TCL) of Dallas, with 35 sites, most of which are Holiday Inns, and CNL Hospitality Properties, an Orlando outfit that owns 135 hotels under the Marriott, Hilton, and Hyatt brands, among others -- have filed for IPOs and are expected to begin trading any day now. A fourth, Covington (Ky.)-based Eagle Hospitality Properties, could go public within weeks, too.

"PHENOMENAL BRAND." Might these REITs siphon away capital from Global Hyatt? While it's true that there are only so many investors interested in lodging companies, industry analysts predict Hyatt should be able to raise plenty of money through an IPO. REITs draw different investors, analysts point out. That's because, under law, REITs can own only land and structures and must pass along most earnings to shareholders in the form of dividends.

As a corporation, Hyatt has its name on 207 properties in the U.S. and abroad. Like REITs, it owns many of these hotels and resorts, through its Hyatt Hotels and Hyatt International. But there are the others that Hyatt only manages and markets. Thus, it can use its income to invest in new sites or turn to others for the substantial sums often needed to erect more hotels. That frees up cash for marketing or other uses. And Hyatt towers over the hotel REITs. With an estimated $5 billion in annual revenue, it's as big as Starwood and bigger than Hilton.

What really separates Hyatt from its newly public competitors is its well-known name and reputation for deluxe accommodations. "It's such a phenomenal brand," says an industry analyst. "It should be strong enough to attract capital." Of course, that assumes the Pritzkers want other people's money. For now, says Hyatt spokeswoman Armon, they don't. But with hotel stocks trading near all-time highs, if they change their minds, they better not wait too long to do so. Arndt is a senior correspondent in BusinessWeek's Chicago bureau

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