Lodging Industry IPOs ?Dead In The Water?

NEW YORK? For lodging C-Corps and REITs, the chances of courting capital markets and sparking an initial? or even secondary? public offering are dwindling. Wall Street, awash in IPOs from virtually every industry and from e-commerce upstarts in particular, has basically backpeddled from lodging stocks, driven by a concern for late-cycle risks. In fact, according to a recent analysis by PricewaterhouseCoopers and Bear, Stearns & Co., if the amount of overall IPOs filed in the first half of 1999 were on a radar screen, it would be hard to see the blip for hotels. Of $14 billion worth of initial public offerings of stock in the UnitedStates between January and June, the hotel industry represented only $12 million or 0.1% of the total, the companies reported. January brought a foray by micro-cap lodging REIT Hersha Hospitality, of an initial sale of two million shares. The second quarter brought secondary offerings from a pair of concerns. In April, C-Corp Homestead Village put 76.5 million shares up for sale; a month later, lodging REIT Hospitality Properties Trust offered 10 million shares for sale. And then?nothing. Bjorn Hanson, who heads up PricewaterhouseCoopers? hospitality and leisure group, which monitors the S-1 and S-11 Securities and Exchange Commission (SEC) registrations of C-Corps and REITs, respectively, said there were no further filings as of presstime. ?It?s not a friendly environment right now,? said Hanson, who noted that when the lodging industry is in an up cycle, investors are willing to pay a lot to get in; when the cycle turns downward, the sector is penalized. Stock issuance has run down significantly over the past several years, digressing from a combined total for C-Corps and REITs of $5.06 billion in 1996 to $1.25 billion in 1998. Broken out over the three-year period, C-Corps in 1996 filed nine IPOs and 10 secondaries valued at $3.36 billion, trending downward by half in terms of sales in 1997 to $1.65 billion, represented by five IPOs and 10 secondaries. Sales fell again in 1998, this time by more than half to $548.8 million, with two initial sales and five secondary offerings. REITs trailed C-Corps for the three-year period in terms of IPOs and sales, but issued more secondaries. REITs in 1996 filed three IPOs and 10 secondaries, valued at $1.69 billion. In contrast to C-Corps in 1997, REITs trended upward in sales to $2.49 billion in secondaries, with no IPOs filed. The following year saw a plunge to $703.6 million on one initial public offering and six secondaries. In analyzing the scenario, Hanson indicated that given the financial crunch last year, there were no offerings at all in the third and fourth quarters, and concern over industry fundamentals stalled lodging equity offerings. To date, Hersha Hospitality Trust remains the only IPO filed thus far in 1999. ?I think IPOs have been dead in the water for a year-and-a-half,? said Mark Mutkowski, managing director and senior lodging analyst at Deutsche Banc Alex. Brown. ?My gut feeling is I don?t think the IPO market will open until 2002. It will take until then to absorb the supply growth that we have and will see over the 2000 and 2001 time frame.? Bear Stearns? Jason Ader, senior managing director of leisure industry research, noted in the analysis that funds for lodging industry IPOs would not be easily forthcoming from public markets due to cyclic risk and limited potential for return, and this could, in turn, impact hotel construction. While citing a ?very confusing fundamentals situation for lodging, with occupancy declining and RevPAR slowing since 1997,? Hanson said traditional sources of lending are still to be had. ?We?ve got over 120,000 new room starts without the capital markets contributing much,? he said, and acknowledged long-time lenders such as pension funds and commercial banks, as well as private investors, understand lodging?s fundamentals are sound. The downtrend in room starts also is not unexpected. According t