Should You Check Into Small Cap Hotel Stock La Quinta Holdings (LQ)? MAR, CHH & WYN

Small cap hotel stock La Quinta Holdings Inc (NYSE: LQ) just had its IPO to raise a lower than expected $650 million after being priced below its expected range, meaning its worth taking a closer look at the stock which is focused on the mid-priced hotel market along with the performance of potential benchmarks like hotel stocks Marriott International Inc (NASDAQ: MAR), Choice Hotels International Inc (NYSE: CHH) and Wyndham Worldwide Corporation (NYSE: WYN).

What is La Quinta Holdings Inc?

Based in Dallas, Texas, small cap La Quinta Holdings is one of the largest owners, operators and franchisors of select-service hotels in the United States. Specifically, La Quinta Holdings operates and provides franchise services to more than 800 hotels with approximately 84,000 rooms in the US, Canada and Mexico under the La Quinta Inns & Suites and La Quinta Inn brands. The company distinguishes itself by offering guests free Bright Side Breakfast®, free high-speed Internet and exclusive Bright Morning Beds® with a pillowtop mattress plus hotels offer business centers, flat-panel HDTVs, spacious, bright in-room work areas with ergonomic "task" chairs and swimming pools available at most locations. In addition,  La Quinta Holdings Inc has created an easy way to reserve a room with the patent pending LQ Instant Hold™ which allows guests to hold a room instantly for up to four hours with just a phone number.

As for potential hotel stock peers, Marriott International Inc has more than 3,700 properties in 73 countries and territories under the Marriott, The Ritz-Carlton, JW Marriott, Bulgari, EDITION, Renaissance, Autograph Collection, AC Hotels by Marriott, Courtyard, Fairfield Inn & Suites, SpringHill Suites, Residence Inn, TownePlace Suites, ExecuStay, and Marriott Executive Apartments brand names; Choice Hotels International Inc has more than 6,200 hotels open in 49 states and over 35 countries and territories outside the United States under the brand names Comfort Inn, Comfort Suites, Quality, Clarion, Sleep Inn, Econo Lodge, Rodeway Inn, MainStay Suites, Suburban Extended Stay Hotel, Cambria Suites and Ascend Collection; and Wyndham Worldwide Corporation is the world's largest and most diverse hotel companies with approximately 7,490 hotels and more than 55 brands, including Wyndham Hotels and Resorts, Ramada, Days Inn, Super 8, Wyndham Rewards®, RCI, Landal GreenParks, English Country Cottages, Novasol, Wyndham Vacation Resorts and WorldMark by Wyndham.

What You Need to Know or Be Warned About La Quinta Holdings Inc

On Wednesday, La Quinta Holdings offered just under 38.3 million shares priced at $17 a share instead of the expected 37.2 million shares priced between $18 and $21 a share (Note: The underwriters may buy another 5.7 million shares) to raise $651 million. Shares ended up 0.71% at $17.12 for a $2.10 billion valuation and a rather subdued start. La Quinta Holdings had actually been publicly traded for more than 30 years before being acquired by private equity firm Blackstone back in 2006 for $2.3 billion in cash (Blackstone also assumed the company's debt which gave the deal a value of about $3.4 billion).

It should be noted that the hotel industry (and hence La Quinta Holdings' income statement) is showing signs of recovery. According to prospectus (available here), La Quinta Holdings has had revenues of $673,384k (Nine months ended September 30, 2013), $818,012k (2012), $751,541k (2011), $705,853k (2010), $679,644k (2009) and $815,961k (2008) for the past six years along with net income of $9,754k (Nine months ended September 30, 2013), a net loss of $35,764k (2012) and more net income of $58,939k (2011), $65,983k (2010), $31,924k (2009) and $29,182k (2008). As of the end of last September, La Quinta Holdings had $48,954k in cash plus $136,596k in restricted cash to cover $2,799,743k in total debt with some of the money raised from the IPO intended to be used to pay down some of this debt.  

However, La Quinta Holdings has approximately 43% of its rooms located in Texas, Florida and California with approximately 25% of the rooms located in Texas plus approximately 56% of the La Quinta-branded hotels are operated as franchised hotels where franchisees pay a franchise fee and certain other fees pursuant to franchise agreements. Hotel revenues are also greater in the second and third quarters than in the first and fourth quarters with the timing of holidays impacting quarterly results. 

Finally, it should be mentioned that:

After the completion of this offering, affiliates of The Blackstone Group L.P. will continue to own a majority of the voting power of all outstanding shares of our common stock. As a result, we will be a "controlled company."

And: 

"We are a "controlled company" within the meaning of the              rules and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements, including the requirement that a majority of the directors on our board be independent and the requirement that we have a compensation committee and nominating and corporate governance committee each composed entirely of independent directors. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of                 ."

In other words, Blackstone is still calling all of the shots and could be lining its pockets with various consulting or management fees.

Share Performance of La Quinta Holdings Inc's Peers: MAR, CHH & WYN

Here is a look at the performance of Marriott International, Choice Hotels International and Wyndham Worldwide Corporation over the past five years:

As you can see from the above chart, both Marriott International and Choice Hotels International have been good performers but Wyndham Worldwide Corporation has been an exceptional performer for investors.

Finally, here is a look at the latest technical charts for all three hotel or hospitality stocks:

The Bottom Line. Keeping the performance of other hotel stocks like Marriott International, Choice Hotels International and Wyndham Worldwide Corporation in mind, La Quinta Holdings could be a winner. However, investors need to keep in mind the company's debt load and the fact that it's a "controlled company" effectively run by Blackstone.