April 12, 2006 - Hotels are hot: Occupancies and room rates continue to rise, and room demand is forecast to grow faster than the industry's historical average through 2007, experts say.

Meanwhile, merger and acquisition activity is brisk. Large private-equity investors continue prowling for hotel properties, and public chains trade at high multiples.

All this adds up to a potentially rich payout for members of Chicago's billionaire Pritzker family, whose principal holding, Global Hyatt Corp., will be ready for an initial public offering or a merger by the end of the year.

Speculation about a Hyatt deal, after brewing for years, heated up again this week with Chairman and Chief Executive Thomas Pritzker's remarks about the company's financial restructuring.

The revamp has combined Hyatt's holdings into a single entity that will be capable of complying with federal financial disclosure rules required of public companies.

It was launched when the family, after a dispute, agreed to break up its $15 billion empire and distribute proceeds to individual heirs. Now, Hyatt could hit the market during a peak period.

The hotel industry's slow rebound from the post-9/11 slump picked up steam last year and shows no signs of abating.

"The general mood of the industry is euphoric right now," said PricewaterhouseCoopers hospitality and leisure consultant Scott Berman. "It's a function of very strong operating conditions, limited new supply and generally strong global economies."

Elmhurst-based hotel industry consultant Ted Mandigo said many hotels "still are getting their feet under them in terms of recovery."

"Because they're not performing at peak, they become acquisition candidates," he said. "You can acquire a property for less than you can build one in today's market, so we're seeing a surge of acquisitions."

Among the pending deals: Blackstone Group's $2.6 billion acquisition of MeriStar Hospitality Corp., a chain of mainly upscale hotels.

Blackstone, an aggressive hotel buyer, acquired Wyndham International Inc. in a $3.2 billion deal last year and publicly traded La Quinta Corp. in a $2.3 billion merger in January. In turn, Hyatt bought the AmeriSuites chain from Blackstone last year for an estimated $600 million.

In addition, a group of private investors agreed in January to buy publicly traded Fairmont Hotels & Resorts Inc. for about $3.3 billion, topping an offer by New York financier Carl Icahn.

"There's an incredible amount of activity," said John Arabia, a principal overseeing the lodging research group at Green Street Advisors. "It's an interesting period in that at the same time you have a company or two coming public, you have one or two being taken private."

Will Marks, managing director and senior analyst at JMP Securities LLC, said "abundant capital" is being raised by private equity firms for real estate and hotel deals.

"Private transactions are taking place at very high multiples, and many of the public companies are trading at historically high multiples" of cash flow, he said.

Is the market approaching a peak?

Joseph Betlej, a vice president and portfolio manager specializing in real estate investment trusts at Advantus Capital Management, said despite the fact hotel companies' earnings jumped last year, "there is still earnings growth that hasn't been priced into these stocks."

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