(Reuters) — North American budget hotel chain La Quinta Holdings Inc (LQ.N) is preparing to explore a sale of the company, hoping for a high valuation as its seeks to spin off its real estate assets, people familiar with the matter said on Monday.
La Quinta believes proceeds from the potential sale would help make the tax hit it will incur as a result of the spinoff more palatable to shareholders, the sources said. It plans to place its real estate business into a publicly listed real estate investment trust, and keep its franchise and management operations.
La Quinta is preparing to engage with potential buyers once it files a so-called Form 10 with the U.S. Securities and Exchange Commission registering the spinoff, according to the sources. La Quinta said earlier this month that it expected the filing to come in the second quarter of 2017.
Private equity firm Blackstone Group LP (BX.N) took La Quinta public in 2014 and still owns close to a third of the company.
The sources cautioned that the timing of the spinoff was uncertain and that a sale of the company may not occur. They asked not to be identified because the deliberations are confidential. La Quinta declined to comment.
La Quinta shares jumped as much as 15 percent on the news, and ended trading in New York on Monday up 13.4 percent at $15.17, giving the company a market capitalization of close to $1.8 billion.
Last year, Hilton Worldwide Holdings Inc (HLT.N), also decided to spin off its real estate assets, because placing them in a real estate investment trust, which is not taxed at a corporate level, can unlock value for shareholders and boost the parent company’s stock price.
La Quinta is pursuing a similar move despite the Protecting Americans from Tax Hikes Act that U.S. lawmakers voted through in 2015. This eliminated the tax-free status of such spinoffs. Hilton managed to keep its spinoff tax free under a grandfather provision.
La Quinta shares have lost almost 40 percent of their value since 2015, as lower oil prices weighed on the economies of Texas and other U.S. southwestern states where La Quinta has a heavy presence.
In total, La Quinta operates 889 properties, 319 of which are owned, spanning 48 U.S. states. It also has a presence in Canada, Mexico, and Honduras.