Hilton Worldwide Holdings Inc., the hotel operator owned by Blackstone Group LP (BX), filed to raise $1.25 billion in a U.S. initial public offering as lodging shares trade at close to their highest level in six years.
The world’s largest hotel chain plans to use proceeds from the offering to pay down debt, according to a regulatory filing today. New York-based Blackstone, the world’s largest manager of alternative assets, will own a majority of the voting power in Hilton following the IPO, the filing shows.
At $1.25 billion, the IPO would be the largest for a lodging company and would move Blackstone closer to realizing gains from its biggest single investment, with more than $6 billion of equity invested from its real estate and other funds. The offering coincides with increases in industry revenue and income that have spurred stock gains for hoteliers such as Starwood Hotels & Resorts Worldwide Inc. (HOT) and Marriott International Inc. Both are trading close to their highest levels since 2007.
“For Blackstone, it doesn’t make sense to keep something this valuable on the books,” said Jeffrey Sica, who oversees about $1 billion as chief investment officer of Morristown, New Jersey-based Sica Wealth Management LLC. “Hilton’s business has been doing well, so it makes very good sense for them to do it now.”
The McLean, Virginia-based hotel operator didn’t say how many shares it will offer or at what price. The offering amount is a placeholder used to calculate fees and may change. Deutsche Bank AG, Goldman Sachs Group Inc., Bank of America Corp. and Morgan Stanley will arrange Hilton’s IPO, the filing shows.
Hilton could be valued at about $30 billion, based on multiples of earnings before interest, taxes, depreciation and amortization at comparable companies such as Starwood and Marriott, said a person with knowledge of Blackstone’s plans, who asked not to be identified because the process is private.
Christine Anderson, a spokeswoman for Blackstone, declined to comment on the potential valuation.
The chain’s origins date back to 1919, when founder Conrad Hilton purchased his first hotel (2706) in Cisco, Texas. Today the company, led by Chief Executive Officer Christopher Nassetta, offers lodging under brands including Waldorf Astoria, DoubleTree, Homewood Suites and Hampton Inn.
Net income at Hilton, which owns, manages or franchises more than 4,000 properties worldwide, rose 39 percent to $352 million in 2012 from a year earlier, on revenue of $9.3 billion, according to today’s filing. Hilton increased the number of open rooms by 170,000, or 34 percent, over the past six years, the highest growth rate of any major lodging company, the filing shows.
“For any lodging company to go public right now, the timing is good,” Nikhil Bhalla, an analyst at FBR & Co. (FBRC) in Arlington, Virginia, said in a telephone interview. “We are currently in mid-cycle, so any new company that is going public, they will benefit from gains in the last two or three years and we still think there are gains to be had in the next several years.”
Blackstone’s 2007 takeover of Hilton for $26 billion, which included debt, was the largest ever of a hotel company, according to data compiled by Bloomberg. The transaction took place at the height of the biggest buyout boom in history, amid a surge in commercial real estate values.
After credit markets seized up, Blackstone had to invest additional equity in a 2010 debt restructuring that extended Hilton’s debt maturities to November 2015.
The IPO banks and JPMorgan Chase & Co. also are helping the company refinance about $13.5 billion in debt before the stock offering, a person familiar with the matter has said. The refinancing includes the planned sale of about $3.5 billion of commercial mortgage-backed securities, the person said. It would be the largest CMBS deal since the credit crisis, said Harris Trifon, global head of commercial real estate debt research at Deutsche Bank Securities Inc.
Last month, Blackstone hired JPMorgan and Morgan Stanley to explore a sale or IPO of its La Quinta hotel chain, which is valued at about $4.5 billion including debt, a person with knowledge of the matter said at the time. In July, it filed for IPOs of Brixmor Property Group, the second-biggest U.S. shopping-center landlord, and Extended Stay America Inc., a mid-price lodging chain.
Extended Stay, which owns and operates almost 700 hotels in the U.S. and Canada, is owned in equal parts by Blackstone, Centerbridge Partners LP and Paulson & Co. The company is valued at about $3 billion to $4 billion before debt, according to a person familiar with the process.
At least two Blackstone-backed companies have gone public in the past year, according to data compiled by Bloomberg. SeaWorld Entertainment Inc. (SEAS) raised $807.3 million in April, including an overallotment option. Pinnacle Foods Inc. (PF), the maker of Hungry-Man dinners, raised $667 million in an IPO in March. Before today, SeaWorld had gained more than 6 percent since its IPO, while Pinnacle had risen about 35 percent.
IPOs have accelerated this year in the U.S. as the broader stock market has rallied. There have been 124 initial offerings in the U.S. so far this year, more in number than the comparable period of any year since 2007, data compiled by Bloomberg show. U.S. IPOs this year have raised $30.2 billion, the data show.