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Hilton Said to Plan Increase in IPO Size to $2.25 Billion

The Waldorf Hilton Hotel in London
The company, whose brands include Waldorf Astoria and Embassy Suites, has refinanced about $13 billion of debt since August in preparation for the IPO. Photographer: Chris Ratcliffe/Bloomberg

Hilton Worldwide Holdings Inc., the world’s largest hotel operator, plans to increase its U.S. initial public offering to about $2.25 billion to allow preferred shareholders to sell about $1 billion of stock, according to people with knowledge of the situation.

Hilton expects to file price terms for the IPO, including the new deal size, in the first week of December, with the offering scheduled for later in the month, said the people, who asked not to be identified because the details are private. The McLean, Virginia-based company, owned by Blackstone Group LP, in September filed for a share sale of as much as $1.25 billion.

Peter Rose, a Blackstone spokesman, declined to comment.

An IPO of $2.25 billion would rank as the country’s third-biggest this year, topping Twitter Inc.’s $2.1 billion sale two weeks ago, and would be the largest ever for a hotel company. A recovery in U.S. room rates and occupancy since 2010 and soaring stock prices have accelerated sales of lodging assets. Extended Stay America Inc., a chain partly owned by Blackstone, has jumped more than 20 percent since its offering last week.

“They’ve timed it very well, and that’s not by accident,” Arthur Adler, head of the Americas division of brokerage Jones Lang LaSalle Inc.’s hotels group, said of Hilton. “The fact they’re going public now demonstrates the interest investors have in a wide swath of hospitality.”

Hilton’s initial $1.25 billion filing was a placeholder amount. The increased size allows for the sale of shares awarded to investors as part of a 2010 debt restructuring, said the people with knowledge of the matter. That deal included the conversion of $2.1 billion of junior mezzanine debt to preferred equity. The preferred shares will be converted to common stock in the IPO, the people said.

Debt Repayment

Hilton’s share of the IPO proceeds will be used to repay debt. Blackstone, based in New York, isn’t selling any shares, according to regulatory filings.

Blackstone bought Hilton for $26 billion in October 2007, at the tail-end of the biggest buyout boom in history. The firm and its investors put in about $6 billion of equity, making it Blackstone’s biggest investment to date. The deal suffered when the credit crisis and subsequent recession reduced travel, before the market rebounded.

Hilton Chief Executive Officer Christopher Nassetta increased the number of open rooms by 34 percent, expanded overseas and introduced new lodging brands in the past six years. The company, whose brands include Waldorf Astoria and Embassy Suites, has refinanced about $13 billion of debt since August in preparation for the IPO.

Hilton Valuation

Hilton is valued at about $30 billion, based on multiples of earnings at comparable companies such as Marriott International Inc. and Starwood Hotels & Resorts Worldwide Inc., a person with knowledge of the matter said in September.

Deutsche Bank AG, Goldman Sachs Group Inc., Bank of America Corp. and Morgan Stanley are managing Hilton’s stock sale. The four banks and JPMorgan Chase & Co. also arranged the debt refinancing.

The IPO would trail only the offerings of Plains GP Holdings LP, a general partner of Plains All American Pipeline LP; and Zoetis Inc., Pfizer Inc.’s animal-health spinoff, in size this year, according to data compiled by Bloomberg. It will surpass Hyatt Hotels Corp.’s $1.09 billion sale in November 2009 as the largest lodging IPO, based on data from Bloomberg and Green Street Advisors Inc., a Newport Beach, California-based property research firm.

The biggest real estate IPO this year was Empire State Realty Trust Inc., owner of New York’s Empire State Building, which raised $1.07 billion in October. Its shares gained 7.8 percent through yesterday.

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