Hilton Worldwide To Go Public Once Again
In a not so surprising move today, giant equity and real estate firm, The Blackstone Group L.P. (NYSE: BX) announced that it plans on taking Hilton Worldwide public again in a $1.25 billion offering. The IPO will be the largest ever for a lodging company. Hilton has been private since being bought by Blackstone seven years ago in one of the largest leveraged buyouts prior to the 2008 global financial crises. BX paid $26 billion for Hilton and acquired a staggering $7 billion in debt along with the hotel chain.
Blackstone is no doubt hoping to cash in on a rapidly reviving U.S. hotel industry whose stocks have been on a tear recently. The Dow Jones U.S. Hotels index has risen by a healthy 18 percent this year so far. Hilton’s largest competitors, Marriot International Inc. (NYSE: MAR) and Starwood Hotels & Resorts Worldwide Inc. (NYSE: HOT), have seen their stocks rise by 15 percent and 20 percent respectively this year. The industry has been on a solid uptick due to an improved economic climate and the loosening of discretionary spending, both allowing hotels to increase prices. Revenue per available room has been rising incrementally for the past four years, and there’s more growth to come. Analysts do not foresee a downward trend anytime soon.
As for Hilton, the company’s revenue for the first six months of this year rose 2.7 percent to $4.64 billion from a year earlier, while profit jumped 66 percent to $189 million. It is the largest hotel chain globally with over 4,000 locations. The company’s business has been doing so well that it does not make sense for Blackstone to keep an entity that large on the books. Analysts speculate that Hilton may be worth upwards of $30 billion based on multiples of earnings before interest, taxes, depreciation and amortization compared with Starwood and Marriot. Hilton has increased its number of open rooms by 34 percent over the past six years; which translates into the highest growth rate of any major hotel company.
There was no word on how many shares will be offered or at what price. The offering amount may change and is just a placeholder at this point. What is certain is that Goldman Sachs Group Inc. (NYSE GS), Bank of America Corp. (NYSE: BAC), Deutsche Bank (NYSE: DB), and Morgan Stanley (NYSE: MS) will arrange Hilton’s IPO, as is stated in the filing. Also according to the filing, net income for Hilton rose 39 percent to $352 million in 2012 from a year earlier, on revenue of $9.3 billion.
Blackstone is jumping into a red hot IPO market. Over 131 companies have gone public on U.S. exchanges this year. That’s a hefty 44 percent increase from this time a year ago. Better yet, the average IPO has returned 32 percent thus far from its offer price in 2013. With lodging stocks on an upswing and IPOs garnering attractive returns this year, seems like Blackstone’s timing is impeccable.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
