Hilton Checks in With 9% Jump on Debut

Half of IPO proceeds to be used to reduce debt

On Thursday, December 12, Hilton Worldwide Holdings Inc. (NYSE:HLT)made a debut at the NYSE, started its secondary market journey at $21.30, rose more than 9 percent from its listing price to $21.90, before closing for the day at $21.55.

Source: Bloomberg
Source: Bloomberg

Hilton Worldwide Holdings Inc., the world’s biggest hotel operator in terms of number of rooms, launched its IPO raising $2.34billion and selling 117.6millionshares at $20 each on Wednesday. Hilton, which owns and franchises a portfolio of 4,080 hotels worldwide, had earlier stated that it could sell as many as 130 million shares, at $18-21 a share, according to its filing.However, Hilton increased the size of the deal by about 4% over the 112.8 million shares projected in a regulatory filing and sold five million more shares than it initially said it would, cashing in on the huge investor demand for hotel stocks, according to Reuters.

Hilton’s IPO comes at a time when the hospitality industry is witnessing a boom in room occupancies and rates. Hilton’s US IPOwill allow preferred shareholders to sell about $1 billion of stock, according to Bloomberg.Owing to strong demand from investors, Hilton planned to make its maiden stock offering on Wednesday, instead of on Thursday.This means that the company’s shares would begin trading on the New York Stock Exchange, under the symbol HLT, on Thursday instead of on Friday.Owned by Blackstone Group LP, Hilton filed for a share sale of as much as $1.25 billion in September.The IPO is being led by Deutsche Bank AG and Goldman Sachs GroupInc. along with 23 other investment banks.

Biggest hotel IPO on record

Check InHilton’s IPO will be the largest offering by a hotel operator. At the midpoint of its expected pricing range, Hilton would be the second-largest IPO in 2013, behind the $2.8 billion initially raised by oil and gas pipeline company Plains GP Holdings (NYSE: PAGP) and ahead of the $1.8 billion initially raised by Twitter (NYSE: TWTR).

Blackstone to retain 76% stake after the IPO

Blackstone Group LP (NYSE: BX), which acquired Hilton in 2007, will own about 76% of the company after the IPO.Blackstone bought Hilton in 2007 in a $26.7-billion deal that was one of the largest leveraged buyouts before the 2008 global financial crisis. According to the filing, Blackstone and other shareholders cannot sell additional shares for at least 180 days after the IPO. At the mid-price range of $19.50 per share, Blackstone’s76% stake after the IPO would be worth a whopping $14.6 billion! Moreover, Blackstone stands to make a profit of $8.5 billion in the deal.Blackstone also plans an IPO of hotel chain La Quinta.

Debt Repayment

Hilton’s share of the IPO proceeds will be used to repay debt. When Blackstone bought Hilton for $26 billion in October 2007, the firm pumped in $6 billion of equity. However, Blackstone suffered during the credit crisis and subsequent recession, and is now seeking returns on its investment.

Meanwhile, Hilton increased the number of open rooms by 34%, expanded overseas, and introduced new lodging brands over 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

At a price of$20 a share, Hilton would have an enterprise value of $32 billion after the IPO, or 13.4 times estimated 2014 EBITDA of $2.36 billion, according to Bloomberg. Hilton reported 2012 net income of $352 million, up 39% from the year-ago period, on revenue of $9.3 billion.Hilton’s revenue per available room, a measure of room occupancies and nightly rates, climbed 5.4% to $100.19 in the first nine months of 2013 from a year earlier, according to a company filing on December 2, 2013.

Founded in 1919 by Conrad Hilton, Hilton includes popular brands such as Conrad and Waldorf Astoria. Hilton has 4,041 hotels, or 665,667 rooms under its umbrella, located in 90 countries. The company itself owns or leases 157 hotels, manages and/or franchises another 3,883 hotels comprising 603,271 rooms.

Looking ahead from the investor point of view, Hilton’s stock seems attractive due to its shift towards hotel management and franchising, its solid new hotel pipeline, and a deleveraging balance sheet. However, a major concern among investors is that Blackstone may be looking to sell off its majority stake in the company, something that could prove unsettling for the hotel’s expansion plans.

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