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Hilton Expects to Raise Up to $2.7 Billion In IPO

Seeking to Cash In on Accelerating Lodging Recovery and Rising U.S. Equity Markets, Majority Owner Blackstone Taking Another Hotel Chain Public
December 2, 2013
Blackstone-controlled Hilton Worldwide, Inc. revealed in a regulatory filing Monday it will seek to raise as much as $2.7 billion in one of the largest initial public offerings of the year -- and the largest IPO ever for a hotel chain.

The McLean, VA-based hotel firm estimates it will offer over 64 million shares at a range of $18 to $21 a share, with the selling stockholder, Hilton Global Holdings LLC, offering an additional 48.7 million shares, according to an amended U.S. Securities and Exchange Commission registration filing. Hilton’s amended revealed that Blackstone will not sell any stock and will retain a 76.2% interest in the chain.

Overall proceeds would total about $2.2 billion in the mid-point of the price range -- and just under $2.4 billion at the high end, which could rise to more than $2.7 billion if underwriters exercise their option to buy up to 16.9 million shares from Hilton Global Holdings. A previous S-1 filing in September anticipated proceeds at $1.25 billion.

The deal, which could come to market as early as this week, is among a trio of hotel IPOs backed by Blackstone Group that could go public before the end of the month as the private equity giant and alternative assets manager again taps Wall Street to take advantage of the surging stock market. A Nov. 12 offering by Extended Stay America Inc., owned by Blackstone, Centerbridge Partners and Paulson & Co., raised about $565 million, nearly 20% above its debut price.

Last week, Wall Street buzzed with reports that Blackstone, perhaps encouraged by the warm market reception to Extended Stay, would go the IPO route with its La Quinta Inns & Suites chain rather than sell it in a private-market transaction.

A successful IPO would be a stunning reversal of fortune for Blackstone’s 2007 investment in Hilton. The private-equity giant acquired Hilton in a leveraged buyout, the largest deal to take a hotel company private, in a transaction valued at nearly $27 billion including assumed debt, just before the financial market meltdown. The debt became a heavy burden as Blackstone was unable to complete an $8.4 billion commercial mortgage-backed securities offering when lead advisor Bear Stearns collapsed in 2008.

Following a strategy similar to its Extended Stay IPO, Blackstone is attempting to refinance all of Hilton's more than $13 billion in debt through a variety of vehicles, most significantly through another attempted CMBS issue, this time backed by a $3.5 billion first mortgage loan secured by 23 hotels totaling 18,623 rooms in 13 states, Washington, D.C. and Puerto Rico.

The IPOs and refinancings have also benefitted from a more than three-year recovery in lodging occupancies, average daily room rates and other fundamentals. In its filing, Hilton noted that U.S. lodging demand has growth by an annual average of 4.9% over the last three years, well above the 25-year average of 1.8%, according to data from Smith Travel Research.

During the same period, supply has grown by just 0.9% annually, well below the long-term 2% average, contributing to annual 6.8% revenue per available room (RevPAR) growth over the last three years, well above the 25-year average of 2.7%.

Total U.S. lodging industry RevPAR is expected to increase 7.2% in 2014 and 8.1% in 2015, according to PKF-HR. Global lodging demand has shown similar strength.

"We believe these attractive supply/demand fundamentals provide the potential for continued global RevPAR growth in the coming years," Hilton said in its filing.

Hilton’s value would be over $32 billion, including debt, at the targeted price.

The company, which will list on the New York Stock Exchange under the ticker symbol HLT, plans to use IPO proceeds to reduce $7.5 billion in outstanding term loan debt left over from Blackstone's leveraged buyout.

Deutsche Bank AG, Goldman Sachs Group Inc., Bank of America Merrill Lynch and Morgan Stanley are serving as main underwriters for the IPO.

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