Hilton seeks premium in $2.4 billion IPO

Staff Writer
Columbus CEO

(c) 2013, Bloomberg News.

NEW YORK — Hilton Worldwide Holdings Inc. is selling shares in its initial public offering at a premium to its peers, as the world's largest hotel operator debuts amid a rebound in room occupancies and rates.

The company and some existing shareholders are looking to raise as much as $2.4 billion Wednesday. At the mid-point of its price range, Hilton is seeking an enterprise value multiple of about 13.4 times forecasts for next year's earnings before interest, taxes, depreciation and amortization, data compiled by Bloomberg show. That's more than Marriott International Inc. and Starwood Hotels & Resorts Worldwide Inc. fetch. Blackstone Group, which acquired Hilton in 2007, will own about 76 percent of the company after the IPO.

Hilton is seeking to complete the biggest hotel IPO on record with its average revenue per available room surpassing the industry average at a time when hotel occupancies and room rates in the United States are climbing. Extended Stay America Inc., also a Blackstone portfolio company and the largest owner of mid- price and long-stay hotels in the U.S., surged 26 percent since its debut last month.

"It's a good time to be issuing stock for hotel companies," Ian Weissman, an analyst at International Strategy & Investment Group, said by phone from New York. "We're in a sweet spot of the hotel cycle, and Blackstone's other lodging IPOs have been a good setup for Hilton."

Blackstone also plans to file for an IPO of its La Quinta Inns & Suites hotel chain, people familiar with the firm's thinking said in November. Peter Rose, spokesman for Blackstone, declined to comment because of regulations governing initial public offerings.

Hilton and existing shareholders are offering 112.8 million shares for $18 to $21 apiece, filings show. At $19.50 a share, Hilton would have an enterprise value of $31.7 billion after the IPO, or 13.4 times estimated 2014 Ebitda of $2.36 billion, according to the average of three analysts' forecasts.

That compares with 12.9 times for Bethesda, Md.-based Marriott and 12.1 for Stamford, Conn.-based Starwood Hotels two competitors named in McLean, Va.-based Hilton's prospectus, data compiled by Bloomberg Show.

Even at the low end of the range, Hilton's offering would surpass Hyatt's $1.09 billion sale in November 2009 as the largest lodging IPO, based on data compiled by Bloomberg and Green Street Advisors Inc., a Newport Beach, Calif.-based property research firm.

Hilton's revenue per available room, a measure of room occupancies and nightly rates, climbed 5.4 percent to $100.19 in the first nine months of the year, from a year earlier, according to a company filing on Dec. 2. That compares to an increase of about 3.5 percent to $76.93 year-to-date through September across the sector worldwide, according to data from STR, a Hendersonville, Tennessee-based lodging-research firm.

Hilton — whose 10 brands include Waldorf Astoria, DoubleTree, Homewood Suites and Hampton Inn — dates to 1919, when founder Conrad Hilton bought his first hotel in Cisco, Texas. The company reported 2012 net income of $352 million, up 39 percent from a year earlier, on revenue of $9.3 billion.

Marriott and Starwood have each outperformed the benchmark Standard & Poor's 500 Index this year, rising at least 24 percent through yesterday. U.S. gross domestic product is projected to increase to 2.6 percent next year, according to the average of 74 estimates compiled by Bloomberg. An improving economy bodes well for hotel stocks, according to FBR & Co.'s Nikhil Bhalla.

"If you have 2 percent or 2.5 percent GDP growth, the lodging sector tends to do better," Bhalla, a lodging analyst at FBR in Arlington, Virginia, said. "It has to do with the fact that corporate growth and spending on travel tends to do better than general GDP growth and corporate travel is a big part of lodging demand."

Deutsche Bank AG, Goldman Sachs Group Inc., Bank of America Corp. and Morgan Stanley are managing the Hilton IPO. The company plans to list on the New York Stock Exchange under the symbol HLT.


Brandt reported from Los Angeles. Contributors: Hui-yong Yu in Seattle and Jodi Xu in New York.