Hotel operator Hilton Worldwide Inc. filed for an initial public offering to raise as much as $1.25 billion, the biggest public offering ever for a lodging company.
in a form S-1 filed with the Securities and Exchange Commission on Sept. 12, Hilton will use the proceeds to pay down existing debt and expand operations. The proposed $1.25 billion IPO will eclipse the prior biggest offering by a lodging company, 2009’s $1 billion IPO of Hyatt Hotels Corp.
Tourism Rebound
The offering comes at a good time for its current owners, private equity giant the Blackstone Group L.P. Blackstone took Hilton private in 2007 for $26 billion, at the height of the global building boom and one of the last mega buyout deals prior to the financial crisis.
Currently, hotel and lodging groups are enjoying a rebound in tourism following the latest global recession. Shares of competitors Marriott International Inc. (NYSE: MAR) and Starwood Hotels and Resorts Inc. (NYSE: HOT) are approaching their 52-week highs and revenues have been at record highs.
According to industry research website STR Global, average U.S. hotel industry’s occupancy rose 1.7 percent to 71.1 percent in July, and the average daily rate increased 4.1 percent to $112.18.
Since it was taken private, Hilton has been growing at a breakneck pace, with a 4.5 percent growth in existing rooms and 17.9 percent growth in rooms under construction; both are industry-leading figures, according to its S-1 filing. Its operating income, peaking in the fiscal year ended June 30, reached $1.2 billion at a compounded annual growth rate (CAGR) of 22.9 percent over the last four years.
Big Realization for Blackstone
When Blackstone took over Hilton, it was at the height of the commercial real estate boom and many analysts post-recession had wondered about the returns it would receive after the collapse of the market.
They’re wondering no more. Current stock market and real estate valuations are sky-high and many private equity firms are realizing their investments. While Hilton’s float is rather small for the time being, buy-out firms are no doubt ramping up sales of existing portfolio companies.
In addition to the IPO, Blackstone is looking to refinance all of Hilton’s $13.5 billion of existing debt. According to the Wall Street Journal, the refinancing will include issuance of $3.5 billion in commercial mortgage-backed securities collateralized by existing hotel properties and feature fixed and floating rate returns. The remainder amount will be financed by a combination of high-yield debt and bank loans.
Blackstone is one of the world’s biggest owners of real estate properties and recently also filed an IPO for another hotel chain property, Extended Stay America Inc. According to Bloomberg data, two other large Blackstone portfolio companies had gone public over the last twelve months, including SeaWorld Entertainment and Pinnacle Foods.
Deutsche Bank and Goldman Sachs are leading managers of the IPO. Shares of Blackstone are up more than 60 percent year-to-date.
Frank Yu is a contributor to the Epoch Times.
