Hilton Worldwide IPO raises record $2.35 billion

Hilton Worldwide Holdings Inc. raised US $2.35 billion in a record initial public offering for a lodging company, reports Bloomberg.

The company and existing shareholders sold about 117.6 million shares for $20 each, according to a statement yesterday. The McLean, Virginia-based company had offered 112.8 million shares for $18 to $21 apiece.

Blackstone Group, owner of Hilton Worldwide since acquiring it for $26 billion six years ago, has taken advantage of U.S. stocks near highs and a rebound in the hotel market to take the company public. Since the New York-based private-equity firm purchased Hilton, the company has expanded its room count by a third, most of it outside the U.S. and in franchised and managed hotels, which require almost no capital investment.

“Hilton has been focused on re-establishing its industry leader status,” Lukas Hartwich, lodging analyst at Green Street Advisors Inc., a Newport Beach, California-based research firm, said in a December 9 report. “Future growth has shifted to primarily non-U.S. markets.”

At the IPO price, Hilton will have a stock-market value of about $19.7 billion, based on the original terms in the prospectus, eclipsing Starwood Hotels & Resorts Worldwide Inc. (HOT), Marriott International Inc. and Hyatt Hotels Corp. The offering was more than nine times oversubscribed, according to a person with knowledge of the matter who asked not to be named.

Blackstone’s paper profit on the deal, once seen as a money-loser, ranks as the second-biggest ever among private-equity buyouts on a nominal basis.

Based on the roughly $6.5 billion that Blackstone and its investors put into Hilton, the valuation would give the firm an unrealized gain of $8.5 billion. If Hilton shares rise past $22.11, the firm’s paper profit would surpass the record $10.1 billion that Apollo Global Management LLC has reaped from its investment in chemicals producer LyondellBasell Industries NV.

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Hilton could raise an additional $353 million if underwriters sell extra shares to meet demand, increasing the total amount of the IPO to $2.7 billion. That would make it the second-largest U.S. IPO this year, after Plains GP Holdings LP, an affiliate of an oil and gas pipeline company that raised $2.91 billion in October. Hilton surpassed Hyatt’s $1.09 billion sale in November 2009 as the biggest lodging IPO, based on data compiled by Bloomberg.

After the IPO, Blackstone will hold about 750.6 million Hilton shares, according to the prospectus, a stake of 76.2 percent that is valued at about $15 billion.

While Hilton owns 10 hotel brands from luxury to budget chains, it lacks a “boutique” brand to compete with Starwood’s W Hotels, Hartwich wrote. Hilton also owns stakes in or leases 156 hotels, including the Waldorf Astoria in New York and the Hilton Hawaiian Village in Honolulu.

The company is likely to eventually sell some of its iconic properties, Hartwich said.

“These ‘super tanker’ hotels make up a large portion of value,” he said. “While Hilton is content owning hotels today, the company is likely to eventually monetize its owned portfolio.”

A company whose investments are managed by GIC Pte, Singapore’s sovereign-wealth fund, will own 49.5 million shares, or 5 percent. Christopher Nassetta, Hilton’s president and chief executive officer, will hold about 7.6 million shares.

Selling shareholders included a unit of Goldman Sachs Group Inc. The bank, which is also one of the underwriters and a lender to Hilton, will receive more than 5 percent of the offering proceeds, regulatory filings show.

Deutsche Bank AG, Bank of America Corp. and Morgan Stanley also managed the offering. The shares will be listed on the New York Stock Exchange under the symbol HLT.

Hilton -- whose 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.

This year has been the busiest for real estate IPOs since 2004, according to data compiled by Bloomberg, and that trend may continue as hotel stocks including Marriott, Starwood and Hyatt have climbed more than 20 percent this year.

Prince Alwaleed bin Talal, the Saudi billionaire with stakes in companies including Citigroup Inc., is weighing options including an initial public offering for Four Seasons Holdings Inc. and Fairmont Hotels & Resorts Inc., he said in an interview with Bloomberg TV last month.

“The hotel industry is facing major upside right now,” Alwaleed said at a conference hosted by Bloomberg LP in November. “This may go on another three or four years.”