Hilton Worldwide Holdings Inc. (HLT:US), the world’s biggest hotel operator, climbed after raising $2.35 billion in a record initial public offering for the industry.
Hilton rose 7.5 percent at $21.50 in New York. The company and existing shareholders sold about 117.6 million shares for $20 each, according to a statement yesterday, after offering 112.8 million shares for $18 to $21 apiece.
Blackstone Group LP (BX:US) is taking advantage of U.S. stocks near highs and a rebound in the hotel market to take Hilton public six years after acquiring it for $26 billion at the end of the buyout boom. 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.
“The feedback we’re getting from investors is that management did a great job on the road promoting this,” said Ian Weissman, an analyst at International Strategy & Investment Group LLC in New York. “It’s a good time to be a hotel operator and it’s a good time in the lodging cycle.”
Hilton, based in McLean, Virgina, has a market value of about $21 billion, eclipsing Starwood Hotels & Resorts Worldwide Inc. (HOT:US), Marriott (MAR:US) International Inc. and Hyatt Hotels Corp. The IPO was more than nine times oversubscribed, according to a person with knowledge of the matter who asked not to be named.
Blackstone didn’t sell any shares in the IPO. The company expected to hold about 750.6 million Hilton shares after the offering, according to the prospectus, a stake of 76.2 percent that is now valued at about $16 billion.
Hilton operates more than 3,800 hotels around the world and owns 157 of them, including the Waldorf Astoria in New York. While competitors such as Starwood and Marriott have been selling most of their real estate to focus on management, Hilton intends to keep many of its owned properties, according to Chief Executive Officer Christopher Nassetta.
“While we’re not growing that business, we think there’s a huge opportunity to grow the cash flow of these assets,” Nassetta said in a Bloomberg Television interview today with Erik Schatzker. “There’s also potential to utilize them for time share, residential opportunities and retail.”
Hilton expects pricing power to increase in the coming years, and is focused on expanding its portfolio in the upper upscale, upscale and midscale segments, which include the Hilton brand as well as the DoubleTree, Homewood Suites and Hampton Inn names, according to Nassetta. The company is less focused on growing in the luxury market, he said.
“The demand base for luxury is much smaller than for upper upscale and upscale,” Nassetta said. Luxury “is an important segment for us, but the nature of the business is where you see room growth is not dominated by luxury.”
Hilton’s IPO could raise an additional $353 million if underwriters sell extra shares to meet demand, increasing the total amount of the offering 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 (H:US)’s $1.09 billion sale in November 2009 as the biggest lodging IPO, based on data compiled by Bloomberg.
Hilton 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, based in Bethesda, Maryland, was little changed at $46.02. Starwood, based in Stamford, Connecticut, advanced 1.4 percent to $73.26, while Chicago-based Hyatt added 0.6 percent to $46.90.
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