Hilton Worldwide’s shares jumped 7.5 per cent per cent on their stock market debut on Thursday, marking a turnround for the hotel chain that has generated an $8.5bn paper profit for its private equity owner Blackstone.
The world’s biggest lodging company by rooms raised $2.35bn in an initial public offering, the largest ever by a hotel operator. Hilton sold 117.6m shares at $20 each, the upper end of the $18-$21 price range. The shares rose to as high as $21.92 before ending their first day of trading at $21.50.
For Hilton and its owners the deal caps a rollercoaster journey since Blackstone bought the hotel chain for $26bn including debt in 2007, one of the largest leveraged buyouts of all time.
Since the takeover, which saddled the hotel chain with about $20bn in debt as it headed into the financial crisis, Hilton has pursued an aggressive high-margin, “asset light” strategy to franchise and manage hotels, increase room count and expand internationally.
“I’m glad the market reacted well and investors see the potential for growth. We’ve come a long way, but our work is not done yet,” chief executive Chris Nassetta told the Financial Times.
“There were some people who didn’t think this would work out but Jon Gray [head of real estate at Blackstone] and I never lost faith even when everything was upside down and the world was falling apart during the financial downturn.”
Hilton increased the size of the offering by about 4 per cent from its original estimate. This, as well as the pricing, indicate resurgent demand from investors for hospitality stocks, that have benefited from a rebound in room rates, occupancy levels and business travel since the depths of the recession.
The total amount raised could increase to $2.7bn if underwriters sell extra shares to meet demand, making it the second-largest US IPO this year. Proceeds of the flotation will be used to repay debt.
Blackstone, which is not selling any of its shares in the offering, will keep a 76 per cent stake in Hilton. After the IPO, Blackstone will hold about 750.6m Hilton shares valued at about $15bn, and plans to reduce its stake over the next three to five years.
According to a regulatory filing dated December 2, Mr Nassetta’s holding of around 7.6m shares, which will fully vest when Blackstone reduces its stake to 50 per cent, would be worth almost $152m at the issue price of $20 a share. The next top four executives’ holdings would be valued at about $78m in total. On the first portion of Mr Nassetta’s shares which vested on the day of the IPO, he was entitled to a paper gain of about $57m based on the closing price.
While it did not hamper the stock’s first-day performance, some industry watchers have been concerned about Hilton’s steep valuation compared with its peers. Others have cited the risk of the impact of another downturn and how the company would fare, particularly as it seeks to reduce its debt burden, which although falling remains substantial compared with rivals.
Private equity groups including Blackstone have sought to take advantage of an equity market rally to sell their holdings, cashing in on investments they have held on to for several years.
Virginia-based Hilton, which operates its eponymous brand as well as Waldorf Astoria, Doubletree, Hampton Inns and others, began trading on the New York Stock Exchange under the ticker symbol HLT. Deutsche Bank, Goldman Sachs, Bank of America Merrill Lynch and Morgan Stanley acted as lead underwriters on the offering.
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