Hilton Worldwide Holdings plans to raise $1.25 billion through an initial public offering, according to a filing with the US Securities and Exchange Commission today. Net proceeds from the offering, to be underwritten by Deutsche Bank, Goldman Sachs, Bank of America Merrill Lynch and Morgan Stanley, would be used to repay debt.
In one of the largest leveraged buyouts prior to the global financial crisis, Blackstone took Hilton Hotels private in October 2007 in a transaction valued at approximately $26 billion. The majority of the equity that the New York-based private equity and real estate firm invested in the Hilton takeover came from its 2007 global real estate opportunity fund, Blackstone Real Estate Partners (BREP) VI, with additional equity from its real estate funds BREP V and BREP International II, as well as its corporate private equity fund Blackstone Capital Partners (BCP) V.
“Under our new leadership, we have transformed our business, creating a globally aligned organization and establishing a performance-driven culture,” Hilton stated in its filing. “As part of transformation, we focused on both top- and bottom-line operating performance, strengthening and expanding our brands and commercial services platform and enhancing our growth rate, particularly in markets outside the US where our brands historically had been underrepresented.”
From June 30, 2007 to June 30, 2013, Hilton increased the number of rooms in its development pipeline outside the US from less than 20 percent to more than 60 percent and rooms under construction outside the US from less than 15 percent to nearly 80 percent. The hotel operator’s total number of open rooms globally grew by 34 percent; the number of rooms in its development pipeline by 52 percent; and the number of rooms under construction by 121 percent, the company noted in the filing.
Blackstone will retain its majority ownership in the company following the IPO and will continue to hold shares representing more than 50 percent of the voting power in the company. Of the 14 directors and executive officers that will oversee Hilton post-IPO, five will be from Blackstone, including Jonathan Gray, the firm’s global head of real estate; Michael Chae, head of international private equity; Tyler Henritze, senior managing director in real estate; John Schreiber, senior advisor and co-founder of Blackstone Real Estate Advisors; and William Stein, global head of asset management.
Hilton is expected to issue secondary offerings of shares over the next several years, during which time Blackstone will begin to gradually sell down its shares in the company, according to a source familiar with the matter. Capital would be returned to limited partners in the BREP funds and BCP V at that time.
In advance of the IPO, which is anticipated in 2014, Blackstone plans to refinance all of Hilton’s approximately $13.5 billion in debt, including selling about $3.5 billion in commercial mortgage-backed securities by year-end, according to an article in The Wall Street Journal. Such a transaction would the largest CMBS issue since the global financial crisis, the article said. The firm unsuccessfully had attempted to sell $8.4 billion of Hilton’s debt through the CMBS market in 2008.
The Hilton IPO filing follows Blackstone’s July filing to take Extended Stay America public. Both offerings are occurring amid strong growth projections in the US hospitality industry. Indeed, average revenue per available room in the US lodging is projected to increase 7.2 percent in 2014 and 8.1 percent in 2015, according to PKF Hospitality Research.
Hilton is one of the world’s largest hospitality companies, with 4,041 hotels, resorts and timeshare properties totaling 665,667 rooms in 90 countries. The hotel chain, which was started in 1919 by Conrad Hilton, includes the brands Waldorf-Astoria Hotels & Resorts; Conrad Hotels & Resorts; Hilton Hotels & Resorts; Doubletree by Hilton; Embassy Suites; Hilton Garden Inn; Hampton Inn; Homewood Suites by Hilton; Home2 Suites by Hilton; and Hilton Grand Vacations.