Hilton’s upcoming IPO should have positive effects for its owner Blackstone, new shareholders and the hotel investment environment.
McLEAN, Virginia—Hotel industry analysts applauded Hilton Worldwide Holdings’ announcement Wednesday that it filed a registration with the United States Securities and Exchange Commission to go public. The timing of the deal drew particular praise.
“Everyone knew it was coming, but this is an example of Blackstone being typically smart,” said Geoff Davis, president and senior principal of HREC, a Denver-based hotel brokerage and advisory company.
“It should be a win all the way around. It’s good for Hilton, it’s good for Blackstone, and it’s good for the eventual shareholders,” he said. “The hotel market is on an upswing but hasn’t reached full recovery, so there should be some good revenue growth for the company that will make the stock perform well down the road.”
According to the SEC filing, the initial value of the offering is $1.25 billion. But the total value of the new company will be much higher, said Ryan Meliker, a senior analyst with MLV & Company.
“(Hilton) has an enterprise value of $2 billion, but if it trades at the same multiple as Marriott (International), it is a $25-billion company,” he said. “The (initial public offering) is $1.25 billion and the debt is under $20 billion, so there is a lot more value here that Blackstone will continue to own and gradually sell over time.”
According to Meliker and others, if the offering is successful, Hilton will become a public company again sometime in the first part of 2014.
“It will take some time for Blackstone to get all its ducks in a row, and the timing will stretch into next year, when it is felt by many that a lot of the economic forces that will shape this IPO will look much better,” said Russell Kett, managing director of HVS London.
“There is a good, strong degree of feeling that the current economic strength will give all the parties involved the confidence to go ahead with what will be a very involved process,” he added.
A different Hilton?
Opinions differ on what shape Hilton will take once it evolves into a public company. The company owns or leases 157 hotels among the 4,041 hotel and timeshare properties under Hilton’s 10 brands. In the six months ended 30 June, the company generated $1.99 billion in revenues from its owned and leased hotels—approximately 43% of total revenues—according to its SEC filing.
Several analysts said the new company might decide to shed some of its brands or real estate assets.
“Eventually, they will probably go with the asset-light model,” said Wes Golladay, an analyst with RBC Capital Markets. “As a public company they may be more willing to sell, which could be a source of deal flow for (real estate investment trusts and other buyers).”
“From an IPO standpoint, they’re taking the whole company public as a full entity, with real estate, timeshare and the management and franchise businesses, but over time that could change,” Meliker said, adding the new company may choose to shed some of its brands or its real estate holdings. “Hyatt has chosen not to do that. Starwood has chosen not to do it, but there is potential at some point.”
Philip Camble, director of Whitebridge Hospitality Limited, shared a different sentiment.
“I don’t think Hilton will want to split off any of its brands,” he said. “It has spent so much time and effort in creating (them), especially in Europe. I believe they would be crazy to try to.”
And its Hilton’s healthy pipeline, particularly in Europe, the Middle East and Africa, that makes the IPO attractive to Camble.
“(Hilton) has employed aggressively to its development team in that region recently,” he said. “Ultimately, that is where the value will be—in the number of flags on the ground and in the pipeline.”
A wider effect
Analysts agreed the IPO should have a positive effect on the hotel investment environment.
“We’re starting to pass prior peak (performance) levels, but the consensus is we’re in the middle innings of the lodging recovery, so this is kind of the sweet spot to go public,” said Lukas Hartwich, analyst with Green Street Advisors. “There’s a lot of interest again in hotels. During the downturn, (investors) avoided hotels, but now many of them are getting back into the space, both in the public and private markets. It feels as though the momentum in increasing.”
The Hilton IPO could spark a flurry of subsequent offerings as well, Meliker said.
“There are going to be several lodging IPOs over the next 12 to 18 months, whether it be Hilton and (Extended Stay America), which have already filed, or La Quinta,” he said. “Who knows what Blackstone is going to do with its Motel 6 and Studio 6 business, Apple REIT and the various other private REITs that could go public. Apple REITs have consolidated their REITs to have a scale in which they could go public.”
Requests for comment from Blackstone’s other own hotel entities—including ESA, La Quinta and G6 Hospitality, which manages the Motel 6 and Studio 6 brands—were denied.
Daniel Lesser, president and CEO of LW Hospitality Advisors, said the Hilton IPO “puts some definition on the current hotel cycle.”
Blackstone’s $26.7-billion purchase of Hilton in 2007 occurred just before the start of the recession and the hotel industry downturn.
“This was the last deal of major consequence done at the last market peak,” said Lesser. “In many ways, it shows the volatility and fragility of the hotel space and the world. This was a peak deal; the world fell apart after that, and here we are now. What Blackstone has been able to engineer during its holding period is brilliant.”
—Hotel News Now’s Terence Baker and Patrick Mayock contributed to this article.