Blackstone hopes Hilton would be worth US$30b: source

Blackstone Group is hoping the stock market will value Hilton Worldwide at around US$30 billion, including debt, a source familiar with the situation said, as the private equity firm filed papers on Thursday to take the US hotel operator public.

In the initial public offering, which sources have said is expected early next year, Blackstone plans to sell a minority stake in Hilton to raise up to $1.25 billion, according to a US Securities and Exchange Commission filing.

Blackstone, which took Hilton private in 2007 at the height of the buyout boom for US$26.7 billion, is hoping that a recovering economy, growing demand for business travel and rising room rates will allow it to command a rich valuation for Hilton.

Revenue per available room, a measure of room rates and occupancy levels, has increased about 6.9 per cent over the past three years in the Americas and demand has returned to pre-economic crisis levels, according to Smith Travel Research Inc, which tracks hotel industry data.

As a result, hotel stocks have been on a tear. The Dow Jones US Hotels index has risen 18 per cent this year. Marriott International Inc is up 15 per cent, while Starwood Hotels and Resorts is up about 20 per cent.

Marriott and Starwood trade around 12 to 13 times their earnings before interest, tax, depreciation and amortization. Analysts said they expect Hilton’s shares to trade around the same multiples as these rivals.

“They compete very favourably with Starwood and Marriott and Hyatt, which are already there. They probably do quite well in that spectrum,” said Keith Brenan, chief operating officer of Weitzman Group Inc, a real estate consultant. “Marriott is probably doing a little bit better than they are. They have a stronger rewards program.”

Founded in 1919 by Conrad Hilton, the hotel operator’s brands include such high-end names as Conrad and Waldorf Astoria. Hilton has 4,041 hotels, or 665,667 rooms under its umbrella, located in 90 countries. The company itself owns or leases 157 hotels, including the Waldorf Astoria in New York and the Hilton Hawaiian Village.

Hilton’s last year EBITDA was about US$2 billion. But the source said Blackstone’s internal projections for profit suggest that a US$30 billion enterprise value would be in line with where its rivals were trading.

Hilton has about US$15.4 billion in debt. Last month, sources told RLPC that the company was preparing a US$12 billion debt financing package to refinance existing debt ahead of the IPO.

Blackstone declined to comment.

Blackstone’s plans for an IPO of Hilton come as private equity firms have been trying to sell or list assets to take advantage of a surging IPO market, as a market rally and low interest rates have enticed investors into stocks.

The global volume of IPOs rose 14 per cent to $79.2 billion this year up to August, compared with the same period last year, according to Thomson Reuters data.