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Blackstone Reserves a Hilton IPO

The turned-around hotelier hopes to share in the industry's success


This morning, we finally got the hotel filing we’ve been waiting for: the Hilton IPO.

Expect it to be a smooth one.

Hilton Worldwide Holdings is the mastermind of Conrad Hilton, who purchased his first hotel in Cisco, Texas, in 1919. Since then, the company has gone on to be a great innovator in the industry, introducing the first in-room television, the first airport hotel and a centralized reservation system.

Now, Hilton is one of the largest hotel chains in the world, with more than 4,000 locations. Some of its brands include Waldorf Astoria Hotels & Resorts, Conrad Hotels & Resorts, DoubleTree by Hilton, Embassy Suites Hotels, Hilton Garden Inn, Hampton Inn, Homewood Suites by Hilton and Home2 Suites by Hilton.

Despite its enviable standing, Hilton’s history hasn’t been completely rosy. Back in 2007, Blackstone (BX) pulled off a $26 billion transaction to take Hilton private — and it was the last mega-deal before the financial crisis hit. Hilton’s business quickly deteriorated, and Blackstone had to act fast to restructure the heavy debt load and aggressively cut back on costs. The firm also hired a new CEO — Christopher Nassetta, who previously sat at the helm of Host Hotels & Resorts (HST) — to turn the hotelier around.

Mission accomplished.

From 2010 to 2012, Hilton’s revenues climbed by 15% to $9.3 billion, and EBITDA increased 25% to $2 billion in the same time frame. Also, the company has boosted cash flows thanks to a strategy to license the Hilton brands to third-party operators, which has become a high-margin business.

While the rebound in the U.S. economy has been sluggish, the hotel industry has remained strong thanks to factors such as meager hotel construction. According to a study from STR, the lodging demand (as measured by the number of booked rooms) has grown an average of 4.9% for the past three years, which compares to the 25-year average of 1.8%. There also are other positive long-term trends, such as the retirement of the baby boomers, who are likely to accelerate their travel habits.

But perhaps the best driver for the Hilton IPO will be the overall success of the industry’s stocks as of late. Operators such as Marriott (MAR), Hyatt Hotels (H) and Starwood Hotels & Resorts (HOT) have clocked steady returns of 15% to 18%, and as long as they hold up, Hilton should look good heading into their deal.

Hilton did not indicate an exchange it will list on, nor the ticker. Lead underwriters include Deutsche Bank (DB), Goldman Sachs (GS), BofA Merrill Lynch (BAC) and Morgan Stanley (MS).

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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