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Hilton Prices IPO at $20 in Record U.S. Hotel Offering

Tickers in this article: BX MAR

NEW YORK (TheStreet) - Blackstone BX-owned  Hilton Worldwide has priced its initial public offering at $20 a share, in what is poised to be the biggest-ever U.S. hotel IPO.

Earlier in December, Hilton set its initial IPO price range at between $18 and $21 a share. While Hilton will offer its stock just below the high end of that range the McLean, Va.-based company is increasing the offering size.

Hilton will seek to sell 117.6 million shares at a price of $20 a share, raising $2.35 billion from the offering. The company will be offering 64.1 million shares, while a selling stockholder will offer 53.5 million shares, Hilton said in a filing with the Securities and Exchange Commission .

The company will list on the New York Stock Exchange   under the ticker symbol "HLT."

Ryan Meliker, an equity analyst at boutique investment bank MLV & Co.  said in a Monday telephone interview he expected strong demand for Hilton's IPO given the firm's exposure to recovering consumer spending and international growth. He also noted that depending on the IPO pricing, Hilton's IPO could be a boon for stock valuations across the lodging sector.

The company plans to use IPO proceeds to pay down some of its $7.5 billion in outstanding term loan borrowings. Blackstone Group will remain Hilton's majority owners after the share offering with an over 75% economic interest in the company, according to S-1 documents.

The share offering will also be a major story to follow in the rebounding hotel industry and could also give investors a glimpse into a significant, but unheralded turnaround orchestrated by Hilton and its owners after the company's buyout, which many in the media have used as an example of the peak of a pre-crisis private equity bubble.

Hilton's reliance on franchised hotels for roughly 99% of growth in new and in-construction rooms could prove to be appealing for prospective investors in the highly leveraged hotel chain.

Since taking Hilton private for over $26 billion in 2007, Blackstone has focused on achieving growth at the hotel chain without putting up much of its own cash to buy and develop real estate in the U.S. and internationally. As a result, 99% of new rooms opened or in construction since 2007 come from franchisees, allowing Hilton to realize industry-leading growth at little cost to the company.

In its franchise business, Hilton receives royalty revenue from developers who seek to profit from the company's brand. Franchisees, not Hilton, purchase and develop the real estate.

Hilton's franchise business now contributes over 50% of the company's overall earnings before interest, taxes, depreciation and amortization according to its S-1, and adjusted franchise EBITDA has grown by 25% from 2007 through 2012. Franchised hotels are Hilton's fastest source of earnings and hotel growth.