Industry Awaits Hilton IPO

By Barbra Murray, Contributing Editor

Michael Sullivan, of Greenberg Traurig

It’s been just over two months since Hilton Worldwide filed for an initial public offering of its common stock, with the goal of raising $1.25 billion, and now the industry sits still and ponders the meaning of taking the hotel giant public.

The move comes six years after owner Blackstone Group plunked down $26 billion for the nearly one-century-old company, which boasts an owned and managed portfolio exceeding 665,000 guestrooms under 10 global brands in 90 countries.

“The IPO suggests that Blackstone feels it’s time to introduce yield-starved investors to the re-engineered Hilton, which, when compared to 2007, enjoys dramatically increased franchise and management agreement revenue growth as part of Blackstone’s ‘capital light’ emphasis on EBITDA growth,” Michael Sullivan co-chair of law firm Greenberg Traurig’s Hospitality Group, told Commercial Property Executive.

Of course, the behemoth offering has implications beyond Blackstone’s doors. “The IPO suggests that investors will realize that the hotel market is strong, and, in every performance category except group business, has eclipsed 2007 peaks with no slow down expected until 2017,” Sullivan added.

Indeed the U.S. hotel market is thriving. As noted in a recent report by commercial real estate services firm Jones Lang LaSalle, operating fundamentals and RevPAR growth are strong and growing stronger, and the national occupancy rate is expected to close the year near peak 2006 levels.

The hotel sector is faring well and so is Hilton. No one knows what the future will bring for the company, but Sullivan offers food for thought. “In addition to exploiting EBITDA growth through franchise and management agreement revenues, it will be interesting to see how Hilton’s 157 owned hotels will be handled in an environment where hotel values are expected to rise more than 10 percent for the next three years; a sale of non-core hotels with long term management agreements back or a REIT spin off?”

No date is set in stone for the commencement of the offering, but it is widely expected to take place next month. When all is said and done, however, Blackstone won’t exactly walk away from Hilton. “We’ll likely be a substantial shareholder for many years to come,” Stephen Schwarzman, Blackstone CEO, said during the company’s earnings conference call in October.