Six years after taking Hilton private in a $26 billion deal, Blackstone is ready for its IPO payoff.
The New York firm is said to have sold some 117 million shares at $20 a pop raising about $2.34 billion. Tomorrow's IPO is expected to be the biggest for a hotel.
The public will get a chance to purchase shares tomorrow when they're listed on the New York Stock Exchange under the ticker HLT.
It seems Blackstone, which bought Hilton in 2007 for $26 billion including some $7 billion in debt, had little trouble gaining interest from investors. The offering was reportedly 10x oversubscribed.
Still, Blackstone is playing the pricing game somewhat conservatively with its $20 shares. The expected price range was $18 to $21 per share.
Why didn't Blackstone up the price and raise more money out of the box?
Well, for one thing, Blackstone is going to hold shares of Hilton for years.
That makes sense as the hotel industry is poised for more growth.
The industry's most important metric, RevPAR (revenue per available room), has been on the rise for the last three to four years, and there's more growth to come.
Right now, hotel supply levels are at historic lows. The long term average for annual hotel room supply is around 2%, but in 2011 the supply increased just .5%, and in 2012 supply fell again to .2%.
If the economy picks up steam, construction of new hotels will pick up with it.
Hilton will be among those contributing to the industry's growth. Since Blackstone purchased it Hilton has increased the number of open rooms by 34%, or 170,000 rooms, the highest rate of any major hotel company. There are more rooms on the way as the development pipeline has jumped by 52% to an industry-leading 176,000 rooms, Blackstone says in its filing.
Hilton's revenue for the first six months of the year rose 2.7% to $4.64 billion from a year earlier, while profit jumped 66% to $189 million.
But Hilton's success under Blackstone was a long shot early on. The deal nearly cost head of its real estate unit, Jonathan Gray, his job.
Gray, who has led nearly all of the firm's hotel deals over the last 15 years, was behind the $26 billion Hilton purchase. The deal was made just before downturn hit hard, and real estate prices dropped as well as consumer travel.
The saving grace for Gray's giant investment? The debt had no covenants. Had it not been for the favorable finance structuring Hilton would likely have been seize by lenders, and Gray would have been out of a job.
Instead, he's one of the firm biggest stars, and tomorrow's Hilton IPO will only confirm his reign as king of real estate at Blackstone.
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