Hilton Worldwide’s IPO Went Better Than Expected

At the market open on Thursday, Dec. 12, Hilton Worldwide Holdings (NYSE: HLT) went public, after setting its IPO price at $20 late Wednesday evening. As investors began trading, the share price climbed to $21.30, 6.5% higher than the original IPO price. By early afternoon, 117.6 million shares had been sold, which was 5 million more than the company initially planned on, which provided proceeds of $2.35 billion.

This was the third-largest IPO of the year and the largest IPO ever by a hotelier. In fact, Hilton Worldwide's IPO actually beat Twitter's IPO of $2.1 billion this year, and it may take second place to Plains GP Holdings LP if the banks involved buy the remaining available shares.

It's been awhile
Hilton Worldwide's IPO on Dec. 12, 2013 marks the second time the company has gone public in its history. For the past six years, investors have been unable to publicly trade Hilton Worldwide's shares on the New York Stock Exchange after it was bought out by Blackstone Group L.P. in October 2007 for $25 billion.

Blackstone was convinced that it could benefit Hilton Worldwide during the recession as the number of business travelers decreased, corporate and special events took back seats for budgetary purposes, and vacations were canceled to save money. Over the years, Blackstone has increased Hilton Worldwide's total room count by 40% by using management agencies and franchises to manage operations at Hilton's many properties.


The IPO proceeds are being used to pay off corporate debt; Blackstone will actually hold onto all of its shares, and it owns 76.2% of the Hilton shares. Blackstone's objective in taking Hilton Worldwide public was to offer a low amount of shares in order to boost the share price without weakening their current stake in the company, while also cashing in on their return on investment to pay off $1.25 billion of debt. Raising capital for expansion is not the goal at this point in time.

Rush of hotel IPOs
Investors have an array of options within the hospitality industry thanks to all the recent IPOs by hoteliers. For instance, the Chicago-based company Hyatt Hotels  (NYSE: H  ) , founded in 1957 went public on the New York Stock Exchange in November 2009 and generated $950 million, which at that time was the largest hotelier IPO ever. Today, Hyatt Hotels operates 535 properties in over 46 countries.

Another Blackstone-backed hotel company, Extended Stay America  (NYSE: STAY  ) went public more recently on Nov. 13, 2013 to trade at $22.75 a share, and it generated $565 million from its IPO. In addition, La Quinta Inn hopes to go public as soon as it irons out all of the details and the pricing strategy for its IPO. It's a race to go public as La Quinta attempts to surpass Hilton's IPO record.

Selecting the best hotelier for your portfolio
As you can see from the table below, these multi-billion dollar IPOs have raised a lot of money for their issuers. Investors now have many options in the public markets for investing in the hospitality industry. Unfortunately for Foolish investors looking for a good buy in the hotel industry, it seems that all of the newly public options are fairly expensive.  

Company Name

IPO/Trading Price

Current Market Capitalization

FY 2012 Earnings

Hilton Worldwide

$20/$21.30

$21.8 Billion

$352 Million

Hyatt Hotels Corporation

$25/$27.98

$7.3 Billion

$88 Million

Extended Stay America

$20/$22.75

$4.9 Billion

$20.7 Million

Extended Stay America currently has a market capitalization of $4.9 billion and earned just $20.7 million last year. Competitor Hyatt Hotels possesses a market capitalization of $7.3 billion, and it earned $88 million in FY 2012. Newcomer Hilton Worldwide is the biggest of the three in terms of valuation with a current market capitalization of $21.8 billion and it earned $352 million last year. The stock market seems to think these companies will be able to earn large profits in the future, but only time will tell if this will happen.

Foolish takeaway
Investors now have even more options if they wish to add a hospitality company to their portfolios. The newest of these hotel companies, Hilton Worldwide, recently went public at a very high valuation that appears comparable to its competitors. Foolish investors would be wise to hold back before making an investment in one of these hotel companies until one of them starts showing larger profits.

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