Blackstone Group is hoping the stock market will value Hilton Worldwide at around USD$30 billion, including debt, a source familiar with the situation said, as the private equity firm filed papers to take the US hotel operator public.
In the initial public offering, which sources have said is expected early next year, Blackstone plans to sell a minority stake in Hilton to raise up to USD$1.25 billion, according to a US Securities and Exchange Commission filing.
Blackstone, which took Hilton private in 2007 at the height of the buyout boom for USD$26.7 billion, is hoping that a recovering economy, growing demand for business travel and rising room rates will allow it to command a rich valuation for Hilton.
Revenue per available room has increased about 6.9 percent over the past three years in the Americas and demand has returned to pre-economic crisis levels, according to Smith Travel Research, which tracks hotel industry data.
As a result, hotel stocks have been on the up. The Dow Jones US Hotels index has risen 18 percent this year. Marriott International is up 15 percent, while Starwood Hotels and Resorts is up about 20 percent.
Marriott and Starwood trade around 12 to 13 times their earnings before interest, tax, depreciation and amortization. Analysts said they expect Hilton's shares to trade around the same multiples as these rivals.
"They compete very favorably with Starwood and Marriott and Hyatt, which are already there. They probably do quite well in that spectrum," said Keith Brenan, chief operating officer of Weitzman Group, a real estate consultant. "Marriott is probably doing a little bit better than they are. They have a stronger rewards program."
Founded in 1919 by Conrad Hilton, the hotel operator's brands include Conrad and Waldorf Astoria. Hilton has 4,041 hotels, or 665,667 rooms under its umbrella, located in 90 countries. The company itself owns or leases 157 hotels, including the Waldorf Astoria in New York and the Hilton Hawaiian Village.
Hilton's 2012 EBITDA was about USD$2 billion. But the source said Blackstone's internal projections for profit suggest that a USD$30 billion enterprise value would be in line with where its rivals were trading.
Hilton has about USD$15.4 billion in debt. Last month, sources told RLPC that the company was preparing a USD$12 billion debt financing package to refinance existing debt ahead of the IPO.
Blackstone declined to comment.
Blackstone's plans for an IPO of Hilton come as private equity firms have been trying to sell or list assets to take advantage of a surging IPO market, as a market rally and low interest rates have enticed investors into stocks.
Blackstone has also sought to unload its real estate assets. In July, it filed to take hotel chain Extended Stay America public. It also has filed to take public its shopping centre unit Brixmor Property Group and is looking to sell or take public hotel chain La Quinta.
It was reported in August that Blackstone was preparing to bring Hilton to the public market.
Deutsche Bank, Goldman Sachs Group, Bank of America and Morgan Stanley are the lead underwriters on the Hilton offering.
Hilton plans to use the proceeds from the offering to repay debt and for other general corporate purposes.
The filing did not disclose the number of shares on offer or their expected price.