Tips & Tricks

Hilton Jumps 9% In Debut, Expect More Gains In Hot Hotel Stocks

It may not have had the buzz of a Twitter or Facebook but Blackstone’s IPO ofHilton Worldwide is one for the books.

Hilton La Jolla
Hilton is among one of the largest hotel operators with 672,000 rooms  and 4,080 properties.

The hotel giant debuted on the New York Stock Exchange today and shares were trading up 9% just before the market close.

The IPO is the second largest of 2013 and the largest hotel offering in history. The IPO raised some $2.35 billion selling 117.6 million shares at $20 a pop.

Originally, Blackstone planned to sell 113 million shares but demand for shares was stronger than expected.

That demand didn’t wane in the first day of trading as Hilton shares, which are trading under the ticker HLT, closed at $21.63 for a 8.15% gain.

The IPO is a huge win for Blackstone which bought Hilton in 2007 for $26 billion–a value that included $6.5 billion of debt.

Not long after its hugely leveraged purchase (it borrowed over $20 billion) the crisis hit, valuations crumbled and Hilton looked to be a massive mistake.

Thanks to some aggressive lending terms (in Blackstone’s favor, of course) the firm was able to hold out and wait until the economy stablized and investor appetite for lodging stocks returned.

Blackstone seems to have timed the Hilton debut perfectly. Hotel stocks are hot and further gains are likely.

The Baird/STR Hotel Stock Index is up 24.6% so far this year.

“Hotel stocks outperformed other real estate sectors for the fifth consecutive month as investors remain focused on growth,” according to David Loeb, senior hotel research analyst and managing director at Baird.

“Investors and management teams see at least two to three more years of strong growth in this up cycle, which is helping support stocks’ valuations and keeping them in favor with both real estate and non-real estate investors,” he adds.

Wyndham Worldwide WYN -0.69% is up 33% this year while Marriott International MAR NaN% is up 24%. Rival Starwood is up 28% in 2013 and shares of Choice Hotels, which operates brands including Comfort Inn and Clarion, are seeing gains of 39% this year.

Hilton is among one of the largest by number of rooms with 672,000 among 4,080 properties with a handful of brands including Embassy Suites, Hilton Garden in and Waldorf Astoria in New York.

Not far behind is Marriott International with 670,507 rooms and 3,883properties with dozens of brands including Ritz-Carlton, Renaissance Hotelsand Courtyard.