One of the world’s largest hotel chains expects investors will check in and stay awhile. Hilton Worldwide will price shares of the company after the market closes today, and will begin trading Thursday.
The initial public offering could raise more than $2 billion. It’s expected to be one of the largest pay-outs of the year. The company planned to introduce the stock on Friday, but was pushed forward because so many people are itching to invest.
Why investors so eager to buy shares of Hilton?
Hilton Worldwide oversees more than 4,000 hotels. But it owns less than half of the actual real estate. And that may not be such a bad thing.
“The business of managing franchising hotels is a fantastic business,” says Chad Mollman, an equity analyst for Morningstar. He says managing franchises doesn’t require much investment and expenses are low. “They typically get royalties of 4 to 5 percent of sales. It’s almost pure profit.”
And hotels like Hilton tend to lock-in long contracts with franchisees.
“You could have a management contract that lasts almost 50 years. In some cases, it’s almost a locked annuity for management companies,” says Nikhil Bhalla, a lodging analyst with F.B.R. & Company.
Growth outside of the U.S. has taken off.
“You’re seeing the Hilton brands grow in China, India, Latin America, Russia, at an alarming rate,” says Ryan Meliker, who tracks lodging companies for a boutique investment bank called M.L.V. & Company.
In this country, demand for hotel rooms is up. But the supply has remained almost flat, with little new hotel construction.
That’s good for companies like Hilton, but not so much for consumers. Over the next few years, analysts expect hotel room prices will continue to rise.