The Deal: Blackstone's Hilton Chain Checks Out $1.25B IPO

NEW YORK (TheStreet) -- Blackstone Group (BX) is taking hotel operator Hilton Worldwide Holdings public in an IPO that is expected to raise up to $1.25 billion, according to a Thursday, Sept. 12, regulatory filing.

McLean, Va.-based Hilton owns and franchises a portfolio of 4,041 hotels in 90 countries and territories. The company's brands include Waldorf Astoria, Conrad, DoubleTree, Embassy Suites, Hilton Garden Inn, Hampton Inn and Homewood Suites.

An eventual exit from the hotel chain will be something of a turnaround story, since Blackstone took Hilton private in October 2007 in a leveraged buyout worth $26 billion, right before the end of the LBO boom and as the recession was beginning to get under way.

Indeed, in 2008, the chain posted an operating loss of $4.5 billion. But with Blackstone at the helm, Hilton increased the number of its rooms by 34% or 170,000 rooms by June 2013 over the number it had in June 2007; grew the number of rooms in the development pipeline by 52% to 176,000 and increased the total number of rooms under construction by 121% to 92,000, according to the offering prospectus. The company posted 2012 adjusted Ebitda of $2 billion on revenue of $9.3 billion, up from adjusted Ebitda of $1.8 billion on revenue of $8.9 billion in 2011. The number of shares to be offered has not yet been fixed, nor did Blackstone indicate if it would sell shares. The filing does not disclose how many shares will be sold in the offering. It does not indicate how many shares Blackstone would sell in the offering either. Hilton said that proceeds would go toward paying down debt. As of the end of 2012, the company had long-term debt of $15.2 billion, down slightly from $16bn in 2011. However, given positive trends in the hospitality industry and the company's own efforts to streamline its operations, Hilton's initial public offering is expected to be welcomed with open arms. "Industry trends have been solid over the past several years, so the timing of the IPO is not surprising," said an industry source who did not want to be named.

In fact, according to industry intelligence firm PKF Hospitality Research, or revenue per available room in the U.S., where 78% of Hilton's rooms are located, will grow 7.2% in 2014 and 8.1% in 2015.

"Hotel stocks are trading at more or less 12 times enterprise value to projected 2014 Ebitda. Hilton should be there or even higher given its positive evolution," the person said.

Hilton is not the only hotel company Blackstone is expected to take public. In July, Charlotte, N.C.-based Extended Stay America Inc. filed for a $100 million IPO. Private equity firms Blackstone and Centerbridge Partners LP and hedge fund firm Paulson & Co. acquired Extended Stay out of bankruptcy in 2010 for $3.9 million. Deutsche Bank AG, Goldman, Sachs & Co. and JPMorgan are the joint bookrunners on that deal.

IPO intelligence firm Renaissance Capital said the $100 million figure is likely a placeholder and that Extended Stay could raise between $500 million and $1 billion in the offering. So far this year, the performance of publicly traded hotel chains has been on an upward trend. Marriott International (MAR) share price has increased 10.8%, Hyatt Hotels' (H) is up 16.6% and Starwood Hotels & Resorts Worldwide's (HOT) is up 15.9%. Deutsche Bank, Goldman Sachs & Co., Bank of America Merrill Lynch and Morgan Stanley are the joint bookrunners on Hilton's IPO. An exchange and ticker symbol for the public company have not yet been chosen. -- Written by Taina Rosa in New York

The Ghost of TARP

NEW YORK (TheStreet) -- Do you remember the Troubled Asset Relief Program established in 2008? Most think that the program has ended. It has not! There is a Special Inspector General to provide an oversight function called SIGTARP. It is investigating how some TARP funds were wasted, stolen or otherwise abused. On July 24, Christy L. Romero, the Special Inspector General, presented to Congress the SIGTARP quarterly report. Included in the 400-page report is information on the alphabet soup of all programs related to the Great Credit Crunch.

My focus is on the Capital Purchase Program, the facility through which the Treasury directly purchased preferred stock or subordinated debentures in FDIC-insured financial institutions. [Read: Elon Musk and the Case of Curious Tweets]

CPP intended to provide funds to stabilize the banking system by raising the capital base of banks deemed to be healthy. These funds were supposed to be used to increase lending to consumers and businesses. In my opinion, this program failed to accomplish that goal. The Treasury invested $204.9 billion in 707 institutions through the CPP facility within TARP. This source of funding was closed on December 29, 2009. As of June 30, 195 of the 707 CPP participants remained in TARP. Stripping out the 53 institutions from which Treasury holds only warrants to purchase stock, 142 of the financial institutions still have outstanding CPP principal balances in TARP funding. According to the Treasury, $193.8 billion of the $204.9 billion in CPP principal has been repaid as of June 30. The Treasury continues to manage its portfolio of CPP investments, and 96 banks are not current on their interest payments on these commitments. To make these payments, the state regulator of a TARP recipient must approve the payments owed to the government. In many cases, regulators don't approve this reduction of capital as that would put the institution at risk of failure.

[Read: Unfortunately Dell Is Staying the Course] Data from SNL Financial show the top 30 publicly traded FDIC-insured financial institutions that have TARP exposure outstanding as of June 11. Today I profile eight community banks that are tradable among these 30. Synovus Financial (SNV) is the largest bank on this list, but it competed its redemption of TARP funds on July 26.

Reading the Table

OV / UN Valued - The stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating - A "1-Engine" rating is a Strong Sell, a "2-Engine" rating is a Sell, a "3-Engine" rating is a Hold, a "4-Engine" rating is a Buy and a "5-Engine" rating is a Strong Buy. Last 12-Month Return (%) - Stocks with a Red number declined by that percentage over the last twelve months. Stocks with a Black number increased by that percentage. Forecast 1-Year Return - Stocks with a Red number are projected to decline by that percentage over the next twelve months. Stocks with a Black number in the Table are projected to move higher by that percentage over the next twelve months. Value Level: is the price at which to enter a GTC Limit Order to buy on weakness. The letters mean; W-Weekly, M-Monthly, Q-Quarterly, S-Semiannual and A- Annual. Pivot: A level between a value level and risky level that should be a magnet during the time frame noted. Risky Level: is the price at which to enter a GTC Limit Order to sell on strength. [Read: Should You Drop Your Traditional Bank for a Virtual One?] Popular (BPOP) ($29.09) is a community bank in Puerto Rico which has $935 million in TARP money. The stock set a multiyear high at $34.34 on Aug. 20 and is now declining toward its 200-day SMA at $28.22. My semiannual value level is $22.33 with a weekly pivot at $30.83 and monthly risky level at $38.37. Cathay General Bancorp (CATY) ($23.02) is a community bank in California which has $129 million in TARP money. The stock set a multiyear high at $24.85 on Aug. 5 and tested its 50-day SMA at $23.28 on Sep. 18. My annual value level is $20.69 with a semiannual pivot at $22.19 and weekly risky level at $23.23. [Read: A Well-Rooted Retail Investment] Eastern Virginia Bankshares (EVBS) ($6.03) is a community bank in Virginia with $24 million in TARP money. The stock set a multiyear high at $7.50 on March 25 and is now on the cusp of its 50-day SMA at $6.03. My quarterly value level is $4.99 with a weekly pivot at $6.20 and monthly risky level at $6.33.

First BanCorp (FBP) ($6.47) is another community bank in Puerto Rico. It has $222.7 million in TARP money. The stock set a multiyear high at $8.70 on July 23 and recently approached its 200-day SMA to the downside with a low at $6.09 on Sep.12 vs. the 200-day SMA at $6.10. My quarterly value level is $5.48 with a monthly risky level at $7.92.

First United Corp (FUNC) ($8.68) is a community bank in Maryland which has $30 million in TARP money. The stock set a multiyear high at $9.35 on Aug. 21, and since then, the stock has been above its 50-day SMA at $8.23. My quarterly value level is $7.05 with a monthly pivot at $8.97 and weekly risky level at $9.32.

[Read: Global Macro: The Fed Doesn't Taper for Good Reason] Heritage Oaks Bancorp (HEOP) ($6.41) is a community bank in California which has $21 million in TARP money. The stock set a multiyear high at $7 on July 24 and is now below its 50-day SMA at $6.51. My monthly value level is $6.17 with a quarterly pivot at $6.67 and annual risky level at $8.56.

Intervest Bankshares (IBCA) ($7.30) is a community bank in New York City which has $25 million in TARP money. The stock set a multiyear high at $7.75 on July 22 and is now on the cusp of its 50-day SMA at $7.21. My quarterly value level is $5.81 with a weekly pivot at $6.73 and monthly risky level at $8.62. [Read: Health Exchange Alert: Watch Out for Medical ID Theft] Independent Bank (IBCP) ($9.76) is a community bank in Michigan which has $74.4 million in TARP money. The stock set a multiyear high at $10.22 on Sep. 4. My quarterly value level is $5.79 with a weekly pivot at $10.36 and monthly risky level at $11.22. At the time of publication the author held no positions in any of the stocks mentioned. Follow @Suttmeier This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.