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TheStreet Open House

Blackstone Sells Hilton Shares After Lock-Up Expiry

Stocks in this article: HLTBX

NEW YORK (TheStreet) -- Blackstone Group (BX) is selling a significant piece of its majority stake in Hilton Worldwide (HLT) six months after the hotel chain was brought public in the biggest-ever IPO for a U.S. hotelier.

>>Read More: Hilton IPO: A Safer Way to Invest in China

The private equity firm, which beneficially owned 76.4% of Hilton's shares after the company's mid-December IPO, said in a prospectus it is looking to sell 103,500,000 shares at $23.04 apiece in a secondary stock offering that would pare its holding to 67.3% of Hilton's outstanding shares excluding over-allotment options.

As part of Hilton's IPO, Blackstone agreed to a so-called "lock-up" period of 180 days where it would not be allowed to sell any of its shares. With the expiry of that lockup, Blackstone is attempting to pare its holding by just over 13%.

If Blackstone's underwriters fully exercise their option to purchase Hilton shares in the offering, the firm's beneficial ownership will drop to 65.9%. Deutsche Bank, BofA Merrill Lynch and Morgan Stanley are leading the secondary offering.

Hilton shares were falling just over 2% in pre-market trading on Wednesday at $22.90, slightly below the secondary offering price.

Blackstone IPO'ed Hilton at $20 a share in December, raising $2.35 billion from the offering. The hotel chain used IPO proceeds to pay down some of its outstanding debt, while Blackstone Group remained Hilton's majority shareholder.

Since taking Hilton private for over $26 billion in 2007, Blackstone has focused on achieving growth at the hotel chain without putting up much of its own cash to buy and develop real estate in the U.S. and internationally. As a result, 99% of new rooms opened or in construction since 2007 come from franchisees, allowing Hilton to realize industry-leading growth at little cost to the company.

In its franchise business, Hilton receives royalty revenue from developers who seek to profit from the company's brand. Franchisees, not Hilton, purchase and develop the real estate.

Hilton's franchise business now contributes over 50% of the company's overall earnings before interest, taxes, depreciation and amortization according and has grown by about 25% from 2007 through 2013. Franchised hotels are Hilton's fastest source of earnings and hotel growth.

The company also has significant real estate holdings through its portfolio of owned hotels, giving investors exposure to rising real estate prices, particularly in major metropolitan markets like New York City.

>>Read More: Singapore Bets on Hilton After 2010 Debt Restructuring

-- Written by Antoine Gara in New York.

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