Hilton set the price for its initial public offering on Wednesday, making the hotel chain the latest company to check back into Wall Street amid a raging 2013 stock market rally and powerful comeback in IPOs. The company, one of the most recognized brands in the hotel business with more than 665,000 rooms worldwide, sold shares in its initial public offering late Wednesday at $20 a share. The pricing indicated strong demand for the IPO, given that 112.8 million shares were initially expected to be sold at from $18 to $21 a share. Shares are expected to start trading today. The deal, the biggest hotel IPO in history, is one indication of interest by investors in getting back into the hospitality industry, which had been pummeled during the recession. Investors are hopeful the industry can benefit from the fact demand for hotel rooms improved with the economy, but at the same time, hotel operators have resisted adding many new rooms. That combination is a potential winner for the industry by pushing up room rates and increasing occupancy rates, analysts say. "The (hotel) industry looks good right now," says Greg Leffert , analyst at IPO research firm Renaissance Capital . "Hilton going public is a good sign. It indicates solid supply and demand fundamentals," says John Staszak , analyst at Argus Research . Investors are interested in Hilton's IPO for a number of reasons: • Stable hotel growth forecast. Hotels are expected to see 5.5% growth in the revenue per available room in 2014, says Chad Mollman , equity analyst at Morningstar. Add to that an expected 1% room growth, and investors are looking at an industry expected to grow by 6.5% in 2014 and again in 2015, he says. Muted room growth is attractive to investors; it means hotels should be able to raise rates in 2014, says Esther Kwon of S&P Capital IQ. "You'll see rates tick up along with occupancy." • New business model for the industry. Hotel operators, including Hilton and Marriott , have been aggressively pushing a new "asset light" business model. Rather than tying up billions of dollars owning hotel buildings, the big chains are finding it more lucrative to let someone else own the property and collect license fees or management fees to hire staff and operate the property, Mollman says. Hilton owns 60% of hotels bearing its brand names, a percentage that will decrease over time and make the company more profitable as a result, Mollman says. • Changes at Hilton following its buyout. Hilton is going public again following its October 2007 buyout by Blackstone. Shortly after the buyout, the industry was hammered by the recession. Since then, Hilton has rebuilt itself. Its number of open rooms is up 36% since the buyout, and the number of rooms in the pipeline -- to be developed but not being built yet -- is up 60%, to 185,699. The deal left Hilton with a hefty load of debt: $14.3 billion . It's not too concerning, as cash flow exceeds interest payments by three times, and there are no major loan maturities until 2018, Mollman says.
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