UPDATE 3-Hilton selects banks to lead initial public offering - sources
* Hilton IPO expected in first half of 2014 - sources
* Deutsche, Goldman, BofA, Morgan Stanley picked to lead deal-sources
* IPO preparation comes amid recovery in demand for hotel rooms
By Greg Roumeliotis and Ilaina Jonas
NEW YORK, Aug 7 (Reuters) - Blackstone Group LP has selected banks to lead an initial public offering of Hilton Worldwide Inc as it prepares to bring one of the largest leveraged buyouts back to the stock market, three people familiar with the matter said on Wednesday.
The IPO of the hotel operator is expected to come in the first half of 2014, two of the people said.
Hilton has selected Deutsche Bank AG, Goldman Sachs Group Inc, Bank of America Corp and Morgan Stanley to lead the deal, the three sources told Reuters.
Hilton, Blackstone, Deutsche Bank, Bank of America, Goldman Sachs and Morgan Stanley declined to comment.
Hilton's return to the stock market could come at an opportune time. A recovery in demand for hotel rooms coupled with little new supply has led to a boom in the hotel industry, according to Lukas Hartwich, a hotel analyst at Green Street Advisors.
"We are kind of entering new territory. The story has been driven by pretty strong demand growth, not as robust as prior recoveries, and very low supply growth and that has worked out well for hotel operators," he said.
Blackstone took Hilton private in 2007 in a $26.7 billion deal that was one of the largest leveraged buyouts that preceded the 2008 global financial crisis.
Once seen an example of the perils of buying large companies through excessive borrowing, Hilton was cited by Blackstone as a real estate investment that has seen "a substantial recovery in performance" at its public investor day in May, held at the Hilton-owned Waldorf Astoria in New York.
Hilton's earnings before interest, tax, depreciation and amortization are forecast to be 58 percent higher in 2013 compared with 2009, according to a presentation to Blackstone shareholders.
Blackstone, one of world's biggest owners of real estate, last month filed with regulators to take hotel chain Extended Stay America Inc public. Blackstone, Centerbridge Partners and Paulson & Co bought Extended Stay out of bankruptcy three years ago for about $3.9 billion.
And on Tuesday, people familiar with the matter said Blackstone had hired JPMorgan Chase & Co and Morgan Stanley to explore a sale or IPO of budget hotel chain La Quinta Inns & Suites, which it values around $4.5 billion.
But Hilton's size is on a different scale. There were 3,994 properties in the Hilton Worldwide network as of May, containing 657,618 rooms. Of those, Hilton itself owned, leased or had stakes in 158 properties, with 62,096 rooms.
Founded in 1919 by Conrad Hilton, the company's brands include Conrad, Doubletree, Embassy Suites, Homewood Suites, Home2Suites, Hilton Garden Inn, Hampton Inn, and Hilton Grand Vacations.
IMPROVED STOCK MARKETS
With improving stock markets, private equity firms have sought to sell portfolio companies acquired during the buyout boom of 2005 to 2008.
IPOs this year from private-equity backed companies include industrial and construction supplies company HD Supply Holdings Inc, child care operator Bright Horizons Family Solutions Inc, cruise line operator Norwegian Cruise Line Holdings Ltd and communications technology company West Corp.
Blackstone invested a minimum of $5.5 billion as equity in the acquisition of Hilton, according to a 2007 regulatory filing. It participated in the deal through two of its real estate funds, Blackstone Real Estate Partners VI and Blackstone Real Estate Partners International II, and one private equity fund, Blackstone Capital Partners V.
Its biggest exposure in Hilton is through Blackstone Real Estate Partners VI, a $10.9 billion fund, Blackstone Chief Financial Officer Laurence Tosi said on an earnings call with analysts in July 2012.
That fund, which invested in real estate deals between 2007 and 2011, was valued at 1.7 times its investors' money as of the end of June, representing a net internal rate of return of 10 percent, Blackstone said last month.
The second-largest fund exposure in Hilton for Blackstone, according to Tosi, is Blackstone Capital Partners V, a $21.7 billion buyout fund valued at 1.3 times its investors' money as of the end of June, representing a net internal rate of return of 5 percent.
The Wall Street Journal reported on the appointment of banks for the Hilton IPO earlier on Wednesday.
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