Blackstone, Starwood Capital Team Up in $6 Billion Purchase of Hotel-Operator Extended Stay
March 15 2021 - 7:59AM
Dow Jones News
By Peter Grant and Craig Karmin
Blackstone Group Inc. and Starwood Capital Group have agreed to
acquire hotel owner and operator Extended Stay America Inc. for $6
billion, a bet that a rare bright spot for the lodging industry
during Covid-19 can shine brighter as the U.S. emerges from the
pandemic.
The companies said details of the deal, which real-estate
executives say is the largest sale in the hotel sector during the
Covid-19 period, will be released Monday.
Extended Stay is a midprice hotel chain that focuses on lodging
for guests interested in staying for weeks or longer, offering
kitchen facilities and more space than a typical hotel room. During
the pandemic, its rooms and suites attracted essential workers,
healthcare professionals and others who needed to travel.
That business helped Extended Stay achieve a 74% occupancy rate
last year, Blackstone said. The average occupancy rate across all
U.S. hotels was 44%, according to hotel data-tracking firm STR.
Now, as vaccinations roll out, hiring increases and more
Americans think about traveling again, Blackstone and Starwood
believe a different breed of customer will fill beds in Extended
Stay's properties with the economy bouncing back. This group
includes construction workers, contractors and professionals such
as lawyers and consultants.
"Corporate America is going to be a heavy investor in capital
spending and this business is going to benefit from that," said
Tyler Henritze, Blackstone's head of acquisitions for the
Americas.
The lodging sector has been one of the hardest hit during the
pandemic, which caused most tourism, conventions, and business
travel to dry up. U.S. hotel occupancy, which was close to 65% just
before the pandemic cratered to 22% in mid-April, according to
STR.
While analysts say the hotel industry overall won't return to
pre-pandemic revenue levels for another two to three years, the
growing prospect of an economic recovery has some investors
thinking now is a good time to buy hotels catering to business
travelers or luxury guests.
"Resorts are coming back, and a big resort portfolio would be of
interest to us," said Starwood Capital Chief Executive Barry
Sternlicht. He calls Extended Stay a "bread-and-butter
investment--this isn't glamorous."
He said it's a lodging segment that can attract guests across
different economic cycles, because there are always people who need
an affordable place for an extended period without the commitment
of a lease. He cited as examples participants in training programs,
people getting divorced, and those who are moving, but their new
homes aren't ready.
The deal for Extended Stay, which will be owned equally by the
two firms, marks a truce of sorts after a period last year of
jockeying over stakes in the company. Starwood owns nearly 10% of
the companies' shares, Mr. Sternlicht said, while Blackstone
acquired a 4.9% stake before cashing out in June.
Starwood was also a runner up when Blackstone led a group that
bought the chain out of a bankruptcy proceeding in 2010.
This time the two occasional rivals determined it made more
sense to team up. "It gives us more [cash] to continue to look at
other hospitality opportunities which could present themselves
coming out of Covid," Blackstone's Mr. Henritze said.
Extended Stay's share price has more than doubled over the past
year. Blackstone's and Starwood's bid represents a 23% premium to
the weighted average of what Extended Stay's shares were trading
for in the 30 days leading up to the deal concluded over the
weekend. A deal for Extended Stay, which is expected to close later
this year, still requires shareholder approval.
With this purchase, the two firms would acquire the 567
properties owned by Extended Stay. The company franchises another
82. About two thirds of its hotels are located in the top 25 U.S.
metro areas, Blackstone said.
When the deal closes, it will mark the third time that
Blackstone has owned Extended Stay. It first bought the chain in
2004 and combined it with other lodging portfolios it had been
buying.
Both firms have extensive hospitality experience. Mr. Sternlicht
created the hotel operator Starwood Hotels & Resorts Worldwide
Inc., which is now a part of Marriott International Inc., and other
hotel brands. Blackstone's biggest real-estate profit came from its
2007 acquisition of Hilton Worldwide Holdings Inc., which earned
the firm more than $14 billion in profit after it took it public
and cashed out its final holdings in 2018.
Blackstone shrank its hotel portfolio in the years leading up to
the pandemic. Lodging accounted for less than 10% of its portfolio
early last year, down from close to 50% in 2010.
Mr. Henritze suggested that the new Extended Stay acquisition
was just the beginning of its renewed interest in the lodging
industry. "There's a high degree of interest overall in investment
in a broad-based travel and leisure recovery and that would include
every segment of hospitality, " he said.
Write to Peter Grant at peter.grant@wsj.com and Craig Karmin at
craig.karmin@wsj.com
(END) Dow Jones Newswires
March 15, 2021 07:44 ET (11:44 GMT)
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