Blackstone Group Inc., and Starwood Capital Group agreed to buy Extended Stay America Inc., an operator of hotels and motels, for about $6 billion, betting the industry will recover as progress in fighting the COVID-19 pandemic accelerates.
The two private-equity giants, whose past bets on hotels have helped shape the modern hospitality industry, are paying $19.50 per share for the hotel company, a roughly 15% premium over Extended Stay’s closing price on Friday, according to a statement on Monday.
Extended Stay’s shares were up 13% at $19.15 as of 9:48 a.m. in New York.
The deal would be largest hotel industry transaction since the COVID-19 pandemic decimated the global travel industry. It comes as vaccination campaigns are seeding a travel recovery that industry analysts argue could begin bearing fruit later this year.
While leisure travel is widely expected to bounce back fastest, the wager on Extended Stay demonstrates confidence that a broader economic revival will encourage companies to put workers back on the road.
"Travel and leisure is one of Blackstone's highest conviction investment themes," said Tyler Henritze, head of U.S. acquisitions for Blackstone Real Estate, in the statement. “"And we have confidence in the extended stay model."
Blackstone knows Extended Stay well. It acquired the company in 2004 and sold it three years later. The firm, whose hotel investments include Hilton Worldwide Holdings Inc., La Quinta, and others, was part of a group that bought Extended Stay out of bankruptcy in 2010 and eventually took it public.
Blackstone, which has targeted investments in warehouses and other property types in recent months, is buying back into the company at what appears to be an opportune time for the business.
Extended Stay, which operates 650 midpriced hotels, focuses on a corner of the lodging industry that provides longer-term stays, often catering to construction crews, emergency responders and cost-conscious corporate workers. The company's system-wide occupancy rate was 74% last year, according to a filing, according to 44% across the U.S. hotel industry.
The company's steady performance during a travel freeze that ravaged the globally hospitality industry attracted investor interest. Last April, Starwood disclosed that it had spent $137 million acquiring an 8.5% stake in the company. The firm, led by Barry Sternlicht, currently owns 9.4% of outstanding shares, according to the statement today. Blackstone also bought a stake in the company last year, but later sold it.
Sternlicht, a prolific hotel investor who built Starwood Hotels & Resorts into a lodging giant before the company was acquired by Marriott International Inc., has invested in the extended stay model before. Starwood Capital owns InTown Suites, an extended stay brand with nearly 200 locations and 25,000 rooms.
In addition to the hotel-operating company, an Extended Stay affiliate owns 564 hotel properties with 62,000 rooms, making it largest hotel real estate investment trust in North America, according to the company.
While the company could be attractive to other bidders, Jefferies analyst David Katz wrote in a note today that Starwood's equity stake in Extended Stay may ward off competing buyers.
"The offer is fair but not overwhelmingly so, based on the current trading levels of peers and the early stage growth prospects," Katz wrote. "Nonetheless, we expect low likelihood of competing bids."
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