Blackstone, Starwood Capital team up in $ 6 billion purchase for extended stay by hotel operators

Extended Stay is an inexpensive hotel chain that focuses on accommodation for guests who want to stay for weeks or longer, with kitchen facilities and more space than a regular hotel room. During the pandemic, its rooms and suites attracted essential workers, health workers and others who had to travel.

The company helped Extended Stay achieve an occupancy rate of 74% last year, Blackstone said. According to the hotel data tracking company STR, the average occupancy rate in all US hotels was 44%.

As vaccinations begin to increase, the increase increases and more Americans are thinking about traveling again, Blackstone and Starwood believe another customer class of beds in the properties of Extended Stay will fill the receding economy. This group includes construction workers, contractors and professionals such as lawyers and consultants.

“Corporate America is going to be a big investor in capital spending, and this business will benefit from it,” said Tyler Henritze, Blackstone’s head of acquisitions for the Americas.

The accommodation sector was hit hardest during the pandemic, which wiped out most tourism, events and business travel. According to STR, US hotel occupancy, which was close to 65%, rose to 22% just before the pandemic.

Although analysts believe that the hotel industry will generally not return to pre-pandemic revenues for another two to three years, the growing prospect of an economic recovery is that investors think now is a good time to find hotels for business travelers. or luxury guests for sale. .

“Resorts are coming back, and a large holiday portfolio will be of interest to us,” said Barry Sternlicht, CEO of Starwood Capital. He calls Extended Stay a bread-and-butter investment – it’s not glamorous. ‘

He said it is an accommodation segment that can attract guests over different economic cycles as there are always people who need an affordable place for a long period of time without committing to a lease. He cites as examples participants in training programs, people who are divorcing and those who are moving, but their new homes are not ready yet.

The agreement for Extended Stay, which will be equivalent to the two companies, indicates a ceasefire after a period of last year’s tensions over the company’s interest. Starwood owns almost 10% of the company’s shares, Mr. Sternlicht said, while Blackstone acquired a 4.9% stake before paying out in June.

Starwood was also in second place when Blackstone led a group that bought the chain out of bankruptcy in 2010.

This time, the two competitors determined that it made more sense to work together. ‘It gives us more [cash] to continue to look at other hospitality opportunities that can offer themselves from Covid, ”said Blackstone’s Mr. Henritze said.

Extended Stay’s share price has more than doubled in the past year. The offer of Blackstone and Starwood represents a premium of 23% on the weighted average for which the shares of Extended Stay traded in the thirty days before the transaction closed over the weekend. An agreement for Extended Stay, which is expected to close later this year, still requires shareholder approval.

With this purchase, the two businesses would acquire the 567 properties owned by Extended Stay. The company still franchises 82. About two-thirds of its hotels are located in the top-25 U.S. metro areas, Blackstone said.

When the deal closes, it’s the third time Blackstone has owned Extended Stay. It bought the chain for the first time in 2004 and combined it with other lodging portfolios he bought.

Both companies have extensive hospitality experience. Mr. Sternlicht has the hotel operator Starwood Hotels & Resorts Worldwide Inc. established, now part of Marriott International Inc.,

and other hotel brands. Blackstone’s largest fixed profit was from the acquisition of Hilton Worldwide Holdings in 2007 Inc.,

which earned the company more than $ 14 billion in profits after announcing it and paying out its final holdings in 2018.

Blackstone shrank its hotel portfolio in the years before the pandemic. Accommodation accounted for less than 10% of its portfolio early last year, up from 50% in 2010.

Mr. Henritze suggested that the new Extended Stay acquisition was just the beginning of renewed interest in the accommodation industry. “There is a great deal of interest in investing in a broad travel and leisure recovery, and that will include every sector of hospitality,” he said.

Write to Peter Grant at [email protected] and Craig Karmin at [email protected]