Blackstone and Starwood Capital partner for $ 6 billion purchase of extended-stay hotel operators

Extended Stay is a mid-range hotel chain that focuses on accommodation for guests interested in staying for weeks or longer, with kitchen facilities and more space than a typical hotel room. During the pandemic, the rooms and suites attracted essential workers, health workers, and others who needed to travel.

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

With vaccinations rolling out, hiring the numbers, and more Americans thinking about traveling again, Blackstone and Starwood believe a different kind of clientele will fill beds in Extended Stay’s properties as the economy recovers. This group includes construction workers, contractors and professionals such as lawyers and consultants.

“Corporate America will become a heavy investor in capital expenditures and this company will benefit from it,” said Tyler Henritze, Blackstone’s Head of Acquisitions for the Americas.

The accommodation sector has been one of the hardest hit during the pandemic, drying up most tourism, conferences and business travel. US hotel occupancy, which was close to 65% just before the pandemic, rose to 22% in mid-April, according to STR.

While analysts say the hotel industry in general will not return to pre-pandemic earnings levels in the next two to three years, the growing prospect of economic recovery thinks some investors think this is a good time to buy hotels for business travelers or luxury guests. .

“Resorts are coming back and a large resort portfolio would be of interest to us,” said Barry Sternlicht, Starwood Capital’s Chief Executive. He calls Extended Stay an “investment in bread and butter – this isn’t glamorous.”

He said it is an accommodation segment that can attract guests from different economic cycles because there are always those who need an affordable place for a longer period of time without the commitment of a lease. He cited as examples participants in training programs, people getting divorced and people moving, but their new home is not yet ready.

The deal for Extended Stay, which will be equally owned by the two firms, marks a sort of truce after a period last year in which stakes in the company were overshot. Starwood owns nearly 10% of the company’s stock, said Mr. Sternlicht, while Blackstone acquired a 4.9% stake before paying out in June.

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

This time, the two occasional rivals decided it made more sense to team up. ‘It gives us more [cash] to keep looking at other catering options that could come from Covid, ”said Mr. Henritze of Blackstone.

Extended Stay’s share price has more than doubled in the past year. The offer from Blackstone and Starwood represents a 23% premium over the weighted average of what Extended Stay’s stock traded for in the 30 days prior to the weekend deal. A deal for Extended Stay, expected to close later this year, still requires shareholder approval.

With this purchase, the two companies would acquire Extended Stay’s 567 properties. The company offers franchisees to an additional 82. About two-thirds of its hotels are in the top 25 U.S. metro parks, Blackstone said.

When the deal closes, it will be the third time that Blackstone has owned Extended Stay. It first bought the chain in 2004, pairing it with other accommodation wallets it had purchased.

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

and other hotel brands. Blackstone’s largest real estate gain came from the 2007 acquisition of Hilton Worldwide Holdings Inc.,

which brought the company more than $ 14 billion in profits after it went public and cashed in on its last holdings in 2018.

Blackstone has scaled down its hotel portfolio in the run-up to the pandemic. Logies represented less than 10% of the portfolio at the beginning of last year, up from almost 50% in 2010.

Mr. Henritze suggested that the new Extended Stay acquisition was just the beginning of his renewed interest in the hotel industry. “Overall, there is a keen interest in investing in a wide variety of travel and leisure recovery, and so is every segment of the hospitality industry,” he said.

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