Blackstone, Starwood Capital joins $ 6 billion acquisition for extended hotel-operator stay

Extended Stay is a chain of mid-priced hotels that focuses on accommodation for guests interested in staying for weeks or more, offering kitchen facilities and more space than a typical hotel room. During the pandemic, its rooms and suites attracted key workers, health professionals and others who needed to travel.

The deal helped Extended Stay reach a 74 percent occupancy rate last year, Blackstone said. The average occupancy rate in all hotels in the US was 44%, according to the hotel data tracking company STR.

Now, as vaccinations unfold, employment is growing and more and more Americans are thinking of traveling again, Blackstone and Starwood believe that another race of customers will fill the beds in Extended Stay properties with the economy returning. This group includes construction workers, contractors and professionals, as well as lawyers and consultants.

“Corporate America will be a major investor in capital spending, and this business will benefit from this,” said Tyler Henritze, head of Blackstone’s acquisitions for America.

The accommodation sector was one of the most affected during the pandemic, which caused the drying up of most tourism, conventions and business trips. Hotel occupancy in the US, which was close to 65% just before the pandemic rose to 22% in mid-April, according to STR.

While analysts say the hotel industry will not return to pre-pandemic revenue levels for another two to three years, the growing prospect of an economic recovery has some investors now thinking it’s a good time to buy hotels that serve business travelers or luxury guests.

“The resorts are coming back and a large portfolio of resorts would be of interest to us,” said Barry Sternlicht, chief executive of Starwood Capital. He calls Extended Stay an “investment in bread and butter – this is not full of charm.”

He said it is a segment of accommodation that can attract guests in different economic cycles because there are always people who need an accessible place for an extended period without the commitment of a lease. He cited as examples training participants, people who divorce and those who move, but their new homes are not ready.

The extended stay agreement, which will be held equally by the two companies, marks a kind of truce after a period of last year’s jockeying on the company’s stakes. Starwood owns nearly 10% of the company’s shares, Mr Sternlicht said, while Blackstone bought a 4.9% stake before cash in June.

Starwood was also a finalist when Blackstone led a group that bought the chain from a bankruptcy proceeding in 2010.

This time, the two occasional rivals have determined that it makes more sense to team up. “It simply came to our notice then [cash] to continue to look at other hospitality opportunities that may present themselves coming out of Covid, “said Mr Blackstone Henritze.

The price of Extended Stay shares has doubled in the last year. The Blackstone and Starwood auction represents a premium of 23% compared to the weighted average of what the Extended Stay shares traded in the 30 days preceding the weekend transaction. A transaction for Extended Stay, which is expected to be completed later this year, still requires shareholder approval.

With this acquisition, the two companies will 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 metropolitan areas of the United States, Blackstone said.

When the transaction is completed, it will mark the third time Blackstone has Extended Stay. He bought the chain for the first time in 2004 and combined it with other accommodation portfolios he had bought.

Both companies have extensive experience in the field of hospitality. Mr Sternlicht created hotel operator Starwood Hotels & Resorts Worldwide Inc., which is now part of Marriott International. Inc.,

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

which earned the company a profit of over $ 14 billion after making it public and collecting final holdings in 2018.

Blackstone has shrunk its hotel portfolio in the years leading up to the pandemic. Accommodation accounted for less than 10% of its portfolio at the beginning of last year, down from almost 50% in 2010.

Mr Henritze suggested that the new Extended Stay acquisition was just the beginning of his renewed interest in the accommodation industry. “There is a high degree of interest in general for investing in a large-scale recovery in travel and leisure and that would include every segment of hospitality,” he said.

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