Blackstone and Starwood Capital Partner to Purchase $ 6 Billion Extended Stay for Hotel Operators

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 accommodation industry during Covid-19 may shine brighter as the U.S. emerges from the pandemic.

The companies said details of the deal, which real estate executives say is the biggest sale in the hotel sector during the Covid-19 period, will be released on Monday.

Extended Stay is a mid-priced hotel chain that focuses on accommodating 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 an occupancy rate of 74% last year, Blackstone said. The median occupancy rate across all US hotels was 44%, according to hotel data tracking firm STR.

Now, as vaccines roll out, hires rise and more Americans think about traveling again, Blackstone and Starwood believe a different class of customers will fill beds at Extended Stay properties with the economy rebounding. This group includes construction workers, contractors, and professionals such as attorneys and consultants.

“Corporate America is going to be a huge capex investor and this business will benefit from that,” said Tyler Henritze, Blackstone’s director of acquisitions for the Americas.

The accommodation sector has been one of the most affected during the pandemic, which caused most tourism, convention and business trips to be sold out. US hotel occupancy, which was close to 65% just before the pandemic, dropped to 22% in mid-April, according to STR.

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

“Resorts are making a comeback and a large portfolio of resorts would be of interest to us,” said Starwood Capital CEO Barry Sternlicht. He calls Extended Stay a “bread and butter investment, this is not glamorous.”

He said that it is a segment of lodging that can attract guests through 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 the participants in the training programs, the people who get divorced and those who move, but their new homes are not ready.

The Extended Stay deal, which will be owned equally by the two firms, marks something of a truce after a period last year of disputes over stakes in the company. Starwood owns nearly 10% of the company’s shares, Sternlicht said, while Blackstone acquired a 4.9% stake before cashing in in June.

Starwood was also runner-up when Blackstone led a group that bought the chain from bankruptcy proceedings in 2010.

This time, the two occasional rivals determined it made more sense to team up. “It gives us more [cash] to continue looking for other hospitality opportunities that could present themselves out of Covid, ”said Mr. Henritze of Blackstone.

Extended Stay’s share price has more than doubled over the past year. Blackstone and Starwood’s offering represents a 23% premium over the weighted average of what Extended Stay’s shares were trading in the 30 days prior 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 offers franchises for 82 others. About two-thirds of its hotels are located in the top 25 metropolitan areas in the United States, Blackstone said.

When the deal closes, it will be the third time Blackstone has owned Extended Stay. He first bought the chain in 2004 and combined it with other accommodation portfolios he had been buying.

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

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

which earned the company more than $ 14 billion in profit after it went public and will cash in on its final holdings in 2018.

Blackstone downsized its hotel portfolio in the years leading up to the pandemic. Accommodation represented less than 10% of its portfolio at the beginning of last year, up from close to 50% in 2010.

Henritze suggested that the new Extended Stay acquisition was just the beginning of his renewed interest in the lodging industry. “There is a high degree of general interest in investing in a broad-based leisure and travel recovery and that would include all segments of hospitality,” he said.

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

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