Blackstone and Starwood Capital team up to purchase $ 6 billion extended stay for hotel operator

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

That deal helped Extended Stay achieve a 74% occupancy rate last year, Blackstone said. The average occupancy rate for all hotels in the U.S. was 44%, according to hotel data tracking company STR.

Now, as vaccines extend, hires increase and more Americans think about traveling again, Blackstone and Starwood believe that a different type of customer will fill beds at Extended Stay properties with the economy recovering. This group includes construction workers, contractors and professionals, such as lawyers and consultants.

“Corporate America will be a major investor in capital expenditures and this business will benefit from that,” said Tyler Henritze, head of acquisitions for Blackstone for the Americas.

The accommodation sector was one of the hardest hit during the pandemic, which caused most of tourism, conventions and business travel to dry up. Hotel occupancy in the United States, which was close to 65% just before the pandemic, reached 22% in mid-April, according to STR.

Although analysts say the hotel industry in general will not return to pre-pandemic revenue levels for another two or three years, the growing prospect of an economic recovery makes some investors think that now is a good time to buy hotels for travelers. business or luxury guests. .

“Resorts are coming back and a large portfolio of resorts would be of interest to us,” said Starwood Capital CEO Barry Sternlicht. He calls the Extended Stay “bread and butter investment – that’s not glamorous”.

According to him, it is a lodging segment that can attract guests from different economic cycles, as there are always people who need an accessible place for an extended period without the commitment of a rental. He cited as examples participating in training programs, people getting divorced and those who are moving, but their new homes are not ready.

The agreement for Extended Stay, which will be owned by the two companies, marks a kind of truce after a period of disputes over stakes in the company last year. Starwood owns nearly 10% of the company’s shares, said Sternlicht, while Blackstone acquired 4.9% of the shares before withdrawing in June.

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

This time, the two occasional rivals determined that it made more sense to unite. “It gives us more [cash] to continue looking at other hospitality opportunities that may arise from Covid, ”said Henritze of Blackstone.

Extended Stay’s share price more than doubled last year. The Blackstone and Starwood offer represents a premium of 23% over the weighted average of which Extended Stay shares were traded in the 30 days prior to the conclusion of the deal over the weekend. An agreement for Extended Stay, which is due to be signed later this year, still needs shareholder approval.

With this purchase, the two companies would 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 in the United States, Blackstone said.

When the deal is closed, it will be the third time that Blackstone has an Extended Stay. She bought the network for the first time in 2004 and combined it with other hosting portfolios she had been buying.

Both companies 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 biggest real estate profit 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 withdrew its final holdings in 2018.

Blackstone shrunk its portfolio of hotels in the years leading up to the pandemic. Hosting represented less than 10% of its portfolio at the beginning of last year, compared to about 50% in 2010.

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

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