PE groups to buy Extended Stay in $6bn deal

May 2021 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

May 2021 Issue

Private equity (PE) firms Blackstone Group and Starwood Capital Group have agreed to acquire hotel operator Extended Stay America in a $6bn deal.

Under the terms of the deal, Extended Stay has agreed to be acquired for $19.50 per paired share in the all-cash transaction by the 50:50 joint venture between funds managed by Blackstone and Starwood Capital. The acquisition includes Extended Stay’s paired share real estate investment trust (REIT) ESH Hospitality. The amount being offered represents a premium of 15.1 percent over the company’s closing stock price on Friday 12 March, the last day of trading before the deal was announced.

The deal has been unanimously approved by Extended Stay’s board of directors, as well as the board of directors of ESH Hospitality. Completion of the transaction, which is expected to occur in the second quarter of 2021, is contingent upon customary closing conditions, including approval of the company’s stockholders.

“After a thorough review of the Company’s business plan, the Boards concluded that the immediate cash premium offered by this transaction is compelling for stockholders,” said Doug Geoga, chairman of the boards of Extended Stay and ESH Hospitality. “We are delighted with this outcome.”

“We are pleased to announce this transaction with Blackstone and Starwood Capital, two of the most experienced investors in the hospitality space with impressive track records of building value in a wide variety of real estate assets, and we look forward to this partnership and continued growth,” said Bruce Haase, chief executive and president of Extended Stay. “The Boards and senior management are especially grateful to the excellent team of leaders and associates who have made this company such a leader in the lodging industry and we are confident in the Company’s continued success under private ownership.”

“Travel and leisure is one of Blackstone’s highest conviction investment themes, and we have confidence in the extended stay model,” said Tyler Henritze, head of US acquisitions for Blackstone Real Estate. “We helped create this company nearly twenty years ago, and believe our expertise puts us in a unique position to add long-term value.”

As bookings plunged across the US hotel industry over the last year due to the COVID-19 pandemic, Extended Stay, which specialises in economy temporary housing for healthcare professionals, has proved stronger than many of its competitors. Extended Stay owns and operates 650 hotels across the US, and during the pandemic, its rooms and suites attracted essential workers, healthcare professionals and others who needed to travel.

That business helped Extended Stay achieve a 74 percent occupancy rate last year, Blackstone said. The average occupancy rate across all US hotels was 44 percent, according to hotel data-tracking firm STR. The strength shown by the Extended Stay business was one of the factors which motivated Starwood Capital to acquire the company.

“Extended Stay has demonstrated resilience over the past year despite persistent challenges due to government lockdowns and travel restrictions,” said Barry Sternlicht, chief executive of Starwood Capital. “We are excited about the Company’s growth opportunity as restrictions ease and we’re confident that, in partnership with Blackstone and the Company, our team has the right experience to drive continued success.”

Furthermore, Blackstone and Starwood Capital believe that essential and recovering business travel will be central to the success of the investment going forward, and they expect a mix of construction workers, contractors and perhaps consultants and lawyers trading down to the midscale tier to utilise Extended Stay’s portfolio of properties, many of which have amenities like full kitchens which will support lingering social distancing habits.

Blackstone is an experienced investor in the hospitality industry and is a former owner of Hilton Worldwide and La Quinta Inns & Suites. Starwood Capital formerly owned Westin Hotels & Resorts and Sheraton Hotels and Resorts, and holds several real estate and luxury hospitality investments.

Richard Summerfield