Blackstone checks back into Extended Stay for another short hotel stay

New York

BLACKSTONE is checking back into Extended Stay America. The private equity firm is going halves with Starwood Capital to buy the mid-price hotel operator in a US$6 billion deal announced on Monday. It is territory that billionaire co-founder Steve Schwarzman's buyout shop knows well.

This is Blackstone's third time round with Extended Stay, a company that owns or licenses around 650 hotels in the United States and specialises in lodgings that are equipped with kitchens.

Mr Schwarzman's group bought the company in 2004 before selling it off in 2007. His firm entered the scene again in 2010, when it plucked the hotel chain out of bankruptcy and then later took it public. It is likely the cycle will be repeated again, to Blackstone's profit.

The buyers' offer of US$19.50 per share is about a 15 per cent premium to Extended Stay's closing price on Friday. At US$6 billion including debt, the deal is worth around 13 times the median expected (earnings before interest, taxes, depreciation, and amortisation) Ebitda for the next 12 months, Refinitiv data showed.

By comparison, hotel chains Marriott International and Choice Hotels International are valued at more than 20 times Ebitda. That makes this reasonably priced bet on economic recovery.

The pandemic has mauled the travel and leisure industry, but Extended Stay has resisted better than others. Its occupancy rate in the fourth quarter was above 70 per cent versus an industry average of roughly 40 per cent, said hospitality research firm STR.

Essential workers helped boost room reservations and the chain's studio-like rooms catered to travellers who wanted to minimise their exposure to others. Blackstone and Starwood Capital are hoping the chain will remain a tempting postpandemic option for IT consultants, construction workers and consumers freed from Covid-19 restrictions.

Extended Stay's share price - about US$19.19 a few hours after the deal was announced - suggests investors are not expecting rival suitors. That may not always be the case. If the new owners make good on their promise to maintain growth, hotel chains seeking budget offerings could come knocking on the door.

That would allow Blackstone to check out, again. REUTERS


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