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Thursday, July 29, 2021

Private Equity Firms to Acquire Extended Stay America

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Blackstone Real Estate Partners and Starwood Capital Group have signed a definitive agreement to acquire Extended Stay America hotel company, the companies announced Monday. Pending shareholder approval, the all-cash $6 billion transaction will take place via a 50/50 joint venture of funds managed by the two partners. According to Extended Stay America, the brand operates 630 fully owned and operated hotels across the United States, comprising 69,000 guest rooms. ESA is a midscale extended-stay brand. 

The companies expect the deal to close in the second quarter, following customary closing conditions.

The resilience of the extended-stay category in the high-pressure environment of the pandemic was a motivating factor for the acquisition, said Starwood Capital Group CEO Barry Sternlicht. 

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

ESA claimed the No. 1 position in Business Travel News’ annual Hotel Brand Survey, with travel managers giving top marks to the brand in three pandemic-related criteria. All ESA properties remained open during the pandemic and, according to its earnings report on Feb. 25, the brand ended the year with 73.7 percent occupancy rate. That compared with 44 percent full-year occupancy rate for the hotel sector overall, as tracked by STR. ESA systemwide revenue per available room in 2020 declined 9.4 percent year over year, according to the earnings data, but remained higher than what ESA CEO Bruce Haase called the brand’s “closest competition.” 

Blackstone and Starwood Capital pinpointed essential and recovering business travel as critical to the success of the investment, expecting a mix of construction workers, contractors and perhaps consultants and lawyers trading down to the midscale tier, but with amenities like full kitchens that will support lingering social distancing habits.

“Corporate America is going to be a heavy investor in capital spending and this business is going to benefit from that,” said Tyler Henritze, Blackstone’s head of acquisitions for the Americas.

In an effort to attract some of that new mix of business, ESA launched a brand segmentation strategy earlier this year. It will differentiate a new tier of Extended Stay America Premier Suites, in addition to the core hotel brand, which will be renamed Extended Stay America Suites.

Blackstone has a long history in the hospitality industry and formerly owned Hilton Worldwide and La Quinta inns & Suites. Sternlicht’s Starwood Capital formerly owned Westin Hotels & Resorts and Sheraton Hotels and Resorts, and also holds several real estate and luxury hospitality investments.

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