Blackstone, Starwood in $6B deal to buy Extended Stay hotels

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Extended Stay America, and its REIT, ESH Hospitality, Inc. announced today that it has signed an agreement to be acquired by a 50/50 joint venture between funds managed by Blackstone Real Estate Partners and Starwood Capital Group for $19.50 per paired share in an all-cash transaction valued at approximately $6 billion.

The $19.50 per paired share consideration represents a premium of 23.3 percent over the 30-day volume-weighted average share price ending March 12, 2021 and a premium of 15.1 percent over the closing stock price on March 12, 2021.

Doug Geoga, Chairman of the Boards of the Company said, “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. We are delighted with this outcome.”

Bruce Haase, CEO and President of the Company said, “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.” 

The chain’s affordable studio setup has proven resilient in the face of COVID.

Tyler Henritze, head of US acquisitions for Blackstone Real Estate commented, “Travel and leisure is one of Blackstone’s highest conviction investment themes, and we have confidence in the extended stay model. We helped create this company nearly 20 years ago, and believe our expertise puts us in a unique position to add long-term value.”

Barry Sternlicht, CEO of Starwood Capital, added, “Extended Stay has demonstrated resilience over the past year despite persistent challenges due to government lockdowns and travel restrictions. 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.”

The transaction has been approved by ESA’s Board of Directors and has also been approved by ESH’s Board of Directors. Completion of the transaction, which is expected to occur in the second quarter of 2021.

Goldman Sachs & Co. LLC is serving as financial advisor to the Company and Fried, Frank, Harris, Shriver & Jacobson LLP is acting as legal counsel.

J.P. Morgan and Citigroup Global Markets Inc. are acting as financial advisors and providing debt financing to Blackstone and Starwood. Simpson Thacher & Bartlett LLP is acting as legal advisor to Blackstone, and Kirkland & Ellis LLP is acting as legal advisor to Starwood Capital.

Last year, Starwood acquired an 8.5 percent stake in the company for $136.8 million, or $9.05 a share. Blackstone purchased a 4.9 percent stake for about $6.50 a share in 2021. 

Blackstone originally acquired Extended Stay America for about $2 billion in 2004. Three years later it sold the portfolio to Lightstone Group for $8 billion. 

In 2010, Blackstone took Extended Stay out of bankruptcy, paying $3.9 billion and outbidding Starwood in the process. Blackstone then took it public in 2013. 

As the COVID pandemic decimated the hotel sector, Extended Stay America has muddled through, with its focus on providing basic accommodations for travelers needing week-plus lodging appealing to traveling medical professionals and other essential workers over the past year. The company’s occupancy rate averaged 74 percent last year, much higher than the industry’s average of 44 percent.

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