Blackstone/Extended Stay: third stay is astutely timed

Blackstone is checking in again at Extended Stay America. The private equity group has teamed up with Starwood Capital, sometime creator of Starwood Hotels, to acquire the mid-priced hotel chain. The proposed deal, valuing the business at $6bn including debt, is intelligently timed.

If the deal goes through, it will mark the third time Blackstone has owned Extended Stay, which owns 564 hotels and franchises another 86. The buyout group first took the chain private in 2004 for $3.1bn and sold it three years later. It returned in 2010, as part of a consortium that plucked Extended Stay out of bankruptcy. It cashed out again in 2013 when the company went public. 

Monday’s $19.50 cash offer represents a skimpy 15 per cent premium to Extended Stay’s closing price on Friday. It is 32 per cent higher than the three-month average of this fast-rising share, however. Blackstone must see plenty more upside.

Budget extended-stay hotels have been one of the few bright spots in the pandemic-hit lodging industry. These chains tend to have larger rooms with decent kitchens and self-service laundry. They have benefited from demand for temporary housing for essential workers and staycationers.

Extended Stay’s occupancy rate was about 74 per cent last year. That is slightly lower than the 2019 figure and represents a massive outperformance compared to the 44 per cent occupancy rate recorded by the wider US hotel industry. A 42 per cent collapse in net income to $96m in 2020 also looks less grim when compared to the net losses reported by bigger chains such as Marriott International and Hilton Worldwide.

With business travel not expected to recover to pre-pandemic levels until 2024, the immediate outlook is good for extended-stay hotels. 

The 14 times enterprise value to 2022 ebitda multiple Blackstone and Starwood are paying for Extended Stay looks cheap. Choice Hotels and Wyndham Hotels & Resorts, both of which run budget and longer-stay hotels, are trading on ratios that are twice as high. Blackstone’s knowledge of Extended Stay and tolerance of steep debt make it a natural owner.

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