Mega investment funds Blackstone Group and Starwood Capital Group have partnered to acquire economy apartment hotel chain operator Extended Stay America for $6 billion.
Seen as a rare bright spot in the country's lodging industry, which has been battered by the pandemic since last year, the proposed transaction comes as vaccinations are ramping up in the U.S. bringing hospitality plays back into focus.
The deal, which is the largest sale made in the hotel sector since the pandemic hit last year, was officially announced Monday. Under the deal, Blackstone Group and Starwood Capital will have equal ownership of the hotel chain. Before the agreement, Blackstone Group owned a 4.9% stake in the company, while Starwood Capital owned a 10% stake.
Blackstone Group and Starwood Capital will take over Extended Stay's 567 properties plus another 82 franchised locations. Two-thirds of the company's properties are located within the top 25 U.S. metro areas, while the rest are in more rural locations.
The bid offered by the two companies represents a 23% premium to the weighted average price of Extended Stay's shares over the past 30 days leading up to the deal. The deal is expected to close later this year pending shareholder approval.
Extended Stay's share price jumped by more than 13.4% Monday after the deal was announced. Shares closed at $19.21 each, slightly lower than the $19.50 per share bid made by the two companies. Over the past year, Extended Stay's stock has more than doubled in value.
North Carolina-based Extended Stay mainly operates hotel chains focused on lodging for guests that stay for one week or more. The hotels offer shared living spaces, kitchen facilities, and other areas not typically found in traditional hotels. During the pandemic, the company experienced a surge in demand for its facilities from essential workers and healthcare professionals.
Last year, Extended Stay achieved a 74% occupancy rate. This was significantly higher than the average occupancy rate across all U.S. hotels over the same period, which was only 44%.
Blackstone Group and Starwood Capital believe that Extended Stay's business will continue to flourish even as vaccinations are being rolled out. The companies said that different customers will fill the hotel beds this time around, namely construction workers, professionals, and contractors.
"Corporate America is going to be a heavy investor in capital spending and this business is going to benefit from that," Blackstone's head of acquisitions, Tyler Henritze, said.
