Looking to take advantage of value opportunities in the hospitality sector, Blackstone Group Inc. (BX, Financial) and Starwood Capital Group announced on March 15 they agreed to buy hotel owner and operator Extended Stay America Inc. (STAY, Financial) for $6 billion.
The private equity company and investment firm's joint cash offer of $19.50 per share is a 15.1% premium to the stock's closing price on Friday.
Headquartered in Charlotte, North Carolina, the hotel chain specializes in lodging for long-term guests, offering kitchen facilities and more space than a typical room. While the Covid-19 pandemic has crippled the overall U.S. hotel industry over the past year, Extended Stay, which owns 650 hotels in the U.S., has thrived as its suites attracted essential workers, health care professionals and others who needed to travel, leading to a nearly 74% occupancy rate for both the fourth quarter and full fiscal 2020. In comparison, data-tracking firm STR reported the average occupancy rate across the overall U.S. hotel space was 44% over the same period.
In a statement, Starwood CEO Barry Sternlicht commented on Extended Stay's "resilience" despite "persistent challenges due to government lockdowns and travel restrictions."
As vaccinations continue to roll out, hiring increases and more Americans start traveling again, Blackstone and Starwood believe different kinds of customers will begin occupying Extended Stay's beds, including construction workers, contractors and other business professionals.
"We are excited about the Company's growth opportunity as restrictions ease," Sternlicht said.
Extended Stay was not completely unaffected by Covid-19, however. On Feb. 25, the company reported net income of $65.7 million on revenue of $259.3 million for the quarter ended Dec. 31. While net income improved from the prior-year quarter on the back of a gain on an asset sale, a decrease in corporate overhead expenses and an income tax benefit, the pandemic put an 8.8% dent in sales.
For the full year, revenue declined 14.4% to $1.04 billion.
Extended Stay President and CEO Bruce Haase also expressed his excitement for partnering with "two of the most experienced investors in the hospitality space," who both have "impressive track records of building value in a wide variety of real estate assets."
"The Boards and senior management are especially grateful to the excellent team of leaders and associates who have made this company such a leader in the lodging industry and we are confident in the Company's continued success under private ownership," he said.
The deal is expected to close during the second quarter.
Shares of Extended Stay America rose over 13% following the announcement to $19.17. Over the past year, the stock has climbed over 160%.
While Starwood is the company's largest institutional shareholder currently, Jim Simons (Trades, Portfolio)' Renaissance Technologies, Ray Dalio (Trades, Portfolio)'s Bridgewater Associates and Ron Baron (Trades, Portfolio) also own the stock.
Disclosure: No positions.
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