Bloomberg News

Blackstone Venture Files for Extended Stay Hotel Chain IPO (1)

July 22, 2013

Extended Stay America Inc., the mid-price lodging chain owned by Blackstone Group LP (BX:US), Centerbridge Partners LP and Paulson & Co., filed for a U.S. initial public offering, seeking to take advantage of a rally in hotel shares.

Extended Stay filed to raise as much as $100 million through two classes of stock, according to a regulatory filing today. The amount is a placeholder that will probably change. The number of shares and price range haven’t been determined, the Charlotte, North Carolina-based company said in a statement.

The share sale could raise about $500 million, based on the typical 10 percent to 20 percent of a company’s value sold in IPOs, according to data compiled by Bloomberg. Extended Stay is valued at about $3 billion to $4 billion, before debt, said a person with knowledge of the company, who asked not to be named because the details are private.

Extended Stay’s owners, which hold equal parts in the company, are taking the chain public less than three years after buying it out of bankruptcy. The Bloomberg REIT Hotel Index has gained about 21 percent with dividends this year and is close to a five-year high amid a recovery in the real estate market.

“Our performance has improved significantly since the acquisition date, which we believe is in large part due to the industry recovery,” Extended Stay said in the filing. “We are beginning to realize the benefits of our recently implemented capital, brand and marketing initiatives, and we believe these initiatives will continue to drive our internal growth.”

Ownership Changes

Extended Stay owns and operates almost 700 hotels in the U.S. and Canada, with about 75,900 rooms. The company, led by former Starbucks Corp. (SBUX:US) Chief Executive Officer Jim Donald, had revenue of $1 billion last year and net income of $22.3 million, according to the filing.

Extended Stay changed owners three times during the past decade’s boom and bust in real estate. In 2004, Blackstone bought the core of the company’s assets for $3 billion, while industry revenue was in a slump following the terrorist attacks in 2001. The New York-based private-equity firm later combined it with other purchases.

Bankruptcy Filing

When the commercial real estate market peaked in 2007, Blackstone sold Extended Stay for $8 billion to Lightstone Group LLC. Saddled with $7.6 billion of debt after the credit crisis shut off refinancing sources, the hotel chain filed for bankruptcy protection in 2009. The following year, Blackstone joined Centerbridge, a lender who had worked to restructure Extended Stay debt, and Paulson to buy back the hotel chain out of bankruptcy for about $3.9 billion. Centerbridge was co-founded by former Blackstone partner Mark Gallogly.

Since the three bought Extended Stay, its cash flows have increased more than 40 percent amid a recovery in the hotel business, two people with knowledge of the situation said in November. The owners invested about $420 million to renovate rooms and consolidate properties under the Extended Stay brand name, they said at the time.

Blackstone, which also owns hotel chain Hilton Worldwide Inc., has begun to sell real estate holdings as markets rally. The company’s Brixmor Property Group shopping-center unit filed last week for an IPO that research firm Renaissance Capital LLC estimates may raise more than $700 million.

“This is a good environment to start seeking some exits,” Blackstone Chief Financial Officer Laurence Tosi said July 18 on the company’s second-quarter earnings (BX:US) call. An improving U.S. economy is translating into higher occupancies and rents at the firm’s real estate holdings, he said.

Blackstone has said it expects to take Hilton public in the next 12 to 18 months.

Deutsche Bank AG, Goldman Sachs Group Inc. and JPMorgan Chase & Co. are arranging the Extended Stay stock offering, according to today’s filing.

To contact the reporters on this story: Patrick Gower in London at pgower@bloomberg.net; Hui-yong Yu in Seattle at hyu@bloomberg.net

To contact the editors responsible for this story: Andrew Blackman at ablackman@bloomberg.net; Kara Wetzel at kwetzel@bloomberg.net


China's Killer Profits
LIMITED-TIME OFFER SUBSCRIBE NOW

Companies Mentioned

  • BX
    (Blackstone Group LP/The)
    • $33.85 USD
    • 1.15
    • 3.4%
  • SBUX
    (Starbucks Corp)
    • $80.44 USD
    • 1.30
    • 1.62%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus