Blackstone (NYSE: BX) and Starwood Capital have announced that they'll be joining forces to buy Extended Stay America (NASDAQ: STAY). The deal is expected to close later this year, and the two firms will reportedly split the $6 billion acquisition price.
Extended Stay America has roughly 650 hotels across the country and focuses on travelers requiring stays of a week or longer. This company and category in general has proved to be quite resilient relative to the rest of the hotel industry over the last year.
Extended Stay America
Extended Stay America, a nationally recognized brand in the extended-stay hotel industry, has been around for 26 years. Since the rooms have small kitchens and are essentially apartments, the company drew a lot of interest from traveling medical professionals and other essential workers.
Barry Sternlicht, CEO of Starwood Capital, explained, "Extended Stay has demonstrated resilience over the past year despite persistent challenges due to government lockdowns and travel restrictions."
And the data is there to back this claim up. Extended Stay America's occupancy rate averaged 74% in 2020 while the hotel industry as a whole had an average occupancy rate of only 44%. Hospitality analytics company STR reported that last year was the worst year on record for the U.S. hotel industry, which comes as no surprise.
As part of the transaction, Extended Stay America will become a private company. While this comes with some regulatory and other related requirements, it also means the company will get the benefit of "appraisal smoothing."
While publicly traded companies have daily liquidity and are priced in real time while the markets are open, private companies and private real estate don't act this way. Since market transactions are relatively infrequent in private commercial real estate, appraisals are generally done on a quarterly basis (or sometimes even less frequently) to derive market values, which is why the concept is referred to as "appraisal smoothing." As a private company, Extended Stay America will not be impacted by daily price fluctuations.
Blackstone is active and the hotel industry is shaking up
Blackstone continues to remain active during the pandemic. Not only is Blackstone clearly interested in the extended-stay model, the private equity firm is in on single-family housing, too. Early this year, Blackstone acquired a home design firm and invested in Tricon Residential, an owner-operator of over 30,000 single-family and multifamily properties.
While Extended Stay America performed well (on a relative basis) during the pandemic, we're also seeing other hotel and hospitality models poised to succeed coming out of the pandemic. For example, WhyHotel is ready to launch some pop-up hotels, an interesting model because the company can shift its footprint based on supply and demand. The hotel industry was put through the wringer over the last year -- those that survived and those that are ready for the future are set to break out coming out of the pandemic.