Blackstone Group LP (BX), the New York- based private-equity firm that manages $48 billion in real estate assets, agreed to buy the Motel 6 lodging chain from Accor SA (AC) for $1.9 billion, adding to its hospitality holdings.
The purchase includes 1,102 Motel 6 and Studio 6 extended- stay hotels in North America with more than 107,000 rooms, Paris-based Accor said today in a statement. Accor, Europe’s largest hotel operator, rose the most in six months.
Blackstone, under real estate chief Jonathan Gray, has been acquiring hotels and motels, from lower-priced chains like Motel 6 to high-end properties. The firm, which bought Hilton Worldwide for $20 billion in 2007, is raising a new real estate fund that probably will surpass its current $10 billion pool.
Blackstone plans to invest “significant capital in the company’s properties and to accelerate the expansion of the franchise base,” Gray said in the statement about the Motel 6 acquisition.
The deal is the largest in the U.S. lodging industry since the $3.93 billion acquisition of Extended Stay America Inc. in 2010, in which Blackstone played a role. The chain was bought through a bankruptcy restructuring by a group that also included Centerbridge Capital Partners LLC and Paulson & Co. Blackstone purchased U.K.-based Mint Hotels in a $950 million deal announced in September.
Occupancy at U.S. economy hotels rose to 50.6 percent this year through April from 49.7 percent a year earlier. Revenue per available room, a measure of occupancy and rates, climbed 5.9 percent to $25.01, according to Smith Travel Research Inc. in Hendersonville, Tennessee.
At luxury hotels, occupancy climbed to 72.4 percent from 69.7 percent, while revenue per available room rose 8.9 percent to $198.55.
“The economy segment doesn’t see the same level of upturns when the economy is up and not the same downturns when the economy is in a downward spiral,” said Nikhil Bhalla, a senior lodging analyst at FBR & Co. in Arlington, Virginia.
Accor Chief Executive Officer Denis Hennequin is pulling the company out of the low-end of the U.S. lodging market and focusing on the more profitable Sofitel and Novotel hotel brands in North America. The proceeds of the sale will reduce the company’s net debt and lease liabilities by 855 million euros ($1.09 billion) while funding expansion, particularly in Asia.
“This deal will provide Accor with additional resources to address the tremendous growth potential in the Asia-Pacific region, in Latin America and in Europe,” Hennequin said in the statement.
Accor jumped 5.8 percent, the most since Nov. 3, to 26.03 euros in Paris. Blackstone gained 2.5 percent to $11.99 in New York trading.
Blackstone, created in 1985 by Stephen Schwarzman and Peter G. Peterson, has expanded its operations in real estate, credit investments and hedge funds as traditional corporate buyouts wane. With a total of $190 billion in assets under management, it’s the largest firm of its kind, ahead of competitors including Carlyle Group LP (CG) and KKR & Co., which have pursued similar diversification strategies.
Accor acquired a controlling stake in the Motel 6 chain in 1990 as part of a debt-fueled international expansion by Paul Dubrule and Gerard Pelisson. The pair founded the company in 1967 with one hotel in Lille, France.
Hennequin is expanding Accor through franchises and management contracts rather than buying more real estate. The company said today it will book a one-time loss of 600 million euros relating to its purchase of fixed-lease hotels.
“This is definitely positive,” Bruno de la Rochebrochard, an analyst at Bryan Garnier, said in a note to investors reiterating his buy rating on Accor’s shares. It will reinforce the “asset light” profile of Accor, where 55 percent of rooms are managed under contract rather than owned, he said.
Accor would have reported earnings before interest and tax equal to 9.2 percent of revenue last year if it didn’t own the U.S. chains, the company said. The reported margin for 2011 was 8.7 percent.
The transaction is scheduled to be completed in October.
Motel 6 also is a familiar name in private-equity circles. The chain was bought in the 1980s by New York-based KKR, which sold it to Accor in 1990. Among Accor’s current shareholders is Los Angeles-based Colony Capital, the private equity real estate fund run by Thomas Barrack.
In the U.S. lodging industry, there were more than 80 acquisitions announced in the past 12 months with an average premium of 60 percent at the announcement, including net debt, according to Bloomberg data. The median deal over the past 10 years paid more than 11 times the target’s earnings before interest, taxes, depreciation and amortization.
Citigroup Inc., Rothschild and Societe Generale SA advised Accor on the sale. Simpson Thacher & Barlett was legal counsel to Blackstone.