Extended Stay America Inc. (STAY), the largest owner of mid-price long-stay hotels in the U.S., raised $565 million in an initial public offering, almost tripling the return on paper for its private-equity and hedge fund owners.
The company, led by former Starbucks Corp. Chief Executive Officer Jim Donald, sold 28.25 million shares at $20 each, according to a company statement yesterday, after offering them for $18 to $21. Charlotte, North Carolina-based Extended Stay, which was held equally by Blackstone Group LP (BX), Centerbridge Partners LP and Paulson & Co., will use proceeds to pay debt, according to a regulatory filing. None of the firms sold shares.
Extended Stay, which owns and operates almost 700 hotels with about 76,000 rooms in the U.S. and Canada, went public three years after its owners bought the company out of bankruptcy and invested about $626 million of its cash flow in renovations that are close to completion. The investors are taking advantage of hotel stocks close to all-time highs and a rebound in room rates and occupancies to extend the busiest year for real estate IPOs since 2004, according to data compiled by Bloomberg.
Extended Stay sold paired common stock, comprising one share of the company and one Class B share of a related entity that is taxed as a real estate investment trust, the filing shows. Each paired share will trade as one unit, listed on the New York Stock Exchange under the ticker STAY.
Extended Stay sold about 14.1 percent of the company in the IPO, giving it a market value of about $4 billion. The $565 million raised excludes 4.24 million shares the underwriters could sell to meet demand, called the overallotment, or green shoe. That would increase IPO proceeds to $649.75 million.
Lower-priced long-stay hotels such as Extended Stay’s properties filled 69.8 percent of their rooms on average in 2012, compared with 61.3 percent for all U.S. lodging, according to travel-research firm STR. At higher-priced extended-stay hotels, occupancy averaged 76.3 percent last year.
Extended Stay has added amenities such as Wi-Fi and breakfast to charge higher room rates. The company, whose average daily rate was $52.34 during the 12 months through June, has said it’s trying to attract more shorter-stay and corporate guests who would pay higher rates.
“You’re just seeing more bifurcation in the industry,” said Steve Hennis, a director at the STR Analytics unit of Hendersonville, Tennessee-based STR. Lower-tier extended-stay hotels charged an average daily rate of $54.77 last year, compared with $119.88 for upper-level long-stay companies, according to the firm.
Extended-stay hotel rooms are equipped with kitchens and are rented by the week or month by people including executives relocating, construction workers on a project away from home and families going through a move.
The industry got its start in 1975, when real estate developer Jack DeBoer opened the first Residence Inn in Wichita, Kansas, eventually selling the chain to Marriott International Inc. in 1987, according to fact sheets provided by Marriott and DeBoer’s office. In 1988, DeBoer, now 82, co-founded the Summerfield chain, later selling that company to Hyatt Hotels Corp. and, in 1995, started the Candlewood chain, which was bought by InterContinental Hotels Group Plc (IHG) in January 2004, according to DeBoer’s office and Bloomberg data.
Also in 1995, billionaire Wayne Huizenga and his business partner George Johnson founded Extended Stay America, expanding it to 472 properties by the time they sold the company to Blackstone in May 2004 for $3.1 billion.
Blackstone sold it three years later, close to the top of the market, for $8 billion to Lightstone Group LLC, which put the debt-laden company into bankruptcy protection after the credit crisis. In 2010, the current owners bought Extended Stay for $3.9 billion. The IPO will almost triple the value of their realized and unrealized holdings in the company, according to Bloomberg calculations.
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