Extended Stay is sold to Lightstone in $8B transaction

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The Lightstone Group, a privately held company that is one of the largest owners of retail outlet space in the U.S., has acquired controlling interest in the Extended Stay Hotels chain from the Blackstone Group for $8 billion in cash and debt.

  The sale, which includes 638 properties, comes three years after Blackstone purchased the chain for $3.1 billion.

Lightstone, based in Lakewood, N.J., owns more than 18,000 residential units and 30 million square feet of office, industrial and retail space in 27 states, the District of Columbia and Puerto Rico.

Extended Stay, Lightstone's first foray into the lodging industry, is the largest hotel chain geared specifically to guests who require lodging accommodations for several weeks at a time or longer.

It operates properties under five brands: Extended Stay Deluxe, Extended Stay America Efficiency Studios, Homestead Studio Suites, StudioPLUS Deluxe Studios and Crossland Economy Studios.

The properties, which include a total of 76,000 rooms, are located in 44 states and Canada.

Unlike hotel chains that operate on a franchise model, Extended Stay corporately owns and operates its properties.

"This was a perfect opportunity for the Lightstone Group to expand its growing portfolio into the hotel industry, and acquiring Extended Stay Hotels immediately puts us in a leadership position within the extended stay market," David Lichtenstein, chairman and CEO of the Lightstone Group, said in a statement.

The deal will be financed with $1 billion in cash and $7 billion in debt, and Blackstone will retain a 10% stake, according to a report in the New York Times.

R. Mark Woodworth, president of Atlanta-based PKF-HR, a consulting firm, said that in purchasing Extended Stay, Lightstone had gained a "category killer."

"There is no question given the size, their geographic distribution and the market awareness of the brand itself, [Extended Stay] absolutely dwarfs everybody else in that economy component of the extended-stay segment," Woodworth said.

In an interview, Gary De Lapp, Extended Stay's president and CEO, said, "We had a really great relationship with Blackstone, and I think going forward with Lightstone we are going to have another really good opportunity to take the company to a different level."

Over the years, Spartanburg, S.C.-based Extended Stay has grown largely through the acquisition of smaller hotel chains and individual hotels.

In recent years, it is has focused on developing Extended Stay Deluxe, a higher-end version of the moderate-priced Extended Stay brand. Currently, there are more than 100 Extended Stay Deluxe hotels.

As part of the development strategy for the brand, Extended Stay has been converting, refurbishing and rebranding its StudioPlus Deluxe hotels into Extended Stay Deluxe properties. 

Only about 45 StudioPlus properties remain open. Once they are converted to Extended Stay Deluxe hotels later this year, De Lapp said, Extended Stay intends to retire the StudioPlus brand.

Eventually, Crossland, Homestead and other brands also will be retired as Extended Stay consolidates into three brands: Extended Stay Deluxe, Extended Stay America and Extended Stay Economy.

Lightstone intends to continue with the rebranding strategy, De Lapp said.

To that end, De Lapp said, "You will see enhanced and stepped-up marketing efforts to really create awareness in people so that they know who we are."

Despite the fact that Extended Stay is the largest chain in its market segment, De Lapp said, "I'm not sure many people know about us. This gives us an opportunity.

"Really defining the brands and streamlining the brands will help us create the awareness that we would like to create."

Competitors in the extended-stay category include InterContinental's Staybridge Suites, Accor's Studio 6, U.S. Franchise Systems' Hawthorn Suites, Choice International's Suburban Extended Stay Hotels and Marriott's Residence Inn.

New brands, such as Starwood's Element, a spin-off from its Westin Hotels chain, are also entering the market.

Extended-stay hotels essentially operate like apartments. Guests stay longer than they would at traditional hotels. Lower turnover reduces marketing and service costs.

Woodworth said the extended-stay category was attractive to developers and investors because they "weather the storms better than the average hotel when times are bad and yet do very well when times are good."

For Blackstone, the sale is the latest in a long string of travel-related transactions.In addition to its acquisition last year of Travelport, the former Cendant unit that includes Orbitz, Galileo and other travel distribution brands, Blackstone has been buying and selling hotel brands for several years.

Just a month ago, Blackstone sold the Budgetel hotel brand for an undisclosed sum to a group of private investors.

Budgetel was once part of La Quinta, which Blackstone acquired in November 2005 for $3.4 billion.

In June 2005, Blackstone bought Wyndham International's name, franchise system and hotel portfolio for $3.24 billion, later selling most of it to Cendant, which eventually combined it with other lodging units that were spun off as Wyndham Worldwide.

Blackstone also bought and sold the AmeriSuites hotel chain, which Global Hyatt is now converting into Hyatt Place hotels. It also owns the MeriStar Hospitality Corp.

In March, the private equity group disclosed plans for a partial public stock offering that could raise another $4 billion.   

To contact reporter Michael Milligan, send e-mail to [email protected].

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