Looking to benefit from a continuing rebound in lodging spending and an expansive real estate portfolio, Blackstone Group will acquire Motel 6, the iconic economy hotel chain, and its Studio 6 offshoot from Paris-based Accor for $1.9 billion.
New York-based Blackstone's hotel assets already include Hilton Worldwide and La Quinta Inns & Suites. With the acquisition of Motel 6, Blackstone will get about 1,100 North American hotels totaling some 107,000 rooms.
The acquisition is set to close in October.
Blackstone is widening its exposure to a hotel industry that has been benefiting from a rebound in travel spending throughout North America. The company acquired La Quinta in 2006 for about $3.4 billion. A year later, it took Hilton Worldwide private in a $26 billion buyout.
Since Motel 6 owns about 600 of its 1,100 properties, industry experts say the acquisition is as much a real estate play as a hospitality investment.
"Like La Quinta, Motel 6 is mostly owned and operated, so there's a lot of uniformity in the chain," said Robert Mandelbaum, director of research information services at PKF Hospitality Research. "So from an operations standpoint, it's a very manageable chain and product."
The sale marks the culmination of an eight-month effort by Accor to shop the 50-year-old chain as a way to reduce Accor's debt.
In September, Accor said it was looking to reduce its debt by about $1.27 billion (1 billion euros) while financing improvements to its Ibis European budget brand and quadrupling Ibis' presence in China. The company sold 41 Motel 6 properties last year.
Accor's lodging holdings also include Sofitel, Novotel and Etap. With the sale of Motel 6, it will cut its debt by about $421 million (330 million euros) and will reduce its lease obligations by $669 million (525 million euros).
"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," Accor CEO Denis Hennequin said in a May 22 statement.
Last year, Motel 6 and its Studio 6 offshoot generated $669 million (532 million euros), which accounted for 8.7% of Accor's 2011 revenue. Still, the chain, whose 2011 sales fell 4.2% from a year earlier, reported a loss before income taxes of $19 million (15 million euros). Its capital expenditures equaled 6.6% of its sales, compared with just 5% of sales for all of Accor.
At $1.9 billion, Blackstone is paying about 2.8 times annual sales for Motel 6. That's less than the market-value-to-sales ratio of Marriott International (3.9) and Choice Hotels International (3.2), but more than the market-value-to-sales ratio of Starwood Hotels & Resorts (1.7).
The key difference in those ratios is real estate values. Marriott, Choice and Starwood own few, if any, of their hotels outright, while Motel 6 owns a slight majority (about 55%) of its inventory.
Marriott spun off its property-ownership entity in 1992 into what is now Host Hotels & Resorts. Starwood owns just 5% of its hotels, and Choice Hotels franchises all its hotels.
Blackstone argues that Motel 6's real estate holdings make the chain worthy of acquisition and additional capital improvements.
In the May 22 statement, Jonathan Gray, Blackstone's global head of real estate, said, "Although Motel 6 will be operated on a stand-alone basis similar to other lodging investments we have made on behalf of our investors, we plan to invest significant capital in the company's properties and to accelerate the expansion of the franchise base."
In addition, lodging experts say that Blackstone is expecting the spending rebound that started largely with luxury and upper-upscale hotels to trickle down to the economy sector as rising room rates force some travelers to economize.
Last year, economy hotel brands in the U.S. saw a 3.7 percentage-point gain in occupancy and a 2.2% increase in room rate, compared with gains of 4.4 percentage points and 3.7% across all lodging brands, according to Smith Travel Research (STR). While economy-sector occupancy is forecasted to be little changed this year, room rates are expected to rise another 2.4%, STR forecasted in January.
Adding support to STR's forecast of rising economy-sector room rates is an improving U.S. employment situation, according to PKF Hospitality Research President Mark Woodworth. The U.S. unemployment rate fell to 8.1% last month from 8.5% at the end of last year and 9% in April 2011, according to the U.S. Department of Labor's Bureau of Labor Statistics.
Motel 6 has already shown sales improvement this year. Last month, Accor said its first-quarter revenue rose 1.2% from a year earlier, to $1.75 billion (1.37 billion euros), in part because same-store sales for its North America portfolio, consisting almost exclusively of Motel 6 and Studio 6 hotels, improved 6.8% from a year earlier.
"If we look at luxury, the growth in corporate profits and personal income correlates most closely with higher-priced properties," Woodworth said. "Conversely, it's the growth of employment that correlates most closely with lower-priced hotels."
Motel 6 has doubled its footprint from about 500 units to the current 1,100 since Accor acquired the Carrollton, Texas-based company in 1990 for about $1.3 billion. The chain was founded in Santa Barbara, Calif., in 1962, and its name stemmed from the initial $6 nightly rate it charged for its rooms.
It gained widespread name recognition in the 1980s and '90s, thanks to an advertising campaign featuring homespun humorist and author Tom Bodett and his signature line, "We'll leave the light on for you."
According to advertising legend, Bodett ad-libbed the line during the very first recording session for the campaign. It quickly became the trademark promise of one of the longest-lived and successful advertising campaigns in history, winning more than 150 individual advertising awards, including eight Clios.
Bodett was the chain's first -- and remains its only -- spokesman.
This year, Motel 6, which has long marketed itself as the lowest-priced national hotel brand, had been using its 50th anniversary to promote its hotels. Plans include upgrading about 100 properties with touches such as improved flooring, new signage and flat-screen TVs.
For hotel and hospitality news, follow Danny King on Twitter @dktravelweekly.