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Extended Stay IPO Seeks to Raise as Much as $593 Million

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November 1, 2013

Extended Stay IPO Seeks to Raise as Much as $593 Million

Extended Stay AmericaExtended Stay America Inc., the mid-price lodging chain owned by?Blackstone Group LP (BX), Centerbridge Partners LP and Paulson & Co., plans to raise as much as $593 million in its U.S. initial public offering.

The company, which owns and operates almost 700 hotels with about 76,000 rooms in the U.S. and?Canada, is offering 28.25 million shares for $18 to $21 each, with proceeds going to repay debt, according to a regulatory filing today.

Extended Stay?s owners, which hold equal parts of the chain, are taking it public three years after buying the company out of bankruptcy and investing about $626 million in a renovation program that?s close to completion. The investors are taking advantage of stock prices that are close to record highs and growth in hotel-room rates and occupancy to extend the busiest year for real estate IPOs since 2004, according to data compiled by Bloomberg.

Led by former Starbucks Corp. Chief Executive Officer Jim Donald, Extended Stay reported net income of $22.3 million on revenue of $1 billion last year, according to today?s filing. Adjusted earnings before interest, taxes, depreciation and amortization came to $434.3 million. Guests at the company?s hotels are typically business travelers, people on temporary-work assignments or in the process of moving, who rent rooms for a week or more.

Extended Stay, based in?Charlotte,?North Carolina, is selling 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. The company will be listed on the?New York?Stock Exchange under the ticker STAY.

Extra Shares

The $593 million excludes 4.24 million shares that underwriters could sell to meet demand. If the shares are sold at the high end of the range, the offering could raise as much as $682 million, according to the filing with the Securities and Exchange Commission.

Extended Stay is selling about 14.1 percent of the company in the IPO, giving it a market value of about $3.9 billion at the midpoint of the?price range, according to the filing.

The hotelier?s three owners borrowed $3.6 billion in December to refinance Extended Stay?s debt, enabling them to recoup about half their equity investment, a person with knowledge of the transaction said at the time.

Cash Generator

Since the three bought Extended Stay near the bottom of the commercial real estate market, its cash flows have increased more than 40 percent amid a recovery in the lodging industry, two people with knowledge of the situation said last year. In addition to room renovations, the owners consolidated properties under the Extended Stay brand name and added amenities such as free Wi-Fi and breakfast to charge higher room rates.

In April 2012, Extended Stay hired Thomas Seddon as chief marketing officer, the same job he held at?InterContinental Hotels Group Plc (IHG), which owns Candlewood Suites, one of Extended Stay?s main competitors.

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Source Bloomberg, http://www.bloomberg.com/news/2013-10-31/extended-stay-ipo-seeks-to-raise-as-much-as-593-million.html

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