Extended Stay's IPO raises $565m

Extended Stay America's initial public offering on Wednesday marks a turnround for the once-troubled lodging company as its private equity owners take advantage of a US hotel sector comeback.

The North Carolina-based mid-price hotel chain sold 28.25m shares at $20, raising $565m in its IPO.

Extended Stay's owners are taking the hotel chain public three years after buying it out of bankruptcy, the latest twist in the company's turbulent history.

The shares, held by New York-based Blackstone Group, Centerbridge Partners and Paulson & Co, priced above the midpoint of their expected $18 to $21 range. These groups are not selling any stock in the IPO and proceeds will be used to repay debt.

Extended Stay sold just over 14 per cent of the company in the IPO, giving it a valuation of about $4bn.

The first branded hotel operator to go public since Hyatt in 2009, Extended Stay is a precursor to Blackstone's $1.25bn public offering of Hilton Worldwide.

Blackstone, which owns more than 200,000 hotel rooms in the US alone through its portfolio companies, is looking to unwind a series of commercial property holdings as equity markets improve.

This year is set to be a record one for US hotel IPOs by dollars raised, Dealogic said, amid a stronger global economy that has bolstered the sector. Extended Stay's owners are taking advantage of a rally in hotel stocks, a rebound in room rates, occupancy levels and business travel.

Extended Stay, which owns 682 US and Canadian hotels, focuses on corporate clients who spend weeks rather than days away. Hyatt, Marriott and Hilton are all increasing their presence in this extended stay segment, attracted by lower expenses and higher margins.

Extended Stay has changed hands several times in the past few years. Blackstone first acquired the chain in 2004 for $3bn when the hotel sector was still suffering from the fallout of the 2001 terrorist attacks.

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A year later Blackstone joined Centerbridge, which had worked to restructure Extended Stay debt, and Paulson to buy the hotel chain out of bankruptcy for $3.9bn.

The trio renovated rooms, consolidated properties under the Extended Stay brand and hired former Starbucks chief executive Jim Donald to turn the company around. Extended Stay posted net income of $98m on $864.1m in revenues in the first nine months of this year, up from $55.3m and $760.9m in the same period a year ago.

While analysts have praised the company's recent growth they have questioned its outlook. Ryan Meliker at MLV said: "The growth opportunity for the large branded operators is in emerging markets but Extended Stay does not have a footprint abroad. Will it attempt to build out its brand outside the country or branch out into a full service model?"

The company will list its shares on the New York Stock Exchange under the symbol STAY. Deutsche Bank, Goldman Sachs and JPMorgan are the IPO's lead underwriters.

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