A joint venture between affiliates of Blackstone Real Estate Partners and Starwood Capital Group, with a plan to take Extended Stay America private, is offering $4.6 billion in commercial mortgage pass-through certificates.
The certificates will represent ownership interests in the Extended Stay America Trust 2021-ESH, as part of a larger plan by Blackstone and Starwood Capital plan to take Extended Stay America private.
After shareholder approval, the acquisition closed on June 16, according to Morningstar, in a deal that valued the lodgings operator at $20.50 per share, according to news reports.
The capital structure includes two senior classes, A and A-1, with $1.7 billion and $400 million in notes, respectively, and both ‘AAA’ rated by FitchRatings. The certificates have a final maturity of July 2038.
Extended Stay America is considered a pandemic success story, because its affordable monthly rates and configuration, with small kitchens, appealed highly to traveling medical professionals and other itinerant essential workers throughout the pandemic, according to CNNBusiness.
That appeal to COVID-19 essential workers is a natural extension of its customer base, which includes corporate clients like construction workers, traveling medical providers, warehouse personnel and other project-based workers. Other steady customer types included small business travelers and leisure travelers.
That didn’t mean the company escaped all of COVID-19’s damaging effects. Fitch notes that ESA’s portfolio’s revenue per available room, or RevPAR, was down 6.4% in Q1 2021. Still, it fared far better than the overall U.S. hotel industry, which experienced a devastating RevPAR slide of 41.9%.
Looking ahead, and Extended Stay America posted attractive numbers in April 2021. For that period, its monthly RevPAR of $50.98 was 51.9% higher than the $33.56 posted the same period a year before. It was just 2.3% lower than April 2019’s RevPAR of $52.16, according to Fitch.
The pass-through deal benefits from significant equity from sponsors Blackstone and Starwood, which placed $1.64 billion toward the transaction, Fitch says. That portion represents 26.5% of the estimated total transaction cost of $6.2 billion.
In another positive, this time with a more cumulative effect, the Extended Stay America portfolio has benefited from an average annual capex of $140.7 million, at $2,330 per key, or room in active service. That breaks down to a maintenance capex of $792.8 million, and property upgrades and renovations at $614.6 million.
The pandemic, however, is still an overhanging concern for the hotel industry, according to Fitch.
