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Blackstone is Poised to Cash In On Bull Market With Brand IPOs

Thursday August 22nd, 2013 - 9:44AM


For years, many in the industry have wondered aloud just how long Blackstone Group, the private equity investment behemoth, would have a significant amount of skin in the hospitality game. After all, the notoriously quiet firm did little to reveal its long-term plans and exit strategy following its entry into the industry with the purchase of Prime Hospitality and Extended Stay America in 2004.

But the company, which has grown to become the largest owner in the hotel industry with some 200,000 rooms, has always been seen as a short-term player in this industry and not a true hospitality company and with good reason. Yet some nine years after its initial investment into the lodging industry, the company has only grown in size and scope and now represents the proverbial 800-pound gorilla. After all, Blackstone has been stockpiling hotel companies over the past several years, such as La Quinta in 2005, Hilton Hotels Corporation in 2007 and Motel 6 most recently, just to name a few.

But it seems the company’s strategy is finally coming into focus and that includes cashing in some, if not all, of its branded hotel chips. The company recently filed for an IPO for Extended Stay America and has hired JP Morgan Chase & Co. and Morgan Stanley to explore either a sale or an IPO for La Quinta, reportedly in the fourth quarter. And speaking of 800-pound gorillas, the long-anticipated IPO for Hilton Worldwide finally seems to be coming to fruition as Blackstone has acknowledged it has begun preparations for an offering that is likely to occur in the first half of 2014.

While Blackstone likely was planning an exit much sooner, market and economic conditions just didn’t make sense during the last several years and opportunities to purchase what it saw as undervalued companies kept presenting themselves. Such was the case this fall when the company completed its purchase of Motel 6.

But fortunately the world has changed. The Dow Jones continues to rise and hospitality seems to be once again in the good graces of Wall Street. As an example, shares of companies like Starwood Hotels & Resorts and Hyatt Hotels have risen by more than 15% thus far this year. In addition, The Bloomberg index of hotel REITs has jumped 18% in the past 12 months, reaching a five-year high. Throw in the fact that Hilton experienced a 17% rise in pro forma earnings for the first half of the year and it’s no wonder Blackstone thinks it can raise a few dollars.

While the number of shares and pricing for Extended Stay America hasn’t been set, the proceeds from the IPO are expected to help the company pay off some $3.6 billion in debt. Suffice it to say, the aforementioned sales and/or IPOs will dramatically alter Blackstone’s involvement in the industry, at least for the time being. However, these moves will also alter the landscape of the lodging industry.

The end result would be very few privately held major brand companies left. Private companies can behave differently than public companies. They are not slaves to growth for the sake of growth to meet quarterly numbers or impress shareholders. They can take a more long-term approach. I’m not saying that’s good or bad, just reality.

The reality for Blackstone is the market has finally turned and the company is poised to take advantage of it. The question many in the industry may be asking, tongue planted firmly in cheek, is “what took you so long?”

 

To comment on this article please contact me at DennisN@hotelbusiness.com