News for the Hospitality Executive
|By Chris Winston, Herald-Journal, Spartanburg, S.C.
Knight Ridder/Tribune Business News
Mar. 21, 2004 - The combination of Extended Stay America and Homestead Village will create a dominant force in extended-stay lodging, experts say, at a time when the industry appears primed for a rebound. Officials from Spartanburg-based Extended Stay announced two weeks ago a $3.1 billion buyout offer from the Blackstone Group, a New York-based investment company and parent of Homestead.
While the acquisition could be three months away, and awaits shareholder approval, analysts say the new lodging company will have an unprecedented share of the market that has grown to 1,950 properties and 222,000 rooms.
Information about Homestead is scarce because its parent company is privately held, but the company says it has 132 properties. Added to Extended Stay's 472 properties, the new company will have nearly 31 percent of the total extended-stay lodging market with nearly 70,000 rooms.
"By definition, (the new company) becomes a dominant player in the extended-stay industry," said Pat Ford, president and chief executive officer of Lodging Econometrics, a New Hampshire-based firm specializing in hotel industry real estate investment and supply-side research. "Obviously, (Blackstone) thinks it's a good thing."
Spartanburg native George D. Johnson Jr., who started Extended Stay in 1995, said Blackstone's offer of $19.625 per share is a premium when compared to the company's recent stock values. But the industry recently has faced some of its biggest hurdles since hotel companies began offering dedicated extended-stay lodging facilities 20 years ago.
In 2003, occupancy rates in the extended-stay sector fell for a third straight year, according to Tennessee-based Smith Travel Research. After growing to 74.8 percent in 2000, occupancy rates fell to 70.5 percent in 2001, 68.8 percent in 2002 and 67.6 percent in 2003.
That fall, experts said, was caused by a rise in supply as several companies rushed to build new properties in growing markets and a drop in demand caused by the economic recession and the travel fears after Sept. 11, 2001.
And Extended Stay's occupancy rates fell alongside it, from 80 percent in 2000 to 68 percent in 2002.
But experts said the entire industry is primed for a return in 2004 and beyond.
"They are expecting 2004 to be a good year, and 2005 to be a great year," said Jan Freitag, director with Smith Travel Research. "And the rising tide should raise all ships."
And some of those ships should be docked in Spartanburg. Even though Homestead officials will oversee the three Extended Stay America brands, ExtendedStayAmerica Efficiency Studios, StudioPlus Deluxe Studios and Crossland Economy Studios, those operations are expected to remain in Spartanburg for the time being.
According to a question-and-answer memo drawn up by Extended Stay management for internal purposes and filed with the Securities and Exchange Commission, executives from both companies are working on transition plans. Gary DeLapp, president and chief executive officer of Atlanta-based Homestead, was in Spartanburg this week.
"While there will likely be some changes in staffing, the parties anticipate that the company's headquarters will be maintained in Spartanburg, S.C.," the memo said. "There are currently no plans to re-brand the ESA properties."
Freitag said it doesn't matter where the company's headquarters are, and it wouldn't make sense for Extended Stay America's new owners to combine the properties all under one name.
"It would create confusion in the customers' minds to change them," Freitag said.
It's more likely, Freitag said, that the company will find a way to market all four hotel brands under different price points. Even though Ford wouldn't guess what the company would do with the different hotel brands, he said the new company would need to keep its efficiencies up.
And that could mean running all four brands from one location. While Ford said the entire lodging industry should see a rebound beginning this year, it could take a while longer for the lower-tier extended-stay firms such as Extended Stay and Homestead to see that growth.
"They are going to come back a little bit more slowly," he said. In the meantime, Ford expects even more consolidation, buyouts and acquisitions this year, as the markets come back and investment capital becomes available.
"This is just one of a few (major deals) that are going to happen this year," he said.
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(c) 2004, Herald-Journal, Spartanburg, S.C. Distributed by Knight Ridder/Tribune Business News. ESA,