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The Blackstone Group Now Controls 1,430 Hotels; Some Speculate
 Blackstone Preparing an Initial Public Offering
By Joe Lauria in New York, The Business, London
Knight Ridder/Tribune Business News

Feb. 26, 2006 - The Blackstone Group's $2.6bn (£1.5bn, E2.1bn) acquisition last week of MeriStar Hospitality's 57 hotels is the latest piece of the private equity group's expanding hotel empire and yet another sign of consolidation in the industry.

It was Blackstone's fifth hotel chain takeover in just 12 months at a cost of nearly $12bn. It spent $3.4bn in the past year acquiring the La Quinta and $3.2bn on Wyndham International groups. It also acquired the posh Righa Royal Hotel in Manhattan.

With La Quinta, Blackstone added more than 590 hotels in 39 states in the US as well as in Canada. Its brands include Baymont Inn & Suites, La Quinta Inns, Woodfield Suites and Bugetel.

Wyndham gave Blackstone 160 North American and European luxury hotels. Last May, Blackstone bought 16 hotels from Sierra Suites.

At the end of 2004, Blackstone owned 654 properties. The new acquisitions in the past year added 776 hotels, giving Blackstone control of 1,430 hotels.

In the latest deal Blackstone paid $10.45 a share or a 5.2 percent premium on MeriStar's closing price on Friday. The price represents 13 times projected 2007 earnings for MeriStar. The deal gives Blackstone control of 57 hotels in 19 states under some of the best-known brand names in the business: Hilton, Holiday Inn, Sheraton, Ritz-Carlton and Westin. Blackstone also assumes $1.6bn in MeriStar debt.

The individual properties include high-end hotels such as the Doral Desert Princess Resort in Palm Springs, California; the Hilton Washington Embassy Row; and the Ritz-Carlton Pentagon City in Arlington, Virginia.

Blackstone had already agreed earlier in February to separately buy nine MeriStar hotels plus a golf and tennis club in Florida for $367m.

Scooping up these hotels has led to speculation on Wall Street that Blackstone is preparing an initial public offering (IPO) for its hotel property unit. Blackstone is refusing to comment.

Boca Resorts, Extended Stay America and Prime Hospitality are the other brands in its hotel portfolio.

Blackstone is not alone in building a hotel empire. The MeriStar deal comes against the backdrop of other high profile hotel acquisitions, such as Saudi Prince Alwaleed bin Talal and Colony Capital paying $3.9bn in January for Fairmont Hotels, the luxury Canadian chain. Alwaleed is reportedly planning to list his hotel division's shares on the Dubai International Stock Exchange.

Host Marriot last year jumped on the consolidation bandwagon, buying 38 properties from Starwood Hotels and Resorts and Worldwide. In New York, these included the W hotel in Times Square and the Sheraton New York Hotel & Towers.

Rumours of more industry consolidation swirl on Wall Street. There is talk that Four Seasons and Orient Express hotels could also soon lure suitors. Such activity was unthinkable three years ago when the hotel business was suffering the aftermath of the 11 September 2001 attacks that plunged the travel industry into deep freeze.

But there has been a huge rebound in the hotel business in the past two years. In 2005, operating income at America's hotels soared 19.4 percent on average, according to data compiled by PKF Consulting. Analysts see continued growth for the rest of the decade. So much money is being made that some properties may be undervalued, analysts say.

The MeriStar board has approved the deal with Blackstone, which is expected to close in the second quarter, pending approval by shareholders.


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