Skift Take

What is the right formula for Blackstone? Two IPOs and a sale or perhaps three IPOs -- namely for Extended Stay America, Hilton, and possibly La Quinta. It is so nice to have options.

Private equity giant Blackstone undoubtedly hopes that the U.S. government shutdown and debt ceiling crises don’t unnerve the markets because as the largest owner/operator of company-branded hotels in North America, it is having quite a run with its La Quinta, Extended Stay America, and Hilton Worldwide holdings.

Consider that Blackstone acquired La Quinta for $2.3 billion plus debt in 2006, and has reportedly just received a half-dozen bids after putting the limited service operator up for sale for roughly $4.5 billion, the Wall Street Journal reports.

The bids reportedly came from rivals, including Choice Hotels, and other private equity firms, while a second round of bidding is expected to be completed within a few weeks.

Given the intense interest in La Quinta, and a renaissance of the limited service sector in general, Blackstone’s testing of the sale waters may be short-circuited by a decision to take La Quinta public and retain control of it, instead of selling it outright.

After all, Blackstone is in the midst of IPO tries for Extended Stay America and Hilton, with Extended Stay America being at a more advanced stage.

Extended Stay America IPO

In July, Blackstone filed its registration statement for mid-price Extended Stay America, indicating for fee-calculating purposes that it would seek to raise $100 million.

But, an S-1/A amended registration statement filed October 8 indicates that Blackstone could raise as much as $500 million for Extended Stay America, with the brand being valued at $3 billion to $4 billion, excluding debt.

Blackstone has an extended history with Extended Stay America, having acquired Extended Stay America for $2 billion in cash in 2004, before selling it three years later to the Lightstone Group for $8 billion just before the market collapsed.

Not a bad return for Blackstone’s investors.

But then came the 2007 recession, which took down the hotel industry.

“Blackstone and two other institutional funds ended up controlling the portfolio again, buying it [Extended Stay] out of bankruptcy for $3.9 billion, less than half the former sales price,” according to a Costar Group article.

So Blackstone acquired Extended Stay in 2004, improved it, sold it at a big profit in 2007 after adding 255 properties to the portfolio, and then helped reacquire it with others in 2009 at a steep discount.

Now Blackstone’s investors are poised to cash in again with an Extended Stay IPO.

Hilton Worldwide IPO

HIlton would be next in line for going the IPO route following Extended Stay America if all goes right.

Blackstone, which acquired Hilton for nearly $27 billion in 2007, filed IPO papers for Hilton in September, citing $1.25 billion as the amount of money it would hope to raise.

Industry analysts say Blackstone ultimately will probably try to raise at least $2 billion for Hilton, which has been very profitable under the Blackstone regime. The proceeds would be used to pay down debt.

Blackstone has some very valuable hotel chess pieces to play around with, and if it ultimately decides to go the IPO route with La Quinta instead of selling it, that would potentially make for an IPO trifecta.

That’s if a gridlocked Congress doesn’t mess the whole thing up by triggering a global economic crisis.

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Tags: blackstone, extended stay america, hilton, ipo, la quinta

Photo credit: An exterior shot of the Hilton Midtown in New York. Andrew Kelly / Reuters

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