This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Deal Could Signal More Hotel Buyouts

The $19.63-a-share takeout price is fairly rich for a chain whose stock made its debut in 1995 only 16% below its current level, split adjusted. The company has piled on properties at a much better clip than revenue: it went from 392 to 472 in the three years ending in 2003, a period during which revenue rose only 6%. Extended Stay earned $40.4 million in 2003, off 29% from the prior year.

The lackluster performance was reflected in ESA's share price in 2003. While the Dow Jones Hotel and Lodging Index racked up a 50% gain last year, ESA shares fell 1.8%.

But given Blackstone's experience in the sector, the hope is that the sum of the parts it has collected will be worth a more than the premium it paid.

"We are excited to be acquiring Extended Stay America," said Stephen Schwarzman, president and CEO of the Blackstone Group. "This transaction will benefit from our long track record and existing expertise in the hotel sector, [which] augurs well for the future of the company."

But by paying up for ESA, said Citigroup Smith Barney analyst Michael Reitbrock, Blackstone is also sending a message that other publicly traded hotel stocks are not overpriced, given ESA's recent underperformance.

"The fact that a sophisticated, long-term investor is willing to pay a significant premium to market valuation and to 'look through' high current valuations will ease investor concerns that the stocks are 'ahead of themselves.' And the deal may set off a small wave of acquisition speculation," he said in a research note.

That speculation could bear out in a deal or two, Reitbrock said, but he doesn't see the Blackstone move on Extended Stay as part of a larger wave of industry consolidation. The two hotel chains that trade at the largest discount to net asset value, according to Reitbrock, are MeriStar Hospitality (MHX), which owns about 110 hotels baring a variety of brands, and FelCor Lodging Trust (FCH), which owns 160 multibrand hotels and failed to acquire MeriStar in 2001. Of the large-cap names, both Reitbrock and Fulcrum Global Partners' analyst Joseph Graff said that Hilton Hotels (HLT - Get Report) would appear to have the most upside if ESA's transaction multiple were applied to earnings estimates.

The ESA buyout had hotel investors in a speculative mood. The Dow Hotels were up 2.8% by Monday afternoon, led higher by ESA and hotel names mentioned in analyst reports. MeriStar gained 73 cents, or 11.7%, to $6.98, while FulCor rose 37 cents, or 3.5%, to $10.93. Hilton was the large-cap leader, up 61 cents, or 3.8%, to $16.57.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
HLT $22.03 -0.04%
ESA $0.95 0.00%
AAPL $93.21 -0.44%
FB $117.80 -0.22%
GOOG $701.26 0.80%


Chart of I:DJI
DOW 17,660.71 +9.45 0.05%
S&P 500 2,050.63 -0.49 -0.02%
NASDAQ 4,717.0940 -8.5450 -0.18%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs