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ESH Hospitality (NYSE:STAY), the largest company-branded owner and operator of hotels in North America with principal offices in Charlotte, N.C., plans to raise $200 million in its upcoming IPO. The firm will offer 28.25 million shares at an expected price range of $18-$21 per share. If the IPO hits the midpoint of that range at $19.50 per share, STAY will command a market value of $3.9 billion.

  • STAY filed on July 22, 2013.
  • Lead Underwriters: Deutsche Bank Securities, Goldman Sachs & Co, JP Morgan Securities LLC
  • Underwriters: Barclays Capital Inc, Blackstone Advisory Partners LP, BofA Merrill Lynch, Citigroup Global Markets, Houlihan Lokey Capital, Macquarie Capital, Morgan Stanley & Co LLC, Robert W. Baird & Co, Stifel Nicolaus & Co.

Summary

As the largest owner and operator of company-branded hotels in North America, STAY owns and operates 682 hotel properties across 44 American and Canadian States. 630 of these hotels are run through the firm's core Extended Stay America brand and serve the mid-price extended stay segment. Extended Stay America-branded hotels represent approximately half of the American mid-price extended stay segment. The firm also owns and operates three similar hotels under the Extended Stay Canada brand, along with 49 economy extended stay hotels under the Crossland Economy Studios and Hometown Inn brands.

The hotels are targeted toward individuals in need of temporary housing -- including travelers, professionals on temporary assignments, and those in the process of purchasing homes -- and generally rent for periods of a week or longer. In 2012, the firm demonstrated impressive occupancy figures with a 73.3% overall occupancy rate, more than 10% better than the national average.

Valuation

STAY offers the following figures in its S-1 balance sheet for the six months ending June 30, 2013:

  • Revenue: $550,393,000
  • Net Income: $51,456,000
  • Total Assets: $4,566,418,000
  • Total Liabilities: $3,761,437,000
  • Stockholders' Equity: $803,076,000

Business

STAY must compete with other major traditional and extended-stay hotel companies in the United States in Canada. Major competitors include Hilton Worldwide, InterContinental Hotels Group (NYSE:IHG), Best Western International, Super 8 Worldwide, and Marriott International (NASDAQ:MAR). The firm must also compete with Internet travel sites like Priceline.com (NASDAQ:PCLN), Travelocity.com, and Expedia.com (NASDAQ:EXPE).

Management

CEO James L. Donald, who joined the firm in 2012, has over 35 years of experience in multiple-unit consumer-facing and brand-based industries, most impressively as the president and chief executive officer of Starbucks. Donald comes with a high price tag -- his total excessive compensation for 2012 exceeded $8 million -- but his background makes him well worth it.

CFO Peter J. Crage has over 20 years of experience in the leisure industry; Crage previously served as CFO of Cedar Fair Entertainment Company, a regional amusement-resort company. Chief Marketing Officer Thomas Seddon has over 20 years of experience in the hospitality industry including a stint as the chief marketing officer of InterContinental Hotels Group.

Conclusion

This IPO is rated a Buy in the proposed $18 to $21 range, and we believe the deal is already oversubscribed. Since its acquisition out of bankruptcy in 2010, the firm has had sufficient capital to take advantage of its exceptional resources -- heavily coastal locations, national footprint, and significant market share -- through improved systems and branding (the firm consolidated five brands into one to produce a unified image).

The firm has also put significant funds toward improving and renovating its hotels (so far, 455.1 million have been spent out of a $626.4 million capital program). Its excellent revenue and income figures are the result. The firm's highly experienced management team, including the former CEO of Starbucks as its own chief executive, is also a promising sign.

Source: ESH Hospitality IPO Is Not A Sleeper