Extended Stay Hotels LLC filed for Chapter 11 bankruptcy protection on Monday, citing massive debt stemming from its 2007 acquisition by the Lightstone Group and a sharp drop in business travel due to the recession.
The Spartanburg, S.C.-based company's brands include Extended Stay Deluxe, Extended Stay America Efficiency Studios, Homestead Studio Suites, StudioPLUS Deluxe Studios and Crossland Economy Studios. The privately held company owns more than 680 hotels in the U.S. and Canada catering to long-term business travelers. The hotels are managed by HVM LLC, a separate company.
In June 2007, just as the hotel market peaked, the Lightstone Group, one of the country's largest private real estate investors, bought Extended Stay from private equity firm Blackstone Group LP. Lightstone financed the purchase with about $7.4 billion in loans.
By last summer, hotel occupancy was softening, and it declined sharply after September. Led by a drop in corporate travel, that decline has accelerated as businesses have cut their staffs and their spending.
"The tightening credit markets, the reduction in construction activity and increased unemployment have decreased the demand for extended-stay accommodations, as fewer construction sites, consulting opportunities and travel plans are coming to fruition," the company said in court documents.
Guests at Extended Stay's hotels lodge an average of 18 to 20 nights, compared with two to three nights at other hotels, HMV said in a statement released Monday.
Extended Stay's revenue totaled about $1 billion in 2008. Revenue per available room, or revpar, at its hotels tumbled 23.2 percent last year. Revpar is a key gauge of a hotelier's performance because it measures both occupancy and room rates.
According to the bankruptcy documents, Extended Stay's assets totaled about $7.1 billion at the end of 2008, while it had roughly $7.6 billion in debt.
The bankruptcy filing allows Extended Stay's hotels to continue operating while the company attempts to reorganize its finances under court supervision.
HVM President and CEO Gary DeLapp said, according to the HMV statement, that guests should not notice any changes in the company's services because of the bankruptcy filing.
"All hotels are open and welcoming guests as usual," he said.
DeLapp said Extended Stay doesn't plan to close or sell any hotels, and he expects employees and corporate staff to continue receiving their usual pay and benefits. Extended Stay, through HVM, employs about 10,000 employees in its hotels and facilities.
"Our end of the business — hotel operations and administration — remains strong on an operating basis," DeLapp said. "Because we generate significant positive cash flow, ESI does not need (debtor-in-possession) financing to meet its operating obligations."
Extended Stay filed in the U.S. Bankruptcy Court in the Southern District of New York on Monday. A company representative did not immediately respond to a request for further comment.
Extended Stay has retained the law firm of Weil, Gotshal & Manges LLP and financial adviser Lazard Freres & Co.