CHARLOTTE, NC-In the second real estate IPO of the week, as well as the second from a company in the Blackstone Group stable, Extended Stay America Inc. and ESH Hospitality Inc. said Thursday that they've commenced an offering of 28.25 million common shares. With pricing between $18 and $21 per share, it's expected to raise as much as $593 million. Proceeds will go mainly to repay some of ESH REIT's indebtedness.

A partnership of Blackstone, Centerbridge Partners and Paulson & Co. acquired Extended Stay out of bankruptcy for $3.9 billion in October 2010. Bloomberg reported that now is the time to launch such an IPO, given stock prices that are near historic highs and the growth in occupancy and RevPAR the lodging sector is experiencing.

In its registration statement, Extended Stay notes that it's the largest owner/operator of company-branded hotels in North America, with 682 properties comprising approximately 75,900 rooms across 44 states and in Canada. “We believe that extended stay hotels generally have higher operating margins and lower occupancy break-even thresholds compared to traditional hotels, primarily as a result of the efficiencies of a longer average length of stay with lower guest turnover and lower operating expenses.”

That being said, Extended Stay acknowledges that when the Blackstone-led partnership acquired the company three years ago, its RevPAR was “significantly lower than our nearest competitors in the mid-price extended stay segment.” Under-capitalized hotels, a lack of brand awareness and an operating platform that lacked industry-standard practices all were seen as factors, and the company credits “a highly qualified management team” with great strides in occupancy and operating margins.

Extended Stay has given the underwriters an option to buy up to 4,237,500 shares. Joint book-running managers on the IPO are Deutsche Bank, J.P. Morgan and Goldman Sachs. An IPO from another Blackstone-owned lodging company, Hilton Worldwide Holdings Corp., is expected before year's end.

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