UPDATE: Extended Stay Hotels Inc. on Brink?

Extended Stay Hotels Inc. could be the first chain-wide casualty of the economic downturn. According to a Wall Street Journal story Monday, the company's owner, Lightstone Group LLC, is in talks that could potentially turn over the chain to its lenders. Later in the day, Extended Stay Hotels issued a statement refuting parts of the story.

Lightstone bought the company from the Blackstone Group for $8 billion in April 2007, at the peak of the lodging bubble that was soon to burst. At the time, the chairman and CEO of the privately held real estate company, David Lichenstein, said: "I didn't know much about the hotel business, but the price was right and it was a good deal."

The highly-leveraged deal turned quite a profit for Blackstone, which bought the chain of extended-stay hotels in 2004 for $3 billion. Five brands--Extended Stay Deluxe, Extended Stay America, Homestead Studio Suites, StudioPlus and Crossland--make up Extended Stay Hotels and its nearly 700 properties across the U.S. and Canada. What happens to those properties and the 13,000 employees that make up the company, according to the WSJ, remains to be seen. Layoffs and/or closings could be a possibility.

The weakening economy and a sudden drop in RevPAR, according to the WSJ story, have crippled Extended Stay Hotels' cash flow and forced the company into talks with its lenders. A transfer of ownership could be imminent if the company's fortunes don't turn quickly.

"Extended Stay Hotels had no discussions or interaction with the Wall Street Journal on (Monday's) story)," the company's statement reads. "The company remains in compliance with all of its debt terms. It is profitable on an operating basis, is current with its vendors and intends to remain so. The business model remains a viable one, and we expect to continue to improve and grow the business."

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