Wall Street Journal Wrong About Lightstone? I Don’t Think So.

Andrew Calvo | December 15, 2008 | 0 Comments

Last week I wrote an post based on an article from the Wall Street Journal about the Lightstone Group being forced to give control of Extended Stay Hotels back to the banks due to cash liquidity problems expected to occur in the next 60-90 days.

I came across a blog post from Hotel News Now’s Assistant News Editor Patrick Mayock who saw a press release from Lightstone which said:

“Extended Stay Hotels had no discussions or interaction with the Wall Street Journal on today’s story. 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.”

That statement doesn’t directly dispute the fact that it may experience problems within 60-90 days, and the WSJ article never even said that it isn’t in compliance with its debt terms – it merely was referring to what would happen in a few months time if economic conditions continued to deteriorate. Coming out with this statement is risky because if 60-90 days down the road Extended Stay does miss debt payments and/or banks seek to gain control of the company I find it hard to believe that Extended Stay & Lightstone didn’t see it coming and suddenly woke up and realized they had a problem. Major corporations and banks especially in this economy are not that ill informed about their own financials and the financials of a large loan.

Secondly – whether Lightstone or Extended Stay Hotels had any interaction or discussion with the WSJ prior to the article being published has no bearing on anything.

Thirdly, the Extended Stay segment is a great segment to be in – and the potential of the segment in the future is great, but banks don’t care about the future if you’re not going to be able to pay your debt payments.

The Wall Street Journal isn’t some fly-by-night operation which writes a story based on a rumor a reporter may hear while walking down a street in Manhattan. I hate to say it, but I feel there is some strong validity behind the WSJ’s article and especially since the statement that Patrick Mayock quoted doesn’t directly dispute anything in the article – I think Extended Stay is running into problems.

I’ve heard reports of hotels in some areas having less than 25% occupancy, and special events and banquets being cancelled left and right due to cost concerns. While hotels of all types are still good invesmtnets for the long term – the short term prospects for them, especially if it was an overleveraged transaction to begin with is a completely different story.

I’ll keep you all posted with any more updates that come out of this event.

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