Extended Stay America Files Preliminary Proxy Statement and Reiterates Board and Management Support for Acquisition Agreement With Blackstone and Starwood Capital
Transaction Provides Immediate, Certain and Compelling Value to Shareholders
Represents Superior Value to the Continued Execution of Extended Stay’s Strategic Plan on a Time and Risk-Adjusted Basis
Marks Culmination of Thorough Actions to Explore Value-Enhancing Alternatives
The preliminary proxy statement outlines the background of the transaction and the reasons the Boards of Directors of the Company strongly support the transaction, which include:
- Immediate, certain and compelling value to shareholders
- Superior value to the continued execution of Extended Stay’s strategic plan on a time and risk-adjusted basis
- Culmination of thorough actions to explore value-enhancing alternatives
“As a result, our Boards have a well-informed and realistic assessment of a full range of value enhancing alternatives together with their potential benefits and risks, and determined that this transaction, with its significant multiple premium over both our pre-pandemic and current paired share price, to be in the best interests of our paired shareholders. We are pleased to provide shareholders today with additional context regarding the rigorous and thoughtful process that our Boards conducted in collaboration with our management team and outside advisors, in our preliminary proxy statement, which is now on file with the SEC.”
The preliminary joint proxy statement details the benefits of the transaction, including:
Immediate, certain and compelling value to shareholders
- The transaction provides a significant premium to shareholders
○ A 51% premium to the company’s pre-pandemic share price2
○ A 15% premium to the
○ A 23% premium to the 30-trading day volume weighted average price
○ A 28% premium to the 3-month volume weighted average price
○ A 44% premium to the 6-month volume weighted average price
○ A 76% premium to the 12-month volume weighted average price
○ A 15% premium to the 52-week high closing price
- The transaction represents a valuation well above Extended Stay’s historic EBITDA multiple
The transaction values the Company at 11.0x EBITDA for 20193, the most recently completed fiscal year prior to the pandemic, which reflects EBITDA that was 42% above that achieved in 2020, 19% above 2021 estimated consensus EBITDA and a level that is not expected to be achieved again until at least 2023, assuming successful execution of STAY’s strategic plan.
The transaction values the Company at 15.6x 2020 EBITDA, 13.0x 2021 estimated consensus EBITDA and 11.6x 2022 estimated consensus EBITDA. These represent significant premiums to where Extended Stay has consistently traded over its time as a public company, averaging a 9.5x NTM EBITDA multiple over the five years prior to the pandemic, and 9.1x NTM EBITDA for the year prior to the pandemic.4
The transaction provides superior value to the continued execution of Extended Stay’s strategic plan on a time and risk-adjusted basis
- The transaction provides certain value in place of execution risk
At the core of the Boards’ decision to endorse this transaction was an assessment of the risk-adjusted present value of the Company’s stand-alone business plan as the industry recovers from the pandemic, weighed against the certainty of
The Boards, with the assistance of the management team and outside advisors, carefully evaluated the prospects of the Company’s standalone strategic plan and the risks inherent in the execution of the multiple aspects of the plan. Specifically, the Boards considered the following factors based on management’s judgment, among other things:
○ Significant Capital Needs: The magnitude of capital necessary to maintain and renovate the Company’s real estate assets which are on average more than 21 years old and at replacement age for many significant components. In management’s view, the real estate needs at least
○ Expense Growth Pressures: Management’s outlook for property level performance, including both potential revenue gains and related cost considerations, with labor costs and certain other expenses facing above inflationary pressures;
○ Value Contribution from Asset Dispositions: An assessment of the Company’s asset disposition program including the realistic volume and value of asset sales, the uncertain contribution to multiple uplift from deployed sale proceeds and the ability to reduce the cost structure of the remaining business; and
○ Franchise Program Time Frame and Contribution: Expectations as to the size, EBITDA contribution, and time frame necessary to execute the Company’s franchise program.
The transaction marks the culmination of thorough actions to explore value-enhancing alternatives
- Prior strategic review processes yielded unattractive premia and limited buyer universe
Over the last four years the Company has conducted numerous private strategic review processes, none of which, in the Boards’ judgment, yielded compelling value alternatives for the Company's shareholders in comparison to the risk-adjusted value of management’s plan at the time. In each process where the Boards solicited and entertained offers for the whole Company, no credible bidders other than
- “OpCo/PropCo” transaction explored extensively, but determined to yield unattractive and uncertain risk-adjusted value creation vs. whole Company strategy
The Company’s Boards and management team have evaluated an OpCo/PropCo transaction extensively for several years, including the Boards’ comprehensive exploration in 2018-2019 of a transaction involving the sale of the OpCo and the REIT remaining as a standalone public company. At the conclusion of the process in
The Company has continued to periodically study the merits of an OpCo/PropCo transaction together with its advisors, including in connection with the contemplated transaction with
The Boards and management look forward to continuing to engage with shareholders about this transaction in the days and weeks ahead.
About the Company
Additional Information and Where to Find It
This communication may be deemed to be solicitation material in respect of the proposed acquisition of Extended Stay America, Inc. and ESH Hospitality, Inc. (together, the “Companies”) by a joint venture of Blackstone Real Estate Partners and Starwood Capital Group. In connection with the proposed transaction, the Companies filed with the Securities and Exchange Commission (“SEC”) on
Participants in Solicitation
The Companies and their respective officers and directors may be deemed to be participants in the solicitation of proxies from the stockholders of the Companies in connection with the proposed transaction. Information about the Companies’ executive officers and directors and their respective direct and indirect interests in the proposed transaction is set forth in the preliminary joint proxy statement with respect to the proposed transaction filed by the Companies with the
Certain statements contained in this document constitute “forward-looking statements” within the meaning of the federal securities laws. All statements other than statements of historical facts included in this document may be forward-looking, including statements regarding, among other things, the Companies’ ability to meet their debt service obligations, future capital expenditures (including future acquisitions and hotel renovation programs), their distribution policies, their development, growth and franchise opportunities, anticipated benefits or use of proceeds from dispositions, their plans, objectives, goals, beliefs, business strategies, business conditions, results of operations, financial position and business outlook, business trends and future events, including the COVID-19 pandemic, its effects on the foregoing, government actions taken in response to the COVID-19 pandemic and actions that the Companies have taken or plan to take in response to the pandemic and such effects. When used in this document, the words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “will,” “look forward to” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, and are based upon the Companies’ current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond their control. There can be no assurance that management’s expectations, beliefs, estimates and projections will be achieved, and actual results may differ materially from what is expressed in or indicated by the forward-looking statements.
There are a number of risks, uncertainties and other important factors, many of which are beyond the Companies’ control, that could cause their actual results to differ materially from the forward-looking statements contained in this communication. The potential risks and uncertainties include, among others, the possibility that Extended Stay America, Inc. may be unable to obtain required stockholder approvals or that other conditions to closing the proposed mergers may not be satisfied, such that the proposed mergers will not close or that the closing may be delayed; general economic conditions; the proposed mergers may involve unexpected costs, liabilities or delays; risks that the transaction disrupts current plans and operations of the Companies; the outcome of any legal proceedings related to the proposed mergers; and the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement. For more details on these and other potential risks and uncertainties, please refer to the preliminary joint proxy statement and the documents that the Companies file with the SEC. All forward-looking statements speak only as of the date of this communication or, in the case of any document incorporated by reference, the date of that document. The Companies are under no duty to update any of the forward-looking statements after the date of this document to conform to actual results, except as required by applicable law.
1 Compared to the 25th-75th percentile range for historical REIT premia to the 30-trading day VWAP, 3-month VWAP and 52-week high closing price of 16%-26%, 16%-28% and (7)%-11%, respectively.
2 Pre-pandemic stock price calculated using the VWAP from
3 FY 2019 pro forma for Nov-2020 asset sale.
4 Represents the five- and one-year period preceding 21-Feb-2020, the last day prior to the COVID sell-off.
Source: Extended Stay America, Inc.