Extended Stay Send sLetter To Shareholders In Support Of Transaction With Blackstone And Starwood Capital

Author: Bill Haddad | May 14, 2021 07:34am

New Letter to Shareholders Provides Comprehensive Discussion of the Transaction Rationale and the Immediate, Certain and Compelling $19.50 Per Paired Share Cash Value
 

Addresses Tarsadia's Misleading and Flawed Arguments

Urges Shareholders Vote "FOR" the Transaction on the WHITE Company Proxy Card in Vote Set for June 8, 2021

CHARLOTTE, N.C., May 14, 2021 (GLOBE NEWSWIRE) -- Extended Stay America, Inc. ("ESA") and its paired-share REIT, ESH Hospitality, Inc. ("ESH" and, together with ESA, "Extended Stay" or the "Company") (NASDAQ:STAY) today sent a new letter to shareholders detailing the strategic and economic factors that support the transaction with Blackstone and Starwood Capital, and addressing the misleading and highly flawed arguments from Tarsadia Capital LLC ("Tarsadia").

The transaction has received all regulatory approvals and is on track to close on June 11, 2021 pending shareholder approval. The letter urges shareholders to vote to approve the transaction at the Company's Special Meetings of Shareholders scheduled for June 8.

Compelling Shareholder Value: The Right Price, The Right Process, The Right Time

The letter provides a comprehensive discussion of the history, and the compelling strategic and economic rationale for the transaction with Blackstone and Starwood, which includes:

• The Right Price: At $19.50, the transaction values the Company's paired shares at more than a 50% premium to their pre-pandemic price, and at a 15.6x trailing 2020 EBITDA multiple, 13.0x forward 2021E EBITDA multiple and 11.0x pro-forma 2019 EBITDA multiple, compared to its one-year pre-COVID average next twelve month multiple of 9.1x. Further, since the sale transaction announcement on March 15th, the lodging sector has traded down 9.5% implying an even greater transaction premium amidst an increasingly more volatile market.
• The Right Process: The transaction marks the culmination of the Company's thorough, multi-year actions to explore value-enhancing alternatives, during which time only Blackstone and Starwood emerged as interested parties despite proactive outreach to others and the Company's publicly acknowledged "strategic review" process in 2019. Rigorous negotiations driving five price increases over two months resulted in $19.50 as the buyers' "best and final" offer.
• The Right Time: The Company's unique extended stay business model and recently implemented strategic initiatives led to significant operating and share price outperformance during the pandemic. The transaction comes at a time and at a valuation such that the future upside expected in the Company's 5-year business plan, which projects 2023 EBITDA to exceed 2019 by approximately 10%, is reflected in the transaction price on a time and risk-adjusted basis.
   

Tarsadia's Misleading Claims and Highly Flawed Arguments Offer No Clear Path to Value Creation

Extended Stay welcomes open communication with its shareholders and constructive input toward the shared goal of enhancing shareholder value. However, many of Tarsadia's claims are misleading, as detailed in the letter, and provide no credible alternative path to value creation. Among them:

• Tarsadia is focused on an agenda of ill-advised alternatives for the Company: After nine months of engagement, Tarsadia has offered no new and credible ideas for value creation, and instead has focused on ill-conceived and even irresponsible ideas of levered share repurchases and variations on OpCo/PropCo that bear no merit.
• Tarsadia's valuation claims are flawed and hypocritical: In Tarsadia's own "white paper," shared with the Company in October 2020, Tarsadia asserted that Extended Stay should be valued at 10x EBITDA, directionally in-line with the Company's 5-year pre-COVID average of 9.5x, yet today argues the Company should only transact at EBITDA multiples more in line with luxury hotel businesses (15-20x). Comparing Extended Stay to these fundamentally different businesses – ones that the market clearly does not consider as Extended Stay's peers – is simply not credible.
• Tarsadia's claims that the two dissenting directors were "ignored" and "brushed aside" are patently false: Strong and diverse opinions are to be expected, particularly following a pandemic when views of operating outlook, risk tolerance and value may vary. The Boards are proud of having created a forum for opposing views to be voiced, listened to and respected. The lack of unanimity reflects best-in-class governance and a highly qualified board with independence and diversity of thought.
   

Extended Stay strongly recommends that shareholders vote "FOR" the proposal on the WHITE proxy card to approve the transaction and secure the certain, immediate and compelling value of $19.50 per paired share in cash.

Posted In: STAY