Extended Stay America announced that subsidiaries of the company, including subsidiaries of ESH Hospitality, the company’s REIT subsidiary, signed a definitive agreement to dispose of 53 U.S. economy extended-stay hotels and Crossland Economy Studios intellectual property for $285 million in cash, subject to customary adjustments. The disposition of the 47 Crossland Economy Studios branded hotels and six similarly positioned Extended Stay America branded hotels will complete the company’s transition to a single, nationwide brand.
These 53 hotels to be sold have not been renovated under the company’s ongoing renovation program and generated RevPAR of $27.89 for the last 12 months ended June 30, 2015, compared with RevPAR of $45.95 generated by the remaining 629 hotels owned and operated by the company over the same period. The 53 hotels to be sold generated approximately $29 million of Adjusted EBITDA for the last 12 months ended June 30, 2015. The transaction is expected to close in the fourth quarter of 2015, subject to customary closing conditions.
ESH REIT currently expects to use its net proceeds from the transaction to reduce debt and for future capital expenditures and/or acquisitions, in compliance with its existing debt agreements. In addition, ESH REIT expects to make a special one-time distribution approximately equal to the taxable gain on the sale. No distribution has yet been declared, and there can be no assurance that any distribution will be declared or paid. The company expects the transaction will improve RevPAR and reduce leverage on a pro forma basis. Further details will be disclosed shortly after completion of the sale.
“We believe our strongest growth opportunity is within our Extended Stay America branded hotels. This transaction allows us to focus our resources on the renovation and marketing of a single brand, is financially attractive and improves our product quality and marketing effectiveness,” stated Extended Stay America’s Chief Financial Officer, Jonathan Halkyard.
Third Quarter and Full Year 2015 Outlook
The company re-affirms its previously stated third quarter and full year 2015 revenue and adjusted EBITDA guidance inclusive of the 53 properties to be disposed.