Extended Stay shareholders vote in favor of acquisition

The recent vote of Extended Stay America shareholders (and its paired-share real estate investment trust, ESH Hospitality) was in favor of the previously announced amended merger agreement under which the company will be acquired by funds managed by Blackstone Real Estate Partners and Starwood Capital for $20.50 per paired share in cash.

Related: Blackstone, Starwood to acquire Extended Stay America for $6B

The closing is currently scheduled for June 16. 

Last week, ESA sent a letter to shareholders, encouraging them to vote in favor of the agreement:

Our boards have explored numerous value-enhancing alternatives over several years and unanimously concluded that this transaction represents the best possible outcome for Extended Stay shareholders. ISS, a leading independent proxy advisory firm, has recommended shareholders vote in favor of the transaction. We urge all shareholders to vote FOR the transaction on the WHITE proxy card no matter how many shares they own.

To put it simply, the stakes could not be higher.

Shareholders should seriously consider the meaningful downside risk to the share price—recognized by independent third parties—if the transaction is not approved. Independent sell-side research firm Jefferies concludes, “Absent a deal, shares of STAY have the potential to trade into the $15–$16 range temporarily, roughly 24 percent lower than the proposed offer, in our view.”

And the risk of value destruction under an independent approach governed by Tarsadia is high.

Tarsadia’s latest suggestion to hang their hat on “a new and robust [sale] process, overseen by a refreshed and independent board” is the latest in a string of self-serving and inconsistent arguments attempting to ultimately seat their directors and implement a thesis that each of the company’s current directors is convinced would destroy value for shareholders.

In contrast, this transaction delivers significant value, right now, and we are convinced it is a better alternative to all other potential outcomes.

The $20.50 per paired share offer delivers a meaningful premium to shareholders across multiple time horizons and values our paired shares at a 59 percent premium to their pre-pandemic value. It also values the company at 16.0x 2020 [earnings before interest, taxes, depreciation and amortization], 13.4x 2021 estimated consensus EBITDA and 11.9x 2022 estimated consensus EBITDA, all of which represent significant premiums to where Extended Stay has traded in its time as a public company (9.5x 5-year average NTM EBITDA trading multiple prior to the pandemic).

The $20.50 per paired share consideration offers a 21 percent premium over the closing price of $16.94 on March 12, 2021, the last trading day prior to the announcement. We also note that the transaction represents an implied 30.3 percent premium, which ranks in the 81st percentile of precedent REIT all-cash transactions since 2013, based on the extrapolated Extended Stay stock price since the March 15, 2021 announcement over which time lodging companies had traded down 7.1 percent.

Thank you for your support. And please vote the WHITE card FOR this value-creating transaction.

Sincerely,
Doug Geoga, chairman of the boards of the company
Bruce Haase, president and CEO