Two Extended Stay America Shareholders Oppose Sale of $ 6 Billion Company
Tarsadia Capital, a 3.9% shareholder of Extended Stay America, plans to vote against ESA’s $ 6 billion sale plan to Blackstone Real Estate Partners and Starwood Capital Group, the company said in a letter. sent Monday to other ESA shareholders. Hawk Ridge Capital Management, which owns around 2% of ESA’s capital, also plans to vote against the deal, according to Bloomberg.
Tarsadia gave two reasons for opposing the $ 19.50 per share sale: price and timing, according to the letter, of which BTN obtained a copy. The company is “gravely disappointed” to see the ESA sold at a “grossly insufficient price” which “the board agreed to after its seemingly hasty negotiations.” The letter implied that the deal was reached in less than five weeks.
If the sale proceeds as proposed, it would “close the ESA for more than seven years as a public company at a price lower than its initial IPO price,” according to the letter, which added that on a basis of ‘EBITDA futures quoted price is the lowest transaction multiple in the US for more than five years.
The letter also noted that ESA has been a big disappointment to public market investors since its IPO, as it has “gone through leadership teams, operational strategies and strategic reviews, while underperforming significantly. peers”. But Tarsadia doesn’t think the underperformance was inevitable or that it needs to persist. “ESA owns some of the best hotel assets in the country and is expected to generate excellent returns for shareholders from these assets.”
The time comes as “hospitality companies are just coming out of the worst downturn the industry has ever seen,” according to the letter. “This year will be the first year of a new hosting cycle, which has always been the most attractive time to invest in hosting. During the hosting recessions of 2001 and 2009, after the first anniversary of a [revenue per available room] At the bottom of the wave, the three-year average total return for housing shareholders was 124% (2002 to 2005) and 59% (2010 to 2013). With a clear trajectory of economic recovery and profits, [ESA’s] the stock is very likely to participate in this cyclical updraft. “
Tarsadia added that the company engaged several months ago with ESA to help it optimize its strategy, corporate structure and board of directors. He appointed three independent executives to the board: former Choice Hotels CEO Stephen Joyce, former RLJ Lodging Trust CEO Ross Bierkan and former Las Vegas Sands CEO Michael Leven.
“Perhaps this disappointing transaction is the result of the incumbent board’s attempt to sidestep responsibility for the company’s many years of underperformance just prior to the start of a proxy contest,” the letter continued. .
The moment to sell ESA comes not only as the hosting industry is about to begin its recovery, but also after the the long-stay segment has proven to be relatively resilient during the pandemic. While not a direct comparison to other types of hotels, the segment reported some of the highest occupancy rates in the industry, and the Highland Group reported that the segment’s RevPAR 2020 was down 33.4% year-over-year, compared to what STR reported as a 47.5% drop for the US hospitality industry as a whole.
ESA did not immediately respond to a request for comment.