Extended Stay America — Proxy Contest (May 2021)
40 slides from Extended Stay America's proxy contest presentation, May 19, 2021
Slide 1: Sale Transaction Rationale & Context
Investor Presentation Sale Transaction Rationale & Context May 2021 Extended Stay America, Inc. ESH Hospitality, Inc.
Slide 2: Important information
important information This presentation 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 connectio
Slide 3: Transaction summary & rationale
transaction summary & rationale $19.50 per share all-cash transaction provides a compelling value and captures the future upside inherent in our strategic plan Right Timing Right Price Right Process Right Transaction Misleading Claims by Tarsadia Would Destroy Shareholder Value Unique extended stay
Slide 4: Company Highlights
Company Highlights
Slide 5: Overview of Extended Stay
overview of extended stay  26+ year operating history  Only dedicated extended stay owner / operator  564 owned hotels and ~62,500 keys  88 franchised hotels  Resilient performance during COVID with 2020 hotel operating margins of 44.5% and RevPAR down only 15% Management’s Strategy t
Slide 6: Sale evaluated against a strategic plan reflecting robust growth
sale transaction was evaluated against a strategic plan reflecting robust growth from strategic initiatives and COVID recovery Management implemented a new strategic plan throughout 2020 and into early 2021, which together with an expected recovery in the broader hospitality sector is expected to dr
Slide 7: Significant capital investment required to achieve business plan
significant capital investment required to achieve business plan $1.1bn total estimated minimum capital needed to execute the business plan over the next five years Capex Continues to Represent a Significant Portion of EBITDA Historical and Projected Capex (% of Adjusted EBITDA) Commentary Ongoing m
Slide 8: Wide range of strategic alternatives evaluated
wide range of strategic alternatives evaluated historically and in the context of the pending sale transaction STAY’s Boards have actively and consistently evaluated various strategic alternatives to drive shareholder value over the last 4+ years, forming the foundation for sound judgment in the con
Slide 9: Thorough engagement with the market over the past 4 years
thorough engagement with the market on actionable value-maximizing transactions over the past 4 years 1 4 7 8 Jan. 25, 12 Jun. 1, 2020: STAY 15 July 7, 2017: Starwood Late July 2018: Jan. 18-22, 2019: BX engages GS to explore indicates interest at $22-24 / STAY hires financial 2019: Two submits offe
Slide 10: Pending transaction materially superior to prior Blackstone proposals
pending transaction is at an attractive premium and materially superior to prior proposals from Blackstone The pending transaction is superior on nearly every metric versus prior Blackstone offers dating back to 2017. Blackstone’s highest offer of $20.75 reflects an NTM EBITDA of nearly $90m higher
Slide 11: Attractive premium relative to precedent REIT sale transactions
transaction represents attractive premium relative to precedent REIT sale transactions The $19.50 per share reflects a significant premium to shareholders across multiple time horizons, including at the high end of precedent REIT transactions 75th+ 75th+ 50th+ 25th+ Percentile Percentile Percentile
Slide 12: STAY has outperformed in a forward-looking market
STAY has outperformed in a forward-looking market Markets have already substantially priced into the stock the achievement of our strategic plan, despite inherent risks. This transaction allows our shareholders to immediately realize the future benefits of our plan at a premium STAY’s More Limited C
Slide 13: STAY's shares have outperformed since pre-pandemic
STAY’s shares have outperformed since pre-pandemic, even when compared to a broad market cross-section At Transaction Price: 50.9 % Transaction price further reflects outperformance relative to COVID-growth beneficiaries Significant outperformance of broad market indices Significant outperformance A
Slide 14: Implied premium has expanded since announcement
implied premium has only expanded since announcement amidst an increasingly more volatile market Since the announcement on March 15th, lodging stocks have traded down ~9% on average, implying an incremental ~12% premium, or a ~27% premium in aggregate $ 20.00 Current Transaction $ 19.50 $ 19.00 $ 18
Slide 15: Lodging stocks traded down despite Q1 earnings outperformance
despite widespread Q1 earnings outperformance, lodging stocks traded down significantly, suggesting the recovery is already priced in % Change in Share Price During Q1 “Earnings Season”¹ % Change in Share Price 1 Day Post-Earnings “In our view, expectations were high, valuations were elevated (and s
Slide 16: Transaction price reflects attractive premium to historical trading levels
$19.50 transaction price reflects an attractive premium to historical trading levels despite the COVID impact to expected EBITDA 50%+ premium to pre-pandemic pricing, despite 13% decline in NTM EBITDA2 over the same period Source: Bloomberg, Capital IQ, IBES estimates; market data as of 12-Mar-2021
Slide 17: Implied EBITDA multiple premium vs. historical trading multiples
implied transaction EBITDA multiple represents a significant premium vs. STAY’s historical trading multiples under any measurable timeframe Transaction Multiples NTM 5Y Pre-COVID Avg. NTM 1Y Pre-COVID Avg. Two Years Forward 5Y and 1Y Pre-COVID Avg. Source: Bloomberg, Capital IQ, IBES estimates; mark
Slide 18: Valuation in line with Blackstone's 2007 sale to Lightstone
current transaction values STAY more in-line with Blackstone’s 2007 cycle-peak sale to Lightstone than their acquisitions in 2004 and 2010 Source: Company filings, Apr-2010 bankruptcy examiner report 1 Based on 14.0x multiple per 8-Apr-2010 Bankruptcy Report, $8bn value, and 76,000 keys. | 2 EBITDA
Slide 19: Exceeding $19.50 standalone requires significant multiple re-rate
exceeding $19.50 as a standalone company (on a PV basis) would require a significant multiple re-rate to 11.0x+ and seamless execution of a multi-year growth plan Illustrative Future Share Price Based on Mgmt. 2023E On a Present Value Basis, the Pending Transaction EBITDA and a Range of Multiples Re
Slide 20: Putting STAY's trading multiple into context
putting STAY’s trading multiple into context Prior to COVID, STAY’s NTM and NTM+1 EBITDA traded largely in tandem and averaged 9.1-9.5x since 2015. Since COVID, these multiples have decoupled, with STAY’s NTM+1 multiple increasing to 10.4x, indicating headwinds to sustained future multiple expansion
Slide 21: Putting STAY's relative trading multiple into context
putting STAY’s relative trading multiple into context STAY Has Perpetually Traded at a Discount to Select …But Normalizing for Its Significantly Higher Capex Burden, Service Lodging REITs Based on EV / EBITDA… STAY Has Actually Traded In-Line to a Premium EV / NTM EBITDA EV / NTM EBITDA—Capex Source
Slide 22: Relative trading multiple into context (cont.)
putting STAY’s relative trading multiple into context (cont.) While More Relevant to STAY Than Other Hotel Companies, STAY’s Discounted Multiple vs. Select Service REITs Has Been Select Service REITs Vary Significantly Across Key Value Drivers Material and Consistent Through Time1 2019 Actual / Aver
Slide 23: Price superior to nearly all analyst price targets
$19.50 transaction price is superior to nearly all analyst price targets and the sellside is supportive Analyst Recommendations1 Broker Date Price Target ($) 26-Feb-21 $ 21.00 28-Feb-21 $ 20.00 26-Feb-21 $ 19.00 27-Feb-21 $ 19.00 9-Mar-21 $ 19.00 1-Mar-21 $ 19.00 25-Feb-21 $ 17.50 26-Feb-21 $ 16.00
Slide 24: Now is an attractive time to transact
now is an attractive time to transact The proposed transaction at $19.50 per share reflects upside to the more-than-full recovery STAY’s share price has already experienced. At a 50+% premium to its pre-COVID share price, the transaction is fair and provides shareholders with an immediate and certai
Slide 25: STAY's Boards have highly independent and qualified members
STAY’s Boards have highly independent and qualified members P Independent Director since 2014 P Independent Director since 2020 P Independent Director since 2013 Extended Stay America Board Member ESH Hospitality Board Member
Slide 26: Transaction is the result of a thorough, rigorous process
transaction is the result of a thorough, rigorous, and thoughtful process Thorou and Thoughtful Process Conducted by Our Qualified and Engaged Boards The Stren f Our Process is Evident in Significant Engagement Amongst the Full Group of Directors on Both Boards STAY has highly independent and qualif
Slide 27: $19.50 was best and final after five price increases
$19.50 transaction price was the “best and final” result after five offer price increases following a rigorous 2-month negotiation Source: Bloomberg, Capital IQ, IBES estimates; market data as of 12-Mar-2021 | 1 Initial offer received on 19-Jan-2021, with subsequent increases on 18-Feb-2021 (twice),
Slide 28: Tarsadia's claims are misguided, misleading and inappropriate
Tarsadia’s claims are misguided, misleading and inappropriate Tarsadia’s Claims Facts O P Misleading recollection of key events and meetings with Management Tarsadia Recasts Itself as a P Tarsadia has never expressed anything other than support for Management Change Agent to an P We believe Tarsadia
Slide 29: Tarsadia's constantly shifting demands
Tarsadia’s constantly shifting demands call into question its real motivations and credibility 1 3 5 7 9 Over-Emphasis on OpCo / PropCo Focus on Franchising Not a Long-Term Shareholder Fails to Understand the 43-page whitepaper centered around a highly Later suggested renewed Trying to Block Deal Ta
Slide 30: Tarsadia has yet to offer a more attractive path forward
Tarsadia has yet to offer any proposal providing a more attractive path forward than the Current Transaction Tarsadia has presented multiple (and often contradictory) ideas to management, but has failed to explain an alternative to the Current Transaction that is new or would otherwise yield greater
Slide 31: Tarsadia's white paper valued the Company well below transaction price
Tarsadia’s October 2020 “white paper” valued the Company at well below the transaction price of $19.50 Despite Tarsadia’s current claims about potential long term value as a standalone company, its own white paper valued the Company at 10x EBITDA, implying $14.83 on a standalone basis and only $17 o
Slide 32: Tarsadia's selected precedent transactions are not comparable
Tarsadia’s selected precedent transactions are not comparable Tarsadia’s reliance on luxury hotel company transactions—significantly different businesses from Extended Stay—constitutes a flawed comp set for STAY Luxury / Economy and Extended Stay Predominantly Paired Share Date Buyers / Target Upper
Slide 33: Tarsadia's public company comparables are not comparable
Tarsadia’s public company comparables analysis is overly broad and not comparable to STAY STAY’s historic under-valuation, relatively COVID-resilient financial performance, unique corporate structure, asset profile, and fundamentally different business suggest Tarsadia’s broad comp universe is of li
Slide 34: Dissenting directors affirmed strength of process
contrary to Tarsadia’s claims, dissenting directors have publicly affirmed strength of process STAY’s two dissenting directors issued a letter emphasizing their support for the Boards’ best-in-class deliberative process, directly contradicting Tarsadia’s assertion that they were “ignored” and “brush
Slide 35: Key reminders about the transaction
key reminders about the transaction Extended Stay shares were at a multi-year high factoring in post-pandemic recovery and strategic initiatives at the time the Boards approved the transactionCash offer of $19.50 provides certain value to STAY shareholders at a 50%+ premium to its pre-pandemic
Slide 36: Vote FOR on the WHITE proxy card
vote “FOR” on the WHITE proxy card to secure your $19.50 per share in cash
Slide 37: Disclosure information
disclosure information This presentation contains certain statements that constitute “forward-looking statements” within the meaning of the federal securities laws. All statements other than statements of historical facts included in this presentation may be forward-looking, including statements reg
Slide 38: Appendix
tly, = z Appendix Airy
Slide 39: Non-GAAP reconciliation of net income to EBITDA and adjusted EBITDA
non-GAAP reconciliation of net income to EBITDA and adjusted EBITDA for the years ended December 31, 2020, 2019, 2018, 2017, 2016, and 2015 | ($ in thousands) 2020 2019 2018 2017 2016 2015 Net income $ 96,256 $ 165,138 $ 211,756 $ 172,188 $ 163,352 $ 283,022 Interest expense, net 130,133 127,764 124
Slide 40: Historical and projected summary of financials
historical and projected summary of financials RevPAR Total Revenue ($m) $57 $59 $60 $1,339 $1,386 $1,433 +19% $49 $50 $53 $52 $52 $1,285 $1,271 $1,283 $1,262 $1,202 $1,223 $46 $44 $48 $1,134 vs. 2019 $1,027 +12% vs. 2015 2015A 2016A 2017A 2018A 2019A 2020A 2021E 2022E 2023E 2024E 2025E 2015A 2016A