Extended Stay America Don’T Check Out
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INVESTOR PRESENTATION EXTENDED STAY AMERICA DON’T CHECK OUT PRESENTED BY TARSADIA CAPITAL | MAY 2021 DISCLAIMERS Tarsadia Capital, LLC (“Tarsadia”), Ravi Bellur, Michael Ching and Vikram Patel (collectively, the “Participants”) have filed with the Securities and Exchange Commission (the “SEC”) a definitive proxy statement and accompanying form of proxy to be used in connection with the solicitation of proxies from the shareholders of the Company for the Special Meeting. All shareholders of the Company are advised to read the definitive proxy statement and other documents related to the solicitation of proxies by the Participants, as they contain important information, including additional information related to the Participants. The definitive proxy statement and an accompanying GOLD proxy card will be furnished to some or all of the Company’s shareholders and will be, along with other relevant documents, available at no charge on Tarsadia’s campaign website at: www.ABetterFutureForStay.com and the SEC website at http://www.sec.gov/. Information about the Participants and a description of their direct or indirect interests by security holdings is contained in the definitive proxy statement filed by the Participants with the SEC on May 7, 2021. This document is available free of charge on the SEC website. This material does not constitute an offer to sell or a solicitation of an offer to buy any of the securities described herein in any state to any person. In addition, the discussions and opinions in this letter and the material contained herein are for general information only, and are not intended to provide investment advice. All statements contained in this letter that are not clearly historical in nature or that necessarily depend on future events are “forward-looking statements,” which are not guarantees of future performance or results, and the words “anticipate,” “believe,” “expect,” “potential,” “could,” “opportunity,” “estimate,” and similar expressions are generally intended to identify forward-looking statements. The projected results and statements contained in this letter and the material contained herein that are not historical facts are based on current expectations, speak only as of the date of this letter and involve risks that may cause the actual results to be materially different. Certain information included in this material is based on data obtained from sources considered to be reliable. No representation is made with respect to the accuracy or completeness of such data, and any analyses provided to assist the recipient of this material in evaluating the matters described herein may be based on subjective assessments and assumptions and may use one among alternative methodologies that produce different results. Accordingly, any analyses should also not be viewed as factual and also should not be relied upon as an accurate prediction of future results. All figures are unaudited estimates and subject to revision without notice. Tarsadia disclaims any obligation to update the information herein and reserves the right to change any of its opinions expressed herein at any time as it deems appropriate. Past performance is not indicative of future results. Tarsadia has neither sought nor obtained the consent from any third party to use any statements or information contained herein that have been obtained or derived from statements made or published by such third parties. Except as otherwise expressly stated herein, any such statements or information should not be viewed as indicating the support of such third parties for the views expressed herein. 2 TABLE OF CONTENTS Page I Executive Summary 4 II STAY Has Been a Perennial Underperformer 17 III Sale of STAY – Wrong Time 34 IV Sale of STAY – Wrong Price 41 V Sale of STAY – Wrong Sale Process 49 VI Company and Deal Process Suffered from Apparent Fiduciary Disloyalty 70 VII Better Alternatives Exist 84 VIII Refuting STAY’s Arguments 88 IX Conclusion 91 X Appendix; Extended Stay’s Paired-Share Structure 95 3 Executive Summary II STAY Has Been a Perennial Underperformer III Sale of STAY – Wrong Time IV Sale of STAY – Wrong Price V Sale of STAY – Wrong Sale Process VI Company and Deal Process Suffered from Apparent Fiduciary Disloyalty VII Better Alternatives Exist VIII Refuting STAY’s Arguments IX Conclusion X Appendix; Extended Stay’s Paired-Share Structure 4 About Tarsadia Capital Tarsadia Capital, LLC is the New York-based investment management company of a family office. Tarsadia Capital has a flexible and long-duration investment mandate that focuses on equities and commodities globally. Our investment process employs deep fundamental research on secular inflections to identify and build conviction around asymmetric risk/reward opportunities that will play out over multi-year time horizons. Tarsadia and various of its affiliates have been investors and operators in the hospitality and lodging industry for over four decades. 5 Extended Stay America (NYSE: STAY) Snapshot Extended Stay America, Inc. (“ESA”, “STAY” or the “Company”) is the largest integrated owner/operator of company-branded hotels in North America and operates in the extended-stay segment of the lodging industry Asset Footprint Customer Base – Avg. Length of Stay Summary Financials ($mm) (a) - Owns and operates 563 hotel properties in 40 1-6 Market Cap (b) $3,462 US states, consisting of approximately 62,700 Nights rooms Net Debt (c) 2,326 28% - Franchises 83 hotel properties for third Enterprise Value $5,789 30+ 51% parties, consisting of approximately 8,500 Nights rooms Sales 21% 2019A $1,218 7 - 29 2020A $1,042 Nights 2021E $1,134 2022E $1,223 Adj. EBITDA 2019A $535 2020A $374 2021E $434 2022E $506 Note: For further details of Extended Stay’s shareholding structure, please see appendix. a) Estimated 2021 and 2022 results from STAY definitive proxy filed on April 26, 2021. b) Market cap assumes $19.50 share price c) Net Debt as of March 31, 2021 6 Executive Summary Extended Stay shareholders have The proposed sale of Extended Better alternatives exist and Extended suffered through years of poor Stay comes at the wrong time, with Stay shareholders should oppose the strategic decisions, bad performance the wrong price and after the sale to The Blackstone Group, Inc. and a multitude of management wrong process (“Blackstone”) and Starwood Capital changes Group (“Starwood”) • At its IPO, Extended Stay garnered a • The lodging industry is on the cusp of a • Tarsadia is committed to replacing the premium multiple because shareholders major rebound in demand; history Board with independent, experienced recognized its unique model should have suggests significant value is about to be lodging executives who can help Extended durable cash flows created for owners Stay realize its full potential • A combination of asset sales, franchise • Extended Stay’s Boards failed to attract and • Transaction price is well below development, and optimized capital retain strong leaders, address key strategic comparable deals, including prior structure present near-term opportunities to opportunities and correct poor performance acquisitions of Extended Stay itself by realize value and close STAY’s discount to Blackstone, and intrinsic value its lodging peers • The Company missed key strategic opportunities and public guidance, • The process to sell Extended Stay was • Adopting a more conventional corporate resulting in the loss in investor confidence rushed and inadequate; no other buyers structure for a lodging company would and its premium valuation were even contacted unlock significant value • To benefit all shareholders, Tarsadia • Management suddenly became bearish on • There are further strategic opportunities nominated three exceptional lodging STAY’s standalone prospects, after the including industry consolidation and partnerships that a new board should review executives to the board to bring the Board provided significant bonuses for a with management required expertise to evaluate strategic and sale operational options • Extended Stay shareholders should vote • Goldman Sachs’ fairness opinion is AGAINST the inadequate Blackstone / • To sidestep accountability, we believe the flawed Starwood transaction Extended Stay Board rushed to sell the Company • The Extended Stay Board is conflicted and was not unanimous in its decision 7 STAY Has Underperformed STAY has been the worst performing lodging stock since its IPO in 2013 as its multiple contracted 33% while peers experienced multiple expansion1 Total Shareholder Returns from STAY IPO up to Deal Historical Valuation Multiple (EV / NTM EBITDA)2 Announcement Lodging REITs Lodging C-Corps Contraction Expansion 18.0x 251% 16.3x 221% 16.0x 14.6x 179% 14.0x 14.0x 13.3x STAY is the worst 157% performer compared 12.4x 12.4x to its lodging peers 12.0x 11.4x 64% 10.0x 9.3x 36% 23% 23% 8% 2% 8.0x (1)% (1)% 6.0x STAY RLJ CLDT PEB DRH HST SHO INN RHP CHH HLT MAR STAY Full Serv. REITs Select Serv. C-Corps Avg. Avg. REITs Avg Source: Bloomberg. 1) Total shareholder returns between November 13, 2013 through March 12, 2021. Assumes dividends reinvested in security. Dec. '13 Dec. '19 2) As of December 30, 2013 and 2019. Full Service REITs include: DRH, HST, RHP, RLJ and SHO; PEB is excluded because it was not a public company in 2013. 8 Select Service REITs include: CLDT and INN. C Corps include: CHH, HLT and MAR. Tarsadia’s Unsuccessful Attempts to Engage Constructively Tarsadia has attempted to engage constructively with the Boards and management of STAY May 2020 October 6, 2020 February 11, 2021 March 15, 2021 May 7, 2021 Tarsadia first Tarsadia shares 43-page Tarsadia conducts call with STAY cancels scheduled Tarsadia files acquires stock presentation with STAY Mr. Geoga and suggests the interviews with Tarsadia definitive Proxy in STAY management entitled STAY Board should add director nominees and Statement to “Extended Stay – directors with lodging and announces entry into solicit against Undervalued”, warning asset management Merger Agreement with merger approval STAY it was susceptible to expertise Blackstone and Starwood receiving vulture bids for the entire company.