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Extended Stay America exploring REIT spinoff, other structural alternatives

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Capital Markets View – January 2021


Extended Stay America exploring REIT spinoff, other structural alternatives

Extended Stay America Inc. is evaluating alternatives related to its corporate structure, including the potential spinoff of its lodging real estate investment trust unit ESH Hospitality through an opco-propco structure or other means.

President and CEO Jonathan Halkyard disclosed Extended Stay's plans for a possible restructuring during the hotel operator's second-quarter earnings call, according to a July 26 transcript.

Halkyard said the move was spurred by inquiries from investors and research analysts about the potential re-evaluation of the company's corporate structure to increase shareholder value.

Asked by an analyst about the timing of reaching a conclusion on a potential new corporate structure, Halkyard said, "I am reluctant to put any kind of timeline on this. I only want to assure our shareholders that it is a topic that we pay close attention to and is one that we and our board continue to evaluate not only in the context of valuation but also in terms of performance of the portfolio."

Halkyard also said, in response to a question about taxes if the company pursues an opco-propco structure, that he thinks having a REIT and a C-corporation "makes the tax element of this question considerably less complex than it might be for an entity that does not have a REIT already in existence."