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Starwood Considering Strategic Alternatives: Starwood Hotels & Resorts and Host Hotels & Resorts discussed options to create shareholder value that could potentially include creditor unfriendly strategies during their respective 1Q15 earnings conference calls. Starwood indicated that "no options are off the table" as part of a formal review of the company's strategic and financial alternatives it will undertake to increase shareholder value.

Fitch views the most likely outcomes as a transformative merger (with Starwood likely the target) or brand acquisition. Real estate private equity funds are also awash in cash and could consider Starwood an attractive, leverageable acquisition target. Highly liquid hotel capital markets could facilitate a leveraged recapitalization. However, Fitch puts a lower probability on this outcome given the company's public commitments to its existing financial policy and investment-grade ratings. Only some of Starwood's indentures provide for a 101% bondholder put option under a change of control.

Blackstone Reducing Stake in Hilton: To sell 90MM shares, reducing stake to under 50%; underwriters have option to sell an additional 13.5MM shares. Fitch expects Blackstone to scale back its Board influence at Hilton, similar to what has occurred at its other recently IPOed real estate related investments (i.e. Brixmor Property Group - Fitch IDR 'BBB-'/ROS). Blackstone took HLT public at the end of 2013 for $20/share.

Extended Stay's Inaugural Issuance: ESH Hospitality, Inc.'s $500MM of senior notes due 2025 priced at 5.25%, and net proceeds will be used to repay amounts under a mortgage loan. On its 1Q15 earnings call, the company positioned the issuance as a refinancing of its 2012 CMBS loans intended to extend debt maturities of the REIT debt. It's unclear to us why the company chose to issue in the HY bond market versus refinancing with secured property level mortgage loans. Fitch estimates the pricing is roughly 75 bps wide of comparable mortgage debt.

Apple Hospitality to Test Equity Market's Appetite for Hotel IPOs: Apple Hospitality REIT Inc.'s executive chairman, Glade Knight, disclosed that the company has taken steps to list its shares, which "provides the most favorable option for shareholder liquidity at this time." One of the largest REITs, with over 170 hotels, Apple's portfolio consists mostly of limited service and extended stay hotels.

Contact: Alyssa Castelli / +1 (212) 908-0540

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