425: Jaws Mustang Acquisition Corp and Starwood Capital Entities Announce Letter of Intent for Business Combination

Jaws Mustang Acquisition Corp and investment entities affiliated with Starwood Capital Group have signed a non-binding letter of intent for a potential business combination to create a publicly-listed hospitality company.

Summary

• Jaws Mustang Acquisition Corporation (Jaws), a special purpose acquisition company, and investment entities affiliated with Starwood Capital Group (Starwood Capital Entities) have announced a non-binding letter of intent (LOI) for a potential business combination.
• The deal aims to create a publicly-listed, growth-oriented hospitality company.
• The combined company would own Starwood Capital Entities' interests in the Initial Portfolio, which includes the 1 Hotels properties in Manhattan and Brooklyn, and the De Vere Portfolio in the United Kingdom.
• The Initial Portfolio consists of ten properties: 1 Hotel Brooklyn Bridge (195 guest rooms and suites), 1 Hotel Central Park (234 guest rooms and suites), and eight De Vere properties (1,871 guest rooms and suites).
• The Initial Portfolio is estimated to have earned $52 million of Net Operating Income (NOI) at the property level for the year ended December 31, 2023, and is projected to earn $62 million for the year ending December 31, 2024.
• The 1 Hotel Brooklyn Bridge and the 1 Hotel Central Park will continue to be externally managed by SH Group Hotels & Residences U.S., LLC, and the De Vere Portfolio will continue to be managed by its internal operational team.
• Jaws and Starwood Capital Entities expect to finalize a definitive business combination agreement in the coming weeks.
• Completion of the Business Combination is subject to several conditions, including negotiation of a definitive agreement, securing investor and third-party consents, regulatory review, and approval by the boards and shareholders of Jaws.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive due to the potential for growth in the hospitality sector and the involvement of a well-established firm like Starwood Capital. However, the non-binding nature of the LOI and the various conditions for completion introduce uncertainty.

Positives

• The business combination aims to create a publicly-listed, growth-oriented hospitality company.
• The Initial Portfolio includes established and well-known hotel properties.
• The Initial Portfolio is projected to increase its NOI from $52 million in 2023 to $62 million in 2024.

Negatives

• The letter of intent is non-binding, and there is no assurance that a definitive agreement will be entered into or that the transaction will be consummated.
• The completion of the Business Combination is subject to various conditions and contingencies, including regulatory review and shareholder approval.

Risks

• The negotiation of a definitive agreement may not be successful.
• The Starwood Capital Entities may not secure the requisite investor and third-party consents.
• Regulatory review may delay or prevent the completion of the Business Combination.
• The board of directors and shareholders of Jaws may not approve the transaction.
• The projected NOI of $62 million for 2024 may not be achieved.

Future Outlook

The combined public company expects to acquire additional hotel properties, including 1 Hotel properties, on an ongoing basis.

Management Comments

• Barry Sternlicht, Chairman and CEO of Starwood Capital Group, stated, 'I wanted to capture the beauty of nature in a hotel and commit to safeguarding it as best I can, a responsibility that I believe we all share. Its 1 world. But 1 is more than a hotel, its a philosophy and a platform for change.'

Industry Context

This announcement reflects the ongoing trend of SPACs being used to take private companies public, particularly in the hospitality sector. Starwood Capital Group is a major player in the real estate investment industry, and this transaction allows them to bring a portfolio of hotel assets to the public market.

Comparison to Industry Standards

• Starwood Capital Group manages Starwood Property Trust (NYSE: STWD), the largest commercial mortgage real estate investment trust in the United States, which has successfully deployed over $95 billion of capital since inception and manages a portfolio of over $27 billion across debt and equity investments.
• Comparable companies in the luxury hotel space include Marriott International (MAR), Hilton Worldwide Holdings (HLT), and Hyatt Hotels Corporation (H).
• The projected NOI of $62 million for the Initial Portfolio will need to be assessed against the performance of these competitors to determine its relative strength.

Stakeholder Impact

• Shareholders of Jaws will have the opportunity to vote on the proposed Business Combination.
• Employees of the 1 Hotels and De Vere Portfolio properties may be affected by the transaction.
• Customers of the hotels may experience changes in service or branding.
• Suppliers and creditors of the hotels may be impacted by the new ownership structure.

Next Steps

• Jaws and Starwood Capital Entities intend to finalize their definitive business combination agreement in the coming weeks.
• Jaws intends to file a registration statement on Form S-4 with the SEC, including a preliminary proxy statement/prospectus.
• The definitive proxy statement will be mailed to shareholders of Jaws as of a record date to be established for voting on the potential Business Combination.

Key Dates