Third Quarter For Extended Stay America

Extended Stay America Announces Third Quarter 2013 Results

Revenue showed an increase of 11.5%, RevPar increased by 8.9%

Extended Stay America

Extended Stay America, Inc. (NYSE:STAY) (the “Company”), the largest owner/operator of company-branded hotels in North America, announced results for the third quarter ended September 30, 2013. Paired Shares of Extended Stay America, Inc.’s common stock and ESH Hospitality, Inc.’s Class B common stock began trading on the NYSE on November 13, 2013. The Company completed its initial public offering (“IPO”) and related transactions on November 18, 2013 and has provided financial results for its predecessor for the third quarter 2013 in its 10-Q filed concurrently with this release.

Consolidated and Combined Third Quarter 2013 Highlights Compared to 2012

  • Revenue totaled $313.7 million compared to $281.4 million, an increase of 11.5%
  • RevPAR grew to $44.09, an increase of 8.9%
  • Hotel operating margin1 increased approximately 230 basis points
  • Net income of $46.6 million compared to $33.3 million
  • Adjusted EBITDA1 of $150.1 million compared to $125.8 million, an increase of 19.3%
  • Extended Stay’s ranking improved to the second best lodging value for mid-priced extended stay category by Business Travel News2

Consolidated and Combined Nine Months 2013 Highlights Compared to 2012

  • Revenue totaled $864.0 million compared to $760.9 million, an increase of 13.6%
  • RevPAR grew to $40.98, an increase of 11.5%
  • Hotel operating margin1 increased approximately 200 basis points
  • Net income of $98.0 million compared to $55.3 million
  • Adjusted EBITDA1 of $398.1 million compared to $329.1 million, an increase of 21.0%

Extended Stay America’s Chief Executive Officer, Jim Donald commented, “This quarter we continued to build on the foundation we put in place over the past 18 months. Our initiatives to drive improved cash flow and earnings have resulted in seven consecutive quarters of revenue and adjusted EBITDA growth. While the full effects of our plan have yet to be realized, the results from the renovation projects we have completed are starting to contribute meaningfully to our results. Furthermore, the benefits of our improved customer service, re-branding and renovation projects were reflected by our improved ranking, from third to second place, in Business Travel News’ 2013 Hotel Chain Survey for mid-priced extended stay business travel.”

“With the completion of our initial public offering in November, we are now the largest publicly-traded integrated hotel owner and operator in North America,” continued Mr. Donald. “As we move forward, we are focused on strengthening our position as a leading brand in the lodging industry by providing our guests with great service and strong value. With our increased financial flexibility and strong operating metrics, Extended Stay is well positioned to create value for our shareholders over the long-term.”

Financial and Operating Results

Revenue for the three months ended September 30, 2013 increased 11.5% over the comparable period in 2012 to $313.7 million and included a net benefit of $6.5 million or approximately 2.1% derived from the Company’s acquisition of 17 hotels in December 2012. For the nine months ended September 30, 2013, revenue increased 13.6% over the comparable period in 2012, and included $21.0 million or approximately 2.4% net benefit derived from the acquisitions.

Revenue per available room (“RevPAR”) for the three months ended September 30, 2013 increased 8.9% over the comparable period in 2012, driven by an increase in average daily rate (“ADR”) of 9.3% and a slight decrease in occupancy to 78.7% as compared to 79.0% in the comparable period in 2012. ADR growth was driven primarily by a combination of price increases and a shift in customer mix toward higher profit generating guests.

For the nine months ended September 30, 2013, RevPAR increased 11.5% over the comparable period in 2012, driven by an increase in ADR of 10.2% and an increase in occupancy from 74.5% to 75.5%.

Hotel operating margin for the three months ended September 30, 2013 increased 230 basis points over the comparable period in 2012 to 54.3%. Results for the quarter include additional costs associated with the completed roll-out of grab-and-go breakfast of $2.1 million or approximately 60 basis points. Rollout of grab-and-go breakfast was completed in all Extended Stay hotels in the first quarter of 2013. Despite the costs associated with the successful roll-out of grab-and-go breakfast and certain other operating expenses associated with service enhancements, the Company was able to drive significant margin expansion. Operating margin flow-through, defined as the change in hotel operating profit divided by the change in total room and other hotel revenues, was approximately 72.3%.

For the nine months ended September 30, 2013, hotel operating margin increased 200 basis points over the comparable period in 2012 to 53.0%. Results on a nine months basis include additional costs associated with the completed roll-out of grab-and-go breakfast of $7.2 million or approximately 80 basis points, as well as cost increases in other hotel operating expenses. Operating margin flow-through was approximately 66.3%.

Net income for the three months ended September 30, 2013 was $46.6 million, compared to $33.3 million in the comparable period in 2012. For the nine months ended September 30, 2013, net income was $98.0 million, compared to $55.3 million in the comparable period in 2012.

Adjusted EBITDA for the three months ended September 30, 2013, increased $24.2 million to $150.1 million, representing a 19.3% increase over the comparable period in 2012. For the nine months ended September 30, 2013, Adjusted EBITDA increased $69.1 million to $398.1 million, representing an increase of 21.0%.

Initial Public Offering

On November 18, 2013, the Company completed its initial public offering of 32,487,500 Paired Shares at a price to the public of $20.00 per Paired Share, or gross proceeds of $649.8 million, which included 4,237,500 Paired Shares issued upon the exercise in full of the underwriters’ option to purchase additional Paired Shares. Each Paired Share consists of one share of common stock of the Company and one share of Class B common stock of ESH Hospitality, Inc. which trades as a single unit.

The Company deposited net proceeds of $583.7 million in escrow for the purpose of repaying approximately $574.6 million of its mezzanine debt and approximately $9.1 million in prepayment penalties. The Company has repaid $270.0 million of mezzanine debt to date from the escrow, and intends to repay an additional $304.6 million from the escrow as well as $140.4 million from existing cash prior to the end of 2013, totaling $715.0 million of mezzanine debt pay down. After giving effect to these repayments, total mortgage and mezzanine loans payable are expected to be approximately $2.9 billion.

Peter Crage, Chief Financial Officer, stated, “With the capital raised from our recent IPO, our balance sheet has been significantly strengthened. In addition, our business model has been generating strong and improving margins and cash flow, which allows us significant flexibility as we allocate our capital. The next phase of our renovation program involving over 90 hotels began in the fourth quarter of 2013 and will be completed by the end of the first quarter of 2014. This phase will represent nearly twice the number of hotels that we have previously renovated in any prior phase of our renovation program. Given that prior phases have delivered attractive returns with additional benefits from prior capital expenditures still to be realized, we believe these capital expenditures will provide additional earnings growth as we move forward, although they may have a short term impact due to displacement. Our capital strength and flexibility can support both our internal growth and an ongoing reduction of our debt while providing improving dividend coverage in our efforts to create value for our shareholders.”

 

ESH HOSPITALITY LLC AND SUBSIDIARIES AND ESH HOSPITALITY STRATEGIES LLC AND SUBSIDIARIES (COMPANY PREDECESSOR)
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(In thousands)
(Unaudited)
Three Months Ended     Nine Months Ended
September 30, September 30,
2013   2012   % Variance 2013   2012   % Variance
       
REVENUES:
$ 308,077 $ 274,111 12.4 % Room revenues $ 849,654 $ 740,616 14.7 %
5,297 4,717 12.3 % Other hotel revenues 13,562 12,799 6.0 %
  279     2,545   -89.0 % Management fees, license fees and other revenues   830     7,492   -88.9 %
 
313,653 281,373 11.5 % Total revenues 864,046 760,907 13.6 %
 
OPERATING EXPENSES:
144,931 134,387 7.8 % Hotel operating expenses 408,019 369,855 10.3 %
24,534 22,581 8.6 % General and administrative expenses 68,678 67,072 2.4 %
42,669 33,183 28.6 % Depreciation and amortization 124,523 93,040 33.8 %
185 1,758 -89.5 % Managed property payroll expenses 565 5,165 -89.1 %
- - n/a Restructuring expenses 605 5,763 -89.5 %
- - n/a Acquisition transaction expenses 110 - n/a
  1,942     -   n/a Impairment of long-lived assets   3,330     -   n/a
 
214,261 191,909 11.6 % Total operating expenses 605,830 540,895 12.0 %
 
  643     41   1468.3 % OTHER INCOME   659     734   -10.2 %
 
100,035 89,505 11.8 % INCOME FROM OPERATIONS 258,875 220,746 17.3 %
 
53,036 53,244 -0.4 % INTEREST EXPENSE 157,937 158,842 -0.6 %
 
  (26 )   (103 ) -74.8 % INTEREST INCOME   (86 )   (256 ) -66.4 %
 
47,025 36,364 29.3 % INCOME BEFORE INCOME TAXES 101,024 62,160 62.5 %
 
  447     3,087   -85.5 % INCOME TAX EXPENSE   2,990     6,845   -56.3 %
 
46,578 33,277 40.0 % NET INCOME 98,034 55,315 77.2 %
 
 
  (422 )   (141 ) 199.3 %

NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS

  (860 )   93   -1024.7 %

 

 
$ 46,156   $ 33,136   39.3 %

NET INCOME ATTRIBUTABLE TO CONTROLLING INTERESTS

$ 97,174   $ 55,408   75.4 %

 

 
September 30, December 31,
2013 2012
Balance Sheet Data:
Cash and cash equivalents $ 163,512 $ 103,582
Restricted Cash $ 147,685 $ 61,613
Total assets $ 4,612,173 $ 4,491,734
Mortgage loans and mezzanine loans $ 3,605,521 $ 3,605,708
Total combined equity $ 833,606 $ 752,815
ESH HOSPITALITY LLC AND SUBSIDIARIES AND ESH HOSPITALITY STRATEGIES LLC AND SUBSIDIARIES (COMPANY PREDECESSOR)
NON-GAAP FINANCIAL MEASURES
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
RECONCILIATION OF NET INCOME TO EBITDA AND ADJUSTED EBITDA
(In thousands)
(Unaudited)
 
Three Months Ended

September 30,

        Nine Months Ended

September 30,

2013   2012 2013   2012
$ 46,578 $ 33,277 Net income $ 98,034 $ 55,315
53,010 53,141 Interest expense, net 157,851 158,586
447 3,087 Income tax expense 2,990 6,845
  42,669   33,183 Depreciation and amortization   124,523   93,040
142,704 122,688 EBITDA 383,398 313,786
- - Restructuring expenses 605 5,763
- - Acquisition transaction expenses 110 -
1,942 - Impairment of long-lived assets 3,330 -
642 1,565 Non-cash equity-based compensation 3,388 3,172
  4,781 (1)   1,583 (2) Other expenses   7,277 (3)   6,329 (4)
$ 150,069 $ 125,836 Adjusted EBITDA $ 398,108 $ 329,050
19.3% Adjusted EBITDA % growth 21.0%
(1)  

For the three months ended September 30, 2013, includes costs related to preparations for our initial public offering of $3.2 million and loss on disposal of assets of $1.6 million.

(2)

For the three months ended September 30, 2012, includes costs related to preparations for our initial public offering of $0.3 million, consulting fees related to implementation of our new strategic initiatives, including services related to pricing and yield management policy, of $0.7 million and loss on disposal of assets of $0.6 million.

(3)

For the nine months ended September 30, 2013, includes costs related to preparations for our initial public offering of $5.3 million and loss on disposal of assets of $2.0 million.

(4)

For the nine months ended September 30, 2012, includes costs related to preparations for our initial public offering of $0.8 million, consulting fees related to implementation of our new strategic initiatives, including services related to pricing and yield management policy, of $4.7 million and loss on disposal of assets of $0.8 million.

HOTEL OPERATING MARGIN
(In thousands)
 
Three Months Ended

September 30,

    Nine Months Ended

September 30,

2013   2012   % Variance 2013   2012   % Variance
$ 308,077 $ 274,111 12.4% Room revenues $ 849,654 $ 740,616 14.7%
  5,297   4,717 12.3% Other hotel revenues   13,562   12,799 6.0%
313,374 278,828 12.4% Total hotel revenues 863,216 753,415 14.6%
 
  143,338 (1)   133,771 (2) 7.2% Hotel operating expenses   406,057 (3)   369,070 (4) 10.0%
$ 170,036 $ 145,057 17.2% Hotel operating profit $ 457,159 $ 384,345 18.9%
       
  54.3%   52.0% 230 bps Hotel operating margin   53.0%   51.0% 200 bps
 
 
(1) For the three months ended September 30, 2013, excludes loss on disposal of assets of $1.6 million.
(2) For the three months ended September 30, 2012, excludes loss on disposal of assets of $0.6 million.
(3) For the nine months ended September 30, 2013, excludes loss on disposal of assets of $2.0 million.
(4) For the nine months ended September 30, 2013, excludes loss on disposal of assets of $0.8 million.
 
KEY OPERATING METRICS
 
Three Months Ended

September 30,

Nine Months Ended

September 30,

2013 2012 % Variance 2013 2012 % Variance
682 665 2.6% Number of hotel properties 682 665 2.6%
75,928 73,657 3.1% Number of rooms 75,928 73,657 3.1%
78.7% 79.0% -0.4% Occupancy 75.5% 74.5% 1.3%
$56.01 $51.25 9.3% ADR $54.31 $49.28 10.2%
$44.09 $40.50 8.9% RevPAR $40.98 $36.74 11.5%



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