Company Results

Extended Stay America Second Quarter 2014 Revenue Increased 9.6%

Revenue increased 9.6% to $321.9 million - RevPAR grew 9.4% to $45.69

Extended Stay America

Extended Stay America, Inc. (NYSE:STAY) announced results for the quarter ended June 30, 2014.

Consolidated and Combined Second Quarter 2014 Highlights

  • Revenue increased 9.6% to $321.9 million
  • RevPAR grew 9.4% to $45.69
  • Hotel Operating Margin1 increased approximately 30 basis points to 54.4%
  • Adjusted EBITDA1of $157.9 million increased $21.7 million, or 16.0%
  • Net income of $46.3 million increased $8.8 million, or 23.3%
  • Adjusted Paired Share Income1 of $54.7 million or $0.27 per Paired Share

Consolidated and Combined Six Month 2014 Highlights

  • Revenue increased 7.6% to $592.2 million
  • RevPAR grew 7.3% to $42.26
  • Hotel Operating Margin1 decreased approximately 60 basis points to 51.6%
  • Adjusted EBITDA1 of $270.2 million increased $22.2 million, or 8.9%
  • Net income of $62.4 million increased $10.9 million, or 21.2%
  • Adjusted Paired Share Income1 of $77.1 million or $0.38 per Paired Share

Extended Stay America’s Chief Executive Officer, Jim Donald commented, “We were pleased with our second quarter revenue growth of 9.6% with sequential monthly growth throughout the quarter. Hotels in the post-renovation phase performed well in the quarter and these hotels are producing growth consistent with the ramp-up pattern of our previously completed renovations. Additionally, we continue to make progress on our strategic initiatives to enhance our operations, drive brand awareness and optimize revenue yield. These efforts, coupled with the refinancing of our mezzanine debt and favorable industry trends, will further enhance our strong cash flow for our shareholders in 2014 and beyond.”

Financial and Operating Results

Total Revenues for the three months ended June 30, 2014 increased 9.6% over the comparable period in 2013 to $321.9 million. For the six months ended June 30, 2014, total revenues increased 7.6% over the comparable period in 2013 to $592.2 million.

Revenue per available room (“RevPAR”) for the three months ended June 30, 2014 increased 9.4% over the comparable period in 2013, driven by an improvement in average daily rate (“ADR”) of 6.8% and an increase in occupancy to 78.8% as compared to 77.0% in the comparable period in 2013. ADR growth was driven primarily by a combination of price increases and a shift in customer mix toward higher profit generating guests. Occupancy was positively impacted relative to the prior year period as a result of cycling over the displacement from the 35-hotel renovation phase in the second quarter of 2013. For the six months ended June 30, 2014, RevPAR increased 7.3% over the comparable period in 2013, driven by an increase in ADR of 6.3% and an increase in occupancy to 74.4% from 73.8%.

Hotel Operating Margin for the three months ended June 30, 2014 increased approximately 30 basis points over the comparable period in 2013 to 54.4%. Hotel operating margin flow-through, defined as the change in hotel operating profit divided by the change in total room and other hotel revenues, was 57.3%. For the six months ended June 30, 2014, hotel operating margin decreased 60 basis points versus the comparable period in 2013 to 51.6%. Operating margin flow-through was 43.1%.

Adjusted EBITDA for the three months ended June 30, 2014 increased $21.7 million to $157.9 million representing a 16.0% increase over the comparable period in 2013. Adjusted EBITDA excludes non-cash foreign currency transaction gain of $0.7 million, non-cash equity-based compensation of $2.4 million and other expenses of approximately $2.3 million including public company transition costs, consulting fees related to the implementation of new strategic initiatives and loss on disposal of assets. For the six months ended June 30, 2014, Adjusted EBITDA increased $22.2 million to $270.2 million, representing an increase of 8.9%.

Net income for the three months ended June 30, 2014 was $46.3 million, compared to net income of $37.5 million in the comparable period in 2013. Income tax expense for the three months ended June 30, 2014 was $14.2 million, compared to $1.8 million in the comparable period in 2013. The year over year income tax expense increase is related to the Company’s post-IPO corporate structure. For the six months ended June 30, 2014, net income was $62.4 million, compared to $51.5 million in the comparable period in 2013.

Adjusted Paired Share Income for the three months ended June 30, 2014 was $54.7 million, or $0.27 per Paired Share. Adjusted Paired Share Income, a non-GAAP measure, represents net income, as adjusted, attributable to the consolidated and combined entity, whose representative security is a Paired Share. A Paired Share entitles holders to participate in 100% of the common equity and earnings of both Extended Stay America, Inc. and ESH Hospitality, Inc. For the six months ended June 30, 2014, Adjusted Paired Share Income was $77.1 million, or $0.38 per Paired Share.

Capital

The Company invested $36.3 million in capital expenditures during the second quarter of 2014, or $85.7 million year-to-date, which includes capital renovations, regular maintenance and information technology projects.

The Company completed a $375.0 million Senior Secured Term Loan on June 23, 2014 with the proceeds used to refinance the outstanding $365.0 million of 9.4% mezzanine debt and pay related transaction fees and expenses. The financing was completed at LIBOR plus 4.25%, subject to a LIBOR floor of 0.75%, with a five-year term, and offered at 99.5.

Sale of Hometown Inn Properties

Subsequent to the end of the second quarter of 2014, on July 28, the Company completed the sale of its two non-core Hometown Inn properties. The Company expects to record a pretax gain of approximately $1.0 million in connection with the sale of the properties.

Dividend

On July 31, 2014, the Board of Directors of ESH Hospitality, Inc., the Company’s subsidiary, declared a cash dividend of $0.15 per share for the second quarter 2014, payable to ESH Hospitality, Inc.’s Class A and Class B common shareholders. The dividend will be payable on August 28, 2014 to shareholders of record as of August 14, 2014.

Outlook 2014

The Company re-affirms its outlook for 2014 as follows:

  • Total revenues are expected to increase 7% to 10% to approximately $1,212 to $1,246 million
  • Adjusted EBITDA is expected to range between $570 to $600 million, representing approximately 10% to 16% growth over 2013 Adjusted EBITDA
  • Capital expenditures are expected to be in the range of $150 to $170 million for capital renovations, regular maintenance and information technology projects.

The Company has updated the outlook for net income to reflect the following changes:

  • Depreciation and amortization of approximately $180 to $185 million
  • Interest expense of approximately $150 million, which includes the impact of $9.4 million of prepayment penalties and other costs and the write-off of deferred financing costs related to the mezzanine debt refinancing, offset by approximately $8 million of lower interest costs under the new ESH Hospitality, Inc. Senior Secured Term Loan effective June 23, 2014
  • An expected gain on sale of the two Hometown Inn properties of $1.0 million
  • Non-cash foreign currency transaction loss of $1.8 million

Net income is now anticipated to range from approximately $164.3 to $194.2 million.

Disclosure Regarding Non-GAAP Financial Measures

EBITDA, Adjusted EBITDA, Hotel Operating Profit, Hotel Operating Margin, Paired Share Income, Adjusted Paired Share Income and Adjusted Paired Share Income per Paired Share, which are detailed in the reconciliation tables that accompany this release, are used by the Company as supplemental performance measures. The Company believes these financial measures provide useful information to investors regarding our results of operations and allow investors to evaluate the ongoing operating performance of our hotels and facilitate comparisons between the Company and other lodging companies, hotel owners and other capital-intensive companies. EBITDA, Adjusted EBITDA, Hotel Operating Profit, Hotel Operating Margin, Paired Share Income, Adjusted Paired Share Income and Adjusted Paired Share Income per Paired Share are not recognized terms under GAAP. Because certain companies do not calculate EBITDA, Adjusted EBITDA, Hotel Operating Profit, Hotel Operating Margin, Paired Share Income, Adjusted Paired Share Income and Adjusted Paired Share Income per Paired Share in the same way and certain other companies may not perform such calculations, those measures as used by other companies may not be consistent with the way the Company calculates such measures and should not be considered as alternative measures of operating profit or net income calculated in accordance with GAAP. The Company’s presentation of EBITDA, Adjusted EBITDA, Hotel Operating Profit, Hotel Operating Margin, Paired Share Income, Adjusted Paired Share Income and Adjusted Paired Share Income per Paired Share does not replace the presentation of the Company’s financial results in accordance with GAAP.

About Extended Stay America

Extended Stay America, Inc., the largest owner/operator of company-branded hotels in North America, owns and operates 682 hotels in the U.S. and Canada comprising approximately 76,000 rooms and employs approximately 10,000 employees in its hotel properties and headquarters. The Company owns and operates hotels under the core brand Extended Stay America®, which serves the mid-priced extended stay segment, and other brands. 

 
 
EXTENDED STAY AMERICA, INC.
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013
(In thousands)
(Unaudited)
               
Three Months Ended Six Months Ended
June 30, June 30,
2014 2013 % Variance 2014 2013 % Variance
 
REVENUES:
$ 317,087 $ 288,772 9.8 % Room revenues $ 583,316 $ 541,577 7.7 %
4,827 4,546 6.2 % Other hotel revenues 8,914 8,265 7.9 %
  -     277 n/m Management fees, license fees and other revenues   -     551   n/m
 
321,914 293,595 9.6 % Total revenues 592,230 550,393 7.6 %
 
OPERATING EXPENSES:
147,241 134,907 9.1 % Hotel operating expenses 289,128 263,088 9.9 %
21,543 25,736 (16.3 )% General and administrative expenses 44,648 44,144 1.1 %
46,950 40,609 15.6 % Depreciation and amortization 92,277 81,854 12.7 %
- 184 n/m Managed property payroll expenses - 380 n/m
- - n/m Restructuring expenses - 605 n/m
- - n/m Acquisition transaction expenses - 110 n/m
  -     - n/m Impairment of long-lived assets   -     1,388   n/m
 
215,734 201,436 7.1 % Total operating expenses 426,053 391,569 8.8 %
 
  65     13 n/m OTHER INCOME   271     16   n/m
 
106,245 92,172 15.3 % INCOME FROM OPERATIONS 166,448 158,840 4.8 %
 
(736 ) - n/m OTHER NON-OPERATING (INCOME) EXPENSE 1,779 - n/m
 
  46,539     52,788 (11.8 )% INTEREST EXPENSE, NET   83,087     104,841   (20.7 )%
 
60,442 39,384 53.5 % INCOME BEFORE INCOME TAX EXPENSE 81,582 53,999 51.1 %
 
  14,158     1,845 n/m INCOME TAX EXPENSE   19,217     2,543   n/m
 
46,284 37,539 23.3 % NET INCOME 62,365 51,456 21.2 %
 
NET (INCOME) LOSS ATTRIBUTABLE TO
  (3,048 )

 (1)

  33 n/m NONCONTROLLING INTERESTS   (8,339 )

 (1)

  (438 ) n/m
 
NET INCOME ATTRIBUTABLE TO COMMON
$ 43,236   $ 37,572 15.1 % SHAREHOLDERS OR MEMBERS $ 54,026   $ 51,018   5.9 %
 
 

(1) Noncontrolling interests of Extended Stay America, Inc. include approximately 45% of ESH Hospitality, Inc.'s common equity and 125 shares of

ESH Hospitality, Inc. preferred stock.

 
n/m = not meaningful
June 30, December 31,
2014 2013
Consolidated Balance Sheet Data (unaudited):
Cash and cash equivalents $ 18,739 $ 60,457
Restricted cash $ 157,893 $ 47,339
Total assets $ 4,505,415 $ 4,449,687
Total debt $ 2,942,177 $ 2,926,045
Total equity $ 1,363,155 $ 1,341,208
 
 
EXTENDED STAY AMERICA, INC.
NON-GAAP RECONCILIATION OF NET INCOME TO PAIRED SHARE INCOME,
ADJUSTED PAIRED SHARE INCOME AND ADJUSTED PAIRED SHARE INCOME PER PAIRED SHARE
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013
(In thousands, expect per Paired Share data)
(Unaudited)
           
Three Months Ended

June 30,

Six Months Ended

June 30,

2014 2013 2014 2013
$ 43,236 $ 37,572 Net income attributable to common shareholders or members $ 54,026 $ 51,018
  3,044     -

 (1)

Noncontrolling interests attributable to Class B common shares of ESH REIT   8,331   -

 (1)

46,280 37,572 Paired Share Income 62,357 51,018
- - Restructuring expenses - 576
- - Acquisition transaction expenses - 105
- - Impairment of long-lived assets - 1,322
7,185 - Debt extinguishment costs 7,185 -
(562 ) - Other non-operating (income) expense 1,877 -
  1,762  

(2)

  1,971

 (3)

Other expenses   5,685

 (4)

  2,379

 (5)

$ 54,665   $ 39,543 Adjusted Paired Share Income $ 77,104 $ 55,400
 
$ 0.27   $ 0.23 Adjusted Paired Share Income per Paired Share – basic $ 0.38 $ 0.33
$ 0.27   $ 0.23 Adjusted Paired Share Income per Paired Share – diluted $ 0.38 $ 0.32
 
  203,458     170,444 Weighted average Paired Shares outstanding – basic   203,380   170,405
  204,362     171,949 Weighted average Paired Shares outstanding – diluted   204,376   171,987
 
(1) Prior to the change in our legal and entity structure in November 2013, which occurred in connection with Extended Stay America, Inc.'s and ESH Hospitality, Inc.’s initial public offering, no portion of the Company’s (i.e., the Paired Shares') noncontrolling interests represented interests attributable to the Class B common shares of ESH Hospitality, Inc.
 
(2) Includes public company transition costs of approximately $1.3 million pre-tax, including approximately $0.9 million in secondary offering costs, consulting fees of approximately $0.5 million pre-tax related to implementation of our new strategic initiatives, including review of our corporate infrastructure, and loss on disposal of assets of approximately $0.5 million pre-tax, which total approximately $1.8 million after-tax.
 
(3) Includes costs related to preparations for our initial public offering of approximately $1.7 million pre-tax and loss on disposal of assets of approximately $0.4 million pre-tax, which total approximately $2.0 million after-tax.
 
(4) Includes public company transition costs of approximately $2.4 million pre-tax, including approximately $0.9 million in secondary offering costs, consulting fees of approximately $1.9 million pre-tax related to implementation of our new strategic initiatives, including review of our corporate infrastructure, and loss on disposal of assets of approximately $2.3 million pre-tax, which total approximately $5.7 million after-tax.
 
(5) Includes costs related to preparations for our initial public offering of approximately $2.1 million pre-tax and loss on disposal of assets of approximately $0.4 million pre-tax, which total approximately $2.4 million after-tax.
 
 
EXTENDED STAY AMERICA, INC.
NON-GAAP RECONCILIATION OF NET INCOME TO EBITDA AND ADJUSTED EBITDA
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013
(In thousands)
(Unaudited)
       
Three Months Ended

June 30,

Six Months Ended

June 30,

2014 2013 2014 2013
$ 46,284 $ 37,539 Net income $ 62,365 $ 51,456
46,539 52,788 Interest expense, net 83,087 104,841
14,158 1,845 Income tax expense 19,217 2,543
  46,950     40,609 Depreciation and amortization   92,277     81,854
153,931 132,781 EBITDA 256,946 240,694
- - Restructuring expenses - 605
- - Acquisition transaction expenses - 110
- - Impairment of long-lived assets - 1,388
(736 ) - Other non-operating (income) expense 1,779 -
2,429 1,335 Non-cash equity-based compensation 4,890 2,748
  2,307  

(1)

  2,068

 (2)

Other expenses   6,592  

 (3)

  2,496

 (4)

$ 157,931   $ 136,184 Adjusted EBITDA $ 270,207   $ 248,041
16.0 % Adjusted EBITDA % growth 8.9 %
 
 
EXTENDED STAY AMERICA, INC.
NON-GAAP RECONCILIATION OF HOTEL OPERATING PROFIT AND HOTEL OPERATING MARGIN
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013
(In thousands)
(Unaudited)
               
Three Months Ended

June 30,

Six Months Ended

June 30,

2014 2013 % Variance 2014 2013 % Variance
$ 317,087 $ 288,772 9.8% Room revenues $ 583,316 $ 541,577 7.7%
  4,827   4,546 6.2% Other hotel revenues   8,914   8,265 7.9%
321,914 293,318 9.7% Total hotel revenues 592,230 549,842 7.7%
 
  146,753 (1)   134,551 (2) 9.1% Hotel operating expenses   286,842 (3)   262,719 (4) 9.2%
$ 175,161 $ 158,767 10.3% Hotel operating profit $ 305,388 $ 287,123 6.4%
       
  54.4%   54.1% 30 bps Hotel operating margin   51.6%   52.2% (60) bps
 
 
(1) Excludes loss on disposal of assets of approximately $0.5 million.
(2) Excludes loss on disposal of assets of approximately $0.4 million.
(3) Excludes loss on disposal of assets of approximately $2.3 million.
(4) Excludes loss on disposal of assets of approximately $0.4 million.
 
 
EXTENDED STAY AMERICA, INC.
KEY OPERATING METRICS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013
(Unaudited)
 
Three Months Ended

June 30,

Six Months Ended

June 30,

2014 2013 % Variance 2014 2013 % Variance
684 (1) 682 0.3% Number of hotels 684 (1) 682 0.3%
76,265 75,928 0.4% Number of rooms 76,265 75,928 0.4%
78.8% 77.0% 180 bps Occupancy 74.4% 73.8% 60 bps
$57.98 $54.27 6.8% ADR $56.76 $53.39 6.3%
$45.69 $41.78 9.4% RevPAR $42.26 $39.40 7.3%
 
(1) On December 31, 2013, the Company acquired two hotel properties.
 
 
EXTENDED STAY AMERICA, INC.
NON-GAAP RECONCILIATION OF NET INCOME TO EBITDA AND ADJUSTED EBITDA
FULL YEAR 2013 AND FORECASTED 2014
(In thousands)
(Unaudited)
       
Year Ended Year Ended December 31, 2014
December 31, 2013 Outlook
Actual Low High
$ 82,656 Net income $ 164,328 $ 194,210
234,459 Interest expense, net 150,000 150,000
(4,990 ) Income tax (benefit) expense 51,893 58,011
  168,053   Depreciation and amortization   185,000     180,000  
480,178 EBITDA 551,221 582,221
605 Restructuring expenses - -
235 Acquisition transaction expenses - -
3,330 Impairment of long-lived assets - -
- Gain on sale of hotel properties (1,000 ) (1,000 )
- Other non-operating expense 1,779 1,779
20,168 Non-cash equity-based compensation 11,000 10,000
  14,094  

(1)

Other expenses   7,000  

(2)

  7,000  

(2)

$ 518,610   Adjusted EBITDA $ 570,000   $ 600,000  
 
 
Increase over 2013 Adjusted EBITDA 10 % 16 %
 
(1)

Includes costs related to preparations for our initial public offering of approximately $11.2 million and loss on disposal of assets of approximately $2.9 million.

 
(2) Includes public company transition costs, certain consulting fees and loss on disposal of assets totaling $7.0 million.



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