Extended Stay America Results

Extended Stay America First Quarter 2015 Adjusted EBITDA Grows 9.4%

RevPAR Increases 6.8% in the First Quarter - Net Income Increases $11.8 Million in the First Quarter - Adjusted EBITDA Grows 9.4% in the First Quarter - Re-Affirms 2015 Revenue and Adjusted EBITDA Guidance - Increases Distribution by 13.3% to $0.17 per Paired Share

Extended Stay America

Extended Stay America, Inc. (NYSE:STAY) (the “Company”) today announced consolidated results for the quarter ended March 31, 2015.

First Quarter 2015 Highlights

  • RevPAR grew 6.8% to $41.44
  • Revenue increased 6.4% to $287.6 million
  • Adjusted EBITDA1 increased 9.4% to $122.9 million
  • Net income increased 73.2% to $27.9 million
  • Adjusted Paired Share Income1 of $30.4 million, or $0.15 per diluted Paired Share

Extended Stay America’s Chief Executive Officer, Jim Donald, commented, “Our first quarter results represent strong performance, as we produced RevPAR growth of 6.8% and Adjusted EBITDA growth of 9.4%, which is at the top end of the guidance range we provided last quarter. We continued to make progress on our renovation program, and in the first quarter we delivered a total of 39 fully renovated hotels, the benefit of which we should realize in the coming quarters. ”

Mr. Donald continued, “As we move through 2015, we remain focused on our strategy to improve our hotel product, and we remain on track to complete renovations on approximately 75% of our Extended Stay America - branded hotels by early 2016. Additionally, we continue to make progress with our sales force reorganization, loyalty program rollout and implementation of our new revenue management system, all of which should allow us to better leverage our national scale. Finally, our paired share structure positions us to create incremental value through superior free cash flow, as we are able to direct this additional capital toward investment in our hotels and an increase to our shareholder distribution.”

1 See “Disclosure Regarding Non-GAAP Financial Measures” for an explanation of the non-GAAP measures included herein (i.e., EBITDA, Adjusted EBITDA, Hotel Operating Profit, Hotel Operating Margin, Paired Share Income, Adjusted Paired Share Income and Adjusted Paired Share Income per Paired Share).

Financial and Operating Results

Total revenues for the three months ended March 31, 2015 increased 6.4% over the comparable period in 2014 to $287.6 million.

Revenue per available room (“RevPAR”) for the three months ended March 31, 2015 grew 6.8% over the comparable period in 2014, driven by an improvement in average daily rate (“ADR”) of 6.3% while occupancy increased to 70.4% compared to 70.0% in the comparable period in 2014.

Hotel Operating Margin1 for the three months ended March 31, 2015 was 50.1% compared to 48.2% in the comparable period in 2014. Hotel operating margin flow-through, defined as the change in Hotel Operating Profit1 divided by the change in total room and other hotel revenues, was 80.7%.

Adjusted EBITDA1 for the three months ended March 31, 2015 increased $10.6 million to $122.9 million, representing 9.4% growth over the comparable period in 2014. Adjusted EBITDA excludes non-cash equity-based compensation of $2.1 million, non-cash foreign currency transaction loss of $1.8 million and loss on disposal of assets of $1.6 million.

Net income for the three months ended March 31, 2015 was $27.9 million, compared to $16.1 million in the comparable period in 2014, an increase of 73.2%. Income tax expense for the three months ended March 31, 2015 was $9.0 million compared to $5.1 million in the comparable period in 2014.

Adjusted Paired Share Income1 for the three months ended March 31, 2015 was $30.4 million, or $0.15 per diluted Paired Share compared to $22.4 million, or $0.11 per diluted Paired Share in the comparable period in 2014. Adjusted Paired Share Income, a non-GAAP measure, represents net income, as adjusted, attributable to the consolidated enterprise, whose representative equity security is a Paired Share. A Paired Share entitles its holder to participate in 100% of the common equity and earnings of both Extended Stay America, Inc. and ESH Hospitality, Inc.

Capital

The Company invested $34.2 million in capital expenditures during the first quarter of 2015 which includes hotel renovations, ordinary maintenance capital and information technology projects. The Company completed 39 hotel renovations in the first quarter of 2015 and completed 8 additional hotel renovations in April.

Distribution

On April 30, 2015, the Board of Directors of ESH Hospitality, Inc., the Company’s subsidiary, declared a cash distribution of $0.15 per share for the first quarter of 2015. Additionally, the Board of Directors of Extended Stay America, Inc. declared a cash distribution of $0.02 per share for the first quarter of 2015. These distributions, which total to $0.17 per Paired Share, will be payable on May 28, 2015 to shareholders of record as of May 14, 2015.

2015 Outlook

The Company outlook for 2015 is as follows:

  • Total revenues are expected to increase 5% to 7% to $1.275 billion to $1.3 billion
  • Adjusted EBITDA is expected to range from $585 million to $600 million, representing approximately 5% to 8% growth over 2014
  • Depreciation and amortization of $205 million to $215 million
  • Net interest expense of $140 million to $145 million
  • Effective tax rate of approximately 23.5%
  • Net income is anticipated to range from $158 million to $181 million
  • Capital expenditures of $190 million to $210 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 U.S. GAAP. EBITDA, Adjusted EBITDA, Hotel Operating Profit, Hotel Operating Margin, Paired Share Income, Adjusted Paired Share Income and Adjusted Paired Share Income per Paired Share as presented may not be comparable to measures calculated by other companies. These measures should not be considered as alternative measures of operating profit, net income or cash flow provided by operating activities calculated in accordance with U.S. 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 consolidated financial results prepared in accordance with U.S. 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 76,000 rooms and employs over 9,000 employees at its hotel properties and headquarters. The Company’s core brand, Extended Stay America®, serves the mid-priced extended stay segment. 

           
EXTENDED STAY AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
(In thousands)
(Unaudited)
 
Three Months Ended
March 31,
  2015     2014   % Variance
 
REVENUES:
Room revenues $ 283,298 $ 266,229 6.4 %
Other hotel revenues   4,293     4,087   5.0 %
 
Total revenues 287,591 270,316 6.4 %
 
OPERATING EXPENSES:
Hotel operating expenses 144,995 141,887 2.2 %
General and administrative expenses 23,500 23,105 1.7 %
Depreciation and amortization   49,183     45,327   8.5 %
 
Total operating expenses 217,678 210,319 3.5 %
 
OTHER INCOME   3     206   (98.5 )%
 
INCOME FROM OPERATIONS 69,916 60,203 16.1 %
 
OTHER NON-OPERATING EXPENSE 1,765 2,515 (29.8 )%
 
INTEREST EXPENSE, NET   31,317     36,548   (14.3 )%
 
INCOME BEFORE INCOME TAX EXPENSE 36,834 21,140 74.2 %
 
INCOME TAX EXPENSE   8,974     5,059   77.4 %
 
NET INCOME 27,860 16,081 73.2 %
 

NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS(1)

  (6,312 )   (5,291 ) 19.3 %
 
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 21,548   $ 10,790   99.7 %
 

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

       
CONSOLIDATED BALANCE SHEET DATA
(In thousands)
(Unaudited)
 
March 31, December 31,
2015 2014
Cash and cash equivalents $ 71,888 $ 121,324
Restricted cash $ 176,864 $ 73,382
Total assets $ 4,510,772 $ 4,481,120
Total debt $ 2,929,128 $ 2,912,571
Total equity $ 1,384,879 $ 1,389,317
 

(1) On July 28, 2014, the Company sold two hotel properties.

           
EXTENDED STAY AMERICA, INC.
NON-GAAP RECONCILIATION OF NET INCOME TO EBITDA AND ADJUSTED EBITDA
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
(In thousands)
(Unaudited)
 
Three Months Ended
March 31,
  2015   2014
Net income $ 27,860 $ 16,081
Interest expense, net 31,317 36,548
Income tax expense 8,974 5,059
Depreciation and amortization   49,183     45,327
EBITDA 117,334 103,015
Non-cash equity-based compensation 2,116 2,461
Other non-operating expense 1,765 2,515
Other expenses   1,643  

(1)

  4,285

(2)

Adjusted EBITDA $ 122,858   $ 112,276
Adjusted EBITDA % growth 9.4 %
 

(1) Includes loss on disposal of assets of approximately $1.6 million.

(2) Includes public company transition costs of approximately $1.1 million, consulting fees related to implementation of certain key strategic initiatives, including review of our corporate infrastructure, of approximately $1.4 million and loss on disposal of assets of approximately $1.8 million.

           
EXTENDED STAY AMERICA, INC.
NON-GAAP RECONCILIATION OF NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS TO PAIRED SHARE
INCOME, ADJUSTED PAIRED SHARE INCOME AND ADJUSTED PAIRED SHARE INCOME PER PAIRED SHARE
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
(In thousands, expect per Paired Share data)
(Unaudited)
 
Three Months Ended
March 31,
2015 2014
Net income attributable to common shareholders $ 21,548 $ 10,790
Noncontrolling interests attributable to Class B common shares of ESH REIT   6,308   5,287
Paired Share Income 27,856 16,077
Other non-operating expense 1,334 2,439
Other expenses   1,242

(1)

  3,923

(2)

Adjusted Paired Share Income $ 30,432 $ 22,439
 
Adjusted Paired Share Income per Paired Share – basic $ 0.15 $ 0.11
Adjusted Paired Share Income per Paired Share – diluted $ 0.15 $ 0.11
 
Weighted average Paired Shares outstanding – basic   204,007   203,299
Weighted average Paired Shares outstanding – diluted   204,379   204,375
 

(1) Includes loss on disposal of assets of approximately $1.6 million pre-tax, which totals approximately $1.2 million after-tax.

(2) Includes public company transition costs of approximately $1.1 million pre-tax, consulting fees related to implementation of certain key strategic initiatives, including review of our corporate infrastructure, of approximately $1.4 million pre-tax and loss on disposal of assets of approximately $1.8 million pre-tax, which total approximately $3.9 million after-tax.

 
NON-GAAP RECONCILIATION OF HOTEL OPERATING PROFIT AND HOTEL OPERATING MARGIN
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
(In thousands)
(Unaudited)
           
Three Months Ended
March 31,
  2015     2014   % Variance
Room revenues $ 283,298 $ 266,229 6.4 %
Other hotel revenues   4,293     4,087   5.0 %
Total hotel revenues 287,591 270,316 6.4 %
Hotel operating expenses(1)   143,421     140,089   2.4 %
Hotel Operating Profit $ 144,170   $ 130,227   10.7 %
   
Hotel Operating Margin   50.1 %   48.2 % 190 bps
 

(1) Excludes loss on disposal of assets of approximately $1.6 million and $1.8 million, respectively.

 
EXTENDED STAY AMERICA, INC.
NON-GAAP RECONCILIATION OF NET INCOME TO EBITDA AND ADJUSTED EBITDA
TWELVE MONTHS ENDED DECEMBER 31, 2014 (ACTUAL) AND 2015 (OUTLOOK)
(In thousands)
(Unaudited)
                 
Twelve Months Ended Twelve Months Ended
December 31, 2014 December 31, 2015
Actual Outlook
  Low High
$ 150,554 Net income $ 157,535 $ 181,035
149,364 Interest expense, net 145,000 140,000
45,057 Income tax expense 49,000 56,000
  187,207   Depreciation and amortization   215,000     205,000  
532,182 EBITDA 566,535 582,035
8,803 Non-cash equity-based compensation 10,200 9,700
3,763 Other non-operating expense 1,765 1,765
2,300 Impairment of long-lived assets - -
(864 ) Gain on sale of hotel properties - -
  10,476  

(1)

Other expenses   6,500  

(2)

  6,500  

(2)

$ 556,660   Adjusted EBITDA $ 585,000   $ 600,000  
Increase over 2014 5.1 % 7.8 %
 

(1) Includes public company transition costs of approximately $3.0 million, including approximately $1.5 million in secondary offering costs, consulting fees related to implementation of certain key strategic initiatives, including review of our corporate infrastructure of approximately $1.9 million and loss on disposal of assets of approximately $5.6 million.

(2) Includes secondary offering costs and loss on disposal of assets totaling $6.5 million.



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