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Extended Stay America Announces First Quarter 2015 Results

April 30, 2015 at 9:09 PM EDT

-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

April 30, 2015 07:00 AM Eastern Daylight Time

CHARLOTTE, N.C.--()--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

Webcast and Conference Call Details

Extended Stay America will host a conference call on Thursday, April 30, 2015 at 8:30 am Eastern Time. The conference call will be webcast simultaneously in the Investor Relations section of the Company’s website at www.aboutstay.com. A replay of the call will be available for 90 days following the webcast on the Company’s website.

Alternatively, the conference call can be accessed by dialing 1-877-705-6003 for domestic callers or 1-201-493-6725 for international callers. A telephone replay will be available from shortly after the call until May 14, 2015, and can be accessed by dialing 1-877-870-5176 for domestic callers or 1-858-384-5517 for international callers. The passcode for the replay is 13606810.

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.

Forward Looking Statements

This earnings release contains forward-looking statements within the meaning of the federal securities laws. Statements related to, among other things, future financial performance, including our 2015 outlook and performance, free cash flow, debt reduction and distribution growth, as such, may involve known and unknown risks, uncertainties and other factors that may cause the Company’s actual results or performance to differ from those projected in the forward-looking statements, possibly materially. For a description of factors that may cause the Company’s actual results or performance to differ from any forward-looking statements, please review the information under the headings “Cautionary Note Regarding Forward-looking Statements” and “Risk Factors” included in the Company’s combined annual report on Form 10-K filed with the SEC on February 26, 2015 and other documents of the Company on file with or furnished to the SEC. Any forward-looking statements made in this earnings release are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, will have the expected consequences to, or effects on, the Company or its business or operations. Except as required by law, the Company undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise. We caution you that actual outcomes and results may differ materially from what is expressed, implied or forecasted by the Company’s forward-looking statements.

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. Visit www.extendedstay.com for more information about the Company and its services.

                   
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
             
                   
EXTENDED STAY AMERICA, INC.
OPERATING METRICS
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
(Unaudited)
                   
      Three Months Ended
      March 31,
      2015     2014     Variance
Number of hotels(1)       682         684       (2 )
Number of rooms(1)       76,000         76,265       (265 )
Occupancy       70.4 %       70.0 %     40 bps
ADR     $ 58.87       $ 55.39       6.3 %
RevPAR     $ 41.44       $ 38.79       6.8 %
                   
Hotel Inventory (as of March 31):                  
Platinum Extended Stay America       374         320       54  
Silver Extended Stay America       261         315       (54 )
Crossland Economy Studios and other       47         49       (2 )
Total number of hotels       682         684       (2 )
                   
Renovation Displacement Data (in thousands, except percentages):                  
Total available room nights       6,837         6,863       (26 )
Room nights displaced from renovation       76         119       (43 )
% of available room nights displaced       1.1 %       1.7 %     (60) bps

(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.

Contacts

Extended Stay America, Inc.
Investors:
Rob Ballew, 980-345-1546
investorrelations@extendedstay.com
or
Media:
Terry Atkins, 980-345-1648
tatkins@extendedstay.com