Extended Stay America Results

Extended Stay America Announces First Quarter 2017 Results

Net Income increases 8.9% to $16.1 million - Adjusted EBITDA grows 5.5% to $129.6 million

Extended Stay America

Extended Stay America, Inc. (NYSE:STAY) today announced consolidated results for the quarter ended March 31, 2017.

First Quarter 2017 Highlights

  • Revenue Per Available Room (“RevPAR”) grew 2.1% to $45.76
  • Net Income increased 8.9% to $16.1 million
  • Adjusted EBITDA increased 5.5% to $129.6 million
  • Adjusted Funds from Operations (“Adjusted FFO”)1 per diluted Paired Share increased 11.7% to $0.35
  • Adjusted Paired Share Income1 per diluted Paired Share increased 15.7% to $0.15

The Company’s Chief Executive Officer, Gerry Lopez, commented, “We were pleased with our strong topline finish and our solid expense discipline throughout the first quarter. This led to results finishing above our guidance for both RevPAR as well as Adjusted EBITDA. Additionally, both Adjusted Paired Share Income and Adjusted FFO per diluted Paired Share grew more than 10% in the first quarter.”

Mr. Lopez continued, “With our strong free cash flow and outlook for 2017 and beyond, we continue to focus on returning capital to shareholders. This morning, our Boards approved raising our quarterly dividend by 10.5% to $0.21 per Paired Share, marking the third year in a row since becoming a public company that we have increased our dividend by over 10%. This represents a roughly 5% annual yield at recent trading prices. In addition to our strong dividend, in the last 14 months the Company has repurchased and retired over 5% of our Paired Shares outstanding. We remain firmly committed to strong capital returns to shareholders as our free cash flow continues to increase and as we recycle capital.”

Financial and Operating Results

Total revenues for the three months ended March 31, 2017 increased 1.2% over the comparable period in 2016 to $291.0 million. Total revenue growth was affected by one fewer day in the quarter compared to the comparable period in 2016 due to leap year.

RevPAR for the three months ended March 31, 2017 grew 2.1% over the comparable period in 2016, driven by an improvement in average daily rate (“ADR”) of 0.8% while occupancy increased to 70.4% compared to 69.5% in the comparable period in 2016.

Hotel Operating Margin1 for the three months ended March 31, 2017 was 52.5% compared to 50.4% in the comparable period in 2016. Hotel operating margin flow-through, defined as the change in Hotel Operating Profit1 divided by the change in total hotel revenues, was 230.3%.

Net income for the three months ended March 31, 2017 was $16.1 million compared to $14.8 million in the comparable period in 2016. Net income during the quarter was impacted by a non-cash impairment charge of $12.4 million related to assets held for sale. Income tax expense for the three months ended March 31, 2017 was $4.5 million compared to $2.9 million in the comparable period in 2016.

Adjusted EBITDA for the three months ended March 31, 2017 increased $6.8 million to $129.6 million over the comparable period in 2016. Adjusted EBITDA, a non-GAAP measure, excludes non-cash equity-based compensation of $2.7 million, non-cash impairment loss of $12.4 million related to assets held for sale, and other net expenses of $2.7 million.

Adjusted FFO for the three months ended March 31, 2017 was $68.7 million, an increase of 6.8% from the comparable period in 2016. Adjusted FFO per diluted Paired Share was $0.35 compared to $0.31 in the comparable period in 2016. Adjusted FFO, a non-GAAP measure, represents Funds From Operations1, 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.

Adjusted Paired Share Income for the three months ended March 31, 2017 was $28.5 million, or $0.15 per diluted Paired Share, compared to $25.8 million, or $0.13 per diluted Paired Share, in the comparable period in 2016. 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.

Capital Expenditures

The Company invested $48.4 million in capital expenditures during the first quarter of 2017 which includes $21.0 million in renovation capital and $25.1 million in maintenance capital. The Company completed 24 hotel renovations in the first quarter of 2017, bringing the total number of renovated hotels to 608. We expect to complete the renovation program in the second quarter of 2017.

Distribution and Share Repurchases

On April 27, 2017, the Boards of Directors of Extended Stay America, Inc. and ESH Hospitality, Inc., declared cash distributions totaling $0.21 per Paired Share for the first quarter of 2017. This represents a $0.02, or 10.5%, increase in the combined quarterly distribution. The distribution is comprised of $0.07 per Extended Stay America, Inc. common share and $0.14 per ESH Hospitality, Inc. Class A and B common share. The distributions are payable on May 25, 2017 to shareholders of record as of May 11, 2017.

During the quarter, the Company paid approximately $23.1 million to repurchase and retire approximately 1.4 million Paired Shares. The Company had approximately $137.1 million remaining for repurchases under the combined Paired Share repurchase program as of March 31, 2017.

2017 Outlook

The Company’s outlook for 2017 is updated as follows:

                 
Full Year 2017       Updated Outlook       Previous Outlook
in millions, except %       Low         High       Low       High
                                   
Total Revenues       $ 1,285           $ 1,310         $ 1,279         $ 1,305
RevPAR % Δ         1.5%             3.5%           1%           3%
Net Income       $ 175           $ 188         $ 181         $ 194
Adjusted EBITDA       $ 625           $ 640         $ 620         $ 635
Adjusted EBITDA % Δ       1.5 %         4.0%       0.7%       3.1%
Depreciation and Amortization       $ 233           $ 233         $ 233         $ 233
Net Interest Expense       $ 130           $ 130         $ 130         $ 130
Effective Tax Rate         23%             24%           23%           24%
Capital Expenditures       $ 150           $ 180         $ 150         $ 180
                                                 

The Company’s updated outlook does not reflect any pending asset sales expected to close in 2017. If these asset sales are completed in the second quarter, we expect it will reduce 2017 Total Revenues by $7 to $8 million and Adjusted EBITDA by $3 to $3.5 million for the full year with limited impact on RevPAR.

About Extended Stay America

Extended Stay America, Inc. (“ESA”) is the largest integrated hotel owner/operator in North America. Its subsidiary, ESH Hospitality, Inc. (“ESH”), is the largest lodging REIT in North America by unit and room count, with over 620 hotels and 69,000 rooms in the U.S. and Canada. ESA manages all of ESH’s properties, providing over 8,000 jobs at hotel properties and corporate headquarters. Extended Stay America® is the leading brand in the mid-priced extended stay segment, with approximately twice as many rooms as its nearest competitor. 

 
EXTENDED STAY AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(In thousands)
(Unaudited)
           
Three Months Ended
March 31,
  2017     2016   % Variance
REVENUES:
Room revenues $ 285,808 $ 283,137 0.9 %
Other hotel revenues   5,183     4,421   17.2 %
 
Total revenues 290,991 287,558 1.2 %
 
OPERATING EXPENSES:
Hotel operating expenses 141,660 145,560 (2.7 )%
General and administrative expenses 26,307 24,952 5.4 %
Depreciation and amortization 57,671 53,308 8.2 %
Impairment of long-lived assets   12,423     -   n/a
 
Total operating expenses 238,061 223,820 6.4 %
 
OTHER INCOME   1     18   (94.4 )%
 
INCOME FROM OPERATIONS 52,931 63,756 (17.0 )%
 
OTHER NON-OPERATING INCOME (1,221 ) (878 ) 39.1 %
 
INTEREST EXPENSE, NET   33,606     46,985   (28.5 )%
 
INCOME BEFORE INCOME TAX EXPENSE 20,546 17,649 16.4 %
 
INCOME TAX EXPENSE   4,483     2,896   54.8 %
 
NET INCOME 16,063 14,753 8.9 %
 
NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS (1)   7,038     2,293   206.9 %
 
NET INCOME ATTRIBUTABLE TO EXTENDED STAY AMERICA, INC.

COMMON SHAREHOLDERS

$ 23,101   $ 17,046   35.5 %
 
NET INCOME PER EXTENDED STAY AMERICA, INC.

COMMON SHARE - DILUTED

$ 0.12   $ 0.08  
 
WEIGHTED-AVERAGE EXTENDED STAY AMERICA, INC. COMMON

SHARES OUTSTANDING - DILUTED

  195,386     204,370  
 
       
CONSOLIDATED BALANCE SHEET DATA
AS OF MARCH 31, 2017 AND DECEMBER 31, 2016
(In thousands)
(Unaudited)
 
March 31, December 31,
  2017   2016
Cash and cash equivalents $ 64,809 $ 84,158
Restricted cash $ 21,292 $ 21,614
Total assets $ 4,126,730 $ 4,180,304

Total debt, net of unamortized deferred financing costs and debt

discounts (2)

$ 2,595,094 $ 2,606,476
Total equity $ 1,332,032 $ 1,377,239
 
 
EXTENDED STAY AMERICA, INC.
NON-GAAP RECONCILIATION OF ROOM REVENUES, OTHER HOTEL REVENUES AND
HOTEL OPERATING EXPENSES TO HOTEL OPERATING PROFIT AND
HOTEL OPERATING MARGIN
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(In thousands)
(Unaudited)
           
Three Months Ended
March 31,
  2017     2016   % Variance
Room revenues $ 285,808 $ 283,137 0.9 %
Other hotel revenues   5,183     4,421   17.2 %
Total hotel revenues 290,991 287,558 1.2 %
Hotel operating expenses(1)   138,190     142,664   (3.1 )%
Hotel Operating Profit $ 152,801   $ 144,894   5.5 %
Hotel Operating Margin   52.5 %   50.4 % 210 bps
 
(1) Excludes loss on disposal of assets of approximately $3.5 million and $2.9 million, respectively.
 
       
EXTENDED STAY AMERICA, INC.
NON-GAAP RECONCILIATION OF NET INCOME TO EBITDA AND ADJUSTED EBITDA
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(In thousands)
(Unaudited)
 
Three Months Ended
March 31,
  2017     2016  
Net income $ 16,063 $ 14,753
Interest expense, net 33,606 46,985
Income tax expense 4,483 2,896
Depreciation and amortization   57,671     53,308  
EBITDA 111,823 117,942
Non-cash equity-based compensation 2,683 2,680
Other non-operating income (1,221 )

(1

)

(878 )

(2

)

Impairment of long-lived assets 12,423 -
Other expenses   3,894  

(3

)

  3,055  

(4

)

Adjusted EBITDA $ 129,602   $ 122,799  
% growth 5.5 %
 
       
EXTENDED STAY AMERICA, INC.
NON-GAAP RECONCILIATION OF NET INCOME ATTRIBUTABLE TO EXTENDED STAY AMERICA, INC.
COMMON SHAREHOLDERS TO FUNDS FROM OPERATIONS, ADJUSTED FUNDS FROM OPERATIONS
AND ADJUSTED FUNDS FROM OPERATIONS PER PAIRED SHARE
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(In thousands, except per share and per Paired Share data)
(Unaudited)
 
Three Months Ended
March 31,
  2017     2016  
 
Net income per Extended Stay America, Inc. common share - diluted $ 0.12   $ 0.08  
Net income attributable to Extended Stay America, Inc. common shareholders $ 23,101 $ 17,046
Noncontrolling interests attributable to Class B common shares of ESH REIT (7,042 ) (2,297 )
Real estate depreciation and amortization 56,533 52,200
Impairment of long-lived assets 12,423 -
Tax effect of adjustments to net income attributable to Extended Stay

America, Inc. common shareholders

  (16,274 )   (11,954 )
Funds From Operations 68,741 54,995
Debt modification and extinguishment costs 1,168 12,103
Change in mark-to-market value of interest rate swap (1,242 ) -
Tax effect of adjustments to Funds from Operations   17     (2,772 )
Adjusted Funds From Operations $ 68,684   $ 64,326  
Adjusted Funds From Operations per Paired Share – diluted $ 0.35   $ 0.31  
Weighted average Paired Shares outstanding – diluted   195,386     204,370  
 
     
EXTENDED STAY AMERICA, INC.
NON-GAAP RECONCILIATION OF NET INCOME ATTRIBUTABLE TO EXTENDED STAY AMERICA, INC.
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, 2017 AND 2016
(In thousands, except per share and per Paired Share data)
(Unaudited)
 
Three Months Ended
March 31,
  2017     2016  
Net income per Extended Stay America, Inc. common share - diluted $ 0.12   $ 0.08  
 
Net income attributable to Extended Stay America, Inc. common shareholders $ 23,101 $ 17,046
Noncontrolling interests attributable to Class B common shares of ESH REIT   (7,042 )   (2,297 )
Paired Share Income 16,059 14,749
Debt modification and extinguishment costs 1,168 12,103
Other non-operating income (1,221 )

(1

)

(878 )

(2

)

Impairment of long-lived assets 12,423 -
Other expenses 3,894

(3

)

3,055

(4

)

Tax effect of adjustments to Paired Share Income   (3,838 )   (3,270 )
Adjusted Paired Share Income $ 28,485   $ 25,759  
Adjusted Paired Share Income per Paired Share – diluted $ 0.15   $ 0.13  
Weighted average Paired Shares outstanding – diluted   195,386     204,370  
 
     
EXTENDED STAY AMERICA, INC.
TOTAL REVENUES AND NON-GAAP RECONCILIATION OF NET INCOME TO EBITDA AND ADJUSTED EBITDA
FOR THE YEARS ENDED DECEMBER 31, 2016 (ACTUAL) AND 2017 (OUTLOOK)
(In thousands)
(Unaudited)
     
Year Ended Year Ended December 31, 2017
December 31, 2016 (Outlook)
(Actual) Low High
$ 1,270,593 Total revenues $ 1,285,000 $ 1,310,000
 
$ 163,352 Net income $ 174,646 $ 188,494
164,537 Interest expense, net 130,000 130,000
34,351 Income tax expense 55,152 56,304
  221,309   Depreciation and amortization   232,500     232,500  
583,549 EBITDA 592,298 607,298
12,000 Non-cash equity-based compensation 12,500 12,500
(1,576 )

(1

)

Other non-operating income (1,221 )

(3

)

(1,221 )

(3

)

9,828 Impairment of long-lived assets 12,423 12,423
  11,857  

(2

)

Other expenses   9,000  

(4

)

  9,000  

(4

)

$ 615,658   Adjusted EBITDA $ 625,000   $ 640,000  
% growth 1.5 % 4.0 %
 



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