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Extended Stay America Announces Fourth Quarter and Full Year 2019 Results

- Net Income of $23.8 million in the Fourth Quarter, $165.1 million for the Full Year 2019
- Adjusted EBITDA1 of $108.8 million in the Fourth Quarter, $535.0 million for the Full Year 2019
- Comparable system-wide RevPAR of -0.8% in the Fourth Quarter, -0.9% for the Full Year 2019
- Over $300 million in capital returns to Paired Shareholders for the Full Year 2019
- Issues 2020 Guidance

CHARLOTTE, N.C., Feb. 26, 2020 (GLOBE NEWSWIRE) -- Extended Stay America, Inc. and ESH Hospitality, Inc. (together, the “Company”) (STAY) today announced consolidated results for the three and twelve months ended December 31, 2019.

Fourth Quarter 2019 Highlights

  • Net income of $23.8 million
  • Total revenues of $284.2 million
  • Comparable system-wide Revenue Per Available Room (“RevPAR”) declined 0.8%, a RevPAR Index gain of 2.1% compared to our competitive set   
  • Adjusted EBITDA of $108.8 million
  • Adjusted Funds from Operations (“Adjusted FFO”)1 of $0.37 per diluted Paired Share
  • Adjusted Paired Share Income1 of $0.14 per diluted Paired Share
  • $115 million in capital returns to Paired Shareholders        

Extended Stay America’s President and Chief Executive Officer, Bruce Haase, commented, “We were pleased to finish the year on a strong December performance, where we gained more than 400 basis points of RevPAR index on our competitive set and 210 basis points for the full fourth quarter of 2019.”

Mr. Haase continued, “In 2020, we will focus on a return to the basics and fully exploiting the value inherent in our high margin extended stay business model. We believe there is opportunity to improve the guest experience and property performance, more aggressively curate our asset portfolio, and grow the Extended Stay America brand through an asset-light franchising strategy.  We will also continue to focus on returning significant capital to our shareholders while maintaining strong financial discipline.”

Financial and Operating Results

Total revenues for the three months ended December 31, 2019 were $284.2 million, a decrease of 1.9% over the same period in the prior year due to asset dispositions in 2018 and a decline in Comparable Company-owned RevPAR. Adjusting for asset dispositions in 2018, total revenues declined 1.1% during the fourth quarter. For the full year 2019, total revenues declined 4.5% to $1,218.2 million, driven by asset dispositions and a decrease in Comparable system-wide RevPAR. Adjusting for asset dispositions in 2018, total revenues decreased 0.3%.

Comparable system-wide RevPAR for the three months ended December 31, 2019 decreased 0.8% over the same period in 2018 to $46.94, driven by a 4.0% decline in Average Daily Rate (“ADR”), partially offset by a 240 basis point increase in occupancy. The decline in Comparable system-wide RevPAR was driven by industry softness in October, a -0.8% impact from renovation disruption, and a -0.8% impact from cycling the Boston gas explosion in 2018. Despite the impact from renovation disruption, the Company’s RevPAR outperformed its competitive set by 2.1% during the quarter on a Comparable system-wide basis. Comparable system-wide RevPAR was approximately flat in November and increased 1.8% in December. Company-owned RevPAR decreased 1.7% during the quarter. Comparable system-wide RevPAR for the full year 2019 declined 0.9% over 2018 driven by a 2.9% decline in ADR, partially offset by a 150 basis point increase in occupancy. Excluding renovation disruption and cycling hurricane market benefits in 2018, Comparable system-wide RevPAR for the full year 2019 would have increased 1.0%. The Company’s RevPAR outperformed its competitive set by 0.6% during the full year on a Comparable system-wide basis.

Hotel Operating Margin1 for the three months ended December 31, 2019 was 48.3% compared to 51.1% in the same period in 2018.  While we continued our strategy to maximize targeted marketing efforts to our longest staying customers and other cost saving initiatives, these were offset by an increase in certain operating expenses, including hotel payroll expense, property insurance expense, maintenance expense and property taxes, as well as a decline in Comparable Company-owned RevPAR. Hotel Operating Margin for the full year 2019 was 51.8% compared to 54.0% in 2018.  Property-level margins remain at industry leading levels.

Net income for the three months ended December 31, 2019 was $23.8 million compared to $39.4 million in the same period in 2018, a decrease of 39.5%. Net income this quarter was adversely impacted by CEO and related transition costs, legal settlement expense and an increase in hotel operating expenses. Net income for the full year 2019 was $165.1 million compared to $211.8 million in the same period in 2018, a decrease of 22.0%. The decline in net income for both the three and twelve months ended December 31, 2019 was primarily due to a decline in Hotel Operating Margin driven by increased hotel operating expense, partially offset by lower income tax expense. 

Adjusted EBITDA for the three months ended December 31, 2019 was $108.8 million, a decline of 14.1% compared to the same period in 2018. Adjusted EBITDA was impacted by CEO and related transition costs, legal settlement expense and other unanticipated net expense items arising after our November 2019 guidance totaling approximately $10.0 million. Adjusted EBITDA excludes non-cash equity-based compensation expense of $0.8 million and $0.9 million in other expenses. Adjusted EBITDA for the full year 2019 was $535.0 million, a decline of 10.8%, due primarily to asset dispositions in 2018 resulting in lost contribution of $21.4 million and an increase in Comparable Company-owned hotel operating expenses.

Adjusted FFO for the three months ended December 31, 2019 was $67.8 million compared to $77.8 million in the same period in 2018. The decline in Adjusted FFO was due to an increase in Comparable Company-owned hotel operating expenses, CEO and related transition costs, legal settlements and a decline in Comparable Company-owned RevPAR. Adjusted FFO per diluted Paired Share was $0.37 compared to $0.41 in the same period in 2018. Adjusted FFO, a non-GAAP measure, represents funds from operations, 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 FFO for the full year 2019 was $337.6 million, or $1.81 per diluted Paired Share, compared to $382.8 million, or $2.02 per diluted Paired Share, in 2018.

Adjusted Paired Share Income for the three months ended December 31, 2019 was $24.9 million, or $0.14 per diluted Paired Share, compared to $38.6 million, or $0.21 per diluted Paired Share, in the same period in 2018. The decline in Adjusted Paired Share Income was driven by an increase in Comparable Company-owned hotel operating expenses, CEO and related transition costs, legal settlements and a decline in Comparable Company-owned RevPAR, partially offset by a decrease in effective tax rate. 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.  Adjusted Paired Share Income per diluted Paired Share for the full year 2019 was $0.95 compared to $1.14 in 2018.

Capital Expenditures

The Company invested $83.3 million in capital expenditures during the fourth quarter of 2019. This includes $13.4 million in renovation capital, $8.4 million in IT capital and $35.3 million in capital for hotel development and land acquisitions. The Company invested $261.3 million in capital expenditures for the full year 2019.

Hotel and Development Pipeline

As of December 31, 2019, the Company had a pipeline of 75 hotels representing approximately 9,100 rooms after opening 4 hotels in 2019.

         
  Company Owned Pipeline & Recently Opened Hotels as of December 31, 2019  
  Under Option   Pre-Development   Under Construction   Total Pipeline   Opened in 2019  
  # Hotels # Rooms   # Hotels # Rooms   # Hotels # Rooms   # Hotels # Rooms   # Hotels # Rooms  
  1 124   6 752   9 1,128   16 2,004   2 260  
                               
                               
  Third Party Pipeline & Recently Opened Hotels as of December 31, 2019  
  Commitments   Applications   Executed   Total Pipeline   Opened in 2019  
  # Hotels # Rooms   # Hotels # Rooms   # Hotels # Rooms   # Hotels # Rooms   # Hotels # Rooms  
  39 4,804   5 588   15 1,665   59 7,057   2 217  
                               
                               
                               
  Definitions                            
  Under Option   Locations with a signed purchase and sale agreement
         
  Pre-Development Land purchased, permitting and/or site work
         
  Under Construction Hotel is under construction
         
  Commitments   Signed commitment to build a certain number of hotels by a third party
         
  Applications   Third party filed franchise application with deposit
         
  Executed   Franchise application approved, various stages of pre-development or under construction
         
                               

Distributions and Share Repurchases

On February 26, 2020, the Boards of Directors of Extended Stay America, Inc. and ESH Hospitality, Inc. declared cash distributions totaling $0.23 per Paired Share for the fourth quarter of 2019. The distributions are payable on March 26, 2020 to shareholders of record as of March 12, 2020.  The Company repurchased 5.0 million Paired Shares during the fourth quarter for an aggregate purchase of $73.1 million. For the full year 2019, the Company repurchased 9.0 million Paired Shares for an aggregate purchase of $130.5 million.

Since the end of the fourth quarter of 2019, the Company has repurchased an additional 2.2 million Paired Shares for an aggregate purchase of $31.0 million. The Company’s total remaining repurchase authorization was $101.1 million as of close of the market today.

2020 Outlook
The Company’s 2020 Outlook is as follows:

in millions, except % and # of hotels   Low
    High
                     
# of hotels owned on 12/31/20         564          
Total revenues   $ 1,226       $ 1,246    
Comparable system-wide RevPAR % D     -0.5 %        +1.5 %  
Net income   $ 133       $ 154    
Adjusted Paired Share Income/Paired Share   $ 0.78       $ 0.90    
Adjusted FFO/Paired Share   $ 1.68       $ 1.77    
Adjusted EBITDA   $ 505       $ 525    
Depreciation and amortization   $ 195       $ 200    
Net interest expense   $ 135       $ 135    
Effective tax rate     15 %       15 %  
Capital expenditures   $ 210       $ 240    
Expected capital returns**   $ 215       $ 235    

Our guidance does not include any potential impact from the COVID-19 virus.

**Expected capital returns assumes no asset dispositions in 2020. We are currently marketing hotel assets and if such asset dispositions occur, a portion of disposition proceeds is expected to be used for incremental Paired Share repurchases.

Webcast and Conference Call Details

The Company will host a conference call on Thursday, February 27, 2020 at 8:30 a.m. 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 March 5, 2020, and can be accessed by dialing 1-844-512-2921 for domestic callers or 1-412-317-6671 for international callers. The passcode for the replay is 13699082.

Disclosure Regarding Non-GAAP Financial Measures

Hotel Operating Profit, Hotel Operating Margin, EBITDA, Adjusted EBITDA, FFO, Adjusted FFO, Adjusted FFO per diluted Paired Share, Paired Share Income, Adjusted Paired Share Income and Adjusted Paired Share Income per diluted Paired Share (collectively, the “Non-GAAP Financial Measures”), which are detailed in the reconciliation tables that accompany this release, are used by the Company as supplemental performance measures. The Company believes these 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 capital-intensive companies, including those which include a REIT as part of their legal entity structure. The Non-GAAP Financial Measures are not recognized terms under U.S. GAAP.  These measures as presented may not be comparable to measures calculated by other companies. These measures should not be considered as alternative measures of, or superior to, operating profit, net income, net income per share or any other measure of the Company, Extended Stay America, Inc. or ESH Hospitality, Inc. calculated in accordance with U.S. GAAP.  The Company’s presentation of the Non-GAAP Financial Measures does not replace the presentation of the Company’s consolidated financial statements and other disclosures prepared in accordance with U.S. GAAP.  

Forward Looking Statements

This release contains forward-looking statements within the meaning of the federal securities laws. These statements include, but are not limited to, statements related to our expectations regarding our business performance, business strategies, financial results, liquidity and capital resources, capital expenditures, capital returns, distribution policy and other non-historical statements, including the statements in the “2020 Outlook” section of this release. Forward looking statements 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 projected results or performance implied by 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 Securities and Exchange Commission (“SEC”) on February 26, 2020 and other documents of the Company on file with or furnished to the SEC. Any forward-looking statements made in this 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, 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 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® is the leading brand in the mid-priced extended stay segment in the U.S. with 631 hotels.  ESH Hospitality, Inc. (“ESH”), a subsidiary of Extended Stay America, Inc. (“ESA”), is the largest lodging REIT in North America by unit and room count, with 557 hotels and approximately 61,900 rooms in the U.S. ESA also manages or franchises an additional 74 Extended Stay America® hotels. Visit www.esa.com for more information.

Contacts
Investors or Media:                                                                       
Rob Ballew                                                                                         
(980) 345-1546                                                                  
investorrelations@esa.com             

_______________________________
1 See “Disclosure Regarding Non-GAAP Financial Measures” for an explanation of  non-GAAP measures included in this release (i.e., Hotel Operating Profit, Hotel Operating Margin, EBITDA, Adjusted EBITDA, Funds from Operations (“FFO”), Adjusted FFO, Adjusted FFO per diluted Paired Share, Paired Share Income, Adjusted Paired Share Income and Adjusted Paired Share Income per diluted Paired Share)

 
 
EXTENDED STAY AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2019 AND 2018
(In thousands, except per share data)
 
                     
Three Months Ended   Twelve Months Ended
December 31,   December 31,
  2019       2018     % Variance     2019       2018     % Variance
                       
(Unaudited)   REVENUES: (Audited)    
$ 272,397     $ 279,236     (2.4 )% Room revenues $ 1,171,726     $ 1,237,311     (5.3 )%
  6,517       5,161     26.3 % Other hotel revenues   24,365       21,871     11.4 %
  1,389       1,171     18.6 % Franchise and management fees   5,412       3,310     63.5 %
  280,303       285,568     (1.8 )%     1,201,503       1,262,492     (4.8 )%
                     
  3,895       4,148     (6.1 )% Other revenues from franchised and managed properties   16,716       12,567     33.0 %
                     
  284,198       289,716     (1.9 )% Total revenues   1,218,219       1,275,059     (4.5 )%
                     
          OPERATING EXPENSES:          
  145,210       140,004     3.7 % Hotel operating expenses   582,321       583,029     (0.1 )%
  27,549       21,384     28.8 % General and administrative expenses   95,155       91,094     4.5 %
  49,857       49,677     0.4 % Depreciation and amortization   197,400       209,329     (5.7 )%
  -       -     n/a   Impairment of long-lived assets   2,679       43,600     (93.9 )%
  222,616       211,065     5.5 %     877,555       927,052     (5.3 )%
                     
  4,528       4,456     1.6 % Other expenses from franchised and managed properties   18,870       13,217     42.8 %
                     
  227,144       215,521     5.4 % Total operating expenses   896,425       940,269     (4.7 )%
                     
  -       879     (100.0 )% GAIN ON SALE OF HOTEL PROPERTIES, NET   -       42,478     (100.0 )%
                     
  1       168     (99.4 )% OTHER INCOME   32       669     (95.2 )%
                     
  57,055       75,242     (24.2 )% INCOME FROM OPERATIONS   321,826       377,937     (14.8 )%
                     
  (143 )     (813 )   (82.4 )% OTHER NON-OPERATING INCOME   (391 )     (765 )   (48.9 )%
                     
  31,859       29,798     6.9 % INTEREST EXPENSE, NET   127,764       124,870     2.3 %
                     
  25,339       46,257     (45.2 )% INCOME BEFORE INCOME TAX EXPENSE   194,453       253,832     (23.4 )%
                     
  1,493       6,858     (78.2 )% INCOME TAX EXPENSE   29,315       42,076     (30.3 )%
                     
  23,846       39,399     (39.5 )% NET INCOME   165,138       211,756     (22.0 )%
                     
  (70,680 )     (78,345 )   (9.8 )% NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS   (95,470 )     (98,892 )   (3.5 )%
                     
$ (46,834 )   $ (38,946 )   20.3 % NET (LOSS) INCOME ATTRIBUTABLE TO EXTENDED STAY AMERICA, INC. COMMON SHAREHOLDERS $ 69,668     $ 112,864     (38.3 )%
                     
                     
$ (0.26 )   $ (0.21 )   24.4 % NET (LOSS) INCOME PER EXTENDED STAY AMERICA, INC. COMMON SHARE - DILUTED $ 0.37     $ 0.59     (37.3 )%
                     
  182,046       188,272       WEIGHTED-AVERAGE EXTENDED STAY AMERICA, INC. COMMON SHARES OUTSTANDING - DILUTED   186,822       189,821      
                     
                     
                     
          CONSOLIDATED BALANCE SHEET DATA          
          AS OF DECEMBER 31, 2019 and 2018          
          (In thousands)          
          (Audited)          
            December 31,    
              2019       2018      
          Cash and cash equivalents $ 346,812     $ 287,458      
          Restricted cash $ 14,858     $ 15,878      
          Total assets $ 4,030,596     $ 3,924,210      
          Total debt, net of unamortized deferred financing costs and debt discounts (1) $ 2,639,766     $ 2,402,637      
          Total equity $ 1,176,270     $ 1,310,639      
                     
          (1) Unamortized deferred financing costs and debt discounts totaled $46.7 million and $41.1 million as of December 31, 2019 and 2018, respectively.
                             
                     


  EXTENDED STAY AMERICA, INC.
  OPERATING METRICS
  FOR THE THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2019 AND 2018
  (Unaudited)
                       
                       
  COMPARABLE SYSTEM-WIDE OPERATING METRICS (1)
                       
  Three Months Ended   Twelve Months Ended
  December 31,   December 31,
    2019       2018     Variance     2019       2018     Variance
    624       624     -   Number of hotels (as of December 31)   623       623     -  
    68,700       68,700     -   Number of rooms (as of December 31)   68,585       68,585     -  
    75.3 %     72.9 %   240 bps Comparable System-Wide Occupancy(1)   76.8 %     75.3 %   150 bps
  $ 62.31     $ 64.94     (4.0 )% Comparable System-Wide ADR(1) $ 65.86     $ 67.84     (2.9 )%
  $ 46.94     $ 47.34     (0.8 )% Comparable System-Wide RevPAR(1) $ 50.60     $ 51.06     (0.9 )%
                       
                       
                       
  COMPARABLE COMPANY-OWNED OPERATING METRICS (2)
                       
  Three Months Ended   Twelve Months Ended
  December 31,   December 31,
    2019       2018     Variance     2019       2018     Variance
    553       553     -   Number of hotels (as of December 31)   552       552     -  
    61,445       61,445     -   Number of rooms (as of December 31)   61,330       61,330     -  
    74.8 %     73.4 %   140 bps Comparable Company-Owned Occupancy(2)   76.8 %     75.9 %   90 bps
  $ 64.32     $ 66.74     (3.6 )% Comparable Company-Owned ADR(2) $ 67.96     $ 69.67     (2.5 )%
  $ 48.13     $ 48.96     (1.7 )% Comparable Company-Owned RevPAR(2) $ 52.19     $ 52.88     (1.3 )%
                       
                       
            Renovation Displacement Data (in thousands, except percentages):          
    5,653       5,653     -
Total available room nights   22,385       22,385     -
    34       -     34
Room nights displaced from renovation   79       -     79
    0.6 %     0.0 %   60 bps % of available room nights displaced   0.4 %     0.0 %   40 bps
                       
   
  COMPANY-OWNED OPERATING METRICS (3)
                       
  Three Months Ended   Twelve Months Ended
  December 31,   December 31,
    2019       2018     Variance     2019       2018     Variance
    557       554     3
Number of hotels (as of December 31)   557       554     3
    61,933       61,552     381
Number of rooms (as of December 31)   61,933       61,552     381
    74.8 %     73.3 %   150 bps Company-Owned Occupancy(3)   76.7 %     75.9 %   80 bps
  $ 64.34     $ 66.74     (3.6 )% Company-Owned ADR(3) $ 67.97     $ 69.67     (2.4 )%
  $ 48.11     $ 48.93     (1.7 )% Company-Owned RevPAR(3) $ 52.16     $ 52.86     (1.3 )%
                       
                       
(1) Includes hotels owned, franchised or managed for the full three and twelve months ended December 31, 2019 and 2018, respectively.    
                       
(2) Includes hotels owned and operated by the Company for the full three and twelve months ended December 31, 2019 and 2018, respectively.    
               
(3) Includes results of operations of the Company's owned and operated hotels during the periods presented, which is summarized below:    


  Date Number of Hotels
(Sold), Acquired or
Opened
Number of
Rooms
Number of
Owned Hotels
(1)
Number of
Owned Rooms
(1)
 
   
  December 31, 2017 -   -   624 68,686  
  February 2018 (25 ) (2,420 ) 599 66,266  
  March 2018 (1 ) (101 ) 598 66,165  
  May 2018 1   115   599 66,280  
  September 2018 (32 ) (3,449 ) 567 62,831  
  November 2018 1   107   568 62,938  
  November 2018 (14 ) (1,386 ) 554 61,552  
  November 2019 1   121   555 61,673  
  December 31, 2019 2   260   557 61,933  
             
  (1) As of end of period.   
             


...
  EXTENDED STAY AMERICA, INC.
  NON-GAAP RECONCILIATION OF NET INCOME TO HOTEL OPERATING PROFIT AND HOTEL OPERATING MARGIN
  FOR THE THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2019 AND 2018
  (In thousands)
  (Unaudited)
                       
  Three Months Ended   Twelve Months Ended
  December 31,   December 31,
  2019   2018   Variance   2019   2018   Variance
  $ 23,846   $ 39,399   (39.5)% Net income $ 165,138   $ 211,756   (22.0)%
  1,493   6,858   (78.2)% Income tax expense 29,315   42,076   (30.3)%
  31,859   29,798   6.9% Interest expense, net 127,764   124,870   2.3%
  (143)   (813)   (82.4)% Other non-operating income (391)   (765)   (48.9)%
  (1)   (168)   (99.4)% Other income (32)   (669)   (95.2)%
  -   (879)   (100.0)% Gain on sale of hotel properties, net -   (42,478)   (100.0)%
  -   -   n/a Impairment of long-lived assets 2,679   43,600   (93.9)%
  49,857   49,677   0.4% Depreciation and amortization 197,400   209,329   (5.7)%
  27,549   21,384   28.8% General and administrative expenses 95,155