Extended Stay America Announces Second Quarter 2019 Results

- Net Income of $59.7 million for the second quarter
- Adjusted EBITDA¹ of $153.6 million for the second quarter
- Franchise pipeline expands 21% to 52 hotels in the second quarter
- Increased Share Repurchase authorization by $150 million
- Update to Corporate Structure Review

CHARLOTTE, N.C., Aug. 06, 2019 (GLOBE NEWSWIRE) -- Extended Stay America, Inc. and ESH Hospitality, Inc. (NASDAQ:STAY) (together, the “Company”) today announced consolidated results for the three and six months ended June 30, 2019.

Second Quarter 2019 Highlights

• Net Income of $59.7 million
• Total revenues of $323.7 million
• Comparable system-wide Revenue Per Available Room (“RevPAR”) increased 0.1%   
• RevPAR Index gain of 1.5% excluding hurricane-related markets and renovation disruption
• Adjusted EBITDA of $153.6 million
• Adjusted Funds from Operations (“Adjusted FFO”)¹ of $0.53 per diluted Paired Share
• Adjusted Paired Share Income¹ of $0.32 per diluted Paired Share  

Extended Stay America’s President and Chief Executive Officer, Jonathan Halkyard, commented, “We are pleased with the significant progress in our growth plans during the quarter with our total hotel pipeline increasing by 18% in the second quarter to 8,700 rooms, or approximately 13% of existing supply, and successfully opening our first franchise conversion hotel.”

Mr. Halkyard continued, “After extensive exploration of a variety of possible transformative transactions to which our Boards of Directors have been, and remain, open, our Boards have concluded that the terms currently available for such transactions do not presently provide a superior alternative to the opportunity presented by the aggressive pursuit of our ESA 2.0 strategy, including steps to accelerate the franchising portion of that strategy.”

Lastly, Mr. Halkyard noted, “We believe our shares are significantly undervalued at recent trading prices and have asked our Boards to increase the Company’s remaining authorization to more than $260 million, which they have approved. With the review concluded, we expect to return a significant amount of capital to shareholders in the second half of 2019 and in 2020.”

^{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).}

Financial and Operating Results

Total revenues for the three months ended June 30, 2019 were $323.7 million, a decrease of 3.8% over the same period in the prior year due to asset dispositions in 2018. Adjusting for asset dispositions in 2018, total revenues increased 1.0% during the second quarter. For the six months ended June 30, 2019, total revenues declined 5.2% to $601.3 million, driven by asset dispositions. Adjusting for asset dispositions in 2018, total revenues increased 0.3% in the six months ended June 30, 2019.

Comparable system-wide RevPAR for the three months ended June 30, 2019 increased 0.1% over the same period in 2018 to $53.94, driven by a 220 basis point increase in occupancy to 79.8%, largely offset by a 2.7% decrease in Average Daily Rate (“ADR”). Comparable system-wide RevPAR was impacted this quarter by renovation disruption, a shift in the Easter holiday as well as cycling business related to Hurricanes Harvey and Irma in Houston, TX and several Florida markets, respectively. Excluding the aforementioned items, Comparable system-wide RevPAR grew approximately 2.0% during the second quarter. Comparable Company-owned RevPAR decreased 0.1% during the second quarter to $55.66. Total Company-owned RevPAR increased 2.5% during the quarter, reflecting the sales of non-core hotels in 2018. Comparable system-wide RevPAR for the six months ended June 30, 2019 declined 0.7% driven by a 2.8% decline in ADR, partially offset by a 160 basis point increase in occupancy.

Hotel Operating Margin¹ for the three months ended June 30, 2019 was 54.4% compared to 56.4% in the same period in 2018.   While we continued our strategy to maximize targeted marketing efforts to our longest staying customers, and other revenue and cost saving initiatives, these were offset by an increase in operating expenses, including payroll expense, property insurance expense and property taxes. Hotel Operating Margin for the six months ended June 30, 2019 was 52.4% compared to 54.5% in the same period of 2018.  Property level margins remain at industry leading levels.

Net income for the three months ended June 30, 2019 was $59.7 million compared to $65.6 million in the same period in 2018, a decrease of 9.0%. Net income for the six months ended June 30, 2019 was $88.1 compared to $96.7 million in the same period in 2018, a decrease of 8.9%. The decline in net income for both the three and six months ended June 30, 2019 was primarily due to a decline in Hotel Operating Margin, partially offset by lower depreciation expense, decreased net interest expense and a decline in corporate overhead expense.   We have paid down over $490 million in debt in the last five years and reduced our corporate level expense run rate by 8.5% compared to the same period in 2015.

Adjusted EBITDA for the three months ended June 30, 2019 was $153.6 million, a decline of 8.2% compared to the same period in 2018. The decline in Adjusted EBITDA was due in part due to asset dispositions in 2018 resulting in lost contribution of $6.7 million and an increase in comparable hotel operating expenses. Adjusted EBITDA excludes non-cash equity-based compensation expense of $2.1 million and $1.9 million in other expenses. Adjusted EBITDA for the six months ended June 30, 2019 was $270.0 million, a decline of 9.9% due to asset dispositions in 2018 resulting in lost contribution of $13.5 million and an increase in comparable hotel operating expenses

Adjusted FFO for the three months ended June 30, 2019 was $99.8 million compared to $109.9 million in the same period in 2018. The decline in Adjusted FFO was due to an increase in comparable Company-owned hotel operating expenses, partially offset by decreases in net interest expense and corporate overhead expense. Adjusted FFO per diluted Paired Share was $0.53 compared to $0.58 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 six months ended June 30, 2019 was $168.3 million, or $0.89 per diluted Paired Share, compared to $189.9 million, or $1.00 per diluted Paired Share, in the same period in 2018.

Adjusted Paired Share Income for the three months ended June 30, 2019 was $61.2 million, or $0.32 per diluted Paired Share, compared to $66.3 million, or $0.35 per diluted Paired Share, in the same period in 2018. The decline in Adjusted Paired Share Income was due to a decline in Hotel Operating Margin, partially offset by lower depreciation expense, net interest expense and corporate overhead expense. 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 six months ended June 30, 2019 was $0.48 compared to $0.54 in the same period in 2018.

Capital Expenditures

The Company invested $57.6 million in capital expenditures during the second quarter of 2019. This includes $9.3 million in renovation capital, $9.2 million in IT capital and $13.9 million in capital for ESA 2.0 hotel development and land acquisitions. The Company invested $112.9 million in capital expenditures during the first half of 2019.

Hotel and Development Pipeline

As of June 30, 2019, the Company had a pipeline of 71 hotels representing approximately 8,700 rooms.

Distributions and Share Repurchases

On August 6, 2019, the Boards of Directors of Extended Stay America, Inc. and ESH Hospitality, Inc. declared cash distributions totaling $0.23 per Paired Share for the second quarter of 2019. The distributions are payable on September 4, 2019 to shareholders of record as of August 21, 2019.  The Company did not repurchase Paired Shares during the second quarter of 2019.

On August 6, 2019, the Boards of Directors of Extended Stay America, Inc. and ESH Hospitality, Inc. approved a $150 million increase in the Company’s combined Paired Share repurchase authorization. Including this increase, the Company’s the total remaining outstanding authorization is $263 million as of today.

2019 Outlook

The Company’s 2019 Outlook is updated as follows:

¹ Approximately 200 basis point negative impact from hurricane related markets and net renovation displacement
² Lost contribution of approximately $21 million related to 72 hotel dispositions in 2018

Webcast and Conference Call Details

The Company will host a conference call on Wednesday, August 7, 2019 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 August 14, 2019, 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 13692781.

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, financial results, liquidity and capital resources, capital expenditures, capital returns, distribution policy and other non-historical statements, including the statements in the “2019 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 27, 2019 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 627 hotels and nearly twice as many rooms as its nearest competitor.  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 554 hotels and approximately 61,500 rooms in the U.S. ESA also manages or franchises an additional 73 Extended Stay America® hotels. Visit www.esa.com for more information.

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