Extended Stay America, Inc. Releases Third Quarter, 2003 Financial Report
SPARTANBURG, S.C. - Extended Stay America, Inc. ESA, a leading provider of extended stay lodging, today reported the results of its operations for the three months and nine months ended September 30, 2003. Reflecting the continued impact on business travel resulting from the weakened U.S. economy, net income for the third quarter of 2003 was $16.6 million, or $0.17 per diluted share, compared with $21.2 million, or $0.
Net income for the nine months ended September 30, 2003 was $0.38 per diluted share compared with $0.51 per diluted share for the same period of last year. Net income for the nine months ended September 30, 2002 includes benefits associated with one-time rental contracts during the 2002 Winter Olympics of approximately $1.2 million ($0.01 per diluted share) at three properties in Salt Lake City, Utah (the "Olympic Properties") and a reduction in the Company's estimated annual effective income tax rate of approximately $3.0 million ($0.03 per diluted share).
Revenue for the third quarter was $153.0 million, a decrease of less than one percent compared to the third quarter of 2002. Earnings before interest, taxes, depreciation, and amortization (EBITDA) was $67.6 million (44% of revenue) for the quarter. Property level EBITDA, including 21 hotels that were open for less than one year at the beginning of the quarter or that were opened during the quarter, was 53% of revenue or $80.9 million for the quarter, compared to 57% of revenue or $87.0 million for the same quarter of 2002. Property level EBITDA does not include corporate operating and site selection expenses of $13.3 million (9% of revenue) for the quarter, compared to $12.2 million (8% of revenue) for the third quarter of 2002.
The Company realized an overall decrease of 3.8% in REVPAR (revenue per available room) with average occupancies of 71% and average weekly room rates of $328 for the third quarter of 2003, as compared to average occupancies of 74% and average weekly room rates of $325 for the third quarter of 2002. Average occupancy rates for Crossland, EXTENDED STAYAMERICA, and StudioPLUS were 71%, 71%, and 69%, respectively, while average weekly room rates were $224, $341, and $332, respectively, for the third quarter of 2003.
Comparable hotels, consisting of the 389 properties opened for at least one year at the beginning of 2002 (excluding the Olympic Properties), realized the following percentage changes in the components of REVPAR for the third quarter of 2003 as compared with the third quarter of 2002:
EXTENDED
Crossland STAYAMERICA StudioPLUS Total
Comparable Hotels 39 257 93 389
Occupancy (3.2)% (4.6)% (6.4)% (4.7)%
Average Weekly Rate 1.0% 0.2% 0.2% 0.2%
REVPAR (2.2)% (4.3)% (6.2)% (4.5)%
The Company opened 7 EXTENDED STAYAMERICA Efficiency Studios hotels during the quarter, resulting in a total of 470 operating hotels (39 Crossland Economy Studios, 336 EXTENDED STAYAMERICA Efficiency Studios, and 95 StudioPLUS Deluxe Studios) as of September 30, 2003. In addition, the Company had 6 EXTENDED STAYAMERICA Efficiency Studios under construction as of September 30, 2003. The Company expects to open 5 of these 6 hotels in the fourth quarter of 2003, for a total of 20 hotels opened during the year with total estimated development costs of approximately $164 million.
At September 30, 2003, the Company had 26 sites for which it holds purchase options and had acquired 2 parcels for future development. The Company will continue to seek the necessary approvals and permits for these sites and for additional sites, and may acquire additional parcels of real estate for future development. Construction will commence as soon as possible within the constraints of the Company's amended credit agreement and contingent upon a number of factors, including improvements in the overall U.S. economy, improvements in demand for lodging products in the overall lodging industry, and improvements in demand for the Company's extended stay lodging products. Assuming recent trends continue through the remainder of the year, the Company currently intends to commence construction on an additional 9 - 10 sites during the fourth quarter, which would increase the total number of construction starts for 2003 to 10 - 11 sites having total development costs of approximately $80 million.
As of September 30, 2003, the Company had invested approximately $2.7 billion in its 470 open hotels and had invested approximately $69 million in its hotels currently under development. The Company had cash balances of approximately $28.9 million and had outstanding loans of $1.14 billion, leaving $200 million committed and available under its credit facilities at September 30, 2003.
While the Company believes that improvements in the U.S. economy will result in increased demand for its products, it is difficult to assess the timing and magnitude of such improvements. Based on trends experienced in the third quarter and thus far in October, the Company currently anticipates that it will experience declines in REVPAR for its comparable hotels when compared to the prior year of 2% to 4% for the fourth quarter of 2003 and will realize REVPAR declines of 4% to 5% for the year. Based on these operating assumptions and reflecting our increased pace of re-investment in our mature properties, earnings for the fourth quarter in the range of $0.00 to $0.02 per diluted share and annual earnings for 2003 in the range of $0.38 to $0.40 per diluted share would be expected.
George D. Johnson, Jr., CEO, commented: "Our occupancy rates continue to exceed those of the overall lodging industry, and our property operating margins continue to exceed 50%. We have consistently said that we expect changes in demand for our product to generally lag changes in overall business travel demand due to our guests' longer average length of stay compared to those in the overall lodging industry. As such, we are very encouraged by the perceptions of some lodging industry analysts that the lodging industry is in the early stages of recovery. In spite of the short-term impact on margins, we have accelerated our pace of re-investing in our mature properties in anticipation of a recovery. We remain extremely confident in our business model and the long-term prospects for extended stay lodging."
EXTENDED STAY AMERICA, INC.
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
---------------------
Sept.30, Sept.30, Sept.30, Sept.30,
2003 2002 2003 2002
----------- --------- ---------
Revenue $152,960 $153,463 $419,417 $421,058
Property operating expenses 72,107 66,485 203,228 189,902
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Property operating income 80,853 86,978 216,189 231,156
Corporate operating and
property management
expenses 13,287 12,170 37,628 36,355
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Income before interest,
income taxes,
depreciation, and
amortization 67,566 74,808 178,561 194,801
Depreciation and
amortization 20,226 19,858 60,225 58,781
Interest expense, net 20,097 20,245 58,186 59,413
----------- --------- ---------
Income before income taxes 27,243 34,705 60,150 76,607
Provision for income taxes 10,625 13,535 23,459 26,853
----------- --------- ---------
Net income $16,618 $21,170 $36,691 $49,754
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Net income per common share
- Basic $0.17 $0.23 $0.39 $0.53
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Net income per common share
- Diluted $0.17 $0.22 $0.38 $0.51
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Weighted average shares:
Basic 95,437 93,784 94,498 93,631
Effect of dilutive
options 2,463 2,354 1,644 3,077
----------- --------- ---------
Diluted 97,900 96,138 96,142 96,708
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EXTENDED STAY AMERICA, INC.
Reconciliation of Net Cash Provided by Operating Activities to
Earnings Before Interest, Income Taxes, Depreciation, and
Amortization (Unaudited)
(In thousands)
Three Months Ended Nine Months Ended
---------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2003 2002 2003 2002
---------- ---------- -----------
Net cash provided by
operating activities $ 56,589 $ 61,668 $ 133,388 $ 150,804
Interest expense, net 20,097 20,245 58,186 59,413
Provision for income
taxes 10,625 13,535 23,459 26,853
Amortization of
deferred loan costs
included in interest
expense (1,221) (1,042) (3,398) (3,128)
Change in deferred
income tax (7,691) (9,423) (17,369) (16,077)
Changes in other
operating assets and
liabilities (10,833) (10,175) (15,705) (23,064)
---------- ---------- -----------
EBITDA $67,566 $74,808 $178,561 $194,801
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