Second Quarter Net Income of $61.4 million
Second Quarter Adjusted EBITDA1 of $164.7 million
Second Quarter Total Revenues of $332.8 million
Second Quarter Comparable Hotel2 Total Revenues Increase of 3.4%
July 28, 2016–CHARLOTTE, N.C.–Extended Stay America, Inc. (NYSE:STAY) (the “Company”) today announced consolidated results for the quarter ended June 30, 2016.
Second Quarter 2016 Highlights
- Comparable Hotel total revenues grew 3.4% to $332.8 million
- Comparable Hotel Revenue Per Available Room (“RevPAR”) grew 3.3% to $51.89
- Comparable Hotel Adjusted EBITDA increased 0.9% to $164.7 million
- Adjusted Paired Share Income1 of $63.0 million, or $0.31 per diluted Paired Share1
Six Months 2016 Highlights
- Comparable Hotel total revenues grew 4.7% to $620.3 million
- Comparable Hotel RevPAR grew 4.0% to $48.36
- Comparable Hotel Adjusted EBITDA increased 3.1% to $287.5 million
- Adjusted Paired Share Income of $88.8 million, or $0.44 per diluted Paired Share
Extended Stay America’s Chief Executive Officer, Gerry Lopez, commented, “Our RevPAR growth for the second quarter and year to date continued to outpace our closest competitive chain-scales – Economy and Midscale. Although we’re disappointed to come in at the low end of our expected range, we believe our Adjusted EBITDA growth will re-accelerate in the back half of 2016 as we begin to cycle on expenses related to initiatives implemented in 2015 and the headwinds from our heavy renovation schedule diminish.”
Mr. Lopez continued, “We were pleased with the progress we made during the second quarter on our future growth initiatives, including significant work on design and cost estimates and closing in on the site selection for our prototype hotel. During the quarter we also completed our strategic portfolio review of all 629 hotels. We have had strong interest and constructive dialogue with owners, franchisees and developers following our New York Investor Day last June 2, and continue to be encouraged by what we hear.”
Financial and Operating Results
Total revenues for the three months ended June 30, 2016 were $332.8 million while Comparable Hotel total revenues increased by 3.4% over the comparable period in 2015. Total revenues for the six months ended June 30, 2016 were $620.3 million while Comparable Hotel total revenues increased by 4.7% over the comparable period in 2015.
RevPAR for the three months ended June 30, 2016 grew 7.0% over the comparable period in 2015, driven by an improvement in average daily rate (“ADR”) of 7.6%. Occupancy declined to 76.7% compared to 77.1% in the comparable period in 2015 due primarily to an increased number of hotel rooms under renovation. Comparable Hotel RevPAR grew 3.3% during the quarter to $51.89 driven by a 4.0% increase in ADR, partially offset by a 50 bps decrease in occupancy. RevPAR for the six months ended June 30, 2016 increased 7.5% over the comparable period in 2015, driven by an 8.4% increase in ADR. Occupancy declined to 73.1% compared to 73.8% in the comparable period in 2015 due primarily to an increased number of hotel rooms under renovation. Comparable Hotel RevPAR grew 4.0% during the first six months of the year to $48.36 driven by a 4.9% increase in ADR, partially offset by a 60 bps decrease in occupancy.
Net income for the three months ended June 30, 2016 was $61.4 million compared to $64.8 million in the comparable period in 2015. Net income decreased due to the 53 hotel portfolio sale in December 2015 and an increase in depreciation expense due to renovations, partially offset by a decrease in income tax expense. Net income for the six months ended June 30, 2016 was $76.1 million compared to $92.7 million in the comparable period in 2015. Income tax expense for the three months ended June 30, 2016 was $7.4 million compared to $17.9 million in the comparable period in 2015. Tax expense decreased primarily due to the reversal of a deferred tax liability related to anticipated receipt of future non-taxable distributions from ESH Hospitality, Inc. Income tax expense for the six months ended June 30, 2016 was $10.3 million compared to $26.8 million in the comparable period in 2015.
Hotel Operating Margin1 for the three months ended June 30, 2016 was 55.8% compared to 57.1% in the comparable period in 2015. Comparable Hotel Operating Margin decreased 190 basis points over the comparable period in 2015. The decrease in Hotel Operating Margin was primarily due to increases in personnel costs and reservation expenses. Comparable Hotel Operating Margin for the six months ended June 30, 2016 was 53.3% compared to 54.5% in the comparable period in 2015.
Adjusted EBITDA for the three months ended June 30, 2016 was $164.7 million. Adjusted EBITDA excludes non-cash equity-based compensation of $2.9 million and loss on disposal of assets and other expenses of $2.1 million. Comparable Hotel Adjusted EBITDA increased $1.5 million or 0.9% during the quarter over the comparable period in 2015. Adjusted EBITDA for the six months ended June 30, 2016 was $287.5 million. Adjusted EBITDA excludes non-cash equity based compensation of $5.6 million and loss on disposal of assets and other net expenses of $4.3 million. Comparable Hotel Adjusted EBITDA increased $8.6 million or 3.1% during the six months ended June 30, 2016 over the comparable period in 2015.
Adjusted Paired Share Income for the three months ended June 30, 2016 was $63.0 million, or $0.31 per diluted Paired Share, compared to $66.8 million, or $0.33 per diluted Paired Share, in the comparable period in 2015. Adjusted Paired Share Income for the six months ended June 30, 2016 was $88.8 million, or $0.44 per diluted Paired Share, compared to $97.2 million, or $0.48 per diluted Paired Share, in the comparable period in 2015. 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 $53.0 million in capital expenditures during the second quarter of 2016 which includes $26.4 million in renovation capital and $24.3 million in maintenance capital. The Company completed 35 hotel renovations in the second quarter of 2016, bringing the total number of renovated hotels to 530. For the six months ended June 30, 2016, the Company invested $109.9 million in capital expenditures.
Distribution and Share Repurchases
On July 28, 2016, the Boards of Directors of Extended Stay America, Inc. and ESH Hospitality, Inc., declared cash distributions totaling $0.19 per Paired Share for the second quarter of 2016. The distributions are payable on August 25, 2016 to shareholders of record as of August 11, 2016.
During the second quarter of 2016, the Company repurchased approximately 2.1 million Paired Shares for an aggregate purchase price of approximately $31.6 million. The Company had $139.6 million remaining for repurchases under the combined Paired Share repurchase program at the end of the second quarter of 2016.
2016 Outlook
The Company’s outlook for 2016 is updated as follows:
- Total revenues are expected to range from $1.257 billion to $1.272 billion
- Comparable Hotel total revenues are expected to increase by approximately 3.25% to 4.50%
- Net income is anticipated to range from $162 million to $188 million
- Adjusted EBITDA is expected to range from $595 million to $610 million, representing approximately 3.6 % to 6.2% growth over 2015 Comparable Hotel Adjusted EBITDA
- Depreciation and amortization of $215 million to $220 million
- Net interest expense of $153 million to $158 million
- Effective tax rate is expected to range between 15.0% and 16.0%
- Capital expenditures are expected to range from $240 million to $260 million, including $120 to $135 million in hotel renovation capital and approximately $100 million in maintenance capital
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