October 2016–CHARLOTTE, N.C.–Extended Stay America, Inc. and ESH Hospitality, Inc. (NYSE:STAY) (together, the “Company”) today announced consolidated results for the quarter ended September 30, 2016.

Third Quarter 2016 Highlights

  • Comparable Hotel total revenues grew 3.9% to $354.5 million
  • Comparable Hotel Revenue Per Available Room (“RevPAR”) grew 3.7% to $54.65
  • Comparable Hotel Adjusted EBITDA increased 7.4% to $185.7 million
  • Adjusted Paired Share Income1 of $71.5 million, or $0.36 per diluted Paired Share1

Nine Months 2016 Highlights

  • Comparable Hotel total revenues grew 4.4% to $974.9 million
  • Comparable Hotel RevPAR grew 3.9% to $50.47
  • Comparable Hotel Adjusted EBITDA increased 4.7% to $473.2 million
  • Adjusted Paired Share Income of $160.3 million, or $0.79 per diluted Paired Share

Extended Stay America’s Chief Executive Officer, Gerry Lopez, commented, “We were pleased with our performance in the third quarter, as our RevPAR growth ran ahead of our closest competitive chain-scales – Economy and Midscale – as well as above the industry. We were able to show property level flow through over 90%, driving strong EBITDA growth and expanding Comparable Hotel Operating Margin by 150 basis points.”

Mr. Lopez continued, “In addition to our strong financial and operating performance during the quarter, we were pleased to make progress on other initiatives. These included refinancing the balance sheet with flexible, long dated, low cost debt, and providing strong capital returns through both dividends and share repurchases. We also began to execute on our real estate monetization strategy we discussed at our Investor Day earlier this year. Lastly, we were very gratified that corporate travel managers voted us the #1 mid-priced extended stay hotel brand this year with Business Travel News, showing the strong progress we have made with corporate guests.”

Financial and Operating Results

Total revenues for the three months ended September 30, 2016 were $354.5 million while Comparable Hotel total revenues increased by 3.9% over the same period in 2015. Total revenues for the nine months ended September 30, 2016 were $974.9 million while Comparable Hotel total revenues increased by 4.4% over the same period in 2015.

RevPAR for the three months ended September 30, 2016 grew 7.5% over the same period in 2015, driven by an improvement in average daily rate (“ADR”) of 6.0%. Occupancy increased to 79.4% compared to 78.3% in the same period in 2015. Comparable Hotel RevPAR grew 3.7% during the quarter to $54.65 driven by a 2.4% increase in ADR and a 100 basis point increase in occupancy. RevPAR for the nine months ended September 30, 2016 increased 7.5% over the same period in 2015, driven by a 7.6% increase in ADR. Occupancy declined to 75.2% compared to 75.3% in the same period in 2015. Comparable Hotel RevPAR grew 3.9% during the first nine months of the year to $50.47 driven by a 4.0% increase in ADR, partially offset by a 10 basis point decrease in occupancy.

Hotel Operating Margin for the three months ended September 30, 2016 was 58.4% compared to 56.2% in the same period in 2015. Comparable Hotel Operating Margin increased 150 basis points over the same period in 2015. Comparable Hotel operating margin flow-through, defined as the change in Comparable Hotel Operating Profit1 divided by the change in Comparable Hotel total revenues, was 94.7%. Comparable Hotel Operating Margin for the nine months ended September 30, 2016 was 55.1% compared to 55.4% in the same period in 2015.

Net income for the three months ended September 30, 2016 was $57.1 million compared to $58.2 million in the same period in 2015. Net income decreased due to the 53 hotel portfolio sale in December 2015, an increase in depreciation expense due to renovations, and higher interest expense due to debt extinguishment costs related to our refinancing activity during the quarter, partially offset by a decrease in income tax expense. Income tax expense for the three months ended September 30, 2016 was $15.9 million compared to $21.3 million in the same period in 2015. Net income for the nine months ended September 30, 2016 was $133.2 million compared to $150.9 million in the same period in 2015. Income tax expense for the nine months ended September 30, 2016 was $26.2 million compared to $48.1 million in the same period in 2015.

Adjusted EBITDA for the three months ended September 30, 2016 was $185.7 million. Adjusted EBITDA excludes non-cash equity-based compensation of $3.0 million, an impairment charge of $2.8 million, and loss on disposal of assets and other net expenses of $2.4 million. Comparable Hotel Adjusted EBITDA increased $12.8 million or 7.4% during the quarter over the same period in 2015. Adjusted EBITDA for the nine months ended September 30, 2016 was $473.2 million. Adjusted EBITDA excludes non-cash equity based compensation of $8.6 million, an impairment charge of $2.8 million, loss on disposal of assets and other net expenses of $6.6 million. Comparable Hotel Adjusted EBITDA increased $21.4 million or 4.7% during the nine months ended September 30, 2016 over the same period in 2015.

Adjusted Paired Share Income for the three months ended September 30, 2016 was $71.5 million, or $0.36 per diluted Paired Share, compared to $66.6 million, or $0.33 per diluted Paired Share, in the same period in 2015. Adjusted Paired Share Income for the nine months ended September 30, 2016 was $160.3 million, or $0.79 per diluted Paired Share, compared to $163.8 million, or $0.80 per diluted Paired Share, in the same 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 and Asset Sales

The Company invested $56.5 million in capital expenditures during the third quarter of 2016 which includes $23.9 million in renovation capital and $28.9 million in maintenance capital. The Company completed 17 hotel renovations in the third quarter of 2016, bringing the total number of renovated hotels to 547. For the nine months ended September 30, 2016, the Company invested $166.5 million in capital expenditures.

In October, the Company executed a purchase and sale agreement to divest one property for $44.8 million. The Company expects to lease back the property at nominal rent for approximately 18 to 24 months and expects to receive all operating income from this hotel in 2017. This transaction is currently in due diligence and the Company expects it to close in December 2016. Separately, the Company has executed a purchase and sale agreement to divest its three Extended Stay Canada hotels for CAD $76.0 million. This transaction is also in due diligence and the Company expects it to close in the first quarter of 2017.

Distribution and Share Repurchases

On October 25, 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 third quarter of 2016. The distributions are payable on November 22, 2016 to shareholders of record as of November 8, 2016.

During the third quarter of 2016, the Company repurchased approximately 0.6 million Paired Shares for an aggregate purchase price of approximately $9.2 million. The Company also announced the purchase of 1.95 million Paired Shares for $27.6 million on September 29, 2016 that closed on October 4, 2016. As of October 24, 2016 the Company had $102.8 million in repurchase authorization remaining.

2016 Outlook

The Company’s outlook for 2016 is updated as follows:

Full Year 2016 Updated Outlook Previous Outlook in millions, except % Low High Low High Total Revenues $ 1,261 $ 1,267 $ 1,257 $ 1,272 Comparable Hotel Revenue % Δ 3.6% 4.1% 3.25% 4.5% Net Income $ 153 $ 166 $ 162 $ 188 Adjusted EBITDA $ 601 $ 606 $ 595 $ 610

Comparable Hotel Adjusted EBITDA % Δ

4.7 %

5.6%

3.6%

6.2%

Depreciation and Amortization $ 218 $ 223 $ 215 $ 220 Net Interest Expense $ 164 $ 166 $ 153 $ 158 Effective Tax Rate 17.5% 18.5% 15.0% 16.0% Capital Expenditures $ 220 $ 235 $ 240 $ 260 Renovation Capital $ 100 $ 110 $ 120 $ 135

To view full financial release and corresponding tables please click the PDF icon or visit: http://www.aboutstay.com/CorporateProfile.aspx?iid=4409177