RevPAR Increases 9.4%
Adjusted EBITDA Increases 16.0%
Re-affirms 2014 Revenue and Adjusted EBITDA Guidance
CHARLOTTE, N.C--Extended Stay America, Inc. (NYSE:STAY) (the "Company") today announced results for the quarter ended June 30, 2014.
- Revenue increased 9.6% to $321.9 million
- RevPAR grew 9.4% to $45.69
- Hotel Operating Margin  increased approximately 30 basis points to 54.4%
- Adjusted EBITDA1of $157.9 million increased $21.7 million, or 16.0%
- Net income of $46.3 million increased $8.8 million, or 23.3%
- Adjusted Paired Share Income1 of $54.7 million or $0.27 per Paired Share
- Revenue increased 7.6% to $592.2 million
- RevPAR grew 7.3% to $42.26
- Hotel Operating Margin1 decreased approximately 60 basis points to 51.6%
- Adjusted EBITDA1 of $270.2 million increased $22.2 million, or 8.9%
- Net income of $62.4 million increased $10.9 million, or 21.2%
- Adjusted Paired Share Income1 of $77.1 million or $0.38 per Paired Share
 See "Disclosure Regarding Non-GAAP Financial Measures" herein for a reconciliation of the non-GAAP measures included herein (i.e., EBITDA, Adjusted EBITDA, Hotel Operating Profit, Hotel Operating Margin, Paired Share Income, Adjusted Paired Share Income and Adjusted Paired Share Income per Paired Share).
Extended Stay America's Chief Executive Officer, Jim Donald commented, "We were pleased with our second quarter revenue growth of 9.6% with sequential monthly growth throughout the quarter. Hotels in the post-renovation phase performed well in the quarter and these hotels are producing growth consistent with the ramp-up pattern of our previously completed renovations. Additionally, we continue to make progress on our strategic initiatives to enhance our operations, drive brand awareness and optimize revenue yield. These efforts, coupled with the refinancing of our mezzanine debt and favorable industry trends, will further enhance our strong cash flow for our shareholders in 2014 and beyond."
Total Revenues for the three months ended June 30, 2014 increased 9.6% over the comparable period in 2013 to $321.9 million. For the six months ended June 30, 2014, total revenues increased 7.6% over the comparable period in 2013 to $592.2 million.
Revenue per available room ("RevPAR") for the three months ended June 30, 2014 increased 9.4% over the comparable period in 2013, driven by an improvement in average daily rate ("ADR") of 6.8% and an increase in occupancy to 78.8% as compared to 77.0% in the comparable period in 2013. ADR growth was driven primarily by a combination of price increases and a shift in customer mix toward higher profit generating guests. Occupancy was positively impacted relative to the prior year period as a result of cycling over the displacement from the 35-hotel renovation phase in the second quarter of 2013. For the six months ended June 30, 2014, RevPAR increased 7.3% over the comparable period in 2013, driven by an increase in ADR of 6.3% and an increase in occupancy to 74.4% from 73.8%.
Hotel Operating Margin for the three months ended June 30, 2014 increased approximately 30 basis points over the comparable period in 2013 to 54.4%. Hotel operating margin flow-through, defined as the change in hotel operating profit divided by the change in total room and other hotel revenues, was 57.3%. For the six months ended June 30, 2014, hotel operating margin decreased 60 basis points versus the comparable period in 2013 to 51.6%. Operating margin flow-through was 43.1%.
Adjusted EBITDA for the three months ended June 30, 2014 increased $21.7 million to $157.9 million representing a 16.0% increase over the comparable period in 2013. Adjusted EBITDA excludes non-cash foreign currency transaction gain of $0.7 million, non-cash equity-based compensation of $2.4 million and other expenses of approximately $2.3 million including public company transition costs, consulting fees related to the implementation of new strategic initiatives and loss on disposal of assets. For the six months ended June 30, 2014, Adjusted EBITDA increased $22.2 million to $270.2 million, representing an increase of 8.9%.
Net income for the three months ended June 30, 2014 was $46.3 million, compared to net income of $37.5 million in the comparable period in 2013. Income tax expense for the three months ended June 30, 2014 was $14.2 million, compared to $1.8 million in the comparable period in 2013. The year over year income tax expense increase is related to the Company's post-IPO corporate structure. For the six months ended June 30, 2014, net income was $62.4 million, compared to $51.5 million in the comparable period in 2013.
Adjusted Paired Share Income for the three months ended June 30, 2014 was $54.7 million, or $0.27 per Paired Share. Adjusted Paired Share Income, a non-GAAP measure, represents net income, as adjusted, attributable to the consolidated and combined entity, whose representative security is a Paired Share. A Paired Share entitles holders to participate in 100% of the common equity and earnings of both Extended Stay America, Inc. and ESH Hospitality, Inc. For the six months ended June 30, 2014, Adjusted Paired Share Income was $77.1 million, or $0.38 per Paired Share.
The Company invested $36.3 million in capital expenditures during the second quarter of 2014, or $85.7 million year-to-date, which includes capital renovations, regular maintenance and information technology projects.
The Company completed a $375.0 million Senior Secured Term Loan on June 23, 2014 with the proceeds used to refinance the outstanding $365.0 million of 9.4% mezzanine debt and pay related transaction fees and expenses. The financing was completed at LIBOR plus 4.25%, subject to a LIBOR floor of 0.75%, with a five-year term, and offered at 99.5.
Subsequent to the end of the second quarter of 2014, on July 28, the Company completed the sale of its two non-core Hometown Inn properties. The Company expects to record a pretax gain of approximately $1.0 million in connection with the sale of the properties.
On July 31, 2014, the Board of Directors of ESH Hospitality, Inc., the Company's subsidiary, declared a cash dividend of $0.15 per share for the second quarter 2014, payable to ESH Hospitality, Inc.'s Class A and Class B common shareholders. The dividend will be payable on August 28, 2014 to shareholders of record as of August 14, 2014.
The Company re-affirms its outlook for 2014 as follows:
- Total revenues are expected to increase 7% to 10% to approximately $1,212 to $1,246 million
- Adjusted EBITDA is expected to range between $570 to $600 million, representing approximately 10% to 16% growth over 2013 Adjusted EBITDA
- Capital expenditures are expected to be in the range of $150 to $170 million for capital renovations, regular maintenance and information technology projects.
The Company has updated the outlook for net income to reflect the following changes:
- Depreciation and amortization of approximately $180 to $185 million
- Interest expense of approximately $150 million, which includes the impact of $9.4 million of prepayment penalties and other costs and the write-off of deferred financing costs related to the mezzanine debt refinancing, offset by approximately $8 million of lower interest costs under the new ESH Hospitality, Inc. Senior Secured Term Loan effective June 23, 2014
- An expected gain on sale of the two Hometown Inn properties of $1.0 million
- Non-cash foreign currency transaction loss of $1.8 million
Net income is now anticipated to range from approximately $164.3 to $194.2 million.
To view all tables corresponding to this release please visit: