CHARLOTTE, N.C.–Extended Stay America, Inc. (NYSE:STAY) (the “Company”) today announced consolidated results for the quarter ended March 31, 2016.
First Quarter 2016 Highlights
- Comparable Hotel Total Revenues grew 6.3% to $287.6 million
- Comparable Hotel Revenue Per Available Room (“RevPAR”) grew 5.0% to $44.83
- Comparable Hotel Adjusted EBITDA increased 6.1% to $122.8 million
- Adjusted Paired Share Income2 of $25.8 million, or $0.13 per diluted Paired Share
Extended Stay America’s Chief Executive Officer, Gerry Lopez, commented, “We are off to a strong start in 2016, with Comparable Hotel revenue growth of 6.3% — our fifth consecutive quarter in a row at 5.5% or better — and RevPAR growth of 5% — well above the industry, even though we had meaningful renovation displacement. This outperformance continues to be driven by the success of our initiatives, led by our renovated properties and aided by our newly installed revenue management system, our augmented corporate sales force and our improved customer mix. This quarter also saw us strengthen our capital structure by refinancing $800 million of outstanding debt maturing in 2017 and 2019 with senior unsecured notes now due in 2025 at very attractive rates.”
Mr. Lopez continued, “As we move through 2016, we expect supply growth to remain low in the segments where we compete, and with limited exposure to urban markets dependent on international travel volumes, our diverse portfolio is well positioned. Looking further ahead, we are continuing our work on the next phase of growth beyond our renovation program and look forward to sharing some of those plans at an Investor Day in June. As a management team, we continue to focus on creating long-term value for our shareholders.”
Financial and Operating Results
Total revenues for the three months ended March 31, 2016 were flat over the comparable period in 2015 at $287.6 million. Comparable Hotel total revenues increased by $16.9 million, or 6.3%, to $287.6 million in the first quarter. Easter’s date shift into the quarter reduced our revenues by approximately 0.6% while the extra day from leap year increased our revenues by approximately 1.2%.
RevPAR for the three months ended March 31, 2016 grew 8.2% over the comparable period in 2015, driven by an improvement in average daily rate (“ADR”) of 9.5% while occupancy declined to 69.5% compared to 70.4% in the comparable period in 2015 due to an increased number of hotel rooms under renovation. Comparable Hotel RevPAR grew 5.0% during the quarter to $44.83 driven by a 5.9% increase in ADR, partially offset by a 70 bps decrease in occupancy.
Hotel Operating Margin2 for the three months ended March 31, 2016 was 50.4% compared to 50.1% in the comparable period in 2015. Comparable Hotel Operating Margin dropped slightly from 50.6% in the comparable period in 2015 to 50.4%. Comparable Hotel operating margin flow-through, defined as the change in Comparable Hotel Operating Profit2 divided by the change in Comparable Hotel total revenues, was 46.4%.
Adjusted EBITDA for the three months ended March 31, 2016 decreased $0.1 million to $122.8 million over the comparable period in 2015. Adjusted EBITDA excludes non-cash equity-based compensation of $2.7 million, non-cash foreign currency transaction gain of $0.9 million and loss on disposal of assets and other expenses of $3.1 million. Comparable Hotel Adjusted EBITDA increased by $7.1 million or 6.1%.
Net income for the three months ended March 31, 2016 was $14.8 million compared to $27.9 million in the comparable period in 2015. Net income in the quarter declined primarily due to the increase in interest expense from refinancing activities and an increase in depreciation expense from our hotel renovation program. Income tax expense for the three months ended March 31, 2016 was $2.9 million compared to $9.0 million in the comparable period in 2015.
Adjusted Paired Share Income for the three months ended March 31, 2016 was $25.8 million, or $0.13 per diluted Paired Share, compared to $30.4 million, or $0.15 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 $56.9 million in capital expenditures during the first quarter of 2016 which includes $31.7 million in renovation capital and $23.7 million in maintenance capital. The Company completed 32 hotel renovations in the first quarter of 2016, bringing the total number of renovated hotels to 495.
Distribution and Share Repurchases
On April 26, 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 first quarter of 2016. This represents a $0.02, or 11.8% increase in the combined quarterly distribution. The distribution is comprised of $0.04 per Extended Stay America, Inc. common share and $0.15 per ESH Hospitality, Inc. Class A and B common share. The distributions are payable on May 24, 2016 to shareholders of record as of May 10, 2016.
During the quarter, the Company paid $28.8 million to repurchase approximately 1.9 million Paired Shares. The Company had $171.2 million remaining for repurchases under the combined Paired Share repurchase program at the end of the first quarter of 2016.
2016 Outlook
The Company’s outlook for 2016 is as follows:
- Total revenues are expected to range from $1.266 billion to $1.290 billion
- Comparable Hotel total revenues are expected to increase by approximately 4% to 6%
- Adjusted EBITDA is expected to range from $600 million to $620 million, representing approximately 4.5 % to 8.0% 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, an increase from our prior guidance due to our refinancing activity
- Effective tax rate is expected to range between 22.5% and 23.5%, a decrease from our prior guidance
- Net income is anticipated to range from $151 million to $180 million, reflecting both the higher expected interest expense and reduced effective tax rate
- 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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