Extended Stay America, Inc. (NYSE:ESA), a leading provider of extended stay lodging, today reported the results of its operations for the three months ended March 31, 2002.
Reflecting the continued impact on travel resulting from the events of September 11 and the slowing of the U.S. economy, net income for the first quarter, excluding the impact of a reduction in the Company`s estimated annual effective income tax rate, was $8.5 million or $0.09 per diluted share.
Operating results for the first quarter include the impact of one-time rental contracts during the 2002 Winter Olympics at three properties in Salt Lake City, Utah (the “Olympic Properties”). The Company estimates that these contracts generated additional non-recurring net income of approximately $1.2 million or $0.01 per diluted share for the first quarter.
Effective January 1, 2002, the Company changed its estimated annual effective income tax rate for 2002 from 40% to 39% reflecting a reduction in estimated state income taxes arising out of state tax planning and credits. Accordingly, the Company`s provision for income taxes in the first quarter of 2002 reflects a $3.0 million reduction in expense associated with adjusting the Company`s deferred tax assets and liabilities to reflect the lower rate. Including this reduction in income tax, net income was $11.5 million, or $0.12 per diluted share for the quarter.
The Company opened 11 EXTENDED STAYAMERICA Efficiency Studios and 1 StudioPLUS Deluxe Studios during the quarter resulting in a total of 443 operating hotels (39 Crossland Economy Studios, 309 EXTENDED STAYAMERICA Efficiency Studios, and 95 StudioPLUS Deluxe Studios) as of March 31, 2002. In addition, the Company had 10 EXTENDED STAYAMERICA Efficiency Studios under construction as of March 31, 2002. The Company expects to open 6 hotels in the second quarter and 2 hotels in the third quarter for a total of 20 hotels with total estimated development costs of approximately $171 million during the year.
The Company has revised its development plans to increase the number of sites upon which it will commence construction during 2002 from a total of 15 sites to a total of 24 sites with total costs of approximately $210 million. The Company has also identified 25 additional sites with total development costs of approximately $186 million for which construction could commence in 2002. The Company will continue to seek the necessary approvals and permits for these sites and will seek to increase the number of construction starts in the future. The Company`s current and future development plans will be affected by a number of factors, including improvements in the overall U.S. economy, improvements in demand for lodging products in the overall lodging industry, improvements in demand for the Company`s extended stay lodging products, and availability of funds within the constraints of its credit agreements.
As of March 31, 2002, the Company had invested approximately $2.5 billion in the 443 open hotels and had invested approximately $73 million in hotels under development. The Company had cash balances of approximately $23.2 million and had outstanding loans of $1.17 billion, leaving $200 million committed and available under its credit facilities at March 31, 2002. To minimize the rates charged under its credit facilities, the Company prepaid $25 million under its credit facilities during the first quarter.
Revenue decreased by 7% to $124.8 million as compared to $134.4 million for the first quarter last year. Earnings before interest, taxes, depreciation and amortization (EBITDA) was $52.4 million (42% of revenue) for the quarter. Property level EBITDA, including 51 hotels that were opened during the quarter or were open for less than one year at the beginning of the quarter, was 52% of revenue or $64.5 million, compared to 58% of revenue or $77.6 million for the first quarter of 2001. Property level EBITDA does not include corporate operating and site selection expenses of $12.1 million (10% of revenue) for the quarter compared to $11.6 million (9% of revenue) for the first quarter of 2001.
Excluding the Olympic Properties, the Company realized average occupancies of 66% and average weekly room rates of $310 for the quarter. Average occupancy rates for Crossland, EXTENDED STAYAMERICA, and StudioPLUS were 69%, 66%, and 65%, respectively, while average weekly room rates were $219, $320, and $327, respectively, for the quarter (excluding the Olympic Properties).
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 first quarter and thus far in April, the Company currently anticipates that it will experience declines in REVPAR for its comparable hotels when compared to the prior year of 9% to 11% for the second quarter of 2002. Assuming occupancy improves at a moderate rate throughout the balance of 2002, the Company would realize REVPAR declines for its comparable hotels of 5% to 7% for the year. Based on these operating assumptions, earnings for the second quarter in the range of $0.17 to $0.19 per diluted share and annual earnings for 2002 (excluding the impact of the change in the estimated annual effective income tax rate which was recorded in the first quarter) in the range of $0.65 to $0.71 per diluted share would be expected.
George D. Johnson, Jr., CEO, commented: “We are pleased with our results for the first quarter and the prospect of generating in excess of $170 million in funds from operations for the year, considering the impact of the current economic environment on business related travel. We remain confident in the future of our business and are optimistic about the long-term prospects for extended stay lodging due to the declining rates of growth in the supply of rooms for the lodging industry in general, and particularly for the lower-tier extended stay sector. We remain committed to accelerating our development plans and are endeavoring to increase our investment in new development for 2003, in anticipation of improving demand fundamentals in the years ahead.”