Extended Stay America, Inc. (NYSE:ESA), a leading provider of extended stay lodging, today reported the results of its operations for the three months and nine months ended September 30, 2001.
Adjusted net income for the third quarter was $21.6 million or $0.23 per diluted share compared with $0.23 per diluted share for the same quarter last year. Adjusted net income for the nine months ended September 30, 2001 was $0.64 per diluted share compared with $0.57 per diluted share for the same period of last year.
Adjusted net income does not include costs related to the relocation of the Company`s headquarters, the write-off of unamortized debt issue costs, and the cumulative effect of an accounting change (“nonrecurring costs”). Including these nonrecurring costs, net income was $13.0 million or $0.14 per diluted share for the quarter and $0.51 per diluted share for the nine months ended September 30, 2001.
Revenue for the third quarter was $145.7 million, an increase of 3% compared to the third quarter of 2000. Earnings before interest, taxes, depreciation and amortization (EBITDA) was $73.8 million (51% of revenue) for the quarter, excluding nonrecurring costs. Property level EBITDA, including 35 hotels that were open for less than one year at the beginning of the quarter, was 59% of revenue or $85.8 million for the quarter, compared to $86.1 million, 61% of revenue, for the same quarter of the previous year. Property level EBITDA does not include corporate operating and site selection expenses of $12.0 million (8% of revenue) for the quarter compared to $11.2 million (8% of revenue) for the third quarter of 2000. Operating cash flow (adjusted net income plus depreciation, amortization and deferred income taxes) was $49.4 million or $0.52 per diluted share in the third quarter and $142.9 million or $1.47 per diluted share in the nine months ended September 30, 2001.
The Company opened 8 EXTENDED STAYAMERICA Efficiency Studios hotels during the quarter resulting in a total of 413 operating hotels (39 Crossland Economy Studios, 280 EXTENDED STAYAMERICA Efficiency Studios, and 94 StudioPLUS Deluxe Studios) as of September 30, 2001. In addition, the Company had 38 hotels under construction (37 EXTENDED STAYAMERICA Efficiency Studios and 1 StudioPLUS Deluxe Studios) as of September 30, 2001.
Due to short term uncertainties caused by the terrorist events on September 11, the Company acted several weeks ago to defer the commencement of construction of new projects and is currently endeavoring to obtain extended periods of time to develop the 75 sites that it has under option. The Company is continuing the construction of the 38 sites that were under construction at September 30, 2001. The Company expects to open 8 hotels in the fourth quarter for a total of 29 hotels during the year with total costs of approximately $250 million. The remaining 30 sites currently under construction with total costs of approximately $240 million will be substantially completed by the end of the third quarter of 2002. At this time, the Company has not determined how successful it will be in obtaining extensions to the sites under option or when it might again commence construction of new sites.
As of September 30, 2001, the Company had invested approximately $2.3 billion in the 413 open hotels and had invested approximately $174 million in hotels under development. The Company issued $300 million in senior subordinated notes in June 2001 and used the proceeds to reduce amounts outstanding under its bank credit facilities. In July 2001, the Company entered into an agreement with various banks establishing $900 million of new bank credit facilities which provided approximately $200 million of additional development capital and funds to retire its existing credit facilities, thereby extending the maturity of its bank credit facilities for six years. In connection with the refinancing, the Company recorded an extraordinary charge of $5.9 million (net of income taxes) in the third quarter for the unamortized debt issue costs associated with the retired bank credit facilities. The Company had cash balances of approximately $4.4 million and had outstanding loans of $1.08 billion, leaving $320 million committed and available under its credit facilities at September 30, 2001.
The Company announced on May 18, 2001 that it would relocate its headquarters to Spartanburg, SC. The relocation was completed in the third quarter. As a result, the Company recognized costs associated with the relocation of $4.6 million during the third quarter, consisting primarily of severance and relocation costs. This brings the total cost of the relocation to $9.0 million. These costs include approximately $2.1 million in non-cash costs associated with the write-off of leasehold improvements and the valuation of stock options for employees that terminated employment as a result of the relocation. The Company does not expect to incur significant additional costs related to the relocation. The Company believes that these costs will be offset by governmental incentives and reduced operating costs which will be realized in future years.
The Company realized an overall decrease of 4.5% in REVPAR (revenue per available room) with average occupancies of 77% and average weekly room rates of $323 for the third quarter of 2001, as compared to average occupancies of 85% and average weekly room rates of $307 for the third quarter of 2000. Average occupancy rates for Crossland, EXTENDED STAYAMERICA, and StudioPLUS were 80%, 78%, and 75%, respectively, while average weekly room rates were $222, $335, and $345, respectively, for the third quarter of 2001.
The Company believes that the percentage changes in the components of REVPAR for the Crossland and StudioPLUS brands differ significantly from the EXTENDED STAYAMERICA brand primarily as a result of the number and geographic dispersion of the comparable hotels.
The Company believes that the declines in occupancy experienced in the third quarter are less than those experienced in the overall lodging industry and are a result of the slowing U.S. economy and a reaction to the terrorist attacks of September 11. It is extremely difficult to predict the impact on future lodging demand resulting from changes in the U.S. economy or terrorist attacks. However, if demand for lodging continues at the rates experienced during October of this year, the Company expects that it would continue to experience declines in REVPAR for its comparable hotels when compared to the prior year of 13% to 14% for the remainder of the year. In this event, the Company would expect earnings for the fourth quarter to be in the range of $0.09 to $0.11 per diluted share. Further, if demand for lodging improves at a moderate pace throughout 2002, resulting in declines in annual REVPAR for comparable hotels of 4% to 6%, the Company would expect annual earnings to be in the range of $0.71 to $0.77 per diluted share.
George D. Johnson, Jr., CEO, commented: “Despite the slowing of the U.S. economy and the terrible events of September 11, our business remains very profitable at current occupancy rates. The current situation will undoubtedly result in a severe contraction of capital for new hotel development. This contraction in capital and supply of new hotel rooms places us in an excellent position to benefit from expected increases in demand as our country recovers from the issues that currently confront us. We remain confident in our country and in our business and look forward to continuing our growth in the future.”
Certain statements and information included in this release constitute “forward-looking statements” within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied in such forward-looking statements. Additional discussion of factors that could cause actual results to differ materially from management`s projections, forecasts, estimates and expectations is contained in the Company`s SEC filings.