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 six months ended June 30, 2001. Excluding the impact of costs related to the relocation of the Company`s headquarters, net income for the second quarter was $23.1 million, $0.24 per diluted share, an increase of 9% when compared with the second quarter of 2000. Net income for the quarter including the relocation costs was $20.4 million or $0.21 per diluted share.
Revenue for the second quarter was $143.1 million, an increase of 7% compared to the second quarter of 2000. Earnings before interest, taxes, depreciation and amortization (EBITDA) increased to $74.6 million (52% of revenue) for the quarter, excluding the headquarters relocation costs, an increase of 6% compared to the second quarter of 2000. Property level EBITDA, including 33 hotels that were open for less than one year at the beginning of the quarter, was 60% of revenue or $86.4 million for the quarter, compared to $81.3 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 $11.8 million (8.2% of revenue) for the quarter compared to $11.1 million (8.3% of revenue) for the second quarter of 2000.
The Company opened 5 EXTENDED STAYAMERICA Efficiency Studios hotels during the quarter resulting in a total of 405 operating hotels (39 Crossland Economy Studios, 272 EXTENDED STAYAMERICA Efficiency Studios, and 94 StudioPLUS Deluxe Studios) as of June 30, 2001. In addition, the Company had 38 hotels under construction (37 EXTENDED STAYAMERICA Efficiency Studios and 1 StudioPLUS Deluxe Studios) as of June 30, 2001. The Company expects to open four hotels in the third quarter and eleven hotels in the fourth quarter for a total of 28 hotels during the year with total costs of approximately $250 million. The Company expects to increase it`s investment in new hotels to approximately $350 million for 2002.
As of June 30, 2001, the Company had invested approximately $2.2 billion in the 405 open hotels and had invested approximately $150 million in hotels under development. The Company had cash balances of approximately $8.6 million and had outstanding loans of $1.02 billion. 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. The Company has a commitment for $900 million of new bank credit facilities which will provide 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. The Company expects to complete this refinancing in July 2001. In connection with the refinancing, the Company expects to record a charge of $10 million (before income taxes) for the unamortized loan costs associated with the existing bank credit facilities.
The Company announced on May 18, 2001 that it will relocate its headquarters to Spartanburg, SC. As a result, the Company recognized costs associated with the relocation of $4.4 million during the second quarter. These costs include approximately $2.4 million in non-cash costs associated with the write-off of leasehold improvements and the valuation of stock options for employees that will terminate employment as a result of the relocation. The Company expects to record additional costs related to the relocation of approximately $4.1 million during the third quarter of 2001, consisting primarily of severance and relocation costs. 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 increase of 1% in REVPAR (revenue per available room) with average occupancies of 79% and average weekly room rates of $321 for the second quarter of 2001, as compared to average occupancies of 83% and average weekly room rates of $302 for the second quarter of 2000. Average occupancy rates for Crossland, EXTENDED STAYAMERICA, and StudioPLUS were 78%, 79%, and 78%, respectively, while average weekly room rates were $222, $332, and $344, respectively, for the second 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 second quarter are consistent with the overall lodging industry and are a result of the slowing US economy. If demand for lodging continues at the rates experienced during May and June of this year, the company expects that it would continue to experience declines in REVPAR when compared to the prior year of 3% to 5% for the remainder of the year. In this event, the Company would expect annual earnings (excluding headquarters relocation costs and charges associated with the refinancing) to be in the range of $0.76 to $0.80 per diluted share.
George D. Johnson, Jr., CEO, commented: “Despite the slowing of the US economy, our business remains very profitable at current occupancy rates. Our operating results are consistent with the business plan we established over five years ago, as evidenced by the 60% property level operating margins achieved this quarter. Our products continue to be well received by our customers and our capital structure allows us to continue to strengthen our leadership position in the extended-stay segment by developing more hotels to serve our customers. As a result, we believe we will be positioned to benefit from increases in demand accompanying improvements in the economy.”
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.