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, 2001. Net income before the cumulative effect of an accounting change for the first quarter increased by 53% to $17.2 million as compared with $11.3 million for the first quarter of 2000. Earnings per diluted share for the quarter increased by 43% to $0.17 as compared with $0.12 for the first quarter of 2000.
Revenue increased by 18% to $134.4 million as compared to $113.9 million for the first quarter last year. Earnings before interest, taxes, depreciation and amortization (EBITDA) increased by 27% to $65.9 million (49% of revenue) for the quarter, as compared to $52.1 million (46% of revenue) for the first quarter of last year. Property level EBITDA for the first quarter of 2001, including 38 hotels that were open for less than one year at the beginning of the quarter, was 58% of revenue or $77.6 million, compared to 55% of revenue or $63.0 million for the first quarter of 2000. Property level EBITDA does not include corporate operating and site selection expenses of $11.6 million which decreased as a percentage of revenue to 9% as compared to 10% for the first quarter of 2000.
Pursuant to the Financial Accounting Standards Board`s Statement of Financial Accounting Standards No. 133 “Accounting for Derivative Instruments and Hedging Activities” as amended and interpreted by the Derivatives Implementation Group, effective January 1, 2001, the Company changed its method of accounting for derivatives associated with its interest rate cap contracts. Accordingly, the Company recorded an expense of $669,000, net of income tax benefit of $446,000 in the first quarter. Net of this charge, net income was $16.6 million, or $0.17 per diluted share.
The Company opened 8 hotels during the quarter (7 EXTENDED STAYAMERICA Efficiency Studios and 1 StudioPLUS Deluxe Studios), including the celebration of the opening of its 400th hotel, less than six years after the Company opened its first hotel in August 1995. In addition to 400 operating hotels (39 Crossland Economy Studios, 267 EXTENDED STAYAMERICA Efficiency Studios, and 94 StudioPLUS Deluxe Studios), the Company had 28 hotels under construction (27 EXTENDED STAYAMERICA Efficiency Studios and 1 StudioPLUS Deluxe Studios). The Company expects to open two hotels in the second quarter, three hotels in the third quarter and fifteen hotels in the fourth quarter for a total of 28 hotels with total costs of approximately $250 million during the year.
As of March 31, 2001, the Company had invested approximately $2.2 billion in the 400 open hotels and had invested approximately $112 million in hotels under development. The Company had cash balances of approximately $8.7 million and had outstanding loans of $998 million, leaving $197 million available under its credit facilities as of March 31, 2001.
The Company realized average occupancies of 76% and average weekly room rates of $321 for the quarter. Average occupancy rates for Crossland, EXTENDED STAYAMERICA, and StudioPLUS were 78%, 76%, and 74%, respectively, while average weekly room rates were $223, $333, and $346, respectively, for the quarter.
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.
Due to the high occupancy levels the Company experienced beginning in March 2000, along with potential declines in lodging demand as a result of the slowing U.S. economy, the Company expects that the percentage change in REVPAR for comparable hotels for the remainder of the year will not exceed expected increases in room rates in the range of 1% to 3%, and that these rate increases could be partially or completely offset by declines in occupancy depending upon the length and severity of the declines in the U.S. economy. The Company believes, however, that, due to the better than expected performance for the first quarter and due to interest rate reductions affecting approximately 80% of the Company`s outstanding debt, annual earnings per diluted share for 2001 in the range of $0.82 to $0.87 is achievable as long as changes in REVPAR remain positive and interest rates do not increase above current levels.
George D. Johnson, Jr., CEO, commented: “We are extremely pleased with our results for the first quarter. We believe that the REVPAR increase of 5.7% for comparable hotels outpaces the performance of the overall lodging industry and other lodging products in the economy price segment. Despite concerns about short-term economic conditions in the U.S., we believe that our products are positioned to continue to outperform the general lodging industry. We are even more 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 our development plans and are endeavoring to increase our investment in new development to $350 million for 2002, in anticipation of improving demand fundamentals in the years ahead.”
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.