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 twelve months ended December 31, 2001.
Reflecting the impact on travel resulting from the events of September 11 and the slowing of the US economy, net income for the fourth quarter was $7.5 million or $0.08 per diluted share compared with $0.15 per diluted share for the same quarter last year.
Adjusted net income for the twelve months ended December 31, 2001 was $0.72 per diluted share compared with $0.72 per diluted share for the same period of last year. Adjusted net income for the twelve months ended December 31, 2001 does not include costs related to the relocation of the Company`s headquarters ($0.06 per diluted share), the write-off of unamortized debt issue costs ($0.06 per diluted share), and the cumulative effect of an accounting change ($0.01 per diluted share). Including these costs, net income for the year was $57.4 million or $0.59 per diluted share.
Revenue for the fourth quarter was $118.3 million, a decrease of 8% compared to the fourth quarter of 2000. Earnings before interest, taxes, depreciation and amortization (EBITDA) was $49.4 million (42% of revenue) for the quarter. Property level EBITDA, including 48 hotels that were open for less than one year at the beginning of the quarter or that were opened during the quarter, was 52% of revenue or $61.5 million for the quarter, compared to $73.2 million or 57% of revenue for the same quarter of the previous year. Property level EBITDA does not include corporate operating and site selection expenses of $12.1 million (10% of revenue) for the quarter compared to $11.3 million (9% of revenue) for the fourth quarter of 2000. Operating cash flow (adjusted net income plus depreciation, amortization and deferred income taxes) was $29.7 million or $0.31 per diluted share in the fourth quarter and $174.9 million or $1.80 per diluted share in the twelve months ended December 31, 2001.
The Company opened 18 EXTENDED STAYAMERICA Efficiency Studios hotels during the quarter resulting in a total of 431 operating hotels (39 Crossland Economy Studios, 298 EXTENDED STAYAMERICA Efficiency Studios, and 94 StudioPLUS Deluxe Studios) as of December 31, 2001. For the year, the Company exceeded its goal of opening 28 hotels with total costs of $250 million by opening 39 hotels with total costs of $320 million. In addition, the Company had 20 hotels under construction (19 EXTENDED STAYAMERICA Efficiency Studios and 1 StudioPLUS Deluxe Studios) as of December 31, 2001 with total estimated development costs of $171 million. The Company expects to open the 20 hotels currently under construction by opening 10 hotels in the first quarter, 7 hotels in the second quarter, and 3 hotels in the third quarter of 2002.
The Company amended its credit facility during the quarter to provide additional flexibility to commence construction on sites during 2002. Contingent upon on a number of factors including improvements in the overall U.S. economy, improvements in demand for lodging products in the overall lodging industry, and improvements in the demand for the Company`s extended stay lodging, the Company currently plans to commence construction on 15 additional sites with total costs of approximately $150 million during 2002, the majority of which are expected to open in 2003. The Company has also identified 40 additional sites with total development costs of approximately $300 million for which construction could commence in 2002. The Company will continue to seek the necessary approvals and permits for these sites so that construction can commence as soon as possible within the constraints of its amended credit agreement.
As of December 31, 2001, the Company had invested approximately $2.4 billion in the 431 open hotels and had invested approximately $121 million in hotels under development. The Company had cash balances of approximately $11.0 million and had outstanding loans of $1.14 billion, leaving $254 million committed and available under its credit facilities at December 31, 2001.
The Company realized an overall decrease of 15.2% in REVPAR (revenue per available room) with average occupancies of 63% and average weekly room rates of $312 for the fourth quarter of 2001, as compared to average occupancies of 76% and average weekly room rates of $307 for the fourth quarter of 2000. Average occupancy rates for Crossland, EXTENDED STAYAMERICA, and StudioPLUS were 68%, 63%, and 61%, respectively, while average weekly room rates were $217, $324, and $330, respectively, for the fourth 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.
While the Company believes that improvements in the US 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 fourth quarter and thus far in January, the Company currently anticipates that it will experience declines in REVPAR for its 362 comparable hotels when compared to the prior year of 18% to 20% for the first quarter of 2002. Assuming occupancy improves at a moderate rate throughout 2002, the Company would realize REVPAR declines of 5% to 7% for the year. Based on these operating assumptions, earnings for the first quarter in the range of $0.06 to $0.08 per diluted share and annual earnings for 2002 in the range of $0.65 to $0.71 per diluted share would be expected.
George D. Johnson, Jr., CEO, commented: “As demonstrated by our commitment to development of additional hotels, we remain confident in the future of our business. While we are obviously disappointed that we have not yet rebounded from the events of September 11 and the slowing economy, our occupancy rates continue to exceed those of the overall lodging industry by more than 20% and our property operating margins continue to exceed 50%. We believe we will benefit in future years from the dramatic reduction in the supply of new hotel rooms as a result of the current conditions and look forward to more normalized operations as the economy recovers. Although we are not able to predict how quickly this recovery may occur, we are pleased that we have adequate capital to position our company for future growth.”
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.