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, 2002. Results for the quarter reflect the continued impact on travel resulting from the weakened U.S. economy. Net income for the fourth quarter was $7.4 million or $0.08 per diluted share compared with $7.5 million or $0.08 per diluted share for the same quarter of last year.
Net income for the twelve months ended December 31, 2002 was $0.59 per diluted share compared with $0.59 per diluted share for the same period of last year. Net income for the twelve months ended December 31, 2001 includes 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). Excluding these costs, net income for 2001 was $0.66 per diluted share.
Revenue for the fourth quarter was $126.9 million, an increase of 7% compared to the fourth quarter of 2001. Earnings before interest, taxes, depreciation and amortization (EBITDA) was $51.8 million (41% of revenue) for the quarter. Property level EBITDA, including 42 hotels that were open for less than one year at the beginning of the quarter or that were opened during the quarter, was 51% of revenue or $64.3 million for the quarter, compared to $61.5 million or 52% of revenue for the same quarter of the previous year. Property level EBITDA does not include corporate operating and site selection expenses of $12.5 million (10% of revenue) for the quarter compared to $12.1 million (10% of revenue) for the fourth quarter of 2001.
The Company opened 4 EXTENDED STAYAMERICA Efficiency Studios hotels during the quarter resulting in a total of 455 operating hotels (39 Crossland Economy Studios, 321 EXTENDED STAYAMERICA Efficiency Studios, and 95 StudioPLUS Deluxe Studios) as of December 31, 2002. For the year, the Company opened 24 hotels with total costs of $196 million. In addition, the Company had 20 EXTENDED STAYAMERICA Efficiency Studios under construction as of December 31, 2002 with total estimated development costs of $163 million. The Company expects to open the 20 hotels currently under construction by opening 2 hotels in the first quarter, 6 hotels in the second quarter, 9 hotels in the third quarter, 2 hotels in the fourth quarter of 2003, and 1 hotel in the first quarter of 2004.
Due to continued weakness in the U.S. economy, declines in occupancy at its properties and the increasing prospect of a further reduction in travel as a result of geo-political events, the Company decided in late November to defer the commencement of new construction projects. At this time, the Company believes it will be successful in obtaining extensions to a majority of the 48 sites that it has under option, if needed. The Company will continue to seek the necessary approvals and permits for these sites and for additional sites. Construction will commence as soon as possible within the constraints of the amended credit agreement and contingent upon 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 demand for the Company`s extended stay lodging.
As of December 31, 2002, the Company had invested approximately $2.6 billion in the 455 open hotels and had invested approximately $93 million in hotels under development. The Company had cash balances of approximately $6.6 million and had outstanding loans of $1.17 billion, leaving $188 million committed and available under its credit facilities at December 31, 2002.
The Company realized an overall decrease of 0.1% in REVPAR (revenue per available room) with average occupancies of 60% and average weekly room rates of $327 for the fourth quarter of 2002, as compared to average occupancies of 63% and average weekly room rates of $312 for the fourth quarter of 2001. Average occupancy rates for Crossland, EXTENDED STAYAMERICA, and StudioPLUS were 61%, 61%, and 58%, respectively, while average weekly room rates were $220, $340, and $336, respectively, for the fourth quarter of 2002.
The Company believes that the percentage changes in the components of REVPAR for its brands differ primarily as a result of the number and geographic dispersion of the comparable hotels.
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 fourth quarter and thus far in January, the Company currently anticipates that it will experience declines in REVPAR for its 389 comparable hotels for the first quarter of 2003 when compared to the same quarter in 2002 of 5% to 7%. Assuming occupancy improves at a moderate rate throughout the remainder of 2003, the Company would realize REVPAR declines of 2% to 4% for the year. Based on these operating assumptions, the Company would expect earnings for the first quarter in the range of $0.04 to $0.06 per diluted share and annual earnings for 2003 in the range of $0.46 to $0.54 per diluted share.
George D. Johnson, Jr., CEO, commented: “We remain confident in the future of our business. While we are obviously disappointed that the economy and business travel have not yet rebounded, our occupancy rates continue to exceed those of the overall lodging industry by more than 15% and our property operating margins continue to exceed 50%, even in the seasonally lower volume fourth quarter. 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. By temporarily suspending new construction starts, we believe we have reacted prudently to the short-term uncertainties facing the economy and the lodging industry.”