SPARTANBURG, S.C.–(BUSINESS WIRE)–July 22, 2002–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, 2002.
Reflecting the continued impact on travel resulting from the slowing of the U.S. economy, the events of September 11, 2001 and subsequent terrorist alerts, net income for the second quarter was $17.1 million or $0.18 per diluted share. Net income for the same quarter last year, excluding the impact of costs related to the relocation of the Company's headquarters, was $0.24 per diluted share.
Adjusted net income for the six months ended June 30, 2002 was $0.26 per diluted share compared with $0.42 per diluted share for the same period of last year. Adjusted net income for the six months ended June 30, 2002 excludes the benefit of a reduction in the Company's estimated annual effective income tax rate of approximately $3.0 million or $0.03 per diluted share which was recorded in the first quarter of 2002. Adjusted net income for the six months ended June 30, 2001 excludes the impact of approximately $4.4 million in costs related to the relocation of the Company's headquarters and the cumulative effect of a change in accounting of approximately $0.7 million, net of income taxes. Net income per diluted share for the six months ended June 30, 2002 and 2001, including the adjustments, was $0.29 and $0.38, respectively.
Revenue for the second quarter was $142.8 million compared to $143.1 million for the second quarter of 2001. Earnings before interest, taxes, depreciation and amortization (EBITDA) was $67.6 million (47% of revenue) for the quarter. Property level EBITDA, including 49 hotels that were open for less than one year at the beginning of the quarter, was 56% of revenue or $79.7 million for the quarter, compared to $86.4 million, 60% 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 (8.5% of revenue) for the quarter compared to $11.8 million (8.2% of revenue) for the second quarter of 2001.
The Company opened 6 EXTENDED STAYAMERICA Efficiency Studios hotels during the quarter resulting in a total of 449 operating hotels (39 Crossland Economy Studios, 315 EXTENDED STAYAMERICA Efficiency Studios, and 95 StudioPLUS Deluxe Studios) as of June 30, 2002. In addition, the Company had 11 EXTENDED STAYAMERICA Efficiency Studios under construction as of June 30, 2002. The Company expects to open two hotels in the third quarter and two hotels in the fourth quarter for a total of 22 hotels during the year with total costs of approximately $186 million.
The Company plans to commence construction on a total of 24 sites in 2002. Two of the sites will open in the fourth quarter of 2002 and 22 sites with total costs of approximately $195 million are expected to open in 2003. The Company will continue to seek the necessary approvals and permits for additional sites and will seek to increase the number of construction starts in the future. The Company's current and future development plans will be affected by a number of factors, including improvements in the overall U.S. economy, improvements in demand for lodging products in the overall lodging industry, improvements in demand for the Company's extended stay lodging products, and availability of funds within the constraints of its credit agreements.
As of June 30, 2002, the Company had invested approximately $2.6 billion in the 449 open hotels and had invested approximately $67 million in hotels under development. The Company had cash balances of approximately $24.3 million and had outstanding loans of $1.17 billion, leaving $200 million committed and available under its credit facilities at June 30, 2002.
The Company realized an overall decrease of 10.0% in REVPAR (revenue per available room) with average occupancies of 72% and average weekly room rates of $317 for the second quarter of 2002, as compared to average occupancies of 79% and average weekly room rates of $321 for the second quarter of 2001. Average occupancy rates for Crossland, EXTENDED STAYAMERICA, and StudioPLUS were 71%, 72%, and 71%, respectively, while average weekly room rates were $220, $328, and $329, respectively, for the second quarter of 2002.
Comparable hotels, consisting of the 359 properties opened for at least one year at the beginning of 2001 (excluding three EXTENDED STAYAMERICA properties that benefited from one-time rental contracts during the 2002 Winter Olympics), realized the following percentage changes in the components of REVPAR for the second quarter of 2002 as compared with the second quarter of 2001:
Crossland STAYAMERICA StudioPLUS Total
– — — –
Comparable Hotels 39 230 90 359
Occupancy (9.5)% (8.8)% (9.2)% (9.0)%
Average Weekly Rate (1.0)% (1.9)% (4.1)% (2.2)%
REVPAR (10.4)% (10.6)% (12.8)% (11.0)%
The Company believes that the percentage changes in the components of REVPAR for the StudioPLUS brand differs significantly from the Crossland and EXTENDED STAYAMERICA brands 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 second quarter and thus far in July, The Company currently anticipates that it will experience declines in REVPAR for its comparable hotels when compared to the prior year of 3% to 4% for the third quarter of 2002. Assuming occupancy improves at a moderate rate throughout the balance of 2002, the Company would realize REVPAR declines for its comparable hotels of 6% to 8% for the year. Based on these operating assumptions, earnings for the third quarter in the range of $0.22 to $0.24 per diluted share and annual earnings for 2002 (excluding the impact of the change in the estimated annual effective income tax rate which was recorded in the first quarter) in the range of $0.61 to $0.65 per diluted share would be expected.
George D. Johnson, Jr., CEO, commented: Considering the impact of the current economic environment on business travel, we are pleased to have generated EBITDA margins of 47% for the quarter and the prospect of generating in excess of $165 million in funds from operations for the year. 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. We remain committed to accelerating our development plans in the future and are endeavoring to increase our investment in new development for 2003 as demand fundamentals improve.