Extended Stay America Announces Third Quarter 2019 Results

- Net Income of $53.2 million in the Third Quarter
- Adjusted EBITDA¹ of $156.3 million in the Third Quarter
- Franchise pipeline expands 12% to 58 hotels in the Third Quarter
- Repurchased 4.0 million Paired Shares in the Third Quarter

CHARLOTTE, N.C., Nov. 06, 2019 (GLOBE NEWSWIRE) -- Extended Stay America, Inc. and ESH Hospitality, Inc. (together, the "Company") STAY today announced consolidated results for the three and nine months ended September 30, 2019.

Third Quarter 2019 Highlights

• Net Income of $53.2 million
• Total revenues of $332.7 million
• Comparable system-wide Revenue Per Available Room ("RevPAR") declined 1.3%   
• Adjusted EBITDA of $156.3 million
• Adjusted Funds from Operations ("Adjusted FFO")¹ of $0.54 per diluted Paired Share
• Adjusted Paired Share Income¹ of $0.33 per diluted Paired Share
• $186 million in capital returns to shareholders for the first nine months of 2019  

Extended Stay America's President and Chief Executive Officer, Jonathan Halkyard, commented, "Our focus on core extended stay guests enabled us to outperform our competitive set yet again this quarter, a quarter which was characterized by slowing growth in the Economy and Mid-priced chain scales."

Mr. Halkyard continued, "We have increased the pace of capital returns to shareholders in recent months and are on track to return more than 10% of our recent market capitalization to shareholders in 2019 through dividends and Paired Share repurchases. Capital returns remain a top priority for the Company with a strong balance sheet, a dividend yield in excess of 6% and more than $200 million remaining in repurchase authorization at the end of the third quarter."

Financial and Operating Results

Total revenues for the three months ended September 30, 2019 were $332.7 million, a decrease of 5.2% over the same period in the prior year due to asset dispositions in 2018 and a decline in Comparable Company-owned RevPAR. Adjusting for asset dispositions in 2018, total revenues declined 0.6% during the third quarter. For the nine months ended September 30, 2019, total revenues declined 5.2% to $934.0 million, driven by asset dispositions. Adjusting for asset dispositions in 2018, total revenues were approximately flat for the nine months ended September 30, 2019.

Comparable system-wide RevPAR for the three months ended September 30, 2019 decreased 1.3% over the same period in 2018 to $54.81, driven by a 2.0% decline in Average Daily Rate ("ADR"), partially offset by a 70 basis point increase in occupancy. The decline in Comparable system-wide RevPAR was primarily driven by a decline in business transient and medium length stays, particularly in the month of September. Total Company-owned RevPAR increased 1.1% during the quarter, reflecting the sale of non-core hotels throughout 2018. Comparable system-wide RevPAR for the nine months ended September 30, 2019 declined 0.9% over the same period in 2018 driven by a 2.5% decline in ADR, partially offset by a 120 basis point increase in occupancy. Total Company-owned RevPAR for the nine months ended September 30, 2019 increased 1.7% over the same period in 2018, reflecting the sale of non-core hotels throughout 2018.

Hotel Operating Margin¹ for the three months ended September 30, 2019 was 53.8% compared to 55.5% in the same period in 2018.  While we continued our strategy to maximize targeted marketing efforts to our longest staying customers and other cost saving initiatives, these were offset by an increase in certain operating expenses, including hotel payroll expense, property insurance expense and property taxes, as well as a decline in Comparable Company-owned RevPAR. Hotel Operating Margin for the nine months ended September 30, 2019 was 52.9% compared to 54.8% in the same period of 2018.  Property-level margins remain at industry leading levels.

Net income for the three months ended September 30, 2019 was $53.2 million compared to $75.7 million in the same period in 2018, a decrease of 29.7%. Net income this quarter was adversely impacted by a $6.7 million debt extinguishment charge related to the Company's Term Loan modifications and Unsecured Notes offering in September 2019, a non-recurring gain on dispositions of $3.5 million in 2018, as well an impairment charge of $2.7 million, partially offset by a decrease in income tax expense. Net income for the nine months ended September 30, 2019 was $141.3 million compared to $172.4 million in the same period in 2018, a decrease of 18.0%. The decline in net income for both the three and nine months ended September 30, 2019 was primarily due to a decline in Hotel Operating Margin, partially offset by lower depreciation expense. 

Adjusted EBITDA for the three months ended September 30, 2019 was $156.3 million, a decline of 10.0% compared to the same period in 2018. The decline in Adjusted EBITDA was due to asset dispositions in 2018 resulting in lost contribution of $6.8 million, a decline in Comparable Company-owned RevPAR and an increase in Comparable Company-owned hotel operating expenses. Adjusted EBITDA excludes non-cash equity-based compensation expense of $1.9 million, $2.7 million in impairment expense and $1.8 million in other expenses. Adjusted EBITDA for the nine months ended September 30, 2019 was $426.3 million, a decline of 9.9%, due to asset dispositions in 2018 resulting in lost contribution of $20.5 million and an increase in comparable hotel operating expenses.

Adjusted FFO for the three months ended September 30, 2019 was $101.5 million compared to $115.1 million in the same period in 2018. The decline in Adjusted FFO was due to an increase in Comparable Company-owned hotel operating expenses and a decline in Comparable Company-owned RevPAR. Adjusted FFO per diluted Paired Share was $0.54 compared to $0.61 in the same period in 2018. Adjusted FFO, a non-GAAP measure, represents funds from operations, as adjusted, attributable to the consolidated enterprise, whose representative equity security is a Paired Share. A Paired Share entitles its holder to participate in 100% of the common equity and earnings of both Extended Stay America, Inc. and ESH Hospitality, Inc.  Adjusted FFO for the nine months ended September 30, 2019 was $269.8 million, or $1.43 per diluted Paired Share, compared to $305.0 million, or $1.60 per diluted Paired Share, in the same period in 2018.

Adjusted Paired Share Income for the three months ended September 30, 2019 was $62.6 million, or $0.33 per diluted Paired Share, compared to $74.0 million, or $0.39 per diluted Paired Share, in the same period in 2018. The decline in Adjusted Paired Share Income was due to a decline in Hotel Operating Margin and Comparable Company-owned RevPAR, partially offset by lower depreciation expense. Adjusted Paired Share Income, a non-GAAP measure, represents net income, as adjusted, attributable to the consolidated enterprise, whose representative equity security is a Paired Share.  Adjusted Paired Share Income per diluted Paired Share for the nine months ended September 30, 2019 was $0.81 compared to $0.94 in the same period in 2018.

Capital Expenditures

The Company invested $65.1 million in capital expenditures during the third quarter of 2019. This includes $10.2 million in renovation capital, $10.9 million in IT capital and $20.2 million in capital for ESA 2.0 hotel development and land acquisitions. The Company invested $178.0 million in capital expenditures during the first nine months of 2019.

Hotel and Development Pipeline

As of September 30, 2019, the Company had a pipeline of 77 hotels representing approximately 9,400 rooms.

Distributions and Share Repurchases

On November 6, 2019, the Boards of Directors of Extended Stay America, Inc. and ESH Hospitality, Inc. declared cash distributions totaling $0.23 per Paired Share for the third quarter of 2019. The distributions are payable on December 4, 2019 to shareholders of record as of November 20, 2019.  The Company repurchased 4.0 million Paired Shares during the third quarter for an aggregate purchase of $57.5 million. Since the end of the third quarter, the Company has repurchased an additional 2.0 million Paired Shares for an aggregate purchase price of $28.8 million. The Company's total remaining repurchase authorization was approximately $177 million as of close of the market today.

2019 Outlook
The Company's 2019 Outlook is updated as follows:

Webcast and Conference Call Details

The Company will host a conference call on Thursday, November 7, 2019 at 8:00 a.m. Eastern Time.  The conference call will be webcast simultaneously in the Investor Relations section of the Company's website at www.aboutstay.com.  A replay of the call will be available for 90 days following the webcast on the Company's website.  Alternatively, the conference call can be accessed by dialing 1-855-327-6837 for domestic callers or 1-631-891-4304 for international callers.  A telephone replay will be available from shortly after the call until November 14, 2019, and can be accessed by dialing 1-844-512-2921 for domestic callers or 1-412-317-6671 for international callers. The passcode for the replay is 10007887.

Disclosure Regarding Non-GAAP Financial Measures

Hotel Operating Profit, Hotel Operating Margin, EBITDA, Adjusted EBITDA, FFO, Adjusted FFO, Adjusted FFO per diluted Paired Share, Paired Share Income, Adjusted Paired Share Income and Adjusted Paired Share Income per diluted Paired Share (collectively, the "Non-GAAP Financial Measures"), which are detailed in the reconciliation tables that accompany this release, are used by the Company as supplemental performance measures. The Company believes these measures provide useful information to investors regarding our results of operations and allow investors to evaluate the ongoing operating performance of our hotels and facilitate comparisons between the Company and other lodging companies, hotel owners and capital-intensive companies, including those which include a REIT as part of their legal entity structure. The Non-GAAP Financial Measures are not recognized terms under U.S. GAAP.  These measures as presented may not be comparable to measures calculated by other companies. These measures should not be considered as alternative measures of, or superior to, operating profit, net income, net income per share or any other measure of the Company, Extended Stay America, Inc. or ESH Hospitality, Inc. calculated in accordance with U.S. GAAP.  The Company's presentation of the Non-GAAP Financial Measures does not replace the presentation of the Company's consolidated financial statements and other disclosures prepared in accordance with U.S. GAAP.  

Forward Looking Statements

This release contains forward-looking statements within the meaning of the federal securities laws. These statements include, but are not limited to, statements related to our expectations regarding our business performance, financial results, liquidity and capital resources, capital expenditures, capital returns, distribution policy and other non-historical statements, including the statements in the "2019 Outlook" section of this release. Forward looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results or performance to differ from those projected in the forward-looking statements, possibly materially. For a description of factors that may cause the Company's actual results or performance to differ from projected results or performance implied by forward-looking statements, please review the information under the headings "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" included in the Company's combined annual report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on February 27, 2019 and other documents of the Company on file with or furnished to the SEC. Any forward-looking statements made in this release are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, will have the expected consequences to, or effects on, the Company, its business or operations.  Except as required by law, the Company undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise. We caution you that actual results may differ materially from what is expressed, implied or forecasted by the Company's forward-looking statements.

About Extended Stay America
Extended Stay America® is the leading brand in the mid-priced extended stay segment in the U.S. with 626 hotels.  ESH Hospitality, Inc. ("ESH"), a subsidiary of Extended Stay America, Inc. ("ESA"), is the largest lodging REIT in North America by unit and room count, with 554 hotels and approximately 61,500 rooms in the U.S. ESA also manages or franchises an additional 72 Extended Stay America® hotels. Visit www.esa.com for more information.

Contacts
Investors or Media:                                                                       
Rob Ballew                                                                                         
(980) 345-1546                                                                  
investorrelations@esa.com     

¹ See "Disclosure Regarding Non-GAAP Financial Measures" for an explanation of  non-GAAP measures included in this release (i.e., Hotel Operating Profit, Hotel Operating Margin, EBITDA, Adjusted EBITDA, Funds from Operations ("FFO"), Adjusted FFO, Adjusted FFO per diluted Paired Share, Paired Share Income, Adjusted Paired Share Income and Adjusted Paired Share Income per diluted Paired Share).