CHARLOTTE, NC—Extended Stay America Inc. and ESH Hospitality Inc. have consolidated results for Q3, reporting a decline in income and RevPAR, with pipeline growth.
Extended Stay America’s President/CEO Jonathan Halkyard said, “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.”
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.”
Among the Q3 highlights:
- Net Income of $53.2 million, compared to $75.7 million in the same period in 2018, a decrease of 29.7%
- Comparable system-wide RevPAR declined 1.3%
- Total revenues of $332.7 million, a decrease of 5.2%
- Adjusted EBITDA of $156.3 million, a decline of 10.0% compared to the same period in 2018
- Franchise pipeline expands 12% to 58 hotels in Q3; a pipeline of 77 hotels representing approximately 9,400 rooms
- Adjusted Funds from Operations of $0.54 per diluted Paired Share
- Adjusted Paired Share Income of $0.33 per diluted Paired Share
- Repurchased 4.0 million Paired Shares in Q3
- $186 million in capital returns to shareholders for the first nine months of 2019
Financial and Operating Results
Total revenues for the three months ended Sept. 30 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 Sept. 30, 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 Sept. 30.
Comparable system-wide RevPAR for the three months ended Sept. 30 decreased 1.3% over the same period in 2018 to $54.81, driven by a 2.0% decline in 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 Sept. 30 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 Sept. 30 increased 1.7% over the same period in 2018, reflecting the sale of non-core hotels throughout 2018.
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 Sept. 30 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 Sept. 30 was primarily due to a decline in hotel operating margin, partially offset by lower depreciation expense.
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.