Extended Stay America Investor Presentation
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Extended Stay America Investor Presentation June 10, 2020 disclosure This presentation 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, business strategies, financial results, liquidity and capital resources, capital expenditures, capital returns, distribution policy, plans, goals, beliefs, business trends and future events, as well as the COVID-19 pandemic, its effects on the foregoing, government action taken in response to the pandemic and action that we have or plan to take in response to the pandemic and other non-historical statements, including statements relating to industry RevPAR trends. Forward looking statements involve known and unknown risks, uncertainties and other factors that may cause Extended Stay America, Inc.’s (“ESA”) and ESH Hospitality, Inc.’s (“ESH REIT,” and together with ESA, the “Company”) 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 26, 2020 and other documents of the Company on file with or furnished to the SEC, including our combined quarterly report on Form 10-Q to be filed with the SEC on May 6, 2020. Any forward-looking statements made in this presentation 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. This presentation includes certain non-GAAP financial measures, including Hotel Operating Profit, Hotel Operating Margin, EBITDA, Adjusted EBITDA, Funds from Operations (“FFO”), Adjusted Funds From Operations (“Adjusted FFO”), Adjusted FFO per diluted Paired Share, Paired Share Income, Adjusted Paired Share Income and Adjusted Paired Share Income per diluted Paired Share. These non-GAAP financial measures should be considered only as supplemental to, and not as superior to, financial measures prepared in accordance with U.S. GAAP. Please refer to the Appendix of this presentation for a reconciliation of these non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with U.S. GAAP, and to the Company’s combined annual report on Form 10-K filed with the SEC on February 26, 2020 for definitions of these non-GAAP measures. This presentation includes certain operating metrics presented on a comparable system-wide basis. The term “Comparable system-wide” refers to hotels operated under the Extended Stay America brand, including those owned, franchised or managed by the Company, for the full three months ended March 31, 2020 and 2019. For franchised or managed hotels, ESA earns certain fees based on a percentage of hotel revenues. The Company’s presentation of the Non-GAAP Financial Measures does not replace the presentation of the Company’s consolidated financial results prepared in accordance with U.S. GAAP. INDUSTRY INFORMATION The information in this presentation regarding the lodging industry and the extended stay segment of the lodging industry, including trends and our position and the position of our competitors, is based on a variety of outside sources and our good faith estimates, which have been derived from management’s knowledge and experience in the areas in which our business operates. We have not verified the accuracy or completeness of the information or any assumptions underlying the information. While such information is believed to be reliable for the purposes used herein, no representations are made as to the accuracy or completeness thereof and we take no responsibility for such information. We caution you not to place undue weight on the industry and market information included in this presentation. Unless otherwise indicated or the context requires, the term “industry” refers to the lodging industry and the terms “segment” or “market” refer to the extended stay segment of the lodging industry. WHO WE ARE Extended Stay America overview Extended Stay America hotel features fully equipped kitchens free grab-and-go breakfast free in-room wi-fi on-site laundry facilities pet-friendly rooms available our guests typically stay a week or longer 634 hotels nationwide why customers choose ESA Extended Stay America’s customers are typically working on projects or are in transition: corporate clients, small business travelers and those on personal stays primary reason why people choose ESA our customers other price/value personal business kitchen location revenue mix by length of stay1 ESA demographics medium term gender 52% male, 48% female (7-29 nts) short term (1-6 nts) HHI ~$75,000 84% of guests use the kitchen during their long term kitchen stay (30 or more nts) 1 For the twelve months ended December 31, 2019 our national scale and great locations Brand Parent 70,000 41,117 TownePlace Suites 38,332 Candlewood Suites 9,737 Hawthorn Suites 4,636 MainStay Suites 2,745 Other, approximately various 1 Mid-Priced extended stay hotels defined as a hotel brand with a $55 to $105 Average Daily Rate with a kitchen in the guest room; # of rooms as of latest SEC filings for each corporation as of 12/31/2018 or 9/30/2019. Other estimated based on The Highland Group Q4 2018 report. North American room count only. national scale and great locations our guests’ self sufficiency and long stays Operating TTM rev mix1 Avg. nightly rate1 margin 1,2 52% 1-4 nights 32% $75 48% 5-29 nights 26% $73 55% Extended 34% 30+ nights 42% $59 52% Stay overall America3 industry4 hotel operating margin Long Length Limited High of Stay + Service = Margins 1 Based on 2019 results for ESA 2 Allocates fixed expenses evenly to all occupied rooms. See Appendix for Hotel Operating Margin reconciliation. 3 Source: 2019 results for ESA 4 Source: STR 2019 HOST Study; industry margins adjusted to exclude franchise and management fees COVID-19 Pandemic $ Update % Improving trends with strong outperformance versus industry and chainscales.…. 1 Total industry RevPAR numbers per STR, Inc. (“STR”), a CoStar Group Company. Neither STR nor Highland endorse the Company, nor any other Company, and the data provided by each such company should not be viewed as investment advice or as a recommendation to take a particular course of action. ….as well as compared to other mid-priced extended stay hotels & competitive set Significant RevPAR index gains made since COVID-19 have continued into June Significant RevPAR outperformance vs other mid-priced extended stay hotels year to date, highlighting the strong STAY model versus the larger transient brand families 1Mid-priced extended stay RevPAR per The Highland Group, Inc. (“Highland”). May data not yet available for mid-priced extended stay. Neither STR nor Highland endorse the Company, nor any other Company, and the data provided by each such company should not be viewed as investment advice or as a recommendation to take a particular course of action. See Appendix for RevPAR Index definition and disclosure. Profile well positioned in COVID-19 environment Majority of STAY’s guests are driving to hotels; ~75% of locations are suburban Extended stay guests have proven more resilient – STAY’s guests average length of stay is ~30 nights vs ~2 nights for overall industry Focus on long term construction projects, medical workers and residential-like business Full kitchen and refrigerator in room assist guests worried about COVID-19 exposure while traveling or with limited dining out options Very limited urban, group and in-bound international exposure Occupancy rebounding since early April – over 75% for the w/e 6/6/20 More hotels with 90% or higher occupancy than below 60% occupancy system-wide1 No hotels were closed due to COVID-19 Low break-even occupancy Hotels are in midscale and economy chainscale, which has significantly outperformed the broader lodging industry 1 as of June 10, 2020 Actions taken in response to COVID-19 • Provided additional cleaning in our hotels, with a focus on high touch areas. • Purchased and supplied PPE for our associates for their safety. • Reduced interactions between our guests and our associates including temporarily suspending our grab n’ go breakfast and switching to every other week housekeeping from weekly housekeeping. • Launched STAY Confident program to focus on health, safety and comfort for guests • Increased effort and focus to attract guests staying for a month or longer at a time, which has proven significantly more resilient to date than the broader lodging industry. • Reduced payroll hours due to lower occupancy and longer length of stay guests at a number