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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-27360
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EXTENDED STAY AMERICA, INC.
(Exact name of Registrant as specified in its charter)
Delaware 36-3996573
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
450 E. Las Olas Boulevard, 33301
Ft. Lauderdale, Florida (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (954) 713-1600
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange On Which Registered
------------------- ------------------------------------
Common Stock, par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
_______________
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of the voting stock of the registrant held by
stockholders who were not affiliates (as defined by regulations of the
Securities and Exchange Commission) of the registrant was approximately
$522,129,139 at March 1, 2000 (based on the closing sale price on the New York
Stock Exchange, Inc. ("NYSE") on March 1, 2000). At March 1, 2000 the registrant
had issued and outstanding an aggregate of 95,429,084 shares of common stock.
Documents Incorporated by Reference
Those sections or portions of the registrant's proxy statement for the
Annual Meeting of Stockholders to be held on May 2, 2000, described in Part III
hereof, are incorporated by reference in this report.
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PART I
ITEM 1. BUSINESS
Our Company
We develop, own, and operate extended stay lodging facilities which provide
an affordable and attractive lodging alternative at a variety of price points
for value-conscious guests. Our facilities are designed to offer a superior
product at lower rates than most other lodging providers within their respective
price segments. Our facilities feature fully furnished rooms which are generally
rented on a weekly basis to guests such as business travelers, professionals on
temporary work assignment, persons between domestic situations, and persons
relocating or purchasing a home, with most guests staying for multiple weeks. On
April 11, 1997, we completed a merger (the "Merger") with Studio Plus Hotels,
Inc. ("SPH"). The Merger was accounted for as a pooling of interests and our
business development and historical financial statements have been restated to
include the operations and accounts of SPH, which is now one of our wholly-owned
subsidiaries. In this Annual Report on Form 10-K, the words "Extended Stay
America", "Company", "we", "our", "ours", and "us" refer to Extended Stay
America, Inc. and its subsidiaries (including SPH), unless the context suggests
otherwise.
Our goal is to be a national provider of extended stay lodging. We believe
that the first companies to do so will benefit from establishing a brand name
and customer awareness. We intend to achieve this goal by rapidly developing
properties in selected markets, providing high value accommodations for our
guests, actively managing our properties to increase revenues and reduce
operating costs, and increasing customer awareness of our products. Through
December 31, 1999, we had developed 351 extended stay lodging facilities,
acquired 11 others, and had 23 facilities under construction.
We expect we will have sufficient funds to open properties with total costs
exceeding $350 million in 2000. Due to uncertainties regarding the availability
of additional capital for projects opening in 2001, however, we plan to limit
the development of properties opening in 2000 to approximately 30 properties
with total costs of approximately $250 million. We believe that this strategy
will permit us to develop properties in markets with higher barriers to entry
that generally have longer development cycles, while prudently managing our
capital structure. In the event we obtain additional capital, we will seek to
increase property openings in future years.
Extended Stay America was formed in 1995 as a Delaware corporation and our
executive offices are located at 450 E. Las Olas Boulevard, Fort Lauderdale,
Florida 33301. Our telephone number is (954) 713-1600.
Our Brands
We own and operate three brands in the extended stay lodging market--
StudioPLUS Deluxe Studios/R/ ("StudioPLUS"), EXTENDED STAYAMERICA Efficiency
Studios/R/ ("EXTENDED STAY"), and Crossland Economy Studios ("Crossland"). Each
brand is designed to appeal to different price points below $500 per week. All
three brands offer the same core components: a living/sleeping area; a fully-
equipped kitchen or kitchenette; and a bathroom. EXTENDED STAY rooms are
designed to compete in the economy category. Crossland rooms are typically
smaller than EXTENDED STAY rooms and are targeted for the budget category, and
StudioPLUS facilities serve the mid-price category and generally feature larger
guest rooms, an exercise room, and a swimming pool.
Our Strategy
Our strategy is to maximize value to customers by providing a superior,
newly-constructed, and well-maintained product at each price point while
maintaining high operating margins. We attempt to achieve this goal through the
following:
Create Brand Awareness. We believe that guests value a recognizable
brand when selecting lodging accommodations. By positioning our brands as
the first nationwide extended stay providers in their targeted price
segments, we believe our brands will have a distinct advantage over their
local and regional competitors. We also believe that our evolving national
presence and high customer satisfaction ratings, coupled with
1
selective advertising and promotion, will establish StudioPLUS, EXTENDED
STAY, and Crossland as desirable and well recognized brands.
Provide a Superior Product at a Lower Price. Our facilities are
designed to offer a superior product at lower rates than most other lodging
providers within their respective price segments. Each of our brands is
targeted to a different price point: StudioPLUS--$299 to $399 per week
(daily equivalent--$43 to $57); EXTENDED STAY--$199 to $299 per week (daily
equivalent--$29 to $43); and Crossland--$159 to $199 per week (daily
equivalent--$23 to $29). Room rates at our facilities vary significantly
depending upon market factors affecting their locations. These rates
contrast with average daily rates in 1999 of $65, $50, and $39 for the mid-
price, economy, and budget segments, respectively, of the entire lodging
industry.
Achieve Operating Efficiencies. We believe that the design and price
level of our facilities attract guest stays of several weeks. This creates
a more stable revenue stream which, together with low labor-cost amenities,
should lead to reduced administrative and operational costs and higher
operating margins. We also use sophisticated control and information
systems to manage individual facility-specific factors, such as pricing,
payroll, and occupancy levels, on a Company-wide basis.
Optimize Low Cost Amenities. We seek to provide the level of amenities
needed to offer quality accommodations while maintaining high operating
margins. Our facilities contain a variety of non-labor intensive features
that are attractive to extended stay guests. These features include a
fully-equipped kitchen or kitchenette, weekly housekeeping, color
television with cable or satellite hook-up, coin-operated laundromat, and
telephone service with voice mail messaging, and, at many StudioPLUS
facilities, an exercise room and swimming pool. To help maintain
affordability of room rates, labor-intensive services such as daily
cleaning, room service, and restaurants are not provided.
Employ a Standardized Concept. We have developed standardized plans
and specifications for our facilities. This provides for lower construction
and purchasing costs and establishes uniform quality and operational
standards. We also benefit from the experience of various members of our
management team in rapidly developing and operating numerous commercial
properties to a uniform set of design standards on a cost-effective basis.
Industry Overview
Traditional Lodging Industry
The U.S. lodging industry is estimated to have generated approximately $72
billion in annual room revenues in 1999 and had approximately 3.9 million rooms
at the end of 1999. Industry statistics, which we believe to be reliable,
indicate that the U.S. lodging industry's performance is strongly correlated to
economic activity. Room supply and demand historically have been sensitive to
shifts in economic growth, which has resulted in cyclical changes in average
daily room and occupancy rates.
Overbuilding in the lodging industry in the mid and late 1980s, when
approximately 500,000 rooms were added, resulted in an oversupply of rooms. We
believe this oversupply and the general downturn in the economy led to depressed
industry performance and a lack of capital available to the industry in the late
1980s and early 1990s. We believe that the lodging industry has since benefited
from an improved supply and demand balance, as evidenced by the compound annual
growth of 5% in revenue per available room from 1993 through 1999. The number of
available rooms in the industry has grown at an average annual rate of 3.6% for
the years 1996 through 1999, however, and the annual growth in revenue per
available room has declined from 6.3% in 1996 to 3.1% in 1999. We believe that
this decline in the growth rate of revenue per available room, along with
concerns of a decline in the U.S. economy in general, resulted in a significant
contraction in capital available for the development of new lodging products in
1998 and 1999. As a result, we expect the rate of growth of new hotel rooms to
moderate for the next few years.
2
The lodging industry generally can be segmented by the level of service
provided and the pricing of the rooms. Segmentation by level of service is
divided into the following categories:
. full service hotels, which offer food and beverage services, meeting
rooms, room service, and similar guest services;
. limited service hotels, which generally offer only rooms with amenities
such as swimming pools, continental breakfast, or similar limited
services; and
. all-suite hotels, which generally have limited public spaces but provide
guests with two rooms or distinct partitioned areas and which may or may
not offer food and beverage service to guests.
The lodging industry may also be segmented by price level and is generally
divided into categories based on average daily room rates, which in 1999 were
$39 for budget, $50 for economy, $65 for mid-price, $87 for upscale, and $139
for luxury.
The all-suite segment of the lodging industry is a relatively new segment.
It is principally oriented toward business travelers in the mid-price to upscale
price levels. All-suite hotels were developed partially in response to the
increasing number of corporate relocations, transfers, and temporary assignments
and the need of business travelers for more than just a room. To address those
needs, all-suite hotels began to offer suites with additional space and, in some
cases, an efficiency kitchen. In addition, guests staying for extended periods
of time were offered discounts to daily rates when they paid on a weekly or
monthly basis. We believe the extended stay market in which we participate is an
additional and emerging segment of the traditional lodging industry similar to
the all-suite segment.
Extended Stay Market
We believe that extended stay hotels generally have higher operating
margins, lower occupancy break-even thresholds, and higher returns on capital
than traditional hotels. This is primarily a result of the typically longer
length of stay, lower guest turnover, and lower operating expenses. We also
believe the extended stay market is one of the most rapidly growing and
underserved segments of the U.S. lodging industry, with demand for extended stay
lodging significantly exceeding the current and anticipated near-term supply of
dedicated extended stay rooms.
In September 1998, we announced the results of a recently completed
analysis of extended stay lodging demand which was performed for us by
PricewaterhouseCoopers. Their analysis indicated an estimate of total U.S.
demand for extended stay properties of approximately 300,000 rooms. As of
December 31, 1999, the inventory of dedicated extended stay rooms based on data
provided by Smith Travel Research for the following extended stay hotel chains
totaled approximately 165,000 rooms.
Upscale Extended Stay Chains Other Extended Stay Chains
---------------------------- ----------------------------------------------------
Hawthorn Inn & Suites(sm) Bradford Homesuites(R) Lexington(R) Hotel Suites
Hawthorn Suites(R) Candlewood Hotel(R) MainStay Suites(sm)
Homewood Suites(R) Crossland Sierra Suites(sm)
Residence Inn(R) EXTENDED STAY Studio 6(sm)
StayBridge Suites(R) Homegate Studios & Suites(R) StudioPLUS
Summerfield Suites(R) Homestead Village(R) Suburban Lodge(R)
Woodfin Suites(R) InnSuites Hotels TownPlace Suites(R)
Inn Town Suites(R) Villager Lodges(R)
We believe that these chains represent the majority of dedicated extended
stay rooms available in the U.S. lodging industry.
3
An upscale extended stay room generally has a weekly rate of $500 or more.
Our weekly room rates are generally less than $500. Approximately 39% of the
supply of extended stay rooms were operated above our targeted price points and
we owned approximately 38% of the rooms operated in our targeted price segments.
The following table indicates the total rooms for the extended stay chains
listed above, the total rooms for the upscale chains, and the total rooms owned
by us at the end of each of the last three years.
1997 1998 1999
------ ------- -------
Total extended stay rooms available..... 92,000 136,000 165,000
Upscale extended stay rooms............. 43,000 53,000 64,000
Extended stay rooms owned by us......... 19,000 32,000 38,000
We believe the continuing significant demand/supply imbalance and the
longer average length of stay have caused occupancy rates for extended stay
hotels to significantly exceed occupancy rates in the overall U.S. lodging
industry. The table below shows that average occupancy rates for extended stay
hotel chains have exceeded the rates in the overall U.S. lodging industry for
each of the previous five years based on data provided by Smith Travel Research.
Year Ended December 31,
---------------------------------
1995 1996 1997 1998 1999
----- ----- ----- ----- -----
Average Occupancy Rates:
Extended Stay Hotel Chains...... 79.8% 78.3% 74.7% 71.9% 71.5%
All U.S. Lodging Industry....... 65.1 65.0 64.5 63.8 63.3
We believe the decline in occupancy rates for extended stay hotel chains
since 1995 is in part the result of an increase in the proportion of newly-
opened hotels, which generally experience lower occupancies during their pre-
stabilization period. The table below shows that, while there has been rapid
growth in available room nights for both the extended stay market in general and
for us in particular, there has also been rapid growth in occupied room nights.
This indicates that much of the new construction in the extended stay market has
been absorbed.
Increase Percentage Increase Percentage
in Increase from in Increase from
1998 Prior Year 1999 Prior Year
---------- -------------- ---------- --------------
Extended Stay Hotel Chains:
Available Room Nights............ 14,200,000 55.9% 13,800,000 32.7%
Occupied Room Nights............. 9,400,000 49.4 9,700,000 31.9
Our Facilities:
Available Room Nights............ 4,700,000 101.7 3,900,000 42.3
Occupied Room Nights.............. 3,400,000 100.0 2,999,000 44.7
As a segment of the total U.S. lodging industry, extended stay hotel chains
experienced a significant contraction in the availability of capital during 1998
that continued through 1999. As a result, we expect the growth in available
dedicated extended stay rooms to moderate for the next few years.
Property Development
Our goal is to become a national provider of extended stay facilities
through a rapid development program. We believe that the first companies to do
so will benefit from establishing a brand name and customer awareness. We expect
that our primary means of expansion will be the construction and development of
new extended stay lodging facilities. We have also acquired, and we may make
additional acquisitions of, existing extended stay lodging facilities or other
properties that we can convert to the extended stay concept.
Our strategy is to expand nationally into regions of the country that
contain the demographic factors we think are necessary to support one or more of
our facilities. We target sites that generally have a large and/or growing
population in the surrounding area with a large employment base. These sites
also generally have good visibility from a major traffic artery and are in close
proximity to convenience stores, restaurants, and shopping centers.
We have approximately 15 real estate professionals and approximately 20
construction professionals who perform site selection, entitlement, and
construction activities according to our established criteria and procedures
4
from offices throughout the United States. It generally takes us at least
twenty-four months to identify a site and complete construction of a facility,
but this process may be substantially longer in certain markets. We try to
minimize our capital outlays incurred in this process until after the
commencement of construction.
The site selection process includes assessing the characteristics of a
market area based on our development standards, identifying sites for
development within a qualified market area, and negotiating an option to
purchase qualified sites. Although the time required to complete the selection
process in a market varies significantly based on local market conditions, we
typically need approximately six to eight months to assess a market and obtain
an option to purchase a site in a qualified market.
After we obtain an option to purchase a site, our legal, environmental, and
business due diligence begins. During this period, our real estate and
construction professionals evaluate whether the site is financially suitable for
development, obtain necessary approvals and permits, and negotiate construction
contracts with third party general contractors. It generally takes us eight to
ten months to complete this process, however, the time needed can vary
significantly by market area due to local regulations and restrictions.
The site selection and due diligence processes are reviewed periodically by
our senior management and our approval to begin construction is based on a
detailed review of the demographic, physical, and financial qualifications of
each site. Once our senior management approves the development of a site, it is
purchased, the construction contract is executed, and construction generally
begins immediately. We use a number of general contractors. The selection of a
contractor for a specific site depends upon the geographic area, the negotiated
construction costs, and the financial and physical capacities of the
contractors. The construction process is regularly inspected by our construction
professionals to monitor both the quality and timeliness of completion of
construction. Although the construction period varies significantly based on
local construction requirements and weather conditions, it generally takes us
eight to ten months to complete construction once it has begun.
During 1999, we repositioned 14 StudioPLUS properties as EXTENDED STAY
properties. All operating statistics reflect the repositioning of these
properties as EXTENDED STAY properties for the entire periods presented. Our
development status as of December 31, 1999 was as follows:
StudioPLUS EXTENDED STAY Crossland Total
----------------- ------------------ ----------------- ------------------
Properties Rooms Properties Rooms Properties Rooms Properties Rooms
---------- ----- ---------- ------ ---------- ----- ---------- ------
Operating........... 90 7,183 233 26,050 39 5,068 362 38,301
Under Construction.. 1 81 22 2,434 0 0 23 2,515
The design plans for our lodging facilities call for a newly-constructed
apartment style complex. They generally consist of two- to four-story buildings
with laundromat and office areas and use interior and exterior corridor building
designs, depending primarily on local zoning and weather factors. All three of
our brands offer the same core components: a living/sleeping area; a fully-
equipped kitchen or kitchenette with a refrigerator, stovetop, microwave, and
sink; and a bathroom. The typical building design criteria for each of our
brands is shown in the table below:
Average Average
Number Living Space
Of Rooms Per Room (Ft./2/)
-------- -----------------
StudioPLUS................ 80 425
EXTENDED STAY............. 100 300
Crossland................. 120 225
The actual number of rooms and living space per room may vary significantly
depending on location and date of construction. In addition, each facility may
include certain non-standard room types.
Property Operations
Each of our facilities employs a property manager who is responsible for
the operations of that particular property. The property manager shares duties
with and oversees a staff typically consisting of an assistant manager, desk
clerks, maintenance personnel, and a housekeeping/laundry staff of approximately
2-10 persons (many of whom are part-time employees). The office at each of our
facilities is generally open daily as follows: Crossland--
5
from 8:00 a.m. to 7:00 p.m.; EXTENDED STAY--from 7:00 a.m. to 11:00 p.m.; and
StudioPLUS--from 7:00 a.m. to 11:00 p.m., although an employee normally is on
duty at all facilities twenty-four hours a day to respond to guests' needs.
The majority of daily operational decisions are made by the property
managers. Each property manager is under the supervision of one of our district
managers, who typically are responsible for five to seven facilities, depending
on geographic location. Our district managers oversee the performance of our
property managers in such areas as guest service, property maintenance, and
payroll and cost control. The district managers report to a regional director
who is responsible for the supervision of 8-10 district managers. The regional
directors report to our Vice President of Operations, who is responsible for
implementing all operational and strategic policies for our brands. Each
facility is evaluated against a detailed revenue and expense budget, as well as
against the performance of our other facilities. Our corporate offices use
sophisticated information systems to support the district managers and regional
directors.
Marketing Strategy
We believe that guests value a recognizable brand when selecting lodging
accommodations. To date, we have created brand awareness primarily by
increasing the number of hotels through a rapid national development program,
with sites that typically are in highly-visible locations. We have established
a toll free reservation number (1-800-EXT-STAY) and a web site (www.extstay.com)
to provide information about our locations and to reserve rooms. With our
growth to a recognizable national chain in 1999, we launched our first national
consumer advertising campaign in USA Today, which was supplemented by a national
direct mail campaign. We plan to expand both advertising initiatives in 2000.
We think that we can increase demand for our facilities by building awareness
for both the extended stay concept as well as our various brands.
Lodging Facilities
At December 31, 1999, we had 362 extended stay lodging facilities in
operation (90 StudioPLUS, 233 EXTENDED STAY, and 39 Crossland) and 23 facilities
under construction (1 StudioPLUS, and 22 EXTENDED STAY) in a total of 38 states.
The following table shows certain information regarding those facilities.
Date Opened or Number
City Brand Acquired of Rooms
---- ------------- -------------- --------
ALABAMA
Birmingham........................ StudioPLUS March 1996 71
Birmingham........................ StudioPLUS May 1996 71
Huntsville........................ EXTENDED STAY July 1997 108
Mobile............................ EXTENDED STAY May 1997 114
Montgomery........................ EXTENDED STAY August 1997 120
Montgomery........................ StudioPLUS February 1996 71
ARIZONA
Chandler.......................... EXTENDED STAY September 1998 101
Mesa.............................. EXTENDED STAY December 1997 104
Peoria............................ EXTENDED STAY December 1998 101
Phoenix........................... Crossland September 1998 133
Phoenix........................... EXTENDED STAY January 1998 101
Phoenix........................... EXTENDED STAY July 1998 104
Scottsdale........................ EXTENDED STAY June 1997 120
Tucson............................ Crossland April 1998 118
Tucson............................ EXTENDED STAY April 1997 120
ARKANSAS
Little Rock....................... EXTENDED STAY September 1996 120
Little Rock....................... StudioPLUS November 1997 84
6
Date Opened or Number
City Brand Acquired of Rooms
- ------------------ ------------- ------------------ --------
CALIFORNIA
Alameda........... StudioPLUS July 1999 88
Alameda........... EXTENDED STAY Under Construction 121
Arcadia........... EXTENDED STAY April 1998 122
Bakersfield....... EXTENDED STAY November 1996 120
Dublin............ EXTENDED STAY Under Construction 122
Fremont........... StudioPLUS August 1999 82
Fremont........... EXTENDED STAY December 1998 119
Fresno............ Crossland November 1998 128
Fresno............ EXTENDED STAY July 1997 120
Gardena........... Crossland December 1998 137
Huntington Beach.. EXTENDED STAY December 1998 104
La Mirada......... EXTENDED STAY June 1998 104
Lake Forest....... EXTENDED STAY September 1997 119
Livermore......... EXTENDED STAY January 1998 122
Long Beach........ EXTENDED STAY November 1997 134
Los Angeles....... EXTENDED STAY May 1999 133
Los Angeles....... EXTENDED STAY August 1999 122
Milpitas.......... EXTENDED STAY January 1998 146
Morgan Hill....... EXTENDED STAY December 1998 92
Oceanside......... EXTENDED STAY January 1999 101
Ontario........... EXTENDED STAY May 1997 127
Pleasant Hill..... EXTENDED STAY August 1997 122
Rancho Cordova.... Crossland November 1998 129
Rancho Cordova.... EXTENDED STAY June 1997 132
Richmond.......... EXTENDED STAY Under Construction 101
Roseville......... EXTENDED STAY August 1998 122
Sacramento........ EXTENDED STAY March 1997 120
Sacramento........ EXTENDED STAY August 1997 120
San Diego......... EXTENDED STAY November 1999 166
San Dimas......... EXTENDED STAY February 1999 104
San Ramon......... EXTENDED STAY Under Construction 128
Santa Rosa........ EXTENDED STAY June 1997 114
Santa Rosa........ EXTENDED STAY Under Construction 94
Santa Barbara..... EXTENDED STAY January 1998 104
Torrance.......... EXTENDED STAY December 1997 122
Union City........ EXTENDED STAY December 1999 121
Valencia.......... EXTENDED STAY Under Construction 104
Woodland Hills.... EXTENDED STAY Under Construction 146
COLORADO
Aurora............ Crossland December 1998 133
Colorado Springs.. Crossland November 1998 133
Colorado Springs.. EXTENDED STAY September 1998 104
Englewood......... StudioPLUS August 1998 72
Glendale.......... Crossland July 1998 129
Lakewood.......... EXTENDED STAY November 1996 120
Lakewood.......... EXTENDED STAY January 1997 147
Thornton.......... Crossland March 1999 133
Westminster....... EXTENDED STAY Under Construction 103
CONNECTICUT
Farmington........ StudioPLUS December 1998 91
7
Date Opened or Number
City Brand Acquired of Rooms
- ----------------- ------------- ------------------ --------
FLORIDA
Clearwater....... EXTENDED STAY March 1998 104
Daytona Beach.... StudioPLUS August 1998 73
Deerfield Beach.. EXTENDED STAY December 1997 104
Fort Lauderdale.. Crossland March 1999 129
Fort Lauderdale.. EXTENDED STAY March 1998 108
Fort Lauderdale.. EXTENDED STAY July 1999 117
Fort Lauderdale.. StudioPLUS April 1999 72
Gainesville...... EXTENDED STAY July 1997 120
Jacksonville..... EXTENDED STAY May 1997 122
Jacksonville..... EXTENDED STAY Under Construction 101
Jacksonville..... StudioPLUS July 1998 73
Maitland......... EXTENDED STAY June 1999 104
Maitland......... StudioPLUS Under Construction 81
Melbourne........ StudioPLUS October 1998 84
Miami............ EXTENDED STAY Under Construction 109
Orlando.......... Crossland January 1999 139
Orlando.......... EXTENDED STAY November 1997 119
Orlando.......... EXTENDED STAY February 1999 122
Orlando.......... StudioPLUS June 1998 83
Orlando.......... StudioPLUS October 1999 113
Pensacola........ EXTENDED STAY September 1997 101
Plantation....... EXTENDED STAY Under Construction 104
Tallahassee...... StudioPLUS January 1998 59
Tampa............ StudioPLUS March 1999 85
Temple Terrace... EXTENDED STAY August 1997 101
West Palm Beach.. StudioPLUS November 1998 73
GEORGIA
Alpharetta....... EXTENDED STAY June 1999 101
Alpharetta....... StudioPLUS July 1997 91
Atlanta.......... EXTENDED STAY April 1998 104
Atlanta.......... EXTENDED STAY Under Construction 98
Atlanta.......... StudioPLUS December 1997 97
Columbus......... EXTENDED STAY January 1997 108
Columbus......... EXTENDED STAY Under Construction 92
Duluth........... EXTENDED STAY September 1997 119
Kennesaw......... EXTENDED STAY December 1998 104
Kennesaw......... StudioPLUS December 1997 84
Lawrenceville.... EXTENDED STAY June 1996 121
Macon............ StudioPLUS March 1998 72
Marietta......... EXTENDED STAY August 1995 121
Marietta......... EXTENDED STAY January 1998 113
Morrow........... EXTENDED STAY June 1998 104
Norcross......... EXTENDED STAY January 1996 199
Norcross......... EXTENDED STAY February 1996 133
Norcross......... StudioPLUS March 1997 72
Riverdale........ EXTENDED STAY February 1996 147
IDAHO
Boise............ EXTENDED STAY January 1997 107
ILLINOIS
Buffalo Grove.... EXTENDED STAY February 1998 122
8
Date Opened or Number
City Brand Acquired of Rooms
- ----------------- ------------- ------------------ --------
Burr Ridge....... EXTENDED STAY November 1996 119
Champaign........ EXTENDED STAY September 1998 89
Darien........... EXTENDED STAY March 1999 104
Des Plaines...... EXTENDED STAY March 1998 122
Des Plaines...... StudioPLUS April 1999 88
Downers Grove.... EXTENDED STAY May 1996 154
Elmhurst......... EXTENDED STAY August 1997 117
Gurnee........... EXTENDED STAY January 1997 101
Hanover Park..... EXTENDED STAY June 1999 104
Hillside......... EXTENDED STAY November 1999 122
Itasca........... EXTENDED STAY November 1996 125
Lansing.......... EXTENDED STAY November 1998 122
Lisle............ EXTENDED STAY Under Construction 98
Lombard.......... StudioPLUS March 1998 98
Naperville....... EXTENDED STAY November 1996 125
O'Fallon......... EXTENDED STAY September 1998 89
Rockford......... EXTENDED STAY September 1997 104
Rockford......... StudioPLUS November 1997 72
Rolling Meadows.. EXTENDED STAY October 1996 125
Romeoville....... EXTENDED STAY October 1998 101
Schaumburg....... EXTENDED STAY March 1999 104
Skokie........... EXTENDED STAY Under Construction 140
Waukegan......... Crossland November 1997 121
INDIANA
Evansville....... StudioPLUS February 1997 71
Fort Wayne....... EXTENDED STAY September 1997 101
Fort Wayne....... StudioPLUS December 1996 71
Indianapolis..... EXTENDED STAY October 1998 107
Indianapolis..... EXTENDED STAY August 1990 72
Indianapolis..... EXTENDED STAY March 1991 72
Indianapolis..... EXTENDED STAY September 1999 101
Merrillville..... EXTENDED STAY November 1996 105
Mishawaka........ StudioPLUS September 1997 73
IOWA
Des Moines....... StudioPLUS December 1997 86
Urbandale........ EXTENDED STAY January 1999 104
KANSAS
Lenexa........... EXTENDED STAY May 1996 59
Overland Park.... EXTENDED STAY September 1997 119
Wichita.......... StudioPLUS December 1997 72
KENTUCKY
Covington........ EXTENDED STAY December 1997 105
Florence......... EXTENDED STAY October 1997 101
Florence......... StudioPLUS September 1996 71
Lexington........ EXTENDED STAY September 1996 126
Lexington........ EXTENDED STAY July 1986 60
Lexington........ EXTENDED STAY August 1987 71
Louisville....... EXTENDED STAY October 1996 120
Louisville....... EXTENDED STAY December 1988 76
Louisville....... EXTENDED STAY April 1989 65
9
Date Opened or Number
City Brand Acquired of Rooms
---- ------------- ------------------ --------
LOUISIANA
Baton Rouge....... Crossland June 1998 129
Bossier City...... Crossland September 1997 117
Lafayette......... EXTENDED STAY November 1998 104
Lake Charles...... Crossland August 1997 117
Metairie.......... EXTENDED STAY August 1998 102
MARYLAND
Columbia.......... EXTENDED STAY October 1997 104
Columbia.......... StudioPLUS December 1997 95
Frederick......... EXTENDED STAY March 1999 101
Gaithersburg...... EXTENDED STAY March 1999 101
Gaithersburg...... StudioPLUS February 1999 88
Landover.......... EXTENDED STAY July 1998 104
Lexington Park.... EXTENDED STAY Under Construction 98
Linthicum......... EXTENDED STAY June 1997 122
Milestone......... EXTENDED STAY January 1999 104
Timonium.......... EXTENDED STAY June 1998 104
MASSACHUSETTS
Danvers........... EXTENDED STAY February 1998 104
Westborough....... EXTENDED STAY Under Construction 92
MICHIGAN
Ann Arbor......... EXTENDED STAY May 1997 112
Ann Arbor......... StudioPLUS December 1997 71
Auburn Hills...... EXTENDED STAY February 1997 133
Farmington Hills.. EXTENDED STAY June 1997 113
Kentwood.......... EXTENDED STAY September 1998 104
Livonia........... Crossland August 1998 127
Madison Heights... EXTENDED STAY May 1997 122
Novi.............. EXTENDED STAY January 1997 125
Sterling Heights.. EXTENDED STAY November 1997 116
Warren............ StudioPLUS November 1997 59
MINNESOTA
Bloomington....... EXTENDED STAY April 1998 104
Brooklyn Center... EXTENDED STAY November 1998 104
Eagan............. EXTENDED STAY September 1997 104
Eden Prairie...... EXTENDED STAY January 1998 104
Maple Grove....... EXTENDED STAY January 1998 104
Woodbury.......... EXTENDED STAY May 1999 104
MISSISSIPPI
Jackson........... EXTENDED STAY October 1997 108
Ridgeland......... StudioPLUS November 1996 71
MISSOURI
Earth City........ StudioPLUS June 1997 72
Hazelwood......... EXTENDED STAY November 1996 122
Hazelwood......... StudioPLUS June 1992 71
Independence...... Crossland January 1997 120
Kansas City....... Crossland January 1999 133
Kansas City....... EXTENDED STAY January 1997 109
10
Date Opened or Number
City Brand Acquired of Rooms
---- ------------- ------------------ --------
Kansas City....... EXTENDED STAY June 1997 119
Maryland Heights.. EXTENDED STAY August 1996 150
Springfield....... EXTENDED STAY October 1997 110
St. Louis......... StudioPLUS November 1994 72
St. Peters........ EXTENDED STAY July 1997 122
NEBRASKA
Omaha............. StudioPLUS December 1997 86
NEVADA
Las Vegas......... EXTENDED STAY July 1996 123
Las Vegas......... EXTENDED STAY July 1996 211
Las Vegas......... EXTENDED STAY July 1996 177
Las Vegas......... EXTENDED STAY July 1996 123
NEW JERSEY
Cherry Hill....... EXTENDED STAY July 1998 77
East Rutherford... EXTENDED STAY December 1999 127
Edison............ EXTENDED STAY August 1997 134
Maple Shade....... Crossland December 1998 129
Mount Laurel...... EXTENDED STAY January 1998 77
Mount Laurel...... StudioPLUS March 1999 85
South Brunswick... EXTENDED STAY June 1999 129
NEW MEXICO
Albuquerque....... Crossland January 1998 129
Albuquerque....... Crossland January 1999 121
Rio Rancho........ EXTENDED STAY May 1998 101
NEW YORK
Albany............ EXTENDED STAY November 1996 134
Amherst........... EXTENDED STAY September 1997 119
Bethpage.......... EXTENDED STAY June 1999 104
East Syracuse..... EXTENDED STAY December 1996 121
Elmsford.......... EXTENDED STAY Under Construction 136
Melville.......... EXTENDED STAY Under Construction 134
Rochester......... EXTENDED STAY November 1996 125
Rochester......... EXTENDED STAY December 1996 127
NORTH CAROLINA
Asheville......... EXTENDED STAY February 1998 101
Cary.............. EXTENDED STAY January 1998 122
Cary.............. StudioPLUS September 1996 71
Cary.............. StudioPLUS January 1998 83
Charlotte......... EXTENDED STAY April 1998 113
Charlotte......... EXTENDED STAY October 1998 101
Charlotte......... StudioPLUS May 1995 71
Charlotte......... StudioPLUS March 1996 71
Durham............ Crossland September 1998 129
Durham............ EXTENDED STAY October 1997 120
Durham............ StudioPLUS December 1996 71
Durham............ StudioPLUS September 1998 85
Fayetteville...... EXTENDED STAY July 1997 120
Fayetteville...... StudioPLUS January 1999 76
11
Date Opened or Number
City Brand Acquired of Rooms
---- ------------- ------------------ --------
Greensboro.......... EXTENDED STAY September 1996 129
Greensboro.......... StudioPLUS December 1995 71
Greensboro.......... StudioPLUS March 1999 83
Jacksonville........ EXTENDED STAY October 1998 98
Morrisville......... EXTENDED STAY September 1997 120
Pineville........... EXTENDED STAY February 1999 107
Pineville........... StudioPLUS September 1999 77
Raleigh............. EXTENDED STAY December 1997 104
Raleigh............. StudioPLUS December 1996 72
Wilmington.......... EXTENDED STAY February 1998 104
Winston-Salem....... Crossland July 1998 134
Winston-Salem....... EXTENDED STAY September 1996 111
OHIO
Blue Ash............ Crossland December 1998 132
Blue Ash............ EXTENDED STAY December 1991 72
Brooklyn............ EXTENDED STAY December 1999 104
Columbus............ EXTENDED STAY June 1997 119
Columbus............ EXTENDED STAY December 1998 97
Columbus............ EXTENDED STAY March 1999 104
Columbus............ EXTENDED STAY August 1989 71
Copley.............. EXTENDED STAY February 1997 95
Copley.............. StudioPLUS November 1996 71
Dayton.............. EXTENDED STAY November 1989 72
Dayton.............. EXTENDED STAY Under Construction 104
Dublin.............. EXTENDED STAY January 1998 104
Dublin.............. EXTENDED STAY May 1990 71
Fairborn............ StudioPLUS January 1997 71
Fairfield........... EXTENDED STAY June 1989 72
Holland............. EXTENDED STAY January 1997 125
Maumee.............. StudioPLUS June 1997 72
Middlebury Heights.. StudioPLUS November 1997 70
North Olmsted....... StudioPLUS September 1997 92
Sharonville......... EXTENDED STAY July 1996 130
Springdale.......... EXTENDED STAY November 1996 126
Springdale.......... EXTENDED STAY November 1988 71
Westlake............ StudioPLUS November 1997 73
OKLAHOMA
Oklahoma City....... EXTENDED STAY September 1997 101
Oklahoma City....... EXTENDED STAY February 1999 110
Oklahoma City....... StudioPLUS January 1998 71
Tulsa............... EXTENDED STAY April 1997 120
Tulsa............... StudioPLUS June 1997 73
OREGON
Beaverton........... EXTENDED STAY October 1998 122
Portland............ EXTENDED STAY January 1998 104
Salem............... Crossland October 1998 129
Springfield......... Crossland November 1997 127
PENNSYLVANIA
Bensalem............ EXTENDED STAY June 1998 101
Carnegie............ EXTENDED STAY June 1997 116
12
Date Opened or Number
City Brand Acquired of Rooms
---- ------------- -------------- --------
Exton............. EXTENDED STAY January 1999 101
Great Valley...... EXTENDED STAY February 1999 104
Philadelphia...... EXTENDED STAY February 1998 145
Philadelphia...... StudioPLUS May 1998 83
Pittsburgh........ StudioPLUS April 1998 84
Pittsburgh........ EXTENDED STAY September 1999 104
SOUTH CAROLINA
Charleston........ StudioPLUS September 1996 72
Columbia.......... EXTENDED STAY April 1996 120
Columbia.......... EXTENDED STAY May 1997 120
Columbia.......... StudioPLUS December 1995 71
Greenville........ EXTENDED STAY December 1996 109
Greenville........ StudioPLUS February 1995 71
Mt. Pleasant...... EXTENDED STAY January 1998 101
North Charleston.. EXTENDED STAY August 1996 126
Spartanburg....... EXTENDED STAY August 1995 126
TENNESSEE
Brentwood......... EXTENDED STAY September 1996 120
Brentwood......... StudioPLUS December 1990 71
Chattanooga....... EXTENDED STAY July 1996 120
Cordova........... StudioPLUS December 1996 72
Knoxville......... EXTENDED STAY May 1997 96
Knoxville......... EXTENDED STAY September 1990 71
Memphis........... EXTENDED STAY January 1997 126
Memphis........... EXTENDED STAY January 1999 104
Memphis........... EXTENDED STAY September 1999 104
Memphis........... EXTENDED STAY October 1990 72
Nashville......... Crossland October 1997 117
Nashville......... EXTENDED STAY February 1997 114
Nashville......... StudioPLUS September 1993 71
TEXAS
Arlington......... StudioPLUS September 1997 137
Austin............ Crossland August 1998 139
Austin............ EXTENDED STAY March 1999 102
Austin............ StudioPLUS January 1998 84
Bedford........... StudioPLUS December 1998 84
Corpus Christi.... StudioPLUS July 1998 73
Dallas............ EXTENDED STAY November 1998 116
Dallas............ EXTENDED STAY December 1998 104
Dallas............ StudioPLUS September 1997 98
El Paso........... EXTENDED STAY January 1997 120
El Paso........... StudioPLUS December 1997 72
Farmers Branch.... StudioPLUS October 1998 83
Fort Worth........ Crossland December 1998 121
Fort Worth........ EXTENDED STAY May 1999 104
Fort Worth........ StudioPLUS July 1998 73
Fort Worth........ StudioPLUS October 1998 85
Houston........... Crossland May 1998 145
Houston........... Crossland June 1998 145
Houston........... EXTENDED STAY September 1998 122
Houston........... EXTENDED STAY September 1998 122
13
Date Opened or Number
City Brand Acquired of Rooms
---- ------------- ------------------ --------
Houston........... EXTENDED STAY December 1998 101
Houston........... EXTENDED STAY December 1998 104
Houston........... EXTENDED STAY March 1999 110
Houston........... EXTENDED STAY April 1999 110
Houston........... StudioPLUS September 1997 85
Houston........... StudioPLUS December 1997 98
Houston........... StudioPLUS December 1997 84
Houston........... StudioPLUS July 1998 84
Irving............ Crossland June 1998 139
Irving............ StudioPLUS January 1998 117
Mesquite.......... Crossland December 1998 138
Plano............. StudioPLUS December 1997 72
Round Rock........ Crossland December 1998 138
San Antonio....... StudioPLUS February 1998 85
Spring............ Crossland June 1998 141
UTAH
Midvale........... EXTENDED STAY September 1997 134
Sandy............. EXTENDED STAY January 1998 122
West Valley City.. EXTENDED STAY August 1997 122
VIRGINIA
Alexandria........ EXTENDED STAY January 1999 104
Chantilly......... EXTENDED STAY Under Construction 104
Chesapeake........ EXTENDED STAY August 1996 132
Fair Oaks......... EXTENDED STAY Under Construction 105
Glen Allen........ StudioPLUS July 1997 92
Newport News...... EXTENDED STAY December 1996 120
Newport News...... StudioPLUS July 1997 73
Richmond.......... EXTENDED STAY December 1997 108
Richmond.......... StudioPLUS April 1999 82
Roanoke........... EXTENDED STAY February 1998 90
Sterling.......... EXTENDED STAY July 1998 101
Virginia Beach.... EXTENDED STAY September 1996 120
WASHINGTON
Bellevue.......... EXTENDED STAY January 1998 148
Everett........... EXTENDED STAY April 1997 104
Everett........... StudioPLUS May 1999 88
Federal Way....... EXTENDED STAY August 1999 101
Fife.............. EXTENDED STAY October 1997 104
Kent.............. Crossland September 1998 133
Kent.............. EXTENDED STAY September 1998 120
Lynnwood.......... EXTENDED STAY February 1998 109
Puyallup.......... Crossland November 1998 133
Renton............ StudioPLUS June 1998 110
Spokane........... Crossland May 1998 115
Tacoma............ Crossland January 1999 129
Tacoma............ EXTENDED STAY May 1998 109
Tukwilla.......... EXTENDED STAY January 1997 96
Vancouver......... EXTENDED STAY September 1997 116
14
Date Opened or Number
City Brand Acquired of Rooms
---- ------------- -------------- --------
WISCONSIN
Appleton..... EXTENDED STAY June 1997 107
Madison...... EXTENDED STAY September 1998 104
Madison...... StudioPLUS September 1998 72
Waukesha..... EXTENDED STAY August 1997 122
Wauwatosa.... EXTENDED STAY June 1997 122
Competition
The lodging industry is highly competitive. This competition is based on a
number of factors including room rates, quality of accommodations, service
levels, convenience of location, reputation, reservation systems, name
recognition, and supply and availability of alternative lodging in local
markets, including short-term lease apartments and limited service hotels. All
of our facilities are located in developed areas and compete with budget,
economy, and mid-price segment hotels and other companies focusing on the
extended stay market. The greater the number of competitive lodging facilities
in a particular area, the more likely it is that those competitors may have a
material adverse effect on the occupancy levels and average weekly room rates of
our facilities.
We expect that competition within the budget, economy, and mid-price
segments of the extended stay lodging market will continue to increase. Although
we expect the contraction of capital available to the lodging industry that
began during 1998 and continued through 1999 to slow the rate of growth of new
lodging products in general, we expect our existing competitors to continue to
develop extended stay facilities to the extent that their capital permits and we
expect them to increase their development in the event that additional capital
should become available in the future. Competitors may include new participants
in the lodging industry generally and participants in other segments of the
lodging industry that may enter the extended stay market. They may also include
existing participants in the extended stay market that may increase their
product offerings to include facilities in the budget, economy, or mid-price
segments. Competition is for both quality locations to build new facilities and
for guests to fill and pay for those facilities. A number of our competitors
have greater financial resources than we do and better relationships with
lenders and sellers, and may therefore be able to find and develop the best
sites before we can. Also, we cannot assure you that our competitors will
not reduce their rates, offer greater convenience, services, or amenities, or
build new hotels in direct competition with our existing facilities, all of
which could have a material adverse effect on our operations.
Environmental Matters
Under various federal, state, and local laws and regulations, an owner or
operator of real estate may be liable for the costs of removal or remediation of
hazardous or toxic substances on such property. These laws often impose
liability without regard to whether the owner knew of, or was responsible for,
the presence of those hazardous or toxic substances. Furthermore, a person that
arranges for the disposal or transports for disposal or treatment a hazardous
substance at a property owned by another may be liable for the costs of removal
or remediation of hazardous substances released into the environment at that
property. These costs may be substantial, and the presence of hazardous
substances, or the failure to properly remediate hazardous substances, may
adversely affect the owner's ability to sell the real estate or to borrow using
that real estate as collateral. We may be liable for any of these costs that
occur in connection with our properties.
We have obtained Phase I environmental site assessments ("Phase I Surveys")
on our existing properties and we intend to obtain Phase I Surveys before the
purchase of any future properties. Phase I Surveys are intended to identify
potential environmental contamination and regulatory compliance problems. A
Phase I Survey generally includes an historical review of the relevant property,
a review of certain public records, a preliminary investigation of the site and
surrounding properties, and the preparation of a written report. A Phase I
Survey generally does not include invasive procedures, such as soil sampling or
ground water analysis.
15
None of our Phase I Surveys have revealed any environmental liability or
compliance concern that we believe would have a material adverse effect on our
business, assets, results of operations, or liquidity, and we are not aware of
any such liability or concern. Nevertheless, it is possible that our Phase I
Surveys did not reveal all environmental liabilities or compliance problems or
that there are material environmental liabilities or compliance problems of
which we will not be aware. Moreover, new or changed laws, ordinances, or
regulations may impose material environmental liabilities. In addition, the
environmental condition of our properties may also be affected by the condition
of neighboring properties (such as the presence of leaking underground storage
tanks) or by third parties unrelated to us.
Governmental Regulation
A number of states regulate the licensing of hotels by requiring
registration, disclosure statements, and compliance with specific standards of
conduct. We believe that each of our facilities has the necessary permits and
approvals to operate its respective business and we intend to continue to obtain
such permits and approvals for our new facilities. We are also subject to laws
governing our relationship with our employees, including minimum wage
requirements, overtime, working conditions, and work permit requirements. An
increase in the minimum wage rate, employee benefit costs, or other costs
associated with employees could adversely affect our business. There are
frequently proposals under consideration, at the federal and state level, to
increase the minimum wage.
Under the Americans With Disabilities Act ("ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. We attempt to satisfy ADA requirements in
the designs for our facilities, but we cannot assure you that we will not be
subjected to a material ADA claim. If that were to happen, we could be ordered
to spend substantial sums to achieve compliance, fines could be imposed against
us, and we could be required to pay damage awards to private litigants. The ADA
and other regulatory initiatives could adversely affect our business as well as
the lodging industry in general.
Insurance
We currently have the types and amounts of insurance coverage that we
consider appropriate for a company in our business. While we believe that our
insurance coverage is adequate, our business, results of operations, and
financial condition could be materially and adversely affected if we were held
liable for amounts exceeding the limits of our insurance coverage or for claims
outside of the scope of our insurance coverage.
Employees
At December 31, 1999, we employed approximately 5,600 persons, of which
approximately 3,200 were part-time employees. We expect that we will
significantly increase the number of our employees as our business expands. Our
employees are not subject to any collective bargaining agreements and we believe
that our relationship with our employees is good.
ITEM 2. PROPERTIES
In addition to our lodging facilities described in "Item 1. Business--
Lodging Facilities" above, our principal executive offices are located in Fort
Lauderdale, Florida and we maintain regional offices throughout the United
States. We generally rent our office space on a short-term basis, although we
have five to seven year leases for our corporate headquarters. Our offices are
sufficient to meet our present needs and we do not anticipate any difficulty in
securing additional office space, as needed, on terms acceptable to us.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any significant litigation or claims, other than
routine matters incidental to the operation of our business. To date, we have
had no material claims and we do not expect that the outcome of any pending
claims will have a material adverse effect on us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock ("Common Stock") is traded on the New York Stock Exchange,
Inc. (the "NYSE") under the symbol "ESA." On December 31, 1999, the last
reported sale price of the Common Stock on the NYSE was $7.56 per share. At
December 31, 1999, there were approximately 385 record holders of the Common
Stock. The table below sets forth the high and low sales prices of shares of
Common Stock on the NYSE for the periods indicated.
We have not paid any dividends on our Common Stock. We intend to continue
to retain our earnings to finance our growth and for general corporate purposes.
We do not anticipate paying any dividends in the foreseeable future. In
addition, our credit facility and senior subordinated notes contain, and future
financing agreements may contain, maximum debt to capitalization ratio covenants
and limitations on payment of any cash dividends or other distributions of
assets. These covenants and limitations could restrict our ability to pay
dividends.
Market Information
Common Stock
--------------
High Low
------ ------
Year Ended December 31, 1998:
1st Quarter.................. $15.00 $10.94
2nd Quarter.................. 14.75 10.75
3rd Quarter.................. 11.62 6.12
4th Quarter.................. 11.06 6.37
Year Ended December 31, 1999:
1st Quarter.................. 10.31 8.25
2nd Quarter.................. 12.63 9.50
3rd Quarter.................. 12.00 8.00
4th Quarter.................. 8.75 7.25
17
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data has been derived from our audited
consolidated financial statements for the years ended December 31, 1995, 1996,
1997, 1998, and 1999. You should read this information together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our audited consolidated financial statements and related notes
included elsewhere in this Annual Report on Form 10-K.
Year Ended December 31,
------------------------------------------------------------
1995 1996 1997 1998 1999
--------- ---------- ----------- ----------- -----------
(in thousands, except per share and operating data)
Income Statement Data:
Revenue........................................ $ 16,768 $ 38,809 $ 130,800 $ 283,087 $ 417,662
Property operating expenses.................... 6,706 16,560 60,391 122,469 180,429
Corporate operating and property
management expenses........................... 4,669 16,867 29,951 39,073 42,032
Other charges (income)......................... -- -- 19,895 12,000 (1,079)
Depreciation and amortization.................. 2,059 6,139 21,331 42,293 60,198
Income (loss) from operations.................. 3,334 (757) (768) 67,252 136,082
Interest expense (income), net (1)............. 507 (13,744) (9,242) 20,521 56,074
Provision for income taxes (2)................. 1,217 5,231 5,838 18,693 32,004
Net income from continuing operations.......... $ 1,468 $ 7,756 $ 2,636 $ 28,038 $ 47,225
======== ======== ========== ========== ==========
Net income from continuing operations per
share (3):
Basic....................................... $ 0.05 $ 0.11 $ 0.03 $ 0.29 $ 0.49
======== ======== ========== ========== ==========
Diluted..................................... $ 0.05 $ 0.10 $ 0.03 $ 0.29 $ 0.49
======== ======== ========== ========== ==========
Weighted average shares outstanding (3):
Basic....................................... 30,381 71,933 94,233 95,896 96,254
======== ======== ========== ========== ==========
Diluted..................................... 31,434 73,935 95,744 96,800 96,939
======== ======== ========== ========== ==========
Operating Data:
Average occupancy rates (4).................... 83% 73% 73% 73% 74%
Average weekly rate............................ $ 250 $ 261 $ 263 $ 286 $ 292
Operating facilities (at period end)........... 24 75 185 305 362
Weighted average rooms available (5)........... 1,479 3,783 12,558 25,334 36,054
Rooms (at period end).......................... 1,794 7,611 19,299 32,189 38,301
Facilities under construction (at period end).. 16 61 84 51 23
Rooms under construction (at period end)....... 1,780 6,864 8,953 5,320 2,515
Other Financial Data:
Cash flows provided by (used in):
Operating activities.......................... $ 4,186 $ 20,828 $ 50,263 $ 118,145 $ 124,059
Investing activities.......................... (35,330) (279,259) (609,064) (630,027) (320,095)
Financing activities.......................... 156,601 356,841 337,689 509,292 201,862
EBITDA (6)..................................... 5,393 5,382 20,563 109,545 196,280
Adjusted EBITDA (7)............................ 5,393 5,382 40,458 121,545 195,201
Capital expenditures........................... 33,722 277,531 607,649 630,276 320,181
Balance Sheet Data (at period end):
Cash and cash equivalents...................... $125,915 $224,325 $ 3,213 $ 623 $ 6,449
Total assets................................... 213,445 668,435 1,070,891 1,694,582 1,927,249
Long-term debt................................. 4,000 -- 135,000 653,000 853,000
Stockholders' equity........................... 199,322 628,714 834,659 866,751 915,590
- ------------
(1) Excludes interest of $256,000, $329,000, $1,731,000, $17,617,000, and
$10,216,000 for 1995, 1996, 1997, 1998, and 1999, respectively, capitalized
during the construction of our facilities under Statement of Financial
Accounting Standards ("SFAS") Statement No. 34 "Capitalization of Interest
Cost."
(2) On April 11, 1997, we completed the Merger with SPH. Historical financial
information prior to SPH's initial public offering of common stock does not
include a provision for income taxes because SPH's predecessor entities were
S corporations or partnerships not subject to income taxes.
(3) Net income per share for the year ended December 31, 1995 is presented on a
pro forma basis as if all of our income for the period was subject to income
taxes.
18
(4) Average occupancy rates are determined by dividing the rooms occupied on a
daily basis by the total number of rooms. Due to our rapid expansion, our
overall average occupancy rate has been negatively impacted by the lower
occupancy typically experienced during the pre-stabilization period for
newly opened facilities. We expect the negative impact on overall average
occupancy to decline as the ratio of newly opened properties to total
properties in operation declines.
(5) Weighted average rooms available is calculated by dividing total room nights
available during the year by 365.
(6) EBITDA represents earnings before the cumulative effect of an accounting
change, interest, income taxes, depreciation, and amortization. EBITDA is
provided because it is a measure commonly used in the lodging industry.
EBITDA is not a measurement of financial performance under generally
accepted accounting principles and should not be considered an alternative
to net income as a measure of performance or to cash flow as a measure of
liquidity. EBITDA is not necessarily comparable with similarly titled
measures for other companies.
(7) Adjusted EBITDA for 1999 and 1998 means EBITDA before pre-tax charges
associated with establishing a $12.0 million valuation allowance in 1998 and
a $1.1 million reduction of that valuation allowance in 1999. We
established the valuation allowance for charges relating to a reduction in
our development plans for 1999 and 2000 as a result of unfavorable capital
market conditions. Adjusted EBITDA for 1997 means EBITDA before $19.9
million of pre-tax charges consisting of (i) $9.7 million of merger expenses
and costs associated with the integration of SPH's operations following the
Merger, (ii) the write-off of $9.7 million of debt issuance costs associated
with terminating two mortgage loan facilities upon execution by us of a
revolving credit facility, and (iii) a $500,000 charge in connection with
the listing of our Common Stock on the NYSE. We believe these charges are
non-recurring in nature and will not affect our future results of
operations.
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
Extended Stay America, Inc. was organized on January 9, 1995 as a Delaware
corporation to develop, own, and operate extended stay lodging facilities.
Studio Plus Hotels, Inc. was formed in December 1994 and acquired all of the
assets of the SPH predecessor entities, which owned and operated StudioPLUS(TM)
extended stay facilities since 1986. The acquisition of the interests of the
SPH predecessor entities was accounted for as if it were a pooling of interests.
On April 11, 1997, we completed a merger with SPH. The 12,557,786 shares of
SPH common stock that were outstanding on the closing date were converted into
15,410,915 shares of our Common Stock and options to purchase 1,072,565 shares
of SPH common stock were converted into options to purchase 1,316,252 shares of
our Common Stock. As a result of the Merger, SPH became one of our wholly-owned
subsidiaries. Our accompanying consolidated financial statements give effect to
the Merger, which has been accounted for as a pooling of interests.
We own and operate three brands in the extended stay lodging market--
StudioPLUS(TM) Deluxe Studios, EXTENDED STAYAMERICA Efficiency Studios, and
Crossland Economy Studios/SM/. Each brand is designed to appeal to different
price points below $500 per week. All three brands offer the same core
components: a living/sleeping area; a fully-equipped kitchen or kitchenette; and
a bathroom. EXTENDED STAY rooms are designed to compete in the economy
category. Crossland rooms are typically smaller than EXTENDED STAY rooms and
are targeted for the budget category, and StudioPLUS facilities serve the mid-
price category and generally feature larger guest rooms, an exercise room, and a
swimming pool.
During 1999, we repositioned 14 StudioPLUS properties as EXTENDED STAY
properties. All operating statistics reflect the repositioning of these
properties as EXTENDED STAY properties for the entire periods presented. The
table below provides a summary of our selected development and operational
results for 1997, 1998, and 1999.
Year Ended December 31,
--------------------------
1997 1998 1999
-------- ------- -------
Total Facilities Open (at period end).. 185 305 362
Total Facilities Developed............. 110 120 57
Average Occupancy Rate................. 73% 73% 74%
Average Weekly Room Rate............... $263 $286 $292
Average occupancy rates are determined by dividing the rooms occupied on a
daily basis by the total number of rooms. Due to our rapid expansion, our
overall average occupancy rate has been negatively impacted by the lower
occupancy typically experienced during the pre-stabilization period for newly-
opened facilities. We expect the negative impact on overall average occupancy
to decline as the ratio of newly-opened properties to total properties in
operation declines. Average weekly room rates are determined by dividing room
revenue by the number of rooms occupied on a daily basis for the applicable
period and multiplying by seven. The average weekly room rates are generally
greater than standard room rates because of (1) stays of less than one week,
which are charged at a higher nightly rate, (2) higher weekly rates for rooms
that are larger than the standard rooms, and (3) additional charges for more
than one person per room. We expect that our future occupancy and room rates
will be impacted by a number of factors, including the number and geographic
location of new facilities as well as the season in which we open those
facilities. We also cannot assure you that we can maintain our occupancy and
room rates.
The following is a summary of our development status as of December 31,
1999, by brand. We expect to complete the construction of the facilities
currently under construction generally within the next twelve months, however,
we cannot assure you that we will complete construction within the time periods
we have historically experienced. Our ability to complete construction may be
materially impacted by various factors including final permitting and obtaining
certificates of occupancy, as well as weather-induced construction delays.
20
EXTENDED
Crossland STAY StudioPLUS Total
--------- -------- ---------- -----
Operating Facilities........... 39 233 90 362
Facilities Under Construction.. 0 22 1 23
Results of Operations
1999 Compared to 1998
Property Operations
The following is a summary of the number of properties in operation at the
end of each year along with the related average occupancy rates and average
weekly room rates during each year:
Year Ended Year Ended
December 31, 1999 December 31, 1998
-------------------------------- --------------------------------
Average Average
Average Weekly Average Weekly
Facilities Occupancy Room Facilities Occupancy Room
Open Rate Rate Open Rate Rate
---------- ----------- ------- ---------- ----------- -------
Crossland...... 39 69% $210 33 61% $198
EXTENDED STAY.. 233 75 296 195 75 281
StudioPLUS..... 90 73 334 77 68 335
--- -- ---- --- -- ----
Total........ 362 74% $292 305 73% $286
=== == ==== === == ====
Because newly opened properties typically experience lower occupancies
during their pre-stabilization period, average occupancy rates are impacted by
the ratio of newly opened properties to total properties. The average occupancy
rate in 1999 for the 185 properties we owned and operated as of January 1, 1998
was 77%. Similarly, the average occupancy rate in 1998 for the 75 properties we
owned and operated as of January 1, 1997 was 80%. The decline in the average
occupancy rate for properties open for at least one year at the beginning of
each year is primarily attributable to an increase during those periods in the
supply of available rooms in the lodging industry generally and specifically in
certain of the markets in which we operate. We expect that this increase in
supply, particularly in certain markets in Texas and North Carolina, will
continue to impact our occupancies until incremental demand is sufficient to
compensate for the additional supply of available rooms. The impact of the
additional supply of available rooms was offset by the impact of a decline in
the ratio of newly opened properties to total properties for each of our brands,
resulting in overall average occupancy rates of 74% for 1999 compared to 73% for
1998.
The increase in overall average weekly room rates for 1999 as compared to
1998 reflects the geographic dispersion of properties opened during 1999 and the
higher standard weekly room rates in certain of those markets. The increase also
is due in part to increases in rates charged at previously opened properties.
The average weekly room rate for the 185 properties that we owned and operated
throughout both periods increased by 2% in 1999. The increase in our overall
average weekly room rates for 1999 as compared to 1998 is diluted by an increase
in the percentage of total occupied rooms attributable to the lower priced
Crossland brand. Occupied rooms attributable to the Crossland brand were 13% of
total occupied room nights for 1999 compared to 6% for 1998. The decrease in the
average weekly room rate for the StudioPLUS brand is primarily the result of
lower rates experienced in certain markets in Texas and North Carolina in
response to an increase in the supply of available rooms in those markets.
We recognized total revenue of $417.7 million in 1999 and $283.1 million in
1998. This is an increase of $134.6 million, or 48%. Approximately $130.4
million of the increased revenue was attributable to properties that we opened
during 1999 and 1998, and approximately $4.2 million was attributable to an
increase in revenue for the 185 properties that we owned and operated throughout
both periods.
Property operating expenses, consisting of all expenses directly allocable
to the operation of the facilities but excluding any allocation of corporate
operating and property management expenses, depreciation, or interest were
$180.4 million (43% of total revenue) for 1999 compared to $122.5 million (43%
of total revenue) for 1998. We expect the ratio of property operating expenses
to total revenue to generally fluctuate inversely relative to occupancy
21
rate increases or decreases because the majority of these expenses do not vary
based on occupancy. Our overall occupancy rates were 74% for 1999 and 73% for
1998 and our property operating margins were 57% for both years.
The provisions for depreciation and amortization for the lodging facilities
were $58.8 million for 1999 and $40.8 million for 1998. These provisions were
computed using the straight-line method over the estimated useful lives of the
assets. These provisions reflect a pro rata allocation of the annual
depreciation and amortization charge for the periods for which the facilities
were in operation. Depreciation and amortization for 1999 increased compared to
1998 because we operated 57 additional facilities in 1999 and because we
operated for a full year the 120 properties that were opened in 1998.
Corporate Operations
Corporate operating and property management expenses include all expenses
not directly related to the development or operation of lodging facilities.
These expenses consist primarily of personnel and certain marketing costs, as
well as development costs that are not directly related to a site that we will
develop. We incurred corporate operating and property management expenses of
$42.0 million (10% of total revenue) in 1999 and $39.1 million (14% of total
revenue) in 1998. The increase in the amount of these expenses for 1999 as
compared to 1998 reflects the impact of additional personnel and related
expenses in connection with the increased number of facilities we operated. We
expect these expenses will continue to increase in the future.
Depreciation and amortization was $1.4 million for 1999 and $1.5 million
for 1998. These provisions were computed using the straight-line method over the
estimated useful lives of the assets for assets not directly related to the
operation of our facilities. These assets were primarily office furniture and
equipment.
We realized $700,000 of interest income during 1999 and $2.9 million of
interest income during 1998. This interest income was primarily attributable to
the temporary investment of funds drawn under our credit facilities. We
incurred interest charges of $67.0 million during 1999 and $41.0 million during
1998. Of these amounts, $10.2 million during 1999 and $17.6 million during 1998
was capitalized and included in the cost of buildings and improvements.
We recognized income tax expense of $32.0 million (40% of income before
taxes) for 1999 and $18.7 million (40% of income before taxes) for 1998. Our
income tax expense differs from the federal income tax rate of 35% primarily due
to state and local income taxes. We expect that our annualized effective income
tax rate for 2000 will be approximately 40%.
Other Charges (Income)
In 1998, unfavorable capital market conditions resulted in a reduction in
our development plans for 1999 and 2000. As a result, we established a valuation
allowance of $12.0 million for the write-off of costs related to sites that
would not be developed. The operating results for 1999 reflect the reversal of
$1.1 million of this valuation allowance resulting from the renegotiation of the
terms of a number of the optioned sites.
Cumulative Effect of a Change in Accounting
Pursuant to the Statement of Position 98-5, "Reporting on the Costs of
Start-up Activities" issued by the Accounting Standards Executive Committee,
effective January 1, 1999, we changed our method of accounting for compensation
and other training related costs incurred prior to the opening of a property to
expense them as they are incurred. Accordingly, we recorded an expense of
$779,000, net of income tax benefit of $520,000, as the cumulative effect of
this change in accounting.
22
1998 Compared to 1997
Property Operations
The following is a summary of the number of properties in operation at the
end of each year along with the related average occupancy rates and average
weekly room rates during each year:
Year Ended Year Ended
December 31, 1998 December 31, 1997
-------------------------------- --------------------------------
Average Average
Average Weekly Average Weekly
Facilities Occupancy Room Facilities Occupancy Room
Open Rate Rate Open Rate Rate
---------- ----------- ------- ---------- ----------- -------
Crossland...... 33 61% $198 6 65% $183
EXTENDED STAY.. 195 75 281 128 73 252
StudioPLUS..... 77 68 335 51 75 323
--- -- ---- --- -- ----
Total........ 305 73% $286 185 73% $263
=== == ==== === == ====
The average occupancy rate in 1998 for the 75 properties that we owned and
operated as of January 1, 1997 was 80%. Similarly, the average occupancy rate
in 1997 for the 24 properties that we owned and operated as of January 1, 1996
was 83%. The decline in the average occupancy rate for properties open for at
least one year at the beginning of each year is primarily attributable to an
increase during those periods in the supply of available rooms in the lodging
industry and specifically in certain of the markets in which we operate. The
impact of the additional supply of rooms was offset by the impact of a decline
in the ratio of newly opened properties to total properties. For the EXTENDED
STAY brand, occupancy rates increased for 1998 as compared to 1997 primarily due
to a decrease in the ratio of newly-opened properties to total properties for
that brand. Occupancy rates decreased for the Crossland brand primarily due to
an increase in the number of newly-opened properties for that brand. Occupancy
rates for the StudioPLUS brand were also diluted by an increase in the number of
newly-opened properties for that brand. In addition, the 21 StudioPLUS
properties opened before 1997 experienced average declines in occupancy rates of
approximately five percentage points. We believe that this decline was due to a
number of factors, including primarily a change in the pricing policies for the
StudioPLUS brand during 1998 to eliminate certain rate discounts, changes in
personnel as a result of management restructuring following the Merger with SPH,
and additional competition from new properties that we and our competitors have
opened in the markets served by these properties.
The increase in overall average weekly room rates for 1998 compared to 1997
reflects the geographic dispersion of properties opened during 1998 and the
higher standard weekly room rates in certain of those markets. The increase also
is due in part to increases in rates charged in previously opened properties.
The average weekly room rate for the 75 properties that we owned and operated
throughout both periods increased by 2% in 1998. The increase in our overall
average weekly room rates for 1998 as compared to 1997 is diluted by an increase
in the percentage of total occupied rooms attributable to the lower priced
Crossland brand. Occupied rooms attributable to the Crossland brand were 6% of
total occupied room nights for 1998 compared to 2% for 1997.
We recognized total revenue of $283.1 million in 1998 and $130.8 million in
1997. This is an increase of $152.3 million, or 116%. Approximately $150.2
million of the increased revenue was attributable to properties that we opened
during 1998 and 1997, and approximately $2.1 million was attributable to an
increase in revenue for the 75 properties that we owned and operated throughout
both periods.
Property operating expenses were $122.5 million (43% of total revenue) for
1998 compared to $60.4 million (46% of total revenue) for 1997. The decrease in
property operating expenses as a percentage of total revenue for 1998 as
compared to 1997 was primarily a result of a decrease in the ratio of newly
opened properties to total properties. As a result, our property operating
margins were 57% for 1998 and 54% for 1997.
The provisions for depreciation and amortization for the lodging facilities
were $40.8 million for 1998 and $19.9 million for 1997. Depreciation and
amortization for 1998 increased compared to 1997 because we operated 120
additional facilities in 1998 and because we operated for a full year the 110
properties that were opened in 1997.
23
Corporate Operations
We incurred corporate operating and property management expenses of $39.1
million (14% of total revenue) in 1998 and $30.0 million (23% of total revenue)
in 1997. The increase in the amount of these expenses for 1998 as compared to
1997 reflects the impact of additional personnel and related expenses in
connection with the increased number of facilities we operated and sites we
developed.
Depreciation and amortization for assets not directly related to operation
of our facilities was $1.5 million for 1998 and $1.4 million for 1997.
We realized $2.9 million of interest income during 1998 and $9.2 million
during 1997. This interest income was primarily attributable to the temporary
investment of funds drawn under our credit facilities and funds received from an
offering of Common Stock in 1997. The decrease in interest income for 1998 as
compared to 1997 was due to the decrease in our average cash and cash equivalent
balances as a result of our continued investments in property and equipment
during 1998. We incurred interest charges of $41.0 million during 1998 and $1.7
million during 1997. Of these amounts, $17.6 million during 1998 and $1.7
million during 1997 was capitalized and included in the cost of buildings and
improvements.
We recognized income tax expense of $18.7 million (40% of income before
taxes) for 1998 and $5.8 million (69% of income before taxes) for 1997. Our
income tax expense differs from the federal income tax rate of 35% primarily due
to state and local income taxes and, for 1997, due to permanent tax differences
relating to merger expenses and tax exempt interest income.
Other Charges (Income)
Our normal operating procedures call for us to invest varying amounts in
our sites under option in terms of (1) earnest money which would be applied to
the purchase of a site, but that in certain circumstances may not be refundable,
(2) legal, environmental, engineering, and architectural outlays needed to
determine the feasibility of acquiring a site and constructing a hotel on that
site, and (3) salaries, wages, and travel costs of our personnel related to the
sites. We capitalize these expenses in accordance with generally accepted
accounting principles. In the quarter ended September 30, 1998, we announced a
reduction in our development plans for 1999 and 2000 as a result of unfavorable
capital market conditions. This meant that certain sites we had under option
would not be developed. As a result, we established a valuation allowance of
$12.0 million for the write-off of expenses related to these sites. This
resulted in a corresponding expense during the quarter ended September 30, 1998.
At December 31, 1998, a total of $10.5 million of those costs, including
$265,000 in termination payments to employees, had been charged against the
allowance and $1.5 million was included in other current liabilities. We believe
that these charges are non-recurring in nature and will not affect the future
results of operations.
During 1997, we recorded merger, financing, and other charges totaling
$19.9 million. These pre-tax charges consisted of (i) $9.7 million of merger
expenses and costs associated with the integration of SPH's operations following
the Merger, (ii) the write-off of $9.7 million of deferred costs associated with
two mortgage loan facilities, which were terminated upon execution of a
revolving credit facility, and (iii) a charge of $500,000 in connection with
moving the listing of our Common Stock to the NYSE from the National Market tier
of the Nasdaq Stock Market. We believe that these charges are non-recurring in
nature and will not affect the future results of operations.
Liquidity and Capital Resources
We had net cash and cash equivalents of $6.4 million at December 31, 1999
and $0.6 million as of December 31, 1998. At December 31, 1999 we had
approximately $45,000 invested and at December 31, 1998 we had approximately
$5.9 million invested in short-term demand notes having credit ratings of A1/Pl
or equivalent using domestic commercial banks and other financial institutions.
We also deposited excess funds during these periods in an overnight sweep
account with a commercial bank which in turn invested those funds in short-term,
interest-bearing reverse repurchase agreements. Due to the short-term nature of
these investments, we did not take possession of the securities, which were
instead held by the financial institutions. The market value of the securities
held pursuant to these arrangements approximates the carrying amount. Deposits
in excess of $100,000 are not insured by the Federal Deposit Insurance
Corporation.
24
Our operating activities generated cash of $124.1 million in 1999, $118.1
million in 1998, and $50.3 million in 1997.
We used $320.2 million to acquire land and develop and furnish 80 sites
opened or under construction in 1999, $630.3 million for 171 sites in 1998, and
$607.6 million for 194 sites in 1997.
Our cost to develop a property varies significantly by brand and by
geographic location due to differences in land and labor costs. Similarly, the
average weekly rate charged and the resultant cash flow from these properties
will vary significantly but generally are expected to be in proportion to the
development costs. For the 329 properties we opened from January 1, 1996 through
December 31, 1999, the average development cost was approximately $5.3 million
with an average of 107 rooms. In 1999, we opened a number of properties in the
Northeast and West where average development costs are higher, resulting in
average development costs for 1999 of $6.5 million per property. We expect our
average development cost per property for 2000 to continue to increase to
approximately $8.3 million per property as we continue to expand in the
Northeast and West.
We received net proceeds from the exercise of options to purchase Common
Stock totaling $5.5 million in 1999, $4.5 million in 1998, and $4.0 million in
1997. Additionally, in 1997, we sold 11.5 million shares of Common Stock in a
private placement transaction resulting in net proceeds of approximately $198.1
million.
We made open market repurchases of 549,300 shares of Common Stock for
approximately $4.3 million in 1999 and 169,900 shares of Common Stock for
approximately $1.3 million in 1998.
In September 1997, we executed an agreement with various banks establishing
a credit facility that provided for up to $500 million of revolving loans on a
senior collateralized basis that had a maturity of December 31, 2002 to be used
for general corporate purposes, including the construction and acquisition of
extended stay properties. Upon entering into the revolving credit facility, we
terminated two mortgage loan facilities, which had provided for an aggregate of
$400 million in mortgage loans. We recorded a pre-tax charge of $9.7 million at
that time, which represented the write-off of debt issuance costs associated
with the mortgage loan facilities. In March 1998, we amended the revolving
credit facility and, as amended, it became the Credit Facility. The Credit
Facility was again amended in September 1998 and December 1998.
The Credit Facility provides for a $350 million revolving loan facility
(the "Revolving Facility"), a $150 million term loan facility (the "Tranche A
Facility"), a $200 million term loan facility (the "Tranche B Facility"), and a
$100 million term loan facility (the "Tranche C Facility"). As of December 31,
1999, we had outstanding loans of $208 million under the Revolving Facility and
$448 million, net of scheduled principal repayments of $2 million in 1999, under
the term loans, leaving $142 million available and committed under the Credit
Facility. Availability of the Revolving Facility is dependent, however, upon us
satisfying certain financial ratios of debt and interest compared to earnings
before interest, taxes, depreciation, and amortization, with these amounts being
calculated pursuant to definitions contained in the Credit Facility.
Loans under the Credit Facility bear interest, at our option, at either a
prime-based rate ("Base Rate") or a LIBOR-based rate ("Eurodollar Rate"), plus
an applicable margin. The applicable margin is an annual rate that fluctuates
based on our ratio of Consolidated Debt to Consolidated EBITDA (as defined in
the Credit Facility). The applicable margin for the various loan facilities in
the Credit Facility are shown in the table below:
Base Rate Eurodollar Rate
--------- ---------------
Revolving Facility.............. 0-0.875% 1.00-1.875%
Tranche A Facility.............. 0-0.875% 1.00-1.875%
Tranche B Facility.............. 1.75% 2.75%
Tranche C Facility.............. 2.50% 3.50%
The loans under the Revolving Facility and the Tranche A Facility mature on
December 31, 2002. The loans under the Tranche B Facility and the Tranche C
Facility mature on December 31, 2003 and 2004, respectively, but are subject to
principal payments of 1% of the initial loan amounts in each of the years 1999
through 2002 for the Tranche B Facility and 2000 through 2003 for the Tranche C
Facility. The remaining balances must be repaid in four equal quarterly
installments in the years of maturity.
25
Our obligations under the Credit Facility are guaranteed by each of our
subsidiaries. They are also collateralized by a first priority lien on all
stock of our subsidiaries and all other current and future assets owned by us
and our subsidiaries (other than mortgages on our real property).
The Credit Facility contains a number of negative covenants, including,
among others, covenants that limit our ability to incur debt, make investments,
pay dividends, prepay other indebtedness, engage in transactions with
affiliates, enter into sale-leaseback transactions, create liens, make capital
expenditures, acquire or dispose of assets, or engage in mergers or
acquisitions. In addition, the Credit Facility contains affirmative covenants,
including, among others, covenants that require us to maintain our corporate
existence, comply with laws, maintain our properties and insurance, and deliver
financial and other information to the lenders. The Credit Facility also
requires us to comply with certain financial tests and to maintain certain
financial ratios on a consolidated basis.
Our primary market risk exposures result from the variable nature of the
interest rates on borrowings under the Credit Facility. We entered into the
Credit Facility for purposes other than trading. We do not own derivative
financial instruments or derivative commodity instruments. Based on the levels
of borrowings under the Credit Facility at December 31, 1999, if interest rates
changed by 1.0%, our annual cash flow and net income would change by $3.9
million. We manage our market risk exposures by periodic evaluation of such
exposures relative to the costs of reducing the exposures by entering into
interest rate swaps or by refinancing the underlying obligations with longer
term fixed rate debt obligations.
On March 10, 1998, we issued $200 million aggregate principal amount of
Senior Subordinated Notes (the "Notes"). The Notes bear interest at an annual
rate of 9.15%, payable semiannually on March 15 and September 15 of each year
and mature on March 15, 2008. We may redeem the Notes beginning on March 15,
2003. The initial redemption price is 104.575% of their principal amount, plus
accrued interest. The redemption price declines each year after 2003 and is 100%
of their principal amount, plus accrued interest, after 2006. In addition,
before March 15, 2001, we may redeem up to $70 million of the Notes, using the
proceeds from certain sales of our stock, at 109.15% of their principal amount,
plus accrued interest.
The Notes are uncollateralized and are subordinated to all of our senior
indebtedness including the Credit Facility, and contain certain covenants for
the benefit of the holders of the Notes. These covenants, among other things,
limit our ability to incur additional indebtedness, pay dividends and make
investments and other restricted payments, enter into transactions with 5%
stockholders or affiliates, create liens, and sell assets.
In connection with the Credit Facility and the Notes, we incurred additions
to deferred loan costs of $345,000 during 1999, $14.0 million during 1998, and
$8.3 million during 1997.
We had commitments not reflected in our financial statements at December
31, 1999 totaling approximately $100 million to complete construction of
extended stay properties. We expect we will have sufficient funds to open
properties with total costs exceeding $350 million in 2000. Due to uncertainties
regarding the availability of additional capital for projects opening in 2001,
however, we plan to limit the development of properties opening in 2000 to
approximately 30 properties with total costs of approximately $250 million. We
believe that this strategy will permit us to develop properties in markets with
higher barriers to entry that generally have longer development cycles, while
prudently managing our capital structure. In the event we obtain additional
capital, we will seek to increase property openings in future years. We believe
that the remaining availability under the Credit Facility, together with cash on
hand and cash flows from operations, will provide sufficient funds to continue
our expansion as presently planned and to fund our operating expenses through
2000. We may need additional capital depending on a number of factors, including
the number of properties we construct or acquire, the timing of that
development, and the cash flow generated by our properties. Also, if capital
markets provide favorable opportunities, our plans or assumptions change or
prove to be inaccurate, our existing sources of funds prove to be insufficient
to fund our growth and operations, or if we consummate acquisitions, we may seek
additional capital sooner than currently anticipated. Sources of capital may
include public or private debt or equity financing. We cannot assure you that we
will be able to obtain additional financing on acceptable terms, if at all. Our
failure to raise additional capital could result in the delay or abandonment of
some or all of our development and expansion plans, and could have a material
adverse effect on us.
26
Seasonality and Inflation
Based upon the operating history of our facilities, we believe that
extended stay lodging facilities are not as seasonal in nature as the overall
lodging industry. We do expect, however, that our occupancy rates and revenues
will be lower than average during the first and fourth quarters of each calendar
year. Because many of our expenses do not fluctuate with changes in occupancy
rates, declines in occupancy rates may cause fluctuations or decreases in our
quarterly earnings.
The rate of inflation as measured by changes in the average consumer price
index has not had a material effect on our revenue or operating results during
any of the periods presented. We cannot assure you, however, that inflation
will not affect our future operating or construction costs.
Special Note on Forward-Looking Statements
This Annual Report on Form 10-K includes forward-looking statements. Words
such as "expects", "intends", "plans", "projects", "believes", "estimates", and
similar expressions are used to identify these forward-looking statements. We
have based these forward-looking statements on our current expectations and
projections about future events. However, these forward-looking statements are
subject to risks, uncertainties, assumptions, and other factors which may cause
our actual results, performance, or achievements to be materially different.
These factors include, among other things:
. our limited operating history and uncertainty as to our future
profitability;
. our ability to meet construction and development schedules and
budgets;
. our ability to develop and implement the operational and financial
systems needed to manage rapidly growing operations;
. uncertainty as to the consumer demand for extended stay lodging;
. increasing competition in the extended stay lodging market;
. our ability to integrate and successfully operate acquired
properties and the risks associated with such properties;
. our ability to obtain financing on acceptable terms to finance
our growth; and
. our ability to operate within the limitations imposed by financing
arrangements.
Other matters set forth in this Annual Report may also cause our actual
future results to differ materially from these forward-looking statements. We
cannot assure you that our expectations will prove to be correct. In addition,
all subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by the
cautionary statements mentioned above. You should not place undue reliance on
these forward-looking statements. All of these forward-looking statements are
based on our expectations as of the date of this Annual Report. We do not intend
to update or revise any forward-looking statements, whether as a result of new
information, future events, or otherwise.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 7. "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
*****
INDEX TO FINANCIAL STATEMENTS
Page
----
EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES
Report of Independent Accountants...................................................................... 29
Consolidated Balance Sheets as of December 31, 1999 and 1998........................................... 30
Consolidated Statements of Income for the years ended December 31, 1999, 1998, and 1997................ 31
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998, and 1997.. 32
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998, and 1997............ 33
Notes to Consolidated Financial Statements............................................................. 34
28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Extended Stay America, Inc.
Ft. Lauderdale, Florida
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Extended Stay America, Inc. and its subsidiaries at December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 2 to the consolidated financial statements, the
Company changed its method of accounting for start-up activities.
PricewaterhouseCoopers LLP
Spartanburg, South Carolina
January 27, 2000
29
EXTENDED STAY AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS December 31,
------ ------------------------
1999 1998
---------- ------------
Current assets:
Cash and cash equivalents............................................... $ 6,449 $ 623
Accounts receivable..................................................... 6,094 5,946
Prepaid expenses........................................................ 2,810 1,743
Deferred income taxes................................................... 39,053 27,735
Other current assets.................................................... 27 781
---------- ----------
Total current assets................................................ 54,433 36,828
Property and equipment, net................................................ 1,856,517 1,637,334
Deferred loan costs........................................................ 15,746 19,260
Other assets............................................................... 553 1,160
---------- ----------
$1,927,249 $1,694,582
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable........................................................ $ 34,020 $ 62,834
Income taxes payable.................................................... 2,888 7,079
Accrued retainage....................................................... 8,834 25,442
Accrued property taxes.................................................. 8,871 6,856
Accrued salaries and related expenses................................... 2,633 1,816
Accrued interest........................................................ 7,059 7,010
Other accrued expenses.................................................. 14,187 15,304
Current portion of long-term debt....................................... 3,000 2,000
---------- ----------
Total current liabilities........................................... 81,492 128,341
---------- ----------
Deferred income taxes...................................................... 77,167 46,490
---------- ----------
Long-term debt............................................................. 853,000 653,000
---------- ----------
Commitments
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized, no shares
issued and outstanding...................................................
Common stock, $.01 par value, 500,000,000 shares authorized,
95,996,884 and 95,968,379 shares issued and outstanding,
respectively............................................................. 960 960
Additional paid-in capital................................................ 828,724 827,110
Retained earnings......................................................... 85,906 38,681
---------- ----------
Total stockholders' equity.......................................... 915,590 866,751
---------- ----------
$1,927,249 $1,694,582
========== ==========
See notes to consolidated financial statements.
30
EXTENDED STAY AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Year Ended December 31,
------------------------------
1999 1998 1997
--------- -------- ---------
Revenue:
Room revenue.............................................................. $405,334 $273,864 $126,095
Other revenue............................................................. 12,328 9,223 4,705
-------- -------- --------
Total revenue........................................................... 417,662 283,087 130,800
-------- -------- --------
Costs and expenses:
Property operating expenses............................................... 180,429 122,469 60,391
Corporate operating and property management expenses...................... 42,032 39,073 29,951
Other charges (income).................................................... (1,079) 12,000 19,895
Depreciation and amortization............................................. 60,198 42,293 21,331
-------- -------- --------
Total costs and expenses................................................ 281,580 215,835 131,568
-------- -------- --------
Income (loss) from operations before interest, income taxes and cumulative
effect of accounting change............................................... 136,082 67,252 (768)
Interest expense (income), net.............................................. 56,074 20,521 (9,242)
-------- -------- --------
Income before income taxes and cumulative effect of accounting change....... 80,008 46,731 8,474
Provision for income taxes.................................................. 32,004 18,693 5,838
-------- -------- --------
Income before cumulative effect of accounting change........................ 48,004 28,038 2,636
Cumulative effect of change in accounting for start-up activities, net
of income tax benefit of $520............................................. 779
-------- -------- --------
Net income.................................................................. $ 47,225 $ 28,038 $ 2,636
======== ======== ========
Net income per common share - Basic and Diluted:
Net income before cumulative effect of accounting change.................. $ 0.50 $ 0.29 $ 0.03
Cumulative effect of accounting change.................................... (0.01)
-------- -------- --------
Net income................................................................ $ 0.49 $ 0.29 $ 0.03
======== ======== ========
Weighted average shares:
Basic..................................................................... 96,254 95,896 94,233
Effect of dilutive options................................................ 685 904 1,511
-------- -------- --------
Diluted................................................................... 96,939 96,800 95,744
======== ======== ========
See notes to consolidated financial statements.
31
EXTENDED STAY AMERICA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Additional Total
Common Paid-in Retained Stockholders'
Stock Capital Earnings Equity
------ ---------- -------- -------------
Balance as of January 1, 1997....... 837 $619,870 $ 8,007 $628,714
Issuance of common stock,
net of issuance costs............. 115 197,978 198,093
Stock options exercised, including
tax benefit of $1,174............. 4 5,212 5,216
Net income.......................... 2,636 2,636
--- -------- ------- --------
Balance as of December 31, 1997..... 956 823,060 10,643 834,659
Repurchases of common stock......... (1) (1,251) (1,252)
Stock options exercised, including
tax benefit of $794............... 5 5,301 5,306
Net income.......................... 28,038 28,038
--- -------- ------- --------
Balance as of December 31, 1998..... 960 827,110 38,681 866,751
Repurchases of common stock......... (5) (4,292) (4,297)
Stock options exercised, including
tax benefit of $407............... 5 5,906 5,911
Net income.......................... 47,225 47,225
--- -------- ------- --------
Balance as of December 31, 1999..... 960 $828,724 $85,906 $915,590
=== ======== ======= ========
See notes to consolidated financial statements.
32
EXTENDED STAY AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
Cash flows from operating activities:
Net income.......................................................................... $ 47,225 $ 28,038 $ 2,636
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................... 60,198 42,293 21,331
Amortization and write off of deferred loan costs................................ 3,859 2,566 9,667
Deferred income taxes............................................................ 19,359 8,051 5,832
Cumulative effect of accounting change, net...................................... 779
Other, net....................................................................... 485
Changes in operating assets and liabilities:
Accounts receivable........................................................... (147) (2,795) (1,986)
Prepaid expenses.............................................................. (1,066) 2,775 (3,073)
Other current assets.......................................................... 1,164 (1,403) (954)
Accounts payable.............................................................. (6,273) (982) 7,542
Income taxes payable.......................................................... (3,264) 7,079
Accrued property taxes........................................................ 2,014 3,439 2,634
Accrued salaries and related expenses......................................... 817 (891) 324
Accrued interest.............................................................. 49 6,653 356
Other accrued expenses........................................................ (655) 23,322 5,469
--------- --------- ---------
Net cash provided by operating activities.................................. 124,059 118,145 50,263
--------- --------- ---------
Cash flows from investing activities:
Additions to property and equipment................................................. (320,181) (630,276) (607,649)
Other assets........................................................................ 86 249 (1,415)
--------- --------- ---------
Net cash used in investing activities...................................... (320,095) (630,027) (609,064)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from exercise of Company stock options and issuances of common stock....... 5,504 4,512 202,135
Repurchases of Company common stock................................................. (4,297) (1,252)
Proceeds from long-term debt........................................................ 353,000 548,500 143,869
Principal payments on long-term debt................................................ (152,000) (28,500)
Additions to deferred loan and other costs.......................................... (345) (13,968) (8,315)
--------- --------- ---------
Net cash provided by financing activities.................................. 201,862 509,292 337,689
--------- --------- ---------
Increase (decrease) in cash and cash equivalents..................................... 5,826 (2,590) (221,112)
Cash and cash equivalents at beginning of period..................................... 623 3,213 224,325
--------- --------- ---------
Cash and cash equivalents at end of period........................................... $ 6,449 $ 623 $ 3,213
========= ========= =========
Noncash investing and financing transactions:
Capitalized or deferred items included in accounts payable and accrued liabilities.. $ 28,157 $ 67,566 $ 49,308
========= ========= =========
Conversion of amounts due under revolving credit facility to term loan.............. $ 100,000
=========
Capitalization of amortized deferred loan costs..................................... $ 511
=========
Supplemental cash flow disclosures:
Cash paid for:
Income taxes, net of refunds..................................................... $ 15,909 $ 2,681 $ 1,340
========= ========= =========
Interest expense, net of amounts capitalized..................................... $ 53,008 $ 23,396 $
========= ========= =========
See notes to consolidated financial statements.
33
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000's omitted in all tables except per share data)
Note 1--Organization, Operations and Basis of Presentation
Extended Stay America, Inc. ("ESA") was organized on January 9, 1995, as a
Delaware corporation to develop, own, and operate extended stay lodging
facilities.
On April 11, 1997, ESA, ESA Merger Sub, Inc. ("Merger Sub"), a wholly-owned
subsidiary of ESA, and Studio Plus Hotels, Inc. ("SPH") consummated a merger
(the "Merger") pursuant to which SPH was merged with and into Merger Sub and the
12,557,786 shares of SPH common stock issued and outstanding on such date were
converted into the right to receive 15,410,915 shares of common stock, par value
$.01 per share, of ESA ("Common Stock") and options to purchase 1,072,565 shares
of SPH common stock were converted into options to purchase 1,316,252 shares of
Common Stock. The Merger was accounted for using the pooling of interests method
of accounting. The accompanying consolidated financial statements of ESA and SPH
(together the "Company") give effect to the Merger as if it had been consummated
as of the beginning of the periods presented.
Note 2--Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and on deposit and highly
liquid instruments with maturities of three months or less when purchased. The
carrying amount of cash and cash equivalents is the estimated fair value at the
respective balance sheet date.
At December 31, 1999 and 1998, we had invested approximately $45,000 and
$5.9 million, respectively, in short-term demand notes. In addition, during
these periods we invested excess funds in an overnight sweep account with a
commercial bank which invested in short-term, interest-bearing reverse
repurchase agreements. Due to the short-term nature of these investments, we did
not take possession of the securities, which were instead held by the financial
institution. The market value of the securities held pursuant to the agreements
approximates the carrying amount. Deposits in excess of $100,000 are not insured
by the Federal Deposit Insurance Corporation.
Property and Equipment
Property and equipment is stated at cost. We capitalize salaries and
related costs for site selection, design and construction supervision. We also
capitalize construction period interest.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. Maintenance and repairs are charged to operations as
incurred; major renewals and improvements are capitalized. The gain or loss on
the disposition of property and equipment is recorded in the year of
disposition.
34
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The estimated useful lives of the assets are as follows:
Building and improvements........... 40 years
Furniture, fixtures and equipment... 3-10 years
Preacquisition Costs
We incur costs related to the acquisition of property sites. These costs
are capitalized when it is probable that a site will be acquired. These costs
are included in property and equipment. In the event the acquisition of the site
is not consummated, the costs are charged to corporate operating expenses.
Deferred Loan Costs
We have incurred costs in obtaining financing. These costs have been
deferred and are amortized over the life of the respective loans.
Other Charges (Income)
In 1998, unfavorable capital market conditions resulted in a reduction in
our development plans for 1999 and 2000. As a result, we established a valuation
allowance of $12.0 million for the write-off of costs related to sites that
would not be developed. This valuation allowance was reduced by $1.1 million in
1999 due to the renegotiation of the terms of a number of the optioned sites.
During 1997, we recorded merger, financing, and other charges totaling
$19.9 million. These pre-tax charges consisted of (i) $9.7 million of merger
expenses and costs associated with the integration of SPH's operations following
the Merger, (ii) the write-off of $9.7 million of deferred costs associated with
two mortgage loan facilities, which were terminated upon execution of a
revolving credit facility, and (iii) a charge of $500,000 in connection with
moving the listing of our Common Stock to the NYSE from Nasdaq.
Cumulative Effect of a Change in Accounting
Pursuant to the Statement of Position 98-5, "Reporting on the Costs of
Start-up Activities" issued by the Accounting Standards Executive Committee,
effective January 1, 1999, we changed our method of accounting for start-up
activities, including pre-opening and organizational costs, to expense them as
they are incurred. Accordingly, we recorded an expense of $779,000, net of
income tax benefit of $520,000, as the cumulative effect of this change in
accounting.
35
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective tax
bases and for operating loss and tax carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which the related temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Revenue Recognition
Room revenue and other revenue are recognized when earned.
Net Income Per Share
We determine earnings per share ("EPS") in accordance with Statement of
Financial Accounting Standards ("SFAS") Statement No. 128, "Earnings Per Share".
For the years ended December 31, 1999, 1998 and 1997, the computation of diluted
EPS does not include approximately 10,820,000, 8,828,000 and 3,180,000 weighted
average shares, respectively, of Common Stock represented by outstanding options
because the exercise price of the options was greater than the average market
price of Common Stock during the period.
Business Segment
We operate principally in one business segment which is to develop, own,
and operate extended stay lodging facilities.
Reclassification
Certain previously reported amounts have been reclassified to conform with
the current presentation.
Note 3--Property and Equipment
Property and equipment consist of the following:
December 31,
----------------------
1999 1998
---------- ----------
Land and improvements, including land under current
development.......................................... $ 469,723 $ 408,767
Buildings and improvements........................... 1,210,867 961,063
Furniture, fixtures, equipment and supplies.......... 247,119 211,320
Construction in progress............................. 60,277 128,337
---------- ----------
1,987,986 1,709,487
Less: Accumulated depreciation...................... 131,469 72,153
---------- ----------
Total property and equipment......................... $1,856,517 $1,637,334
========== ==========
36
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
We had commitments totaling approximately $100 million to complete
construction of additional extended stay properties at December 31, 1999.
For the years ended December 31, 1999, 1998 and 1997 we incurred interest
of $66,957,000, $41,014,000, and $1,731,000, respectively, of which $10,216,000,
$17,617,000, and $1,731,000, respectively, was capitalized and included in the
cost of buildings and improvements.
Note 4--Options to Purchase Property Sites
As of December 31, 1999, we had paid approximately $4.4 million in
connection with options to purchase parcels of real estate in 33 locations in 11
states. If we do not acquire these parcels, the amounts paid in connection with
the options may be forfeited under certain circumstances. These amounts are
included in property and equipment.
Note 5--Long-Term Debt
In September 1997, we executed an agreement with various banks establishing
a credit facility that provided for up to $500 million of revolving loans on a
senior collateralized basis that had a maturity of December 31, 2002 to be used
for general corporate purposes, including the construction and acquisition of
extended stay properties. Upon entering into the revolving credit facility, we
terminated two mortgage loan facilities, which had provided for an aggregate of
$400 million in mortgage loans. In March 1998, we amended the revolving credit
facility and, as amended, it became the Credit Facility. The Credit Facility was
again amended in September 1998 and December 1998.
The Credit Facility provides for a $350 million revolving loan facility
(the "Revolving Facility"), a $150 million term loan facility (the "Tranche A
Facility"), a $200 million term loan facility (the "Tranche B Facility"), and a
$100 million term loan facility (the "Tranche C Facility"). As of December 31,
1999, we had outstanding loans of $208 million under the Revolving Facility and
$448 million, net of scheduled principal repayments of $2 million in 1999, under
the term loans, leaving $142 million available and committed under the Credit
Facility. Availability of the Revolving Facility is dependent, however, upon us
satisfying certain financial ratios of debt and interest compared to earnings
before interest, taxes, depreciation and amortization, with these amounts being
calculated pursuant to definitions contained in the Credit Facility.
Loans under the Credit Facility bear interest, at our option, at either a
prime-based rate ("Base Rate") or a LIBOR-based rate ("Eurodollar Rate"), plus
an applicable margin. The applicable margin is an annual rate that fluctuates
based on our ratio of Consolidated Debt to Consolidated EBITDA (as defined in
the Credit Facility). The applicable margin for the various loan facilities in
the Credit Facility are shown in the table below:
Base Rate Eurodollar Rate
---------- ----------------
Revolving Facility........ 0-0.875% 1.00-1.875%
Tranche A Facility........ 0-0.875% 1.00-1.875%
Tranche B Facility........ 1.75% 2.75%
Tranche C Facility........ 2.50% 3.50%
The loans under the Revolving Facility and the Tranche A Facility mature on
December 31, 2002. The loans under the Tranche B Facility and the Tranche C
Facility mature on December 31, 2003 and 2004, respectively, but are subject to
principal payments of 1% of the initial loan amounts in each of the years 1999
through 2002 for the Tranche B Facility and 2000 through 2003 for the Tranche C
Facility. The remaining balances must be repaid in four equal quarterly
installments in the years of maturity.
37
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Our obligations under the Credit Facility are guaranteed by each of our
subsidiaries. The Credit Facility is also collateralized by a first priority
lien on all stock of our subsidiaries and all other current and future assets
owned by us and our subsidiaries (other than mortgages on our real property).
The Credit Facility contains a number of negative covenants, including,
among others, covenants that limit our ability to incur debt, make investments,
pay dividends, prepay other indebtedness, engage in transactions with
affiliates, enter into sale-leaseback transactions, create liens, make capital
expenditures, acquire or dispose of assets, or engage in mergers or
acquisitions. In addition, the Credit Facility contains affirmative covenants,
including, among others, covenants that require us to maintain our corporate
existence, comply with laws, maintain our properties and insurance, and deliver
financial and other information to the lenders. The Credit Facility also
requires us to comply with certain financial tests and to maintain certain
financial ratios on a consolidated basis.
On March 10, 1998, we issued $200 million aggregate principal amount of
Senior Subordinated Notes (the "Notes"). The Notes bear interest at an annual
rate of 9.15%, payable semiannually on March 15 and September 15 of each year
and mature on March 15, 2008. We may redeem the Notes beginning on March 15,
2003. The initial redemption price is 104.575% of their principal amount, plus
accrued interest. The redemption price declines each year after 2003 and is 100%
of their principal amount, plus accrued interest, after 2006. In addition,
before March 15, 2001, we may redeem up to $70 million of the Notes, using the
proceeds from certain sales of our stock, at 109.15% of their principal amount,
plus accrued interest.
The Notes are uncollateralized and are subordinated to all of our senior
indebtedness including the Credit Facility, and contain certain covenants for
the benefit of the holders of the Notes. These covenants, among other things,
limit our ability to incur additional indebtedness, pay dividends and make
investments and other restricted payments, enter into transactions with 5%
stockholders or affiliates, create liens, and sell assets.
At December 31, 1999, aggregate maturities of long-term debt were as
follows:
2000.................. $ 3,000
2001.................. 3,000
2002.................. 361,000
2003.................. 193,000
2004.................. 96,000
Thereafter............ 200,000
--------
$856,000
========
An aggregate of $856 million and $655 million was outstanding at December
31, 1999 and 1998, respectively, with a weighted average interest rate of 8.14%
and 7.88%, respectively. The fair value of long-term debt is based on quoted
market prices. The Credit Facility had an estimated fair value of approximately
$645 million at December 31, 1999 and $455 million at December 31, 1998. The
Notes had an estimated fair value of approximately $178 million at December 31,
1999 and $187 million at December 31, 1998.
38
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 6--Income Taxes
Income tax expense before the cumulative effect of a change in accounting
consists of the following:
Year Ended December 31,
------------------------
1999 1998 1997
------- ------- ------
Current income taxes:
U.S. federal............ $11,096 $10,642 $ 6
State and local......... 1,549
------- ------- ------
12,645 10,642 6
------- ------- ------
Deferred income taxes:
U.S. federal............ 15,276 6,552 5,137
State and local......... 4,083 1,499 695
------- ------- ------
19,359 8,051 5,832
------- ------- ------
Total income tax expense.. $32,004 $18,693 $5,838
======= ======= ======
Income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 35.0% to pretax income as a result of the following:
Year Ended December 31,
--------------------------
1999 1998 1997
-------- ------- -------
Computed "expected" tax rate............................ 35.0% 35.0% 35.0%
Increase (reduction) in income taxes resulting from:
State and local income taxes, net of federal benefit.. 4.9 4.9 4.8
Tax exempt interest income............................ (5.0)
Merger expenses....................................... 32.1
Other................................................. 0.1 0.1 2.0
---- ---- ----
Annual effective income tax rate........................ 40.0% 40.0% 68.9%
==== ==== ====
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1999 and 1998 are presented below:
1999 1998
-------- --------
Deferred tax assets:
Net operating loss carryforward............ $ 10,918 $ 12,834
Alternative minimum tax credit and
other carryforwards..................... 21,141 9,396
Other...................................... 6,944 5,505
-------- --------
Total deferred tax assets............... 39,053 27,735
Deferred tax liability:
Property and equipment..................... (77,167) (46,490)
-------- --------
$(38,114) $(18,755)
======== ========
At December 31, 1999, we had net operating loss carryforwards for federal
income tax purposes of approximately $27.3 million, expiring in years 2012
through 2018, and alternative minimum tax credits of approximately $19.7
million, which may be carried forward indefinitely.
39
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion of the deferred tax assets
will not be realized. The ultimate realization of the deferred tax assets is
dependent upon the generation of future taxable income during the period in
which those temporary differences become deductible. Management considered the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of
taxable income and projections for future taxable income over the periods which
the deferred tax assets are deductible, management believes it is more likely
than not we will realize the benefits of these deductible differences. The
amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.
Note 7--Stockholders' Equity
On February 6, 1997, we sold 11.5 million shares of Common Stock in a
private placement transaction resulting in net proceeds of approximately $198.1
million.
On April 11, 1997, our stockholders approved an Amendment of the Restated
Certificate of Incorporation increasing the number of authorized shares of
Common Stock, par value $.01, from 200 million to 500 million shares.
On June 9, 1997, we announced that our Board of Directors had approved a
plan to have the Common Stock listed on the New York Stock Exchange, Inc.
("NYSE") and to move trading in the Common Stock from the Nasdaq National Market
("Nasdaq") to the NYSE. The Common Stock began trading on the NYSE on June 30,
1997.
Shares of preferred stock may be issued from time to time, in one or more
series, as authorized by the Board of Directors. Prior to issuance of shares of
each series, the Board will designate for each such series, the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption, as are permitted by law. No shares of preferred stock are
outstanding and we have no present plans to issue any shares of preferred stock.
Note 8--Stock Option Plans
We have five stock option plans including the 1995, 1996, 1997 and 1998
Employee Stock Option Plans (the "Employee Plans") and the 1995 Stock Option
Plan for Non-Employee Directors (the "Directors' Plan"). The Employee Plans and
the Directors' Plan provide for grants to certain officers, directors and key
employees of stock options to purchase shares of Common Stock. Options granted
under the Employee Plans and the Directors' Plan expire ten years from the date
of grant. Options granted under the Employee Plans vest ratably over a four year
period, and options granted under the Directors' Plan vest six months from the
date of grant.
SPH had two stock option plans, the 1995 Stock Incentive Plan and the 1995
Non-Employee Directors' Stock Incentive Plan (collectively, the "SPH Plans").
Two types of options, incentive stock options and nonqualified stock options,
were granted under the SPH Plans. All options granted under the SPH Plans were
granted at an exercise price equal to the market price of the SPH common stock
on the date of grant and may not be exercised more than 10 years after the date
granted. Options granted under the SPH Plans to purchase 1,072,565 shares of SPH
common stock were converted into options to purchase 1,316,252 shares of Common
Stock (with a corresponding adjustment to the exercise price) upon completion of
the Merger. Because the Merger effected a "change of control" of SPH, each of
these options became immediately exercisable.
40
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of the status of the Employee Plans, the Directors' Plan, and
options granted under the SPH Plans (collectively the "Plans") as of December
31, 1999, 1998 and 1997 and changes during the years ending on those dates is
presented below:
1999 1998 1997
----------------------- ----------------------- ------------------------
Number of Price Per Number of Price Per Number of Price Per
Shares Share Shares Share Shares Share
---------- ----------- ---------- ----------- ---------- ------------
Outstanding at beginning of year.... 14,542 $2.38-22.38 10,532 $2.38-22.38 7,128 $ 2.38-22.38
Granted............................. 3,396 7.28-12.03 6,971 6.41-15.00 5,125 11.28-20.50
Exercised........................... (578) 2.38-10.50 (534) 7.43-15.00 (402) 2.38-14.94
Forfeited........................... (2,089) 2.38-22.38 (2,427) 2.38-20.88 (1,319) 2.38-20.63
------ ----------- ------ ----------- ------ ------------
Outstanding at end of year.......... 15,271 2.38-21.75 14,542 $2.38-22.38 10,532 $ 2.38-22.38
Options exercisable at year-end..... 6,606 2.38-21.75 4,882 $2.38-22.38 3,489 $ 2.38-22.38
Available for future grants......... 5,030 6,338 5,183
Total shares reserved for issuance
as of December 31................. 20,301 20,880 15,715
Weighted average fair value of
options granted during the
year.............................. $ 3.90 $ 4.42 $ 6.93
On January 1, 1996, we adopted SFAS No. 123, "Accounting for Stock Based
Compensation." As permitted by SFAS No. 123, the Company has chosen to apply APB
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for the Plans. Accordingly, no compensation cost
has been recognized for options granted under the Plans. Had compensation cost
for the Plans been determined based on the fair value at the date of grant for
awards under the Plans consistent with the method of SFAS No. 123, the Company's
net income and net income per share would have been reduced to the pro forma
amounts indicated below.
1999 1998 1997
----------------- ----------------- ------------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
-------- ------- -------- ------- -------- --------
Net income (loss)............. $47,225 $40,572 $28,038 $20,582 $2,636 $(8,788)
Net income (loss) per share:
Basic and Diluted.......... $ 0.49 $ 0.42 $ 0.29 $ 0.21 $ 0.03 $ (0.09)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes multiple option-pricing model with the following assumptions
used for grants in 1999, 1998 and 1997: dividend yield of 0%, risk-free interest
rate of 6% and expected life of 5.5 years. In addition, the expected volatility
was 42% in 1999 and 33% in 1998 and 1997.
41
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about the Company's stock
options at December 31, 1999:
Options Outstanding Options Exercisable
----------------------------------- ----------------------
Number Weighted Number
Outstanding Average Weighted Outstanding Weighted
as of Remaining Average as of Average
Range of December 31, Contractual Exercise December 31, Exercise
Exercise Prices 1999 Life Price 1999 Price
- --------------------- ------------ ----------- -------- ------------ --------
$ 2.38-2.38.. 934 5.63 $ 2.38 934 $ 2.38
$ 6.47-6.50.. 913 5.90 6.50 911 6.50
$ 6.78-8.16.. 3,411 9.36 8.14 376 8.13
$ 8.22-9.50.. 3,210 8.87 9.46 927 9.47
$ 9.53-11.38.. 2,544 8.05 11.31 869 11.34
$11.41-15.97.. 1,764 6.58 13.57 1,230 13.61
$16.97-21.75.. 2,495 6.97 18.53 1,359 18.53
------ ---- ------ ----- ------
$ 2.38-21.75.. 15,271 7.89 $10.82 6,606 $10.86
====== ==== ====== ===== ======
Note 9--Related Party Transactions
In 1996, we entered into a ten year lease for a suite at Pro Player Stadium
for a base rental of $115,000 per year, and a 3-year lease for a suite at
Homestead Motorsports Complex for a base rental of approximately $53,000 per
year. In 1998, we entered into a three year lease for an additional suite at Pro
Player Stadium for a base rental of $83,000 per year, which was terminated in
1999, and a seven year lease for a suite at the National Car Rental Center for a
base rental of $120,000 per year. The leases are subject to certain additional
charges and periodic escalation. The Chairman of our Board of Directors owns Pro
Player Stadium and had an approximate 50% ownership interest (which was reduced
to approximately 10% in 1997) in Homestead Motorsports Complex. In addition, the
Chairman of our Board of Directors is the Chairman of the Board of Directors of
a company which operates the National Car Rental Center.
We incurred charges of approximately $2.2 million in 1999, $1.7 million in
1998, and $1.7 million in 1997 from a company controlled by our Chief Executive
Officer for the use of airplanes. We charged approximately $136,000 in 1999 to
our Chief Executive Officer and other companies controlled by him for their use
of those airplanes.
Our Chief Executive Officer serves as chairman of the board of a company
from which we lease office space under various lease agreements. During 1999,
1998, and 1997, we incurred charges of approximately $73,000, $76,000, and
$74,000, respectively, related to these agreements.
Two members of our Board of Directors also serve on the board of directors
of a company which performs employment related services for us. During 1999,
1998 and 1997, we incurred charges of approximately $336,000, $251,000, and
$126,000, respectively, for such services.
42
EXTENDED STAY AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 10--Quarterly Results (Unaudited)
The following is a summary of quarterly operations for the years ended December
31, 1999 and 1998:
1999
--------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Total revenue.............................. $89,419 $106,487 $116,491 $105,265
Operating income........................... 24,203 38,162 42,034 31,681
Net income before cumulative effect of
accounting change......................... 7,652 14,606 16,255 9,491
Cumulative effect of accounting change..... (779)
Net income................................. 6,873 14,606 16,255 9,491
Net income per share - Basic and Diluted:
Net income before cumulative effect of
accounting change....................... $ 0.08 $ 0.15 $ 0.17 $ 0.10
Cumulative effect of accounting change... $ (0.01)
Net income............................... $ 0.07 $ 0.15 $ 0.17 $ 0.10
1998
--------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- -------- -------- --------
Total revenue.............................. $54,231 $ 70,044 $ 81,006 $ 77,807
Operating income........................... 9,126 21,421 15,582 21,126
Net income................................. 4,802 10,116 5,492 7,630
Net income per share:
Basic.................................... $ 0.05 $ 0.11 $ 0.06 $ 0.08
Diluted.................................. $ 0.05 $ 0.10 $ 0.06 $ 0.08
Note 11--Commitments and Contingencies
We are not a party to any significant litigation or claims, other than
routine matters incidental to the operation of our business. To date, no claims
have had a material adverse effect on us nor do we expect that the outcome of
any pending claims will have such an effect.
We lease real property under various operating leases with terms of one to
sixteen years. Rental expense under real property leases for the years ended
December 31, 1999, 1998, and 1997 were $1,511,000, $1,576,000, and $1,012,000,
respectively.
Future minimum lease obligations under noncancelable real property leases
with initial terms in excess of one year at December 31, 1999 are as follows:
Year Ending December 31:
2000.......................... $1,255
2001.......................... 1,261
2002.......................... 712
2003.......................... 725
2004.......................... 718
Thereafter.................... 1,752
------
$6,423
======
43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The information appearing under the caption "Election of our Board of
Directors" in our Proxy Statement for the Annual Meeting of Stockholders to be
held May 2, 2000 (the "Proxy Statement") is incorporated herein by reference.
Executive Officers
Our executive officers, their ages at December 31, 1999, and their
positions with us are set forth below. Our executive officers are elected by and
serve at the discretion of our Board of Directors.
Name Age Position
---- --- --------
H. Wayne Huizenga*....... 62 Chairman of the Board of Directors
George D. Johnson, Jr.*.. 57 President, Chief Executive Officer, and Director
Robert A. Brannon........ 49 Senior Vice President, Chief Financial Officer,
Secretary and Treasurer
- --------------
* Member of Executive Committee of the Board of Directors
H. Wayne Huizenga became one of our directors in August 1995 and serves as
the Chairman of our Board of Directors. Mr. Huizenga has also served as Chairman
of the Board of AutoNation, Inc., which owns the nation's largest chain of
franchised automotive dealerships, since August 1995. Since June 1998, Mr.
Huizenga has served as a director of NationsRent, Inc., a national chain
providing equipment rental primarily to a broad range of construction and
industrial customers. Since May 1998, Mr. Huizenga has served as Chairman of the
Board and Chief Executive Officer of Republic Services, Inc., a leading provider
of non-hazardous solid waste collection and disposal services. Since September
1996, Mr. Huizenga has been Chairman of the Board of Boca Resorts, Inc., which
owns and operates luxury resort properties as well as the Florida Panthers
professional hockey franchise. From September 1994 until October 1995, Mr.
Huizenga served as the Vice-Chairman of Viacom Inc., a diversified entertainment
and communications company. During the same period, Mr. Huizenga also served as
the Chairman of the Board of Blockbuster Entertainment Group, a division of
Viacom. From April 1987 through September 1995, Mr. Huizenga served as the
Chairman of the Board and Chief Executive Officer of Blockbuster Entertainment
Corporation ("Blockbuster"), during which time he helped build Blockbuster from
a 19-store chain into the world's largest video rental company. In September
1994, Blockbuster merged into Viacom. In 1971, Mr. Huizenga co-founded Waste
Management, Inc., which he helped build into the world's largest integrated
solid waste services company, and he served in various capacities, including
President, Chief Operating Officer and a director from its inception until 1984.
Mr. Huizenga also currently owns or controls the Miami Dolphins, a professional
sports franchise, as well as Pro Player Stadium, the home of the Miami Dolphins
and is a director of theglobe.com, an internet on-line community.
George D. Johnson, Jr. has been our President, Chief Executive Officer, and
a director since January 1995. He is responsible for all aspects of our
development, operation, marketing, and personnel. Mr. Johnson is the former
President of the Consumer Products Division of Blockbuster Entertainment Group,
a division of Viacom. In this position he was responsible for all U.S. video and
music stores. Mr. Johnson has over 30 years of experience developing and
managing various businesses. He was formerly the managing general partner of WJB
Video, the largest Blockbuster franchisee which developed over 200 video stores
prior to a merger with Blockbuster in 1993. Mr. Johnson also is the managing
member of American Storage, LLC, a chain of 26 self-storage facilities located
in the Carolinas and Georgia. He formerly served as a director of Viacom and
Chairman of the Board of Home Choice
44
Holdings, Inc. and currently serves on the board of directors of AutoNation,
Boca Resorts, and Duke Energy Corporation. He has been the Chairman of the Board
of Directors of Johnson Development Associates, Inc. since its founding in 1986.
Johnson Development Associates is a real estate management, leasing, and
development company controlling approximately four million square feet of
commercial, retail, and industrial property located in the Carolinas and Georgia
which are owned by various partnerships controlled by Mr. Johnson and his
brother, Stewart H. Johnson. Mr. Johnson practiced law in Spartanburg, South
Carolina from 1967 until 1986 and served three terms in the South Carolina House
of Representatives.
Robert A. Brannon has been our Chief Financial Officer since February 1995
and our Senior Vice President, Secretary, and Treasurer since August 1995. He is
responsible for overseeing accounting procedures and controls, along with
financial reporting and cash management. Prior to joining our Company, he served
as Vice President-Finance for the Domestic Home Video division of the
Blockbuster Entertainment Group, where he was responsible for financial
management and control of over 2,000 video stores. Prior to joining Blockbuster
in 1993, Mr. Brannon was Chief Financial Officer for WJB Video and for American
Storage, LLC. In those capacities, Mr. Brannon was responsible for the financial
aspects of the development of over 200 video stores and 23 self-storage
facilities. Prior to his participation in these businesses, Mr. Brannon served
as a Certified Public Accountant in various management and staff positions with
local and national accounting firms.
ITEM 11. EXECUTIVE COMPENSATION
Information appearing under the caption "Executive Compensation" in the
Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information appearing under the caption "Principal Stockholders" in the
Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information appearing under the caption "Certain Transactions" in the Proxy
Statement is incorporated herein by reference.
45
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
Reference is made to the information set forth in Part II, Item 8 of this
Report, which information is incorporated herein by reference.
(a)(2) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted because
they are not required under the related instructions, are not applicable, or the
information has been provided in the consolidated financial statements or the
notes thereto.
(a)(3) Exhibits
The exhibits to this report are listed in the Exhibit Index included
elsewhere herein. Included in the exhibits listed therein are the following
exhibits which constitute management contracts or compensatory plans or
arrangements:
10.1 Amended and Restated 1995 Employee Stock Option Plan of the
Company
10.2 1995 Stock Option Plan for Non-Employee Directors of the Company
10.3 Amended and Restated 1996 Employee Stock Option Plan of the
Company
10.8 1997 Employee Stock Option Plan of the Company
10.9 1998 Employee Stock Option Plan of the Company
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the fourth quarter
of 1999.
(c) Exhibits
Exhibit
Number Description of Exhibit
- ------ ----------------------
3.1(a) Restated Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1(a) to the Company's Registration Statement on
Form S-1, Registration No. 33-98452)
3.1(b) Certificate of Amendment of Restated Certificate of Incorporation of
the Company dated June 4, 1997 (incorporated by reference to Exhibit
3.1(b) to the Company's Report on Form 10-K for the year ended December
31, 1997)
3.1(c) Conformed copy of Certificate of Incorporation of the Company, as
amended (incorporated by reference to Exhibit 3.1(c) to the Company's
Report on Form 10-K for the year ended December 31, 1997)
3.2 Amended and Restated Bylaws of the Company (incorporated by reference
to Exhibit 3.2 to the Company's Registration Statement on Form S-1,
Registration No. 33-98452)
4.1 Specimen certificate representing shares of Common Stock (incorporated
by reference to Exhibit 4.1 to the Company's Registration Statement on
Form S-1, Registration No. 33-98452)
10.1 Amended and Restated 1995 Employee Stock Option Plan of the Company
(incorporated by reference to Exhibit 10.3 to the Company's Report on
Form 10-Q for the quarter ended March 31, 1996)
10.2 1995 Stock Option Plan for Non-Employee Directors of the Company
(incorporated by reference to Exhibit 10.6 to the Company's Report on
Form 10-Q for the quarter ended March 31, 1996)
46
Exhibit
Number Description of Exhibit
- ------ ----------------------
10.3 Amended and Restated 1996 Employee Stock Option Plan of the Company
(incorporated by reference to Exhibit 10.10 to the Company's Report on
Form 10-Q for the quarter ended March 31, 1996)
10.4 Aircraft Dry Lease dated April 5, 1996 between Morgan Corp. and the
Company (incorporated by reference to Exhibit 10.12 to the Company's
Registration Statement on Form S-1, Registration No. 333-03373)
10.5 Homestead Motorsports Complex Executive Suite License Agreement dated
February 14, 1996 among The Homestead Motorsports Joint Venture, Miami
Motorsports Joint Venture, and the Company (incorporated by reference
to Exhibit 10.13 to the Company's Report on Form 10-Q for the quarter
ended March 31, 1996)
10.6 Joe Robbie Stadium Executive Suite License Agreement dated March 18,
1996 between Robbie Stadium Corporation and the Company (incorporated
by reference to Exhibit 10.14 to the Company's Report on Form 10-Q for
the quarter ended March 31, 1996)
10.7 Aircraft Dry Lease dated December 28, 1996 between Wyoming Associates,
Inc. and the Company (incorporated by reference to Exhibit 10.16 to the
Company's Report on Form 10-K for the year ended December 31, 1996)
10.8 1997 Employee Stock Option Plan of the Company (incorporated by
reference to Exhibit 10.2 to the Company's Report on Form 10-Q for the
quarter ended June 30, 1997)
10.9 1998 Employee Stock Option Plan of the Company (incorporated by
reference to Exhibit 10.9 to the Company's Report on Form 10-K for the
year ended December 31, 1998)
10.10(a) Credit Agreement, dated as of September 26, 1997 and Amended and
Restated as of March 10, 1998 (the "Credit Agreement"), by and among
the Company and Morgan Stanley Senior Funding, Inc., as Syndication
Agent and Arranger, The Industrial Bank of Japan, Limited, as
Administrative Agent, and various banks (incorporated by reference to
Exhibit 10.1 to the Company's Report on Form 10-Q for the quarter ended
March 31, 1998)
10.10(b) Amendment, dated as of September 18, 1998, to the Credit Agreement
(incorporated by reference to Exhibit 10.1 to the Company's Report on
Form 10-Q for the quarter ended September 30, 1998)
10.10(c) Amendment, dated as of December 15, 1998, to the Credit Agreement
(incorporated by reference to Exhibit 10.10(c) to the Company's Report
on Form 10-K for the year ended December 31, 1998)
10.11(a) Lease Agreement dated as of November 30, 1998 by and between Bell Hill,
LLC and ESA Management, Inc. (incorporated by reference to Exhibit
10.11(b) to the Company's Report on Form 10-K for the year ended
December 31, 1998)
10.11(b) Sublease Agreement dated as of July 1, 1999 by and between Johnson
Development Associates, Inc. and ESA Management, Inc.
10.12 Aircraft Dry Sub-Lease Agreement, dated as of July 2, 1998, between the
Company and Advance America Cash Advance Centers, Inc. (incorporated by
reference to Exhibit 10.1 to the Company's Report on Form 10-Q for the
quarter ended June 30, 1998)
10.13 Pro Player Stadium Executive Suite License Agreement, dated as of July
16, 1998, by and between South Florida Stadium Corporation d/b/a Pro
Player Stadium and the Company (incorporated by reference to Exhibit
10.2 to the Company's Report on Form 10-Q for the quarter ended
September 30, 1998)
10.14 Broward County Arena Executive Suite License Agreement, by and between
Arena Operating Company, Ltd. and the Company (incorporated by
reference to Exhibit 10.3 to the Company's Report on Form 10-Q for the
quarter ended September 30, 1998)
10.15 Aircraft Dry Lease, dated as of July 12, 1999, by and between Wyoming
Associates, Inc. and ESA Management, Inc. (Learjet, Serial No. 132)
(incorporated by reference to Exhibit 10.1 to the Company's Report on
Form 10-Q for the quarter ended September 30, 1999)
47
Exhibit
Number Description of Exhibit
- ------ ----------------------
10.16 Aircraft Dry Lease, dated as of July 12, 1999, by and between Wyoming
Associates, Inc. and ESA Management, Inc. (Challenger, Serial No. 3042)
(incorporated by reference to Exhibit 10.2 to the Company's Report on
Form 10-Q for the quarter ended September 30, 1999)
10.17 Time Sharing Agreement, dated as of July 20, 1999, by and between ESA
Management, Inc. and George Dean Johnson, Jr. (Challenger, Serial No.
3042) (incorporated by reference to Exhibit 10.3 to the Company's
Report on Form 10-Q for the quarter ended September 30, 1999)
10.18 Time Sharing Agreement, dated as of August 10, 1999, by and between
Advance America Cash Advance Centers, Inc. and Extended Stay America,
Inc. (incorporated by reference to Exhibit 10.4 to the Company's Report
on Form 10-Q for the quarter ended September 30, 1999)
10.19 Time Sharing Agreement, dated as of August 30, 1999, by and between ESA
Management, Inc. and Advance America, Cash Advance Centers, Inc.
(incorporated by reference to Exhibit 10.5 to the Company's Report on
Form 10-Q for the quarter ended September 30, 1999)
10.20 Time Sharing Agreement, dated as of November 29, 1999, by and between
ESA Management, Inc. and George Dean Johnson, Jr. (Learjet, Serial No.
132)
21.1 List of Subsidiaries of the Company
23.1 Consent of PricewaterhouseCoopers LLP
27.1 Financial Data Schedule
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 10, 2000.
Extended Stay America, Inc.
By: /s/ George D. Johnson, Jr.
----------------------------
George D. Johnson, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 10, 2000
Signature Title
--------- -----
Principal Executive Officer:
/s/ George D. Johnson, Jr. President and Chief Executive Officer
---------------------------
George D. Johnson, Jr.
Principal Financial Officer:
/s/ Robert A. Brannon Senior Vice President, Chief
---------------------- Financial Officer, Secretary,
Robert A. Brannon and Treasurer
Principal Accounting Officer:
/s/ Gregory R. Moxley Vice President--Finance
----------------------
Gregory R. Moxley
A Majority of the Directors:
/s/ H. Wayne Huizenga Director
----------------------
H. Wayne Huizenga
/s/ Donald F. Flynn Director
--------------------
Donald F. Flynn
/s/ George D. Johnson Director
----------------------
George D. Johnson
/s/ Stewart H. Johnson Director
-----------------------
Stewart H. Johnson
/s/ John J. Melk Director
-----------------
John J. Melk
/s/ Peer Pedersen Director
------------------
Peer Pedersen
49