-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JGoGkLXlu8cuF9Ud7OFw7Om7iK1VHE3duxD0+WHf5cnmDR6JIuYZQvj9uyw7yUzT OQrzzLxLZifXJ4takPNGnw== 0000950131-98-001262.txt : 19980223 0000950131-98-001262.hdr.sgml : 19980223 ACCESSION NUMBER: 0000950131-98-001262 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980220 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EXTENDED STAY AMERICA INC CENTRAL INDEX KEY: 0001002579 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 363996573 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13125 FILM NUMBER: 98546743 BUSINESS ADDRESS: STREET 1: 450 E LAS OLAS BLVD STREET 2: STE 1100 CITY: FORT LAUDERDALE STATE: FL ZIP: 33301 BUSINESS PHONE: 9547131600 MAIL ADDRESS: STREET 1: 450 E LAS OLAS BLVD STREET 2: STE 1100 CITY: FORT LAUDERDALE STATE: FL ZIP: 33301 10-K 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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, 1997 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NO. 0-27360 ---------------- 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 $1,137,231,872 AT FEBRUARY 13, 1998 (BASED ON THE CLOSING SALE PRICE ON THE NEW YORK STOCK EXCHANGE, INC. ("NYSE") ON FEBRUARY 13, 1998, AS REPORTED BY THE WALL STREET JOURNAL). AT FEBRUARY 13, 1998, THE REGISTRANT HAD ISSUED AND OUTSTANDING AN AGGREGATE OF 95,715,062 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 21, 1998, DESCRIBED IN PART III HEREOF, ARE INCORPORATED BY REFERENCE IN THIS REPORT. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS Extended Stay America, Inc., a Delaware corporation, develops, owns, and operates extended stay lodging facilities which provide an affordable and attractive lodging alternative at a variety of price points for value- conscious guests. The Company's facilities are designed to offer a superior product at lower rates than most other lodging providers within their respective price segments. They 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, Extended Stay America, Inc. ("ESA") and ESA Merger Sub, Inc., a wholly-owned subsidiary of ESA ("Merger Sub"), completed a merger (the "Merger") with Studio Plus Hotels, Inc. ("SPH"). The Merger was accounted for as a pooling of interests and ESA's business development and historical financial statements have been restated to include the operations and accounts of SPH, which is now a wholly-owned subsidiary of ESA. Unless the context suggests otherwise, references in this Annual Report on Form 10-K to the "Company" mean ESA and its subsidiaries (including SPH). The Company believes that extended stay properties generally have higher operating margins, lower occupancy break-even thresholds, and higher returns on capital than traditional hotels, primarily as a result of the typically longer length of stay, lower guest turnover, and lower operating expenses. In addition, the Company believes 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. For 1996, industry statistics indicate that there were approximately 160 million room nights for paid accommodations of six nights or longer related to non- convention business travel, of which approximately 124 million room nights were accommodated at traditional hotels. This indicates potential demand for over 400,000 extended stay lodging rooms on an annual basis. Of the 3.4 million rooms available in the lodging industry in 1996, extended stay hotel chains had only approximately 60,000 rooms. For 1997, there were 3.6 million rooms available in the lodging industry, of which approximately 86,000 rooms were at extended stay hotel chains. Of the 29,000 rooms added at extended stay hotel chains in 1997, approximately 11,700 were constructed by the Company. Of the 86,000 total extended stay rooms, approximately 43,000 rooms operated in the upscale segment of the extended stay market (with weekly room rates generally exceeding $500) and approximately 19,000 rooms were operated by the Company (with weekly room rates below $500). As a result, management believes that there exists strong growth opportunities in the mid-price, economy, and budget segments of the extended stay market. The Company's goal is to be a national provider of extended stay lodging and believes that the first companies to do so will benefit from establishing a brand name and customer awareness. The Company intends to achieve its goal by rapidly developing properties in selected markets, providing high value accommodations for its guests, actively managing its properties to increase revenues and reduce operating costs, and increasing customer awareness of the Company's extended stay products. Through December 31, 1997, the Company had developed and opened 174 extended stay lodging facilities, acquired 11 others, and had 84 such facilities under construction. The Company plans to begin construction of approximately 120 economy extended stay lodging facilities during 1998 and to continue an active development program thereafter. Since 1995, the Company has raised approximately $800 million of equity to finance its growth strategy and, as a result of its rapid development plan, has become the largest extended stay hotel chain in the mid-priced and economy sectors. The Company owns and operates three brands in the extended stay lodging category--StudioPLUSTM hotels ("StudioPlus"), EXTENDED STAYAMERICA Efficiency Studios ("EXTENDED STAY"), and Crossland Economy StudiosSM ("Crossland"), each 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. The Company's strategy is to maximize value to customers by providing a superior, newly-constructed product at each price point while maintaining high operating margins. The Company attempts to achieve this goal at each of its StudioPLUS, EXTENDED STAY, and Crossland facilities through the following: Create Brand Awareness. The Company believes that guests value a recognizable brand when selecting lodging accommodations. By positioning its brands as the first nationwide extended stay providers in their targeted price segments, the Company believes its brands will have a distinct advantage over their local and regional competitors. The Company believes that its evolving national presence and high customer satisfaction ratings, coupled with 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. The Company's facilities are designed to offer a superior product at lower rates than most other lodging providers within their respective price segments. Each of the Company's 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 the Company's facilities vary significantly depending upon market factors affecting such locations. These rates contrast with average daily rates in 1997 of $68, $52, and $43 for the mid-price, economy, and budget segments, respectively, of the traditional lodging industry. Achieve Operating Efficiencies. The Company believes that the design and price level of its facilities attract guest stays of several weeks, which provide for a more stable revenue stream and which, coupled with low labor- cost amenities, should lead to reduced administrative and operational costs and higher operating margins. In addition, the Company uses sophisticated control and information systems which enable it to manage, on a Company- wide basis, individual facility-specific factors such as pricing, payroll, and occupancy levels. Optimize Low Cost Amenities. The Company seeks to provide the level of amenities needed to offer quality accommodations while maintaining high operating margins. The Company's facilities contain a variety of non-labor intensive features that are attractive to the extended stay guest such as 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. The Company has developed standardized plans and specifications for its facilities which provide for lower construction and purchasing costs and establish uniform quality and operational standards. The Company also benefits from the experience of various members of the Company's 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 $62 billion in annual room revenues in 1997 and had approximately 3.6 million rooms at the end of 1997. Industry statistics, which the Company believes 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. 2 The Company believes 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. The Company believes 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 1991 through 1997. 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-suites, 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. Segmentation by price level may generally be divided into the following categories with the respective average daily room rates for 1997: budget ($43), economy ($52), mid-price ($68), upscale ($88), and luxury ($129). The all-suites segment of the lodging industry is a relatively new segment, having developed largely over the past 10 years, and 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, and guests staying for extended periods of time were offered discounts to daily rates when they paid on a weekly or monthly basis. The Company believes that the extended stay market, in which the Company participates, is a further segmentation of the traditional lodging industry similar to the all-suites segment. EXTENDED STAY MARKET The Company believes that 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 supply of dedicated extended stay rooms. For 1996, industry statistics indicate that there were approximately 160 million room nights for paid accommodations of six nights or longer related to non-convention business travel, of which approximately 124 million room nights were accommodated at traditional hotels. This indicates potential demand for over 400,000 extended stay lodging rooms on an annual basis. Of the 3.4 million rooms available in the lodging industry in 1996, extended stay hotel chains had only approximately 57,000 rooms. For 1997, there were 3.6 million rooms available in the lodging industry, of which approximately 86,000 rooms were at extended stay hotel chains. Of the 29,000 rooms added at extended stay hotel chains in 1997, approximately 11,700 were constructed by the Company. Of the 86,000 total extended stay rooms, approximately 43,000 rooms operated in the upscale segment of the extended stay market (with weekly room rates generally exceeding $500) and approximately 19,000 rooms were operated by the Company (with weekly room rates below $500). As a result, management believes that there exists strong growth opportunities in the mid-price, economy, and budget segments of the extended stay market. The Company believes that the continuing significant demand/supply imbalance and the longer length of stay have allowed occupancy rates for extended stay hotels to significantly exceed occupancy rates in the overall U.S. lodging industry. As shown below, average occupancy rates for extended stay hotel chains have exceeded such rates in the overall U.S. lodging industry for each of the previous five years.
YEAR ENDED DECEMBER 31, ----------------------------- 1993 1994 1995 1996 1997 ---- ---- ---- ---- ----- Average Occupancy Rates: Extended Stay Hotel Chains(1)................... 79.2% 80.9% 80.3% 78.7% 75.7% All U.S. Lodging Industry(2).................... 63.5 64.8 65.1 65.1 64.5%
3 - -------- (1) Occupancy rates were provided by Smith Travel Research. Includes Homestead Village(R), Villager Lodge(R), StudioPLUS, Lexington Hotel Suites(R), Hawthorn Suites(R), Homewood Suites(R), Residence Inn(R), Summerfield Suites(R), EXTENDED STAYAMERICA Efficiency Studios, Suburban Lodge, Candlewood, and Sierra Suites. (2) Occupancy rates were provided by Smith Travel Research. The Company believes 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. Available room nights for extended stay hotels increased by 2.8 million in 1996 and 7.2 million in 1997, or 19.1% and 41.6%, respectively, to a total of 24.4 million. Occupied room nights for extended stay hotels increased by 1.9 million in 1996 and 4.9 million in 1997, or 16.7% and 36.2%, respectively, to a total of 18.5 million, indicating that a significant amount of the new construction has been absorbed. During 1996 and 1997, the Company increased its available room nights by approximately 841,000 and 3.2 million, or 155.7% and 232%, respectively, and increased its occupied room nights by approximately 555,000 and 2.4 million, or 123.2% and 233.8%, respectively. PROPERTY DEVELOPMENT The Company's goal is to become a national provider of extended stay facilities through a rapid development program. The Company believes that the first companies to do so will benefit from establishing a brand name and customer awareness. Although the Company expects that the construction and development of new extended stay lodging facilities will be its primary means of expansion, the Company has also made, and may continue making, acquisitions of existing extended stay lodging facilities or other properties that are suitable for conversion to the extended stay concept. The Company's strategy is to expand nationally into regions of the country that contain the demographic factors necessary to support one or more of its facilities. The Company targets sites which generally have a large and/or growing population in the surrounding area with a large employment base. Such sites also are generally expected to have good visibility from a major traffic artery and be in close proximity to convenience stores, restaurants, and shopping centers. The Company executes its development strategy thorough five regional offices located in Signal Hill, California; Park Ridge, Illinois; Morristown, New Jersey; Spartanburg, South Carolina; and Dallas, Texas. From these regional offices, the Company's approximately 40 real estate professionals and approximately 50 construction professionals perform site selection, entitlement, and construction activities pursuant to management's established criteria and procedures. As discussed below, the Company generally expects a period of at least twenty-two months to identify a site and complete construction of a facility. The Company seeks to minimize its capital outlays throughout this process prior to the commencement of construction. The site selection process includes an assessment of the attributes of a market area based on the Company's development standards, identification of sites for development within a qualified market area, and negotiation of 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, the Company expects a period of approximately six months will be required to assess a market and obtain an option to purchase a site in a qualified market. After obtaining an option to purchase a site, the Company's legal, environmental, and business due diligence begins. During this period, the Company's 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. The Company expects that this process will generally be completed within eight months, however this time period can vary significantly by market area due to local regulations and restrictions. 4 The site selection and due diligence processes are reviewed periodically by senior management of the Company and commencement of construction is formally approved based on a detailed review of the demographic, physical, and financial qualifications of each site. Upon approval of a site for development by senior management of the Company, the site is purchased, the construction contract is executed, and construction generally is commenced immediately. The Company uses a number of general contractors with selection of a contractor for a specific site dependent upon the geographic area, the negotiated construction costs, and the financial and physical capacities of the contractors. The construction process is regularly inspected by the Company's 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, the Company expects that construction will generally be completed within eight months of commencement. The Company's development status as of December 31, 1997 was as follows:
STUDIOPLUS EXTENDED STAY CROSSLAND TOTAL ---------------- ----------------- ---------------- ----------------- PROPERTIES ROOMS PROPERTIES ROOMS PROPERTIES ROOMS PROPERTIES ROOMS ---------- ----- ---------- ------ ---------- ----- ---------- ------ Operating............... 65 4,904 114 13,676 6 719 185 19,299 Under Construction...... 21 1,702 47 5,139 16 2,112 84 8,953 Sites Under Option...... 44 -- 67 -- 35 -- 146 --
The design plans for the Company's lodging facilities call for a newly- constructed apartment style complex consisting of two to four story buildings with laundromat and office areas, utilizing interior and exterior corridor building designs, depending primarily on local zoning and weather factors. All three of the Company's 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. EXTENDED STAY lodging facilities are currently designed to have an average of 100 guest rooms with approximately 300 square feet of living space per room. Crossland lodging facilities are currently designed to have an average of 120 guest rooms with approximately 225 square feet of living space per room, although approximately 30% of each Crossland facility's rooms are expected to be premium 300 square foot rooms designed for double occupancy. StudioPLUS lodging facilities are currently designed to have an average of 80 guest rooms with either approximately 310 or 425 square feet of living space per room. StudioPLUS facilities also generally have a fully-equipped exercise room and a swimming pool. For the 152 properties opened by the Company during the period from January 1, 1996 through December 31, 1997, the average development cost was approximately $4.8 million with an average of 107 rooms. The cost to develop a property varies significantly by geographic location due to differences in land and labor costs, and by brand. Similarly, the average weekly rate charged at the properties and the resultant cash flow from the properties will vary significantly but generally are expected to be in proportion to the development costs. PROPERTY OPERATIONS Each Company facility employs a property manager who is responsible for the operations of the particular property. The property manager shares duties with and oversees a staff typically consisting of an assistant manager, a desk clerk, a maintenance person, and a housekeeping/laundry staff of approximately 2-10 persons (many of whom are part-time employees). The office at each of the Company's facilities are generally open daily as follows: Crossland--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 9:00 a.m. to 6:00 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 manager. Each property manager is under the supervision of a district manager, who typically is responsible for five to ten facilities depending on geographic location. The district manager oversees the performance of the property managers in such areas as guest service, property maintenance, and payroll and cost control. The district mangers report to a regional 5 director who is responsible for the supervision of 8-10 district managers. The regional directors report to the Vice President of Operations who is responsible for implementing all operational and strategic policies for the Company's brands. Each facility is measured against a detailed revenue and expense budget, as well as against the performance of the Company's other facilities. The Company's corporate offices use sophisticated information systems to support the district managers and regional directors. MARKETING STRATEGY The Company believes that guests value a recognizable brand when selecting lodging accommodations. To date, the Company has created brand awareness primarily by increasing the number of hotels through a rapid national development program, typically selecting sites that are in highly-visible locations. In addition, the Company has approximately 30 district sales representatives that call on local and national corporate customers to promote the Company's brands. The Company has also established a toll free reservation number (1-800-EXT-STAY) and a web site (www.extstay.com) with information regarding the Company's locations and to facilitate reservations for rooms. The Company expects that by building awareness for both the extended stay concept as well as its various brands, it can increase demand for its products. LODGING FACILITIES As of December 31, 1997, the Company had 185 extended stay lodging facilities in operation (65 StudioPLUS, 114 EXTENDED STAY, and 6 Crossland) and 84 facilities under construction (21 StudioPLUS, 47 EXTENDED STAY, and 16 Crossland) in a total of 37 states. The following table sets forth certain information regarding the Company's lodging facilities that were operating or under construction as of that date.
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............................ StudioPLUS February 1996 71 Montgomery............................ EXTENDED STAY August 1997 120 ARIZONA Mesa.................................. EXTENDED STAY December 1997 104 Phoenix............................... EXTENDED STAY Under Construction 104 Phoenix............................... EXTENDED STAY Under Construction 101 Phoenix............................... EXTENDED STAY Under Construction 101 Phoenix............................... Crossland Under Construction 133 Scottsdale............................ EXTENDED STAY June 1997 120 Tucson................................ EXTENDED STAY April 1997 120 Tucson................................ Crossland Under Construction 117 ARKANSAS Little Rock........................... EXTENDED STAY September 1996 120 Little Rock........................... StudioPLUS November 1997 84 CALIFORNIA Arcadia............................... EXTENDED STAY Under Construction 122 Bakersfield........................... EXTENDED STAY November 1996 120 Fremont............................... EXTENDED STAY Under Construction 119 Fresno................................ EXTENDED STAY July 1997 120 Huntington Beach...................... EXTENDED STAY Under Construction 104
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DATE OPENED OR NUMBER CITY BRAND ACQUIRED OF ROOMS ---- ------------- ------------------ -------- Lake Forest........................... EXTENDED STAY September 1997 119 La Mirada............................. EXTENDED STAY Under Construction 104 Livermore............................. EXTENDED STAY Under Construction 122 Long Beach............................ EXTENDED STAY November 1997 134 Milpitas.............................. EXTENDED STAY Under Construction 146 Ontario............................... EXTENDED STAY May 1997 127 Pleasant Hill......................... EXTENDED STAY August 1997 122 Rancho Cordova........................ EXTENDED STAY June 1997 132 Sacramento............................ EXTENDED STAY March 1997 120 Sacramento............................ EXTENDED STAY August 1997 120 Sacramento............................ EXTENDED Under Construction 122 Santa Barbara......................... EXTENDED STAY Under Construction 104 Santa Rosa............................ EXTENDED STAY June 1997 114 Torrance.............................. EXTENDED STAY December 1997 122 COLORADO Colorado Springs...................... EXTENDED STAY Under Construction 104 Englewood............................. StudioPLUS Under Construction 71 Glendale.............................. Crossland Under Construction 129 Lakewood.............................. EXTENDED STAY November 1996 120 Lakewood.............................. EXTENDED STAY January 1997 147 FLORIDA Clearwater............................ EXTENDED STAY Under Construction 104 Daytona Beach......................... StudioPLUS Under Construction 72 Deerfield Beach....................... EXTENDED STAY December 1997 104 Fort Lauderdale....................... EXTENDED STAY Under Construction 108 Fort Lauderdale....................... StudioPLUS Under Construction 72 Gainesville........................... EXTENDED STAY July 1997 120 Jacksonville.......................... EXTENDED STAY May 1997 122 Orlando............................... EXTENDED STAY November 1997 119 Orlando............................... StudioPLUS Under Construction 83 Pensacola............................. EXTENDED STAY September 1997 101 South Jacksonville.................... StudioPLUS Under Construction 72 Tallahassee........................... StudioPLUS Under Construction 58 Temple Terrace........................ EXTENDED STAY August 1997 101 GEORGIA Alpharetta............................ StudioPLUS July 1997 91 Alpharetta............................ EXTENDED STAY Under Construction 101 Atlanta............................... StudioPLUS December 1997 97 Atlanta............................... EXTENDED STAY Under Construction 104 Columbus.............................. EXTENDED STAY January 1997 108 Duluth................................ EXTENDED STAY September 1997 119 Kennesaw.............................. StudioPLUS December 1997 84 Lawrenceville......................... EXTENDED STAY June 1996 121 Macon................................. StudioPLUS Under Construction 72 Marietta.............................. EXTENDED STAY August 1995 121 Marietta.............................. EXTENDED STAY Under Construction 113 Morrow................................ EXTENDED STAY Under Construction 104 Norcross.............................. EXTENDED STAY January 1996 199 Norcross.............................. EXTENDED STAY February 1996 133
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DATE OPENED OR NUMBER CITY BRAND ACQUIRED OF ROOMS ---- ------------- ------------------ -------- Norcross.............................. StudioPLUS March 1997 72 Riverdale............................. EXTENDED STAY February 1996 147 IDAHO Boise................................. EXTENDED STAY January 1997 107 ILLINOIS Buffalo Grove......................... EXTENDED STAY Under Construction 122 Burr Ridge............................ EXTENDED STAY November 1996 119 Des Plaines........................... EXTENDED STAY Under Construction 122 Downers Grove......................... EXTENDED STAY May 1996 154 Elmhurst.............................. EXTENDED STAY August 1997 117 Gurnee................................ EXTENDED STAY January 1997 101 Itasca................................ EXTENDED STAY November 1996 125 Lombard............................... StudioPLUS Under Construction 97 Naperville............................ EXTENDED STAY November 1996 125 Rockford.............................. EXTENDED STAY September 1997 104 Rockford.............................. StudioPLUS November 1997 72 Rolling Meadows....................... EXTENDED STAY October 1996 125 Waukegan.............................. Crossland November 1997 121 INDIANA Evansville............................ StudioPLUS February 1997 71 Fort Wayne............................ StudioPLUS December 1996 71 Fort Wayne............................ EXTENDED STAY September 1997 101 Indianapolis.......................... StudioPLUS August 1990 71 Indianapolis.......................... StudioPLUS March 1991 71 Merrillville.......................... EXTENDED STAY November 1996 105 Mishawaka............................. StudioPLUS September 1997 72 IOWA Des Moines............................ StudioPLUS December 1997 85 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.............................. StudioPLUS September 1996 71 Florence.............................. EXTENDED STAY October 1997 101 Lexington............................. StudioPLUS July 1986 59 Lexington............................. StudioPLUS August 1987 71 Lexington............................. EXTENDED STAY September 1996 126 Louisville............................ StudioPLUS December 1988 75 Louisville............................ StudioPLUS April 1989 65 Louisville............................ EXTENDED STAY October 1996 120 LOUISIANA Baton Rouge........................... Crossland Under Construction 129 Bossier City.......................... Crossland September 1997 117 Metairie.............................. EXTENDED STAY Under Construction 102 Sulphur............................... Crossland August 1997 117
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DATE OPENED OR NUMBER CITY BRAND ACQUIRED OF ROOMS ---- ------------- ------------------ -------- MARYLAND Columbia.............................. EXTENDED STAY October 1997 104 Columbia.............................. StudioPLUS December 1997 94 Landover.............................. Crossland Under Construction 133 Linthicum............................. EXTENDED STAY June 1997 122 MASSACHUSETTS Danvers............................... EXTENDED STAY Under Construction 104 MICHIGAN Ann Arbor............................. EXTENDED STAY May 1997 112 Ann Arbor............................. StudioPLUS December 1997 70 Auburn Hills.......................... EXTENDED STAY February 1997 133 Farmington Hills...................... EXTENDED STAY June 1997 113 Livonia............................... Crossland Under Construction 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 58 MINNESOTA Bloomington........................... EXTENDED STAY Under Construction 104 Eagan................................. EXTENDED STAY September 1997 104 Eden Prairie.......................... EXTENDED STAY Under Construction 104 Maple Grove........................... EXTENDED STAY Under Construction 104 MISSISSIPPI Jackson............................... EXTENDED STAY October 1997 108 Ridgeland............................. StudioPLUS November 1996 71 MISSOURI Earth City............................ StudioPLUS June 1997 72 Hazelwood............................. StudioPLUS June 1992 71 Hazelwood............................. EXTENDED STAY November 1996 122 Independence.......................... Crossland January 1997 120 Kansas City........................... EXTENDED STAY January 1997 109 Kansas City........................... EXTENDED STAY June 1997 119 Maryland Heights...................... EXTENDED STAY August 1996 150 St. Louis............................. StudioPLUS November 1994 71 St. Peters............................ EXTENDED STAY July 1997 122 South Springfield..................... EXTENDED STAY October 1997 110 NEBRASKA Omaha................................. StudioPLUS December 1997 85 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 Under Construction 77 Edison................................ EXTENDED STAY August 1997 134 Mount Laurel.......................... EXTENDED STAY Under Construction 77
9
DATE OPENED OR NUMBER CITY BRAND ACQUIRED OF ROOMS ---- ------------- ------------------ -------- South Brunswick....................... EXTENDED STAY Under Construction 133 NEW MEXICO Albuquerque........................... Crossland Under Construction 129 Rio Rancho............................ EXTENDED STAY Under Construction 101 NEW YORK Albany................................ EXTENDED STAY November 1996 134 Amherst............................... EXTENDED STAY September 1997 119 East Syracuse......................... EXTENDED STAY December 1996 121 Rochester............................. EXTENDED STAY November 1996 125 Rochester............................. EXTENDED STAY December 1996 127 NORTH CAROLINA Asheville............................. EXTENDED STAY Under Construction 101 Cary.................................. StudioPLUS September 1996 71 Cary.................................. StudioPLUS Under Construction 82 Cary.................................. EXTENDED STAY Under Construction 122 Charlotte............................. StudioPLUS May 1995 71 Charlotte............................. StudioPLUS March 1996 71 Charlotte............................. EXTENDED STAY Under Construction 101 Charlotte............................. EXTENDED STAY Under Construction 113 Durham (ground lease)................. StudioPLUS December 1996 71 Durham................................ EXTENDED STAY October 1997 120 Durham................................ StudioPLUS Under Construction 84 Durham................................ Crossland Under Construction 133 Fayetteville.......................... EXTENDED STAY July 1997 120 Greensboro............................ StudioPLUS December 1995 71 Greensboro............................ EXTENDED STAY September 1996 129 Morrisville........................... EXTENDED STAY September 1997 120 Pineville............................. EXTENDED STAY Under Construction 107 Raleigh............................... StudioPLUS December 1996 71 Raleigh............................... EXTENDED STAY December 1997 104 Wilmington............................ EXTENDED STAY Under Construction 104 Winston-Salem......................... EXTENDED STAY September 1996 111 Winston-Salem......................... Crossland Under Construction 133 OHIO Blue Ash.............................. StudioPLUS December 1991 71 Columbus.............................. StudioPLUS August 1989 71 Columbus.............................. EXTENDED STAY June 1997 119 Copley................................ StudioPLUS November 1996 71 Copley................................ EXTENDED STAY February 1997 95 Dayton................................ StudioPLUS November 1989 70 Dublin................................ StudioPLUS May 1990 71 Dublin................................ EXTENDED STAY Under Construction 104 Fairborn.............................. StudioPLUS January 1997 71 Fairfield............................. StudioPLUS June 1989 71 Holland............................... EXTENDED STAY January 1997 125 Middleburg Heights.................... StudioPLUS November 1997 70 North Olmsted......................... StudioPLUS September 1997 91 Sharonville........................... EXTENDED STAY July 1996 130 Springdale............................ StudioPLUS November 1988 71
10
DATE OPENED OR NUMBER CITY BRAND ACQUIRED OF ROOMS ---- ------------- ------------------ -------- Springdale............................ EXTENDED STAY November 1996 126 Toledo................................ StudioPLUS June 1997 72 Westlake.............................. StudioPLUS November 1997 72 OKLAHOMA Tulsa................................. EXTENDED STAY April 1997 120 Tulsa................................. StudioPLUS June 1997 72 Oklahoma City......................... EXTENDED STAY September 1997 101 Oklahoma City......................... StudioPLUS Under Construction 70 OREGON Gresham............................... EXTENDED STAY Under Construction 104 Salem................................. Crossland Under Construction 129 Springfield........................... Crossland November 1997 127 PENNSYLVANIA Bensalem.............................. EXTENDED STAY Under Construction 101 Carnegie.............................. EXTENDED STAY June 1997 116 Philadelphia.......................... EXTENDED STAY Under Construction 145 Philadelphia.......................... StudioPLUS Under Construction 82 Pittsburgh............................ StudioPLUS Under Construction 84 SOUTH CAROLINA Charleston............................ StudioPLUS September 1996 71 Columbia.............................. StudioPLUS December 1995 71 Columbia.............................. EXTENDED STAY April 1996 120 Columbia.............................. EXTENDED STAY May 1997 120 Greenville............................ StudioPLUS February 1995 71 Greenville............................ EXTENDED STAY December 1996 109 Mt. Pleasant.......................... EXTENDED STAY Under Construction 101 North Charleston...................... EXTENDED STAY August 1996 126 Spartanburg........................... EXTENDED STAY August 1995 126 TENNESSEE Brentwood............................. StudioPLUS December 1990 71 Brentwood............................. EXTENDED STAY September 1996 120 Chattanooga........................... EXTENDED STAY July 1996 120 Cordova............................... StudioPLUS December 1996 71 Knoxville............................. StudioPLUS September 1990 71 Knoxville............................. EXTENDED STAY May 1997 96 Memphis............................... StudioPLUS October 1990 71 Memphis............................... EXTENDED STAY January 1997 126 Nashville............................. StudioPLUS September 1993 71 Nashville............................. EXTENDED STAY February 1997 114 Nashville............................. Crossland October 1997 117 TEXAS Arlington............................. StudioPLUS September 1997 137 Austin................................ StudioPLUS Under Construction 84 Corpus Christi........................ StudioPLUS Under Construction 72 Dallas................................ StudioPLUS September 1997 97 El Paso............................... EXTENDED STAY December 1997 120 El Paso............................... StudioPLUS October 1997 72 Farmers Branch........................ StudioPLUS Under Construction 82 Fort Worth............................ StudioPLUS Under Construction 72
11
DATE OPENED OR NUMBER CITY BRAND ACQUIRED OF ROOMS ---- ------------- ------------------ -------- Houston............................... StudioPLUS September 1997 85 Houston............................... StudioPLUS December 1997 97 Houston............................... StudioPLUS December 1997 84 Houston............................... Crossland Under Construction 145 Houston............................... Crossland Under Construction 145 Irving................................ StudioPLUS Under Construction 116 Irving................................ Crossland Under Construction 139 North Fort Worth...................... StudioPLUS Under Construction 84 Plano................................. StudioPLUS December 1997 72 San Antonio........................... StudioPLUS Under Construction 84 Spring................................ Crossland Under Construction 141 UTAH Midvale............................... EXTENDED STAY September 1997 134 Sandy................................. EXTENDED STAY Under Construction 122 West Valley City...................... EXTENDED STAY August 1997 122 VIRGINIA Chesapeake............................ EXTENDED STAY August 1996 132 Glenn Allen........................... StudioPLUS July 1997 91 Lounden............................... EXTENDED Under Construction 101 Newport News.......................... EXTENDED STAY December 1996 120 Newport News.......................... StudioPLUS July 1997 72 Richmond.............................. EXTENDED STAY December 1997 108 Roanoke............................... EXTENDED STAY Under Construction 90 Virginia Beach........................ EXTENDED STAY September 1996 120 WASHINGTON Bellevue.............................. EXTENDED STAY Under Construction 148 Everett............................... EXTENDED STAY April 1997 104 Fife.................................. EXTENDED STAY October 1997 104 Kent.................................. Crossland Under Construction 133 Kent.................................. EXTENDED STAY Under Construction 120 Lynnwood.............................. EXTENDED STAY Under Construction 109 Renton................................ StudioPLUS Under Construction 109 Spokane............................... Crossland Under Construction 117 Tacoma................................ EXTENDED STAY Under Construction 109 Tukwilla.............................. EXTENDED STAY January 1997 96 Vancouver............................. EXTENDED STAY September 1997 116 WISCONSIN Appleton.............................. EXTENDED STAY June 1997 107 Waukesha.............................. EXTENDED STAY August 1997 122 Wauwatosa............................. EXTENDED STAY June 1997 122
COMPETITION The lodging industry is highly competitive. Competitive factors within the lodging industry include 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. The Company's facilities compete with a number of competitors, including budget, economy, and mid-price segment hotels and other companies focusing on the extended stay market. All of the Company's existing facilities are located in developed areas that include competing lodging facilities. In 12 addition, each of the Company's proposed facilities is likely to be located in an area that includes competing facilities. The number of competitive lodging facilities in a particular area could have a material adverse effect on the levels of occupancy and average weekly room rates of the Company's existing and future facilities. The Company anticipates that competition within the extended stay lodging market will increase as participants in other segments of the lodging industry and others focus on this relatively new market. A number of major lodging companies have announced their intent to aggressively develop extended stay lodging properties which may compete with the Company's properties. Numerous other extended stay lodging facilities exist, many of which are oriented toward the upscale segment. The Company may compete for development sites with established entities which have greater financial resources than the Company and better relationships with lenders and sellers. Further, there can be no assurance that new or existing competitors will not significantly reduce their rates or offer greater convenience, services, or amenities or significantly expand, improve, or develop facilities in a market in which the Company competes, thereby adversely affecting the Company's 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 certain hazardous or toxic substances on such property. Such laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of 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. The costs of remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to properly remediate such substances, may adversely affect the owner's ability to sell such real estate or to borrow using such real estate as collateral. In connection with the ownership and operation of its properties, the Company may be potentially liable for any such costs. The Company has obtained Phase I environmental site assessments ("Phase I Surveys") on its existing properties and intends to obtain Phase I Surveys prior to the purchase of any future properties. The Phase I Surveys are intended to identify potential environmental contamination and regulatory compliance concerns. Phase I Surveys generally include historical reviews of the properties, reviews of certain public records, preliminary investigations of the sites and surrounding properties and the preparation and issuance of written reports. Phase I Surveys generally do not include invasive procedures, such as soil sampling or ground water analysis. The Phase I Surveys have not revealed any environmental liability or compliance concern that the Company believes would have a material adverse effect on the Company's business, assets, results of operations, or liquidity, nor is the Company aware of any such liability or concern. Nevertheless, it is possible that Phase I Surveys will not reveal all environmental liabilities or compliance concerns or that there will be material environmental liabilities or compliance concerns of which the Company will not be aware. Moreover, no assurances can be given that (i) future laws, ordinances, or regulations will not impose any material environmental liability, or (ii) the current environmental condition of the Company's existing and future properties will not be affected by the condition of the neighboring properties (such as the presence of leaking underground storage tanks) or by third parties unrelated to the Company. GOVERNMENTAL REGULATION A number of states regulate the licensing of hotels by requiring registration, disclosure statements, and compliance with specific standards of conduct. The Company believes that each of its facilities has the necessary permits and approvals to operate its respective business and the Company intends to continue to obtain such permits and approvals for its new facilities. In addition, the Company is subject to laws governing its relationship with employees, including minimum wage requirements, overtime, working conditions, and work permit 13 requirements. An increase in the minimum wage rate, employee benefit costs, or other costs associated with employees could adversely affect the Company. Both at the federal and state level from time to time, there are proposals under consideration 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. Although the Company has attempted to satisfy ADA requirements in the designs for its facilities, no assurance can be given that a material ADA claim will not be asserted against the Company, which could result in a judicial order requiring compliance, and the expenditure of substantial sums to achieve compliance, an imposition of fines, or an award of damages to private litigants. These and other initiatives could adversely affect the Company as well as the lodging industry in general. INSURANCE The Company currently has the types and amounts of insurance coverage that it considers appropriate for a company in its business. While management believes that its insurance coverage is adequate, if the Company were held liable for amounts exceeding the limits of its insurance coverage or for claims outside of the scope of its insurance coverage, the Company's business, results of operations, and financial condition could be materially and adversely affected. EMPLOYEES As of December 31, 1997, the Company and its subsidiaries employed approximately 2,900 persons, of which approximately 1,400 were part-time employees. The Company expects that it will significantly increase the number of its employees as it expands its business. The Company's employees are not subject to any collective bargaining agreements and management believes that its relationship with its employees is good. ITEM 2. PROPERTIES In addition to its lodging facilities described above (see "Item 1. Business--Lodging Facilities"), the Company also maintains a corporate headquarters and five regional offices. The Company's principal executive offices are located in Ft. Lauderdale, Florida and its regional offices are located in Signal Hill, California; Park Ridge, Illinois; Morristown, New Jersey; Spartanburg, South Carolina; and Dallas, Texas. The Company generally rents its office space on a short-term basis, although it has a five-year lease for its corporate headquarters in Ft. Lauderdale, Florida. These offices are sufficient to meet the Company's present needs and it does not anticipate any difficulty in securing additional office space, as needed, on terms acceptable to the Company. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any litigation or claims, other than routine matters incidental to the operation of the business of the Company. To date, no claims have had a material adverse effect on the Company nor does the Company expect that the outcome of any pending claims will have such an effect. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 14 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock, par value $0.01 per share ("Common Stock") began trading on the NYSE on June 30, 1997, under the symbol "ESA." Prior thereto, the Common Stock was traded in the National Market tier of The Nasdaq Stock Market ("Nasdaq") under the symbol "STAY." All references in this report to Common Stock, including prices per share, have been adjusted to give effect to a stock dividend of one additional share of Common Stock for each share issued as of the close of business on July 5, 1996, which was declared by the Board of Directors of the Company in May 1996 and distributed on July 19, 1996, thereby effecting a 2-for-1 stock split. On December 31, 1997, the last reported sale price of the Common Stock on the NYSE was $12.4375 per share. At December 31, 1997, there were approximately 490 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 and Nasdaq as reported by the NYSE and Nasdaq for the periods indicated. The Company has not paid dividends on its Common Stock, and the Board of Directors intends to continue a policy of retaining earnings to finance its growth and for general corporate purposes and, therefore, does not anticipate paying any such dividends in the foreseeable future. In addition, the Company's Credit Agreement contains, and future financing agreements may contain, a maximum debt to capitalization ratio covenant and limitations on payment of any cash dividends or other distributions of assets, which covenants and limitations could restrict the Company's ability to pay dividends. MARKET INFORMATION
COMMON STOCK ------------- HIGH LOW ------ ------ Year Ended December 31, 1996 1st Quarter............................................... $15.62 $10.00 2nd Quarter............................................... 17.50 11.00 3rd Quarter............................................... 20.75 12.87 4th Quarter............................................... 23.00 18.25 Year Ended December 31, 1997 1st Quarter............................................... 20.75 14.75 2nd Quarter............................................... 17.50 11.75 3rd Quarter............................................... 16.62 13.00 4th Quarter............................................... 16.00 10.62
15 ITEM 6. SELECTED FINANCIAL DATA The selected financial data set forth below has been derived from the consolidated financial statements of the Company. The consolidated financial statements of the Company for the years ended December 31, 1993, 1994, 1995, 1996, and 1997 have been audited by Coopers & Lybrand L.L.P., independent accountants, whose report for the years ended December 31, 1995, 1996, and 1997 appears elsewhere herein. The selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and related notes thereto contained elsewhere herein.
YEAR ENDED DECEMBER 31, ------------------------------------------------- 1993 1994 1995 1996 1997 ------- ------- -------- --------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA) INCOME STATEMENT DATA: Revenue................... $10,309 $12,152 $ 16,768 $ 38,809 $ 130,800 Property operating expenses................. 4,458 5,256 6,706 16,560 60,391 Corporate operating and property management expenses................. 792 881 4,669 16,867 29,951 Merger, financing and other charges............ -- -- -- -- 19,895 Depreciation and amortization............. 1,313 1,472 2,059 6,139 21,331 Income (loss) from operations............... 3,746 4,543 3,334 (757) (768) Interest income (expense), net(1)................... (2,498) (2,532) (507) 13,744 9,242 Provision for income taxes(2)................. -- -- 1,217 5,231 5,838 Net income from continuing operations............... $ 1,050 $ 1,653 $ 1,468 $ 7,756 $ 2,636 ======= ======= ======== ========= ========== Net income from continuing operations per share(3): Basic................... $ 0.05 $ 0.11 $ 0.03 ======== ========= ========== Diluted................. $ 0.05 $ 0.10 $ 0.03 ======== ========= ========== Weighted average shares outstanding(3): Basic................... 30,381 71,933 94,233 ======== ========= ========== Diluted................. 31,434 73,935 95,744 ======== ========= ========== OPERATING DATA: Average occupancy rates(4)................. 83% 85% 83% 73% 73% Average weekly rate....... $ 202 $ 222 $ 250 $ 261 $ 263 Operating facilities (at period end).............. 17 18 24 75 185 Weighted average rooms available(5)............. 1,142 1,201 1,479 3,783 12,558 Rooms (at period end)..... 1,192 1,263 1,794 7,611 19,299 Facilities under construction (at period end)..................... 1 2 16 61 84 Rooms under construction (at period end).......... 71 144 1,780 6,864 8,953 OTHER FINANCIAL DATA: Cash flows provided by (used in) Operating activities.... $ 2,498 $ 3,160 $ 4,186 $ 20,828 $ 50,263 Investing activities.... (2,692) (5,891) (35,330) (279,259) (609,064) Financing activities.... 380 2,327 156,601 356,841 337,689 EBITDA(6)................. 5,059 6,015 5,393 5,382 20,563 Adjusted EBITDA(7)........ 5,059 6,015 5,393 5,382 40,458 Capital expenditures...... 2,729 5,794 33,722 277,531 607,640 BALANCE SHEET DATA (AT PERIOD END): Cash and cash equivalents. $ 861 $ 457 $125,915 $ 224,325 $ 3,213 Total assets.............. 30,313 36,222 213,445 668,435 1,070,891 Long-term debt............ 28,831 32,306 4,000 -- 135,000 Stockholders' equity (deficit)................ (1,611) (1,247) 199,322 628,714 834,659
16 - -------- (1) Excludes interest of $153,000, $256,000, $329,000, and $1,731,000 for 1994, 1995, 1996, and 1997, respectively, capitalized during the construction of the Company's facilities under Statement of Financial Accounting Standards ("SFAS") Statement No. 34 "Capitalization of Interest Cost." (2) Historical financial information prior to SPH's initial public offering does not include a provision for income taxes because SPH's predecessor entities were S corporations or partnerships not subject to income taxes. See the Company's consolidated financial statements contained elsewhere herein. (3) Net income per share for the year ended December 31, 1995 is presented on a pro forma basis as if all of the Company's income for the period was subject to income taxes. See note 10 to the Company's consolidated financial statements contained elsewhere herein. (4) Average occupancy rates are determined by dividing the rooms occupied on a daily basis by the total number of rooms. Due to the Company's rapid expansion, its overall average occupancy rate has been negatively impacted by the lower occupancy typically experienced during the pre-stabilization period for newly opened facilities. This negative impact on occupancy is expected to diminish as the ratio of new property openings during a period to total properties in operation at the end of that period decreases. (5) Weighted average rooms available is calculated by dividing total room nights available during the year by 365. (6) EBITDA represents earnings before 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 means EBITDA before $19.9 million of one-time 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 of the Company's $500 million senior secured revolving credit facility (the "Credit Facility"), and (iii) a $500,000 charge in connection with listing of the Company's Common Stock on the NYSE. Management believes that these charges are non-recurring in nature and will not affect the Company's future results of operations. 17 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 manage extended stay lodging facilities. Studio Plus Hotels, Inc. was formed in December 1994 and acquired (through merger and exchange of SPH common stock for partnership interests immediately prior to completion of the SPH initial public offering in June 1995) all of the assets of Studio Plus, Inc. and the SPH Predecessor Entities, which owned and operated StudioPLUS(TM) extended stay facilities since 1986. The acquisition of the interests of the controlling stockholder or partner and affiliates of the SPH Predecessor Entities was accounted for as if it were a pooling of interests. On April 11, 1997, ESA, Merger Sub, and SPH consummated a merger pursuant to which SPH was merged with and into Merger Sub and the 12,557,786 shares of SPH common stock that were outstanding on the closing date were converted into 15,410,915 shares of ESA's 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. As a result of the Merger, SPH became a wholly-owned subsidiary of ESA. The accompanying consolidated financial statements of the Company give effect to the Merger, which has been accounted for as a pooling of interests. The Company owns and operates three brands in the extended stay lodging market--StudioPLUS(TM) hotels, EXTENDED STAYAMERICA Efficiency Studios, and Crossland Economy StudiosSM, each 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, while StudioPLUS facilities serve the mid-price category and generally feature larger guest rooms, an exercise room, and a swimming pool. The following is a summary of the Company's selected development and operational results for the years ended December 31, 1997, 1996, and 1995.
YEAR ENDED DECEMBER 31, ---------------- 1997 1996 1995 ---- ---- ---- Total Facilities Open (at Period End)......................... 185 75 24 Total Facilities Developed.................................... 110 41 5 Total Facilities Acquired..................................... -- 10 1 Average Occupancy Rate........................................ 73% 73% 83% Average Weekly Room Rate...................................... $263 $261 $250
Average occupancy rates are determined by dividing the rooms occupied on a daily basis by the total number of rooms. Due to the Company's rapid expansion, its overall average occupancy rate has been negatively impacted by the lower occupancy typically experienced during the pre-stabilization period for newly-opened facilities. This negative impact on occupancy is expected to diminish as the ratio of new property openings during a period to total properties in operation at the end of that period decreases. 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 vary from standard room rates due primarily to (i) stays of less than one week, which are charged at a higher nightly rate, (ii) higher weekly rates for rooms that are larger than the standard rooms, and (iii) additional charges for more than one person per room. Future occupancy and room rates may be impacted by a number of factors, including the number and geographic location of new facilities as well as the season in which such facilities commence operations. There can be no assurance that the foregoing occupancy and room rates can be maintained. The following is a summary of the Company's development status as of December 31, 1997, by brand. The Company expects to complete the construction of the facilities currently under construction generally within the 18 next twelve months and to commence construction on the majority of the sites under option at various dates in the future. There can be no assurance, however, that the Company will acquire the sites under option or complete construction within time periods historically experienced by the Company. The Company's ability to complete development of sites under construction and under option may be materially impacted by various factors including zoning, permitting, and environmental issues, as well as weather-induced construction delays.
EXTENDED CROSSLAND STAY STUDIOPLUS TOTAL --------- -------- ---------- ----- Operating Facilities........................ 6 114 65 185 Facilities Under Construction............... 16 47 21 84 Sites Under Option.......................... 35 67 44 146
RESULTS OF OPERATIONS 1997 COMPARED TO 1996 Property Operations The following is a summary of the properties operated during the specified periods and the related average occupancy rates and weekly room rates:
YEAR ENDED YEAR ENDED DECEMBER 31, 1997 DECEMBER 31, 1996 ---------------------------- ---------------------------- AVERAGE AVERAGE AVERAGE WEEKLY AVERAGE WEEKLY FACILITIES OCCUPANCY ROOM FACILITIES OCCUPANCY ROOM OPEN RATE RATE OPEN RATE RATE ---------- --------- ------- ---------- --------- ------- Crossland............ 6 65% $183 -- -- -- EXTENDED STAY........ 114 72 251 40 65% $233 StudioPLUS........... 65 78 302 35 81 284 --- --- ---- --- --- ---- Total............ 185 73% $263 75 73% $261 === === ==== === === ====
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. A total of 110 properties commenced operations in 1997 compared to 41 properties which were opened in 1996. The average occupancy rate in 1997 for the 24 properties that were owned and operated by the Company as of January 1, 1996 was 83%. For the EXTENDED STAY brand, occupancy rates increased for 1997 as compared to 1996 primarily due to a decrease in the ratio of newly-opened properties to total properties for that brand. Occupancy rates decreased for the StudioPLUS brand primarily due to an increase in the ratio of newly-opened properties to total properties for that brand. The increase in overall average weekly room rates for 1997 compared to 1996 reflects the geographic dispersion of properties opened during 1997 and the higher standard weekly room rates in certain of those markets, in addition to increases in rates charged in previously opened properties. These increases were partially offset by an increase in the percentage of total facilities (as of the end of the year) represented by lower priced EXTENDED STAY and Crossland facilities from 53% for 1996 to 65% for 1997. The Company expects that its average weekly room rate will continue to be impacted as EXTENDED STAY and Crossland facilities increase as a percentage of the Company's total facilities. The average weekly room rate for the 24 properties that were owned and operated throughout both periods increased by 2% in 1997. The Company recognized total revenue for 1997 and 1996 of $130.8 million and $38.8 million, respectively, an increase of $92.0 million. Approximately $91.2 million of the increased revenue was attributable to properties opened or acquired during 1997 and 1996, and approximately $757,000 was attributable to an increase in revenue for the 24 properties that were owned and operated throughout both periods. 19 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 and depreciation, were $60.4 million (46% of total revenue) for 1997, compared to $16.6 million (43% of total revenue) for 1996. The increase in property operating expenses as a percentage of total revenue for 1997 as compared to 1996 was primarily a result of the lower occupancies and revenue during the pre-stabilization period for the 110 properties that commenced operations during 1997. As a result of the foregoing, the Company realized property operating margins of 54% and 57% for 1997 and 1996, respectively. The provision for depreciation and amortization for the lodging facilities of $19.9 million and $5.6 million for 1997 and 1996, respectively, was provided 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. The increase in depreciation and amortization for 1997 as compared to 1996 is a result of the full year of operation in 1997 for the 51 properties opened or acquired in 1996 and partial periods of operation in 1997 for the 110 properties opened in 1997. Corporate Operations Corporate operating and property management expenses include all expenses not directly related to the development or operation of the lodging facilities. These expenses consist primarily of personnel expenses, professional and consulting fees, and related travel expenses including costs that are not directly related to a site that will be developed by the Company. The Company incurred corporate operating and property management expenses of $30.0 million (23% of total revenue) and $16.9 million (43% of total revenue) in 1997 and 1996, respectively. The increase in the amount of these expenses for 1997 as compared to 1996 reflects the impact of additional personnel and related expenses in connection with the Company's increased level of operating facilities and site development. Management expects these expenses to increase in total amount but to continue to decline as a percentage of revenue with the development of additional facilities in the future. Depreciation and amortization in the amount of $1.4 million for 1997 and $495,000 for 1996 were provided using the straight-line method over the estimated useful lives of the assets for assets not directly related to the operation of the facilities, including primarily office furniture and equipment. The Company realized $9.2 million and $13.7 million of interest income during 1997 and 1996, respectively, which was primarily attributable to the investment of funds received from offerings of common stock. The decrease in interest income for 1997 as compared to 1996 was due to the decrease in the average cash and cash equivalent balances resulting from investments in property and equipment during 1997. The Company incurred interest charges of $1.7 million and $332,000 during 1997 and 1996, respectively, substantially all of which was capitalized and included in the cost of buildings and improvements. The Company recognized income tax expense of $5.8 million or 69% of income before taxes for 1997 and $5.2 million or 40% of income before taxes for 1996. 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 income. Management expects that the annualized effective income tax rate for 1998 will be approximately 40%. Merger, Financing, and Other Charges During 1997, the Company 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 the Credit Facility, and (iii) a charge of $500,000 in connection with moving the listing of the Company's Common Stock to the NYSE from the National Market tier of the Nasdaq Stock Market. Management believes that these charges are non-recurring in nature and will not affect the future results of operations. 20 1996 COMPARED TO 1995 Property Operations The following is a summary of the properties operated during the specified periods and the related average occupancy rates and weekly room rates:
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 ---------------------------- ---------------------------- AVERAGE AVERAGE AVERAGE WEEKLY AVERAGE WEEKLY FACILITIES OCCUPANCY ROOM FACILITIES OCCUPANCY ROOM OPEN RATE RATE OPEN RATE RATE ---------- --------- ------- ---------- --------- ------- Crossland............ -- -- -- -- -- -- EXTENDED STAY........ 40 65% $233 2 83% $198 StudioPLUS........... 35 81 284 22 84 254 --- --- ---- --- --- ---- Total............ 75 73% $261 24 83% $250 === === ==== === === ====
The decline in average occupancy rate for 1996 compared to 1995 reflects, primarily, the lower occupancy typically experienced during the pre- stabilization periods for the 41 properties that were opened during 1996 compared to 5 properties that were opened in 1995. The average occupancy rate in 1996 for the 18 properties that were owned and operated by the Company as of January 1, 1995 was 82%. The increase in overall average weekly room rates for 1996 compared to 1995 reflects the geographic dispersion of properties opened or acquired during 1996 and the higher standard weekly room rates in certain of those markets, along with increases in rates charged in previously opened properties, partially offset by an increase in the percentage of total facilities (as of the end of the year) represented by lower priced EXTENDED STAY facilities from 8% for 1995 to 53% for 1996. The average weekly room rate for the 18 properties that were in operation throughout both periods increased by 9% in 1996. The Company recognized total revenue for 1996 and 1995 of $38.8 million and $16.8 million, respectively, an increase of $22.0 million. Approximately $21.0 million of the increased revenue is attributable to properties opened or acquired during 1996 and 1995, and approximately $1.0 million is attributable to the 18 properties that were owned and operated throughout both periods. Property operating expenses were $16.6 million (43% of total revenue) for 1996 and $6.7 million (40% of total revenue) for 1995. The increase in property operating expenses as a percentage of total revenue for 1996 as compared to 1995 is primarily a result of lower occupancies and revenue during the pre-stabilization period for the 41 properties that were opened during 1996. As a result of the foregoing, the Company realized property operating margins of 57% and 60% for 1996 and 1995, respectively. The provision for depreciation and amortization for the lodging facilities for 1996 was $5.6 million and the provision for 1995 was $1.9 million. These provisions reflect a pro rata allocation of the annual depreciation and amortization charge for the periods for which the properties were in operation. The increase in depreciation and amortization for 1996 as compared to 1995 is a result of the full year of operation in 1996 for the 6 properties opened or acquired in 1995 and partial periods of operation in 1996 for the 51 properties opened or acquired in 1996. Corporate Operations Corporate operating and property management expenses were $16.9 million (43% of total revenue) and $4.7 million (28% of total revenue) for 1996 and 1995, respectively. The increase in corporate operating and property management expenses for 1996 as compared to 1995 reflects the impact of additional personnel and related expenses in connection with the Company's increased level of operating properties and site development. Depreciation and amortization in the amount of $495,000 for 1996, and $132,000 for 1995 were provided using the straight-line method over the estimated useful lives of the assets for assets not directly related to the operation of the facilities, including primarily office furniture and equipment. 21 The Company realized $13.7 million and $1.0 million of interest income during 1996 and 1995, respectively, which was primarily attributable to the investment of funds received from offerings of common stock. The Company incurred interest charges of $332,000 and $1.7 million during 1996 and 1995, respectively, of which $329,000 and $256,000, respectively, was capitalized and included in the cost of buildings and improvements. The Company recognized income tax expense of $5.2 million or 40% of income before taxes for 1996 and $1.2 million or 45% of income before taxes for 1995. Income tax differs from the federal income tax rate of 35% primarily due to state and local income taxes and, for 1995, permanent tax differences relating to items arising from the organization of SPH. LIQUIDITY AND CAPITAL RESOURCES The Company had cash and cash equivalents of $3.2 million and $224.3 million as of December 31, 1997 and December 31, 1996, respectively. At December 31, 1996, the Company had invested, utilizing domestic commercial banks and other financial institutions, approximately $216 million in short-term commercial paper and other securities having credit ratings of A1/Pl or equivalent. The Company did not have such investments as of December 31, 1997. In addition, during these periods the Company 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, the Company 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. During 1996 SPH temporarily invested proceeds from an offering of its common stock in investments with maturities greater than 90 days. Accordingly, these investments in a mutual fund (primarily in municipal bonds) and in United States Government obligations have been classified as investments available-for-sale in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities". In 1996, purchases of such investments available-for-sale aggregated $38.8 million and proceeds from the sale or maturity of such investments aggregated $39.3 million. In 1997, 1996, and 1995, the Company generated cash from operating activities of $50.3 million, $20.8 million and $4.2 million, respectively. The Company used $607.6 million, $273.3 million, and $31.4 million to acquire land and develop and furnish a total of 194, 102, and 21 sites, respectively, in the years ended December 31, 1997, 1996, and 1995. The Company acquired ten existing extended stay facilities in 1996 and one existing extended stay facility in 1995. These acquisitions were paid for by the issuance of Common Stock valued at $55.2 million and $1.7 million and the payment of $4.3 million and $2.3 million in cash in 1996 and 1995, respectively. During 1997, the Company made payments of $9.2 million for costs associated with the Merger. The Company received net proceeds from exercise of Company stock options and common stock offerings totaling $202.1 million, $365.6 million, and $192.2 million in the years ended December 31, 1997, 1996, and 1995, respectively. In conjunction with the organization of SPH in 1995, SPH purchased third party interests for cash of $1.5 million, assumed $39.9 million of debt in the form of various mortgage notes and notes payable to stockholders and partners (subsequently retired with the proceeds of the SPH initial public offering), and purchased minority stockholders' interest and assumed a deficit capital balance in exchange for $5.0 million of SPH common stock. In May 1995, SPH entered into a $30 million revolving credit agreement (the "SPH Line of Credit") to fund future development and construction of additional hotels and for working capital. In February 1996, SPH increased the SPH Line of Credit to $50 million, maturing in 1998. During 1996, SPH received proceeds of $27.0 million and made payments of $31.6 million on the SPH Line of Credit. The SPH Line of Credit was terminated upon consummation of the Merger. Effective September 26, 1997, the Company executed an agreement with various banks establishing the Credit Facility, to be used for general corporate purposes, including the construction and acquisition of extended stay hotel properties. The Credit Facility matures on December 31, 2002. 22 Upon execution of the agreement establishing the Credit Facility, the Company terminated two mortgage loan facilities, which provided for an aggregate of $400 million in available mortgage loans. Accordingly, the Company recorded a pre-tax charge of $9.7 million in 1997, which represented the write-off of debt issuance costs associated with the mortgage facilities. The Company is currently negotiating to amend the Credit Facility to provide the Company with a $350 million revolving credit facility and $350 million of term loan facilities (the "Amended Credit Facility"). The Company expects that at least $100 million of the new term loan facilities will be drawn on the effective date of the Amended Credit Facility (the "Effective Date"). Of the remaining $250 million, $50 million may be borrowed until July 31, 1998 and up to $200 million may be borrowed until September 1, 1998, declining by 25% each month after the Effective Date. In addition, the Amended Credit Facility will permit, but not make available, amounts not borrowed above to be borrowed at any time after the Effective Date and also permit, but not make available, an additional $100 million after January 1, 1999. Amounts borrowed under the Amended Credit Facility would mature beginning December 31, 2002. Availability under the Credit Facility (and the Amended Credit Facility), is dependent upon the Company satisfying certain financial ratios of debt and interest compared to property-level EBITDA for qualifying properties, less corporate operating expenses. In no event, however, is availability under the Credit Facility (and the Amended Credit Facility) less than $200 million at any time. Under the Credit Facility (and the Amended Credit Facility), the Company is required to repay indebtedness outstanding with the net cash proceeds from certain sales of assets, from issuances of debt or equity by the Company, and from insurance recovery events (subject to certain reinvestment rights). The Company is also required to repay indebtedness outstanding under the Credit Facility (and the Amended Credit Facility), annually in an amount equal to 50% of the Company's excess cash flow as defined in the Credit Facility. Amounts drawn under the Credit Facility (and the Amended Credit Facility), bear interest, at the Company's option, at either a prime rate or a Eurodollar Rate (as defined in the Credit Facility), plus an applicable margin. The applicable margin for the Credit Facility (and the revolving loans and certain of the term loans under the Amended Credit Facility) is an annual rate which fluctuates based on the Company's ratio of total debt to total EBITDA and which is between 1.375% and 0% for prime rate loans and 2.375% and 1% for Eurodollar Rate loans. If at least $200 million of gross cash proceeds are received by the Company on or before September 25, 1998 from the issuance of certain debt instruments (including the Notes described below) or Common Stock, the applicable margin will be between .875% and 0% for prime rate loans and between 1.875% and 1% for Eurodollar Rate loans. The applicable margin for the remaining term loans under the Amended Credit Facility will be 1.75% for prime rate loans and 2.75% for Eurodollar Rate loans. The Company's obligations under the Credit Facility are (and if established, its obligation under the Amended Credit Facility would be) guaranteed by each of the Company's subsidiaries and secured by a first priority lien on the stock of the Company's subsidiaries and substantially all of the assets of the Company and its subsidiaries (other than mortgages on the real property of the Company's and its subsidiaries). The Credit Facility contains (and, if established, the Amended Credit Facility would contain) a number of covenants that limit, among other things, the ability of the Company and its subsidiaries 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 that require, among other things, maintenance of corporate existence, compliance with laws, maintenance of properties and insurance, and the delivery of financial and other information. The Company is also required to comply with certain financial covenants, including a maximum leverage ratio, minimum interest coverage ratio, and maximum debt to capitalization ratio. The Credit Facility includes customary events of default, including, without limitation, a cross-default to other indebtedness, undischarged judgments, bankruptcy, and a change of control. 23 The Company is currently in the process of seeking to raise approximately $200 of gross proceeds in an offering of senior subordinated notes (the "Notes"). The Notes are expected to mature in 2008, pay interest semiannually in cash, be redeemable by the Company after five years from the date of their issuance, be unsecured, and be subordinated to the Credit Facility (and, if established, the Amended Credit Facility). The Company intends to use a portion of the proceeds from the offering of the Notes to reduce revolving loans under the Credit Facility (or the Amended Credit Facility) and to use the remainder to expand its business by developing additional extended stay lodging facilities and for other general corporate purposes. The Company expects to continue to rapidly expand its operations. The Company had commitments to complete construction of additional extended stay properties with a total cost of approximately $440 million at December 31, 1997 and expects to make capital expenditures totalling at least $600 million in 1998. The Company believes that the net proceeds from the Note offering, together with cash on hand, cash flow from operations, and borrowings expected to be available under the Amended Credit Facility, will provide sufficient funds for the Company to expand its business as presently planned and to fund its operating expenses at least through early 1999. Thereafter, the Company expects it will require additional funding to continue its expansion as currently planned. The timing and amount of financing needed will depend on a number of factors, including the number of properties the Company constructs or acquires, the timing of such development, and the cash flow generated by its properties. In the event that the capital markets provide favorable opportunities, the Company's plans or assumptions change or prove to be inaccurate, or the foregoing sources of funds prove to be insufficient to fund the Company's growth and operations (or if the Credit Facility is not amended as contemplated), or if the Company consummates acquisitions, the Company may seek additional capital sooner than currently anticipated. Sources of financing may include public or private debt or equity financing. There can be no assurance that such additional financing will be available to the Company or, if available, that it can be obtained on acceptable terms or within the limitations contained in the Company's financing arrangements. Failure to obtain such financing could result in the delay or abandonment of some or all of the Company's development and expansion plans and expenditures and could have a material adverse effect on the Company. IMPACT OF THE YEAR 2000 ISSUE The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Based on its recent assessment, management of the Company does not anticipate that any significant modification or replacement of the Company's software will be necessary for its computer systems to properly utilize dates beyond December 31, 1999 or that the Company will incur significant operating expenses to make any such computer system improvements. The Company is not able to determine, however, whether any of its suppliers, lenders, or service providers will need to make any such software modifications or replacements or whether the failure to make such software corrections will have an effect on the Company's operations or financial condition. SEASONALITY AND INFLATION Based upon the operating history of the Company's facilities, management believes that extended stay lodging facilities are not as seasonal in nature as the overall lodging industry. Management does expect, however, that occupancy and revenues may be lower than average during the first and fourth quarters of each calendar year. Because many of the Company's expenses do not fluctuate with occupancy, such declines in occupancy may cause fluctuations or decreases in the Company's quarterly earnings. The rate of inflation as measured by changes in the average consumer price index has not had a material effect on the revenue or operating results of the Company during any of the periods presented. There can be no assurance, however, that inflation will not affect future operating or construction costs. 24 SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS Certain statements in this Annual Report on Form 10-K constitute "forward- looking statements." Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the Company's limited operating history and uncertainty as to the Company's future profitability; the ability to meet construction and development schedules and budgets; the ability to develop and implement operational and financial systems to manage rapidly growing operations; the uncertainty as to the consumer demand for extended stay lodging; increasing competition in the extended stay lodging market; the ability to integrate and successfully operate acquired properties and the risks associated with such properties; the ability to obtain financing on acceptable terms to finance the Company's growth strategy; the ability of the Company to operate within the limitations imposed by financing arrangements; and general economic conditions as they may impact the overall lodging industry. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. The Company undertakes no obligations to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. 25 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
PAGE ---- EXTENDED STAY AMERICA, INC. AND SUBSIDIARIES Report of Independent Accountants......................................... 27 Consolidated Balance Sheets as of December 31, 1997 and 1996.............. 28 Consolidated Statements of Income for the years ended December 31, 1997, 1996, and 1995........................................................... 29 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1996, and 1995........................................ 30 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996, and 1995..................................................... 31 Notes to Consolidated Financial Statements................................ 32
26 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Extended Stay America, Inc. Ft. Lauderdale, Florida We have audited the accompanying consolidated balance sheets of Extended Stay America, Inc. and subsidiaries as of December 31, 1997 and 1996 and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. 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 in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Extended Stay America, Inc. and subsidiaries at December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Spartanburg, South Carolina February 13, 1998 27 EXTENDED STAY AMERICA, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS DECEMBER 31, ------ ------------------- 1997 1996 ---------- -------- Current assets: Cash and cash equivalents................................ $ 3,213 $224,325 Accounts receivable...................................... 3,651 1,665 Prepaid expenses......................................... 3,869 796 Deferred income taxes.................................... 6,895 1,143 Other current assets..................................... 1,430 1,580 ---------- -------- Total current assets................................... 19,058 229,509 Property and equipment, net................................ 1,042,177 428,749 Deferred loan costs........................................ 8,167 9,519 Other assets............................................... 1,489 658 ---------- -------- $1,070,891 $668,435 ========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable......................................... $ 51,309 $ 14,827 Accrued retainage........................................ 19,951 11,371 Accrued property taxes................................... 3,417 783 Accrued salaries and related expenses.................... 2,018 1,694 Other accrued expenses................................... 6,144 3,063 ---------- -------- Total current liabilities.............................. 82,839 31,738 ---------- -------- Deferred income taxes...................................... 18,393 7,983 ---------- -------- Long-term debt............................................. 135,000 ---------- -------- 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, 95,604,208, and 83,666,383 shares issued and outstanding, respectively............................... 956 837 Additional paid-in capital............................... 823,060 619,870 Retained earnings........................................ 10,643 8,007 ---------- -------- Total stockholders' equity............................. 834,659 628,714 ---------- -------- $1,070,891 $668,435 ========== ========
See notes to consolidated financial statements. 28 EXTENDED STAY AMERICA, INC. CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, -------------------------- 1997 1996 1995 -------- ------- ------- Revenue: Room revenue..................................... $126,095 $37,480 $16,126 Other revenue.................................... 4,705 1,329 642 -------- ------- ------- Total revenue.................................. 130,800 38,809 16,768 -------- ------- ------- Costs and expenses: Property operating expenses...................... 60,391 16,560 6,706 Corporate operating and property management expenses........................................ 29,951 16,867 4,669 Merger, financing and other charges.............. 19,895 Depreciation and amortization.................... 21,331 6,139 2,059 -------- ------- ------- Total costs and expenses....................... 131,568 39,566 13,434 -------- ------- ------- Income (loss) from operations...................... (768) (757) 3,334 Interest income (expense), net..................... 9,242 13,744 (507) -------- ------- ------- Income before third party investor's interest, income taxes and extraordinary loss............... 8,474 12,987 2,827 Third party investor's interest.................... (142) -------- ------- ------- Income before income taxes and extraordinary loss.. 8,474 12,987 2,685 Provision for income taxes......................... 5,838 5,231 1,217 -------- ------- ------- Income before extraordinary loss................... 2,636 7,756 1,468 Extraordinary loss, net of income tax benefit...... (185) -------- ------- ------- Net income......................................... $ 2,636 $ 7,756 $ 1,283 ======== ======= ======= Net income per share: Basic............................................ $ 0.03 $ 0.11 ======== ======= Diluted.......................................... $ 0.03 $ 0.10 ======== ======= Pro forma income data: Income before extraordinary loss................. $ 1,468 Pro forma adjustment for income taxes............ 176 ------- Pro forma income before extraordinary loss....... 1,644 Extraordinary loss............................... (185) ------- Pro forma net income............................. $ 1,459 ======= Pro forma net income per share--basic and diluted: Income before extraordinary loss................. $ 0.05 Extraordinary loss............................... -- ------- Net income....................................... $ 0.05 ======= Weighted average shares: Basic............................................ 94,233 71,933 30,381 Effect of dilutive options....................... 1,511 2,002 1,053 -------- ------- ------- Diluted.......................................... 95,744 73,935 31,434 ======== ======= =======
See notes to consolidated financial statements. 29 EXTENDED STAY AMERICA, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
(ACCUMULATED TOTAL ADDITIONAL DEFICIT) PARTNER'S STOCKHOLDERS' COMMON TREASURY PAID-IN RETAINED (DEFICIT) (DEFICIT) STOCK STOCK CAPITAL EARNINGS CAPITAL EQUITY ------ -------- ---------- ------------ --------- ------------- Balance as of January 1, 1995................... $210 $ (75) $ 128 $(1,209) $(302) $ (1,248) Cash dividends.......... (1,748) (1,748) Partner's draws......... (546) (546) Reclassification in connection with S corporation and partnership termination............ (210) 75 (1,631) 1,251 515 Purchase of minority stockholders' interest. 3,955 674 333 4,962 Issuances of common stock, net of issuance costs.................. 284 196,335 196,619 Retroactive effect of three-for-two stock split on July 9, 1996.. 32 (32) Retroactive effect of two-for-one stock split on July 19, 1996....... 221 (221) Net income.............. 1,283 1,283 ---- ----- -------- ------- ----- -------- Balance as of December 31, 1995............... 537 198,534 251 199,322 Issuances of common stock for acquisitions of extended stay facilities............. 45 55,198 55,243 Issuances of common stock, net of issuance costs.................. 255 365,972 366,227 Stock options exercised, including tax benefit of $108................ 166 166 Net income.............. 7,756 7,756 ---- ----- -------- ------- ----- -------- Balance as of December 31, 1996............... 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 ==== ===== ======== ======= ===== ========
See notes to consolidated financial statements. 30 EXTENDED STAY AMERICA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------ 1997 1996 1995 --------- --------- -------- Cash flows from operating activities: Net income.................................... $ 2,636 $ 7,756 $ 1,283 Adjustments to reconcile net income to net cash provided by operating activities: Third party investor interest............... 142 Depreciation and amortization............... 21,331 6,139 2,059 Write-off of site deposits and preacquisition costs....................... 2,731 1,475 289 Bad debt expense............................ 623 97 48 Merger expenses............................. 485 Write-off of deferred loan costs............ 9,667 Deferred income taxes....................... 5,832 2,574 140 Extraordinary loss.......................... 185 Other, net.................................. (469) (72) Changes in operating assets and liabilities: Accounts receivable....................... (2,609) (1,099) (212) Prepaid expenses.......................... (3,073) (480) (319) Other current assets...................... (954) (28) (165) Accounts payable.......................... 7,542 643 233 Accrued property taxes.................... 2,634 Accrued salaries and related expenses..... 324 885 271 Other accrued expenses.................... 3,094 3,335 304 --------- --------- -------- Net cash provided by operating activities.............................. 50,263 20,828 4,186 --------- --------- -------- Cash flows from investing activities: Additions to property and equipment........... (607,649) (273,260) (31,380) Acquisitions of extended stay properties...... (4,271) (2,342) Purchase of investments available-for-sale.... (38,829) Proceeds from sale/maturity of investments available-for-sale........................... 39,298 Purchase of third party interest.............. (1,500) Other assets.................................. (1,415) (2,197) (108) --------- --------- -------- Net cash used in investing activities.... (609,064) (279,259) (35,330) --------- --------- -------- Cash flows from financing activities: Proceeds from exercise of Company stock options and issuances of common stock........ 202,135 365,636 192,208 Proceeds from long-term debt.................. 143,869 27,000 6,916 Principal payments on long-term debt.......... (31,630) (36,811) Additions to deferred loan and other costs.... (8,315) (4,165) (2,034) Proceeds from related party loans............. 7,863 Payments of related party loans............... (9,246) Distributions to owners....................... (2,295) --------- --------- -------- Net cash provided by financing activities.............................. 337,689 356,841 156,601 --------- --------- -------- Increase (decrease) in cash and cash equivalents................................... (221,112) 98,410 125,457 Cash and cash equivalents at beginning of period........................................ 224,325 125,915 458 --------- --------- -------- Cash and cash equivalents at end of period..... $ 3,213 $ 224,325 $125,915 ========= ========= ======== Noncash investing and financing transactions: Issuances of common stock for acquisitions of extended stay properties..................... $ $ 55,243 $ 1,700 ========= ========= ======== Capitalized or deferred items included in accounts payable and accrued liabilities..... $ 49,308 $ 17,671 $ 1,212 ========= ========= ======== Issuance of common stock for notes receivable from stockholders............................ $ $ $ 28,050 ========= ========= ======== Issuance of common stock for deferred loan costs........................................ $ $ $ 3,574 ========= ========= ======== Note payable for the purchase of property site......................................... $ $ $ 630 ========= ========= ======== Purchase of minority stockholders' interest for stock and assumption of deficit capital balance...................................... $ $ $ 4,963 ========= ========= ======== Supplemental cash flow disclosures: Cash paid for: Income taxes................................ $ 1,340 $ 2,267 $ 1,182 ========= ========= ======== Interest expense, net of amounts capitalized................................ $ $ 3 $ 1,517 ========= ========= ========
See notes to consolidated financial statements. 31 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 manage extended stay lodging facilities. Studio Plus Hotels, Inc. ("SPH") was formed on December 19, 1994, to acquire, through merger and exchange of partnership interests all of the assets of Studio Plus, Inc. and the corporation and partnerships (collectively, the "SPH Predecessor Entities") which owned and operated StudioPLUS extended stay hotels. On June 26, 1995, SPH completed an initial public offering (the "SPH IPO"). Prior to the completion of the SPH IPO, SPH acquired, through merger and exchange of SPH common stock for partnership interests, the assets of the SPH Predecessor Entities which owned and operated all of the StudioPLUS extended stay hotel properties then in operation or under development (the "Corporate Organization"). The acquisition of the interests of the controlling stockholder or partner and affiliates of the SPH Predecessor Entities was accounted for as if it were a pooling of interests. On April 11, 1997, ESA, ESA Merger Sub, Inc. ("Merger Sub"), a wholly-owned subsidiary of ESA, and 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. In connection with the Merger, the Company recorded a pre-tax charge of $9.7 million representing merger expenses and costs associated with the integration of SPH operations following the Merger. 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. All per share data and numbers of shares of Common Stock for all periods presented included in the consolidated financial statements and notes thereto have been adjusted to reflect stock splits as more fully described in Note 8-- Stockholders' Equity. 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, 1997, approximately $8.9 million of outstanding checks were included in accounts payable. 32 EXTENDED STAY AMERICA, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) At December 31, 1996, the Company had invested approximately $216 million in short-term commercial paper and other securities. The Company did not have such investments as of December 31, 1997. In addition, during these periods the Company 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, the Company 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. The Company capitalizes interest, salaries and related costs for site selection, design and construction supervision. 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. The estimated useful lives of the assets are as follows: Building and improvements...................................... 40 years Furniture, fixtures and equipment.............................. 3-10 years
Preacquisition Costs The Company incurs 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 The Company has incurred costs in obtaining financing. These costs have been deferred and are amortized over the life of the respective loans. Pre-Opening Costs The Company capitalizes compensation and other training-related costs incurred prior to the opening of a property and amortizes such costs over a period of twelve months. Pre-opening costs of $3,210,000 and $1,901,000 as of December 31, 1997, and 1996, respectively, are included in other current assets, net of accumulated amortization of $1,997,000 and $893,000, respectively. Organization Costs Organization costs are amortized over sixty months using the straight-line method. As of December 31, 1997 and 1996, costs of $568,000 and $245,000, respectively, reduced by accumulated amortization of $84,000 and $26,000, respectively, are included in other assets. 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. 33 EXTENDED STAY AMERICA, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Revenue Recognition Room revenue and other revenue are recognized when earned. Business Segment The Company operates principally in one business segment which is to develop, own, and manage extended stay lodging facilities. New Accounting Pronouncements During June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive Income" and No. 131 "Disclosures About Segments of an Enterprise and Related Information". Analysis of these new standards by the Company indicates that the standards will not have a material impact on the financial information to be provided by the Company. The standards are effective for financial statements for fiscal years beginning after December 15, 1997. 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, ------------------- 1997 1996 ---------- -------- Land and improvements, including land under current development........................................ $ 287,857 $134,707 Buildings and improvements.......................... 454,946 204,001 Furniture, fixtures, equipment and supplies......... 125,537 55,318 Construction in progress............................ 206,025 47,126 ---------- -------- 1,074,365 441,152 Less: Accumulated depreciation...................... 32,188 12,403 ---------- -------- Total property and equipment........................ $1,042,177 $428,749 ========== ========
The Company had commitments to complete construction of additional extended stay properties with a total cost of approximately $440 million at December 31, 1997. For the years ended December 31, 1997, 1996 and 1995 the Company incurred interest of $1,731,000, $332,000, and $1,773,000, respectively, of which $1,731,000, $329,000, and $256,000, respectively, was capitalized and included in the cost of buildings and improvements. NOTE 4--OPTIONS TO PURCHASE PROPERTY SITES As of December 31, 1997, the Company had options to purchase parcels of real estate in 146 locations in 34 states. The Company had paid approximately $4.8 million in connection with these options as of December 31, 1997. If for any reason the Company does not acquire these parcels, the amounts paid in connection with the options are generally refundable. These amounts are included in property and equipment. 34 EXTENDED STAY AMERICA, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 5--PURCHASE ACQUISITIONS OF EXTENDED STAY PROPERTIES On August 18, 1995, the Company acquired an existing extended stay property for approximately $4.0 million which was paid for by the issuance of 714,000 shares of Common Stock valued at $1.7 million and approximately $2.3 million in cash. During 1996, the Company acquired ten (10) extended stay facilities from a number of unrelated sellers (together with the 1995 acquisition, the "Acquisitions") for approximately $59.5 million, which was paid for by the issuance of approximately 4.5 million shares of Common Stock valued at approximately $55.2 million and approximately $4.3 million in cash. As a part of the Acquisitions, the Company assumed and subsequently retired liabilities aggregating approximately $470,000 under certain leases for personal property. The Acquisitions were accounted for using the purchase method of accounting and, accordingly, the results of operations of the properties are included in the consolidated statements of income from the date of acquisition. The following unaudited pro forma condensed statements of income of the Company are presented as if the Company had completed the Acquisitions, excluding one of the acquisitions which did not meet certain materiality standards (the "Significant Acquisitions") on January 1, 1995. This pro forma information is based in part upon the consolidated statements of income of each of the Significant Acquisitions. In management's opinion, all adjustments necessary to reflect the effects of these transactions have been made. These pro forma condensed consolidated statements of income are not necessarily indicative of what actual results of operations of the Company would have been assuming such transactions had been completed as of January 1, 1995, nor do they purport to represent the results of operations for future periods.
PRO FORMA FOR THE YEAR ENDED DECEMBER 31, --------------- 1996 1995 ------- ------- Total revenue.................................................. $44,022 $30,055 Total costs and expenses....................................... 42,162 23,040 ------- ------- Income from operations......................................... 1,860 7,015 Interest income (expense)...................................... 13,744 (551) ------- ------- Income before income taxes..................................... 15,604 6,464 Provision for income taxes..................................... 6,277 2,586 ------- ------- Net income..................................................... $ 9,327 $ 3,878 ======= ======= Net income per share: Basic........................................................ $ 0.13 $ 0.11 ======= ======= Diluted...................................................... $ 0.12 $ 0.11 ======= ======= Weighted average shares: Basic........................................................ 74,448 35,597 ======= ======= Diluted...................................................... 76,450 36,650 ======= =======
NOTE 6--LONG-TERM DEBT Effective September 26, 1997, the Company executed an agreement with various banks establishing a revolving credit facility (the "Credit Facility") to be used for general corporate purposes, including the construction and acquisition of extended stay hotel properties. 35 EXTENDED STAY AMERICA, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Availability under the Credit Facility is dependent upon the Company satisfying certain financial ratios of debt and interest compared to property- level earnings before interest, taxes, depreciation, and amortization ("EBITDA for qualifying properties, less corporate operating expenses. In no event, however, is availability under the Credit Facility less than $200 million at any time. Under the Credit Facility the Company is required to repay indebtedness outstanding with the net cash proceeds from certain sales of assets, from issuances of debt or equity by the Company, and from insurance recovery events (subject to certain reinvestment rights). The Company is also required to repay indebtedness outstanding under the Credit Facility annually in an amount equal to 50% of the Company's excess cash flow as defined in the Credit Facility. Amounts drawn under the Credit Facility bear interest, at the Company's option, at either a prime rate or a Eurodollar Rate (as defined in the Credit Facility), plus an applicable margin. The applicable margin is an annual rate which fluctuates based on the Company's ratio of total debt to total EBITDA and which is between 1.375% and 0% for prime rate loans and 2.375% and 1% for Eurodollar Rate loans. If at least $200 million of gross cash proceeds are received by the Company on or before September 25, 1998 from the issuance of certain debt instruments or Common Stock, the applicable margin will be between .875% and 0% for prime rate loans and between 1.875% and 1% for Eurodollar Rate loans. The Company's obligations under the Credit Facility are guaranteed by each of the Company's subsidiaries and secured by a first priority lien on the stock of the Company's subsidiaries and substantially all of the assets of the Company and its subsidiaries (other than mortgages on the real property of the Company and its subsidiaries). The Credit Facility contains a number of covenants that limit, among other things, the ability of the Company and its subsidiaries 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 that require, among other things, maintenance of corporate existence, compliance with laws, maintenance of properties and insurance, and the delivery of financial and other information. The Company is also required to comply with certain financial covenants, including a maximum leverage ratio, minimum interest coverage ratio, and maximum debt to capitalization ratio. The Credit Facility includes customary events of default, including, without limitation, a cross-default to other indebtedness, undischarged judgments, bankruptcy, and a change of control. Upon execution of the agreement establishing the Credit Facility, the Company terminated two mortgage loan facilities, which provided for an aggregate of $400 million in mortgage loans. Accordingly, the Company recorded a pre-tax charge of $9.7 million in 1997, which represented the write-off of debt issuance costs associated with the mortgage facilities. At December 31, 1997, $135 million was outstanding under the Credit Facility with a weighted average interest rate of 7.28%. The Company believes that there is no material difference in the carrying amount (including the terms and conditions outlined above) and the estimated fair value of the Credit Facility. In May 1995, SPH entered into a $30 million revolving credit agreement (the "SPH Line of Credit") to fund future development and construction of additional hotels and for working capital. In February 1996, SPH increased the SPH Line of Credit to $50 million, maturing in 1998. At December 31, 1996, there were no outstanding borrowings under the SPH Line of Credit. The SPH Line of Credit was terminated upon consummation of the Merger. 36 EXTENDED STAY AMERICA, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 7--INCOME TAXES Income tax expense consists of the following:
YEAR ENDED DECEMBER 31, -------------------- 1997 1996 1995 ------ ------ ------ Current income taxes: U.S. federal....................................... $ 6 $2,137 $ 929 State and local.................................... -- 520 148 ------ ------ ------ 6 2,657 1,077 ------ ------ ------ Deferred income taxes: U.S. federal....................................... 5,137 2,069 55 State and local.................................... 695 505 85 ------ ------ ------ 5,832 2,574 140 ------ ------ ------ Total income tax expense............................. $5,838 $5,231 $1,217 ====== ====== ======
Prior to the Corporate Organization, a portion of SPH operations were conducted through S corporations and partnerships. Accordingly, the deferred tax provision for the year ended December 31, 1995, includes approximately $540,000 relating to recognition of a net deferred tax liability representing temporary differences existing on the date of the Corporate Organization. Prior to the Corporate Organization, income taxes on earnings were paid by the stockholders and partners of the SPH Predecessor Entities. 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, ----------------- 1997 1996 1995 ---- ---- ----- 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............................................ 4.8 4.9 3.7 Effect of termination of S corporation and partnership items.................................. 20.0 S corporation and partnership for which no current income taxes were provided......................... (14.9) Tax exempt income................................... (5.0) Merger expenses..................................... 32.1 Other............................................... 2.0 0.4 1.5 ---- ---- ----- Annual effective income tax rate...................... 68.9% 40.3% 45.3% ==== ==== =====
37 EXTENDED STAY AMERICA, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1997 and 1996 are presented below:
1997 1996 -------- ------- Deferred tax assets: Net operating loss carryforward..................... $ 4,029 $ 986 Other............................................... 2,866 157 -------- ------- Total deferred tax assets......................... 6,895 1,143 Deferred tax liability: Property and equipment.............................. (18,393) (7,983) -------- ------- $(11,498) $(6,840) ======== =======
At December 31, 1997, the Company had net operating loss carryforwards for federal income tax purposes of approximately $10,200,000, which will expire between 2011 and 2013 if not utilized to offset future federal taxable income. 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 the Company 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 8--STOCKHOLDERS' EQUITY On June 26, 1995, SPH completed an initial public offering of 5,347,500 shares of its common stock at $10.00 per share (number of shares and price per share have not been adjusted for the Merger) and received net cash proceeds of $48.1 million. SPH also issued an aggregate of 2,322,750 shares (number of shares have not been adjusted for the Merger) of common stock and paid $1.5 million in cash to the partners and stockholders of the SPH Predecessor Entities in connection with the Corporate Organization. The acquisition of the interests of the controlling stockholder or partner and affiliates of the SPH Predecessor Entities has been accounted for as if it were a pooling of interests, with no increase in the carrying value for the interests acquired. The acquisition of the third party investors' interests has been accounted for as a purchase which resulted in an increase of $10,475,000 to the carrying value of the underlying assets acquired. On October 19, 1995, the Board of Directors of ESA declared a 210-for-1 stock split effected in the form of a stock dividend. On December 19, 1995, ESA closed an initial public offering of 10,120,000 shares of its Common Stock at a public offering price of $6.50 per share and a concurrent offering to existing shareholders of 4,135,650 shares of Common Stock at an offering price of $6.05 per share, being the initial public offering price per share less the underwriting discounts and commissions. The proceeds to ESA of such offerings were approximately $85.0 million, net of offering expenses. In April, 1996, SPH closed a public offering of 4,855,347 shares of common stock, and 319,653 shares sold by selling stockholders at $16.83 per share (number of shares and price per share have not been adjusted for the 38 EXTENDED STAY AMERICA, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Merger). Net cash proceeds to SPH were approximately $76.8 million, which excluded any proceeds received by the selling stockholders. On May 9, 1996, the Board of Directors of ESA declared a 2-for-1 stock split effected in the form of a stock dividend. On June 5, 1996, ESA closed a public offering of 19,550,000 shares of its Common Stock at a public offering price of $15.50 per share. The proceeds to ESA of such offering were approximately $289.0 million, net of offering expenses. On July 19, 1996, a three-for-two split of SPH common stock was effected in the form of a stock dividend. On February 6, 1997, the Company 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, the Company's 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, the Company announced that its 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. The Company recorded a pre-tax charge of $500,000 in connection with listing of the Common Stock on the NYSE, which is included in merger, financing and other charges. 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 the Company has no present plans to issue any shares of preferred stock. NOTE 9--STOCK OPTION PLANS ESA has four stock option plans including the 1995, 1996 and 1997 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. 39 EXTENDED STAY AMERICA, INC. NOTES TO THE 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, 1997, 1996 and 1995 and changes during the years ending on those dates is presented below:
1997 1996 1995 --------------------- --------------------- --------------------- NUMBER OF PRICE PER NUMBER OF PRICE PER NUMBER OF PRICE PER SHARES SHARE SHARES SHARE SHARES SHARE --------- ----------- --------- ----------- --------- ----------- Outstanding at beginning of year................ 7,128 $2.38-22.38 3,267 $2.38-12.49 Granted................. 5,125 11.28-20.5 4,030 10.50-22.38 3,267 $2.38-12.49 Exercised............... (402) 2.38-14.94 (21) 2.38 Forfeited............... (1,319) 2.38-20.63 (148) 2.38-14.44 ------ ----------- ------ ----------- ----- ----------- Outstanding at end of year................... 10,532 $2.38-22.38 7,128 $2.38-22.38 3,267 $2.38-12.49 Options exercisable at year-end............... 3,489 2.38-22.38 1,489 $2.38-12.81 Available for future grants................. 5,183 3,240 1,409 Total shares reserved for issuance as of December 31............ 15,715 10,368 4,676 Weighted average fair value of options granted during the year................... $ 6.93 $ 5.55 $ 1.95
On January 1, 1996, the Company 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.
1997 1996 1995 ---------------- --------------- -------------- AS PRO AS PRO AS PRO REPORTED FORMA REPORTED FORMA REPORTED FORMA -------- ------- -------- ------ -------- ----- Net income (loss)............. $2,636 $(8,788) $7,756 $3,482 $1,459 $ 316 Net income (loss) per share: Basic....................... $ 0.03 $ (0.09) $ 0.11 $ 0.05 $ 0.05 $0.01 Diluted..................... $ 0.03 $ (0.09) $ 0.10 $ 0.05 $ 0.05 $0.01
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 1997, 1996 and 1995: dividend yield of 0%, expected volatility of 33.47%, risk-free interest rate of 6% and expected life of 5.5 years. 40 EXTENDED STAY AMERICA, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following table summarizes information about the Company's stock options at December 31, 1997:
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 1997 LIFE PRICE 1997 PRICE - --------------- ------------ ----------- -------- ------------ -------- $ 2.38- 2.38............ 1,142 7.64 $ 2.38 529 $ 2.38 $ 6.50- 8.15............ 1,577 8.45 7.16 1,181 7.38 $10.50-12.43............ 1,335 4.48 10.95 1,072 10.80 $12.49-13.38............ 1,321 8.08 13.23 351 13.20 $13.47-14.44............ 1,277 9.32 13.93 19 14.31 $14.56-18.38............ 1,124 9.00 15.74 259 16.45 $18.50-18.50............ 2,503 8.99 18.50 0 0.00 $18.88-22.38............ 253 8.94 20.27 78 20.40 ------ ---- ------ ----- ------ $ 2.38-22.38............ 10,532 8.12 $12.63 3,489 $ 9.26 ====== ==== ====== ===== ======
NOTE 10--NET INCOME PER SHARE The Company has adopted SFAS No. 128, "Earnings Per Share". SFAS No. 128 requires the Company to change its method of computing, presenting and disclosing earnings per share ("EPS") information. Accordingly, all prior period dates presented have been restated to conform to the provisions of SFAS No. 128. For the years ended December 31, 1997 and 1996, the computation of diluted EPS does not include approximately 3,180,000 and 165,000 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. In addition, on January 8, 1998, options to purchase approximately 2.9 million shares of Common Stock were granted under the Employee Plans at $11.375 per share. Historical information prior to the SPH IPO in June 1995 does not include a provision for income taxes on income of the SPH Predecessor Entities, which were S corporations or partnerships not subject to income taxes. Accordingly, EPS for the year ended December 31, 1995 are presented on a pro forma basis as if all of the Company's income for the period was subject to income taxes. NOTE 11--RELATED PARTY TRANSACTIONS In 1996, the Company entered into a 10-year lease for a suite at Pro Player Stadium for a base rental of $115,000 per year, subject to certain additional charges and periodic escalation, and a 3-year lease for a suite at Homestead Motor Sports Complex for a base rental of approximately $53,000 per year, subject to certain additional charges. The Chairman of the Company's Board of Directors owns Pro Player Stadium and had an approximate 50% ownership interest (which was subsequently reduced to approximately 10%) in Homestead Motor Sports Complex. During 1997, 1996 and 1995, the Company incurred charges of approximately $1,682,000, $983,000 and $412,000 from a company controlled by the Chief Executive Officer of the Company for the use of airplanes. A director of the Company is a partner of a law firm which charged the Company fees of approximately $6,000, $54,000 and $126,000 during 1997, 1996 and 1995, respectively. Substantially all of such charges were incurred in connection with the Company's organization, offerings of Common Stock, mortgage facilities and acquisition of extended stay facilities. 41 EXTENDED STAY AMERICA, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Chief Executive Officer of the Company serves as chairman of the board of a company from which the Company leases office space. The lease, which expires December 31, 1998, provides for monthly payments of approximately $6,400 plus certain additional charges, and is renewable annually. During 1997, the Company incurred charges of approximately $91,000 related to this agreement. Two members of the Company's Board of Directors also serve on the board of directors of a company which performs employment related services for the Company. During 1997 and 1996, the Company incurred charges of approximately $126,000 and $23,000, respectively, for such services. Borrowings from partners, officers, and stockholders during 1995 aggregated to $7,863,000 and principal repayments aggregated to $9,246,000. The Company incurred interest charges of $256,000 in 1995 on stockholder debt. During 1995, the Company acquired a property site for approximately $562,000 from a partnership in which certain stockholders are partners. NOTE 12--QUARTERLY RESULTS (UNAUDITED) The following is a summary of quarterly operations for the years ended December 31, 1997 and 1996:
1997 ---------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- -------- ------- ------- Total revenue............................... $19,763 $ 29,028 $38,773 $43,236 Operating income (loss)..................... 117 (14,521) 7,961 5,675 Net income (loss)........................... 2,470 ( 9,093) 5,644 3,615 Net income (loss) per share: Basic..................................... $ 0.03 $ (0.10) $ 0.06 $ 0.04 Diluted................................... $ 0.03 $ (0.10) $ 0.06 $ 0.04 1996 ---------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- -------- ------- ------- Total revenue............................... $ 5,594 $ 8,035 $11,923 $13,257 Operating income (loss)..................... (1,050) (188) 826 (345) Net income.................................. 258 1,656 3,619 2,223 Net income per share: Basic..................................... $ 0.00 $ 0.02 $ 0.04 $ 0.03 Diluted................................... $ 0.00 $ 0.02 $ 0.04 $ 0.03
NOTE 13--COMMITMENTS AND CONTINGENCIES The Company is not a party to any significant litigation or claims, other than routine matters incidental to the operation of the business of the Company. To date, no claims have had a material adverse effect on the Company nor does the Company expect that the outcome of any pending claims will have such an effect. NOTE 14--SUBSEQUENT EVENTS The Company has entered into a commitment letter (the "Commitment Letter") with Morgan Stanley Senior Funding, Inc. ("MSSF"), with respect to which the Company has requested and expects to receive the consent of the various lenders under the Credit Facility (the "Consent Letter"), to amend and restate the Credit Facility to provide for the provisions summarized below (the "Amended Credit Facility"). 42 EXTENDED STAY AMERICA, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Amended Credit Facility will provide for the conversion of $150 million of the amounts available under the Credit Facility into a term loan (the "Converted Term Loan"), with the $350 million balance of the amounts available under the Credit Facility remaining as a revolving facility (the "Revolving Facility" and together with the Converted Term Loan, the "Converted Facilities"). With respect to the Converted Term Loan, at least $100 million will be drawn on the effective date of the Amended Credit Facility with the balance drawn no later than July 31, 1998. The interest rates and maturity dates of the Converted Facilities will remain the same as in the Credit Facility. The Amended Credit Facility will also provide for up to $300 million in additional term loans (the "New Term Loans"). Subject to the terms and conditions set forth in the Commitment Letter (including the negotiation of a definitive amended and restated credit agreement), MSSF has agreed to provide up to $200 million of the New Term Loans to be used for general corporate purposes, including the construction and acquisition of extended stay hotel properties, provided, however, that the amount of such committed New Term Loans ("Committed Loans") will be reduced by 25% on each monthly anniversary of the effective date of the Amended Credit Facility (the "Effective Date"). The initial amount of Committed Loans will be determined on the Effective Date and may be borrowed on or after the Effective Date and prior to September 1, 1998. New Term Loans in excess of Committed Loans may be borrowed at any time after the Effective Date provided that the total New Term Loans cannot exceed $200 million before January 1, 1999. Further, to the extent that the New Term Loans exceed $200 million, at least $275 million must be outstanding under the Revolving Facility on the date the New Term Loans are incurred. Committed Loans will bear interest, at the Company's option, at either a prime rate plus 1.75% or the Eurodollar Plus Rate (as defined in the Credit Facility) plus 2.75%. New Term Loans that are not Committed Loans will bear interest at rates to be agreed upon. The New Term Loans will mature on December 31, 2003, subject to maximum principal amortization of 1% the initially funded amounts in each of the years 1999 through 2002 and payment of the balance due in four equal quarterly payments in 2003. The obligations of the Company and its subsidiaries under the New Term Loans will be secured on a pari passu basis by way of a perfected first priority security interest in the assets securing the existing Credit Facility. All mandatory or voluntary prepayments under the Amended Credit Facility will be applied first on a pro rata basis to the Converted Term Loan and the New Term Loans and after such loans have been repaid to the Revolving Facility. Availability under the Converted Facilities and the New Term Loans, as well as the covenants and events of default, will remain on substantially the same basis as under the Credit Facility. The Company is currently in the process of seeking to raise approximately $200 of gross proceeds in an offering of senior subordinated notes (the "Notes"). The Notes are expected to mature in 2008, pay interest semiannually in cash, be redeemable by the Company after five years from the date of their issuance, be unsecured, and be subordinated to the Credit Facility (and if established, the Amended Credit Facility). The Company intends to use a portion of the proceeds from the offering of the Notes to reduce revolving loans under the Credit Facility (or the Amended Credit Facility) and to use the remainder to expand its business by developing additional extended stay lodging facilities and for other general corporate purposes. 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 Directors to ESA's Board of Directors" in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held May 21, 1998 (the "Proxy Statement"), is incorporated herein by reference. EXECUTIVE OFFICERS Set forth below are the names of the executive officers of the Company and its subsidiaries, their ages at December 31, 1997, the positions they hold with the Company or its subsidiaries, and summaries of their business experience. Executive officers of the Company are elected by and serve at the discretion of the Board of Directors of the Company.
NAME AGE POSITION ---- --- -------- H. Wayne Huizenga*...... 60 Chairman of the Board of Directors George D. Johnson, Jr.*. 55 President, Chief Executive Officer, and Director Robert A. Brannon....... 47 Senior Vice President, Chief Financial Officer, Secretary and Treasurer Jay S. Witzel........... 50 President and Chief Operating Officer of ESA Management
- -------- * Member of Executive Committee of the Board of Directors H. Wayne Huizenga became a director of the Company in August 1995 and serves as Chairman of its Board of Directors. Mr. Huizenga also has been Chairman of the Board of Directors of Republic Industries, Inc. ("Republic"), a diversified company with operations in the automotive and solid waste industries, since August 1995. Mr. Huizenga served as Chief Executive Officer of Republic from August 1995 until October 1996 and has served as Co-Chief Executive Officer of Republic since October 1996. Since September 1996, Mr. Huizenga has been Chairman of the Board of Florida Panthers Holdings, Inc. ("FPHI"), a sports, entertainment, and leisure company which owns and operates the Florida Panthers professional sports franchise and certain resort and other facilities. Mr. Huizenga served as the Vice Chairman of Viacom, Inc. ("Viacom"), a diversified media and entertainment company, from September 1994 until October 1995. Mr. Huizenga also served as the Chairman of the Board of Blockbuster Entertainment Group, a division of Viacom, from September 1994 until October 1995. From April 1987 through September 1994, 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 and music retailer. In September 1994, Blockbuster merged into Viacom. In 1971, Mr. Huizenga co-founded Waste Management, Inc. ("WMX"), which he helped build into the world's largest integrated environmental services company, and he served in various capacities, including the President, the Chief Operating Officer and a director from its inception until 1984. Mr. Huizenga also owns or controls the Miami Dolphins and Florida Marlins professional sports franchises, as well as Pro Player Stadium, in South Florida. George D. Johnson, Jr. has been President, Chief Executive Officer, and a director of the Company since January 1995. He is responsible for all aspects of development, operation, marketing, and personnel of the 44 Company. 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 is currently the Chairman of the Board of Directors of RTO Inc. ("RTO"), which operates 267 rental-purchase stores in 16 states. RTO expects to consummate a merger with Alrenco, Inc. ("Alrenco"), a publicly-traded operator of rental-purchase stores, shortly after that merger is approved by the stockholders of RTO and Alrenco at a meeting scheduled for February 26, 1998. Upon consummation of that merger, Mr. Johnson will become Chairman of the Board of Directors of Alrenco. Mr. Johnson also is the managing general partner of American Storage Limited Partnership, a chain of 25 self-storage facilities located in the Carolinas and Georgia. He formerly served as a director of Viacom and currently serves on the board of directors of Republic, FPHI, 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, Inc. is a real estate management, leasing, and development company controlling approximately two 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 Chief Financial Officer of the Company since February 1995 and 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 thereto, 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 Limited Partnership. 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. Jay S. Witzel has been President and Chief Operating Officer of ESA Management, Inc. since August 1997. ESA Management, Inc. is a wholly-owned subsidiary of the Company which develops properties and provides management services for all of the lodging facilities owned by the Company and its subsidiaries. In this position, Mr. Witzel is responsible for all aspects of operations and marketing of the Company's brands. Mr. Witzel has over 20 years of experience in managing operations within the hospitality industry. Most recently, Mr. Witzel served as President and Chief Operating Officer of Radisson Hospitality Worldwide, a chain of over 350 hotels. Mr. Witzel began his career in the hospitality industry in 1971 with Hyatt Hotels Corporation and served in progressively more responsible positions with Hyatt and other organizations before joining Radisson in 1987 as Vice-President-Operations. 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: 10.2 Amended and Restated 1995 Stock Option Plan of the Company 10.5 1995 Stock Option Plan for Non-Employee Directors of the Company 10.8 Amended and Restated 1996 Employee Stock Option Plan of the Company 10.9(a) Employment Agreement dated as of March 18, 1996, between ESA Development, Inc. and Harold E. Wright 10.9(b) Confidential Separation and Release Agreement dated as of July 1, 1997 between ESA Management, Inc. and Harold E. Wright 10.15 1997 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 1997. (C) EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 2.1 Agreement and Plan of Merger dated as of January 16, 1997 by and among the Company, Merger Sub, and Studio Plus (incorpo- rated by reference to Exhibit 2.1 to the Company's Current Re- port on Form 8-K dated January 16, 1997) 3.1(a) Restated Certificate of Incorporation of the Company (incorpo- rated by reference to the corresponding exhibit to the Company's Registration Statement on Form S-1, Registration No. 33-98452) 3.1(b) Certificate of Amendment of Restated Certificate of Incorpora- tion of the Company dated June 4, 1997 3.1(c) Conformed copy of Certificate of Incorporation of the Company, as amended 3.2 Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company's Registration State- ment on Form S-1, Registration No. 33-98452) 4.1 Specimen certificate representing shares of Common Stock (in- corporated by reference to Exhibit 4.1 to the Company's Regis- tration Statement on Form S-1, Registration No. 33-98452) 10.1 Mortgage Facility, dated October 31, 1995, between the Company and DLJ Mortgage Capital, Inc. (incorporated by reference to Exhibit 10.2(b) to the Company's Registration Statement on Form S-1, Registration No. 33-98452)
46
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.2 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) 10.3 Employment Agreement dated as of June 1, 1995 between ESA De- velopment, Inc. and Harold E. Wright (incorporated by refer- ence to Exhibit 10.4 to the Company's Registration Statement on Form S-1, Registration No. 33-98452) 10.4 Stock Option Agreement dated as of June 1, 1995 between ESA Development, Inc. and Harold E. Wright (incorporated by refer- ence to Exhibit 10.5 to the Company's Registration Statement on Form S-1, Registration No. 33-98452) 10.5 1995 Stock Option Plan for Non-Employee Directors of the Com- pany (incorporated by reference to Exhibit 10.6 to the Company's Report on Form 10-Q for the quarter ended March 31, 1996) 10.6 Aircraft Dry Lease dated June 12, 1995 between Wyoming Associ- ates, Inc. and the Company (incorporated by reference to Ex- hibit 10.8 to the Company's Registration Statement on Form S- 1, Registration No. 33-98452) 10.7 Aircraft Dry Lease dated June 12, 1995 between Wyoming Associ- ates, Inc. and the Company (incorporated by reference to Ex- hibit 10.9 to the Company's Registration Statement on Form S- 1, Registration No. 33-98452) 10.8 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) 10.9(a) Employment Agreement dated as of March 18, 1996 between ESA Development, Inc. and Harold E. Wright (incorporated by refer- ence to Exhibit 10.11 to the Company's Report on Form 10-Q for the quarter ended March 31, 1996) 10.9(b) Confidential Separation Agreement and General Release dated as of June 1, 1997 between ESA Management, Inc. and Harold E. Wright (incorporated by reference to Exhibit 10.1 to the Company's Report on Form 10-Q for the quarter ended June 30, 1997) 10.10 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) 10.11 Homestead Motorsports Complex Executive Suite License Agree- ment dated February 14, 1996 among The Homestead Motorsports Joint Venture, Miami Motorsports Joint Venture, and the Com- pany (incorporated by reference to Exhibit 10.13 to the Company's Report on Form 10-Q for the quarter ended March 31, 1996) 10.12 Joe Robbie Stadium Executive Suite License Agreement dated March 18, 1996 between Robbie Stadium Corporation and the Com- pany (incorporated by reference to Exhibit 10.14 to the Company's Report on Form 10-Q for the quarter ended March 31, 1996) 10.13 Credit Facility Agreement dated May 24, 1996 between the Com- pany and CS First Boston Mortgage Capital Corporation (incor- porated by reference to Exhibit 10.15(b) to the Company's Reg- istration Statement on Form S-1, Registration No. 333-03373) 10.14 Aircraft Dry Lease dated December 28, 1996 between Wyoming As- sociates, 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) 10.15 1997 Stock Option Plan of the Company (incorporated by refer- ence to Exhibit 10.2 to the Company's Report on Form 10-Q for the quarter ended June 30, 1997) 10.18 Credit Agreement dated as September 26, 1997 by and among the Company and Morgan Stanley Senior Funding, Inc., as Syndica- tion Agent and Arranger, The Industrial Bank of Japan, Limit- ed, 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 September 30, 1997) 10.19 Sublease Agreement dated as of February 1997 by and between Johnson Development Associates and ESA Management, Inc. 21.1 List of Subsidiaries of the Company 23.1 Consent of Coopers & Lybrand L.L.P. 27.1 Financial Data Schedule
47 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 FEBRUARY 19, 1998. Extended Stay America, Inc. /s/ George D. Johnson, Jr. By: _________________________________ 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 FEBRUARY 19, 1998.
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, and Treasurer Robert A. Brannon 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, Jr. Director ___________________________________________ George D. Johnson, Jr. /s/ Stewart H. Johnson Director ___________________________________________ Stewart H. Johnson /s/ John J. Melk Director ___________________________________________ John J. Melk /s/ Peer Pedersen Director ___________________________________________ Peer Pedersen
48 EX-3.1B 2 CERT OF AMEND OF RESTATED CERT OF INC DATED 6/4/97 EXHIBIT 3.1(b) CERTIFICATE OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION OF EXTENDED STAY AMERICA, INC. Pursuant to Section 242 of the General Corporation Law of the State of Delaware Extended Stay America, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Company"), does hereby certify as follows: 1. The Restated Certificate of Incorporation of the Company is hereby amended by changing Article FOURTH thereof so that, as amended, the first paragraph of Article FOURTH of the Restated Certificate of Incorporation of the Company shall read in its entirety as follows: "FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is 510,000,000 of which (i) 500,000,000 shares, par value $.01 per share, are to be of a class designated Common Stock ("Common Stock") and (ii) 10,000,000 shares, par value $.01 per share, are to be of a class designated Preferred Stock ("Preferred Stock")." 2. That such amendment has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware, the Board of Directors of the Company having adopted resolutions setting forth such amendment and declaring its advisability, and the holders of a majority of the outstanding stock of the Company having approved and adopted resolutions providing for such amendment. IN WITNESS WHEREOF, Extended Stay America, Inc. has caused this Certificate to be signed by its Senior Vice President and attested to by its Assistant Secretary, on this 19th day of May, 1997. EXTENDED STAY AMERICA, INC. /s/ Robert A. Brannon By: ___________________________________ Robert A. Brannon Senior Vice President ATTEST: /s/ Gregory R. Moxley __________________________________ Gregory R. Moxley Assistant Secretary EX-3.1C 3 CONFORMED COPY OF CERT OF INC EXHIBIT 3.1(c) (Conformed copy giving effect to all amendments since the date of this Amended and Restated Certificate of Incorporation) AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF EXTENDED STAY AMERICA, INC. (Original Certificate of Incorporation filed October 20, 1995) Extended Stay America, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: 1. The corporation's name is Extended Stay America, Inc. The date of filing of the corporation's original certificate of incorporation with the Delaware Secretary of State was January 9, 1995. The date of filing of the corporation's first amendment to its certificate of incorporation was July 12, 1995. 2. Pursuant to and in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware, this Restated Certificate of Incorporation further amends the provisions of the certificate of incorporation of the corporation and has been duly adopted by written consent of the holders of all of the outstanding stock entitled to vote thereon. 3. The text of the corporation's certificate of incorporation, as heretofore amended or supplemented, is hereby restated and further amended to read in its entirety as follows: FIRST: The name of the Corporation is: EXTENDED STAY AMERICA, INC. (the "Corporation"). SECOND: The registered office of the Corporation in the State of Delaware is located at Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name and address of its registered agent is The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. THIRD: The purpose of the Corporation is to engage, directly or indirectly, in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware, either alone or with others through wholly or partially owned subsidiaries, as a partner (limited or general) in any partnership, as a joint venturer in any joint venture, or otherwise. FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is 510,000,000 of which (i) 500,000,000 shares, par value $.01 per share, are to be of a class designated Common Stock ("Common Stock") and (ii) 10,000,000 shares, par value $.01 per share, are to be of a class designated Preferred Stock ("Preferred Stock")." 4.1 Common Stock Provisions. 4.1.1 Dividend Rights. Subject to the provisions of applicable law and the preferences of the Preferred Stock, the holders of the Common Stock shall be entitled to receive dividends at such times and in such amounts as may be determined by the Board of Directors. 4.1.2 Voting Rights. The holders of Common Stock shall have one vote for each share on each matter submitted to a vote or consent of the stockholders of the Corporation. 4.1.3 Liquidation Rights. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, after payment or provision for payment of the debts and other liabilities of the Corporation and the preferential amounts to which the holders of the Preferred Stock shall be entitled, the holders of the Common Stock shall be entitled to share ratably in the remaining assets of the Corporation. 4.2 Preferred Stock Provisions. 4.2.1 The Preferred Stock may be issued from time to time in one or more series. Subject to limitations prescribed by law and the provisions of this Restated Certificate of Incorporation or any amendment hereto, authority is expressly granted to the Board of Directors to authorize the issue of one or more series of Preferred Stock without any vote or other action by the stockholders of the Corporation, and to fix by a Preferred Stock Designation the voting powers, designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations and restrictions thereof to the full extent now or hereafter permitted by law, including but not limited to the following: (a) The number of shares constituting that series and the distinctive designation of that series; (b) The dividend rate (or method of determining such rate) on the shares of that series, the conditions and dates upon which such dividends shall be payable, whether such dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series to the dividends payable on any other class or series of stock of the Corporation; 2 (c) Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (d) Whether or not the shares of that series shall be convertible into or exchangeable for shares of any other class or classes or of any other series of any class or classes of stock of the Corporation, or convertible into or exchangeable for other securities of the Corporation or securities of any other corporation, partnership or other person or entity, and, if so, the times, prices, rates, adjustments, and other terms and conditions of such conversion or exchange; (e) Whether or not the shares of that series shall be redeemable, in whole or in part, at the option of the Corporation or at the option of the holder thereof or upon the happening of a specified event, and, if so, the times, prices and other terms and conditions of such redemption; (f) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; (g) The rights of the shares of that series in the event of the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, with respect to payment of amounts payable in such event on shares of that series to amounts payable in such event on shares of any other class or series of stock of the Corporation; and (h) Any other relative rights, preferences and limitations of that series. 4.2.2 All shares of any one series of Preferred Stock shall be identical except as to dates of issue and the dates from which dividends on shares of the series issued on different dates shall cumulate (if cumulative). 4.2.3 If upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the assets available for distribution to holders of shares of Preferred Stock of all series shall be insufficient to pay such holders the full preferential amount to which they are entitled, then such assets shall be distributed ratably among the shares of all series of Preferred Stock in accordance with the respective preferential amounts (including unpaid cumulative dividends, if any) payable with respect thereto. 4.3 Other Provisions. 3 4.3.1 The Board of Directors shall have authority to authorize the issuance, from time to time without any vote or other action by the stockholders of the Corporation, of any or all shares of stock of the Corporation of any class at any time authorized, and any securities convertible into or exchangeable for any such shares, in each case to such persons and for such consideration and on such terms as the Board of Directors from time to time in its discretion lawfully may determine; provided, however, that the consideration for the issuance of shares of stock of the Corporation having par value shall not be less than such par value. Shares so issued, for which the consideration has been paid to the Corporation, shall be fully paid stock, and the holders of such stock shall not be liable to any further call or assessments thereon. 4.3.2 No holder of stock of any class or series of the Corporation, nor of any security convertible into or exchangeable for stock of any class or series of the Corporation, nor of any warrant, option or right to purchase, subscribe for or otherwise acquire stock of any class or series of the Corporation, whether now or hereafter authorized, shall, as such holder, have any preemptive right whatsoever to purchase, subscribe for or otherwise acquire stock of any class or series of the Corporation, or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of the Corporation, whether now or hereafter authorized. Nothing in this Section 4.3.2 shall be deemed to eliminate or limit the ability of the Corporation to grant by contract a preemptive right to purchase, subscribe for or otherwise acquire stock of any class or series of the Corporation or any security convertible into or exchangeable for, or any warrant, option or right to purchase, subscribe for or otherwise acquire, stock of any class or series of the Corporation, whether now or hereafter authorized. 4.3.3 The Board of Directors may set a record date, in the manner and for the purposes authorized in the bylaws of the Corporation, with respect to shares of stock of the Corporation of any class or series. FIFTH: 5.1 From and after the date of the closing of the initial public offering of the Common Stock, no action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. Meetings of stockholders may be held within or outside the State of Delaware, as the bylaws may provide. 5.2 Special meetings of stockholders of the Corporation may be called only by the Chairman of the Board or by the Board of Directors pursuant to a resolution adopted by the affirmative vote of a majority of the entire Board of Directors. 5.3 At a meeting of the stockholders of the Corporation, only such business shall be conducted which has been properly brought before the meeting. To be properly brought before a meeting of the stockholders, business must be (i) specified in the notice of meeting (or any supplement thereto) given by, or at the direction of, the Board of Directors or (ii) otherwise 4 properly brought before the meeting by or at the direction of the Board of Directors or by a stockholder. For business to be properly brought before a meeting by a stockholder, the stockholder must have given timely notice of the business to the Corporate Secretary of the Corporation. To be timely, a stockholder's notice must be in writing delivered to or mailed, postage prepaid, and received by the Corporate Secretary not less than 60 days nor more than 120 days prior to the meeting; provided, however, that if less than 65 days' notice or prior public disclosure of the date of the meeting is given to stockholders, notice by the stockholder to be timely must be received by the Corporate Secretary not later than the close of business on the seventh day following the day on which notice of the date of the meeting was mailed or public disclosure was made. For each matter the stockholder proposes to bring before the meeting, the notice to the Corporate Secretary shall include (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting the business at the meeting, (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing the business, (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder and (iv) any material interest of the stockholder in such business. Notwithstanding anything in the Corporation's bylaws to the contrary, no business shall be conducted at the meeting except in accordance with the procedures set forth in this Section 5.3. The chairman of a meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 5.3. If the chairman determines that business was not properly brought before the meeting in accordance with the provisions of this Section 5.3, the business shall not be transacted. 5.4 Notwithstanding any other provisions of this Restated Certificate of Incorporation or any provision of law which might permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the capital stock of the Corporation required by law, this Restated Certificate of Incorporation or any amendment hereto or any Preferred Stock Designation, the affirmative vote of the holders of at least 66-2/3% of the voting power of all of the then outstanding shares of capital stock of the Corporation entitled to vote on all matters submitted to the stockholders of the Corporation generally (the "Voting Stock") shall be required to alter, amend, repeal, or adopt any provision inconsistent with this Article FIFTH. SIXTH: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its Stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or Stockholder thereof, or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the Stockholders or class of Stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, 5 and/or of the Stockholders or class of Stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the Stockholders or class of Stockholders, of this Corporation, as the case may be, and also on this Corporation. SEVENTH: The Corporation is to have perpetual existence. EIGHTH: 8.1 The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. The number of the directors of the Corporation shall be fixed from time to time by resolution adopted by the affirmative vote of a majority of the entire Board of Directors of the Corporation, except that the minimum number of directors shall be fixed at no less than 3 and the maximum number of directors shall be fixed at no more than 15. 8.2 Nominations for election to the Board of Directors of the Corporation at a meeting of stockholders may be made by the Board of Directors, on behalf of the Board of Directors by any nominating committee appointed by the Board of Directors, or by any stockholder of the Corporation entitled to vote for the election of directors at the meeting. Nominations, other than those made by or on behalf of the Board of Directors, shall be made by notice in writing delivered to or mailed, postage prepaid, and received by the Corporate Secretary not less than 60 nor more than 120 days prior to any meeting of stockholders called for the election of directors; provided, however, that if less than 65 days notice or prior public disclosure of the date of the meeting is given to stockholders, the nomination must be received by the Corporate Secretary not later than the close of business on the seventh day following the day on which notice of the date of the meeting was mailed or public disclosure was made. The notice shall set forth: (i) the name and address, as they appear on the Corporation's books, of the stockholder who intends to make the nomination; (ii) the name, age, business address and, if known, residence address of each nominee; (iii) the principal occupation or employment of each nominee; (iv) the class and number of shares of stock of the Corporation which are beneficially owned by each nominee and by the nominating stockholder; (v) any other information concerning the nominee that must be disclosed of nominees in a proxy solicitation pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended; and (vi) the executed consent of each nominee to being named in the proxy statement for such proxy solicitation as a nominee, and to serve as a director of the Corporation, if elected. The chairman of the meeting of stockholders may, if the facts warrant, determine that a nomination was not made in accordance with the foregoing procedures, and if the chairman should so determine, the chairman shall so declare to the meeting and the defective nomination shall be disregarded. 8.3 Newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by the sole remaining director, as the 6 case may be. A director shall hold office until the first annual meeting of stockholders next succeeding their election and until such director's successor shall have been elected and qualified. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. 8.4 Notwithstanding the foregoing Sections 8.1, 8.2 and 8.3 of this Article EIGHTH, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, (i) the election, filling of vacancies and other features of such directorships shall be governed by the terms of this Restated Certificate of Incorporation or the Preferred Stock Designation applicable to such class or series of Preferred Stock, (ii) the then authorized number of directors of the Corporation shall be increased by the number of additional directors to be elected, and (iii) the directors so elected shall serve a term which shall expire at the annual meeting of stockholders next succeeding their election or as otherwise specified by the terms of this Restated Certificate of Incorporation or the Preferred Stock Designation applicable to such class or series. 8.5 Unless and except to the extent that the bylaws of the Corporation shall so require, the election of directors of the Corporation need not be by written ballot. 8.6 Notwithstanding any other provisions of this Restated Certificate of Incorporation or any provisions of law which might permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the capital stock of the Corporation required by law, this Restated Certificate of Incorporation or any amendment hereto or any Preferred Stock Designation, the affirmative vote of the holders of at least 66-2/3% of the voting power of all of the then outstanding shares of Voting Stock, voting together as a single class, shall be required to alter, amend, repeal, or adopt any provision inconsistent with, this Article EIGHTH. 8.7 In furtherance, and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized: (a) to adopt, amend or repeal the bylaws of the Corporation, subject to such restrictions upon the exercise of such power as may be imposed by this Restated Certificate of Incorporation or any amendment hereto; (b) to authorize and cause to be executed mortgages and liens upon the whole or any part of the real and personal property of the Corporation, without any action of or by the stockholders of the Corporation, except as otherwise provided by statute; and (c) to set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose or to abolish any such reserve in the manner in which it was created. 7 The Corporation may in its bylaws confer powers upon its Board of Directors in addition to the foregoing, and in addition to the powers and authorities expressly conferred upon it by statute. 8.8 The Board of Directors shall have power from time to time to fix and to determine and vary the amount of the working capital of the Corporation and to direct and determine the use and disposition of any surplus or net profits over and above the capital as determined pursuant to, and subject to, the provisions of the General Corporation Law of Delaware; and in its discretion the Board of Directors may use and apply any such surplus or accumulated profits in purchasing or acquiring bonds, debentures, notes, or other obligations or securities of the Corporation or shares of its own Stock of any class so far as may be permitted by law, to such extent and in such manner and upon such terms as the Board of Directors shall deem expedient, but any such bonds, debentures, notes, obligations, securities or stock so purchased or acquired (together with any stock or securities acquired in satisfaction of a debt or otherwise), may be resold. Nothing, however, shall be held to limit the general power of the Corporation to apply any other funds or assets to the purchase or acquisition or retirement of its stock, bonds, debentures, notes or other obligations or securities. 8.9 The Board of Directors, subject to the applicable provisions of the General Corporation Law of Delaware, may from time to time determine whether and to what extent, and at what times and places and under what conditions and regulations the accounts and books of the Corporation or any of them shall be open to the inspection of the stockholders; and no stockholder shall have any right to inspect any account, book or document of the Corporation, except as conferred by law or as authorized by the Board of Directors or by resolutions of the Stockholders. 8.10 The books of the Corporation may be kept within or without the State of Delaware at such place or places as may be designated from time to time by the Board of Directors. Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide. 8.11 The Board of Directors may determine, from time to time, the amount of compensation which shall be paid to its members. The Board of Directors shall also have power, in its discretion, to provide for and to pay directors rendering unusual or exceptional services to the Corporation special compensation appropriate to the value of such services as determined by the Board of Directors from time to time. NINTH: 9.1 No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law (i) for breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware General Corporation 8 Law, or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this Section 9.1 shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions prior to such amendment or repeal. 9.2 The Corporation shall indemnify, to the fullest extent authorized or permitted and in the manner provided by law, any person made, or threatened to be made, a party to any action, suit, or proceeding (whether civil, criminal, or otherwise) by reason of the fact that he or she or a person of whom he or she is the legal representative is or was a director or officer of the Corporation or by reason of the fact that such director or officer, at the request of the Corporation, is or was serving any other corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, in any capacity. Nothing contained herein shall affect any rights to indemnification to which employees and agents other than directors and officers may be entitled by law, and the Corporation may indemnify such employees and agents to the fullest extent and in the manner permitted by law. The rights to indemnification set forth in this Section 9.2 shall not be exclusive of any other rights to which any person may be entitled under any statute, provision of this Restated Certificate of Incorporation, bylaw, agreement, contract, vote of stockholders or disinterested directors, or otherwise. The Corporation also is authorized to enter into contracts of indemnification. TENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation in the manner now or hereafter prescribed by statute, and all rights conferred upon Stockholders herein are granted subject to this reservation. IN WITNESS WHEREOF, Extended Stay America, Inc., has caused its corporate seal to be hereunto affixed and this Restated Certificate of Incorporation to be signed by its Chairman and attested by its Corporate Secretary this 20th day of October, 1995. EXTENDED STAY AMERICA, INC. ------------------------------------ Robert A. Brannon Senior Vice President Attest: - ---------------------------- Gregory R. Moxley Assistant Secretary 9 EX-10.19 4 SUBLEASE AGREEMENT STATE OF SOUTH CAROLINA ) ) SUBLEASE AGREEMENT COUNTY OF SPARTANBURG ) This Sublease Agreement is made as of the ____ day of February, 1997 by and between Johnson Development Associates, Inc., a South Carolina Corporation herein referred to as "Sublessor" and ESA Management, Inc. hereinafter referred to as "Sublessee". Bell Hill, LLC is the successor in interest to Bell Hill Associates, hereinafter referred to as "Landlord". On January 30, 1990, Landlord did lease a portion of the third floor of the Bell Office Building III at 961 East Main Street, Spartanburg, SC to WJB Video Limited Partnership as evidenced by copy of said lease which is attached hereto with four amendments and made a part hereof and referenced hereafter as "Lease Agreement". Subsequently, WJB Video Limited Partnership through its affiliated company, Blockbuster Video, Inc. did reduce its presence in Bell Hill and is desirous of subleasing all of the space that it occupied on the third floor in accordance with the above referenced Lease Agreement. That space is hereafter defined as "Premises". A Sublease Agreement (the "WJB Sublease Agreement") was entered into between WJB Video Limited Partnership and Johnson Development Associates, Inc. on August 30, 1996 wherein Johnson Development obligated itself to sublease all of the third floor not presently occupied by it. Such a sub-Sublease is anticipated under the provision of Section 5A of the WJB Sublease Agreement. NOW THEREFORE, Johnson Development Associates, Inc. as Sublessor and ESA Management, Inc. do hereby agree as follows: 1. The Sublessor hereby subleases to Sublessee the Premises described in attached Exhibit "A" upon the conditions and terms set forth hereafter. 2. The term of this sublease shall commence October 21, 1996 and shall continue in full force and effect until December 31, 1997. Sublessee shall have the option of extending this sublease for an additional twelve (12) month period each year, throughout the term of the WJB Sublease Agreement, on the same terms and conditions provided for herein, by sending written notice to Sublessor no later than October 1st of each succeeding year. By way of example, if Sublessee wishes to extend the term of this sublease to December 31, 1998, it must provide written notice to Sublessor no later than October 1, 1998. 3. (a) Sublessee shall pay to Sublessor a base monthly rent calculated by multiplying $9.55 per rentable square foot of the Premises. Said amount is set forth in attached Schedule A. In addition to the base monthly rent, Sublessee shall pay, as additional rent, its prorata share of any and all common area charges as defined under the Lease Agreement. Such amount shall be paid monthly. (b) It is understood that this sublease is a triple net sublease and that Sublessee's prorata share of any and all cost that would be payable by Johnson Development Associates, Inc. as Sublessor and/or WJB Video Limited Partnership for the Premises shall be borne by Sublessee as of the commencement date. -1- (c) All rent, both base and the prorata contribution to CAM, shall be due and payable on or before the first day of each month in advance to Sublessor at the address stated below. Rent for any period less one month shall be apportioned based on the number of days in that month. (d) In the event of late payment, Sublessor shall be entitled to a late charge of two percent (2%) of the amount of the monthly rent if not received by Sublessor on or before the fifth day of each month. 4. Sublessee shall use the Premises solely for general office use and for no other purpose. 5. Sublessee shall not, by operation of law or otherwise, transfer, sign, sublet, enter into license agreement, mortgage or hypothecate this sublease or Sublessee's interest in the Premises without first procuring the prior written consent of Bell Hill, LLC, WJB Video Limited Partnership and Johnson Development Associates, Inc. which consent shall not be unreasonably withheld or delayed. The attempted transfer, assignment, etc. without such permission shall be void and shall confer no rights upon any third person. In the event of a permitted sublease or assignment, the Sublessee shall not be relieved from any covenant or obligation for the balance of the sublease term. Acceptance of rent by Sublessor from any third party or entity shall not be deemed a waiver by Sublessor of any provision hereof. Sublessee agrees to reimburse Sublessor for any reasonable fees incurred in conjunction with the processing and documentation of any such transfer, assignment, subletting, licensing, changing ownership, mortgage or hypothecation of this sublease. Sublessee shall have the absolute right to sublet, assign or otherwise transfer its interest in this sublease to any parent or operating subsidiary of Sublessee, or subsidiary of the parent of Sublessee, or to a corporation with which Sublessee may merge or consolidate, or to any entity controlled by George Dean Johnson, Jr., without the approval of Sublessor, WJB Video Limited Partnership or Bell Hill, LLC. This sublease shall contain no provision restricting or referring in any manner to a change in control or change in shareholders, directors, management or organization of Sublessee, or to the issuance, sale, purchase or disposition of the shares of Sublessee. 6. Sublessee agrees to take the Premises in "as is" condition. Sublessee has inspected and is fully familiar with the condition of the Premises and Sublessee's taking of possession shall constitute acknowledgment that the Premises are in good condition and without need of repair. Sublessor makes no representations or warranties with regard to any equipment or fixtures. 7. Except as otherwise specifically provided for herein, Sublessee agrees to be bound by the terms of Paragraph 9, 10, 11, 12, 13, 14, 15, 16 of the Lease Agreement. Further, it makes the covenants and representations stated in Paragraph 17, 20, 24 of the Lease Agreement. 8. The default provisions of Paragraph 18 and 19 shall be in full force and effect. 9. All notices provided for under this Sublease Agreement, under the Johnson Development Sublease Agreement, and the original Lease Agreement shall be in writing and sent by Express Courier Service or by Registered or Certified Mail, Return Receipt Requested to Johnson Development Associates, Inc., P.O. Box 3524, 961 East Main Street, Spartanburg, SC 29304, Attn: A. Foster Chapman, and to WJB Video, LP, c/o Viacom Realty Corporation, 1515 Broadway, New York, NY 10036-5794, Attn: Mr. David H. Williamson, with a copy to Viacom, Inc., 1515 Broadway, New York, NY 10036-5794, Attn: General Council, as to Sublessee, Extended Stay America, Inc., 450 East Las Olas Blvd., Suite 1100, Ft. Lauderdale, FL 33301 Attn: Development Counsel. 10. All of the terms and conditions of the referenced and attached documents are fully incorporated herein except as may be expounded upon herein and the parties shall be bound to such previous documents. -2- 11. In the case any one or more of the provisions contained in this Sublease shall for any reason be held invalid, illegal, or unenforceable, such unenforceability shall not effect any other provision of this Sublease, the Sublease shall be construed as if such provision had not been contained herein. 12. Sublessee represents and warrants that this Sublease has been duly authorized and the party signing on behalf of Sublessee is so authorized to execute this Sublease. 13. Sublease may not be modified or amended except by written agreement signed by the parties hereto. 14. This agreement may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute one in the same instrument. In witness whereof, the parties have hereunto set their hands and seals on the date and year first stated above. SUBLESSOR Johnson Development Associates, Inc. By: /s/ A. Foster Chapman --------------------------------- A. Foster Chapman, President SUBLESSEE ESA Management, Inc. By: /s/ Shawn R. Ruben --------------------------------- Its: Shawn R. Ruben --------------------------------- Vice President - Development This Sublease Agreement is hereby consented to by: BELL HILL, LLC By: /s/ George Dean Johnson, Jr. ----------------------------------- George Dean Johnson, Jr., President WJB VIDEO LIMITED PARTNERSHIP By: Blockbuster Video, Inc., General Partner By: (not required) ----------------------------------- David H. Williamson, Vice President - Real Estate -3- SCHEDULE "A" RENTAL AMOUNT Rental Calculations - -------------------
Base Square Common Adjusted *Rent/ *Total Annual Rent Foot Area Factor Rentable Area Sq. Ft. Rental Amount - ---------------------------------------------------------------------------------------------------------------- American Storage 2,590 1.1642 3,015 9.55 = 28,795 Extended Stay 5,362 1.1642 6,243 9.55 = 59,620 Johnson Development 5,400.5 1.1642 6,287 9.55 = 60,040 -------- ------ -------- 13,352.5 15,545 $148,455 * Does not include CAM charges ------------------------------ Best Estimate with CAM Contribution - ----------------------------------- Adjusted CAM Rentable Area Est. Per Sq. Ft. CAM ---------------- -------------------- ----------- American Storage 3,015 x 4.87 = 14,683 Extended Stay 6,243 x 4.87 = 30,403 Johnson Development 6,287 x 4.87 = 30,618 ------ 75,704 Rental Obligation - ----------------- Base CAM Rental Contribution Total Monthly ------------ ---------------------------------------------------------------- American Storage 28,795 + 14,683 43,478 3,623 Extended Stay 59,620 + 30,403 90,023 7,502 Johnson Development 60,040 + 30,618 90,658 7,555 ----- Monthly Total: 18,680 ------ Rental Obligation After Application of Blockbuster Credit of $2,833.33/Month - ---------------------------------------------------------------------------- Adjusted % Credit Monthly Obligation ----------------------- ----------- -------------- American Storage 3,623 19.40 - 549 + 3,623 = 3,074 Extended Stay 7,502 40.16 - 1,138 + 7,502 = 6,364 Johnson Development 7,555 40.44 - 1,146 + 7,555 = 6,409 ------ ------ ------- 18,680 100.00 $15,847
EX-21.1 5 LIST OF SUBSIDIARIES OF THE COMPANY EXHIBIT 21.1 EXTENDED STAY AMERICA, INC. Subsidiaries of the Company EAS Management, Inc., Delaware EAS West, Inc., Nevada ESA International, Inc.,Delaware Studio Plus Hotels, Inc., Delaware Studio Plus Properties, Inc., Virginia ESA 0100, INC., South Carolina ESA 0102, INC., Georgia ESA 0106, INC., North Carolina ESA 0115, INC., South Carolina ESA 0121, INC., Tennessee ESA 0123, INC., Alabama ESA 0124, INC., Alabama ESA 0125, INC., Tennessee ESA 0127, INC., North Carolina ESA 0131, INC., South Carolina ESA 0132, INC., South Carolina ESA 0140, INC., Virginia ESA 0145, INC., Arkansas ESA 0153, INC., Illinois ESA 0155, INC., Alabama ESA 0161, INC., North Carolina ESA 0163, INC., Tennessee ESA 0172, INC., Missouri ESA 0174, INC., Florida ESA 0175, INC., Virginia ESA 0180, INC., South Carolina ESA 0186, INC., North Carolina ESA 0201, INC., North Carolina ESA 0206, INC., North Carolina ESA 0223, INC., South Carolina ESA 0231, INC., North Carolina ESA 0232, INC., North Carolina ESA 0247, INC., Indiana ESA 0280, INC., North Carolina ESA 0291, INC., Virginia ESA 0295, INC., Kentucky ESA 0302, INC., Florida ESA 0303, INC., Florida ESA 0305, INC., Tennessee ESA 0309, INC., Delaware ESA 0311, INC., Colorado ESA 0315, INC., Tennessee ESA 0316, INC., Arizona ESA 0317, INC., Arizona ESA 0325, INC., Kentucky ESA 0328, INC., Florida ESA 0331, INC., Mississippi ESA 0335, INC., Oregon ESA 0341, INC., Washington ESA 0352, INC., Utah ESA 0355, INC., Delaware ESA 0356, INC., Delaware ESA 0361, INC., Delaware ESA 0362, INC., Utah ESA 0370, INC., North Carolina ESA 0371, INC., North Carolina ESA 0373, INC., Georgia ESA 0379, INC., Utah ESA 0381, INC., Florida ESA 0382, INC., Georgia ESA 0396, INC., Delaware ESA 0399, INC., Delaware ESA 0410, INC., Virginia ESA 0413, INC., New Mexico ESA 0417, INC., North Carolina ESA 0418, INC., Washington ESA 0450, INC., Tennessee Extended Stay 0453, INC.Pennsylvania ESA 0455, INC., New Jersey ESA 0478, INC., Virginia ESA 0479, INC., New Jersey ESA 0480, INC., Virginia ESA 0486, INC., Delaware ESA 0494, INC., Delaware ESA 0501, INC., New York ESA 0503, INC., New York ESA 0504, INC., New York Extended Stay 0507, INC.Pennsylvania ESA 0510, INC., Illinois ESA 0521, INC., Kansas ESA 0522, INC., Missouri ESA 0525, INC., Illinois ESA 0526, INC., Indiana ESA 0527, INC., Michigan ESA 0530, INC., Illinois ESA 0532, INC., Illinois ESA 0541, INC., Illinois Extended Stay 0547, INC.Pennsylvania ESA 0552, INC., Michigan ESA 0553, INC., Ohio ESA 0554, INC., New York ESA 0555, INC., Ohio ESA 0557, INC., Wisconsin ESA 0561, INC., Missouri ESA 0562, INC., Missouri ESA 0564, INC., Ohio ESA 0565, INC., Ohio ESA 0574, INC., New Jersey ESA 0576, INC., Massachusetts ESA 0590, INC., Ohio ESA 0600, INC., Michigan ESA 0629, INC., Kentucky ESA 0640, INC., Illinois ESA 0646, INC., New Jersey ESA 0658, INC., Maryland ESA 0659, INC., Kentucky ESA 0660, INC., Illinois ESA 0670, INC., Michigan ESA 0675, INC., Michigan ESA 0677, INC., Illinois ESA 0679, INC., Wisconsin ESA 0680, INC., Michigan ESA 0681, INC., Ohio ESA 0691, INC., Missouri ESA 0699, INC., Maryland ESA 0700, INC., Missouri ESA 0701, INC., Missouri ESA 0733, INC., Minnesota ESA 0734, INC., Minnesota ESA 0737, INC., Minnesota ESA 0745, INC., Minnesota ESA 0752, INC., Illinois ESA 0753, INC., Illinois ESA 0765, INC., New York ESA 0767, INC., Maryland ESA 0780, INC., Michigan ESA 0785, INC., Wisconsin ESA 0788, INC., Georgia ESA 0789, INC., Florida ESA 0802, INC., Washington ESA 0805, INC., Washington ESA 0806, INC., Washington ESA 0810, INC., Washington ESA 0815, INC., Washington ESA 0817, INC., Washington ESA 0824, INC., Washington ESA 0828, INC., Idaho ESA 0831, INC., Washington ESA 0838, INC., Oregon ESA 0851, INC., Arizona ESA 0857, INC., Delaware ESA 0858, INC., Nevada ESA 0859, INC., Nevada ESA 0860, INC., Nevada ESA 0861, INC., Nevada ESA 0869, INC., Florida ESA 0876, INC., Oklahoma ESA 0877, INC., Oklahoma ESA 0884, INC., Florida ESA 0885, INC., Colorado ESA 0886, INC., Texas ESA 0898, INC., Delaware ESA 0901, INC., Colorado ESA 0902, INC., Arizona ESA 0903, INC., Delaware ESA 0911, INC., Delaware ESA 0916, INC., Delaware ESA 0919, INC., Delaware ESA 0931, INC., Delaware ESA 0932, INC., Delaware ESA 0936, INC., Delaware ESA 0939, INC., Delaware ESA 0942, INC., Arizona ESA 0976, INC., Delaware ESA 0977, INC., Arizona ESA 0979, INC., Arizona ESA 0981, INC., Delaware ESA 0985, INC., Louisiana ESA 0986, INC., Louisiana ESA 0990, INC., Georgia ESA 0991, INC., Georgia ESA 0992, INC., Georgia ESA 0993, INC., Georgia ESA 0994, INC., Colorado ESA 0995, INC., Kansas ESA 0996, INC., Georgia ESA 1500, INC., North Carolina ESA 1501, INC., Georgia ESA 1502, INC., Georgia ESA 1514, INC., North Caroina ESA 2503, INC., Maryland ESA 4012, INC., Illinois ESA 6000, INC., Louisiana ESA 6002, INC., Louisiana ESA 6005, INC., Texas ESA 6012, INC., Texas ESA 6028, INC., Texas ESA 6029, INC., Texas ESA 6037, INC., Texas ESA 6074, INC., Texas ESA 7003, INC., Oregon ESA 7010, INC., Washington ESA 7512, INC., New Mexico ESA 8515, INC., Arizona ESA 0296, INC., Kentucky ESA C1, INC., Delaware ESA 0414, INC., Arizona ESA 0706, INC., Missouri ESA 0795, INC., Florida ESA 6022, INC., Texas ESA 6027, INC., Texas ESA 6036, INC., Texas ESA 6057, INC., Texas ESA 6072, INC., Texas ESA 7508, INC., Colorado ESA 7513, INC., Colorado ESA 7519, INC., New Mexico EX-23.1 6 CONSENT OF COOPERS & LYBRAND LLP CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Extended Stay America, Inc. on Form S-3 (No. 333-100), on Form S-3 (No. 333-21625), on Form S-3 (No. 333-32345), on Form S-8 (No. 333-10255), on Form S-8 (No. 333-25639), and on Form S-8 (No. 333-43427) of our report dated February 13, 1998 on our audits of the consolidated financial statements of Extended Stay America, Inc. as of December 31, 1997 and 1996, and for the years ended December 31, 1997, 1996, and 1995, which report is included in this Annual Report on Form 10-K. Coopers & Lybrand L.L.P. Spartanburg, South Carolina February 19, 1998 EX-27.1 7 FINANCIAL DATA SCHEDULE
5 1,000 YEAR YEAR YEAR DEC-31-1997 DEC-31-1996 DEC-31-1995 JAN-01-1997 JAN-01-1996 JAN-01-1995 DEC-31-1997 DEC-31-1996 DEC-31-1995 3,213 224,325 0 0 0 0 3,651 1,665 0 0 0 0 0 0 0 19,058 229,509 0 1,074,365 441,152 0 32,188 12,403 0 1,070,891 668,435 0 82,839 31,738 0 0 0 0 0 0 0 0 0 0 956 837 0 833,703 627,877 0 1,070,891 668,435 0 0 0 0 130,800 38,809 16,768 0 0 0 60,391 16,560 6,706 71,177 23,006 6,728 0 0 0 0 0 507 8,474 12,987 2,685 5,838 5,231 1,217 2,636 7,756 1,468 0 0 0 0 0 (185) 0 0 0 2,636 7,756 1,283 0.03 0.11 0 0.03 0.10 0
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