S&P Global Ratings revised its outlook on Extended Stay America Inc. to stable from positive.
The rating agency also affirmed all of its ratings on the hotelier, including the BB- issuer credit rating.
The stable outlook is based on Extended Stay's revised policy of maintaining leverage between 3.5x and 4.0x and S&P's expectation that the company may potentially increase its leverage above the rating agency's 4.0x upgrade threshold on a temporary basis for share repurchases. The stable outlook reflects the limited downside for the rating over the near term due to the significant anticipated cushion in S&P's base-case leverage forecast through 2020 relative to its 5.0x downgrade threshold.
The outlook revision also partly reflects the conclusion of the company's strategic review, as S&P believes the company's management will focus on growing the franchise pipeline, selling its owned hotels and entering into franchise agreements with buyers, among other things.
The rating agency also lowered its earnings guidance on Extended Stay America to incorporate a slowdown in revenue per available room across the extended stay hotel segment and elevated costs. S&P expects the company's capital expenditure and shareholder returns to surpass its operating cash flows and asset sale proceeds.