Extended Stay America wrapped up 2015 and its fourth quarter
with strong growth in both revenue and average daily rate and entered 2016 with
renovations complete at 75 percent of its hotels. But more than remaking its
property portfolio, the company last year revamped both its sales strategy and
its revenue management system under a new CEO.
“We have more people in our sales team now than I think
we've ever had in our history,” said CEO Gerardo Lopez, who joined the company
in August. The company hired 16 additional salespeople during the third
quarter and centralized its sales team. “We have a structure that I find,
as a new guy, still, frankly very astute,” he told BTN.
Lopez said that move has helped ESA be more responsive and
grow its corporate accounts, which make up 40 percent of its overall business.
That corporate business, too, is shifting, due in large part to the renovations
already completed. “When you renovate hotels, generally that allows us to think
about getting a different type of business that might not have considered us
before,” Lopez said. “We see a lot of strength in industries like IT, medical,
industrial, education.”
Last year, ESA also made efforts to attract higher-paying,
shorter-stay guests, which led the company to sacrifice some occupancy as it
figured out how to achieve that mix, CFO Jonathan Halkyard said.
“What we've done is, through the work of the sales group,
put more focus on what is really our sweet spot,” Lopez told BTN, “and really our sweet spot is a
week to a month.” That segment, he added, makes up 27 percent of ESA’s current
business.
The Full Picture of
Renovation
ESA renovated 128 hotels in 2015 and unloaded
53 nonrenovated ones, bringing its renovated properties total to 463 as of
Dec. 31, 2015. That activity displaced 363,000 room nights for the full year. The
company is moving into its final and largest renovation phase, and Halkyard
estimated during ESA’s fourth-quarter earnings call that 135,000 room nights
will be displaced during the first quarter of 2016, up from 76,000 in the first
quarter of 2015.
The renovations, though, are paying off for the company. “Our
renovated properties continued to outperform,” Halkyard said, “posting an 8.5
percent increase in RevPAR, driven by an ADR growth of 5.5 percent and an
occupancy improvement of 200 basis points for the fourth quarter.”
Comparatively, ESA’s nonrenovated properties grew revenue per available room by
5.3 percent during the fourth quarter, fueled by 3.2 percent year-over-year
growth in average daily rate and a 140 basis-point increase in occupancy.
Overall, ADR at the 629 comparable properties still in ESA’s portfolio
increased 5.9 percent year over year to $63.26, and occupancy increased 10
basis points to 69.1 percent.
For the full year, ADR increased 7.2 percent to $64.24 at
comparable properties, and occupancy declined 80 basis points to 73.7 percent, again
hurt by renovation displacement.
Plans for the Future
ESA, unlike much of the U.S. hotel industry, doesn’t operate
on a franchise model; instead, the company owns and operates every property.
It’s a way of doing business that Lopez said has allowed the company to be
nimbler and fully aligned across the portfolio, particularly during a
renovation project that has spanned three years. But with renovations wrapping
up and Lopez at its helm, the company has a chance to figure out in which
direction it wants to head.
“[The owning-operating model] is the way that the company
has been built, it has been a conscious decision,” Lopez told BTN. Now, though, the company is
considering whether to explore franchising or financing in order to expand unit
growth. “Headroom exists, should we choose to tap into it. Then it’s how
quickly, how fast, where and how? For us, after the better part of eight years,
nine years without putting up a new hotel, as we gear up to start doing it
again, all options are on the table.”
Expanding on that same point during the company’s fourth-quarter
earnings call, Lopez said the company won’t launch other brands or move into
other segments. “We will continue to focus on what our bread and butter is
because we think that the runway there is long,” he said.
Lopez said the company will firm up its thinking in the
latter half of the year. In the meantime, ESA has managed to drive new revenue
through initiatives like its Extended Perks program, which captured 1.1 million
members in less than a year; its Clean Plus nightly housekeeping program; and
its new automated revenue management system, launched during the summer.
Revenue increased 4.8 percent year over year to
$296.3 million during the fourth quarter and grew 5.9 percent to $1.3 billion
for the full year.