Extended Stay America executives see a lot of white space in the extended-stay hotel segment.
On Thursday, the Charlotte, North Carolina-based company announced Extended Stay America Premier Suites, a new extended-stay brand at a slightly higher price point with additional amenities such as breakfast options and a signature bedding package.
Extended Stay America's rollout of Premier Suites will begin in the second quarter of 2021 with 32 assets, comprising both owned and franchised properties already open and recently renovated, as well as new-construction hotels.
During a conference call to discuss fourth quarter and full-year 2020 earnings, Extended Stay America President and CEO Bruce Haase elaborated on the extensive consumer research that went in to the Premier Suites brand.
He said the brand fills a "pretty wide gap" between where ESA is positioned today and IHG Hotels & Resorts' Candlewood Suites. It also fits in well with "the footprint of assets" that ESA has in higher-revenue-per-available-room markets with "good corporate demand," he said.
He added that "in terms of designing the brand, we didn't want to go too far; we want to innovate around our core and not become something that we're not."
Haase said there is room for "hundreds" of hotel assets in the white space that Premier Suites fits into.
"There is a substantial portion of our own estate which we think has the potential to be repositioned should the numbers work out, and when we look at the segmentation opportunity," Haase said. "You look at the impact that we have with our existing estate and if we can be successful in separating the [average daily rate] and the customer mix between our existing estate and the Premier Suites brand, that opens up a lot more territory for development. We think of this as substantial expansion in the many hundreds [of hotels], not the 10s or the 30s."
In addition to Extended Stay America Premier Suites, the company will also be adding "Suites" to its core portfolio of hotels not aligned with the new brand, which will give franchisees new-build development opportunities through Extended Stay America Premier Suites and conversion opportunities through Extended Stay America Suites. The company also projects net unit growth annually of 5% to 7%, which Haase equated to between 30 and 40 signed franchise agreements per year.
He said the company should be able to execute 30 to 40 franchise agreements per year.
"When I was at WoodSpring [Suites] — which was an unknown brand with a commercial engine that pales in comparison to what we have — we were close to those levels, obviously before it was acquired by Choice [Hotels International]. With the value proposition that we have at Extended Stay America and the power of this brand, I'm highly confident we can get to those levels over the course of the next couple of years," he said.
When asked by analysts if it was a smart play to offer an extended-stay product at a higher price point instead of a lower price point, Haase said the company's sales team is prepared to upsell the extended-stay product.
"Our commercial engine and our sales force has been anxious for this because they have been trying to price discriminate between assets of different quality within a single brand, which is very difficult to do," he said. "This really gives us the branding and really gives permission to our sales force to ask for more. It's an easy way to explain to the consumer why it's a better product, why they should pay more for it."
Haase added that Premier Suites isn't an expansion into a higher chain scale for Extended Stay America.
"We're not reaching for an upscale or even maybe slightly upper midscale segment, but we're not reaching too far here," he said. "If we were going head to head against [Marriott International's] TownePlace [Suites] or some of those competitors with those price points, I would share your concern, but I think this is innovation closer to home that will be very successful."
Earnings and Outlook
In the fourth quarter, Extended Stay America reported comparable systemwide RevPAR decreased 9.4% to $42.46, according to the company's earnings release. ADR declined 7.3% to $57.63, and occupancy decreased 2.3% to 73.7%. For full-year 2020, Extended Stay America's RevPAR fell 15% to $42.91, ADR decreased 11.6% to $58.14 and occupancy dipped 3.9% to 73.8%.
Extended Stay America projects RevPAR declines of between 3% and 6% for the first quarter of 2021, and a net loss of between $4 million and $8 million. Adjusted earnings before interest, taxes, depreciation and amortization for the first quarter is projected at between $78 million and $84 million. The company did not provide guidance for RevPAR change, net income and adjusted EBITDA for full-year 2021.
At press time, Extended Stay America's stock was trading at $16.28 per share, up 10% year to date. The NYSE Composite Index was up 3.3% for the same period.