Extended Stay America plans to sell between 100 and 200 properties to franchisors and foresees plenty of open space to expand, executives said.
LOS ANGELES—Extended Stay America has been on a strong performance trajectory, and company executives are ready to launch new plans for the future of the economy extended-stay brand that include franchising and a new design.
Speaking during a break at the recent Americas Lodging Investment Summit, new EVP and chief asset merchant Jim Alderman, who joined the company last October, said the company’s franchising plan is nearly “ready to go.”
CEO Gerry Lopez confirmed in April that franchising was part of the company’s growth plan, and Alderman said that the company is poised to take the step into franchising through asset sales.
“What’s the future of ESA? These properties are at a cost that make a great deal of sense to investors,” Alderman said. “They run incredible margins. Part of what we’re doing is transitioning to an asset-lighter face, selling anywhere from 100 to 200 hotels and converting them to franchise agreements. We’re using these assets as part of our capital. It will help us establish faster, and the people we sell to will build more.”
At the close of the third quarter, ESA owned all 629 hotels in its portfolio, and in October it announced deals to sell four properties.
Alderman credited the company’s strong performance with supporting its new franchising model.
“We can offer owners great, cash-flowing properties,” he said.
Extended Stay America COO Tom Bardenett echoed that sentiment, explaining how the company’s robust renovation program has bolstered property performance.
“The exciting thing is that we have a tailwind,” he said. “Over the last four years we did a lot of heavy lifting doing the renovation, and now you see great signage, colors, lighting and landscaping, and standardization of the guestroom product.”
That standardization helps potential franchisees see the operating models and margins very clearly, Alderman said.
“There’s a lot of faith that with the standardized product, we know where our rate’s going to be,” he said. “We don’t have to worry about food costs, liquor costs or banquets.”
How and where franchising will happen
While ESA historically has owned its entire portfolio, Alderman said “there’s always been demand” for franchising.
“When you have a fleet this size, there are always people who have said they wanted one,” he said.
With brand standards established during the portfoliowide renovation, Alderman said consistency and operational efficiency standards have been set as well.
“We have support people in the field,” he said. “We have enough infrastructure within the company. Our brand standards are simple.”
And while the company’s portfolio size is large, Bardenett said there’s still plenty of white space.
“We’re only in 300 of the 600 census tracts, and there’s so many opportunities in areas where we never build,” he said.
Even with a franchising plan in place, Alderman said the company will continue to build ground-up assets, as many as 10 to 15 per year. And ESA will be strategic in terms of its owned assets that it will sell and which it will retain.
“We’re not going to sell off an entire market and keep the best asset,” Alderman said. “It’ll be strategic.”
Alongside that, he said the company might continue to manage assets it sells.
While the company’s ongoing renovation plan is scheduled to be completed early this year, Alderman said the next redesign phase has already begun.
“As the renovation cycle comes to a close in 2017, it starts up again in 2018,” Alderman said.
Design firm Gensler designed the new prototype, which builds on the successes of the brand’s latest renovation updates.
The new prototype includes two closets, more storage and a double-queen room type that places the beds head-to-head with a solid wall between them to compartmentalize the room.
“We thought the concept through by learning how people use the room today, like adding storage, open cabinets, elements that are easier and more functional to clean” Bardenett said.