ESA's new CEO puts emphasis on extended-stay core
 
ESA's new CEO puts emphasis on extended-stay core
27 FEBRUARY 2020 10:25 AM

New Extended Stay America President and CEO Bruce Haase told analysts during a fourth-quarter and full-year 2019 earnings call his vision for the company is to decrease its transient business to attract more consistent extended-stay guests.

CHARLOTTE, North Carolina—Under new leadership, Extended Stay America is refocusing its business model toward its core extended-stay guests.

President and CEO Bruce Haase, on his first earnings conference call since succeeding former chief executive Jonathan Halkyard in November, emphasized that the company needs to invest in more marketing and distribution strategies to better drive extended-stay business.

“Today transient business represents about 37% of our business, and … when we went public a number of years ago, that was in the mid-20s,” Haase said during Thursday’s call.

“That level of transient business … really creates a lot of havoc in our property operations. It’s expensive business to deliver. The customers we deliver are not necessarily a good mix or a good match for product, and our operating models are really very focused on (reducing) that transient business. … We’re optimizing our distribution channels to do that, and that’s one advantage that we have (that) some of our transients competitors don’t have. We can optimize all of our distribution channels around the extended-stay customers, and that is really a strong focus.”

ESA plans to relaunch its website by early next year, and Haase said part of the plan is decreasing referrals from online travel agencies, which typically deliver transient guests.

“Those that book through our website or through our channels have an understanding of the product and understanding of the service that they’re getting,” Haase said. “When people book through an OTA or certainly through an opaque channel, those customers have no idea that they’re staying in an extended-stay property. They have no idea that there’s not a full breakfast in the morning. They have no idea that they don’t have daily housekeeping.

“There’s a real disconnect between the customer expectations and what we can deliver. To the extent we can mitigate that certainly provides a multitude of benefits in terms of cost, in terms of operations and in terms of our perception on social media.”

With this strategy, ESA hopes to drive occupancy over rate, leading to higher revenue-per-available-room growth.

“What we’ve seen from our franchisees that have adopted the approach that we are on the path (toward) is higher occupancy, a bit lower rate, higher RevPAR, that also translates into higher margins … and lower OTA fees,” Haase said. “We have seen some very dramatic top line results from our franchisees that have adopted this model, and a lot of that potential exists here.”

New competition for franchising
In January, Choice Hotels International launched EverHome Suites, and analysts asked Haase if new extended-stay products offered by larger hotel companies—with more established franchising teams, distribution networks and loyalty programs—are a threat to ESA.

“The fact that a number of competitors including Choice have entered that market with some strong brands is good; it highlights the attractive nature of the business,” he said. “It’s a big niche, and it’s an underserved niche. And that does not scare us in terms of competition.”

But Haase said Extended Stay America is best-suited to meet the needs of extended-stay franchisees, adding he’s “very optimistic” about franchising.

“We’re completely aligned and completely focused on the extended-stay segment and delivering extended-stay business, and … at the end of the day, what every franchisee wants is business delivery from the brand, and that’s what we're really set up to do,” he said. “We’re set to deliver the right kind of business that’s a good mix for the prototype and the operating model. We’re going to stay very true to the operating model, because it’s such a high-margin product.”

Performance and outlook
In the fourth quarter, ESA’s comparable systemwide RevPAR declined 0.8%, net income was $23.8 million and adjusted earnings before interest, taxes, depreciation and amortization was $108.8 million. For the full year, RevPAR decreased 0.9%, net income was $165.1 million and adjusted EBITDA was $535 million.

In 2020, ESA expects full-year comparable systemwide RevPAR to be in a range of down 0.5% to up 1.5%, with net income between $133 million and $154 million and adjusted EBITDA between $505 million and $525 million.

At press time, Extended Stay America’s stock was trading at $10.59 per share, up/down 29.3% year to date. The Baird/STR Hotel Stock Index was down 20% over the same period.

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