During an earnings conference call, Extended Stay America executives said all of the company’s properties have remained open through the COVID-19 pandemic, and they are seeing better-than-industry-average demand in Q1.
CHARLOTTE, North Carolina—While not impervious to the widespread effects of the COVID-19 pandemic on the hospitality industry, Extended Stay America is displaying some resiliency in this environment.
On a conference call Thursday to discuss the company’s first-quarter earnings, President and CEO Bruce Haase said all of Extended Stay America’s 624 hotels have remained open during the pandemic as the company has shifted operations and sales efforts to attract and better serve extended-stay guests.
“Obviously, when the pandemic hit, we were looking at 30% to 35% of our business was transient customers in terms of roomnights, and that evaporated quickly like it did for the other transient brands,” Haase said.
“We acted very quickly to really pivot to our core extended-stay customers when we saw that happening. There are multiple levers we can pull in finding extended-stay customers. Even in our extended-stay mix, we did see declines in corporate customers. Training trips were postponed. White-collar IT professionals weren’t traveling anymore. A lot of the corporate extended stay evaporated as well.”
Haase said systemwide occupancy for ESA properties has dipped below 60% “only a couple of weeks,” which he added outperforms the 20% occupancy industry average during the low-demand COVID-19 environment. Even in April, ESA’s systemwide occupancy was approximately 61%.
Some of ESA’s hotels in certain markets are struggling, CFO Brian Nicholson said, but those properties are generally “more transient in nature” and located in coastal urban markets such as the Bay Area, Washington, D.C., New York and South Florida.
“Since early April, South Florida and the Greater New York City area had come back really strongly, as well as LA,” Nicholson said. “The Bay Area and D.C. are not coming back as quickly, and I would say that they remain fairly soft, but soft is a relative term. … We have more hotels with greater than 80% occupancy than we do hotels with occupancy below 50%. We actually have more hotels with occupancy above 90% than we do below 40% right now.
“So, given the current situation, even our soft hotels are not as soft as others, and certainly we’ve had other hotels that are pretty close to firing on all cylinders.”
COVID-19 business changes
Extended Stay America has taken steps to curb any potential spread of coronavirus at its hotels, Haase said. Guestroom housekeeping has shifted to every other week instead of once per week as cleaning frequency has increased in the lobby, elevators and common areas, and the company has removed its grab-and-go breakfast and coffee across the portfolio. When guests check out, the room is cleaned and left unoccupied for 24 hours before the next guest checks in, Haase added.
The company is still interested in franchising and development, but Nicholson said its renovation program is mostly on hold, except for some projects in Florida.
“We’re basically suspending renovations until we get a better sense for what we can expect out of them and certainly the pace of recovery that we see,” he said. “The evolution of demand that we see as we come out of this as a country will have an impact on our renovation plans going forward.”
Haase added renovations “certainly won’t be happening this year and … may not be happening until late 2021.”
In late April, The Wall Street Journal reported Blackstone and Starwood Capital became shareholders in Extended Stay America. In 2004, Blackstone acquired the company for about $2 billion, later selling it in 2007 to Lightstone Group for $8 billion.
Neither Haase nor Nicholson would comment Thursday on those investments or any other specific shareholders.
During the quarter, Extended Stay America reported revenue per available room decreased 5.8% year over year to $43.98 as ADR decreased 6.5% to $61.14 and occupancy rose 0.6% to 71.9%. Total revenue decreased 4.1% year over year to $266.3 million, net income fell 72.4% to $7.8 million and adjusted earnings before interest, taxes, depreciation and amortization declined 16% to $97.7 million.
As of press time, Extended Stay America’s stock price was trading at $10.76, down 28% year to date. The Baird/STR Hotel Stock Index was down 44.7% for the same period.