Extended Stay America executives said the company beat industry benchmarks during the second quarter and has proven its strength during a crisis.
CHARLOTTE, North Carolina—The strength of Extended Stay America’s long-stay business model has shown its value proposition through a crisis by attracting conversion and new-build opportunities, according to executives on the company’s second-quarter earnings call.
President and CEO Bruce Haase said the company’s Q2 results demonstrate that its business model is “far different from the transient lodging brands.”
During the quarter, ESA’s comparable systemwide revenue per available room declined by 28.7% year over year compared to overall industry declines of 70% and declines of approximately 50% for other mid-price extended-stay hotel brands, he said.
“We beat every benchmark in the industry by a large amount,” he said.
All ESA hotels remained open and have grown occupancy each week since April, he said. The company also avoided significant furloughs for hourly employees during the pandemic while actively hiring across the portfolio.
“We are much more than an outperformer during a long and laboring pandemic. Our singular focus on the extended-stay segment is not only a strategic advantage during difficult industry cycles, but I believe it will also be a source a value creation as we return to more normal times,” he said.
Haase said ESA’s value proposition is attractive to developers who wish to build new ESA properties and owners of existing hotels wishing to convert, although opportunities are limited by access to capital.
He said owners with Candlewood Suites, Townplace Suites and Hawthorn Suites properties have expressed interest in conversion opportunities.
CFO Brian Nicholson said the company opened three new purpose-built ESA hotels during the quarter while a franchisee opened one new purpose-built ESA hotel.
“After we complete the on-balance-sheet hotel development process in the first half of 2021, we expect to grow unit count predominately, if not exclusively, through franchise growth rather than through on-balance-sheet development,” he said. “Our total pipeline stood at 69 hotels (both company-owned and third party) at the end of the second quarter. We do not expect the pipeline to begin to meaningfully increase again until the financing market improves, and general RevPAR levels begin to increase.”
However, the company remains active in communicating with current and potential franchisees both for conversions in the near-to-medium term and new-builds in the medium-to-long term, he said.
Nicholson said ESA is comfortable offering guidance to Q3 but will not provide full-year guidance due to uncertainties surrounding the pandemic.
When asked if schools shifting to online learning will affect ESA’s demand come September, he said some markets will be a little bit more disrupted, but ESA continued to grow business in May and June when online learning was already prevalent.
“I have confidence in our team out in the field that they can continue to identify and bring that business into our hotels,” he said. “When we get back into more people being indoors … who knows what will happen to case counts. We’re going to watch these things very carefully.”
He said ESA has presence in every major market except for Oahu, Hawaii, and can apply what’s working in one part of the country to another.
“The business response there lies in resilience,” he said.
Haase said ESA’s primary customers can’t conduct business via teleconferencing and have to be on location. “That’s what distinguishes our business travel from most other business travel in the industry,” he said.
According to the company’s Q2 earnings release, it reported a net loss of $8.8 million and total revenues of $230.8 million.
Adjusted earnings before interest, depreciation and amortization for the quarter was $74.4 million, a decline of 51.6% compared to the same period in 2019.
As of press time, ESA’s stock was selling at $12.91 a share, down 13.6% year to date. The NASDAQ Composite was up 20% for the same time period.
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