Renovations boost ESA performance
01 AUGUST 2014 6:09 AM
The extended-stay owner-operator’s continuing portfolio-wide renovation program is driving higher rates and occupancy.
CHARLOTTE, North Carolina—Extended Stay America’s ongoing portfolio renovation program is paying off in improved operating performance, executives said Thursday during a second-quarter earnings call.
“The 172 properties that have a full year of post-renovation results have posted (revenue-per-available-room) index gains of 8.6%,” said Peter Crage, CFO, who earlier this month resigned his post, effective Thursday. “Additionally, our properties that have not yet completed a full year of post-renovation results are on track to deliver similar results.”
During the second quarter, RevPAR at the company’s hotels grew 9.4% to $45.69 on a 2.3% rise in occupancy to 78.8% and improvement in average daily rate of 6.8% to $57.98. Revenues for the company, which owns and operates 682 hotels in the United States and Canada, increased 9.6%, and adjusted earnings before interest, taxes, depreciation and amortization rose 16%.
CEO Jim Donald attributed the improved performance to several factors, with the renovation program the most important.
“We’ve been very pleased with the ramp-up of the latest phase of our renovation schedule, which included 92 hotels,” Donald said. “These properties, which were under renovation during the first quarter of 2014, moved into the three-month, post-renovation period during which we typically see occupancy rates recover.”
He said second-quarter performance also was affected positively by the comparisons to 35 hotels that were under renovation during the second quarter of 2013.
“These factors all contributed to RevPAR sequentially strengthening each month throughout the quarter,” Donald said, adding the momentum has continued into July, in which the company saw a rise in RevPAR of just over 9%.
This summer, renovations started at seven hotels in the Phoenix area, with upgrades scheduled to start in phases during the fourth quarter at 62 hotels in other parts of the U.S. So far, renovations have been completed at 322 of Extended Stay America’s properties.
Shares of Extended Stay America were down 14.2% year to date as of Thursday afternoon. The R.W. Baird/STR Hotel Stock Index is up 11.6% year to date.
During the call, executives updated analysts on the progress of other ongoing corporate initiatives.
The company nearly has completed a plan to migrate reservations calls made directly to properties to a central reservations office. Donald said that during the second quarter, booked revenues at the call center were up more than $40 million, while revenues booked directly at hotels were down $18 million, resulting in a 10% increase for the two channels combined.
“Centralized hotel reservations calls provide greater transparency, better responsiveness to calls and more calls converted into bookings,” he said.
In June, the company launched a summer marketing campaign that included a national TV campaign on 38 cable networks as well as a number of online media elements, including online video, digital banner ads, social network marketing and mobile website marketing.
According to Tom Seddon, chief marketing officer, the renovation program and the new marketing campaign are helping the company change guest mix and length-of-stay patterns.
“We’re seeing a gradual shift to shorter stays,” he said, noting that approximately half of guests stay at a property for less than 30 days. “And within our longer-stay business, we’re able to increase our percentage of higher-rated corporate business, which helps us drive rate, even if the length-of-stay mix doesn’t shift very much.”
A look ahead
As part of its earnings report, the company presented its outlook for the remainder of 2014. The executives said they expect RevPAR growth in the third quarter will be consistent with the results in the second quarter but should strengthen further in the last quarter of the year.
The outlook calls for total-year revenues to increase between 7% and 10% to as high as $1.25 billion. Adjusted EBITDA is expected to rise between 10% and 16%.