ESA: RevPAR up, renovations program on track
 
ESA: RevPAR up, renovations program on track
24 FEBRUARY 2016 8:43 AM

While Extended Stay America is several years deep into its company-wide renovation initiative, the economy brand posted positive RevPAR gains in the fourth quarter of 2015 and in year-end results.

CHARLOTTE, North Carolina— In the midst of a multi-year renovation project, Extended Stay America posted mostly positive gains during the fourth quarter and full-year 2015, which CEO Gerry Lopez described as “a busy but rewarding year that sets us up well for the future.”

 
Extended Stay America completed renovations on 128 of its 629 owned properties by the end of 2015, bringing the total number of renovated hotels to 463. Lopez said the company-wide renovation program is 75% complete and remains on pace to finish in the first quarter of 2017.
 
Lopez pointed to Extended Stay’s America’s 6% comparable hotel revenue-per-available-room growth during the fourth quarter despite the renovations as a strong indicator of the company’s good health.
 
“The 6% RevPAR (growth) is impressive, not just because of how favorably it compares to the industry, but because we posted strong revenue growth even in the face of significantly increased renovation disruption over the same quarter in 2014,” Lopez said during an earnings call with analysts Tuesday. “But renovations are short-term pain for long-term gain, as our results were indeed driven by the renovated hotels.”
 
As of press time, Extended Stay America’s stock price was down 15.6% year to date. By comparison, the Baird/STR Hotel Stock Index was down 4.4% over the same period.
 
The renovations are already showing signs of positive impact, according to CFO Jonathan Halkyard. He said renovated properties posted an 8.5% increase in RevPAR and an average-daily-rate increase of 5.5% for the fourth quarter, while non-renovated properties saw a 5.3% RevPAR jump and a 3.2% ADR increase during the quarter.
 
“(The renovations) are working really well, and that’s why this year the final phase is the biggest of all; we want to get them done,” Lopez said.
 
 
Extended Stay America saw RevPAR grow 6.7% to $45.89 in 2015. Total revenue increased 4.8% to $296.3 million in the fourth quarter despite a $4.1-million net income loss to common shareholders. Revenue grew 5.9% to $1.3 billion in 2015. 
 
Other initiatives
Lopez and Halkyard also pointed to the company’s redesigned sales team—which accounted for 10% revenue growth from corporate accounts in the third and fourth quarter of 2015—as well as the launch of a revenue-management system in 2015, which executives expect to boost 2016 RevPAR between 1% and 2% on its own. 
 
“In our planning process we assume a GDP growth of about 2% and we’ve looked at what other larger hotel companies are forecasting for 2016, and that feels like it’s kind of in the 3% to 5% growth rate,” Halkyard said. “We’re comfortable in our ability to outperform the industry this year once again as we’ve done for the past couple of quarters, but (the revenue-management system) and the sales force I would say are the two main drivers for us.”
 
 
In December, Extended Stay America completed the sale of the Crossland Economy Studios brand comprising 53 hotels for $285 million, which accounted for a $4.5-million loss of revenue during the fourth quarter, according to Halkyard. Despite the sale downsizing the company’s portfolio from 682 properties in 2014 to 629 at the end of 2015, Chief Marketing Officer Tom Seddon said the portfolio will be “generally stable” in 2016.
 
The company also announced Tuesday its authorization to repurchase $200 million of paired share stock.
 
When it comes to future growth, Lopez said that for now, the company has no plans to launch new brands or expand into other chain-scale segments. 
 
However, he said that as the company nears the end of its renovation phase, unit growth could become a new focus, and “franchising is very much on the table; how we choose to finance that unit growth is very flexible.” 
 
When asked by an analyst what franchising costs might be, Lopez said he anticipated “a per-key cost of somewhere in the $80,000 to $120,000 (range).”
 

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