ESA execs hope RevPAR momentum will continue in Q4
ESA execs hope RevPAR momentum will continue in Q4
10 NOVEMBER 2020 10:58 AM

Extended Stay America reported improvement in monthly changes in revenue per available room during the third quarter, and executives are optimistic the resiliency of extended-stay demand will continue into the holiday season.

CHARLOTTE, North Carolina—Executives at Extended Stay America hope to leverage the company’s outperformance throughout COVID-19 as a tailwind to come out ahead post-pandemic.

Bruce Haase, president and CEO of Extended Stay America, said during a third-quarter earnings conference call Thursday that the company is building on resilient occupancy during the pandemic to position itself at the head of the pack in the extended-stay segment once the virus is contained.

“I believe investors should not consider our recent strong performance to be something that will fade when the pandemic ends, but something that will instead become the basis for improved performance post-pandemic—improved of course not only from current levels of profitability, but also improved relative to our pre-pandemic performance,” Haase said. “Our recent performance during the pandemic demonstrates the depth of the extended-stay market. In the midst of the current disruption of the lodging industry, we’ve been able to operate at nearly 80% occupancy. And when the pandemic ends, most of those current demand drivers will remain.”

Haase added that ESA’s medium-stay demand has suffered during the pandemic months. This accounts for stays typically between seven and 29 nights that include guests who work in retail, IT and restaurant businesses. Transient demand, which the company defines as stays between one and six nights, was about 23% of its occupancy mix in the third quarter, down from 33% a year ago.

CFO David Clarkson said the good news is that the company’s core guests, who stay 30 or more nights, increased during the third quarter by about 10% year over year, comprising about 58% of occupied rooms.

ESA’s third-quarter systemwide revenue per available room declined 14.7% year over year, and by month, RevPAR declined 19% in July, 14% in August and 10% in September, Clarkson said.

With RevPAR declines softening, the company released an outlook for the fourth quarter and the full year. ESA projects systemwide RevPAR to decline between 11% and 15% in Q4, and between 15.5% and 16.5% for full-year 2020.

Clarkson said some positive year-over-year holiday comps could continue into the Q4 holiday season.

“Our business is less seasonal than the traditional hotel company, and this year with a higher mix of extended-stay business, we should be even less seasonal than we normally are,” Clarkson said. “And holidays have been good for us during the pandemic because it’s sort of an easier comp than a year ago. … Labor Day, for example, we were only down 2%, which was much better than our trends in surrounding weeks. To the extent that that pattern holds in Q4, Thanksgiving and Christmas I’d expect to be closer to the top end of our RevPAR range.”

But Clarkson cautioned the company’s outlook doesn’t factor in potential COVID-19 spikes throughout the remainder of the year.

“We did not bake into our forecast any changing trends as a result of COVID cases going up, and some states certainly are imposing a few more restrictions to combat the pandemic, so we’ve not seen any of that reflected in our numbers, and we’ve not baked that into our outlook,” he said.

Q3 performance
In the third quarter, Extended Stay America reported net income was down by 40.8% to $31.5 million and adjusted earnings before interest, taxes, depreciation and amortization declined by 27.9% to $112.7 million, according to the company’s earnings release.

ESA’s Q3 2020 systemwide occupancy declined 1.2% year over year to 79.8%, average daily rate decreased 13.7% to $58.56 and revenue per available room fell 14.7% to $46.75. Year to date, the company’s systemwide occupancy is down 4.5% to 73.8%, ADR is down 12.9% to $58.35 and RevPAR is down 16.9% to $43.06.

As of press time, Extended Stay America’s stock was trading at $13.03, down 12.3% year to date. The Nasdaq composite was up 26.2% for the same time period.

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