Blackstone has bought back into Extended Stay America, joined by Starwood Capital.
The hotel company has yet to close any properties during the coronavirus outbreak, instead providing housing for groups including care and construction workers.
Starwood Capital paid $136.8m for an 8.5% stake, with Blackstone acquiring 4.9%.
At the group’s fourth-quarter earnings call in February, president & CEO Bruce Haase told analysts that the company planned to “more aggressively curate our asset portfolio, and grow the Extended Stay America brand through an asset-light franchising strategy”. The group has also been looking to move to longer-term residential guests.
Extended Stay America has not updated the market on performance since the outbreak spread more widely, but was due to lay out the company’s plans for the next three years at an analyst day this summer.
For the full year 2020, the group had forecast revpar growth of negative 0.5% to positive 1.5% and adjusted Ebitda between $505m and $525m. At the time of the earnings call the group had not factoring COVID-19 into its forecast, but CFO Brian Nicholson commented: “We do believe Extended Stay America is relatively well insulated compared to other lodging operators from material COVID-19 impact”.
The comments were echoed by Russell Kett, chairman, HVS London, who told us: “Hotels specialising in longer-staying guests and the serviced apartments sector have not all necessarily be obliged to close during the current pandemic, catering to longer staying guests being their focus. Some have accommodated long-staying guests who were already in residence, key workers and/or, in some cases, those for whom social housing is being provided by their local authority.
“When the signal is eventually given for business to resume, and hotels are allowed to reopen and so forth, there will initially be a period when operators need to reopen their hotels, with hopefully much of the planning having been done in advance of this point in time.
“It is most likely that domestic/local leisure customers will be the first segment to show interest in staying in hotels. The extended-stay establishments, including serviced apartments, could conceivably be particularly attractive to such guests, especially those preferring to engage in social distancing and who don’t require some of the facilities and amenities of more traditional hotels.
The segment has attracted the traditional hotel operators, with Choice Hotels International launched a new extended stay brand, Everhome, in January.
Anna Scozzafava, VP, brand strategy and operations, extended stay at Choice Hotels, said: “The demand for hotel stays of seven-plus nights is nearly 20% of all room nights sold, yet only 9% of the supply is in the extended-stay segment, according to data from The Highland Group and Kalibri Labs. Everhome Suites sets out to capture this unmet demand with fresh, modern hotels that satisfy value-conscious consumer preferences for longer-term stays.”
Haase said: “We don’t mind the competition. I think that the fact that a number of competitors, including Choice, who have entered that market with some strong brands is good. It highlights the attractive nature of the business. It’s a big niche. It is an underserved niche.”
Insight: It’s no great shock to learn that investors are looking for a hotel-style product which is less at risk of being shut down during a pandemic than most. Brokers up and down the land have reported owners eager for a change of use for their empty hotels and oil storage is fraught with practical complexities.
Enter Extended Stay America, or, if you’re Blackstone, re-enter Extended Stay America through what appears to be a revolving door. One assumes that there must be a frequent flyer discount available. Given that Blackstone always makes screeds of cash out of it, one can see how you’d keep pulling that lever and watching the cash tumble out.
The extended stay segment has enjoyed a boost in recent years in large part because of Airbnb, which showed travellers another way - specifically a way which featured a kitchen in the corner of a room. There really is no underestimating how much people just enjoy being left to their own devices and if that means making pasta alla puttanesca and then eating it out of the pan in bed like Nigella Lawson then you won’t find judgment here. Or, it seems, at Blackstone and Starwood Capital.