Extended-stay hotels’ occupancy premium compared to the overall hotel industry rose to 16.7 percentage points in the second quarter, according to The Highland Group.
The resilience of the sector has seen growth in investor interest, after Extended Stay America reported that none of its hotels had closed during the pandemic.
Extended-stay hotels posted a 55.1% revpar loss in June, the smallest decline in the three full months since the pandemic began impacting travel, against a 60.6% fall for hotels.
“Extended-stay hotels are widening their occupancy premium despite smaller reductions in ADR compared to the overall hotel industry,” said Mark Skinner, partner at The Highland Group.
Arne Sorenson, president & CEO, Marriott International told analysts on the group’s first-half earnings call that “not surprisingly our extended stay hotels have experienced the fastest pace of recovery”.
For those specialising in extended stay, results season was even more positive. Extended Stay America reported that it had been able to keep 100% of its portfolio open during the pandemic and grown occupancy across the system each week since April.
During the second quarter, the group reported comparable system-wide revpar declines of 28.7% against industry declines of 70% and declines of roughly 50% for other mid-priced extended stay hotel rooms. From a low point in the high 50% range in April, the group was operating at an 81% occupancy level in August.
Adjusted Ebitda in the second quarter was $74.4m compared to $153.6m in the same period in 2019. The decline in adjusted Ebitda was driven by the decline in revpar partially offset by a decrease in property level expenses.
Bruce Haase, CEO, told analysts: “Last spring, we saw many important demand drivers such as transient leisure essentially disappeared during the quarter. Our teams pivoted quickly to find new sources of Extended Stay demand from segments such as warehousing and logistics, temporary medical and construction. And difficult economic times often create transitions in people’s lives and those transition also increases the demand for our products.
“As the environment changes, we can and we will adjust our sources of extended stay business, a segment which remains underserved. In doing so, we can outperform during the difficult times and fully participate in the better times.”
The resilience of the extended stay market has attracted both investors and brands. Amongst those looking to attract Travelodge’s owners in the UK was Lamington Group, which accelerated the launch of its budget extended stay-brand, “buoyed by the performance of the hometel concept throughout Covid-19”.
Robert Godwin, managing director, Lamington Group and room2, said: “The Covid-19 pandemic has caused disruption on an unprecedented scale and the hospitality industry has been one of the most affected. Many hotel landlords who previously thought their leases offered them protection suddenly found themselves at the mercy of tenants who were either unwilling or unable to pay, even those signed with strong, seemingly well financed hotel brands. As a result, whilst our near term focus continues to be working with all our stakeholders to manage our way through the crisis, we have accelerated the launch of room2 lite, recognising that, now more than ever, the UK budget sector remains ripe for disruption, particularly at a time when landlords are looking elsewhere to avoid being stuck with unfavourable reduced terms.
“room2 lite was originally borne out of our view that UK budget hotels are underserved by operators in the extended stay and design-led segment, and that there is lot of untapped potential to create truly memorable experiences. The market is dominated by large corporates, unable to pivot quickly in light of a changing economic landscape and changing consumer demands.
“Our hometel model has held up extremely well in recent months and proved its resilience despite the worst of economic cases. We now see a real opportunity to replicate this success in the budget hotel market, setting a new standard for consumers, while offering landlords a hybrid leasing model which aligns their interests with ours, and is resilient enough to drive sustainable returns over the long term.”
Insight: It doesn’t bear saying too many times; the pandemic is accelerating trends. Extended stay was already attracting interested parties, looking at its lower costs and nice, even revenue model. The need for accommodation from key workers - and accommodation which allowed for social distancing - has drawn even more attention, and from investors who like their investments to stay open whatever the prevailing weather.
The market is now evolving. Extended Stay America was due to outline its new strategy in an upcoming investor day and all markets were up for grabs. In May, Magnuson Hotels - also competing for Travelodge sites - launched a new extended-stay brand, with locations in Canton, Ohio and Irving, Texas.
Also in May Navneet Bali, the former chairman of Meininger Hotels, launched a hybrid brand combining extended stay and transient guests, under the name LyvInn. Bali told us this week that investors were eagerly looking for properties - not just hotels - to convert into extended stay. Once a beige corner to push road warriors into with nothing but beige walls and a hot plate, extended stay is now coming to the fore.