Extended Stay America's regulatory filing last week to start selling shares to the public revealed little in the way of details about how much money would be raised and how much of the company would be sold. But it was very illustrative of a market segment that was on its heels a few years ago but has been the beneficiary of higher leisure and corporate spending.
Charlotte-based Extended Stay operates 684 North America locations totaling almost 76,000 rooms under its flagship badge as well as under the Homestead Studio Suites, Crossland Economy Studios and StudioPlus brands. Most of those properties either have been or are being rebranded Extended Stay America.
The company has seen its recent demand growth exceed that of the rest of the U.S. lodging industry.
Lured by relatively low room rates and the inclusion of convenience-oriented components such as in-suite kitchens, guests pushed Extended Stay's revenue up last year by 7.3%, to $1.01 billion. Despite that top-line growth, the company's 2012 net income fell 52%, to $22.3 million, as a result of higher costs, according to Extended Stay's filing with the Securities and Exchange Commission (SEC).
This year, demand growth at Extended Stay, where the average stay-length of 28 days is more than 10 times the U.S. lodging average as a whole, has accelerated. Extended Stay's Q1 revenue jumped 15% from a year earlier, to $256.8 million, while net income rose ninefold, to $13.9 million.
"It's not a big surprise," said Jan Freitag, senior vice president at Smith Travel Research (STR). "The fundamentals have been really solid."
That growth has been the case for the extended-stay sector as a whole. For the first half of the year, that sector's revenue per available room (RevPAR) rose 6% from a year earlier, to $62.99, with the gains coming almost exclusively from room-rate increases.
That growth rate exceeded the overall U.S. hotel RevPAR growth rate of 5.6%, according to STR. Extended-stay hotel RevPAR has jumped 26% since mid-2009, when Extended Stay America filed for bankruptcy protection.
And all those gains have come while room inventory has been on the upswing. The sector, whose approximately 350,000 rooms account for about 7% of all U.S. hotel rooms, has boosted its room count by 12% in the past four years, compared with an increase of just 3% for the entire U.S. lodging market, according to STR.
In fact, the sector growth has been such that J.D. Power, which annually conducts a guest-satisfaction survey for North American hotels, this year added an "upper extended stay" category to split off higher-end brands from more budget-oriented badges such as Extended Stay America.
That means that brands such as Hilton Worldwide's Homewood Suites and Hyatt House, whose nightly rates are typically about 40% to 50% higher than Extended Stay America's, were broken off from "regular" extended-stay brands like Marriott International's TownePlace Suites and IHG's Candlewood Suites as well as from Extended Stay America and its Homestead Studio Suites sister brand.
While 2013 guest-satisfaction scores rose for both Extended Stay America and Homestead Studio Suites, they still trailed the other two extended-stay brands.
Such growth has caused Extended Stay America's owners — Blackstone Group, Centerbridge Partners and Paulson & Co. — to look to cash out of Extended Stay America less than three years after buying the company for about $3.9 billion. Blackstone, in particular, has been looking to ride the wave of the travel-spending rebound, having acquired Hilton Worldwide in 2007 for $26 billion (Blackstone is expected to take Hilton public within the next year or two) and buying the Motel 6 budget chain from Accor last year for $1.9 billion.
Granted, not all of the extended-stay market has shared Extended Stay America's recent success. Jameson Inn, which was founded in 1987, filed for bankruptcy in October 2011 while more than 100 of its properties were subject to foreclosure. This year, almost all of those hotels were rebranded under either Wyndham Worldwide's Baymont Inn or Howard Johnson brands or under Choice Hotels International's Quality Inn, Comfort Inn or Econo Lodge brands.
Extended Stay America has had its own challenges. Founded in 1995, the company was first acquired by Blackstone in 2004 for about $3 billion before the company was sold to the Lightstone Group three years later for about $8 billion. By mid-2009, Extended Stay America had filed for Chapter 11 protection in the midst of a year when RevPAR within the extended-stay sector plunged 16% and room rates bottomed out.
By the end of 2010, however, Blackstone, along with Centerbridge and Paulson, had repurchased Extended Stay for $3.9 billion. The investors have since positioned the company for what appears to be continued growth and increased profitability.
"We believe our scale, combined with our recent branding and marketing initiatives focused on our core Extended Stay America brand, enables us to operate with a clear national brand identity," the company said in its July 22 SEC filing. "We also believe that we are uniquely positioned to benefit from economies of scale that translate into advantages in revenue generation, purchasing goods and services and leveraging central operating costs efficiently."
Follow Danny King on Twitter @dktravelweekly.