HB ON THE SCENE: Extended Stay America sells off properties, breaks ground

GIBSONTON, FL—Extended Stay America (ESA) throughout the year has been following through with the commitments it had promised to keep more than two years ago, and from what the company’s CEO can tell, ESA will continue moving forward.

“Our priority and purpose is to serve our core guests, which are guests staying five nights or longer, generally a week to a few months,” said Jonathan Halkyard, president/CEO of ESA. “Our core guests are primarily traveling for business, working on temporary projects, attending trainings, preparing for relocation and so on. This is a very attractive guest profile, one that is marked by long, reliable stays, self-sufficiency and value consciousness.”

ESA in October sold two portfolios. With regard to the first deal, the hospitality company sold 16 properties to Lodging Advisory Group LLC, a hotel owner, developer and asset manager headquartered in New York. The acquired properties are located in Kansas, Missouri, New Mexico, Nebraska and Arizona. Additionally, ESA sold 16 properties to Provident Realty Advisors Inc., a Dallas-based developer with more than 25 years of experience. The hotels acquired by Provident include 11 properties in Texas and five in Oklahoma. Each acquirer agreed to five additional ESA units over the next few years.

“We’re looking for groups that are successful in this marketplace, that understand our business type, and that have the wherewithal and the desire to help grow the ESA brand throughout the United States,” said Judi Bikulege, senior managing director of real estate at ESA.

Combined with additional franchise agreements and ESA’s on-balance sheet pipeline growth, the commitments from Lodging Advisory Group and Provident Realty Advisors aided in growing the hospitality company’s total pipeline by more than 50% during Q3 to 52 properties. “I’m very pleased that approximately two-thirds of this pipeline is franchise hotels, showing the growing demand for these hotels from third parties,” Halkyard said.

In late November, ESA completed the sale of 14 branded ESA hotels to Singerman Real Estate (SRE). This disposition comes with franchise agreements for each of the 14 hotels. Sandpiper Hospitality will manage the 14 hotels for SRE. Additionally, SRE has committed to build or convert seven additional Extended Stay America hotels in the future.

“In 2019, there will be more hotel sales, accompanied by development agreements for new hotels,” he said.

ESA’s top executive doesn’t have an exact number in mind for how many properties he’d like to see ESA sell next year, but when pressed, he provided a range: somewhere between 20-50 hotels. “Not quite as much as this year, but it’s still an important part of our strategy,” he said, acknowledging, “but it also depends upon the market for these. We don’t have to sell these hotels. They all operate very, very well. We’re happy to own them, but we also think it helps to bring in new owners as well.”

ESA has been following its enhancement strategy. Two years ago, it committed to improving its portfolio and business model in three ways to create shareholder value: First, it pledged to sell non-core assets at free cash flow multiples; second, ESA promised to develop new ESA hotels in attractive markets; and third, the company agreed to find targeted capital investments to ensure continued relevance and competitive superiority of owner properties in ESA’s portfolio.

Following through with its commitment to develop properties, ESA in November broke ground on a four-story, 124-room property located here, marking the company’s first groundbreaking in more than 10 years. The property is expected to open in fall 2019.

“This is a property we’ve been working on for some time,” Halkyard said. “It’s in a market we like very much.”

ESA already has eight properties in the Tampa Bay area. “Our business really serves people who are traveling for business,” he said. “They’re away from home for a month, six weeks at a time, and they’re usually involved with the creation of a new business, whether it be construction, training programs, pre-opening—those kinds of things—and there’s a lot of that going on in the Tampa area.”

ESA had been looking at the site for more than a year.

“It’s near many of the types of businesses that we rely upon for our business at Extended Stay, so we’re just very optimistic about how this hotel is going to perform, and we think it’s going to be a terrific new business in this area,” he said.

The hotel will showcase ESA’s new prototype, which includes the StayPlay lobby design, all vinyl plank flooring throughout, modernized kitchens with open cabinetry, raised platform beds, blackout shades, a fresh color palette, a fitness center, guest laundry, grab-and-go breakfast, in-room WiFi and pet-friendly rooms. Also part of the new prototype: property-wide LED energy-efficient lighting, low-flow plumbing fixtures for water conservation and air exchange technology for guestrooms.

ESA is the sole developer for the project. “We did use local developers to help us find the site that would best fit the extended-stay need,” said Bikulege.

The company expects to break ground on a couple of more projects by the end of 2018.

“Our company has acquired 10 real estate sites—most of them in the Southeast—but we will probably acquire another 10 before the end of the year,” Halkyard said. “That’s twenty sites by the end of the year, so we’ll be doing a lot of groundbreaking in 2019.”

As for other initiatives in the coming year, ESA is focused on delivering a quality experience for guests. “Our product is very important,” he said. “It’s a big company. We serve 20 million room nights a year; doing that right, 20 million times a year, is complicated, and that’s the most important thing for us.”

The hospitality company will also continue growing as a whole, acquiring real estate and attracting new franchisees to work with.

“We have 625 hotels in the system now. We think that the U.S. could probably support about 1,000 ESA hotels, so we really need to keep on getting after it and growing the business,” Halkyard said. HB

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