Extended Stay America hotels (ESA) announced today the brand's next five-year growth strategy, anchored by its first ever franchising program and a return to new hotel builds, the first in a decade. ESA is combining its attractive and best-in-class operating model with a franchisee-friendly agreement and guest-inspired redesigns to catapult the brand, accommodating an ever-growing and underserved mid-scale extended stay audience.
In a United States industry comprised of 55,000 hotels and 5.2 million hotel rooms, approximately 22 percent of demand for those rooms comes from guests staying five nights or more at a time. Yet only 8 percent of the available inventory is considered extended stay. Seeing an attractive demand profile within the segment, limited supply growth, and a tremendous business opportunity, Extended Stay America is evolving to meet the needs of today's traveler for a reasonably priced, comfortable and friendly extended stay experience.
As part of the brand's previously announced ESA 2.0, Extended Stay America expects in the coming months to return to unit growth, with a target portfolio of 700 Extended Stay America branded properties by 2021, approximately 70 percent of which will be owned/operated and 30 percent franchised. The company will also adopt an asset merchant approach to its large real estate holdings – buying, selling, developing and improving real estate one site at a time.
"As we begin franchising at ESA for the first time, we're seeking partnerships with well-capitalized franchisees capable of developing their market areas, which might include buying the existing corporate-owned ESA hotels and converting them to franchised units. We would like to see our prospective owners 'cluster' operations for better efficiency and pricing power within their markets and match their local development and ownership expertise with the advantages of Extended Stay America's scale," said Extended Stay America EVP and Chief Asset Merchant Jim Alderman." The goal is for each franchisee to control multiple properties, with the potential of taking ownership of and facilitating our brand's presence in entire markets."
Extended Stay America's keen focus on serving extended stay guests, with sales, revenue management and operations strategies specifically catered to this audience, yields industry-leading margins and outstanding cash flow across its 625 owned and operated properties. By implementing a streamlined and effective operating model with only 12-13 associates at each property, workplace standardization and clear operating procedures, Extended Stay America has created consistency in guest experience across the brand's portfolio, eliminated waste and improved labor standards. With the launch of its franchise program, Extended Stay America will make its operating model available to third-party owners and operators for the first time.
By concentrating on fewer, but larger, franchisees, each can control more assets within their chosen markets and Extended Stay America can continue the consistency for which the brand is known, serve the increasing demand in new and growing suburban markets and provide scale opportunities for its franchisees. By 2018, Extended Stay America will be actively franchising, with interested partners having options to convert existing assets, buy and franchise existing hotels from Extended Stay America, or build new franchised properties.
Over the last five-plus years, Extended Stay America has invested over $1 Billion for portfolio-wide renovations and other capital improvements. These investments helped set the foundation for future growth and profitability, the plan now called ESA 2.0. With a footprint of 625 hotels and more than 68,000 rooms in 44 markets across the country, including all 25 of the nation's top markets, Extended Stay America is the largest mid-price extended stay hotel in the industry, and sees itself as uniquely qualified to take the next step in serving the unique extended stay audience.
"We like to say there are many reasons to stay with, or now to franchise with, Extended Stay America," commented Extended Stay America President and Chief Executive Officer Gerry Lopez. "Having completed the largest renovation improvement program in our company's history, we've set the stage for our next phase of development and design. We've always remained acutely focused on an extended stay audience and will continue to do so, evolving along with them."
Having studied how guests utilize the existing product, Extended Stay America has redesigned rooms to feature innovative guest-inspired improvements unlike anything else in the midscale extended stay segment. With 70 percent of the brand's guests staying for five-night or longer, and 42 percent staying longer than a month, Extended Stay America recognizes guests' desire for practical, home-like accommodations. The brand's intuitive redesign features smart storage, reimagined common areas and an exclusive double-queen room layout, affording guests more privacy and answering the growing demand for accommodations suitable for double occupancy. Additionally, Extended Stay America will continue providing amenities key for guests' comfortable and frictionless stays, including fully equipped in-room kitchens, free in-room Wi-Fi and grab-and-go breakfast, onsite laundry facilities and pet-friendly accommodations.
In addition to growing the brand and attracting best-in-class partners, Extended Stay America is investing in well known, experienced and well-established talent to bring ESA 2.0 to life. Extended Stay America's Executive Vice President and Chief Asset Merchant Jim Alderman and Vice President of Marketing Strategy and Planning Rick Canale welcome a stellar team of industry professionals with more than 65 combined years of hospitality experience: managing directors of real estate, Judi Bikulege and Steven Scheetz; and managing director of real estate development, Stephen Miller.
Having joined the Extended Stay America team as managing director of real estate in March 2017, Judi Bikulege is responsible for value enhancement of ESA's eastern U.S. real estate portfolio. A 35-year hospitality veteran, Bikulege has a diverse background in finance, mergers and acquisitions, development, asset management, risk management, and operations. Prior to joining the team, she served as a private consultant with an emphasis on the hospitality industry; executive vice president of Capital Markets for Gencom; and senior vice president of business affairs at Morgan Hotel Group.
Also having joined the team as managing director of real estate in March 2017, Steve Scheetz is responsible for ESA's real estate, development, and growth in the western half of the USA. Scheetz brings over 25 years of institutional real estate private equity and deep hospitality investment experience to Extended Stay America and ESA 2.0. Over his career, Scheetz has had significant involvement with 12 different lodging companies, including six public NYSE companies, totaling over 1,450 hotels and $14 billion in value. Scheetz has also held senior executive roles at Gatehouse Capital, WMC Management / Olympus Real Estate Partners, The Hampstead Group LLC, and most recently at Heartland Capital & Affiliates.
Another long-standing industry veteran, Stephen Miller joins Extended Stay America as a Managing Director of Real Estate and Development. Most recently with Interstate Hotels & Resorts as Senior Vice President of Development, Miller was responsible for working with investors and capital groups in acquiring full-service and select service hotels throughout North America. Having held senior level positions with hotel companies including Carlson Hotels Worldwide, Interstate Hotels & Resorts and Embassy Suites, Miller brings his extensive knowledge of both hospitality and portfolio enhancement to ESA 2.0.