NEW YORK — Extended Stay America offered a major update on its move into franchising here at the NYU International Hospitality Industry Investment Conference. Almost exactly two years since it introduced plans for the shift at the 2017 conference, ESA stands just over halfway done with the five-year plan it first set out.
In the past 18 months—ESA spent about six months finishing the franchise disclosure document—the company has sold 76 hotels, most of which have become franchised locations. By the year’s end, EVP/Chief Development Officer Jim Alderman estimated it would sell another 30 to 50. The company’s original plan called for it to sell 150 hotels over five years.
Going asset light has been a trend with hotel companies during the past several years, but that's not the exact angle for ESA.
“Asset lighter, I think, may be appropriate because we are settling down a little bit, but what’s probably most important is just asset right,” Alderman said. “Let’s renovate our assets that we own. Let’s sell off the assets that do fine, they make money. And everyone we’ve sold to is doing as well as we did or better.”
Alderman told Hotel Management many of these hotels it has sold are in the middle of the country, where ESA doesn’t own as many properties as densely. “We operate a lot better, a lot more efficiently, when we have multiple hotels operating together; if we can share employees between them, we can have efficiency,” he said. By selling to local companies who may have 15 hotels in a given area, these franchised properties can then operate with the same types of efficiencies ESA prefers to have with the hotels it owns.
Not all the 76 sold hotels have ended up as franchised locations, though. One returned to being an apartment building and another has become an IHG property, for example. In one case, ESA sold an Austin, Texas, hotel for $45 million to a buyer just looking to tear it down and use the land. Still, these cases remain the exception, not the rule.
Aside from middle America, Alderman said ESA also is looking at selling some locations in the Northeast. In Florida, he said he might sell a few just because of their age. “I’ve got 25-year-old product and we’d like to own something newer for the next 25 years in those markets,” he explained.
According to Alderman, 71 of ESA’s 628 hotels are now franchised. On top of that number, the company has commitments for another 40 locations. By the time ESA sells its targeted 150 hotels, Alderman estimated it will have surpassed 190 franchised locations.
The decision to sell more than 150 hotels would be up to the board or CEO, Alderman said. “If we got really good pricing on what we’re selling and if we were getting a lot of good traction on new franchise growth and if they start really saying, ‘Hey, we’ll keep building if you sell us a couple more.’”
Building its Numbers
ESA also is growing via new-build construction, a major departure from how it operated for more than a decade. Right now, it has seven hotels under construction with an eight to break ground in the near future. Over the next five years, it hopes to build anywhere between 50 and 80 new locations.
This year marks the debut of ESA’s first new prototypes in 15 years. In Chandler, Ariz., ESA has built a hotel Alderman described as “chasing the up segment.” The second property, he said, will take that design and scale it back to save on costs. That first model, Alderman said, is slated to open later this year, with the second to follow a month later.
ESA’s growth through purchasing remains comparatively small. Alderman said within the past year the company has only bought and converted two hotels, both Legacy Suites.