Extended Stay Hotels: Growth or Performance?
When investing in hotels, recent year-over-year trends in revenues and profits, along with current performance values, are two of the metrics most frequently evaluated. Investors need to balance the current levels of a property’s occupancy, ADR, revenues and profits, with the recent direction of the changes in these measurements. In an attempt to time the market, some people prefer to invest in hotels that are currently achieving low levels of revenues and profits, but are coming out of the bottom of the cycle and achieving strong gains on the top and bottom lines. Others prefer hotels that have are approaching, or are achieving, peak levels of performance.
When analyzing the performance of the extended stay hotel segment, we see a difference in the performance of the upper-priced properties in this segment versus the moderate-priced properties. Since 2010, moderate-priced extended stay hotels have shown greater gains in revenues and profits. However, upper-priced extended stay hotels continue to achieve premiums in occupancy, ADR, revenues, and profits.
To evaluate the performance of extended stay hotels in the U.S. we analyzed operating data for a sample of 360 upper- and moderate-priced properties that submitted data each year from 2010 through 2017 to CBRE’s annual Trends in the Hotel Industry survey. For this analysis, the upper-priced sample consisted of hotels affiliated with extended stay brands in the upscale segment. Moderate-priced extended-stay hotels are affiliated with brands in the upper-midscale and midscale segments. Economy extended-stay hotels were excluded from this analysis to avoid a significant bias in the sample. Estimates of 2017 performance (2017E) were made based on the preliminary results of our 2018 Trends survey.
The following paragraphs summarize the findings of our analysis.
Extended vs All
In aggregate, the properties in the extended-stay sample achieved compound annual growth rates (CAGR) of 4.8 percent in total operating revenue and 6.3 percent in gross operating profits (GOP) from 2010 through 2017E. While strong, these growth rates are less than the 4.9 percent CAGR in revenue and 7.3 percent CAGR in profits achieved by the entire Trends survey sample inclusive of all property types.