Q4 2020 Extended Stay America Inc Earnings Call
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Greetings and welcome to the Extended Stay America fourth-quarter and full-year 2020 earnings call at this time. All participants are in a listen-only mode a question-and-answer session will follow the formal presentation should anyone require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder. This conference is being recorded. I would now like to turn the conference over to your host. Probably Lou Vice President of Finance and investor relations, please go ahead.
Good morning, and welcome to Extended Stay Americas fourth quarter 2020 conference call but the fourth quarter earnings release and the company presentation are available on the investor relations portion of our website, which you can access directly at ww.w. The company presentation is supplemental data on recent Trends in comparison to Industry and segments results as well as information about our 2012 strategic priorities. Join me on the call. This morning is Bruce house chief executive officer in David Clarkson Chief Financial Officer after prepared remarks by Bruce and David there will be a question-and-answer session.
Before we begin I would like to remind you to some of our discussions today will contain forward-looking statements including the discussion of our first quarter and full-year 2021 Outlook actual results, May differ materially and adversely from indicated in the forward-looking statements forward-looking statements made today speak only as of today the factors that could cause actual results to differ from those implied by the forward-looking statements are discussed in our form 10-K filed yesterday with the SEC in addition on today's call. We were reference certain non-gaap measures more information regarding these non-gaap measures including reconciliations. The most comparable gaap measures are included in the earnings release and form 10-K filed yesterday with the we also refer to read part index which refers to a percentage score calculated by comparing red part on a comparable system-wide basis to an aggregate red part of a group of competing hotels generally in the same Market based on a weighted average of an individual property results, but that I will turn it over to Bruce.
Thanks, Rob and good morning everyone. It's a pleasure to be with you here today as we report positive Financial results during a very difficult launching environment in twenty-twenty while we are proud of that Extended Stay America significantly outperformed. Competitive sets and our mid-scale Extended Stay competitors last year. We even more pleased to report that we have made significant progress executing on many of our long-term strategies during 20/20. I'll briefly cover the status of these strategic initiatives this morning.
More now than ever Extended Stay America is focused on maximizing the value of our dominant position in the Extended Stay segment to drive long-term value fresh air home. We are a pure-play in extended stay and I believe that is a significant competitive Advantage the Extended Stay segment business model is unique and the office maximization strategies and tactics are materially different from other lodging segments. None of our competitors can match our experience in Extended Stay the company with marketing distribution and operational resources are dedicated and optimized for the Extended Stay consumer during 20/20 the value of our focus on a statement together with our segment experience management team was very evident in our financial performance. No one knows the needs of the Extended Stay traveler better than our managers.
and our 7,500 Associates all over
the country
I'd like to take a moment now to thank our field Associates in particular for their dedication and hard work during an incredibly challenging year for the industry and our country these front-line workers, and it is their efforts that have enabled our success last year.
More than ever Esa has embraced our mission and lived our values Extended Stay Americas missions to serve guests working to make a better life for themselves and their families and that's just what our Associates did all throughout the country during a very difficult year while other Hotel companies have to make difficult short-term decisions Extended Stay America continue to invest in our people our assets and our infrastructure without losing focus on the execution of our longer-term value creative strategies.
Strategies are integrated into a plan designed to maximize the value of our read accents ensure that our renovation capital is targeted at those assets with the highest potential. Why don't this is to a proprietary distribution Channel and accelerate the growth of our franchise business.
Yeah for those assets limited potential that may not fully benefit from the improvements to our commercial engine or warrant long-term capital investment. We are continuing our efforts to real life to create value for our shareholders who are asset disposition strategies.
Sorry update you on the progress. We've made with our strategic initiatives. I'd like to quickly review some financial performance Highway during the fourth quarter as we did throughout all of 2028. We significantly out performed against multiple industry and competitive benchmarks.
Are comparable system-wide revpar decline 9.4 during the quarter which exceeded the guidance we provided in early November our fourth quarter year-over-year rep. Our performance was more than 10 points better than other mid-price Extended Stay Brands. And we also gain roughly forty points of red part index compared to our competitive set for four year comprable system-wide revpar declined 15% which is significantly better than the roughly 50% declined experienced by the industry and the approximately 30% wage experienced by our midst price Extended Stay competitors are performance during the pandemic relative. The industry was also substantially better when compared to the entirety of the last recession.
It's highlights the resiliency of our business model the strength of our team and the ability of the business to quickly adapt as Extended Stay demand environment changes.
For the quarter adjusted ebitda 89.3 million was also ahead of our expectations and guidance through by stronger-than-expected Revenue, especially in the back half of December for the four-year Extended Stay America generated positive free cash flow, either while investing more than seventy billion dollars in new bill capex over twenty million dollars aggravations and there's always we continue to invest in our hotels in the normal course of business. In fact only three of our own hotels had negative adjusted ebitda wage went. Well, we've certainly demonstrated that our business can outperform during the worst crisis ever to hit the lodging industry. We also believe that the many strategic initiatives to be launched during 12 a.m. And set the stage for outperformance during the coming recovery. We believe that investors should be more widely appreciate the unique characteristics and stability of our business.
I would like to now turn some of the major strategic initiatives we've been working on that will drive our long-term performance as the industry recovers from the pandemic the Extended Stay America a powerful asset and that stuff that every out the week. We have fully leveraged in the past during 20/20. We conducted a significant amount of consumer research wage better understand the needs of various Extended Stay customer segments and how those segments relate to the es a brand one thing that came through loud and clear in the research is just how powerful the Extended Stay America brand name is in powerful not only with our current government, but also with gas and higher price Extended Stay segment.
The research indicated their brand name as extremely high recognition among consumers across all Extended Stay price points, which of course is not surprising given that we own the categories. I didn't destroy the strong awareness Iran also very strong in terms of familiarity consideration and choice compared to other Extended Stay Brands wage. In fact, I researched shoukd I guess I'm more likely to consider us for a stay of 10 minutes or more than any other extended stay hotel brand in the industry including those brands that that's happened to the segment that normally charge rates more than twice what we do.
Giving me a finity of highway to get pregnant for the Extended Stay America brand together with our footprint of existing product in high rep our markets. We're excited today to announce launch a step up around Extended Stay America premier suites. We will launch Premier sleep in the second quarter with 32 new constructions and extensively renovated of hotels in Key markets across the country. We expect from their sweets to command an approximate $15 premium from our current price point and feature a number approved amenities from our core brand including an enhanced breakfast offering larger TVs and a signature wedding package to name a few.
Premier suites will effectively segment a real portfolio and provide an opportunity to price discriminate these Superior assets from our existing product.
As the initial brand launch would be accomplished with rebranding existing product that already meets our high standards the capital required to reposition. These hotels to clear Suites is largely limited Finance changing as well as updates to our marketing and distribution channels. We estimate the total Capital costs to be less than 2 million dollars in the aggregate.
the company
Was fortunate in that we have a number of assets high-quality high-rent Farm Market with strong corporate Extended Stay demand, that would be good candidates to reposition to the premium Suites friend as we complete the repositioning of our usual 32 assets into the brand. We will continue to evaluate our portfolio for assets and other markets that could benefit from the project and it's important to note that we will be very disciplined in our investment approach as each asset in each market is unique will conduct a thorough underwriting of that. We proposed to reposition the premier sleep to ensure that the investment needs a return requirements.
We will continue to share more information as we continue to evaluate asset repositioning opportunities from your streets.
In addition to the opportunity to reach higher rep for customer statement and drive performance of are owned assets. The introduction of Premier sleep with hands are franchise development program premier suites generally serve with our new bill brand for franchisees. But we also consider high quality conversions that we are brand standards are franchise development Partners have been asked you to remember that price discriminate there new construction assets from the existing state and we believe that Esa premier suites provides an ideal solution to both achieve an ADR can measure of quality of this product while retaining the incredibly strong equity in the Extended Stay America brand.
Is this for the premier sleep? We're also rebranding our core hotel to Extended Stay America sweet. The sweets modifier is recognized by consumers as authors something more to change will be done with a small incremental investment to the physical properties of approximately four million dollars in capsule large.
3 by changing the most prominent sign at each Hotel
the core brand will become our primary target for franchisee conversions going forward into which we expect a number of additional franchise in conversions in 2021, including three that wage. It's just this week in Oklahoma.
New brand architecture Extended Stay America sweet and Premier Suite marks the transition from a single Brandy company to a multi-brand portfolio under the Extended Stay America brand bra really capitalizes on the strength of our brand and it's reflective of are unsurpassed expertise in the segment.
Segmentation allows us to properly position high potential product in high rep our markets to attract higher rate of guests. And it focuses I renovation off on those assets with the greatest potential return ran segmentation is also critical to build our franchise business by providing additional product offering that meet the needs of extended stay hotel owners and Developers.
We will of course work closely with our franchisee Partners to ensure successful rollout for both the core and the step-up grant the opportunity to build a substantial franchise business office is now more compelling than ever before I firmly believe that Extended Stay America has the most compelling value proposition in the industry both for developers that want to offer extended stay hotels and for owners of existing Extended Stay product that may wish to convert the awareness and Equity of the esa brand now with two grand options wage and price points together with our singular focus on the Extended Stay segment and everything we do.
Coupled with our proven prototype and industry-leading performance through the pandemic really positions very well to be the leading extended stay franchisor in this business franchising remain strong growth opportunity for the company. And we believe that once credit markets saw in construction resume. We should be able to achieve system-wide wage growth of 5 to 7% a year through franchising over time.
Bring it to additional areas of focus or 20 21. I'd like to share the progress. We've made develop a a more robust Extended Stay commercial engine in 2028 establish a strong commercial leadership team with significant Extended Stay experience began putting into motion several important commercial improvements as a result in in the middle of the pandemic you realize the number of significant record and accomplishments. We hit all-time company records for monthly website Revenue as well as three consecutive month average order value at the call center.
As a result of the early implementation of the number of our strategies across our proprietary distribution channels Revenue to our call center and our website with largely flat wage in 2020 compared to 2019. This is a remarkable accomplishment during a pandemic, but it's only the beginning.
Victory distribution channels are most cost effective and profitable customer acquisition channels and we are focused on driving more higher rate of business through these channels and we bought a number of strategies to do just that in twenty 21% Next month will launch a completely redesigned Andre platform Esa and your website improve and simplify the core booking process with a strong focus on the mobile experience. This will serve as our primary digital marketing platform for her brands.
We expect to be website to drive both increased traffic while increasing our conversion rate. We believe the revenue potential would be website is significant and we have additional plans in place the better leverage technology to improve the performance of our call center use customer data more intelligently to improve the performance of our digital advertising better leverage Our Guest dead and relaunch our loyalty program.
What's your more about these initiatives throughout the year?
We're also focused on the productivity of our sales force Extended Stay America is unique with the only national sales force dedicated to the Extended Stay customer.
Throughout our field and national sales team. We expect to gift increase in production from our sales teams this year as we leverage our successes with construction temporary medical and distribution verticals with gradually improving corporate account business as the code is axioms roll out.
A revenue management opportunities are also unique to the industry our occupancy levels across the grand now rival COVID-19 and unlike the rusty industry that is still reaching for us. We can now turn much of our attention to driving higher rate. This is a significant competitive Advantage as likely be years before the rest of the industry is able to do so with all these efforts lead to a path for significant Revenue Improvement in the coming years. We think these initiatives will allow us not only to return to 2019 RAV4 levels off for the industry, but also exceed the falls
As we drive higher rated gas to our property. We also continue to focus on the guest experienced during 20/20. We gained significant increases across many of our guest satisfaction message, including our net promoter and social medias course the support the guest experience last year. We significantly upgraded Talent across our property management operation bought a new regional vice president of operations, the general managers of our hotels in 20 21. Our operations team will focus on retaining this new talent and continuing to drive guest satisfaction.
Brand segmentation is but one strategy to maximize the value of our assets. We recognize that certain assets may not fully benefit from segmentation and prove its to our commercial engine in addition. Some of these lower ebitda perky assets. They carry a relatively higher ongoing Capital burden relative to the events of April.
As we previously discussed the core tenets of our strategy is to proactively manage our read assets our disposition strategies focused around those assets which may not be good long-term fits for the brand and at the same time are also more valuable to non lodging owners with a higher and better use compared to continue operation as a Mythic a lodging asset.
Our objective Remains the Same we will transact it multiples substantially in excess of the trading multiples of the company. We have a number of such Assets Now under contract that we expect to close off the coming months and quarters.
Additional assets that may not be good long-term. The brand will also be opportunistic when we find extreme values of locations in the portfolio. The recent example of an extreme dislocation was the sale the single hotel in California for $65 million dollars last year or use as affordable housing. We transacted this property at a thousand percent halfway representing $443,000 per key and a pre-coated multiple in excess of twenty times.
This transaction alone resulted in the payment of a $0.12 of the $0.35 special dividend. We made in the first quarter of this year.
We encourage an optimistic with the progress of our asset disposition initiative and we believe there are significant additional opportunities in our to transact a highly accretive or multiples.
We cannot only realize the creative value from our portfolio and return Capital to our shareholders, but we can simultaneously reduce the capital intensity of the business while improving the quality of the week improving the quality of the Extended Stay America brand and opening up new markets the franchise Developers.
We believe our real estate portfolio has significant value creation upside for our shareholders has not reflected in the current price of our shares. We look forward to sharing further details with the announced additional transaction throughout the course of the year.
All these initiatives will be undertaken while continuing to maintain a balance Capital approach investing in the long-term growth of the company be leveraging our balance sheet and judicially returning Capital to shareholders.
More confident now than ever that Extended Stay America will be the leading extended stay hotel company and brand in the years to come and that the best days are ahead to this company with the organization is more motivated and more focused around a common set of goals priorities and values than I've ever seen before. I am confident. We'll be able to achieve what we set out to do with the coming years David to go into more detail on our results. I'd like to spend a couple of minutes discussing ESG and diversity equity and inclusion wage continues are grown important at the say you've made a lot of progress in the sofa last year including adding renewable energy usage and we began tracking their carbonation.
In recent months we also held crucial conversations, which was a development series was centered around sharing information to create awareness and develop the skills necessary to Value differences in background circumstances and beliefs just like our Associates, I guess.
We have the company are committed to versus the equity inclusion and believe that that the key differentiator in our success, you're proud to have for women serving on our board of directors representing value replaced on both gender and ethnic diversity.
On our senior leadership team 40% are women or persons of color and over seventy percent of our overall Associates are women are persons of color.
And just a few weeks ago for the first time of the essay part of management compensation will be tied ESG and d e i objective and 2021 month and our board's nominating and governance committee Charters were amended to become the nominating and ESG committee that will regularly meet review and advise on a g diversity equity and inclusion. I look forward to updating on the progress. We make these initiatives in 2021 and Beyond
And I'll turn the call over to David to discuss. Our fourth quarter results are first quarter and select 2021 guidance and further expand on our Capital allocation. David.
Thank you Bruce. And thank you to each of my ESA colleagues for their hard work and strong finish to the year in the fourth quarter comparable system-wide revpar declined 9.4% due to the COVID-19 demek compared to the same period in 2019 driven by a 7.3% decline in a t r as well as a 170 basis-point decline in occupancy.
Our index in the fourth quarter climbed to 140 a 40% increase and as of last week we have now seen a remarkable sixty five consecutive weeks of revpar index games.
As we anticipated rep part was Stronger year-over-year during the seasonal lower occupancy weeks in late November and December and was actually flat to slightly positive during the final three weeks of the year off the decrease in rev part during the fourth quarter was driven by a 43% decrease in nightly transient revenue and a 2% decrease in our weekly Revenue partially offset by a strong 18% wage increase in our monthly plus business to strengthen our 30 plus business was driven by a 21% increase in room nights. I'm pleased with the ATR transfer our monthly guests which was down 3% in Q4 compared to a 15% decline earlier in the pandemic consequently. We were able to be more aggressive increasing rates in many markets due to Stronger occupancy. In fact in each of our top 25 largest markets. We had positive index gains relative to our competitive set in both a d r and rev part.
total revenue from our core Extended Stay guests increased 12% in the quarter highlighting the strength of our commercial engine the effectiveness of our field sales team and the benefit of our unique focus on this segment of the industry for the full year twenty-twenty comparable system-wide revpar declined 15% driven by an 11.6% decrease in a TR
revenue from third-party channels declined 40% during the quarter predominantly from OTAs while revenue from Esa is proprietary channels increased 4% as Bruce highlighted. We are just beginning to realize the improvements from our commercial engine as we continue to execute on these initiatives and as more and higher rated sources of demand return we expect the impacts to continue to grow.
We've talked a lot about the resiliency of our business model and rightly. So but we are not just a defensive play we can and have out performed in an upcycled as well between 2009 and 2019 a part for our portfolio of currently owned hotels is up 69% ahead of each of the chain scales up to and including upper-upscale.
It's all operating margin declined 580 basis points in the fourth quarter the 42.5% compared to the same period in 2019 driven by the decline in revpar and flat compact Hotel operating expenses among our property expenses. We continue to see elevated levels of expense from Guess non-payment and p p e for our field Associates as well as increases in life insurance largely offset by decreases in marketing expense namely commissions and room expenses.
Hotel operating margin for the full year twenty-twenty declined 730 basis points to 44.5% highlighting that even during a global pandemic we continue to main very high operating margins that are much higher than the industry reports during normal times.
Excluding share-based compensation was 20.1 million dollars in the fourth quarter of 2020 down 6.7 million dollars from the same period in 2019 adjusted for that transition expense in the fourth quarter of 2019 net overhead decreased approximately 3.5 million dollars this past quarter.
Adjusted ebitda on the fourth quarter was 89.3 million dollars above our expectations driven by stronger revpar and down from a hundred eight point eight million dollars a year ago. The decline in adjusted ebitda during the quarter compared to 2019 was driven by the decline in revpar partially offset by a decrease in corporate overhead expense adjusted ebitda for the full year 2020 was 334.1 million dollars compared to $535 million dollars in 2019 the decrease of 30% which I think is remarkable given the industry in country backdrop.
Net interest expense during the quarter decreased slightly by three million dollars to Thirty one point six million dollars compared to the same period in 2019 due to a lower LIBOR rate.
But he had an income tax benefit of approximately 12.4 million dollars in the fourth quarter compared to a one point four million dollar income tax expense in the same period of 2019 for the full year to Thursday. We had an income tax benefit of 24.5 million dollars compared to income tax expense of 29.3 million dollars in the prior-year.
Of note while our cash and financial statement taxes are usually reasonably close in 20 20 and 20 21 that will not be the case. For example, despite booking an income tax benefit for Thursday. We had a cash outlay for taxes during the year and in 2021 while we expect our financial statement tax rate to return closer to our historical Norm than we expect to pay federal taxes on 20-21 activity. We expect to receive a federal tax refund of between seventy and seventy-five million dollars in mid twenty Twenty-One. The anticipated federal tax refund is related to certain taxable losses and twenty20 in the cares act loss carry-back rules.
This should result in a positive cash inflow from taxes for the year on a Consolidated basis in 20 21. We continue to monitor legislative activities to see if there will be any changes to twenty twenty or Twenty-One tax laws which could affect our taxes this year or in future years.
Adjusted ffo per diluted paired share declined 1% in the fourth quarter the 36 Cents prepared share compared to the same period in 2019 the decline and adjusted ffo per diluted share was driven by a decline and comparable system-wide revpar partially offset by income tax benefit decrease in corporate expenses in a reduction in paired shares outstanding adjusted ffo per diluted paired share for the full year twenty-twenty was a dollar $24 compared to a dollar eighty one in 2019.
The company had net income of 65.7 million dollars during the fourth quarter compared to net income of 23.8 million dollars in the same period of 2019 the increase in that income was driven by a fifty two point five million dollar gain on an asset sale and income tax benefit and a decrease in corporate overhead partially offset by a decline in real far the company had net income of 96.3 million dollars for the full year 2020 compared to net income of 165.1 million dollars for the full year 2019.
Adjusted per-share income per diluted share in the quarter was $0.16 an increase of $0.02 from the same. In 2019. The increase was due primarily from an income tax benefit package decrease in corporate overhead in a reduction in paired shares outstanding partially offset by a decrease in revpar.
Adjusted per-share income per diluted share for the full year 2020 was $0.37 compared to $0.95 in the same period in 2019.
The company ended the fourth quarter with $410 in cash and restricted cash an increase of $14 from the end of the third quarter and had total debt outstanding of approximately two point seven billion dollars off the company anticipates paying down. It's $50 revolver at the seacourt during the first half of 2021.
Capital expenditures in the
Quarter totaled forty seven point seven million dollars including 7.3 million dollars for renovation capital in 13.9 million dollars for new hotel development for the full year Capital expenditures totaled 192 point seven million dollars including 72.4 million dollars of new hotel development and twenty point nine million dollars in renovations year-end. We may hotels under construction with cost to complete between 10 and 15 million dollars while the capital investment associated with our on-balance-sheet development is now nearly complete the earnings from that investment will continue to RAM and provide a Tailwind to our growth and revenue and eat it.
In the fourth quarter the company opened to hotels while our franchisees open seven hotels for the full year twenty-twenty the company open 7 hotels while our franchisees open 10:00 for net unit growth of family two and half percent are total pipeline stood at fifty-six hotels at the end of 2020.
The management team in the boards continue to frequently review Capital returns to shareholders as you may recall. We declared a special $0.35 per share dividend in December that was paid in January making the total amount of capital declared or return to shareholders hundred forty million dollars during the year yesterday the board of directors of Esh Hospitality Inc declared a $0.09 dividend per share payable on March 6th 2021 to Extended Stay America Inc and paired shareholders of record on March 12th, which indicates an implied annualized yield of approximately 2 and a quarter percent wage. Well above our hotel peers.
We continue to anticipate that are read will pay out close to one hundred percent. If it's pre tax income including any gains on asset dispositions. We are pleased to be in a position to resume paying the meaningful dividend that quarter.
The company did not repurchase any pair of chairs during the fourth quarter and continues to have a hundred one point 1 million dollars in authorization remaining we expect share repurchases through at least the first half of 26 to be limited as we invest in our company's growth and we are mindful of our long-term net leverage Target of between three and half and four times.
Turning to the first quarter of 2021. We expect comparable system-wide revpar to decline by 3% to 6% compared to twenty twenty which corresponds to a page to 12% decrease compared to the first quarter of 2019. We expect adjusted ebitda between 78 and 84 million dollars in the quarter.
In January our RAV4 was down approximately 4% as I mentioned because of our higher current mix of long-stay business are rev part change versus the prior-year has been better and traditionally lower demand 5 months which was the case in January. And so while the year-over-year decline will be larger in February down in the range of 10 to 12% to our pre-owned emack levels are absolute rev. Increasing month to month, which I also expect to be the case in March.
like many of our
Piers we are optimistic that recent progress with the development and roll out of the scenes and declining COVID-19 Scouts will translate to increased economic activity travel and lodging demand wage ever given the uncertainty with respect to the timing and pace of this recovery. We don't think full year guidance for revpar adjusted ebitda or net income or warranted at this point.
For the full year, we expect Capital expenditures in the range of 155 to 175 million dollars. We expect net interest expense of between 126 and 130 million month tax rate between 10% and 12% and depreciation expense, but between 202 and 207 million dollars operator. Let's now go to questions dead.
Thank you at this time. We will be conducting a question-and-answer session before we begin. I'd like to ask everyone to limit their questions to one with one second left in order to try to accommodate everyone in the queue. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line as in the question q u e press start to if you would like to remove your question from the queue for those using speaker equipment and maybe necessary to pick up your handset before pressing the star Keys. One moment, please while we pull my questions.
The first question is from Chris Wonka of Georgia Bank, please go ahead.
Hey, good morning guys, and and thanks for all the details on the new on the brand extension and such. My question is how the the new brakes and the premier suites might look for a margin perspective obviously expecting higher rates and it seems as if the incremental ongoing expenses are not different you have breakfast and then maybe a few other things but how you look at the the margin potential of those of those assets? Sure. This is Bruce Allen star. Thanks. Chris. Question. It says a little background, you know, we did a lot of research in putting this together, you know, we did a lot of research on our brand and what was really, you know, we knew the brand was strong, but I guess what surprised if a little bit of how strong this brand of at at higher price points really across the entire segment, you know, we've got a lot of equity in terms of not just a
We're in this but in terms of trial in terms of use the terms the consideration so we really saw an opportunity to marry that strong brand with some white space. We see in the industry sort of between between we're reset today and we're candle it is which is a pretty wide Gap and and you know, marry that up with the footprint of assets that we have in High Rev car off with good corporate demand. So that was sort of the pieces for putting this together, but you're correct in terms of Designing the brand we didn't want to go too far, you know, we want to innovate around our core and not be something that we're not so we really very carefully, you know talked to be to be buyers corporate accounts the hell literally thousands of extended say consumers and ask them what they really wanted. It came down to a really, you know, a much more limited, you know menu of amenities and services, you know, we started out thinking well, maybe we have to have more common space or breakfast room but wage.
Found out the customers that we're targeting really didn't want that. They want it upgraded betting they wanted a better breakfast they want.
The better TV they wanted a fresh clean product. So, you know, that's what we're trying to deliver. And you know, we believe there's you know, we have some Assets Now, which are we take is going to are going to benefit from that new branding that are already, you know meeting that criteria. The new branding is certainly going to help differentiate them from rest of these states. And you know, you're correct that the, you know, the costs are minimal flow through, you know, the incremental flow-through should be higher and David you can probably give some more more color on how we're thinking about the about that issue.
Yeah, thanks and good morning. Good morning, Chris. Yeah, as you said it's you know, there will be some incremental expense associated with the amenities that we expect offer pack of Labor and breakfast or the primary ads there. We do think that the revenue will flow through at a at a higher rate than our existing margins suck in the sixty to seventy-five percent flow-through range on that incremental Revenue. So it should expand margins by you know, I don't know somewhere between two and three hundred basis points at those properties which took the get the premier suites brand.
Okay, very helpful. And then as a follow-up given that you you put a lot more focus on the 30 plus light stays and in twenty-twenty and rightfully, so the question is how quickly can you pivot away from those if you do see the transient some of the corporate and other transient demand coming back, I guess to be more specific you what what percentage of of an average hotel is is spoken for for, you know, thirty sixty or ninety days out.
Yeah sure that you know, we've already begun Civic from some of our very highly discounted rates, you know, as we noted in the in the call, you know, we are not at a point where we're still trying to reach Rocky but see we pretty much gotten back to the pre pandemic levels and now we're taking the opportunity and we have actually the last few months taking the opportunity to try to drive rate and you know, we're really not locked in every hotels different but in general we're not locked into you know, long-term commitments of low rates that we can't get out of, you know, our Revenue management function Thursday works on a market-by-market a hotel by Hotel basis to set those rates sucks that we can you know, respond to improving demand environment which you know, we're seeing some markets now, we've already taken off summer highly discounted 60-day plus rates that we we offered during the the height of the pandemic to fill of our properties and you know will continue to do so as we see as we see demand improving dead.
Okay, very helpful. Thanks guys, and terrific job in 2020.
Morgan please. Go ahead.
Good morning, guys, you kind of talk to about this in a couple of different ways, but I just wanted to simplify. It may be further in terms of understanding your operating leverage as we go, you know the course of the year and how you're thinking about one point of rev Parts sensitivity to to Eva. Profitability.
David would you like to take that one?
Sure, so, you know one point of revpar growth, you know generally equates to about 68 million dollars of incremental wage for us on a manual on an annual basis, but that's you know, that's sort of incremental revpar growth on a on a year-over-year basis. Of course, there's you know inflation with the with the on the expense base. So, you know that same 1% of revpar growth to 268 million of off of you but doesn't, you know doesn't hold but you know on an incremental basis 1% of rent far is $60 million in ebitda.
Thanks. Thanks. Chris. Appreciate it. The next question is from Joe greff from JP.
Got it, and then just been picture in that hold any of the any kind of you know, sort of guidance be on the one q but when you look at your portfolio and how the portfolio took performed over the last twelve months. Do you think you get back to 2019 rough par absolute levels in a second half of $21. What would be the impediment for that to happen? We're not to happen rather, you know, I'll start with David some details, you know, we we do see, you know, we do see it improving demanding, you know, our occupancy is largely flat with last year year-over-year adrs, you know consistently improved since the beginning of may you know, looking at some of our proprietary Channel using our call Center, for example, you know, we continue to see year-over-year growth for the last few months that our call center receiving monthly bookings up one of your Europe wage.
Basis January bookings were a little bit of head of our budget. So we are seeing some you know, some improvements. We have a lot of initiatives as we described in the in the office call with regards to our commercial entity improving our call center productivity proving our website, but we're still operating, you know, in an environment where you know competing against transient hotels that are down substantially more than we do. So, you know, we have to operate, you know, within that environment I think to the extent the transient business comes back in the second half of the year and starts filling up something transiting hotels with business that is not necessarily a good fit for us, you know, the environment could improve a bit and we could see, you know, some further upside from from what we're currently wage. You know what we're currently I would hope conservatively budgeting internally, so I don't want to go so far as a limb, but I think there's a shot of that but it's not something else.
You know, we want a guide to at this point, but potato perhaps you have some more more thoughts.
Thank you.
The next question is from Smith's Rose from Citigroup, please go ahead.
Hi, thanks. I just wanted to ask you for the the premier seats and I think he would have several that are coming under construction or any of those on balance or those are all third-party developers know what we're doing now is we have thirty-two hotels that are on balance sheet that are either new construction that have recently opened new age restriction that are soon to be open or existing hotels in our states that we have previously performed. We called a transformational renovation on so the brand will be launched wage. That's that's that are on our balance sheet, you know, we have had discussions with franchisees and we expect additional growth going forward will be you know from the franchise Community. There may be repositioning is from existing franchise assets as well. But we're launching the brand, you know with our assets, um and our in our capital in terms of birth.
Yeah, I mean, I think that I think that answers it well.
a modest amount required to to change the signage
Okay, and then I just wanted to ask and I know this is probably going back a few years. So I may not be remembering correct with it. Is that recall Extended Stay launch. It's kind of a multi-tiered renovation program where their wage like a platinum room renovation a cold renovation and they were supposed to kind of price, you know, differentiate across different price points to various markets and then I you know, the company had to pull back from a little bit and I guess you know, my my question is, you know, we've seen in the past. It's easy for easier for Brands to kind of work down into offering lower price point products in a more difficult to offer higher price point products when you're coming from a lower base and I'm just kind of you talked a lot about the customer research, but I guess you know, what kind of gives you confidence that you can walk, you know energy product. It's such a significant premium to where you are now.
Yeah, well, I think you know what we've already seen with some of the highly renovated product on the new bills that we have that we're going to position into the brand. We are seeing, you know, even during the pandemic overseeing positive performances hotels. We're seeing great performance improvements in those hotels and we think you know, The Branding and our ability to differentiate those products with our sales forces who are distribution channels assigned to continue to improve the performance, but we're being very disciplined and how we look at it. We really have to we're looking at markets where there's sort of a cross-section of higher-rated corporate demand higher red Farm Market and product that we have that we believe will will set the brand. So yeah, we're being we're being disciplined about it. We're going to point it out the markets that we're going after and you know our our commercial engine and our sales force is anxious for this because they have been trying to price discriminate between assets of different quad.
Within a single brand which is very difficult to do. So this really gives us this branding really gives us permission give permission to our sales force to ask for more if it's an easy way, um, um to explain to the
Super Why it's a better product why they should pay more for it. Um, and and and we we get customers into our distribution channels into our website you to our call center of us another opportunity to sell a product that is more appropriate for customer that wants something more. So, you know, we're not as you said we're not we're not reaching for you know, I'm an upscale or even an upper midscale, you know, maybe slightly upper midscale segment, but we're not reaching too far here. So, you know, if we were going, you know head-to-head against, you know Towneplace or off of those competitors of those price points, I would be share your concern but I think this is a you know an innovation, you know closer to home that I think would be very successful.
Okay, thank you. I appreciate it. Thank you. Next question is from Brian Dobson from Jeffrey's please go ahead.
Hi, good morning. I so goal of five to seven percent in that unit growth that I mean that's impressive that would place you at the high end of the peer group. Could you expand a little bit on how much of that growth could be driven by Asus brand compared with Organic growth and and your legacy product? Yeah, I think you know, you know will be driven by franchise. Going forward and you know, if you look at you know our base of roughly 650 properties throughout the country to 5 to 7, % you know translates into 30 to 40, you know executed franchise agreement. I think that you know is very doable. I think it's even more doable now that we have a segmented approach to the market. You know, we have well, it must be pure you know, we have a conversion brand Thursday. We have a new construction Grant. I think that gives franchisees for more comfort that are developing with us. And I you know, once the credit markets continuously said continuing wage.
And once we get to you know more of a stabilized environment, there is no reason that this company can execute 30 to 40 45 franchise agreements per year. When I was at woodspring which was a home alone brand with a commercial engine that pales in comparison to what we had, you know, we were close to those levels obviously before it was a was acquired by choice and you know with the value proposition that we had Extended Stay America in the power of this brand on I'm highly confident we can get to those levels over, you know over the course of the next couple of years. That's great. And then and then just I guess looking in the bathroom mirror at the fourth quarter. Could you get this a little bit more color on the type of sequential red part Improvement that you saw during that quarter and maybe maybe what you think the the driver of that sequential Improvement?
David would you like to take that please? Sure. Yeah, so, you know we've talked about this on each of the last couple of calls, but you know, we've got certainly off base of extended state business, you know now than we had a year ago. And that was a big benefit to us in what are traditionally the lower demand weeks and months of a year. And so as we move through two for our rev Park growth improved sequentially from down 13 to downtown and then down six in January was a better still it it it down for now that we're kind of, you know entering the months. We're typically there's there's more transient demand and rev part is picking up month to month, you know, I think our our year-over-year revpar growth, you know, we'll start going the other way a little bit and in February, you know, expect it to be in the down.
10 to 12%
Range, so, you know, it's really been a story of long State business providing us a good base of of occupancy as we've moved through 2020. We were able to push rate and more and more on, you know, each of our length of stay buckets and expect to be able to continue to do that as we move through a 2021 but really December in January, you know have been the best months on a year-over-year basis because of the copying against the lower demand. In the prior-year Dead.
Great. Thanks very much.
Thank you. Thanks for calling. The next question is from Michael Bellisario from Baird, please go ahead.
Morning, everyone morning morning back to the premier suites brand. How did you guys evaluate how big the office space was in terms of number of hotels because it sounds like it's the brand is a little bit more market-specific or Market focused. So, you know, how were you thinking about it? It's a hundred hotels done this several hundred hotels with what's really the longer term Target or opportunity set for this particular brand.
We're not. Yeah, we we have certainly gone through our portfolio of assets, which we can see where you go through and sort of matchup product that we have in in certain markets where we think it'll work very well in terms of the van drivers and you know that certainly, you know, you know the opportunities that they're you know for our own estate is you know, a substantial not that we will do all of them because they said to be pretty disciplined in terms of capital and you know, some of the under writings might not work out as well as we think they will right now but there is a substantial portion of our own state which we think has the potential to be repositioned phone numbers work out and you know, when we look at, you know, the segmentation opportunity and you look at the impact that we have with our existing state and if we can if we can be successful, you know in separating the ADR it's and the customer mix between our existing state and the premier suites brand that opens up a lot more territory wage.
Development so, you know, we think we think of substantial mean it's and you know, the many hundreds not not the not the 10th or the or the thirties.
Got that's helpful. And then back to one of those the prior questions previously the company maybe even before your time on the board. On-again-off-again explored moving Downstream for some of them are Quality Property. What what's your latest thinking there? Is this off the table from here. Yeah, it's off the table for now. We looked at it and that was you know be quite honest with you know, that was the consideration that I thought warranted investigation when I first got here, but what we found was that, you know, our brand is so strong those lower-tier properties actually just proportionately benefit from their association with us. So the analysis that we went through was that you know, we take the S A brand off at some of those lower properties and make up another month. Another name performance is going to decrease so we've really taken, you know, a different approach to those lower-tier properties as we described in the you know in the south
Call today, you know, we're really looking, you know to create value from the lower-tier properties and not by rebranding of it.
We also risk performance degradation, um, but throughout disposal program and that's really where our asset disposition program is focused right now. It's on that that lower-tier Thursday and we think you know that we have an opportunity to create a lot of value clean up the portfolio improve our, you know, a rough bar and proof of brand new franchisee opportunities if we can really transact with that segment of the of the estate that is a good fit for the brand as you know, fortunately, we think we have some opportunities do that. They won't be too lodging buyers will be the buyers that have alternative uses for the property where we believe we can trade you the creative muscles so long answer to your question, but yeah creating it down brand is is off the table.
Thank you. The next question is from Danny Assad from Bank of America, please go ahead.
A good morning everybody just to follow up on that last question your strategy of maximizing the value of the assets like has been working but is the expectation going forward. You'll be taking a bit more of an active approach with you know, hiring Brokers and all for these asset sales or is it just because of the nature of these assets that you'll rely more, you know as a one-off transactions in reverse and and going down. Yeah. Well, I think we you know, we go down we're going down both that, you know, we're trying to you know be disciplined about how we do it off. You know, we took out a lot of inquiries from you know, we have a lot of good relationships with Brokers. We have a very talented Chief investment officer. That's a that works for me that works on these these wage positions everyday. Um, and um, you know, I think we have a lot of activities, um, you know, we obviously close pedis and in the fourth quarter which you know was not a lower-end deficit
It was it was an asset. That was what we called a value such a large value just location that you know that it made sense to transact a mess. But we're really focusing as I said sort of a group of aspects that we've identified that are generally, you know lower ebitda perky. They probably won't benefit As Much from the improvements in the commercial engine. They have higher capex requirements relative to their you know, then the rest of the estate and that's we're really focusing our activity and you know, we think you know, obviously if we sold those assets the hotel buyers, we we get sort of a month multiple for me cuz you know franchisee is not going to pay more for those than what they're worth is a hotel but we believe there's a number of pockets of demand in the real estate market right now. We can transact those assets at substantially higher multiples, then you know the overall trading multiple the company and that's that's really what we're focused on here. We have a couple of birth.
Of such Assets in terms of groups of assets of your contract right now. Hopefully we'll have one completion to announce before our next call. We have a number of other.
Transactions that are in you know, various stages of completion. So there, you know, there are multiple multiple transactions and multiple opportunities that were pursuing now to to make that choice.
Got it. And then and then just for my follow-up. I know it's still early days. But do you have a sense for like of the own assets how much you know like em either if it's a mix or a number or or any give us any direction on you know, like how many assets could be, you know kind of fall into this bucket of you know off Mystic, you know value creation. We're like on a perky basis they could be just trading differently than where it kind of the stock really tricks.
Yeah, that's that's not something we're we're comfortable disclosing right now. I think I'll leave it as you know, we have multiple transactions consisting of multiple properties wage are you know that are under either contract or in various various stages of completion at this time?
Got it. Thank you. Thank you. The next question is from Steve and Grambling from Goldman Sachs, please go ahead.
Hey, good morning apologies. If I am is the comment on this but if you a lot of your peers have talked about Cost Cuts and better margins, you know, as a result of the pandemic and some of the learning and even when Bruce you came in, you kind of alluded to some some margin opportunities through some of the changes you were making in the business. Can you can you help us think through, you know, maybe the long-term how the model is changing how that could influence margins and and maybe tie into that. I think you said in the opening remarks that your your mix of OTAs was was flat. You know, how do you think about the the distribution going forward and and how that will implies you have a good mix of those here? I mean a substantial I think permanent margin Improvement opportunity for us, you know, a relative proportion with OTAs is down in the twenties rather than sort of the high Thursday.
To the forties before when we were chasing that business before but so I think you know not necessarily related to Emich but it's related to how we run the business are o t a business with lower going forward which you know is obviously a very expensive Channel but I'll let Dave is expand on some of the other, you know, some of the other, you know drivers of margin and costs.
Yeah, sure. So, you know in in twenty-twenty and and into twenty Twenty-One there have been you know a handful of expenses that are that are quite a bit different as a result of the pandemic between breakfast commissions. As you mentioned higher credit expense from guests non-paying etcetera. So, you know, I think long-term we unlike a lot of other more full-service Hotel companies, you know don't have a lot of Labor and other things which we can you know, cut off to sort of change the operating model or labor is is lean as it is, you know with margins, you know, typically, you know above 50% at the hotel level and you know currently above 40% in these, you know, sort of depressed revpar times. There's there's not a lot for us to do to to change the operating model to lean it out.
You've hit on you know some.
With the commission's we don't expect long-term to get back to you know, t a contribution similar to what we had in in 2019 in 2019, you know 38% or so of our Revenue was people staying one through six nights. That's too much for us that that comes in often cases with commissions that comes with age or transactions at the front desk that comes with higher usage of the breakfast. Um more housekeeping cleanings Etc. So I think the opportunity for us is really mm continue to focus on the Extended Stay customer and take that 126 down relative to where it was in 2019. Now our current mix, you know is not where we like to be either we've got suboptimal amount of 30 plus business in house now so, you know somewhere between where we were in 2019 and where we were dead.
Twenty-twenty I think it's optimal but OT a commission some housekeeping costs. Are are where I see there being benefits on the margin side relative to 2019.
And then maybe an unrelated follow-up as you were thinking about launching this this brand I guess. What was the feedback that you were you were hearing from corporate Partners as I'm thinking about this cuz if I recall there was a moment in time a couple of years ago before Bruce you were you were in the the CEO seat where there was some Renovations going on to try to come down. I guess shortened the the average length of stay and maybe push up pricing.
Yeah, sure. I mean we you know, we are we are very focused on sort of that corporate businesses 7 to 29 day wait to stay that is our our bread-and-butter business that were very good at accommodating externally higher-rated business. And you know that is you know, certainly part of the reason we are going after Iraq, you know, those customers that Premier Suite our sale, you know forces I mentioned, you know has been looking for a brand like this something that is completely consistent fresh and new to attract corporate clients, you know, we spoke to a lot of B2B buyers so throughout the research process and you know feedback we got from them was, you know, not just similar to a feedback we got from direct consumers in terms of what they were looking for. So I think you know in terms of improving the productivity of our sales force. I think it's going to be huge.
And and I know that you know our marketing and e-commerce and our our distribution Channel professionals are excited to be able to have more than one box itself so that we can sell the right product to the right customer.
Great. Thank you. Thank you. Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back over to Bruce house for closing remarks.
Great.
Well, thanks everyone for your questions. We really appreciate your interest in the company. You know, we're obviously really pleased with our performance during the pandemic. But I hope you can tell we're really excited about the future of the company. We're really excited about the strategies. We've unveiled today. We're excited about our positioning the segment. We really feel like, you know, all these strategies really work together. Well for the long-term, you know, we're building a multi-brand wage platform the Extended Stay segment. I think our asset disposition strategies are renovation strategies fit well together with that we continue to see, you know, a lot of upside in our commercial engines wage. I better business to our properties at higher rates all the while, you know, we think we can continue as we as a, you know, pay a market of well above Market dividends and have other opportunities to return a apple shareholders this week Pursuit disposition. So again, thanks for your interest in a David Rob and I are always at your disposal and we look forward to follow-up conversations over the coming days. Thank God.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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