In a COVID-19 World: Extended Stay Hotels Have the Advantage

A KALIBRI LABS SPECIAL REPORT

In a COVID-19 World:

Extended Stay Hotels Have the Advantage

KALIBRI LABS, ONE CHURCH ST. SUITE 300, ROCKVILLE, MD, 20850, USA KALIBRILABS.COM | +1.301.799.3222

In a COVID-19 World: Extended Stay Hotels Have the Advantage

Extended Stay Hotel Guest Paid RevPAR performed 14.4% better than the Non-Extended Stay Hotels in the Total U.S. during the first full month of COVID-19’s impact, March 2020, which is the only month in the last 5 years that this has occurred.

Lower Tier Extended Stay Hotels specifically drove the Extended Stay resiliency at a -30% March 2020 year-over- year Guest Paid Revenue compared to -48% for Upper Tier and -54% for All Non-Extended Stay Hotels.

This resiliency is driven by differences in these hotels’ reliance on a base of 14-30+ night stays and mix of business. In analyzing Full Year 2019 performance for context, the composition of RevPAR for all U.S. Hotels overall is largely comprised of Group, Corporate, OTA, and Rack/BAR customers staying fewer than 6 nights. In contrast, Extended Stay economy and midscale hotels (Lower Tier), are driven by 14+ night stays with almost one-third (31%) staying more than 30 nights. This Extended Stay Lower Tier length of stay profile is mostly comprised of Rack/BAR and some Corporate, the longest length of stay rate categories in 2019 and least impacted in March 2020.

March 2020 Guest Paid Revenue Year-Over-Year (YoY) Change

U.S. Non-Extended Stay U.S. Extended Stay Upper Tier Extended Stay Lower Tier Extended Stay

-30% -41% -48% -54%

Longer stay segments in Rack/BAR and Corporate proved to be far less vulnerable to the economic shock delivered by the travel restrictions imposed by the COVID-19 pandemic in March 2020, a positive sign for the future of Lower Tier Extended Stay Hotels.

The following analysis features several cuts of U.S. Hotel performance to provide additional context and performance metrics on the COVID-19 impact as it relates to Extended Stay Hotels.

Table of Contents

Extended Stay vs. Non-Extended Stay – Total U.S...... 3

Differences by Length of Stay - Full Year 2019 ...... 3

Differences by Length of Stay - March 2020 ...... 4

Demand Profile by Rate Category - Full Year 2019 ...... 5

Differences by Top Rate Categories - March 2020 ...... 6

Lower Tier Extended Stay vs. Upper Tier Extended Stay – Total U.S...... 7

Differences by Length of Stay - Full Year 2019 ...... 7

Difference by Length of Stay - March 2020 ...... 8

Lower Tier Extended Stay vs. Non-Extended Stay – Total U.S...... 9

Demand Profile by Rate Category - Full Year 2019 ...... 9

Differences by Top Rate Categories - March 2020 ...... 10

Conclusion ...... 11

Methodology ...... 12

Kalibri Labs One Church Street, Suite 300 Rockville, MD 20850 USA 1.301.799.3222 KalibriLabs.com

By Jeremy Gilston – Senior Manager, Client Solutions The contents of this white paper may not be reproduced or communicated by any means to individuals, organizations, or to the media without prior written permission from Kalibri Labs. Contact Ryan Moran [email protected].

Extended Stay vs. Non-Extended Stay – Total U.S.

In 2019, Extended Stay Hotel development achieved national attention for record performance and a robust new supply pipeline. Longstanding players who expanded their Extended Stay Hotel footprint in 2019 included Extended Stay America, WoodSpring Suites by Choice, Home2 Suites By Hilton, Residence Inn by Marriott, Staybridge Suites by IHG, and Hawthorn Suites by Wyndham. And in the months leading up to COVID-19, two new extended stay brands launched: stayAPT led by industry veteran Gary DeLapp and Everhome Suites by Choice Hotels. This hotel segment’s growth flourished in the latter part of the Hotel Industry’s 10+ year growth cycle.

Some of the same fundamentals that made this segment attractive over the last decade also mitigated it’s COVID- 19 impact, as evidenced by March 2020 performance: Extended Stay Occupancy declined 32.8% year-over-year as compared to Total U.S. performance, down by considerably more at 42.9%.

Differences by Length of Stay - Full Year 2019 Differentiated by amenities and room design, Extended Stay Hotels primarily service guests who seek longer-term accommodations. To that end, 9% of Non-Extended Stay Hotel revenue was driven by demand staying 7 nights or more in 2019 as compared to 40% for Extended Stay, which is detailed further in the following two charts.

Non-Extended Stay 2019 Revenue Share Extended Stay 2019 Revenue Share

15 to 29 Nights, 2% 30+ Nights, 2% 30+ Nights, 20% 7 to 14 Nights, 15 to 29 Nights, 6% 9%

1 to 6 Nights, 1 to 6 Nights, 60% 91% 7 to 14 Nights, 12%

A noteworthy point is that 20% of Extended Stay Hotel revenue was driven by guests staying more than 30 nights.

In 2019, the average length of stay for customers staying in Extended Stay Hotels for 30 or more nights was 71 nights.

Differences by Length of Stay - March 2020

The data illustrates that longer length of stay hotel demand was not as severely impacted as the shorter length of stay hotel demand. The shorter the length of stay, the greater impact from COVID-19.

March 2020 YoY Guest Paid Revenue Decline

-22% 15-29 -18%

-42% 7-14 -29%

-56% 1-6 -51%

-60% -50% -40% -30% -20% -10% 0%

Non-Extended Stay Extended Stay

Note: many guests staying at hotels in March for more than 30 nights had not checked out at the time of this analysis, and therefore their stays were not available to be included in this report.

Extended Stay Hotels attract the longer length of stay clientele, which proved more durable in March 2020. As evidenced in the first chart on page 1, Non-Extended Stay Hotels experienced a -54% March 2020 year-over-year Guest Paid Revenue decline compared to a less severe -41% for Extended Stay Hotels.

Demand Profile by Rate Category - Full Year 2019 Business mix appears to play a role in mitigating the COVID-19 impact when analyzing Extended Stay Hotels as these hotels captured 12.5% more of their business through Rack/BAR and 4.9% more of their business through Corporate than Non-Extended Stay Hotels in 2019.

Full Year 2019 Demand Share by Rate Category Ordered Largest to Smallest by Extended Stay Demand Share

+12.5%

+4.9%

Rack/BAR Rates Corporate Promotion OTA - Non-Opaque Group

Extended Stay Hotels Non-Extended Stay Hotels

Note: the above chart only displays rate categories that produce more than 10% of the total demand for either hotel grouping

In addition, Extended Stay Hotel Rack/BAR demand stayed an average of 5 nights and Corporate demand an average of 4.8 nights in 2019 compared to 1.7 and 2.1 nights consecutively for the Non-Extended Stay Hotels.

Differences by Top Rate Categories - March 2020 When profiling these two largest demand differences between Extended Stay and Non-Extended Stay Hotel performance for March 2020, the two strongest demand drivers for Extended Stay, Rack/BAR and Corporate, were the least impacted by COVID-19.

March 2020 YoY Guest Paid Revenue Decline

-51% Corporate -39%

-52% Rack/BAR Rates -33%

Non-Extended Stay Extended Stay

Extended Stay Hotels’ largest contributing rate categories, Rack/BAR and Corporate, declined significantly less than Non-Extended Stay Hotels: -33% and -39% consecutively compared to -52% and -51%.

A reliance on Rack/BAR and Corporate customers staying more than 7 nights is ultimately what mitigated the Extended Stay Hotel performance in the wake of COVID-19.

When opining on which guests are still staying at Extended Stay Hotels during the COVID-19 pandemic, “it is most likely construction, healthcare personnel, and government entities like FEMA” said Mark Skinner, Extended Stay Hotel expert and a partner at Atlanta-based hotel advisory firm the Highland Group.

Lower Tier Extended Stay vs. Upper Tier Extended Stay – Total U.S.

Within the Extended Stay segment, there are primarily two tiers of offerings, Lower Tier and Upper Tier. These can be distinguished by quality of accommodation and performance, which is a proxy for chain scale. The following section compares the two Extended Stay Tiers to further assess what drove the segment’s durability. Lower Tier Extended Stay Occupancy declined -21.1% year-over-year as compared to Upper Tier Extended Stay performance, down by more than double at -43.6%. The Lower Tier Extended Stay reliance on 7+ night business resulted in a meaningful top-line performance advantage.

Differences by Length of Stay - Full Year 2019 In 2019, purpose-built Lower Tier Extended Stay Hotels achieved a greater share of business from guests staying more than 30 nights and a smaller share from guests staying fewer than 6 nights when compared to Upper Tier Extended Stay Hotels. These substantial differences are detailed further in the following two charts.

ES Lower Tier 2019 Revenue Share ES Upper Tier 2019 Revenue Share

30+ Nights, 14% 15 to 29 Nights, 8% 30+ Nights, 31% 1 to 6 Nights, 47% 1 to 6 Nights, 66%

15 to 29 Nights,

10% 7 to 14 Nights, 12%

7 to 14 Nights, 12%

NOTE: Within Extended Stay Hotels, there are differences in both the product offering and performance for Lower Tier and Upper Tier brands. This designation falls across chain scales where economy and midscale hotels are designed as “Lower Tier” and upscale and

upper upscale are designated as “Upper Tier”. Home2 Suites by Hilton is typically grouped with the Upper Tier and TownePlace Suites by Marriott into Lower Tier.

While 34% of all Upper Tier Extended Stay Hotel revenue in the U.S. was driven by demand staying 7 nights or more in 2019, 53% of Lower Tier Extended Stay Hotel revenue was derived from this business. A noteworthy point

Kalibri Labs © 2020. All rights reserved. 7 is that 31% of Lower Tier Extended Stay Hotel revenue was driven by guests staying 30+ nights compared to only 14% for Upper Tier. Additionally, the Lower Tier Extended Stay Hotel average length of stay for reservations over 30 nights was close to 80 nights in 2019, more than 20 nights longer than that of Upper Tier Extended Stay Hotels.

Difference by Length of Stay - March 2020 As presented earlier, longer length of stay business was the least impacted in the first month of COVID-19’s U.S. impact. While both Lower Tier and Upper Tier Extended Stay Hotels achieved approximately the same portion of business from customers staying between 7 and 29 nights in 2019, the disparities between the COVID-19 impact by length of stay tier are noticeable. In 2019, Upper Tier and Lower Tier Extended Stay Hotel revenue achieved the same 12% contribution from guests staying between 7 and 14 nights. Yet in March 2020, this length of stay tier declined 34% for Upper Tier and significantly less for Lower Tier at 19%.

March 2020 YoY Guest Paid Revenue Decline

-21% -13% 15-29

-34% -19% 7-14

-54% -43% 1-6

-60% -50% -40% -30% -20% -10% 0%

Extended Stay Upper Extended Stay Lower

Note: many guests staying at hotels in March for more than 30 nights had not checked out at the time of this analysis, and therefore

their stays were not available to be included in this report.

Short er length of stay business (1-6 nights) in March was impacted the most in both Extended Stay categories, but Lower Tier Extended Stay Hotels proved more resilient across all length of stay tiers. Because the Upper Tier Extended Stay Hotels obtained two-thirds (66%) of their revenue from shorter stays in 2019 vs. less than half (47%) for Lower Tier, they fared worse in March 2020.

As evidenced in the first chart on page 1, Upper Tier Extended Stay Hotels experienced a -48% March 2020 year- over-year Guest Paid Revenue decline compared to a much lower -30% for the Lower Tier. While the Extended Stay segment fared better than the Total U.S., separating the Extended Stay segment into the two tiers illuminates that Lower Tier Extended Stay hotels bolstered these figures as the least impacted by COVID-19 in March 2020.

Lower Tier Extended Stay vs. Non-Extended Stay – Total U.S.

Similar to the 2009 Great Recession, Lower Tier Extended Stay Hotels are the least impacted by and expected to be quickest to rebound from COVID-19. March 2020 performance reveals that in addition to business by length of stay, the Lower Tier Extended Stay resiliency was supported by a strong dependence on Rack/BAR and Corporate, comprising almost 60% of its total business in 2019.

Demand Profile by Rate Category - Full Year 2019 With Lower Tier Extended Stay Hotels demonstrating stronger performance in March 2020, the below chart confirms that Rack/BAR and Corporate contributed to this sector’s softened COVID-19 impact. Lower Tier Extended Stay Hotels captured 22.4% more of their business through Rack/BAR and 3.1% more from Corporate in 2019 than Non-Extended Stay Hotels, which proved to have stronger demand in March 2020.

Full Year 2019 Demand Share by Rate Category Ordered Largest to Smallest by Extended Stay Demand Share

22.4%

3.1%

Rack/BAR Rates Corporate Promotion OTA - Non-Opaque Group

Extended Stay Lower Non-Extended Stay Hotels

Note: the above chart only displays rate categories that produce more than 10% of the total demand for either hotel grouping

In addition, Extended Stay Hotel Lower Rack/BAR demand stayed an average of 7.7 nights and Corporate demand stayed an average of 6.6 nights, the highest length of stay rate categories and foundation of these hotels’ overall long average length of stay.

Differences by Top Rate Categories - March 2020 The Lower Tier Extended Stay Hotels fared best in the first month of the pandemic with a March 2020 year-over- year Guest Paid RevPAR decline of 30%, which was led by this segment’s reliance on 7+ night business and comprised of Rack/BAR and Corporate customers. These two largest-producing rate categories, which encompassed almost 60% of the Lower Tier Extended Stay Hotel Actualized Room Nights in 2019, experienced the least reduction in demand despite massive declines in hotel performance throughout the U.S. hotel industry.

March 2020 YoY Guest Paid Revenue Decline

-51% Corporate -30%

-52% Rack/BAR Rates -15%

Non-Extended Stay Lower Tier Extended Stay

In 2019, both Lower Tier Extended Stay and Non-Extended Stay Hotels’ largest rate category was Rack/BAR, but the COVID-19 impact in this segment was uneven. Rack/BAR March 2020 year-over-year Guest Paid Revenue declined a minimal -15% for Lower Tier Extended Stay compared to -52% for Non-Extended Stay Hotels in March 2020, amplifying the differences in the COVID-19 impact.

Additionally, Lower Tier Extended Stay Hotels’ second largest rate category, Corporate, declined 30% year-over- year compared to -51% for Non-Extended Stay Hotels, further differentiating this segment’s COVID-19 impact.

Conclusion

The first full month of COVID-19’s impact on the U.S., March 2020, devastated the Hotel Industry with an unprecedented -53% year-over-year drop in Guest Paid Revenue. However, this decline was uneven, such that Lower Tier Extended Stay Hotels experienced a much smaller -30% revenue reduction. Within this hotel class, the Lower Tier achieved the greatest reliance on longer length of stay business and a favorable business mix, and as such proved to be the most resilient in the face of COVID-19.

53% of the Lower Tier Extended Stay Hotel revenue was comprised of 7+ night business in 2019 as compared to a much smaller 9% for Non-Extended Stay Hotels. Although Rack/BAR was the largest demand contributor to both hotel groupings, the significantly heavier Lower Tier reliance on Rack/BAR with a 7.7-night average length of stay insulated the March 2020 performance. Lower Tier Rack/BAR experienced a moderate -15% year-over-year decline in March 2020 as compared to -52% for Non-Extended Stay Hotels.

Total Hotel RevPAR, ADR, and Occupancy are legacy metrics that have limitations as indicators of performance. Evaluating more granular metrics, such as average length of stay and rate category add substantial clarity to the market dynamics. These performance indicators will remain critical as COVID-19 continues to impact the lodging industry. This information is particularly powerful at the competitive set level; differences by length of stay and rate category are material to the Extended Stay sector and are available in a Kalibri Labs Trendline Report.

About the Author: Jeremy manages relationships in the real estate, advisory and investment community across a wide array of clients including REITs, private equity, franchise development teams at major hotel brands and Wall Street financial services companies. He has helped develop and enhance Kalibri Labs’ underwriting and market selection offerings.

With experience in private equity, asset management, valuation, consulting, and revenue management, Jeremy is passionate about understanding the hotel data landscape and how it can improve the hotel investment process. He holds a Bachelor Jeremy Gilston of Science degree from Cornell University's School of Hotel Administration. Senior Manager, Client Solutions

The contents of this white paper may not be reproduced or communicated by any means to individuals, organizations, or to the media without prior written permission from Kalibri Labs. Contact Ryan Moran [email protected].

Methodology

The following analysis is based on the complete Kalibri Labs database of 34,500+ hotels and is meant to shed light on the Extended Stay Hotel segment during the COVID-19 pandemic using data through March 2020. Participating Extended Stay brands are on the chart below.

Participating Extended-Stay Hotel Brands Hotel Tier

Candlewood Suites (IHG) Extended Stay Lower Element by Marriott Extended Stay Upper Extended Stay America Extended Stay Lower Hawthorn Suites by Wyndham Extended Stay Lower Home2 Suites by Hilton Extended Stay Upper Homewood Suites by Hilton Extended Stay Upper Mainstay Suites by Choice Hotels Extended Stay Lower Residence Inn by Marriott Extended Stay Upper Staybridge Suites (IHG) Extended Stay Upper Suburban Extended Stay Hotels by Choice Hotels Extended Stay Lower TownePlace Suites by Marriott Extended Stay Lower WoodSpring Suites (Choice Hotels) Extended Stay Lower

Note that the data points represented in this report are not estimated to reflect the entire marketplace. The metrics reflect a sample of 34,500+ hotels from the Kalibri Labs database.

Kalibri Labs’ database is the only source of length of stay performance data in the hotel industry as it is built upon guest checkout records, excluding any personally identifiable information. Extended Stay demand is represented by accommodations lasting 7 nights or longer. Kalibri Labs traditionally reports on length of stay tiers, defined as 1-6, 7-14, 15-29, and 30+ nights.

Within Extended Stay Hotels, there are differences in both the product offering and performance for Lower Tier and Upper Tier brands. This designation falls across chain scales where economy and midscale hotels are designed as “Lower Tier” and upscale and upper upscale are designated as “Upper Tier”. Home2 Suites by Hilton is typically grouped with the Upper Tier and TownePlace Suites by Marriott into Lower Tier.

March 2020 represents Kalibri Labs’ first full month of COVID-19’s impact on the Hotel Industry. However, many

guests staying at hotels in March 2020 for more than 30 nights had not checked out at the time of this analysis, and therefore their stays were not available to be included in this report.