Extended Stay America Gets New CEO in Signal That It Needs to Up Its Game

Monday saw a lot of news in the extended hotel space. First, Choice Hotels announced its intent to buy WoodSpring Suites for $231 million and later that same day, Extended Stay America announced a change of CEO.

The Charlotte, North Carolina-based business has appointed current chief financial officer Jonathan S. Halkyard as the company’s next president and CEO, effective January 1. The current president and CEO, Gerry Lopez, who has been with the company since August 2015, will serve as a senior advisor until March 18.

Halkyard has served as the CFO of Extended Stay America and its real estate investment trust, ESH Hospitality, since January 2015 and was also chief operating officer since September 2013. His previous roles included working for NV Energy as an executive vice president and CFO, as well as occupying various roles at Caesars Entertainment for a total of 10 years.

“Extended Stay America is a great company, and I am honored to have the opportunity to lead our tremendously talented associates,” Halkyard said in a statement announcing his appointment. “Our company has the industry’s leading margins, a unique and differentiated product, and a highly efficient capital structure. Gerry led us exceedingly well through the launch of ESA 2.0, and I’m enthusiastic about continuing the execution of this important growth strategy.”

Lopez’s Legacy

Lopez joined Extended Stay America in August 2015 when it was majority-owned and controlled by private equity firms, Blackstone among them, who had taken the company public in 2013. Since then, he’s played an instrumental role in executing what he called the ESA 2.0 strategy, which debuted in June 2016. It includes the selling of non-strategic assets, launching a franchising program for the first time in the company’s history, and building new company-owned assets for the first time in more than a decade.

“With our business model and fundamentals on very solid ground, ESA 2.0 is off to a fast start,” Lopez said in the same release. “With Jonathan now ready to take the reins, I’m delighted to hand the company over to him, completing a round of internal promotions into key management roles that set up ESA well for the future.”

David Clarkson, who currently serves as the company’s treasurer and vice president of financial planning and analysis, will serve as acting chief financial officer for the company while it conducts a nationwide search for a permanent CFO.

An Updated Outlook for 2017

In addition to announcing news of Halkyard’s appointment, the company also updated its outlook for the full fiscal year for 2017, increasing its estimate range for total revenues from $1.273 to $1.279 billion to $1.28 to $1.284 billion.

Challenges Ahead

How do shareholders feel about the CEO change, and how does that bode for the company’s future stock price? In a note to investors, Michael J. Bellisario, senior analyst for Baird Equity Research, wrote, “we are not totally surprised to see Extended Stay announce a leadership transition,” but he did say, “however, we are surprised to see this announcement today (sooner than we had been expecting), which leads us — and some investors — to believe that the 3Q17 miss-and-lower quarter potentially accelerated the leadership transition.”

“The resignation of a well-regarded executive is never a positive,” Bellisario said, but added that having an internal promotion should redirect investors’ focus away from a rough third quarter to the improved outlook for the full year.

Bellisario also hinted at the possibility that some investors may want the company to explore merger and acquisition opportunities.

Extended Stay America has 624 hotels throughout North America, primarily acting as an owner-operator. The economy extended stay brand’s competitors include Choice Hotels’ Suburban Extended Stay brand and its soon-to-be-added WoodSpring Suites brand, and the sector is becoming an increasingly attractive one for brands because these hotels have performed so well, especially in the U.S.

The Highland Group’s recent statistics showed that extended stay hotel demand outpaced the change in hotel supply in the third quarter, and that’s kept occupancy levels for extended stay hotels above their long-term average — despite record levels of new openings.

Brands, Extended Stay America and WoodSpring Suites among them, have also begun modernizing their offerings to suit travelers who have become accustomed to homesharing.

For Halkyard, continuing his predecessor’s reinvention strategy and pursuing a more asset-light business model will be critical, as well as establishing the brand’s place in an increasingly competitive extended stay market.