Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Dealmakers often opt for fancy hotels with spas and cocktail bars when travelling on expenses. But they are showing a taste for hotels with kitchenettes and self-service laundries when it comes to transactions.
Last week, for example, US budget hotel operator Choice made a $9.8bn public approach for rival Wyndham Hotels and Resorts after the latter broke off merger talks.
Extended stay hotels in the US had a good pandemic. The sector boasted an occupancy rate of 74.7 per cent in 2022, compared with 61.3 per cent for all other US hotels sectors combined, according to industry data tracker STR.
Their popularity has been bolstered by the rise of workcations and so-called “bleisure” travellers. The latter combine remote working with vacations, spending about $500bn in 2022, according to the American Hotel & Lodging Association.
Blackstone and Starwood Capital came together that year to buy a portfolio of extended stay properties for about $1.5bn. They made a bigger bet on the sector in 2021 when they teamed up to acquire Extended Stay America for $6bn.
The economics of extended stay properties are appealing. They cost less to develop and are cheaper to operate than traditional full-service hotels. Weekly rather than daily housekeeping is the norm. Fewer daily check-ins and checkouts reduce the number of employees needed on reception.
Gross operating profit margins are therefore generally higher than for the wider industry, according to CBRE Hotels Research.
Hilton Worldwide, Hyatt Hotels and Marriott International are all making a push into the extended stay market, while Best Western is expanding its footprint there.
The incursion by these heavyweights will put pressure on Choice and Wyndham. The two control about 16 per cent and 36 per cent of the US economy hotel market respectively. It would make sense for them to combine.
Choice just has to convince Wyndham shareholders and regulators. Time for their bankers to justify their stays in fancier accommodation with some persuasive pitching.
Read the full article here