By Robert Mandelbaum

June 20, 2013

Hotel developers are attracted to extended-stay (ES) hotels because of the relative simplicity of their operations and high profit(1)  margins.  Low levels of staffing, combined with limited offerings of services and amenities, allow for a significant portion of top-line revenues to extend to the bottom-line.  Before the Great Recession, properties in this segment would achieve net operating income (NOI) ratios to revenue between 45 and 50 percent.  During the depths of the recession, profit margins never dropped below 25 percent, and are now on their way back to the 40 percent mark.

To gain a better understanding of the financial performance of extended-stay hotels, we analyzed operating data from a same-store sample of 278 upper-tier (ex. Residence Inn, Homewood Suites, Staybridge Suites), and 125 lower-tier (ex. Candlewood Suites, TownPlace Suites, MainStay Suites) extended-stay properties that participated in our Trends® in the Hotel Industry survey each year from 2007 through 2011.  Estimates of performance were made for 2012 based on preliminary data from our 2013 Trends® survey(2) .  Lower-tier extended-stay hotels were not included in this analysis for confidentiality reasons.  Comparisons were made to the performance of a larger sample of all hotels in the U.S.

Volatility Varies

As expected, RevPAR levels at extended-stay hotels are less than the blended average for all hotels in our Trends® survey.  This is primarily because of the low ADRs achieved by these properties resulting from a large volume of rooms sold at discounted weekly rates.  Over the six year period analyzed, the RevPAR levels of the mid-tier ES properties averaged 50 percent of the "all hotels" RevPAR, while the upper-tier ES properties averaged 88 percent.  Indicative of the limited levels of amenities and services offered at extended-stay hotels, nearly 98 percent of total revenue comes from the rental of rooms.

In general, extended-stay hotel RevPAR levels moved in sync with the rest of the industry during the recent recession (2008-2009) and recovery (2010-2011).  However, we did observe distinct differences between the annual changes in RevPAR experienced by mid-tier and upper-tier ES properties during these periods.

In 2009, RevPAR levels at the mid-tier extended-stay hotels fell by 22 percent.  This is greater than the declines suffered by the upper-tier ES properties (-16%) and the average for all U.S. hotels (-19%).  Conversely, during the recovery, the RevPAR rebound was greater for the mid-tier ES properties (9.0%) compared to the upper-tier ES sample (5.5%) and all hotels (6.9%).  This is indicates a greater degree of volatility for the mid-tier extended-stay lodgings, and the relative consistency of upper-tier ES properties, during changes in the economic cycle.

Low Levels Of Labor

The primary reason for the high profit margins achieved by extended-stay hotels is the low levels of staffing required.  At the typical hotel in our Trends® sample, the combined expenditures for salaries, wages, and benefits equaled 45.5 percent of total operating expenses during the period 2007 through 2012F.  For the mid-tier extended-stay hotels, labor costs averaged just 36.9 percent of total expenses.  This ratio was even lower at the upper-tier ES properties (36.3%).

When analyzing labor costs as a percent to total revenue, we learn something about the ability of extended-stay managers to control labor.  During the six year period of analysis, labor costs at the mid-tier ES properties ranged from a low of 20.9 percent of total revenue in 2007 to a high of 27.4 percent in 2011.  For the upper-tier ES sample, the same labor cost ratio ranged from 20.8 percent (2012F) to 24.0 percent (2009).

Upper-tier ES properties have greater levels of staffing because they provide more frequent housekeeping services, as well as a higher degree of complimentary food and beverage product.  The relatively tight range of labor cost ratios at the upper-tier ES hotels implies that management at these hotels has a greater ability to adjust the higher staffing levels as the volume of revenue fluctuates.

On the other hand, staffing levels are so minimal at the mid-tier hotels which makes it more challenging for management to regulate.  Accordingly, the labor cost ratio at these properties rises as revenues decline, but falls during periods of prosperity.

Profit Parity

While total revenue at extended-stay hotels is 48 percent below the average for all hotels in the Trends® sample, extended-stay profits are just 25 percent of the overall mark.  From 2007 through 2012F, mid-tier extended-stay hotels achieved profits 56 percent less than the overall average of the Trends® sample.  Upper-tier ES profits were off by just 13 percent during the same period.

As with revenues, we find greater levels of volatility in the profits of mid-tier extended-stay hotels versus the upper-tier ES properties.  Mid-tier extended-stay hotels saw their profits decline to a greater degree during the recession, but bounce back stronger during the recovery.

Owners of both mid-tier and upper-tier extended-stay hotels benefit from the profit efficiencies of this property type.  For owners in the mid-tier ES segment, revenues and profits are more volatile, while upper-tier ES properties are regular in their performance.

Robert Mandelbaum is the Director of Research Information Services with PKF Hospitality Research, LLC (  To purchase a copy of PKF-HR's Trends® in the Hotel Industry report, please visit  This article was published in the May 2013 edition of Lodging.

* * *

(1) - Profit is defined as net operating income before deductions for capital reserve, rent, interest, income taxes, depreciation, and amortization.

(2) - 2012 estimate made in March 2013

About PKF Consulting USA, LLC

Headquartered in San Francisco, PKF Consulting USA, LLC ( is an advisory and real estate firm specializing in the hospitality industry. PKF Consulting USA is owned by FirstService Corporation (FSRV) and is a subsidiary of Colliers International. The firm operates two companies: PKF Consulting USA and PKF Hospitality Research. The firm has offices in New York, Boston, Indianapolis, Chicago, Philadelphia, Washington DC, Atlanta, Jacksonville, Tampa/Orlando, Houston/Dallas, Los Angeles, Bozeman, and San Francisco.

Contact: Robert Mandelbaum / 404 842 1150, ext 223

Related News

Small, Yet Impactful, Changes in the 11th Edition of the USALI

Salaries and Wages On The Rise

Budget Accuracy Benefits All

Nearly Half of U.S. International Business Travelers Use Extended Stay Accommodations

Caribbean Hotels Enjoy Fourth Consecutive Year of Double-Digit NOI Growth

Consumption and Pricing Influence Hotel Utility Costs

PKF Hospitality Research Forecast Accuracy Remains High

How Profitable Will RevPAR Growth Be in 2015?

Dual-Branded Hotels: Do Operating Efficiencies Exist?

PKF's 2015 Trends® in the Hotel Industry Results - a Video Report

Attendance and Expenditures Now Lead Recovery Of Group Demand

Hotel Occupancy to Hit Record High in 2015

Even Lenders Are Happy: Interest Expense Coverage Continues to Improve

In Hotels, Health Equals Wealth

Lodging Insights: U.S. Lodging Industry Forecast for 2015 and How the Outlook Differs by Chain Scale

Protracted Prosperity: Profits and Resulting Values Expected to Increase

PKF-HR Forecasts Broad-Based RevPAR Growth for All Segments of U.S. Lodging Industry

Employees Cost

IACC & PKF Release "Trends® in the Conference Center Industry 2014"

Hotel Spas: Doing Well by Doing Good

Budgeting Is Getting Easy

The Components of Franchise Fees

PKF-HR Forecasts Record Occupancy for 2015

Hotel Supply Fundamentals Provide a Roadmap for Future Construction

Approaching The Top Benefits The Bottom

PKF Report Shows Caribbean Hotels Steadily Improving

U.S. Hotels in Profitable Portion of Business Cycle

Oldies Are Goodies - Historic Hotels vs. Contemporary Properties

PKF Hotel Investment Survey Concludes Good Times Ahead for Lodging Industry

Recovery Ends - Peak Performance to Persist - PKF Forecasts Record Performance for U.S. Hotels

All News »

Please login or register to post a comment.