THE WALL STREET JOURNAL. Tuesday, December 1, 2020 |B11
Extended Stay America Is a Sleeper Hit
The lodging chain has outperformed peers and should continue to do well despite a subdued holiday season
Nov.ExtendedStayAmericaMarriottInternationalChoiceHotelsInternationalWyndhamHotels&ResortsS&P500Share-price and index performanceSource: FactSet20–80–60–40–200%Jan. 2020HEARD
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FINANCIAL ANALYSIS & COMMENTARY
Continued high demand for business travel amid the pandemic has been a key differentiator for the company.BRUCE BENNETT/GETTY IMAGESAfter being sanctioned by the
U.S. in August, Hong Kong Chief
Executive Carrie Lam said in a TV
interview last week that she can’t
get a bank account in her own city.
Apparently, Hong Kong and Chi-
nese banks are unable to serve her
because the risk of what the U.S.
government could do in retaliation
is too great.
The Treasury Department’s Of-
fice of Foreign Assets Control can
freeze the assets of sanctioned in-
dividuals, prevent them from deal-
ing directly with American compa-
nies and individuals—and even
lock third parties out of the ability
to settle transactions in dollars.
What is more, a secondary sanc-
tions regime, expanded under the
last two U.S. presidential adminis-
trations, has increasingly targeted
foreign financial entities that
transact with sanctioned parties.
Even small institutions that
don’t have large U.S. dollar expo-
sures can find themselves at risk. If
a government attempts to use such
a lender to skirt sanctions, that
bank could be placed on the OFAC’s
Specially Designated Nationals list,
as Russia’s Bank Rossiya was in- Any of its larger banking
counterparties could be hit with
secondary sanctions.
For economies less exposed to
the global financial system, costly
workarounds to OFAC’s sanctions
may be possible. But for a financial
hub like Hong Kong, the prospect
of an unfurling web of sanctions on
major institutions is far more wor-
rying. Facing such severe penalties
and such high uncertainty of what
the U.S. Treasury would consider a
“significant transaction” under the
sanctions regime, commercial insti-
tutions may choose to avoid any
target of OFAC completely.
The Treasury Department is ex-
pected to release a report by Dec.
11 identifying foreign financial in-
stitutions that have transacted or
offered services to Hong Kong’s
sanctioned individuals.
U.S. sanctions may not ulti-
mately change the course of Hong
Kong or Chinese central govern-
ment policy. But developments in
Hong Kong do show just how far
the Treasury Department can
reach—and how the fear of its
broad powers can have a major
impact all on their own.
—Mike Bird
Investors who thought home-
stay platforms were a safer choice
than hotels amid the pandemic
haven’t considered a third alterna-
tive—a homestay at a hotel.
Like its peers and given its place
in a hospitality industry generally
ravaged by Covid-19,Extended Stay
AmericaInc. has underperformed
the broader market this year. But
that changed recently as investors
homed in on the fact that, while we
may be in for a long and economi-
cally draining winter, relative shelter
may exist in unlikely places.
Despite all the buzz around
homestay businesses outperform-
ing other travel categories, the re-
ality is that they have been hit hard
too. WhileExpediaandBooking
Holdingsdon’t break out financials
for alternative accommodations,
Airbnbsaid in its initial offering
filing in November that its revenue
over the past nine months fell
nearly 32% versus past year. While
that is better than the 46% fall
Marriott Internationalrecently re-
ported over the same period, it is
essentially in line with the drop
seen by roadside hotel companies
likeChoice Hotels International
andWyndham Hotels & Resorts.
Across major lodging players,
though, Extended Stay has been a
relative pandemic outperformer,
with revenue falling just over 16%
year-over-year over the past nine
months—roughly half the decline in-
curred by Airbnb. In its third-quar-
ter report, the company said it has
been profitable on the whole this
year. It said revenue per available
room improved every month in the
third quarter and that occupancy—
which was nearly 80% in the quarter
ended Sept. 30—has been running
close to 2019 levels since August.
Over the course of the pan-
demic, Airbnb touted users shift-
ing their interest from shorter
trips to longer, even monthlong,
stays. But as the name implies,
lengthy visits are the bread and
butter of Extended Stay’s hotels.
Its rooms come with a kitchen and
access to on-site laundry, among
other things. The company said
that, while transient revenue fell
40% in September, revenue from
longer stays was up. Extended-stay
occupancy rose 18% versus the
same time last year. Extended Staysays it is the only pure-play hotel
chain focused on long-term stays.
Continued high demand for busi-
ness travel amid the pandemic has
been a key differentiator for Ex-
tended Stay, helping to keep occu-
pancy rates high. While the company
said it lost its typical business trav-
elers such as government or retail
workers, it gained others in areas
like warehousing, logistics, construc-
tion and temporary medicine.
Direct traffic helped to buoy
profit margins. Extended Stay said
revenue from its own channels in
the third quarter was nearly flat
year-over-year and that in July itsaid its business is less seasonal
than traditional hotel companies
and that the higher mix of longer-
term versus transient customers
this year could mean even less sea-
sonality than usual. For that reason,
holiday occupancy remained solid
this year—a pattern that could hold
over Christmas. The average stay at
an Extended Stay hotel is between
30 and 40 days compared with
around 25 days last year, according
to the company. Extended Stay’s
shares are up 124% off their March
lows, but investors, like patrons of
its brand, may want to settle in.
—Laura Formansaw the largest single month’s reve-
nue generated by direct traffic to its
website. That speaks to increasing
brand awareness that is likely to
benefit it long after the pandemic.
Meanwhile, rather than laying
off employees like other lodging
players, Extended Stay said it
hasn’t done pandemic-related
workforce cuts. That seems to
stand in contrast to Marriott
which in September confirmed it
will lay off 17% of its employees at
its headquarters after furloughing
thousands. Airbnb said in May it
would lay off 25% of employees.
Looking forward, Extended StayHong Kong
Chief Shows
Long Arm
Of the U.S.
Data Is a Help and a Hazard for Auto Insurers
Firms will need to team with startups as growth of vehicle statistics empowers new competitors
Real-world driving data from
connected cars is both a treasure
trove and a minefield for auto in-
surers. Big banks’ efforts to deal
with financial technology challeng-
ers offer some useful lessons.
The volume of so-called tele-
matic driving data, whether from
mobile-phone apps, dongles, in-car
sensors or aftermarket blackboxes,
is ballooning. This enables much
more accurate predictions of risks
and claims than traditional ZIP
Code data, making it highly valu-
able for insurers as well as em-
powering new competitors. In a
sign of where things are headed,
General Motorssaid in November
that it plans to offer car insurance.
Banks offer clues as to how in-
surers can respond. Banking, like
insurance, is a highly regulated in-
dustry where big incumbents were
relatively slow to change. The fi-
nancial crisis kicked off a new era
in banking innovation, helped by a
shift to mobile commerce. To com-
pete, lenders have had to invest
heavily in new digital services and
team with challengers.
Insurers use telematic data to of-
fer cheaper policies to safe or infre-
quent drivers. Italy, Britain and the
U.S. have the most so-called usage-
based policies, but penetration is
still low. The data can help speed
up claims or provide customer-
friendly add-ons such as accident
response, real-time driving feedback
or stolen-vehicle tracking.
The flip side for insurers is thatthe data is attracting new compe-
tition. Car makers like GM see an
opportunity to deepen customer
relationships and boost profits.
They may find it a tricky sell,
given that many households own
different brands of vehicles and
seek to bundle auto and home in-
surance for a better price.
Insurance-tech startups argu-ably present a more serious chal-
lenge. Many offer customers
cheaper data-powered products
over slick apps. Their current mar-
ket shares are small and scaling
won’t be easy; car-insurance re-
newal rates tend to be high. But
many are nimble competitors with
big ambitions. In October, usage-
based car-insurance providerRoot
raised $724 million in an initial
public offering. It recently added
house insurance to its offer.
Auto insurers need to work with
startups and data providers to keep
abreast of new developments and
improve their digital offers. Other-
wise they may find themselves out-
maneuvered. The tech giants
haven’t shown much interest in in-
surance, but that could change as
more car makers embrace Apple’s
CarPlay and Google’s more inte-
grated suite of auto services.
Banks offer insurers a glimpse
of the road ahead. Auto insurance
can expect increasingly connected
cars to accelerate the pace of
change. They must invest and
partner accordingly.
—Rochelle ToplenskyOVERHEARD
A rash of lawsuits shows not
reading the label carefully can
pay off. Take a filing from Octo-
ber against Whole Foods alleg-
ing its ice cream bars claim to
have a “chocolate coating” which
contains vegetable oil.
“Defendant sold more of the
Product and at higher prices
than it would have in the ab-
sence of this misconduct, result-
ing in additional profits at the
expense of consumers like the
plaintiff,” reads the filing.
Nearly identical language was
used against the owner of pas-
try brand Entenmann’s for its
“All Butter Loaf Cake,” which
contains oil, and against Dutch
brewer Heineken USA for its
Mexican-sounding Tecate Beer.
No deep research was needed
to ascertain the truth—the ingre-
dients or origins were on the
packages. Likewise, parties
weighing joining class actions
should known the attorneys and
lead plaintiffs get much of any
settlement—it’s in the fine print.Australian Wine’s Ties With China Sour
Australian winemakerTreasury
Winehas for years benefited from
quenching the thirst of the nouveau
riche in China. The souring relation-
ship between Australia and China
has left it with a nasty hangover.
China imposed antidumping tar-
iffs on Australian wines last week
after an investigation by Beijing,
whose findings were rejected by
the Australian government. There
is a political background: Relations
between the two countries have
been on ice since April, when Aus-
tralia campaigned for a global
probe into the pandemic’s origins.
Importers of Treasury Wine will
now be required to pay 169% tar-
iffs. But the idea that it is dump-
ing cheap wines into China looks
questionable. On the contrary, the
country is a major market for the
company’s premium offerings.
Asia is Treasury Wine’s most
profitable market and China ac-
counts for two-thirds of Asia reve-
nue. Margins in Asia were nearly
40% in the latest fiscal year, more
than twice the level in Americas, its
biggest market by revenue and vol-
ume. It’s hard to argue that the com-pany is selling the wine too cheaply
in the market where its margins are
highest. China makes up around 30%
of its earnings overall.
Treasury Wine has been a major
beneficiary as Chinese consumers
have grown rich and more eager to
get their hands on luxury goods
from abroad. Its revenue from Asia
has more than quadrupled since- That boom created a lot of
political risk, however: Treasury
Wine’s Australia-listed shares have
fallen 47% this year as relations
between China and Australia have
nosedived.
Passing on the tariffs to con-
sumers may not be an option for
Treasury Wine distributors as that
would make its wines more expen-
sive than comparable offerings
from France, and thus less com-
petitive. But absorbing the tariffs
itself could mean an 82% drop in
the company’s China earnings, ac-
cording to estimates from Bern-
stein, even with some savings on
marketing and distribution.
Treasury Wine said on Monday
it would ship wines allocated to
China to other countries in Asia as
well as to Australia, the U.S. and
Europe. The company will ramp up
marketing in those markets, but it
won’t be easy and quick as it faces
strong competition.
Chinese consumers have been a
big boon to many companies sell-
ing luxury goods. Shifting geopo-
litical winds, however, could
change that quickly.—Jacky Wong
Treasury Wine’s annual revenue
from AsiaSource: company reportsNote: A$1 = 74 U.S. cents; doesn't include
Middle East and Africa since fiscal year 2019A$8000200400600millionFY2013 ’15 ’20Active telematics-based insurance
policies in 2019Projected penetration rate of
telematics-based insuranceSource: Berg Insight0 million 5 10 15
U.S.ItalyU.K.CanadaGermanyFranceSpain^010203040%2019 ’20 ’21 ’22 ’23 ’24U.S. Canada
TheMediterranean
U.K.&Ireland TotalEuropeFORECAST