Choice Hotels International’s second-quarter earnings call underscored two of the franchisor’s major feats: its full integration of Radisson Hotel Americas, which it acquired exactly one year ago, and its continued focus and rollout of conversions on the development front, a strategy its emphasized in a high-interest-rate environment.
It seems to be paying off, so far.
Choice reported it hit a new quarterly record for total revenues of $427.4 million, a 16% increase compared to the same period a year ago. Choice’s global rooms pipeline increased 10%, including 14% growth in the pipeline for conversion hotels versus the end of second quarter 2022.
At the same time, Choice said it achieved $80 million of annual recurring synergies through the Radisson Hotels Americas integration, exceeding the company’s original synergy target ahead of schedule. In July 2023, the company onboarded the nearly 600 Radisson Hotels Americas hotels onto its reservation system and into Choice’s loyalty program, Choice Privileges.
Choice Hotels President and CEO Pat Pacious pointed to a “velocity of execution” when it came to its conversions strategy and enmeshment of Radisson.
“Conversions move through the pipeline at a significant velocity,” he said, “and have a higher opening rate than new construction.” Pacious, for instance, said there are approximately 26,000 independent upscale hotels in the U.S., “so there is ample conversion opportunity.”
Of Choice’s 22 brands, 19 are conversion opportunities, the company said.
“It’s a strong value proposition for owners,” Pacious continued, offering, with a hint immodesty, that hoteliers choose their brands over the competition.
In the second quarter, Choice drove a 28% increase in domestic room pipeline growth for conversions from March 31, 2023, and said it will have 60 conversion projects open within the next three months. Of the 126 franchise agreements signed in the first half of 2023, around 66% have already opened. “Some conversions never even appeared in our pipeline numbers because they opened so quickly,” Pacious said.
“Part of the pipeline is timing.” he added. “We terminate assets that have a lower likelihood of success.” Choice’s overall churn is 4% to 5%, Pacious said, with 1% to 2% of owners voluntarily leaving the system.
The company’s global pipeline increased 10% to more than 93,000 rooms, while the company’s global rooms pipeline for conversion hotels increased 14% from June 30, 2022 and 25% from March 31, 2023. The company’s domestic rooms pipeline for conversion hotels as of June 30, 2023 increased 10% from June 30, 2022.
Domestic revenue per available room or RevPAR increased 50 basis points for the second quarter compared to the same time last year, driven by a 2.8% increase in average daily rate. Second quarter occupancy levels exceeded 60%.
Like revenue, EBITDA for second quarter 2023 reached a quarterly record level of $153.1 million, an 18% increase compared to the same period in 2022. The strong quarter gave Choice the impetus to raise its full-year EBITDA guidance to between $530 million and $540 million.
RAD RADISSON
For Radisson Americas, it was all about the speed of integration, Pacious said, having achieved $80 million in recurring synergies. In the second quarter, Radisson Americas RevPAR was up 3.8% YOY, with its upscale hotels growing 13% YOY.
Is there more M&A on the horizon? In May, The Wall Street Journal reported that Choice Hotels was potentially pursuing a deal to acquire Wyndham Hotels & Resorts, the largest hotel franchisor in the world, a marriage that has not come to fruition yet and, perhaps, never was truly close to happening. M&A rumor aside, a tie up of the two on face makes sense due to their relatively similar portfolio of brands within the economy and midscale space, along with new competition from giants Marriott International and Hilton, which have recently pivoted into lower-echelon chain scales where they had never been before.
Speculation resurfaced on Choice’s Q2 call, but executives did not bite. Instead, they highlighted their prior acquisition of Radisson Americas while simultaneously pointing to current gaps in their brand architecture that could be filled.
“Radisson was underinvested in,” Pacious said, noting that terminations were expected, but were baked into the underwriting. “We wanted to bring value and opportunity to owners quickly.” He said the deal has already paid dividends for owners and Choice, citing increased traffic to the hotels and an increase in look-to-book ratios. “We are now selling reality, not just future potential,” Pacious said.
On future M&A opportunities—whatever they may or could be—Pacious said they are always on the lookout and that there is still some white space out there. He emphasized that Choice does an agile job of integrating new brands or companies. He called, for example, the WoodSpring Suites brand, which it acquired in 2018 “a home run,” and Radisson as a high RevPAR move and revenue accretive, and allowing Choice to tap into a younger demographic.
“We’ve developed a capability to integrate brands rapidly,” Pacious said. “WoodSpring needed a growth engine and development capabilities and Radisson needed better business delivery, better loyalty and a better distribution platform.”
