Choice Hotels International didn’t revise down its guidance for the year, and President and CEO Pat Pacious said the company expects to see headwinds from its Comfort brand transformation turn into tailwinds.
ROCKVILLE, Maryland—Choice Hotels International expects headwinds from its “Move to Modern” Comfort transformation will soon turn into tailwinds.
Pat Pacious, president and CEO of Choice, said on the company’s second-quarter earnings call with analysts that the strategic transformation of the Comfort brand is in its final stages.
“Only one-third of the Comfort system will be undergoing our ‘Move to Modern’ renovation in the second half of the year, and nearly 30% of the Comfort system has already installed new exterior signage with the modern brand identity, signaling to guests on the outside of the hotel that something’s new on the inside,” he said.
Hotels in the Comfort system that completed renovations under the initiative by the end of the first quarter of 2019 saw revenue per available room increase by 60 basis points and outperformed the segment’s RevPAR by 60 basis points, Pacious said, adding that the brand’s overall RevPAR index should continue to strengthen throughout the year.
Some brands have cut their guidance expectations for the year, but Choice did not, Pacious said, citing the “health of the consumer” and expected tailwinds from the Comfort transformation as reasons why they did not.
“Consumer confidence is at a record high, unemployment is at a record low,” he said. “We look at the broader occupancy and demand trends, (and) we expect them to hold up for the remainder of the year, we’ve got that baked into our RevPAR guidance. We do expect our rate to actually accelerate given those headwinds that the ‘Move to Modern’ renovations have created in the first half of the year (and) expect that will turn into a tailwind.”
Choice raised its full-year guidance for adjusted earnings before interest, taxes, depreciation and amortization by $2 million at the midpoint range. During the second quarter, adjusted EBITDA increased 6.5% to $100.4 million, according to the company’s earnings release.
As of press time, Choice stocks were trading at $85.81 per share, up 19.8% year to date. The Baird/STR Hotel Stock Index was up 14% for the same period.
The company grew its domestic extended-stay portfolio to approximately 380 hotels since 30 June 2018 and grew the domestic extended-stay pipeline by 18%.
Pacious said Choice believes the “growth will continue as there is significant untapped demand for both consumers and developers for extended-stay hotels across the country.”
The company’s largest extended-stay brand, WoodSpring Suites, “continues to be one of our fastest-growing brands,” he said, adding that the company is “bullish on the segment as a whole, particularly the economy segment of the extended stay set of brands.”
“When you look at where WoodSpring is today, we expect to have about 270 of those open by the end of the year and then another 30 by the end of 2020, so that brand is growing at a significant pace,” he said. “We’re just seeing a lot of demand from both developers and consumers for that product in markets across the country, and it’s had a spillover effect into both our MainStay and our Suburban brands.”
He added that Choice sees additional branding opportunity in the extended-stay segment.
“That could come in the form of an acquisition or potentially a new brand launch, so we do see other white space in the extended-stay segment that we don’t play in today,” he said. “I think given the strengthening of our own capabilities to deliver that type of consumer and to drive the return on investment to that type of developer, we do see additional opportunity in that for the long term."