Article Summary:

Choice Hotels International President and CEO Pat Pacious said the company’s hotels have outperformed the competition due to being in the right segments and locations.

Primary Category: Earnings Recaps

Secondary Categories: Americas, Brands, News, Public Companies

ROCKVILLE, Maryland—Choice Hotels International properties outperformed competition in the first quarter and are well-positioned to continue to do so in the current pandemic environment, according to executives on the company’s first-quarter earnings call.

Pat Pacious, president and CEO of Choice, said the company’s properties “outperformed the competition in the first quarter on several fronts.”

“Systemwide occupancy rates were higher than the overall industry, especially for our extended-stay brands,” he said. “This contributed to a domestic systemwide (revenue per available room) growth rate that outperformed the overall industry by 430 basis points. Additionally, our brands’ RevPAR outperformed the primary chain scale segments in which we compete as reported by STR. These trends have continued throughout the worst weeks of the pandemic into the second quarter.”

(STR is the parent company of Hotel News Now.)

Pacious added that occupancy levels have been growing week over week at Choice properties since early April. As of 6 May, 97% of Choice’s properties in the U.S. remain open.

He attributed much of this outperformance to the company’s hotels in the extended-stay and midscale segments.

“Our midscale brands represent two-thirds of our total domestic portfolio, a segment that outperformed in the first quarter of 2020 and continues to do so through early May. Our 410 extended-stay hotels maintained an occupancy level of 60% in the month of April, and our WoodSpring (Suites) brand was even higher at 64%,” he said.

Approximately 90% of Choice’s domestic properties are in suburban, small-town and interstate locations, which STR data showed retained higher industrywide consumer demand than hotels in urban or resort destinations, Pacious said.

Most of Choice’s portfolio is located in the U.S. and thus “has been insulated from the precipitous drop in international travel caused by the pandemic,” he said.

Franchisee support
Pacious said the company has been providing support to its franchisees throughout the pandemic.

“Our typical franchisee is an owner-operator with two hotels, financed with low overall debt levels, which provides them financial flexibility in down cycles to adapt to a softer demand environment,” he said. “Our franchisees can flex payroll costs, reduce operating expenses and postpone capital expenditures. These limited-service hotels are less labor intensive, and in general operate at higher margins as compared to full-service hotels.”

Choice has reduced fixed program fees, extended deadlines for brand programs and “adopted more flexible brand standards to lower owner costs,” he said.

The company has also contacted franchisees individually to “help them manage their cash position according to each owner’s individual situation with an eye towards helping them succeed in the longer term,” he said.

“To date, 10% of hotels have been enrolled in our tailored fee deferral program,” he said. “Just for perspective, the average occupancy across our portfolio has been above 30% since the week of 12 April, indicating that many owners have been able to operate without additional assistance.”

However, Pacious said 70% of Choice’s hotels “have applied for or secured vital (Small Business Association) loans through the Paycheck Protection Program and economic injury disaster loans.”

Choice expects the near-term recovery to be “sporadic and regional,” but franchisees are well-positioned to “capture demand as conditions improve,” Pacious said.

Leisure travel is expected to lead the recovery and rebound faster than business travel, which puts Choice in a good spot as leisure comprises two-thirds of the company’s roomnights, he said.

Choice’s brands are also in the right markets at the right price point to capture business from Americans who have been on the road this past eight weeks, he said.

The company expects more travelers to “replace lavish trips with low-cost getaways” and travel by car rather than plane once the appetite for travel returns, Pacious said.

Q1 performance
For the first quarter, domestic systemwide RevPAR decreased 15% compared to the same period the previous year, according to the company’s earnings release.

In March, domestic systemwide RevPAR dropped 37% and occupancy levels dropped below 50%.

“In April, domestic systemwide RevPAR declined 60% over the prior year comparable period, with the last week of the month trending +280 (basis points) in higher occupancy versus the prior week and nearly one-third of the domestic portfolio achieving occupancy levels at or above 40%. These trends of occupancy gains have continued into May and represent outperformance versus the company’s competitive chain scales,” the release states.

As of press time, Choice’s stock was trading at $73.21 a share, down 29% year to date. The Baird/STR Hotel Stock Index was down 41.1% for the same period.

1 Comment

  • Arvind Kejriwal May 12, 2020 10:07 AM Reply

    Could also be that Choice’s hotels are willing to crush rate faster than others

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