It has been three months since Choice Hotels International closed on its $231 million acquisition of extended stay hotel brand WoodSpring Suites, and the company’s Q1 2018 results have clearly vindicated its decision.
On an earnings call, Choice CEO Pat Pacious said the extended-stay segment continues to dramatically exceed the RevPAR growth. Choice reported a 3.5-percent increase in both domestic and system-wide revenue per available compared to the same period last year, which Pacious attributed to gains in both occupancy and average daily rates. Total revenues for the company were also up 11 percent year-over-year.
These are strong results, but they are nothing compared to the 13.5-percent increase in RevPAR recorded by WoodSpring’s properties year-over-year, an increase that Pacious said is both unexpected and sustainable for the forseeable future.
“There is no indication that this was a one-time phenomenon,” Pacious said. “The extended-stay business is strong, and with WoodSpring’s model we believe we outpaced the rest of the segment.”
Extending the Lead
According to Pacious, WoodSpring’s positive revenues could be attributed to the brand’s higher-than-average room count. WoodSpring prototypes consist of 122 suites, which Pacious said allows the brand to accelerate and outpace unit growth as more properties are added to its development pipeline.
On the subject of pipelines, last quarter was also a record-setting period for development at Choice. WoodSpring alone issued 33 new development contracts in the last quarter, 31 of which were signed after the brand’s acquisition closed. Choice’s two other extended-stay brands, MainStay Suites and Suburban Extended Stay, earned 13 new development contracts between them in the last quarter.
Pacious said WoodSpring expects to open 17 hotels in total this year, including two that already opened in January, while a further 50 properties will begin construction.
“We want to pass a milestone of 250 WoodSpring hotels open this year, and we will be accelerating this growth in 2019,” Pacious said.
While extended stay may have captured Choice’s attention for the past few months, the company isn’t giving up its position in the midscale segments.
As reported earlier this month, Choice also has big plans for its Comfort brands. Alongside its owners, the company has invested $2.5 billion into the brand to carry out renovations and upgrades to Comfort’s signage and online presence by 2020. Pacious stipulated that existing Comfort hotels will only be able to use the brand’s new logo in person, and online after completing the mandated updates.
Today, Choice’s Comfort brands have nearly 300 properties under development, and more than 80 percent of them are new builds. Alongside this, Choice is investing $500 million in key money to support development partners of its Cambria brand, which currently has 37 hotels open and another 13 under construction, 12 of which are expected to open this year.
A further 15 Cambria hotels are expected to begin development in 2018, with an end goal of operating 100 Cambria properties by 2020.
Choice’s performance this quarter, particularly in extended stay, was a welcome surprise. As a result, the company is modifying its expectations for the rest of the year, forecasting total net income for 2018 to land somewhere between $193 million and $199 million.
Net domestic unit growth for 2018, excluding WoodSpring, is expected to range between 2.5 percent and 3.5 percent. Meanwhile, domestic RevPAR—excluding WoodSpring—is expected to rise between 2 and 4 percent for Q2 2018, and between 1.5 percent and 3.5 percent for the full year.
On the call, Pacious said Choice is feeling a little more optimistic than they were at the tail end of 2017. At that time, the year had just closed out with multiple events that had a hand in shifting travel metrics, including natural disasters and a full solar eclipse. However, with consumer travel tendencies remaining strong and energy prices staying predictable, Pacious said Choice is feeling reinvigorated as it approaches the back half of the year.
“We continue to see unemployment at a record low, consumer spending is strong and consumer confidence is high,” Pacious said. “All this reinforces that the lodging cycle and Choice Hotels still has runway for growth.”