Drive-to destinations propel Choice's occupancy in Q2

Over half of the domestic portfolio achieved occupancy levels at or above 50 percent during the last week of July and trends of occupancy gains were continuing into August. Photo credit: Choice Hotels International (Choice Hotels launches Book on Google)

Choice Hotels International hailed its strong domestic drive-to and leisure markets as it reported growth in occupancy and conversions during its second-quarter earnings results presentation. The company said that it was continuing to keep an eye on potential acquisitions, but pointed to difficulty in valuing assets in the current climate.

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The group was leaning on midscale and extended-stay brands, with the latter reporting average occupancy rates of 66 percent from the start of the pandemic to the end of the second quarter.

Nearly 90 percent of the company's domestic hotels were in suburban, small towns and interstate locations, which, Choice said, had reported higher occupancy levels and less-significant revenue per available room declines than other locations during the second quarter. The group said that leisure travel had accounted for more than 80 percent of roomnights.

Patrick Pacious, president and CEO, told analysts: “We have more than 4,000 hotels across the country located within 1 mile of an interstate exit. In June, one quarter of our revenue came from customers who traveled less than 25 miles to a hotel, a sign that more guests just want to get out of the house while staying closer to home. We expect that our strong presence in drive-to locations will lead to continued outsized performance as gas prices remain low and travelers feel safest in their own cars.”

To further appeal to this market, the company launched a road trip-focused marketing and advertising campaign in June, encouraging visits to drive-to destinations across the U.S. The ads, created by Choice's creative agency-of-record, McKinney, are airing across national markets and a range of digital channels. 

Looking at the corporate market, Pacious added: “We've seen both a gain in market share and a steady week-over-week increase in the volume of business traveler roomnights since a low in early April. This is thanks to the profile of our core business travelers who've been on the road these past months, including first responders, medical and other essential workers, government, trucking, logistics and construction workers.”

The CEO said that the company continued to find strength in its owners, with the typical franchisee an owner-operator with one hotel “financed with low overall debt levels and a flexible operating model that allows owners to scale back staffing and service levels to reduce expenses, critical elements during down cycles. Even in April, amid the worst week of the crisis in the industry, over 90 percent of our domestic hotels remained open, demonstrating the tenacity and resilience of our ownership base.”

By the Numbers

Domestic systemwide RevPAR fell 49.6 percent for second quarter. In July, domestic systemwide RevPAR dropped approximately 33 percent year over year, with average weekly occupancy exceeding 53 percent during the week of July 26. More than half of the domestic portfolio achieved occupancy levels at or above 50 percent during the last week of July and trends of occupancy gains were continuing into August.

The company described its extended-stay portfolio as “highly resilient,” with average occupancy rates of 66 percent since the onset of pandemic in mid-March through June 30—nearly double the industry average of 34 percent.

Adjusted earnings before interest, taxes, depreciation and amortization reached $111.5 million for the second half, against $177.1 million in the same period last year.

As of July 31 nearly 100 percent of the company's 5,917 domestic hotels were operating, along with 96 percent of its more than 1,200 international hotels.

The company awarded 151 new domestic franchise agreements for the year-to-date through June 30, a 42 percent drop on the year. More than 80 percent of the agreements were signed since mid-March and two-thirds of the agreements awarded in the first half of the year were for conversion hotels, against a historical average of 60 percent.

The number of domestic hotels and rooms was up 0.6 percent and 2 percent on the year.

As of the end of June, the company had more than $725 million in cash and available borrowing capacity, with CFO Dominic Dragisich commenting: “We continue to believe that our current liquidity position is more than adequate to weather the current environment; our gross debt-to-EBITDA leverage levels remain well within our target range of three to four times.”

Looking ahead, he said: “We currently expect that COVID-19 will have a less significant impact on our third-quarter performance results based on the continued weekly trend of travel growth predominantly stemming from leisure transient guests driving to their destinations.”

Choice pulled its 2020 guidance back in March as the pandemic forced closures and prevented travel.

This article originally appeared on Hospitality Insights.