Choice raises EBITDA forecast despite declining RevPAR

Comfort Inn Prospect Park – Brooklyn exterior
Comfort hotels opening this year, such as Comfort Inn Prospect Park-Brooklyn, are expected to generate 10 percent higher total rooms revenues than the brand's average. Photo credit: Choice Hotels International

Choice Hotels International's adjusted earnings before interest, taxes, depreciation and amortization rose 7 percent year-over-year last quarter, according to the company’s Q3 report. It forecast full-year adjusted EBITDA would total between $362 million to $365 million, an increase of $3 million at midpoint compared to the company’s Q2 guidance.

Despite stronger than expected adjusted EBITDA results, Choice reported weak revenue per available room results. Although it forecast domestic YOY RevPAR would grow 0 percent to 2 percent in Q3, the company saw the metric decline 0.7 percent. It now predicts RevPAR will decline between 0 percent and 2 percent in Q4 and decline between 0 percent and 1 percent for full-year 2019.

“As we look to the remainder of 2019 and beyond, we're committed to maintaining a long-term view and driving value for our hotel owners and shareholders,” Patrick (Pat) Pacious, president/CEO of Choice Hotels International, said on the company's earnings call. “One way we'll achieve this goal is by growing in key segments and markets as we continue to improve the value proposition for our owners.”

Focus on Upscale, Midscale and Extended-Stay Brands

Choice and its leaders also highlighted the growth of its upscale, midscale and extended-stay brands. YOY, the company grew the number of domestic rooms in its upscale brands Cambria and Ascend by 13 percent. Year to date, the company has awarded 25 Clarion Pointe franchise agreements, bringing the brand’s number of hotels open or awaiting conversion to 45. The Sleep Inn brand achieved 2.6 percent growth in its number of domestic hotels and 10 percent domestic pipeline growth, bringing the brand’s pipeline to 150 hotels.

The company also made progress on the $2.5 billion transformation of its Comfort brand. For those hotels that have completed renovations, it appears the work is paying off, with Choice finding RevPAR among those hotels outpacing their competitive set by 60 basis points. On average, the company expects to open one new Comfort hotel per week during fourth quarter. According to Pacious, the Comfort hotels opening this year are expected to generate 10 percent higher total rooms revenues than the brand’s average.

Choice grew the number of domestic hotels in its extended-stay brands to nearly 400 by the end of Q3, a 10 percent increaseYOY. The segment’s domestic pipeline grew by 11 percent during this period to more than 250 hotels. In the third quarter, WoodSpring and MainStay Suites’ domestic development pipelines grew 9 percent and 18 percent, respectively.

Pacious attributed these brands’ “robust” growth to several factors. “Not only are our proven brands attracting developers and guests alike, the extended-stay segment is seen as cycle resistant and a smart investment,” said Pacious. “We believe our extended-stay growth is proof of hidden demand for long-term-stay options in both the business and leisure markets.”

System Growth

Choice’s number of domestic hotels and rooms both rose 1.8 percent YOY. The company continued to forecast approximately 2 percent growth in net domestic units for 2019. Internationally, the company grew its number of hotels and rooms 4.1 percent and 4.5 percent, respectively. The company did not offer full-year guidance for its international hotel growth.

During third quarter, it awarded 100 domestic franchise agreements and grew its domestic pipeline to 975 hotels and 82,390 rooms. Its new-construction domestic pipeline totaled 741 hotels, a 5 percent YOY increase. Internationally, Choice’s total number of hotels awaiting conversion, under construction or approved for development stood at 94 at the end of the quarter, compared to 82 a year earlier.