During last year’s third-quarter earnings call with investors, Choice Hotels International executives celebrated the completion of its deal to acquire Radisson Hotels Americas. This year, their focus has shifted to a bigger target: Wyndham Hotels & Resorts.
Choice publicly offered a combined $9.8 billion to purchase Wyndham on Oct. 17 and was promptly shot down by Wyndham officials. A little more than a week after the offer, Stephen Holmes, chairman of Wyndham’s board of directors, said during Wyndham’s third-quarter earnings call that Choice’s public bid was “a desperate grab to try and solve problems that the company has.”
Pat Pacious, president and CEO of Choice, said during the company’s third-quarter earnings call Tuesday that despite the strong pushback from Wyndham, Choice is optimistic in getting a deal done.
“The strategic rationale is just simply too compelling not to see it all the way through,” he said. “We’re well aware of what our options are to see this all the way through, and we’re confident we’ll get the transaction completed."
Pacious said that Choice would like to continue speaking with the Wyndham board to work toward getting a deal done. He said Choice decided to make the offer public after six months of private negotiations that “resulted in little progress.”
When asked if Choice would consider an economic move to sweeten the offer and bring Wyndham back to the negotiating table, Pacious said he’s “not going to have that conversation on this call, but we’re happy to have that conversation with the Wyndham board.”
“Every issue that’s been identified can be solved by coming back to the table and negotiating,” he said. “If there’s additional value to be unlocked, there can be additional value to be unlocked if Wyndham reengages. … A lot of these conversations are things that we want to continue to engage Wyndham on, but we’re going to do that with them privately.”
Pacious said with rising labor costs and interest rates and competitive nature of the segments Choice is in, now is the time to get a deal done.
“We as a company have been very patient in our growth strategies, but when we look at the opportunity here sitting in front of us today, the time to execute this transaction is now,” he said.
The ability to unlock value in revenue-intense segments with a larger footprint and financial capacity is a main factor in Choice’s interest in acquiring Wyndham, Pacious said.
“To put [it] in simple and direct terms, we are interested in combining with Wyndham because we respect their business and we see it as highly complementary to what we have built,” he said. “Together we believe we can accelerate and build upon what each company could do on its own.”
Choice has heard positive feedback from shareholders, franchisees, associates and guests from both brands as well as third parties, Pacious said.
“In the last three weeks, we’ve probably spoken to hundreds of franchisees across the spectrum. They’re very supportive of the combination,” he said. “These are sophisticated investors themselves, and they immediately grasp how a combination like this is going to improve their profitability.
“They see more direct bookings, they see a larger rewards program and they understand how that can drive down their costs and improve their profitability.”
Although the potential acquisition of Wyndham is a top priority for Choice, it won’t get in the way of normal business, Pacious said.
“While this transaction remains important and highly valuable for us to pursue, we remain laser-focused and committed to executing daily on our business and enhancing the value of Choice as evidenced by our strong third-quarter results,” he said.
Radisson Integration
In the third quarter of 2023, Choice completed its integration of loyalty programs and booking capabilities of Radisson Hotels Americas. Pacious said the integration of Radisson Americas has achieved $84 million in annual recurring synergies, 5% above its expected target.
Since completing the digital integration in July, Pacious said Choice has been able to drive stronger performance across the Radisson Americas brands. Bookings on its digital platform have been up 20% since the integration.
In addition, 75% of Radisson Americas’ hotels are on Choice’s property management system, with the remaining properties expected to be onboarded by the end of the year. Choice’s success integrating the Radisson Americas brands is validation that a Wyndham acquisition would also be beneficial for Choice franchisees and shareholders, Pacious said.
“We’re achieving those cost benefit reductions to them right now through the Radisson acquisition. The cost reductions we’re able to drive are going across not just the Radisson brands, but all of the Choice legacy brands,” he said. “Our franchisees are seeing that performance improvement on the top line, they’re seeing the cost reduction on their bottom line, and ultimately they see this combination as something that could really accelerate and be a real game-changer for their brands.”
Development and Pipeline
Through the end of the third quarter, Choice has opened 159 hotels in 2023, a 24% increase over the same time period in 2022. Each segment has positive growth in regard to openings year over year for the first nine months of the year, with upscale up 50%, extended stay up 38%, midscale up 14% and economy up 27%.
Choice’s domestic upscale and extended-stay portfolio grew 11% and 13%, respectively, since the end of third quarter 2022.
The brand’s overall portfolio has only grown slightly since the third quarter of 2022, however, with a net gain of only five hotels and 512 rooms. That figure is down slightly among domestic franchises; Choice has six less hotels and 201 less rooms domestically than it did at the end of the third quarter in 2022.
Choice’s global rooms pipeline increased 6% in the quarter and its global rooms pipeline for conversion hotels grew 11% year over year and 27% from the end of the second quarter.
By the Numbers
According to the company’s third-quarter earnings release, Choice hotels achieved revenue per available room of $64.02, a 0.8% decrease compared to the third quarter of 2022. Average daily rate was $103.33, a 1.3% increase over 2022 levels, and occupancy was 62%, down from its 63.3% occupancy in the third quarter last year.
Choice’s adjusted earnings before interest, taxes, depreciation and amortization was $155.9 million, setting a third-quarter record and representing a 12% year-over-year increase. The company also set a third-quarter record for total revenue at $425.6 million, a 3% increase year over year.
The company’s net income of $92 million in the third quarter was down from $103.1 million in the third quarter of 2022.
Choice increased its full-year outlook for net income ceiling from $259 million to $264 million. Choice also increased the floor of its adjusted EBITDA from $530 million to $535 million.
Choice decreased its full-year 2023 domestic RevPAR growth over full-year 2022 to approximately 1% after previously projecting 2% growth. Scott Oaksmith, chief financial officer of Choice, said this is due to the company being one of the first brands to recover to 2019 levels.
As of publication time, Choice’s stock price was trading at $114.94 per share, up 2% year to date. The New York Stock Exchange Composite Index was up 0.35% for the same time period.