Choice Hotels International executives weighed the likelihood and timetable of the company's acquisition pursuit of Wyndham Hotels & Resorts during the brand’s fourth-quarter and full-year 2023 earnings call on Tuesday.
Patrick Pacious, president and CEO of Choice, said shareholders from both companies have responded positively to the prospects of the deal, and Choice is optimistic it will earn regulatory approval by the end of 2024.
“We are confident that we are well-positioned for regulatory approval and can complete the transaction in a customary time frame,” he said.
On Jan. 10, Choice released an investor presentation and infographic that was filed with the U.S. Securities and Exchange Commission to dispute antitrust claims made by Wyndham. Choice is continuing to work with the Federal Trade Commission and has been making progress, Pacious said.
“When we look at it from a second request to a final outcome, we’ve been told to expect anything from six to nine months; so as we’re six weeks into that six-to-nine-month time frame, that’s getting closer,” he said. “We’re moving pretty rapidly down that path.”
Choice hasn’t adjusted its offer since December, when the company made an exchange offer of $90 per share for all outstanding shares of Wyndham. Pacious said he is open to altering the deal, though, if Wyndham agrees to meet with Choice executives.
Pacious said he’d sum up the reaction of Wyndham shareholders he’s spoken to as “frustrated” in the lack of engagement from Wyndham’s board.
“Wyndham’s board really just continues to refuse to engage,” he said. “We said this multiple times: The door remains open to Wyndham to engage in a constructive, private dialogue with us, and we believe there’s opportunity to improve our offer, if they’ll engage with us. That’s the first thing, and the second is [it would] allow us to undertake some due diligence.”
On Jan. 22, Choice nominated eight people to stand for election at Wyndham’s upcoming shareholder meeting, a move that was made due to the lack of communication on Wyndham’s end, Pacious said.
“Over the last six plus months, it has become clear that Wyndham’s board is deeply entrenched and unwilling to take the actions that are in the best interest of their shareholders,” he said. “In fact, their behavior is denying Wyndham shareholders the opportunity to realize significant value creation while receiving customary protections.”
Wyndham President and CEO Geoff Ballotti said during his company’s fourth-quarter and full-year 2023 earnings call on Feb. 15 that Choice’s pursuit was a “distraction” and questioned why the FTC reached out to Wyndham prior to an official offer.
The "unique risks of this transaction have only increased as the process has unfolded, starting with the Federal Trade Commission’s unsolicited outreach to us and subsequent investigation, even before Choice launched its exchange offer,” Ballotti said.
Company Growth Drivers
The addition of Radisson Americas continued Choice's focus on more revenue-intense units. Choice completed its integration of Radisson Americas in 2023.
Choice’s domestic upscale, extended-stay and midscale portfolio grew 1.4% for hotels and 1.6% for rooms year over year in 2023. Domestic upscale, extended-stay and midscale hotels now represent 82% of the company's portfolio, Pacious said.
The company's domestic room pipeline increased 3% in the fourth quarter of 2023, boosted by a 6% increase in brand conversions, according to the company's fourth quarter and full-year 2023 earnings release.
Pacious said Choice has undertaken some key strategies and growth drivers that contribute to its performance, including: a focus on hotels that generate higher-than-average royalties per unit; increased conversions; international expansion; and integrating new businesses.
Its international portfolio grew 2.6% in units and 2% in number of rooms in 2023 compared to 2022. Choice’s international units pipeline increased 33% in the fourth quarter of 2023.
“We believe we have a significant opportunity to further gain international market share and realize additional [earnings before interest, taxes, depreciation and amortization] growth in the coming years,” Pacious said.
By the Numbers
Choice hotels achieved revenue per available room of $48.36 in the fourth quarter, a 3.9% decrease compared to the fourth quarter of 2022. Its average daily rate was $91.51, down 1.7% over 2022 levels, and occupancy was 52.8%, down 130 basis points compared to the same quarter in 2022.
For full-year 2023, RevPAR was $55.21, 0.1% over last year’s levels. ADR was $96.93, up 1.9% compared to full-year 2022, and occupancy was 57%, down from 58% last year.
Choice’s adjusted earnings before interest, taxes, depreciation and amortization was $125 million in the fourth quarter, representing an 11% year-over-year increase. Its total revenues for the quarter were $358.4 million, which was down 1% compared to last year.
Adjusted EBITDA for full-year 2023 was $540.5 million, up from $478.6 million last year. Total revenues hit a record $1.5 billion for the year, up 10% over 2022.
The company’s net income for the fourth quarter was $29 million, down 48% compared to its 2022 fourth-quarter levels. Its full year 2023 net income was $258.5 million, a decrease of 22% compared to last year.
As of publication time, Choice’s stock price was trading at $114.10 per share, roughly flat year to date. The New York Stock Exchange Composite Index was up 2.96% for the same time period.