Choice Hotels International President and CEO Pat Pacious isn't worried about new competition, even as new brands join the extended-stay and economy segments, where Choice thrives.
Just last month, Hilton unveiled Spark, its first economy brand.
Asked about the competition in the lower brand tiers, Pacious brushed aside any concerns that Choice is feeling competitive pressure.
"We're winning the hotels that we want to win into our system and you're seeing that in this selective unit growth strategy that we're deploying," Pacious said. "When you look at what owners in that segment want to do, it has to pencil for them. If you're asking them to renovate their hotel and put capital into it, they have to be able to see the rate premium that you can drive. And in many of these markets, that rate opportunity is limited by the surrounding product."
Choice ended 2022 with an extended-stay domestic pipeline of 496 hotels, which was a 34% increase year over year. Choice's first Everhome Suites property opened last year in Corona, California, after the company launched the brand in 2020. Pacious said Everhome Suites' pipeline reached 60 hotels as of the end of the year.
He added that Choice is quite experienced with economy, midscale and extended-stay brands, and the addition of a few more brands isn't that big of a threat to Choice's established footprint.
"It's a segment that we know well. We've worked well with our owners, we've improved what we're delivering to our hotels, and there are a lot of brand options in these segments," Pacious said. "There are a lot of brands that that play in midscale, that play in the economy segment. We're not seeing competitive pressure in that."
Integration Strategy for Radisson Americas
About eight months after announcing its acquisition of Radisson Hotel Group Americas for $675 million, Choice's integration plan for the 624 hotels included in the deal is starting to take shape.
Pacious said Choice's integration team is focused on driving those synergies with the Radisson portfolio quickly, and a lot of its best practices come from Choice's 2018 acquisition of WoodSpring Suites.
"A lot of that integration is going to occur beginning in [the third quarter]. We'll expect to see mostly in 2023 a lot of cost synergies that that will take place, with the revenue synergies being realized probably in the latter months of this year and then really taking off in 2024," he said.
A majority of the hotels Choice acquired from Radisson — about 450 in total — are under the Country Inn & Suites brand and won't require any significant capital expenditures, Pacious said.
"The quality of those assets, the Radisson team did a very nice job of keeping the brand consistency there. A significant majority of the hotels are in their generation 4 prototype," he said. "They've done a nice job of of keeping the brand quality [and] product quality fairly high."
Choice is primarily interested in new-construction projects for Country Inn & Suites hotels, though conversions aren't out of the question.
"That doesn't mean 100% one way or the other," Pacious said. "But it is a real opportunity for us to drive more new-construction in that brand, which sits at about 450 hotels today. If we can drive that to the same unit count as where our Comfort brand sits today, that's a significant growth opportunity for us and for owners who are in the brand today and others who want to invest in it. For that brand, we feel very, very confident that we have a really good starting point."
Meanwhile, there's more room for Choice to grow the Radisson full-service brand portfolio, which at the time of the acquisition included 130 hotels, about 66 of them in the U.S.
"There's obviously a greater footprint of [Radisson] outside of the U.S. in the Americas that are now part of our system. But that's one that we are taking a close look at," Pacious said. The full-service segment is one "that over time has had some challenges to it. But if we look into that portfolio, we really see an opportunity to reinject some higher-quality assets into the brand."
Choice executives are working with owners to elevate the Radisson brand, Pacious added.
"As we get out in the marketplace and talk to owners of existing assets in that segment, there's a lot of interest in what we're doing here and the opportunity to convert their hotels, put in some capital to drive them higher, which is something that those owners are considering," he said. "As we get further into the year and have a little bit more of a viewpoint from the developers we're working with, we'll have a better sense of what their capital requirements are going to be in order to perform at the level we want to see that brand achieve."
Pacious didn't rule out other opportunities for mergers or acquisitions in 2023.
Last year, Choice "deployed really all the levers," he said. "We invested in our business, we invested in our people, we invested in our brands, we acquired brands, and we returned capital to shareholders through both dividends and share repurchases.
"And all the while our leverage targets remained effectively below where we target, so it gives us the capacity to do more if the right opportunity from a [mergers and acquisitions] perspective or right opportunity for an investment shows up for us this year."
On the loyalty front, Choice now allows members of Choice Privileges and members of Radisson Rewards to exchange points between programs, which Pacious said will only enhance both "award-winning loyalty programs."
Performance Numbers
In the fourth quarter, Choice's portfolio achieved a revenue per available room of $49.40, a 20.4% increase over the fourth quarter of 2019. Its average daily rate was $91.30, a 17.4% increase over 2019 levels; and occupancy was 54.1%, 2.5% above the same quarter in 2019.
For the full year, Choice's systemwide RevPAR was $54.06, up 14.6% over 2019. Average daily rate at Choice's hotels was $93.17, up 13.8% from 2019. Hotel occupancy reached 58% in 2022, up 0.7% from 2019.
Choice’s adjusted earnings before interest, taxes, depreciation and amortization was $478.6 million for full-year 2022, representing a 19% increase over 2021. The company’s net income of $332.2 million for the full year was a 15% increase over 2021.
As of press time, Choice’s stock price was trading at $129.88 per share, up 15.3% year to date. The New York Stock Exchange Composite Index was down 5.3% for the same time period.