Choice Hotels International set company records in the first quarter for total revenues and adjusted earnings before interest, taxes, depreciation and amortization, in part due to its strategy of acquiring and building hotels in revenue-intense segments.
President and CEO Pat Pacious said during Choice’s first-quarter earnings call that the company has targeted the segments with the most developer and guest demand: extended stay, upper midscale and upscale.
“The new franchises in these segments are also accretive to our earnings and a key driver of our future earnings algorithm,” he said. “By expanding our scope, network of franchisee relationships and customer reach, we have significantly increased our market opportunities and accelerated our growth.”
As of the end of the first quarter 2023, Choice grew its upscale and upper-midscale segments by 29% and 24%, respectively, compared to the end of the first quarter of 2022 due to its acquisition of Radisson Hotels Americas and the growth of Cambria Hotels.
Choice had a 9.5% increase in hotels and an 11% increase in rooms in its upscale, extended-stay and midscale segments since the end of first quarter of 2022. The company’s domestic pipeline increased 11% year over year, including its extended-stay pipeline growing 28% and upscale pipeline growing 16%.
“The versatile business model we have built has historically delivered stable returns and provided diversified avenues of growth throughout both expanding and contracting economic cycles,” Pacious said.
Radisson Acquisition
Choice is ahead of schedule with its integration of Radisson, Pacious said. The company plans to onboard Radisson into its business platform and loyalty program by the end of the third quarter and finalize the full integration by the end of the year.
The rewards of the acquisition are already coming to fruition: Radisson increased its business travel bookings 9%, revenue per available room 11.2%, and upscale brands 27% year over year in the first quarter, Pacious said.
“As consumers prioritize travel, we believe our business will experience outsized benefits from additional travel demand in our segments and locations,” he said. “Once all Radisson Americas hotels are fully integrated with Choice Hotels’ systems and employing our tools, we expect to help drive their top-line performance and profitability to the next level.”
Dom Dragisich, chief financial officer for Choice, said Radisson will likely add upward of $60 million in earnings before interest, taxes, depreciation and amortization this year, and an estimation of $80 million to $85 million next year could even be too low.
“Obviously a lot depends on once you plug it into the system. There’s some value-prop opportunities, revenue left as well, that a lot of times integration teams don’t underwrite. Do we see upside to those figures? Absolutely,” he said.
By the Numbers
According to Choice’s first-quarter earnings release, its portfolio achieved revenue per available room of $48.08, a 5.9% increase over the first quarter of 2022. Its average daily rate was $91.21, a 5.2% increase over 2022 levels, and occupancy was 52.7%, slightly above its 52.4% occupancy in the first quarter last year.
Choice’s adjusted earnings before interest, taxes, depreciation and amortization was $106.4 million, setting a company record for the first quarter and representing a 10% increase from the same quarter in 2022. The company also set a first-quarter record for total revenue at $332.8 million, a 29% increase year over year.
The company’s net income of $52.8 million in the first quarter was a 22% decrease year over year.
The company increased its full-year outlook for net income and adjusted EBITDA slightly, by $10 million and $5 million at the low end of the range, respectively.
As of press time, Choice’s stock price was trading at $126 per share, up 11.9% year to date. The New York Stock Exchange Composite Index was up 1.6% for the same time period.