More than a year after Choice Hotels International acquired the Radisson Americas portfolio, Choice has its eyes set on filling white space both domestically and internationally through organic growth and potentially more acquisitions to come.
President and CEO Pat Pacious said during Choice’s second-quarter earnings call that the company has room to grow in the upscale extended-stay and upper-upscale segments in the U.S. On the international front, Pacious said there’s “a lot of potential opportunities.”
“We’re always looking for [mergers and acquisitions] that fit the two litmus tests that we talked about: improving the [return on investment] for the owners and growing the brands for the shareholders,” he said. “As we look forward, there’s still some white space in our portfolio.”
Choice broke quarterly records for total revenue and adjusted earnings before interest, taxes, depreciation and amortization in the second quarter of 2023. Pacious said this is due in part to the continuing integration of the Radisson America’s portfolio and the company’s conversion capabilities.
Pacious said Choice has completed some key Radisson integration milestones, including onboarding the Radisson Americas hotels onto its reservations delivery engine and integrating the loyalty programs.
Choice achieved $80 million in annual recurring synergies due to the company’s integration of Radisson properties. Pacious said Radisson Americas’ adjusted earnings before interest, taxes, depreciation and amortization is projected to be more than $80 million next year.
“The speed with which we have integrated Radisson Americas is truly remarkable, and our ability to rapidly drive synergies and quickly integrate brands is key to our long-term success,” he said. “As a result of our speed of execution, our guests and franchisees across the entire portfolio of brands are already reaping substantial benefits from the integration.”
Choice’s upscale, extended-stay and midscale segments grew 10% in hotels and 11.7% in rooms since the end of the second quarter of 2022. The company’s domestic hotels and rooms increased 6.9% and 8.8%, respectively, over the past year, and its international hotels and rooms increased 9% and 11.8%, respectively, over the same time frame.
The company’s pipeline is also growing both domestically and internationally. Chief Financial Officer Dom Dragisich said the company’s domestic pipeline grew 9% year over year in the second quarter, while its international pipeline grew 29%.
Pacious said international revenue per available room exceeded expectations in the second quarter, up 16% compared to 2019 levels.
“Our international business is now much more robust,” he said. “We’ve effectively doubled the size of that business.”
Given the high cost of new builds in the current lending and interest rate environment, Pacious said Choice is “uniquely positioned to capitalize on” conversion opportunities in its platform. The company had a 28% increase in its domestic rooms pipeline for conversion hotels, and it plans to open more than 60 conversion properties in the next three months.
“These conversion projects move through the pipeline at significant velocity and have higher opening success rates than new-construction projects, reflecting their lower upfront capital and risk exposure,” he said. “Attracted by our strong value proposition, hoteliers are choosing our brands versus the competition as they seek to improve their operations, deliver strong top-line revenues and lower their costs, thereby boosting the long-term value of their hotels.”
Executives said the speed at which Choice converts hotels is what gives them confidence in future performance. Pacious said Choice is opening converted economy and midscale properties in under 100 days on average.
By the Numbers
According to the firm's second-quarter earnings release, Choice hotels achieved revenue per available room of $60.32, a 0.5% increase over the second quarter of 2022. Average daily rate was $100.10, a 2.8% increase over 2022 levels, and occupancy was 60.3%, down from its 61.6% occupancy in the second quarter last year.
Choice’s adjusted earnings before interest, taxes, depreciation and amortization was $153.1 million, setting a quarterly record and representing an 18% increase from the same quarter in 2022. The company also set a quarterly record for total revenue in the second quarter at $427.4 million, a 16% increase year over year.
The company’s net income of $84.7 million in the second quarter was down from $106.1 million in the second quarter of 2022.
The company slightly decreased its full-year outlook for net income but increased the floor of its adjusted EBITDA from $525 million to $530 million. Pacious said adjusted EBITDA is expected to grow 10% year over year in 2024.
As of publication time, Choice’s stock price was trading at $129.75 per share, up 17.8% year to date. The New York Stock Exchange Composite Index was up 6.3% for the same time period.