Executives on the company’s fourth-quarter and full-year 2017 earnings call said Choice’s acquisition of WoodSpring Suites—combined with the success of MainStay Suites—creates opportunity for the company in the extended-stay segment in 2018 and beyond.
ROCKVILLE, Maryland—With the recently completed acquisition of WoodSpring Suites’ brand and franchise business, Choice Hotels International is expanding its footprint in the extended-stay segment, as well as growing its pipeline of new construction-focused brands, executives said on a call with analysts to discuss the company’s fourth-quarter and full-year 2017 performance.
The brand recorded 25% unit growth, 21% revenue-per-available-room growth and 48% gross room-revenue growth over the last three years, Pacious said.
There are 17 WoodSpring properties expected to open this year, and Choice has “already added 19 newly executed franchise agreements under this brand by converting formerly company-owned pipeline projects into third-party franchise commitments,” he said.
“With the addition of the WoodSpring Suites brand, Choice nearly tripled the size of our footprint in extended stay, and now offers more than 350 properties,” Pacious said. “WoodSpring is a brand of tomorrow, still in the early growth stage of its brand life cycle, and joins our other new construction-focused brands, including Cambria, Sleep Inn, MainStay and Comfort, all of which have a robust pipeline.”
Choice’s MainStay Suites brand is also driving growth in the extended-stay segment. The brand had its best year in 2017, “doubling the number of executed contracts over the previous year,” Pacious said.
When asked by analysts if there are other segments or chain scales Choice could add to its portfolio, Pacious said that with nonorganic growth, the company looks at products that drive the best return for shareholders, “and can drive the highest return on investment for our owners.”
“When we look at M&A, we do look for opportunities from a tuck-in perspective,” he said. “WoodSpring is a great example of that where we bring a fantastic growing brand onto our platform that fits nicely into that segment and really allows us to bring the distribution power that we bring, that marketing and reservations activity, the technology, to these owners and help them improve both their same-store sales and their return on investment.”
CFO Dominic Dragisich added that Choice’s strategy remains the same.
“We are going to be disciplined and opportunistic in what we go after,” he said.
Choice expects to see benefits to its corporate tax rate and for franchisees as a result of U.S. tax reform, Dragisich said.
“The reduction of our corporate tax rate to 21% (and) the creation of a territorial tax system in the immediate capital expensing of certain qualified properties is expected to lower our annual effective tax rate to 23%,” he said.
Dragisich said this represents a $25-million reduction on annual cash tax payments, and Choice is projecting “access to an additional $25 million of foreign earnings in the first quarter of 2018.”
“The mandatory repatriation provision of the tax-reform legislation resulted in our repatriating approximately $20 million of foreign earnings in the first quarter of 2018,” he said. “These repatriated earnings were used toward funding our acquisition of WoodSpring Suites, which we are excited to welcome to our family of brands.”
Choice reported domestic systemwide RevPAR increased 2.2% in the fourth quarter. Dragisich said effects of hurricanes in some markets might have dragged down RevPAR growth by as much as 1.8%.
Due in part to Hurricane Harvey, he said, “in Texas, we have underpenetration … that could have created almost a 90-basis-point gap in terms of the industry. And then those hurricanes in the Carolinas in 2016 created a 30- to 40-basis-point gap across the industry. … RevPAR could have been closer to (3.5% or 4%).”
For full-year 2017, RevPAR grew 2.5%, average daily rate increased 1.7% and occupancy rose 0.8% to 62.2%, according to the company’s earnings release.
The release states that the company opened nearly one hotel a day during the year, adding 346 new domestic hotels during 2017.
On Tuesday afternoon, Choice’s stocks were up 0.8% year to date. The Baird/STR Hotel Stock Index was down 0.4% for the same time period.