Renovations to Choice Hotels International’s largest brand, Comfort, led to a drag on the company’s RevPAR during the first quarter, but executives expect to see a lift in RevPAR across the portfolio during the second quarter of 2019.
ROCKVILLE, Maryland—Choice Hotels International’s transformation of its Comfort brand is moving at a faster-than-expected pace.
As part of that transformation, renovations to properties under the Comfort flag led to a 0.7% dip in revenue per available room for the first quarter of 2019, Choice President and CEO Pat Pacious said on the company’s call to discuss earnings with analysts. But as those properties ramp back up post-renovation, the company expects RevPAR to rebound, with a lift across the Comfort portfolio in the second half of 2019.
“The Comfort hotels that have completed the renovations are experiencing RevPAR lift … and RevPAR index growth within one to two quarters,” he said. “One-third of our Comfort portfolio that completed their renovations by the end of the fourth quarter of 2018 had RevPAR growth of nearly 1% in the first quarter.”
Upgraded Comfort properties have “more than doubled their business travel growth compared to the Comfort hotels that have yet to complete their upgrades,” he said.
“Comfort is our most competitive midscale brand in attracting business travel,” Pacious said. “Therefore its growth helps us capture a larger share of business and midweek demand. We are optimistic we will gain even greater traction among corporate travelers with our newly opened and newly renovated Comfort hotels.”
The brand continues to grow its pipeline with a focus on new-construction hotels, Pacious said. During the quarter, 18 new franchise agreement were awarded for Comfort, bringing the domestic pipeline to 280 hotels, he said. Eighty-five percent of those are new construction. The brand also opened 11 hotels during the first quarter, and plans to open more than one Comfort hotel a week in 2019.
Pacious said during Choice’s recent annual business convention there was significant interest among franchisees in its WoodSpring, Mainstay and Suburban brands, which he attributed to strong industry fundamentals in the extended-stay segment.
WoodSpring has just north of 250 properties, with a goal to hit 300 by 2020, Pacious said, adding Choice plans to double the footprint of that brand, if not triple it.
“We do think there’s probably close to 1,000 markets where something like WoodSpring would be in demand. … If you look across the industry and you look across the extended-stay segment, you see brands that have (doubled) the size of where WoodSpring is today,” he said.
There’s currently a lot of “extended-stay demand sitting in transient-stay hotels today because there’s no extended-stay in the marketplace,” Pacious added.
“That’s another driver of demand that’s not necessarily visible, but our owners see it. Our owners are looking at a product like WoodSpring with a GOP performance that’s significant (and seeing it as) a great asset to build because the demand generators are already in those markets,” he said.
Choice executives are keeping an eye on the fast-growing, tech-focused, India-based Oyo Hotels & Homes, Pacious said. But he said Choice currently isn’t seeing an impact on its brands from Oyo’s expansion.
“(Oyo is) having an impact on international markets, mostly in markets where we don’t have a lot of product today anyway … India in particular,” he said. “They appear to be approaching the market in multiple ways as well, so everything from providing technology and revenue management services to (franchising). It’s a bit of a multi-faceted approach they seem to be pursuing, but at this point we’re not seeing a threat to our core franchises in the U.S.”
For full-year 2019, Choice expects its net income to range between $186 million and $196 million, according to the company’s earnings release.
Domestic RevPAR is expected to range between a 1% decrease and a 1% increase during the second quarter, and between flat and up 1% for the full year.
As of press time, Choice stocks were trading at $84.50 per share, up 17.9% year to date. The Baird/STR Hotel Stock Index was up 16.6% for the same period.