Conversion speed supercharges Choice Hotels’ growth

Choice Hotels International has revealed that the rapid pace of moving conversion projects through its pipeline is a key driving force in its network expansion.

The company’s global pipeline at the end of Q2 this year increased 10% from the same period in 2022 to over 93,000 rooms. 

Domestic and national growth

Dividing the upcoming hotels into the firm’s home US market as compared to the rest of the world, Choice’s domestic pipeline rose 9% year-over-year to more than 87,000 rooms, representing 899 hotels. 

Its international pipeline swelled by 29% throughout the same period to over 6,300 rooms, representing 61 hotels.

Conspicuous conversions

Conversions are boosting Choice’s expansion, with its global conversion rooms pipeline as of 30 June 2023 increasing 14% in 12 months and 25% from the end of Q1 2023.

Meanwhile, the firm’s domestic US rooms pipeline for conversion hotels as of end-Q2 2023 spiked by 10% year-over-year and 28% quarter-over-quarter.

Speedy transformations

Choice’s president and CEO Patrick Pacious analysed: “The exceptional speed with which we are able to move conversion projects through the pipeline has driven impressive revenue-intense hotel openings in the first half of 2023 and further strengthened our award-winning brand portfolio, reinforcing our confidence in the company’s ability to drive significant growth in 2023 and beyond.”

He further told investors during the company’s Q2 earnings call: “In today’s higher interest rate environment, our diverse portfolio of brands allows us to  leverage our core competency, a best-in-class hotel conversion capability that fuels our current earnings growth. These convergent projects moved through the pipeline at significant velocity and have a higher opening success rate than new construction projects, reflecting their lower upfront capital and risk exposure.”

Development velocity

Pacious expected more than 60 conversion projects to open in Q3 this year, revealing: “Nearly 80% of the domestic agreements awarded in the first half of the year were for conversion hotels. Of the 126 domestic franchise agreements we executed for conversion hotels in the first half of 2023, two thirds have already opened or are expected to open by the end of this year.

“Through our superior speed-to-market conversion processes and best-in-class franchisee support, we are able to move projects quickly through the pipeline. The velocity of our conversion openings has been so quick that some conversion hotels never appeared in our quarterly pipeline numbers.”

Renovation property prospects

Forecasting prospects for conversions, Pacious detailed: “We expect conversion activity to remain robust for the foreseeable future, a trend we believe we are uniquely positioned to capitalise on due to our established operational excellence and the strategic investments we have made in our portfolio of 19 conversion brands spanning  all of our segments.

“This is one of the reasons we are so confident that we can further build on the annual double-digit adjusted EBITDA growth we have delivered for the past five years, excluding pandemic-impacted 2020 and it’s why we expect to deliver approximately 10% adjusted EBITDA growth year-over-year in 2024.”

Segment pipeline

Looking at development by segment, the company’s extended stay and upscale domestic pipelines increased year-on-year by 17% to 450 hotels and 27% to 127 hotels, respectively.

For upscale hotels Pacious outlined: “In the first half of 2023, we grew our domestic upscale units by approximately 32% year-over-year, highlighted by a nearly doubling in the number of new hotel openings. At the same time, we increased the number of domestic upscale franchise agreements awarded for conversion hotels by 44% year-over-year.

“We expect that the Radisson Americas acquisition will enable us to build on our momentum in the upscale segment, accelerating the growth of our Cambria and Ascend brands while also broadening the Radisson portfolio.”

Extended stay expansion

Regarding the longer stay segment, Pacious commented: “We have further invested in the extended stay franchise business and in May we executed the highest number of openings for a single month in over two years.

“We remain very optimistic about our extended state franchise business growth and expect the number of our extended stay units to increase at an average annual growth rate of more than 15% over the next five years. At the same time, we reinforced our core portfolio of brands by growing our domestic upper midscale franchise business by 24% year-over-year, reaching approximately 2,300 domestic hotels in the first half of 2023.”

Brand progress

Furthermore, in the same investor call, executive vice president, operations and chief global brand officer Dominic Dragisich summed up: “We are very optimistic about our growth prospects across all of our key segments. For example, the Cambria brand grew by 15% year-over-year, reaching 69 units with an additional 71 domestic properties in the pipeline.

“In addition, the number of domestic franchise agreements for our Ascend Hotel collection, which ranks as the largest global soft brand with over 360 hotels worldwide, increased by 44% through the end of June  year-over-year.”

Suite success

Dragisich also analysed Choice’s suites brands’ development, adding: “Our newest extended stay brand, Everhome Suites, is gaining impressive traction across the development community with over 60 domestic projects in the pipeline. At the same time, WoodSpring Suites pipeline reached nearly 300 domestic properties as of the end of June, a 32% increase year-over-year.

“And since its successful refresh, the Comfort brand has now registered 14 straight quarters of unit growth year-over-year. We are pleased with the accelerated net unit growth trends we are driving.”