Covid19 hotel development analysis: Choice Hotels International [Infographic]

by | 21 Jun 2020 | Chains, News

Choice believes that its distinctive approach will help weather the storm of coronavirus. (Picture: Choice Hotels)

We delve exclusively into the TOPHOTELPROJECTS construction database to find out more about Covid19’s impact on Choice and its hotel pipeline.

Hospitality companies around the world have felt the devastating impact of Covid19 and Choice Hotels International is no exception.

We explore how the crisis has affected Choice, take a closer look at its development plans and consider what the future might hold for the Maryland-based hotel franchisor.

Choice’s busy hotel pipeline

Choice has been expanding rapidly in recent years. This trend is reflected in the fact that the company’s total domestic pipeline of hotels awaiting conversion, under construction or approved for development as of 31 March 2020 stood at 1,000 hotels and over 80,000 rooms, with the Comfort brand’s domestic unit pipeline representing over a quarter of the total domestic pipeline.

In addition, there are over 50 Cambria hotels open across the US in popular cities such as Chicago, Los Angeles, New York, New Orleans, Phoenix and Washington, DC, with over 80 hotels in the pipeline.

As of 31 March 2020, here are the pipeline numbers globally:

Projects in progress at Choice

Discussing the group’s growth plans during a call with analysts in March 2020, Choice president and CEO Pat Pacious said: “We’re developing hotels in higher-RevPAR markets and higher-RevPAR segments.

“As a result, we’re doing a lot more new-construction hotels, and we’re developing in markets where entitlements and the costs of labour to actually get hotels built is actually probably more expensive, [which means development] takes a little bit longer. We’re seeing a little bit more of a delay in the amount of time it’s taking new hotels once they start construction to actually open, but that’s reflective of the fact that we’re pushing more into the upscale segment.”

Of course, it remains to be seen exactly how Choice’s upscale ambitions will play out given the current uncertainty around Covid19. Many existing development projects that are already underway may simply experience delays rather than coming to a complete standstill, but others – particularly those in the early planning phases – might never be realised at all. There are also questions around whether the company will press ahead with investing time and money into new schemes at such a prolific rate in future.

How Choice’s share price has fluctuated in 2020

Before the crisis hit the hotel market, Choice’s share price topped out at US$108.23 on 19 February 2020. Within a month, it had fallen to US$54.38. After a short spike upwards, it dropped once again, reaching US$54.15 on 3 April.

Since then, it has been steadily recovering and climbed to US$90.70 on 5 June 2020, demonstrating how investor confidence has slowly returned following the initial shock of coronavirus and the resulting lockdowns around the world.

Hotel franchisor moves to reassure investors

Choice updated shareholders about the effect that the pandemic was having on its business in early April, with Pacious highlighting the “broad-based uncertainty of the current environment” and the necessity of taking decisive actions “to position the company for changing market dynamics”. At the same time, the company explained what mitigation efforts it had made to minimise the overall impact, including implementing a hiring freeze except with respect to certain critical positions, introducing a furlough for some positions in Europe, cutting non-essential expenditure, and suspending future undeclared dividends for the remainder of 2020.

The company also noted that it “continues to benefit from its primarily franchise-only business model, which has historically provided a relatively stable earnings stream and low capital expenditure requirements”, before adding that it had US$489 million in cash and available borrowing capacity, along with options to further increase capacity if needed. Consequently, the company advised that it “expects to withstand the impacts of Covid19 on its business”.

Choice remains confident in its approach despite coronavirus

From the beginning of the crisis, Choice expressed confidence that the company’s asset-light franchise business model would continue to prove resilient amid the challenges of coronavirus. Today, as demand slowly recovers, leadership appears to be banking on leisure travel picking up before business travel does, which could prove to be welcome news for the company given that around two thirds of its room nights are leisure stays.

During a Q1 earnings call with investors on 11 May, Pacious said that the company expects Americans will choose to drive rather than fly when their ability and appetite for travel return, adding: “We believe that heightened concern about the safety of air travel, low gas prices, and our strong presence in drive-to locations will, taken together, allow us to capture an outsized share of pent-up travel demand as stay-at-home orders are lifted.”

Another reason for optimism is that the company has outperformed competitors in various respects.

“Systemwide occupancy rates were higher than the overall industry, especially for our extended-stay brands,” Mr Pacious said. “This contributed to a domestic systemwide (revenue per available room) growth rate that outperformed the overall industry by 430 basis points. Additionally, our brands’ RevPAR outperformed the primary chain scale segments in which we compete as reported by STR. These trends have continued throughout the worst weeks of the pandemic into the second quarter.”

Importantly, Pacious added that occupancy levels have been growing week over week at Choice properties since early April. He will doubtless be hoping that this trend continues in the coming months as the world slowly adjusts to living in a post-Covid19 world.

Update: This article was amended on 23 June 2020 to include figures from Choice about the size of the company’s total domestic pipeline, the number of Cambria Hotels projects, the number of projects by brand and the share price on 5 June.

ABOUT THE CHAIN

Choice Hotels International is one of the largest and most successful lodging companies in the world.

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