Choice Hotels to Buy WoodSpring Suites in Extended Stay Market Play

Choice Hotels announced an acquisition of the WoodSpring Suites brand and franchise business from WoodSpring Hotels Holdings for approximately $231 million in cash.

With this deal, Choice would be adding 240 extended stay hotels in 35 U.S. states to its portfolio, which also includes the MainStay Suites and Suburban Extended Stay brands. This would give Choice 350 extended stay properties.

The deal is expected to close in the first quarter of 2018, subject to regulatory approvals and the closing of the sale of WoodSprings' 100 owned hotels to Brookfield Strategic Real Estate Partners II.

WoodSpring Hotels Holdings, which is part of private investment firm Lindsay Goldberg, will be renamed and will retain its hotel management operations.

Why WoodSpring?

According to Choice Hotels' statement on the acquisition, the WoodSpring purchase makes good business sense in this increasingly asset-light and consolidation-heavy hospitality industry.

"The acquisition of the WoodSpring Suites brand represents an asset-light franchise business that complements Choice's existing extended stay business with WoodSpring Suites' market-leading capabilities," the statement reads. "Choice plans to hire the WoodSpring Suites franchise business employees and strengthen the existing multi-unit developer and franchisee relationships that have contributed to the success of the brand. The transaction provides attractive returns and resilience through market cycles."

Extended Stay Is Hot

The extended stay space is an increasingly attractive one for the hotel industry. As Skift noted earlier this year, extended stay hotels have performed well, especially in the United States.

The Highland Group recently found that extended stay hotel demand outpaced the change in hotel supply in the third quarter, and that's kept occupancy levels for extended stay hotels above their long-term average — despite record levels of new openings.

Brands are eager to modernize their offerings to suit travelers who have become accustomed to homesharing. WoodSpring, which is classified as an economy extended stay brand, carried out a brand relaunch and repositioning in 2015. The brand debuted in 2003 as Value Place.

Nine of WoodSpring's hotels are franchised under a slightly more upscale WoodSpring Suites Signature brand.

In the past three years, WoodSpring's unit growth hit 25 percent, and its franchise fee revenue increased 45 percent.  WoodSpring had planned to open 25 hotels next year.

This acquisition also marks newly appointed Choice CEO Patrick Pacious' first major acquisition in the chain's top post. Pacious became CEO in September, but has been with the company for 12 years.

"Extended stay is a fast-growing segment, reporting some of the strongest gains in demand and has led the hospitality industry in annual RevPAR [revenue per available room] growth," Pacious said in a statement. "The addition of the WoodSpring Suites brand will allow us to strengthen our scale within the attractive extended stay segment, expand our runway for growth, and continue to create value for our customers, franchisees and shareholders."

WoodSpring will likely complement Choice's current midscale MainStay and economy Suites Suburban Extended Stay brands and solidify Choice's reputation in the midscale/economy space, something Pacious told Skift he was eager to do as CEO.

Pacious said, "It's real exciting to see that core part of our business be as vibrant as it is. I like to tell people this quote from Warren Buffet: 'Great businesses are ones that have a deep and wide moat around them, and it's management's job to keep expanding the width and depth of that moat.' That's what we intend to do with our midscale business, is to continue to expand and fortify the dominant position that we have in the midscale segment."

Choice Hotels spokesperson Lorri Chistou said the company intends to keep the WoodSpring Suites brand. Choice debuted a new development prototype for is MainStay brand earlier this year. The addition of WoodSpring to its portfolio increases its extended stay portfolio by more than 200 percent.

Michael J. Bellisario, a senior analyst for Baird Equity Reseach, wrote in an investor's note that he believes the WoodSpring Suites Signature brand "is a closer competitor to Extended Stay America's brand."

He also noted that "Choice's growth within the extended stay segment has been non-existent (116 hotels at 3Q17 vs. 110 hotels at 4Q14), and this acquisition provides a proven growth brand (although some of the growth has been funded on the balance sheet)."