Choice Hotels is not wasting time trying to build on its two-month-old acquisition of WoodSpring Suites as it extracts business traveler potential from the deal.
Rockville, Maryland-based Choice Hotels wants to compete in the midscale and economy extended-stay sectors that other hotels have been concentrating on. Choice’s portfolio includes MainStay Suites, Suburban Extended Stay, and WoodSpring, which brings Choice’s extended stay property count to 350.
CEO Pat Pacious said during the company’s fourth-quarter 2017 earnings call on Tuesday that WoodSpring will bring more business travel to the Choice portfolio. Pacious also told analysts and investors that the WoodSpring acquisition was about investing in and growing the brand rather than cost synergies.
“We look at a lot of things that come for sale or in the case of Woodspring, it came through a discussion with the previous owner,” said Pacious. “When we look at an opportunity we make sure it fits into our current model. We didn’t get into the management model with this opportunity. When you think long term…we look at adjacencies as well.”
WoodSpring has already made 17 franchise agreements across the United States since the deal was announced, said Pacious, with new properties opening this year in places like Los Angeles and Washington, D.C.
WoodSpring’s existing 240 hotels include mostly newer builds, Pacious said, with the average property built within the past seven years. “WoodSpring also really aligns with our Cambria owners,” said Pacious.
Skift Research analyst Rebecca Stone said the WoodSpring deal will help Choice’s financial performance, royalty rates, and occupancy in 2018. “Extended stay properties tend to have higher occupancies and lower associated room and labor expenses, driving overall higher operating margins,” said Stone. “The acquisition allows Choice to strengthen its standing in the segment and turn its attention to building out its upscale portfolio.”
Pacious said Choice will also focus on growing its upscale portfolio in 2018. He responded to an investor’s question about whether the company would consider an acquisition or organic growth to boost this segment of its portfolio.
“With [mergers and acquisitions], we look at a tuck-in perspective when we bring a fantastic growing brand onto our platform,” said Pacious. “If you look at the12 brands that we have, there’s an interesting mix of brands we’ve acquired and grown organically.”
Pacious added that Choice made 704 franchise agreements in 2017 and that last year was its best development year since 2007. Last year the company opened about one new property per day in the United States and 60 percent of new franchise agreements came from existing or returning owners.
CFO Dominic Dragisich said Choice is very encouraged by the United States tax reform law passed in December, and said it’ll likely have a positive impact on the company’s financials.
Dragisich said the corporate tax rate cut to 21 percent is expected to lower the annual effective tax rate to 23 percent. “We’re projecting access to an additional $25 million in cash annually,” he said.