Choice Hotels is showing a lot of patience with its Comfort brands, probably more than a $2.5 billion investment warrants. But early signs suggest it will work out.
Choice Hotels is ahead of schedule with its Comfort Inn and Comfort Suites renovations, and is entering the final stages of the program, the company disclosed on its second quarter earnings call Tuesday.
Two-thirds of Choice Hotels’ flagship Comfort system, totaling 1.614 properties, scheduled to complete facelifts by the end of the year have already done so, according to CEO Patrick Pacious. Of the remaining locations, more than half have begun construction.
Choice Hotels is already reaping the benefits from the strategic initiative, it said. Comfort hotels that completed renovations by the end of the first quarter of 2019 improved revenue per available room (RevPAR) by 0.6 percent, also outperforming the greater mid-scale brand segment by the same amount.
“We believe the overall brand’s RevPAR index will continue to strengthen this year,” Pacious added.
When later questioned by analysts about the marginal RevPAR growth immediately following renovations, Pacious said three months is not a sufficient amount of time to gauge long-term success. Property makeovers for Comfort Inn and Comfort Suites included new lobbies, guest rooms, updated common spaces, as well as a new logo with signage.
The goal of the $2.5 billion investment was to primarily increase midweek occupancy and business traveler interest. Choice Hotels is leveraging its Comfort brand and upscale Cambria and Ascend chains to grab a bigger market share of the corporate travel market, which is projected to reach $1.7 trillion by 2022, according to the Global Business Travel Association.
“What we have seen is those that have done the renovations are performing higher. The other is, as they add the new signage, we’re going to, probably in the next call, give you a sense of what the new signage is adding. But that’s another positive lift on both RevPAR and RevPAR index for those hotels.”
The investment in Comfort is also having a positive impact on unit growth. Openings for new Comfort hotels across the U.S. jumped 10 percent in the first half of 2019. Choice Hotels has also increased its number of franchise agreements by 49 percent over the same period. These franchise agreements are expected to generate over 20 percent more in revenue throughout the duration of the contracts, the company said.
Choice Hotels reported revenue of $318 million in the second quarter, an 8 percent increase over the same period in 2018. Net income for the chain, however, fell 7 percent to $74 million.
Domestic system-wide RevPAR declined 0.1 percent in the second quarter, due to relatively flat growth or slight declines across Choice Hotel’s mid-scale brands. Comfort Inn reported a 0.6 percent decline in RevPAR, while Comfort Suites was flat in the second quarter. Upscale brand Cambria, along with extended-stay chain WoodSpring Suites were among the company’s top performers.
Choice Hotels ended the second quarter with approximately 7,000 hotels worldwide, an increase of 2 percent year-over-year. Its domestic pipeline of hotels awaiting conversion, under construction, or approved for development also stands at 988 hotels. The 79,000 rooms in its pipeline represent nearly 17 percent of the current available room count.
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Photo credit: The lobby of a renovated Comfort Inn. All of Choice Hotels' Comfort system will have new, updated looks by the end of 2019. Choice Hotels