Choice Sees No Letup in Biz Travel Demand as It Expands Extended-Stay Hotels

Choice Hotels is betting on the extended-stay sector to drive growth in 2020, with CEO Patrick Pacious calling it “one of the fastest growing segments of the hotel industry” on Tuesday’s earnings call.

The company launched Everhome Suites, a new construction midscale extended-stay brand earlier this year. It’s the first brand to enter the midscale extended-stay segment in roughly a decade.

Pacious said the decision to put resources into expanding the extended-stay sector came down to demand.

"About 20 percent of the rooms sold in 2019 were for stays of longer than seven nights, and only 9 percent of the current inventory is purpose-built for extended stay," he said. “Consumers are probably staying longer in transient hotels when they prefer to be in an extended-stay hotel.”

Developers have already committed to building 13 Everhome Suites in the Austin, Texas, and Los Angeles markets. Choice Hotels currently has more than 400 domestic hotels in its extended-stay portfolio, a 10 percent increase since year-end 2018.

Choice Hotels also saw growth with its upscale Cambria and Ascend brands. In 2019 the two brands increased the company's domestic upscale room count by 44 percent year-over-year. Cambria alone grew its domestic room count 28 percent year-over-year and has 50 open hotels with a pipeline of 89 more, 27 of which are already under construction.

Unlike some of its competitors, Choice has remained unscathed by the coronavirus outbreak, with Pacious calling its impact “less than minimal.” Of the company’s more than 7,000 hotels, only seven are located in China. Domestically, Choice hotels are not heavily concentrated in gateway cities, and therefore do not rely on inbound Chinese tourists.

Earnings Results

Choice Hotels reported a total revenue of $1.1 billion for 2019, growing 7 percent from the previous year. In the fourth quarter of the year, total revenues excluding marketing and reservation system fees grew by 10 percent to $130.2 million.

Adjusted EBITDA, or earnings before interest, taxes, depreciation, and amortization, increased 6 percent to $81 million in the fourth quarter. Adjusted earnings per share were $0.92, a 5 percent increase over the prior year quarter.

Domestic system-wide RevPAR, or revenue per available room, declined 90 basis points for the full year, down 2.1 percent compared to the same period of 2018. Chief financial officer Dominic Dragisich attributed the decline in part to regional performance in oil and gas markets, which are experiencing tough times.

“Despite the RevPAR environment, we are very pleased that the investments we've made in high-value segments are paying off. This is especially true for the higher RevPAR upscale segment where we significantly increased our presence last year, thanks to the continued expansion of our Cambria brand,” Dragisich said.

Correction: An earlier version of this story incorrectly reported that Choice Hotels has four hotels in China, when in fact there are seven.