Hotel Analyst
Choice to up investment in
pipeline Choice Hotels International is to put more of its own money into expanding its brands and supporting its franchisees, as its pipeline suffers in the downturn.
The group, which reported growth in profit and revpar in the second quarter, said that it expected to see revpar improve for the remainder of the year. It plans to use its own cash to take advantage of growth in the deals market and give it greater market share. Looking to the immediate
future, president and CEO Steve Joyce, said: “We believe the hotel transaction environment will remain difficult and thus continue to adversely impact our franchise sales results”. The slowdown in the deals
market has hit the company, both in terms of conversions to its brands and, with bank lending also limited, the newbuild market. Close to 80% of Choice’s estate
is in its domestic market, which continues to suffer, with a 47% drop on the year in the number of franchise contracts executed in the second quarter. The number of hotels worldwide under construction, awaiting conversion or approved for development fell by 27%. The company has had the backing of its board to put ‘skin in the game’ since 2008, but in a conference call, Joyce said that this investment would be increased from millions “in the single digits” to between $20m and $40m every year for “the next several years”. So far this year, to
www.hotelanalyst.co.uk
27 July, $17.8m has been advanced, with $5m since repaid. Putting the balance sheet behind expansion has, anecdotally, been a growing trend amongst operators, although Choice is one of the few to quantify the move. The money will be focused
on Choice’s emerging brands – predominantly the more upscale Cambria Suites – with Joyce commenting that the group thought of the money “as sliver investment to help a transaction go through”. Joyce said that the return on
investment was “typically high single, low double digits, but the real return is if we move the Cambria brand into being a second major engine for the company”. The decision to increase investment was attributed to evidence pointing to growing activity in the deals market, which the company was keen to take advantage of. Joyce added that a more
aggressive stance by banks was bringing distressed properties onto the market, which the group was eager to help its franchisees acquire – with capital available for portfolios in particular. He commented: “We think that we’ll get more than our fair share – as a developer of converted hotels – and that will lift us into a more normalised development environment.” Joyce added: “The banks are
taking back properties – there appears to an end to ‘pretend and extend’ or, as my favourite phrase goes; ‘a rolling loan gathers no loss’. The gap between buyer and seller is closing and there is creeping capital available.” The view was one backed by
Jones Lang LaSalle, which said that, in EMEA at least, transaction levels in the second half of 2010 were likely to be double that seen
148 NOVEMBER / DECEMBER 2010
WWW.SLEEPERMAGAZINE.COM
in the first, supported by improved access to credit from lenders. The CEO said that uncertainty
over the future of the economy would mean that the return of transactions would be gradual. The newbuild market is expected to take at least a year to improve, assuming the recovery in the wider market is maintained. In the group’s domestic market,
81% of the new contracts were conversions rather than newbuilds, with 37% of the pipeline under the midscale with F&B brands – the majority of those under the Quality flag – and 32% under economy brands. Joyce said that the company was still looking to add to its flags, although refused to comment on whether it had attempted to acquire the Tryp brand from Sol Meliá, which went to Wyndham. The news came as Choice
reported net income of $27m, up 6% on the year, with revenue up 5% to $149.8m. EBITDA was $45.7m for the second quarter, up 8.8% from $42.0m in the same period last year.
Domestic revpar increased by 0.3% for the second quarter of 2010 compared to the same period of 2009 as occupancy rate increases of 130 basis points were partially offset by a 2.2% decline in average daily rates. The rise was smaller than that recorded by several of the other groups reporting recently, reflecting Choice’s strong US and leisure orientation, with the forecast of flat to 2% growth for the full year a cautious one. The increase was the first for
the group since the second quar- ter of 2008, driven by gains in oc- cupancy and a gradually improv- ing average daily rate environment from this year’s first quarter. The company sees around two- thirds of its trade from the leisure
sector, which has meant that it was less able to take advantage of the growth in the corporate travel market seen at groups such as Starwood and Host. In line with this, the business-focused extend- ed stay brands recorded the stron- gest results for Choice, with revpar up by 5.9% However, Joyce was confident that the leisure market was recovering, despite the re- cent drop in US consumer con- fidence, describing it as a “bright spot”, commenting “the folks who have jobs are beginning to spend again”. After the extended stay sector,
the economy brands were next to improve, with revpar up by 1.5%, followed by the midscale without F&B segment, which was flat, then midscale with F&B, which dropped 1.2%. The company expects full-year adjusted EBITDA to be between $167.5m and $170m, with revpar expected to increase approximately 6% for third quarter. It expects net domestic unit growth ranging from 1% to 2%.
HA Perspective: Choice’s decision to start bank rolling its franchises looks a sensible response to difficult times. But it carries significant risk. Separating the sales process from the credit worthiness assessment is the most obvious and biggest challenge. Additionally, it might tie-up capital that might be better deployed brand building. As a short-term fix, if managed carefully, it should help grow market share. Particularly give that more than four in five franchise sales are conversions. No data is given, but it is likely that many of these are cash-starved hotels looking to a brand (or stronger brand) to add sales to survive. Choice can help them and help itself in the process.
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112 |
Page 113 |
Page 114 |
Page 115 |
Page 116 |
Page 117 |
Page 118 |
Page 119 |
Page 120 |
Page 121 |
Page 122 |
Page 123 |
Page 124 |
Page 125 |
Page 126 |
Page 127 |
Page 128 |
Page 129 |
Page 130 |
Page 131 |
Page 132 |
Page 133 |
Page 134 |
Page 135 |
Page 136 |
Page 137 |
Page 138 |
Page 139 |
Page 140 |
Page 141 |
Page 142 |
Page 143 |
Page 144 |
Page 145 |
Page 146 |
Page 147 |
Page 148 |
Page 149 |
Page 150 |
Page 151 |
Page 152 |
Page 153 |
Page 154 |
Page 155 |
Page 156 |
Page 157 |
Page 158 |
Page 159 |
Page 160 |
Page 161 |
Page 162 |
Page 163 |
Page 164 |
Page 165 |
Page 166 |
Page 167 |
Page 168 |
Page 169 |
Page 170 |
Page 171 |
Page 172 |
Page 173 |
Page 174 |
Page 175 |
Page 176 |
Page 177 |
Page 178 |
Page 179 |
Page 180 |
Page 181 |
Page 182 |
Page 183 |
Page 184 |
Page 185 |
Page 186 |
Page 187 |
Page 188 |
Page 189 |
Page 190 |
Page 191 |
Page 192 |
Page 193 |
Page 194 |
Page 195 |
Page 196