Choice’s earnings mixed bag: RevPAR down, pipeline up

NORTH BETHESDA, Maryland — In its first earnings after failing a hostile takeover of its competitor Wyndham Hotels & Resorts, Choice Hotels International had a mixed first quarter report. Its RevPAR and fees were weaker than expected, but its adjusted EBITDA was higher than expected, and it had a record global rooms pipeline.

EBITDA in the first quarter of 2024 grew to a record $124.3 million, a 17% increase compared to the same period in 2023, while the company’s global pipeline increased by 10% to a record of more than 115,000 rooms. The domestic hotel pipeline (up 11% in Q1) and an overall 36% increase in conversions led Choice in the quarter, with U.S. conversion also increasing by 59%. 

“These impressive results demonstrate that we are unlocking the revenue synergies from the Radisson Americas acquisition, which has meaningfully enhanced our growth profile and opened new incremental earnings streams,” said President and CEO Patrick Pacious. “We are confident that our versatile business model with multiple drivers positions us well to deliver continued earnings growth and create shareholder value.”

Domestic RevPAR decreased by 5.9% in the first quarter, which also helped drive royalty, licensing, and management fees down to $105.5 million in Q1, lower than the $107.5 million in Q1 2023. Total revenues were $331.9 million for the quarter, a 0.3% decrease compared to 2023.

Choice’s domestic portfolio through 1Q24 stood at 6,200 hotels and 494,000 rooms, with upscale, extended-stay and midscale leading growth (up 1.2% in hotels and 0.9% in rooms). The company’s extended-stay portfolio is up 17.4% from the same period last year. Choice’s international portfolio grew 1.3% by hotels and 2.3% by rooms over the same period.

Last week, Choice also announced that it is relaunching a conversion brand in the “premium value” space with Park Inn by Radisson.

In March, Choice’s board approved an increase in the number of shares authorized under its share repurchase program by 5 million shares. The company says it has repurchased 1.5 million shares of common stock for $196.6 million year-to-date through April 30.

Analysts views

Analyst Michael Bellisario from R.W. Baird said Choice earnings beat forecasts with “non-core” items. “Other revenues and adjusted SG&A were positive offsets, but the main driver of the significant headline earnings beat was much higher-than-forecasted reservation profit/reimbursable income (a non-core item, in our view),” he said. “Overall, a mixed to negative update given weaker core fundamentals.”

Bellisario said stock buybacks stepped up materially in April, “presumably when Choice sold its [Wyndham] shares.”  

Analysts at Truist Securities said Choice’s earnings beat expectations due to “other” revenues, up 54% year-over-year. “RevPAR was soft (especially midscale and upper midscale relative to U.S. STR results for these chain scales) with fees light of expectations... We are initially unsure of what drove this beat but note last year the company called out ‘termination fees’ as a source of growth for this item so it is possible upside was again from such fees.”