Choice lowers RevPAR guidance for the rest of 2024

NORTH BETHESDA, Maryland — Choice Hotels International dramatically lowered its RevPAR guidance for the full year 2024 and said its RevPAR growth was down 0.5% in the second quarter compared to 2023 as part of second-quarter earnings. However, the North Bethesda, Maryland-based company kept its adjusted EBITDA guidance the same for the rest of the year.

“Choice Hotels generated another quarter of record financial performance amid a normalizing domestic RevPAR environment, demonstrating the strength of our versatile business model and proven growth strategy,” Patrick Pacious, president and CEO of Choice, said in a news release. “We increased our global pipeline to new levels propelled by robust demand for our brands, accelerated the velocity of our global hotel openings, expanded our international reach, and significantly grew the size of our rewards program.”

Total revenues for Choice in Q2 were $435.2 million, a quarterly record and a 2% increase compared to 2023. Net income increased 3% to $87.1 million, while Q2 adjusted EBITDA hit a new quarterly record of $161.7 million, a 6% increase over 2Q23.

Conversions remain a big play in Choice’s pipeline. The company’s global pipeline increased 22% in the second quarter to over 114,000 rooms by effectively doubling its conversion rooms. Its domestic pipeline increased by 11% because of a 65% increase in conversion rooms.

Choice said global hotel openings for Q2 increased 20% compared to the same period in 2023, while domestic franchise agreements for the company’s upscale, extended-stay and midscale brands increased 8% year over year.

What the analysts said

Analyst Michael Bellisario of R.W. Baird said the earnings were a mixed update. “2Q24 RevPAR missed Baird/Street estimates, but total gross fees were slightly ahead. Adjusted EBITDA was ~2% below Baird/Street, but that was driven by much higher-than-expected SG&A. The bigger debate will be Choice’s updated full-year guidance – RevPAR growth was cut 350 bps at the midpoint, but the adjusted EBITDA outlook was unchanged.”

Bellisario said the biggest surprise was changing the 2024 full-year RevPAR guidance by 350 bps. “Directionally, we are not surprised to see the RevPAR guidance come down, and we will look to the conference call to better understand the 2H24 profit drivers,” he said.

Analyst C. Michael Scholes at Truist Securities said the quarter’s RevPAR numbers were below his company’s projections. “Our tracking of U.S. RevPAR weighed by chain scale suggested [Choice] RevPAR of +1.1%. While there may be regionality considerations in CHH’s underperformance versus our tracker, it is also possible that CHH simply lost market share this quarter,” he said.

Other Q2 highlights

• Total revenues net of reimbursable revenue increased 14% to $258.9 million for Q2 year over year
• Royalty, licensing, and management fees increased 1% to $141.8 million
• Q2 domestic occupancy increased 10 basis points compared to the same period of 2023
• The company’s domestic upscale, extended-stay and midscale portfolio increased 1% for hotels and 0.7% for rooms since 2Q23, while its domestic extended stay hotels portfolio grew by 14% during the same period
• Of the total domestic franchise agreements awarded in the first half of 2024, 82% were for conversion hotels, and 89% were for the company’s upscale, extended stay, and midscale brands
• On June 28, Choice amended its revolving credit facility, increasing total commitments from $850 million to $1 billion and extending maturity from 2026 to 2029 
• Through the first half, Choice had a total available liquidity of approximately $530 million, including available borrowing capacity and cash and equivalents
• In July, Choice fully divested its remaining shares of Wyndham Hotels and Resorts for approximately $91 million
• In the first half of the year, Choice repurchased 2.4 million shares of common stock for $296.2 million
• Choice changed its domestic RevPAR guidance for the full year 2024 from flat to 2% to -1.5-3.5%
• The company did not make notable adjustments to any other of its full-year guidance, including adjusted EBITDA of $580-600 million