Record revenue for Choice; optimism over Wyndham deal

NORTH BETHESDA, Maryland — Choice Hotels International reported record total revenues of $1.5 billion for 2023, up 10% year-over-year from the previous year and expressed optimism on its proposed deal with Wyndham Hotels & Resorts.

Choice President and CEO Patrick Pacious said 2023 was a year of accelerating growth for the company.

“We exceeded the top end of the company’s full-year adjusted EBITDA and adjusted EPS guidance led by our successful strategy of adding hotels that generate higher royalties per unit,” he said. “We significantly expanded our rewards program, increased our geographic reach, unlocked new value through our platform capabilities, and created step function growth through the rapid completion of the Radisson Americas’ integration.”  

Pacious also represented optimism that the company’s hostile takeover of Wyndham would be done in 2024.

“Our demonstrated track record of improving the delivery of direct business to franchisees positions us to further accelerate value creation for all stakeholders through a compelling combination with Wyndham Hotels & Resorts,” he said. “We are confident we can create meaningful value for franchisees and shareholders of both companies. We are committed to pursuing this combination and remain encouraged by our progress on the regulatory front.”

Pacious also mentioned Choice’s recent nomination of a slate of independent directors for Wyndham’s board.  

“If elected, these nominees will exercise their independent judgment to serve Wyndham shareholders’ best interests, which we continue to believe is to move with urgency to maximize the value that can be created through a combination with Choice,” he said.

Analysts from R.W. Baird said Choice’s fourth-quarter results beat its 2023 expectations, and the company’s 2024 guidance was solid.

“Adjusted EBITDA estimates should continue to trend higher. Choice’s 4Q23 earnings topped Baird/Street expectations; higher fees (likely license/credit card fees, in our view) were the upside driver vs. our model. Guidance for 2024 matched our expectations, and Choice reiterated its $590 million adjusted EBITDA target (midpoint of the range; +4% vs. consensus); estimates should continue to move higher even if analysts/investors remain conservative and only pass through the 4Q23 beat.”

Analyst Patrick Scholes from Truist Securities said there doesn’t appear to be much progress on the Wyndham transaction.

“There appears to be limited incremental news on the proposed Wyndham transaction, mostly a reiteration of key points and vague verbiage on regulatory matters,” he said. “We noticed [Choice] pointing to its confidence in a combination within a one-year timeframe and progress on the regulatory front with the FTC.”

Choice performance

Choice said its EBITDA for 2023 reached a company record of $540.5 million, which was a 13% increase YOY, exceeding the top end of its guidance. Choice said its global pipeline increased by 6% for the fourth quarter to over 105,000 rooms. Its conversions pipeline increased 16% in Q4 and 34% YOY.

However, its U.S. RevPAR growth was down 3.9% YOY.

Choice said its net income was $258.5 million for the full year, representing diluted earnings per share of $5.07. It cited several one-time items as factors, including Radisson Hotels Americas integration costs.

The company said its upscale, extended-stay, and midscale brands in the U.S. increased in the fourth quarter, with its legacy portfolio increasing by 1.8% for hotels and 2.4% for rooms YOY.

Choice provided 2024 net income guidance of $260 million and $274 million and adjusted EBITDA between $580 million and $600 million.

Other highlights from its earnings:

• Choice said it achieved $85 million of annual recurring synergies by integrating Radisson Hotels Americas.
• Fourth quarter total revenue was $358.4 million, down 1% YOY.
• Choice’s fees totaled $513.4 million for 2023 and $116.9 million for Q4, representing a 9% and 1% increase YOY, respectively.
• Its domestic effective royalty rate in 2023 increased 6 bps to 4.99% YOY.
• Choice paid cash dividends of $56.5 million and repurchased 2.9 million shares of common stock for $365.9 million under its stock repurchase program for 2023. Through the end of the year, the company had 1.8 million shares of common stock remaining under the current share repurchase authorization.

Pipeline

Choice said its mix of upscale, extended-stay and midscale hotels in the U.S. has increased 8% since 2017 and now represents 82% of its total portfolio. Those hotels increased 1.4% by hotels and 1.6% by rooms YOY.

The company said it opened an average of eight hotels per week in the fourth quarter and 263 hotels in 2023, a 13% YOY increase. Of those 2023 hotel openings, 83% were upscale, extended-stay, and midscale brands, and 72% were conversions.

By year’s end, domestic rooms in its pipeline increased by 3% in Q4, including a 6% increase in conversions. For its international portfolio, Choice increased its hotels by 2.6% and its rooms by 2% YOY.