Choice Hotels International hailed its strong domestic drive-to and leisure markets as it reported growth in occupancy and conversions.
The company said that it was continuing to keep an eye on potential acquisitions, but pointed to difficulty in valuing assets in the current climate.
The group was leaning on mid-scale and extended-stay brands, with the latter reporting average occupancy rates of 66% from the start of the pandemic to the end of the second quarter.
Nearly 90% of the company's domestic hotels were in suburban, small towns and interstate locations, which, Choice said, had reported higher occupancy levels and less significant revpar declines than other locations during the second quarter. The group said that leisure travel had accounted for over 80% of room nights.
Patrick Pacious, president & CEO, told analysts: “We have more than 4,000 hotels across the country, located within one mile of an interstate exit. In June, one quarter of our revenue came from customers who traveled less than 25 miles to a hotel, a sign that more guests just want to get out of the house while staying closer to home. We expect that our strong presence in drive to locations will lead to continued outsized performance as gas prices remain low and travellers feel safest in their own cars.”
Looking at the corporate market, Pacious added: “We've seen both a gain in market share and a steady week-over-week increase in the volume of business traveller room nights since a low in early April. This is thanks to the profile of our core business travellers who've been on the road these past months, including first responders, medical and other essential workers, government, trucking, logistics and construction workers.”
The CEO said that the company continued to find strength in its owners, with the typical franchisee an owner-operator with one hotel “financed with low overall debt levels and a flexible operating model that allows owners to scale back staffing and service levels to reduce expenses, critical elements during down cycles. Even in April, amid the worst week of the crisis in the industry, over 90% of our domestic hotels remained open, demonstrating the tenacity and resilience of our ownership base”.
Domestic systemwide revpar fell by 49.6% for second quarter. In July, domestic systemwide revpar dropped by approximately 33% on the year, with average weekly occupancy exceeding 53% during the week of 26 July 26. Over half of the domestic portfolio achieved occupancy levels at or above 50% during the last week of July and trends of occupancy gains were continuing into August.
The company described its extended-stay portfolio as “highly resilient”, with average occupancy rates of 66% since the onset of pandemic in mid-March through 30 June - nearly double the industry average of 34%.
Adjusted Ebitda reached $111.5m for the second half, against $177.1m in the same period last year.
As of 31 July nearly 100% of the company's 5,917 domestic hotels were operating, along with 96% of its more than 1,200 international hotels.
The company awarded 151 new domestic franchise agreements for the year-to-date through 30 June, a 42% drop on the year. Over 80% of the agreements were signed since mid-March and two-thirds of the agreements awarded in the first half of the year were for conversion hotels, against a historical average of 60%.
The number of domestic hotels and rooms was up 0.6% and 2.0% on the year.
As of the end of June, the company had over $725m in cash and available borrowing capacity, with CFO Dominic Dragisich commenting: “We continue to believe that our current liquidity position is more than adequate to weather the current environment; our gross debt-to-Ebitda leverage levels remain well within our target range of three to four times”.
Looking ahead, he said: “We currently expect that Covid-19 will have a less significant impact on our third quarter performance results based on the continued weekly trend of travel growth predominantly stemming from leisure transient guests driving to their destinations.”
Insight: Of all the global majors, Choice Hotels International was always positioned to do best in this environment, with focus on price and its army of entrepreneurs. When it’s your money on the line in your hotel, you’re going to make the effort. No disrespect to the pension funds piling into the sector, but the chairman isn’t going to clean the loos when you have to cut staffing levels.
Even the most toiling entrepreneur will need help, however, and Choice, with an eye to future potential disruption, has been trying to protect its owners from what Pacious described as their main concerns: “liquidity and liability”. For the former, it has been targeting its fee deferrals, with, for those who negotiate it, some portion of the entire yearly fee being recovered in years two and three rather than immediately, to enquire that a cliff was not forced.
Pacious said that, being able to get the estate to the breakeven of 30% occupancy in late April, early May “and then having a good three months of running at that level has got our franchisees in a much healthier position”.
As for the liability? Choice is trying to use its heft to lobby government for changes to legislation. For that it is less able to think local, but must hope that lawmakers are thinking global.