Upscale, extended-stay and midscale brands drove Choice Hotels International’s growth in the second quarter and first half of 2024.
During the quarter, Choice “nearly doubled” its upscale domestic rooms pipeline year over year. “We expect to see continued strength in this segment over the coming years, fueled by strategic investments in transforming our upscale brands,” CFO Scott E. Oaksmith said during an earnings call with investors. At the same time, the company grew its domestic extended-stay unit system size 14 percent year over year. “We remain on track to achieve a long-term average annual growth of 15 percent,” Oaksmith added. The company also increased the number of domestic franchise agreements for its midscale brands 27 percent year over year and opened 30 new domestic midscale hotels. “Our overall domestic midscale rooms pipeline increased 7 percent quarter over quarter, reaching over 23,000 rooms.”
“By increasing our system size, network of franchisee relationships and customer reach, we have significantly increased our future growth opportunities,” President & CEO Patrick Pacious said during the call. “Importantly, we continue to grow our portfolio of revenue-intense hotels with domestic franchise agreements up 8 percent year over year. These agreements are expected to continue to fuel a significantly higher [revenue per available room] premium in our pipeline compared to our existing base of hotels.”
Financial Performance
Domestic RevPAR increased 540 basis points sequentially for the three-month period ended June 30 and decreased 50 basis points compared to the same period of 2023.
Total revenues reached $435.2 million for second quarter 2024, a quarterly record and a 2 percent increase compared to the same period of 2023. Net income increased 3 percent to $87.1 million for the second quarter of 2024, a 9 percent increase compared to the same period of 2023.
Adjusted earnings before interest, taxes, depreciation and amortization for second quarter 2024 grew to a quarterly record of $161.7 million, a 6 percent increase compared to the same period of 2023.
Domestic occupancy, meanwhile, increased 10 basis points compared to the same period of 2023, representing 96 percent of 2019 domestic occupancy levels. Domestic RevPAR for the three months ended June 30 remains 11 percent higher than the same period of 2019.
Development
Global pipeline as of June 30 increased 22 percent to a second quarter record of over 114,000 rooms from June 30, 2023, highlighted by a doubling of the global pipeline for conversion rooms. Domestic rooms pipeline as of June 30 increased 11 percent since June 30, 2023, including a 65 percent increase for conversion rooms.
Global hotel openings for second quarter 2024 increased 20 percent compared to the same period of 2023. Domestically, the company opened an average of more than four hotels per week for a total of 118 domestic hotel openings year-to-date through June 30, a 10 percent increase compared to the same period of 2023.
Of the domestic franchise agreements executed for conversion hotels over the trailing 12 months ending June 30, 134 opened in the same year, a 14 percent increase over the comparable period of the prior year. “We expect this conversion core competency to continue to be a key growth driver throughout this year,” Pacious said. “In fact, as of the end of June, we grew our global rooms pipeline for conversion hotels by 5 percent quarter over quarter.”
The company's domestic upscale, extended-stay and midscale portfolio increased 1 percent for hotels and increased 0.7 percent for rooms since June 30, 2023. The domestic extended-stay hotels portfolio grew 14 percent since June 30, 2023, driven by increases in each of the segment's brands. The company's total domestic system size increased to over 6,200 hotels representing over 494,000 rooms as of June 30.
The international pipeline for conversion rooms increased 8 percent from March 31 and the company nearly tripled the number of international rooms in the pipeline since June 30, 2023.
Domestic franchise agreements for the company's upscale, extended-stay and midscale brands executed year-to-date through June 30 increased 8 percent compared to the same period of 2023. “These agreements are expected to continue to fuel a significantly higher RevPAR premium in our pipeline compared to our existing base of hotels,” Pacious said. Of the total domestic franchise agreements awarded for the first half of the year, 82 percent were for conversion hotels and 89 percent were for the company's upscale, extended-stay and midscale brands.
The international portfolio as of June 30 expanded 1.6 percent in the number of rooms, highlighted by international hotel openings that doubled in the second quarter compared to the same period of 2023.
The company's WoodSpring Suites brand grew 10 percent to 246 hotels since June 30, 2023, and was ranked number one for the second year in a row in guest satisfaction among economy extended-stay hotel brands in the J.D. Power 2024 North America Hotel Guest Satisfaction Index Study.
Outlook
“Based on the recent trends of normalizing domestic travel and in line with the industry, we are lowering our U.S. RevPAR guidance, and now anticipate full year domestic RevPAR to be in the range of negative 1.5 percent to negative 3.5 percent,” Oaksmith said during the call. The company will, however, maintain its adjusted EBITDA guidance.
