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Soft Oil Sector Dents Choice Hotels' Q4 Revenue, Average Rate

By Donna M. Airoldi / February 18, 2020 / Contact Reporter
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Choice Hotels' systemwide revenue per available room declined year over year for both the fourth quarter and full-year 2019, at 2.1 percent and 0.9 percent, respectively. Average daily rate was down 0.4 percent for the quarter and 0.3 percent for the year, while occupancy slipped 0.4 percentage points for the quarter and one percentage point for 2019, according to the company.

"We attributed fourth-quarter performance primarily due to the regional performance in the oil and gas markets, which have been impacted by oil prices and production challenges, the geographic mix of our current portfolio versus our competitive set and tougher comparables, which in quarter four 2018 benefited from lingering hurricane activity in the southern United States," said Choice CFO Dominic Dragisich during an earnings call Tuesday.

All Choice brands reported 2019 RevPAR declines except for WoodSpring Suites, which increased 1.1 percent. Fourth-quarter net income was up 34 percent year over year to $42.2 million. It was up 3 percent for the year to $222.9 million.

Choice has been investing in the upscale, midscale and extended-stay segments, and in January introduced midscale extended-stay brand Everhome Suites. It plans to continue this investment strategy into 2020 despite the soft RevPAR environment and believes that the upscale Cambria and Ascend Collection brands will contribute to an even greater proportion of gross room revenue in 2020. Those brands in 2019 grew their domestic room count 44 percent year over year to more than 29,000. 

Cambria during the fourth quarter opened its 50th hotel "and has a pipeline of 89 hotels with 27 already under construction as of the year-end," said Choice president and CEO Patrick Pacious, noting 2020 plans for 13 Cambria openings and another 17 slated to break ground. 

Despite opening on average more than one Comfort hotel per week in 2019—the highest number of Comfort openings in eight years—the brand had a net loss of 282 rooms last year. Pacious said Comfort, however, is expected "to return to net unit growth this year and accelerate in 2021 and beyond." The company will unveil a new prototype for the upper midscale brand next month.

Overall 2019 systemwide room count increased by nearly 22,000 for a year-over-year gain of 3.8 percent. Domestic upscale, midscale and extended-stay brand rooms in 2019 grew 4.3 percent. The total domestic pipeline for hotels awaiting conversion, under construction or approved for development increased to more than 1,050 hotels and nearly 85,000 rooms, with more than 75 percent representing new construction. The total international pipeline included 83 hotels as of Dec. 31, 2019, a 48 percent increase from 2019.

For Q1 and 2020, Choice expects year-over-year RevPAR to hold steady or decline up to 2 percent, "which is in line with industry expectations for our competitive set," Dragisich said. "We are optimistic that our strong pipeline in higher RevPAR markets and geographies as well as strategic investments we are making to fuel growth will be a catalyst for long-term RevPAR expansion." 

Net income for the full year is anticipated to range between $201 million and $208 million. Net domestic unit growth for 2020 is projected to range between 1.5 percent and 2.5 percent.

Pacious addressed the coronavirus outbreak during the call, noting that Choice had only seven hotels in China. Those are temporarily closed, he said, but noted they contribute just 0.02 percent of chainwide revenue. As for inbound Chinese travelers to the U.S., "our portfolio is not concentrated in those gateway cities, and a lot of our inbound market is from markets other than China. We're waiting to see how this will evolve over time."

RELATED: Choice Hotels Q3 earnings

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