Choice CEO doesn't rule out using balance sheet to grow Radisson brands in Americas

Choice Hotels International thinks it got a choice deal when it acquired Radisson Hotels Americas in June, an acquisition that is on track to close this month, said Choice Hotels President and CEO Pat Pacious, during his company's second-quarter earnings call.

Choice acquired the brands and intellectual property of Radisson Hotels Americas for approximately $675 million, adding some 67,000 rooms to the company's portfolio. The international business of Radisson was not included in the deal and remains separately owned and operated.

Pacious called the acquisition "transformative," allowing it to grow in higher revenue segments. Choice Hotels is mainly known for its brands within the economy, extended stay and midscale spaces, from Comfort Inn and WoodSpring Suites to Quality Inn and Sleep Inn, but the addition of the Radisson Americas arm gives Choice nine new brands to franchise, including Radisson Blu and Radisson Red, two upper-upscale offerings that will complement Cambria Hotels in the upscale segment.

Choice also won't be hesitant to use its balance sheet to grow the brands in not only the U.S., but in Canada, Mexico and the Caribbean. "The nice thing about our balance sheet is it gives us the flexibility if we want to push beyond where the Radisson core is," Pacious said. "If we want to do upper upscale and use our balance sheet in a way that helps us grow the brands, we're doing that today successfully with Cambria and with Everhome Suites. When you do these brand launches, putting your balance sheet to work and putting some skin in the game particularly in an asset-light model is a very effective way of convincing owners that you're in this for the long term, which we are. That balance sheet capacity that we have gives us the opportunity to to incentivize growth in some of these brands that are emerging."

Radisson Americas' brands portfolio notably, Pacious said, had an average RevPAR that was 38 percent higher than the average for Choice's existing system. "Our strategic goal has been to open incremental rooms in higher revenue segments and RevPAR markets, which, ultimately, result in an outsized increase in royalties," Pacious said. "The transaction will expand our customer reach to a higher income and younger demographic, as well as with business travelers."

The combined loyalty program will add some 10 million members to Choice Privileges, though Pacious did not note when or how the programs will be combined.

In one exchange on the call, Pacious was asked about the ownership structure of Radisson Hotel Group and managing that relationship consistency on a global basis. In 2018, Radisson Hotel Group was sold to a consortium led by Chinese state-owned hospitality company Jin Jiang International. There was speculation that because Radisson was owned by a Chinese company, development of Radisson's brands and franchises in the U.S. was severely curtailed. 

"There is a working relationship we will have with them to ensure that these nine brands have a standard around around the globe," said Pacious. "But it also means we have the flexibility in the Americas markets to grow these brands. The expectations in Asia and the expectations in Europe with regard to room size and amenities differ by brands and a lot of that is driven by what the consumer wants and what makes sense for the developer to build. In Europe, real estate is constrained more so than here in the Americas. So that's really the relationship that we will have with the Radisson Hotel Group."

Big News

Beyond Choice's acquisition of Radisson Americas, the company revealed what is going to become of the 111 WoodSpring Suites hotels that Brookfield sold earlier this year to Starwood Capital and Blackstone. They are set to be reflagged under the Extended Stay America brand by September, Choice said. Starwood Capital and Blackstone acquired ESA in 2021. 

Pacious said that the exit scenario would result in a cash benefit amount of approximately five years of future royalty fees to Choice. 

By the Numbers

Choice performed admirably in Q2 on the revenue front. In the U.S., revenue per available room (RevPAR) growth accelerated quarter-over-quarter, increasing by 13 percent for second quarter 2022 compared to the same period of 2019. RevPAR growth has now surpassed 2019 levels for 13 consecutive months through June 30, 2022, Choice said, and for full-year 2022 is expected to increase between 11 percent and 13 percent compared to full-year 2019.

Like most other companies, RevPAR was driven by growth in average daily rate, which was up 13.7 percent compared to Q2 2019.

Net income increased 24 percent to $106.2 million for the quarter compared to the same period a year ago. 

"Clearly, consumers continue to shift their spend toward travel experiences," Pacious said. "Not only do we expect these broader leisure trends to continue, but we also have seen continued strengthening of our business transient and group segments."

Choice said that the business travel component of its guests mix continues to rise and is approaching historical levels, accounting for 30 percent of stays in the second quarter. While Pacious cautioned that remote work is here to stay, he does believe that more and more companies are getting their employees back to the office. "We're starting to see pick up here, particularly as companies get back to normal. I think you're seeing a little bit of economic slowdown. So businesses are coming back and they're sending their sales forces out."

Though working fives days a week in the office might never return, Pacious sees it actually benefiting hotels as historical shoulder days get more business. "We're continuing to see occupancy and rate gains on that Sunday night shoulder of the week. More so than Thursday, but Thursday is also picking up," he said. "I do think this remote work trend is here to stay and the flexibility of certain parts of the workforce is going to continue to allow people to travel and extend that weekend's day through Sunday night and check out on Monday morning."