ROCKVILLE, Maryland—New-construction projects make up the majority of Choice Hotels International’s domestic pipeline, which underscores the company’s continued commitment to revitalizing its Comfort Inn and Comfort Suites brands, President and CEO Stephen Joyce said Friday during an earnings call with analysts.
The company has 326 new-construction projects in its domestic pipeline, up 39% over year-end 2013.
Despite the company’s robust domestic pipeline of new builds and conversions (the company had 510 units under construction, awaiting conversion or approved for development as of 31 December 2014, representing 21% growth over 2013 numbers), domestic net-unit franchise growth was 0.8% over 2013.
“You have to look at our net unit growth figures brand by brand,” CFO David White said during the call. “We’re in the middle innings of a significant brand rejuvenation (in the Comfort family) that includes terminating Comfort product … that will continue for another year or two.”
Sixty-two Comfort Inn hotels and 12 Comfort Suites hotels exited the system in 2014, according to fourth-quarter and year-end financial results.
White told analysts that the company expects to see net-unit growth “move back to historic levels as the Comfort story unfolds over the next two years.”
Click here for more 2014 Q4 and year-end financial information.
In 2013 the company committed up to $40 million in incentives to owners to upgrade their Comfort Inn and Comfort Suites properties.
Joyce also pointed to the company’s new-build-only Cambria brand as a driver of future unit growth.
“As Cambria ramps up its construction activity, we’ll see effects,” he said. “The size of those hotels is dramatically larger and (they are) more revenue-intensive than our core hotels. As that brand ramps up, it’ll have a big impact for us.”
The company added four Cambria hotels in 2014, bringing the total number open to 22. The company had 21 Cambria properties in its domestic pipeline at the end of the year.
Soft brand Ascend Hotel Collection also played a role in the company’s new-construction growth, Joyce said. Choice signed contracts for 11 new-construction Ascend hotels to its portfolio in 2014—a 120% jump over 2013 numbers.
“We believe Ascend new-construction projects are a great alternative for developers in urban markets,” Joyce said.
Seven Ascend properties joined the company in 2014, bringing the total number open to 109.
Execs: Performance strong
Revenue-per-available-room gains were the highlight of 2014, Joyce said.
“2014 was a record year for Choice and performance was driven by RevPAR growth,” he said.
Domestic system-wide RevPAR increased 8.5% in 2014, driven by average-daily-rate growth of 3% and occupancy growth of 310 basis points over 2013.
White said he expects ADR growth to be a greater driver of RevPAR growth in 2015, largely during the first quarter.
System-wide ADR was $77.03 at the end of the year.
Year to date, as of press time, Choice’s stock price is up about 15.4%. By comparison, the Baird/STR Hotel Stock Index is up 2.4% through the same period.
Economic effects
Joyce and White both said the company’s fourth-quarter and year-end strengths were partly attributed to overall economic growth.
“Employment is the strongest correlated factor we look at,” Joyce said. “The folks out there getting hired are our customers. We’re also looking at (low) gas prices to be a net positive for us. (Low gas prices) are creating a more drive-oriented sentiment among consumers, and we think that will be positive for us.”