LOS ANGELES—Choice Hotels International is breaking its traditional mold en route to an aggressive growth platform. The results are speaking for themselves as the Silver Spring, Maryland-based franchisor is adding significant numbers of properties in large chunks to a portfolio that already numbers more than 6,200 hotels comprising nearly 500,000 guestrooms.
Since the beginning of the year, the company has signed various chunky deals, including three agreements to add 46, 21 and nine properties, respectively.
Steve Joyce, Choice’s president and CEO, said during a break at last month’s Americas Lodging Investment Summit that the company has cultivated an atmosphere that promotes quality expansion opportunities as it looks to elevate its stature within the hotel industry. Primary growth vehicles for the company will be the two newest brands in its portfolio—Cambria Suites and Ascend Hotel Collection.
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Steve Joyce Choice Hotels International |
“For forever Choice was the company that was a stopover when you were on the way to something else,” Joyce said. “Now we want to be the destination. Cambria and Ascend help us get there. They put a new light on Choice for developers.
“The difference now is we’re using the balance sheet,” he added.
“The balance sheet is to help the developer get the project across the finish line,” said David Pepper, senior VP of global development. “We might do (mezzanine) financing, or sliver equity. We’ll fill some of the gap of the capital stack.”
The three major deals for Choice included breaking into new markets and segments:
- An agreement with Colony Capital to add 46 former Jameson Inns to its roster. Choice provided key money as an incentive to secure the hotels, which will fly its Quality, Comfort and Econo Lodge brand flags.
- Choice jump-started its European expansion with a nine-hotel deal with Akkeron Hotels Group Ltd., a U.K.-based operator with 34 hotels. The deal was completed in large part because Choice provided an undisclosed amount of mezzanine financing, which represents the first time it has leveraged its balance sheet in Europe, according to Joyce.
- Choice on 22 January announced it will add 21 Bluegreen Vacation Club Resorts to its upscale Ascend portfolio as part of a multifaceted strategic marketing alliance with Bluegreen Vacations and Bluegreen Resorts Management.
Looking for big growth in Europe
The Akkeron deal will increase Choice’s U.K. presence nearly 25% by adding 611 guestrooms to its portfolio. Five Akkeron hotels will be rebranded under the Quality brand and four hotels will operate under the Clarion Collection brand. The properties will be introduced to the U.K. market in February and throughout 2013.
“It’s an important new relationship that is made possible by the globalization of our technology platform,” Joyce said, referring to the brand’s cloud-based property-management system called Choice Advantage.
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| The Postcard Inn on the Beach in St. Pete Beach, Florida, is one of the newest members of the 95-property portfolio that comprises the Ascend Hotel Collection for Choice Hotels International. |
Europe is “ripe” for further expansion by Choice because “Europe is largely unbranded and wants to be branded,” Joyce said.
Choice will embrace the large number of European hotels with fewer than 80 guestrooms, he added.
“We know what to do with that inventory,” he said.
Pepper said the company will use its balance sheet for growth on the continent but has no set amount of money set aside for the expansion.
“We’re investing in Europe because there’s a huge opportunity to grow,” Pepper said. “The hardest part for a brand is the lack of standardized prototype in Europe. We’re more open to conversions (than many other brands) and that plays well for us in Europe.”
Joyce said expansion into China and India is more of a midterm proposition.
Entering a new arena
The Bluegreen deal allows Choice to gain exposure in the timeshare industry without having to form its own division. The agreement helps grow the Ascend brand to 95 properties and brings value to the 16.5 million members of the Choice Privileges loyalty program who are looking for destinations to use their points, according to Joyce.
“It gives us a type of property we didn’t have,” he said, adding that Choice will also have marketing access to Bluegreen’s 200,000 members as well as prospects looking to invest in timeshare units. “They’ll buy lots of points from us, and those folks will stay in our hotels during their marketing stays.”
Joyce said the inventory at the Bluegreen properties will be sold as transient roomnights.
“We deliberately picked the (properties) that had the inventory that we thought would best match what our customers like,” Joyce said.
Joyce said Bluegreen will use Choice’s technology program and pay royalties for flying the Ascend Collection flag.
“We were looking for the right partner that would be a national program, and Bluegreen provides us with that,” Joyce said. “We won’t own them or we won’t build them, but we will provide our services to them.”
A number of core brands
Instead of targeting the tertiary markets that were the major part of the growth plan when the Cambria brand was launched in 2005, senior VP Michael Murphy and his team are now targeting urban areas and other billboard type of locations for expansion, Joyce said.
“In every major urban market, we have a million roomnights of turned down demand because we don’t have the upscale and upper-upscale product that some consumers are looking for,” he said. “As we’re going in with these new Cambrias in urban locations, we know we have excess demand to tap into so we know there will be a faster ramp up to stabilized performance.”
In addition, the brand downsized the footprint of the building and completely revamped its food-and-beverage offerings. Those are big reasons the company has a $250 million fund to co-invest in Cambria Suites properties.
“We are substantially into that allocation,” Joyce said. “We’ve recycled some of that already. We have plenty of capital to help build the pipeline.”
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David Pepper Cambria Suites |
The brand has six hotels under construction and 15 more will break ground during the next 12 months, according to the CEO.
Pepper said markets such as Washington, D.C., New York and Nashville, Tennessee—all of which have deals for Cambria Suites properties in place—are the types of markets the brand is seeking because “they perform well and they have strong average daily rates,” Pepper said.
With such a large focus on Cambria Suites and Ascend Collection, Joyce emphasized that the company’s other brands, which he referred to as “value-oriented brands” remain very much in the plans.
“We’re reimaging and relaunching Sleep (Inn) and Comfort (Inn),” he said. “We’ll probably step up incentives to get people to move faster because we’ve seen great results from the early adopters.”
“For almost every brand, we’ve got a significant level of activity going on—some complete overhauls and some with individual components. … There is a daily mantra of ‘don’t forget the core because that’s where the money is.’”
Pepper, who has been with Choice since 2002, said Joyce’s arrival in 2008 provided the company with a broader knowledge base of how to make hotel deals work.
“Steve brought unbelievable relationships with the type of developers that you want to build a brand with,” Pepper said. “Second, he knew how to convince the board (of directors) that if you really want to start a brand right with hotels in the right locations with the right operators, we need to use the balance sheet to get it done. That essentially switched us from a franchise sales company to a franchise development company.”