Choice Hotels could add two premium brands that cater to different customers if the right opportunity arises. There is at least one viable takeover candidate.
Choice Hotels’ management team answered numerous questions about its acquisition prospects on Wednesday just weeks after its senior vice president of upscale brand development told Skift that the company is considering acquiring a full-service premium brand. Full-service hotels offer more amenities like restaurants and spas. Choice CEO Patrick Pacious explained that the company has a void in both the upscale extended-stay segment and the “premium” hotel segment.
Marriott’s Residence Inn and Element are examples of premium extended-stay brands, while flags like Sheraton and Hyatt Regency are considered “premium.”
The news could be a bit of a headache, given that the company also announced that it exceeded pre-pandemic performance levels last year, largely due to its focus on affordable hotels and medium sized. But the taste for acquisition continues Choice’s push toward upscale business, even in its mid-market comfort and premium brands, where it terminated contracts at 41 underperforming hotels in the quarter. .
“There are opportunities out there if the right acquisition opportunity arises,” Pacious said on an investor call Wednesday.
Choice’s management team offered no indication of the brands or companies it was considering, but it reiterated several times during the call the revenue benefits found with its premium brand. Cambria and its extended-stay brand Woodspring Suites.
Although not a single brand, Radisson’s Americas division is one company that has sparked industry talk in recent weeks about its buyout potential. The brand’s CEO turnover, waning customer appeal and international Radisson Hotel Group’s independence have caused many in the industry to question its long-term viability in the United States.
“The size of the opportunity, given what I think is out there, we don’t see anything that’s too big for us,” Pacious said without giving details on which brands or companies Choice Hotels was considering.
But he echoed what Marriott’s management team said last summer would be the future of hotel mergers and acquisitions: add-on deals that fill a brand or regional gap rather than a mega- merger. Think more about when Marriott added South African hotel brand Protea or Hyatt’s Apple Leisure Group which gave it a boost in Europe than those perennial rumors of IHG partnering with Accor.
“This is where our strategic thinking goes all the way to accretiveness [mergers and acquisitions] it would benefit us in the long run,” Pacious said.
This might still raise some eyebrows as to why Choice Hotels wants to go this upscale route. Its resilience during the pandemic and its ability to return to profitability before its competitors are largely due to the fact that it did not have high-end, full-service hotels that cost a lot of money to run and Often catered to the type of travelers who weren’t. t hit the road during a pandemic.
Barring a major setback to the recovery, analysts still think it could be a smart play in the current inflationary environment. It’s much easier to raise rates and not drive customers away at a Westin or Hilton than at a Comfort Inn or Quality Suites.
“We are in an inflationary environment where your costs are rising. You want to own hotels where you can raise those prices to match that,” Richard Clarke, managing director of global leisure and hotels at Bernstein, told Skift earlier this month. “It’s quite difficult in a very commoditized economic market. It’s much easier if you have a more notable luxury brand.
Choice Hotels exceeded pre-pandemic performance levels throughout the past year in the United States. of the Choice portfolio being in the United States
The company also posted a profit of $64 million in the fourth quarter, compared to $7.9 million in the same period of 2020. Choice Hotels made $289 million last year, compared to $75 million for 2020.
“We are very optimistic about our growth track due to the long-term investments we have made and will continue to make in our business,” Pacious said. “These investments are designed to capitalize on the consumer trends that have accelerated during the pandemic by favoring leisure travel, limited-service hotels and longer stays. We expect these trends to continue to be tailwinds long term for our business.”
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