Choice’s $231M buy adds heft to extended-stay mix

ROCKVILLE, MD—Chalk up another “done deal” for a major hotel franchisor; in this era where everyone is looking for scale, the ink is officially dry on Choice Hotels International Inc.’s acquisition of the brand and franchise business of WoodSpring Suites from WoodSpring Hotels Holdings LLC.

In December, publicly traded Choice signed a definitive agreement with WoodSpring, a so-called portfolio company of private investment firm Lindsay Goldberg, to buy its brand and franchise business, delivering some 240 extended-stay hotels in 35 states for approximately $231 million. The deal closed on Feb. 1.

The move is slated to augment Choice’s footprint in the extended-stay segment significantly, with WoodSpring Suites and its higher-end WoodSpring Suites Signature extension joining the franchisor’s MainStay Suites and Suburban Extended Stay brands for an aggregate 350 properties.

Choice’s President/CEO Patrick “Pat” Pacious put a frame around the acquisition. “WoodSpring Suites will be a terrific addition to the Choice family, as it will add value to our franchisees, customers, associates and shareholders,” said the CEO. “As one of the fastest growing new-construction brands, it is the right opportunity in the right segment, and it complements our family of brands. The WoodSpring Suites acquisition expands Choice Hotels’ runway for growth.”

According to Baird Equity Research Senior Analyst Michael J. Bellisario, “Choice’s growth within the extended-stay segment has been nonexistent (116 hotels at Q3 2017 versus 110 hotels at Q4 2014), and this acquisition provides a proven growth brand (although some of the growth has been funded on balance sheet).”

The addition is set to increase Choice’s overall extended-stay presence by 200%, he noted.

Prior to the Choice acquisition announcement, WoodSpring’s management in November indicated it was on track to open 21 hotels by year’s end (14 franchises and seven corporate owned and operated) and that it had plans to open another 45 hotels (35 franchises, 10 corporate owned) this year. At the time, WoodSpring Hotels’ President/CEO Gary A. DeLapp stated, “As strong as 2017 has been, 2018 looks even more promising. We expect to grow our portfolio by approximately 25% in the coming year, a testament to the brand’s durability through all phases of the economic cycle.” (No one at WoodSpring would comment directly for this article and deferred to Choice.)

Pacious observed the segment itself also is robust. “Extended-stay is a fast-growing segment, reporting some of the strongest gains in demand and leading annual RevPAR growth. The addition of the WoodSpring Suites brand creates more options and opportunities for guests, as well as MainStay Suites, Suburban Extended Stay and WoodSpring Suites franchisees. It also will strengthen our position in the growing extended-stay segment and allow us to apply best practices across the WoodSpring Suites, MainStay Suites and Suburban Extended Stay brands,” said Pacious.

According to Bellisario, the extended-stay segment (along with midscale) is “en vogue” with the industry. “We believe the extended-stay segment will continue to be a strong driver of net unit growth as these properties are much easier to build (and finance) at this point in the cycle, given their locations and smaller required equity checks,” he noted.

Like many of the major franchise-chain acquisitions in recent years, the WoodSpring Suites deal is an asset-light one. Choice has acquired the WoodSpring Hotels’ brands, including franchise operations, marketing and development, in a cash deal. The WoodSpring hotel management operations have been renamed Nationwide Hotel Management Co. LLC and will remain a separate company. In addition, Brookfield Strategic Real Estate Partners II concurrently closed on the sale of approximately 100 WoodSpring-owned hotels.

While there had been industry chatter that WoodSpring is going to be “autonomous” à la IHG’s acquisition of Kimpton Hotels & Restaurants, Pacious indicated, “WoodSpring will become part of the Choice family of brands.”

The franchisor recently debuted a new prototype for its MainStay Suites brand, and Suburban Extended Stay is expected to be maintained as a largely conversion product. Where WoodSpring Suites—tagged as an economy brand by STR—would be positioned vis-à-vis its new siblings remains to be seen.

With the deal just closed at press time, several questions remain unanswered. Among them, for example—and given the number of WoodSpring hotels being added—how any concerns for areas of protection for MainStay and Suburban might be addressed. Similarly, if existing WoodSpring franchise and/or management agreements would remain status quo or revisited; whether there might be any culling of properties; or if any of the WoodSpring properties could be considered to become Suburbans or MainStays or vice versa. What efforts might be put behind increasing the distribution of the Signature extension also remain unknown at press time.

Pacious did note the Choice development team “will be ready to bring the brand to more markets in 2018.”

WoodSpring product is currently only in the United States, where it originally started out in Wichita, KS, in 2003 as Value Place, created by serial hotel-brand developer Jack DeBoer, the founder of Residence Inn, Summerfield Suites, Candlewood Suites and, more recently, WaterWalk Apartments.

In 2015, the company was renamed WoodSpring Hotels, and Value Place—of which there are now about a dozen—was brought under the WoodSpring umbrella. The following year, industry veteran Gary DeLapp was named president/CEO.

“Choice Hotels and WoodSpring Suites share the same values and dedication to customer service and franchisees,” said DeLapp, commenting in a statement on the acquisition.

Pacious did not comment directly on what role DeLapp might play, but Choice indicated it “plans to hire the WoodSpring Suites franchise business employees and strengthen the existing multi-unit developer and franchisee relationships that have contributed to the success of the brand.” HB