Q1 2021 Choice Hotels International Inc Earnings Call
Ladies and gentlemen, thank you for standing by welcome.
And to the choice hotels International first quarter 2021 earnings call.
At this time all lines are in listen only mode. Please note. This call is being recorded.
I would now like to turn the conference over to Allie Summers Investor Relations director for choice hotels.
Good morning, and thank you for joining us today before we begin we'd like to remind you that during this conference call certain predictive or forward looking statements will be used to assist you and understanding the company and its results.
Actual results may differ materially from those indicated and forward looking statements and you should consult the company's forms 10-Q, 10-K, and other SEC filings for information about imports interest factors affecting the company that you should consider there.
And Moreover, we'd like to acknowledge that there continues to be uncertainty as to the impact of the COVID-19, pandemic and our future performance.
These forward looking statements speak as of today's date, and we undertake no obligation to publicly update them to reflect subsequent events or circumstances.
You can find a reconciliation of our non-GAAP financial measures referred to it and our remarks as part of our first quarter 2021 earnings press release, which is posted on our website at choice hotels Dot com and through the Investor Relations section.
This morning path patients, our president and Chief Executive Officer, and Dragovich, Our Chief Financial Officer will speak to our first quarter operating for yourselves and financial performance.
They'll be joined by Scott Old Smith, Senior Vice President real estate and finance.
Following Pat and dumps remarks, we'll be glad to take your questions.
And with that I'll turn the call over to Pat.
Thanks, Sally and good morning, everyone.
And thank you for joining our first quarter 2021 earnings call and I hope you're all well.
And you'll hear today, we believe that the deliberate set of strategic decisions. We've made in recent years and.
And our targeted actions during the pandemic.
Along with the dedication and hard work of our franchise owners to navigate the impact of the pandemic drove impressive results that position us well to further capitalize on growth opportunities in 2020, one and beyond.
Throughout my remarks today I'll provide comparisons not only to prior year, but also to 2019, which we believe are more meaningful and analyzing performance trends as the prior year's quarter. Our results were impacted by the pandemic.
And the first quarter of 2021, we once again delivered results that significantly outperform the industry.
And our chain scale segments and.
And local competition.
And we expanded our adjusted EBITDA margins to 69%.
Our domestic system wide year over year, Revpar change surpassed the industry by 23 percentage points.
Declining for 4% and 18.7% as compared to the same quarters about 'twenty, and 2020 and 19, respectively.
And we continued to achieve sequential quarter over quarter improvement.
In addition, we generated steady month over month growth and our choice hotels Dot com and other proprietary digital channels revenue contribution mix throughout the quarter.
We also benefited from our most loyal customers choice privileges Diamond elite members.
Who contributed and even higher percentage of overall revenue for the quarter as compared to 2020 and 2019.
These results have helped us increase Revpar index versus our local competitors by over six percentage points and the first quarter as compared to 2019.
We achieved that through notable lifts in both weekday and weekend Revpar index.
And up significantly across all location types as reported by STR.
For over a year, we've observed significant revpar share gains against the competition as compared to 2019, giving us further optimism about our future revenue trajectory.
Further our April Revpar results are truly remarkable.
Marketing near returns to 2019 levels.
Aided by our strong value proposition and continued outperformance.
And for new franchise contracts grew significantly in the first quarter.
Likewise, our franchise owners are remaining with choice as seen in our industry, leading voluntary franchisee retention rate.
And owners, who choose to build and develop hotels and the current environment increasingly seek our brands.
For the first quarter, we awarded and nearly 90, new domestic franchise agreements and over 50% increase over the same period of 2020.
Oh, the total new domestic agreements over 80% were for conversion hotels.
And these hotels historically open about three to five months after contract execution.
Throughout the first quarter. We also continued to grow our effective royalty rate a reflection of the continued strengthening of the value proposition, we provide to our franchise owners.
These results and our optimism for the future, let us to reinstate the dividend at the pre pandemic level and resume our share repurchase program.
Underpinning our first quarter success are the deliberate decisions and strategic investments that we've made in our product portfolio.
Our value proposition.
Our platform capabilities and.
And other franchisee facing tools.
These investments allowed us to not only capitalize on demand that historically has driven our core business.
But also enabled us to attract new travel demand to new market locations and our key segments, such as extended stay and.
And upscale.
And in fact, we believe we are now better positioned to increase our share of travel demand in the years to come and then we were prior to the onset of the pandemic.
We pride ourselves on investing and our high quality well segmented portfolio of brands.
And this sets us apart with our franchise owners.
We constantly monitor changing consumer preferences and strategically manage our portfolio to ensure we are building the brands of tomorrow and key strategic segments that provide a compelling return on investment.
Last year, we launched our newest Midscale extended stay brand ever home suites.
To provide franchisees with another opportunity to capitalize on this fast growing segment in the hotel industry.
And helped drive returns and practically any economic environment.
As hotel financing starts to rebound, we anticipate developers increased demand for this new product.
In fact in April we met with over 25 developers and toward the new model room for this exciting brand and interest is very high.
We also proactively reinvested into the future of our product portfolio with comfort move to modern refresh program, which has been recently completed.
And the launch of the new comfort prototype this quarter to help the brand family maintained its leadership position in the upper Midscale segment for years to come.
And we remained focused on growing our strategic conversion brands, specifically Clarion Pointe a relatively new brand extension to the Clarion brand has experienced a five fold increase of its portfolio.
And the ascend hotel collection has increased the number of its domestic rooms by over 25% since the end of 2019.
Based on our strong track record of organic growth. We believe these internal investments will continue to drive attractive returns for years to come.
At the same time, we continue to invest in our value proposition capabilities.
We enhanced our pricing and merchandising tools to further enable our franchise owners to reach their target customers and effectively drive topline revenue to their hotels.
And while reducing their total cost of ownership.
These tools are contributing to the outperformance our brands are experiencing.
We also provided our guests with additional travel options by signing strategic agreements with new travel partners, such as Penn National Gaming.
Finally, the decisions, we've made to better align our cost structure in the post pandemic environment that are here to stay and position us well to capitalize on opportunities as travel demand recovers, while allowing us to continue to invest for the long term.
We have maintained competitive share gains since the onset of the pandemic and.
And we expect our momentum to continue.
While uncertainty remains we are observing positive signs of recovery that give us confidence for 2020, one and beyond.
With the vaccine rollout pace accelerating and consumer confidence at its highest level since the pandemic began Americans are feeling more optimistic about the prospect of traveling again.
Indeed, recent studies point to a significant uptick in consumer's intent to travel in the next six months.
We've observed that throughout the first quarter and particularly in the month of April our customers are planning their travel further in advance as witnessed by the lengthening of average booking windows.
We are also pleased to see that our first quarter experienced over 400 basis points weekday occupancy index share gains as compared to 2019.
As discussed on our prior calls we believe the share gains are partially driven by long term consumer trends such as remote work virtual learning and early retirements, which afford more Americans flexibility and where and when they travel for leisure.
Additionally, we are seeing sequential quarter over quarter improvement in our business travel booking trends.
As a matter of fact, even our group travel is showing signs of recovery with the sports segment bookings expectations for this year already exceeding 2019 levels.
We continue to observe positive trends and rising outlooks across most key domestic economic indicators. Additionally.
Additionally, stimulus checks from their recent financial relief package high.
Hi household savings and business reopening all point to a continued recovery for our small business franchise owners and middle class consumers our core customers.
I'll now provide a brief update on our key segments.
All of our brands achieved Revpar index gains as compared to 2019 versus their local competitors through the first quarter.
Our extended stay segment as a significant growth engine for the company.
The acquisition of the Woods spring suites brand in 2018, and our strategic investments in the extended stay segment.
Allowed us to nearly quadruple the size of the portfolio over the past five years with the segment now representing 10% of our total domestic rooms.
In the first quarter the extended stay segment rapidly expanded by 44 units year over year from the first quarter of 2020 and now stands at nearly 455 domestic hotels with a domestic pipeline of 310 hotels.
We expect this extended stay unit growth rate to further accelerate in the future.
Once again, our purpose built brands tailored for long term guests outperformed the competition in this cycle resilient segment.
The wood spring suites brand is our first brand to experience revpar levels that exceeded our 2019 results.
For the first quarter as compared to 2019 would spring reported over 3% Revpar growth driven by a more than 4% increase and average daily rate and an average occupancy rate of 74% a truly remarkable achievement.
The brand's pipeline continues to expand year over year and reached nearly 150 domestic hotels at the end of March 2021.
Our suburban extended stay brand experienced 10% year over year domestic unit and pipeline growth.
At the same time, our mainstay suites mid scale extended stay brand captured over 13 percentage points and Revpar index gains versus its local competitors as compared to 2019.
The brand's portfolio expanded to over 90 domestic hotels open and a 26% increase year over year.
The increase developer interest, we're seeing reaffirms that our strategic commitment and continued continued investments in this highly cycle resistant segment are driving a competitive advantage.
These results, we remain optimistic about the growth potential of our extended stay portfolio.
Our mid scale brands represent over two thirds of our total domestic portfolio and over half of the total domestic pipeline.
As we celebrate comfort 40th anniversary this year. The brand's continued growth and performance success is proof positive that we invest for the long term.
Our efforts to transform the brand are paying off.
Specifically, the comfort family achieved Revpar index gains versus local competitors of nearly 10 percentage points.
And a revpar change that was nearly 11 percentage points more favorable than the upper mid scale chain scale in the first quarter as compared to 2019.
And March we officially launched the much anticipated ryzen shine prototype, which maintains comfort low cost to build advantage over its competition and is designed to meet guest expectations for and elevated experience.
And the comfort brand family reached over 260 hotels and its domestic pipeline.
Over one quarter of which our hotels await and conversions, which we believe will fuel the brand's growth in the near term.
And finally Clarian Pointe ended the first quarter by achieving a milestone of the 30th hotel open in the United States and more than 20 additional hotels awaiting conversion in the near term.
Our upscale portfolio achieved impressive year over year growth in the first quarter, where we increased our domestic upscale room count by 22% and Mark the highest number of openings in a given quarter matching the company's all time record.
In addition developer interest and our upscale brands remains high as we more than quadrupled the number of domestic franchise contracts in the first quarter year over year.
The ascend hotel collection leads the industry as the first and largest soft brand.
The brand grew its domestic room count by nearly 26% year over year and expanded to nearly 380 hotels open around the globe.
Ascend hotels achieved the following performance in the first quarter as compared to the same period of 2019.
The brand outperformed the upscale segment Revpar change by 19 percentage points.
It achieved Revpar index gains of 12 percentage points against its local competitors.
And it recorded average daily rate index gains of 11 percentage points.
This performance further enhance the brand's attractiveness to developers looking for a smart conversion opportunity, which was showcased and the brand's strong franchise agreements activities for the quarter.
Our upscale Cambria hotels brand.
<unk> its positive momentum.
Rowing its portfolio size by 14% to 57 units with 18 projects under active construction at the end of March.
The brand continues to build on its success with for hotels already opened year to date and five additional plan to open through the end of the summer.
Consumer confidence in Cambria hotels drove the brand's revpar share gains versus this local competitors to 16 percentage points in the first quarter as compared to 2019.
These results are proof of choice hotels value proposition in the upscale segment for our current and prospective owners.
We're also committed to enhancing our value proposition by growing our platform business.
And the first quarter, we further expanded our attractive upscale platform and successfully on boarded 22, Penn National Gaming Casino resort properties, representing nearly 7000 rooms, joining our ascend hotel collection.
This strategic agreement will offer our more than 48 million choice privileges members the opportunity to earn and redeem points at these Penn properties by booking their stays directly on choice hotels Dot com.
We're proud of everything we've accomplished this quarter, but we certainly could not have done it without the dedication of our associates and the strength of our award winning culture focused on diversity equity and belonging.
I'm, especially pleased to say that choice was recently named by Forbes as one of the best employers for diversity and one of America's Best midsize employers.
As well as one of the best places to work by comparably.
In closing I am confident that thanks for the investments we've made over the long term and our targeted actions amid the pandemic, we are and a stronger position as a company to successfully capitalize on the recovery.
And our strategic approach.
Resilient business model high quality, well segmented portfolio of brands and strong balance sheet.
Help us to further capitalize on growth opportunities in 2021 and beyond.
With that I'll hand, it over to our CFO.
Tom.
Thanks, Pat and good morning, everyone I Hope you and your families are all well.
Today I'd like to provide additional insights around our first quarter results.
Date, you on our liquidity profile and approach to capital allocation and finally share our thoughts on the outlook for the road ahead.
Taking a closer look at our results for first quarter 2021, total revenues, excluding marketing and reservation system fees were $91 $4 million adjusted.
Adjusted EBITDA totaled $63 $1 million, driven by improving Revpar performance and our ability to realize adjusted SG&A savings of 20 per cent.
And our adjusted EBITA margin expanded to 69%, a 330 basis point increase year over year.
As a result, our adjusted earnings per share were 57 for the first quarter.
Let's take a closer look at our three key revenue levers beginning with Revpar.
Our domestic system wide revpar outperformed the overall industry by 23 percentage points for the first quarter declining 18, 7% from 2019.
Compared to 2020, our first quarter 2021, Revpar declined only $4 four per cent.
At the same time, our first quarter results exceeded the primary chain scale segments, and which we compete as reported by STR by nearly eight percentage points versus 2019.
Our domestic system wide occupancy rate has seen significant improvement since mid March 2021.
In fact, starting in mid March we've experienced our highest occupancy levels since the start of the pandemic.
And with system wide occupancy rates exceeding 70% on numerous days.
We are optimistic that these demand trends will remain elevated especially throughout summer and will further strengthen the financial health of our franchisees.
The trends of improving Revpar performance have continued into the second quarter.
Our April performance was significantly stronger with a revpar decline of approximately 4% and and occupancy rate increase of 80 basis points versus 2019 levels.
These trends give us even greater optimism for our 2021 performance.
We've long focused our brand strategy on driving growth across the higher value and more revenue intense upscale extended stay and mid scale segments and the investments we've made are paying off.
And the first quarter. These strategic segments helped us achieve material revpar change outperformance against our respective industries chain scales and drove gains versus our local competitors.
Specifically when compared to first quarter 2019, our upscale portfolio increased its revpar index relative to its local competitive set by 14 percentage points, our extended stay portfolio outperformed the industry's revpar change by an impressive 38 percentage points and grew versus its local.
Competitive set by 10 percentage points.
And finally, the Revpar change for Midscale and upper Midscale portfolio exceeded these segments by nine percentage points.
For the first quarter 2021 versus the same period of 2019 and.
All of our brands achieved Revpar index gains versus their local competitors.
In fact, we were able to increase our overall revpar index against local competitors by over six percentage points, notably through our franchisees' ability to maintain rate integrity.
More specifically our average daily rate improved from the prior quarter and our average daily rate index increased three seven percentage points as compared to 2019.
We've also observed firsthand that our investments and pricing optimization capabilities for our franchisees are paying off.
At the same time, we continue to grow the overall size of our franchise system and opened the highest number of hotels and any first quarter in the past 10 years.
Across our more revenue intense brands and the upscale extended stay and mid scale segments, we observe stronger unit growth increasing the number of hotels by two 4% year over year and improving the growth from fourth quarter 2020.
For full year 2021, we expect our overall unit growth trend to continue.
Furthermore, we expect the unit growth of the more revenue and 10th segments to accelerate versus 'twenty, 'twenty, one and range between 2% and 3%.
Aided by our strong value proposition and outperformance demand for our brands continued to gain momentum since the beginning of the year with over half of the domestic agreements executed in the month of March.
Specifically, we saw an increase in demand for our conversion brands with domestic conversion contracts up 76% year over year.
Our royalty rate remains a significant source of our revenue growth, which is driven by the attractive value proposition, we provide to our franchisees and their continued desire to be affiliated with our proven brands and our pipeline.
The company's domestic effective royalty rate exceeded 5% for the first time ever and a quarter and increased seven basis points year over year for the first quarter compared to the prior year.
We expect to maintain the historical growth trajectory of this lever in 2020, one as owners seek choice hotels proven capabilities and delivering strong topline revenues to their hotels, while helping them maximize return on investment.
I'd now like to turn to our liquidity profile and share our capital allocation update.
Our strong results have led to an even stronger liquidity position for the company.
At the end of first quarter 2021, the company had approximately $823 million and cash and available borrowing capacity through its revolving credit facility.
Even though our cash generation tends to be weaker and the first quarter due to the seasonality of our business and other cash outlays.
Given the continuing improvements and our operations are strong liquidity and credit profile and our increasing optimism for 2020, one and beyond our board has approved the reinstatement of our quarterly dividend at the pre pandemic level beginning in July 2021.
Additionally, the board has also approved the resumption of the company's share repurchase program.
Both actions highlight the confidence we have and our business to continue generating strong levels of cash and are a testament to our impressive results, while reflecting our continued commitment to driving long term shareholder value and returning excess capital to our shareholders and.
Nevertheless, our capital allocation philosophy remains unchanged.
We will continue to be disciplined stewards of capital and take steps that we believe will maximize shareholder value.
Choices primary objective in this area has always been to increase organic growth by strategically investing back into the business we.
We will continue to monitor the environment for other investment opportunities and evaluate capital returns in the context of our leverage levels market conditions, and our overall capital allocation strategy.
Before closing I'd like to offer some thoughts on what lies ahead.
While we are not providing formal guidance today. We currently expect revpar change for the remainder of the year to be stronger than first quarter 2021 results versus about 2020 and 2019.
Our view is reinforced by the following.
First we continue to see consumers desire to travel climbing aided by the vaccine rollout and improving domestic economic environment and higher levels of consumer savings.
We are pleased that our domestic revpar change has continued the pattern of sequential improvement with significantly stronger April revpar results versus 2019 and trends continuing into may.
We currently expect strong travel demand trends to continue.
Finally, we continue to be optimistic given other positive trends such as demand increases in key urban locations and our share gains and business travel combined with the continued resilience of leisure demand.
We will continue to evaluate the impact of COVID-19 across the business and we'll provide further updates and August during our next earnings call.
In closing, we remain optimistic that choice hotels is well positioned to succeed in 2020, one and beyond.
Our resilient primarily asset light franchise focused business model, which has historically delivered stable returns throughout economic cycles and provided a degree of cushion from market risks will continue to benefit us and the long run.
Our investments for the long term that propel our future forward, coupled with our strategic approach disciplined capital allocation strategy and strong balance sheet will allow us to continue to capitalize on opportunities during the recovery and drive outsized returns for years to come at this time.
Pat and I would be happy to answer any questions operator.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing Nicky.
So withdraw your question. Please press Star then channel.
Our first question today comes from Robin Farley with UBS.
Great Yeah, just to follow up on.
On the share repurchase authorization.
When do you anticipate you know is there is there anything in terms of balance sheet targets before you anticipate.
Actually doing share repurchase thanks.
And Robyn.
Share purchases has always been a key part of our capital allocation strategy.
I think when you just look at the recovery of the business you look at our liquidity position.
And it allows us to do a share repurchase program I would put I would state it that way.
Historically, we haven't been programmatic and our and our share repurchase we've been more opportunistic when we see.
The share price and are dislocated or discounted fashion relative to intrinsic value and so those are the things that we look for with regard to when we would go into the market and repurchase share. So as of Friday, we have the ability to sort of go back and do that and.
And then it will yes.
We're essentially returning to the capital allocation strategy that we had prior to the pandemic. So they arent and there aren't specific metrics that we look for other than a discount to intrinsic value.
And the only thing I would add is just in terms of that that capital allocation hierarchy. Obviously, we've always talked about internal investments that are going to drive outside growth for M&A opportunities and returning capital to shareholders in terms of the balance sheet position. I mean, you see where we are we were one of the very few if not the only ones that had the that didn't have to renegotiate and covenant is.
Well and so from that perspective, I don't think that this is an either or I think a lot of folks and said Oh, you're going to invest in the business instead of returning capital to shareholders I think that we're going to have the opportunity to do all of the above over the course for the next several months.
Okay, great. Thanks, and if I can ask as a follow up I know you talked about the acceleration and growth and and the upscale and extended stay and I'm. Just curious whether you expect on a companywide basis acceleration from the 2020 growth rate, which I think was about 24% overall.
Do you think of a company wide basis that that will accelerate this year as well thanks.
But I think the the only guidance that we provided in the prepared remarks, obviously it was the acceleration and those revenue and 10 segments last year those revenue and tons segments grew at about 2%. We gave guidance for 2% to 3%. This year I think that in terms of modeling I would expect to see the trends that youre seeing today and the economy segment, probably carry forwards for 2012.
One, but we're certainly seeing that acceleration and in terms of those revenue and 10 segments for the only thing I would say is it's not really just a story of net unit growth. This is really a story of net royalty contribution I think that's really important and that's why we always talk about the revenue and 10 segments and Thats. The reason that we provided guidance and at the end of the day, we're adding need more revenue.
And 10 segments, so getting to that historical 3% to 4% and unit growth is not the only goal here, it's really around getting to that three to four maybe even four to five per cent royalty growth overall.
And that makes sense. Thank you.
Thank you.
Our next question comes from Danny Assad with Bank of America.
Hey, good morning team.
And Pat and Tom you, both mentioned April trends that were pretty impressive relative to 2019 levels.
But we've also heard that spring break really did create a spike in demand and.
And you know we might even have some element of stimulus that could be propping up demand here. So maybe can you just help us first and just.
GAAP, our head around the sustainability of this trend.
Trend of the recovery and kind of how you feel about the balance of the year, whether it's any data points or what youre kind of seeing underground.
Yeah, Dan It's a great question, I mean, I've I've sort of referred to this sort of pent up demand and the valve wave of of return to travel that we're gonna see and then a question is gonna be at what point does the valet subside into into something that's more normalized I would say on the positive front I mean, if I look at our group travel for instance, we're all.
Already ahead of 2019 levels with our sports segment and that was in Q1 and the forward bookings for June and July for that segment alone are significantly above where we were in 2019. So as we look further into the summer and and when you have some of these segments that tend to book more and advanced than than ours, and our transient business.
And we see some real positive signs I think on top of that.
You just look at the returned to travel in places like New York City. The return to sale order for the cruise industry are you starting to see live nation and some of these other venues.
Venues the opportunity for people to go somewhere and do something is also opening up as well, but those openings are going to occur and the next several months I do think not only do we have a lot of confidence to travel, but there's going to be more places to travel and things to do for consumers. So I look at this as a sort of at the beginning of what I hope will be a.
A really strong summer here the real question will be what then happens in the fall.
And I go back to these trends, we're seeing I mean, if you look at our Q1 number that weekday occupancy index number is really it.
It's really remarkable and a lot of that is the ability for people to work from anywhere and.
So are people, taking more extended middle of the week type leisure travel.
We believe that's happening.
And really the question is going to be when this return and the fault or whatever the normal is are people still going to have the flexibility to travel and non traditional days of the week and and I think what we're seeing like the early trends are that that may in fact be the case.
And then and the only thing I would add is from a modeling perspective April is probably the easier comp out. There. Just you know you you hit that off net.
And hit that on the head there with regards to the return and spring break when you think about you know May June and July last year. That's when you saw a lot of that pent up demand returning during the pandemic, especially in the south and so youre going to have certainly a tougher comp in may and probably an even tougher comp and you know and.
In June and in July we were running some of those promotions and whatnot. So you know the four per cent of in April and you know, 4% down versus 2019, very remarkable but just from a modeling perspective, we do have tougher.
Suffer comps on the horizon as well.
Got it. Thank you very much thank you.
Our next question comes from Michael Bellisario with Baird.
Good morning, everyone.
And Michael I was wondering just want to go back to them for the.
The topic of capital allocation I think last quarter, you guys rank M&A higher on your priority list same things done and you also said it again today higher than returning excess capital to shareholders does the reinstated dividend suggest youre not seeing or maybe you don't expect to see any M&A and investment opportunities pop up over the near term.
And I think Michael Dawn's point is we have the ability to do it all I mean.
And that capital allocation strategy has those four pillars to it.
I think where we see the recovery of the business the strength for our balance sheet, we have the ability to invest and our business, which we did in Q4, we did it in Q1, new prototypes, new revenue management tools, and we continue to invest for long term.
Secondarily, we do look for M&A opportunities.
No that's a challenged environment right now and the hotel sector is just difficult to underwrite assets.
And then our share our share repurchase and dividend with regard to returning capital to shareholders. So we have the ability to sort of return to what we were doing back in February of last year and.
So that's really I think the message that you should take away from us from that as far as we know it doesn't mean that we're prioritizing one over the other all for good.
And that's an opportunity to improve.
And improve the overall return.
Turning to our investors and so that's that's the portfolio of things, we look at and they move in tandem with each other and as we're stating where we think we're in a place today, where we can return all for those to where we were a part of the pandemic.
Got it understood and then switching gears just a little bit what are you hearing from developers regarding construction cost pressures and are you seeing any.
Lower interest and new construction deals from prospective owners.
It's really interesting the interest is very high.
Particularly with woods spring with ever home, even with our comfort brand now that that's been returned to.
<unk> returned to a growth perspective after the after the refresh.
The issue is around lumber prices and and all of the transitory materials cost that we've seen and I talk to vendors, who some of our largest vendors.
They think things will normalize and about three and four months time, that's about the same working hypothesis that most of our developers have and so beginning to sort of get the ball rolling on and get.
And your application and getting a contract executed getting your your land.
Our acquired and then getting your financing and that takes time. So I think a lot of owners are expecting to get the ball Rolling and then as things move forward hopefully three or four months from now those construction costs come down so that the deals pencil to the types of returns and they're looking for.
And well thank you.
Thank you.
Our next question comes from Thomas Allen with Morgan Stanley.
And thank you a big macro theme is just labor shortages and what are you hearing from your franchisees in terms of that book.
Yeah, Thomas that's the number one thing we hear from our franchisees.
Getting the labor they need into their hotels.
We as a company and our franchisees in tandem with us have done a number of things during the pandemic to save on labor costs and everything from housekeeping on request to a flexible grab and go breakfast. These items also save on labor costs.
There are some things we've done to remove the labor cost.
Some of it.
And our and our franchisees.
Total cost of ownership so the the ability to to hopefully be able to continue to run their hotels with with a smaller labor force and then they've had for you to that part of the pandemic, but I mean, everybody has been talking about the same thing its the additional unemployment and insurance stimulus money that has.
Really causing people not to return to work yet.
Housekeepers and the like so again, we hope that's transitory and it extends through the month of September.
So as as workers begin to get closer and closer to that we do hope it will ease up on the pressure that some of our franchisees are seeing.
Just a follow up on this when you think longer term do you have an estimate of how much you're.
You're kind of changes will help streamline the cost structure of your hurt ADR hotels.
Yeah, we have some internal targets I would say, they're competitive and nature, so I won't won't speak to them.
But there are there there's significant and it is something that we had been working on prior to the pandemic.
And we've been able to pull some of that forward during the pandemic and execute it earlier.
And what what was going to be something we piloted we just put it out there and I'm pleased to say and a lot of these the consumer reaction to it has been as positive as our franchisees reaction to it has been and a lot of these also help us on the environmental front as well so everything from you know not as much water and chemical usage.
And.
And turning the rooms every night.
And to the types of things that are that can impact our environment going forward. So there's a there's a really nice alignment.
Alignment, if you will have lowered cost lower environmental impact and and guest expectations are actually.
And in alignment with that so I think it's something that we had been working on prior to pandemic and a lot of these are going to stay in place going forward.
Thank you.
Thank you.
Our next question comes from David Katz with Jefferies.
Hi, Good morning, everyone and thanks for taking my question I wanted to just get a little more insight if I may on.
Newbuild development.
<unk> and the question is really in the context of you know.
And the capital and the balance sheet you said the company has deployed over time is that newbuild stretching out.
What are you sort of hearing and seeing and how should we think about that curve. The next couple of years as best as we can tell.
Yeah, David I think the cause and.
And we've been talking about and the last several calls for the the time it takes to do a newbuild.
And it's been elongated.
It was first driven by the pandemic now and I think it's going to be continued to be driven more by.
Both labor and <unk> and and materials cost for for constructing a new hotel. So as I said, you know what we're hearing and the marketplaces anywhere from a three or four months delay, but for those things hopefully normalized.
But those are the those are the things that we're seeing as far as the elongation of from a contract execution to a.
And two and open hotels.
And then David to your point on just key money and distributions over the course of the last few years, what we saw is actually that number coming down.
And you know back in 2000 22018 for close to about $50 million and 2019, it drops about $40 million and last year was about 37 or so million dollars distributed as well, we actually were a net recycler of capital for our Cambria portfolio and Q1 as well. So we bought 25 million and in terms of some of those investments that we're making.
And so obviously a competitive environment in order to get some of that revenue and tense unit growth that we were talking about when we would be more than happy to lean in a little bit on key money for the remainder of the year to get some of those projects started and accelerated but I think the better news and it's really the conversion engine. So when you think about those openings in Q1 over <unk>.
80% of those openings came from conversions and we actually sold 25 per signed 25 franchise agreements in Q1 as well that actually opened in Q1, which is one of the reasons why you're seeing the phenomenon with the pipeline, it's not necessarily the best barometer of near term mid term unit growth, we think that as we continue to see those conversions ramping up we'll be able to sustain.
And that unit growth target that we have for the company.
Perfect. Thanks, very much thank you.
Our next question comes from Patrick Scholes with true Securities.
Hi, good morning, everyone.
The first question.
Tell us what your expectations for this year will be for spending on development and the Cambria brand and where did you finish last year with that.
Yeah, So what I would tell you and Patrick is overall, we have the 725 million authorized for for Cambria right now on our balance sheet, we have about call. It $540 million. So a lot of it obviously depends on you know the.
The pace and what some of these properties get open and which no ground breaks happen I think hitting that $725 million would actually be welcomed because that mean these projects are breaking.
And so to speak but the reality is over the course of the next several months and year frankly, we're gonna be working within that authorization, which is the $725 million.
As it pertains for broader key money, what I mentioned was last year, we were around $40 million or so deployed.
And would expect to see probably pretty similar trends in 2020. One now obviously, we would be willing to lean in a little bit more just given the fact that we certainly have the capacity and it goes back to that organic unit growth story that we talked about before and then you have the number one priority in terms of the capital allocation hierarchy.
Okay. Thank you and then Oh.
A quick clarification.
Clarification on your prepared remarks did you say that you expect 2021 revpar to be better than 2019 is on a dollar amount is that correct.
We talked about was that revpar for the remainder of the year. So Q2 Q3 Q4, we expect to see is better in terms of the revpar change than the Revpar change that you saw in Q1 of this year. So a core okay.
Warner because that that make.
That makes perfect sense. Thank you.
Thank you.
Yeah.
And again, if you have a question. Please press Star then one.
Our next question comes from Dan well, I see all that with Morningstar.
Hey, good morning, guys. Thanks for taking the questions just the first one with the infrastructure proposal and the U S any potential impact that might have on some of your segments like some of its day or Mexico.
Yes.
Those are projects that generally fill our extended stay hotels, if you look at.
And our broader portfolio, even beyond extended stay.
Construction segment is a is one of the larger savings from our business travel.
And that has actually held up fairly well.
During the pandemic and as is our is not too far off from where we were in 2019. So.
The more of those types of construction projects that get approved.
As a result of and infrastructure spending bill that are plus I think overall.
You know just improving the airports roads bridges and tunnels.
Particularly for a company like ours that has.
And so heavily dependent on domestic travel and and that's a key driver the more investment that company or the country puts into those assets the better off it is for productivity and for for our business as a whole.
Okay, Great makes sense, and then and just a question I guess on your international brand and the recovery you're seeing there I mean, obviously domestic is the the vast majority of your business, but any comments on kind of how international brands and a recovery are doing and what you see moving forward. There. Thanks sure. So as you stated in 'twenty.
19, it was 3% of our earnings.
But as I sort of go around the world, we have a large presence in Australia, and New Zealand that market has performed quite well.
They are there and island both countries and.
And we saw and December their summer a really record return of consumer demand.
Again, there and mostly drive to leisure markets not too different from here and the United States, so that that that that market's done well.
When you look at what's happening in India, and you look at what's happening in Japan in particular from a revpar perspective, those those two markets are extremely challenged today.
And in China, we only have seven hotels with those seven hotels are are seeing the same type of return, we're seeing and China Europe is a different story I mean, Europe's been probably the most impacted at this point.
And with Revpar down significantly.
And and hotel closures, there being and being much higher than what we experience here and the U S. But I think there's again each of these countries gets to the point of where vaccinations are having an impact and where travel restrictions and then begin to be lifted and become more optimistic as you get into the third and fourth quarter for our international markets.
Okay. Thank you guys.
Thank you.
This will conclude our question and answer session I'd like to turn the call back over to Pat patients for any closing remarks.
Operator, thanks, everyone again for your time this morning.
You heard today throughout the first quarter choice hotels continued to drive the results that once again significantly outperformed the industry and our chain scale segments and I believe the strategic investments. We've made in recent years and the targeted actions. We've taken during the pandemic are going to allow us to continue to grow our share of travel demand over the long.
Term, so I hope you all stay safe and healthy and we'll talk to you again this summer and take care.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.