Choice Hotels International Inc., for the three months ended June 30, reported its domestic RevPAR increased 13% versus the same period in 2019, and outperformed the industry by 360 basis points.
“Once again, Choice Hotels drove impressive quarterly results that outperformed the industry, while announcing the most significant acquisition in our company’s history and recycling over $140 million of capital through July,” said Patrick Pacious, president/CEO, Choice Hotels. “The acquisition of Radisson Hotels Americas, which is expected to close this month, will mark the next chapter in Choice’s well-established asset-light strategy of investing in higher-revenue segments and locations, and build on our strong track record of growing the brands of tomorrow. We are confident in our ability to accelerate the growth of Radisson Hotels Americas’ brands by leveraging Choice’s scale, network of owner relationships and strong digital platforms.”
Second-quarter highlights ( RevPAR metrics are compared to 2019):
- Domestic RevPAR growth has surpassed 2019 levels for 13 consecutive months through June 30, a trend that has continued in the third quarter, with July RevPAR increasing approximately 14%, compared to July of 2019. RevPAR for full-year 2022 is expected to increase between 11% and 13%, compared to full-year 2019.
- The company awarded 122 domestic franchise agreements in the quarter, a 10% increase compared to the same period of the prior year.
- The company’s domestic effective royalty rate was 5.04% for the three months ended June 30, and 5.05% for the six months ended June 30, an increase of 3 basis points and 4 basis points over the comparable 2021 periods, respectively.
- For full-year 2022, the company’s domestic effective royalty rate is expected to increase by approximately 5 basis points, compared to full-year 2021.
- Total revenues increased 32% to $368 million for the quarter, compared to the same period of 2021. Total revenues excluding marketing and reservation system fees increased 25% to $178.6 million for Q2, compared to the same period of 2021.
- Net income increased 24% to $106.2 million for the quarter, representing diluted earnings per share (EPS) of $1.89, a 24% increase over second-quarter 2021.
- Q2 adjusted net income, excluding certain items, increased 17% to $79.9 million from second-quarter 2021, representing adjusted diluted EPS of $1.43, a 17% increase from second-quarter 2021.
- Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the quarter was $129.6 million, a 16% increase from the same period of 2021.
- The company signed an agreement to acquire Radisson Hospitality Inc. (Radisson Hotels Americas) on June 12 for a purchase price of approximately $675 million. The transaction would add approximately 67,000 rooms to the company’s portfolio and is expected to close in August.
- The company sold the Cambria Hotel Southlake DFW North in Texas in June for $24 million and secured a long-term franchise agreement with the buyer. The sale of this hotel increases the recycling of prior investments in Cambria Hotels development projects for the six months ended June 30 to more than $30 million.
RevPAR performance trends
- RevPAR growth for Q2 was driven by an increase in ADR of 13.7%, compared to second-quarter 2019.
- The company’s extended-stay portfolio has consistently exceeded 2019 RevPAR levels since April 2021 and achieved domestic RevPAR growth of 21.4% in the second quarter, compared to the same period of 2019. The WoodSpring Suites brand achieved RevPAR growth of 28.1% in Q2, compared to the same period of 2019, driven by occupancy levels of 82% and a 22% increase in ADR.
- The company’s overall midscale portfolio has consistently surpassed 2019 RevPAR levels since June 2021 and achieved domestic RevPAR growth of 10.1% in Q2 compared to the same period of 2019. In the quarter, the Comfort brand continued to achieve RevPAR share gains versus its local competitors, and the brand’s domestic RevPAR growth continued to outperform the upper-midscale chain scale, compared to the same period of 2019.
- The company’s upscale portfolio achieved domestic RevPAR growth of 10.1% for Q2, compared to the same period of 2019, and outperformed the upscale chain scale by 880 basis points.
Revenues
- Q2 domestic royalties totaled $116.7 million, a 14% increase from the same period of 2021.
- Procurement services revenues increased 80% to $21.8 million for Q2, compared to the same period of 2021.
Development
- The company awarded 215 domestic franchise agreements year-to-date through June 30, an 8% increase compared to the same period of 2021. Excluding the multi-unit transaction for 22 properties as part of the company’s strategic alliance with Penn National Gaming in 2021, domestic franchise agreements increased 21% in first half, compared to the same period of 2021. Applications received for new domestic franchise agreements increased by 24% year-to-date through June 30, compared to the same period of 2021.
- The number of domestic franchise agreements awarded for conversion hotels increased by 10% in Q2, compared to the same period of 2021.
- The company’s extended-stay portfolio reached 489 domestic hotels as of June 30, a 6.3% increase since June 30, 2021, with the domestic pipeline reaching 362 hotels awaiting conversion, under construction or approved for development and an additional 46 hotels under master development agreements committing to future development. The number of domestic franchise agreements awarded for the WoodSpring Suites brand doubled in the first half of the year, compared to the same period of 2021.
- The number of domestic franchise agreements awarded for the company’s midscale segment increased 6% year-to-date through June 30, compared to the same period of 2021.
- For the first half, the Cambria Hotels brand tripled the number of domestic franchise agreements awarded, compared to the same period of 2021.
- The number of domestic hotels and rooms, as of June 30, decreased 1.4% and 2.9%, respectively, from June 30. Excluding the impact from the previously announced departure of 17 AMResorts-branded properties and the exit of 41 underperforming assets from the portfolio in fourth-quarter 2021, the company’s domestic upscale, midscale and extended-stay segments reported a 0.3% increase in units compared to June 30, 2021.
- The company’s total domestic pipeline of hotels awaiting conversion, under construction or approved for development and including master development agreements committing owners to future franchise development, as of June 30, reached 910 hotels, representing nearly 84,000 rooms.
Balance sheet and liquidity
The company further strengthened its liquidity position in Q2 and continues to benefit from its primarily franchise-only business model, which has historically provided a stable earnings stream, low capital expenditure requirements and significant free cash flow. As of June 30, the company’s total available liquidity consisting of cash and available borrowing capacity through the revolving credit facility increased 33% to $1.2 billion, compared to June 30, 2021.
