Choice Hotels International Inc., for the third quarter ended Sept. 30, reported net income of $116.7 million, a 53% increase from third-quarter 2019. Domestic system-wide RevPAR growth exceeded third-quarter guidance and outperformed the total industry by 16 percentage points, increasing 11.4% for the quarter, compared to the same period of 2019.
“Our impressive third-quarter results are a testament to the success of our long-term growth strategy and the investments we have made to position us to further increase our share of travel demand and benefit from trends that favor leisure travel, limited-service hotels and longer-stay occasions,” said Patrick Pacious, president/CEO, Choice Hotels. “Today, we are in an even stronger position to capitalize on growth opportunities to create added value and drive our performance to new levels in the years to come.”
Highlights of third quarter and year-to-date 2021 results:
- RevPAR growth was driven by an increase in ADR of 8.8% and a 150-basis-point increase in occupancy levels versus third quarter 2019. These RevPAR trends have continued into the fourth quarter.
- The company’s domestic effective royalty rate for Q3 increased 8 basis points over the same period the prior year to 4.99%.
- The company awarded 289 domestic franchise agreements year-to-date through Sept. 30, a 25% increase compared to the same period of 2020. The company’s domestic franchise agreements for conversion hotels increased by 25% year-to-date through Sept. 30, compared to the same period of 2020. The company awarded 89 domestic franchise agreements in the quarter, a 10% increase compared to the same period of the prior year.
- Adjusted net income, excluding certain items, increased 11% to $85.1 million from third-quarter 2019, and adjusted diluted EPS were $1.51, an increase of 10% from third-quarter 2019.
- Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $133.2 million, a 18% increase from third-quarter 2019.
- Adjusted EBITDA margin for the quarter was 80%, a 650-basis-point increase from third-quarter 2019.
- In August, the company’s loyalty program, Choice Privileges, surpassed 50 million members.
Performance trends
Domestic system-wide RevPAR for the quarter outperformed the respective chainscales in which the company competes by 600 basis points, compared to the same period of 2019.
Choice’s overall portfolio achieved RevPAR index gains versus local competitors of 370 basis points for the quarter compared to the same period of 2019, driven by both ADR and occupancy index gains.
The company’s extended-stay portfolio achieved domestic system-wide RevPAR growth of 18.2% in the quarter compared to the same period of 2019, driven by occupancy levels of 82% and a 9% increase in ADR. The WoodSpring Suites brand achieved RevPAR growth of 22.8% in the quarter compared to the same period of 2019, driven by occupancy levels of nearly 86% and an 11.1% increase in ADR.
The company’s midscale portfolio achieved domestic systemwide RevPAR growth of 9.7% in the quarter compared to the same period of 2019, driven primarily by a 9.3% increase in ADR. In Q3, the Comfort brand family’s domestic system-wide RevPAR change outperformed the upper-midscale chain scale by 730 basis points compared to the same period of 2019, and the Quality Inn brand achieved RevPAR growth of 13.3%, driven predominantly by a 10.4% increase in ADR, compared to the same period of 2019.
The company’s portfolio continued to achieve domestic system-wide RevPAR share gains versus its competitors for the quarter, compared to third-quarter 2019, with the Cambria Hotels brand achieving gains of 12 percentage points. The Ascend Hotel Collection achieved RevPAR growth of 7.9%, driven by a 17.2% increase in ADR, compared to the same period of 2019.
Revenues
Total revenues increased 4% to $323.4 million for the quarter, compared to the same period of 2019. Total revenues excluding marketing and reservation system fees increased 8% to $166.5 million, compared to the same period of 2019. Domestic royalties totaled $123 million, a 14% increase from the same period of 2019.
Development
The company’s domestic franchise agreements for new construction hotels increased by 52% in the quarter, compared to the same period of 2020.
As of Sept. 30, the number of domestic rooms in the company’s upscale portfolio expanded by nearly 22% since Sept. 30, 2020, driven by a 6% increase in room count for the Cambria Hotels brand and a 27% increase in room count for the Ascend Hotel Collection.
For the first nine months of 2021, the upscale portfolio set a record for the highest number of upscale hotel openings in the company’s history, including 22 properties added as part of the company’s strategic alliance with Penn National Gaming. In September, the company launched a new Cambria hotel prototype designed for secondary and leisure markets to position the brand for continued system growth while maximizing developers’ return on investment.
The company’s extended-stay portfolio continued its rapid expansion, reaching 467 domestic hotels as of Sept. 30, an 11% increase since Sept. 30, 2020, with the domestic extended-stay pipeline reaching nearly 310 hotels awaiting conversion, under construction or approved for development. In Q3, the company’s extended-stay domestic franchise agreements increased by 85%, compared to the same period in 2020, and grew by 20%, compared to the same period in 2019.
The company continued its leadership in the midscale segment by increasing the number of domestic hotels within the Comfort brand family by 2.2% from Sept. 30, 2020. The brand’s domestic franchise agreements for new construction hotels increased three-fold in Q3, compared to the same period of 2020. For the first nine months of 2021, the Comfort brand family executed the highest number of conversion hotel openings since 2014.
The number of domestic hotels and rooms, as of Sept. 30, increased 0.1% and 1.2%, respectively, from Sept. 30, 2020. The company’s domestic upscale, midscale and extended-stay segments reported a 2.0% and 2.6% aggregate increase in units and rooms, respectively, since Sept. 30, 2020.
The company’s total domestic pipeline of hotels awaiting conversion, under construction or approved for development, as of Sept. 30, 2021, reached nearly 860 hotels representing over 71,000 rooms.
Outlook
COVID-19 continues to impact the company’s business and the outlook reflects the company’s estimates based on the best information available at this time. The adjusted numbers in the company’s outlook exclude the net surplus or deficit generated from the company’s marketing and reservation system activities, as well as other items.
- Domestic RevPAR for full-year 2021 is expected to surpass 2019 levels and grow at approximately 1%, as compared to full-year 2019.
- Adjusted EBITDA for full-year 2021 is expected to exceed 2019 levels and range between $382 million and $387 million.
