Choice Hotels Reports Q2 2022 Results
ROCKVILLE, Maryland—Choice Hotels International, Inc., reported its results for the three months ended June 30, 2022.
“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 and 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.”
Highlights of second quarter 2022 results include (RevPAR metrics are compared to 2019):
- Domestic RevPAR growth accelerated quarter-over-quarter, increasing by 13 percent for Q2 2022 compared to the same period of 2019 and outperforming the total industry by 360 basis points.
- Domestic RevPAR growth has surpassed 2019 levels for 13 consecutive months through June 30, 2022, a trend that has continued in Q3 2022 with July RevPAR increasing approximately 14 percent, compared to July of 2019. RevPAR for full-year 2022 is expected to increase between 11 percent and 13 percent, compared to full-year 2019.
- The company awarded 122 domestic franchise agreements in Q2 2022, a 10 percent increase compared to the same period of the prior year.
- The company’s domestic effective royalty rate was 5.04 percent for the three months ended June 30, 2022, and 5.05 percent for the six months ended June 30, 2022, 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 percent to $368 million for Q2 2022, compared to the same period of 2021. Total revenues excluding marketing and reservation system fees increased 25 percent to $178.6 million for Q2 2022, compared to the same period of 2021.
- Net income increased 24 percent to $106.2 million for Q2 2022, representing diluted earnings per share (EPS) of $1.89, a 24 percent increase over second quarter 2021.
- Q2 2022 adjusted net income, excluding certain items described in Exhibit 7, increased 17 percent to $79.9 million from Q2 2021, representing adjusted diluted EPS of $1.43, a 17 percent increase from Q2 2021.
- Adjusted EBITDA for second quarter 2022 was $129.6 million, a 16 percent increase from the same period of 2021.
- The company signed an agreement to acquire Radisson Hospitality, Inc. (Radisson Hotels Americas) on June 12, 2022, 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 2022.
- The company sold the Cambria Hotel Southlake DFW North, Texas property in June 2022 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, 2022 to over $30 million.
- During the first six months of 2022, the company returned $41.6 million to shareholders in the form of cash dividends and share repurchases.
RevPAR Performance Trends
- RevPAR growth for second quarter 2022 was driven by an increase in ADR of 13.7 percent compared to Q2 2019.
- The company’s extended-stay portfolio has exceeded 2019 RevPAR levels since April 2021 and achieved domestic RevPAR growth of 21.4 percent in Q2 2022, compared to the same period of 2019. The WoodSpring Suites brand achieved RevPAR growth of 28.1 percent in Q2 2022, compared to the same period of 2019, driven by occupancy levels of 82 percent and a 22 percent 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 percent in Q2 2022 compared to the same period of 2019. In Q2 2022, 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 percent for Q2 2022 compared to the same period of 2019 and outperformed the upscale chain scale by 880 basis points.
Additional details for the company’s second quarter 2022 results are as follows:
- Q2 2022 domestic royalties totaled $116.7 million, a 14 percent increase from the same period of 2021.
- Procurement services revenues increased 80 percent to $21.8 million for Q2 2022 compared to the same period of 2021.
- The company awarded 215 domestic franchise agreements year-to-date through June 30, 2022, an 8 percent 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 percent in first half of 2022, compared to the same period of 2021. Applications received for new domestic franchise agreements increased by 24 percent year-to-date through June 30, 2022, compared to the same period of 2021.
- The number of domestic franchise agreements awarded for conversion hotels increased by 10 percent in Q2 2022, compared to the same period of 2021.
- The company’s extended-stay portfolio reached 489 domestic hotels as of June 30, 2022, a 6.3 percent 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 percent year-to-date through June 30, 2022, compared to the same period of 2021.
- For the first half of 2022, 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, 2022, decreased 1.4 percent and 2.9 percent, respectively, from June 30, 2021. Excluding the impact from the previously announced departure of 17 AMResorts-branded properties and the exit of 41 underperforming assets from the portfolio in Q4 2021, the company’s domestic upscale, midscale, and extended-stay segments reported a 0.3 percent 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, 2022, reached 910 hotels, representing nearly 84,000 rooms.
Balance Sheet and Liquidity
The company strengthened its liquidity position in Q2 2022 and benefits 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, 2022, the company’s total available liquidity consisting of cash and available borrowing capacity through the revolving credit facility increased 33 percent to $1.2 billion, compared to June 30, 2021.
During the six months ended June 30, 2022, the company paid cash dividends totaling $26.5 million. Based on the current quarterly dividend rate of $0.2375 per common share outstanding, the company expects to pay dividends of $53 million during 2022 compared to total dividends of $25 million paid in 2021.
During the six months ended June 30, 2022, the company repurchased $15.1 million of common stock under its stock repurchase program, as well as through repurchases from employees in connection with tax withholding and option exercises relating to awards under the company’s equity incentive plans. As of June 30, 2022, the company had 3.3 million shares of common stock remaining under the current share repurchase authorization.