Choice performs close to 2019 levels in second quarter

Choice Hotels International Inc., for the second quarter ended June 30, reported net income increased 15% to $85.9 million vs. second-quarter 2019. Domestic systemwide RevPAR change outperformed the total industry by 20 percentage points, declining 1.1% for second-quarter 2021 compared to the same period of 2019, while occupancy levels increased by 20 basis points from second-quarter 2019.

“The strategic investments we have made in launching and enhancing our brands, strengthening our marketing and reservation systems, and bolstering our platform capabilities drove impressive second quarter results that further positioned the company to increase our share of travel demand in the years to come,” said Pat Pacious, president/CEO, Choice Hotels. “Our goal is not to return to our 2019 performance levels, but rather capitalize on current and future investments to fuel our long-term growth in key strategic segments and drive our performance to new levels.”

Highlights of second quarter and year-to-date 2021 results include (note that RevPAR and financial metrics are compared to 2019):

  • The company’s June 2021 domestic systemwide RevPAR increased 4.5% from June 2019.
    The trend of monthly improvement continued in July, with July 2021 RevPAR increasing approximately 15% from July 2019, driven by occupancy levels of 70% and ADR growth of 10%.
  • From May through July 2021, the company surpassed its all-time single-day revenue record on four separate days and recorded 14 of the highest revenue performing days in the company’s history. In addition, the company achieved the strongest revenue performing Memorial Day and Independence Day weekend in its history, and set the record for the single highest revenue, ADR and RevPAR performing day ever for the company on July 24.
  • The company awarded 200 domestic franchise agreements year-to-date through June 30, a 32% increase compared to the same period of 2020. The company’s domestic franchise agreements for conversion hotels increased by 43% year-to-date through June 30, compared to the same period of 2020. The company awarded 111 domestic franchise agreements in second quarter 2021, a nearly 20% increase compared to the same period of the prior year.
  • Second-quarter adjusted net income, excluding certain items, increased 2% to $68.3 million from second quarter 2019, and adjusted diluted EPS were $1.22, an increase of 3% from second quarter 2019.
  • Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the second quarter were $111.8 million, a 9% increase from second-quarter 2019.

Performance trends

  • Domestic systemwide RevPAR for second-quarter 2021 outperformed the respective chainscales in which the company competes by 660 basis points, compared to the same period of 2019.
  • All of Choice Hotels’ select-service brands achieved domestic systemwide RevPAR index gains vs. their local competitors with portfolio average share gains of 488 basis points for second-quarter 2021, compared to the same period of 2019.
  • The company’s extended-stay portfolio achieved domestic systemwide RevPAR growth of 9.9% in second-quarter 2021, compared to the same period of 2019, driven by occupancy levels of 82% and an increase in ADR of 2.0%. Specifically, the WoodSpring Suites brand achieved RevPAR growth of 16% in second quarter 2021, compared to the same period of 2019, driven by occupancy levels of nearly 86% and an increase in ADR of 5.6%.
  • The company’s midscale portfolio exceeded 2019 RevPAR levels in June, achieving domestic systemwide RevPAR growth of 6.2% versus June 2019, driven by an increase in ADR of 3.8% and an increase in occupancy levels of 220 basis points. In second-quarter 2021, the Comfort brand family’s domestic systemwide RevPAR change outperformed the upper-midscale chain scale by 870 basis points, and the Quality Inn brand achieved RevPAR growth of 1.7%, driven predominantly by an increase in ADR of 1.3%, compared to the same period of 2019.
  • The company’s upscale portfolio continued to achieve domestic systemwide RevPAR share gains versus its competitors for second quarter 2021, compared to second quarter 2019, with the Cambria Hotels brand achieving gains of 14 percentage points. In addition, the Ascend Hotel Collection achieved June RevPAR growth of 4.7%, driven by an increase in ADR of 12.2%, compared to the same period of 2019.

Revenues

  • Total revenues decreased 12% to $278.3 million for second-quarter 2021, compared to the same period of 2019.
  • Total revenues excluding marketing and reservation system fees decreased 2% to $142.4 million for second-quarter 2021, compared to the same period of 2019.
  • Second-quarter 2021 domestic royalties totaled $102.8 million, a 2% increase from the same period of 2019.
  • The company’s domestic effective royalty rate for second-quarter 2021 increased 7 basis points over the prior-year second quarter to 5.01%.

Development

  • The company’s domestic franchise agreements for new construction hotels increased by 21% in second-quarter 2021, compared to the same period of 2020. In addition, half of the company’s brands have exceeded 2019 levels for the number of domestic franchise agreements awarded in the first half of 2021.
  • As of June 30, 2021, the number of domestic rooms in the company’s upscale portfolio expanded by 24% since June 30, 2020, driven by an 11% increase in room count for the Cambria Hotels brand and a 28% increase in room count for the Ascend Hotel Collection. For the first six 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.
  • The company’s extended-stay portfolio continued its rapid expansion, reaching 460 domestic hotels as of June 30, 2021, an 11% increase since June 30, 2020, with the domestic extended-stay pipeline reaching more than 300 hotels awaiting conversion, under construction or approved for development. Since June 30, 2020, the WoodSpring Suites, MainStay Suites and Suburban brands grew the number of open domestic hotels by 6%, 27% and 15%, respectively. In addition, the company’s domestic franchise agreements for WoodSpring Suites increased by 18% in the first half of the year, compared to the same period of 2019.
  • The company continued its leadership in the midscale segment by increasing the number of domestic hotels within the Comfort brand family by 2.5% from June 30, 2020. The brand’s domestic franchise agreements for new construction hotels increased by 43% in second-quarter 2021, compared to the same period of 2020. For the first half of 2021, the Comfort brand family executed the highest number of openings since 2014.
  • The number of domestic hotels and rooms, as of June 30, 2021, increased 0.6% and 1.6%, respectively, from June 30, 2020. The company’s domestic upscale, midscale and extended-stay segments reported a 2.5% and 3.1% aggregate increase in units and rooms, respectively, since June 30, 2020.
  • The company’s total domestic pipeline of hotels awaiting conversion, under construction or approved for development, as of June 30, 2021, reached 884 hotels representing more than 72,000 rooms.

Balance sheet and liquidity
The company improved its strong balance sheet and liquidity position in second-quarter 2021 and continues to benefit from its primarily franchise-only business model, which has historically provided a relatively 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 was approximately $908 million. The company generated cash flow from operations of $102.3 million for second-quarter 2021, a 28% increase from the same period of 2019.

Outlook
The company is not at this time providing detailed guidance for third-quarter or full-year 2021 given that the precise impact of COVID-19 on the company’s future results is still unknown.

For the month of July, the company’s RevPAR increased by approximately 15% versus July 2019, driven by occupancy levels of 70% and ADR growth of 10%. The company currently expects RevPAR for third-quarter 2021 to grow in the mid- to high-single digits, as compared to 2019.

Assuming continuation of current consumer sentiment, as well as broader RevPAR and economy recovery trends, the company currently expects adjusted EBITDA for the full-year 2021 to approach 2019 levels.

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