First quarter domestic RevPAR exceeded 2019 levels by 10.4%; applications for new domestic franchise agreements increased 46% year-over-year

Choice Hotels;

Choice Hotels International, Inc. (NYSE: CHH) reported its results today for the three months ended March 31, 2022.

"Building on the record year we had in 2021, where we surpassed 2019 RevPAR and profitability levels, Choice Hotels' proven business model once again delivered impressive quarterly results, and we expect this momentum to continue as we approach the summer leisure travel season," said Patrick Pacious, president and chief executive officer, Choice Hotels. "With consumers prioritizing spending on leisure travel and continually looking to discover the great American outdoors, our hotels are in the right locations to capture this growing travel demand. We are confident that our long-term investments, compelling franchisee value proposition, and strong financial health, combined with underlying consumer trends that favor leisure travel, limited-service hotels and longer stay occasions, will allow us to drive sustainable growth in 2022 and beyond."

Highlights of first quarter 2022 results include (note that RevPAR metrics are compared to 20191):

  • Domestic systemwide revenue per available room (RevPAR) growth increased by 10.4% for first quarter 2022, compared to the same period of 2019, and outperformed the total industry by 13 percentage points. RevPAR growth was driven by an increase in average daily rate (ADR) of 9.3% and a 60-basis-point increase in occupancy levels versus first quarter 2019.
  • Domestic systemwide RevPAR growth has surpassed 2019 levels for ten consecutive months through March 31, 2022, a trend that has continued in the second quarter of 2022 with April RevPAR increasing approximately 16%, compared to April of 2019. RevPAR for full-year 2022 is expected to increase between 10% and 13%, compared to full-year 2019.
  • Applications received for new domestic franchise agreements increased by 46% in first quarter 2022, compared to the same period of 2021.
  • The company's domestic effective royalty rate for first quarter 2022 increased 3 basis points over first quarter 2021 to 5.05% and is expected to increase by approximately 5 basis points for full-year 2022, compared to full-year 2021.
  • Total revenues increased 41% to $257.7 million for first quarter 2022, compared to the same period of 2021. Total revenues excluding marketing and reservation system fees increased 43% to $131.1 million for first quarter 2022, compared to the same period of 2021.
  • Net income increased $45.1 million to $67.4 million for first quarter 2022, representing diluted earnings per share (EPS) of $1.20, a 200% increase over first quarter 2021.
  • First quarter adjusted net income, excluding certain items described in Exhibit 7, increased 82% to $57.7 million from first quarter 2021, representing adjusted diluted EPS of $1.03, an 81% increase from first quarter 2021.
  • Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for first quarter 2022 was $96.6 million, a 53% increase from the same period of 2021.
  • Adjusted EBITDA margin for first quarter 2022 reached 74%, a 470-basis-point increase from the same period of 2021.
  • During first quarter 2022, the company returned $28 million to shareholders in the form of cash dividends and share repurchases.

RevPAR Performance Trends

  • Choice Hotels' domestic portfolio achieved RevPAR index gains of 320 basis points versus local competitors for first quarter 2022, compared to the same period of 2019, driven by both ADR and occupancy index gains. All of the Choice Hotels' chain scale segments in which the company competes achieved RevPAR index share gains versus local competition for first quarter 2022, compared to the same period of 2019.
  • The company's extended-stay portfolio has consistently exceeded 2019 RevPAR levels since April 2021 and achieved domestic systemwide RevPAR growth of 19.2% in first quarter 2022, compared to the same period of 2019. The WoodSpring Suites brand achieved RevPAR growth of 27.2% in first quarter 2022, compared to the same period of 2019, driven by occupancy levels of 77% and a 24% increase in ADR.
  • The company's overall midscale portfolio has consistently surpassed 2019 RevPAR levels since June 2021 and achieved domestic systemwide RevPAR growth of 7.5% in first quarter 2022 compared to the same period of 2019. In first quarter 2022, the Comfort family brand's domestic systemwide RevPAR growth outperformed the upper-midscale chain scale by 750 basis points, compared to the same period of 2019.
  • The company's upscale portfolio continued to achieve domestic systemwide RevPAR share gains versus its local competitors for first quarter 2022, compared to the same period of 2019, with the Cambria Hotels brand posting gains of 920 basis points for first quarter 2022.

Additional details for the company's first quarter 2022 results are as follows:

Revenues 

  • First quarter 2022 domestic royalties totaled $87 million, a 38% increase from the same period of 2021.
  • Initial franchise and relicensing fees revenues increased 55% to $8.4 million for first quarter 2022, compared to the same period of 2021.
  • Procurement services revenues increased 4% to $11.7 million for first quarter 2022, compared to the same period of 2021.

Development

  • The company awarded 93 domestic franchise agreements in first quarter 2022, a 4% 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 39% in first quarter 2022, compared to the same period of 2021.
  • The number of domestic franchise agreements awarded for new construction hotels more than doubled in first quarter 2022, compared to the same period of 2021.
  • Of the total domestic agreements awarded in first quarter 2022, 88% were for the company's upscale, midscale and extended-stay brands.
  • The company's extended-stay portfolio continued its rapid expansion, reaching 478 domestic hotels as of March 31, 2022, a 5.3% increase since March 31, 2021, with the domestic pipeline reaching 350 hotels awaiting conversion, under construction or approved for development. The number of new domestic franchise agreements awarded for the company's extended-stay portfolio increased more than threefold for first quarter 2022, compared to the same period of 2021.
  • The number of domestic franchise agreements awarded for the company's midscale segment increased 45% for first quarter 2022, compared to the same period of 2021. In first quarter 2022, the Comfort brand family's domestic franchise agreements for conversion hotels increased by 56% compared to the same period of 2021.
  • For first quarter 2022, the Cambria Hotels brand more than tripled the number of domestic franchise agreements awarded, compared to the same period of 2021.
  • The number of domestic hotels and rooms, as of March 31, 2022, decreased 1.2% and 2.8%, respectively, from March 31, 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 fourth quarter 2021, the company's domestic upscale, midscale and extended-stay segments reported a 0.7% increase in units compared to March 31, 2021. For full-year 2022, the number of domestic upscale, midscale and extended-stay units is expected to grow between 1% and 2%, compared to full-year 2021.
  • The company's total domestic pipeline of hotels awaiting conversion, under construction or approved for development, as of March 31, 2022, reached 864 hotels, representing nearly 78,000 rooms, a 3.5% increase in rooms from December 31, 2021. This pipeline does not include applications received or master development agreements which commit to future franchise development.  

Balance Sheet and Liquidity

The company further strengthened its liquidity position in first quarter 2022 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 March 31, 2022, the company's total available liquidity consisting of cash and available borrowing capacity through the revolving credit facility increased 37% to $1.13 billion, compared to March 31, 2021. The company generated cash flow from operations of $63.9 million for first quarter 2022, an increase of $63.8 million from the same period of 2021.

Shareholder Returns

During the three months ended March 31, 2022, the company paid cash dividends totaling $13.2 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 first quarter 2022, the company repurchased $14.8 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 March 31, 2022, the company had 3.3 million shares of common stock remaining under the current share repurchase authorization.

About Choice Hotels

Choice Hotels International, Inc. (NYSE: CHH) is one of the largest lodging franchisors in the world. With nearly 7,000 hotels, representing nearly 600,000 rooms, in 35 countries and territories as of March 31, 2022, the Choice family of hotel brands provides business and leisure travelers with a range of high-quality lodging options from limited service to full-service hotels in the upscale, midscale, extended-stay and economy segments.

1 2019 comparison data is shown for comparable prior year periods for context in light of the pandemic's impact on industry performance in 2021.

Choice Hotels International, Inc. and Subsidiaries

Exhibit 1

Condensed Consolidated Statements of Income

(Unaudited)

(In thousands, except per share amounts)

Three Months Ended March 31,

Variance

2022

2021

$

%

REVENUES

     Royalty fees

$      90,739

$      66,047

$      24,692

37%

     Initial franchise and relicensing fees

8,402

5,427

2,975

55%

     Procurement services

11,683

11,191

492

4%

     Marketing and reservation system

126,637

91,521

35,116

38%

     Owned hotels

12,037

4,354

7,683

176%

     Other

8,229

4,407

3,822

87%

        Total revenues

257,727

182,947

74,780

41%

OPERATING EXPENSES

     Selling, general and administrative

30,324

30,267

57

0%

     Depreciation and amortization

6,231

6,362

(131)

(2)%

     Marketing and reservation system

113,650

98,173

15,477

16%

     Owned hotels

8,154

4,147

4,007

97%

       Total operating expenses

158,359

138,949

19,410

14%

Gain on sale of asset

29

—

29

NM

Operating income

99,397

43,998

55,399

126%

OTHER INCOME AND EXPENSES, NET

     Interest expense

11,470

11,777

(307)

(3)%

     Interest income

(1,280)

(1,281)

1

0%

     Other (gains) losses

1,716

(1,205)

2,921

(242)%

     Equity in net (gain) loss of affiliates

(244)

5,997

(6,241)

(104)%

Total other income and expenses, net

11,662

15,288

(3,626)

(24)%

Income before income taxes

87,735

28,710

59,025

206%

Income tax expense

20,344

6,373

13,971

219%

Net income

$      67,391

$      22,337

$      45,054

202%

Basic earnings per share

$          1.21

$          0.40

$          0.81

203%

Diluted earnings per share

$          1.20

$         0.40

$         0.80

200%

Choice Hotels International, Inc. and Subsidiaries

Exhibit 2

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except per share amounts)

March 31,

December 31,

2022

2021

ASSETS

Cash and cash equivalents

$                        527,209

$                        511,605

Accounts receivable, net

175,051

153,147

Other current assets

85,758

96,909

Total current assets

788,018

761,661

Property and equipment, net

394,950

377,367

Intangible assets, net

311,079

312,389

Goodwill

159,196

159,196

Notes receivable, net of allowances

67,649

66,451

Investments in affiliates

28,126

27,967

Operating lease right-of-use assets

31,869

34,183

Investments, employee benefit plans, at fair value

34,173

33,946

Other assets

156,968

158,664

Total assets

$                     1,972,028

$                     1,931,824

LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable

$                          89,826

$                          81,169

Accrued expenses and other current liabilities

81,265

104,472

Deferred revenue

89,724

81,538

Current portion of long-term debt

216,486

216,351

Liability for guest loyalty program

86,212

86,765

 Total current liabilities

563,513

570,295

Long-term debt

844,426

844,123

Deferred revenue

108,165

105,785

Liability for guest loyalty program

42,350

41,785

Operating lease liabilities

32,549

35,492

Deferred compensation & retirement plan obligations

38,893

38,690

Other liabilities

27,487

29,772

Total liabilities

1,657,383

1,665,942

Total shareholders' equity

314,645

265,882

     Total liabilities and shareholders' equity

$                     1,972,028

$                     1,931,824

Choice Hotels International, Inc. and Subsidiaries

Exhibit 3

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

Three months ended March 31,

2022

2021

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$                        67,391

$                        22,337

Adjustments to reconcile net income to net cash provided by operating activities:

     Depreciation and amortization

6,231

6,362

     Depreciation and amortization – marketing and reservation system

7,154

5,815

     Gain on sale of asset

(29)

—

     Franchise agreement acquisition cost amortization

3,784

3,044

     Stock compensation and other charges

7,555

5,026

     Interest and investment loss (income)

1,909

(2,059)

     Deferred income taxes

(3,119)

(1,378)

     Equity in net loss of affiliates, less distributions received

230

5,997

     Franchise agreement acquisition costs, net of reimbursements

(12,435)

(6,770)

     Change in working capital and other

(14,747)

(38,254)

 NET CASH PROVIDED BY OPERATING ACTIVITIES

63,924

120

CASH FLOWS FROM INVESTING ACTIVITIES:

Investment in property and equipment

(26,809)

(9,364)

Investment in intangible assets

(1,208)

(885)

Contributions to investments in affiliates

(268)

(968)

Purchases of investments, employee benefit plans

(2,818)

(551)

Proceeds from sales of investments, employee benefit plans

1,853

1,992

Issuance of notes receivable

(1,245)

—

Collections of notes receivable

63

63

Proceeds from sale of asset

8,494

—

Other items, net

(529)

—

   NET CASH USED IN INVESTING ACTIVITIES

(22,467)

(9,713)

CASH FLOWS FROM FINANCING ACTIVITIES:

Purchases of treasury stock

(14,802)

(5,046)

Dividends paid

(13,204)

—

Proceeds from exercise of stock options

2,211

2,845

   NET CASH USED IN FINANCING ACTIVITIES

(25,795)

(2,201)

Net change in cash and cash equivalents

15,662

(11,794)

Effect of foreign exchange rate changes on cash and cash equivalents

(58)

(24)

Cash and cash equivalents at beginning of period

511,605

234,779

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$                      527,209

$                      222,961

Exhibit 4

CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

SUPPLEMENTAL OPERATING INFORMATION

DOMESTIC HOTEL SYSTEM

(UNAUDITED)

For the Three Months Ended March 31, 2022

For the Three Months Ended March 31, 2021

Change

Average Daily

Average Daily

Average Daily

Rate

Occupancy

RevPAR

Rate

Occupancy

RevPAR

Rate

Occupancy

RevPAR

Comfort(1)

$        98.88

55.6%

$        55.00

$           80.50

48.9%

$        39.34

22.8%

670

bps

39.8%

Sleep

87.04

54.8%

47.67

72.72

47.6%

34.65

19.7%

720

bps

37.6%

Quality

82.75

47.7%

39.47

69.90

42.2%

29.51

18.4%

550

bps

33.8%

Clarion(2)

85.56

38.3%

32.76

69.39

33.0%

22.91

23.3%

530

bps

43.0%

Econo Lodge

65.17

44.8%

29.17

58.26

41.4%

24.09

11.9%

340

bps

21.1%

Rodeway

67.66

47.1%

31.88

58.85

43.7%

25.69

15.0%

340

bps

24.1%

WoodSpring Suites

56.23

77.0%

43.29

47.31

74.3%

35.13

18.9%

270

bps

23.2%

MainStay

80.50

57.7%

46.46

70.48

51.4%

36.21

14.2%

630

bps

28.3%

Suburban

60.99

67.7%

41.32

50.34

65.4%

32.94

21.2%

230

bps

25.4%

Cambria Hotels

142.76

55.2%

78.77

100.76

42.4%

42.73

41.7%

1,280

bps

84.3%

Ascend Hotel Collection

131.71

49.1%

64.66

110.30

42.5%

46.88

19.4%

660

bps

37.9%

Total

$        84.31

52.8%

$        44.50

$           69.54

47.1%

$        32.74

21.2%

570

bps

35.9%

Effective Royalty Rate

For the Quarter Ended

March 31,

2022

March 31,

2021

System-wide(3)

5.05%

5.02%

(1) Includes Comfort family of brand extensions including Comfort and Comfort Suites

(2) Includes Clarion family of brand extensions including Clarion and Clarion Pointe

(3) Includes United States and Caribbean countries and territories

Exhibit 5

CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

SUPPLEMENTAL OPERATING INFORMATION

DOMESTIC HOTEL SYSTEM

(UNAUDITED)

For the Three Months Ended March 31, 2022

For the Three Months Ended March 31, 2019

Change

Average Daily

Average Daily

Average Daily

Rate

Occupancy

RevPAR

Rate

Occupancy

RevPAR

Rate

Occupancy

RevPAR

Comfort(1)

$        98.88

55.6%

$        55.00

$           90.78

55.9%

$        50.77

8.9%

(30)

bps

8.3%

Sleep

87.04

54.8%

47.67

82.35

55.7%

45.89

5.7%

(90)

bps

3.9%

Quality

82.75

47.7%

39.47

75.87

48.0%

36.41

9.1%

(30)

bps

8.4%

Clarion(2)

85.56

38.3%

32.76

78.39

43.2%

33.83

9.1%

(490)

bps

(3.2)%

Econo Lodge

65.17

44.8%

29.17

59.50

42.2%

25.10

9.5%

260

bps

16.2%

Rodeway

67.66

47.1%

31.88

60.70

44.4%

26.98

11.5%

270

bps

18.2%

WoodSpring Suites

56.23

77.0%

43.29

45.36

75.0%

34.04

24.0%

200

bps

27.2%

MainStay

80.50

57.7%

46.46

82.51

58.7%

48.46

(2.4)%

(100)

bps

(4.1)%

Suburban

60.99

67.7%

41.32

58.67

69.6%

40.86

4.0%

(190)

bps

1.1%

Cambria Hotels

142.76

55.2%

78.77

134.26

61.3%

82.26

6.3%

(610)

bps

(4.2)%

Ascend Hotel Collection

131.71

49.1%

64.66

115.97

56.4%

65.40

13.6%

(730)

bps

(1.1)%

Total

$        84.31

52.8%

$        44.50

$           77.17

52.2%

$        40.29

9.3%

60

bps

10.4%

Effective Royalty Rate

For the Quarter Ended

March 31,

2022

March 31,

2019

System-wide(3)

5.05%

4.84%

(1) Includes Comfort family of brand extensions including Comfort and Comfort Suites

(2) Includes Clarion family of brand extensions including Clarion and Clarion Pointe

(3) Includes United States and Caribbean countries and territories

Exhibit 6

CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

SUPPLEMENTAL HOTEL AND ROOM SUPPLY DATA

(UNAUDITED)

March 31, 2022

March 31, 2021

Variance

Hotels

Rooms

Hotels

Rooms

Hotels

Rooms

%

%

Comfort(1)

1,662

130,983

1,648

129,785

14

1,198

0.8%

0.9%

Sleep

416

29,332

409

28,831

7

501

1.7%

1.7%

Quality

1,641

122,576

1,691

128,093

(50)

(5,517)

(3.0)%

(4.3)%

Clarion(2)

188

21,464

183

21,951

5

(487)

2.7%

(2.2)%

Econo Lodge

726

43,534

762

46,258

(36)

(2,724)

(4.7)%

(5.9)%

Rodeway

521

30,062

544

31,212

(23)

(1,150)

(4.2)%

(3.7)%

WoodSpring Suites

306

36,854

296

35,631

10

1,223

3.4%

3.4%

MainStay

102

7,072

92

6,504

10

568

10.9%

8.7%

Suburban

70

6,246

66

6,365

4

(119)

6.1%

(1.9)%

Cambria Hotels

58

7,996

57

8,058

1

(62)

1.8%

(0.8)%

Ascend Hotel Collection

204

21,427

219

27,864

(15)

(6,437)

(6.8)%

(23.1)%

Domestic Franchises(3)

5,894

457,546

5,967

470,552

(73)

(13,006)

(1.2)%

(2.8)%

International Franchises

1,102

120,168

1,171

133,215

(69)

(13,047)

(5.9)%

(9.8)%

Total Franchises

6,996

577,714

7,138

603,767

(142)

(26,053)

(2.0)%

(4.3)%

(1) Includes Comfort family of brand extensions including Comfort and Comfort Suites

(2) Includes Clarion family of brand extensions including Clarion and Clarion Pointe

(3) Includes United States and Caribbean countries and territories

Exhibit 7

CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION

(UNAUDITED)

REVENUES EXCLUDING MARKETING AND RESERVATION ACTIVITIES

(dollar amounts in thousands)

Three Months Ended March 31,

2022

2021

Total Revenues

$         257,727

$         182,947

Adjustments:

     Marketing and reservation system revenues

(126,637)

(91,521)

Revenues excluding marketing and reservation system activities

$         131,090

$           91,426

ADJUSTED SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

(dollar amounts in thousands)

Three Months Ended March 31,

2022

2021

Total Selling, General and Administrative Expenses

$           30,324

$           30,267

Mark to market adjustments on non-qualified retirement plan investments

1,725

(1,425)

Operational restructuring charges

—

(447)

Share-based compensation

(3,594)

(2,351)

Exceptional allowances attributable to COVID-19

—

(133)

Adjusted Selling, General and Administrative Expenses

$           28,455

$           25,911

ADJUSTED EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION ("EBITDA") AND ADJUSTED EBITDA MARGINS

(dollar amounts in thousands)

Three Months Ended March 31,

2022

2021

Net income

$          67,391

$          22,337

Income tax expense

20,344

6,373

Interest expense

11,470

11,777

Interest income

(1,280)

(1,281)

Other (gains) losses

1,716

(1,205)

Equity in operating net (gain) loss of affiliates, net of impairments

(244)

1,192

Loss on impairment of affiliate

—

4,805

Gain on sale of asset

(29)

—

Depreciation and amortization

6,231

6,362

Mark to market adjustments on non-qualified retirement plan investments

(1,725)

1,425

Operational restructuring charges

—

447

Share-based compensation

3,594

2,351

Exceptional allowances attributable to COVID-19

—

133

Marketing and reservation system reimbursable (surplus) deficit

(12,987)

6,652

Franchise agreement acquisition costs amortization

2,162

1,726

Adjusted EBITDA

$           96,643

$           63,094

Revenues excluding marketing and reservation system activities

$         131,090

$           91,426

Adjusted EBITDA margins

73.7%

69.0%

ADJUSTED NET INCOME AND ADJUSTED DILUTED EARNINGS PER SHARE (EPS)

(dollar amounts in thousands, except per share amounts)

Three Months Ended March 31,

2022

2021

Net income

$          67,391

$          22,337

Adjustments:

Loss on impairment of affiliate

—

3,719

Gain on sale of asset

(22)

—

Operational restructuring costs

—

336

Exceptional allowances attributable to COVID-19

—

103

Marketing and reservation system reimbursable (surplus) deficit

(9,701)

5,149

Adjusted Net Income

$          57,668

$          31,644

Diluted Earnings Per Share

$              1.20

$              0.40

Adjustments:

Loss on impairment of affiliate

—

0.07

Gain on sale of asset

—

—

Operational restructuring costs

—

0.01

Exceptional allowances attributable to COVID-19

—

—

Marketing and reservation system reimbursable (surplus) deficit

(0.17)

0.09

Adjusted Diluted Earnings Per Share (EPS)

$              1.03

$              0.57

SOURCE Choice Hotels International, Inc.