ROCKVILLE, Md. — Choice Hotels International, Inc., reported its Q1 2022 results 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 2019):
- Domestic systemwide revenue per available room (RevPAR) growth increased by 10.4 percent for Q1 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 percent 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 percent, compared to April of 2019. RevPAR for full-year 2022 is expected to increase between 10 percent and 13 percent, compared to full-year 2019.
- Applications received for new domestic franchise agreements increased by 46 percent in Q1 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 percent and is expected to increase by approximately 5 basis points for full-year 2022, compared to full-year 2021.
- Total revenues increased 41 percent 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 percent 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 percent increase over first quarter 2021.
- First quarter adjusted net income, excluding certain items described in Exhibit 7, increased 82 percent to $57.7 million from first quarter 2021, representing adjusted diluted EPS of $1.03, an 81 percent increase from first quarter 2021.
- Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for first quarter 2022 was $96.6 million, a 53 percent increase from the same period of 2021.
- Adjusted EBITDA margin for first quarter 2022 reached 74 percent, a 470-basis-point increase from the same period of 2021.
- During Q1 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 Q1 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 Q1 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 percent in Q1 2022, compared to the same period of 2019. The WoodSpring Suites brand achieved RevPAR growth of 27.2 percent in Q1 2022, compared to the same period of 2019, driven by occupancy levels of 77 percent and a 24 percent 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 percent in Q1 2022 compared to the same period of 2019. In Q1 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 percent increase from the same period of 2021.
Initial franchise and relicensing fees revenues increased 55 percent to $8.4 million for first quarter 2022, compared to the same period of 2021.
Procurement services revenues increased 4 percent 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 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 39 percent 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 percent 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 percent 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 percent for Q1 2022, compared to the same period of 2021. In Q1 2022, the Comfort brand family’s domestic franchise agreements for conversion hotels increased by 56 percent compared to the same period of 2021.
For Q1 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 percent and 2.8 percent, 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 percent 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 percent and 2 percent, 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 percent 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 percent 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 Q1 F2022, 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.
Read the full Q1 2022 results here.
