ROCKVILLE, Md. – May 13, 2021 – Choice Hotels International, Inc., one of the world’s largest lodging franchisors, today reported its results for the three months ended March 31, 2021.
“The strategic decisions we have made in recent years and our targeted actions amid the pandemic to support our franchisees drove impressive first quarter results that position the company to further capitalize on growth opportunities in 2021 and beyond,” said Patrick Pacious, president and chief executive officer, Choice Hotels. “Our results are a testament to the success of our long-term growth strategy to invest in brands built for the customer of tomorrow. We believe our high-quality, well-segmented brand portfolio, compelling franchisee value proposition and the continued expansion of our travel platform, combined with our strong balance sheet, will allow us to continue to grow our share of travel demand in the years to come.”
Highlights of first quarter and year-to-date 2021 results include:1
- Domestic systemwide revenue per available room (RevPAR) change outperformed the total industry by 23 percentage points, declining 18.7% and 4.4% for first quarter 2021 compared to the same periods of 2019 and 2020, respectively.
- The company’s performance has continued the trend of sequential domestic systemwide RevPAR change improvement, with April 2021 RevPAR declining approximately 4.2% versus April 2019 and increasing 140% from April 2020.
- The company’s Board of Directors reinstated the dividend at the pre-pandemic rate and declared a cash dividend on the company’s common stock of $0.225 per share. The dividend is payable on July 16, 2021 to stockholders of record on July 1, 2021. The Board has also approved the resumption of the company’s share repurchase program.
- The company awarded 89 domestic franchise agreements in first quarter 2021, a 53% increase compared to the same period of the prior year. Over 80% of the agreements awarded in the first quarter were for conversion hotels.
- Net income was $22.3 million for first quarter 2021, representing diluted earnings per share (EPS) of $0.40.
- First quarter adjusted net income, excluding certain items described in Exhibit 7, decreased 26% to $31.6 million from first quarter 2020.
- Adjusted diluted EPS were $0.57, a decrease of 25% from first quarter 2020.
- Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the first quarter were $63.1 million, an 11% decrease from first quarter 2020. First quarter adjusted EBITDA margin increased 330 basis points to 69% from first quarter 2020.
1 RevPAR comparison data is shown for comparable prior year periods that include 2019 and 2020 for additional context in light of the onset of the COVID-19 pandemic toward the end of the first quarter of 2020.
Performance Trends
- Domestic systemwide RevPAR for first quarter 2021 outperformed the respective chain scales in which the company competes by 750 basis points compared to the same period of 2019.
- All Choice Hotels’ brands achieved domestic systemwide RevPAR index gains versus their local competitors with portfolio average share gains of 640 basis points for first quarter 2021, compared to the same period of 2019.
- The company’s extended-stay portfolio continued to outperform the industry throughout the first quarter, with an average domestic systemwide occupancy rate of 70%. Specifically, the WoodSpring Suites brand achieved RevPAR growth of 3.2% in first quarter 2021, compared to the same period of 2019, driven by an increase in average daily rate (ADR) of 4.3% and occupancy levels of over 74%.
- The company’s upscale portfolio continued to achieve domestic systemwide RevPAR share gains versus its local competitors for first quarter 2021, compared to first quarter 2019, with the Cambria Hotels brand achieving gains of 16 percentage points. In addition, the Ascend Hotel Collection’s domestic systemwide RevPAR change surpassed the upscale segment by nearly 20 percentage points in first quarter 2021, compared to the same period of 2019.
- The company’s midscale portfolio continued to achieve RevPAR share gains versus its local competitors for first quarter 2021, compared to the same period of 2019. Specifically, the Comfort brand family’s domestic systemwide RevPAR change outperformed the upper-midscale chain scale by nearly 11 percentage points, and the brand gained nearly 10 percentage points in RevPAR share from its local competitors in first quarter 2021, compared to the same period in 2019.
Additional details for the company’s first quarter 2021 results are as follows:
Revenues
- Total revenues decreased 16% to $182.9 million for first quarter 2021, compared to the same period of 2020.
- Total revenues excluding marketing and reservation system fees decreased 15% to $91.4 million for first quarter 2021, compared to the same period of 2020.
- First quarter 2021 domestic royalties totaled $63.0 million, a 5% decrease from the same period of 2020.
- The company’s domestic effective royalty rate for first quarter 2021 increased 7 basis points over the prior year first quarter to 5.02%.
Development
- Of the total domestic franchise agreements awarded in the first quarter, over half were executed in the month of March. The company’s domestic franchise agreements for conversion hotels increased by 76% in the first quarter, compared to the same period of 2020, and include 22 franchise agreements associated with the company’s strategic alliance with Penn National Gaming.
- As of March 31, 2021, the number of domestic rooms in the company’s upscale portfolio expanded by 22% since March 31, 2020, driven by an increase in room count of 12% for the Cambria Hotels brand and 26% for the Ascend Hotel Collection, the latter of which includes 22 properties associated with the company’s strategic alliance with Penn National Gaming. For the first three months in 2021, the upscale portfolio experienced the highest number of hotel openings in a quarter, matching the company’s all-time record.
- The company’s extended-stay portfolio continued its rapid expansion, reaching 454 domestic hotels as of March 31, 2021, an 11% increase since March 31, 2020, with the domestic extended-stay pipeline expanding year-over-year to 310 hotels awaiting conversion, under construction or approved for development. Since March 31, 2020, the WoodSpring Suites, MainStay Suites and Suburban brands grew the number of open domestic hotels by 7%, 26% and 10%, respectively.
- The company continued its leadership in the midscale segment by increasing the number of domestic hotels by 1.2% from March 31, 2020. Specifically, the Comfort brand family continued to grow its number of domestic hotels by 1.7% since March 31, 2020, and reached over 260 hotels in its domestic pipeline, including over 70 hotels awaiting conversion, which will drive the brand’s growth in the near term. In March, the company launched the new Comfort Rise & Shine™ prototype to position the brand for continued strong performance and system growth while maximizing owners’ return on investment.
- The number of domestic hotels and rooms, as of March 31, 2021, increased 0.7% and 1.9%, respectively, from March 31, 2020. The company’s domestic upscale, midscale and extended stay segments reported a 2.4% and 3.3% aggregate increase in units and rooms, respectively, since March 31, 2020.
- The company’s total domestic pipeline of hotels awaiting conversion, under construction or approved for development, as of March 31, 2021, reached 943 hotels that represent over 77,000 rooms.
Balance Sheet and Liquidity
The company maintained its strong balance sheet and liquidity position in first 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 March 31, 2021, the company’s total available liquidity consisting of cash and available borrowing capacity through the revolving credit facility was approximately $823 million.
Shareholder Returns
On May 7, 2021, the company’s Board of Directors approved the reinstatement of its quarterly cash dividend payments at the pre-pandemic level, declaring a cash dividend of $0.225 per share of common stock payable on July 16, 2021, to stockholders of record on July 1, 2021. Based on the current quarterly dividend rate of $0.225 per share of common stock, the company expects to pay dividends totaling approximately $25 million during 2021, subject to declaration by the Board of Directors.
The company’s Board of Directors has also approved the resumption of the company’s stock repurchase program. As of March 31, 2021, the company had 3.4 million shares remaining under the current share repurchase authorization. During the three months ended March 31, 2021, the company repurchased less than 0.1 million shares of common stock for $5.1 million through repurchases from employees in connection with tax withholding and option exercises relating to awards under the company’s equity incentive plans.
Outlook
The company is not providing formal guidance for second 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 April 2021, the company’s RevPAR declined by approximately 4.2% versus April 2019 while occupancy levels increased by 80 basis points from April 2019, marking near returns to 2019 RevPAR levels. The company currently expects RevPAR change for the remainder of 2021, as compared to both 2019 and 2020, to outperform first quarter 2021 results as compared to both 2019 and 2020.
The company will continue to evaluate the impact of COVID-19 across its business and will provide further updates in the next earnings report based on the best information then available.
Conference Call
Choice Hotels International will conduct a conference call on Monday, May 10, 2021, at 10:30 a.m. Eastern Time to discuss the company’s first quarter earnings results. The dial-in number to listen to the call domestically is (888) 349-0087 and the number for international participants is (412) 317-5259. A live webcast will also be available on the company’s investor relations website, http://investor.choicehotels.com/, and can be accessed via the Financial Performance and Presentations tab.
