Choice Hotels International Reports 2021 First Quarter Results

Choice Hotels International, Inc. (NYSE: CHH) 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.

Choice Hotels International, Inc. and Subsidiaries

Exhibit 1

Condensed Consolidated Statements of Income

(Unaudited)

Three Months Ended March 31,

Variance

2021

2020

$

%

(In thousands, except per share amounts)

REVENUES

Royalty fees

$              66,047

$              70,339

$               (4,292)

(6)%

Initial franchise and relicensing fees

5,427

7,284

(1,857)

(25)%

Procurement services

11,191

13,797

(2,606)

(19)%

Marketing and reservation system

91,521

110,385

(18,864)

(17)%

Owned hotels

4,354

9,422

(5,068)

(54)%

Other

4,407

6,948

(2,541)

(37)%

Total revenues

182,947

218,175

(35,228)

(16)%

OPERATING EXPENSES

Selling, general and administrative

30,267

28,383

1,884

7 %

Depreciation and amortization

6,362

6,529

(167)

(3)%

Marketing and reservation system

98,173

130,447

(32,274)

(25)%

Owned hotels

4,147

6,034

(1,887)

(31)%

Total operating expenses

138,949

171,393

(32,444)

(19)%

Operating income

43,998

46,782

(2,784)

(6)%

OTHER INCOME AND EXPENSES, NET

Interest expense

11,777

11,380

397

3 %

Interest income

(1,281)

(2,288)

1,007

(44)%

Loss on extinguishment of debt

607

(607)

(100)%

Other (gain) loss

(1,205)

4,729

(5,934)

(125)%

Equity in net loss of affiliates

5,997

1,955

4,042

207 %

         Total other income and expenses, net

15,288

16,383

(1,095)

(7)%

Income before income taxes

28,710

30,399

(1,689)

(6)%

Income tax expense (benefit)

6,373

(25,064)

31,437

(125)%

Net income

$              22,337

$              55,463

$             (33,126)

(60)%

Basic earnings per share

$                  0.40

$                   1.00

$                 (0.60)

(60)%

Diluted earnings per share 

$                  0.40

$                  0.99

$                 (0.59)

(60)%

 

Choice Hotels International, Inc. and Subsidiaries

Exhibit 2

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except per share amounts)

March 31,

December 31,

2021

2020

ASSETS

Cash and cash equivalents

$               222,961

$               234,779

Accounts receivable, net

156,754

149,921

Other current assets

65,429

48,214

 

Total current assets

445,144

432,914

Property and equipment, net

336,508

334,901

Intangible assets, net

306,868

303,725

Goodwill

159,196

159,196

Notes receivable, net of allowances

82,651

95,785

Investments in unconsolidated entities

53,003

57,879

Operating lease right-of-use assets

15,312

17,688

Investments, employee benefit plans, at fair value

28,558

29,104

Other assets

156,898

156,141

 

                                        Total assets

$            1,584,138

$            1,587,333

LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)

Accounts payable

$                 70,980

$                 83,329

Accrued expenses and other current liabilities

65,687

78,920

Deferred revenue

52,701

50,290

Liability for guest loyalty program

54,432

43,308

Total current liabilities

243,800

255,847

Long-term debt

1,059,169

1,058,738

Deferred revenue

114,279

122,406

Liability for guest loyalty program

71,428

77,071

Operating lease liabilities

10,212

12,739

Deferred compensation & retirement plan obligations

33,114

33,756

Other liabilities

32,901

32,528

Total liabilities

1,564,903

1,593,085

Total shareholders’ equity (deficit)

19,235

(5,752)

                                        Total liabilities and shareholders’ equity (deficit)  

$            1,584,138

$            1,587,333

 

Choice Hotels International, Inc. and Subsidiaries

Exhibit 3

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

Three Months Ended March 31,

2021

2020

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$                       22,337

$                       55,463

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

Depreciation and amortization

6,362

6,529

Depreciation and amortization – marketing and reservation system

5,815

4,873

Franchise agreement acquisition cost amortization

3,044

2,819

Loss on debt extinguishment

607

Non-cash stock compensation and other charges

5,026

(2,575)

Non-cash interest and other investment (income) loss

(2,059)

4,339

Deferred income taxes

(1,378)

(26,677)

Equity in net losses from unconsolidated joint ventures, less distributions received

5,997

2,105

Franchise agreement acquisition costs, net of reimbursements

(6,770)

(7,122)

Change in working capital and other

(38,254)

(34,597)

 NET CASH PROVIDED BY OPERATING ACTIVITIES 

120

5,764

CASH FLOWS FROM INVESTING ACTIVITIES:

Investment in property and equipment

(9,364)

(6,229)

Investment in intangible assets

(885)

(1,004)

Contributions to equity method investments

(968)

(2,201)

Distributions from equity method investments

157

Purchases of investments, employee benefit plans

(551)

(1,544)

Proceeds from sales of investments, employee benefit plans

1,992

1,697

Issuance of notes receivable

(5,778)

Collections of notes receivable

63

63

Other items, net

14

 NET CASH USED IN INVESTING ACTIVITIES 

(9,713)

(14,825)

CASH FLOWS FROM FINANCING ACTIVITIES:

Net borrowings pursuant to revolving credit facilities

396,800

Principal payments on long-term debt

(33,239)

Purchases of treasury stock

(5,046)

(54,072)

Dividends paid

(12,791)

Proceeds from exercise of stock options

2,845

1,235

 NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES

(2,201)

297,933

Net change in cash and cash equivalents

(11,794)

288,872

Effect of foreign exchange rate changes on cash and cash equivalents

(24)

(684)

Cash and cash equivalents at beginning of period

234,779

33,766

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$                     222,961

$                     321,954

 

CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

Exhibit 4

SUPPLEMENTAL OPERATING INFORMATION 

DOMESTIC HOTEL SYSTEM

(UNAUDITED)

For the Three Months Ended March 31, 2021

For the Three Months Ended March 31, 2020

Change

Average Daily

Average Daily

Average Daily

Rate

Occupancy

RevPAR

Rate

Occupancy

RevPAR

Rate

Occupancy

RevPAR

Comfort(1)

$               80.51

48.9 %

$          39.34

$               87.57

48.3 %

$          42.33

(8.1)%

60

bps

(7.1)%

Sleep

72.72

47.6 %

34.65

78.82

48.9 %

38.54

(7.7)%

(130)

bps

(10.1)%

Quality

69.89

42.2 %

29.52

72.79

41.7 %

30.36

(4.0)%

50

bps

(2.8)%

Clarion(2)

69.39

33.0 %

22.91

74.59

36.7 %

27.34

(7.0)%

(370)

bps

(16.2)%

Econo Lodge

58.26

41.4 %

24.10

57.25

38.3 %

21.93

1.8 %

310

bps

9.9 %

Rodeway

58.84

43.7 %

25.70

59.61

40.9 %

24.36

(1.3)%

280

bps

5.5 %

WoodSpring Suites

47.31

74.3 %

35.13

47.02

70.3 %

33.05

0.6 %

400

bps

6.3 %

MainStay

70.48

51.4 %

36.21

78.35

53.9 %

42.25

(10.0)%

(250)

bps

(14.3)%

Suburban

49.57

65.7 %

32.55

54.19

61.8 %

33.51

(8.5)%

390

bps

(2.9)%

Cambria Hotels

100.76

42.4 %

42.73

131.95

48.2 %

63.55

(23.6)%

(580)

bps

(32.8)%

Ascend Hotel Collection

110.30

42.5 %

46.88

119.06

46.2 %

54.97

(7.4)%

(370)

bps

(14.7)%

Total

$               69.49

47.1 %

$          32.73

$               74.22

46.1 %

$          34.23

(6.4)%

100

bps

(4.4)%

Effective Royalty Rate

For the Quarter Ended

March 31, 2021

March 31, 2020

System-wide(3)

5.02 %

4.95 %

(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

 

CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

Exhibit 5

SUPPLEMENTAL OPERATING INFORMATION 

DOMESTIC HOTEL SYSTEM

(UNAUDITED)

For the Three Months Ended March 31, 2021

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)

$            80.51

48.9 %

$          39.34

$               90.78

55.9 %

$          50.77

(11.3)%

(700)

bps

(22.5)%

Sleep

72.72

47.6 %

34.65

82.35

55.7 %

45.89

(11.7)%

(810)

bps

(24.5)%

Quality

69.89

42.2 %

29.52

75.87

48.0 %

36.40

(7.9)%

(580)

bps

(18.9)%

Clarion(2)

69.39

33.0 %

22.91

78.39

43.2 %

33.83

(11.5)%

(1,020)

bps

(32.3)%

Econo Lodge

58.26

41.4 %

24.10

59.50

42.2 %

25.10

(2.1)%

(80)

bps

(4.0)%

Rodeway

58.84

43.7 %

25.70

60.70

44.4 %

26.98

(3.1)%

(70)

bps

(4.7)%

WoodSpring Suites

47.31

74.3 %

35.13

45.36

75.0 %

34.04

4.3 %

(70)

bps

3.2 %

MainStay

70.48

51.4 %

36.21

82.51

58.7 %

48.46

(14.6)%

(730)

bps

(25.3)%

Suburban

49.57

65.7 %

32.55

58.36

67.7 %

39.49

(15.1)%

(200)

bps

(17.6)%

Cambria Hotels

100.76

42.4 %

42.73

134.26

61.3 %

82.26

(25.0)%

(1,890)

bps

(48.1)%

Ascend Hotel Collection

110.30

42.5 %

46.88

115.97

56.4 %

65.40

(4.9)%

(1,390)

bps

(28.3)%

Total

$            69.49

47.1 %

$          32.73

$               77.15

52.2 %

$          40.27

(9.9)%

(510)

bps

(18.7)%

Effective Royalty Rate

For the Quarter Ended

March 31, 2021

March 31, 2019

System-wide(3)

5.02 %

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

 

CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

Exhibit 6

SUPPLEMENTAL HOTEL AND ROOM SUPPLY DATA

(UNAUDITED)

March 31, 2021

March 31, 2020

Variance

Hotels

Rooms

Hotels

Rooms

Hotels

Rooms

%

%

Comfort(1)

1,648

129,785

1,621

127,563

27

2,222

1.7 %

1.7 %

Sleep

409

28,831

399

28,188

10

643

2.5 %

2.3 %

Quality

1,691

128,093

1,688

128,951

3

(858)

0.2 %

(0.7)%

Clarion(2)

183

21,951

178

22,548

5

(597)

2.8 %

(2.6)%

Econo Lodge

762

46,258

794

47,774

(32)

(1,516)

(4.0)%

(3.2)%

Rodeway

544

31,212

581

33,404

(37)

(2,192)

(6.4)%

(6.6)%

WoodSpring Suites

296

35,631

277

33,303

19

2,328

6.9 %

7.0 %

MainStay

92

6,504

73

4,636

19

1,868

26.0 %

40.3 %

Suburban

66

6,365

60

6,082

6

283

10.0 %

4.7 %

Cambria Hotels

57

8,058

50

7,222

7

836

14.0 %

11.6 %

Ascend Hotel Collection

219

27,864

205

22,202

14

5,662

6.8 %

25.5 %

Domestic Franchises(3)

5,967

470,552

5,926

461,873

41

8,679

0.7 %

1.9 %

International Franchises

1,171

133,215

1,219

136,350

(48)

(3,135)

(3.9)%

(2.3)%

Total Franchises

7,138

603,767

7,145

598,223

(7)

5,544

(0.1)%

0.9 %

(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

 

CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

Exhibit 7

SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION

(UNAUDITED)

REVENUES, EXCLUDING MARKETING AND RESERVATION ACTIVITIES

(dollar amounts in thousands)

Three Months Ended March 31, 

2021

2020

Revenues, Excluding Marketing and Reservation Activities

Total Revenues

$              182,947

$               218,175

Adjustments:

     Marketing and reservation system revenues

(91,521)

(110,385)

Revenues, excluding marketing and reservation activities

$                91,426

$               107,790

ADJUSTED SELLING, GENERAL AND ADMINISTRATION EXPENSES

(dollar amounts in thousands)

Three Months Ended March 31, 

2021

2020

Total Selling, General and Administrative Expenses

$                30,267

$                 28,383

Mark to market adjustments on non-qualified retirement plan investments

(1,425)

4,334

Operational restructuring charges

(447)

(1,364)

Share-based compensation

(2,351)

1,157

Exceptional allowances attributable to COVID-19

(133)

Adjusted Selling, General and Administrative Expenses

$                25,911

$                 32,510

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

(dollar amounts in thousands)

Three Months Ended March 31, 

2021

2020

Net income 

$                22,337

$                 55,463

Income tax expense (benefit)

6,373

(25,064)

Interest expense

11,777

11,380

Interest income

(1,281)

(2,288)

Other (gain) loss

(1,205)

4,729

Loss on extinguishment of debt

607

Equity in operating net loss of affiliates, net of impairments

1,192

1,955

Loss on impairment of unconsolidated joint venture

4,805

Depreciation and amortization

6,362

6,529

Mark to market adjustments on non-qualified retirement plan investments

1,425

(4,334)

Operational restructuring charges

447

1,364

Share-based compensation

2,351

(1,157)

Exceptional allowances attributable to COVID-19

133

Marketing and reservation system reimbursable deficit

6,652

20,062

Franchise agreement acquisition costs amortization

1,726

1,598

Adjusted EBITDA

$                63,094

$                 70,844

Revenues, excluding marketing and reservation activities

$                91,426

$               107,790

Adjusted EBITDA margins

69.0 %

65.7 %

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

(dollar amounts in thousands, except per share amounts)

Three Months Ended March 31, 

2021

2020

Net income 

$                22,337

$                 55,463

Adjustments:

Loss on the extinguishment of debt

493

Loss on impairment of unconsolidated joint venture

3,719

Operational restructuring charges

336

1,070

Exceptional allowances attributable to COVID-19

103

Marketing and reservation system reimbursable deficit

5,149

16,328

Foreign tax benefit on international restructuring

(30,572)

Adjusted Net Income

$                31,644

$                 42,782

Diluted Earnings Per Share

$                   0.40

$                     0.99

Adjustments:

Loss on extinguishment of debt

0.01

Loss on impairment of unconsolidated joint venture

0.07

Operational restructuring costs

0.01

0.02

Exceptional allowances attributable to COVID-19

Marketing and reservation system reimbursable deficit

0.09

0.29

Foreign tax benefit on international restructuring

(0.55)

Adjusted Diluted Earnings Per Share (EPS)

$                   0.57

$                     0.76

 

SOURCE Choice Hotels International, Inc.