“Our third-quarter results and the acquisition of the Radisson Hotels Americas business are a significant leap forward in the evolution of both Choice Hotels’ competitive position and future growth potential,” said Patrick Pacious, president/CEO, of Choice Hotels. “For 11 consecutive quarters, our RevPAR growth has outperformed the hotel industry, confirming that our strategy of focusing our investments and growth on RevPAR accretive hotel segments and locations is working. Our future growth is now enhanced by the addition of the Radisson Hotels Americas’ brands to our best-in-class business delivery engine. Radisson Hotels Americas is expected to provide the company with significant incremental recurring adjusted EBITDA upon its full integration in early 2024. We exceeded our 2019 earnings last year, have built on that strength through the third quarter this year and are confident that the changes we are observing in leisure and business travel behavior that favor our brands will enable us to maximize growth opportunities well into the future.”
Third-quarter highlights
- Domestic RevPAR growth has surpassed 2019 levels for 16 consecutive months through Sept. 30, a trend that has continued in the fourth quarter with October RevPAR increasing approximately 20%, compared to October of 2019.
- The company closed the acquisition of Radisson Hospitality Inc. (Radisson Hotels Americas) on Aug. 11, for a purchase price of $674 million. As of Sept. 30, the number of global rooms in the company’s targeted upper-midscale and upscale segments open and in the development pipeline increased by more than 73,000 as a result of the acquisition. At quarter-end, the company had more than 730,000 global rooms open or in the development pipeline, including the incremental Radisson Hotels Americas rooms.
- During the quarter, the company resumed share repurchases under its share repurchase program and returned more than $230 million in shares, representing nearly 4% of shares outstanding as of Sept. 30. This increased year-to-date returns to shareholders to more than $286 million in the form of cash dividends and share repurchases as of Sept. 30. The company’s board of directors approved an increase in the company’s share repurchase authorization by 5 million shares in the third quarter.
- The number of domestic franchise agreements awarded in the quarter increased by 38%, compared to the same period of the prior year.
- The company’s total domestic pipeline as of Sept. 30 increased 16% to 1,017 hotels, representing more than 98,000 rooms from the same time last year.
- The company’s domestic effective royalty rate was 5.04% for the three months ended Sept. 30 and 5.05% for the nine months ended September 30, 2022, an increase of 5 basis points, compared to the respective 2021 periods.
- The company sold the Cambria Hotel Nashville in July for approximately $110 million and secured a 30-year franchise agreement with the buyer to continue to operate the hotel as a Cambria Hotel. The sale of this hotel increased the recycling of prior investments in Cambria Hotels development projects for the nine months ended Sept. 30 to more than $140 million.
RevPAR performance trends
Q3 RevPAR increased 15.2%, compared to the same period of 2019, driven primarily by an increase in ADR of 15.1%, compared to Q3 2019.
The company’s extended-stay portfolio has consistently exceeded 2019 RevPAR levels since April 2021 and achieved domestic RevPAR growth of 21.8% in the quarter, compared to the same period of 2019. The WoodSpring Suites brand achieved Q3 RevPAR growth of 27.5%, compared to the same period of 2019, driven by occupancy levels of 81% and a 22% increase in ADR.
The company’s overall midscale portfolio has consistently surpassed 2019 RevPAR levels since June 2021 and achieved domestic RevPAR growth of 11.3% in Q3, compared to the same period of 2019. The Comfort brand continued to achieve RevPAR share gains versus local competitors, and the brand’s domestic RevPAR growth continued to outperform the upper-midscale chain scale, compared to the same period of 2019.
The company’s upscale portfolio achieved domestic RevPAR growth of 18.3% for Q3, compared to the same period of 2019, and outperformed the upscale chain scale by over 13 percentage points.
Financial performance
Total revenues increased 28% to $414.3 million for the third quarter, compared to the same period of 2021, and included $40.2 million revenue contribution from Radisson Hotels Americas. Total revenues, excluding reimbursable revenue from franchised and managed properties and an extraordinary one-time termination fee, increased 21% to $201 million, compared to the same period of 2021, and included $24.8 million revenue contribution from Radisson Hotels Americas.
Net income was $103.1 million, representing diluted earnings per share (EPS) of $1.85.
Q3 adjusted net income, excluding certain items, increased to $87.5 million from Q3 2021, representing adjusted diluted EPS of $1.56.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the quarter increased to $139.4 million from the same period of 2021 and included $6.8 million of adjusted EBITDA contribution from Radisson Hotels Americas.
The company received a $67.4 million cash payment related to the previously disclosed one-time exit of 110 WoodSpring Suites hotels in the quarter, resulting in an increase in total revenue of $22.6 million, which has been excluded from both total revenues, excluding reimbursable revenue from franchised and managed properties and an extraordinary one-time termination fee and adjusted EBITDA results.
Q3 domestic royalties totaled $131.7 million, a 7% increase from the same period of 2021.
Procurement services revenues increased 11% to $14.4 million for the quarter, compared to the same period of 2021.
Development
Year-to-date through Sept. 30, the number of domestic franchise agreements awarded increased 17%, 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 27% in the first nine months of 2022, compared to the same period of 2021. Applications received for new domestic franchise agreements increased by 23% year-to-date through Sept. 30, compared to the same period of 2021.
The number of domestic franchise agreements awarded for conversion hotels increased by 42% in the quarter, compared to the same period of 2021.
The company’s extended-stay domestic pipeline reached 468 hotels as of Sept. 30, a 45% increase since Sept. 30, 2021. In September 2022, the Everhome Suites brand, an all-new construction midscale extended stay brand, celebrated the opening of its first hotel in Corona, CA, and the brand’s domestic pipeline reached 56 hotels as of Sept. 30.
The number of domestic franchise agreements awarded for the company’s midscale segment increased 39% in the quarter, compared to the same period of 2021.
The number of domestic franchise agreements awarded for the company’s upscale segment nearly tripled for the quarter, compared to the same period of 2021. The Cambria Hotels brand increased its number of domestic hotels open by 5.2% from Sept. 30, 2021, and more than tripled the number of domestic franchise agreements awarded for both third-quarter 2022 and the first nine months of 2022, compared to the same period of 2021.
The number of domestic hotels and rooms as of Sept. 30 increased 5.4% and 5.5%, respectively, from Sept. 30, 2021.
Outlook
The company is not able to reconcile full-year 2022 projected adjusted EBITDA and full-year 2024 projected adjusted EBITDA contribution from the Radisson Hotels Americas business unit, in each case without unreasonable efforts because it is not possible to predict with a reasonable degree of certainty the final valuation and related allocation of the purchase price and other potential adjustments. The unavailable information could have a significant impact on the company’s full-year 2022 and full-year 2024 reported financial results. The adjusted numbers in the company’s outlook below exclude the net surplus or deficit generated from reimbursable revenue from franchised and managed properties, the gain (loss) on sales of assets, extraordinary one-time franchisee termination fees, due diligence and transition costs and other items:
- Adjusted EBITDA for full-year 2022 is expected to range between $465 million and $470 million, representing a 15% to 17% increase compared to full-year 2021 and a 25% to 26% increase compared to full-year 2019. The company’s outlook for adjusted EBITDA includes a $14 million to $15 million adjusted EBITDA contribution from the Radisson Hotels Americas business unit since the acquisition close through the end of December.
- Annual adjusted EBITDA for the Radisson Hotels Americas business unit is expected to reach $80 million upon its full integration in early 2024.
- Excluding the impact of Radisson Hotels Americas, domestic RevPAR for full-year 2022 is expected to increase between 13% and 15%, compared to full-year 2019, which represents 11% to 12% growth, compared to full-year 2021.
- Excluding the impact of Radisson Hotels Americas, the domestic effective royalty rate for full-year 2022 is expected to continue to grow in the mid-single digits, compared to full-year 2021.
- The domestic number of units, including Radisson Hotels Americas and the impact of the previously announced one-time exit of the WoodSpring Suites hotels, is expected to grow approximately 7% for full-year 2022, compared to full-year 2021.
