Radisson buy propels Choice's Q3 results

Strong third-quarter results combined with the acquisition of Radisson Hotels America represent a “significant leap forward” in in the evolution of both Choice Hotels International's competitive position and future growth potential, according to Patrick Pacious, the company’s president and CEO.

“For 11 consecutive quarters, our [revenue per available room] 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,” Pacious said. “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 [earnings before interest, taxes, depreciation and amortization] upon its full integration in early 2024."

According to Pacious, Choice believes the changes it is observing in leisure and business travel behavior will enable it to maximize growth opportunities well into the future.

“I'm confident that our effective strategic investments and commitment to our franchisees’ profitability will continue to create value and deliver results for our owners and shareholders,” he said during the company’s third quarter earnings call. “We look forward to continuing to integrate Radisson Americas as part of the Choice family and to accelerate the growth of these brands by leveraging Choice’s scale network of owner and franchise relationships and best-in-class digital platforms. We believe we are well positioned to build on the success achieved this quarter and that our increased earnings power will enable us to further capitalize on growth opportunities for the remainder of this year and beyond.”

RevPAR Performance Trends

  • RevPAR increased 15.2 percent for third quarter 2022, compared to the same period of 2019, driven primarily by an increase in average daily rate of 15.1 percent, compared to third quarter 2019.
  • The company's extended-stay portfolio has consistently exceeded 2019 RevPAR levels since April 2021 and achieved domestic RevPAR growth of 21.8 percent in third quarter 2022, compared to the same period of 2019. The WoodSpring Suites brand achieved RevPAR growth of 27.5 percent in third quarter 2022, compared to the same period of 2019, driven by occupancy levels of 81 percent and a 22 percent 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 percent in third quarter 2022 compared to the same period of 2019. In third quarter 2022, 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 percent for third quarter 2022, compared to the same period of 2019, and outperformed the upscale chain scale by over 13 percentage points.

Financial Performance

  • Total revenues increased 28 percent to $414.3 million for third quarter 2022, 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 percent to $201 million for third quarter 2022, compared to the same period of 2021, and included $24.8 million revenue contribution from Radisson Hotels Americas.
  • Net income was $103.1 million for third quarter 2022, representing diluted earnings per share of $1.85.
  • Third quarter adjusted net income, excluding certain items, increased to $87.5 million from third quarter 2021, representing adjusted diluted EPS of $1.56.
  • Adjusted EBITDA for third quarter 2022 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 third quarter 2022, 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.
  • Third quarter 2022 domestic royalties totaled $131.7 million, a 7 percent increase from the same period of 2021.
  • Procurement services revenues increased 11 percent to $14.4 million for third quarter 2022, compared to the same period of 2021.

Development

  • Year-to-date through Sept. 30, 2022, the number of domestic franchise agreements awarded increased 17 percent, compared to the same period of 2021. Excluding the multiunit transaction for 22 properties as part of the company's strategic alliance with Penn National Gaming in 2021, domestic franchise agreements increased 27 percent in the first nine months of 2022, compared to the same period of 2021. Applications received for new domestic franchise agreements increased by 23 percent year-to-date through Sept. 30, 2022, compared to the same period of 2021.
  • The number of domestic franchise agreements awarded for conversion hotels increased 42 percent in third quarter 2022, compared to the same period of 2021.
  • The company's extended-stay domestic pipeline reached 468 hotels as of Sept. 30, 2022, a 45 percent increase since Sept. 30, 2021. In Sept. 2022, the Everhome Suites brand, an all-new construction midscale extended-stay brand, celebrated the opening of its first hotel in Corona, Calif., and the brand's domestic pipeline reached 56 hotels as of Sept. 30, 2022.
  • The number of domestic franchise agreements awarded for the company's midscale segment increased 39 percent in third quarter 2022, compared to the same period of 2021.
  • The number of domestic franchise agreements awarded for the company's upscale segment nearly tripled for third quarter 2022, compared to the same period of 2021. The Cambria Hotels brand increased its number of domestic hotels open by 5.2 percent 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, 2022, increased 5.4 percent and 5.5 percent, respectively, from Sept. 30, 2021.

Shareholder Returns

During the nine months ended Sept. 30, 2022, the company paid cash dividends totaling approximately $40 million. Based on the current quarterly dividend rate of $0.2375 per common shares outstanding, the company expects to pay dividends of $53 million during 2022, compared to total dividends of $25 million paid in 2021.

During the nine months ended Sept. 30, 2022, the company repurchased approximately 2 million shares of common stock for $247 million 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 Sept. 30, 2022, the company had 6.3 million shares of common stock remaining under the current share repurchase authorization.

Outlook

The company is not able to reconcile full-year 2022 projected adjusted EBITDA and full-year projected adjusted EBITDA contribution from the Radisson Hotels Americas business unit 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 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 percent to 17 percent increase compared to full-year 2021 and a 25 percent to 26 percent increase compared to full-year 2019. The company's outlook for adjusted EBITDA includes a $14 to $15 million adjusted EBITDA contribution from the Radisson Hotels Americas business unit since the acquisition close through the end of December 2022.
  • 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 percent and 15 percent, compared to full-year 2019, which represents 11 percent to 12 percent 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 percent for full-year 2022, compared to full-year 2021.