February 18 - Choice Hotels International, Inc. one of the world’s largest lodging franchisors, reported its results for the three months and year ended December 31, 2020.

 

Throughout 2020, Choice Hotels provided a broad range of support to its franchisees, guests and communities while improving its overall financial and liquidity position.

 

Highlights of fourth quarter and full year 2020 results include:

• Domestic systemwide revenue per available room (RevPAR) change outperformed the total industry by nearly 26 percentage points, declining 25.1% for fourth quarter 2020, compared to the same period of the prior year, and improved by 370 basis points from third quarter 2020. Full year and fourth quarter 2020 RevPAR performance also exceeded the chain scale segments in which the company competes, as reported by STR

• Fourth quarter 2020 domestic RevPAR change outperformed the industry by an average of 26 percentage points per week, an approximately 600 basis points expansion since third quarter 2020 (see Exhibit 7 for weekly RevPAR trends)

• The company achieved a number of major milestones in the execution of its long-term strategy to grow its presence in more revenue-intense segments and locations, including a return to unit growth for the Comfort brand family following the successful completion of its transformation, significant expansion of its extended stay portfolio and the continued growth of Cambria Hotels

• The company awarded 427 domestic franchise agreements in 2020, a 38% decrease compared to the prior year. Over 70% of the agreements awarded in 2020 were for conversion hotels and 28% were executed in the month of December

• Net income was $7.9 million for fourth quarter and $75.4 million for full year 2020, representing diluted earnings per share (EPS) of $0.14 and $1.35, respectively

• Full year adjusted net income, excluding certain items described in Exhibit 6, decreased 49% over the prior full year period to $123.9 million

• Full year adjusted diluted EPS were $2.22, a decrease of 49% over the prior full year period, while fourth quarter 2020 adjusted diluted EPS were $0.51, a 45% decrease from fourth quarter 2019

• Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for full year 2020 were $241.1 million, a 35% decrease from the same period of 2019. Adjusted EBITDA for fourth quarter 2020 were $54.7 million, a 35% decrease from fourth quarter 2019

• The company reported cash flow from operations of over $115 million for full year 2020

 

Performance Trends

• Domestic systemwide RevPAR decreased 25.1% for fourth quarter 2020 compared to the same period of the prior year, exceeding the total industry by nearly 26 percentage points and outperforming the respective chain scales in which the company competes by more than 760 basis points. Full year 2020 domestic systemwide RevPAR declined 30.7%, surpassing the overall industry performance by nearly 17 percentage points

• The company’s extended-stay portfolio continued to outperform the industry in 2020, with an average domestic systemwide occupancy rate of 69%. The portfolio achieved average weekly occupancy rates of over 70% since the onset of the pandemic in mid-March through December 31, 2020 — exceeding the industry weekly average by 30 percentage points. Specifically, the WoodSpring Suites brand achieved occupancy levels of over 70% in fourth quarter 2020, outperforming the industry by 28 percentage points, and grew RevPAR by 2% in the month of December, year-over-year. MainStay Suites gained nearly 22 percentage points on the local competition in RevPAR share in the fourth quarter, year-over-year. In addition, the Suburban brand’s occupancy rates increased by 210 basis points in fourth quarter 2020 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 fourth quarter 2020, compared to the same period of the prior year, with the Cambria Hotels brand achieving gains of nearly 22 percentage points year-over-year. In addition, the Ascend Hotel Collection’s domestic systemwide year-over-year RevPAR change surpassed the upscale segment by over 20 percentage points in the fourth quarter

• All select-service midscale brands achieved domestic systemwide RevPAR share gains versus their local competitors for fourth quarter 2020 and full year, compared to the same periods of the prior year. The Comfort brand family’s domestic systemwide year-over-year RevPAR change outperformed the upper-midscale chain scale by over 10 percentage points in fourth quarter 2020

• In fourth quarter and full year 2020, the company continued to outperform the industry on year-over-year domestic RevPAR change and achieved RevPAR share gains versus its local competitors across all location types, as reported by STR.

 

Additional details for the company’s fourth quarter 2020 and full year results are as follows:

 

Revenues

• Total revenues decreased 31% to $774.1 million for full year 2020, compared to the same period of 2019, and decreased by 28% from the fourth quarter of the prior year to $193.4 million

• Total revenues excluding marketing and reservation system fees for full year 2020 decreased 31% over the prior year to $371.5 million, and decreased 32% to $88.0 million for fourth quarter compared to the same period of 2019

• Full year domestic royalties totaled $251.2 million, a 31% decrease from the same period of 2019, and reached $60.1 million for fourth quarter 2020, a 27% decrease compared to the same period of 2019

• The company’s domestic effective royalty rate for full year 2020 increased 8 basis points over the prior year to 4.94% and grew 7 basis points for fourth quarter 2020 compared to the same period of 2019

 

Development

• The company awarded 195 domestic franchise agreements in fourth quarter 2020, a 36% decrease compared to the same period of the prior year. Of the total domestic franchise agreements awarded in the fourth quarter, over 70% were for conversion hotels

• The company continued its leadership in the midscale segment by increasing the number of domestic hotels by 1.3% from December 31, 2019. Specifically, the Comfort brand family grew both its number of domestic hotels and rooms by 2% since December 31, 2019, and reached over 260 hotels in its domestic pipeline, including 65 hotels awaiting conversion, which will drive the brand’s growth in the near term

• The company’s extended-stay portfolio continued its rapid expansion, reaching 447 domestic hotels as of December 31, 2020, an 11% increase since December 31, 2019, with the domestic extended-stay pipeline expanding to over 315 hotels awaiting conversion, under construction or approved for development. Since December 31, 2019, the MainStay Suites brand grew its number of open domestic hotels by 23% and experienced the highest number of hotel openings in a year in the brand’s history. The Suburban brand’s domestic franchise agreements awarded for full year 2020 increased by over 40% over the prior year

• The Cambria Hotels brand increased its number of domestic hotels and rooms by 8% and 6%, respectively, from December 31, 2019. The Cambria Hotels brand’s pipeline has grown to nearly 80 domestic hotels with 19 under active construction as of December 31, 2020

• The number of domestic hotels and rooms, as of December 31, 2020, increased 0.2% and 0.4%, respectively, from December 31, 2019. The company’s domestic upscale, midscale, and extended stay segments reported a 1.8% and 1.6% aggregate increase in units and rooms, respectively, since December 31, 2019

• The company’s total domestic pipeline of hotels awaiting conversion, under construction or approved for development, as of December 31, 2020, reached 966 hotels that represent approximately 80,000 rooms

 

Balance Sheet and Liquidity

The company ended full year 2020 with a strong balance sheet 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. In July 2020, the company refinanced a portion of debt to extend its debt maturity profile and capitalized on favorable credit markets to significantly reduce the company's effective cost of borrowings.

 

During fourth quarter 2020, the company’s net debt decreased by approximately $50 million to a total net debt of $836 million as of December 31, 2020, compared to $886 million as of September 30, 2020. The company reported cash flow from operations of over $115 million for the year ended December 31, 2020, of which over $45 million was generated in the fourth quarter alone despite entering the historically lower seasonal demand environment. As of December 31, 2020, the company’s total available liquidity consisting of cash and available borrowing capacity through the revolving credit facility was approximately $835 million.

 

Shareholder Returns

During full year 2020, the company repurchased approximately 0.7 million shares of common stock for approximately $55.5 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 December 31, 2020, the company had 3.4 million shares remaining under the current share repurchase authorization. The company has temporarily suspended share repurchases under the stock repurchase program as previously disclosed on April 8, 2020, but may continue to repurchase stock from employees in conjunction with tax withholding and option exercises under the company's equity incentive plans.

 

As previously disclosed, the company has temporarily suspended the payout of future dividends while the COVID-19 pandemic is significantly impacting travel. As a result, total dividends paid during 2020 were approximately $25 million.

 

Outlook

The ultimate and precise impact of COVID-19 on full year 2021 is still unknown at this time and will depend on numerous factors, including future levels of resurgence in COVID-19 cases, the pace of vaccination rollout and vaccines' effectiveness, the duration and scope of mandated travel and other restrictions, the confidence level of consumers to travel and the pace and level of the broader macroeconomic recovery. As a result, the company is not providing formal guidance for first quarter or full year 2021 at this time.

 

The company currently expects to see a sequential quarter-over-quarter improvement in RevPAR change for the quarter ending March 31, 2021 versus the same periods of 2020 and 2019. Through mid-February, the company’s year-to-date 2021 RevPAR has declined by approximately 18% from the same period of 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.

 

For more information, please visit media.choicehotels.com

 

 

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