Choice Outperforms Industry in Q2 Occupancy

ROCKVILLE, MD—Choice Hotels International Inc. has reported its results for the three and six months ended June 30, 2020, with occupancy outperforming the industry by an average 570 basis points per week since the onset of the pandemic in mid-March to July.

Patrick Pacious, president/CEO of Choice Hotels, noted that the company outperformed the industry overall by 20% due to Choice’s strength in its franchise partners, extended-stay options and availability of hotels in drive-to markets.

Choice was above 70% occupancy by mid-May, and in the last week of July, returned to occupancy levels consistent with numbers from the same time in 2019. Ninety percent of Choice hotels remained open, with 100% of its domestic hotels open. WoodSpring Suites led the pack with 69% occupancy beating the overall industry by 36 percentage points.

“The resilience of our asset-light, franchise-focused business model, combined with our winning strategy to grow the right brands in the right markets, has allowed us to capture an outsized share of demand as Americans continue to return to travel,” Pacious said.

He continued, “We believe that our predominantly leisure focus and strength in domestic drive-to markets will allow us to continue to outperform the overall industry during the recovery phase. We are optimistic that our long-term view, strong balance sheet, disciplined capital allocation strategy, proven brands and compelling franchisee value proposition will help us emerge from the crisis in a position of strength.”

Among the highlights:

  • As of July 31, 2020, nearly 100% of the company’s 5,917 domestic hotels are operating. Even in April, when the effects of COVID-19 were felt most significantly in the industry, more than 90% of Choice Hotels’ domestic hotels remained open. In addition, 96% of the company’s more than 1,200 international hotels were open as of July 31, 2020.
  • Domestic systemwide RevPAR declined 49.6% for second quarter 2020 compared to the same period of the prior year, outperforming the total industry by 2,030 basis points and exceeding the chain scale segments in which the company competes, as reported by STR. Domestic comparable RevPAR declined 48.6% for second quarter 2020 compared to the same period of the prior year, outperforming the total industry by 2,130 basis points.
  • The company’s domestic effective royalty rate for second quarter 2020 increased 10 basis points over the prior year second quarter to 4.94%.
  • The company awarded 151 new domestic franchise agreements year to date through June 30, 2020, a 42% decrease compared to the same period of the prior year. More than 80% of the agreements were signed since mid-March and two-thirds of the agreements awarded in the first half of the year were for conversion hotels. The company built on its first half development performance with an additional 33 new domestic franchise agreements awarded in the month of July.
  • Net loss was $2.4 million for the second quarter, representing diluted net loss per share of $0.04.
  • Second quarter adjusted net income, excluding certain items described in Exhibit 6, decreased 90% to $6.7 million from second quarter 2019.
  • Adjusted earnings per share for the second quarter were $0.13, an 89% decrease from second quarter 2019.
  • Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the second quarter were $41.1 million, a 60% decrease from second quarter 2019.

“In the second quarter of 2020, Choice Hotels continued to implement efforts to provide a broad range of support to its franchisees, guests and communities while preserving the company’s financial flexibility by bolstering liquidity and reducing discretionary spending,” Pacious said.

Pacious said that the remainder of the year will depend on the duration and scope of any travel restrictions, consumer behavior and their means to travel and also, clean initiatives put in place by hotels. Pacious feels confident in Choice’s portfolio, being that 96% of it is select-service, which don’t have bars or restaurants, a particular area of restriction.

Revenues

  • Total revenues decreased 52% to $151.7 million for second quarter 2020, compared to the same period of 2019.
  • Total revenues excluding marketing and reservation system fees decreased 50% to $72.1 million for second quarter 2020, compared to the same period of 2019.
  • Second quarter 2020 domestic royalties decreased 52% to $48.3 million, compared to the same period of 2019.

Development

  • The company’s extended-stay portfolio continued to expand, reaching 414 domestic hotels as of June 30, 2020, an 8% increase since June 30, 2019, with the domestic extended-stay pipeline expanding to nearly 300 hotels awaiting conversion, under construction or approved for development. Since June 30, 2019, the WoodSpring Suites brand grew the number of open domestic hotels by 7% and its domestic pipeline by 22%.
  • As of June 30, 2020, the number of domestic rooms in the company’s upscale portfolio expanded 37% since June 30, 2019, driven by an increase in room count of 24% for the Cambria Hotels brand and 42% for the Ascend Hotel Collection, the latter of which includes 17 properties associated with the company’s strategic partnership with AMResorts, an Apple Leisure Group brand.
  • The number of domestic hotels and rooms, as of June 30, 2020, increased 0.6% and 2.0%, respectively, from June 30, 2019. The company’s domestic upscale, midscale and extended-stay segments reported a 2.3% aggregate increase in units and a 3.7% increase in rooms since June 30, 2019. The number of international hotels and rooms as of June 30, 2020, increased 3.0% and 12.7%, respectively, from the comparable period of 2019.
  • The company’s total domestic pipeline of hotels awaiting conversion, under construction or approved for development as of June 30, 2020 reached more than 980 hotels and more than 78,500 rooms.
  • The company awarded 93 domestic franchise agreements in second quarter 2020, a 49% decrease compared to the same period in the prior year. Of the total domestic franchise agreements awarded in the second quarter, more than 60% were conversions and more than half were executed in the month of June.