Following a record-setting year for net income, Choice Hotels International President and CEO Patrick Pacious said the options are endless for the company to grow through acquisitions, particularly in upscale and higher chain-scale segments.
During the company’s fourth quarter and full-year 2021 earnings call Wednesday, Pacious said Choice is in a position to buy, both domestically and internationally, to expand its presence in the upscale and upper-upscale space in 2022.
“We do have some white space in our domestic portfolio, primarily in that upscale, extended-stay world. We don’t play yet in the upper-upscale world,” Pacious said. “There are some opportunities that are out there if the right acquisition opportunity came along.”
He said the company’s strategy is to target revenue-intensive types of unit growth in markets that would be beneficial in the long term.
“Our balance sheet is in a very healthy position, so the size of the opportunity, given what I believe is out there — we don’t see anything that’s too large for us,” Pacious said.
2021 Results
Choice Hotels International not only returned to pre-pandemic form, but also exceeded 2019 performance in 2021. The company’s full-year net income of $289 million and adjusted earnings before interest, taxes, depreciation and amortization of $403.6 million set a company record over the past year.
The company also grew full-year domestic systemwide revenue per available room by 2.2% compared to 2019, including a fourth quarter increase of 13.9% over the fourth quarter of 2019. Pacious said an increase in both average daily rate and occupancy levels attributed to the surge.
Choice grew ADR 2.7% for full-year 2021 compared to 2019. In the fourth quarter, ADR was 9.5% over 2019 levels, and total occupancy was 54.9%, up from 52.8% in the fourth quarter of 2019.
Chief Financial Officer Dominic Dragisich said Choice's performance can also be attributed to investments the company made during the pandemic, particularly in a revenue-management platform to help franchise owners "quickly determine and execute the right pricing strategy."
The company’s fourth quarter revenue increased compared to pre-pandemic levels — up 6% in total revenue and 14% in domestic royalties.
As of press time, Choice's stock price was trading at $147.11 per share, down 5.7% year to date. The New York Stock Exchange composite was down 2.6% for the same period.
Dropped Properties
Choice reported a 0.8% year-over-year decrease in its domestic hotels system size and a 1.2% decrease in rooms in 2021, but its U.S. hotels in the upscale, midscale and extended-stay segments increased by 1.6% over the past year, excluding 17 AMResorts-branded properties and 41 underperforming hotels that were dropped in the past quarter.
Apple Leisure Group, the parent company of AMResorts, was acquired by Hyatt Hotels Corp. for $2.7 billion in August 2021.
Pacious said the subtraction of these hotels had a minimal impact on overall revenues and Choice is confident it can replace the properties and grow revenue in the future.
“We know there’s an opportunity there to send our guests into more of an all-inclusive product,” Pacious said. “There are other owners out there that it would make sense for us to work with in the future. We do think there’s an opportunity for us in probably the medium term here to find a similar relationship going forward.”
Outlook for 2022
Despite setting several company records in 2021, Choice executives were hesitant to ensure the company can maintain the trends in 2022.
“While the company exceeded pre-pandemic levels for RevPAR and adjusted EBITDA for full-year 2021, continued precise recovery trends for full-year 2022 are still somewhat uncertain,” Dragisich said.
The company is focused on its future, using the newly accrued funds to carefully build upon its success, Pacious said. Choice's adjusted EBITDA margin for full-year 2021 hit a company record of 74.7%.
"The things we look to invest in are things that leverage our scale," he said. "They're things that we believe can really grow to a significant amount of earnings, and that margin is really something that we do look at as something that is an opportunity for us to, maybe in 2022, compress somewhat in order to invest in long-term growth."