Choice Hotels International, Inc. — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This annual filing reports full-year results, not standalone fourth-quarter financial statements. Choice is primarily a hotel franchisor; franchising generated approximately 96% of total revenue. At year-end, its system included 7,030 open hotels with 579,746 rooms and a pipeline of 924 hotels with 79,915 rooms.
Financial performance
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $1,069.3 million | $774.1 million |
| Revenue excluding marketing and reservation system activity | $540.5 million | $371.5 million |
| Operating income | $428.9 million | $121.7 million |
| Net income | $289.0 million | $75.4 million |
| Diluted EPS | $5.15 | $1.35 |
| Cash from operating activities | $383.7 million | $110.1 million |
- Total revenue rose 38%; revenue excluding marketing and reservation system activity rose 45%. These are not directly comparable measures: the excluded fees are contractually dedicated to system services.
- Domestic RevPAR increased 47.5% year over year to $48.21, driven by a 17.3% rise in ADR and a 1,180-basis-point increase in occupancy. Full-year domestic RevPAR exceeded 2019 by approximately 2.2%; fourth-quarter RevPAR was up 13.9% versus fourth-quarter 2019.
- Marketing and reservation system revenue exceeded related expenses by $83.9 million in 2021, versus expenses exceeding revenue by $44.3 million in 2020. This surplus materially contributed to the operating-income rebound; management expects this activity to break even over time.
- Year-end cash and cash equivalents were $511.6 million. Total debt was $1.060 billion, including $216.4 million due July 1, 2022. The $600 million revolving credit facility was undrawn; the company reported covenant compliance and a 2.34x total leverage ratio.
- Current assets were $761.7 million and current liabilities $570.3 million. Net cash provided by operating activities less capital expenditures was approximately $309.4 million.
Changes, outlook and notable items
- Results rebounded from pandemic-affected 2020 as travel demand, especially leisure travel, improved. Domestic royalty fees rose 52%; the domestic room count nevertheless declined 1.2%. International royalties increased to $14.8 million, while the international system contracted by 70 hotels and 12,731 rooms.
- Franchise agreements awarded increased to 528, representing 49,784 rooms, from 427 agreements and 35,308 rooms in 2020. The year-end pipeline remains subject to construction, financing, labor and approval delays and does not ensure openings.
- Management said recovery to 2019 industry performance could take multiple years and anticipated some pandemic impacts to continue in 2022. It cited leisure-demand recovery and drive-to-market exposure as potential advantages, but did not provide quantified earnings guidance in the supplied filing text.
- Management stated that cash, borrowing capacity and operating cash flows should meet expected needs for at least 12 months. It expected approximately $52.8 million of 2022 dividends, subject to board approval. The quarterly dividend was raised 6% to $0.2375; share repurchases resumed, with $7.3 million spent under the program in 2021.
- Growth investments included approximately $473.2 million in Cambria and Everhome development, ownership, affiliate and lending support, plus $278.6 million of conditional franchise-acquisition-payment commitments. The company generally targets recycling the former within five years and stated a board-authorized maximum outstanding investment of $975 million.
- Unusual items include $19.3 million of impairment charges on affiliate investments; a $21.1 million hotel acquired through settlement of collateral-dependent loans; and a $0.3 million land impairment. The 2020 comparison included a $16.6 million debt-extinguishment loss, $14.8 million of long-lived-asset impairments and a substantial tax benefit associated with an international reorganization.
- Key risks include pandemic resurgence and travel weakness, franchisee financial health, hotel development and conversion execution, debt refinancing, affiliate and real-estate investment losses, cybersecurity and data privacy, competition from online travel intermediaries, and litigation or brand-reputation damage. Management and the auditor reported effective internal controls; the auditor issued an unqualified opinion on the financial statements.
Important facts for investors to verify
- How the $216.4 million 2022 note maturity was refinanced or repaid, and the resulting liquidity and borrowing costs.
- Whether the 2021 RevPAR recovery, marketing-system surplus and improved franchisee collections persisted, given the unusual comparison with pandemic-affected 2020.
- Pipeline conversion into open hotels, domestic and international system-room trends, and the financial condition of franchisees.
- Performance and recoverability of the $473.2 million growth-investment balance and the $278.6 million conditional commitments, including affiliate impairment exposure.
- Management’s loyalty-program estimates: the auditor identified redemption-rate and point-value assumptions as a critical audit matter; year-end point liability was $128.6 million and deferred revenue was $82.7 million.