Choice’s Radisson Synergies Tracking Higher, as Demand Growth Continues in 2023 at a Moderate Level

We don’t anticipate a material change to Choice’s CHH $122 fair value estimate, as stronger Radisson synergies are offset by slightly lower revenue per available room, or revPAR, and unit growth in 2023. Choice’s fourth-quarter revPAR came in at 120% of 2019′s level, directly in line with our forecast and up from 115% in the prior quarter. Aided by a strong domestic leisure mix, Choice’s revPAR recovery continued to outpace the 108% and 105% marks of Hilton and Marriott, respectively. That said, Choice’s 2023 revPAR growth guidance of 2% tracked below our 5% estimate (which we plan to lower to around 3%) and the 4%-8% and 6%-11% targets of Hilton and Marriott, respectively, as the higher group and business mix of these peers starts to see a stronger recovery.

Choice’s profitability was decisively more positive, with 2022 adjusted EBITDA of $478.6 million, outpacing our $470 million estimate and management’s $465 million-$470 million guidance, driven partly by Radisson synergies of $18 million versus $14 million-$15 million guidance. Radisson synergies are set to be even more robust in 2023 and 2024, adding a respective $60 million-plus and $80 million-plus to EBITDA. As a result, 2023 EBITDA guidance of $520 million-$540 million is ahead of our $522 million estimate.

Choice’s brand intangible asset (source of its narrow moat) remains intact. Unit growth in 2022 was 8.3% versus our 7% estimate, with the domestic hotel pipeline up 14% year over year (9% excluding Radisson). The company will continue to replace lower producing hotels with higher revenue generating units, resulting in around 1% unit growth in 2023 (versus our 1.8% forecast), with an expected return to 2%-3% growth in future years (in line with our forecast).