Choice Hotels International, Inc. (NYSE: CHH), one of the world's largest lodging franchisors, today reported its results for the three months ended September 30, 2019. Highlights include:
- Net income was $76.2 million for third quarter 2019, representing diluted earnings per share (EPS) of $1.36.
- Adjusted net income, excluding certain items described in Exhibit 6, increased 9% to $76.5 million from third quarter 2018.
- Adjusted EPS was $1.37, a 10% increase from third quarter 2018.
- The company exceeded the top end of its third quarter 2019 adjusted EPS guidance by $0.08 per share and raised its full year adjusted EPS guidance.
- Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the third quarter were $111.0 million, an increase of 7% from the same period of 2018.
- The company's upscale, midscale, and extended stay segments reported a 3.1% aggregate increase in unit growth compared to third quarter 2018.
- The company's board of directors approved an increase in the company's share repurchase authorization by approximately 2.3 million shares, bringing the total program to 4.0 million shares authorized.
Additionally, during the third quarter of 2019, the company continued to strengthen its presence in the higher growth and more revenue intense upscale, midscale and extended stay chain scale segments. In particular, the company:
- Achieved 13% growth in the number of domestic rooms in its upscale brands, Cambria and Ascend, as of September 30, 2019, from third quarter 2018.
- Installed the 500th new sign for newly refreshed Comfort hotels, announcing to guests the significant transformation of the brand. Under this $2.5 billion transformation of the brand, revenue per available room (RevPAR) for Comfort hotels that have completed renovations outpaced their competitive set by 60 basis points and franchise agreements awarded in 2019 are expected to generate higher revenues throughout the life of the contracts, compared to the pipeline of the same period of the prior year period.
- Continued its leadership in the midscale segment with 25 Clarion Pointe franchise agreements awarded year-to-date, bringing the number of Clarion Pointe hotels open or awaiting conversion to 45 hotels. Additionally, the Sleep Inn brand achieved 2.6% growth in the number of domestic hotels and 10% domestic pipeline growth, bringing the total Sleep Inn pipeline to 150 hotels.
- Expanded the number of domestic hotels in its extended stay brands to nearly 400, a 10% increase from September 30, 2018, and increased the extended stay domestic pipeline by 11% to over 250 hotels.
"We're pleased to report another quarter of strong financial performance and a positive outlook for the growth of the business," said Patrick Pacious, president and chief executive officer, Choice Hotels. "We are successfully leveraging our strong customer base and growing our franchising platform to drive revenue in high-value segments. Specifically, Cambria is leading the evolution of our portfolio to become more revenue intense by attracting business travelers in top RevPAR markets. Our investments in Cambria are not only driving the brand's growth, but also benefitting the entire portfolio through new technology, increased brand recognition, and other key franchisee resources."
Additional details from the company's 2019 third quarter results are as follows:
- Total revenues for the three months ended September 30, 2019 were $310.7 million, an increase of 7% from total revenues reported for the same period of 2018.
- Total revenues, excluding marketing and reservation system fees, for the third quarter increased 10% over the prior year comparable period to $153.7 million.
- Domestic royalty fees for the third quarter totaled $107.8 million, a 3% increase from third quarter 2018.
- The company's effective domestic royalty rate increased 12 basis points to 4.84% for the third quarter, compared to the same period of the prior year.
- Domestic systemwide revenue per available room (RevPAR) declined 0.7% for the third quarter, compared to the same period of the prior year.
- Procurement services revenue increased 27% in the third quarter to $14.8 million, compared to the same period of the prior year.
- International hotels and rooms, as of September 30, 2019, increased 4.1% and 4.5%, respectively, from September 30, 2018.
- The number of domestic hotels and rooms, as of September 30, 2019, both increased 1.8% from September 30, 2018.
- The company awarded 100 domestic franchise agreements in the third quarter of 2019.
- The company's total domestic pipeline awaiting conversion, under construction, or approved for development increased to 975 hotels and 82,390 rooms as of September 30, 2019.
- The new-construction domestic pipeline totaled 741 hotels as of September 30, 2019, a 5% increase from September 30, 2018.
- The company's total international pipeline of hotels awaiting conversion, under construction, or approved for development totaled 94 as of September 30, 2019 versus 82 hotels as of September 30, 2018.
Use of Cash Flows
During the nine months ended September 30, 2019, the company paid cash dividends totaling approximately $36 million. Based on the current quarterly dividend rate of $0.215 per share of common stock, the company expects to pay dividends totaling approximately $48 million during 2019.
During the nine months ended September 30, 2019, the company repurchased approximately 0.6 million shares of common stock for approximately $45 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 September 30, 2019, the company had authorization to purchase up to 4.0 million additional shares of common stock under its share repurchase program.
Hotel Development & Financing
The company has allocated up to $725 million to its program that encourages growth of the upscale Cambria Hotels brand. Investments under this program may include joint-venture investments, forgivable key-money loans, senior mortgage loans, development loans and mezzanine lending, as well as hotel ownership and the operation of a land-banking program. With respect to lending, hotel ownership and joint-venture investments, the company generally expects to recycle these investments within a five-year period.
Aligned with the continued investment in accelerating Cambria's development, in the beginning of the third quarter, the company redeemed a third party's remaining equity stake in joint ventures that held four key Cambria hotels. These hotels not only provide a strategic benefit to the brand but are also expected to generate financial returns for the company's shareholders. The company does not anticipate owning these hotels on a permanent basis and will consider a sale to a franchisee in the future.
As of September 30, 2019, the company had approximately $555 million reflected on its consolidated balance sheet pursuant to the Cambria financial support activities.
The adjusted numbers in the company's outlook below exclude the net surplus or deficit generated from the company's marketing and reservation system activities, the gain (loss) on sale and impairment of assets as well as other items. See Exhibit 7 for the calculation of adjusted forecasted results and the reconciliation to the comparable GAAP measures.
- Net income for full-year 2019 is expected to range between $209 million and $213 million, or $3.74 and $3.80 per share.
- Adjusted EPS for full-year 2019 is expected to range between $4.21 and $4.27. The company expects full-year 2019 adjusted net income to range between $235 million and $239 million.
- Fourth quarter 2019 adjusted EPS is expected to range between $0.82 and $0.86.
- Adjusted EBITDA for full-year 2019, including owned hotel operations, is expected to range between $362 million and $365 million.
- The company's outlook for adjusted EBITDA and adjusted EPS is based on the current number of shares of common stock outstanding and, therefore, do not reflect any subsequent changes that may occur due to new equity grants or further repurchases of common stock under the company's stock repurchase program.
- Net domestic units for 2019 are expected to increase by approximately 2%.
- Domestic RevPAR for the fourth quarter of 2019 is expected to decline between a range of 0% and 2% versus the same period of the prior year. Domestic RevPAR is expected to decline between a range of 0% and 1% for full-year 2019.
- The domestic effective royalty rate is expected to increase between 9 and 12 basis points for full-year 2019, as compared to full-year 2018.
- The effective tax rate is expected to be approximately 23% for fourth quarter 2019 and 18% for full-year 2019, respectively.
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