Choice Hotels Results

Choice Hotels International Reports 18 Percent Revenue Increase for Q1

Franchising revenues for the three months ended March 31, 2016 totaled $78.7 million, an increase of 4 percent from the same period of 2015.

Choice Hotels

Choice Hotels International, Inc. (NYSE:  CHH) today reported the following highlights for the first quarter 2016:

  • Revenues for the three months ended March 31, 2016 totaled $207.1 million, an increase of 18 percent from the same period of 2015. 
  • Franchising revenues for the three months ended March 31, 2016 totaled $78.7 million, an increase of 4 percent from the same period of 2015. 
  • Franchising margins for the three months ended March 31, 2016 were 61.6 percent, an increase of 10 basis points from the same period of 2015. 
  • Earnings before interest, taxes, depreciation and amortization ("EBITDA") from franchising activities for the three months ended March 31, 2016 totaled $50.3 million compared to $49.0 million for the same period in 2015. EBITDA from franchising activities for the current period were impacted by approximately $2 million in the aggregate or $0.02 per share, net of tax, compared to our expectations for the quarter as a result of lower than expected increases in domestic system-wide revenue per available room ("RevPAR") and higher than anticipated corporate development and litigation settlement costs. 
  • Domestic RevPAR increased 1.2 percent in the first quarter of 2016. Domestic RevPAR performance for the first quarter of 2016 was in line with the total industry results for the primary chain scale segments in which the company competes. Compared to its focused competitive set, the company's Comfort family of brands achieved a RevPAR index gain estimated at 170 basis points for the three months ended March 31, 2016 compared to the same period in 2015. 
  • Effective income tax rate for the three months ended March 31, 2016 was 35.5 percent compared to 30.4 percent for the same period of 2015. Excluding discrete items, the effective income tax rates for the three months ended March 31, 2016and 2015 were 33.5 percent and 31.8 percent, respectively. 
  • Equity in net loss of affiliates for the three months ended March 31, 2016 totaled $2.2 million, an increase of $1.2 millionfrom the same period of 2015. Equity losses from affiliates primarily reflect losses during the ramp up period of recently opened or under renovation Cambria properties in major urban markets. 
  • Net income and diluted earnings per share ("EPS") for the three months ended March 31, 2016 totaled $19.6 million and $0.35 per share, respectively, compared to $21.6 million and $0.37 per share in the prior year period. Compared to our previously published outlook for earnings per share for the first quarter of 2016 the impact of the discrete tax rate items and hotel equity investment performance was a reduction of approximately $0.02 per share. We anticipate the earnings per share impact of these two items will be mitigated during the balance of 2016 on account of the impact of certain other discrete tax items and performance improvement attributable to seasonality in the specific Cambria property markets. 
  • Domestic royalty fees for the three months ended March 31, 2016 totaled $60.5 million, an increase of 5 percent from the same period of 2015. 
  • Domestic and international units as of March 31, 2016 increased 1.1 percent and 2.3 percent, respectively, from March 31, 2015. Excluding the impact of our Comfort rejuvenation strategy, our domestic units under franchise at March 31, 2016increased 4.6 percent from the prior year. 
  • Effective domestic royalty rate for the three months ended March 31, 2016 was 4.38 percent, an increase of 7 basis points from the same period of 2015. 
  • Domestic relicensing and contract renewal transactions totaled 107 for the three months ended March 31, 2016, an increase of 7 percent from the same period of 2015. 
  • The company's domestic pipeline of hotels awaiting conversion, under construction or approved for development as of March 31, 2016 increased 12 percent from March 31, 2015. The new construction domestic pipeline for the company's Comfort family of brands as of March 31, 2016 increased 29 percent from March 31, 2015. 

"We are excited about the consumer response to the program enhancements we made to our award-winning Choice Privileges program in the first quarter," said Stephen P. Joyce, president and chief executive officer, Choice Hotels. "As a result of our strong family of brands and our enhancements to the program we now have more than 26 million members and expect to add a record 4 million new members this year.  We believe that improving the value of the benefits provided to our guests as well as the strength of our distribution systems will result in continued RevPAR growth for the remainder of the year. We are also optimistic that developers will continue to respond to our brands and that our franchise development results will exceed 2015 levels."

Use of Cash Flows

Dividends

During the three months ended March 31, 2016, the company paid cash dividends totaling approximately $12 million. Based on the current quarterly dividend rate of $0.205 per common share, the company expects to pay dividends of approximately $46 million during 2016.

Share Repurchases

The company repurchased 0.1 million shares of common stock under its share repurchase program during the first quarter of 2016, at a total cost of approximately $3.6 million. The company currently has authorization to purchase up to 1.6 million additional shares under this program.  

Hotel Development & Financing

Pursuant to its program to encourage acceleration of the growth of our upscale select-service Cambria hotels & suites brand, the company's net advances in support of the Cambria brand totaled $40 million during the three months ended March 31, 2016.  These advances are primarily in the form of joint venture investments, forgivable key money loans, senior and mezzanine lending and site acquisitions.  At March 31, 2016, the company had approximately $167 million reflected in its consolidated balance sheet pursuant to these financial support activities. With respect to lending and joint venture investments, the company generally expects to recycle these loans and investments within a five year period.

Outlook

The company's consolidated 2016 outlook reflects the following assumptions:

Hotel Franchising 

  • EBITDA from franchising activities for full-year 2016 are expected to range between $270 million and $274 million; 
  • Net domestic unit growth for 2016 is expected to be between 2% and 3%; 
  • RevPAR is expected to increase between 3% and 4% for second quarter and range between 3.75% and 4.50% for full-year 2016; and 
  • The effective royalty rate is expected to increase between 6 and 8 basis points for full-year 2016 as compared to full-year 2015. 

Non-Hotel Franchising Activities

  • Net reductions in full-year 2016 EBITDA relating to our non-hotel franchising operations, which primarily relate to SkyTouch and vacation rental activities are expected to range between approximately $16 million and $19 million. 

Other Items

  • The effective tax rate for continuing operations is expected to be approximately 32% and 33.5% for the second quarter and full-year 2016, respectively. Effective tax rates assume the adoption of Accounting Standards Update No 2016-09 "Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" ("ASU No. 2016-09") during 2016 which requires that excess tax benefits and tax deficiencies related to stock compensation be recognized as income tax expense or benefit through the company's income statement; and 
  • Diluted EPS estimates are based on the current number of shares outstanding and thus do not factor in any changes that may occur due to new equity grants or any further repurchases of common stock under the company's share repurchase program.

Consolidated Outlook

The company's second quarter 2016 diluted EPS is expected to be at least $0.66. The company expects full-year 2016 diluted EPS to range between $2.30 and $2.35 and full year 2016 EBITDA to range between $252 million and $256 million. The EPS and consolidated EBITDA estimates assume that we incur net reductions in EBITDA related to non-hotel franchising activities at the midpoint of the range for these investments.

About Choice Hotels

Choice Hotels International, Inc.® (NYSE:  CHH) is one of the world's largest lodging companies. With more than 6,400 hotels franchised in more than 40 countries and territories, we represent more than 500,000 rooms around the globe. As of March 31, 2016, 685 hotels were in our development pipeline. Our company's Ascend Hotel Collection®, Cambria® hotels & suites, Comfort Inn®, Comfort Suites®, Sleep Inn®, Quality®, Clarion®, MainStay Suites®, Suburban Extended Stay Hotel®, Econo Lodge® and Rodeway Inn® brands provide a spectrum of lodging choices to meet guests' needs. 

Choice Hotels International, Inc.

Exhibit 1

Consolidated Statements of Income

(Unaudited)

Three Months Ended March 31,

Variance

2016

2015

$

%

(In thousands, except per share amounts)

REVENUES:

Royalty fees

$   64,859

$   62,431

$    2,428

4%

Initial franchise and relicensing fees

5,156

5,717

(561)

(10%)

Procurement services

5,796

4,807

989

21%

Marketing and reservation 

126,361

98,713

27,648

28%

Other

4,946

3,577

1,369

38%

      Total revenues

207,118

175,245

31,873

18%

OPERATING EXPENSES:

Selling, general and administrative

35,119

32,438

2,681

8%

Depreciation and amortization

2,765

2,690

75

3%

Marketing and reservation

126,361

98,713

27,648

28%

Total operating expenses

164,245

133,841

30,404

23%

Operating income

42,873

41,404

1,469

4%

OTHER INCOME AND EXPENSES, NET:

Interest expense

11,092

10,179

913

9%

Interest income

(839)

(346)

(493)

142%

Other (gains) and losses

62

(468)

530

(113%)

Equity in net loss of affiliates

2,180

1,005

1,175

117%

Total other income and expenses, net

12,495

10,370

2,125

20%

Income before income taxes

30,378

31,034

(656)

(2%)

Income taxes

10,780

9,440

1,340

14%

Net income

$   19,598

$   21,594

$  (1,996)

(9%)

Basic earnings per share

$       0.35

$       0.38

$    (0.03)

(8%)

Diluted earnings per share

$       0.35

$       0.37

$    (0.02)

(5%)

 

 

Choice Hotels International, Inc.

Exhibit 2

Consolidated Balance Sheets

(In thousands, except per share amounts)

 March 31 

 December 31, 

2016

2015

(Unaudited)

ASSETS

Cash and cash equivalents

$     194,072

$      193,441

Accounts receivable, net

102,786

89,352

Other current assets

41,258

28,160

Total current assets

338,116

310,953

Fixed assets and intangibles, net

180,352

179,433

Notes receivable, net of allowances

92,477

82,572

Investments in unconsolidated entities

66,685

67,037

Investments, employee benefit plans, at fair value

17,802

17,674

Other assets

91,831

59,341

Total assets

$     787,263

$      717,010

LIABILITIES AND SHAREHOLDERS' DEFICIT

Accounts payable

$       60,619

$        64,431

Accrued expenses and other current liabilities

46,616

70,807

Deferred revenue

112,076

71,587

Current portion of long-term debt

1,016

1,191

Total current liabilities

220,327

208,016

Long-term debt

892,447

812,945

Deferred compensation & retirement plan obligations  

22,415

22,859

Other liabilities

37,939

69,089

Total liabilities

1,173,128

1,112,909

Total shareholders' deficit

(385,865)

(395,899)

Total liabilities and shareholders' deficit

$     787,263

$      717,010

 

 

Choice Hotels International, Inc.

Exhibit 3

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

Three Months Ended March 31,

2016

2015

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$        19,598

$    21,594

Adjustments to reconcile net income to net cash used

 by operating activities:

  Depreciation and amortization  

2,765

2,690

  (Gain) loss on sale of assets

9

(292)

  Provision for bad debts, net

655

823

  Non-cash stock compensation and other charges

3,354

2,509

  Non-cash interest and other (income) loss

667

506

  Deferred income taxes

6,198

(233)

  Equity (earnings) losses from unconsolidated joint ventures, net of distributions received

2,471

1,205

Changes in assets and liabilities:

  Receivables

(14,473)

(11,624)

  Advances to/from marketing and reservation activities, net

(39,804)

4,626

  Forgivable notes receivable, net

(6,464)

(13,371)

  Accounts payable

(3,980)

(1,152)

  Accrued expenses and other current liabilities

(24,521)

(24,052)

  Income taxes payable/receivable

(1,798)

2,773

  Deferred revenue

40,458

7,552

  Other assets

(7,238)

(9,826)

  Other liabilities

(842)

437

 NET CASH USED BY OPERATING ACTIVITIES 

(22,945)

(15,835)

CASH FLOWS FROM INVESTING ACTIVITIES:

Investment in property and equipment

(5,306)

(6,804)

Acquisitions of real estate

(25,389)

-

Proceeds from sales of assets

1,700

1,592

Contributions to equity method investments

(4,293)

(1,921)

Distributions from equity method investments

67

-

Purchases of investments, employee benefit plans

(896)

(1,089)

Proceeds from sales of investments, employee benefit plans

363

925

Issuance of mezzanine and other notes receivable

(7,487)

-

Collections of mezzanine and other notes receivable

109

105

Other items, net

(136)

(77)

 NET CASH USED BY INVESTING ACTIVITIES 

(41,268)

(7,269)

CASH FLOWS FROM FINANCING ACTIVITIES:

Net borrowings pursuant to revolving credit facilities

79,267

20,700

Principal payments on long-term debt

(318)

(3,082)

Purchase of treasury stock

(8,857)

(6,227)

Dividends paid

(11,612)

(11,710)

Excess tax benefits from stock-based compensation

1,575

4,473

Proceeds from exercise of stock options

4,137

5,619

 NET CASH PROVIDED BY FINANCING ACTIVITIES

64,192

9,773

Net change in cash and cash equivalents

(21)

(13,331)

Effect of foreign exchange rate changes on cash and cash equivalents

652

(1,004)

Cash and cash equivalents at beginning of period

193,441

214,879

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$      194,072

$  200,544

 

 

Exhibit 4

CHOICE HOTELS INTERNATIONAL, INC.

SUPPLEMENTAL OPERATING INFORMATION 

DOMESTIC HOTEL SYSTEM

(UNAUDITED)

For the Three Months Ended March 31, 2016

For the Three Months Ended March 31, 2015

Change

Average Daily

Average Daily

Average Daily

Rate

Occupancy

RevPAR

Rate

Occupancy

RevPAR

Rate

Occupancy

RevPAR

Comfort Inn

$             85.39

57.7%

$          49.27

$             82.90

57.4%

$         47.55

3.0%

30

bps

3.6%

Comfort Suites

92.40

64.1%

59.26

90.12

64.4%

58.02

2.5%

(30)

bps

2.1%

Sleep

77.71

58.7%

45.61

76.44

59.5%

45.48

1.7%

(80)

bps

0.3%

Quality

72.23

52.2%

37.72

70.18

52.6%

36.93

2.9%

(40)

bps

2.1%

Clarion

75.90

50.1%

38.06

75.30

51.5%

38.74

0.8%

(140)

bps

(1.8%)

Econo Lodge

55.99

47.3%

26.46

54.41

47.9%

26.06

2.9%

(60)

bps

1.5%

Rodeway

57.77

51.0%

29.47

53.85

52.7%

28.40

7.3%

(170)

bps

3.8%

MainStay

72.91

57.9%

42.23

73.58

66.4%

48.85

(0.9%)

(850)

bps

(13.6%)

Suburban

48.28

73.0%

35.26

46.48

74.1%

34.42

3.9%

(110)

bps

2.4%

Ascend Hotel Collection

115.55

53.7%

62.01

113.19

60.8%

68.79

2.1%

(710)

bps

(9.9%)

Total 

$             76.47

55.0%

$          42.05

$             74.59

55.7%

$         41.57

2.5%

(70)

bps

1.2%

For the Quarter Ended

March 31, 2016

March 31, 2015

System-wide effective royalty rate

4.38%

4.31%

 

 

 

Exhibit 5

CHOICE HOTELS INTERNATIONAL, INC.

SUPPLEMENTAL HOTEL AND ROOM SUPPLY DATA

(UNAUDITED)

March 31, 2016

March 31, 2015

Variance

Hotels

Rooms

Hotels

Rooms

Hotels

Rooms

%

%

Comfort Inn

1,143

88,294

1,234

95,281

(91)

(6,987)

(7.4%)

(7.3%)

Comfort Suites

566

43,669

576

44,519

(10)

(850)

(1.7%)

(1.9%)

Sleep

379

27,139

368

26,533

11

606

3.0%

2.3%

Quality

1,394

111,124

1,292

104,654

102

6,470

7.9%

6.2%

Clarion

172

23,893

180

25,380

(8)

(1,487)

(4.4%)

(5.9%)

Econo Lodge

853

52,784

853

52,602

-

182

0.0%

0.3%

Rodeway

519

28,931

475

26,158

44

2,773

9.3%

10.6%

MainStay

54

4,019

46

3,571

8

448

17.4%

12.5%

Suburban

59

6,634

63

7,048

(4)

(414)

(6.3%)

(5.9%)

Ascend Hotel Collection

112

9,378

110

9,405

2

(27)

1.8%

(0.3%)

Cambria hotel & suites

25

3,113

22

2,642

3

471

13.6%

17.8%

Domestic Franchises

5,276

398,978

5,219

397,793

57

1,185

1.1%

0.3%

International Franchises

1,169

110,984

1,143

105,498

26

5,486

2.3%

5.2%

Total Franchises

6,445

509,962

6,362

503,291

83

6,671

1.3%

1.3%

 

 

 

Exhibit 6

CHOICE HOTELS INTERNATIONAL, INC.

SUPPLEMENTAL INFORMATION BY BRAND

DEVELOPMENT RESULTS -- DOMESTIC NEW HOTEL CONTRACTS

(UNAUDITED)

For the Three Months Ended March 31, 2016

For the Three Months Ended March 31, 2015

% Change

New

New

New

Construction

Conversion

Total

Construction

Conversion

Total

Construction

Conversion

Total

Comfort Inn

6

4

10

4

7

11

50%

(43%)

(9%)

Comfort Suites

2

-

2

5

2

7

(60%)

(100%)

(71%)

Sleep

2

-

2

5

-

5

(60%)

NM

(60%)

Quality

-

23

23

2

29

31

(100%)

(21%)

(26%)

Clarion

1

3

4

-

3

3

NM

0%

33%

Econo Lodge

-

14

14

-

9

9

NM

56%

56%

Rodeway

-

10

10

-

14

14

NM

(29%)

(29%)

MainStay

1

-

1

4

-

4

(75%)

NM

(75%)

Suburban

-

-

-

-

2

2

NM

(100%)

(100%)

Ascend Hotel Collection

1

1

2

1

10

11

0%

(90%)

(82%)

Cambria hotel & suites

2

-

2

2

-

2

0%

NM

0%

Total Domestic System

15

55

70

23

76

99

(35%)

(28%)

(29%)

 

 

Exhibit 7

CHOICE HOTELS INTERNATIONAL, INC.

DOMESTIC PIPELINE OF HOTELS UNDER CONSTRUCTION, AWAITING CONVERSION OR APPROVED FOR DEVELOPMENT

(UNAUDITED)

A hotel in the domestic pipeline does not always result in an open and operating hotel due to various factors.

Variance

March 31, 2016

March 31, 2015

Units

Units

Conversion

New Construction

Total

Conversion

New 

Construction

Total

Conversion

New 

Construction

Total

Units

%

Units

%

Units

%

Comfort Inn

35

84

119

33

62

95

2

6%

22

35%

24

25%

Comfort Suites

3

92

95

3

74

77

-

0%

18

24%

18

23%

Sleep Inn

-

76

76

2

73

75

(2)

(100%)

3

4%

1

1%

Quality

47

5

52

54

6

60

(7)

(13%)

(1)

(17%)

(8)

(13%)

Clarion

7

3

10

10

2

12

(3)

(30%)

1

50%

(2)

(17%)

Econo Lodge

26

4

30

28

4

32

(2)

(7%)

-

0%

(2)

(6%)

Rodeway

40

2

42

34

3

37

6

18%

(1)

(33%)

5

14%

MainStay

-

55

55

1

47

48

(1)

(100%)

8

17%

7

15%

Suburban

4

8

12

6

12

18

(2)

(33%)

(4)

(33%)

(6)

(33%)

Ascend Hotel Collection

27

20

47

22

20

42

5

23%

-

0%

5

12%

Cambria hotel & suites

5

39

44

-

23

23

5

NM

16

70%

21

91%

194

388

582

193

326

519

1

1%

62

19%

63

12%

 

 

Exhibit 8

CHOICE HOTELS INTERNATIONAL, INC.

SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION

(UNAUDITED)

CALCULATION OF FRANCHISING REVENUES AND FRANCHISING MARGINS

(dollar amounts in thousands)

Three Months Ended March 31, 

2016

2015

Franchising Revenues:

Total Revenues

$              207,118

$               175,245

Adjustments:

     Marketing and reservation revenues

(126,361)

(98,713)

     Non-franchising activities

(2,029)

(603)

Franchising Revenues

$                78,728

$                 75,929

Franchising Margins:

Operating Margin:

Total Revenues

$              207,118

$               175,245

Operating Income

42,873

41,404

     Operating Margin

20.7%

23.6%

Franchising Margin:

Franchising Revenues

$                78,728

$                 75,929

Operating Income

$                42,873

$                 41,404

Non-franchising activities operating loss

5,656

5,301

$                48,529

$                 46,705

     Franchising Margins

61.6%

61.5%

CALCULATION OF FRANCHISING SELLING, GENERAL AND ADMINISTRATION EXPENSES

(dollar amounts in thousands)

Three Months Ended March 31, 

2016

2015

Total Selling, General and Administrative Expenses

$                35,119

$                 32,438

Non-franchising activities

(6,670)

(5,495)

Franchising Selling, General and Administration Expenses

$                28,449

$                 26,943

CALCULATION OF EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION ("EBITDA")

(dollar amounts in thousands)

Three Months Ended March 31, 

2016

2015

Net income

$                19,598

$                 21,594

Income taxes

10,780

9,440

Interest expense

11,092

10,179

Interest income

(839)

(346)

Other (gains) and losses

62

(468)

Equity in net loss of affiliates

2,180

1,005

Depreciation and amortization

2,765

2,690

EBITDA

$                45,638

$                 44,094

Franchising 

$                50,279

$                 48,986

Non-franchising activities

(4,641)

(4,892)

$                45,638

$                 44,094

 



Logos, product and company names mentioned are the property of their respective owners.