Choice Hotels Results

Choice Hotels International Reports A 10 Percent Increase In Fourth Quarter Diluted Earnings Per Share

Choice Hotels

Choice Hotels International, Inc. (NYSE:  CHH) today reported its results for the three months and year ended December 31, 2016. Net income for the fourth quarter of 2016 was $31.8 million or $0.56 per diluted share, compared with $29.2 million or $0.51 per diluted share for the fourth quarter of 2015. Fourth quarter adjusted earnings before income taxes, depreciation and amortization (EBITDA) was $56.0 million, compared with $50.6 million in the prior year, an increase of 11 percent.

"We are pleased to report another record year of revenue, operating income and net income performance. 2016 was a strong year for Choice Hotels highlighted by our domestic RevPAR growth which continues to outpace industry performance and strong development results," said Stephen P. Joyce, chief executive officer of Choice Hotels. "There are many contributing factors to our success highlighted by our efforts to deliver new strategic programs and tools designed to increase reservation delivery to our franchisees, the acceleration of our growth and performance in the upscale category, and our strong development momentum. We are optimistic that our expanded programs and services will result in continued strong RevPAR performance and developer interest in 2017 and beyond."

Highlights of the company's fourth quarter and full-year 2016 results are as follows:

Overall Results

  • Diluted earnings per share (EPS) for the fourth quarter totaled $0.56, an increase of 10 percent from the comparable period of the prior year, and increased 11 percent for the full year to $2.46; excluding executive termination benefits, full year adjusted diluted EPS increased 12 percent over the prior year. 
  • Net income totaled $31.8 million for the fourth quarter and $139.4 million for the full year. 
  • Adjusted EBITDA from hotel franchising activities for the fourth quarter increased 8 percent from the prior year fourth quarter to $61.4 million and increased 7 percent to $273.3 million for the full year. 
  • Adjusted hotel franchising margins for the fourth quarter increased 110 basis points from the prior year fourth quarter to 64.4 percent, and increased 90 basis points to 68.2 percent for the full year.

Royalties

  • Domestic royalty fees for fourth quarter totaled $68.4 million, an increase of 8.4 percent from the comparable period of the prior year; full year domestic royalties increased 6.9 percent to $300.7 million from the same period of 2015. 
  • Domestic system-wide revenue per available room (RevPAR) increased 5 percent and 3.9 percent for the fourth quarter and full year, respectively. Occupancy and average daily rates increased 150 basis points and 2.3 percent, respectively in the fourth quarter from the same period of 2015. 
  • Domestic RevPAR performance for the fourth quarter of 2016 exceeded total industry results by 180 basis points, and also exceeded growth reported by Smith Travel Research for the primary chain scale segments in which the company competes. 
  • Comfort family of brands and Sleep recorded 27 and 31 consecutive months of RevPAR index gains compared to its competition, respectively. 
  • Cambria hotel & suites achieved full year RevPAR of over $100. 
  • Effective royalty rate increased 13 basis points and 11 basis points for the fourth quarter and full year 2016, respectively. 
  • Domestic hotels as of December 31, 2016, increased 1.6 percent from December 31, 2015.

Development

  • Approved 267 new franchised hotels for development in the fourth quarter, bringing full year new franchise agreements to 645 hotels. New construction franchise agreements increased 23 percent in the fourth quarter of 2016 from the comparable period of 2015. 
  • Cambria hotel & suites continued to enter major markets with groundbreakings and openings in Philadelphia, two projects in Chicago, Nashville and New York's Times Square. 
  • The company's domestic pipeline of hotels awaiting conversion, under construction or approved for development as of December 31, 2016, increased 19 percent from December 31, 2015. 
  • The domestic new construction pipeline for Cambria hotel & suites as of December 31, 2016, totaled 66 hotels, a 53 percent increase from December 31, 2015.

"We continue to have great success in executing and opening new construction hotels in top markets, as developers have taken note of our strong RevPAR performance and the brand strategies that we have implemented to improve hotel performance," said Patrick Pacious, president and chief operating officer, Choice Hotels. "We are particularly pleased that Cambria hotel & suites and the Comfort brands continue to draw attention from top hotel developers, resulting in an increase in new construction projects in prime urban locations. We expect to see continued interest and development of these brands in highly desirable markets."

Special Item

During the year ended December 31, 2016, the company recorded an executive termination benefit charge of approximately $2.2 million. This special item impacted diluted EPS by $0.03 per share for the year ended December 31, 2016. The company uses non-GAAP measures that exclude executive termination benefits because those non-GAAP measures allow for period-over-period comparison of on-going core operations before the impact of these charges. These non-GAAP measures, which are reconciled to the comparable GAAP measures in Exhibit 8, include adjusted net income, adjusted diluted EPS, adjusted hotel franchising selling, general and administrative expenses, adjusted EBITDA and adjusted hotel franchising margins.

Use of Cash Flows

Dividends During the fourth quarter of 2016, the company's board of directors announced a 5 percent increase, effective the first quarter of 2017, of the current quarterly dividend rate per common share to $0.215 per share. During the year ended December 31, 2016, the company paid cash dividends totaling approximately $46 million. 

Share Repurchases The company repurchased 0.6 million shares of common stock under its share repurchase program during the year ended December 31, 2016, at a total cost of approximately $30 million. During the fourth quarter, the company's board of directors approved increasing the number of shares authorized under its long-standing share repurchase program by 3 million shares. Thus, the company currently has authorization to purchase up to 4.0 million additional shares under this program.

Hotel Development & Financing Pursuant to its program to encourage acceleration of the growth of our upscale select-service Cambriahotels & suites brand, the company advanced approximately $104 million in support of the brand's development during the year ended December 31, 2016. The company also recycled approximately $28 million of investments in support of Cambria development projects resulting in net advances of $76 million for the current year. These advances are primarily in the form of joint venture investments, forgivable key money loans, senior and mezzanine lending and site acquisitions. On December 31, 2016, the company had approximately $204 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 2017 outlook reflects the following assumptions:

Consolidated Outlook

  • Net income for full year 2017 is expected to range between $157 million and $160 million. 
  • Adjusted EBITDA for full year 2017 is expected to range between $292 million and $297 million. 
  • The company's first quarter 2017 diluted EPS is expected to be at least $0.49. 
  • The company expects full year 2017 diluted EPS to range between $2.78 and $2.84. 
  • The recurring effective tax rate is expected to be approximately 33.5% for the first quarter and full year 2017. 
  • 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. 
  • 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.

Hotel Franchising 

  • Adjusted EBITDA from hotel franchising activities for full year 2017 are expected to range between $297 million and $302 million. 
  • Net domestic unit growth for 2017 is expected to range between approximately 2% and 3%. 
  • RevPAR is expected to increase between 3.5% and 4.5% for the first quarter and range between 3.0% and 4.0% for full year 2017. 
  • The effective royalty rate is expected to increase between 12 and 14 basis points for full year 2017 as compared to full year 2016.

Non-Hotel Franchising Activities

  • Net reductions in full year 2017 EBITDA relating to our non-hotel franchising operations, which primarily relate to SkyTouch and vacation rental activities are expected to range between approximately $4 million and $6 million. 

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization: Adjusted EBITDA reflects net income excluding the impact of interest expense, interest income, provision for income taxes, depreciation and amortization, other (gains) and losses, equity in net income of unconsolidated affiliates, mark to market adjustments on non-qualified retirement plan investments and executive termination benefits. We consider adjusted EBITDA to be an indicator of operating performance because we use it to measure our ability to service debt, fund capital expenditures, and expand our business. We also use adjusted EBITDA, as do analysts, lenders, investors and others, to evaluate companies because it excludes certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be dependent on a company's capital structure, debt levels and credit ratings. Accordingly, the impact of interest expense on earnings can vary significantly among companies. The tax positions of companies can also vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. As a result, effective tax rates and provision for income taxes can vary considerably among companies. Adjusted EBITDA also excludes depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets. These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies. Mark to market adjustments on non-qualified retirement plan investments recorded in SG&A are excluded from EBITDA as the company accounts for these investments in accordance with accounting for deferred compensation arrangements when investments are held in a rabbi trust and invested. Changes in the fair value of the investments are recognized as both compensation expense in SG&A and other gains and losses. As a result, the changes in the fair value of the investments do not have an impact on the company's net income. These amounts are excluded from EBITDA as they can vary widely across reporting periods based on the performance of the investments and are not an indicator of the operating performance of the company.

Hotel Franchising Revenues, Adjusted Hotel Franchising EBITDA, Adjusted Hotel Franchising SG&A and Margins:  The company reports hotel franchising revenues, adjusted hotel franchising EBITDA, adjusted franchising hotel SG&A and margins which exclude marketing and reservation revenues; the SkyTouch Technology division; recently acquired operations that provide Software as a Service ("SaaS") technology solutions to vacation rental management companies; revenue generated from the ownership of an office building that is leased to a third-party and executive termination benefits. These non-GAAP measures are a commonly used measure of performance in our industry and facilitate comparisons between the company and its competitors. Marketing and reservation activities are excluded since the company is required by its franchise agreements to use the fees collected for marketing and reservation activities; as such, no income or loss to the company is generated. Cumulative marketing and reservation system fees not expended are recorded as a liability in the company's financial statements and are carried over to the next year and expended in accordance with the franchise agreements. Cumulative marketing and reservation expenditures in excess of fees collected for marketing and reservation activities are deferred and recorded as an asset in the company's financial statements and recovered in future periods. SkyTouch Technology is a division of the company that develops and markets cloud-based technology products, including inventory management, pricing and connectivity to third party channels, to hoteliers not under franchise agreements with the company. The operations for SkyTouch Technology and our vacation rental technology solutions provider are excluded since they do not reflect the company's core franchising business but are adjacent, complementary lines of business.

© 2017 Choice Hotels International, Inc. All rights reserved.

 

Choice Hotels International, Inc.

                             

Exhibit 1

Consolidated Statements of Income

                               

(Unaudited)

                               
                                 
                                 
                             
   

Three Months Ended December 31,

 

Year Ended December 31, 

           

Variance

         

Variance

   

2016

 

2015

 

$

 

%

 

2016

 

2015

 

$

 

%

(In thousands, except per share amounts)

                               
                                 

REVENUES:

                               
                                 

Royalty fees

 

$ 73,379

 

$ 67,965

 

$ 5,414

 

8%

 

$ 320,547

 

$ 301,508

 

$ 19,039

 

6%

Initial franchise and relicensing fees

 

6,807

 

6,977

 

(170)

 

(2%)

 

23,953

 

24,680

 

(727)

 

(3%)

Procurement services

 

7,507

 

7,404

 

103

 

1%

 

31,226

 

27,071

 

4,155

 

15%

Marketing and reservation system

 

113,523

 

122,465

 

(8,942)

 

(7%)

 

525,716

 

488,763

 

36,953

 

8%

Other

 

6,979

 

6,140

 

839

 

14%

 

23,199

 

17,856

 

5,343

 

30%

Total revenues

 

208,195

 

210,951

 

(2,756)

 

(1%)

 

924,641

 

859,878

 

64,763

 

8%

                                 

OPERATING EXPENSES:

                               
                                 

Selling, general and administrative

 

39,213

 

38,542

 

671

 

2%

 

148,728

 

134,254

 

14,474

 

11%

Depreciation and amortization

 

2,998

 

2,749

 

249

 

9%

 

11,705

 

11,542

 

163

 

1%

Marketing and reservation system

 

113,523

 

122,465

 

(8,942)

 

(7%)

 

525,716

 

488,763

 

36,953

 

8%

Total operating expenses

 

155,734

 

163,756

 

(8,022)

 

(5%)

 

686,149

 

634,559

 

51,590

 

8%

                                 

Gain on sale of assets, net

 

1

 

-

 

1

 

NM

 

403

 

-

 

403

 

NM

                                 

Operating income

 

52,462

 

47,195

 

5,267

 

11%

 

238,895

 

225,319

 

13,576

 

6%

                                 

OTHER INCOME AND EXPENSES, NET:

                               

Interest expense

 

10,980

 

10,776

 

204

 

2%

 

44,446

 

42,833

 

1,613

 

4%

Interest income

 

(1,033)

 

(598)

 

(435)

 

73%

 

(3,535)

 

(1,580)

 

(1,955)

 

124%

Other (gains) losses

 

(499)

 

(581)

 

82

 

(14%)

 

(1,504)

 

(820)

 

(684)

 

83%

Equity in net (income) loss of affiliates

 

(778)

 

(206)

 

(572)

 

278%

 

(492)

 

901

 

(1,393)

 

(155%)

Total other income and expenses, net

 

8,670

 

9,391

 

(721)

 

(8%)

 

38,915

 

41,334

 

(2,419)

 

(6%)

                                 

Income before income taxes

 

43,792

 

37,804

 

5,988

 

16%

 

199,980

 

183,985

 

15,995

 

9%

Income taxes

 

11,971

 

8,601

 

3,370

 

39%

 

60,609

 

55,956

 

4,653

 

8%

Net income

 

$ 31,821

 

$ 29,203

 

$ 2,618

 

9%

 

$ 139,371

 

$ 128,029

 

$ 11,342

 

9%

                                 
                                 

Basic earnings per share

 

$ 0.57

 

$ 0.52

 

$ 0.05

 

10%

 

$ 2.48

 

$ 2.24

 

$ 0.24

 

11%

                                 
                                 

Diluted earnings per share

 

$ 0.56

 

$ 0.51

 

$ 0.05

 

10%

 

$ 2.46

 

$ 2.22

 

$ 0.24

 

11%

 

Choice Hotels International, Inc.

     

Exhibit 2

Consolidated Balance Sheets

       
               
               

(In thousands, except per share amounts)

December 31, 

 

December 31, 

         

2016

 

2015

         

(Unaudited)

   
               

ASSETS

           
               

Cash and cash equivalents

   

$ 202,463

 

$ 193,441

Accounts receivable, net

   

107,336

 

89,352

Other current assets

   

35,074

 

28,160

 

Total current assets

   

344,873

 

310,953

               

Fixed assets and intangibles, net

 

178,704

 

179,433

Notes receivable, net of allowances

 

110,608

 

82,572

Investments in unconsolidated entities

94,839

 

67,037

Investments, employee benefit plans, at fair value

16,975

 

17,674

Other assets

     

106,469

 

59,341

               
   

Total assets

 

$ 852,468

 

$ 717,010

               
               
               

LIABILITIES AND SHAREHOLDERS' DEFICIT

     
               

Accounts payable 

   

$ 48,071

 

$ 64,431

Accrued expenses and other current liabilities

81,184

 

70,807

Deferred revenue

   

133,218

 

71,587

Current portion of long-term debt

 

1,195

 

1,191

 

Total current liabilities

 

263,668

 

208,016

               

Long-term debt

   

839,409

 

812,945

Deferred compensation & retirement plan obligations 

21,595

 

22,859

Other liabilities

     

39,145

 

69,089

               
 

Total liabilities

   

1,163,817

 

1,112,909

               
 

Total shareholders' deficit

 

(311,349)

 

(395,899)

               
   

Total liabilities and shareholders' deficit

$ 852,468

 

$ 717,010

 

Choice Hotels International, Inc.

   

Exhibit 3

Consolidated Statements of Cash Flows

     

(Unaudited)

     
       
       
   

(In thousands)

Year Ended December 31,

       
 

2016

 

2015*

CASH FLOWS FROM OPERATING ACTIVITIES:

     
       

Net income

$ 139,371

 

$ 128,029

       

Adjustments to reconcile net income to net cash provided 

     

by operating activities:

     

Depreciation and amortization 

11,705

 

11,542

Gain on disposal of assets

(346)

 

(1,521)

Provision for bad debts, net

2,151

 

1,704

Non-cash stock compensation and other charges

15,458

 

11,805

Non-cash interest and other loss

1,059

 

3,229

Deferred income taxes

(10,542)

 

615

Equity in net losses from unconsolidated joint ventures less distributions received

1,025

 

3,279

       

Changes in assets and liabilities, net of acquisition:

     

Receivables

(21,919)

 

401

Advances to/from marketing and reservation activities, net

(21,449)

 

11,074

Forgivable notes receivable, net

(17,410)

 

(23,066)

Accounts payable

(13,689)

 

6,493

Accrued expenses and other current liabilities

5,225

 

5,166

Income taxes payable/receivable

5,775

 

808

Deferred revenue

61,646

 

5,251

Other assets

(8,703)

 

(5,792)

Other liabilities

2,678

 

6,062

       

NET CASH PROVIDED BY OPERATING ACTIVITIES 

152,035

 

165,079

       

CASH FLOWS FROM INVESTING ACTIVITIES:

     
       

Investment in property and equipment

(25,191)

 

(27,765)

Investment in intangible assets

(2,580)

 

(733)

Proceeds from sales of assets

11,462

 

6,347

Acquisitions of real estate

(28,583)

 

(9,200)

Business acquisiton, net of cash acquired

(1,341)

 

(13,269)

Contributions to equity method investments

(34,661)

 

(23,737)

Distributions from equity method investments

3,700

 

518

Purchases of investments, employee benefit plans

(1,661)

 

(3,220)

Proceeds from sales of investments, employee benefit plans

1,911

 

3,170

Issuance of mezzanine and other notes receivable

(32,604)

 

(36,884)

Collections of mezzanine and other notes receivable

11,070

 

4,849

Other items, net

11

 

114

       

NET CASH USED BY INVESTING ACTIVITIES 

(98,467)

 

(99,810)

       

CASH FLOWS FROM FINANCING ACTIVITIES:

     
       

Net borrowings pursuant to revolving credit facilities

25,795

 

158,867

Principal payments on long-term debt

(988)

 

(130,501)

Proceeds from other debt agreements

550

 

-

Proceeds from the issuance of long-term debt

-

 

176

Debt issuance costs

(284)

 

(2,169)

Purchases of treasury stock

(35,926)

 

(72,873)

Dividends paid

(46,182)

 

(45,214)

Proceeds from exercise of stock options

12,951

 

7,056

       

NET CASH USED BY FINANCING ACTIVITIES

(44,084)

 

(84,658)

       

Net change in cash and cash equivalents

9,484

 

(19,389)

Effect of foreign exchange rate changes on cash and cash equivalents

(462)

 

(2,049)

Cash and cash equivalents at beginning of period

193,441

 

214,879

       

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$ 202,463

 

$ 193,441

       

* Year end results for December 31, 2015 reflect the adoption of ASU No. 2016-09, which requires companies to recognize excess tax benefits related to the exercise of share based awardsas operating activities in the statement of cash flows. The company has elected to apply the ASU retrospectively and as a result excess tax benefits totaling $5.2 million for the year endedDecember 31, 2015 have been reclassified from cash flows from financing activities to cash flows from operating activities.

 

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CHOICE HOTELS INTERNATIONAL, INC.

Exhibit 4

SUPPLEMENTAL OPERATING INFORMATION 

 

DOMESTIC HOTEL SYSTEM

 

(UNAUDITED)

 
                                           
                                           
                                           
                                           
   

For the Year Ended December 31, 2016

 

For the Year Ended December 31, 2015

 

Change

   
                                           
   

Average Daily

         

Average Daily

         

Average Daily

             
   

Rate

 

Occupancy

 

RevPAR

 

Rate

 

Occupancy

 

RevPAR

 

Rate

 

Occupancy

 

RevPAR

   
                                           

Comfort Inn

 

$ 92.56

 

65.6%

 

$ 60.70

 

$ 89.68

 

65.0%

 

$ 58.25

 

3.2%

 

60

bps

 

4.2%

   

Comfort Suites

 

96.32

 

69.3%

 

66.74

 

93.89

 

68.3%

 

64.16

 

2.6%

 

100

bps

 

4.0%

   

Sleep

 

82.08

 

65.1%

 

53.47

 

80.41

 

63.9%

 

51.41

 

2.1%

 

120

bps

 

4.0%

   

Quality

 

77.80

 

59.1%

 

45.99

 

75.06

 

58.2%

 

43.69

 

3.7%

 

90

bps

 

5.3%

   

Clarion

 

82.35

 

58.3%

 

48.01

 

79.85

 

57.2%

 

45.63

 

3.1%

 

110

bps

 

5.2%

   

Econo Lodge

 

61.41

 

54.1%

 

33.22

 

59.61

 

53.5%

 

31.90

 

3.0%

 

60

bps

 

4.1%

   

Rodeway

 

63.04

 

55.7%

 

35.08

 

59.75

 

56.3%

 

33.64

 

5.5%

 

(60)

bps

 

4.3%

   

MainStay

 

76.29

 

65.2%

 

49.70

 

77.02

 

67.1%

 

51.71

 

(0.9%)

 

(190)

bps

 

(3.9%)

   

Suburban

 

49.96

 

75.5%

 

37.72

 

47.61

 

75.5%

 

35.95

 

4.9%

 

-

bps

 

4.9%

   

Cambria hotel & suites

 

131.73

 

76.3%

 

100.46

 

NA 

 

NA 

 

NA 

 

NA 

 

NA 

   

NA 

   

Ascend Hotel Collection

 

129.97

 

58.1%

 

75.52

 

127.27

 

58.5%

 

74.47

 

2.1%

 

(40)

bps

 

1.4%

   
                                           

Total (1)

 

$ 82.64

 

61.7%

 

$ 51.00

 

$ 80.24

 

61.2%

 

$ 49.08

 

3.0%

 

50

bps

 

3.9%

   
                                           
                                           
                                           
                                           
   

For the Three Months Ended December 31, 2016

 

For the Three Months Ended December 31, 2015

 

Change

   
                                           
   

Average Daily

         

Average Daily

         

Average Daily

             
   

Rate

 

Occupancy

 

RevPAR

 

Rate

 

Occupancy

 

RevPAR

 

Rate

 

Occupancy

 

RevPAR

   
                                           

Comfort Inn

 

$ 88.45

 

60.7%

 

$ 53.66

 

$ 86.31

 

59.4%

 

$ 51.25

 

2.5%

 

130

bps

 

4.7%

   

Comfort Suites

 

92.67

 

64.7%

 

59.92

 

90.85

 

63.7%

 

57.90

 

2.0%

 

100

bps

 

3.5%

   

Sleep

 

78.82

 

61.5%

 

48.44

 

77.35

 

58.7%

 

45.41

 

1.9%

 

280

bps

 

6.7%

   

Quality

 

73.92

 

54.2%

 

40.05

 

71.82

 

52.5%

 

37.68

 

2.9%

 

170

bps

 

6.3%

   

Clarion

 

77.74

 

53.9%

 

41.93

 

76.13

 

51.8%

 

39.43

 

2.1%

 

210

bps

 

6.3%

   

Econo Lodge

 

58.37

 

50.4%

 

29.43

 

56.79

 

48.8%

 

27.72

 

2.8%

 

160

bps

 

6.2%

   

Rodeway

 

59.42

 

50.9%

 

30.22

 

57.00

 

49.9%

 

28.47

 

4.2%

 

100

bps

 

6.1%

   

MainStay

 

73.06

 

62.2%

 

45.42

 

73.73

 

60.1%

 

44.30

 

(0.9%)

 

210

bps

 

2.5%

   

Suburban

 

49.36

 

74.0%

 

36.55

 

47.15

 

71.1%

 

33.51

 

4.7%

 

290

bps

 

9.1%

   

Cambria hotel & suites

 

135.36

 

73.1%

 

98.90

 

NA 

 

NA 

 

NA 

 

NA 

 

NA 

   

NA 

   

Ascend Hotel Collection

 

128.82

 

55.3%

 

71.29

 

126.92

 

54.4%

 

69.09

 

1.5%

 

90

bps

 

3.2%

   
                                           

Total (1)

 

$ 79.10

 

57.3%

 

$ 45.28

 

$ 77.30

 

55.8%

 

$ 43.13

 

2.3%

 

150

bps

 

5.0%

   
                                           
                                           
                                           
                                           
                                           
                                           
   

For the Quarter Ended

     

For the Year Ended

                     
   

12/31/2016

 

12/31/2015

     

12/31/2016

 

12/31/2015

                     
                                           

System-wide effective royalty rate

 

4.49%

 

4.36%

(1)

   

4.41%

 

4.30%

                     
                                           
                                           
                                           

(1)Totals for the three months and year ended December 31, 2015 have been revised from previous disclosures to include the operating statistics for the Cambria hotel & suites brand

             

 

CHOICE HOTELS INTERNATIONAL, INC.

Exhibit 5

SUPPLEMENTAL HOTEL AND ROOM SUPPLY DATA

 

(UNAUDITED)

 
                                   
                                   
                                   
   

December 31, 2016

 

December 31, 2015

 

Variance

 
                                   
   

Hotels

 

Rooms

 

Hotels

 

Rooms

 

Hotels

 

Rooms

 

%

 

%

 
                                   

Comfort Inn

 

1,113

 

86,310

 

1,156

 

89,545

 

(43)

 

(3,235)

 

(3.7%)

 

(3.6%)

 

Comfort Suites

 

565

 

43,610

 

569

 

43,949

 

(4)

 

(339)

 

(0.7%)

 

(0.8%)

 

Sleep

 

379

 

27,097

 

377

 

27,047

 

2

 

50

 

0.5%

 

0.2%

 

Quality

 

1,447

 

114,582

 

1,379

 

110,116

 

68

 

4,466

 

4.9%

 

4.1%

 

Clarion

 

167

 

22,941

 

175

 

24,449

 

(8)

 

(1,508)

 

(4.6%)

 

(6.2%)

 

Econo Lodge

 

857

 

52,791

 

856

 

52,978

 

1

 

(187)

 

0.1%

 

(0.4%)

 

Rodeway

 

565

 

32,515

 

513

 

28,880

 

52

 

3,635

 

10.1%

 

12.6%

 

MainStay

 

56

 

4,108

 

52

 

3,846

 

4

 

262

 

7.7%

 

6.8%

 

Suburban

 

59

 

6,561

 

62

 

6,994

 

(3)

 

(433)

 

(4.8%)

 

(6.2%)

 

Cambria hotel & suites

 

27

 

3,503

 

25

 

3,113

 

2

 

390

 

8.0%

 

12.5%

 

Ascend Hotel Collection

 

127

 

10,480

 

112

 

9,455

 

15

 

1,025

 

13.4%

 

10.8%

 
                                   

Domestic Franchises

 

5,362

 

404,498

 

5,276

 

400,372

 

86

 

4,126

 

1.6%

 

1.0%

 
                                   

International Franchises

 

1,152

 

111,624

 

1,147

 

107,111

 

5

 

4,513

 

0.4%

 

4.2%

 
                                   

Total Franchises

 

6,514

 

516,122

 

6,423

 

507,483

 

91

 

8,639

 

1.4%

 

1.7%

 
                                   

 

View Table Fullscreen

                                   

Exhibit 6

 

CHOICE HOTELS INTERNATIONAL, INC.

SUPPLEMENTAL INFORMATION BY BRAND

DEVELOPMENT RESULTS -- DOMESTIC NEW HOTEL CONTRACTS

(UNAUDITED)

                                       
                                       
                                       
                                       
   

For the Year Ended December 31, 2016

 

For the Year Ended December 31, 2015

 

% Change

 
                                       
   

New

         

New

         

New

         
   

Construction

 

Conversion

 

Total

 

Construction

 

Conversion

 

Total

 

Construction

 

Conversion

 

Total

 
                                       

Comfort Inn

 

37

 

38

 

75

 

37

 

39

 

76

 

0%

 

(3%)

 

(1%)

 

Comfort Suites

 

43

 

3

 

46

 

45

 

6

 

51

 

(4%)

 

(50%)

 

(10%)

 

Sleep

 

50

 

1

 

51

 

34

 

-

 

34

 

47%

 

NM

 

50%

 

Quality

 

2

 

174

 

176

 

3

 

193

 

196

 

(33%)

 

(10%)

 

(10%)

 

Clarion

 

3

 

32

 

35

 

-

 

12

 

12

 

NM

 

167%

 

192%

 

Econo Lodge

 

2

 

65

 

67

 

-

 

60

 

60

 

NM

 

8%

 

12%

 

Rodeway

 

-

 

102

 

102

 

-

 

104

 

104

 

NM

 

(2%)

 

(2%)

 

MainStay

 

29

 

-

 

29

 

27

 

-

 

27

 

7%

 

NM

 

7%

 

Suburban

 

-

 

2

 

2

 

1

 

6

 

7

 

(100%)

 

(67%)

 

(71%)

 

Ascend Hotel Collection

 

9

 

25

 

34

 

5

 

32

 

37

 

80%

 

(22%)

 

(8%)

 

Cambria hotel & suites

 

26

 

2

 

28

 

21

 

5

 

26

 

24%

 

(60%)

 

8%

 
                                       

Total Domestic System

 

201

 

444

 

645

 

173

 

457

 

630

 

16%

 

(3%)

 

2%

 
                                       
                                       
                                       
                                       
                                       
   

For the Three Months Ended December 31, 2016

 

For the Three Months Ended December 31, 2015

 

% Change

 
                                       
   

New

         

New

         

New

         
   

Construction

 

Conversion

 

Total

 

Construction

 

Conversion

 

Total

 

Construction

 

Conversion

 

Total

 
                                       

Comfort Inn

 

17

 

12

 

29

 

20

 

11

 

31

 

(15%)

 

9%

 

(6%)

 

Comfort Suites

 

26

 

2

 

28

 

27

 

3

 

30

 

(4%)

 

(33%)

 

(7%)

 

Sleep

 

24

 

-

 

24

 

15

 

-

 

15

 

60%

 

NM

 

60%

 

Quality

 

2

 

56

 

58

 

-

 

79

 

79

 

NM

 

(29%)

 

(27%)

 

Clarion

 

-

 

17

 

17

 

-

 

5

 

5

 

NM

 

240%

 

240%

 

Econo Lodge

 

1

 

24

 

25

 

-

 

21

 

21

 

NM

 

14%

 

19%

 

Rodeway

 

-

 

42

 

42

 

-

 

47

 

47

 

NM

 

(11%)

 

(11%)

 

MainStay

 

14

 

-

 

14

 

11

 

-

 

11

 

27%

 

NM

 

27%

 

Suburban

 

-

 

1

 

1

 

-

 

2

 

2

 

NM

 

(50%)

 

(50%)

 

Ascend Hotel Collection

 

7

 

10

 

17

 

2

 

10

 

12

 

250%

 

0%

 

42%

 

Cambria hotel & suites

 

10

 

2

 

12

 

7

 

3

 

10

 

43%

 

(33%)

 

20%

 
                                       

Total Domestic System

 

101

 

166

 

267

 

82

 

181

 

263

 

23%

 

(8%)

 

2%

 

 

View Table Fullscreen

                                           

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

   

December 31, 2016

 

December 31, 2015

                       
   

Units

 

Units

 

Conversion

 

New Construction

 

Total

   

Conversion

 

New Construction

 

Total

 

Conversion

 

New Construction

 

Total

 

Units

 

%

 

Units

 

%

 

Units

 

%

                                                 

Comfort Inn

 

38

 

94

 

132

 

38

 

83

 

121

 

-

 

0%

 

11

 

13%

 

11

 

9%

Comfort Suites

 

3

 

114

 

117

 

3

 

95

 

98

 

-

 

0%

 

19

 

20%

 

19

 

19%

Sleep Inn

 

1

 

108

 

109

 

-

 

81

 

81

 

1

 

NM

 

27

 

33%

 

28

 

35%

Quality

 

54

 

5

 

59

 

53

 

5

 

58

 

1

 

2%

 

-

 

0%

 

1

 

2%

Clarion

 

17

 

4

 

21

 

7

 

2

 

9

 

10

 

143%

 

2

 

100%

 

12

 

133%

Econo Lodge

 

33

 

4

 

37

 

23

 

4

 

27

 

10

 

43%

 

-

 

0%

 

10

 

37%

Rodeway

 

37

 

1

 

38

 

47

 

2

 

49

 

(10)

 

(21%)

 

(1)

 

(50%)

 

(11)

 

(22%)

MainStay

 

-

 

75

 

75

 

-

 

60

 

60

 

-

 

NM

 

15

 

25%

 

15

 

25%

Suburban

 

5

 

5

 

10

 

5

 

8

 

13

 

-

 

0%

 

(3)

 

(38%)

 

(3)

 

(23%)

Ascend Hotel Collection

 

35

 

22

 

57

 

28

 

19

 

47

 

7

 

25%

 

3

 

16%

 

10

 

21%

Cambria hotel & suites

 

6

 

60

 

66

 

5

 

38

 

43

 

1

 

20%

 

22

 

58%

 

23

 

53%

                                                 
   

229

 

492

 

721

 

209

 

397

 

606

 

20

 

10%

 

95

 

24%

 

115

 

19%

 

 

CHOICE HOTELS INTERNATIONAL, INC.

Exhibit 8

 

SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION

 
 

(UNAUDITED)

 
                     
                     

HOTEL FRANCHISING REVENUES AND ADJUSTED HOTEL FRANCHISING MARGINS

             
                     

(dollar amounts in thousands)

 

Three Months Ended December 31, 

 

Year Ended December 31, 

 
                     
     

2016

 

2015

 

2016

 

2015

 
 

Hotel Franchising Revenues:

                 
                     
 

Total Revenues

 

$ 208,195

 

$ 210,951

 

$ 924,641

 

$ 859,878

 
 

Adjustments:

                 
 

Marketing and reservation system revenues

 

(113,523)

 

(122,465)

 

(525,716)

 

(488,763)

 
 

Non-hotel franchising activities

 

(2,295)

 

(1,943)

 

(8,816)

 

(4,416)

 
 

Hotel Franchising Revenues

 

$ 92,377

 

$ 86,543

 

$ 390,109

 

$ 366,699

 
                     
 

Adjusted Hotel Franchising Margins:

                 
                     
 

Operating Margin:

                 
                     
 

Total Revenues

 

$ 208,195

 

$ 210,951

 

$ 924,641

 

$ 859,878

 
 

Operating Income

 

$ 52,462

 

$ 47,195

 

$ 238,895

 

$ 225,319

 
 

Operating Margin

 

25.2%

 

22.4%

 

25.8%

 

26.2%

 
                     
 

Adjusted Hotel Franchising Margin:

                 
                     
 

Hotel Franchising Revenues

 

$ 92,377

 

$ 86,543

 

$ 390,109

 

$ 366,699

 
                     
 

Operating Income

 

$ 52,462

 

$ 47,195

 

$ 238,895

 

$ 225,319

 
 

Mark to market adjustments on non-qualified retirement plan investments

$ 531

 

$ 619

 

$ 1,534

 

$ (732)

 
 

Executive termination benefits

 

-

 

-

 

2,206

 

-

 
 

Non-hotel franchising activities operating loss

 

6,453

 

6,952

 

23,593

 

22,274

 
 

Adjusted Hotel Franchising Operating Income

 

$ 59,446

 

$ 54,766

 

$ 266,228

 

$ 246,861

 
                     
 

Adjusted Hotel Franchising Margins

 

64.4%

 

63.3%

 

68.2%

 

67.3%

 
                     
                     
                     
                     
                     

ADJUSTED HOTEL FRANCHISING SELLING, GENERAL AND ADMINISTRATION EXPENSES

             
                     

(dollar amounts in thousands)

 

Three Months Ended December 31, 

 

Year Ended December 31, 

 
                     
     

2016

 

2015

 

2016

 

2015

 
                     
 

Total Selling, General and Administrative Expenses

 

$ 39,213

 

$ 38,542

 

$ 148,728

 

$ 134,254

 
 

Mark to market adjustments on non-qualified retirement plan investments

$ (531)

 

$ (619)

 

$ (1,534)

 

$ 732

 
 

Executive termination benefits

 

-

 

-

 

(2,206)

 

-

 
 

Non-hotel franchising activities

 

(7,703)

 

(7,976)

 

(28,141)

 

(24,121)

 
 

Adjusted Hotel Franchising Selling, General and Administration Expenses

$ 30,979

 

$ 29,947

 

$ 116,847

 

$ 110,865

 
                     
                     
                     
                     
                     

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

         
                     

(dollar amounts in thousands)

                 
     

Three Months Ended December 31, 

 

Year Ended December 31, 

 
                     
     

2016

 

2015

 

2016

 

2015

 
                     

Net income

 

$ 31,821

 

$ 29,203

 

$ 139,371

 

$ 128,029

 
 

Income taxes

 

11,971

 

8,601

 

60,609

 

55,956

 
 

Interest expense

 

10,980

 

10,776

 

44,446

 

42,833

 
 

Interest income

 

(1,033)

 

(598)

 

(3,535)

 

(1,580)

 
 

Other (gains) losses

 

(499)

 

(581)

 

(1,504)

 

(820)

 
 

Equity in net (income) loss of affiliates

 

(778)

 

(206)

 

(492)

 

901

 
 

Gain on sale of assets

 

(1)

 

-

 

(403)

 

-

 
 

Depreciation and amortization

 

2,998

 

2,749

 

11,705

 

11,542

 
 

Mark to market adjustments on non-qualified retirement plan investments

531

 

619

 

1,534

 

(732)

 
 

Executive termination benefits

 

-

 

-

 

2,206

 

-

 

Adjusted EBITDA

 

$ 55,990

 

$ 50,563

 

$ 253,937

 

$ 236,129

 
                     

Hotel franchising 

 

$ 61,398

 

$ 56,596

 

$ 273,262

 

$ 255,834

 

Non-hotel franchising activities

 

(5,408)

 

(6,033)

 

(19,325)

 

(19,705)

 
     

$ 55,990

 

$ 50,563

 

$ 253,937

 

$ 236,129

 
                     
                     
                     
                     

ADJUSTED NET INCOME AND ADJUSTED DILUTED EARNINGS PER SHARE (EPS)

             
                     

(dollar amounts in thousands, except per share amounts)

 

Three Months Ended December 31, 

 

Year Ended December 31,

 
                     
     

2016

 

2015

 

2016

 

2015

 
                     

Net Income

 

$ 31,821

 

$ 29,203

 

$ 139,371

 

$ 128,029

 

Adjustments:

                 
 

Executive termination benefits, net of income taxes

 

-

 

-

 

1,394

 

-

 

Adjusted Net Income

 

$ 31,821

 

$ 29,203

 

$ 140,765

 

$ 128,029

 
                     
                     

Diluted Earnings Per Share

 

$ 0.56

 

$ 0.51

 

$ 2.46

 

$ 2.22

 

Adjustments:

                 
 

Executive termination benefits

 

-

 

-

 

0.03

 

-

 

Adjusted Diluted Earnings Per Share (EPS)

 

$ 0.56

 

$ 0.51

 

$ 2.49

 

$ 2.22

 
                     
                     
                     

ADJUSTED EBITDA FULL YEAR FORECAST

                 
                     

(dollar amounts in thousands)

                 
     

Range

     
     

Estimated Adjusted EBITDA

         
     

Fiscal Year 2017

         
                     

Net income

 

$ 156,900

 

$ 160,200

         
 

Income taxes

 

79,000

 

80,700

         
 

Interest expense

 

47,800

 

47,800

         
 

Interest income

 

(4,700)

 

(4,700)

         
 

Gain on sale of assets

 

-

 

-

         
 

Other gains

 

-

 

-

         
 

Equity in net loss of affiliates

 

(200)

 

(200)

         
 

Depreciation and amortization

 

13,200

 

13,200

         
 

Mark to market adjustments on non-qualified retirement plan investments

-

 

-

         

Adjusted EBITDA

 

$ 292,000

 

$ 297,000

         
                     

Hotel franchising 

 

$ 297,000

 

$ 302,000

         

Non-hotel franchising activities

 

(5,000)

 

(5,000)

         
     

$ 292,000

 

$ 297,000

         



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