Choice Hotels International Reports A 7% Increase In Second Quarter Domestic RevPAR

ROCKVILLE, Md., July 29, 2015 (hospitalitybusinessnews.com) — Choice Hotels International, Inc.  today reported the following highlights for the second quarter 2015:

  • Revenues for the three months ended June 30, 2015 totaled $232.2 million, an increase of 17 percent from the same period of 2014.
  • Domestic hotel executed franchise agreements totaled 139 for the three months ended June 30, 2015, an increase of 11 percent from the same period of 2014.
  • New domestic hotel franchise agreements executed in the second quarter of 2015 for the Comfort family of brands increased 67 percent over the same period of the prior year with nearly 60 percent of agreements representing new construction hotels.
  • Executed 5 new domestic franchise agreements during the three months ended June 30, 2015 for the Cambria hotels & suites brand expanding to new markets including Philadelphia, PA and Memphis, TN.
  • Domestic relicensing and contract renewal transactions totaled 85 for the three months ended June 30, 2015, an increase of 13 percent from the same period of 2014.
  • The company’s new construction domestic pipeline of hotels under construction or approved for development increased 30 percent from June 30, 2014, and the total pipeline increased 22 percent.  The increase in the new construction hotel pipeline was led by the company’s Comfort family of brands which increased 44 percent over the same period of the prior year.
  • Franchising revenues for the three months ended June 30, 2015, totaled $98.6 million, an increase of 5 percent from the same period of 2014.
  • Domestic royalty fees for the three months ended June 30, 2015, totaled $75.8 million, an increase of 6 percent from the same period of 2014.
  • Domestic system-wide revenue per available room (“RevPAR”) increased 6.7 percent in the second quarter of 2015, as occupancy and average daily rates increased 170 basis points and 3.8 percent, respectively from the same period of 2014.
  • Domestic units increased 0.3 percent from June 30, 2014.
  • Earnings before interest, taxes, depreciation and amortization (“EBITDA”) from franchising activities for the three months ended June 30, 2015, totaled $69.8 million, an increase of 5 percent from the same period of 2014.
  • Diluted earnings per share (“EPS”) from continuing operations for the three months ended June 30, 2015, totaled $0.62, an increase of 3 percent from the same period of 2014.
  • On July 21, 2015, the company completed the refinancing of its existing $350 senior secured credit facility with a new five year, $450 million senior unsecured revolving credit facility.

“We are pleased with our second quarter operating results that were highlighted by strong domestic RevPAR performance and franchise sales results,” said Stephen P. Joyce, president and chief executive officer, Choice Hotels. “Once again our RevPAR performance continued to outpace the gains reported by Smith Travel Research in the chain scale segments in which we compete and as reflected in our franchise sales results our programs to accelerate the growth of the Cambria hotels and suites and Comfort brands have been well received by developers and franchisees. We continue to be optimistic that these programs will drive the continued improvement and expansion of these brands.”

Discontinued Operations

During 2014, the company entered into and completed a plan to sell its three owned hotels operated under the MainStay Suites brand. The company determined that the sale of these hotels met the definition of a discontinued operation since the operations and cash flows of these components have been eliminated from the on-going operations of the company and the company does not have significant continuing involvement in the operations of the hotels after the transaction. As a result, the company’s consolidated statement of income for the three and six months ended June 30, 2014, reflects these three company-owned hotels as discontinued operations.

Summarized financial information related to these discontinued operations is presented in Exhibit 9 of this press release.

Outlook

The company’s consolidated 2015 outlook reflects the following assumptions:

  • All figures assume no repurchases of common stock under the company’s share repurchase program; and
  • The effective tax rate for continuing operations is expected to be approximately 32% for both the third quarter and full-year 2015, respectively.

Franchising

  • EBITDA from franchising activities for full-year 2015 are expected to range between $254 million and $257 million;
  • Net domestic unit growth for 2015 is expected to be approximately 1%;
  • RevPAR is expected to increase approximately 6.5% for the third quarter and range between 6.5% and 7.5% for full-year 2015; and
  • The effective royalty rate is expected to increase 2 basis points for full-year 2015 as compared to full-year 2014.

SkyTouch

  • Net reductions in EBITDA relating to our investment in the SkyTouch division for full-year 2015 are expected to range between $15 million and $20 million.

Consolidated Outlook

The company’s third quarter 2015 diluted EPS is expected to be $0.72. The company expects full-year 2015 diluted EPS to range between $2.18 and $2.22 and full year 2015 EBITDA to range between $237 million and $241 million.

 

 

Choice Hotels International, Inc. Exhibit 1
Consolidated Statements of Income
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
Variance Variance
2015 2014 $ % 2015 2014 $ %
(In thousands, except per share amounts)
REVENUES:
Royalty fees $     81,183 $     77,670 $ 3,513 5% $ 143,614 $ 136,210 $  7,404 5%
Initial franchise and relicensing fees 5,816 4,722 1,094 23% 11,533 8,462 3,071 36%
Procurement services 8,589 8,020 569 7% 13,396 12,798 598 5%
Marketing and reservation 133,122 103,766 29,356 28% 231,835 193,372 38,463 20%
Other 3,446 3,486 (40) (1%) 7,023 6,558 465 7%
      Total revenues 232,156 197,664 34,492 17% 407,401 357,400 50,001 14%
OPERATING EXPENSES:
Selling, general and administrative 33,122 31,413 1,709 5% 65,560 58,093 7,467 13%
Depreciation and amortization 2,995 2,332 663 28% 5,685 4,610 1,075 23%
Marketing and reservation 133,122 103,766 29,356 28% 231,835 193,372 38,463 20%
Total operating expenses 169,239 137,511 31,728 23% 303,080 256,075 47,005 18%
Operating income 62,917 60,153 2,764 5% 104,321 101,325 2,996 3%
OTHER INCOME AND EXPENSES, NET:
Interest expense 11,057 10,710 347 3% 21,236 20,881 355 2%
Interest income (277) (347) 70 (20%) (623) (850) 227 (27%)
Other (gains) and losses (1,173) (474) (699) 147% (1,641) (533) (1,108) 208%
Equity in net loss of affiliates 431 30 401 1337% 1,436 65 1,371 2109%
Total other income and expenses, net 10,038 9,919 119 1% 20,408 19,563 845 4%
Income from continuing operations before income taxes 52,879 50,234 2,645 5% 83,913 81,762 2,151 3%
Income taxes 17,066 14,955 2,111 14% 26,506 25,014 1,492 6%
Income from continuing operations, net of income taxes 35,813 35,279 534 2% 57,407 56,748 659 1%
Income from discontinued operations, net of income taxes 121 (121) (100%) 1,762 (1,762) (100%)
Net income $     35,813 $     35,400 $    413 1% $   57,407 $   58,510 $ (1,103) (2%)
Basic earnings per share
Continuing operations $         0.62 $         0.61 $   0.01 2% $       1.00 $       0.97 $    0.03 3%
Discontinued operations NM 0.03 (0.03) (100%)
$         0.62 $         0.61 $   0.01 2% $       1.00 $       1.00 $    0.00 0%
Diluted earnings per share
Continuing operations $         0.62 $         0.60 $   0.02 3% $       0.99 $       0.96 $    0.03 3%
Discontinued operations NM 0.03 (0.03) (100%)
$         0.62 $         0.60 $   0.02 3% $       0.99 $       0.99 $    0.00 0%

 

 

Choice Hotels International, Inc. Exhibit 2
Consolidated Balance Sheets
(In thousands, except per share amounts)  June 30,   December 31,
2015 2014
(Unaudited)
ASSETS
Cash and cash equivalents $    230,650 $         214,879
Accounts receivable, net 118,989 91,681
Other current assets 47,938 44,854
Total current assets 397,577 351,414
Fixed assets and intangibles, net 155,456 152,034
Notes receivable, net of allowances 51,228 40,441
Investments, employee benefit plans, at fair value 18,274 17,539
Other assets 80,058 85,842
Total assets $    702,593 $         647,270
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Accounts payable and accrued expenses $    128,744 $         120,654
Deferred revenue 70,402 66,382
Current portion of long-term debt 1,124 12,349
Other current liabilities 1,416 713
Total current liabilities 201,686 200,098
Long-term debt 800,035 782,082
Deferred compensation & retirement plan obligations 24,237 23,987
Other liabilities 62,102 69,904
Total liabilities 1,088,060 1,076,071
Common stock, $0.01 par value 576 573
Additional paid-in-capital 134,144 127,661
Accumulated other comprehensive loss (7,812) (6,971)
Treasury stock, at cost (979,211) (982,463)
Retained earnings 466,836 432,399
Total shareholders’ deficit (385,467) (428,801)
Total liabilities and shareholders’ deficit $    702,593 $         647,270

 

 

Choice Hotels International, Inc. Exhibit 3
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands) Six Months Ended June 30,
2015 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $  57,407 $  58,510
Adjustments to reconcile net income to net cash provided
 by operating activities:
  Depreciation and amortization 5,685 4,610
  Gain on sale of assets (1,595) (2,849)
  Provision for bad debts, net 1,197 1,383
  Non-cash stock compensation and other charges 5,399 4,711
  Non-cash interest and other (income) loss 1,340 719
  Deferred income taxes (2,095) (9,273)
  Equity (earnings) losses from unconsolidated joint ventures, net of distributions received 2,781 611
Changes in assets and liabilities:
  Receivables (28,856) (39,518)
  Advances to/from marketing and reservation activities, net 3,724 31,522
  Forgivable notes receivable, net (19,186) (6,692)
  Accounts payable 16,990 8,316
  Accrued expenses (6,969) (5,247)
  Income taxes payable/receivable 2,450 15,198
  Deferred revenue 4,041 6,231
  Other assets (5,152) (1,102)
  Other liabilities 769 (1,298)
 NET CASH PROVIDED BY OPERATING ACTIVITIES  37,930 65,832
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property and equipment (14,554) (7,314)
Proceeds from sales of assets 6,283 12,216
Contributions to equity method investments (2,446) (6,946)
Distributions from equity method investments 270
Purchases of investments, employee benefit plans (1,736) (1,220)
Proceeds from sales of investments, employee benefit plans 1,087 641
Issuance of mezzanine and other notes receivable (1,500) (2,223)
Collections of mezzanine and other notes receivable 3,567 9,743
Other items, net (261) (296)
 NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES  (9,290) 4,601
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings pursuant to revolving credit facility 13,000
Principal payments on long-term debt (6,169) (4,112)
Proceeds from the issuance of long-term debt 26
Purchase of treasury stock (6,244) (4,544)
Dividends paid (22,940) (21,957)
Excess tax benefits from stock-based compensation 4,613 1,319
Proceeds from exercise of stock options 5,696 1,547
 NET CASH USED BY FINANCING ACTIVITIES (12,044) (27,721)
Net change in cash and cash equivalents 16,596 42,712
Effect of foreign exchange rate changes on cash and cash equivalents (825) 1,035
Cash and cash equivalents at beginning of period 214,879 167,795
CASH AND CASH EQUIVALENTS AT END OF PERIOD $230,650 $211,542

 

 

CHOICE HOTELS INTERNATIONAL, INC. Exhibit 4
SUPPLEMENTAL OPERATING INFORMATION 
DOMESTIC HOTEL SYSTEM
(UNAUDITED)
For the Six Months Ended June 30, 2015 For the Six Months Ended June 30, 2014 Change
Average Daily Average Daily Average Daily
Rate Occupancy RevPAR Rate Occupancy RevPAR Rate Occupancy RevPAR
Comfort Inn $            87.35 63.5% $  55.48 $           83.68 61.3% $  51.31 4.4% 220 bps 8.1%
Comfort Suites 93.06 68.2% 63.43 89.35 65.7% 58.68 4.2% 250 bps 8.1%
Sleep 79.60 64.0% 50.93 75.94 61.3% 46.57 4.8% 270 bps 9.4%
Quality 73.16 57.5% 42.05 70.37 54.8% 38.57 4.0% 270 bps 9.0%
Clarion 78.25 56.3% 44.07 75.01 53.0% 39.75 4.3% 330 bps 10.9%
Econo Lodge 57.47 52.4% 30.13 55.75 49.7% 27.72 3.1% 270 bps 8.7%
Rodeway 57.22 55.8% 31.90 54.19 53.2% 28.85 5.6% 260 bps 10.6%
MainStay 76.24 68.5% 52.23 73.80 70.6% 52.11 3.3% (210) bps 0.2%
Suburban 47.25 76.5% 36.15 44.53 72.6% 32.34 6.1% 390 bps 11.8%
Ascend Hotel Collection 122.78 59.8% 73.45 117.13 59.2% 69.30 4.8% 60 bps 6.0%
Total  $            78.08 60.4% $  47.15 $           75.26 58.0% $  43.63 3.7% 240 bps 8.1%
For the Three Months Ended June 30, 2015 For the Three Months Ended June 30, 2014 Change
Average Daily Average Daily Average Daily
Rate Occupancy RevPAR Rate Occupancy RevPAR Rate Occupancy RevPAR
Comfort Inn $            90.92 69.5% $  63.16 $           87.16 67.6% $  58.94 4.3% 190 bps 7.2%
Comfort Suites 95.59 71.8% 68.64 91.46 70.4% 64.36 4.5% 140 bps 6.7%
Sleep 82.23 68.3% 56.11 78.40 66.9% 52.42 4.9% 140 bps 7.0%
Quality 75.52 62.0% 46.83 72.61 59.8% 43.38 4.0% 220 bps 8.0%
Clarion 80.54 60.8% 48.95 78.36 57.0% 44.68 2.8% 380 bps 9.6%
Econo Lodge 59.86 56.6% 33.87 58.12 54.9% 31.90 3.0% 170 bps 6.2%
Rodeway 59.92 58.4% 35.01 56.56 56.7% 32.05 5.9% 170 bps 9.2%
MainStay 78.53 70.4% 55.32 76.33 76.3% 58.25 2.9% (590) bps (5.0%)
Suburban 47.96 78.9% 37.86 45.72 75.0% 34.27 4.9% 390 bps 10.5%
Ascend Hotel Collection 129.04 59.2% 76.41 122.07 60.1% 73.32 5.7% (90) bps 4.2%
Total  $            80.89 64.7% $  52.36 $           77.92 63.0% $  49.08 3.8% 170 bps 6.7%
For the Quarter Ended For the Six Months Ended
6/30/2015 6/30/2014 6/30/2015 6/30/2014
System-wide effective royalty rate 4.28% 4.28% 4.29% 4.30%

 

 

CHOICE HOTELS INTERNATIONAL, INC. Exhibit 5
SUPPLEMENTAL HOTEL AND ROOM SUPPLY DATA
(UNAUDITED)
June 30, 2015 June 30, 2014 Variance
Hotels Rooms Hotels Rooms Hotels Rooms % %
Comfort Inn 1,215 93,904 1,281 99,679 (66) (5,775) (5.2%) (5.8%)
Comfort Suites 575 44,447 590 45,664 (15) (1,217) (2.5%) (2.7%)
Sleep 377 27,207 375 27,159 2 48 0.5% 0.2%
Quality 1,311 105,761 1,251 102,859 60 2,902 4.8% 2.8%
Clarion 175 24,587 185 26,501 (10) (1,914) (5.4%) (7.2%)
Econo Lodge 853 52,835 840 51,678 13 1,157 1.5% 2.2%
Rodeway 481 26,544 460 25,366 21 1,178 4.6% 4.6%
MainStay 47 3,629 42 3,304 5 325 11.9% 9.8%
Suburban 62 6,959 64 7,164 (2) (205) (3.1%) (2.9%)
Ascend Hotel Collection 110 9,408 104 9,076 6 332 5.8% 3.7%
Cambria hotel & suites 24 2,917 20 2,404 4 513 20.0% 21.3%
Domestic Franchises 5,230 398,198 5,212 400,854 18 (2,656) 0.3% (0.7%)
International Franchises 1,146 106,763 1,160 105,669 (14) 1,094 (1.2%) 1.0%
Total Franchises 6,376 504,961 6,372 506,523 4 (1,562) 0.1% (0.3%)

 

 

Exhibit 6
CHOICE HOTELS INTERNATIONAL, INC.
SUPPLEMENTAL INFORMATION BY BRAND
DEVELOPMENT RESULTS — DOMESTIC NEW HOTEL CONTRACTS
(UNAUDITED)
For the Six Months Ended June 30, 2015 For the Six Months Ended June 30, 2014 % Change
New New New
Construction Conversion Total Construction Conversion Total Construction Conversion Total
Comfort Inn 13 20 33 10 8 18 30% 150% 83%
Comfort Suites 13 2 15 7 7 86% NM 114%
Sleep 9 9 14 1 15 (36%) (100%) (40%)
Quality 3 75 78 3 48 51 0% 56% 53%
Clarion 6 6 11 11 NM (45%) (45%)
Econo Lodge 28 28 27 27 NM 4% 4%
Rodeway 35 35 1 31 32 (100%) 13% 9%
MainStay 6 6 5 1 6 20% (100%) 0%
Suburban 1 3 4 1 3 4 0% 0% 0%
Ascend Hotel Collection 1 16 17 6 6 12 (83%) 167% 42%
Cambria hotel & suites 7 7 1 1 600% NM 600%
Total Domestic System 53 185 238 48 136 184 10% 36% 29%
For the Three Months Ended June 30, 2015 For the Three Months Ended June 30, 2014 % Change
New New New
Construction Conversion Total Construction Conversion Total Construction Conversion Total
Comfort Inn 9 13 22 7 5 12 29% 160% 83%
Comfort Suites 8 8 6 6 33% NM 33%
Sleep 4 4 10 1 11 (60%) (100%) (64%)
Quality 1 46 47 2 38 40 (50%) 21% 18%
Clarion 3 3 9 9 NM (67%) (67%)
Econo Lodge 19 19 21 21 NM (10%) (10%)
Rodeway 21 21 16 16 NM 31% 31%
MainStay 2 2 1 1 2 100% (100%) 0%
Suburban 1 1 2 2 2 NM (50%) 0%
Ascend Hotel Collection 6 6 3 3 6 (100%) 100% 0%
Cambria hotel & suites 5 5 NM NM NM
Total Domestic System 30 109 139 29 96 125 3% 14% 11%

 

 

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
June 30, 2015 June 30, 2014
Units Units Conversion New Construction Total
Conversion New Construction Total Conversion New Construction Total Units % Units % Units %
Comfort Inn 38 64 102 38 50 88 0% 14 28% 14 16%
Comfort Suites 3 76 79 1 47 48 2 200% 29 62% 31 65%
Sleep Inn 1 65 66 2 56 58 (1) (50%) 9 16% 8 14%
Quality 54 5 59 41 6 47 13 32% (1) (17%) 12 26%
Clarion 11 2 13 12 2 14 (1) (8%) 0% (1) (7%)
Econo Lodge 24 4 28 33 2 35 (9) (27%) 2 100% (7) (20%)
Rodeway 34 3 37 31 2 33 3 10% 1 50% 4 12%
MainStay 1 47 48 2 35 37 (1) (50%) 12 34% 11 30%
Suburban 6 12 18 7 14 21 (1) (14%) (2) (14%) (3) (14%)
Ascend Hotel Collection 25 18 43 9 15 24 16 178% 3 20% 19 79%
Cambria hotel & suites 25 25 18 18 NM 7 39% 7 39%
197 321 518 176 247 423 21 12% 74 30% 95 22%

 

 

CHOICE HOTELS INTERNATIONAL, INC. Exhibit 8
SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION
(UNAUDITED)
CALCULATION OF FRANCHISING REVENUES AND FRANCHISING MARGINS
(dollar amounts in thousands) Three Months Ended June 30,  Six Months Ended June 30, 
2015 2014 2015 2014
Franchising Revenues:
Total Revenues $  232,156 $  197,664 $  407,401 $  357,400
Adjustments:
     Marketing and reservation revenues (133,122) (103,766) (231,835) (193,372)
     SkyTouch & Other (411) (68) (1,014) (121)
Franchising Revenues $    98,623 $    93,830 $  174,552 $  163,907
Franchising Margins:
Operating Margin:
Total Revenues $  232,156 $  197,664 $  407,401 $  357,400
Operating Income $    62,917 $    60,153 $  104,321 $  101,325
     Operating Margin 27.1% 30.4% 25.6% 28.4%
Franchising Margin:
Franchising Revenues $    98,623 $    93,830 $  174,552 $  163,907
Operating Income $    62,917 $    60,153 $  104,321 $  101,325
Non-franchising activities operating loss 4,375 4,360 9,576 7,866
$    67,292 $    64,513 $  113,897 $  109,191
     Franchising Margins 68.2% 68.8% 65.3% 66.6%
CALCULATION OF FRANCHISING SELLING, GENERAL AND ADMINISTRATION EXPENSES
(dollar amounts in thousands) Three Months Ended June 30,  Six Months Ended June 30, 
2015 2014 2015 2014
Total Selling, General and Administrative Expenses $    33,122 $    31,413 $    65,560 $    58,093
SkyTouch & other (4,314) (4,200) (9,709) (7,536)
Franchising Selling, General and Administration Expenses $    28,808 $    27,213 $    55,851 $    50,557
CALCULATION OF EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (“EBITDA”)
(dollar amounts in thousands)
Three Months Ended June 30,  Six Months Ended June 30, 
2015 2014 2015 2014
Income from continuing operations, net of income taxes $    35,813 $    35,279 $    57,407 $    56,748
Income taxes 17,066 14,955 26,506 25,014
Interest expense 11,057 10,710 21,236 20,881
Interest income (277) (347) (623) (850)
Other (gains) and losses (1,173) (474) (1,641) (533)
Equity in net loss of affiliates 431 30 1,436 65
Depreciation and amortization 2,995 2,332 5,685 4,610
EBITDA $    65,912 $    62,485 $  110,006 $  105,935
Franchising $    69,815 $    66,617 $  118,701 $  113,350
SkyTouch & other (3,903) (4,132) (8,695) (7,415)
$    65,912 $    62,485 $  110,006 $  105,935

 

 

CHOICE HOTELS INTERNATIONAL, INC. Exhibit 9
DISCONTINUED OPERATIONS
(UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30, 
(In thousands) 2015 2014 2015 2014
REVENUES:
Hotel operations $    – $  111 $    – $          801
      Total revenues 111 801
OPERATING EXPENSES:
Hotel operations 170 832
Total operating expenses 170 832
Operating income (loss) (59) (31)
Gain on disposal of discontinued operations 252 2,833
Income from discontinued operations before income taxes 193 2,802
Income tax  72 1,040
Income from discontinued operations $    – $  121 $    – $       1,762

 

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