Domestic Pipeline of Hotels Under Construction, Awaiting Conversion or Approved for Development Increased 12%
ROCKVILLE, Md. , May 4, 2016 — 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, 2016 and 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 million from 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, 2016 increased 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.
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