ROCKVILLE, Md. , May 4, 2017 — Choice Hotels International, Inc. (NYSE: CHH), one of the world's largest hotel companies, today reported its results for the three months ended March 31, 2017 . Net income for the first quarter of 2017 was $28.7 million or $0.51 per diluted share, compared with $21.2 million or $0.37 per diluted share for the first quarter of 2016. First quarter adjusted earnings before income taxes, depreciation and amortization (EBITDA) was $56.4 million , compared with $45.6 million in the prior year first quarter, a 24-percent increase.
"Choice Hotels continues to be a leader in the hospitality industry, representing 1 in 10 hotels in the U.S. The success of our first quarter financial and development results builds on our 2016 momentum," said Stephen P. Joyce, chief executive officer. "Our strategic focus to help increase franchisee profitability, grow our development pipeline, and strengthen our core business is reflected in our operating results, highlighted by our continued RevPAR growth and the 51-percent increase in new domestic franchise agreements from the first quarter 2016. More importantly, Choice is optimistic that these positive outcomes will continue for both our franchisees and shareholders."
Highlights of the company's first quarter 2017 results are as follows:
Overall Results
- Diluted earnings per share (EPS) for the first quarter totaled $0.51, an increase of 38 percent from the first quarter of the prior year.
- Net income totaled $28.7 million for the first quarter, an increase of 36 percent from the comparable period of the prior year.
- Adjusted EBITDA from hotel franchising activities for the first quarter increased 15 percent from the prior year first quarter to $57.6 million.
- Adjusted hotel franchising margins for the first quarter increased 300 basis points from the prior year first quarter to 64.6 percent.
Royalties
- Domestic royalty fees for first quarter totaled $64.5 million, an increase of 6.6 percent from the first quarter of the prior year.
- Domestic system-wide revenue per available room (RevPAR) increased 3.8 percent for the first quarter. Occupancy and average daily rates increased 100 basis points and 1.9 percent, respectively in the first quarter from the same period of 2016.
- Domestic RevPAR performance for the first quarter of 2017 exceeded total industry results by 40 basis points and also exceeded growth reported by Smith Travel Research for the primary chain scale segments in which the company competes.
- The Comfort brands and Sleep Inn recorded 30 and 34 consecutive months of RevPAR index gains, respectively, compared to its focused competition.
- Effective royalty rate increased 17 basis points for the first quarter of 2017, compared to the same period of the prior year.
- Domestic franchised hotels, as of March 31, 2017, increased 1.3 percent from March 31, 2016. Excluding the impact of our Comfort transformation strategy, our domestic franchised hotels on March 31, 2017, increased 3.0 percent from March 31, 2016.
- Domestic and international rooms, as of March 31, 2017, increased 0.9 percent and 1.5 percent, respectively, from March 31, 2016.
Development
- New, approved franchised hotel development contracts totaled 106 in the first quarter, an increase of 51 percent from the comparable period of the prior year.
- New construction and conversion franchise agreements increased 153 percent and 24 percent, respectively, in the first quarter of 2017, compared to the first quarter of the prior year.
- The Comfort brands and Sleep Inn represent nearly 70 percent of the company's new construction franchise agreements, and the number of Comfort new construction agreements nearly doubled from the comparable period of the prior year.
- The domestic new construction pipeline for the company's Sleep Inn brand as of March 31, 2017, totaled 114 hotels, a 50-percent increase from March 31, 2016.
- The company's total domestic pipeline of hotels awaiting conversion, under construction or approved for development, as of March 31, 2017, increased 24 percent from March 31, 2016.
- Domestic relicensing and contract renewal transactions totaled 116 for the three months ended March 31, 2017, an increase of 8 percent from the same period of 2016.
Use of Cash Flows
Dividends During the three months ended March 31, 2017, the company paid cash dividends totaling approximately $12 million. Based on the current quarterly dividend rate of $0.215 per common share, the company expects to pay dividends of approximately $49 million during 2017.
Share Repurchases The company did not repurchase shares of common stock under its share repurchase program during the three months ended March 31, 2017. 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 Cambria hotels & suites brand, the company advanced approximately $43 million in support of the brand's development during the three months ended March 31, 2017. The company also recycled approximately $1 million of prior investments in Cambria development projects, resulting in net advances of $42 million for the current year. Advances under this program are primarily in the form of joint venture investments, forgivable key money loans, senior mortgage loans, development loans, mezzanine lending, and through the operation of a land-banking program. On March 31, 2017, the company had approximately $244 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 second-quarter 2017 diluted EPS is expected to range between $0.75 and $0.77.
- The company expects full-year 2017 diluted EPS to range between $2.78 and $2.84.
- The effective tax rate is expected to be approximately 34 percent and 33 percent for the second quarter and full-year 2017, respectively.
- 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 Adjusted EBITDA estimates assume that we incur net reductions in Adjusted 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 is expected to range between $297 million and $302 million.
- Net domestic unit growth for 2017 is expected to range between approximately 2 percent and 3 percent.
- RevPAR is expected to increase between 2 percent and 3 percent for the second quarter and range between 3 percent and 4 percent 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 Adjusted 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.
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