Choice Hotels International Reports Record Revenues, Operating Income And Net Income

Fourth Quarter Highlights

• Diluted earnings per share ("EPS") from continuing operations for the three months ended December 31, 2015 totaled $0.51, an increase of 19 percent from the same period of 2014.
• Revenues for the three months ended December 31, 2015 totaled $211.0 million, an increase of 14 percent from the same period of 2014.
• Earnings before interest, taxes, depreciation and amortization ("EBITDA") from franchising activities for the three months ended December 31, 2015 totaled $55.7 million, an increase of 6 percent from the same period of 2014.
• Franchising margins for the three months ended December 31, 2015 were 62.3 percent, an increase of 20 basis points from the same period of 2014.
• Domestic royalty fees for the three months ended December 31, 2015 totaled $63.1 million, an increase of 6.7 percent from the same period of 2014.
• Domestic system-wide revenue per available room ("RevPAR") increased 4.3 percent in the fourth quarter of 2015, as occupancy and average daily rates increased 60 basis points and 3.2 percent, respectively from the same period of 2014.
• Domestic units as of December 31, 2015 increased 1.1 percent from December 31, 2014.
• Effective royalty rate for the three months ended December 31, 2015 was 4.37 percent, an increase of 9 basis points from the same period of 2014.
• Domestic relicensing and contract renewal transactions totaled 104 for the three months ended December 31, 2015, an increase of 12 percent from the same period of 2014.
• The company's domestic pipeline of hotels awaiting conversion, under construction or approved for development as of December 31, 2015 increased 19 percent from December 31, 2014.

 

"We are pleased to report another record year of revenue, operating income and net income performance," said Stephen P. Joyce, president and chief executive officer, Choice Hotels. "Our performance was driven by continued improvement in our domestic royalty revenues resulting from growth all in 3 critical levers – RevPAR, system-size and effective royalty rate, as well as our franchise development results. Our effective royalty rates for the domestic system increased 9 basis points during the quarter and, excluding the impact of our Comfort rejuvenation strategy, our domestic units under franchise grew 4% from the prior year. As domestic franchise contracts for both new construction and conversion sales continue to strengthen, we are expecting an acceleration of the growth rates for our domestic system size in 2016.  We are optimistic that developers will continue to respond to our strong family of brands and are optimistic that RevPAR performance and growth of our effective royalty rates will continue to be strong in 2016."

 

Full-Year Highlights

• EBITDA from franchising activities in 2015 totaled $255.8 million, an increase of $15.8 million or 7 percent from 2014.
• Revenues for 2015 totaled $859.9 million, an increase of 13 percent from 2014.
• Franchising revenues for 2015 totaled $366.7 million, an increase of $21.9 million or 6 percent from 2014.
• Franchising selling, general and administration ("SG&A") expenses in 2015 totaled $110.9 million, an increase of 5.8 percent from 2014.
• Franchising margins for 2015 were 67.3 percent, an increase of 10 basis points from 2014.
• Diluted EPS from continuing operations in 2015 totaled $2.22, an increase of 7 percent from 2014.
• Domestic royalty fees in 2015 totaled $281.3 million, an increase of 7 percent from 2014.
• Domestic system-wide RevPAR increased 6.5 percent in 2015 as occupancy and average daily rates increased 160 basis points and 3.7 percent, respectively, from 2014.
• The effective royalty rate in 2015 was 4.30 percent, a 2 basis point increase from 2014.
• Initial and relicensing fees for 2015 totaled $24.7 million, an increase of 27 percent from 2014.
• New franchise contracts executed in 2015 for domestic hotels, totaled 630, an 11 percent increase from 2014.
• Domestic relicensing and contract renewal transactions in 2015 totaled 408 contracts, an increase of 21 percent from 2014.
• During 2015, non-franchising activities, which primarily relate to SkyTouch, and an acquired vacation rental technology business drove $4 million of revenues and a net $19 million operating expense.

Use of Cash Flows

Dividends

During the fourth quarter of 2015, the company's board of directors announced a 5% increase in the current quarterly dividend rate per common share to $0.205 per share.  During the year endedDecember 31, 2015, the company paid cash dividends totaling approximately $45 million.

Share Repurchases

The company repurchased 1.3 million shares of common stock under its share repurchase program during 2015, at a total cost of approximately $66 million. The company currently has authorization to purchase up to 1.7 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 hotel & suites brand, the company's net advances in support of the Cambria brand totaled $61 million during the year ended December 31, 2015.  These advances are primarily in the form of joint venture investments, forgivable key money loans, senior and mezzanine lending and site acquisitions.  At December 31, 2015, the Company had approximately $129 million outstanding 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.

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 months and year ended December 31, 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 2016 outlook reflects the following assumptions:

Hotel Franchising

• EBITDA from franchising activities for full-year 2016 are expected to range between $270 million and $275 million;
• Net domestic unit growth for 2016 is expected to be between 2% and 3%;
• RevPAR is expected to increase approximately 2% for first quarter and range between 3.75% and 4.75% 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 EBITDA relating to our non-hotel franchising operations, which primarily relate to SkyTouch and vacation rental activities, for full-year 2016 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 33.5% for the first quarter and full-year 2016; and
• All figures assume no further repurchases of common stock under the company's share repurchase program.

Consolidated Outlook

The company's first quarter 2016 diluted EPS is expected to be at least $0.38. The company expects full-year 2016 diluted EPS to range between $2.30 and $2.36 and full year 2016 EBITDA to range between $252 million and $257 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.