ROCKVILLE, Md., Nov. 6, 2017 /PRNewswire/ — Choice Hotels International, Inc. (NYSE: CHH), one of the world’s largest hotel companies, today reported its results for the three months ended September 30, 2017. Net income for the 2017 third quarter was $47.6 million, or $0.84 per diluted share, compared to $47.6 million or $0.84 per diluted share for the 2016 third quarter. Third quarter adjusted diluted earnings per share (EPS) was $0.95, a 13 percent increase from the 2016 third quarter. Third quarter adjusted earnings before income taxes, depreciation and amortization (EBITDA) was $92.5 million, compared to $82.0 million in the prior-year third quarter, a 13 percent increase from the 2016 third quarter.
“Choice Hotels is uniquely positioned in the industry as a company at the intersection of hospitality, franchising and technology. Our strong brands, focus on the guest experience and franchisee profitability, and industry-leading technology solutions and tools continue to drive positive results,” said Patrick Pacious, president and chief executive officer, Choice Hotels. “In the third quarter, our impressive performance was highlighted by a 13 percent increase in adjusted diluted earnings per share and a nearly 3 percent increase in our domestic unit growth.”
Highlights of the company’s third quarter 2017 results are as follows:
- Adjusted diluted EPS for the third quarter was $0.95, a 13 percent increase from the third quarter of the prior year.
- Adjusted EBITDA totaled $92.5 million for the third quarter, a 13 percent increase from the third quarter of the prior year.
- Adjusted EBITDA from hotel franchising activities for the third quarter increased 9 percent from the third quarter of the prior year to $94.0 million.
- Total revenues and hotel franchising revenues for the third quarter both increased 10 percent from the third quarter of the prior year.
- Domestic royalty fees for the third quarter totaled $98.3 million, an 8.4 percent increase from the third quarter of the prior year.
- Domestic system-wide revenue per available room (RevPAR) increased 2.1 percent for the third quarter compared to the third quarter of the prior year. Occupancy and average daily rates increased 70 basis points and 1.2 percent, respectively, in the third quarter compared to the same period of 2016.
- Effective royalty rate increased 19 basis points for the third quarter of 2017, compared to the third quarter of the prior year.
- Domestic franchised hotels, as of September 30, 2017, increased 2.8 percent from September 30, 2016.
- Quality Inn surpassed 1,500 open domestic hotels during the third quarter, and the number of domestic hotels under this brand increased over 7 percent from September 30, 2016.
- Domestic and international rooms, as of September 30, 2017, increased 2.1 percent and 2.3 percent, respectively, from September 30, 2016.
- New, executed domestic franchised hotel development contracts totaled 133 in the third quarter. Executed domestic franchised hotel development for the nine months ended September 30, 2017, totaled 415, a 10 percent increase from the same period of the prior year.
- The company executed 24 new domestic franchise agreements during the third quarter for its upscale brands, Cambria Hotels and the Ascend Hotel Collection, a 71 percent increase from the same period of the prior year. The domestic pipeline for the company’s upscale brands now exceeds 135 hotels.
- Domestic relicensing and contract renewal transactions totaled 121 for the three months ended September 30, 2017, a 6 percent increase from the same period of 2016.
- The company’s total domestic pipeline of hotels awaiting conversion, under construction or approved for development, as of September 30, 2017, increased 16 percent to 751 hotels from September 30, 2016.
- The new construction domestic pipeline totaled 530 hotels at September 30, 2017, a 26 percent increase from September 30, 2016.
Use of Cash Flows
During the nine months ended September 30, 2017, the company paid cash dividends totaling approximately $36 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.
During the nine months ended September 30, 2017, the company repurchased $9 million of common stock under its share repurchase program as well as repurchases from employees in connection with tax withholding and option exercises relating to awards under the company’s equity incentive plans. The company currently has authorization to purchase up to 4.0 million additional shares under its share repurchase program.
Hotel Development & Financing
Pursuant to its program to encourage acceleration of the growth of the upscale Cambria Hotels brand, the company advanced approximately $75 million in support of the brand’s development during the nine months ended September 30, 2017. The company also recycled approximately $29 million of prior investments in Cambria Hotels development projects, resulting in net advances of $46 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 September 30, 2017, the company had approximately $244 millionreflected 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.
During the three and nine months ended September 30, 2017, the company accelerated certain compensation expenses totaling $12.0 million in conjunction with the company’s chief executive officer succession plan. In addition, the company recognized an impairment on a below market lease intangible recorded in conjunction with the company’s acquisition of an office building leased to a third-party in 2014. The impairment of this below market lease intangible resulted in a reduction to the company’s selling, general and administrative expenses totaling $1.2 million during the three and nine months ended September 30, 2017. These special items impacted diluted EPS by $0.11 per share for the three and nine months ended September 30, 2017.
During the nine months ended September 30, 2016, the company recorded an executive termination benefit charge of approximately $2.2 million. This special item impacted diluted EPS by $0.02 per share for the nine months ended September 30, 2016.
The company evaluates the non-GAAP measures presented herein that exclude executive termination benefits, impairment of below market lease costs and acceleration of the company’s executive succession plan because those non-GAAP measures allow for period-over-period comparison of ongoing core operations before the impact of these charges. These non-GAAP measures, which are reconciled to the comparable GAAP measures in Exhibit 6, include adjusted net income, adjusted diluted EPS, adjusted hotel franchising selling, general and administrative expenses, adjusted EBITDA, adjusted hotel franchising EBITDA and adjusted hotel franchising margins.
The company’s consolidated 2017 outlook reflects the following assumptions:
- Adjusted EBITDA for full-year 2017 is expected to range between $294 million and $298 million.
- The company’s fourth-quarter 2017 adjusted diluted EPS is expected to range between $0.60 and $0.62.
- The company expects full-year 2017 adjusted diluted EPS to range between $2.84 and $2.88.
- The effective tax rate is expected to be approximately 33 percent for the fourth quarter and 32 percent for full-year 2017.
- All estimates for 2017 exclude costs associated with the company’s executive succession plan and impairment of lease acquisition costs.
- Adjusted 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 adjusted diluted EPS and consolidated adjusted EBITDA estimates assume that the company incurs net reductions in adjusted EBITDA related to non-hotel franchising activities at the midpoint of the range for these investments.
- Adjusted EBITDA from hotel franchising activities for full-year 2017 is expected to range between $301 million and $305 million.
- Net domestic unit growth for 2017 is expected to range between approximately 2.5 percent and 3 percent.
- RevPAR is expected to increase between 1 percent and 3 percent for the fourth quarter and range between 2 percent and 3 percent for full-year 2017.
- The effective royalty rate is expected to increase between 17 and 19 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 the company’s non-hotel franchising operations are expected to be approximately $7 million.
Choice will conduct a conference call on Monday, November 6, 2017, at 10:00 a.m. ET to discuss the company’s 2017 third quarter results. The dial-in number to listen to the call domestically is 1-855-638-5678 and the number for international participants is 1-920-663-6286. The conference call will be webcast simultaneously via the company’s website, www.choicehotels.com. Interested investors and other parties wishing to access the call via the webcast should go to the website and click on the Investor Info link. The Investor page will feature a conference call microphone icon to access the call.
The call will be recorded and available for replay beginning at 1:00 p.m. ET on Monday, November 6, 2017, by calling 1-855-859-2056 (domestic) or 1-404-537-3406 (international) and entering access code 88756097. In addition, the call will be archived and available on choicehotels.com via the Investor Info link.