Choice Hotels Reports Pipeline Growth in Q1

ROCKVILLE, MD—Choice Hotels International Inc. has reported its results for the three months ended March 31, 2019. The brand’s upscale and international rooms increased by 12% and 5% respectively, which Pat Pacious, president/CEO of Choice Hotels, attributes to not only a well-segmented portfolio, but its internal operations as well.

“For 80 years, Choice has been committed to empowering our owners to be in business for themselves, but not by themselves. We’ve achieved this by delivering best-in-class franchisee resources. At times, innovation means building these new resources ourselves,” Pacious said in an earnings call.

Among the highlights:

  • Net income was $30.1 million for the first quarter 2019, representing diluted earnings per share (EPS) of $0.54.
  • Adjusted net income, excluding certain items described in Exhibit 6, increased 23% to $47.2 million from the 2018 first quarter.
  • Adjusted EPS were $0.84, a 25% increase from the 2018 first quarter.
  • Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the first quarter were $72.4 million, an increase of 8% from the same period of 2018.
  • The company exceeded the top end of its first quarter 2019 adjusted EPS guidance by $0.08 per share and raised its full year adjusted EPS guidance to a range of $4.06 to $4.18.
  • The company repurchased 0.4 million shares of common stock for an aggregate cost of $32 million for the three months ended March 31, 2019.
  • Effective income tax rate for the first quarter was 17.5% compared to 17.6% for the same period of 2018 and guidance of 22%.

Additionally, during the first quarter of 2019, the company:

  • Achieved 12% growth in the number of domestic rooms in its upscale brands, Cambria and Ascend, as of March 31, 2019, from March 31, 2018.
  • Further strengthened its midscale presence by awarding six domestic franchise agreements for the newly launched Clarion Pointe brand, bringing the number of Clarion Pointe hotels expected to open to 27 hotels. The company also achieved 7% and 5% net domestic unit growth in the Clarion and Quality brands, respectively.
  • Opened the 250th WoodSpring Suites hotel in Portland, OR the first WoodSpring hotel in the state.
  • Continued the $2.5 billion transformation of its flagship Comfort brand, which now has nearly 50% of the system certified as meeting the elevated brand standards in guestrooms and common areas.

“Choice Hotel’s proven business model continues to deliver strong financial performance to our franchisees and shareholders,” Pacious said. “Our brands continue to appeal to a wide range of guests for both leisure and business travel. In addition, our strategic investments in our midscale, upscale and extended-stay brands position us to continue to strengthen our appeal to leisure travelers and accelerate our growth in the business travel segment.”

Revenues

  • Total revenues for the three months ended March 31, 2019, were $218.3 million, an increase of 4% from total revenues reported for the same period of 2018.
  • Total revenues, excluding marketing and reservation system fees, for the first quarter increased 6% over the prior year to $108.3 million.
  • Domestic royalty fees for the first quarter totaled $75.6 million, a 5% increase from the first quarter of 2018.
  • Effective domestic royalty rate increased 12 basis points for the first quarter, compared to the same period of the prior year.
  • Domestic systemwide revenue per available room (RevPAR) declined 0.7% for the first quarter, compared to the same period of the prior year, primarily due to the Comfort transformation, which is progressing ahead of schedule and saw more hotels under renovation during the quarter than forecasted; the government shutdown; and tougher comparable results due to prior year hurricane activity. Excluding one-time impacts, first quarter RevPAR increased by approximately 1%, compared to the same period of the prior year.
  • Comfort hotels that have completed renovations are experiencing overall RevPAR growth of nearly 1% and had their business travel revenue growth double within one quarter of completing their renovations.
  • Procurement services revenues increased 20% in the first quarter to $11.9 million, compared to the same period of the prior year.

Development

  • The number of domestic franchised hotels and rooms, as of March 31, 2019, increased 2.1% and 1.8%, respectively, from March 31, 2018.
  • International franchised hotels and rooms as of March 31, 2019, increased 3.0% and 5.2%, respectively, from March 31, 2018.
  • The company opened two new Cambria hotels in Nebraska and New Jersey, both of which represent the first Cambria hotel in their respective states, and broke ground on an adaptive-reuse Cambria project in downtown Los Angeles, bringing the total number of active-construction projects for the brand to 23.
  • The company’s extended-stay domestic franchised hotels, as of March 31, 2019, increased 5% from March 31, 2018.
  • The company’s total domestic pipeline of hotels awaiting conversion, under construction, or approved for development, as of March 31, 2019, increased 7% to 976 hotels from March 31, 2018.
    The new-construction domestic pipeline totaled 749 hotels at March 31, 2019, a 10% increase from March 31, 2018.
  • The company’s total international pipeline of hotels awaiting conversion, under construction, or approved for development, as of March 31, 2019, increased from 42 hotels at March 31, 2018, to 128 hotels.
  • New executed domestic franchise agreements totaled 79 in the first quarter of 2019, including 32 new construction franchise agreements.

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