Choice Hotels Reports Q3 Pipeline Growth

ROCKVILLE, MD—Choice Hotels International Inc. reported solid third quarter earnings results despite a softening RevPAR environment. Patrick Pacious, president/CEO, Choice Hotels, noted the company is committed to a long-term strategy to grow. Choice Hotels’ is forging a strong presence in its upscale, midscale and extended-stay tiers, reporting a 3.1% aggregate increase in unit growth compared to third quarter 2018, according to the report.

“We’re pleased to report another quarter of strong financial performance and a positive outlook for the growth of the business,” said Pacious. “We are successfully leveraging our strong customer base and growing our franchising platform to drive revenue in high-value segments. Specifically, Cambria is leading the evolution of our portfolio to become more revenue intense by attracting business travelers in top RevPAR markets. Our investments in Cambria are not only driving the brand’s growth, but also benefitting the entire portfolio through new technology, increased brand recognition and other key franchisee resources.”

Highlights include the following:

  • Net income was $76.2 million for third quarter 2019, representing diluted earnings per share (EPS) of $1.36.
  • Adjusted net income, excluding certain items, increased 9% to $76.5 million from third quarter 2018.
  • Adjusted EPS was $1.37, a 10% increase from third quarter 2018.
  • The company exceeded the top end of its third quarter 2019 adjusted EPS guidance by $0.08 per share and raised its full year adjusted EPS guidance.
  • Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the third quarter were $111.0 million, an increase of 7% from the same period of 2018.
  • The company’s board of directors approved an increase in the company’s share repurchase authorization by approximately 2.3 million shares, bringing the total program to four million shares authorized.

A Strong Quarter for Growth

During the third quarter of 2019, the company continued to strengthen its presence in the higher growth and more revenue intense upscale, midscale and extended-stay chain-scale segments.

In particular, the company:

  • Achieved 13% growth in the number of domestic rooms in its upscale brands, Cambria and Ascend, as of September 30, 2019, from third quarter 2018
  • Installed the 500th new sign for newly refreshed Comfort hotels, announcing to guests the significant transformation of the brand. Under this $2.5-billion transformation of the brand, RevPAR for Comfort hotels that have completed renovations outpaced their competitive set by 60 basis points and franchise agreements awarded in 2019 are expected to generate higher revenues throughout the life of the contracts, compared to the pipeline of the same period of the prior year period.
  • Continued its leadership in the midscale segment with 25 Clarion Pointe franchise agreements awarded year-to-date, bringing the number of Clarion Pointe hotels open or awaiting conversion to 45 hotels. Additionally, the Sleep Inn brand achieved 2.6% growth in the number of domestic hotels and 10% domestic pipeline growth, bringing the total Sleep Inn pipeline to 150 hotels.
  • Expanded the number of domestic hotels in its extended-stay brands to nearly 400, a 10% increase from September 30, 2018, and increased the extended stay domestic pipeline by 11% to over 250 hotels

A Look at Revenue

Total revenues for the three months ended September 30, 2019 were $310.7 million, an increase of 7% from total revenues reported for the same period of 2018. Total revenues, excluding marketing and reservation system fees, for the third quarter increased 10% over the prior year comparable period to $153.7 million.

Domestic royalty fees for the third quarter totaled $107.8 million, a 3% increase from third quarter 2018. The company’s effective domestic royalty rate increased 12 basis points to 4.84% for the third quarter, compared to the same period of the prior year.

Domestic systemwide RevPAR declined 0.7% for the third quarter, compared to the same period of the prior year.

Procurement services revenue increased 27% in the third quarter to $14.8 million, compared to the same period of the prior year.

Insight on Development

International hotels and rooms, as of September 30, 2019, increased 4.1% and 4.5%, respectively, from September 30, 2018.

The number of domestic hotels and rooms, as of September 30, 2019, both increased 1.8% from September 30, 2018. The company awarded 100 domestic franchise agreements in the third quarter of 2019. The company’s total domestic pipeline awaiting conversion, under construction, or approved for development increased to 975 hotels and 82,390 rooms as of September 30, 2019.

The new-construction domestic pipeline totaled 741 hotels as of September 30, 2019, a 5% increase from September 30, 2018.

The company’s total international pipeline of hotels awaiting conversion, under construction, or approved for development totaled 94 as of September 30, 2019, versus 82 hotels as of September 30, 2018.

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