ROCKVILLE, Md.,?July 26, 2013?/PRNewswire/ –?Choice Hotels International, Inc., (NYSE:CHH) today reported the following highlights for the second quarter of 2013:
- Franchising revenues increased 6% to?$82.6 million?for the three months ended?June 30, 2013?from?$77.8 million?for the same period of 2012.? Total revenues increased 6% to?$183.6 million?for the three months ended?June 30, 2013?compared to the same period of 2012.
- Domestic royalty fees for the three months ended?June 30, 2013?increased 4% to?$62.2 million?from?$59.8 million?for the three months ended?June 30, 2012.
- Domestic system-wide revenue per available room (“RevPAR”) increased 3.5% for the three months ended?June 30, 2013?compared to the same quarter of the prior year as occupancy and average daily rates increased 90 basis points and 1.8%, respectively.
- Domestic unit and room growth increased 1.9% and 1.0% from?June 30, 2012, respectively.
- The effective domestic royalty rate increased 3 basis points to 4.35% for the three months ended?June 30, 2013?compared to 4.32% for the same period of the prior year.
- Initial and relicensing fees for the three months ended?June 30, 2013?increased?$1.2 million?or 39% to?$4.4 million?from the same period of the prior year.
- The company executed 104 new domestic hotel franchise contracts for the three months ended?June 30, 2013?compared to 106 new domestic hotel franchise contracts in the same period of the prior year.
- Domestic relicensing and contract renewal transactions increased from 47 contracts during the three months ended?June 30, 2012?to 63 in the current period, a 34% increase.
- The number of worldwide hotels under construction, awaiting conversion or approved for development as of?June 30, 2013?was 448 hotels representing 36,487 rooms.
- Selling, general and administrative (“SG&A”) expenses increased?$5.6 million?to?$30.2 million?for the three months ended?June 30, 2013?compared to the same period of the prior year. SG&A expenses include expenses related to the company’s SkyTouch Technology division totaling?$3.2 millionand?$0.8 million?during the three months ended?June 30, 2013?and 2012, respectively.? In addition, SG&A for the second quarter of 2013 includes approximately?$0.7 million?of costs that are not expected to recur in future periods related to the relocation of the company’s corporate headquarters during the second quarter as well as additional variable expenses totaling approximately?$0.5 million?related to an increase in initial fees and procurement services revenues.
- The effective income tax rate for the three months ended?June 30, 2013?was 29.6% compared to 33.5% for the same period of 2012.
- Diluted earnings per share (“EPS”) for second quarter 2013 were?$0.48?compared to?$0.55?for the second quarter of 2012.? EPS for the second quarter of 2013 reflect?$7.3 million?of additional interest expense compared to the prior year reflecting the financing transactions entered into during the second and third quarters of 2012 in conjunction with the payment of the?$600 million?special cash dividend on?August 23, 2012.
“We are excited about the growth prospects for our core franchising business. We are seeing particularly strong RevPAR performance for our upscale Ascend Collection, Suburban Extended Stay Hotel brand and our Sleep Inn brand which delivered impressive results as more of our franchisees upgrade their hotels to our new Design to Dream proto-type,” said?Stephen P. Joyce, president and chief executive officer. “On the development side of the business, conversion franchise sales for our flagship Comfort brand and our Ascend Collection continued to outpace last year’s results demonstrating that Choice remains a top option for hotel developers.”
“We are also excited to report that we debuted SkyTouch Technology’s cloud based technology products to the hospitality industry in June at the Hospitality Financial and Technology Professional’s HITEC conference and are pleased with the level of interest we received,” said?Stephen P. Joyce, president and chief executive officer. “We have executed our first customer contracts for this division and are excited that our new customers will experience the benefits that our cloud based technology products will deliver to their hotels.”
Use of Free Cash Flow
The company has historically used its free cash flow (cash flow from operations less cash flow from investing activities) to return value to shareholders, primarily through share repurchases and dividends.
Dividends
During the six months ended?June 30, 2013, the company paid?$11.3 million?of cash dividends to shareholders. The company’s current quarterly dividend rate per common share is?$0.185, subject to declaration by our board of directors. The company’s regular dividend for the first quarter was paid inDecember 2012.
Share Repurchases
The company did not repurchase any shares of common stock under the share repurchase program during the three and six months ended?June 30, 2013but has authorization to purchase up to an additional 1.4 million shares under this program.? We expect we will make repurchases from time to time under our share repurchase program in the open market and through privately negotiated transactions, subject to market and other conditions. No minimum number of share repurchases has been fixed. Since Choice announced its stock repurchase program on?June 25, 1998, the company has repurchased 45.3 million shares of its common stock for a total cost of?$1.1 billion?through?June 30, 2013. Considering the effect of a two-for-one stock split in?October 2005, the company has repurchased 78.3 million shares through?June 30, 2013?under the share repurchase program at an average price of?$13.89?per share.
Other
Our board of directors previously authorized us to enter into a program which permits us to offer financing, investment and guaranty support to qualified franchisees as well as to acquire and resell real estate to incent franchise development for certain brands in strategic markets. Over the next several years, we expect to continue to opportunistically deploy capital pursuant to this program to promote growth of our emerging brands.? Our current expectation is that our annual investment in this program will range between?$20 million and $40 million?per year and we generally expect to recycle these investments over a 5 year period. However, the amount and timing of the investment in this program will be dependent on market and other conditions.? Notwithstanding this program, the company expects to continue to return value to its shareholders through a combination of share repurchases and dividends, subject to market and other conditions.
Balance Sheet
At?June 30, 2013, the company had gross debt of?$866.5 million?and cash and cash equivalents totaling?$143.8 million?resulting in net debt of?$722.7 million.? At?December 31, 2012, the company had gross debt of?$855.3 million?and cash equivalents totaling?$134.2 million?resulting in net debt of?$721.1 million.
At?June 30, 2013?and?December 31, 2012, the company had outstanding mezzanine financing, real estate investments and sliver equity investments totaling?$69 million?and?$68 million, respectively pursuant to its program to offer financing and investment support to incent franchise development for the Cambria Suites brand in strategic markets.? These investments are reported in other current assets and other assets on the company’s consolidated balance sheet.
Outlook
The company’s third quarter 2013 diluted EPS is expected to be?$0.66. The company expects full-year 2013 diluted EPS to range between?$1.84 and $1.87.? Earnings before interest, taxes and depreciation (“EBITDA”) for full-year 2013 are expected to range between?$203.5 million and $206.5 million. These estimates include the following assumptions:
- The company expects net domestic unit growth to increase by approximately 2% in 2013;
- RevPAR is expected to increase approximately 3% for the third quarter of 2013 and increase between 3.5% and 4.25% for full-year 2013; RevPAR growth is expected to moderate in the second half of the year and continue to grow at a moderate pace into 2014;
- The effective royalty rate is expected to increase 2 basis points for full-year 2013;
- All figures assume the existing share count;
- The effective tax rate is expected to be 29.5% and 30.0% for the third quarter and full-year 2013, respectively; and
- Our EBITDA outlook for the full year includes expenses related to the company’s SkyTouch Technology division ranging between?$12 million and $14 million?for investment in the infrastructure of this division including business development, sales and marketing and other costs as well as continued software development expenditures related to the division’s technology related products and services.
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