Choice Hotels International Reports A 12% Increase In Second Quarter Income From Continuing Operations

New Domestic Hotel Franchise Sales Increase 20%
Second Quarter Franchising EBITDA Increases 12%

ROCKVILLE, Md. - Aug. 8, 2014 // PRNewswire // - Choice Hotels International, Inc. (NYSE: CHH) today reported the following highlights for the second quarter of 20141:

  • Diluted earnings per share ("EPS") from continuing operations for the three months ended June 30, 2014 totaled $0.60, an increase of 11 percent from the same period of 2013.
  • Earnings before interest, taxes, depreciation and amortization ("EBITDA") from franchising activities for the three months ended June 30, 2014 totaled $66.6 million, an increase of 12 percent from the same period of 2013. 
  • Franchising revenues for the three months ended June 30, 2014 totaled $93.8 million, an increase of 8 percent from the same period of 2013.
  • Franchising margins for the three months ended June 30, 2014 were 68.8 percent, an increase of 270 basis points from the same period of 2013.
  • Domestic royalty fees for the three months ended June 30, 2014 totaled $71.2 million, an increase of 7 percent from the same period of 2013. Domestic royalty fees for the three and six months ended June 30, 2014 and 2013 are based on our domestic franchisees' underlying gross room revenues for the periods April 1 through June 30 and January 1 through June 30 of 2014 and 2013, respectively. Domestic royalty fees based on domestic franchisee gross room revenues from March 1 through May 31, which corresponds to the Company's previous revenue recognition policy, were $66.6 million and $62.2 million for 2014 and 2013, respectively.
  • Domestic unit and room growth increased 1.8 percent and 0.9 percent from June 30, 2013, respectively. 
  • Domestic system-wide revenue per available room ("RevPAR") increased 7.6 percent in the second quarter of 2014 as occupancy and average daily rates increased 280 basis points and 2.9 percent, respectively from the same period of 2013. RevPAR for the three months ended June 30, 2014 and 2013 are based on our domestic franchisees' underlying gross room revenues for the period April 1 through June 30 of 2014 and 2013, respectively.
  • The company executed 125 new domestic hotel franchise contracts for the three months ended June 30, 2014, an increase of 20%, compared to 104 new domestic hotel franchise contracts for the same period of 2013.
  • The company's domestic pipeline of hotels under construction, awaiting conversion or approved for development increased 16% from June 30, 2013.

"During the second quarter, momentum in our core lodging business was very strong and we are pleased with our performance, which exceeded our expectations. We achieved continued net domestic unit growth, strong development results and a nearly 8% percent increase in domestic RevPAR," said Stephen P. Joyce, president and chief executive officer. "These trends supported double-digit percentage EBITDA growth and meaningful franchising margin expansion. We are optimistic that our performance will continue to be strong in the second half of 2014."

Discontinued Operations

In the first quarter of 2014, the company entered into a plan to sell its three owned hotels operated under the MainStay Suites brand. The company determined that the disposal of these hotels met the definition of a discontinued operation since the operations and cash flows of these components will be eliminated from the on-going operations of the company and the company will not have significant continuing involvement in the operations of the hotels after the disposal transaction.

At June 30, 2014, the company had disposed of all three of the owned MainStay Suites hotels and the new owners of each of those hotels had executed new franchise agreements with the company.

The company's consolidated statements of income for the three months and six months ended June 30, 2014 reflect these three company-owned hotels as discontinued operations. In addition, the company's statements of income for the three and six months ended June 30, 2013 have been reclassified to account for these operations as discontinued. Summarized financial information related to these discontinued operations is presented in Exhibit 9 of this press release.

Outlook

The company's consolidated 2014 outlook reflects continued growth of the company's core hotel franchising business, continued investment in the SkyTouch division and the sale of the three company-owned Mainstay Suites hotels described above as well as the following assumptions:

  • All figures assume no repurchases of common stock under the company's share repurchase program; and
  • The effective tax rate for continuing operations is expected to be 30.7% for the third quarter and full-year 2014.

Franchising

  • EBITDA from franchising activities for full-year 2014 are expected to range between $231 million and $234 million;
  • Approximately $2.5 million of the $3 million increase at the mid-point of our franchising EBITDA outlook compared to the outlook we furnished on April 28, 2014 in conjunction with our first quarter 2014 earnings announcement is due to year-to-date performance through June 30, 2014 and anticipated improved operating fundamentals and performance for the second-half of 2014.  The remainder of the increase is due to the change in accounting for royalty and certain marketing and reservation fees described below;
  • Net domestic unit growth for 2014 is expected to range between 1% and 2%;
  • RevPAR is expected to increase approximately 6.5% for the third quarter and 6.25% to 7.25% for full-year 2014; and
  • The effective royalty rate is expected to decline 4 basis points for full-year 2014.

SkyTouch

  • Reductions in EBITDA from our investment in SkyTouch for full-year 2014 are expected to be approximately $20 million, which is unchanged from the outlook we provided in April with our first quarter results;
  • We continue to expect execution of third-party contracts representing annualized revenue ranging between $4 million and $6 million with realized revenues for the year ended December 31, 2014 totaling approximately $1 million; and
  • SG&A expenses related to SkyTouch are forecast to be approximately $21 million related to investment in business development, sales and marketing and continued software development expenditures related to the division's cloud-based hotel operating system technology and related products and services.

Discontinued Operations

  • Company EBITDA projections exclude the three company-owned Mainstay Suites hotels which generated EBITDA of approximately $1.1 million in 2013; and
  • Diluted EPS projections for the full-year 2014 include a gain on sale of the three company-owned Mainstay Suites hotels totaling $0.03 per share.

Consolidated Outlook

The company's third quarter 2014 diluted EPS is expected to be $0.62. The company expects full-year 2014 diluted EPS to range between $1.92 and $1.96. Consolidated EBITDA for full-year 2014 are expected to range between $211 million and $214 million.

Items Impacting Comparability

We reported on August 5, 2014 that the company changed its accounting for royalty and certain marketing and reservation fees in order to comply with generally accepted accounting principles in the United States ("GAAP") by reporting these fees in the same period that the underlying gross room revenues are earned by our franchisees rather than one month in arrears (our historical practice).

We believe that this change in the timing of our revenue recognition for these fees will make it easier for analysts and investors to compare our results to other lodging companies.

The financial results and supplemental operating information as of and for the periods ended June 30, 2014 have been prepared in accordance with the new accounting practice.

As a result of this change, the income statement and cash flow statement included herein for the periods ended June 30, 2013 have been preliminarily restated based on currently available information to reflect our new accounting practice for these fees. The company plans to file the restated quarterly financial statements as soon as administratively possible. Until the restatement is complete, additional information may become available which could cause the company's current estimates to change.

Due to the seasonality of the company's business, the impact of the new revenue recognition practice will generally be positive for the first two quarters of the year and negative in the final two quarters of the year. However, this change is expected to result in immaterial positive revisions to total revenues, operating income and earnings per share for the full years ended December 31, 2013, 2012 and 2011. The company plans to file the revised annual financial statements in an amended Annual Report on Form 10-K. The December 31, 2013 balance sheet included in Exhibit 2 has been preliminarily revised to reflect this change.

More information about this accounting change and restatement can be found in the Company's Form 8-K filed on August 5, 2014.

Conference Call

Choice will conduct a conference call on Friday, August 8, 2014 at 10:00 a.m. EDT to discuss the company's second quarter 2014 results. The dial-in number to listen to the call is 1-866-515-2908, and the access code is 30848466. International callers should dial 1-617-399-5122 and enter the access code 30848466. The conference call also will be Webcast simultaneously via the company's Web site, www.choicehotels.com. Interested investors and other parties wishing to access the call via the Webcast should go to the Web site 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 2:00 p.m. EDT on Friday, August 8, 2014 through Friday, August 15, 2014 by calling 1-888-286-8010 and entering access code 80027292. The international dial-in number for the replay is 1-617-801-6888, access code 80027292. In addition, the call will be archived for approximately one-year and available on www.choicehotels.com via the Investor Info link.

About Choice Hotels

Choice Hotels International, Inc. franchises more than 6,300 hotels, representing more than 500,000 rooms, in the United States and more than 35 other countries and territories. As of June 30, 2014, 423 hotels, representing more than 32,000 rooms, were under construction, awaiting conversion or approved for development in the United States. Additionally, 93 hotels, representing approximately 8,300 rooms, were under construction, awaiting conversion or approved for development in more than 15 other countries and territories. The company's Comfort Inn, Comfort Suites, Quality, Sleep Inn, Clarion, Cambria Hotel & Suites, MainStay Suites, Suburban Extended Stay Hotel, Econo Lodge and Rodeway Inn brands, as well as its Ascend Hotel Collection membership program, serve guests worldwide.

SkyTouch Technology is a division of Choice Hotels International, Inc. that develops and markets cloud-based technology products, including inventory management, pricing and connectivity to third party channels, to hoteliers not under franchise agreements with the company.

Additional corporate information can be found on the Choice Hotels International, Inc. web site, which may be accessed at www.choicehotels.com.

Forward-Looking Statements

Certain matters discussed in this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Generally, our use of words such as "expect," "estimate," "believe," "anticipate," "will," "forecast," "plan," "project," "assume" or similar words of futurity identify such forward-looking statements. These forward-looking statements are based on management's current beliefs, assumptions and expectations regarding future events, which in turn are based on information currently available to management. Such statements may relate to projections of the company's revenue, earnings and other financial and operational measures, company debt levels, ability to repay outstanding indebtedness, payment of dividends, and future operations, among other matters. Forward-looking statements also include statements regarding expected timing of filings, materiality or significance, the quantitative effects of the restated financial statements, and any anticipated conclusions of the company, the audit committee of our board of directors or management. We caution you not to place undue reliance on any such forward-looking statements. Forward-looking statements do not guarantee future performance and involve known and unknown risks, uncertainties and other factors.

Several factors could cause actual results, performance or achievements of the company to differ materially from those expressed in or contemplated by the forward-looking statements. Such risks include, but are not limited to, changes to general, domestic and foreign economic conditions; operating risks common in the lodging and franchising industries; changes to the desirability of our brands as viewed by hotel operators and customers; changes to the terms or termination of our contracts with franchisees; our ability to keep pace with improvements in technology utilized for reservations systems and other operating systems; fluctuations in the supply and demand for hotels rooms; and our ability to manage effectively our indebtedness. Specifically, with respect to the restatements, these factors also include the risk that additional information may arise prior to the expected filings with the SEC with the restated financial statements, the preparation of our restated financial statements or other subsequent events that would require us to make additional adjustments. These and other risk factors are discussed in detail in the company's filings with the Securities and Exchange Commission including our annual reports on Form 10-K and our quarterly reports filed on Form 10-Q. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Statement Concerning Non-GAAP Financial Measurements Presented in this Press Release

EBITDA, franchising revenues, franchising SG&A, franchising EBITDA and franchising margins are non-GAAP financial measurements. These measures should not be considered as an alternative to any measure of performance or liquidity as promulgated under or authorized by generally accepted accounting principles in the United States ("GAAP"), such as operating income, total revenues and operating margins. The company's calculation of these measurements may be different from the calculations used by other companies and therefore comparability may be limited. The company has included an exhibit accompanying this release that reconciles EBITDA, franchising revenues, franchising SG&A and franchising margins to the most comparable GAAP financial measures. We discuss management's reasons for reporting these non-GAAP measures below.

Earnings Before Interest, Taxes, Depreciation and Amortization: EBITDA reflects income from continuing operations excluding the impact of interest expense, interest income, provision for income taxes, depreciation and amortization, other (gains) and losses and equity in net income of unconsolidated affiliates. We consider EBITDA to be an indicator of operating performance because we use it to measure our ability to service debt, fund capital expenditures, and expand our business. We also use EBITDA, as do analysts, lenders, investors and others, to evaluate companies because it excludes certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be dependent on a company's capital structure, debt levels and credit ratings. Accordingly, the impact of interest expense on earnings can vary significantly among companies. The tax positions of companies can also vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. As a result, effective tax rates and provision for income taxes can vary considerably among companies. EBITDA also excludes depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets. These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies.

Franchising Revenues, Operating Income, EBITDA, SG&A and Margins: The company reports franchising revenues, operating income, EBITDA, SG&A and margins which exclude marketing and reservation revenues and SkyTouch Technology operations. Marketing and reservation activities are excluded since the company is required by its franchise agreements to use the fees collected for marketing and reservation activities; as such, no income or loss to the company is generated. Cumulative marketing and reservation system fees not expended are recorded as a liability in the company's financial statements and are carried over to the next year and expended in accordance with the franchise agreements. Cumulative marketing and reservation expenditures in excess of fees collected for marketing and reservation activities are deferred and recorded as an asset in the company's financial statements and recovered in future periods. SkyTouch Technology is a division of the company that develops and markets cloud-based technology products, including inventory management, pricing and connectivity to third party channels, to hoteliers not under franchise agreements with the company. The operations for SkyTouch Technology are excluded since they do not reflect the company's core franchising business but are an adjacent, complimentary line of business. These non-GAAP measures are a commonly used measure of performance in our industry and facilitate comparisons between the company and its competitors.

Choice Hotels, Choice Hotels International, Comfort Inn, Comfort Suites, Quality, Sleep Inn, Clarion, Cambria Suites, MainStay Suites, Suburban Extended Stay Hotel, Econo Lodge, Rodeway Inn, Ascend Hotel Collection and SkyTouch Technologyare proprietary trademarks and service marks of Choice Hotels International.

© 2014 Choice Hotels International, Inc. All rights reserved.

1See the discussion under "Items Impacting Comparability" below for information about how the recently announced accounting change and restatement of certain 2013 interim periods impacts the comparative discussion of our results of operations contained herein.

Choice Hotels International, Inc.

               

Exhibit 1

Consolidated Statements of Income

                       

(Unaudited)

                             
                                 
                                 
                             
   

Three Months Ended June 30,

 

Six Months Ended June 30,

       

Restated

 

Variance

     

Restated

 

Variance

   

2014

 

2013

 

$

 

%

 

2014

 

2013

 

$

 

%

(In thousands, except per share amounts)

                               
                                 

REVENUES:

                               
                                 

Royalty fees

 

$                 77,670

 

$              72,638

 

$     5,032

 

7%

 

$              136,210

 

$               128,746

 

$       7,464

 

6%

Initial franchise and relicensing fees

 

4,722

 

4,416

 

306

 

7%

 

8,462

 

8,193

 

269

 

3%

Procurement services

 

8,020

 

7,546

 

474

 

6%

 

12,798

 

11,496

 

1,302

 

11%

Marketing and reservation 

 

103,766

 

104,072

 

(306)

 

(0%)

 

193,372

 

186,395

 

6,977

 

4%

Other

 

3,486

 

2,258

 

1,228

 

54%

 

6,558

 

4,271

 

2,287

 

54%

      Total revenues

 

197,664

 

190,930

 

6,734

 

4%

 

357,400

 

339,101

 

18,299

 

5%

                                 

OPERATING EXPENSES:

                               
                                 

Selling, general and administrative

 

31,413

 

29,731

 

1,682

 

6%

 

58,093

 

56,399

 

1,694

 

3%

Depreciation and amortization

 

2,332

 

2,388

 

(56)

 

(2%)

 

4,610

 

4,429

 

181

 

4%

Marketing and reservation

 

103,766

 

104,072

 

(306)

 

(0%)

 

193,372

 

186,395

 

6,977

 

4%

Total operating expenses

 

137,511

 

136,191

 

1,320

 

1%

 

256,075

 

247,223

 

8,852

 

4%

                                 

Operating income

 

60,153

 

54,739

 

5,414

 

10%

 

101,325

 

91,878

 

9,447

 

10%

                                 

OTHER INCOME AND EXPENSES, NET:

                               

Interest expense

 

10,710

 

10,807

 

(97)

 

(1%)

 

20,881

 

21,577

 

(696)

 

(3%)

Interest income

 

(347)

 

(659)

 

312

 

(47%)

 

(850)

 

(1,303)

 

453

 

(35%)

Other (gains) and losses

 

(474)

 

147

 

(621)

 

(422%)

 

(533)

 

(563)

 

30

 

(5%)

Equity in net (income) loss of affiliates

 

30

 

(60)

 

90

 

(150%)

 

65

 

81

 

(16)

 

(20%)

Total other income and expenses, net

 

9,919

 

10,235

 

(316)

 

(3%)

 

19,563

 

19,792

 

(229)

 

(1%)

                                 

Income from continuing operations before income taxes

 

50,234

 

44,504

 

5,730

 

13%

 

81,762

 

72,086

 

9,676

 

13%

Income taxes

 

14,955

 

12,880

 

2,075

 

16%

 

25,014

 

20,686

 

4,328

 

21%

Income from continuing operations, net of income taxes

 

35,279

 

31,624

 

3,655

 

12%

 

56,748

 

51,400

 

5,348

 

10%

Income (loss) from discontinued operations, net of income taxes

 

121

 

183

 

(62)

 

(34%)

 

1,762

 

150

 

1,612

 

1075%

Net income

 

$                 35,400

 

$              31,807

 

$     3,593

 

11%

 

$                58,510

 

$                51,550

 

$       6,960

 

14%

                                 
                                 

Basic earnings per share

                               

Continuing operations

 

$                     0.61

 

$                  0.54

 

$      0.07

 

13%

 

$                   0.97

 

$                    0.88

 

$        0.09

 

10%

Discontinued operations

 

-

 

-

 

-

 

NM

 

0.03

 

-

 

0.03

 

NM

   

$                     0.61

 

$                  0.54

 

$      0.07

 

13%

 

$                   1.00

 

$                    0.88

 

$        0.12

 

14%

                                 
                                 

Diluted earnings per share

                               

Continuing operations

 

$                     0.60

 

$                  0.54

 

$      0.06

 

11%

 

$                   0.96

 

$                    0.88

 

$        0.08

 

9%

Discontinued operations

 

-

 

-

 

-

 

NM

 

0.03

 

-

 

0.03

 

NM

   

$                     0.60

 

$                  0.54

 

$      0.06

 

11%

 

$                   0.99

 

$                    0.88

 

$        0.11

 

13%

                                 

 

Choice Hotels International, Inc.

       

Exhibit 2

Consolidated Balance Sheets

     
           
           

(In thousands, except per share amounts)

 June 30, 

 

 December 31, 

     

2014

 

2013

     

(Unaudited)

 

 (Preliminarily Revised) 

           

ASSETS

       
           

Cash and cash equivalents

$           211,542

 

$                          167,795

Accounts receivable, net

119,763

 

82,385

Fixed assets and intangibles, net

132,440

 

143,618

Notes receivable, net of allowances

34,492

 

31,872

Advances, marketing and reservation activities

-

 

5,844

Investments, employee benefit plans, at fair value

17,270

 

15,950

Other assets

 

112,935

 

103,809

           
   

Total assets

$           628,442

 

$                          551,273

           
           
           

LIABILITIES AND SHAREHOLDERS' DEFICIT

     
           

Accounts payable and accrued expenses

$           103,290

 

$                            98,288

Deferred revenue

67,365

 

61,188

Long-term debt

789,506

 

793,559

Deferred compensation & retirement plan obligations  

23,260

 

22,527

Other liabilities

 

57,531

 

28,582

           
 

Total liabilities

1,040,952

 

1,004,144

           

Common stock, $0.01 par value

584

 

586

Additional paid-in-capital

118,976

 

117,768

Accumulated other comprehensive loss

(4,756)

 

(6,217)

Treasury stock, at cost

(916,893)

 

(918,031)

Retained earnings

389,579

 

353,023

 

Total shareholders' deficit

(412,510)

 

(452,871)

           
   

Total liabilities and shareholders' deficit

$           628,442

 

$                          551,273

           

 

Choice Hotels International, Inc.

   

Exhibit 3

Consolidated Statements of Cash Flows

     

(Unaudited)

     
       
       
   

(In thousands)

Six Months Ended June 30,

          
 

2014

 

2013

CASH FLOWS FROM OPERATING ACTIVITIES:

   

(Restated)

       

Net income

$                    58,510

 

$              51,550

       

Adjustments to reconcile net income to net cash provided 

     

 by operating activities:

     

  Depreciation and amortization  

4,610

 

4,695

  Gain on sale of assets

(2,849)

 

-

  Provision for bad debts, net

1,383

 

1,753

  Non-cash stock compensation and other charges

4,711

 

5,566

  Non-cash interest and other (income) loss

719

 

967

  Deferred income taxes

(9,273)

 

8,236

  Dividends received from equity method investments

546

 

535

  Equity in net loss of affiliates

65

 

81

       

Changes in assets and liabilities:

     

  Receivables

(39,518)

 

(40,349)

  Advances to/from marketing and reservation activities, net

31,522

 

5,631

  Forgivable notes receivable, net

(6,692)

 

(3,595)

  Accounts payable

8,316

 

9,893

  Accrued expenses

(5,247)

 

(18,463)

  Income taxes payable/receivable

15,198

 

1,198

  Deferred revenue

6,231

 

(3,318)

  Other assets

(1,102)

 

(1,664)

  Other liabilities

(1,298)

 

7,271

       

 NET CASH PROVIDED BY OPERATING ACTIVITIES 

65,832

 

29,987

       

CASH FLOWS FROM INVESTING ACTIVITIES:

     
       

Investment in property and equipment

(7,314)

 

(22,035)

Proceeds from sales of assets

12,216

 

-

Equity method investments

(6,946)

 

(1,851)

Purchases of investments, employee benefit plans

(1,220)

 

(1,580)

Proceeds from sales of investments, employee benefit plans

641

 

3,934

Issuance of mezzanine and other notes receivable

(2,223)

 

-

Collections of mezannine and other notes receivable

9,743

 

201

Other items, net

(296)

 

(304)

       

 NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 

4,601

 

(21,635)

       

CASH FLOWS FROM FINANCING ACTIVITIES:

     
       

Net borrowings pursuant to revolving credit facility

-

 

15,200

Principal payments on long-term debt

(4,112)

 

(4,095)

Proceeds from the issuance of long-term debt

26

 

-

Purchase of treasury stock

(4,544)

 

(3,651)

Dividends paid

(21,957)

 

(11,261)

Excess tax benefits from stock-based compensation

1,319

 

1,146

Proceeds from exercise of stock options

1,547

 

5,973

       

 NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES

(27,721)

 

3,312

       

Net change in cash and cash equivalents

42,712

 

11,664

Effect of foreign exchange rate changes on cash and cash equivalents

1,035

 

(2,051)

Cash and cash equivalents at beginning of period

167,795

 

134,177

       

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$                  211,542

 

$            143,790

 

CHOICE HOTELS INTERNATIONAL, INC.

Exhibit 4

SUPPLEMENTAL OPERATING INFORMATION 

 

DOMESTIC HOTEL SYSTEM

 

(UNAUDITED)

 
                                           
                                           
                                           
                                           
   

For the Six Months Ended June 30, 2014

 

For the Six Months Ended June 30, 2013

 

Change

   
                                           
   

Average Daily

         

Average Daily

         

Average Daily

             
   

Rate

 

Occupancy

 

RevPAR

 

Rate

 

Occupancy

 

RevPAR

 

Rate

 

Occupancy

 

RevPAR

   
                                           

Comfort Inn

 

$             83.68

 

61.3%

 

$          51.31

 

$             81.41

 

58.6%

 

$         47.67

 

2.8%

 

270

bps

 

7.6%

   

Comfort Suites

 

89.35

 

65.7%

 

58.68

 

86.63

 

62.8%

 

54.43

 

3.1%

 

290

bps

 

7.8%

   

Sleep

 

75.94

 

61.3%

 

46.57

 

73.54

 

58.5%

 

43.00

 

3.3%

 

280

bps

 

8.3%

   

Quality

 

70.37

 

54.8%

 

38.57

 

68.89

 

52.2%

 

35.98

 

2.1%

 

260

bps

 

7.2%

   

Clarion

 

75.01

 

53.0%

 

39.75

 

73.77

 

50.1%

 

36.98

 

1.7%

 

290

bps

 

7.5%

   

Econo Lodge

 

55.75

 

49.7%

 

27.72

 

54.93

 

47.4%

 

26.05

 

1.5%

 

230

bps

 

6.4%

   

Rodeway

 

54.19

 

53.2%

 

28.85

 

52.12

 

50.4%

 

26.27

 

4.0%

 

280

bps

 

9.8%

   

MainStay

 

73.80

 

70.6%

 

52.11

 

71.66

 

67.5%

 

48.38

 

3.0%

 

310

bps

 

7.7%

   

Suburban

 

44.53

 

72.6%

 

32.34

 

42.64

 

71.3%

 

30.39

 

4.4%

 

130

bps

 

6.4%

   

Ascend Hotel Collection

 

117.13

 

59.2%

 

69.30

 

121.33

 

63.4%

 

76.89

 

(3.5%)

 

(420)

bps

 

(9.9%)

   
                                           

Total 

 

$             75.26

 

58.0%

 

$          43.63

 

$             73.48

 

55.5%

 

$         40.78

 

2.4%

 

250

bps

 

7.0%

   
                                           
                                           
                                           
                                           
   

For the Three Months Ended June 30, 2014

 

For the Three Months Ended June 30, 2013

 

Change

   
                                           
   

Average Daily

         

Average Daily

         

Average Daily

             
   

Rate

 

Occupancy

 

RevPAR

 

Rate

 

Occupancy

 

RevPAR

 

Rate

 

Occupancy

 

RevPAR

   
                                           

Comfort Inn

 

$             87.16

 

67.6%

 

$          58.94

 

$             84.31

 

64.4%

 

$         54.33

 

3.4%

 

320

bps

 

8.5%

   

Comfort Suites

 

91.46

 

70.4%

 

64.36

 

88.11

 

67.2%

 

59.19

 

3.8%

 

320

bps

 

8.7%

   

Sleep

 

78.40

 

66.9%

 

52.42

 

75.57

 

63.5%

 

47.94

 

3.7%

 

340

bps

 

9.3%

   

Quality

 

72.61

 

59.8%

 

43.38

 

70.96

 

56.9%

 

40.39

 

2.3%

 

290

bps

 

7.4%

   

Clarion

 

78.36

 

57.0%

 

44.68

 

76.39

 

53.9%

 

41.19

 

2.6%

 

310

bps

 

8.5%

   

Econo Lodge

 

58.12

 

54.9%

 

31.90

 

56.99

 

52.0%

 

29.65

 

2.0%

 

290

bps

 

7.6%

   

Rodeway

 

56.56

 

56.7%

 

32.05

 

54.52

 

54.0%

 

29.42

 

3.7%

 

270

bps

 

8.9%

   

MainStay

 

76.33

 

76.3%

 

58.25

 

73.00

 

72.7%

 

53.04

 

4.6%

 

360

bps

 

9.8%

   

Suburban

 

45.72

 

75.0%

 

34.27

 

43.07

 

73.0%

 

31.45

 

6.2%

 

200

bps

 

9.0%

   

Ascend Hotel Collection

 

122.07

 

60.1%

 

73.32

 

124.08

 

64.9%

 

80.50

 

(1.6%)

 

(480)

bps

 

(8.9%)

   
                                           

Total 

 

$             77.92

 

63.0%

 

$          49.08

 

$             75.74

 

60.2%

 

$         45.61

 

2.9%

 

280

bps

 

7.6%

   
                                           
                                           
                                           
                                           
                                           
                                           
   

For the Quarter Ended

     

For the Six Months Ended

                     
   

6/30/2014

 

6/30/2013

     

6/30/2014

 

6/30/2013

                     
                                           

System-wide effective royalty rate

 

4.28%

 

4.34%

     

4.30%

 

4.36%

                     

 

                                   

CHOICE HOTELS INTERNATIONAL, INC.

Exhibit 5

SUPPLEMENTAL HOTEL AND ROOM SUPPLY DATA

 

(UNAUDITED)

 
                                   
                                   
                                   
   

June 30, 2014

 

June 30, 2013

 

Variance

 
                                   
   

Hotels

 

Rooms

 

Hotels

 

Rooms

 

Hotels

 

Rooms

 

%

 

%

 
                                   

Comfort Inn

 

1,281

 

99,679

 

1,311

 

102,882

 

(30)

 

(3,203)

 

(2.3%)

 

(3.1%)

 

Comfort Suites

 

590

 

45,664

 

587

 

45,339

 

3

 

325

 

0.5%

 

0.7%

 

Sleep

 

375

 

27,159

 

379

 

27,478

 

(4)

 

(319)

 

(1.1%)

 

(1.2%)

 

Quality

 

1,251

 

102,859

 

1,192

 

99,761

 

59

 

3,098

 

4.9%

 

3.1%

 

Clarion

 

185

 

26,501

 

191

 

27,184

 

(6)

 

(683)

 

(3.1%)

 

(2.5%)

 

Econo Lodge

 

840

 

51,678

 

817

 

49,608

 

23

 

2,070

 

2.8%

 

4.2%

 

Rodeway

 

460

 

25,366

 

427

 

24,782

 

33

 

584

 

7.7%

 

2.4%

 

MainStay

 

42

 

3,304

 

43

 

3,332

 

(1)

 

(28)

 

(2.3%)

 

(0.8%)

 

Suburban

 

64

 

7,164

 

63

 

7,241

 

1

 

(77)

 

1.6%

 

(1.1%)

 

Ascend Hotel Collection

 

104

 

9,076

 

90

 

7,521

 

14

 

1,555

 

15.6%

 

20.7%

 

Cambria Suites

 

20

 

2,404

 

18

 

2,094

 

2

 

310

 

11.1%

 

14.8%

 
                                   

Domestic Franchises

 

5,212

 

400,854

 

5,118

 

397,222

 

94

 

3,632

 

1.8%

 

0.9%

 
                                   

International Franchises

 

1,160

 

105,669

 

1,169

 

104,701

 

(9)

 

968

 

(0.8%)

 

0.9%

 
                                   

Total Franchises

 

6,372

 

506,523

 

6,287

 

501,923

 

85

 

4,600

 

1.4%

 

0.9%

 

 

                                   

Exhibit 6

 

CHOICE HOTELS INTERNATIONAL, INC.

SUPPLEMENTAL INFORMATION BY BRAND

DEVELOPMENT RESULTS -- DOMESTIC NEW HOTEL CONTRACTS

(UNAUDITED)

                                       
                                       
                                       
                                       
   

For the Six Months Ended June 30, 2014

 

For the Six Months Ended June 30, 2013

 

% Change

 
                                       
   

New

         

New

         

New

         
   

Construction

 

Conversion

 

Total

 

Construction

 

Conversion

 

Total

 

Construction

 

Conversion

 

Total

 
                                       

Comfort Inn

 

10

 

8

 

18

 

5

 

18

 

23

 

100%

 

(56%)

 

(22%)

 

Comfort Suites

 

7

 

-

 

7

 

5

 

2

 

7

 

40%

 

(100%)

 

0%

 

Sleep

 

14

 

1

 

15

 

5

 

-

 

5

 

180%

 

NM

 

200%

 

Quality

 

3

 

48

 

51

 

1

 

44

 

45

 

200%

 

9%

 

13%

 

Clarion

 

-

 

11

 

11

 

-

 

7

 

7

 

NM

 

57%

 

57%

 

Econo Lodge

 

-

 

27

 

27

 

-

 

31

 

31

 

NM

 

(13%)

 

(13%)

 

Rodeway

 

1

 

31

 

32

 

-

 

24

 

24

 

NM

 

29%

 

33%

 

MainStay

 

5

 

1

 

6

 

4

 

-

 

4

 

25%

 

NM

 

50%

 

Suburban

 

1

 

3

 

4

 

-

 

1

 

1

 

NM

 

200%

 

300%

 

Ascend Hotel Collection

 

6

 

6

 

12

 

3

 

36

 

39

 

100%

 

(83%)

 

(69%)

 

Cambria Suites

 

1

 

-

 

1

 

1

 

-

 

1

 

0%

 

NM

 

0%

 
                                       

Total Domestic System

 

48

 

136

 

184

 

24

 

163

 

187

 

100%

 

(17%)

 

(2%)

 
                                       
                                       
                                       
                                       
                                       
   

For the Three Months Ended June 30, 2014

 

For the Three Months Ended June 30, 2013

 

% Change

 
                                       
   

New

         

New

         

New

         
   

Construction

 

Conversion

 

Total

 

Construction

 

Conversion

 

Total

 

Construction

 

Conversion

 

Total

 
                                       

Comfort Inn

 

7

 

5

 

12

 

2

 

13

 

15

 

250%

 

(62%)

 

(20%)

 

Comfort Suites

 

6

 

-

 

6

 

3

 

-

 

3

 

100%

 

NM

 

100%

 

Sleep

 

10

 

1

 

11

 

4

 

-

 

4

 

150%

 

NM

 

175%

 

Quality

 

2

 

38

 

40

 

1

 

25

 

26

 

100%

 

52%

 

54%

 

Clarion

 

-

 

9

 

9

 

-

 

4

 

4

 

NM

 

125%

 

125%

 

Econo Lodge

 

-

 

21

 

21

 

-

 

23

 

23

 

NM

 

(9%)

 

(9%)

 

Rodeway

 

-

 

16

 

16

 

-

 

15

 

15

 

NM

 

7%

 

7%

 

MainStay

 

1

 

1

 

2

 

3

 

-

 

3

 

(67%)

 

NM

 

(33%)

 

Suburban

 

-

 

2

 

2

 

-

 

-

 

-

 

NM

 

NM

 

NM

 

Ascend Hotel Collection

 

3

 

3

 

6

 

1

 

10

 

11

 

200%

 

(70%)

 

(45%)

 

Cambria Suites

 

-

 

-

 

-

 

-

 

-

 

-

 

NM

 

NM

 

NM

 
                                       

Total Domestic System

 

29

 

96

 

125

 

14

 

90

 

104

 

107%

 

7%

 

20%

 
                                       

 

                                           

Exhibit 7

   

CHOICE HOTELS INTERNATIONAL, INC.

DOMESTIC PIPELINE OF HOTELS UNDER CONSTRUCTION, AWAITING CONVERSION OR APPROVED FOR DEVELOPMENT

(UNAUDITED)

                                                 

A hotel in the domestic pipeline does not always result in an open and operating hotel due to various factors.

                   
                                                 
                                     
                           

Variance

   

June 30, 2014

 

June 30, 2013

                       
   

Units

 

Units

 

Conversion

 

New Construction

 

Total

   

Conversion

 

New Construction

 

Total

 

Conversion

 

New Construction

 

Total

 

Units

 

%

 

Units

 

%

 

Units

 

%

                                                 

Comfort Inn

 

38

 

50

 

88

 

34

 

46

 

80

 

4

 

12%

 

4

 

9%

 

8

 

10%

Comfort Suites

 

1

 

47

 

48

 

2

 

61

 

63

 

(1)

 

(50%)

 

(14)

 

(23%)

 

(15)

 

(24%)

Sleep Inn

 

2

 

56

 

58

 

-

 

44

 

44

 

2

 

NM

 

12

 

27%

 

14

 

32%

Quality

 

41

 

6

 

47

 

34

 

3

 

37

 

7

 

21%

 

3

 

100%

 

10

 

27%

Clarion

 

12

 

2

 

14

 

8

 

-

 

8

 

4

 

50%

 

2

 

NM

 

6

 

75%

Econo Lodge

 

33

 

2

 

35

 

26

 

-

 

26

 

7

 

27%

 

2

 

NM

 

9

 

35%

Rodeway

 

31

 

2

 

33

 

24

 

-

 

24

 

7

 

29%

 

2

 

NM

 

9

 

38%

MainStay

 

2

 

35

 

37

 

-

 

26

 

26

 

2

 

NM

 

9

 

35%

 

11

 

42%

Suburban

 

7

 

14

 

21

 

3

 

12

 

15

 

4

 

133%

 

2

 

17%

 

6

 

40%

Ascend Hotel Collection

 

9

 

15

 

24

 

14

 

8

 

22

 

(5)

 

(36%)

 

7

 

88%

 

2

 

9%

Cambria Suites

 

-

 

18

 

18

 

-

 

20

 

20

 

-

 

NM

 

(2)

 

(10%)

 

(2)

 

(10%)

                                                 
   

176

 

247

 

423

 

145

 

220

 

365

 

31

 

21%

 

27

 

12%

 

58

 

16%

                                                 

 

 

Exhibit 8

 

CHOICE HOTELS INTERNATIONAL, INC.

 

SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION

 

(UNAUDITED)

                   

CALCULATION OF FRANCHISING REVENUES AND FRANCHISING MARGINS

   
                   

(dollar amounts in thousands)

 

Three Months Ended June 30, 

 

Six Months Ended June 30, 

                   
     

2014

 

2013

 

2014

 

2013

 

Franchising Revenues:

               
                   
 

Total Revenues

 

$              197,664

 

$               190,930

 

$               357,400

 

$              339,101

 

Adjustments:

               
 

     Marketing and reservation revenues

 

(103,766)

 

(104,072)

 

(193,372)

 

(186,395)

 

     Other

 

(68)

 

-

 

(121)

 

-

 

Franchising Revenues

 

$                93,830

 

$                 86,858

 

$               163,907

 

$              152,706

                   
 

Franchising Margins:

               
                   
 

Operating Margin:

               
                   
 

Total Revenues

 

$              197,664

 

$               190,930

 

$               357,400

 

$              339,101

 

Operating Income

 

$                60,153

 

$                 54,739

 

$               101,325

 

$                91,878

 

     Operating Margin

 

30.4%

 

28.7%

 

28.4%

 

27.1%

                   
 

Franchising Margin:

               
                   
 

Franchising Revenues

 

$                93,830

 

$                 86,858

 

$               163,907

 

$              152,706

                   
 

Operating Income

 

$                60,153

 

$                 54,739

 

$               101,325

 

$                91,878

 

SkyTouch Division operating loss

 

4,360

 

2,661

 

7,866

 

4,466

     

$                64,513

 

$                 57,400

 

$               109,191

 

$                96,344

                   
 

     Franchising Margins

 

68.8%

 

66.1%

 

66.6%

 

63.1%

                   
                   
                   

CALCULATION OF FRANCHISING SELLING, GENERAL AND ADMINISTRATION EXPENSES

   
                   

(dollar amounts in thousands)

 

Three Months Ended June 30, 

 

Six Months Ended June 30, 

                   
     

2014

 

2013

 

2014

 

2013

                   
 

Total Selling, General and Administrative Expenses

 

$                31,413

 

$                 29,731

 

$                 58,093

 

$                56,399

 

SkyTouch Division

 

(4,200)

 

(2,579)

 

(7,536)

 

(4,370)

 

Franchising Selling, General and Administration Expenses

 

$                27,213

 

$                 27,152

 

$                 50,557

 

$                52,029

                   
                   
                   

CALCULATION OF EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION ("EBITDA")

                   

(dollar amounts in thousands)

               
     

Three Months Ended June 30, 

 

Six Months Ended June 30, 

                   
     

2014

 

2013

 

2014

 

2013

                   

Income from continuing operations, net of income taxes

 

$                35,279

 

$                 31,624

 

$                 56,748

 

$                51,400

 

Income taxes

 

14,955

 

12,880

 

25,014

 

20,686

 

Interest expense

 

10,710

 

10,807

 

20,881

 

21,577

 

Interest income

 

(347)

 

(659)

 

(850)

 

(1,303)

 

Other (gains) and losses

 

(474)

 

147

 

(533)

 

(563)

 

Equity in net (income) loss of affiliates

 

30

 

(60)

 

65

 

81

 

Depreciation and amortization

 

2,332

 

2,388

 

4,610

 

4,429

EBITDA

 

$                62,485

 

$                 57,127

 

$               105,935

 

$                96,307

                   

Franchising 

 

$                66,617

 

$                 59,706

 

$               113,350

 

$              100,677

SkyTouch

 

(4,132)

 

(2,579)

 

(7,415)

 

(4,370)

     

$                62,485

 

$                 57,127

 

$               105,935

 

$                96,307

                   

 

 

CHOICE HOTELS INTERNATIONAL, INC.

 

Exhibit 9

 

DISCONTINUED OPERATIONS

   
 

(UNAUDITED)

   
                   
                   
                   
     

Three Months Ended June 30,

 

Six Months Ended June 30, 

                   

(In thousands)

 

2014

 

2013

 

2014

 

2013

                   

REVENUES:

               

Hotel operations

 

$                   111

 

$                   1,334

 

$                801

 

$            2,290

      Total revenues

 

111

 

1,334

 

801

 

2,290

                   

OPERATING EXPENSES:

               

Hotel operations

 

170

 

911

 

832

 

1,786

Depreciation and amortization

 

-

 

132

 

-

 

266

Total operating expenses

 

170

 

1,043

 

832

 

2,052

                   

Operating income (loss)

 

(59)

 

291

 

(31)

 

238

                   

Gain on disposal of discontinued operations

 

252

 

-

 

2,833

 

-

                   

Income (loss) from discontinued operations before income taxes

 

193

 

291

 

2,802

 

238

Income tax (benefit)

 

72

 

108

 

1,040

 

88

Income (loss) from discontinued operations

 

$                   121

 

$                      183

 

$             1,762

 

$               150

                   

SOURCE Choice Hotels International, Inc.

Contacts:

David White
Senior Vice Presiden
Chief Financial Officer & Treasurer
(301) 592-5117

Scott Carman
Director
Public Relations
(301) 592-6361

###

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