Choice Hotels International Posts Big Earnings in Q1

THE PULSE: Choice Hotels International reports strong increases in franchising EBITDA and RevPAR for the first quarter of 2014, with the future looking bright.

WHY IT RATES: The latest numbers from Choice reflect a strong franchising operation. Full-year EBITDA for franchising activities is expected to range between $227 million and $232 million, and full-year RevPAR is expected to increase by 5.5 percent. - Ryan Rudnansky, TravelPulse hotels editor

Choice Hotels International, Inc. today reported the following highlights for the first quarter of 2014:

• Diluted earnings per share ("EPS") for the three months ended March 31, 2014 totaled $0.32, an increase of 23 percent from the same period of 2013.
• Diluted EPS from continuing operations for the three months ended March 31, 2014 totaled $0.29, an increase of 12 percent from the same period of 2013.
• Earnings before interest, taxes, depreciation and amortization ("EBITDA") from franchising activities for the three months ended March 31, 2014 totaled $40.1 million, an increase of 15 percent from the same period of 2013.
• Franchising revenues for the three months ended March 31, 2014 totaled $63.2 million, an increase of 6 percent from the same period of 2013.
• Franchising margins for the three months ended March 31, 2014 were 60.2 percent, an increase of 510 basis points from the same period of 2013.
• Domestic royalty fees for the three months ended March 31, 2014 totaled $46.5 million, an increase of 5 percent from the same period of 2013.
• Domestic unit and room growth increased 2.4 percent and 1.6 percent from March 31, 2013, respectively.
• Domestic system-wide revenue per available room ("RevPAR") increased 5.6 percent in the first quarter of 2014 as occupancy and average daily rates increased 200 basis points and 1.1 percent, respectively from the same period of 2013.
• The company executed 59 new domestic hotel franchise contracts for the three months ended March 31, 2014 compared to 83 new domestic hotel franchise contracts for the same period of 2013. Domestic hotel contracts executed during the three months ended March 31, 2013 reflect a multi-faceted strategic marketing alliance with Bluegreen Corporation which resulted in the addition of 21 Bluegreen Vacation Club® Resorts to the company's Ascend Hotel Collection. Excluding this transaction, domestic franchise agreements executed during the first quarter of 2014 totaled 59 compared to 62 new domestic hotel franchise contracts in the same period of 2013.
• Domestic relicensing and contract renewal transactions for the three months ended March 31, 2014 totaled 83 contracts, an increase of 20 percent from the same period of 2013.
• The company sold two of its three company-owned Mainstay Suites hotels during the three months ended March 31, 2014 resulting in a $2.6 million gain.

"We are very pleased with the first quarter performance of our franchising business which exceeded our expectations and resulted in a 15 percent increase in franchising EBITDA and an expansion of our franchising margins due to our strong RevPAR growth and disciplined cost management," said Stephen P. Joyce, president and chief executive officer. "We are optimistic that we are well positioned to benefit from strong consumer and developer demand for our brands."

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 March 31, 2014, the company had disposed of two of the three owned hotels and expects the third hotel to be sold during the year endedDecember 31, 2014. The new owners of the two MainStay Suites hotels have executed new franchise agreements with the company and we expect that following the sale of the third hotel the new owner will also execute a new franchise agreement.

The company's consolidated statement of income for the three months ended March 31, 2014 and the company's consolidated balance sheet as of March 31, 2014 reflect these three company-owned hotels as discontinued operations. In addition, the company's statement of income for the three months ended March 31, 2013 has been reclassified to account for these operations as discontinued. 

SOURCE: This news came from a Choice Hotels International press release.