Written by Lorimer Wilson

Choice Hotels International, Inc. (NYSE: CHH), one of the world's largest hotel companies, today reported its results for the three months ended June 30, 2017.

About Choice Hotels

Choice Hotels has over 6,500 hotels franchised in more than 40 countries and territories representing more than 500,000 rooms around the globe with an additional 792 in their development pipeline consisting of the following brands: Ascend Hotel Collection®, Cambria® Hotels, Comfort Inn®, Comfort Suites®, Sleep Inn®, Quality®, Clarion®, MainStay Suites®, Suburban Extended Stay Hotel®, Econo Lodge®, Rodeway Inn®, and Vacation Rentals by Choice Hotels™.

Highlights of the company's second quarter 2017 results are, compared to the prior-year second quarter, as follows:

Overall Results

• Net income: UP 16% to $45.0 million
• Adjusted diluted earnings per share: UP 11% to $0.79
• Total revenues and hotel franchising revenues: UP 14% & 10%, respectively
• Adjusted EBITDA: UP 15% to $81.1 million
• Adjusted EBITDA from hotel franchising activities: UP 11% to $84.0 million
• Adjusted hotel franchising margins: UP 100 basis points to 70.5%

Royalties

• Domestic royalty fees: UP 7.2% to $87.0 million
• Domestic system-wide revenue per available room (RevPAR): UP 2.0%
• Occupancy and average daily rates: UP 30 basis points and 1.5%, respectively
• Effective royalty rate: UP 19 basis points
• Domestic franchised hotels: UP 2.6%
• Domestic and international rooms: UP 2.2% & 1.8%, respectively

Development

• New, executed franchised hotel development contracts: UP 20%
• New construction and conversion franchise agreements increased 33% and 14%, respectively
• Domestic relicensing and contract renewal transactions: UP 19%
• Total domestic pipeline of hotels awaiting conversion, under construction or approved for development: UP 22% to 721 hotels, to 523 and 198 hotels, respectively

Use of Cash Flows

Dividends

• The company paid cash dividends totaling approximately $24 million during the six months ended June 30, 2017.
• Based on the current quarterly dividend rate of $0.215 per common share, the company expects to pay dividends of approximately $49 million during 2017.

Share Repurchases

The company did not repurchase shares of common stock under its share repurchase program during the six months ended June 30, 2017. The company currently has authorization to purchase up to 4.0 million additional shares under this program. 

Outlook

Consolidated Outlook

The company's expected consolidated 2017 is as follows (excluding any potential costs associated with the company's recently announced executive succession plan):

• Net income: $160 to $163 million.
• Adjusted EBITDA: $293 to $297 million.
• Adjusted diluted EPS: $2.81 and $2.86 (Q3 adjusted diluted EPS: $0.90 to $0.92.).
• Effective tax rate: approximately 33%

Hotel Franchising

• Adjusted EBITDA from hotel franchising activities: $299 million to $303 million.
• Net domestic unit growth: 2- 3%.
• RevPAR: 1-2 for Q3 and 2-3% for full-year 2017.
• Effective royalty rate: to increase 17 to 19 basis points.

Non-Hotel Franchising Activities

• Adjusted EBITDA: DOWN $5-7 million.

Patrick Pacious, Choice Hotel's president, chief operating officer and incoming chief executive officer said in today's press release that:

"Choice Hotels' overall strategy to successfully focus on franchisee profitability has led to our robust development pipeline and continues to deliver strong financial results.

Our midscale and upscale brands continue to be core areas of strength and expansion. The brands in our midscale segment, including Comfort, Quality and Sleep Inn, are experiencing continued growth in both RevPAR and our development pipeline.

In addition, our upscale brands – Cambria Hotels and The Ascend Hotel Collection – are aggressively expanding. These results reinforce that we have very effective distribution channels and a high-performing franchisee business model."