SILVER SPRING, Maryland-Choice Hotels International, Inc., (NYSE: CHH) today reported the following highlights for first quarter 2011:
Adjusted diluted earnings per share ("EPS") for first quarter 2011 were $0.28 compared to $0.27 for the same period of the prior year. Diluted EPS were $0.26 for first quarter 2011 compared to $0.26 for first quarter 2010. Adjusted diluted EPS for first quarter 2011 and 2010 exclude certain special items, as described below, totaling $0.02 and $0.01, respectively.
Excluding special items, adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") were $27.8 million for the three months ended March 31, 2011, compared to $26.4 million for the same period of 2010. Operating income increased 8% from $23.8 million for the three months ended March 31, 2010 to $25.7 million for the same period of the current year.
Franchising revenues increased 8% from $47.7 million for the three months ended March 31, 2010 to $51.5 million for the same period of 2011. Total revenues for the three months ended March 31, 2011 increased 7% to $115.3 million compared to the same period of 2010.
The effective income tax rate for the three months ended March 31, 2011 was 28.2% compared to 35.9% for the same period of the prior year. Excluding certain discrete items totaling $1.3 million (approximately $0.02 diluted earnings per share) recorded during the three months ended March 31, 2011, the company's effective income tax rate was 34.4%.
Domestic unit and room growth increased 1.3 percent and 0.8 percent, respectively, from March 31, 2010.
Domestic system-wide revenue per available room ("RevPAR") increased 5.5% for the first quarter of 2011 compared to the same period of 2010.
The effective royalty rate increased 3 basis points to 4.35% for the three months ended March 31, 2011 compared to 4.32% for the same period of the prior year.
The company executed 56 new domestic hotel franchise contracts for the three months ended March 31, 2011 compared to 55 contracts executed in the same period of the prior year.
The number of domestic hotels under construction, awaiting conversion or approved for development declined 23% from March 31, 2010 to 508 hotels representing 41,475 rooms; the worldwide pipeline declined 20% from March 31, 2010 to 606 hotels representing 49,908 rooms.
"While the franchise development environment remained challenging during the first quarter, we are pleased with our continued growth in domestic RevPAR, domestic net units and rooms and key financial metrics," said Stephen P. Joyce, president and chief executive officer. "As the domestic RevPAR and hotel transaction environments continue to improve, Choice remains a top option for hotel developers thanks to our formidable position as the premier lodging franchisor in the mid-scale and economy segments with a mix of well-segmented, well-known brands suitable for new construction and conversion development opportunities."
Special Items
During the three months ended March 31, 2011 and 2010, the company recorded employee termination benefits in selling, general and administrative expenses of approximately $0.1 million and $0.4 million, respectively. In addition, during the three months ended March 31, 2011, the company reduced the carrying amount of a parcel of land held for sale resulting in a loss of $1.8 million included in other gains and losses. These amounts represented diluted EPS of $0.02 and $0.01 for the three months ended March 31, 2011 and 2010, respectively.
Outlook for 2011
The company's second quarter 2011 diluted EPS is expected to be at least $0.43. The company expects full-year 2011 adjusted diluted EPS to be between $1.73 and $1.75. Adjusted EBITDA for full-year 2011 are expected to be between $177 million and $179 million. These estimates include the following assumptions:
The company expects net domestic unit growth to be relatively flat in 2011;
RevPAR is expected to increase approximately 5% for the second quarter of 2011 and increase approximately 4% for full-year 2011;
The effective royalty rate is expected to increase 1 basis points for full-year 2011;
All figures assume the existing share count and an effective tax rate of 34.5% and 33.5% for the second quarter and full-year 2011, respectively;
Adjusted EBITDA for the full year 2011 excludes $0.1 million of operating expenses related to employee termination benefits. Adjusted diluted EPS excludes the aforementioned employee termination benefits as well as a $1.8 million loss on land held for sale which together represent approximately $0.02 diluted EPS for full year 2011.
Use of Free Cash Flow
The company has historically used its free cash flow (cash flow from operations less capital expenditures) to return value to shareholders, primarily through share repurchases and dividends.
For the three months ended March 31, 2011 the company paid $11.0 million of cash dividends to shareholders. The current quarterly dividend rate per common share is $0.185, subject to declaration by our board of directors.
During the three months ended March 31, 2011, the company did not purchase shares of its common stock under the share repurchase program but still has authorization to purchase up to an additional 3.6 million shares under this program. We expect to continue making repurchases 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 43.2 million shares of its common stock for a total cost of $1 billion through March 31, 2011. Considering the effect of a two-for-one stock split in October 2005, the company had repurchased 76.2 million shares through March 31, 2011 under the share repurchase program at an average price of $13.35 per share.
Our board of directors previously authorized us to enter into programs which permit 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 top markets. Over the next several years, we expect to continue to opportunistically deploy capital pursuant to these programs to promote growth of our emerging brands. The amount and timing of the investment in these programs will be dependent on market and other conditions. Our current expectation is that our annual investment in these programs will range between $20 million to $40 million. Notwithstanding these programs, 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.
Conference Call
Choice will conduct a conference call on Friday, April 29, 2011 at 10:00 a.m. EDT to discuss the company's first quarter 2011 results. The dial-in number to listen to the call is 1-866-356-4123, and the access code is 79940540. International callers should dial 1-617-597-5393 and enter the access code 79940540. The conference call also will be Webcast simultaneously via the company's Web site, http://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 Information page will feature a conference call microphone icon to access the call.
The call will be recorded and available for replay beginning at 1:00 p.m. EDT on April 29, 2011 through May 29, 2011 by calling 1-888-286-8010 and entering access code 21425981. The international dial-in number for the replay is 1-617-801-6888, access code 21425981. In addition, the call will be archived and available onhttp://www.choicehotels.com/ via the Investor Info link.
