Choice Hotels International, Inc. · NYSE:CHH
Choice Hotels International — Investor Day (December 2007)
166 slides from Choice Hotels International's investor day presentation, Dec 18, 2007
Slide 1: Chuck Ledsinger, Vice Chairman and CEO
CHUCK LEDSINGER Vice Chairman and Chief Executive Officer
Slide 2: Disclaimer
DISCLAIMER Certain matters discussed throughout all of today’s presentations constitute forward-looking statements within the meaning of the federal securities law. Generally, our use of words such as “expect,” “estimate,” “believe,” “anticipate,” “will,” “forecast,” “plan,” project,” “assume” or si
Slide 3: A Decade in Review
A Decade in Review AGENDA Significant Growth Opportunities Remain
Slide 4: What a Difference a Decade Makes
62,384 68,853 242,161 350,701 304,545 419,554 Dec. 31, 1997 Sept. 30, 2007 ENYO Open Total WHAT A DIFFERENCE A DECADE MAKES! $3 $5 Dec. 31, 1997 Sept. 30, 2007 TTM Creates strong and growing royalty stream Strong Unit and Room Growth Large, Growing Fee Base Improved Contract Pricing Power ENYO = Exe
Slide 5: Franchising Revenues
Franchising Revenues (in millions) WHAT A DIFFERENCE A DECADE MAKES! Growing Franchising Revenue Stream Laser Focus on Efficient Operations High Returns on Invested Capital • Cumulative free cash flows – nearly $1 billion since 1997 • Opportunities to create value for long-term shareholders • All of
Slide 6: What a Difference a Decade Makes
WHAT A DIFFERENCE A DECADE MAKES! Prudent and focused brand management…… ……Positions Choice well for continued profitable growth 1997 2007 Creating/Acquiring Brands Entering Segments Enhancing Existing Brands
Slide 7: Significant Growth Opportunities Remain
Significant Growth Opportunities Remain A Decade in Review AGENDA
Slide 8: Significant Growth Opportunities Remain
SIGNIFICANT GROWTH OPPORTUNITIES REMAIN • Leverage size, scale and distribution • Focus on franchisee ROI • Exploit core competencies – Innovation – Selling hotel rooms – Exceptional services for hotel operators – Selling hotel franchises
Slide 9: Leverage Size, Scale & Distribution
Leverage Size, Scale & Distribution Focus On Franchisee ROI Exploit Core Competencies
Slide 10: Size, Scale & Distribution
SIZE, SCALE & DISTRIBUTION • Lowers costs and increases revenues for owners • Enables highly-valued capabilities – Brand awareness – National marketing – Reservations – Services – Technologies • Franchising model is difficult to duplicate – Scale required to duplicate reasonable returns for sharehol
Slide 11: One of the Largest Hoteliers
11.4 5.6 5.2 5.0 4.3 1.9 1.3 1.1 0.8 9.0 Wyndham Choice IHG Hilton Marriott Best Western Accor Hyatt Carlson Starwood ONE OF THE LARGEST HOTELIERS U.S. Hotel Market Share – Leading Hotel Companies Source: Smith Travel Research, September 2007 Market Share – Percentage of Hotels Open
Slide 12: Leading Gainer of Market Share
Wyndham Choice IHG Hilton Marriott Best Western Accor Hyatt Carlson Starwood 2003 2004 2005 2006 2007 4 yr. Bps (03-07) -110 140 60 -20 -60 LEADING GAINER OF MARKET SHARE Domestic Market Share Source: Smith Travel Research, September 2007
Slide 13: Well Recognized & Segmented Brands
WELL RECOGNIZED & SEGMENTED BRANDS Limited Service Full Service Economy Mid-Scale Upscale
Slide 14: Focus On Franchise ROI
Focus On Franchise ROI Exploit Size, Scale & Distribution Leverage Core Competencies
Slide 15: Unrelenting Focus on Franchisee ROI
UNRELENTING FOCUS ON FRANCHISEE ROI Our Vision : To generate the highest return on investment of any hotel franchise Our Mission : Deliver a franchise success system of strong brands, exceptional services, vast consumer reach, and size, scale and distribution that delivers guests, satisfies guests,
Slide 16: Exploit Core Competencies
Exploit Core Competencies Leverage Size, Scale & Distribution Focus On Franchisee ROI
Slide 17: Innovation Creates Opportunities
INNOVATION CREATES OPPORTUNITIES
Slide 18: Selling Hotel Rooms
98% 88% 87% 81% 94% • Strong consumer marketing and guest loyalty programs driving greater awareness & reservations delivery among target guest Brand Awareness & Reservations Delivery = Key Value Proposition For Hoteliers SELLING HOTEL ROOMS Brand Awareness (2007 YTD) All Hotel Direct Reservation Ch
Slide 19: Exceptional Services for Hotel Operators
EXCEPTIONAL SERVICES FOR HOTEL OPERATORS • Global footprint of field-based hotel performance consultants • Independent third-party quality assurance review system provided by LRA • Value added training capabilities • Brand Solutions Qualified Vendor Program – leverages scale to reduce costs for hote
Slide 20: Exceptional Development Teams Selling Hotel Franchises
200 284 190 258 203 201 413 602 107 176 EXCEPTIONAL DEVELOPMENT TEAMS FOCUSED ON SELLING HOTEL FRANCHISES 2002 2003 2004 2005 2006 $5 $10 $15 $20 2002 2003 2004 2005 2006 Conversion New Construction • Track record of unit growth across a range of industry and economic cycles Domestic Franchises Open
Slide 21: Strategy For Profitable Growth
Strategy For Profitable Growth
Slide 22: Significant Unit and Room Growth Opportunities Remain
SIGNIFICANT UNIT AND ROOM GROWTH OPPORTUNITIES REMAIN – Conversions – Approximately 1.5 million independent rooms in United States – New Builds -- PwC forecasts 2008 industry-wide room supply growth of 2% – Competitor portfolio management strategies create additional conversion opportunities – Brand
Slide 23: Favorable Demographics & Economic Environment
FAVORABLE DEMOGRAPHICS & ECONOMIC ENVIRONMENT • Demographic forecasts point to continued shift from business to leisure travel • 2008 economic growth expected to continue albeit at a slower rate – GDP (+2.2%) – Continued low unemployment rate (5.0%) – Consumer disposable income (+2.5%) Source: Blue
Slide 24: Our Strategy for Maximizing Financial & Shareholder Performance
OUR STRATEGY FOR MAXIMIZING FINANCIAL & SHAREHOLDER PERFORMANCE • Strategically grow our brands • Improve brands, brand recognition, business delivery and franchisee profitability • Seek external growth opportunities that improve or leverage our core business and competencies • Allocate significant
Slide 25: Bruce Haase
BRUCE HAASE Senior Vice President, Brand Operations and International
Slide 26: Diversified Brands for Guests and Developers
$45 $80+ Targeted Average Daily Rate $65 Conversion DIVERSIFIED BRANDS FOR GUESTS AND DEVELOPERS New Construction Source: Choice Internal Data, September 2007
Slide 27: Our Brands Serve a Wide Range of Developer Needs
New Construction Brands OUR BRANDS SERVE A WIDE RANGE OF DEVELOPER NEEDS Conversion Brands Economy Mid-Scale Mid-Scale Limited Service
Slide 28: Focus on Franchisee Satisfaction and ROI
Sources: Choice Internal Data, Franchisee Satisfaction Survey Results, September 2007 FOCUS ON FRANCHISEE SATISFACTION AND ROI KEY TO CONTINUED GROWTH Top Reasons for Selecting a Choice Brand New Build Conversion ROI / Profitability 8.6 7.7 Reservations delivery 8.2 7.9 Brand recognition 8.1 8.0 Ava
Slide 29: Comfort Inn, Comfort Suites, Sleep Inn
(ComForT SUITES Comfort INN
Slide 30: Mid-Scale Without Food and Beverage Brands
BRAND AWARENESS YTD CRS CONTRIBUTION YTD 58% 30% 98% 33% 88% 38% Average Age Median Household Income $69,000 $67,000 College Graduate 43% 42% Leisure / Business 66% / 34% 67% / 33% Drive / Fly 85% / 15% 85% / 15% MID-SCALE WITHOUT FOOD AND BEVERAGE BRANDS • Free continental breakfast buffet • Pool a
Slide 31: Comfort Inn / Comfort Inn & Suites
COMFORT INN / COMFORT INN & SUITES Comfort Inn is the mid-priced hotel brand with warm and welcoming service and amenities that make you feel at ease
Slide 32: Comfort Suites
COMFORT SUITES Comfort Suites is the mid-priced hotel that offers more space for working and relaxing, allowing you to feel more organized, productive and in control during your trip
Slide 33: Sleep Inn
SLEEP INN Sleep Inn is the mid-priced hotel that offers a consistent environment with just the right amenities at an exceptional value, so you feel proud about your choice of hotel
Slide 34: Strong Growth in System Size and Royalties
STRONG GROWTH IN SYSTEM SIZE AND ROYALTIES $91.6 $96.9 $107.2 $120.5 $132.2 1,850 1,900 1,950 2,000 2,050 2,100 2,150 2,200 2,250 2002 2003 2004 2005 2006 $0 $15 $30 $45 $60 $75 $90 $105 $120 $135 System Size Royalties Source: Choice Internal Data, December 2006
Slide 35: Positive Industry Outlook – Limited Service
-1% 1% 3% 5% 7% 9% 11% 13% 2002 2003 2004 2005 2006 2007F 2008F 2009F RevPAR Demand Supply Sources: Smith Travel Research, PricewaterhouseCoopers LLP POSITIVE INDUSTRY OUTLOOK – LIMITED SERVICE
Slide 36: Large and Growing Segment
1,504 1,425 606 524 399 1,479 Sources: Smith Travel Research, Choice Internal Data, September 2007 LARGE AND GROWING SEGMENT Domestic Hotels 1,429 Holiday Inn Express Hampton Inn / Inn & Suites La Quinta Inns / Inns & Suites Fairfield Inn Country Inn & Suites Other (includes 25+ brands)
Slide 37: Limited Service Distribution
Comfort Suites Sleep Inn Flag Represents Industry Top MSAs Comfort Inn LIMITED SERVICE DISTRIBUTION Sources: Choice Internal Data, September 2007
Slide 38: Choice Domestic Market Share – Limited Service
26% 26% 26% 26% 25% 25% 2002 2003 2004 2005 2006 2007 YTD Source: Smith Travel Research, September 2007 CHOICE DOMESTIC MARKET SHARE – LIMITED SERVICE Choice Market Share by Room (in percent)
Slide 39: Strong Pipeline
Comfort Suites Sleep Inn Flag Represents Industry Top MSAs Comfort Inn Limited Service Pipeline (Rooms) 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 New Construction Conversion STRONG PIPELINE Sources: Choice Internal Data, September 2007 20,032 28,123 39,187 38,764
Slide 40: Limited Service Brands – Growth Opportunities
LIMITED SERVICE BRANDS – GROWTH OPPORTUNITIES Strategic portfolio management • Refresh the Comfort Inn system: – Replacement/upgrade strategy for Comfort Inn – Strong demand for Comfort Inn & Suites – High-quality conversion candidates • Comfort Suites & Sleep Inn: – Protect exceptional guest experi
Slide 41: Conversion Brands
CONVERSION BRANDS Economy Mid-Scale
Slide 42: Economy Brands – Focused on Basics
BRAND AWARENESS YTD CRS CONTRIBUTION YTD 94% 25% 56% 31% Average Age Median Household Income $51,000 $67,000 College Graduate 34% 42% Leisure / Business 78% / 22% 67% / 33% Drive / Fly 86% / 14% 85% / 15% ECONOMY BRANDS - FOCUSED ON BASICS • Value-oriented product • Safe, clean environment • Attract
Slide 43: Econo Lodge
ECONO LODGE Econo Lodge hotels provide a great stay and a great value for business and leisure travelers
Slide 44: Econo Lodge Reimaging
• Enhance curb appeal • Message brand improvement • Attract and retain more guests • Catalyst for development ECONO LODGE REIMAGING
Slide 45: Rodeway Inn
RODEWAY INN You’ll find attractive accommodations at a great price when you a book a room at any Rodeway Inn hotel
Slide 46: Strong Track Record of System and Royalty Growth
STRONG TRACK RECORD OF SYSTEM AND ROYALTY GROWTH $15.6 $15.6 $16.4 $17.8 $18.9 1,000 1,200 2002 2003 2004 2005 2006 $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 System Size Royalties Source: Choice Internal Data, December 2006
Slide 47: Mid-Scale Conversion Brands
BRAND AWARENESS YTD CRS CONTRIBUTION YTD 87% 31% 81% 31% Average Age Median Household Income $68,000 $67,000 College Graduate 45% 42% Leisure / Business 66% / 34% 67% / 33% Drive / Fly 84% / 16% 85% / 15% MID-SCALE CONVERSION BRANDS Quality • Breadth of locations • Good value • Consistent delivery o
Slide 48: Quality Inn
QUALITY INN Quality Inn is the mid-priced hotel that consistently provides guest essentials in a helpful, accommodating environment where you feel satisfied
Slide 49: Clarion
CLARION Clarion is the unpretentious full-service hotel that offers a distinctive experience for the sensible traveler
Slide 50: Clarion Collection
CLARION COLLECTION Group of unique, boutique and historic hotels – each with own identity in its local market
Slide 51: Conversion Brand Distribution
Econo Lodge Rodeway Flag Represents Industry Top MSAs Quality Clarion/Collection CONVERSION BRAND DISTRIBUTION Sources: Choice Internal Data, September 2007
Slide 52: Strong Growth in System Size and Royalties
STRONG GROWTH IN SYSTEM SIZE AND ROYALTIES $27.8 $31.2 $35.2 $38.8 $21.1 1,000 2002 2003 2004 2005 2006 $0 $5 $10 $15 $20 $25 $30 $35 $40 System Size Royalties Source: Choice Internal Data, December 2006
Slide 53: Choice Domestic Market Share – Conversion Brands
12% 13% 15% 16% 18% 19% Economy 7% 7% 8% 9% 10% 10% 2002 2003 2004 2005 2006 2007 YTD Mid-Scale w/F&B 2002 2003 2004 2005 2006 2007 YTD Source: Smith Travel Research, September 2007 CHOICE DOMESTIC MARKET SHARE – CONVERSION BRANDS Choice Market Share by Room (in percent)
Slide 54: Significant Growth Opportunities in Large Conversion Market
Source: Smith Travel Research, September 2007 SIGNIFICANT GROWTH OPPORTUNITIES IN LARGE CONVERSION MARKET Domestic Hotels 2,110 1,888 1,818 1,703 1,504 1,425 Chart does not include 17,196 independent hotels in budget, economy and mid-scale segments Best Western Other (includes 50+ brands) Holiday In
Slide 55: Domestic Conversion Pipeline
DOMESTIC CONVERSION PIPELINE Econo Lodge Rodeway Flag Represents Industry Top MSAs Quality Clarion 16,951 rooms in pipeline for conversion brands as of September 30, 2007 Source: Choice Internal Data, September 2007
Slide 56: Conversion Brands – Opportunities for Growth
CONVERSION BRANDS – OPPORTUNITIES FOR GROWTH • Strong demand and market potential for Quality Inn, Clarion and Clarion Collection – Quality: “sweet spot” In lower mid-scale segment – Choice portfolio management process drives opportunity – Competitor system product movements – Distribution opportuni
Slide 57: Services Lifecycle
SERVICES LIFECYCLE DELIVER SERVICES THAT IMPROVE BRANDS AND PROPERTY PEFORMANCE Portfolio Management • Repositioning • Relicensing • Termination Opening Services Ensure hotels open successfully and meet or exceed brand standards Brand Solutions • Value-engineered prototypes • Negotiated vendor relat
Slide 58: International Operations
hotels 23% of Comfort portfolio 386 hotels 33% of Quality portfolio 115 hotels 41% of Clarion portfolio 23 hotels 6% of Sleep Inn portfolio INTERNATIONAL OPERATIONS • 1,100+ properties • 37 countries on 5 continents • Largest global “pure hotel franchising” business • Consistent, conservative growth
Slide 59: International Business Models
• Larger markets • Potential to achieve scale • Large pool of quality conversion properties • Established global travel markets • Cultural acceptance of franchising model • Managed through local Choice-controlled infrastructure Direct 3 rd Party Franchising INTERNATIONAL BUSINESS MODELS Choice pursu
Slide 60: International Expansion Timeline
2001 2002 2003 2004 2005 2006 2007 2001-2007: Restructure international operations to create global platforms for long-term, profitable growth INTERNATIONAL EXPANSION TIMELINE Agreement with Atlantica Hotels in Brazil Acquisition of Flag Hotels in Australia/ New Zealand Divestiture of asset risk in
Slide 61: Profitable, Global Growth
$5.3 $16.2 PROFITABLE, GLOBAL GROWTH • Profitable, consistent growth • Contract-based business consistent with U.S. business models $10.7 $1.0 97,944 87,354 $0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 $14.0 $16.0 $18.0 2000 2006 20,000 40,000 60,000 80,000 100,000 120,000 Royalty Income Operating Income Nu
Slide 62: Growing Presence in World's Major Travel Markets
GROWING PRESENCE IN WORLD’S MAJOR TRAVEL MARKETS 269 hotels Canada 17 hotels Mexico 306 hotels Continental Europe, UK & Ireland 264 hotels Australia & New Zealand 25 hotels India 2 hotels China 13 hotels Central America 151 hotels Scandinavia 48 hotels Brazil 39 hotels Japan Source: Choice Internal
Slide 63: Direct Franchising Markets
269 hotels Canada 17 hotels Mexico 191 hotels Continental Europe 264 hotels Australia & New Zealand 25 hotels India 2 hotels China DIRECT FRANCHISING MARKETS Source: Choice Internal Data, September 2007
Slide 64: Master Franchising Markets
MASTER FRANCHISING MARKETS 13 hotels Central America 151 hotels Scandinavia 48 hotels Brazil 39 hotels Japan 21 hotels Ireland Source: Choice Internal Data, September 2007 94 hotels UK
Slide 65: Building Global Brands
BUILDING GLOBAL BRANDS • Build domestic brand equity – Build brand awareness – High quality assets – Enhance value proposition • Consumers • Franchisees • Leverage Choice’s global reach – Increasing reservations delivery – Globalization of key marketing programs – Choice Privileges – Access to Choic
Slide 66: High-Quality Hotels: Japan
Comfort Hotel Gifu Gifu Comfort Hotel Sapporo Sapporo Comfort Hotel Osaka Shinsaibashi Osaka HIGH-QUALITY HOTELS: JAPAN
Slide 67: High-Quality Hotels: Australia / New Zealand
Clarion Suites Sacred Waters Taupo, New Zealand Clarion Suites Gateway Melbourne, Australia HIGH-QUALITY HOTELS: AUSTRALIA / NEW ZEALAND
Slide 68: High-Quality Hotels: India
Quality Inn Parle International Mumbai Quality Inn MGM Beach Resort Tamil Nadu Quality Inn The Meadows Aurangabad HIGH-QUALITY HOTELS: INDIA
Slide 69: High-Quality Hotels: Mexico
Comfort Inn Los Cabos Cabo San Lucas Comfort Inn Zamora Jerico Zamora Quality Inn Ciudad de Mexico Roma Mexico City HIGH-QUALITY HOTELS: MEXICO
Slide 70: High-Quality Hotels: Continental Europe
Clarion Hotel Royal Christiania Stockholm, Sweden Clarion Hotel Sea Lion Pescara Montesilvano, Italy Quality Hotel & Suites Berlin City East Berlin, Germany Clarion Hotel Prague Prague, Czech Republic HIGH-QUALITY HOTELS: CONTINENTAL EUROPE
Slide 71: High-Quality Hotels: UK/Ireland
Sleep Inn Derby Derby, United Kingdom Quality Hotel Leisure Centre Dublin Dublin Clarion Hotel Limerick Limerick HIGH-QUALITY HOTELS: UK/IRELAND
Slide 72: David Pepper
DAVID PEPPER Senior Vice President, Franchise Development and Emerging Brands
Slide 73: Extended Stay Business Review
Extended Stay Business Review AGENDA Cambria Suites Business Review Development Overview
Slide 74: 2005: Emerging Brands Launch
Limited Service Full Service Economy Mid-Scale Upscale 2005: EMERGING BRANDS LAUNCH
Slide 75: What Is Extended Stay Lodging?
WHAT IS EXTENDED STAY LODGING? • Kitchen equipped, residential-style hotel rooms • Guest stays – average 5 nights or longer, higher occupancies • Higher margins • Reduced services = lower headcount
Slide 76: Extended Stay Supply Growth Comparison
EXTENDED STAY SUPPLY GROWTH COMPARISON -1% 1% 3% 5% 7% 2002 2003 2004 2005 2006 Sep 2007 YTD Extended Stay Industry Source: The Highland Group, Smith Travel Research Year-Over-Year Change in Room Supply
Slide 77: Extended Stay Occupancy Premium
EXTENDED STAY OCCUPANCY PREMIUM 50% 60% 70% 80% 2002 2003 2004 2005 2006 Sep 2007 YTD Extended Stay Segment Industry Source: The Highland Group, Smith Travel Research
Slide 78: Choice Hotels Mid-Market Extended Stay Brand
CHOICE HOTELS MID-MARKET EXTENDED STAY BRAND MainStay Suites • A casual extended stay hotel offering at-home comfort and convenience. Residential-style amenities such as a fully equipped kitchen and task-friendly work space, designed with long-term stays in mind
Slide 79: Choice Hotels Economy Extended Stay Brand
CHOICE HOTELS ECONOMY EXTENDED STAY BRAND Suburban Extended Stay • A temporary housing solution offering the essentials of home including well equipped kitchens, all at affordable rates for nightly or extended stays
Slide 80: Pipeline Expanding Rapidly
6,138 5,114 3,564 1,763 2003 2004 2005 2006 Sep 2007 YTD MainStay Suites Suburban Extended Stay PIPELINE EXPANDING RAPIDLY Number of Rooms Source: Choice Internal Data, September 30, 2007 UNITS Open ENYO Under Construction
Slide 81: Extended Stay Distribution
EXTENDED STAY DISTRIBUTION Pipeline Open Flag Represents Industry Top MSAs Source: Choice Internal Data, September 30, 2007
Slide 82: Cambria Suites Business Review
Cambria Suites Business Review Extended Stay Business Review AGENDA Development Overview
Slide 83: Cambria Suites – A Lifestyle Hotel
CAMBRIA SUITES – A LIFESTYLE HOTEL
Slide 84: Offerings in This Space Performing Well
OFFERINGS IN THIS SPACE PERFORMING WELL Source: Company Earnings Releases, Smith Travel Research 1H 2007 RevPAR and Composition September 2007 Distribution (U.S. Hotels)
Slide 85: Cambria Suites Distribution
CAMBRIA SUITES DISTRIBUTION Pipeline [57] Open [3] Flag Represents Industry Top MSAs Master Development Agreements Representing Up To 40 Cambria Suites Hotels Not Included Pipeline [57] Source: Choice Internal Data As Of September 30, 2007
Slide 86: Location, Location, Location
LOCATION, LOCATION, LOCATION Successful Penetration of High Barrier to Entry Markets • New York City, Baltimore (Inner Harbor), Chicago, Houston, Mall of America, Orlando (I-Drive), Savannah (Downtown), Phoenix, Toronto Airport Locations • Atlanta, Boise (ID), Baltimore / Washington (BWI), Denver, M
Slide 87: Innovative Marketing and Support
INNOVATIVE MARKETING AND SUPPORT • Dedicated franchise development team • Dedicated real estate group: – Site selection and analysis • Dedicated, experienced brand team • Innovative marketing support: – Award winning pop-up suite – Viral marketing – Virtual reality goggles
Slide 88: Development Overview
Development Overview Extended Stay Business Review AGENDA Cambria Suites Business Review
Slide 89: Why Do Developers Choose Choice Hotels?
Top Reasons for Selecting a Choice Brand New Build Conversion ROI / Profitability 8.6 7.7 Reservations delivery 8.2 7.9 Brand recognition 8.1 8.0 Availability of brand 7.9 7.4 Higher performance 7.9 7.7 Marketing / Advertising 7.8 7.8 Source: Choice Internal Data, September 2007. Franchisee Decision
Slide 90: Development Opportunities at Various Price Points
* Excludes cost of land Conversion $40,000+ $49,000+ $64,000+ $60,000+ $80,000+ $45 $65 $100+ Targeted Average Daily Rate $58,000+ $52,000+ $80 DEVELOPMENT OPPORTUNITIES AT VARIOUS PRICE POINTS Targeted per Room Investment* New Construction Source: Choice Internal Data, September 2007
Slide 91: Most Important Source in Selection
MOST IMPORTANT SOURCE IN SELECTION Source: Choice Internal Data, Franchisee Decision-Making Study 2006
Slide 92: Strong, Knowledgeable Sales Force
12% 30% 14% 44% STRONG, KNOWLEDGEABLE SALES FORCE Emerging Brands Emerging Markets Mid-Scale Economy Source: Choice Internal Data, September 2007
Slide 93: Brands Growing via Increased Sales
304 470 552 639 720 BRANDS GROWING VIA INCREASED SALES $8.3 $13.3 $15.1 $17.9 $11.3 2002 2003 2004 2005 2006 Deals Initial Fee Revenue (M) Source: Choice Internal Data, 2006
Slide 94: Phenomenal New Construction Sales Growth
241 342 370 402 432 2002 2003 2004 2005 2006 New Construction Conversion PHENOMENAL NEW CONSTRUCTION SALES GROWTH Source: Choice Internal Data, 2006
Slide 95: Source of Conversions
13% 45% 39% 23% SOURCE OF CONVERSIONS 12% 13% 55% Choice Brand Industry Segment Independent Prior Affiliation Comfort Quality Clarion Econo Lodge Rodeway Source: Choice Internal Data
Slide 96: Domestic Pipeline Expanded
DOMESTIC PIPELINE EXPANDED TO 872 HOTELS Cambria Suites Comfort Suites Comfort Inn Sleep Inn Quality Clarion Suburban MainStay Suites Econo Lodge Rodeway Inn New Construction Conversion Midscale Extended Stay Economy Upscale Source: Choice Internal Data, September 2007
Slide 97: Bill Carlson
BILL CARLSON Senior Vice President, Marketing
Slide 98: Robust Marketing Programs – A Key Influencer
Top Reasons for Selecting a Choice Brand ROBUST MARKETING PROGRAMS – A KEY INFLUENCER New Build Conversion ROI / Profitability 8.6 7.7 Reservations delivery 8.2 7.9 Brand recognition 8.1 8.0 Availability of brand 7.9 7.4 Higher performance 7.9 7.7 Marketing / Advertising 7.8 7.8 Source: Choice Inter
Slide 99: Marketing Leverages Size, Scale and Distribution
MARKETING LEVERAGES SIZE, SCALE AND DISTRIBUTION • $300+ million marketing and reservation system fees • Multi and single brand advertising campaigns • Driving guests to Choice central channels • “One Stop” shopping • Strong and growing loyalty program • Growing brand awareness Source: Choice Intern
Slide 100: Choice Brands Serve Large, Middle America Demographic
CHOICE BRANDS SERVE LARGE, MIDDLE AMERICA DEMOGRAPHIC Sources: U.S. Census Bureau (2000 Census). ACS Surveys, 2006. DK Shifflet and Associates, 2006. Simmons, 2007. U.S. Population Hotel Industry Choice Hotels’ Guests Wal-Mart Shoppers Median Household Income $48,000 $78,000 $67,000 $61,000 Average
Slide 101: Choice Captures Disproportionate Share of Leisure and 60+ Room Nights
CHOICE CAPTURES DISPROPORTIONATE SHARE OF LEISURE AND 60+ ROOM NIGHTS Sources: STR, DK Shifflet & Associates, 2002-2006 Percent of Roomnights Sold Choice Leisure Mid / Econ Leisure Choice Leisure, Age 60+ Mid / Econ Leisure , Age 60+
Slide 102: Leisure Travel Demand Continues to Increase
223,186,000 246,547,000 55,796,000 71,498,000 LEISURE TRAVEL DEMAND CONTINUES TO INCREASE 2.0% CAGR 5.1% CAGR Sources: STR, DK Shifflet & Associates, 2002-2006 U.S. Leisure Roomnights U.S. Age 60+ Roomnights Roomnights at Midscale / Economy Chains 2002 2006 2002 2006
Slide 103: …And Is Likely to Grow
• 79MM Boomers Start Turning 60 This Year • Over 65 in America 12% (36MM) in 2003 20% (72MM) in 2030 …AND IS LIKELY TO GROW • 79MM Boomers Start Turning 60 This Year • Over 65 in America 12% (36MM) in 2003 20% (72MM) in 2030 Source: Yesawich 2007
Slide 104: Younger Business Travelers Targets for Cambria Suites
YOUNGER BUSINESS TRAVELERS TARGETS FOR CAMBRIA SUITES • “Millenials” generation nearly same size as entire Baby Boom population • Millenials and strong Gen-X segment expected to exert a greater influence on business travel volume Source: DK Shifflet & Associates, 2006, Choice Internal Forecasts. Con
Slide 105: Choice Goes to Market in Different Ways
CHOICE GOES TO MARKET IN DIFFERENT WAYS TO ACCOMPLISH BRAND GOALS
Slide 106: Target Market Reached Through Integrated Multi-Media Campaign
TARGET MARKET REACHED THROUGH INTEGRATED MULTI-MEDIA CAMPAIGN
Slide 107: Multimedia Advertising Campaign
MULTIMEDIA ADVERTISING CAMPAIGN • Build brand awareness • Drive revenue and guests to central channels • Multi-brand national advertising – Popular TV ads featuring Johnny Cash music – Emphasis on attracting leisure travelers • Single-brand efforts to communicate unique brand benefits
Slide 108: National Advertising for Core Target Audience
Television: Leading network and cable TV programs including NFL, Larry King Live, Good Morning America, Law & Order, CSI Radio: ABC Radio, Premiere Radio, Jones Media America National Advertising and Partnerships with Leading Companies Help Reinforce Brand Image NATIONAL ADVERTISING FOR CORE TARGET
Slide 109: National Advertising for Core Target Audience
National Advertising and Partnerships with Leading Companies Help Reinforce Brand Image NATIONAL ADVERTISING FOR CORE TARGET AUDIENCE Print: USA Today, Inside Flyer magazine, Travel Agent, Travel Weekly, BTN Internet: Orbitz, Travelocity, Expedia, Yahoo! Travel, FoxNews.com, ESPN.com National Partne
Slide 110: Emerging Media to Engage Younger Audiences
EMERGING MEDIA TO ENGAGE YOUNGER AUDIENCES PDA Advertising Captivate Network – Elevator Advertising in Office Buildings Satellite Radio Internet Radio GPS Device Advertising Pre-roll Video Placements on Websites Logo on streaming videos
Slide 111: Strong, Growing Loyalty Program
STRONG, GROWING LOYALTY PROGRAM • Choice Privileges is our comprehensive loyalty rewards program that delivers incremental business to our hotels – Points-based program that is free to consumers to join – Launched in 1998, competitively structured to catch-up with mature programs – Important selling
Slide 112: Strong, Growing Loyalty Program
STRONG, GROWING LOYALTY PROGRAM • The program has steadily grown business delivery – Over 6 million members (2 million new members in 2 years) – $1 billion in spend on Choice Privileges Visa card – Over 20% of room revenue (up from 8% in 2001) Revenue as Percent of Domestic Gross Room Revenues 8.3%
Slide 113: Winning with Guests
WINNING WITH GUESTS • Growing recognition amongst frequent travelers • Voted top award for Gift Card Program (Freddie Awards) • Achieved top 5 status in all 9 categories Award Categories Best Award Best Bonus Best Affinity Credit Card Best Newsletter Best Customer Service Best Web Site Best Award Re
Slide 114: And Improving Brand Awareness
98 88 58 87 81 94 56 28 14 39 AND – IMPROVING BRAND AWARENESS Comfort Inn Comfort Suites Sleep Inn Quality Clarion Econo Lodge Rodeway Inn MainStay Suburban Choice Hotels 2001 2007 YTD Source: Millward Brown Name Recognition (Percentage)
Slide 115: Mary Beth Knight
MARY BETH KNIGHT Senior Vice President, eCommerce & Worldwide Distribution
Slide 116: Robust Distribution Platform
7.9 8.2 Reservations delivery 7.9 8.2 Reservations delivery ROBUST DISTRIBUTION PLATFORM CRITICAL ELEMENT OF GROWTH STRATEGY Top Reasons for Selecting a Choice Brand 7.8 7.8 Marketing/Advertising 7.7 7.9 Higher performance 7.4 7.9 Availability of brand 8.0 8.1 Brand recognition 7.7 8.6 ROI/Profitabi
Slide 117: Choice Worldwide Distribution Network
choicehotels.com Brand Sites International Sites Regional & State Sites Niche Sites Affiliate Program Search Meta Search Call Centers Minot, ND Grand Junction, CO London, EN Melbourne, AU Toronto, ON Hotels 5,000+ Worldwide Amadeus Sabre Galileo Worldspan Pegasus Global Distribution Systems Traveloc
Slide 118: Canada
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Slide 119: Central Reservations Contribution Continues to Grow
CENTRAL RESERVATIONS CONTRIBUTION CONTINUES TO GROW… Source: Choice Internal Data, September 2007 $1,000 $1,100 $1,200 $1,300 $1,400 $1,500 $1,600 2005 2006 TTM Sept 2007 Domestic Choice CRS Net Room Revenue Domestic Choice CRS Net Channel Share 0% 10% 20% 30% 40% 50% 60% 2005 2006 TTM Sept 2007 Int
Slide 120: …And Improves Franchisee Performance
…AND IMPROVES FRANCHISEE PERFORMANCE 35% 37% 39% 41% 43% 45% 47% 49% 2005 2006 YTD Oct 2007 North American Call Center Conversion $40 $50 $60 $70 $80 $90 2005 2006 TTM Sept 2007 Systemwide Call Center choicehotels.com Central Channel ADR Source: Choice Internal Data, September 2007
Slide 121: Choice Hotels International
CHOICE HOTELS TWTERNATIONAL|,
Slide 122: Choice Website Consistently Ranks High
CHOICE WEBSITE CONSISTENTLY RANKS HIGH Source: Hitwise November 2007
Slide 123: THTERWATIONAL|,
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Slide 125: Slide 125
Slide 126: Leveraging Size, Scale & Distribution
LEVERAGING SIZE, SCALE & DISTRIBUTION
Slide 127: Consumers Have Higher Expectations Than Ever Before
CONSUMERS HAVE HIGHER EXPECTATIONS THAN EVER BEFORE Personalization Value-Added Services Engagement
Slide 128: Providing Relevant Information Increases Reservations
PROVIDING RELEVANT INFORMATION INCREASES RESERVATIONS 0% 20% 40% 60% 80% 100% Services & Amenities Description of Hotel Hotel Photos Maps Virtual tours Local Area Information Upcoming Local Events 5 - Very Important 1 - Not Important Source: Choice Hotels International 2006 iPerceptions Study
Slide 129: Slide 129
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Slide 131: Exceptional Support & Services
EXCEPTIONAL SUPPORT & SERVICES Call Forwarding Reservation Service – Delivers ADR premium Property-Level eCommerce and Reservations Dashboard – Comprehensive view into CRS revenue and reservation performance Full-service Franchisee eCommerce and Customer Care Helpdesks – Strategic marketing, sales a
Slide 132: Choice Hotels International
CHOICE HOTELS THTERWATIONAL|, First Floor ene Mean lala Sites Taveler Revie
Slide 133: David White
DAVID WHITE Senior Vice President, Chief Financial Officer
Slide 134: Investment Thesis
INVESTMENT THESIS • Strong, growing operating business – Large market share & fee base – with opportunities to expand – Predictable, profitable growth in variety of lodging & economic environments – High margins + low capital intensity generates high ROICs – Long-term franchise contracts – represent
Slide 135: Strong, Steady Franchise System Growth
STRONG, STEADY FRANCHISE SYSTEM GROWTH 2,880 3,039 3,123 3,244 3,327 3,482 3,636 3,834 4,048 4,211 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 CAGR = 4.3% CAGR = 3.8% Domestic Hotels On-Line Domestic Rooms On-Line (in thousands) Source: Choice
Slide 136: Growing Franchising Revenues in +/- RevPAR Environments
-6% -4% -2% 0% 2% 4% 6% 8% 10% 1998 1999 2000 2001 2002 2003 2004 2005 2006 $0 $50 $100 $150 $200 $250 $300 CHH RevPAR Chain Scale (Supply Weighted) Industry RevPAR Franchising Revenue GROWING FRANCHISING REVENUES IN +/- REVPAR ENVIRONMENTS Source: Smith Travel Research, Choice Internal Data, Decemb
Slide 137: Steady EBITDA Growth in +/- Lodging Environment
STEADY EBITDA GROWTH IN +/- LODGING ENVIRONMENT 1998 1999 2000 2001 2002 2003 2004 2005 2006 Industry Profits Adjusted EBITDA Source: Smith Travel Research, Choice Internal Data, December 2006 ($ in millions) ($ in billions)
Slide 138: Capital Light Model Generates Strong Returns on Invested Capital
CAPITAL “LIGHT” MODEL GENERATES STRONG RETURNS ON INVESTED CAPITAL 15.2% 16.1% 14.7% 27.6% 36.7% 49.7% 62.9% 78.5% 19.5% 1998 1999 2000 2001 2002 2003 2004 2005 2006 Source: Choice Internal Data, December 2006
Slide 139: Track Record of Strong Earnings Per Share Growth
TRACK RECORD OF STRONG EARNINGS PER SHARE GROWTH $0.40 $0.51 $0.51 $0.58 $0.76 $0.93 $1.07 $1.26 $1.49 1998 1999 2000 2001 2002 2003 2004 2005 2006 Source: Choice Internal Data, December 2006, Per Share Amounts Retroactively Adjusted For 2005 Stock Split Adjusted Diluted Earnings Per Share
Slide 140: Growing Franchising Revenue Base
GROWING FRANCHISING REVENUE BASE $262.1 $203.7 $187.1 $172.1 $230.0 Source: Choice Internal Data, December 2006 • Market share & unit growth potential remains – organic, acquisitions, new concepts, brand extensions • High franchisee retention through hotel asset lifecycle • Effective royalty rate up
Slide 141: Franchising Margins Expanded While Investing in Growth Opportunities
60.6% 60.5% 61.0% 62.0% 63.1% FRANCHISING MARGINS EXPANDED WHILE INVESTING IN GROWTH OPPORTUNITIES 2002 2003 2004 2005 2006 “Investments” in Emerging Brands, International, Corporate Development Activities Impact SG&A And Franchising Margins Create Opportunities For Incremental Profitable Revenue Gr
Slide 142: Long-Term Capital Allocation and Structure Priorities
LONG-TERM CAPITAL ALLOCATION AND STRUCTURE PRIORITIES • Maintain optimal debt level over time – +/- leverage based on “highest and best use of capital” – Investment grade – better pricing / terms, access to capital, demonstrates financial strength to prospective franchisees • Invest in profitable gr
Slide 143: Balance Sheet – Room to Expand Debt Levels
BALANCE SHEET -- ROOM TO EXPAND DEBT LEVELS • Net Debt $231 9% • Equity* 2,366 91% • Total Capitalization $2,597 100% • TTM – Adjusted EBITDA $189.5 • Net Debt / Adjusted EBITDA 1.2x September 30, 2007 Source: Choice Internal Data, September 2007 * Based on closing price of $37.67 and approximately
Slide 144: Track Record of Returning Excess Capital to Shareholders
TRACK RECORD OF RETURNING EXCESS CAPITAL TO SHAREHOLDERS $871.7 $122.8 $935.2 $0 $200 $400 $600 $800 $1,000 Cumulative Free Cash Flow (Jan '98-Sep '07) Dividends Share Repurchases Free Cash Flow Source: Choice Internal Data as of September 30, 2007
Slide 145: Nearly ½ of Common Shares Repurchased Since '97 Spin-Off
NEARLY ½ OF COMMON SHARES REPURCHASED SINCE ’97 SPIN-OFF 119.7 113.5 107.7 105.1 84.0 74.3 69.5 64.6 65.2 66.4 62.8 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 9/30/2007 Source: Choice Internal Data, December 2007, Share Amounts Retroactively Adjusted To Reflect 2005 Stock Split Common Shares
Slide 146: High Dividend Yield Compared to Other Lodging C-Corps
1.95% 0.61% 1.83% 0.90% 0.17% 1.21% HIGH DIVIDEND YIELD COMPARED TO OTHER LODGING C-CORPS 0.00% 0.00% Choice Wyndham Starwood Morgans Marriott Gaylord Orient-Express Intercontinental Source: Bloomberg Financial, December 14, 2007
Slide 147: Projections – Key Assumptions
Source: Choice Internal Data, December 2007, PricewaterhouseCoopers (industry RevPAR projection only) PROJECTIONS – KEY ASSUMPTIONS (Applicable To 2007 & 2008 Outlook For Franchising Revenues, Adjusted EBITDA and Adjusted Diluted EPS) • Gross Domestic Unit Openings – 2007E – 297 Conversion Units (71
Slide 148: 2008 Outlook – Franchising Revenues
$203.7 $230.0 $262.1 $289.3 $312.0 2004 2005 2006 2007E 2008E 2008 OUTLOOK – FRANCHISING REVENUES Source: Choice Internal Data, December 2007 ($ in Millions) +8%
Slide 149: 2008 Outlook – Adjusted EBITDA
$134.2 $152.8 $176.3 $193.1 $207.0 2008 OUTLOOK – ADJUSTED EBITDA Source: Choice Internal Data, December 2007 2004 2005 2006 2007E 2008E +7% ($ in Millions)
Slide 150: 2008 Outlook – Adjusted Diluted Earnings Per Share
$1.07 $1.26 $1.49 $1.70 $1.87 2008 OUTLOOK – ADJUSTED DILUTED EARNINGS PER SHARE 2004 2005 2006 2007E 2008E +10% Source: Choice Internal Data, December 2007
Slide 151: Royalty Fee Levers
ROYALTY FEE “LEVERS” Domestic Royalty Impact Estimated Impact on ‘08 Royalties Estimated Impact on ‘08 Diluted EPS 1,2 RevPAR Improvement 1% = $2,388,000 $0.02 5% = $11,940,000 $0.12 New Franchise Growth 1% (46 units) = $2,399,000 $0.02 5% (230 units) = $11,995,000 $0.12 Improvement in Royalty Rate
Slide 152: Chuck Ledsinger
CHUCK LEDSINGER Vice Chairman and Chief Executive Officer
Slide 153: Why Choice?
WHY CHOICE? • Pure-play lodging franchisor • Highest returning model in the industry • Profitable growth in a wide variety of economic conditions and industry cycles • Substantial size, scale and distribution – difficult to duplicate • Highly-skilled and experienced management team • Focused on retu
Slide 154: Questions?
Questions?
Slide 155: Appendix: Reconciliation of Non-GAAP Financial Measurements to GAAP
Appendix Reconciliation of Non-GAAP Financial Measurements to GAAP
Slide 156: Disclaimer
DISCLAIMER Adjusted franchising margins, adjusted earnings before interest depreciation and amortization (EBITDA), adjusted net income, adjusted diluted earnings per share, franchising revenues, net operating profits after taxes (NOPAT), return on invested capital (ROIC) and free cash flows are non-
Slide 157: Franchising Revenues and Adjusted Franchising Margins
FRANCHISING REVENUES AND ADJUSTED FRANCHISING MARGINS Source: Choice Internal Data, December 2007 Expected Expected Trailing Twelve ($ amounts in thousands) Year Ended Year Ended Months Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, September 30, December 31, December 31
Slide 158: Franchising Revenues and Adjusted Franchising Margins (Continued)
FRANCHISING REVENUES AND ADJUSTED FRANCHISING MARGINS (CONTINUED) Source: Choice Internal Data, December 2007 Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended ($ amounts in thousands) December 31, December 31, December 31, December 31, December 31, December 31, 2002 2001 2000 1999 1
Slide 159: Return on Invested Capital
RETURN ON INVESTED CAPITAL Source: Choice Internal Data, September 2007 Trailing Twelve Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Months Ended ($ in millions) December 31, December 31, December 31, December 31, December 31, December
Slide 160: Free Cash Flows
FREE CASH FLOWS Source: Choice Internal Data, September 2007 Trailing Twelve Months Ended Nine Months Ended Year Ended Year Ended Year Ended Year Ended September 30, September 30, December 31, December 31, December 31, December 31, ($ in thousands) 2007 2007 2006 2005 2004 2003 Net Cash Provided by
Slide 161: Free Cash Flows (Continued)
FREE CASH FLOWS (CONTINUED) Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, ($ in thousands) 2002 2001 2000 1999 1998 Net Cash Provided by Operating Activities 99,018 $ 101,712 $ 53,879 $ 65,040 $ 38,952 $ Net Cash Provided(Used
Slide 162: Adjusted EBITDA
ADJUSTED EBITDA Source: Choice Internal Data, December 2007 Forecasted Forecasted Trailing Twelve Year Ended Year Ended Months Ended Year Ended Year Ended Year Ended Year Ended ($ in thousands) December 31, December 31, September 30, December 31, December 31, December 31, December 31, 2008 2007 2007
Slide 163: Adjusted EBITDA (Continued)
ADJUSTED EBITDA (CONTINUED) Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended ($ in thousands) December 31, December 31, December 31, December 31, December 31, December 31, 2002 2001 2000 1999 1998 1997 Operating Income 104,700 $ 73,577 $ 92,427 $ 94,170 $ 85,151 $ 77,068 $ Adjustmen
Slide 164: Choice Hotels International
THTERWATIONAL|,
Slide 165: Adjusted Diluted Earnings Per Share
ADJUSTED DILUTED EARNINGS PER SHARE Source: Choice Internal Data, December 2007 (In thousands, except per share amounts) Net Income Adjustments: Loss(Gain) on Extinguishment of Debt Executive Termination Benefits, Net of Taxes Resolution of Provisions for Income Tax Contingencies Income Tax Expense
Slide 166: Adjusted Diluted Earnings Per Share (Continued)
ADJUSTED DILUTED EARNINGS PER SHARE (CONTINUED) Source: Choice Internal Data, December 2007 Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, (In thousands, except per share amounts) 2002 2001 2000 1999 1998 Net Income 60,844 $ 14
Choice Hotels International — Investor Day (December 2007) on 6ix