Choice Hotels International, Inc. · NYSE:CHH
Choice Hotels International — Investor Presentation (May 2010)
39 slides from Choice Hotels International's investor presentation, May 26, 2010
Slide 1: Investor Presentation May 2010
CAMBRIA INTERNATIONAL BY COMFORT Comfort SLEEP Ascend Clarion MainStay QUALITY RODEWAY EconoLodge™ Suburban Investor May CHOICE CHOICE 2010 INN COLLECTION® Presentation INN HOTELS Suites SUITES SUITES INN HOTELSINVESTOR SM PRESENTATION
Slide 2: Disclaimer
Certain DISCLAIMER “anticipate,” Section events, debt statements Several limited customers; the ended 2information, supply levels, December which to, matters factors 27Achanges and do changes payment of future “will,” not indemand could the discussed turn 31, guarantee Securities to events to “forec
Slide 3: Choice Hotels Overview
*3Capital CHOICE Strong, –Leading 65+ franchisees Source: 9.5% 2ndyear-old Highlylargest share Growing, Choice Based gainer HOTELS Global hotel U.S. ofmodel Fee-for-service Predictable, >99% on of Internal Attractive “light” returnedbranded Global US hotelier number distribution pipeline OVERVIEW pr
Slide 4: One of the Largest Hoteliers in the U.S. Market Share
ONE Leading 6.0% +160 9.5% -10 11.4% +90 14 Market Wyndham 2005 4Source: 12+160 2006 OF 6.0% 10Share Smith Gainer 8THE +100 Choice 65.5% 2007 4%Travel 2LARGEST -70 of 52008 03.8% IHG yr. Market -60 Research, bps 2009 2.0% Hilton +20 (05-10) Share HOTELIERS 2010 +20 1.2% Marriott March -80 (%0.9% of
Slide 5: Family of Well-Known and Diversified Brands
FAMILY Estimated New 5$105,000+ Construction OF Per $45,000+ WELL-KNOWN Room Investment* Targeted Average AND DIVERSIFIED Daily Rate $100+ BRANDS $85 $70 $50 Conversion * Excludes cost of land; based on average domestic per-room investment. Source: Choice Internal Data, April 2010
Slide 6: Challenging Near-Term Environment for New Hotel Construction
CHALLENGING 60 Construction New U.S. 20-Year 1.6% 2002 6Sources: 129 Lodging Construction Project 2003 1.0% 63 Average, Lodging 113 2004 0.4% Announcements Starts Industry 782005 -0.1% 2.0% 143 Econometrics NEAR-TERM Pipeline 106 2006 Change 0.2% 260 Rooms 2007 1.3% 130 in(Q4 ENVIRONMENT 2008 Room (
Slide 7: Strong Domestic Limited Service New Construction Brands
STRONG Domestic 1,745 Holiday 7Source: 1,711 Smith Inn Hotels LIMITED 1,445 Express Travel 773Hampton SERVICE Research, 632 620Inn 462 Choice NEW/ 389 InnCONSTRUCTION Internal & SuitesData, La Quinta March BRANDS Inn 31,/ 2010 Inn POSITIONED & Suites Fairfield WELLInn Country FOR LONG-TERM Inn & Sui
Slide 8: Significant Domestic Growth Opportunities Remain in Large Conversion Market
SIGNIFICANT Domestic Chart 2,017, Super Hampton & Motel America’s Fairfield Howard Knight’s Best Days /Holiday Holiday La Select Inn/La Inn Red Travelodge Limited Ramada/Ramada Source: 8Microtel Suites Quinta &Roof Western Inn does 8Suites 61,883, Quinta Smith Johnson Inn Inn Inn/ Inn Hotels Inn Bes
Slide 9: Domestic Pipeline of Hotels
DOMESTIC Conversion 37 Extended 9Source: 8 154Choice 124 Stay New PIPELINE 116 Economy Internal Construction 52 22 39 Data, OF Upscale 26657 March 43HOTELS 36 Mid-scale 31, 2010
Slide 10: Strong International Presence in Major Markets Outside the U.S.
STRONG 1,127 Multi-year Significant 163 280 243 28 1352 269 54 13 19 Source: 10hotels hotel hotels hotels properties Lebanon Singapore Malaysia Choice China India Japan Brazil Central Mexico PRESENCE Australia, Scandinavia Canada Continental investments long-term Internal inAmerica more New growth E
Slide 11: Services Improve Brands and Property Performance
SERVICES Portfolio Procurement Training Brand •Opening 11 Targeted, Termination Value-engineered Web-based Repositioning Relicensing Negotiated On-site Regional GM Revenue Inventory Local Independent Ensure Certification Planning Performance sales hotels Services Management and differentiated and LI
Slide 12: Marketing Leverages Size, Scale and Distribution
MARKETING $300-plus Leverage Powerful Focus Source: 12 onChoice driving advertising expertise million AND Internal guests inand annual campaigns CENTRAL innovation Data, to Choice marketing December RESERVATION central in on-line, and2009 channels reservation targeted SYSTEM Facilitate interactive s
Slide 13: Strong and Growing Aided Brand Awareness
STRONG 98 90 77 59 43 57 N/A 14 Comfort 2001 Source: *Econo 13 99N/A 87 80 72 43 N/A2009 9514 88Percentage Lodge, Inn 26 AND N/A 19 Comfort N/A Rodeway GROWING of Suites survey InnSleep AIDED respondents. and Suburban InnBRAND Quality Millward Extended AWARENESS Clarion Brown, Stay, EconoDecember De
Slide 14: Strong, Growing Loyalty Program
Comprehensive STRONG, More 2.0 than Delivers Important Choice 8.3% 2001 Source: 2001-2008 14 million 2002 10.0% GROWING 10 loyalty million Privileges Choice incremental selling 2003 Data new 12.2% Internal members Excludes 2004 point Revenue 15.3%rewards LOYALTY members business 2005 for Data, added
Slide 15: Central Reservation System Delivery
CENTRAL Choice All $= $1,800 2005 $1,161 Domestic Source: 15in 1/3Hotel Millions 2006 $1,600 $1,410 Central Choice Direct Franchise Choice 2007 RESERVATIONS $1,400 Reservation Internal Reservation 2008 CRSSystem $1,200 2009 Net Data, Room Contribution Gross $1,000 December SYSTEM Revenue Room(“CRS”)
Slide 16: Central Reservations Bookings Create Significant Value for Franchisees
CENTRAL Domestic Central $73.35 $79.50 47% $66.11 $70.71 $71.59 2005 Systemwide Source: 16 35% 2006 $73.32 Channel Choice Choice 63% 2007 RESERVATIONS Call 18% Internal ADR 2008 Center CRS25% 2009 “Premium” Net Data, choicehotels.com 13% Channel December, BOOKINGS Share2009 CREATE SIGNIFICANT VALUE
Slide 17: Lodging Industry Downcycle Trends
LODGING 10.0 Gulf 9/11 Financial INDUSTRY 2001 1990 1988 GDP Source: 17 Recession 8.0 war Demand -7.0% -2.4% +1.7% +2.0 1989 Blue 6.0 Recession Markets/ 1991 1990 DOWNCYCLE 2002 % 4.0 1991 CHH Chip Supply 2002 2.0 2.5% 1991 -2.7% 2.7% REVPAR Economic Housing 0.0 -3.8% 1992 Unemployment 1992 -2.0 199
Slide 18: Conversion Franchise Sales Opportunity in Soft New Construction Environment
CONVERSION 298 174 New Source: 18 300 124 Construction Choice 304 184 116 470Internal BRAND 63 552 Conversion 241 639Data, 128 FRANCHISE 720342 March 770 Total 182 698 31, 370 369 SALES 2010 237 364402 OPPORTUNITY 288 432 327 443 IN261 SOFT 437NEW 56 313 CONSTRUCTION 60 304 ENVIRONMENT
Slide 19: Strong, Steady Domestic Franchise System Growth
STRONG, Domestic 5-year 10-year CAGR 3,123 258 1999 Source: 19 266 2000 3,244 trend =trend Choice 271 5.1% 4.6% 4.2% Hotels Rooms 2001 STEADY 3,327 282Internal 2002 On-Line 294 On-Line 3,482 FRANCHISE 310 2003 Data, 3,636 329 (in 2004 December thousands) 339 3,834 2005 354 SYSTEM 4,048 374 2006 2009
Slide 20: Franchising Revenue Stream Less Volatile than RevPAR
FRANCHISING ($ 8% 1998 CHH STR Industry Franchising Source: 20 in3% Chain millions) 1999 RevPAR -2% Smith RevPAR 2000 Scale Revenue -7%Travel 2001 REVENUE -12% (Supply Research, 2002 -17% Weighted) 2003 $350 STREAM Choice 2004 $3002005 Internal LESS $2502006 $200 VOLATILE Data, 2007 $150 December 20
Slide 21: Adjusted EBITDA Less Volatile than Industry Profitability
ADJUSTED 30 (billions 100 15 150 20 050 Source: 21 $05)in 1998 10 250 200 millions) Smith Industry 1999 $ ( EBITDA Travel 2000 25in Profits 2001 Research, LESS Adjusted 2002 VOLATILE 2003 Choice EBITDA 2004 Internal THAN 2005 Data, 2006 INDUSTRY December 2007 2008 PROFITABILITY 2009 2009
Slide 22: Capital Light Model Generates Strong Returns on Invested Capital
CAPITAL After-Tax 15.2% 19.5% 27.6% 48.1% 59.5% 36.7% 49.7% 62.9% 68.8% 1998 Source: 22 1999 16.1% Choice Return “LIGHT” 2000 14.7% Internal 2001 On MODEL Invested 2002 Data, 2003 December Capital GENERATES 200478.5% 2005 20092006 STRONG 2007 RETURNS 2008 2009 ON INVESTED CAPITAL
Slide 23: Track Record of Strong Earnings Per Share Performance
TRACK EARNINGS Adjusted $1.73 $0.51 $0.58 $0.76 $0.93 $1.07 $1.25 $1.68% $1.48 1998 $0.40 Note: earnings Source: 23 1999 See $1.73 $0.51 Choice per RECORD Diluted appendix 2000 share PERInternal 2001 Earnings SHARE inOF for this 2002 STRONG reconciliation Data, presentation Per PERFORMANCE 2003 Dece
Slide 24: Opportunistic Share Repurchases Key Part of Capital Allocation Strategy
OPPORTUNISTIC Remaining 11.9 7.9 1998 Millions Avg. Source: 24 7.2 xTEV/EBITDA 1999 11.3 3.2 Capital of2000 24.0 authority xShares 8.6IQ, 10.8 2001 x Repurchased 10.2 SHARE March on 5.7 2002 xcurrent 6.4 11.9 31, 2003 REPURCHASES 1.62010, xauthorization 4.9 11.0 2004 2.2 Choice x 2005 14.9 2.1 0.2 x
Slide 25: High Cash Dividend Yield Compared to Other Lodging C-Corps
HIGH2.1% 2.2% 3.7% Choice Orient-Express Gaylord Source: 25 CASH Great Bloomberg Hyatt 0.6% Wolf DIVIDEND Marriott 0.4% IHG Financial, 0.0% Red Starwood YIELD Lion 0.0% MayWyndham 0.0% COMPARED 21, 2010 0.0% 0.0% TO OTHER LODGING C-CORPS
Slide 26: Strong Credit Position
STRONG Investment –Strong Source: 26Moody’s Standard $350 No debt liquidity million Choice maturities CREDIT & Baa3 grade Poor’s committed Internal position credit POSITION BBB until rating Data, 2011 revolver December Substantial matures 2009 financial June 2011flexibility Minimal contingent liabil
Slide 27: Strategy for Choice's Brands, Growth and Shareholders
STRATEGY Invest Enhance Grow Allocate Continue Leverage 27 and Choice in Free Reservations and progress shareholder-friendly financial Improve FOR expand Privileges CashCHOICE’S toward capacity/strength Brands Flows emerging Delivery loyalty long-term To “Best capital BRANDS, brands/segments program
Slide 28: Reconciliation of Non-GAAP Financial Measurements to GAAP
Reconciliation of Non-GAAP Financial Measurements to GAAP Appendix 28
Slide 29: Disclaimer on Non-GAAP Measures
Adjusted DISCLAIMER after by accepted different 29 management tax (NOPAT), from in franchising thethe United incalculation reviewing return margins, States on average (GAAP), and by adjusted other analyzing invested companies such earnings the ascapital operating company’s before and (ROIC) therefor
Slide 30: Adjusted Franchising Revenues and Margins
230 e(FRANCHISING )To$(2 F O (7 — N A m Note: of Source: a7tjbe5m rdepour 2— ta e— n$ul3ra Toc1sor(8 0hte )February R 3— ,Choice tin u40iv631ndgs2I— 25eimprove 9e7,tFiIm 1D )2sn)nnr— 1i(2 A 011, upaegcREVENUES Internal n9c0comparability eancR o3tc$2010 L 8sirm ecm ho7ee$12m hos,vle e5808iesData, ube
Slide 31: Adjusted Franchising Revenues and Margins (Continued)
FRANCHISING ($ Total Marketing Franchising Operating Acceleration Adjusted Net (190,145) (385) 60.6% (168,170) (714) 56.2% (185,367) (640) 55.2% (162,603) 59.7% 35 $-58.5% (1,679) Source: 55.4% 31-77,068 (20,748) (23,806) 365,562 104,700 341,428 73,577 352,841 92,427 324,203 94,170 165,474 85,151 17
Slide 32: Return on Invested Capital
RETURN ($ Operating Tax After-Tax + Net -Total Invested Return $85.2 398.2 15.2% 333.6 $94.2 464.7 16.1% 375.9 $92.4 484.1 14.7% 390.3 $96.3 321.2 Year 19.5% 250.0 $104.7 316.8 (a) 27.6% 232.5 Source: Hotels. 32Maintenance Current Depreciation in Operating Op. Rate(a) Ended millions) Assets 41.7% 64
Slide 33: Return on Invested Capital (Continued)
RETURN ($ Operating Tax After-Tax + Net -Total Invested Return $113.9 267.3 36.7% 165.1 $125.0 263.4 49.7% 161.3 $143.8 265.3 62.9% 145.0 $166.6 303.3 78.5% 163.5 $185.2 328.4 68.8% 180.9 $174.6 328.2 Year 59.5% 193.1 $148.1 340.0 Source: 48.1% 208.2 33Maintenance Current Depreciation inOp. Rate(a)
Slide 34: Free Cash Flows
FREE ($ Net $Year Source: 34112,216 104,399 145,666 153,680 133,588 108,908 inCash Ended thousands) CASH Choice Provided (3,349) (20,265) (21,284) (17,244) (24,531) (14,544) December FLOWS Internal $by $108,867 84,134 124,382 136,436 109,057 94,364 Operating 31, Data, 2009 2008 2007 2006 2005 2004De
Slide 35: Free Cash Flows (Continued)
FREE ($ Net $Year Source: 35115,304 99,018 101,712 53,879 65,040 38,952 inCash Ended thousands) CASH Choice (14,683) (16,617) (36,031) (9,056) Provided 27,784 87,738 December FLOWS Internal $$$29,896 by 143,088 189,450 84,335 37,262 29,009 Operating (continued) 31, Data, 2003 2002 2001 2000 1999 199
Slide 36: Adjusted EBITDA
ADJUSTED ($ Operating Acceleration Loan Adjusted 6,605 -$Year Note: February Source: 36 -1,503 148,073 174,596 185,199 166,625 143,750 124,983 in -3,690 -Ended thousands) Reserves -To - --3,321 Choice --improve 11, EBITDA 9,705 9,051 9,947 Income -7,555 -December EBITDA 2010 of -1,209 8,637 Related
Slide 37: Adjusted EBITDA (Continued)
ADJUSTED ($ Operating Acceleration Loan Adjusted -$Year Source: 37 -77,068 113,946 104,700 73,577 92,427 94,170 85,151 in - -Ended thousands) Reserves - (1,037) - Choice 12 (1,216) -22,713 EBITDA 11,225 11,251 11,623 -Income 7,687 December EBITDA of-Related Internal Management 12,452 6,710 9,173 $$A
Slide 38: Adjusted Diluted Earnings Per Share
ADJUSTED (In Year Net $87,565 $112,787 $111,301 $100,211 $98,250 217 4,135 2,310 2,079 941 757 4,729 (4,855) (12,791) 1,192 Weighted $83,902 $100,213 $113,611 $109,075 $102,027 Diluted 66,759 67,490 65,766 62,994 60,224 Adjustments: $1.31 $1.67 $1.69 $1.59 $1.63 Acceleration Executive Loss 0.04 Curt
Slide 39: Adjusted Diluted Earnings Per Share (Continued)
ADJUSTED (In (CONTINUED) Year Net $55,305 $42,445 $14,327 $71,863 $74,345 (7,232) 433 (1,182) 4,721 (3,383) 7,532 37,166 Weighted $48,073 $57,155 $54,698 $51,493 $60,844 $68,480 $73,596 Diluted 119,096 111,334 106,506 89,144 80,114 73,349 69,000 Adjustments: $0.46 $0.16 $0.98 $1.08 Acceleration (0.0
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