Choice Hotels International, Inc. · NYSE:CHH
Choice Hotels International — Investor Presentation (January 2010)
40 slides from Choice Hotels International's investor presentation, Jan 5, 2010
Slide 1: 2010 Outlook
Exhibit 99.1 2010 Outlook January 5, 2010
Slide 2: Disclaimer
DISCLAIMER Certain matters discussed throughout all of this presentation 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 simil
Slide 3: Choice Hotels Overview
CHOICE HOTELS OVERVIEW Strong, Growing, Global Hotel Highly Attractive Business Model Franchising Business With Strong Financial Returns Leading gainer of US hotel market share* Fee-for-service business model – 9.5% share of branded US hotels (+160 basis points over trailing 5 years)* Predictable, p
Slide 4: One of the Largest Hoteliers
ONE OF THE LARGEST HOTELIERS Leading Gainer of Market Share (% of Hotels Open in U.S.) Market Share % 11.4% 9.5% 6.0% 5.9% 5.5% 3.9% 1.9% 1.2% 0.9% 0.6% 5 yr. bps (04-09) -40 +160 +80 +150 +100 -60 -50 +10 +20 -80 14 12 10 8 6 4 2 0 Wyndham Choice IHG Hilton Marriott Best Western Accor Carlson Starw
Slide 5: Family of Well-Known and Diversified Brands
FAMILY OF WELL-KNOWN AND DIVERSIFIED BRANDS New Construction Targeted Average Daily Rate Conversion $105,000+ $100+ $85 $70 $50 $45,000+ * Excludes cost of land; based on average domestic per-room investment. Source: Choice Internal Data, April 2009 5
Slide 6: Challenging Near-Term Environment for New Construction Hotel Development
CHALLENGING NEAR-TERM ENVIRONMENT FOR NEW CONSTRUCTION HOTEL DEVELOPMENT New Construction Pipeline (thousands of rooms) % Change in Supply 140 120 100 80 60 40 20 0 Q407 Q108 Q208 Q308 Q408 Q109 Q209 Q309 Construction Starts New Project Announcements Sources: PricewaterhouseCoopers (Nov 09), Smith T
Slide 7: Strong Limited Service New Construction Brands Positioned Well for Long-Term Growth
STRONG LIMITED SERVICE NEW CONSTRUCTION BRANDS POSITIONED WELL FOR LONG-TERM GROWTH Domestic Hotels 1,719 1,690 1,450 755 619 602 464 390 Holiday Inn Hampton La Quinta Fairfield Country Express Inn / Inn & Inn/Inn & Inn Inn & Suites Suites Suites Source: Smith Travel Research, Choice Internal Data,
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Slide 9: Significant Growth Opportunities Remain in Large Conversion Market
SIGNIFICANT GROWTH OPPORTUNITIES REMAIN IN LARGE CONVERSION MARKET Domestic Hotels Chart does not include 17,000+ independent hotels 2,042 in budget, economy and 1,886 mid-scale segments 1,719 1,690 1,674 975 969 794 755 753 743 619 543 375 362 349 342 309 297 166 Hampton Inn/ Holiday Fairfield Red
Slide 10: Strong Presence in Major Travel Markets Outside of the U.S.
STRONG PRESENCE IN MAJOR TRAVEL MARKETS OUTSIDE OF THE U.S. 1,125 properties in more than 35 countries and 278 hotels 162 hotels territories on 5 Canada Scandinavia continents. 239 hotels Continental Europe, UK Multi-year investments & Ireland in IT and marketing planned to enhance value proposition
Slide 11: Services Lifecycle Improves Brands and Property Performance
SERVICES LIFECYCLE IMPROVES BRANDS AND PROPERTY PERFORMANCE Brand Planning and Management • Targeted, differentiated programs, amenities and Portfolio services for each brand Management Opening Services • Repositioning • Ensure hotels open successfully and meet or • Relicensing exceed brand standard
Slide 12: Marketing and Central Reservation System Leverages Size, Scale and Distribution
MARKETING AND CENTRAL RESERVATION SYSTEM LEVERAGES SIZE, SCALE AND DISTRIBUTION $300-plus million in annual marketing and reservation system fees Leverage expertise and innovation in on-line, targeted interactive marketing to influence guest hotel stay decisions Powerful advertising campaigns Focus
Slide 13: Strong and Growing Aided Brand Awareness
STRONG AND GROWING AIDED BRAND AWARENESS 98 99 95 90 87 89 77 82 72 62 57 43 40 29 20 14 14 Comfort Comfort Sleep Inn Quality Clarion Econo Rodeway MainStay Suburban Cambria Choice Inn Suites Lodge Inn Suites Hotels 2001 2008 Source: Percentage of survey respondents. Millward Brown, December 2008 13
Slide 14: Strong, Growing Loyalty Program
STRONG, GROWING LOYALTY PROGRAM Comprehensive loyalty rewards program More than 9 million members worldwide – contribute nearly 1/4th of domestic gross room revenues More than 1.75 million members added in 2009 Delivers incremental business to all Choice brand hotels Important selling point for fran
Slide 15: Large and Growing Central Reservations System Delivery Puts Heads in Beds
LARGE AND GROWING CENTRAL RESERVATIONS SYSTEM (“CRS”) DELIVERY PUTS “HEADS IN BEDS” Domestic Franchise System Domestic Choice CRS Gross Room Revenue Source Net Room Revenue Choice Central $ in Millions Reservation $1,800 Contribution 1/3 $1,638 $1,600 All $1,400 Hotel Direct Reservation $1,161 $1,20
Slide 16: Central Reservations Bookings Create Significant Value for Franchisees
CENTRAL RESERVATIONS BOOKINGS CREATE SIGNIFICANT VALUE FOR FRANCHISEES Domestic Choice CRS Central Channel ADR Net Channel Share “Premium” 62% $84.03 47% $77.78 $73.35 $73.72 $71.59 35% $66.11 23% 18% 15% 2005 2006 2007 2008 2005 2006 2007 2008 Internet Voice Travel Agent (GDS) Systemwide Call Cente
Slide 17: Conversion Brand Franchise Sales Opportunity in Soft New Construction Environment
CONVERSION BRAND FRANCHISE SALES OPPORTUNITY IN SOFT NEW CONSTRUCTION ENVIRONMENT 770 720 698 639 552 470 464 432 443 437 402 370 355 342 327 318 298 300 304 288 261 241 237 184 174 184 182 134 124 128 116 109 63 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 9/30/09 TTM New Construction Conversi
Slide 18: Strong, Steady Franchise System Growth
STRONG, STEADY FRANCHISE SYSTEM GROWTH Domestic Hotels On-Line Domestic Rooms On-Line (in thousands) CAGR = 5.3% CAGR = 4.9% CAGR = 4.5% CAGR = 4.0% 3,123 3,244 3,3273,482 3,636 3,834 4,0484,2114,445 4,716 258 266 271 282 294 310 329 339 354 374 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 1999
Slide 19: Franchising Revenue Stream Less Volatile Than RevPAR
FRANCHISING REVENUE STREAM LESS VOLATILE THAN REVPAR ($ in millions) $350 10% 8% $300 6% $250 4% $200 2% $150 0% $100 -2% -4% $50 -6% $0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 CHH RevPAR STR Chain Scale (Supply Weighted) Industry RevPAR Franchising Revenue Source: Smith Travel Resear
Slide 20: Adjusted EBITDA Less Volatile Than Industry Profitability
ADJUSTED EBITDA LESS VOLATILE THAN INDUSTRY PROFITABILITY 30 250 25 200 20 150 15 100 10 50 5 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Industry Profits Adjusted EBITDA Source: Smith Travel Research, Choice Internal Data, December 2008 20
Slide 21: Capital Light Model Generates Strong Returns on Invested Capital
CAPITAL “LIGHT” MODEL GENERATES STRONG RETURNS ON INVESTED CAPITAL After-Tax Return On Invested Capital 78.5% 68.8% 62.9% 59.5% 49.7% 47.8% 36.7% 27.6% 19.5% 15.2% 16.1% 14.7% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 TTM 9/30/09 Source: Choice Internal Data, September 2009 21
Slide 22: Track Record of Strong Earnings Per Share Performance
TRACK RECORD OF STRONG EARNINGS PER SHARE PERFORMANCE Adjusted Diluted Earnings Per Share $1.74 $1.75 $1.49 $1.26 $1.07 $0.93 $0.76 $0.51 $0.51 $0.58 $0.40 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Note: See appendix for reconciliation of adjusted diluted earnings per share to diluted e
Slide 23: Opportunistic Share Repurchases Key Part of Capital Allocation Strategy
OPPORTUNISTIC SHARE REPURCHASES KEY PART OF CAPITAL ALLOCATION STRATEGY Remaining authority on current authorization – 3.8 million shares as of December 31, 2009 20.3 x 17.0 x 14.9 x 14.8 x 11.9 x 11.9 x 11.3 x 11.0 x 10.2 x 10.2 x 10.3 x 8.6 x 1.6 2.2 2.1 7.9 7.2 3.2 24.0 10.8 5.7 6.4 - 4.9 1998 19
Slide 24: High Cash Dividend Yield Compared to Other Lodging C-Corps
HIGH CASH DIVIDEND YIELD COMPARED TO OTHER LODGING C-CORPS 2.9% 2.3% 0.5% 0.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Choice Great Hyatt Marriott Red Lion Wolf Wyndham Gaylord Home Inns IHG Orient-Express Starwood Source: Bloomberg Financial, December 30, 2009 24
Slide 25: Strong Credit Position
STRONG CREDIT POSITION Investment grade credit rating – Moody’s Baa3 – Standard & Poor’s BBB Strong liquidity position – $350 million committed revolver matures June 2011 with $72.3 million available as of December 31, 2009 – No debt maturities until 2011 Substantial financial flexibility Minimal co
Slide 26: Strategy for Choice's Brands, Growth and Shareholders
STRATEGY FOR CHOICE’S BRANDS, GROWTH AND SHAREHOLDERS Grow and Improve Brands Continue progress toward long-term goal of domestic market share leadership Increase portfolio profitability of the Comfort brand family Refresh Sleep Inn to improve long-term brand growth potential Invest in and expand em
Slide 27: Financial Projections
FINANCIAL PROJECTIONS Current Projections Full Year 2010 2% RevPAR Full Year 2009 Outlook Target Sensitivity Unit Growth 4.0% 2.0% 2.0% RevPAR Decline -14.4% -2.0% -4.0% Effective Royalty Rate Improvement 6 bps 7 bps 7 bps (1) Adjusted EBITDA (in millions) $164.5 $170.0 $166.0 (1) Adjusted Diluted E
Slide 28: Royalty Fee Levers
ROYALTY FEE “LEVERS” Estimated Estimated Impact on Full Domestic Royalty Impact Impact on Full Year Year Royalties1 Diluted EPS 2,3 1% = $2.0 million $0.02 RevPAR Improvement 5% = $10.1 million $0.11 1% (49 units) = $2.0 million $0.02 New Franchise Growth 5% (245 units) = $10.1 million $0.11 Improve
Slide 29: Appendix: Reconciliation of Non-GAAP Financial Measurements to GAAP
Appendix Reconciliation of Non-GAAP Financial Measurements to GAAP 29
Slide 30: Disclaimer
DISCLAIMER Adjusted franchising margins, adjusted earnings before interest, taxes depreciation and amortization (EBITDA), adjusted net income, adjusted diluted earnings per share (EPS), franchising revenues, net operating profit after tax (NOPAT), return on average invested capital (ROIC) and free c
Slide 31: Franchising Revenues and Adjusted Franchising Margins
FRANCHISING REVENUES AND ADJUSTED FRANCHISING MARGINS ($ amounts in thousands) Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31,December 31, 2008 2007 2006 2005 2004 2003 Total Revenues $ 641,680 $ 615,494 $ 539,903 $ 4
Slide 32: Franchising Revenues and Adjusted Franchising Margins (Continued)
FRANCHISING REVENUES AND ADJUSTED FRANCHISING MARGINS (CONTINUED) ($ amounts in thousands) Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, 2002 2001 2000 1999 1998 1997 Total Revenues $ 365,562 $ 341,428
Slide 33: Return on Invested Capital
RETURN ON INVESTED CAPITAL Year Ended Year Ended Year Ended Year Ended Year Ended ($ in millions) December 31, December 31, December 31, December 31, December 31, 1998 1999 2000 2001 2002 Operating Income (a) $85.2 $94.2 $92.4 $96.3 $104.7 Tax Rate(a) 41.7% 39.5% 39.0% 35.0% 36.5% After-Tax Operatin
Slide 34: Return on Invested Capital (Continued)
RETURN ON INVESTED CAPITAL (CONTINUED) Trailing Twelve Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Months ($ in millions) December 31, December 31, December 31, December 31, December 31, December 31, September 30, 2003 2004 2005 2006 2007 2008 2009 Operating Income (a) $113.9 $
Slide 35: Free Cash Flows
FREE CASH FLOWS Trailing Twelve Months Year Ended Year Ended Year Ended Year Ended Year Ended September 30, December 31, December 31, December 31, December 31, December 31, ($ in thousands) 2009 2008 2007 2006 2005 2004 Net Cash Provided by Operating Activities $ 91,974 $ 104,399 $ 145,666 $ 153,680
Slide 36: Free Cash Flows (continued)
FREE CASH FLOWS (continued) Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, ($ in thousands) 2003 2002 2001 2000 1999 1998 Net Cash Provided by Operating Activities $ 115,304 $ 99,018 $ 101,712 $ 53,879 $
Slide 37: Adjusted EBITDA
ADJUSTED EBITDA Projected Year Ended, Outlook December 31, 2010 Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended ($ in thousands) 2% RevPAR December 31, December 31, December 31, December 31, December 31, December 31, Target Sensitivity 2009 2008 2007 2006 2005 2004 Operating Income
Slide 38: Adjusted EBITDA (Continued)
ADJUSTED EBITDA (CONTINUED) Year Ended 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, December 31, 2003 2002 2001 2000 1999 1998 1997 Operating Income $ 113,946 $ 104,700 $ 73,577 $ 92,4
Slide 39: Adjusted Diluted Earnings Per Share
ADJUSTED DILUTED EARNINGS PER SHARE Projected Year Ended Outlook December 31, 2010 Year Ended Year Ended Year Ended Year Ended Year Ended 2% RevPAR December 31, December 31, December 31, December 31, December 31, (In thousands, except per share amounts) Target Sensitivity 2009 2008 2007 2006 2005 Ne
Slide 40: Adjusted Diluted Earnings Per Share (Continued)
ADJUSTED DILUTED EARNINGS PER SHARE (CONTINUED) Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, (In thousands, except per share amounts) 2004 2003 2002 2001 2000 1999 1998 Net Inco
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