Choice Hotels International, Inc. · NYSE:CHH
Choice Hotels International — Investor Presentation (December 2009)
40 slides from Choice Hotels International's investor presentation, Dec 1, 2009
Slide 1: Investor Presentation
Exhibit 99.1 Investor Presentation December 2009
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 Fee-for-service business model share* Predictable, profitable, long-term growth – 9.5% share of branded US hotels (+190 in a vari
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 11.5% 9.5% 6.0% 5.9% 5.5% 3.9% 1.9% 1.2% 0.9% 0.6% 5 yr. bps (04-09) -60 190 80 150 100 -60 -50 10 10 -80 14 12 10 8 6 4 2 0 Wyndham Choice IHG Hilton Marriott Best Western Accor Carlson Starwood Hyat
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 Source: Choice Internal Data, April 2009 5
Slide 6: Well Positioned for Long-Term New Construction Hotel Growth in Limited Service Segment
WELL POSITIONED FOR LONG-TERM NEW CONSTRUCTION HOTEL GROWTH IN LIMITED SERVICE SEGMENT Domestic Hotels 1,712 1,672 1,457 747 615 601 464 389 Holiday Inn Hampton La Quinta Fairfield Country Inn Express Inn / Inn & Inn/Inn & Inn & Suites Suites Suites Source: Smith Travel Research, Choice Internal Dat
Slide 7: Significant Growth Opportunities Remain in Large Conversion Market
SIGNIFICANT GROWTH OPPORTUNITIES REMAIN IN LARGE CONVERSION MARKET Chart does not include Domestic Hotels 17,000+ independent hotels in budget, economy and mid-scale segments 2,041 1,896 1,712 1,678 1,672 963 958 795 752 731 747 615 547 374 366 341 350 309 297 167 Americas Fairfield Howard Knights D
Slide 8: Domestic Pipeline of Hotels
DOMESTIC PIPELINE OF 744 HOTELS Conversion New Construction 194 134 130 65 43 29 34 31 44 37 3 Extended Stay Economy Upscale Mid-scale Source: Choice Internal Data, September 30, 2009 8
Slide 9: Strong Presence in Major Travel Markets Outside of the U.S.
STRONG PRESENCE IN MAJOR TRAVEL MARKETS OUTSIDE OF THE U.S. 1,116 properties Over 35 countries and 161 hotels territories on 5 279 hotels Scandinavia continents Canada Large global “pure 237 hotels hotel franchising” Continental Europe, UK business & Ireland Track record of consistent, 1 hotel 58 ho
Slide 10: 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 11: Marketing Leverages Size, Scale and Distribution
MARKETING LEVERAGES SIZE, SCALE AND DISTRIBUTION $300-plus million in annual marketing and reservation system fees Leverage expertise in on-line, targeted interactive marketing to influence guest hotel stay decisions Multi and single brand advertising campaigns Focus on driving guests to Choice cent
Slide 12: 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 12
Slide 13: Strong, Growing Loyalty Program
STRONG, GROWING LOYALTY PROGRAM Comprehensive loyalty rewards program More than 9 million members worldwide as of November 2009 – contribute 24.6% of domestic gross room revenues More than 1.75 million members added in 2009 Delivers incremental business to all Choice brand hotels Important selling p
Slide 14: 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 15: Significant Average Daily Rate Premium on Central Reservations Bookings
SIGNIFICANT AVERAGE DAILY RATE PREMIUM ON CENTRAL RESERVATIONS BOOKINGS Domestic Choice CRS Central Channel ADR Net Channel Share 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 Center choiceh
Slide 16: Managing Differently in Lodging Downturn
MANAGING DIFFERENTLY IN LODGING DOWNTURN Leverage brand preference and conversion opportunity during lodging down cycle to drive market share Reallocate resources and deliver tools to position franchisees to capture larger share of shrinking travel demand Implement contingency plans at all levels of
Slide 17: Lodging Downcycle Trends
LODGING DOWNCYCLE TRENDS 6.0 5.0 Gulf war 4.0 9/11 recession recession 3.0 2.0 1.0 0.0 -1.0 Financial Markets/ -2.0 IND. REVPAR CHH REVPAR IND. REVPAR CHH REVPAR Housing Crisis -3.0 1990 +2.0% 1990 +1.7% 2001 -7.0% 2001 -2.4% 1991 - 2.5% 1991 - 2.7% 2002 -2.7% 2002 -3.8% -4.0 1992 +2.5% 1992 +1.4% 2
Slide 18: 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 09/30/09 TTM New Construction Convers
Slide 19: Relicensing Activity Similar to New Construction Brand Sales
RELICENSING ACTIVITY SIMILAR TO NEW CONSTRUCTION BRAND SALES 9.6% 8.7% 9.3% 7.0% 7.0% 6.0% 5.5% 5.0% 4.9% 4.4% 3.2% 153 188 158 146 190 254 332 378 403 312 147 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 9/30/09 TTM Relicensing Contracts Relicensings as % of the prior year's ending system size
Slide 20: 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 21: 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 22: 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 22
Slide 23: Capital Light Model Generates Strong Returns on Invested Capital
CAPITAL “LIGHT” MODEL GENERATES STRONG RETURNS ON INVESTED CAPITAL 78.5% 68.8% 62.9% 59.5% 49.7% 36.7% 27.6% 19.5% 15.2% 16.1% 14.7% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: Choice Internal Data, December 2008 23
Slide 24: Track Record of Strong Earnings Per Share Growth
TRACK RECORD OF STRONG EARNINGS PER SHARE GROWTH Adjusted Diluted Earnings Per Share $1.74 $1.75 $1.49 $1.26 $1.07 $0.93 $0.76 $0.58 $0.51 $0.51 $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 earnin
Slide 25: Opportunistic Share Repurchases Key Part of Capital Allocation Strategy
OPPORTUNISTIC SHARE REPURCHASES KEY PART OF CAPITAL ALLOCATION STRATEGY Remaining authority on current authorization – 3.9 million shares as of September 30, 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 9.8 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 26: Credit Strengths
CREDIT STRENGTHS Solid investment grade company – Moody’s Baa3 – Standard & Poor’s BBB Strong liquidity position – $350 million committed revolver matures June 2011 with $58 million available as of September 30, 2009 – No debt maturities until 2011 Substantial financial flexibility Minimal contingen
Slide 27: Royalty Fee Levers
ROYALTY FEE “LEVERS” Estimated Estimated Impact on Full Domestic Royalty Impact Impact on Full 1 Year Year Royalties 2,3 Diluted EPS 1% = $2.0 million $0.02 RevPAR Improvement 5% = $9.9 million $0.10 1% (49 units) = $2.0 million $0.02 New Franchise Growth 5% (245 units) = $9.9 million $0.10 Improvem
Slide 28: Strategic Agenda for Choice's Brands, Growth and Shareholders
STRATEGIC AGENDA FOR CHOICE’S BRANDS, GROWTH AND SHAREHOLDERS Continue core brand market share, unit growth and brand performance improvements Continue shareholder-friendly capital allocation policies Leverage financial capacity/strength to expand scale of emerging brands Evaluate opportunities to e
Slide 29: Appendix: Reconciliation of Non-GAAP Financial Measurements to GAAP
Appendix Reconciliation of Non-GAAP Financial Measurements to GAAP 29
Slide 30: Disclaimer
DISCLAIMER Adjusted franchising margins, adjusted earnings before interest, taxes depreciation and amortization (EBITDA), adjusted net income, adjusted diluted earnings per share (EPS), franchising revenues, net operating profit after tax (NOPAT), return on average invested capital (ROIC) and free c
Slide 31: Franchising Revenues and Adjusted Franchising Margins
FRANCHISING REVENUES AND ADJUSTED FRANCHISING MARGINS ($ 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 $
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 Year Ended ($ in millions) December 31, December 31, December 31, December 31, December 31, December 31, 1997 1998 1999 2000 2001 2002 Operating Income (a) $77.1 $85.2 $94.2 $92.4 $96.3 $104.7 Tax Rate(a) 41.7% 41.7% 3
Slide 34: Return on Invested Capital (Continued)
RETURN ON INVESTED CAPITAL (CONTINUED) Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended ($ in millions) December 31, December 31, December 31, December 31, December 31, December 31, 2003 2004 2005 2006 2007 2008 Operating Income (a) $113.9 $125.0 $143.8 $166.6 $185.2 $174.6 Tax Rate
Slide 35: Free Cash Flows
FREE CASH FLOWS Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, ($ in thousands) 2008 2007 2006 2005 2004 Net Cash Provided by Operating Activities $ 104,399 $ 145,666 $ 153,680 $ 133,588 $ 108,908 Net Cash Provided (Used) by In
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 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, 2008 2007 2006 2005 2004 2003 Operating Income $ 174,596 $ 185,199 $ 166,625 $ 143,750 $ 124,983 $ 113,946 Adjustments Acce
Slide 38: 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 39: Adjusted Diluted Earnings Per Share
ADJUSTED DILUTED EARNINGS PER SHARE 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) 2008 2007 2006 2005 2004 Net Income $ 100,211 $ 111,301 $ 112,787 $ 87,565 $ 74,345 Adjustments: Loss(G
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 December 31, December 31, December 31, December 31, December 31, December 31, (In thousands, except per share amounts) 2003 2002 2001 2000 1999 1998 Net Income $ 71,863 $ 60,844 $ 14,327
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