Choice Hotels International, Inc. · NYSE:CHH
Choice Hotels International — Investor Presentation (May 2006)
55 slides from Choice Hotels International's investor presentation, May 1, 2006
Slide 1: Disclaimer
Disclaimer Certain matters discussed in this presentation may constitute forward-looking statements within the meaning of the federal securities law. Such statements are based on management’s beliefs, assumptions and expectations, which in turn are based on information currently available to managem
Slide 2: BER ES82 & & aa
BER ES82 & & aa EVOIEE WOTELS INTERNATIONAL,
Slide 3: Company Profile
Company Profile One of the Largest Hotel Companies in the World More than 5,200 hotels open worldwide representing more than 425,000 rooms 722 hotels under development representing approximately 57,000 rooms Our Brands Cover Many Segments Source: Choice Internal Data as of March 2006. Limited Servic
Slide 4: Company Profile (cont.) - Core Competency
Company Profile (cont.) Core Competency Hotel Franchising Highest returning model in the industry (vs. management or ownership) High margin, high cash flow with low capital requirements Scaleable and predictable Provides profitable growth opportunities Highly skilled in this area
Slide 5: Lodging Industry
Lodging Industry Lodging Industry Is A Large, Profitable & Permanent Fixture of the Economy Roughly 50,000 hotels representing approximately 4.5 million rooms in the U.S. Provides profitable growth opportunities -- Industry profits grew 23% to $21B in More than 30% of domestic hotel rooms (1.5 milli
Slide 6: Lodging Industry (cont.) - Typical Guest Profile
Source: U.S. Census Bureau (2000 Census) and Choice Internal Data. Lodging Industry (cont.) -- Typical Guest Profile U.S. Hotel Choice Hotels' Population Industry Guests Household Income (mean) $57,000 $74,000 $67,000 Age (average years) 35 years 47 years 47 years Education (% college graduates) 24%
Slide 7: Domestic System Growth
Domestic System Growth In Any Environment 3,039 3,123 3,244 3,327 3,482 3,636 3,834 4,048 2,500 2,700 2,900 3,100 3,300 3,500 3,700 3,900 4,100 Exceptional Franchise Sales Capabilities Source: Choice Internal Data as of December 2005. Domestic Franchises On-Line Investment Thesis +5.6% $5.0 $7.0 $9.
Slide 8: Strong & Growing Earnings
Strong & Growing Earnings Source: Choice Internal Data as of December 2005. See Supplemental. Investment Thesis (cont.) +18% Recurring EBITDA $0.58 $0.76 $0.93 $1.07 $1.26 $0.25 $0.50 $0.75 $1.00 $1.25 $1.50 Adjusted Diluted EPS $108.7 $116.0 $125.2 $134.9 $152.8 $50 $65 $80 $95 $110 $125 $140 $155
Slide 9: Superior Returns On Invested Capital
Superior Returns On Invested Capital Investment Thesis (cont.) 15.3% 15.9% 14.7% 10.4% 27.7% 36.9% 49.5% 69.1% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% ROIC Source: Bear Stearns March Equity Research – “U.S. Lodging – All Priced In – Our Current Thinking on the Sector”
Slide 10: Investment Thesis (cont.)
Investment Thesis (cont.) Source: Bear Stearns March Equity Research – “U.S. Lodging – All Priced In – Our Current Thinking on the Sector” Disclaimer: Return on invested capital percentages are calculated by Bear Stearns’ lodging industry analysts in accordance with that firms’ methodologies. Please
Slide 11: Investment Thesis - Management Focused on Creating Value
Investment Thesis (cont.) Management Focused on Creating Value Share repurchases – 66.6 million repurchased at $10.69 per share as of March 31, 2006; represents nearly $712 million since inception of program Dividends – Current quarterly cash dividend of $0.13/share; subject to board approval and bu
Slide 12: Comparison of 5 Year Cumulative Total Return
Investment Thesis (cont.) Source: Copyright© 2006, Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. All rights reserved. www.researchdatagroup.com/S&P.htm * $100 invested on 12/31/00 in stock or index-including reinvestment of dividends. Fiscal year ending December 31. COMPARISON OF
Slide 13: Choice Hotels - A Solid Foundation Built On Innovation
Choice Hotels – A Solid Foundation Built On Innovation
Slide 14: A Solid Foundation Built On Innovation
A Solid Foundation Built On Innovation Rich History of Innovation “Good People” – Franchisees Recognize Choice Associates As Being “Well-Liked” & “Easy To Work With” Quality Courts – 1 st Brand Name In Hospitality (1939) Wall-To-Wall Carpeting, In-Room Phones, Daily Linen Changes, 24-Hour Front Desk
Slide 15: Brand Portfolio Built Over Decades
Brand Portfolio Built Over 5 Decades Organic Innovation Acquisitions 1940’s 1980’s 1990’s Scale & Distribution Created By Focus On Core Competencies -- Selling Franchises, Selling Hotel Rooms, Servicing Hotel Operators A Solid Foundation Built On Innovation (Cont.) Source: Choice Internal Data as of
Slide 16: Domestic Franchises On-Line By Decade
1,962 3,244 1,000 2,000 3,000 4,000 Domestic Franchises On-Line By Decade Source: On-Line Franchise Numbers For 1950 through 1980 Are Estimates From Choice Internal Data. A Solid Foundation Built On Innovation (Cont.)
Slide 17: Re-Imaging Flagship Brand
Re-Imaging Flagship Brand Acquiring & Launching New Products Creating Leading Edge Technology A Solid Foundation Built On Innovation (Cont.)
Slide 18: BER ES82 & & aa
BER ES82 & & aa EVOIEE WOTELS INTERNATIONAL,
Slide 19: Vision and Mission
Vision and Mission 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, and reduces costs
Slide 20: Strategy & Management Philosophy
Strategy & Management Philosophy Strategy & Franchise Success System Clearly Articulated And Centered Around Core Competencies & Growth 2006 Strategic Initiatives • Strategically Grow Our Existing Brands • Enter New Markets • Improve Brands, Brand Recognition, & Property Performance • Improve Busine
Slide 21: BER ES82 & & aa
BER ES82 & & aa EVOIEE WOTELS INTERNATIONAL,
Slide 22: Strategically Grow Existing Brands
Strategically Grow Existing Brands Optimize Development Organization Continue to Align With Brand Strategies Diversify and Develop New Customers
Slide 23: Achieve Growth In New Market Segments
Achieve Growth In New Market Segments Cambria Suites Suburban Extended Stay Hotels Build Capabilities in Upscale and Other Segments Grow Internationally Corporate Development Transactions That Improve Our Core Business Investments in Synergistic Businesses
Slide 24: Cambria Suites
Cambria Suites Limited Service, Upscale, All-suites Brand 100% new construction Rooms 25% larger than competition at similar per key cost Targeted ADR of $110-$125 Primary audience is corporate traveler – secondary focus on leisure 23 Contracts Signed (10 in Q1 2006) – First Properties Opening This
Slide 25: Suburban Extended Stay Hotels
Suburban Extended Stay Hotels Acquired 2005 64 Franchises, nearly 8,500 rooms Economy Extended Stay Segment Targeted Construction Cost Per Key - $35K Total Investment - $4-$5 million Targeted Unlevered Return – 10% - 12% Targeted Average Weekly Rate of $200+ Extended Stay Demand -- +4.9% in (faster
Slide 26: Improve Our Brands and Property Performance
Improve Our Brands and Property Performance Stronger Property-Level Support Improve Property Management Systems Improve Brand Consistency Improve Guest Experience
Slide 27: Improve Brand Recognition and Business Delivery
Improve Brand Recognition and Business Delivery Marketing and Reservations Programs Revenue Management Services Drive Reservations to Central Channels
Slide 28: BER ES82 & & aa
BER ES82 & & aa EVOIEE WOTELS INTERNATIONAL,
Slide 29: Build Strong Brands
Guest Satisfaction Brand Growth & Equity Increase Business Delivery Reduce Costs Strong Brands Vast Consumer Reach Exceptional Services Size, Scale & Distribution Franchise Success System Brand and Hotel Performance Guest Satisfaction Brand Growth & Equity Increase Business Delivery Reduce Costs Str
Slide 30: Vast Consumer Reach
Guest Satisfaction Brand Growth & Equity Increase Business Delivery Reduce Costs Strong Brands Vast Consumer Reach Exceptional Services Size, Scale & Distribution Franchise Success System Brand and Hotel Performance Guest Satisfaction Brand Growth & Equity Increase Business Delivery Reduce Costs Str
Slide 31: Vast Consumer Reach (cont.)
Guest Satisfaction Brand Growth & Equity Increase Business Delivery Reduce Costs Strong Brands Vast Consumer Reach Exceptional Services Size, Scale & Distribution Franchise Success System Brand and Hotel Performance Guest Satisfaction Brand Growth & Equity Increase Business Delivery Reduce Costs Str
Slide 32: Exceptional Services
Guest Satisfaction Brand Growth & Equity Increase Business Delivery Reduce Costs Strong Brands Vast Consumer Reach Exceptional Services Size, Scale & Distribution Franchise Success System Brand and Hotel Performance Guest Satisfaction Brand Growth & Equity Increase Business Delivery Reduce Costs Str
Slide 33: Size, Scale, and Distribution
Guest Satisfaction Brand Growth & Equity Increase Business Delivery Reduce Costs Strong Brands Vast Consumer Reach Exceptional Services Size, Scale & Distribution Franchise Success System Brand and Hotel Performance Guest Satisfaction Brand Growth & Equity Increase Business Delivery Reduce Costs Str
Slide 34: Profitably Grow & Maximize Returns
Profitably Grow & Maximize Returns
Slide 35: Business Focus
Business Focus Profitably Grow Improve brand performance – ROI to owners (business delivery, reduced operating and development costs, products, marketing, services) Introduce new concepts (product design/innovation) Increase distribution (franchise development) Maximize Financial Returns and Create
Slide 36: Maximize Returns
Maximize Returns 1960 bps 49.5% 69.1% ROIC 15.6% 66.7% 22.9% 100 bps Change $94.4 $6.9 $108.1 61.0% $109.1 $11.5 $132.9 62.0% Year Ended December 31, After-Tax Free Cash Flow CAPEX Cash Flow From Operations Franchising Margins ($ in millions) High Margins, After-Tax Free Cash Flow, and Returns on Ca
Slide 37: Strong Financial Results - Franchising Revenues
Strong Financial Results $170.0 $172.1 $187.1 $203.7 $230.0 $160.0 $170.0 $180.0 $190.0 $200.0 $210.0 $220.0 $230.0 $240.0 Franchising Revenues ($ in millions) Source: Choice Internal Data, December 2005. See Supplemental. + 13% CAGR = 7.9%
Slide 38: Strong Financial Results - Unit Growth
Strong Financial Results Unit Growth In Any Environment Source: Choice Internal Data, December 2005. 2,500 2,700 2,900 3,100 3,300 3,500 3,700 3,900 4,100 Domestic System Size CAGR = 4.4%
Slide 39: Strong Financial Results - Recurring EBITDA
Strong Financial Results $108.7 $116.0 $125.2 $134.9 $152.8 $90 $100 $110 $120 $130 $140 $150 $160 Recurring EBITDA ($ in millions) Source: Choice Internal Data, December 2005. See Supplemental. CAGR = 8.9% + 13%
Slide 40: Strong Financial Results - Adjusted Diluted EPS
Strong Financial Results $0.58 $0.76 $0.93 $1.07 $1.26 $0.25 $0.50 $0.75 $1.00 $1.25 $1.50 Adjusted Diluted EPS Source: Choice Internal Data, December 2005. See Supplemental. Per share amounts retroactively adjusted for 2 for 1 stock split in October 2005. CAGR = 21.4% + 18%
Slide 41: Strong Financial Results - Franchise Development
Strong Financial Results Source: Choice Internal Data, December 2005. $5.0 $7.0 $9.0 $11.0 $13.0 $15.0 $17.0 Deals Initial Fee Revenue Franchise Development (New Contracts Sold) $ in millions Executed Contracts
Slide 42: 2005 Year End Development Results
Limited Service Full Service Economy 2005 Year End Development Results Source: Choice Internal Data, December 2005. 16% Franchise Sales Improvement (552 to 639 deals) Strong Financial Results
Slide 43: Year End Development Results
Units Units % Change Units Units % Change Units Units % Change Comfort Inn 39.5% -21.1% 0.0% Comfort Suites 12.7% 0.0% 11.9% MainStay -12.5% -100.0% -17.6% Sleep 66.7% NM 72.7% Subtotal 27.1% -18.2% 12.8% Clarion 100.0% 10.7% 16.7% Quality -37.5% 11.3% 8.5% Subtotal -10.0% 11.2% 9.9% Econo Lodge 0.0
Slide 44: First Quarter Performance
Source: Choice Internal Data as of March 2006. See Supplemental. st Quarter Performance (Dollars in thousands, except per share amounts) % Change Financial Franchising Revenues 50,462 $ 41,205 $ 22.5% Franchising Margins 59.1% 53.7% 540 bps Cash Flow From Operations 24,283 $ 16,867 $ 44.0% EBITDA (i
Slide 45: BER ES82 & & aa
BER ES82 & & aa EVOIEE WOTELS INTERNATIONAL,
Slide 46: Create Value
Create Value Management Focused on Creating Value Share repurchases – 66.6 million repurchased at $10.69 per share as of March 31, 2006; represents nearly $712 million since inception of program Dividends – Current quarterly cash dividend of $0.13/share; subject to board approval and business perfor
Slide 47: Closing Comments
Closing Comments Strong Earnings Per Share, EBITDA, and Cash Flow Growth Proven Earnings Stability Even through Industry/ Economic Downturns Pure-Play Franchise Focus, Highest Returning “Model” in the Industry High Operating Margins Significant Free Cash Flow Experienced Management Team Focused on S
Slide 48: BER ES82 & & aa
BER ES82 & & aa EVOIEE WOTELS INTERNATIONAL,
Slide 49: Continuing Cash Flow Potential - Multiple Revenue Levers
$2,360,000 $472,000 $9,595,000 $1,919,000 $8,955,000 $1,791,000 Estimated Impact on Royalties $0.02 $0.004 $0.09 $0.02 $0.08 $0.02 Estimated Impact on Diluted EPS 1,2 5 bps increase = 1 bps increase = Improvement in Royalty Rate 5% (200 units)= 1% (40 units) = 5% = 1% = Growth New Franchise Improvem
Slide 50: Brand Targets
Brand Targets Conversion New Construction $29,000 $32,500 $52,000 $45,500 $67,000 $45 $65 $100+ Targeted Average Daily/Weekly Rate Source: Choice Internal Data as of December 2005. *Excludes cost of land. $47,000 $38,500 $80
Slide 51: Recurring EBITDA
Recurring EBITDA (Unaudited) Source: Choice Internal Data, March 2006 & December 2005. March 31 March 31 Operating Income 30,073 $ 22,299 $ 143,750 $ 124,983 $ 113,946 $ 104,700 $ 73,577 $ Adjustments Depreciation and Amortization 2,349 2,325 9,051 9,947 11,225 11,251 12,452 EBITDA 32,422 $ 24,624 $
Slide 52: Calculation of Adjusted Net Income and Adjusted Diluted EPS
Calculation of Adjusted Net Income and Adjusted Diluted Earnings Per Share (EPS) (Unaudited) Source: Choice Internal Data, March 2006 & December 2005. (In thousands, except per share amounts) March 31 March 31 Net Income 17,665 $ 11,999 $ 87,565 $ 74,345 $ 71,863 $ 60,844 $ 14,327 $ Adjustments: Deb
Slide 53: Calculation of Franchising Revenues and Margins
Calculation of Franchising Revenues and Margins (Unaudited) Source: Choice Internal Data, March 2006 & December 2005. (1) Marketing and reservation revenues are excluded as these represent contractual pass-throughs and are not profitable components of the company’s business. (Dollar amounts in thous
Slide 54: Calculation of After-Tax Free Cash Flows
Calculation of After-Tax Free Cash Flows (Unaudited) (In thousands) December 31, December 31, Net Cash Provided by Operating Activities 132,907 $ 108,080 $ Acquisition of Suburban, net of cash acquired (7,314) - Investment in property and equipment (11,504) (6,859) Issuance of notes receivable (2,66
Slide 55: Non-GAAP Financial Measures
Non-GAAP Financial Measures Recurring EBITDA, adjusted net income, adjusted diluted earnings per share, franchising revenues and margins and after-tax free cash flows are non-GAAP financial measurements. These financial measurements are presented as supplemental disclosures because they are used by
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