While the company is still growing with plans for new Cambria hotels and a new prototype for its Comfort Inns, Choice Hotels had a slightly off first quarter of 2016.
Net income and diluted earnings per share for the three months ending March 31 reached $19.6 million and $0.35 per share, respectively. Last year, the numbers during the same three months were $21.6 million and $0.37 per share.
But overall, the Choice team has good reason to be optimistic, with some numbers surpassing expectations. “All three of the levers that drive domestic royalty revenue—system size, RevPAR and effective royalty rate—all moved in a positive direction,” CEO Steve Joyce said during the Q1 earnings call.
Revenues for the first quarter reached $207.1 million, an increase of 18 percent from the same period of 2015. (Three analysts surveyed by Zacks had expected $183.1 million.) Domestic and international units increased 1.1 percent and 2.3 percent, respectively, from Q1 2015. Excluding the impact of the Comfort rejuvenation strategy, Choice’s domestic units under franchise as of March 31 increased 4.6 percent from the prior year.
Ascend & Cambria
Choice’s upscale Ascend and Cambria brands have grown to a combined 182 properties with 17,000 rooms open and operating in aggregate, Joyce said. Following several notable openings and groundbreakings in late 2015, Cambria opened a new hotel in Times Square and broke ground on a new property in Chicago. New agreements were signed for hotels in Charleston and Ft. Lauderdale.
Choice spent $40 million during the quarter to speed up the brand's development in the form of joint venture investments, forgivable key money loans, senior and mezzanine lending and site acquisitions. As of the end of March, the company had approximately $167 million reflected in its consolidated balance sheet pursuant to these financial support activities. With respect to lending and joint venture investments, Choice expects to recycle these loans and investments within a five year period.
$40 Million for Comfort
And then there's Comfort. After Choice invested $40 million in upgrading and improving the portfolio (and cut 600 properties over the course of five years), it is seeing some positive numbers.
Hotels that took advantage of incentives are seeing significantly higher RevPAR grains. “We’re not surprised," Joyce said. "We were deliberate in creating and executing a strategy to coincide with a very favorable period in the lodging cycle. And it’s paying off." The Comfort Inn and Comfort Suites development pipeline has increased 24 percent in 12 months to 200 executed but not yet opened contracts, Joyce said.