Choice Hotels International, Inc. (NYSE: CHH), today reported third quarter 2002 recurring net income of $21.9 million, or $0.54 recurring diluted earnings per share (EPS), compared to $19.8 million of recurring net income and $0.45 recurring diluted EPS reported for the third quarter of 2001.
“Choice`s franchise system continues to enjoy strong unit growth, which demonstrates our success in delivering value to our franchisees,” said Charles A. Ledsinger, Jr., president and chief executive officer. “By consistently providing exceptional services and building brand awareness through multiple marketing and reservations channels, we continue to increase franchisee retention and growth. This strong unit growth drives improvements in royalty revenues, in spite of continued RevPAR softness, as well as initial fee revenue.”
He added, “Choice is well positioned to continue to offer its franchisees leading-edge services, proprietary technology and superior support. Our proven performance and stability in a volatile marketplace speaks to the talent of our associates and the efforts of our franchisees to maintain and grow a strong franchise system.”
The Company reported recurring earnings before interest, taxes, depreciation and amortization (EBITDA) of $39.3 million for the third quarter and $88.4 million for the first nine months of 2002, compared to $38.5 million for the third quarter of 2001 and $88.2 million for the first nine months of 2001. Franchise EBITDA margins were 72.7% for the third quarter of 2002 and 67.7% for the first nine months of 2002, compared to 73.3% and 67.7%, respectively, for the same periods a year ago.
Royalty revenues increased from $44.6 million for the third quarter of 2001 to $46.3 million for the third quarter of 2002.The system-wide domestic effective royalty rate increased 3 basis points from 3.96% in the third quarter 2001 to 3.99% for 2002.
Domestic revenue per available room (RevPAR) was $43.79 for the third quarter of 2002, compared to $44.85 for the same period a year ago.
The Company reported recurring net income for the first nine months of 2002 of $45.7 million, or $1.12 recurring diluted EPS, increases of 6.5% and 16.7% respectively, over the $42.9 million of recurring net income and $0.96 recurring diluted EPS, respectively, reported for the same period a year ago.
Royalty revenues increased from $107.6 million in the nine months ended September 30, 2001 to $108.6 million for the first nine months of 2002. The Company reported revenue from partner services of $9.0 million in the nine months ended September 30, 2002 compared to $8.9 million in the first nine months of 2001.
The system-wide domestic effective royalty rate increased 5 basis points for the first nine months of 2002 to 3.98% from 3.93% for the same period a year ago. Domestic RevPAR was $35.17 for the first nine months of 2002, compared to $37.00 for the same period a year ago.
The quarter`s net income includes approximately $0.8 million of federal and state tax credits. The net impact of these credits was to increase diluted EPS by approximately $0.02 for the third quarter of 2002. These credits were offset by a $0.01 per share decrease in diluted EPS related to equity losses in Flag Choice Hotels recorded in the third quarter of 2002 as a result of the Company`s acquisition of a controlling interest in Flag on July 1, 2002. The Company`s results for the three months and nine months ended September 30, 2001, included equity losses of $11.7 million and $14.6 million, respectively, related to its investment in Friendly Hotels plc. The Friendly equity loss is excluded from the Company`s recurring net income and recurring diluted EPS results for 2001.
The Company revised its 2002 diluted EPS estimate to range from $1.47 to $1.49.
Choice continues to attract prospective franchisees and to convert a relatively high percentage of executed contracts into open and on-line properties, even in the face of economic uncertainty and the impact of international crises on the travel industry.
Choice executed 82 hotel franchise contracts in the third quarter of 2002, compared to 74 contracts signed in the same period a year ago. During the nine months ended September 30, 2002, the Company has signed 211 franchise contracts, representing 17,936 rooms, compared to 199 contracts, representing 16,312 rooms, for the comparable period a year ago. In the first nine months of 2002, 42 contracts for new construction hotels, representing 3,121 rooms, were executed. The Company has signed 169 contracts to convert existing hotels to a Choice brand in the first nine months of 2002, up from 123 conversions from the same period a year ago.
The total number of domestic Choice hotels on-line grew 4.2% from 3,296 as of September 30, 2001 to 3,434 as of the September 30, 2002. As of the same dates, the total number of domestic rooms increased 4.1% to 279,135 from 268,176. The Company had 358 franchised hotels with 27,902 rooms either in design or under construction in its domestic hotel system as of September 30, 2002. The number of property terminations for the nine months ended September 30, 2002 decreased 15.1% from the comparable period in 2001.
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