- The Washington Times - Monday, January 22, 2001

Choice Hotels International Inc. is in a position to grow both internationally and domestically after coming off a busy fourth quarter that included a company reorganization.

Charles A. Ledsinger Jr., chief executive of the worldwide hotel franchisor, says a consolidation of offices, resulting in the layoff of 140 employees, has helped Choice streamline its operations and refocus on serving franchisees and attracting new ones.

"We were fine-tuning," says Mr. Ledsinger in an interview at Choice's Silver Spring headquarters. "Really what we are trying to do is focus our efforts on delivering value to our licensees."

The company he has headed since August 1998 has more than 5,000 hotels worldwide either open or being developed under the Clarion, Comfort, Quality, Econo Lodge, MainStay Suites, Sleep and Rodeway Inn brands. Those hotels are owned and operated by licensees, while Choice provides the hotel systems, support and marketing to each individual hotel operator.

Mr. Ledsinger, 51, confidently discusses Choice's decisions in 2000 and the plans for the future.

"With some of the things we did in the fourth quarter, we got the company in a position to have a very good year in 2001 and going forward," Mr. Ledsinger says.

This year Choice plans to give some of its brands a new look and kick off a $40 million advertising and marketing campaign. But even more importantly, the big hotel franchisor is getting ready to expand further.

The 2001 agenda includes developing the hotel brands in areas where Choice already has a large presence in Europe and Canada, for instance and move into areas the company has shied away from in the past, the heart of downtown cities.

"We're picking our spots," Mr. Ledsinger says. "We've got our resources targeted where we think we can not only make money for the company but also service this far-flung empire even better."

Choice has built that empire with hotels usually surrounding cities from suburban communities to roadside or highway locations. Higher costs and lengthy development processes have deterred Choice from developing aggressively inside city limits.

But Mr. Ledsinger says there's big demand for Choice's hotels among the more expensive upscale hotels that spring up on major city streets.

"We're going to try to fill in some of the holes we have in terms of where we are not located and would like to be," Mr. Ledsinger says. "That will be a priority."

Choice also plans to concentrate heavily on brand standards and continuing to differentiate the brands from each other.

Mr. Ledsinger says the company is considering a new image for three of the brands Comfort Suite, Quality and Sleep Inn. The new looks for these brands, which still is being tested, would help to differentiate the brands.

"I think that's a good thing to do because the typical hotel customers are probably pretty confused," Mr. Ledsinger says. "There's a lot of brands out there."

The competitive hotel industry has been a healthy one for the past several years especially since more people are traveling.

As of last year, there were more than 4 million hotel rooms in the United States 26 percent more rooms than in 1990, according to Smith Travel Research, a Tennessee-based firm that tracks the lodging industry. Revenue per available room, a key measure of profitability in the industry, increased 45 percent over the past 10 years.

In 1999, Choice reported a net income of $57.2 million a 22 percent gain over the previous year. The company's revenue per available room increased 3 percent systemwide in 1999.

Choice's fourth-quarter earnings are not out yet, but the company is taking $17 million one-time charges on a number of expenses.

A $6 million cost to restructure the company included the consolidation of offices and the end to its attempt at putting computers and Internet access in 50,000 hotel rooms by the end of this year.

Mr. Ledsinger says that although the idea is a good one, the project was never fully planned out to determine how the concept would work financially.

"I couldn't get my head around a business model that made sense for us to show a return on an investment and one where franchisees were willing to pay for it," Mr. Ledsinger says.

The fourth quarter also includes a $7 million charge related to its investment in Friendly Hotels PLC, a British hotel company, which is undergoing a restructuring of its own.

Sunburst Hospitality Corp., which is a Choice Hotels spinoff company, has retired debt ahead of schedule and gave Choice $102 million in cash and a $35 million loan this month. Choice is taking a $4 million charge for lost interest payments and will use the proceeds to pay off some debt and buy back shares.

The $17 million charges in the fourth quarter is expected to drop earnings per share to 19 cents. Choice earned $14.8 million or 27 cents per share in the fourth quarter of 1999.

"Choice's restructuring and improvement to its balance sheet from the resolution of the Sunburst note and the Friendly reorganization should lead to multiple expansions," says Harry Curtis, an analyst for Robertson Stephens, in a December report. "We believe Choice should deliver mid-teens [earnings per share] growth through 2002 from systemwide growth, share repurchase and/or debt retirement."

Despite the heavy activity at the end of the year, Mr. Ledsinger says the year was a good one for the hotel franchisor.

Choice opened 372 new properties worldwide last year. It upgraded its franchisee management systems to help operators manage their hotels better. In November, Choice signed an agreement with a hotel company in Japan to expand Choice brands in the Asia-Pacific region.

The company's stock, traded on the New York Stock Exchange, however, took a downward turn in 2000 dropping 13 percent for the year. It hit a high on Jan. 27 last year at $17.25 per common share and reached a low for the year on Sept. 18 at $7.63.

"I felt like last year was a good year by almost every measure except if you just look at the calendar year performance of the stock," Mr. Ledsinger says. "The prior year we were up 30 percent and other hotel stocks were down."

Choice stock picked up by the end of the year, particularly after the company's Dec. 21 announcement about the reorganization plan. The stock closed the year out at $13.69.

"We're a company that generates a fairly stable cash flow and if we can add some growth on top of that, it's a pretty nice investment," Mr. Ledsinger says. "We're in it to create long-term value to our shareholders, and it takes time to do that."

SELF-PORTRAIT

Charles A. Ledsinger Jr., president and chief executive of Choice Hotels International Inc.

Age: 51

Native: Memphis, Tenn.

Education: Bachelor of arts in English from the University of Virginia; MBA in finance from the University of Memphis

Experience: Started as a financial analyst with Holiday Inns in 1978 and held different financial management positions; became executive assistant to the chief executive officer in 1980; chief financial officer of Embassy Suites in 1983; headed up a group that sold off hotel real estate in Memphis in 1986; became chief financial officer of the Promus Cos. in 1990; named chief financial officer of Harrah's Entertainment in 1995; in 1997 went to the St. Joe Co., a land development company in Florida, and became president; landed the top position at Choice in August 1998

My family: wife, Anita; two daughters, Leila and Elise

When I'm not working, I like to: go running, play golf, spend time with family.

The last movie I rented: "Primary Colors"

My New Year's business resolution: "Have more fun in business"


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