Choice Hotels International Inc (CHH) 2015 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Good morning and welcome to the Choice Hotels International fourth-quarter 2015 earnings conference call.

(Operator Instructions)

As a reminder, today's conference is being recorded. During the course of this conference call, certain predictive or forward-looking statements will be used to assist you in understanding the Company and its results which constitute forward-looking statements under the Safe Harbor provisions of the Securities Reform Act of 1995.

These forward-looking statements generally can be identified by phrases such as Choice or its Management believes, expects, anticipates, foresees, forecasts, eliminates or other words or phrases of similar import. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.

Please consult the Company's Form 10-K for the year ended December 31, 2015, and other SEC filings for information about important risk factors affecting the Company that you should consider. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activities, performance or achievements.

We caution you, do not place undue reliance on forward-looking statements which reflect our analysis only and speak only as of today's date. We undertake no obligation to publicly update our forward-looking statements to reflect such subsequent events or circumstances. You can find a reconciliation of our non-GAAP financial measures referred to in our remarks as part of our fourth-quarter 2015 earnings press release which is posted on our website at ChoiceHotels.com under the investor information section.

With that being said, I would now like to introduce Steve Joyce, President and Chief Executive Officer of Choice Hotels International Incorporated. Please go ahead, sir.

Good morning. Thank you. Welcome to Choice Hotels earnings conference call. Joining me as always is Dave White, our Chief Financial Officer.

This morning we want to update you on our performance for both full-year and fourth-quarter 2015 but also share some exciting company news on the customer loyalty front. Last week we announced the biggest redesign of Choice Privileges program in our Company's history. More and more travelers, especially the millennials, want instant gratification.

We recently concluded the study and it showed that 43% of millennials want their first reward benefit as soon as they sign up. So, our remodeled loyalty program is rooted in helping these travelers get their rewards faster and more frequently than ever before. For example, we have a new benefit that offers all members extra rewards including rewards from partners like Amazon.com, and Shell Gasoline right at check-in.

This is on top of what is already earned and it is available right when a member joins the program. These are also new features for customers to earn free nights faster than before and redeem for instant digital gift cards. Also, loyalty points no longer expire as a member states active in our hotel system. We are already receiving a great response from our members with these changes.

Now let's move on to our results. 2015 was another great year for Choice Hotels with record revenue, operating income, and net income.

Our record performance was driven by continued improvement in our domestic royalty revenues which were achieved by growth in all three of the critical areas that drive our business. Including RevPAR, system size and effective royalty rates. Some of the highlights for full-year and fourth-quarter 2015 include domestic system-wide RevPAR increased 6.5% for the year.

Our RevPAR growth was driven by occupancy and average daily rate increases of 160 BPS and a 3.7% respectively. Our effective royalty rate increased 2 basis points for the year and 9 basis points in the fourth quarter. We achieved a 7% increase in EBITDA from franchising activities in 2015 and expanded our franchising margins by 10 basis points to 67.3%.

Overall, our new hotel franchise contract executions for the year were up 11%. Now more on the development front. The franchise development growth strategy we have implemented is generating very positive results.

Domestic franchise contracts for both new construction and conversion sales continue to strengthen over 2014 and we expect will result in an acceleration of growth rates for our domestic system size in 2016. Our domestic pipeline of hotels at the end of 2015 increased 19% compared to the same time last year. We're also seeing strong growth in our new construction pipeline.

In 2015, contracts for new construction hotels increased by 9% compared to last year. We believe that our successes on the development front is being driven as a result of several key initiatives across our brands. We are continuing to successfully expand into the upscale segment.

On the Cambria Hotel and Suites front, 2015 was the year that Cambria took off with 26 deals executed in key travel markets across the country. The brand enjoyed a wave of grand openings and groundbreakings including two openings in Manhattan, the Cambria Times Square and the Cambria Chelsea, and groundbreakings in top destinations like New Orleans, Los Angeles and Nashville. We also signed new agreements to bring Cambria to Chicago twice, Philadelphia, Orlando, Seattle, Charleston and Savannah; just to highlight a few.

As we mentioned last quarter, we have started pursuing a new conversion strategy in top urban markets for Cambria. We executed five conversion contracts in a fairly short timeframe and believe that this will help bring hotels to market quickly and continue to fuel growth for the brand in 2016. The Ascend Hotel Collection also continues to be an opportunity for us to expand into the upscale space as more owners of exceptional independent properties in great markets see the benefits of aligning with a global company while maintaining operating independence.

We just announced that we're bringing the Ascend Hotel Collection to the UK with two properties in Edinburgh. In total for the year, we signed 37 new domestic franchise agreements for Ascend.

Now on to Comfort. We've been telling you about the Comfort refresh and this has been quite the success story. Improvements we implemented of our Comfort Inn and Comfort Suites brands have helped fuel development interest. We signed 127 franchise agreements for Comfort brands in 2015 which is a 34% increase compared to last year.

We believe that the increased interest in Comfort is a direct result of our multi-year plan to renovate, remove or reposition properties from the system that don't meet the enhanced standards. Not only are the physical transformations stunning, the likelihood to recommend scores from Comfort guess are now the highest they have ever been. Customers have seen firsthand the impact these changes have made at the hotels and are coming in droves.

We are extremely pleased but not surprised. We were deliberate in creating and executing a strategy designed to coincide with this very favorable period in the lodging cycle and it's paying off.

Now shifting to our distribution results for the quarter, the revenue generated by our central reservation system continues to grow and we're breaking records on a regular basis. The revenue contribution of our Central Reservation System increased to 39% in the fourth quarter, up 400 basis points compared to the same time last year and up 700 basis points compared to the fourth quarter of 2013. We had 16 days of CRS revenue over $12 million in the fourth quarter of 2015 compared to only 2 in 2014.

We had never previously surpassed the $14 million in the CRS revenue a single day in previous four quarters until the fourth quarter 2015. ChoiceHotels.com continues to grow significantly and generates the largest share of revenue of our distribution channels. ChoiceHotels.com accounts for nearly half of Choice domestic CRS revenues.

Our direct online channels, ChoiceHotels.com and mobile had 10 days over $5 million in bookings in Q4 2015 compared to only 5 in the last year. Bookings via our mobile applications continue to grow at a fast pace and have yielded an increase of 26% in revenue for the fourth quarter compared to the same time last year. Our distribution strategy is delivering great results.

We're staying ahead of guest booking needs and we are leveraging our distribution channels to deliver an increasing number of customers to our franchisees' hotels. So obviously we are very pleased with our fourth quarter and with our results for the year. Let me turn it over to Dave to share more detail about the financial results. Dave?

Thanks, Steve. Our fourth quarter results closed out another strong year for the Company. In this morning's press release, we reported diluted earnings per share of $0.51 for the fourth quarter and 2015 and $2.22 for the full year.

These results exceeded our previous guidance of $0.47 per share for the quarter and $2.18 to $2.20 per share for the full year. Our full-year 2015 franchising EBITDA total $256 million and was in line with our previous outlook for that metric to range between $255 million and $257 million. Franchising EBITDA for the fourth quarter increased 6% during the same period in the prior-year and our franchising margins expanded by 20 basis point to 62.3%.

I'm also pleased to report that we expanded our franchising margins for full year to 67.3% which represents an all-time high for the Company. Our franchising revenues for the quarter increased 6% over the prior year driven primarily by our domestic royalties, the pace of hotel re-licensing transactions which drove growth in initial franchise and re-licensing fees and by procurement services revenues. Our domestic royalty revenues for the fourth quarter increased 7% over the prior year to $63.1 million driven by growth of all three critical drivers of royalties, RevPAR, system size and effective royalty rates.

We achieved a 4.3% increase in domestic RevPAR which was driven by a 60 basis point increase in occupancy and a 3.2% increase in average daily rates. Our fourth quarter RevPAR growth was less than our previous guidance of 5.5%. However, our fourth-quarter results out-paced the growth rate of the chain scale segments in which we compete, as reported by Smith Travel Research. Current RevPAR trends, projected industry supply-and-demand dynamics and US macroeconomic trends point to continued RevPAR growth in 2016 and we expect our full-year 2015 RevPAR to increase between 3.75% and 4.75%.

On the supply front, we were able to grow the number of hotels operating in our domestic franchise system by approximately 1% compared to December 31, 2014, which was in line with our previous guidance. Our domestic supply growth numbers continued to be impacted by our rejuvenation strategy for the Comfort brand family which we have discussed in past calls. Excluding the impact of this strategy, our domestic system increased by nearly 150 net units online or approximately 4%.

Our Quality Inn brand has been positively impact by our Comfort rejuvenation strategy and it has increased by more than 7% since the prior year as we have had success in repositioning many of the hotels previously flagged under the Comfort brand to Quality. We're also pleased by the growth of our upscale brands, Cambria and Ascend. The system size of these brands grew by 14% and 3%, respectively, since the end of 2014 and the royalties generated from the Cambria and Ascend brands for 2015 increased 39% and 12%, respectively, compared to 2014.

Our domestic effective royalty rate expanded by 9 basis points in the fourth quarter to 4.37% and increased 2 basis points for the full year. We believe the improvement of our contract pricing reflects both an improving franchise development environment and the overall desirability of our brands to developers. We continue to see a reduction in the level of financial incentives required to execute conversion franchise agreements and as you can see from our outlook, we expect the pace of growth in our year-over-year domestic effective royalty rates to accelerate in 2016.

Overall, these factors resulted in our domestic royalty revenues for the quarter being roughly in line with our prior expectations. Our non-domestic royalties for the fourth quarter declined from $6.1 million to $4.8 million primarily on account of the foreign currency impact of the stronger US dollar. With respect to franchise development, the fundamentals that drive new hotel development and conversion opportunities continue to remain strong.

As a result, our initial and re-licensing fees continued to improve over our previously reported strong results in 2014. During the fourth quarter of 2015 we executed 263 new domestic franchise contracts compared to 269 and 2014. And for full-year 2015 our new domestic executed franchise agreements increased by 11%.

The success of our franchise sales resulted in a 22% increase in our new construction development pipeline and an overall increase in the pipeline of 19% since the end of 2014. We're particularly pleased with acceleration in the growth of our Cambria domestic pipeline which has more than doubled since the prior-year as we executed 26 new domestic franchise agreements during 2015 compared to 8 in the prior year. And as Steve mentioned, importantly, the growth in our Cambria domestic pipeline has been achieved in primary markets such as Chicago, New York, Los Angeles and New Orleans.

We view the continued growth of the Cambria portfolio as an important catalyst for an acceleration of our royalties as Cambria branded hotels typically have higher average daily rates and room counts than our other brands, resulting in a higher per-unit royalty figure. As a result of the growth in our domestic pipelines and the continued industry-wide supply growth, we expect the pace of growth of our domestic franchise system size to accelerate in 2016 and are forecasting our domestic system size to increase between 2% and 3%.

We believe the industry fundamentals are still favorable for continued supply growth and we expect the growth in the volume of our new construction franchise agreements to accelerate over the medium-term and we expect our overall 2016 franchise sales activity levels to exceed 2015's strong results. Our business continues to drive significant cash flows and we strive to allocate these cash flows to those items that will ultimately return the highest value to our shareholders.

During 2015, we generated operating cash flows of nearly $160 million and we utilized these cash flows to return value to our shareholders through a combination of share repurchases, dividends and investments in our business to drive future growth. The Company paid dividends during full-year 2015 of approximately $45 million and in the fourth quarter we announced that our Board of Directors authorized an increase in our annual dividend rate from $0.78 per share to $0.82 per share beginning with our dividend paid in January this year.

During the year, in addition to our quarterly dividend, we also completed the opportunistic and accretive repurchase of 1.3 million shares of common stock under our share repurchase program at a total cost of $66 million. And in addition, we continued to utilize our balance sheet to prudently support the growth of our Cambria brand.

Now we'll turn to our outlook for 2016. As always our outlook assumes no additional share repurchases under the Company's share repurchase program. Our outlook also assumes the effective tax rate for continuing operations to be 33.5% for the first quarter and full-year 2016.

With respect to the tax rate, I would point out that during the fourth quarter of 2015, we recorded a tax benefit of approximately $2 million or $0.03 per share related to certain cost-sharing rules and regulations clarified in a court ruling in last year's fourth quarter and applicable to Choice going back several years. Our 2016 expected effective tax rate is roughly 100 basis points higher than what we have described in the past as our normalized tax rate, primarily on account of changes in the mix of domestic and international earnings which is a key driver of our rate.

The hotel franchising activity guidance assumes that our RevPAR will increase approximately 2% for the first quarter and range between 3.75% and 4.75% for full-year 2016. You will note that our RevPAR guidance for the first quarter is below our annual guidance range as the earnings -- as the Easter holiday shift and strong first quarter 2015 growth rates have impacted year-over-year comparisons.

Our RevPAR results thus far in 2016 have been in line with industry results reported by Smith Travel Research. Our guidance also assumes that our effective royalty rate growth will accelerate and increase between 6 and 8 basis points for the full year and our net domestic unit growth will increase between 2% and 3%. Excluding the impact of our Comfort rejuvenation strategy, we expect our domestic portfolio net-unit-growth of our other brands to increase by approximately 6% in the aggregate.

Based on these assumptions, our guidance for full-year 2016 EBITDA from franchising activities is a range between $270 million and $275 million. With regards to our non-hotel franchising activities, including SkyTouch and vacation rental activities, we are projecting reductions in EBITDA for full-year 2016 to range between $16 million and $19 million. We expect our first-quarter 2016 diluted earnings per share to be at least $0.38 and our full-year 2016 diluted earnings per share to range between $2.30 and $2.36.

Our consolidated EBITDA for full-year 2016 is expected to range between $252 million and $257 million. These EPS and consolidated EBITDA estimates assume that we incur net reductions in EBITDA related to non-franchising activities at the midpoint of the range for those investments. We're pleased with our fourth-quarter financial performance and really all of the 2015 performance and we're optimistic that we're well positioned to continue to expand our financial performance in 2016.

But now let me turn the call back over to Steve.

Thanks, Dave. So sum it up, we're particularly pleased to report another great year for Choice Hotels with record revenue, operating income and net income. We have enjoyed continued improvement in our domestic royalty revenues, achieved by growth and RevPAR, system size and effective royalty rate and franchise development.

We're obviously very optimistic about our business in both the short and the long term. So with that, let's open it up to any questions you might have.

(Operator Instructions)

And our first question comes from the line of Steven Kent of Goldman Sachs. Your line is now open.

Hi. Good morning. A couple questions. First, your -- on RevPAR, your guide suggests a much stronger second half and just give us a little bit more color on what you're seeing or the thought process just given the very short booking curve that you experienced.

And then, I dug down a little bit deeper and it looks like the fourth quarter performance by brand, the Ascend Collection, did decline a little bit more than the overall. If you just -- I know you covered it a little bit, but maybe you could just throw some more light on that?

Okay. Let's start with the overall RevPAR guidance. So yes, absolutely. We think that it grows strength as the year progresses. And actually we think that probably the strong point of the year is going to be the summer.

So as we look at it today, there are two primary reasons we think we pick up from where everybody's seeing the weekly results. One is we get out of the first quarter comps which were double-digit for us. So much bigger target than we have for the remainder of the year in terms of that growth.

And then secondly, what we are seeing from all fronts is pointing to relatively strong consumer sentiment and confidence that with low gas prices, we think are going to lead to significant summer results on the leisure side and then we are expecting relatively large pickups in terms of our business travel as well. We've done more RFPs this year by a lot that we ever had before, got more actives that we ever had before.

And so our room nights were up significantly in 2015 but we are expecting a big increase in 2016 as well. So we think two things, one is, we think overall the comparison is getting easier. Secondly, we think we are going to, obviously our consumers are feeling good about themselves, their jobs and their financial situations, which we think will lead to a very strong summer.

We think we're picking up a fair amount of business activity as well. And then we think we are gaining share against our competitors because, if you look back every quarter, we tend -- we're coming out on top of the chain scales that represent our properties in terms of overall performance.

And so it's those combination factors. And if you actually look at the way we are looking at the year, we are thinking it strengthens considerably as you get into the second and third quarter and moderates at those levels. So I'll let Dave answer the question on Ascend.

Yes, just to add to what Steve said, just to remind you of the comps. If you look back at 2015 on a quarterly basis, our first quarter was up about 10% from a RevPAR perspective and in Q2 was up 7%, Q3 up 6% and Q4 up 4%, so obviously, to build on Steve's commentary, the comps get easier as the year progresses.

And then while it's less of an impact for us than it is, I would say, for some of the other competitors out there in the energy markets, the comps in the energy markets, in particular starting in the April time-frame, start to get increasingly easier as this year progresses.

On the Ascend Collection question, I think what I would attribute that to is, considering the size of that brand, considering movement in that brand in terms of new units that came online and units that left the system. Small changes due to ramp-up of new hotels coming online and the properties, the specific properties, that left the system, really can tend to skew that quarterly RevPAR figure and more dramatically than some of our other brands which are larger in size.

And it's probably fair to say that we have more in the ramp-up phase that we've had previously because we had a really big development year last year and then a really big one this year as well. And what happens with that brand is, it takes about six months for us to kick in, in a significant way and lift those hotels' performance. And by the way, that's when they start shedding the OTAs and the whole thing works really well for them.

But it's about a six-month ramp for those properties and we -- I'm relatively confident I can say that we've got more in that ramp-up phase that we've ever had in the history of the brand.

And just a follow-up, you know I've been seeing a lot of your press releases, interest in developing a vacation rental platform as well as developing plans for expansion into Cuba. Any timeline on those initiatives or anything we should be aware of from a CapEx need for any of those initiatives?

I have a timeline, I don't know that I'm going to share it, but the answer to your question is, let's start with vacation rental. We are investing dollars in that today. That's in our overall number and in the combined with SkyTouch.

We think that has got an enormous opportunity for us. Obviously, we like that space. We've talked about it a long time.

We're working with vacation rental management companies not with consumers so it is competitive with Airbnb on some level but it's also a different take on it. And quite frankly we've got the best technology platform in the business for those companies. The interest in it has been significant.

We've already signed three folks and I think we've been at it about a month. And so we've got a pipeline of a lot of rental companies that want to do this. And we've proven over the last year that we can deliver customers into those week-long rentals and create great value for the rental management companies.

As well as offering them a technology platform that for the first time would allow them to run their entire business in a professional, efficient manner. So as we look at that opportunity, while we are investing some dollars this year, we would expect that to turn profitable relatively quickly. Think in terms of 12 months.

Yes and, Steve, to add on that because I think it's great that you raised the concept of CapEx because at the end of the day, the amount of CapEx devoted to those business lines is really fairly modest, fairly de minimis, and I think really that speaks to the fact that these businesses are very asset-like businesses. Which is something I think we've always found attractive that we think our shareholders will be found attractive. And they certainly tie in nicely to our strong distribution platform.

So CapEx is a pretty de minimus amount, I would say, as it relates to those businesses. So our initial investment, right, as we are driving early, early sales, tends to float through our P&L, right? So in the early years, we unfortunately record those as operating expenses until our revenues ramp-up but over time, I would say those are asset-like businesses that we think are going to create value for our stockholders over time.

And then on Cuba, obviously we're very interesting like everyone else is. We think there's actually an opportunity for us to participate on a much nearer-term basis than when Helms-Burton law changes and you can bring down partners to help build hotels. We are not planning on investing any capital in Cuba.

But we think an Ascend- like arrangement with a number of the hotels makes a lot of sense and we have been in very productive conversations with government officials along those lines. We are a significant supporter of the efforts to open up Cuba because our customers want to go there in droves.

And we just think it's a great opportunity, not only for us, but also for the island and the Cuban people and everything else. So we actually are hoping we are going to be there playing relatively short-term. The financial implications of them are not significant and we're not putting money into it.

Okay. Thank you.

Thank you.

(Operator Instructions)

And our next question comes from Shaun Kelley of Bank of America. Your line is now open.

Hey, guys. This is actually Dany Asad on for Shaun.

We like you better anyway, Dany. (Laughter)

Always appreciated. But real quick, just one question for you, so some of your peers actually noted the accelerating competition in the mid-scale, chain-scale brand as a whole.

And what they pointed in particular was actually more aggressive points promotions. Is a something that you are seeing in your markets where you're competing? And have your brands been reacting in any way for that?

We have not seen any significant swing-up. There is, you know, in fact it's interesting, we're accelerating our points program aggressively and what we're seeing mostly is people backing off on their plan somewhat. Which is why we think we are going to be able to gain share this year because reaction to the changes we've made is very, very positive. So in terms of the actual competition, we actually think we are gaining more than our share.

There is development competition with Hilton's announcement and so we welcome them to the fray and we think we're in a pretty good position with Comfort to compete. And so, and based on our development pipeline and construction starts, we think we're in a really good position. And the brand is moving to a point where it's never been, which is going to be, you know -- it's always, in talking to the development community, they always talk about Comforts are [aligned]. But it's also resonating in a way that it hasn't in quite some time with the consumer

So we just think we've got a great combination there to play with. And then, we've actually seen some lessening competition in some areas where you've gotten certain brands that are focused and concentrated in some of the oil markets that are really -- that we had viewed as more competitive than we had in the past. It is dropping off a little. Obviously, we think the play in the CP program with millennials will -- is going to yield us more share.

But we also -- we're pretty confident in where the fundamentals for the industry are and so, while there's always competition, we fare very well particularly in our two biggest brands, both Sleep and Comfort. Sleep has run significant premiums, always has. Comfort is moving up significantly every single month for the last 13 months in RevPAR index.

So we like where we are in both brands and we have not really seen any increased competition on the consumer side. On the develop side there is more competition, no question.

Great. Thank you very much. And maybe just a follow-up and changing gears a little bit.

But just touching on, for SkyTouch, it seems like were getting closer and closer to that breakeven point on an EBITDA basis and do you think maybe that -- do have a timeframe that you would be willing to share with us on where SkyTouch would be contributing positively to EBITDA? Maybe is it in like three, five years?

Oh, no, no. Yes, we talked about this before. We are very happy with where SkyTouch is going. We are signing up a lot more hotels at a much more rapid pace and it builds every quarter.

We are close with several of what we call tier-ones, bigger brand companies, where we need to sign a couple of those to make the whole thing work. But we're very confident that we are going to. And so as a result, what we've said and what we are working against is, we want to be in a position in 2017 where it is no longer a drag on earnings.

And so we have several plans that we are evaluating and going several different directions as to which one is the best to optimize the value of this asset for our shareholders. But what we've said is, we're going to move to a position in 2017 where it's no longer a drag on earnings and we think it'll be -- we think it's going to be really positive after that.

Great. Well, thank you very much. That's it for me.

Thank you, and our next question comes from Katie Zhang of JPMorgan. Your line is now open.

Hi, guys. This is Katie on for Joe Greff. Thanks for taking my question.

So just a couple things, I'm looking at 2016 guidance for net rooms growth. Could you just give us a little bit more color on what's driving that acceleration?

So I guess beyond your positive year-end fundamentals, how much of that is fundamentals versus just [less removals] compared to 2015.

Yes, so part of it is because we've had such huge years and 2014 and 2015 in terms of development. And we actually think 2016 is going to be better but we are really in the sweet spot of the cycle. So what you're seeing is a lot of those projects come to bear and what's, I think missed frequently is the impact of the Comfort program where we are taking lots of hotels out.

Some of them are going to Quality as we've mentioned. But we been on a cleanup program for the last three years and by the time we're done we will have taken out in excess of over 600 properties. But that just -- what that does is create a brand-new brand that the consumers are now reacting to incredibly positively. The results are incredibly positive. The hotels that go through the Comfort re-imaging program are typically adding anywhere between 5% and 10% above market RevPAR increases they are already getting.

So, the ROI is very strong. Our franchisees are very excited about the program. The consumers are very enthused with what they are seeing and as a result are reacting positively both from the standpoint of the number of stays but also what they are willing to pay for it.

So what you get in 2015, if you took out the Comfort impact, is we are about at 4% and we've got that increasing 4%-plus with our Comfort. An then for 2016, we are looking at something pretty similar for 2016.

Between 2% and 3% for the overall portfolio. And maybe add a little bit of color.

If you think about gross openings for 2016, we are expecting the pace of gross openings in the system to go up by roughly a third. So call it going from around 300 to just under 400 hotels. And really what's driving that is an expansion of the new construction hotels opening up. These are properties that we already know of, obviously, under construction for the most part of this point.

And then with also uptick in conversions into the low 300 area. And so that low 300 conversion figure of gross revenues for 2016, I think one thing to think about, right, as we look at our pipeline we reported this morning. We had 209 conversion properties executed as of the end of the year, so we've obviously got a strong position to achieve that gross opening.

On the termination side for the overall portfolio, I call it roughly flat for 2016 versus 2015. Which as a percentage of the beginning of the year system size is moving in a positive direction on the terminations.

Okay. Great. Thanks. And then just on the net reductions in EBITDA from SkyTouch and the vacation rentals, are you guys still expecting vacation rentals to be accretive in 2016?

In 2016, this is where we'll launch here for vacation rentals so we're not expecting it to be accretive in 2016. But I think -- we think, and I think we mentioned this, that we think it would be accretive within a 12 month time frame. So it's -- at some point in 2017 it will start adding to EBITDA.

Okay. And then for the actual reduction, how much flexibility is there in that range? So is there -- what are your thoughts on it? It may be being less in 2016?

I think, look, we are -- we think these are good investments to make -- to drive shareholder value over time and there's certainly flexibility on both the revenue side if things go better than we expect or on the cost side. We can make adjustments.

I think, we think about it as over the next several years, how do we rapidly expand these business lines and leverage our existing technology, leverage our existing platform and it can really help us grow our business. But obviously if the year plays out differently than we expect, we have some opportunity to adjust even more on the cost side, right? If we think that makes sense.

But I would -- I'll tell you this, [it is] soon, that's the range we gave. It's the range we're fully expecting.

Okay. Thank you.

Thank you and our next question comes from Mark Savino of Morgan Stanley. Your line is now open.

Hey, good morning, guys. Just real quick. Given a lot of the, you know, macro uncertainty that is out there.

I'm wondering if you could help us think about what you're EBITDA sensitivity is to changes in RevPAR? I don't know if there's a rule of thumb for every 100 basis points of RevPAR how that flows through?

Yes, so if you think about it this way, a 100 basis point change in a RevPAR, if we made no adjustment to the cost structure, right, to compensate for a decline in RevPAR, would translate to about $3 million of EBITDA, which from a franchising EBITDA perspective is somewhere around 1.5%. So that's the way to think about it.

And I guess -- that helps me highlight one of the things that I looked back on recently on 2015, which I think really speaks to the strength of our business model and predictability of our business model, if you looked back at our outlook that we provided for 2015, back in February 2015. Around unit growth, RevPAR, pricing on the contracts and franchising EBITDA, we literally, we hit the low end of the RevPAR range on a full-year basis. So up to 6.5%.

We pretty much hit it on effective royalty rate and we hit it on unit growth and our EBITDA ended up right at the middle of that range which, implies that we were able to find, even though we hit the low end of the RevPAR range, we were able to find some things on the cost side to help us get to the middle of the EBITDA range. So I think that really speaks to just the predictability of this business and our ability to manage the levers to achieve our financial goals.

And I think as you -- if you look back of the years, to Dave's point about what our flexibility is in terms of meeting the numbers we put in front. We are able to look at ranges in RevPAR and still deliver the bottom line results to the shareholders and we've done that year-in, year-out.

So it is one of the great things about this model is it's not that complicated in terms of what goes into it. But it is an incredible cash machine and it is very flexible in terms of our ability to live within various RevPAR markets and still deliver strong bottom-line results to the shareholders.

Very helpful. Thanks, guys.

Thank you.

Thank you. And I'm showing no further questions at this time. I'd like to turn the conference back over to Mr. Steve Joyce for closing remarks.

So thanks for joining us today. We think we had a great year and we're looking forward to another great one in 2016. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Have a great day, everyone.