Ladies and gentlemen, thank you for standing by. Good morning and welcome to the Choice Hotels International first quarter 2016 earnings conference call. At this time, all lines are in a listen-only mode. Later, there will be a question-and-answer session and further instructions will be given at that time. As a reminder, today's call is being recorded. During the course of this call, certain predictive or forward-looking statements will be used to assist you in understanding the company and its results, which constitute as 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 believe, 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, you believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, 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 subsequent events or circumstances. You can find a reconciliation of our non-GAAP financial measures referred to in our remarks as part of our first quarter 2016 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 our host for today's conference, Steve Joyce, President and Chief Executive Officer of Choice Hotels International, Incorporated. Please go ahead, sir.

Thanks very much. Good morning. Welcome to Choice Hotels' earnings conference call. Joining me, as always, is Dave White, our CFO. This morning, we'll update you on our performance for the first quarter of 2016, and we also want to share some exciting company news on an important strategic growth initiative that was announced this quarter. It is a great time to be in the lodging business and Choice continues to find innovative ways to differentiate the company and grow the business by understanding and leveraging on customer trends. One of those trends is the rapidly increasing consumer interest in the vacation rental market. While we find that most travelers still prefer a traditional hotel stay, we also know that some customers have a desire for a different type of experience that is better met through vacation rental. These are accommodations that cater to a longer stay, are adequate for larger groups, and include key home-like amenities. Given that the vacation rental industry is a $23 billion market in the U.S. alone, it represents a significant opportunity. So after considering the positive results from our pilot program last year and success over the past several years with our strategic alliance with Bluegreen Vacations, we recently announced the official launch of vacation rentals by Choice Hotels, which we see as an exciting growth opportunity for the company. We recognize the changing dynamics in the hospitality industry and the types of travel consumers now desire. It's that progression that led us to launch this new product, which includes both a fee-for-service technology platform and a fee-based franchising arrangement. We are leveraging our expertise in distribution and technology by working with vacation rental management companies or VRMs, for short, in major destinations that appeal to our customers. These VRMs get access to our…

Thanks Steve. In this morning's press release, we reported franchising revenue and EBITDA increases of 4% and 3% respectively. In addition, we reported diluted earnings per share of $0.35 for the first quarter of 2016. Our diluted earnings per share results for the first quarter were below our previous guidance of $0.38 per share primarily due to the impact of certain discrete and unanticipated items. Our EBITDA from franchising activities for the current period were impacted compared to our expectations by approximately $2 million in the aggregate or $0.02 per share net of tax, as a result of lower than expected increases in domestic RevPAR and higher than anticipated corporate development and litigation settlement cost. In addition, below the operating income line, certain discrete tax rate items and higher equity method losses related to certain joint venture investments and recently opened or under renovation Cambria properties in major urban markets negatively impacted our first quarter results by approximately $0.02 per share compared to our expectations. We anticipate the earnings per share impact of these last two items will be offset or reversed during the balance of the year. As I mentioned, franchising EBITDA for the first quarter increased 3% over the same period of the prior year, and our franchising margins expanded by 10 basis points to 61.6%. Our franchising revenues for the quarter increased 4% over the prior year, driven primarily by growth in our domestic royalties and procurement services revenues. Our domestic royalty revenues for the first quarter increased 5% over the prior year to $60.5 million, driven by growth of all three critical drivers of royalties; RevPAR, system-size, and effective royalty rate. Our domestic royalty revenues were impacted by leap year, which resulted in extra day in the quarter. The extra day in the quarter did not…

Thanks, Dave. So to sum it up, overall, during the quarter we continued to execute on our strategies to drive value for our hotel owners and our guests. Our core hotel franchising business continues to perform well with positive growth in key revenue drivers, RevPAR index and with cost discipline reflected in our franchising margin expansion. We're excited obviously about the launch of our vacation rental business and believe it's going to be a growth opportunity for our shareholders that can add to our already strong franchising business model. And to top it off, the enhancements over our Choice Privileges program are driving customer engagement at unprecedented levels. We're very optimistic about our continued long-term growth prospects and our ability to drive excellent results for our company and shareholders. So with that, let's open it up to any questions.

[Operator Instructions] Our first question comes from Jeff Donnelly of Wells Fargo.

I don't mean to disregard the operating performance, but I wanted to ask a question just because I saw that the Carlson platform recently transacted and I was curious if you would see that as a potential fit for Choice?

Well, we don't comment on individual transactions, but as we've said in the past, we look at everything that comes available. And we are always looking for opportunities to add to our portfolio, but we do not comment on individual items.

And maybe just a build on that though, I mean how do you guys think about opportunities that might come down the path that could potential bring you guys outside of being a pure franchise player. Do you see there's a part of a Choices evolution, if it wants to get into say, the full service side of the business then it eventually might have to enter the management aspect to the hotel business?

Well, we obviously have expressed the desire to be in the full service segment. And you're right, that typically means providing management for some of the hotels. It would also depend on which kind of brand we went to on the full service side. Look I've done a lot of management business over my career and we're not afraid of doing it. We obviously like the franchising business and we like the fact that when we're in the franchising business, we're not competing at all with our franchises and our owners. And so having said that, if the right opportunity comes along for full service brand that includes management, we would embrace that. And additionally to that as we expand our international platform, that may too lead to some management opportunities, which then we'll embrace.

And maybe just one last question, maybe a little bit bigger picture just on the competitive landscape out there, because we've heard from some of your competitors out there or segments with some of the global brands, when you look at mid-scale today, you have Hilton launching Tru, and obviously you guys have done a pretty aggressive refresh, if you will. So if calling, if you will, of your portfolio over the last few years, and some of your competitors maybe appear to be losing a little market share, I know mentioned Carlson as a new owner, how do you see the landscape shaking out in the next two to three years. Does it feel like there's a lot of moving pieces going on and I'm just curious how you think of what's going to drive success or failure for companies competing in mid-scale right now?

And I think what that boils down to is scale. Obviously the scale that we have gives us considerable advantage. When you look at the fact that we drive over half of the business in the hotels, as you're seeing out in the landscape, some of the sold brands are struggling to survive and thrive in this environment as scale becomes more and more important. And look, we spent $400 million a year, making sure that our distribution platform is the best out there. And so far we're doing really well. So I think the issue you're going to see -- and I think you're going to see further consolidation and that is because it is extraordinarily difficult in this environment for an individual brand to survive or an individual independent hotel to survive, and that's why you've seen the dramatic growth that we've had in Ascend. And so I think you're going to see continued consolidation, whether or not that's at the bigger players level, of sort of top four, five companies, most of us are buyers not sellers, so obviously all of us are looking at the transactions that have occurred with great interest to see how they play out for those folks. And we're going to continue to look for opportunities for us. I guess, one of the things that you've seen with us, is we're not going to limit ourselves to just hotel brands. We like the idea of taking our skill set and applying to adjacent businesses and we think we're going to grow some pretty significant profit lines for ourselves in these other businesses over time, which is why you see us investing the money on them. But on the other front, both globally and domestically we are constantly looking at what's available, and actually quite frankly we also talk to people that are not available, just to see whether or not there's opportunity to provide value for both sides. The nice thing about this company though is if you look at our long-term growth and profitability, we actually don't have to do anything that's inorganic. Now if we did something that was in inorganic, we're going to make sure it adds to the value. We've got to buy something. We're in a tough position. We view our position as very strong. And so we are a very disciplined financial buyer. We will buy, when the numbers are right, and they add to our overall story, but the nice thing about being in our position is, we can do this organically on our own and have very happy shareholders as a result.

Our next question comes from Steven Kent of Goldman Sachs.

Just couple of questions. Can you talk about your investment in Cambria and sort of the expected return? And how we should be feathering out that $40 million or so investment over the next few quarters? And then I know you guys always struggle with this, so was giving longer dated forecast given the shorter bookings. But what gives you some confident that you'll accelerate it through 2016? I'm assuming it some macro stuff, but I would just like to hear your views?

So I'll start with Cambria first. So we are underwriting Cambria and we're doing it in a variety of ways to incent growth, which is, it's actually really getting fun, because we're getting some amazing projects that are just going to thrill our customers, and we also think will bring in a lot of new customers to Choice portfolio. So as we look at those investments, they are temporary. So we're already seeing some significant recycling of capital. And so you'll hear probably in the next quarter about some major recycling occurring. So our view is that we will continue to put money in the projects, but as they open and stabilize -- and they're stabilizing on a rapidly increasing timeline because of the success of the brand and our efforts around ramping these hotels up rapidly, and the fact that we're putting them in urban markets where we already have millions and millions and millions of customers calling us for rooms and we don't have them. So the New York hotels are ramping extraordinarily rapidly, because we've got 7 million or 8 million people that contact us looking for room in Manhattan and we have 1,500 rooms. So you can say what you want about Manhattan m, we're going to fill the hotel, the question is at what rate. And if the market softens, obviously we're affected by that rate. But we're very confident about where we're doing in these urban markets, that those hotels are going to not only survive, but thrive. And the investment, we like this idea, we've got a pool of capital that we're putting into these, but the nice thing is that pool of capital will recycle probably on an average of a three to five year basis, and so number of the projects…

Our next question comes from Shaun Kelley of Bank of America.

You guys talked in prepared remarks a lot about distribution and how successfully you've been on the Central Reservation platform. And I'm curious, I know you guys breakout your distribution by channel, and I think in your investor presentation, but just as you look at the change in patterns over time, are you seeing an actual shift from the OTA channel to your direct booking channels or is the share coming from some of the more traditional channels. Just where are you picking up the share gains from?

The share gains are coming from the more traditional channels. The OTAs continued to grow as a part of our business. And as a result, while we are certainly welcoming of the OTA as a channel to utilize, we are not happy with the price points that they want. And so you're going to continue to see us try to drive business to our channels simply because they're dramatically more profitable than an OTA trying to suck 15% to 20% out of the deal. And so we're not anti-OTA, but we are not at all happy with some of their practices and we've never been happy with their pricing. We think it's overrated for what they provide. And so as we look at this going forward, one of our sole missions is to try to limit the amount of activity going from the OTAs and coming from into our primary channels. And if you look around the industry, everybody else is doing the same thing. So look, we openly welcome them as a channel. We just want it to be priced appropriately and with a business relationship that makes sense for us, but we are going to continue to drive our business and our proprietary channels, because that creates the strongest loyalty loop with the customer and because that they're most profitable for us.

So then, I guess, as we think about some of those initiatives that you mentioned, some of the other brands are up to -- I mean some people have taken a pretty hard stand on the brand side of launching direct booking campaigns. Where does Choice it in that? Have guys -- I mean, clearly you've embarked on a number of initiatives to drive the growth that you're seeing, but have guys gone out and started a direct booking campaign yet or is that something that could be available to you in the future to really try and emphasize the value that you can provide through the channel?

We think that the industry is providing leadership and going in the direction. We have been doing activities around that for the last five years. We are looking at all of our options including mostly activities you're seeing from others. Now, there has some significant advertising campaigns out there and also some ways of bringing back around rationality of the market, because the buying public still thinks they're going to get lower rates on the OTAs, because they say, they do, which is not true. And so as a result, you're going to see us talking a lot more with our customers about, you want the lowest rate, come to choicehotels.com, be a member of Choice Privileges, and you're going to get a discount to those other channels and we've got to get that word out. We are very encouraged by what the other brand companies are doing in terms of the marketing activities and everything else that they're doing to drive customers back to proprietary sites, because that's good for the industry, it's good for our owners or franchisees and all the hotel companies. So you'll see us very much in the same state. Obviously, we do things our ways, so you'll see us take a different turn on things. But we are very much supportive of that movement and we will be a major player as part of it.

And just one final one to switch gears, could you just give us quick update on SkyTouch from two different areas. I mean, first of all, just where in the P&L should we be seeing sort of the contribution on the revenue line items from, maybe both SkyTouch and the new vacation rental management platform. So where should we be seeing the growth? And then obviously, there is some significant operating losses that have been attached to this. Do you think you're still on track for -- I believe the target was pretty close to breakeven on at least SkyTouch by next year, is that still a viable goal?

I'll let Dave answer questions about the financials. But it is absolutely the goal, that '17 we will be breakeven and not withdrawing and looking at a bright future. The growth of the pipeline and the signings of companies that are working with us, both brands and independent hotels continues to accelerate in a significant way. We are in long-term discussions with several major players as well. We'll see how that plays out over the next six months. Those are longer-term investments. You said operating losses, that's not what we're doing. We are investing in a business that we think is going to generate EBITDA. And the only reason we talk about this so much is, if I was putting $50 million in the balance sheet, because I could capitalize it like it used to be in the old days, we wouldn't even have this dialogue. The difference is, it's running through EBITDA, which we get, but it's an investment, not an operating loss. So we are investing in perfecting that product. We're investing in talking to customers and bringing them on board. We're investing in other functionality that we think will help sell and what else we can add to that platform, that's where that money is going. And so the operating loss makes us sound like that money is gone, we're building an asset that's going to generate significant EBITDA over the next, we hope, 10 years. And we're going to continue to add to it. And we believe we're on the right track and we will keep you up-to-date in terms of -- there're several different ways we achieve our goal in '17 and we are currently evaluating and having discussions around that. And as a result, I don't think in the next quarter, but in the next several quarters you'll know what we're doing and why it will change from an investment into eventually profitability.

And then, Shaun, to add to your question on geography, in the press release, there is an Exhibit 8, which kind of shows non-franchising activities broken out the revenue line, which is kind of where the revenues from those different opportunities reside. If you looked at kind of the GAAP, P&L, also Exhibit 1, it shows up in other revenues. And I think there is a little more detail on our 10-Qs and 10-Ks, in the segment disclosure section that you can pick up those figures from.

Our next question comes from Felicia Hendrix of Barclays.

So just back to Cambria, first, a bit of a housekeeping question on Cambria. You removed Cambria from your RevPAR growth data table, so I was just wondering if you could let us know how the RevPAR growth trended for that brand. And you, obviously, are optimistic about it for the next few quarters, but if you could let us know kind of how that was in the quarter?

So we actually have not included Cambria in the RevPAR guidance, the answer is that RevPAR is up double-digits. But we don't include it, because when you only have the number of hotels we have and you add the New York City, the numbers go up dramatically. So we're still in this phase where we will add it to the RevPAR charts when it hits --

Kind of 25 has been our threshold, so we've never reported the Cambria data in our earnings releases. And our approach has been until a brand gets at least 25 units that we have year-over-year comps at that level, we don't report it. So actually we are at 25 units that we've been operating at Cambria this quarter, so next year, we would expect to start chilling at the end of this year.

Probably Q4. Well, the answer is its double-digits, because we're adding urban product and the numbers are off the charts. And not only are the new products performing extraordinarily well, the existing inventory, which was in much tougher markets, was not an urban, dense urban strategy, when they started the brand. It has shifted since I came over. But even those hotels the sum total of them are reaching fully parity with the competitive set and a number of them are running premiums to a competitor set.

So that's a good segue to my next question, because in your remarks to another question and what you've just announced, you guys are so optimistic about the Cambria brand and you've had nice successes so far and also regarding the growth. So given all of that when do you foresee the investment in the brand as far as the investment, kind of key money that you've given out, when do you see pairing that back?

So we have a major target, which we haven't disclosed. But think of it as a pretty developed system by '18. And when we hit that number in '18, our senses we will have to do a lot less incentives, because the brand will be so strong, the developers are going to walk that brand as a first choice. And so we're obviously again in some pretty competition. But I will tell you that development committee has turned 180 in terms of their level of interest, so the point where we've actually had some fist fights over the projects we've had, which while I was used to in my old company, something new, and it's nice to see it again in this brand. And so our view is, after '18 -- and you're going to see significantly recycling as well, right. So the amount of money going out to door now will stabilize, but then what will happen is, we'll just continue to reinvest it. But after '18, our sense is, we're going to have to do a lot less, if we meet the goals we've establish for ourselves.

And then kind of add to that, I think what Steve said, I mean obviously, the developers that we're doing either these loans or equity investments are operate traditionally with competitors at more than upscale like service level and more institutional capital quality. So I think the nature of the partners that we're attracting to the brand using our balance sheet this way is certainly one of the things that exciting. We've got, I'd say multiple examples of success there at this point. And then kind of to step back on the capital, I mean if you look at -- I think I put a number in my prepared remarks that we were around $165 million of capital have been deployed at the end of March, if you look at how that breaks down, about a third of that is loans. And a good portion of those loans we're able to actually leverage the cash that we have on our balance sheet and generating kind of call it a mid-ish single-digit percentage return on the capital in addition to building the brand that drives a royalty stream. And then on the equity method investments, while in a particular quarter, the equity method on the GAAP approach, obviously you can have variability in the earnings. From an economic perspective, I mean, we're finding these projects that kind of an unlevered basis, you can get to high single-digit, low double-digit unlevered returns on these projects where you are kind of sharing the equity risk with high quality developers. And over time, as that capital is recycled through capital transactions at the projects, we feel really good about the return on the capital, but probably most important, as you've said, in terms of our goal for gross room revenues for this system in 2018 is to be a significant contributor to the royalty stream. And to make that happen, us stepping up with some form of capital support and kind of I think a relatively modest and controlled way makes all of the sense in the world from our perspective.

And I think as you see those returns, we're more underwriting to us, not only we're building a brand that's going to be a significant contributor over the next 20 years to this company, we're underwriting when you include everything into a high-teens, low-20s investment, which we're really happy with. So we'll have to see if our track record continues, but we are very pleased with every investment we've made so far. And as Dave said, in the loans where we're creating either primary or mezzanine situations, that cash is sitting earning nothing and we're able to earn a significantly higher return as a result of deploying it, and build the brand, and get other returns as well when you add in the royalties and everything else.

And then just, Steve, you talked about your optimism for the core business through 2018. But I still want to ask you about the drivers behind your investments in the ancillary businesses. And you did say that you like the idea of picking your skill set and growing it into adjacent businesses like SykTouch and vacation rentals, which totally makes sense. But I'm just wondering as you look out to the horizon where we are in this cycle? And again, keeping in mind that you are optimistic for the core business through 2018, I'm just wondering is some of this investment also to strategically offset the slowing growth in the lodging industry at this point?

No, it's to add to the variety of our growth -- variety of our cash stream. So what I'm interested in doing is being in businesses that may track the lodging cycle in some fashion. But if you take vacation rental, that business is the most stable business you've ever seen. The only time in 40 years of working alongside that business that it ever declined was in the Great Recession. And so that was the amazing thing about vacation rentals, people take their vacations regardless of where the economic climate is. So the thing that the reasons I like that is, one, the numbers for customers in five years, we have gone from 5% to mid-30% of American travelers willing to consider an alternative lodging arrangement. That is a megatrend in this business and that's why we're jumping into it. And it's also highly fragmented and hasn't been successfully branded. So we believe that's a real opportunity for us, but we also like the fact that it seems much less cyclical than the hotel business. And so I think there are a couple of people, but I think [ph] Mark Woodworth said it best. He said, everybody agrees the lodging cycle has peaked, but nobody says it's going to rapidly decline. And our view is, as supply comes on online that obviously will have some impact on where RevPAR goes, but the supply is mostly, if you'll look at it, it's mostly coming on in the upscale segment. And so where most of our hotels are, there's not much supply getting added. And so as a result, that's why you're hearing from us, we know the party doesn't last forever, but we're pretty confident that at least through '18 we're going to have very, very solid years. And then after '18, we'll see. I mean, it depends on what the economy does and where employment is and everything else. But the reality is in the moderate tier, there is very little supply being added. So our situation, while we're competing in the upscale by market, but we like how we're competing in the primary core markets we're in, theirs is not supply being added.

And last one just quickly. The second quarter in a row, we've seen conversions slowing, just wondering if anything to read into that?

Look, I was actually looking back at that. I mean, if you look back over the last five or six years, actually there has been a handful of quarters where you've seen franchise sales declines on an overall basis and even during, right obviously, your lodging up cycle. So we don't tend to overreact to one quarter data. And I think the other thing is important, I kind of run this in my remarks is that, you've always seen since quarter end in terms of franchise development activities has been very promising. It gives us confidence that our view that we can exceed last year's overall franchise sales results and that's what we're planning to do this year as well. So if you look at the growth of the pipe and the number of applications in-house and everything that we're looking at, the first quarter quite frankly, we were little surprise, because some of the deals slipped from March to April. But we've signed some really -- we've made up a bunch of that difference already this month. And so our guys are very optimistic. And then the other thing about our pipeline, they actually turn into open hotels. And so if you look at our pipe, we're running over 3.25% going to opening and actually having a hotel. And so then everybody always says, well, why is the [ph] department bigger there. Let me just maybe redirect it to something that might be more helpful and that's how many hotels get opened. And so in our case, we're looking at growing Comfort, we're looking at 5% growth this year. That's about as good as it gets. When you're sitting on 6,400 hotels and you're growing at 5%, that's a pretty good clip.

So I was just speaking specifically about the conversions, so there's nothing to -- like we should see conversion rates pick up over the next quarters.

Yes. The only thing that I'll tell you about what affects conversion. So obviously, we always get a fair number of -- we get more than our share of the Independence that want to upgrade in brand. So we get a lot of business from that. We also get a lot of business from the other brands shutting their hotels. And you've seen pretty remarkable growth in quality, which has a lot of those, including Comforts. So we're in a period in the cycle where it appears that some of the hotel brands may as they put in these programs to do their refresh of their brand, maybe moving and terminating some hotels, which is a major opportunity for us. So as we look at the landscape, we're at sort of peak levels for conversions. And we think this year would be bigger than last year. And then the exciting thing as we mentioned -- and then the new constructs are up significantly, so that combination has us pretty excited about this year. Our folks have a major goal, but they're actually pretty confident that they're on track to meet it.

Our next question comes from Robin Farley of UBS.

Just a couple of quick questions. The higher corporate development cost, is that mostly related to the vacation rentals business and something that we would probably see at these levels going forward? And then I wanted to ask about your Q1 unit growth. The rate of unit growth is below the full year guide and up one in the quarter -- up two to three. And I know you talked about the new hotel contracts and how that can slip back, can just be a matter of timing. Is it sort of similar thing happening with properties opening in Q1, just sort of chunky timing there? And then the last question is. I was just looking at where the increases are in your hotel contracts, and it looks like it's basically just the Clarion and the Econo Lodge brands and not some of the other brands that you've been highlighting where there was growth in new contracts. Has that begin just sort of a quarter that is atypical or is or there something else going on there?

So a few things there. So on the unit growth; I'll take that one first. I mean that's just timing. We feel confident about our full year net unit growth range, which is between 2% and 3%. And so that will kind of play out over the next several quarters. On the corporate development cost, I guess, what I would say there is we highlighted corporate development and a few other items, just kind of because some of the noise at the EBITDA line for the quarter. So that is number of things that impacted the franchising margins for the quarter that I would consider to be kind of infrequent, if that would happen. I wouldn't tie it to vacation rental necessarily. And then to your other questions on the Clarion and the Econo Lodge brands, and back to Felicia's earlier comments, I think that we tend to not look at our quarterly franchise sales results kind of in a vacuum. And you get some things where you've got the comps are tough kind of on a year-over-year basis, because you did a particular brand deal in the prior year that's impacting those comparisons. So I don't think there is anything to read into the Clarion and the Econo Lodge contract results versus all other brands for this quarter. We continue to believe that before we got going and what we've seen in April, what we expect for the balance for the year, that we'll see good traction with our moderate tier and upscale brands as the year progresses.

Just anything you would highlight, driving the higher corporate development cost in the quarter then if it's not related to the vacation rental?

No, I don't think there's any of the highlight. I mean, again, it was one of the highlights out of a number of factors that impacted our results that we just wanted to make sure we explained versus our previous outlook when it happened.

Our next question comes from Joseph Greff of JPMorgan.

Hopefully, I'm not asking questions that you already answered. But Dave, you just mentioned your confidence in growing 2% to 3% for this year, that's on a property basis, what does that translates into a room space? Is there a difference?

In the past several years, the net unit growth rate has slightly exceeded the net room growth rate. And that's one thing to consider. But I think the other thing to consider that you've got to really think through when you're doing your work, is that where some of the unit growth is coming from is in more in the upper moderate tier as well as upscale space. So while the room counts maybe lower, the absolute RevPAR is a lot higher, so the per unit economics a little bit different. So I don't think you can kind of oversimplify it by just necessarily looking at just units or just rooms, you got to think about brand mix and whatnot every time. But I guess to answer your question, at the end of day, traditionally our net unit growth rate has been a little bit higher than the net room growth rate just given the average size of the properties involved.

And then on this topic of hotel development and financing. You obviously, in the press release and talked about earlier about this $40 million of investing and spending and building out the Cambria brand. What is your expectation for the full year, this year and next year? I know you talked about that you plan to do some recycling in of some of these loans and investments over a longer timeframe, how much are you baking in getting this year or next year?

So we don't traditionally provide kind of a free cash flow forecast per se. But I guess what I would tell you is that we've talked for a quite a while, right, number of years about putting out between $20 million and $40 million per year on average. Some years will be higher. Obviously, I think this year will turn out a little bit higher. What's a little tough to handicap is that a meaningful component of what you see on our cash flow statement of the quarter is about $25 million of real estate acquisitions. A good portion of that was land, where you acquired a number of multiple sites, more pieces of real estate to be essentially flipped over to a hotel franchise developer. And we're having great conversations on all of those sites and we feel pretty optimistic about our opportunity to recycle those pretty quickly. So if that happens within the year, then that's going to obviously be a shorter recycling window than the three to five year time horizon that Steve talked about. The balance of the year, in terms of loans and private equity investments and other Cambria investments, I probably think about it in the neighborhood of $80 million to $100 million on an annual basis for the share potentially. But there's going to be a lot of things to have to kind of go right in terms of putting together the right deals and getting the right terms. So view some variability, depending upon some particular deals that we see.

Our next question comes from Thomas Allen of Morgan Stanley.

On your RevPAR guidance, you talked about I think RevPAR growth of 6% in April. Your guidance is 3% to 4% for the second quarter, understanding Easter would obviously help April, but it does imply a big deceleration. So can you just explain that in more detail?

I mean, I think the answer is, as you get into the for the second quarter, April is obviously a strong month, both because business has picked up, but also because it has an extra day in it. So there is a technical reason why it slows down. But it slows down to sort of the pace that we're expecting for the year, and so we're not suggesting that that all of a sudden we're going to jump to 6% RevPAR for the remainder of the year. What we're sensing is a very strong summer and then strong end of the year. But when we say strong, we mean in terms of the relative range that we've given them here is where we'll end up. So what you should expect from us, because of the way that our products are differentiated is, we'll have a stronger summer and then a fall and close to the year that looks more like the guidance were given.

And I think just only to add to that it's a little more granular, like when you look at our quarterly RevPAR outlook, I mean, certainly the way the months fall and the calendars fall in these different months has a pretty meaningful impact in terms of kind of the linearity so to speak of these RevPAR rates. So we did talk about 6% in April. We're expecting May to be a good amount, softer than that still positive, but softer largely on account of the calendar shift, in terms of the number of Fridays and weekend days in the month compared to the prior year, before things kind of rebound in June, And as Steve said, kind of, we feel good about the summer. And we really saw in the first quarter too. I mean it's like March ended up being the strongest month in the RevPAR performance perspective, despite having Easter in it. So you get month-to-month swings and you see it obviously and doing your work and the STR data, we've seen as well a lot of times have tied to the calendar shifts in terms of the number of weekend days and/or holidays and how they fall in the year versus the prior year.

And then my second question, someone brought this up earlier, but you redesigned your loyalty program in February, and it didn't seem like you went down the path of greatly promoting discounting or discounts on our own website versus OTAs. But now you're suggesting, I took your comments, and it suggest that maybe you would go down the path. I guess, my question is why didn't you do that originally? And why do you feel comfortable doing it now?

Well, the program changes were designed to make it compelling for a population that had not joined yet. And that's why you've seen the growth rate of that program literally go from $2 million-plus to what we think $4 million-plus this year and that is to attract millennials. When you sign up for our program, you get something immediately. So that is absolutely having the same effect. But you should expect to see us also move in this direction of the best pricing is going to be available to our Choice Privileges members on our sites, and we are doing that already by the way. We're just not doing it -- we're doing in a way that the fact you see when you're booking with us, but not necessarily in our advertising. And so we are considering lots of different approaches to doing this, but we are already doing it. And you should expect to see us accelerate that effort, as we want to correct the misunderstanding that there are better rates some place else.

Our final question come s from David Katz of Telsey Group.

If I could just go back to one of the earlier topics around SkyTouch. And I was listening carefully, Steve, the target of turning to a positive outcome on it, is there a range of possibilities beyond just operating that business to flip to profitability and growing that profit? Is there potential partnership spin/sale or range of outcomes we could be thinking about as well?

Yes, and that's exactly what we're doing. So there are three or four different ways that we've identified that we can get there. And we're in discussions evaluating each one and what's the best outcome for our shareholders and also for the customer base. So we are looking at both, because it's not only getting to the goal by '17, but it's doing something that makes the offer more compelling to the entire industry. And so it's a combination of those two. So the things that you mentioned are exactly what we're looking at.

Thank you. I'd now like to turn the conference over to management for any further remarks. End of Q&A

So thanks for joining us. We appreciate your interest as always. That concludes our call for today.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a wonderful day.