Insiders ranked by realized 90-day signed return on their open-market trades at Choice Hotels International Inc /De. Minimum 3 scored trades. Returns are signed - a sale followed by a rally counts against the insider.
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is -0.03pp more bearish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-0.19pp
Flat
Net-tone change vs last year's 10-K.
MD&A
+0.13pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
harm+3
adversely+2
inaccurate+2
misleading+2
unintended+2
Positive rising
enhanced+1
Risk Factors (Item 1A)
9,129 words
Item 1A. Risk Factors
Choice Hotels International, Inc. and its subsidiaries are subject to various risks, which could have a negative effect on the Company and its financial condition, results of operations, and cash flows. These risks could cause actual results to differ from those expressed in certain “Forward-Looking Statements” contained in this Form 10-K as well as in other Company communications. Before you invest in our securities, you should carefully consider these risk factors together with all other information included in our publicly filed documents.
Business and Operational Risks
We are subject to the operating risks common in the lodging and franchising industries.
A significant portion of our revenue is derived from fees based on room revenues at hotels franchised under our brands. We also derive revenue from management fees from our managed hotels. As such, our business is subject, directly or through our franchisees, to the following risks common in the lodging and franchising industry, among others:
• changes in the number of hotels operating under franchised brands;
• changes in the relative mix of franchised hotels in the various lodging industry price categories;
• changes in occupancy and room rates achieved by hotels;
• desirability of hotel geographic location;
• changes in general and local economic and market conditions, which can affect the level of business and leisure travel, and therefore the demand for lodging and related services;
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
losses+8
deficit+2
loss+1
liquidated+1
damages+1
Positive rising
advances+7
gains+7
gain+6
improvement+1
achieving+1
MD&A (Item 7)
11,045 words
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand the consolidated financial condition and the results of operations of Choice Hotels International, Inc. and its subsidiaries (together as "Choice," the "Company," "we," "us," or "our") contained in this report. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes.
Overview
We are primarily a hotel franchisor operating in 49 states, the District of Columbia, and 50 countries and territories. As of December 31, 2025, we had 7,575 hotels with 656,825 rooms open and operating, and 825 hotels with 77,862 rooms under construction, awaiting conversion or approved for development, or committed to future franchise development on outstanding master development agreements (collectively, "pipeline") in our global system. Our brand names include Clarion®, Clarion Pointe™, Comfort Inn®, Comfort Suites®, Country Inn & Suites® by Radisson, Sleep Inn®, Quality®, Park Inn by Radisson®, Everhome Suites®, WoodSpring Suites®, MainStay Suites®, Suburban Studios™, Radisson Blu®, Park Plaza®, Cambria® Hotels, Ascend Collection®, Radisson RED®, Radisson Individuals®, Radisson®, Radisson Collection®, Radisson Inn & Suites SM , Econo Lodge®, and Rodeway Inn®.
The hotel franchising business represents the Company's primary operations. The Company's U.S. operations are conducted through direct franchising relationships, the ownership of 17 open and operating hotels, and the management of 13 hotels (inclusive of four owned hotels), while its international franchise operations are conducted through a combination of direct franchising and master franchising relationships. Master franchising relationships are governed by master franchising agreements, which generally provide the master franchisee with the right to use our brands and sub-license the use of our brands in a specific geographic region, usually for a fee. As a result of our master franchise relationships and international market conditions, our revenues are primarily concentrated in the U.S. Therefore, our description of our business is primarily focused on the U.S. operations.
• increases in operating costs that may not be able to be offset by increases in room rates, such as through increases in minimum wage levels;
• increases in corporate-level operating costs, including increases in employee compensation and benefits, resulting in lower operating margins;
• the availability and cost of capital to allow hotel owners and developers to build new hotels and fund investments;
• changes in travel patterns;
• global health developments, public health crises, pandemics, or epidemics;
• travelers’ fears of exposure to contagious diseases or to insect infestations in hotel rooms and certain geographic areas;
• the impact of earthquakes, hurricanes, fires, floods, and other natural disasters;
• changes in governmental regulations that influence or determine wages, benefits, prices or increase operating, maintenance or construction costs of us and our franchisees;
• changes by governmental agencies and within relevant legal systems of prevailing opinion and interpretation of new or existing rules, regulations and legal doctrine, particularly those limiting the liability of franchisors for employment and general liability claims involving franchisees;
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• the impact of any potential U.S. federal government shutdown;
• security concerns or travel restrictions (whether security-related or otherwise) imposed by governmental authorities that have the effect of discouraging or limiting travel to and from certain jurisdictions;
• the costs and administrative burdens associated with compliance with applicable laws and regulations, including, among others, franchising, lending, privacy, marketing and sales, licensing, labor, climate change, employment and regulations applicable under the Office of Foreign Asset Control and the Foreign Corrupt Practices Act;
• the financial condition of franchisees and travel related companies;
• franchisors’ ability to develop and maintain positive relations with current and potential franchisees; and
• changes in exchange rates or economic weakness in the U.S. affecting domestic and international travel.
We depend on the skill, ability, and decisions of third-party operators.
We utilize third-party operators to provide significant services, such as providing general reservation call center services, providing loyalty member call center support, providing data center co-location services, inspecting our franchisees and providing support, hardware and data for the use of our property management and central reservation services systems.
In addition, we rely on third-party providers to provide market and competitor information that is utilized in our strategic decision-making process. The failure of any third-party operator or provider to make decisions, perform their services, discharge their obligations, deal with regulatory agencies, provide accurate information and comply with laws, rules and regulations could result in material adverse consequences to our business.
We are subject to certain risks related to our indebtedness.
We cannot assure you that our business will generate sufficient cash flow from operations to enable us to pay our indebtedness or to fund our other liquidity needs. If we fail to generate sufficient cash flow from future operations to meet our debt service obligations, we may need to refinance all or a portion of our debt on or before maturity. We cannot assure you that we will be able to refinance any of our debt on attractive terms, commercially reasonable terms or at all. Our future operating performance and our ability to service, extend or refinance our indebtedness will be subject to future economic conditions and to financial, business, and other factors, many of which are beyond our control. Our present indebtedness and future borrowings could have important adverse consequences to us, such as:
• making it more difficult for us to satisfy our obligations with respect to our existing indebtedness;
• limiting our ability to obtain additional financing;
• requiring a substantial portion of our cash flow to be used for principal and interest payments on the debt, thereby reducing our ability to use cash flow to fund working capital, capital expenditures, pay dividends and/or repurchase our common stock;
• limiting our ability to respond to changing business, industry and economic conditions and to withstand competitive pressures, which may affect our financial condition;
• causing us to incur higher interest expense in the event of increases in interest rates on our borrowings that have variable interest rates or in the event of refinancing existing debt at higher interest rates;
• limiting our ability to make investments or acquisitions;
• increasing our vulnerability to downturns in our business, our industry or the general economy and restricting us from making improvements or acquisitions or exploring business opportunities;
• placing us at a competitive disadvantage to competitors with less debt or greater resources; and
• subjecting us to financial and other restrictive covenants in our indebtedness the non-compliance with which could result in an event of default.
A portion of our borrowings are at variable rates of interest, and to the extent not protected with interest rate hedges, could expose us to market risk from adverse changes in interest rates. Unless we enter into interest rate hedges, if interest rates increase, our debt service obligations on the variable-rate indebtedness could increase significantly even though the amount borrowed would remain the same.
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We are subject to certain risks related to litigation filed by or against us.
Legal or governmental proceedings brought by or on behalf of franchisees, third-party owners of managed properties, employees or customers may adversely affect our financial results. We cannot predict with certainty the cost of defense, the cost of prosecution or the ultimate outcome of litigation filed by or against us, including, remedies or damage awards. Such litigation may involve, but is not limited to, actions or negligence by franchisees outside of our control. Our business along with the hospitality industry generally, faces risks that could cause damage to our reputation and to the value of our hotel brands, along with litigation-related fees and costs, in connection with claims related to purportedincidents of human trafficking at hotel facilities. Our franchise agreements provide that we are not liable for the actions of our franchisees; however, there is no guarantee that we would be insulated from liability in all cases. Moreover, we may be involved in matters such as class actions, administrative proceedings, employment and personal injuryclaims, and litigation with or involving our relationship with franchisees and the legal distinction between our franchisees and us for employment law or general liability purposes, for which the cost and other effects of defense, settlements or judgments may require us to make disclosures or take other actions that may affect perceptions of our brand and products and adversely affect our business results.
Our international operations are subject to political and monetary risks.
We have franchised hotels open and operating in 50 countries and territories outside of the U.S. We also have made, and may in the future make, investments in foreign hotel franchisors. International operations generally are subject to greater economic, political, and other risks than those affecting the U.S. operations. In certain countries, these risks include the risk of war, conflict or civil unrest, political instability, disruptions caused by terrorist activities or otherwise, expropriation and nationalization.
Moreover, our international operations are subject to compliance with anti-corruption and anti-bribery laws and other foreign laws and regulations. While we have policies in place to enforce and monitor internal and external compliance with these laws, we cannot guarantee that our policies will always protect us from reckless or criminal acts committed by our employees, franchisees or third-parties with whom we work. The U.S. also imposes sanctions that restrict U.S. companies from engaging in business activities with certain persons or entities, foreign countries, or foreign governments that it determines are adverse to U.S. foreign policy interests. From time to time, we may face audits or investigations by one or more U.S. or foreign governmental agencies relating to our international business activities, compliance with which could be costly and time-consuming, and could divert our management and key personnel from our business operations. Further, investigations by regulatory agencies have been increasing and, therefore, it may become increasingly costly and time-consuming to maintain proper internal controls. If we are found liable for violations of anti-corruption or sanctions laws, we could incur criminal or civil liabilities which could have a material adverse effect on our results of operations, our financial condition and our reputation. Furthermore, the creation of new restrictions in these areas could increase our cost of operations, reduce our profits, or cause us to forgo development opportunities that would otherwise contribute to our profitability.
Additional factors may also impact our international operations. The laws of some international jurisdictions do not adequately protect our intellectual property and restrict the repatriation of non-U.S. earnings. Various international jurisdictions also have laws limiting the right and ability of non-U.S. entities to pay dividends and remit earnings to affiliated companies unless specified conditions have been met. In addition, revenues from international jurisdictions typically are earned in local currencies, which subjects us to risks associated with currency fluctuations. Currency devaluations and unfavorable changes in international monetary and tax policies could have a material adverse effect on our profitability and financing plans, as could other changes in the international regulatory climate. Our future performance could be adversely affected by weak economic conditions in any region where we operate, and uncertainty regarding the pace of economic growth in different regions of the world makes it difficult to predict future profitability levels. We intend to continue to expand internationally, which would make the risks related to our international operations more significant over time.
Labor shortages could restrict our ability and the ability of franchisees to operate hotel properties or grow our business or result in increased labor costs that could adversely affect the results of operations.
Our success depends in part on our ability to attract, retain, train, manage and engage employees. A number of factors may adversely affect the labor force available to us or our franchisees. If we or our franchisees are unable to attract, retain, train, manage and engage skilled individuals, the ability to staff and operate the hotels that we manage, own or franchise could be diminished, which could reduce customer satisfaction and adversely affect the reputation of our brands. Staffing shortages in various parts of the world also could hinder our ability to grow and expand our businesses. In addition, the efforts and abilities of our senior executives are important elements of maintaining our competitive position and driving future growth, and the loss of the services of one or more of our senior executives could result in challenges executing our business strategies or other adverse effects on our business.
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Climate change and sustainability related concerns could have a material adverse effect on our business and results of operations.
We are subject to the physical and transition risks associated with climate change and extreme weather events. These risks include changes in sea levels, water shortages, droughts, and natural disasters which may increase in frequency and severity; changing consumer preferences; and changes in laws and regulations related to climate change, regulating greenhouse gas emissions (including carbon pricing, cap and trade systems or a carbon tax), energy policies, and sustainability. Compliance with future climate-related legislation and regulation, and our voluntary efforts to achieve science-based emissions reduction targets, could be difficult and costly. Furthermore, standards for tracking and reporting such matters continue to evolve. Our selection of voluntary disclosure frameworks and standards, and the interpretation or application of those frameworks and standards, may change from time to time or differ from those of others. Methodologies for reporting these data may be updated and previously reported data may be adjusted to reflect improvement in availability and quality of third-party data, changing assumptions, changes in the nature and scope of our operations (including from acquisitions and divestitures), and other changes in circumstances, which could result in significant revisions to our current goals, reported progress in achieving such goals, or ability to achieve such goals. If we fail to achieve, or are perceived to have failed or been delayed in achieving, or improperly report our progress toward achieving these targets, it could negatively affect customer preference for our brands or investor confidence in our stock, as well as expose us to enforcement actions and litigation. Consumer travel preferences may also shift due to sustainability-related concerns or costs. Our owned, managed, and franchised hotels may experience higher costs of energy, higher insurance premiums or policies that do not fully cover all climate-related risks, or physical damage that could negatively impact their ability to operate. As a result of the foregoing, we may experience significant increased operating and compliance costs, operating disruptions or limitations, reduced demand, constraints on our growth, and physical damage to our hotels, all of which could adversely affect our profits or growth.
We are incorporating artificial intelligence technologies into our processes and franchisee tools. These technologies may present business, compliance, reputational, and legal risks.
If we fail to keep pace with rapidly evolving technological developments in artificial intelligence ("AI"), our competitive position and business results may suffer. The introduction of these technologies, particularly generative AI, into new or existing offerings may also result in new or expanded risks and liabilities, including enhanced governmental or regulatory scrutiny, litigation, copyright infringement, compliance issues, ethical concerns, security risks relating to private and/or confidential information, as well as other factors that could adversely affect our business, reputation, and financial results. If the content, analyses, or recommendations that AI programs assist in producing are, or are alleged to be, deficient, misleading, inaccurate, or biased, then our business, financial condition, and results of operations and our reputation may be adversely affected. In addition, it is possible that AI and machine learning-technology could be improperly utilized by employees while carrying out their responsibilities. The use of AI can lead to unintended consequences, such as generating content that appears correct but is factually inaccurate, misleading, or otherwise flawed, or that results in unintended biases and discriminatory outcomes, which could harm our reputation and business and expose us to risks related to inaccuracies or errors in the output of such technologies. AI also presents emerging ethical issues and if our use of AI becomes controversial, then we may experience brand or reputational harm, competitive harm, or legal liability.
Risks Related to Our Franchise System
We may not grow our franchise system or we may lose business by failing to compete effectively or by failing to manage the reputations of our brands.
Our success and growth prospects depend on the strength and desirability of our brands, particularly in the extended stay, midscale, and upper midscale hotel franchise chains which represents a significant portion of our business. We believe that hotel operators choose lodging franchisors based primarily on the value and quality of each franchisor’s brand and services, the extent to which affiliation with that franchisor may increase the hotel operator’s reservations and profits, and the franchise fees charged. Demographic, economic or other changes in markets may adversely affect the desirability of our brands and, correspondingly, the number of hotels franchised under the Company's brands.
We compete with other lodging companies for franchisees. As a result, the terms of new franchise agreements may not be as favorable as our current franchise agreements. For example, competition may require us to reduce or change fee structures, make greater use of financial incentives, including franchise agreement acquisition costs, loans and guaranties to acquire franchisees and/or reduce the level of property improvements required before operating under our brand names. This could potentially impact our cash flows and margins negatively. New competition may also emerge using different business models with a lesser reliance on franchise fees. In addition, an excess supply of hotel rooms or unfavorable borrowing conditions may discourage potential franchisees from expanding or constructing new hotels, thereby limiting a source of growth of the franchise fees received by us.
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Also, each of our hotel brands competes with major hotel chains in national and international markets and with independent companies in regional markets. Our ability to remain competitive and to attract and retain business and leisure travelers depends on our success in distinguishing our products and services from those offered by our competitors. If we are unable to compete successfully in these areas, this could adversely affect our market share and our results of operations. An adverseincident involving our franchisees or their guests, and any media coverage resulting therefrom, could also damage our brands and reputation.
Many factors influence our reputation and the value of our hotel brands including the perception held by guests, our franchisees, our other key stakeholders and the communities in which we do business. Our business faces increasing scrutiny related to environmental, social, and governance matters, and as a result we also face the risk of liability, boycotts, and damage to our reputation and the value of our hotel brands for any of our initiatives related to these matters or if we (or our franchisees) fail to act responsibly or comply with regulatory requirements in a number of areas, such as safety and security, responsible tourism, environmental stewardship, supply chain management, climate change, human trafficking, diversity, human rights, philanthropy and support for local communities.
The considerable increase in the use of social media over recent years has greatly accelerated the speed at which negative publicity, feedback, criticism and other information, whether or not based in fact, could spread and the scope of its dissemination, which could lead to litigation, increase our costs, or result in a negative impact on our reputation or loss of consumer confidence in our brands.
We may not achieve our objectives for growth in the number of franchised hotels.
The number of properties and rooms franchised under our brands significantly affects our results. There can be no assurance that we will be successful in achieving our objectives with respect to growing the number of franchised hotels in our system or that we will be able to attract qualified franchisees. The growth in the number of franchised hotels is subject to numerous risks, many of which are beyond the control of our franchisees or us. Among other risks, the following factors affect our ability to achieve growth in the number of franchised hotels:
• the ability of our franchisees to open and operate additional hotels profitably. Factors affecting the opening of new hotels, or the conversion of existing hotels to a Choice brand, include, among others:
▪ the availability of hotel management, staff and other personnel;
▪ the cost and availability of suitable hotel locations;
▪ the availability and cost of capital to allow hotel owners and developers to fund investments;
▪ cost effective and timely construction of hotels (which construction can be delayed due to, among other reasons, availability of financing, labor and materials availability, labor disputes, local zoning and licensing matters, and weather conditions); and
▪ securing required governmental permits.
• our ability to continue to enhance our reservation, operational and service delivery systems to support additional franchisees in a timely, cost-effective manner;
• our formal impact policy, which may offer certain franchisees protection from the opening of a same-brand property within a specified distance;
• the effectiveness and efficiency of our development organization;
• our failure to introduce new brands that gain market acceptance;
• our dependence on our independent franchisees’ skills and access to financial resources necessary to open the desired number of hotels; and
• our ability to attract and retain qualified U.S. and international franchisees.
We are currently planning to further expand in many of the international markets where we currently operate, as well as in select new markets. This may require considerable management time as well as start-up expenses for market development before any significant revenues and earnings are generated. Operations in new foreign markets may achieve low margins or may be unprofitable, and expansion in existing markets may be affected by local economic and market conditions. Therefore, as
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we expand internationally, we may not experience the operating margins we expect, our results of operations may be negatively impacted and our stock price may decline.
We may have disputes with the owners of our franchised hotels or their representative franchisee associations.
Our responsibilities under our franchise agreements may be subject to interpretation and may give rise to disagreements in some instances. Such disagreements may be more likely when hotel returns are depressed as a result of economic conditions. We seek to resolve any disagreements in order to develop and maintain positive relations with current and potential hotel owners as well as their representative franchisee associations. However, failure to resolve such disagreements could result in litigation with outcomes that may be adverse to our economic interests.
Under certain circumstances our franchisees may terminate our franchise contracts.
We franchise hotels to independent third parties pursuant to franchise agreements. These agreements may be terminated, renegotiated or expire but typically have an initial term of between 10 and 30 years. These agreements also typically contain provisions permitting either party to terminate the franchise agreement upon designated anniversaries of the agreement under certain circumstances and depending on the particular hotel brand that is licensed to the franchisee. While our franchise agreements provide for liquidateddamages to be paid to us by franchisees whose agreements have been terminated as the result of a violation of the provisions of the agreement, these damage amounts are typically less than the fees we would have received if the terminated franchisee fulfilled its contractual obligations. In addition, there can be no assurance that we will be able to replace expired or terminated franchise agreements, or that the provisions of renegotiated or new agreements will be as favorable as the provisions that existed before such expiration, replacement or renegotiation. Further, ownership of a significant number of franchise contracts by one or a small group of franchisees, particularly if concentrated within a particular brand, may compound risks of termination since a large number of properties could be terminated at once, decreasing the scope and representation of an impacted brand. As a result, our revenues could be negatively impacted by any of these events.
Deterioration in the general financial condition of our franchisees may adversely affect our results.
Our operating results are impacted by the ability of our franchisees to generate revenues at properties they franchise from us. An extended period of occupancy or room rate declines may adversely affect the operating results and financial condition of our franchisees. These negative operating conditions could result in the financial failure of our owners and result in a termination of the franchisee for non-payment of franchise fees or require the transfer of ownership of the franchise. In those instances where ownership is transferred, there can be no assurance that the new owners will choose to affiliate with our brands.
The hotel industry is highly competitive. Competition for hotel guests is based primarily on the level of service, quality of accommodations, convenience of locations and room rates. Our franchisees compete for guests with other hotel properties in their geographic markets. Some of their competitors may have substantially greater marketing and financial resources than our franchisees, and they may construct new facilities or improve their existing facilities, reduce their prices or expand and improve their marketing programs in ways that adversely affect our franchisees' operating results and financial condition. In addition, the ability of our franchisees to compete for guests directly impacts the desirability of our brands to current and prospective franchisees.
These factors, among others, could adversely affect the operating results and financial condition of our franchisees and result in declines in the number of franchised properties and/or franchise fees and other revenues derived from our franchising business. In addition, at times, the Company provides financial support to our franchisees via notes and guaranties. Factors that may adversely affect the operating results and financial condition of these franchisees may result in the Company incurring losses related to this financial support.
We may not be able to recover advances for system services that we may at certain times provide to our franchisees.
The Company is obligated to use the marketing and reservation fees it collects from the current franchisees comprising its various hotel brands to provide system services, such as marketing and reservations services, that are appropriate to fulfill our obligations under the Company’s franchise agreements. In discharging our obligation to provide sufficient and appropriate system services, the Company has the right to expend funds in an amount reasonably necessary to ensure the provision of such services, regardless of whether or not such amount is currently available to the Company for reimbursement.
Under the terms of its franchise agreements, the Company has the contractually enforceable right to assess and collect from its current franchisees fees sufficient to pay for the system services the Company has provided or procured for the benefit of its franchisees, including fees to reimburse the Company for past services rendered. The Company’s current franchisees are contractually obligated to pay any assessment the Company imposes on them to obtain reimbursement of any systems services advances regardless of whether the franchisees continue to generate gross room revenue and whether or not they joined the system following the deficit’s occurrence. However, our ability to recover these advances may be adversely impacted by certain
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factors, including, among others, declines in the ability of our franchisees to generate revenues at properties they franchise from us. An extended period of occupancy or room rate declines or a decline in the number of hotel rooms in our franchise system could result in the generation of insufficient funds to recover system services advances as well as meet the ongoing system service needs of our franchisees.
Our franchisees may fail to make the investments necessary to maintain or improve their properties, preference for our brands and our reputation could suffer and our franchise agreements with these franchisees could terminate.
Our franchised properties are governed by the terms of franchise agreements. Substantially all of these agreements require property owners to comply with standards that are essential to maintaining our brand integrity and reputation. We depend on our franchisees to comply with these requirements by maintaining and improving properties through investments, including investments in furniture, fixtures, amenities and personnel.
Franchisees may be unable to access capital or unwilling to spend available capital when necessary, even if required by the terms of our franchise agreements. If our franchisees fail to make investments necessary to maintain or improve the properties we franchise, our brand preference and reputation could suffer. In addition, if franchisees breach the terms of our agreements with them, we may elect to exercise our termination rights, which would eliminate the revenues we earn from these properties and cause us to incur expenses related to terminating these relationships. These risks become more pronounced during economic downturns.
We and our franchisees are reliant upon information technology systems to operate our business and remain competitive, and any disruption or malfunction or failure to adapt to technological developments could adversely affect our business.
The lodging industry depends upon the use of sophisticated information technology and systems including those utilized for reservations, property management, procurement, hotel revenue management, operation of our customer loyalty programs, communications, and our administrative systems. We also maintain physical facilities to support these systems and related services.
Information technology and systems that we rely upon are or may be vulnerable to damage or interruption from:
• penetration by individuals or entities seeking to disrupt operations or misappropriate information and other breaches of security;
• fraud, misuse and other unauthorized access to customer loyalty program accounts or interference with these systems;
• computer viruses, software errors, and design or security vulnerabilities;
• power losses, computer systems failures, internet and telecommunications or data network failures, service provider negligence, improper operation by or supervision of employees, user error, physical and electronic losses of data and similar events; and
• earthquakes, hurricanes, fires, floods, and other natural disasters.
Disruptions, failures, or malfunctions in technology can impact our revenue as well as our ability to retain existing franchisees and attract new franchisees to our system. Further, rewards earned through our customer loyalty programs are vulnerable to fraud, misuse and unauthorized access for financial gain or other improper purposes. Any loss of data or funds, security breaches or even unsuccessful attempts at unauthorized access could harm our reputation, our relationship with our customer loyalty program members and our relationship with co-branded credit card companies. Further, such events could expose us to potential litigation as well as expenses associated with remediation and other impacts.
In addition, the operation of many of these systems is dependent upon third-party data communication networks and software upgrades, maintenance, and support. These technologies and systems can be expected to require refinements, updates or replacements, and there is the risk that advanced new technologies will be introduced. There can be no assurance that as various systems and technologies become outdated or new technology is required, we will be able to replace or introduce them as quickly as our competitors or within budgeted costs for such technology.
There can also be no assurance that improvements or upgrades to technologies and systems will maintain or improve the performance, reliability, security, and integrity of our systems or that we will achieve the benefits that may have been anticipated from such improvements or upgrades. Further, there can be no assurance that disruptions of the operation of these systems will not occur as a result of failures related to our internal or third-party systems and support.
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Risks Related to Our Brands
We are subject to the risks relating to the acquisition of new brands.
From time-to-time, we consider acquisitions of new brands that complement our current portfolio of brands. In many cases, we will be competing for these opportunities with third parties who may have substantially greater financial resources or different or lower acceptable return requirements than we do. There can be no assurance that we will be able to identify acquisition candidates, acceptable new markets or complete transactions on commercially reasonable terms or at all. If transactions are consummated or new markets entered, there can be no assurance that any anticipated benefits will actually be realized. Similarly, there can be no assurance that we will be able to obtain additional financing for acquisitions or investments, or that the ability to obtain such financing will not be restricted by the terms of our existing debt agreements. Furthermore, if events or changes in circumstances indicate that the carrying value of the acquisition costs are not recoverable, we may be required to record a significant non-cash impairment charge in our financial statements which may negatively impact our results of operations and shareholders' equity.
New brands may not be accepted by franchisees and consumers.
We have developed and launched additional hotel brands, such as Cambria Hotels, Clarion Pointe, and Everhome Suites, and may develop and launch additional brands in the future. To achieve long-term success for new brands, we may be required to provide capital support to incentivize franchisee development and/or to make direct investments, and these extensions of capital support and direct investments may not yield the expected or anticipated returns and may be disruptive to our asset-light business model. There can be no assurance regarding the level of acceptance of new brands in the development and consumer marketplaces, that costs incurred to develop and grow the brands will be recovered or that the anticipated benefits from these new brands will be realized.
Increasing use by consumers of alternative internet reservation channels may decrease loyalty to our brands and our existing distribution channels, and may influence our distribution strategies, in ways that may adversely affect us.
A significant, and increasing, percentage of hotel rooms are booked through internet travel intermediaries. If these intermediaries are successful in continuing to increase their share of bookings or are otherwise successful in executing strategies to strengthen their commercial and contractual ties to our hotels and hotel guests, these intermediaries may be able to obtain higher commissions, reduced room rates, or other significant contractual and operational concessions from our franchisees or us.
Moreover, some of these internet travel intermediaries hope that consumers will eventually develop brand loyalties to their reservations systems rather than to our lodging brands and our existing distribution channels. As the internet travel intermediary industry continues to consolidate, and/or if well-known or well-financed companies decide to enter the internet travel intermediary space, the resources that the internet travel intermediaries have available and may be willing to apply toward their own marketing and customer loyalty could significantly exceed the resources that we are able to apply for the same purposes.
The increasing use of alternative internet reservation channels influences the way in which we utilize and market the benefits of our existing distribution channel. For example, we have introduced programs such as "Best Internet Rate Guarantee" and a closed-user group pricing to encourage bookings directly through our distribution system. However, there can be no assurance that current margins or levels of utilization associated with these or other strategies will succeed in increasing the booking percentages to our direct channels at the expense of channels controlled by travel intermediaries. In addition, our implementation of programs such as closed-user group pricing may cause travel intermediaries to respond by diverting business away from our hotels by removing or marginalizing our hotels in search results on their platforms.
Finally, there can be no assurance that we will be able to maintain stable commercial or contractual relationships with every significant internet travel intermediary, and any resulting instability may have a significant adverse impact on our business, if for example, our brands are not available through one or more of such intermediaries. Relatedly, we may not be able to negotiate mutually acceptable agreements or renegotiate extensions of agreements with existing internet travel intermediaries upon their expiration, and any such renegotiated or extended agreement may not be entered into on terms as favorable as the provisions that existed before such expiration, replacement or renegotiation.
An increase in the use of AI enabled third-party internet services to book online hotel reservations could adversely impact our business.
Some of our hotel rooms are booked by internet travel intermediaries and other online travel service providers. AI is being used to book hotels through targeted in-feed ads that leverage user data to display relevant hotel options based on interests and location, as well as through AI-powered chatbots that can answer booking questions directly within an app, allowing users to seamlessly initiate the booking process while watching videos on the app platform. In addition, AI can be used to personalize
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the hotel booking experience by showing users ads for hotels they may be interested in based on their in-app activity. Our business and profitability could be harmed to the extent that online intermediaries succeed in significantly shifting loyalties from our brands to their travel services utilizing these AI tools, diverting bookings away from our direct online channels, or through their fees, increasing the overall cost of internet bookings for our hotels.
Development and brand support activities that involve our co-investment or financing and guaranty support for third parties or development of hotels may result in losses.
As a result of our program to make financial support available to developers in the form of franchise agreement acquisition costs, loans, credit support, such as guaranties, and equity investments, we are subject to investment and credit risks that we would not otherwise be exposed to as a franchisor. In particular, when we make loans to franchisees, agree to provide loan guaranties for the benefit of franchisees, or make equity investments in franchisees, we are subject to all generally applicable credit and investment risks, such as:
• construction delays, cost overruns, or acts of God, such as earthquakes, hurricanes, fires, floods, or other natural disasters that may increase overall project costs or result in project cancellations;
• the possibility that the parties with which we have entered into a co-investment, hotel development, financing, or guaranty relationships could become bankrupt or otherwise lack the financial resources to meet their obligations, or could have or develop business interests, policies, or objectives that are inconsistent with ours; and
• that conditions within credit or capital markets may limit the ability of franchisees or us to raise additional debt or equity that may be required for completion of projects.
In addition to general credit and capital markets risks, we face specific risks stemming from our ability to assess the existing and future financial strength of the franchisee and its principals, the development/construction abilities of the franchisee or third-party parties hired by us to develop hotels, the expected performance of the hotel in light of the forecasted general, regional and market-specific economic climate, and the ability to negotiate for, value, and if necessary collect security for our loans or obligations. If we do not accurately assess these risks, our assumptions used to make these estimates prove inaccurate, or situations in the credit market or hospitality industry change in a manner we did not anticipate, our loans and investments may become impaired and/or we may be required to make payment under guaranties we have issued. In such instances, there is no assurance that we will be able to recover any or all of such impaired or paid amounts, in which case we will experience losses which could be material.
Our involvement in hotel ownership and hotel development activities to stimulate the development of new brands may result in exposure to losses and be disruptive to our asset-light business model.
While our business model is primarily an asset-light, franchising focused business, there are instances where, typically to support the growth of new hotel brands, we may acquire existing operating hotels and acquire real estate for the purpose of developing new hotels. Of the open hotels in our system, we currently own 10 Cambria hotels, four Everhome Suites hotel, one Radisson RED hotel, one Radisson Blu hotel, and one Country Inn & Suites hotel. We are also developing Cambria hotels and Everhome Suites hotels on a standalone basis and with joint venture partners. As a result, fluctuations in fair market values could require us to record a significant non-cash impairment charge in our financial statements in a particular period which may negatively impact our results of operations and shareholders' equity.
As a result of our hotel acquisition, development, and ownership programs, we are subject to the real estate-based investment risk that we would not otherwise be exposed to as a franchisor. In particular, we face specific risks stemming from (1) our ability to assess the fair value of the real estate, (2) the location’s suitability for development as a hotel, (3) the availability of zoning or other local approvals needed for development, and (4) the availability and pricing of capital. Although we actively seek to minimize these risks prior to acquiring real estate, there is no assurance that we will be able to recover the costs of our investments, in which case we will experience losses which could be material.
Failure to protect our trademarks and other intellectual property could impact our business.
We believe that our trademarks and other intellectual property are fundamental to our brands and our franchising business. We generate, maintain, license and enforce a substantial portfolio of trademarks and other intellectual property rights. We enforce our intellectual property rights to protect the value of our trademarks, our development activities, to protect our good name, to promote our brand name recognition, to enhance our competitiveness and to otherwise support our business goals and objectives. We rely on trademark laws to protect our proprietary rights. Monitoring the unauthorized use of our intellectual property is difficult. Litigation has been and may continue to be necessary to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Litigation of this type could result in substantial costs and diversion of resources, may result in counterclaims or other claimsagainst us and could significantly harm our results of
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operations. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the U.S. From time to time, we apply to have certain trademarks registered. There is no guarantee that such trademark registrations will be granted. We cannot assure you that all of the steps we have taken to protect our trademarks in the U.S. and foreign countries will be adequate to prevent imitation of our trademarks by others. The unauthorized reproduction of our trademarks could diminish the value of our brand and its market acceptance, competitive advantages, or goodwill, which could adversely affect our business.
Risks Related to Different Lines of Business
We may not be able to generate significant procurement services revenue from our platform business.
We are focused on expanding our platform business to provide value-added travel related services to our guests and generate revenues for the Company. As platform revenue has increased, as reflected in our procurement services revenue, we are increasingly dependent on various vendors who make low-cost products available to us and our franchisees and partners who market their services directly to our guests. There can be no assurance that we will be able to retain our relationships with such parties or be able to renew arrangements on favorable terms. There is also no assurance that we will be able to identify new methods for decreasing hotel-operating costs by increasing penetration within our existing franchise system, enhancing our existing vendor relationships, and/or creating new vendor relationships.
Our investment in new business lines is inherently risky and could disrupt our core business.
In the past, we have both acquired and launched internally developed business divisions. We expect to continue to invest in alternate lines of business and may in the future invest in other new business strategies, products, services, and technologies.
Such investments generally involve significant risks and uncertainties, including distraction of management from our core franchising operations, unanticipated expenses, inadequate return of capital on our investments, losses of key customers or contracts, and unidentified issues and risks not discovered in our development or analysis of such strategies and offerings.
Because these new ventures are inherently risky, there can be no assurance that our investments will be successful. If we do not realize the financial or strategic goals that are contemplated at the time we commit to significant investments in support of these ventures, our reputation, financial condition, operating results, and growth trajectory may be impacted.
Investing jointly through affiliates decreases our ability to manage risk.
We have invested and expect to continue to invest in real estate and other hospitality related affiliates. Affiliate members often have shared control over the operation of the affiliate assets and therefore these investments may involve risks such as the possibility that the member in an investment might become bankrupt or not have the financial resources to meet its obligations or have economic or business interests or goals that are inconsistent with our business interests or goals. Consequently, actions by a member might subject us to additional risk, require greater financial support from the Company than initially forecasted (including but not limited to buying out a partner in an affiliate resulting in hotel ownership by the Company) or result in actions that are inconsistent with our business interests or goals.
Risks Related to Cybersecurity and Data Privacy
We are subject to the risks related to cybersecurity.
The hospitality industry is under increasing attack by cyber-criminals. Because of the scope and complexity of our information technology systems and those of our franchisees, our reliance on third-party vendors, and the nature of the cyber threat landscape, our systems may be vulnerable to intrusions, disruptions, and other significant malicious cyber-enabledincidents, including through viruses, malware, ransomware, denial of service attacks, phishing, hacking, deepfake or malicious social engineering schemes, and similar attacks by criminal actors, foreign governments, activists, and terrorists. Cybercriminals have increasingly demonstrated advanced capabilities, such as use of zero-day vulnerabilities, and rapid integration of new technology such as generative AI and machine learning technologies. Our systems may also be vulnerable to human error, negligence, fraud, or other misuse. These attacks can be deliberate attacks or unintentional events that could result in theft, unauthorized access, unauthorized alteration, loss, fraudulent or unlawful use of sensitive information or cause interruptions, outages, or delays in our business, loss of data, or render us unable to operate our business. Accordingly, an extended interruption in any of our systems or the systems of our franchisees could significantly curtail, directly and indirectly, our ability to conduct our business and generate revenue. Like most large multinational companies, we have experienced, and expect to continue to be subject to, cybersecurity threats and attempts to disrupt or gain access to our systems and those operated by our franchisees, and attempts to affect the confidentiality, availability, and integrity of our data, none of which are known to be material to the Company to date.
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We seek to minimize the impact of these cybersecurity incidents through the use of various technologies, processes and practices designed to help protect our networks, systems, computers and data from attack, damage or unauthorized access. We continuously assess our security posture, seek to implement appropriate risk reduction measures, enhance our operating processes, improve our defenses and take other measures to strengthen our cybersecurity program. Cybersecurity threats are constantly evolving and becoming more sophisticated, which increases the difficulty and cost of detecting and defendingagainst them. Incidents can be difficult to detect for long periods of time and can involve complex or extended assessment and remediation periods, which could magnify the severity of an incident. Accordingly, there are no guarantees that our cybersecurity practices and our efforts to implement appropriate risk reduction measures will be sufficient to prevent or mitigate attacks, and our defense strategies may ultimately prove ineffective as threat actors evolve and become more sophisticated. While we carry cyber breach, property, and business operation interruption insurance, we may not be sufficiently compensated for all losses we may incur. These losses include not only a loss of revenues but also potential reputational damage to our brands, seriousdisruption to our operations, investigations, litigation, and liability due to regulatory fines or penalties or pursuant to our contractual obligations. Furthermore, the Company may also incur substantial remediation costs to repair system damage as well as satisfy liabilities for stolen assets or information that may further reduce our profits. Such losses may have a material adverse effect on our business, financial condition, and results of operations.
Failure to maintain the integrity of internal or customer data could result in faulty business decisions, damage of reputation, and/or subject us to costs, fines or lawsuits.
Our business requires the collection and retention of large volumes of sensitive data, including credit card numbers and other personal information of our employees, franchisees and guests as such information is entered into, processed, summarized, and reported by the various information systems we use. The integrity and protection of that franchisee, guest, employee, and company data is critical to us and our reputation. Our customers have a high expectation that we will adequately protect their personal information, and the failure to do so could result in a material adverse impact to our reputation, operations, and financial condition. Further, the regulatory environment surrounding information security and privacy is increasingly demanding, both in the U.S. and in the international jurisdictions in which we operate. If the Company fails to maintain compliance with the various U.S. and international laws and regulations applicable to the protection of such data or with the Payment Card Industry Data Security Standards, the Company’s ability to process such data could be adversely impacted and expose the Company to fines, litigation or other expenses or sanctions.
Privacy laws and regulations could adversely affect our ability to transfer guest data and market our products effectively and could be applied to impose costs, fines, and operational conditions on our business in the event of perceived non-compliance, and could otherwise impact our results from operations.
Our business operations are subject to various U.S. and international privacy and data protection laws. Any future changes or restrictions in U.S. or international privacy and data protection laws could adversely affect our operations, including our ability to transfer guest data, which could adversely impact guest bookings. For example, the California Privacy Rights Act (CPRA) imposes new compliance requirements on businesses that collect personal information from California residents. Compliance with requirements imposed by the CPRA, the European Union General Data Protection Regulation (GDPR) and similar laws, or any future changes in such laws or additional restrictions, could result in significant costs and require us to change some of our business practices. Failure to comply could expose the Company to fines, litigation, or other expenses or sanctions, as well as reputational harm.
We also rely on a variety of direct marketing techniques, including telemarketing, SMS, email, and postal mailings. Any future restrictions in laws such as Telemarketing Sales Rule, Controlling the Assault of Non-Solicited Pornography & Marketing Act (CAN-SPAM Act), and various U.S. state laws, or new federal laws regarding marketing and solicitation or international data protection laws that govern these activities could adversely affect the continuing effectiveness of telemarketing, SMS, email, and postal mailing techniques and could force changes in our marketing strategies. If this occurs, we may not be able to develop adequate alternative marketing strategies, which could impact the amount and timing of our revenues. We also obtain access to potential customers from travel service providers and other companies with whom we have substantial relationships and market to some individuals on these lists directly or by including our marketing message in the other company’s marketing materials. If access to these lists was prohibited or otherwise restricted, our ability to develop new customers and introduce them to our products could be impaired.
Legal and Regulatory Risks
Government franchise and tax regulation could impact our business.
The FTC, various states, and certain foreign jurisdictions where we market franchises regulate the sale of franchises. The FTC requires franchisors to make extensive disclosure to prospective franchisees but does not require registration. A number of states in which our franchisees operate require registration and disclosure in connection with franchise offers and sales. In
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addition, several states in which our franchisees operate have “franchise relationship laws” that limit the ability of the franchisor to terminate franchise agreements or to withhold consent to the renewal or transfer of these agreements. While our business has not been materially affected by such regulation, there can be no assurance that this will continue or that future regulation or legislation will not have such an effect.
The determination of our worldwide provision for income taxes and other tax liabilities requires estimation and significant judgment and there are many transactions and calculations where the ultimate tax determination is uncertain. Like many other multinational corporations, we are subject to tax in multiple U.S. and foreign tax jurisdictions and have structured our operations to reduce our effective tax rate. Our determination of our tax liability is always subject to audit and review by applicable U.S. and foreign tax authorities. Any adverse outcome of any such audit or review could have a negative effect on our business, operating results and financial condition. The ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods for which such determination is made.
We may be deemed to be a joint employer with our franchisees under certain new laws, rules, and regulations.
Companies that operate franchise systems may be subject to liabilities and claims relating to the franchisor/franchisee relationship, such as for allegedly being a joint employer with a franchisee. Changes in laws or regulations relating to this relationship could result in a determination that we are a “joint employer” with our franchisees or that our franchisees are part of one unified system subject to joint and several liability. Such a determination could subject us to liability for employment-related and other liabilities of our franchisees and could cause us to incur other costs that have a material adverse effect on our results of operations and profit.
Anti-takeover and Control Risks
Anti-takeover provisions may prevent a change in control.
Our restated certificate of incorporation and the Delaware General Corporation Law each contain provisions that could have the effect of making it more difficult for a party to acquire, and may discourage a party from attempting to acquire, control of our Company without the approval of our Board of Directors. These provisions, together with the concentration of our share ownership, could discourage tender offers or other bids for our common stock at a premium over market price.
The concentration of share ownership may influence the outcome of certain matters.
The concentration of share ownership by our directors and affiliates allows them to substantially influence the outcome of matters requiring shareholder approval. As a result, acting together, they may be able to control or substantially influence the outcome of matters requiring approval by our shareholders, including the elections of directors and the approval of significant corporate transactions, such as mergers, acquisitions, and equity compensation plans. In addition, our share repurchase program may further concentrate our share ownership in our directors and affiliates and increase their influence on such matters.
Our Company generates revenues, income, and cash flows primarily from our hotel franchising operations. Revenues are also generated from partnerships with qualified vendors and travel partners that provide value-added solutions to our platform of guests and hotels, hotel ownership, and other ancillary sources. Historically, the hotel industry has been seasonal in nature. For most hotels, demand is typically lower in November through February than during the remainder of the year. Our principal source of revenue is franchise fees, which is based on the gross room revenues or the number of rooms at our franchised properties. The Company’s franchise and managed fees, as well as its owned hotels' revenues, normally reflect the industry’s seasonality and historically have been lower in the first and fourth quarters than in the second and third quarters of the year.
Because our primary focus is hotel franchising, we benefit from the economies of scale inherent in the franchising business. The fee and cost structure of our franchising business provides opportunities to improve our operating results by increasing the number of franchised hotel rooms and the royalty rates in our franchise contracts. In addition, our operating results can also be improved through our company-wide efforts related to improving property-level performance and expanding the number of partnerships with travel-related and other companies with products and services that appeal to our franchisees and guests.
The primary factors that affect the Company’s results are: the number and relative mix of hotel rooms in the various hotel lodging price categories, growth in the number of hotel rooms owned and under franchise, occupancy and room rates achieved by the hotels in our system, the average royalty rates achieved in our franchise agreements, the level of franchise sales and relicensing activity, the number of qualified vendor arrangements and partnerships and the level of engagement with these partners by our franchisees and guests, and our ability to manage costs. The number of rooms in our hotel system and the occupancy and room rates at those hotel properties significantly affect the Company’s results because our fees are based upon room revenues or the number of rooms at owned and franchised hotels. The key industry standard for measuring hotel-operating performance is revenue per available room ("RevPAR"), which is calculated by multiplying the percentage of occupied rooms by the average daily room rate ("ADR") realized. Our variable overhead costs associated with the franchise system growth of our established brands have historically been less than the incremental royalty fees generated from new franchises. Accordingly, over the long-term, the continued growth of our franchise business should enable us to realize the benefits from the operating leverage in place and improve our operating results.
We are required by our franchise agreements to use the marketing and reservation fees we collect for system-wide marketing and reservation activities. These expenditures, which include advertising costs and the costs to maintain our central reservations systems, enhance awareness and consumer preference for our brands and deliver guests to our franchisees. Greater awareness and preference promote long-term growth in business delivery to our franchisees and increases the desirability of our brands to hotel owners and developers, which ultimately increases the franchise fees earned by the Company. Additionally, the
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Company's management agreements include cost reimbursements, which is primarily related to payroll costs at the managed hotels where the Company is the employer.
Our Company articulates its mission as a commitment to our franchisees’ profitability by providing our franchisees with hotel franchises that strive to generate the highest return on investment of any hotel franchise. We have developed an operating system dedicated to our franchisees’ success that focuses on delivering guests to their hotels and reducing hotel operating costs.
We believe that executing on our strategic priorities creates value for our shareholders. Our Company focuses on the following strategic priorities:
Profitable Growth - Our success is dependent on improving the performance of our hotels, increasing the size of our system by selling additional hotel franchises with a focus on revenue-intense chain scales and markets, improving our royalty rates, expanding our qualified vendor and partnership programs and maintaining a disciplined cost structure. We attempt to improve our revenues and overall profitability by providing a variety of products and services designed to increase business delivery and/or reduce operating and development costs. These products and services include national marketing campaigns, a guest loyalty program, a central reservation system, property and yield management programs and systems, revenue management services, quality assurance standards, and qualified vendor relationships and partnerships with companies that provide products and services to our franchisees and guests. We believe that healthy brands, which deliver a compelling return on investment, will enable us to sell additional hotel franchises and raise royalty rates. We have multiple brands that meet the needs of many different types of guests, and can be developed at various price points and applied to both new and existing hotels. This ensures that we have brands suitable for creating growth in a variety of market conditions. Improving the performance of the hotels in our system, strategically growing the system through additional franchise sales, and improving franchise agreement pricing while maintaining a disciplined cost structure are the keys to profitable growth.
Maximizing Financial Returns and Creating Value for Shareholders - Our capital allocation decisions, including our capital structure and the uses of capital, are intended to maximize our return on invested capital and create value for our shareholders. Since our business has not historically required significant reinvestment of capital, we typically utilize cash in ways that management believes provides the greatest returns to our shareholders, which include acquisitions, share repurchases, and dividends. Refer to the Liquidity and Capital Resources section in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for more information regarding our capital returns to shareholders.
In addition to our hotel franchising business, we have also developed or acquired 17 open and operating hotels. We have strategically developed hotels to increase the presence of our newly introduced brands in the U.S., drive greater guest satisfaction and brand preference, and ultimately increase the number of franchise agreements awarded. When developing hotels, we seek key markets with strong growth potential that will deliver strong operating performance and improve the recognition of our brands. Our hotel development and ownership efforts currently focus on the Cambria Hotels and Everhome Suites brands. We believe our owned hotels provide us the opportunity to support and accelerate the growth of these brands. We do not anticipate owning hotels on a permanent basis and we expect to target dispositions to a franchisee encumbered with a long-term Choice franchise agreement in the future.
A key component of our strategy for owned hotels is to maximize revenues and manage costs. We strive to optimize revenues by focusing on revenue management, increasing guest loyalty, expanding brand awareness with targeted customer groupings, and providing superior guest service. Other than four owned hotels, we currently do not manage our owned hotels but utilize the services of third-party hotel management companies that provide their own employees. We manage costs by setting performance goals for our hotel management companies and optimizing distribution channels.
The Company also allocates capital to financing, investment, and guaranty support to incentivize franchise development for certain brands in strategic markets. The timing and amount of these investments are subject to market and other conditions.
We believe our growth investments and strategic priorities, when properly implemented, will enhance our profitability, maximize our financial returns, and continue to generate value for our shareholders. The ultimate measure of our success will be reflected in the items below.
Results of Operations - Franchise and management fees, operating income, net income, and diluted earnings per share ("EPS") represent the key measures of our financial performance. These measures are primarily driven by the operations of our hotel franchise system and therefore, our analysis of the Company's results of operations is primarily focused on the size, performance, and the potential growth of the hotel franchise system as well as our variable overhead costs.
Our discussion of our results of operations excludes reimbursable franchise marketing and reservation revenues and expenses and the management agreement cost reimbursements and expenses included in the Company's revenue for reimbursable costs from franchised and managed properties and reimbursable expenses from franchised and managed properties. The Company's franchise agreements require the payment of marketing and reservation fees to be used by the Company for the expenses associated with providing franchise services such as national marketing, media advertising, and central reservation systems. The
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Company is obligated to expend the marketing and reservation fees it collects from its franchisees in accordance with the franchise agreements. Furthermore, the franchisees are required to reimburse the Company for any deficits generated by these marketing and reservation system activities. Over time, the Company expects the cumulative revenues and expenses of reimbursable components to break even and, therefore, no income or loss will be generated from the reimbursable marketing and reservation system activities. Additionally, the Company's management agreements include cost reimbursements, which is primarily related to payroll costs at the managed hotels where the Company is the employer. As a result, the Company generally excludes the revenue for reimbursable costs from franchised and managed properties and reimbursable expenses from franchised and managed properties from the analysis of its results of operations.
Due to the seasonal nature of the Company’s hotel franchising and management business and the multi-year investments required to support the franchise operations, quarterly and/or annual surpluses or deficits may be generated. During the years ended December 31, 2025, 2024, and 2023, reimbursable expenses from franchised and managed properties exceeded revenue for reimbursable costs from franchised and managed properties by $47.1 million, $18.2 million, and $32.8 million, respectively.
Refer to the Operations Review section in MD&A for additional analysis of our results of operations.
Liquidity and Capital Resources - Historically, the Company has generated significant cash flows from operations . Since our business has not historically required a significant reinvestment of capital, we typically utilize cash in ways that management believes provide the greatest returns to our shareholders, which include acquisitions, share repurchases, and dividends.
We believe the Company’s cash on hand, available borrowing capacity under the senior unsecured revolving credit facility, cash flows from operations, and access to additional capital in the debt markets is sufficient to meet the expected future operating, investing, and financing needs of the business. Refer to the Liquidity and Capital Resources section in MD&A for additional analysis.
Inflation - We believe that moderate increases in the rate of inflation will generally result in comparable or greater increases in hotel room rates. We continue to monitor future inflation trends along with the corresponding impacts to our business.
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Operations Review
A summary of the financial results for the years ended December 31, 2025 and 2024 was as follows:
December 31,
(in thousands)
REVENUES
Franchise and management fees
Partnership services and fees
Owned hotels
Other
Revenue for reimbursable costs from franchised and managed properties
Total revenues
OPERATING EXPENSES
Selling, general and administrative
Business combination, diligence and transition costs
Depreciation and amortization
Owned hotels
Reimbursable expenses from franchised and managed properties
Total operating expenses
Operating income
OTHER EXPENSES AND (INCOME), NET
Interest expense
Interest income
Gain from an acquisition of a joint venture
Gain on sale of assets
Loss on extinguishment of debt
Other (gains) losses, net
Equity in net loss (gain) of affiliates
Total other expenses and (income), net
Income before income taxes
Income tax expense
Net income
Results of Operations
For the year ended December 31, 2025, the Company recognized income before income taxes of $456.9 million, which is a $61.2 million increase from the year ended December 31, 2024. The increase in income before income taxes was primarily due to a $100.0 million gain from an acquisition of a joint venture in 2025 and an $8.6 million increase in other (gains) losses, net, all of which were partially offset by a $26.7 million decrease in the equity in net loss (gain) of affiliates and a $15.4 million decrease in operating income.
Operating income decreased $15.4 million primarily due to a $29.0 million increase in the net reimbursable deficit from franchised and managed properties, a $16.6 million increase in selling, general and administrative expenses, and a $7.8 million increase in depreciation and amortization expense, all of which were partially offset by a $14.3 million increase in partnership services and fees, an $8.2 million increase in other revenues, and a $12.5 million decrease in business combination, diligence and transition costs.
Franchise and Management Fees
Franchise and management fees increased $3.6 million primarily due to an $11.5 million increase in international royalty fees and an $8.2 million increase in revenues generated from programs, platforms, and services associated with the Company's franchise operations, all of which were partially offset by a $14.9 million decrease in U.S. royalty fees.
U.S. royalty fees decreased $14.9 million to $439.8 million for the year ended December 31, 2025 from $454.7 million for the year ended December 31, 2024. The decrease in U.S. royalty fees was primarily due to a 3.0% decrease in U.S. system-wide
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RevPAR as a result of a 1.6% decrease in average daily rates and an 80 basis points decrease in occupancy, and a 2.9% decrease in open and operating U.S. hotel rooms, all of which were partially offset by a system-wide 8 basis points increase in the average royalty rate from 5.06% for the year ended December 31, 2024 to 5.14% for the year ended December 31, 2025.
A summary of the operating performance for the Company's U.S. franchised hotels, organized by chain scale, was as follows:
Change
Average Daily Rate
Occupancy
RevPAR
Average
Daily Rate
Occupancy
RevPAR
Average
Daily Rate
Occupancy
RevPAR
Upscale & Above (1)
bps
Midscale & Upper Midscale (2)
bps
Extended Stay (3)
bps
Economy (4)
bps
Total
bps
(1) Includes Ascend Collection, Cambria, Park Plaza, Radisson, Radisson Blu, Radisson Individuals, and Radisson RED brands.
(2) Includes Clarion, Comfort Inn, Comfort Suites, Country Inn & Suites, Park Inn, Quality Inn, and Sleep Inn brands.
(3) Includes Everhome Suites, Mainstay Suites, Suburban Studios, and WoodSpring Suites brands.
(4) Includes Econo Lodge and Rodeway brands.
A summary of the U.S. hotels and rooms by brand in our franchise system as of December 31, 2025 and 2024 was as follows:
December 31, 2025
December 31, 2024
Variance
Hotels
Rooms
Hotels
Rooms
Hotels
Rooms
Comfort (1)
Quality Inn
Econo Lodge
Rodeway
Country
Sleep Inn
Ascend Collection
WoodSpring Suites
Clarion (2)
MainStay Suites
Suburban Studios
Cambria Hotels
Radisson (3)
Park Inn
Everhome Suites
Total U.S. Franchises
(1) Includes the Comfort family of brand extensions, including Comfort Inn and Comfort Suites.
(2) Includes the Clarion family of brand extensions, including Clarion and Clarion Pointe.
(3) Includes the Radisson, Radisson Blu, Radisson Individuals, and Radisson RED brands.
International royalty fees increased $11.5 million to $41.3 million for the year ended December 31, 2025 from $29.8 million for the year ended December 31, 2024. The increase in international royalty fees was primarily due to an increase in the size of the international franchise system by 130 hotels (from 1,258 hotels as of December 31, 2024 to 1,388 hotels as of December 31, 2025) and 17,775 rooms (from 142,071 rooms as of December 31, 2024 to 159,846 rooms as of December 31, 2025), an increase in royalty fees as a result of the acquisition of the remaining 50% equity interest in Choice Hotels Canada, and an increase in international RevPAR.
Partnership Services and Fees
Partnership services and fees increased $14.3 million primarily due to an increase in the fees generated from the Company's co-branded credit card agreement and qualified vendors.
Other Revenues
Other revenues increased $8.2 million primarily due to an increase in liquidateddamages resulting from the early termination of franchise agreements and other franchising revenues.
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Selling, General and Administrative
Selling, general and administrative expenses increased $16.6 million primarily due to a $9.2 million increase in the provisions for credit losses on accounts receivable balances, a $4.5 million increase in costs related to the global enterprise resource planning ("ERP") system implementation, a $3.8 million increase in operating guarantee payments for a portfolio of managed hotels which was acquired in connection with the Company's purchase of Radisson Hotels Americas, and a $2.2 million increase in expenses to operate Choice Hotels Canada during the year ended December 31, 2025, all of which were partially offset by a $2.4 million litigation settlement that was recognized during the year ended December 31, 2024.
Business Combination, Diligence and Transition Costs
Business combination, diligence and transition costs decreased $12.5 million primarily due to the termination of the Wyndham acquisition pursuit on March 8, 2024, which was partially offset by the transaction costs associated with the acquisition of Choice Hotels Canada that were recognized during the year ended December 31, 2025.
Depreciation and Amortization
Depreciation and amortization expense increased $7.8 million primarily due to a $4.0 million increase in amortization expense for intangible assets as a result of the acquisition of the remaining 50% equity interest in Choice Hotels Canada in July 2025 and a $1.7 million increase in depreciation expense related to the opening of five owned hotels during the year ended December 31, 2025.
Gain from an Acquisition of a Joint Venture
During the year ended December 31, 2025, the Company recognized a $100.0 million gain on the fair value remeasurement of its previously held 50% equity investment in Choice Hotels Canada as a result of acquiring the remaining 50% equity interest in Choice Hotels Canada in July 2025.
Other (Gains) Losses, net
Other (gains) losses, net increased $8.6 million primarily due to a net loss of $8.3 million on the sales of equity securities during the year ended December 31, 2024, which was partially offset by dividend income of $1.5 million that was recognized during the year ended December 31, 2024.
Equity in Net Loss (Gain) of Affiliates
Equity in net loss (gain) of affiliates decreased $26.7 million primarily due to $6.5 million of non-recurring joint venture formation transaction costs that were associated with the Company entering into a new joint venture agreement, and a new loan facility, to develop and operate Everhome Suites in certain strategic markets during the year ended December 31, 2025, a $10.0 million decrease in the equity earnings from our unconsolidated affiliates, a $3.6 million decrease in equity earnings as a result of acquiring the remaining 50% equity interest in Choice Hotels Canada during the year ended December 31, 2025, and a distribution from an unconsolidated affiliate, which sold its underlying assets, resulting in the recognition of a $7.2 million gain during the year ended December 31, 2024.
Income Tax Expense
The Company's effective income tax rates were 19.0% and 24.3% for the years ended December 31, 2025 and 2024, respectively. The effective income tax rate for the year ended December 31, 2025 was lower than the U.S. federal income tax rate of 21.0% primarily due to the impact of a $100.0 million non-taxable gain from an acquisition of a joint venture and federal income tax credits, which were partially offset by the impact of state income taxes and tax expense related to compensation. The effective income tax rate for the year ended December 31, 2024 was higher than the U.S. federal income tax rate of 21.0% primarily due to the impact of state income taxes and tax expense related to compensation, which were partially offset by federal income tax credits.
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Operations Review
A summary of the financial results for the years ended December 31, 2024 and 2023 was as follows:
December 31,
(in thousands)
REVENUES
Franchise and management fees
Partnership services and fees
Owned hotels
Other
Revenue for reimbursable costs from franchised and managed properties
Total revenues
OPERATING EXPENSES
Selling, general and administrative
Business combination, diligence and transition costs
Depreciation and amortization
Owned hotels
Reimbursable expenses from franchised and managed properties
Total operating expenses
Impairment of long-lived assets
Operating income
OTHER EXPENSES AND (INCOME), NET
Interest expense
Interest income
Loss (gain) on extinguishment of debt
Other losses (gains), net
Equity in net gain of affiliates
Total other expenses and (income), net
Income before income taxes
Income tax expense
Net income
Results of Operations
For the year ended December 31, 2024, the Company recognized income before income taxes of $395.6 million, which is a $58.7 million increase from the year ended December 31, 2023. The increase in income before income taxes was primarily due to an $88.7 million increase in operating income and a $9.5 million increase in the equity in net gain of affiliates, both of which were partially offset by a $23.4 million increase in interest expense, a $12.3 million decrease in other losses (gains), net, and a $4.7 million decrease in loss (gain) on extinguishment of debt.
Operating income increased $88.7 million primarily due to a $17.6 million increase in franchise and management fees, a $7.7 million increase in partnership services and fees, a $9.0 million increase in other revenues, a $14.7 million decrease in the net reimbursable deficit from franchised and managed properties, and a $38.5 million decrease in business combination, diligence and transition costs.
The primary reasons for these fluctuations are described in more detail below.
Franchise and Management Fees
Franchise and management fees increased $17.6 million primarily due to a $14.7 million increase in revenues generated from programs, platforms, and services associated with the Company's franchise operations and a $0.9 million increase in international royalty fees, all of which were partially offset by a $3.4 million decrease in U.S. royalty fees.
U.S. royalty fees decreased $3.4 million to $454.7 million for the year ended December 31, 2024 from $458.1 million for the year ended December 31, 2023. The decrease in U.S. royalty fees was primarily due to a 1.2% decrease in U.S. system-wide RevPAR as a result of a 0.3% decrease in average daily rates and a 50 basis points decrease in occupancy, all of which were
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partially offset by a 3.0% increase in open and operating U.S. hotel rooms and a system-wide 7 basis points increase in the average royalty rate from 4.99% for the year ended December 31, 2023 to 5.06% for the year ended December 31, 2024.
A summary of the operating performance for the Company's U.S. franchised hotels, organized by chain scale, was as follows:
Change
Average Daily Rate
Occupancy
RevPAR
Average
Daily Rate
Occupancy
RevPAR
Average
Daily Rate
Occupancy
RevPAR
Upscale & Above (1)
bps
Midscale & Upper Midscale (2)
bps
Extended Stay (3)
bps
Economy (4)
bps
Total
bps
(1) Includes Ascend Collection, Cambria, Park Plaza, Radisson, Radisson Blu, Radisson Individuals, and Radisson RED brands.
(2) Includes Clarion, Comfort Inn, Comfort Suites, Country Inn & Suites, Park Inn, Quality Inn, and Sleep Inn brands.
(3) Includes Everhome Suites, Mainstay Suites, Suburban Studios, and WoodSpring Suites brands.
(4) Includes Econo Lodge and Rodeway brands.
A summary of the U.S. hotels and rooms by brand in our franchise system as of December 31, 2024 and 2023 was as follows:
December 31, 2024
December 31, 2023
Variance
Hotels
Rooms
Hotels
Rooms
Hotels
Rooms
Comfort (1)
Quality Inn
Econo Lodge
Rodeway
Country
Sleep Inn
Ascend Collection
WoodSpring Suites
Clarion (2)
MainStay Suites
Suburban Studios
Cambria Hotels
Radisson (3)
Park Inn
Everhome Suites
Total U.S. Franchises
(1) Includes the Comfort family of brand extensions, including Comfort Inn and Comfort Suites.
(2) Includes the Clarion family of brand extensions, including Clarion and Clarion Pointe.
(3) Includes the Radisson, Radisson Blu, Radisson Individuals, and Radisson RED brands.
International royalty fees increased $0.9 million to $29.8 million for the year ended December 31, 2024 from $28.9 million for the year ended December 31, 2023. The increase in international royalty fees was primarily due to an increase in the size of the international franchise system by 36 hotels (from 1,222 hotels as of December 31, 2023 to 1,258 hotels as of December 31, 2024) and 6,050 rooms (from 136,021 rooms as of December 31, 2023 to 142,071 rooms as of December 31, 2024), and an increase in international RevPAR.
Partnership Services and Fees
Partnership services and fees increased $7.7 million primarily due to an increase in the fees generated from the Company's co-branded credit card agreement and qualified vendors.
Owned Hotels
The Company's revenues, net of operating expenses, from the owned hotels increased $4.1 million primarily due to the improved operating performance at our owned hotels and the addition of two owned hotels during the year ended December 31, 2024 as compared to the prior year.
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Other Revenues
Other revenues increased $9.0 million primarily due to an increase in liquidateddamages that resulted from the early termination of franchise agreements and other franchising revenues.
Business Combination, Diligence and Transition Costs
Business combination, diligence and transition costs decreased $38.5 million primarily due to the termination of the Wyndham acquisition pursuit on March 8, 2024 and substantial completion of the integration of the Radisson Hotels Americas business in the fourth quarter of 2023.
Impairment of Long-Lived Assets
Impairment of long-lived assets decreased $3.7 million primarily due to a sublease agreement that was signed for the legacy Radisson corporate office space in Minneapolis, Minnesota. The long-lived asset group associated with the office space was determined to be impaired due to the carrying value exceeding its fair value, which resulted in the recognition of a $3.4 million impairmentloss in 2023. The Company did not recognize any impairments of long-lived assets during the year ended December 31, 2024.
Interest Expense
Interest expense increased $23.4 million primarily due to increased borrowings and higher interest rates on the Company's outstanding borrowings. Refer to the discussion in the Liquidity and Capital Resources section in MD&A for more information.
Loss (Gain) on Extinguishment of Debt
Loss (gain) on extinguishment of debt decreased $4.7 million. During the year ended December 31, 2024, the Company recognized a loss on extinguishment of debt due to the repayment of the 2023 Term Loan. During the year ended December 31, 2023, the Company derecognized certain economic development loans from the consolidated balance sheets due to satisfying the relevant performance conditions in the loan agreement, resulting in a gain on extinguishment of debt.
Other Losses (Gains), net
Other losses (gains), net decreased $12.3 million primarily due to a net loss of $8.3 million on the sales of equity securities related to the pursuit of the Wyndham acquisition during the year ended December 31, 2024 and a $4.0 million unrealized gain on investments in equity securities during the year ended December 31, 2023, all of which were partially offset by dividend income of $1.5 million that was recognized during the year ended December 31, 2024 and a $0.6 million increase in the Company's deferred compensation and employee benefit plans assets based on increases in the fair value of the underlying investments.
Equity in Net Gain of Affiliates
Equity in net gain of affiliates increased $9.5 million primarily due to a distribution from an unconsolidated affiliate, which sold its underlying assets, resulting in the recognition of a $7.2 million gain during the year ended December 31, 2024. Refer to Note 7 to our consolidated financial statements for additional information.
Income Tax Expense
The Company's effective income tax rates were 24.3% and 23.3% for the years ended December 31, 2024 and 2023, respectively. The effective income tax rates for the years ended December 31, 2024 and 2023 were higher than the U.S. federal income tax rate of 21.0% primarily due to the impact of state income taxes and tax expense related to compensation, which were partially offset by federal income tax credits.
Liquidity and Capital Resources
Our Company historically generates strong and predictable operating cash flows primarily from our hotel franchising operations. Our capital allocation decisions, including capital structure and our uses of capital, are intended to maximize our return on invested capital and create value for our shareholders, while maintaining a strong balance sheet and financial flexibility. The Company's short-term and long-term liquidity requirements primarily arise from working capital needs, debt obligations, income tax payments, dividend payments, share repurchases, capital expenditures, and investments in growth opportunities.
As of December 31, 2025, the Company's primary sources of liquidity consisted of $571.4 million in cash and cash equivalents and available borrowing capacity under the senior unsecured revolving credit facility. As of December 31, 2025, the Company was in compliance with all of its financial covenants under its credit agreements and the Company expects to remain in such
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compliance. The Company believes that its cash on hand, available borrowing capacity under the senior unsecured revolving credit facility, cash flows from operations, and access to additional capital in the debt markets will provide sufficient liquidity to meet the expected future operating, investing, and financing needs of the business.
Our board of directors authorized a program which permits us to offer investment and guaranty support to qualified franchisees, and to acquire or develop and then resell hotels to incentivize franchise development of our brands in strategic markets. We primarily engage in these investment and guaranty support activities to encourage acceleration of the growth of our Cambria Hotels and Everhome Suites brands. With respect to these activities, the Company had approximately $667.2 million of investments in the Cambria Hotels and Everhome Suites brands reflected in the consolidated balance sheet as of December 31, 2025. The Company is generally targeting to recycle these investments within a five year period, and expects our outstanding investments to not exceed $1.2 billion at any point in time based on the current board of directors' authorization. The deployment and annual pace of future investment and guaranty support activities will depend upon market and other conditions, including among others, our franchise sales results, the environment for new construction hotel development, and the hotel lending environment.
The Company also strategically deploys capital in the form of franchise agreement acquisition costs across our brands to incentivize franchise development. The timing and the amount of the franchise agreement acquisition cost payments are dependent on various factors including the implementation of various development and brand incentive programs, the level of franchise sales, and the ability of our franchisees to complete construction or convert their hotels to one of the Company’s brands.
The Company has historically generated cash flows from operating activities that are in excess of the capital needed to invest in growth opportunities and to service debt obligations. As a result, the Company maintains a share repurchase program and typically pays a quarterly dividend. On March 11, 2024, the Company's board of directors approved an increase of 5 million shares in the number of shares authorized to be repurchased under its share repurchase program. As of December 31, 2025, the Company had 2.8 million shares remaining under the current share repurchase authorization. The 2025 annual dividend rate was $1.15 per share or approximately $53.5 million in aggregate dividend payments. Future dividends are subject to declarations by our board of directors.
Cash Flows from Operating Activities
During the years ended December 31, 2025, 2024, and 2023, the net cash provided by operating activities was $270.4 million, $319.4 million, and $296.6 million, respectively. Our operating cash flows decreased $49.0 million during the year ended December 31, 2025 primarily due to the timing of working capital items, the final installment payment made in 2025 for the one-time transition tax on earnings of foreign subsidiaries that was imposed by 2017 tax legislation, and the cash paid for the purchase of transferrable tax credits in 2025 of which a portion will be utilized in 2026, all of which were partially offset by a decrease in business combination, diligence and transition costs associated with the timing of the termination of the Wyndham acquisition pursuit during the first quarter of 2024, a decrease in deferred income taxes primarily attributable to the enactment of a tax act, and a decrease in the franchise agreement acquisition cost payments.
In conjunction with brand and development programs, we strategically make certain franchise agreement acquisition cost payments to franchisees as an incentive to enter into new franchise agreements or perform-designated improvements to properties under existing franchise agreements. If the franchisee remains in the franchise system in good standing over the term specified in the incentive agreement, then the Company forgives the incentive ratably. If the franchisee exits our franchise system or is not operating their franchise in accordance with our quality or credit standards and is terminated, then the franchisee must repay the unamortized franchise agreement acquisition cost payment plus interest to the Company. During the years ended December 31, 2025, 2024, and 2023, the Company's net franchise agreement acquisition costs were $83.4 million, $112.2 million, and $98.3 million, respectively.
The Company's franchise agreements require the payment of marketing and reservation fees to be used by the Company for the expenses associated with providing franchise services such as national marketing, media advertising, and central reservation systems. Additionally, the Company's management agreements include cost reimbursements, primarily related to the payroll costs at the managed hotels where the Company is the employer. These activities are reflected in revenue for reimbursable costs from franchised and managed properties and reimbursable expenses from franchised and managed properties. During the years ended December 31, 2025, 2024, and 2023, reimbursable expenses from franchised and managed properties exceeded revenue for reimbursable costs from franchised and managed properties by $47.1 million, $18.2 million, and $32.8 million, respectively.
Cash Flows from Investing Activities
The net cash used in investing activities was $218.3 million, $84.6 million, and $265.6 million for the years ended December 31, 2025, 2024, and 2023, respectively.
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During the years ended December 31, 2025, 2024, and 2023, investments in owned hotel properties totaled $106.9 million, $106.8 million, and $68.6 million, respectively. These investments related to the ongoing hotel development efforts to support the continued growth of the Cambria Hotels and Everhome Suites brands. During the years ended December 31, 2025, 2024, and 2023, investments in other property and equipment totaled $38.9 million, $39.1 million, and $47.7 million, respectively. These investments primarily related to leasehold improvements, office equipment, and capitalized software.
The Company has equity method investments in affiliates related to the Company's program to offer equity support to qualified franchisees to develop and operate Cambria Hotels and Everhome Suites branded-hotels in strategic markets. During the years ended December 31, 2025, 2024, and 2023, the Company invested $93.7 million, $52.8 million, and $38.9 million, respectively, to support these efforts. During the years ended December 31, 2025, 2024, and 2023, the Company received distributions from these affiliates totaling $44.6 million, $15.9 million, and $0.9 million, respectively. For the year ended December 31, 2025, the Company received net cash proceeds of $52.0 million from the sale of four wholly-owned Everhome Suites under construction to a joint venture. Refer to Note 7 for more information.
The Company provides financing to franchisees for hotel development efforts and other purposes in the form of notes receivable loans. The loans bear interest and are expected to be repaid in accordance with the terms of the loan agreements. During the years ended December 31, 2025, 2024, and 2023, the Company issued a total of $6.9 million, $38.0 million, and $4.3 million of notes receivable loans, respectively, and received repayments totaling $7.4 million, $32.1 million, and $10.9 million on the notes receivable loans, respectively.
On July 2, 2025, the Company acquired the remaining 50% of the outstanding shares of Choice Hotels Canada for a purchase price, net of the cash acquired, of $73.4 million. The acquisition was funded with available cash and borrowings under the Company's senior unsecured revolving credit facility.
During the year ended December 31, 2025, there were no purchases or sales of equity securities. During the year ended December 31, 2024, the Company purchased no equity securities and received $108.1 million in proceeds from the sales of equity securities. During the year ended December 31, 2023, the Company purchased $112.4 million of equity securities in conjunction with the Wyndham acquisition pursuit and there were no sales of equity securities.
Cash Flows from Financing Activities
Cash flows from financing activities primarily relate to the proceeds or payments on the Company’s borrowings, treasury stock repurchases, acquisition of shares in connection with the exercise or vesting of equity awards, the payment of dividends, and the payment of debt issuance costs.
Debt
Senior Unsecured Revolving Credit Facility
On June 28, 2024, the Company entered into a Second Amended and Restated Senior Unsecured Credit Agreement (the "Restated Credit Agreement"), which amended and restated the Company’s existing amended and restated senior unsecured credit agreement dated August 20, 2018 (the “Former Credit Agreement”). The Former Credit Agreement provided for an $850 million unsecured revolving credit facility (the “Revolver”) with a final maturity date of August 20, 2026. The Restated Credit Agreement increased the commitments under the Revolver to $1 billion and extended the final maturity date of the Revolver to June 28, 2029, subject to optional one-year extensions that can be requested by the Company prior to each of the third, fourth, and fifth anniversaries of the closing date of the Restated Credit Agreement.
The effectiveness of such extension is subject to the consent of the lenders under the Restated Credit Agreement and certain customary conditions. The Restated Credit Agreement also provides that up to $50 million of borrowings under the Revolver may be used for alternative currency loans, up to $10 million of capacity under the Revolver may be used for the issuance of letters of credit, and up to $25 million of borrowings under the Revolver may be used for swingline loans. The Company may from time to time designate one or more wholly-owned subsidiaries of the Company as additional borrowers under the Restated Credit Agreement, subject to the consent of the lenders and certain customary conditions.
At any time prior to the final maturity date, the Company may increase the amount of the Revolver or add one or more term loan facilities under the Restated Credit Agreement by up to an additional $500 million in the aggregate to the extent that any one or more lenders commit to being a lender for the additional amount of such increase or the term loan facility and certain other customary conditions are met.
The Restated Credit Agreement allows the Company to elect to have the Revolver bear interest at a rate equal to (i) the secured overnight financing rate (subject to a credit spread adjustment of 0.10% and a 0.00% floor) plus a margin ranging from 0.90% to 1.50% or (ii) a base rate plus a margin ranging from 0.00% to 0.50%. In each case, the margin is determined according to the
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Company’s senior unsecured long-term debt rating or under circumstances as set forth in the Restated Credit Agreement if the Company’s total leverage ratio is less than 2.5 to 1.0.
The Restated Credit Agreement requires the Company to pay a fee on the total commitments under the Revolver, calculated on the basis of the actual daily amount of the commitments under the Revolver (regardless of usage) times a percentage per annum ranging from 0.075% to 0.25% (depending on the Company’s senior unsecured long-term debt rating or under specific circumstances as set forth in the Restated Credit Agreement if the Company’s total leverage ratio is less than 2.5 to 1.0).
The Restated Credit Agreement requires that the Company and its restricted subsidiaries comply with various covenants, including with respect to restrictions on liens, incurring indebtedness, making dividends and stock repurchases, making investments and effecting mergers and/or asset sales. The Restated Credit Agreement imposes financial maintenance covenants requiring the Company to maintain a consolidated fixed charge coverage ratio of at least 2.5 to 1.0 and a total leverage ratio of not more than 4.5 to 1.0, which may be increased up to two nonconsecutive occasions to 5.5 to 1.0 for up to four consecutive fiscal quarters commencing with the fiscal quarter in which certain material acquisitions are consummated. So long as the Company maintains an Investment Grade Rating, as defined in the Restated Credit Agreement, then the Company will not need to comply with the consolidated fixed charge coverage ratio covenant.
The Restated Credit Agreement includes customary events of default, the occurrence of which, following any applicable cure period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations of the Company under the Restated Credit Agreement to be immediately due and payable. As of December 31, 2025, the Company maintained a total leverage ratio of 2.86x, including outstanding debt of approximately $469.8 million on the senior unsecured revolving credit facility. The Company was in compliance with all financial covenants under the Restated Credit Agreement.
Debt issuance costs incurred in connection with the Restated Credit Agreement are amortized on a straight-line basis, which is not materially different from the effective interest method, through the loan's maturity date. The amortization of the debt issuance costs is included in interest expense in the consolidated statements of income.
The proceeds of the Restated Credit Agreement are expected to be used for general corporate purposes, including working capital, debt repayment, stock repurchases, dividends, investments, and other permitted uses as set forth in the Restated Credit Agreement.
2024 Senior Unsecured Notes Due 2034
On July 2, 2024, the Company issued unsecured senior notes with a principal amount of $600 million (the "2024 Senior Notes”) at a discount of $6.4 million, bearing a coupon of 5.85%, with an effective rate of 6.11%, and mature on August 1, 2034. Interest on the 2024 Senior Notes is payable semi-annually on February 1 st and August 1 st of each year, commencing on February 1, 2025. The interest rate payable on the 2024 Senior Notes will be subject to adjustment based on certain rating events.
The Company may redeem the 2024 Senior Notes, in whole or in part, at any time prior to their maturity at the redemption price, which includes a make-whole premium. If the 2024 Senior Notes are redeemed on or after May 1, 2034 (three months prior to the applicable maturity date), then the redemption price will be equal to 100% of the principal amount of the 2024 Senior Notes being redeemed plus accrued and unpaid interest thereon to the redemption date. Additionally, at the option of the holders of the 2024 Senior Notes, the Company may be required to repurchase all or a portion of the holder's 2024 Senior Notes upon the occurrence of a change of control event, at a price equal to 101% of their aggregate principal amount, plus accrued and unpaid interest, to the date of repurchase.
2023 Term Loan Due 2024
On December 18, 2023, the Company entered into a $500 million unsecured term loan with an effective interest rate of 6.83% and a maturity date of December 16, 2024 (the "2023 Term Loan"). The 2023 Term Loan and all accrued but unpaid interest must be repaid in full on the maturity date.
The term loan agreement required that the Company comply with various covenants, including restrictions on liens, incurring indebtedness, making dividends, stock repurchases, investments, and completing mergers and/or asset sales. The term loan agreement had financial covenants which required the Company to maintain a consolidated fixed charge coverage ratio of at least 2.5 to 1.0, and a total leverage ratio of not more than 4.5 to 1.0 which may have been increased to 5.5 to 1.0 for up to three consecutive fiscal quarters commencing with the fiscal quarter in which certain material acquisitions are consummated. As long as the Company maintained an Investment Grade Rating, as defined in the term loan agreement, then the Company would not need to comply with the consolidated fixed charge coverage ratio covenant. The Company was in compliance with all covenants upon the repayment in full of the 2023 Term Loan.
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On July 2, 2024, the Company used a portion of the net proceeds from the sale of the 2024 Senior Notes, after deducting underwriting discounts and commissions and other offering expenses, to repay in full the 2023 Term Loan.
2020 Senior Unsecured Notes Due 2031
On July 23, 2020, the Company issued unsecured senior notes with a principal amount of $450 million (the "2020 Senior Notes") bearing a coupon of 3.70%. The 2020 Senior Notes will mature on January 15, 2031, with interest to be paid semi-annually on January 15 th and July 15 th of each year. The Company used the net proceeds of the 2020 Senior Notes, after deducting underwriting discounts, commissions, and offering expenses, to repay in full the $250 million term loan entered in April 2020 and to fund the purchase price of the 2012 Senior Notes.
The interest rate payable on the 2020 Senior Notes is subject to adjustment based on certain rating events. The Company may redeem the 2020 Senior Notes, in whole or in part, at its option at the applicable redemption price before the maturity date. If the Company redeems the 2020 Senior Notes prior to October 15, 2030 (three months prior to the maturity date) (the “2020 Notes Par Call Date”), the redemption price will be equal to the greater of (a) 100% of the principal amount of the notes to be redeemed, or (b) the sum of the present values of the remaining scheduled principal and interest payments that would have been payable had the 2020 Senior Notes matured on the 2020 Notes Par Call Date, discounted to the redemption date on a semi-annual basis at the applicable Treasury Rate plus 50 basis points, plus accrued and unpaid interest. If the Company redeems the 2020 Senior Notes on or after the 2020 Notes Par Call Date, the redemption price will equal 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest. Additionally, at the option of the holders of the 2020 Senior Notes, the Company may be required to repurchase all or a portion of the 2020 Senior Notes upon the occurrence of a change of control event at a price equal to 101% of their aggregate principal amount, plus accrued and unpaid interest, to the date of repurchase.
2019 Senior Unsecured Notes Due 2029
On November 27, 2019, the Company issued unsecured senior notes with a principal amount of $400 million (the "2019 Senior Notes") at a discount of $2.4 million, bearing a coupon of 3.70% with an effective rate of 3.88%. The 2019 Senior Notes will mature on December 1, 2029, with interest to be paid semi-annually on December 1 st and June 1 st of each year. The Company used the net proceeds of this offering, after deducting underwriting discounts, commissions, and offering expenses, to repay the previously outstanding senior notes with a principal amount of $250 million due August 28, 2020, and for working capital and other general corporate purposes.
The Company may redeem the 2019 Senior Notes, in whole or in part, at its option at the applicable redemption price before maturity. If the Company redeems the 2019 Senior Notes prior to September 1, 2029 (three months prior to the maturity date) (the “2019 Notes Par Call Date”), the redemption price will be equal to the greater of (a) 100% of the principal amount of the notes to be redeemed, or (b) the sum of the present values of the remaining scheduled principal and interest payments that would have been payable had the 2019 Senior Notes matured on the 2019 Notes Par Call Date, discounted to the redemption date on a semi-annual basis at the applicable Treasury Rate plus 30 basis points, plus accrued and unpaid interest. If the Company redeems the 2019 Senior Notes on or after the 2019 Notes Par Call Date, the redemption price will equal 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest. Additionally, at the option of the holders of the 2019 Senior Notes, the Company may be required to repurchase all or a portion of the 2019 Senior Notes upon the occurrence of a change of control event at a price equal to 101% of their aggregate principal amount, plus accrued and unpaid interest, to the date of repurchase.
2025 Economic Development Loans
The Company entered into certain economic development agreements with various governmental entities in conjunction with the relocation of its corporate headquarters in November 2023. In accordance with these agreements, as December 31, 2025, the governmental entities advanced $1.9 million to the Company to offset a portion of the corporate headquarters relocation and tenant improvement costs in consideration of the employment of permanent, full-time employees within the jurisdictions. The Company has been advanced the full amounts that were due pursuant to these agreements, and these advances bear interest at a rate of 3% per annum.
Repayment of the advances is contingent upon the Company achieving certain performance conditions, which are measured annually on December 31st and primarily relate to maintaining certain levels of employment within the various jurisdictions. If the Company fails to meet an annual performance condition, then the Company may be required to repay a portion or all of the advances including accrued interest by April 1st following the measurement date. Any outstanding advances at the expiration of the Company's corporate headquarters lease in 2035 will be forgiven in full. The advances are presented in debt in the Company's consolidated balance sheets until the Company determines that the future performance conditions have been met over the entire term of the agreement and the Company will not be required to repay the advances. The Company accrues
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interest on the portion of the advances that it expects to repay. The Company is in compliance with all applicable current performance conditions as of December 31, 2025.
2013 Economic Development Loans
The Company entered into economic development agreements with various governmental entities in conjunction with the relocation of its corporate headquarters in April 2013. In accordance with these agreements, the governmental entities agreed to advance approximately $4.4 million to the Company to offset a portion of the corporate headquarters relocation and tenant improvement costs in consideration of the employment of permanent, full-time employees within the jurisdictions. The Company has been advanced the full amounts that were due pursuant to these agreements, and these advances bore interest at a rate of 3% per annum.
Repayment of the advances was contingent upon the Company achieving certain performance conditions. The performance conditions were measured annually on December 31st and primarily related to maintaining certain levels of employment within the various jurisdictions. If the Company failed to meet an annual performance condition, then the Company may have been required to repay a portion, or all, of the advances including accrued interest by April 30th following the measurement date. Under the terms of the agreement, upon the expiration of the Company's previous ten-year corporate headquarters lease agreement in 2023, any outstanding advances would be forgiven in full. The $4.4 million of advances were previously recognized as debt in the consolidated balance sheets.
Upon the expiration of the Company's previous corporate headquarters lease agreement in 2023, the Company concluded that it had achieved the performance conditions over the entire term of the agreement and therefore, the Company was not required to repay the advances. As a result, during the year ended December 31, 2023, the Company derecognized the $4.4 million economic development loans debt from the consolidated balance sheets and recognized a gain on extinguishment of debt in the consolidated statements of income.
Dividends
During the year ended December 31, 2025, the Company declared aggregate annual cash dividends of $1.15 per share or approximately $53.5 million in aggregate dividend payments.
We expect that cash dividends will continue to be paid in the future, subject to the declaration by our board of directors, future business performance, economic conditions, changes in tax regulations, and other matters. In accordance with the Restated Credit Agreement, the Company may not declare or make any dividend payments if there is an existing event of default or if the dividend payment would create an event of default.
Share Repurchases & Redemptions
The Company has a share repurchase program. Treasury stock activity is recorded at cost in the consolidated balance sheets. During the year ended December 31, 2025, the Company repurchased 1.0 million shares of its common stock under the share repurchase program at a total cost, including accrued excise tax, of $125.9 million. As of December 31, 2025, the Company had 2.8 million shares remaining under the current share repurchase authorization.
During the year ended December 31, 2025, the Company redeemed 0.1 million shares of common stock at a total cost of $9.9 million from employees to satisfy the option exercise price and the statutory minimum tax-withholding requirements related to the exercising of stock options and the vesting of performance vested restricted stock units ("PVRSUs") and restricted stock grants. These redemptions were outside the share repurchase program. During the year ended December 31, 2025, the Company received proceeds of $6.8 million from stock options exercised by employees.
The Company has material future contractual obligations of $104.2 million (excluding the previously addressed debt obligations, the financing, investment, guaranty, and franchise agreement acquisition cost commitments to franchisees, and the deferred compensation plan liabilities) as of December 31, 2025.
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Critical Accounting Estimates
The preparation of our consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements, the reported amounts of revenues and expenses during the reporting periods, and the related disclosures in the consolidated financial statements and the accompanying footnotes. On an ongoing basis, we evaluate these estimates and judgments based on historical experiences and various other factors that we believe reflect the current circumstances. While we believe our estimates, assumptions, and judgments are reasonable, they are based on information that was available when the estimate or assumption was made. Actual results may differ significantly from these estimates due to changes in assumptions, judgments, and conditions as a result of unforeseen events or otherwise, which could have a material effect on our financial condition or results of operations.
We believe that the following estimates, which are used in conjunction with our significant accounting policies, are critical because they involve a higher degree of judgment and are based on information that is inherently uncertain. Refer to Note 1 to our consolidated financial statements for information on our significant accounting policies.
Guest Loyalty Program
Choice Privileges is the Company’s guest loyalty program, which enables members to earn points based on their spending levels with the Company’s franchisees. The points, which the Company accumulates and tracks on the members’ behalf, may be redeemed for free accommodations or other benefits (e.g., gift cards to participating retailers). The Company collects from franchisees a percentage of the loyalty program members’ gross room revenue from completed hotel stays to operate the guest loyalty program. At the time the points are redeemed for free accommodations or other benefits, the Company reimburses the franchisees or third parties based on a rate derived in accordance with the franchise or vendor agreement.
Loyalty program points represent a performance obligation attributable to the usage of the points, and thus the revenues are recognized at a point in time when the loyalty program points are redeemed by the members for benefits. The transaction price is variable and determined in the period when the loyalty program points are earned and the underlying gross room revenues are known. No loyalty program revenues are recognized at the time the loyalty program points are issued.
The Company is an agent in coordinating the delivery of the services between the loyalty program member and the franchisee or third party, and as a result, the revenues are recognized net of the cost of redemptions. The estimated value of the future redemptions is reflected in the current and non-current liability for guest loyalty program in the consolidated balance sheets. The liability for the guest loyalty program is developed based on an estimate of the eventual redemption rates and point values using various actuarial methods. These significant judgments determine the required point liability attributable to the outstanding points, which is relieved as the redemption costs are processed. The amount of the loyalty program fees in excess of the guest loyalty program point liability represents current and non-current deferred revenue, which is recognized to revenue as the points are redeemed including an estimate of the future forfeitures (“breakage”). The anticipated redemption pattern of the points is the basis for the current and non-current designation of each liability. The loyalty program point redemption revenues are presented within revenue for reimbursable costs from franchised and managed properties in the consolidated statements of income. Any changes in the estimates used in developing the breakage rate or other future guest loyalty program operations could result in a material change to the liability for the guest loyalty program and the deferred revenues.
The Company maintains various agreements with third-party partners, including the co-branding of the Choice Privileges credit card. The agreements typically provide for use of the Company’s marks, limited access to the Company’s distribution channels, and the sale of Choice Privileges points, in exchange for the payment of fees which primarily comprises variable consideration each month. Choice Privileges members can earn points through participation in the third-party partner’s program. The partner agreements include multiple performance obligations. The primary performance obligations are brand intellectual property and material rights for free or discounted goods or services to the hotel guests. The allocation of fixed and variable consideration to the performance obligations is based on the standalone selling price, which is estimated based on the market and income methods which contain significant judgments. The amounts allocated to the brand intellectual property are recognized on a gross basis over time using the output measure of time elapsed, and are presented within partnership services and fees in the consolidated statements of income. The amounts allocated to material rights for free or discounted goods or services to hotel guests are recognized to revenue as the points are redeemed including an estimate of breakage, within revenue for reimbursable costs from franchised and managed properties.
Goodwill and Intangible Assets
The Company evaluates the impairment of goodwill and intangible assets with indefinite lives annually as of October 1st or earlier upon the occurrence of substantive unfavorable changes in economic conditions, industry trends, costs, cash flows, or ongoing declines in market capitalization that indicate that the Company may not be able to recover the carrying amount of the asset. During the year ended December 31, 2025, the Company changed its annual impairment assessment date from December
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31st to October 1st. In evaluating these assets for impairment, the Company may elect to first assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit or the indefinite-lived intangible asset is less than its carrying amount. If the conclusion is that it is not more likely than not that the fair value of the asset is less than its carrying value, then no further testing is required. If the conclusion is that it is more likely than not that the fair value of the asset is less than its carrying value, then a quantitative impairment test is performed whereby the carrying value is compared to the fair value of the asset and an impairment charge is recognized, as applicable, for the excess of the carrying value over the fair value. The Company may elect to forgo the qualitative assessment and move directly to the quantitative impairment tests for goodwill and indefinite-lived intangible assets. The Company determines the fair value of its reporting units and indefinite-lived intangible assets using the income and market methods.
Goodwill is allocated to the Company's reporting units. The Company's reporting units are determined primarily by the availability of discrete financial information relied upon by the chief operating decision maker ("CODM") to assess performance and make operating segment resource allocation decisions. As of December 31, 2025, the Company's goodwill is allocated to the Hotel Franchising reporting unit. The Company performed a qualitative impairment analysis for the Hotel Franchising reporting unit and concluded that it is more likely than not that the fair value of the reporting unit is greater than its carrying amount. As such, no impairment was recognized and a quantitative test was not required.
New Accounting Standards
Refer to the "Recently Adopted & Issued Accounting Standards" section of Note 1 to the consolidated financial statements for information related to our adoption and assessment of new accounting standards.
