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CHOICE HOTELS INTERNATIONAL INC /DE

CHOICE HOTELS INTERNATIONAL INC /DECHHEarnings & Financial Report

NYSE · hospitality industry

Choice Hotels International, Inc. is an American multinational hospitality company based in North Bethesda, Maryland. The company, which is one of the largest hotel chains in the world, owns various hotel brands ranging from upscale to economy. As of the end of 2024, Choice Hotels franchised nearly 7,600 hotels, representing over 650,000 rooms, in 46 countries and territories.

What changed in CHOICE HOTELS INTERNATIONAL INC /DE's 10-K — 2022 vs 2023

Top changes in CHOICE HOTELS INTERNATIONAL INC /DE's 2023 10-K

651 paragraphs added · 674 removed · 431 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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The number of rooms in our hotel system and the occupancy and room rates at those 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 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.
A company’s relative reliance on each of these activities determines which drivers most influence its profitability. • Ownership requires a substantial capital commitment and involves the most risk but offers high returns due to the owner’s ability to influence margins by driving RevPAR, managing operating expenses and providing financial leverage.
A company’s relative reliance on each of these activities determines which drivers most influence its profitability. • Ownership requires a substantial capital commitment and involves the most risk but offers high returns due to the owner’s ability to influence its margins by driving RevPAR, managing operating expenses and providing financial leverage.
The ownership model has a high fixed-cost structure that results in a high degree of operating leverage relative to RevPAR performance. As a result, profits escalate rapidly in a lodging up-cycle but erode quickly in a downturn as costs rarely decline as fast as revenue.
The ownership model has a high fixed-cost structure that results in a high degree of operating leverage relative to RevPAR performance. As a result, profits escalate rapidly in a lodging up-cycle but erode quickly in a lodging downturn as costs rarely decline as fast as revenue.
Under a typical franchise agreement, the hotel owner pays the franchisor an initial fee, a percentage-of-revenue royalty fee and a marketing & reservation systems fee. A franchisor’s revenues are dependent on the number of rooms in its system and the top-line performance of those hotels. Earnings drivers include RevPAR increases, unit growth and effective royalty rate improvement.
Under a typical franchise agreement, the hotel owner pays the franchisor an initial fee, a percentage-of-revenue royalty fee, and a marketing & reservation systems fee. A franchisor’s revenues are dependent on the number of rooms in its system and the top-line revenue performance of those hotels. Earnings drivers include RevPAR increases, unit growth, and effective royalty rate improvement.
We enjoy significant operating leverage since the variable operating costs associated with the franchise system growth of our established brands have historically been less than incremental royalty fees generated from new franchises.
We enjoy significant operating leverage since the variable operating costs associated with the franchise system growth of our established brands have historically been less than the incremental royalty fees generated from new franchises.
We believe that our business is well positioned in the lodging industry since we generally benefit from both increases in RevPAR and unit growth from new hotel construction or conversion of existing hotel assets into our system. In addition, improving business delivery to our franchisees should allow us to improve the effective royalty rate of our franchise contracts.
We believe that our business is well positioned in the lodging industry since we generally benefit from both increases in RevPAR and unit growth from new hotel construction or conversion of existing hotel assets into our system. In addition, improving business delivery to our franchisees should allow us to improve the effective royalty rate in our franchise contracts.
We are focused on expanding our platform business, which is reflected in our procurement services revenues, through key partnerships, new technology and other key franchisee resources. The expansion of these relationships has enabled us to further drive our top-line revenue and deliver tangible value-added solutions to our hotel owners and customers.
We are focused on expanding our platform business through key partnerships, new technology, and other key franchisee resources, which is reflected in our procurement services revenues. The expansion of these relationships has enabled us to further drive our top-line revenue and deliver tangible value-added solutions to our hotel owners and customers.
Properties feature compelling design inspired by the location, spacious and comfortable rooms, spa inspired bathrooms, outdoor spaces featuring pools and rooftop bars, flexible meeting space, and a locally sourced menu and craft beer. Principal competitor brands include: Courtyard by Marriott, Aloft, Hyatt Place, Hotel Indigo, AC Hotels and Hilton Garden Inn.
The properties feature a compelling design inspired by the location, spacious and comfortable rooms, spa inspired bathrooms, outdoor spaces featuring pools and rooftop bars, flexible meeting space, and a locally sourced menu and craft beer. The principal competitor brands include Courtyard by Marriott, Aloft, Hyatt Place, Hotel Indigo, AC Hotels, and Hilton Garden Inn.
Guests have access to free high-speed internet, a modern fitness room and outdoor amenity space, 24/7 laundry facilities and weekly housekeeping service. Each hotel also has a “Homebase Market” with food, drink and personal items available for purchase. Small kitchen appliances are available to check out at the front desk through the “Homebase Essentials” program.
Guests have access to free high-speed internet, a modern fitness room, outdoor amenity space, 24/7 laundry facilities, and weekly housekeeping service. Each hotel also has a “Homebase Market” with food, drink, and personal items available for purchase. Small kitchen appliances are available to check out at the front desk through the “Homebase Essentials” program.
With free coffee to get guests started in the morning and free high-speed internet, Rodeway is a great option for practical travelers looking for: “Good night. Great Savings.” Principal competitor brands include Americas Best Value Inn and Motel 6.
With free coffee to get guests started in the morning and free high-speed internet, Rodeway is a great option for practical travelers looking for a “Good night. Great Savings.” The principal competitor brands include Americas Best Value Inn and Motel 6.
We have identified key market areas for hotel development based on supply/demand relationships and our strategic objectives. Development opportunities are typically offered to: (i) existing franchisees; (ii) developers of hotels or multi-family housing; (iii) owners of independent hotels and motels; (iv) owners of hotels leaving other franchisors’ brands; and (v) franchisees of non-hotel related products such as restaurants.
We have identified key market areas for hotel development based on supply and demand relationships and our strategic objectives. Development opportunities are typically offered to: (i) existing franchisees, (ii) developers of hotels or multi-family housing, (iii) owners of independent hotels and motels, (iv) owners of hotels leaving other franchisors’ brands, and (v) franchisees of non-hotel related products such as restaurants.
In addition, increasing the percentage of business delivered through the CRS improves our value proposition to a hotel owner and therefore assists in retention of existing franchisees and acquisition of new franchisees.
In addition, increasing the percentage of business delivered through the CRS improves our value proposition to a hotel owner and therefore assists in the retention of existing franchisees and the acquisition of new franchisees.
We also believe that hotel operators select a franchisor in part based on the franchisor’s reputation among other franchisees and the success of its existing franchisees.
We also believe that the hotel operators select a franchisor in part based on the franchisor’s reputation among other franchisees and the success of its existing franchisees.
Key features include mental health support, employee assistance and financial wellness programs, as well as creating opportunities for belonging and connections within the organization.
The key features include mental health support, employee assistance and financial wellness programs, as well as creating opportunities for belonging and connections within the organization.
The large franchise lodging chains, including us, generally provide a number of support services to hotel operators designed to improve the financial performance of their properties including central reservation and property management systems, marketing and advertising programs, training and education programs, revenue enhancement services and relationships with qualified vendors to streamline purchasing processes and make lower cost products available.
The large hotel franchise chains, including us, generally provide a number of support services to hotel operators designed to improve the financial performance of their properties including central reservation and property management systems, marketing and advertising programs, training and education programs, revenue enhancement services, and relationships with qualified vendors to streamline their purchasing processes and make lower cost products available.
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 types of guests, and can be developed at various price points and applied to both new and existing hotels.
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.
Our proprietary property management system, choiceADVANTAGE, includes a rate and selling management tool to help our franchisees better manage rates and inventory which are designed to help them improve RevPAR by optimizing ADR and occupancy. In addition, we offer revenue management services to our franchisees to assist them in optimizing their room rates and minimizing costs of reservation delivery.
Our proprietary property management system, choiceADVANTAGE, includes a rate and selling management tool to help our franchisees better manage rates and inventory, which are designed to help them improve RevPAR by optimizing ADR and occupancy. In addition, we offer revenue management services to our franchisees to assist them in optimizing their room rates and minimizing the costs of reservation delivery.
In addition, the Company offers a generous benefits package including a 401(k) matching program (increased the match in 2022 to 100% on the first 5% of associates contributions), paid family leave, paid caregiver leave, wellbeing days, commuter benefits, a legal services plan, charitable gift matching, a LEED certified workspace, and paid volunteer leave.
In addition, the Company offers a generous benefits package, including a 401(k) matching program (we increased the match in 2022 to 100% on the first 5% of associates contributions), paid family leave, paid caregiver leave, wellbeing days, commuter benefits, a legal services plan, charitable gift matching, a LEED certified workspace, and paid volunteer leave.
The international master franchisee collects the fees paid by the local franchisee and remits an agreed upon share to us. Our master franchise and similar multi-unit licensing agreements have expiration dates, which we actively manage and potentially renew as we deem beneficial. Certain of these agreements have expiration dates in 2024.
The master franchisee collects the fees paid by the local franchisee and remits an agreed upon share to us. Our master franchise and similar multi-unit licensing agreements have expiration dates, which we actively manage and potentially renew as we deem beneficial. Certain of these agreements have expiration dates in 2024.
Based on market conditions and other circumstances, we may offer certain incentives to developers to increase development of our brands, such as discounting various fees including the initial franchise fee, royalty fee and system fee, and providing franchise agreement acquisition payments to support development, property improvements and other hotel expenditures.
Based on market conditions and other circumstances, we may offer certain incentives to developers to increase development of our brands, such as discounting various fees including the initial franchise fee, royalty fee and system fee, and providing franchise agreement acquisition cost payments to support development, property improvements, and other hotel expenditures.
He was Vice President, Franchise Sales from June 2002 until January 2005. Prior to joining the Company, he was Vice President, Franchise Sales with U.S. Franchise Systems, Inc. (USFS), a hotel franchisor, from 1996 through June 2002. Simone Wu. Senior Vice President, General Counsel, Corporate Secretary & External Affairs since 2015.
He was Vice President, Franchise Sales from June 2002 until January 2005. Prior to joining the Company, he was Vice President, Franchise Sales with U.S. Franchise Systems, Inc., a hotel franchisor, from 1996 through June 2002. Simone Wu - Senior Vice President, General Counsel, Corporate Secretary & External Affairs since 2015.
Franchisees who fail to improve on identified quality issues may be subject to consequences ranging from written warnings, the payment of re-inspection, non-compliance and guest satisfaction fees, attendance at mandatory training programs and ultimately to the termination of the franchise agreement.
Franchisees who fail to improve on identified quality issues may be subject to consequences ranging from written warnings, the payment of re-inspection(s), non-compliance and guest satisfaction fees, attendance at mandatory training programs, and ultimately the termination of the franchise agreement.
Similar to franchising activities, the key drivers of revenue-based management fees are RevPAR and unit growth. Similar to ownership activities, profit based fees are driven by improved hotel margins and RevPAR growth. Similar to other industries, lodging experiences both positive and negative operating cycles.
Similar to franchising activities, the key drivers of revenue-based management fees are RevPAR and unit growth. Similar to ownership activities, profit based fees are driven by improved hotel margins and RevPAR growth. Similar to other industries, the lodging industry experiences both positive and negative operating cycles.
Choice’s Franchising Business We operate primarily as a hotel franchisor and deploy our family of 22 brands and brand extensions, which represent both new construction and conversion brands and compete at various hotel consumer and developer price points. Economics of Franchising Business .
Choice’s Franchising Business We operate primarily as a hotel franchisor and deploy our family of 22 brands and brand extensions, which represent both new construction and conversion brands and compete at various hotel consumer and developer price points.
Our principal source of revenues is franchise fees based on the gross room revenues of our franchised properties. The Company's franchise fee revenues reflect the industry's seasonality and historically have been lower in the first and fourth quarters than in the second and third quarters.
Our principal source of revenues is franchise fees, which is based on the gross room revenues of our franchised properties. The Company's franchise fee revenues reflect the industry's seasonality and historically have been lower in the first and fourth quarters than in the second and third quarters.
Due to the fact that a significant portion of the costs of owning and operating a hotel are generally fixed, increases in revenues generated by affiliation with a franchise lodging chain can improve a hotel’s financial performance.
Due to the fact that a significant portion of the costs of owning and operating a hotel are generally fixed, increases in revenues generated by affiliation with a hotel franchise chain can improve a hotel’s financial performance.
Improving the desirability of our brands should also allow us to continue to improve the effective royalty rate of our contracts. Building Strong Brands . Each of our brands has particular attributes and strengths, including awareness with both consumers and developers.
Improving the desirability of our brands should also allow us to continue to improve the effective royalty rate in our contracts. Building Strong Brands - Each of our brands has particular attributes and strengths, including awareness with both consumers and developers.
Regulation Our business subject to various U.S. and international regulations, including regulations of the Federal Trade Commission ("FTC"), various states and certain other foreign jurisdictions (including Australia, France, Canada, and Mexico) that relate to the sale of franchises.
Regulation Our business is subject to various U.S. and international regulations, including the regulations of the Federal Trade Commission ("FTC"), various states and certain other foreign jurisdictions (including Australia, France, Canada, and Mexico) that relate to the sale of franchises.
We strive to improve the percentage of business delivered by our CRS as room nights reserved through these channels are typically at higher average daily rates than reservations booked directly through the property.
We strive to improve the percentage of business delivered by the CRS as the room nights reserved through these channels are typically at higher average daily room rates than the reservations booked directly through the property.
He served as President of Manor Care of America, Inc., and Chief Executive Officer of ManorCare Health Services, Inc., from March 1987 to September 1998, and as Vice Chairman of Manor Care of America, Inc., from June 1982 to March 1987. Patrick S. Pacious.
He served as President of Manor Care of America, Inc., and Chief Executive Officer of ManorCare Health Services, Inc., from March 1987 to September 1998, and as Vice Chairman of Manor Care of America, Inc., from June 1982 to March 1987. Patrick S.
We believe chain and franchise affiliation will increase in certain international markets as local economies grow and hotel owners seek the economies of centralized reservations systems and marketing programs.
We believe chain and franchise affiliation will increase in certain international markets as local economies grow and hotel owners seek the economies of scale in centralized reservations systems and marketing programs.
Regularly scheduled regional and national training meetings are also conducted for owners and general managers. We offer an interactive computer and mobile-based training system to help train hotel employees in real-time as well as at their own pace. Additional training is conducted through a variety of methods, including group instruction seminars and live online instructor-led programs. Opening Services .
Regularly scheduled regional and national training meetings are also conducted for owners and general managers. We offer an interactive computer and mobile-based training system to help train hotel employees in real-time as well as at their own pace. Additional training is conducted through a variety of methods, including group instruction seminars and live online instructor-led programs.
The FTC requires franchisors to make extensive disclosure to prospective franchisees and a number of states in which our franchisees operate require registration and disclosure in connection with franchise offers and sales.
The FTC requires franchisors to make extensive disclosures to prospective franchisees, and a number of states in which our franchisees operate require registration and disclosure in connection with franchise offers and sales.
Our mission is a commitment to franchisee profitability by providing our franchisees with hotel franchises that strive to generate the highest return on investment of any hotel franchise.
Strategy - Our mission is a commitment to franchisee profitability by providing our franchisees with hotel franchises that strive to generate the highest return on investment of any hotel franchise.
Director from 1977 to 1996 and since 1997, serving as Chairman of the Board from March 1987 to November 1996 and since October 1997; Managing Member of Artis Senior Living, LLC, a developer-owner-operator of assisted living residences, since 2012; Board of Advisors of UCLA's School of Management; Director of Realty Investment Company, Inc., a real estate management and investment company, from December 2005 through December 2016 and Chairman from December 2005 through June 2009; Director of Sunburst Hospitality Corporation, a real estate developer, owner and operator, from November 1996 through December 2016 and Chairman from November 1996 through June 2009.
Bainum, Jr. - Director from 1977 to 1996 and since 1997, serving as Chairman of the Board from March 1987 to November 1996 and since October 1997; Managing Member of Artis Senior Living, LLC, a developer-owner-operator of assisted living residences, since 2012; Board of Advisors of UCLA's School of Management; Director of Realty Investment Company, Inc., a real estate management and investment company, from December 2005 through December 2016 and Chairman from December 2005 through June 2009; Director of Sunburst Hospitality Corporation, a real estate developer, owner and operator, from November 1996 through December 2016 and Chairman from November 1996 through June 2009.
The franchise agreements typically contain liquidated damages provisions addressing franchisee termination at intervals other than those specified in the agreement which represent a fair and reasonable measure of damages that both parties agree should be paid to us. The Company utilizes master development agreements (“MDA”) with respect to the WoodSpring Suites and Everhome Suites brands (and on occasion other brands).
The franchise agreements typically contain liquidated damages provisions addressing franchisee termination at intervals other than those specified in the agreement which represent a fair and reasonable measure of damages that both parties agree should be paid to us. The Company utilizes master development agreements ("MDA") with respect to the WoodSpring Suites and Everhome Suites brands (and on occasion other brands).
He was Controller of the Company from September 2006 until May 2016, was Senior Director & Assistant Controller of Choice from February 2004 to September 2006, and was Director, Marketing and Reservations, Finance from October 2002 until February 2004.
He was Controller of the Company from September 2006 until May 2016, was Senior Director & Assistant Controller from February 2004 to September 2006, and was Director, Marketing and Reservations, Finance from October 2002 until February 2004.
All guest rooms feature fully equipped kitchens as well as separate lounge and work areas. MainStay Suites offer free high-speed internet, an exercise room, 24/7 laundry facilities, weekly housekeeping, as well as breakfast options for guests. Each hotel also has a "MainStay Marketplace" where guests may purchase a variety of food and sundry items.
All guest rooms feature fully equipped kitchens as well as separate lounges and work areas. MainStay Suites offer free high-speed internet, an exercise room, 24/7 laundry facilities, weekly housekeeping, as well as breakfast options for guests. Each hotel also has a "MainStay Marketplace" where guests may purchase a variety of food and sundry items.
Depending on the jurisdiction, trademarks and other registered marks are valid as long as they are in use and/or their registrations are properly maintained and they have not been found to have become generic. Seasonality The hotel industry is seasonal in nature. For most hotels, demand is lower from November through February than during the remainder of the year.
Depending on the jurisdiction, trademarks and other registered marks are valid as long as they are in use and/or their registrations are properly maintained and they have not been found to have become generic. Seasonality The lodging industry is seasonal in nature. For most hotels, demand is lower from November through February than during the remainder of the year.
The compliance of existing franchisees with quality standards is monitored through scheduled and unannounced quality assurance reviews conducted by a third-party periodically at the property and through the use of guest surveys. Properties that fail to maintain a minimum score are reinspected on a more frequent basis until deficiencies are cured, or until such properties are terminated.
The compliance of existing franchisees with quality standards is monitored through scheduled and unannounced quality assurance reviews conducted by a third-party at the property and through the use of guest surveys. Franchise properties that fail to maintain a minimum score are reinspected on a more frequent basis until the deficiencies are cured, or until such properties are terminated.
MainStay Suites: MainStay Suites operates in the midscale extended stay category, offering developers flexible conversion and new construction opportunities in a variety of market types. The Mainstay Suites guest experience delivers on a "Live Like Home" promise for guests traveling for business or pleasure whose stays are longer than a few nights.
MainStay Suites - MainStay Suites operates in the midscale extended stay chain scale category, offering developers flexible conversion and new construction opportunities in a variety of market types. The Mainstay Suites guest experience delivers on a "Live Like Home" promise for guests traveling for business or pleasure whose stays are longer than a few nights.
In addition, we have introduced programs such as our Lowest Price Guarantee program which has greatly reduced the ability of the travel intermediaries to undercut the published rates at our franchisees' hotels. Further, we selectively distribute our franchisees' inventory to key third-party travel intermediaries that we have established agreements with to help drive additional business to our franchisees' hotels.
In addition, we have introduced programs such as our Lowest Price Guarantee program, which has significantly reduced the ability of the third-party travel intermediaries to undercut the published rates at our franchisees' hotels. Further, we selectively distribute our franchisees' inventory to key third-party travel intermediaries that we have established agreements with to help drive additional business to our franchisees' hotels.
We believe our brands’ growth will be driven by our ability to create a compelling return on investment for franchisees. Our strategic objective is to improve profitability of our franchisees by providing services which increase business delivery, enhance RevPAR, reduce hotel operating and development costs, and/or improve guest satisfaction.
We believe that our brands’ growth will be driven by our ability to create a compelling return on investment for our franchisees. Our strategic objective is to improve the profitability of our franchisees by providing services which increase business delivery, enhance RevPAR, reduce hotel operating and development costs, and/or improve guest satisfaction.
Our brands such as Quality, Clarion Pointe, Ascend Hotel Collection, Econo Lodge, and Radisson offer conversion opportunities during both industry contraction and growth cycles to independent operators and non-Choice affiliated hotels who desire to affiliate with our brands and take advantage of the services we have to offer. Strategy.
Certain of our brands, such as Quality, Clarion Pointe, Ascend Hotel Collection, Econo Lodge, and Radisson, offer conversion opportunities during both industry contraction and growth cycles to independent operators and non-Choice affiliated hotels who desire to affiliate with our brands and take advantage of the services we have to offer.
Our new build brands such as Cambria Hotels, Comfort, Sleep Inn, WoodSpring, Everhome Suites, and Country Inn & Suites offer hotel developers an array of choices at various price points for transient and extended stay business during periods of supply growth in the various hotel chain scale categories.
Our new hotel development brands, such as Cambria Hotels, Comfort, Sleep Inn, WoodSpring, Everhome Suites, and Country Inn & Suites, offer hotel developers an array of choices at various price points for transient and extended stay business during periods of supply growth in the various hotel chain scale categories.
Our business strategy has been to conduct direct franchising in those international markets where both franchising is an accepted business model and we believe our brands can achieve significant distribution. We typically elect to enter into master franchise agreements in those markets where direct franchising is currently not a prevalent or viable business model.
Our business strategy has been to conduct direct franchising in those international markets where both franchising is an accepted business model and we believe our brands can achieve significant distribution. We typically choose to enter into master franchise agreements in those international markets where direct franchising is currently not a prevalent or viable business model.
Our field-based franchise services area directors work with franchisees to help them maximize RevPAR and improve the efficiency of their hotel operations. These consultants advise franchisees on topics such as marketing their hotels, improving quality and maximizing the benefits offered by the Choice reservations system.
Our field-based franchise services area directors work with our franchisees to help them maximize RevPAR and improve the efficiency of their hotel operations. The franchise services area directors advise the franchisees on topics such as marketing their hotels, improving quality and maximizing the benefits offered by the Choice reservations system.
We expect to benefit in the form of increased franchise fees from future growth in consumer demand for hotel rooms as well as growth in the supply of hotel rooms, to the extent it does not result in excess lodging industry capacity. However, a prolonged decline in demand for hotel rooms would negatively impact our business.
We expect to benefit in the form of increased franchise fees from the future growth in consumer demand for hotel rooms as well as growth in the supply of hotel rooms, to the extent it does not result in excess lodging industry capacity. However, a prolonged decline in the demand for hotel rooms will negatively impact our business.
We generally believe the effect of local economic conditions on our results is substantially reduced by our range of products and room rates and the geographic diversity of our franchised properties, which are open and operating in 50 states, the District of Columbia and nearly 50 countries and territories outside the United States.
We generally believe the effect of local economic conditions on our results is substantially reduced by our range of products and room rates and the geographic diversity of our franchised properties, which are open and operating in 50 states, the District of Columbia, and 46 countries and territories outside the United States.
We intend to continue to strategically develop and manage hotels to increase the presence of our brands in the United States, drive greater guest satisfaction and brand preference, and ultimately increase the number of franchise agreements awarded. We believe these avenues provide us the opportunity to support and accelerate the growth of our brands.
We intend to continue to strategically develop and manage hotels in order to increase the presence of our brands in the United States, drive greater guest satisfaction and brand preference, and increase the number of franchise agreements awarded. We believe these avenues provide us the opportunity to support and accelerate the growth of our brands.
Suburban Studios’ “longer stays made easy” philosophy provides value-conscious, long staying guests with clean, comfortable rooms, friendly service and the amenities they need. All guestrooms provide in-room kitchens. Guests have access to free high-speed internet, 24/7 laundry facilities and bi-weekly housekeeping. Principal competitors include Extended Stay America, InTown Suites, HomeTowne Studios, and Studio 6.
Suburban Studios’ “longer stays made easy” philosophy provides value-conscious, long staying guests with clean, comfortable rooms, friendly service and the amenities they need. All guestrooms provide in-room kitchens. Guests have access to free high-speed internet, 24/7 laundry facilities, and bi-weekly housekeeping. The principal competitor brands include Extended Stay America, InTown Suites, HomeTowne Studios, and Studio 6.
When entering into master franchising relationships, we strive to select partners that have professional hotel and asset management capabilities together with the financial capacity to invest in building the Choice brands in their respective markets.
When entering into master franchising relationships, we strive to select partners that have professional hotel and asset management capabilities together with the financial capacity to invest in building the Company's brands in their respective markets.
Career Development We empower our nearly 1,800 associates across the globe to advance their careers by providing a career framework that allows them to understand and proactively manage their career path potential. Guided by a personalized development plan, each associate is empowered to identify and develop the skills and competencies necessary to prepare for their next, and future, desired roles.
Career Development We empower over 1,800 associates across the globe to advance their careers by providing a career framework that allows them to understand and proactively manage their career path potential. Guided by a personalized development plan, each associate is empowered to identify and develop the skills and competencies necessary to prepare for their next, and future, desired roles.
Profits from an ownership model increase at a greater rate from RevPAR growth attributable to ADR growth than from occupancy gains since there are more incremental costs associated with higher guest volumes compared to higher pricing. • Franchisors license their brands to a hotel owner, giving the hotel owner the right to use the brand name, logo, operating practices, and reservations systems in exchange for a fee and an agreement to operate the hotel in accordance with the franchisor’s brand standards.
Profits from an ownership model increase at a greater rate from RevPAR growth that is attributable to ADR growth rather than from occupancy gains since there are more incremental costs associated with higher guest volumes as compared to higher pricing. • Franchisors license their brands to a hotel owner, giving the hotel owner the right to use the brand name, logo, operating practices, and reservations systems in exchange for a fee and an agreement to operate the hotel in accordance with the franchisor’s brand standards.
The lodging industry can be divided into chain scale categories or groupings of generally competitive brands as follows: Chain Scale Brand Examples Luxury Four Seasons, Ritz Carlton, W Hotel, JW Marriott Upper Upscale Radisson Blu, Marriott, Hilton, Hyatt, Sheraton Upscale Cambria Hotels, Radisson, Courtyard, Hyatt Place, Hilton Garden Inn Upper Midscale Comfort Inn, Country Inn & Suites, Holiday Inn Express, Hampton Inn, Fairfield Inn Midscale Quality Inn, Sleep Inn, Best Western, Baymont Economy Econo Lodge, Super 8, Days Inn, Motel 6 The lodging industry consists of independent operators and those that have joined national hotel franchise chains.
The lodging industry can be divided into chain scale categories of generally competitive brands as follows: Chain Scale Brand Examples Luxury Four Seasons, Ritz Carlton, W Hotel, JW Marriott Upper Upscale Radisson Blu, Marriott, Hilton, Hyatt, Sheraton Upscale Cambria Hotels, Radisson, Courtyard, Hyatt Place, Hilton Garden Inn Upper Midscale Comfort Inn, Country Inn & Suites, Holiday Inn Express, Hampton Inn, Fairfield Inn Midscale Quality Inn, Sleep Inn, Best Western, Baymont Economy Econo Lodge, Super 8, Red Roof Inn, Motel 6 The lodging industry consists of independent operators and those that have joined national hotel franchise chains.
Radisson Individuals: Radisson Individuals is an upscale affiliation brand that offers hotels the benefits of our expertise, infrastructure, and brand recognition while celebrating each property’s distinct personality. A Radisson Individuals hotel gives guests the charm of a one-of-a-kind travel experience while providing the high-quality services and genuine hospitality we’re known for.
Radisson Individuals - Radisson Individuals is an upscale collection brand that offers hotels the benefits of our expertise, infrastructure, and brand recognition while celebrating each property’s distinct personality. A Radisson Individuals hotel gives guests the charm of a one-of-a-kind travel experience while providing the high-quality services, amenities, and genuine hospitality we’re known for.
Our CRS provides a data link to our franchised properties as well as to travel reservation systems such as Amadeus, Galileo, SABRE and Worldspan that facilitate the reservation process for travel agents and corporate travelers.
Our CRS provides a data link to our franchised properties as well as to the travel reservation systems, such as Amadeus, Galileo, SABRE, and Worldspan, which facilitate the reservation process for travel agents and corporate travelers.
Accordingly, over the long term, any continued growth of our franchise business should enable us to realize benefits from the operating leverage in place and improve operating results. We are required by our legacy Choice franchise agreements to use marketing and reservation system fees we collect for system-wide marketing and reservation system activities.
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 system fees we collect for system-wide marketing and reservation system activities.
We believe our efforts to leverage the Company’s size, scale and distribution benefit the Company by enhancing brand quality and consistency, improving our franchisees returns and satisfaction, and creating procurement services revenues.
We believe our efforts to leverage the Company’s size, scale and distribution benefit the Company by enhancing brand quality and consistency, improving our franchisees returns and satisfaction, and generating procurement services revenues.
We attempt to achieve consistency and quality for new entrants into the franchise system by placing prospective hotels in the appropriate brand based on the physical characteristics, performance and amenities of the hotel and by requiring property improvement plans, when necessary, to ensure the new hotel meets the quality standards of the brand.
We attempt to achieve consistency and quality for new entrants into the franchise system by placing prospective hotels in the appropriate brand based on the physical characteristics, the expected financial and operating performance, amenities of the hotel, and by requiring property improvement plans, when necessary, to ensure the new hotel meets the quality standards of the brand.
We also offer rooms for rent on our website (http://www.choicehotels.com) and mobile applications as well as those of OTA's and other third-party internet referral or booking services. Our toll-free telephone reservation system primarily utilizes third-party call center service providers.
We also offer rooms for rent on our website (http://www.choicehotels.com) and mobile applications as well as those of OTAs and other third-party internet referral and booking services. Our toll-free telephone reservation system primarily utilizes third-party call center service providers.
For these purposes, we define diverse as the self-identified demographic categories of American Indian or Alaska Native, Asian, Black or African American, Hispanic or Latino, Native Hawaiian or Other Pacific Islander, or Two or More Races. We are committed to providing fair and competitive pay.
For these purposes, we define diverse as the self-identified demographic categories of American 19 Table of Contents Indian or Alaska Native, Asian, Black or African American, Hispanic or Latino, Native Hawaiian or Other Pacific Islander, or Two or More Races. We are committed to providing fair and competitive pay.
As a result, franchisors benefit from both RevPAR growth and supply increases, which aids in reducing the impact of lodging industry economic cycles. 7 Table of Content s • Management companies operate hotels for owners that do not have the expertise and/or the desire to self-manage. These companies collect management fees predominately based on revenues earned and/or profits generated.
As a result, franchisors benefit from both RevPAR growth and supply increases, which aids in reducing the impact of lodging industry economic cycles. • Management companies operate hotels for the owners that do not have the expertise and/or the desire to self-manage the hotels. These companies collect management fees predominately based on revenues earned and/or profits generated.
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, qualified vendor relationships and partnerships with other travel-related companies that provide services to our franchisees and guests.
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 these factors enhance the resiliency of hotels affiliated with brands, and as a result, the value proposition of the franchise lodging chains, during a negative operating cycle.
We believe these factors enhance the resiliency of hotels affiliated with brands, and as a result, the value proposition of the hotel franchise chains during a negative operating cycle.
International Franchise Operations The Company conducts its international franchise operations through a combination of direct franchising and master franchising relationships. Master franchising relationships are governed by agreements that generally provide the master franchisee with the right to use and sub-license the use of our brands in a specific geographic region, usually for a fee.
International Franchise Operations The Company conducts its international franchise operations through a combination of direct franchising and master franchising relationships. Master franchising relationships are governed by agreements that generally provide the master franchisee with the right to use and sub-license the use of our brands in a specific geographic region.
With respect to our owned and managed hotels, we are also subject to laws governing our relationship with employees, including minimum wage requirements, overtime, working conditions and work permit requirements.
With respect to our owned and managed hotels, we are subject to the laws governing our relationship with employees, including minimum wage requirements, overtime, working conditions, and work permit requirements.
The key industry standard for measuring hotel-operating performance is 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 franchise system growth of our brands have historically been less than incremental royalty fees generated from new franchises.
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.
Before that, he was Senior Director, 25 Table of Content s IR Business Consultancy of Marriott International from October 2013 to September 2014, Global Director of FP&A of NII Holdings, Inc. from March 2012 to October 2013, and held various management positions at Deloitte Consulting from 2004 to 2012. David A. Pepper. Chief Development Officer since May 2015.
Before that, he was Senior Director, IR Business Consultancy of Marriott International from October 2013 to September 2014, Global Director of FP&A of NII Holdings, Inc. from March 2012 to October 2013, and held various management positions at Deloitte Consulting from 2004 to 2012. David A. Pepper - Chief Development Officer since May 2015.
The principal 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 effective royalty rate achieved on our franchise agreements; the level of franchise sales and relicensing activity; the number of qualified vendor arrangements and travel-related partnerships and the level of engagement with these partners by our franchisees and guests; and our ability to manage costs.
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 effective royalty rate 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.
Our Board of Directors provides oversight on certain human capital matters through two committees. • Human Capital and Compensation Committee - Providing a broad scope of oversight on talent, including: (1) overall associate wellbeing, (2) succession planning for the top 30 leadership roles, (3) talent management and leadership development oversight for the top 125 leadership roles, (4) oversight of pay parity goals, and (5) overall organizational engagement, including the work environment. • Diversity Committee - Providing guidance to management and the Board of Directors in developing a workplace culture that values working with diverse groups of people, offering diversity of thought and perspective.
Our Board of Directors provides oversight on certain human capital matters through two committees. • Human Capital and Compensation Committee - Providing a broad scope of oversight on talent, including: (1) overall associate wellbeing, (2) succession planning for the top 30 leadership roles, (3) talent management and leadership development oversight for the top 105 leadership roles, (4) oversight of pay parity goals, and (5) overall organizational engagement. • Diversity Committee - Overseeing our diversity and representation goals and providing guidance to management and the Board of Directors in developing a workplace culture that values working with diverse groups of people and offering diversity of thought and perspective.
The initial fee and ongoing royalty portion of the franchise fees are intended to cover our operating expenses, such as expenses incurred in business development, quality assurance, administrative support, certain franchise services and to provide us with operating profits.
The initial fee and the ongoing royalty portion of the franchise fees are intended to cover our operating expenses, which are the expenses incurred in business development, quality assurance, administrative support, certain franchise services, and to provide us with operating profits.
Prior to joining the Company, he was employed by XO Communications as Chief Financial Officer from July 2015 to February 2017 and Vice President, Financial Planning and Analysis ("FP&A") and Strategic Finance from September 2014 to July 2015.
He was previously Chief Financial Officer from March 2017 to September 2023. Prior to joining the Company, he was employed by XO Communications as Chief Financial Officer from July 2015 to February 2017 and Vice President, Financial Planning and Analysis ("FP&A") and Strategic Finance from September 2014 to July 2015.
We believe each of our brands appeals to targeted hotel owners and guests because of unique brand standards, marketing campaigns, loyalty programs, reservation delivery, revenue enhancing programs, service levels and pricing. Delivering Exceptional Services. We provide a combination of services and technology-based offerings to help our franchisees improve performance.
We believe that each of our brands appeal to the targeted hotel owners and guests because of unique brand standards, marketing campaigns, loyalty programs, reservation delivery, revenue enhancing programs, service levels, and pricing. Delivering Exceptional Services - We provide a combination of services and technology-based offerings to help our franchisees improve performance.
Typically, this helps reduce the hotel’s front desk staffing needs, improves customer service and results in a higher average daily rate than reservations booked directly through the property. 20 Table of Content s We continue to implement our integrated reservation and distribution strategy to help improve reservations delivery, reduce franchisee costs and improve franchisee satisfaction by enhancing our website, http://www.choicehotels.com.
Typically, this helps to reduce the hotel’s front desk staffing needs, improves customer service, and results in a higher average daily room rate than the reservations booked directly through the property. We continue to implement our integrated reservation and distribution strategy to help improve the delivery of reservations, reduce franchisee costs, and improve franchisee satisfaction by enhancing our website, http://www.choicehotels.com.
In certain circumstances, the Company has and may continue to make equity investments in our master franchisees. In some territories outside the United States, hotel franchising has less prevalence in favor of independent operators.
In certain circumstances, the Company has and may continue to make equity investments in our master franchisees. 12 Table of Contents In some territories outside the United States, hotel franchising has less prevalence in favor of independent operators.
We also actively seek to reach travelers who are shopping for travel online by purchasing key search related terms and meta search ads from the various search engine providers to help ensure that our franchisees' hotels are prominently displayed to potential guests.
We also actively 15 Table of Contents seek to reach travelers who are shopping for travel online by purchasing key search related terms and meta search ads from the various search engine providers to help ensure that our franchisees' hotels are prominently displayed to potential guests.
These services and products promote revenue gains for franchisees and improve guest satisfaction which translate into both higher royalties for the Company and improved returns for owners, leading to further room growth by making our brands even more attractive to prospective franchisees.
These services and products promote revenue gains for franchisees and improve guest satisfaction which translate into both higher royalties for the Company and improved returns for owners, leading to further room growth by making our 8 Table of Contents brands even more attractive to prospective franchisees.
In 2022, we enhanced our leave offerings with a cultural day for associates to celebrate the cultural observance of their choice. 24 Table of Content s We conduct a variety of confidential surveys throughout the year to seek input and better understand the associate life-cycle experience.
In 2022, we enhanced our leave offerings with a cultural day for associates to celebrate the cultural observance of their choice. We conduct a variety of confidential surveys throughout the year to seek input and better understand the associate life-cycle experience.
We believe our well-known brands, combined with our relationships with many internet distribution websites, benefits our franchisees by facilitating increased rate and reservations delivery, and reducing costs and operational complexity. Leveraging Size, Scale and Distribution .
We believe our well-known brands, combined with our relationships with many internet distribution websites, benefits our franchisees by facilitating increased rate and reservations delivery, and reducing costs and operational complexity.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Our franchisees may fail to make 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.
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.
Any adverse outcome of any such audit or review could have a negative effect on our business, operating results and financial condition, and 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.
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.
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 domestic and international franchisees.
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; 28 Table of Contents • 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 domestic and international franchisees.
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 adversely affect the level of business and leisure travel, and therefore the demand for lodging and related services; • level of consumer unemployment; • 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; • over-building in one or more sectors of the hotel industry and/or in one or more geographic regions, could lead to excess supply compared to demand, and to decreases in hotel occupancy and/or room rates; • the availability and cost of capital to allow hotel owners and developers to build new hotels and fund investments; • changes in travel patterns; • travelers’ fears of exposure to contagious diseases, such as the recent coronavirus, or insect infestations in hotel rooms and certain geographic areas; • 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; • 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 United States (affecting domestic travel) and internationally could also unfavorably impact future results.
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; 24 Table of Contents • 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 adversely affect the level of business and leisure travel, and therefore the demand for lodging and related services; • inflationary conditions; • level of consumer unemployment; • 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; • over-building in one or more sectors of the hotel industry and/or in one or more geographic regions, could lead to excess supply compared to demand, and to decreases in hotel occupancy and/or room rates; • the availability and cost of capital to allow hotel owners and developers to build new hotels and fund investments; • changes in travel patterns; • travelers’ fears of exposure to contagious diseases, such as the recent coronavirus, or insect infestations in hotel rooms and certain geographic areas; • 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; • 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 United States (affecting domestic travel) and internationally could also unfavorably impact future results.
Demographic, economic or other changes in markets may adversely affect the desirability of our brands and, correspondingly, the number of hotels franchised under the Choice 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.
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.
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-enabled incidents, including through viruses, malware, ransomware, denial of service attacks, phishing, hacking, malicious social engineering, and similar attacks by criminal actors, foreign governments, activists, and terrorists.
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-enabled incidents, 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.
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.
Any loss of data or funds, security breaches or even unsuccessful attempts at unauthorized access could harm our reputation, our relationship with our customer 30 Table of Contents 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.
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.
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. 34 Table of Contents 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.
Our international operations are subject to political and monetary risks. We have franchised hotels open and operating in approximately 50 countries and territories outside of the United States. We also have, 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 United States operations.
Our international operations are subject to political and monetary risks. We have franchised hotels open and operating in 46 countries and territories outside of the United States. We also have, 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 United States operations.
We have developed and launched additional hotel brands, such as Cambria Hotels, Clarion Pointe, Ascend Hotel Collection and Everhome Suites, and may develop and launch additional brands in the future.
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.
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. 35 Table of Content s Failure to protect our trademarks and other intellectual property could impact our business.
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.
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.
In addition, at times, the Company provides financial support to our franchisees via notes and guaranties. Factors that may 29 Table of Contents adversely affect the operating results and financial condition of these franchisees may result in the Company incurring losses related to this financial support.
If we are unable to compete successfully in these areas, this could adversely affect our market share and our results of operations. An adverse incident 30 Table of Content s involving our franchisees or their guests, and any media coverage resulting therefrom, could also damage our brands and reputation.
If we are unable to compete successfully in these areas, this could adversely affect our market share and our results of operations. An adverse incident involving our franchisees or their guests, and any media coverage resulting therefrom, could also damage our brands and reputation.
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. 28 Table of Content s We are subject to certain risks related to our indebtedness.
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. 25 Table of Contents We are subject to certain risks related to our indebtedness.
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 32 Table of Content s we franchise, our brand preference and reputation could suffer.
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.
As the internet travel intermediary industry continues to consolidate, and/or if well-known or well-financed companies decide to enter the internet travel 34 Table of Content s 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.
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.
Failure to comply could expose the Company to fines, litigation, or other expenses or sanctions as well as reputational harm. 37 Table of Content s We also rely on a variety of direct marketing techniques, including telemarketing, SMS, email, and postal mailings.
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.
While our business model is primarily 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. We currently own six Cambria hotels and three legacy Radisson Hotels Americas hotels.
While our business model is primarily 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 seven Cambria hotels and three legacy Radisson Hotels Americas hotels.
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 and adverse effect on our results of operations, our financial condition 29 Table of Content s and our reputation.
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 and adverse effect on our results of operations, our financial condition and our reputation.
These agreements also typically contain 31 Table of Content s 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.
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.
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. 38 Table of Content s The concentration of share ownership may influence the outcome of certain matters.
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.
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.
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.
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 approval of significant corporate transactions, such as mergers, acquisitions and equity compensation plans. Item 1B. Unresolved Staff Comments. None.
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 approval of significant corporate transactions, such as mergers, acquisitions and equity compensation plans.
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. The COVID-19 pandemic has negatively affected the labor market for employers.
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.
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. 36 Table of Content s Risks Related to Cybersecurity and Data Privacy We are subject to risks related to cybersecurity.
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.
In certain countries, these risks include the risk of war or civil unrest, political instability, expropriation and nationalization. Moreover, our international operations are subject to compliance with anti-corruption and anti-bribery laws and other foreign laws and regulations.
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. 26 Table of Contents Moreover, our international operations are subject to compliance with anti-corruption and anti-bribery laws and other foreign laws and regulations.
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.
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. Risks Related to Our Brands We are subject to the risks relating to the acquisition of new brands or lines of business.
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.
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 33 Table of Contents our business, loss of data, or render us unable to operate our business.
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.
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.
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.
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.
We cannot assure you that all of the steps we have taken to protect our trademarks in the United States and foreign countries will be adequate to prevent imitation of our trademarks by others.
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 United States and foreign countries will be adequate to prevent imitation of our trademarks by others.
As a result, fluctuations in 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.
We are also developing Cambria hotels and Everhome Suites on a stand alone basis and with joint venture partners. As a result, fluctuations in 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.
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.
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. 31 Table of Contents 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.
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.
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. 27 Table of Contents 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.
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.
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.
Climate change and sustainability related concerns could have a material adverse effect on our business and results of operations. We are subject to the risks associated with the physical effects of climate change (including changes in sea levels, water shortages, droughts, and natural disasters) and with changes in laws and regulations related to climate change and sustainability.
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.
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 claims against us and could significantly harm our results of operations.
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.
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.
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.
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. These risks could cause actual operating results to differ from those expressed in certain “forward looking statements” contained in this Form 10-K as well as in other Company communications.
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.
Compliance with future climate-related legislation and regulation, and our efforts to achieve science-based emissions reduction targets, could be difficult and costly. Consumer travel preferences may also shift due to sustainability related concerns or costs.
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.
The hospitality industry is under increasing attack by cyber-criminals.
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.
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 the Comfort brand which represents a significant portion of our business.
Our success and growth prospects depend on the strength and desirability of our brands, particularly in the midscale and upper midscale hotel franchise chains which represents a significant portion of our business.
Additional potential difficulties associated with the Transaction that we may encounter include the following: • the inability to successfully combine our and Radisson Hotels Americas’ businesses in a manner that permits us to realize the full anticipated benefits and value of the Transaction in the time frame currently anticipated; • the failure to fully integrate internal systems, technology, programs, and controls; • the application of different accounting policies, assumptions, or judgments to Radisson Hotel Americas’ operational results that Radisson Hotels Americas applied in the past; 33 Table of Content s • changes in laws and regulations that may impact our or Radisson Hotels Americas’ business, financial condition, results of operations, and growth prospects; • the loss of franchises, sales and other commercial relationships; • performance shortfalls as a result of a diversion of management's attention in integrating the Transaction; • the complexities associated with integrating a line of business with a history and strategy different to our own; • the loss of key employees that may be difficult to replace or possess critical institutional knowledge around systems and processes.
The difficulties that could be encountered include the following: • integration of personnel, internal systems, technology, programs, and controls; • application of different accounting policies, assumptions, or judgments to Wyndham’s operational results than Wyndham applied in the past; • changes in laws and regulations that may impact our or Wyndham’s business, financial condition, results of operations, or growth prospects; • potential unknown liabilities and unforeseen increased expenses, delays, or regulatory conditions associated with the acquisition; 38 Table of Contents • coordinating the geographically dispersed organizations; • distraction of management and employees from operations; • the loss of franchisees, sales and other commercial relationships; • failure to retain key employees who may be difficult to replace; • maintaining business relationships; and • other complexities associated with the integration of the operations of the combined company.
Before you invest in our securities you should carefully consider these risk factors together with all other information included in our publicly filed documents. 26 Table of Content s Business and Operational Risks We are subject to the operating risks common in the lodging and franchising industries.
These risks could cause actual operating 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.
At this time, while we expect the decrease in the federal corporate tax rates to provide increased cash flow compared to prior years, we cannot predict the ultimate impact of the tax legislation on our business or results of operations. We may be deemed to be a joint employer with our franchisees under certain new laws, rules and regulations.
Legal and Regulatory Risks • Government franchise and tax regulation could impact our business. • We may be deemed to be a joint employer with our franchisees under certain new laws, rules and regulations. Anti-takeover and Control Risks • Anti-takeover provisions may prevent a change in control. • The concentration of share ownership may influence the outcome of certain matters.
Removed
The COVID-19 pandemic has negatively affected and may continue to negatively affect our business, financial condition and results of operations. The COVID-19 pandemic, including resurgences and new variants, has resulted in significant disruptions and additional risks to our business, the global hospitality industry and the global economy.
Added
Risk Factors Summary The following is a summary of the principal risks that could adversely affect our business, operations, and financial results.
Removed
The COVID-19 pandemic has led governments and other authorities around the world to impose or recommend measures intended to control its spread, including travel bans, business and school closures, quarantines, shelter-in-place orders and implementation of other social distancing measures.
Added
Business and Operational Risks • We are subject to the operating risks common in the lodging and franchising industries. • We depend on the skill, ability, and decisions of third-party operators. • We are subject to certain risks related to our indebtedness. • We are subject to certain risks related to litigation filed by or against us. • Our international operations are subject to political and monetary risks. • 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. • Climate change and sustainability related concerns could have a material adverse effect on our business and results of operations.
Removed
As a result, the COVID-19 pandemic and its consequences have dramatically reduced travel and demand for hotel rooms which has had, and is expected to continue to have, a material adverse impact on our business, financial condition and results of operations.
Added
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. • We may not achieve our objectives for growth in the number of franchised hotels. • We may have disputes with the owners of our franchised hotels or their representative franchisee associations. • Under certain circumstances our franchisees may terminate our franchise contracts. • Deterioration in the general financial condition of our franchisees may adversely affect our results. • We may not be able to recover advances for system services that we may at certain times provide to 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. • 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.
Removed
If operations at our hotels are suspended, we cannot give any assurance as to when they will resume operations at a full or reduced level. The extent, duration and magnitude of the COVID-19 pandemic’s effects is highly uncertain and will continue to depend on future developments, all of which are difficult to predict.
Added
Risks Related to Our Brands • We are subject to the risks relating to the acquisition of new brands or lines of business. • New brands may not be accepted by franchisees and consumers. • 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. • 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. • 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. • Failure to protect our trademarks and other intellectual property could impact our business.
Removed
The resulting uncertainty may make it difficult for us, as well as our franchisees and others in the hospitality industry, to meaningfully forecast and plan future business activity.
Added
Risks Related to Different Lines of Business • We may not be able to generate significant procurement services revenue from our platform business. • Our investment in new business lines is inherently risky and could disrupt our core business. • Investing jointly through affiliates decreases our ability to manage risk.
Removed
However, in general, we expect that the more severe the health impacts of the pandemic are, and if repeat resurgent or cyclical outbreaks of the virus beyond the one being currently experienced occur, the more adverse the effect will be on our business, financial condition and results of operations.
Added
Risks Related to Cybersecurity and Data Privacy • We are subject to the risks related to cybersecurity. • 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. 23 Table of Contents • 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.
Removed
The COVID-19 pandemic has subjected our business to a number of significant risks, which include: 27 Table of Content s • Risks Related to the Traveling Public: During various phases of the pandemic, the occupancy at our franchised hotels that remained open has been significantly and materially adversely impacted.
Added
Risk Factors Relating to the Offer and the Second-Step Mergers • Because the market price of our common stock that Wyndham stockholders may receive in the proposed Offer will fluctuate, Wyndham stockholders cannot be sure of the value of the common stock they may receive. • We must obtain governmental and regulatory approvals to consummate the Offer, which, if delayed or not granted, may delay, jeopardize or prohibit the Offer and the Second-Step Mergers. • Our stock price may be adversely affected if the Offer and the Second-Step Mergers are not completed. • The Offer is subject to other conditions that we do not control. • Uncertainties associated with the Offer and the Second-Step Mergers may affect our future business and operations. • We have not negotiated the price or terms of the Offer or Second-Step Mergers with Wyndham. • You may be unable to assert a claim against Wyndham’s independent registered public accounting firm under Section 11 of the Securities Act of 1933, as amended (the “Securities Act”).
Removed
We expect that certain of our hotels will struggle to attract guests if closures of attractions that promote travel continue or if there is a prevailing unwillingness of guests to travel and stay in hotels due to actual or perceived risks of contracting COVID-19.
Added
Risk Factors Relating to Choice Following Acceptance of the Offer and the Second-Step Mergers • Wyndham and Choice may not successfully integrate. • We may not realize the financial benefits expected following the consummation of the Proposed Combination. • We have only conducted a review of Wyndham’s publicly available information and have not had access to Wyndham’s non-public information.
Removed
We cannot predict whether the COVID-19 pandemic will result in temporary or permanent changes to the travel preferences, expectations and behavior of hotel guests; however, if these changes result in reduction in travel or a decreased willingness of the traveling public to stay in hotels, these changes could have a significant negative impact on our business. • Risks Related to the Health of our Hotel Operations: COVID-19 has at times resulted in decreases in demand, occupancy and system-wide RevPAR, accompanied by forced or voluntary hotel closures and disruptions, which has affected the revenues and profitability of our properties and, in turn, the amount of royalty and other fees (which are primarily based on hotel revenue) that we are able to generate and collect.
Added
Therefore, we may not be able to retain certain agreements and may be subject to liabilities of Wyndham unknown to us, which may have a material adverse effect on our profitability, financial condition and results of operations and which may result in a decline in the market value of our common stock. • We expect to incur a substantial amount of indebtedness to acquire the shares of Wyndham Common Stock pursuant to the Offer and the Second-Step Mergers and, as a result, will increase its outstanding indebtedness.
Removed
Even if the COVID-19 pandemic subsides or becomes more manageable, our franchisees as well as our owned and managed hotels may continue to experience increased operating costs, including the need to invest in new equipment, technology, amenities, products, and services in order to satisfy newly issued heath, hygiene, and safety regulations and requirements or to conform to evolving guest expectations.
Added
Our failure to meet our debt service obligations, including a failure to comply with the restrictive covenants contained in the related agreements, could have a material adverse effect on its business, financial condition and results of operations. • All of our debt obligations, and any future indebtedness we may incur, will have priority over our common stock with respect to payment in the event of a liquidation, dissolution or winding up. • The consummation of the Offer and the Second-Step Mergers may result in ratings organizations and/or securities analysts taking actions which may adversely affect the combined companies’ business, financial condition and operating results, as well as the market price of our common stock. • The Offer could trigger certain provisions contained in Wyndham’s equity plan or award agreements and certain employee benefit plans or agreements that could require us to vest outstanding equity awards, make change of control or severance payments or accelerate vesting and payment of certain deferred compensation amounts. • Our future results may differ materially from the unaudited pro forma condensed combined financial statements of Choice and Wyndham presented in the Exchange Offer. • Resales of our common stock following the Offer may cause the market price of our common stock to fall. • The trading price of our common stock may be affected by factors different from those affecting the price of Wyndham Common Stock.
Removed
These increased costs may negatively impact operations or profitability, which would in turn have an adverse effect on our revenue and cash flow. • Risks Related to Financial Condition and Indebtedness: Our overall level of indebtedness may continue to increase as we continue to manage through the effects of the pandemic.
Added
A number of factors may adversely affect the labor force available to us or our franchisees.
Removed
A default under our debt obligations may enable the lenders to terminate their commitments thereunder and could trigger a cross-default, acceleration or other consequences under our other indebtedness or financial instruments. There is no guarantee that debt financings will be available in the future to fund our obligations or will be available on terms consistent with our expectations.
Added
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.
Removed
Further impacts of the COVID-19 pandemic on the financial markets could adversely affect our ability or willingness to raise funds through equity financing.
Added
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.
Removed
Changes in the credit ratings of our debt, including our revolving credit facility and our outstanding senior notes, could have an adverse impact on our interest expense, and also negatively impact our access to capital and the cost of debt financing. • Risks Related to Capital Market Volatility: The global stock markets, as well as the price of our common stock, have experienced, and may continue to experience, significant volatility as a result of the COVID-19 pandemic.
Added
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 in the future.
Removed
The COVID-19 pandemic and the significant uncertainties it has caused and continues to cause for the global economy, business activity and business confidence have had, and are likely to continue to have, a significant effect on the market price of securities generally, including our securities, and may adversely impact our ability to access capital markets in the future.
Added
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.
Removed
The COVID-19 pandemic, including resurgences and new variants, could also have the effect of heightening many of the other factors set forth herein including, but not limited to, operating risks common in the lodging and franchising industries, our ability to grow our franchise system, compete effectively and manage the reputation of our brands, our handling of disputes with the owners of our franchised hotels or their formal or informal representative franchisee associations, risks related to our development or ownership of operating hotels and development and brand support activities that involve our co-investment or financing and guaranty support for third parties, growth of alternative internet reservation channels outside of our system, performance of our information technology systems and risks related to cybersecurity, risks of doing business outside of the U.S. and risks related to the deterioration in the general financial condition of our franchisees.
Added
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.
Removed
Because the COVID-19 pandemic is unprecedented and continuously evolving, the other potential impacts to our risk factors that are further described herein are uncertain. We depend on the skill, ability and decisions of third-party operators.
Added
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.
Removed
Radisson Hotels Americas Acquisition Risks We may not fully realize the anticipated benefits from the Radisson Hotels Americas acquisition (the "Transaction"), and our integration process may take longer or be more difficult than anticipated.

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Item 2. Properties

Properties — owned and leased real estate

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The Company also rents office space for regional offices in Australia, the Netherlands, the United Kingdom, Germany, and France. Management believes that the Company’s existing properties and property commitments are sufficient to meet its present needs and does not anticipate any difficulty in securing additional or alternative space, as needed, on terms acceptable to the Company.
The Company also maintains several international regional offices. Management believes that the Company’s existing properties and property commitments are sufficient to meet its present needs and does not anticipate any difficulty in securing additional or alternative space, as needed, on terms acceptable to the Company. We discuss our limited hotel development and ownership program and strategy in Item 1.
As of December 31, 2022, we owned six Cambria hotels (located in Bloomington, MN; Columbia, SC; El Segundo, CA; Houston, TX; New Orleans, LA; and Pittsburgh, PA), a Radisson Blu (located in Bloomington, MN), a Radisson RED (located in Minneapolis, MN), and a Country Inn & Suites (located in Bloomington, MN).
As of December 31, 2023, we owned seven Cambria hotels (located in Bloomington, MN, Burbank, CA, Columbia, SC, El Segundo, CA, Houston, TX, New Orleans, LA, and Pittsburgh, PA), a Radisson Blu (located in Bloomington, MN), a Radisson RED (located in Minneapolis, MN), and a Country Inn & Suites (located in Bloomington, MN). 43 Table of Contents We believe that all of our owned and leased properties are in generally good physical condition with the need for only routine repairs and maintenance and periodic capital improvements.
We discuss our limited hotel development and ownership program and strategy in Item 1. Business and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Business and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Removed
Item 2. Properties. Our principal executive offices are located at 1 Choice Hotels Circle, Suite 400, Rockville, Maryland 20850 and are leased from a third party. In 2021, the Company entered into an 11-year lease for office space in North Bethesda, Maryland for the purpose of relocating the Company's headquarters; the lease is expected to commence during 2023.
Added
Item 2. Properties Our principal executive offices are located at 915 Meeting Street, Suite 600, North Bethesda, Maryland 20852 and are leased from a third party. We also lease office space in Scottsdale, Arizona (this office contains our reservation and property systems' information technology operations and our domestic SaaS technology solutions division), Minneapolis, Minnesota, and Omaha, Nebraska.
Removed
We lease two office spaces in the greater Phoenix, Arizona metropolitan area, which houses our reservation and property systems' information technology operations and our domestic SaaS technology solutions division, and as a result of the Radisson acquisition, we lease office spaces in Minneapolis, Minnesota and Omaha, Nebraska.
Removed
We believe that all properties owned and leased are in generally good physical condition with the need for only routine repairs and maintenance and periodic capital improvements.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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The Company's management and legal counsel do not expect that the ultimate outcome of any of its currently ongoing legal proceedings, individually or collectively, will have a material adverse effect on the Company's financial position, results of operations, or cash flows.
The Company's management and legal counsel do not expect that the ultimate outcome of any of its currently ongoing legal proceedings, individually or in the aggregate, will have a material adverse effect on the Company's financial position, results of operations, or cash flows. Item 4. Mine Safety Disclosures None. 44 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our common shares are traded on the New York Stock Exchange under the symbol "CHH". As of February 14, 2023, there were 926 holders of record of the Company’s common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common shares are traded on the New York Stock Exchange under the symbol "CHH." As of February 14, 2024, there were 888 holders of record of the Company’s common stock.
(3) On September 14, 2022, the Board of Directors approved an increase in the number of shares authorized under its share repurchase program by five million shares. 40 Table of Content s STOCKHOLDER RETURN PERFORMANCE The graph below matches Choice Hotels International, Inc.'s cumulative 5-year total shareholder return on common stock with the cumulative total returns of the NYSE Composite index, the S&P Hotels, Resorts & Cruise Lines index, and the S&P 400 Consumer Discretionary index.
These redemptions were not part of the Board repurchase authorization. 45 Table of Contents STOCKHOLDER RETURN PERFORMANCE The graph below matches Choice Hotels International, Inc.'s cumulative 5-year total shareholder return on common stock with the cumulative total returns of the NYSE Composite index, the S&P Hotels, Resorts & Cruise Lines index, and the S&P 400 Consumer Discretionary index.
The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from December 31, 2017 to December 31, 2022. 12/31/17 6/30/18 12/31/18 6/30/19 12/31/19 6/30/20 12/31/20 6/30/21 12/31/21 6/30/22 12/31/22 Choice Hotels International, Inc. $ 100.00 $ 97.96 $ 93.28 $ 113.69 $ 136.11 $ 104.23 $ 140.99 $ 157.31 $ 206.82 $ 148.80 $ 150.78 NYSE Composite $ 100.00 $ 98.89 $ 91.05 $ 105.89 $ 114.28 $ 99.00 $ 122.26 $ 140.84 $ 147.54 $ 126.07 $ 133.75 S&P Hotels, Resorts & Cruise Lines $ 100.00 $ 91.69 $ 81.94 $ 101.23 $ 112.30 $ 55.54 $ 83.24 $ 92.37 $ 99.76 $ 67.61 $ 75.57 S&P 400 Consumer Discretionary $ 100.00 $ 100.91 $ 82.07 $ 95.50 $ 103.88 $ 97.66 $ 136.08 $ 170.31 $ 173.75 $ 123.69 $ 137.21 The stock price performance included in this graph is not necessarily indicative of future stock price performance. 41 Table of Content s Item 6.
The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from December 31, 2018 to December 31, 2023. 12/31/18 6/30/19 12/31/19 6/30/20 12/31/20 6/30/21 12/31/21 6/30/22 12/31/22 6/30/23 12/31/23 Choice Hotels International, Inc. $ 100.00 $ 121.89 $ 145.92 $ 111.74 $ 151.15 $ 168.65 $ 221.72 $ 159.52 $ 161.65 $ 169.07 $ 164.20 NYSE Composite $ 100.00 $ 116.29 $ 125.51 $ 108.73 $ 134.28 $ 154.67 $ 162.04 $ 138.45 $ 146.89 $ 155.57 $ 167.12 S&P Hotels, Resorts & Cruise Lines $ 100.00 $ 123.55 $ 137.05 $ 67.78 $ 101.59 $ 112.73 $ 121.75 $ 82.52 $ 92.23 $ 127.12 $ 153.39 S&P 400 Consumer Discretionary $ 100.00 $ 116.36 $ 126.57 $ 118.99 $ 165.80 $ 207.51 $ 211.70 $ 150.71 $ 167.18 $ 187.39 $ 207.78 The stock price performance included in this graph is not necessarily indicative of future stock price performance. 46 Table of Contents Item 6.
Removed
ISSUER PURCHASES OF EQUITY SECURITIES The following table sets forth purchases and redemptions of the Company's common stock made by the Company during the year ended December 31, 2022: Month Ending Total Number of Shares Purchased or Redeemed Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1),(2) Maximum Number of Shares that may yet be Purchased Under the Plans or Programs, End of Period (3) January 31, 2022 30,165 $ 145.76 30,165 3,311,297 February 28, 2022 36,592 144.34 36,592 3,274,705 March 31, 2022 34,155 150.00 1,729 3,272,976 April 30, 2022 449 141.57 — 3,272,976 May 31, 2022 1,973 139.38 — 3,272,976 June 30, 2022 — — — 3,272,976 July 31, 2022 — — — 3,272,976 August 31, 2022 1,073,541 118.63 1,073,469 2,199,507 September 30, 2022 (3) 931,459 111.69 930,917 6,268,590 October 31, 2022 553,832 117.62 553,776 5,714,814 November 30, 2022 420,914 121.36 420,312 5,294,502 December 31, 2022 619,338 116.27 619,338 4,675,164 Total 3,702,418 $ 117.43 3,666,298 4,675,164 (1) The Company’s share repurchase program was initially approved by the Board of Directors on June 25, 1998.
Added
ISSUER PURCHASES OF EQUITY SECURITIES The following table sets forth purchases and redemptions of the Company's common stock made by the Company during the year ended December 31, 2023. Refer to Liquidity and Capital Resources section of Management's Discussion and Analysis of Financial Condition and Resulted of Operations for more information.
Removed
The program has no fixed dollar amount or expiration date. Since the program's inception through December 31, 2022, the Company repurchased 55.4 million shares (including 33.0 million prior to the two-for-one stock split effected in October 2005) of common stock at a total cost of $1.9 billion.
Added
Month Ending Total Number of Shares Purchased or Redeemed Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Number of Shares that may yet be Purchased Under the Plans or Programs, End of Period January 31, 2023 554,622 $ 118.66 554,622 4,120,542 February 28, 2023 404,509 124.03 404,509 3,716,033 March 31, 2023 382,389 119.44 272,089 3,443,944 April 30, 2023 183,083 122.85 182,949 3,260,995 May 31, 2023 207,507 123.84 206,009 3,054,986 June 30, 2023 228,469 116.03 228,469 2,826,517 July 31, 2023 203,134 122.20 203,134 2,623,383 August 31, 2023 177,635 131.26 177,003 2,446,380 September 30, 2023 177,991 126.38 177,763 2,268,617 October 31, 2023 231,841 118.50 231,783 2,036,834 November 30, 2023 232,744 112.75 232,744 1,804,090 December 31, 2023 42,010 124.37 40,618 1,763,472 Total 3,025,934 $ 120.93 2,911,692 1,763,472 (1) During the year ended December 31, 2023, the Company redeemed 114,242 shares of common stock from employees to satisfy the option price and the minimum tax-withholding requirements related to the exercising of options and the vesting of performance vested restricted stock units and restricted stock grants.
Removed
Considering the effect of the two-for-one stock split, the Company repurchased 88.4 million shares at an average price of $21.76 per share.
Removed
(2) During the year ended December 31, 2022, the Company redeemed 36,120 shares of common stock from employees to satisfy the option price and minimum tax-withholding requirements related to the exercising of options and vesting of performance vested restricted stock units and restricted stock grants. These redemptions were not part of the Board repurchase authorization.
Removed
We have included the S&P 400 Consumer Discretionary index in our cumulative total return comparisons below, which reflects a change from the presentation in prior fiscal years. Management believes that the companies included in the S&P 400 Consumer Discretionary Index appropriately reflect the scope of the Company’s operations and match the competitive market in which the Company operates.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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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 master franchise relationships and international market conditions, our revenues are primarily concentrated in the United States.
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 United States.
The number of rooms in our hotel system and the occupancy and room rates at those 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 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.
Our capital allocation decisions, including capital structure and 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.
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 amounts allocated to material rights for free or discounted goods or services to hotel guests are recognized to revenue as points are redeemed including an estimate of breakage, primarily within other revenues from franchised and managed properties.
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, primarily within other revenues from franchised and managed properties.
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 types of guests, and can be developed at various price points and applied to both new and existing hotels.
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.
The fair value of long-lived asset groups are estimated primarily using discounted cash flow analyses representing the highest and best use by an independent market participant. Significant management judgment is involved in evaluating indicators of impairment and developing any required projections to test for recoverability or estimate fair value.
The fair value of the long-lived asset groups are estimated primarily using discounted cash flow analyses representing the highest and best use by an independent market participant. Significant management judgment is involved in evaluating any indicators of impairment and developing any required projections to test for the recoverability or the estimated fair value.
The Company evaluates the potential impairment of its long-lived asset groups annually as of December 31 or earlier when other circumstances indicate that the Company may not be able to recover the carrying value of the asset group. When indicators of impairment are present, recoverability is assessed based on undiscounted expected cash flows.
The Company evaluates the potential impairment of its long-lived asset groups annually as of December 31 or earlier when other circumstances indicate that the Company may not be able to recover the carrying value of the asset group. When indicators of impairment are present, then the recoverability is assessed based on undiscounted expected cash flows.
Acquired Debt and Swap Derivative Asset On August 11, 2022, in connection with the Radisson Hotels Americas acquisition, the Company also acquired three owned hotel properties, one of which had an encumbered mortgage loan with a mortgage principal in the amount of $53.5 million with an original maturity date of August 7, 2024.
Acquired Debt and Swap Derivative Asset On August 11, 2022, in connection with the Radisson Hotels Americas acquisition, the Company acquired three owned hotel properties, one of which had an encumbered mortgage loan with a mortgage principal in the amount of $53.5 million with an original maturity date of August 7, 2024.
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 of a holder 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.
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.
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 of a holder 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.
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.
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 results of operations of Choice Hotels International, Inc. and its subsidiaries (together the "Company", "we", "us", or "our") contained in this report.
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.
Additional information regarding the Company’s unrecognized tax benefits is provided in Note 15 to Consolidated Financial Statement s . New Accounting Standards Refer to the "Recently Adopted & Issued Accounting Standards" section of Note 1 of our consolidated financial statements for information related to our adoption and assessment of new accounting standards in 2022.
Additional information regarding the Company’s unrecognized tax benefits is provided in Note 15 to the consolidated financial Statement s . 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.
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.
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 under the Restated Credit Agreement to be immediately due and payable.
The proceeds of the Restated Credit Agreement are generally expected to be used for general corporate purposes, including working capital, debt repayment, stock repurchases, dividends, investments and other permitted uses set forth in the Restated Credit Agreement.
The proceeds of the Restated Credit Agreement are generally 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.
Senior Unsecured Notes Due 2029 On November 27, 2019, the Company issued unsecured senior notes in the 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%.
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%.
Upon hotel opening, revenue is recognized ratably as services are provided over the enforceable period of the franchise license agreement. Upon the termination of a franchise agreement, previously deferred initial franchise fees are recognized immediately in the period the agreement is terminated.
Upon hotel opening, revenue is recognized ratably as the services are provided over the enforceable period of the franchise agreement. Upon the termination of a franchise agreement, the previously deferred initial franchise fees are recognized as revenue immediately in the period the franchise agreement is terminated.
The Company used the net proceeds of the 2020 Senior Notes, after deducting underwriting discounts, commissions and other offering expenses, to repay in full the $250 million Term Loan entered in April 2020 and fund the purchase price of the 2012 Senior Notes tendered and accepted by the Company for purchase pursuant to the tender offer (discussed below under "Senior Unsecured Notes due 2022").
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 tendered and accepted by the Company for the purchase pursuant to the tender offer (discussed further below under "Senior Unsecured Notes Due 2022").
The Company's reporting units are determined primarily by the availability of discrete financial information relied upon by chief operating decision maker ("CODM") to assess performance and make operating segment resource allocation decisions. As of December 31, 2022, the Company's goodwill is allocated to the Hotel Franchising reporting unit.
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, 2023, the Company's goodwill is allocated to the Hotel Franchising reporting unit.
A tax liability may also be recognized for a position that meets the more likely than not threshold, based upon management’s assessment of the position’s probable settlement value. The Company records interest and penalties on unrecognized tax benefits in the provision for income taxes.
A tax liability may also be recognized for a position that meets the more likely than not threshold, based upon management’s assessment of the position’s probable settlement value. The Company records interest and penalties on unrecognized tax benefits in the provision for income taxes in the consolidated statements of income.
Furthermore, if management uses different projections or if different conditions occur in future periods, future-operating results could be materially impacted.
Furthermore, if management uses different projections or if different conditions occur in future periods, then future operating results could be materially impacted.
Valuation of Long-Lived Assets, Intangibles, and Goodwill The Company groups its long-lived assets, including property and equipment and definite-lived intangible assets (e.g., franchise rights, franchise agreement acquisition costs), at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.
Long-Lived Assets, Intangible Assets, and Goodwill The Company groups its long-lived assets, including property and equipment and definite-lived intangible assets (e.g., franchise rights and franchise agreement acquisition costs), at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.
The effective income tax rates for the years ended December 31, 2022 and December 31, 2021 were higher than the U.S. federal income tax rate of 21.0% primarily due to state income taxes and tax expense related to compensation, partially offset by federal income tax credits.
The effective income tax rates for the years ended December 31, 2023 and 2022 were higher than the U.S. federal income tax rate of 21.0% primarily due to state income taxes and tax expense related to compensation, partially offset by federal income tax credits.
The estimated value of future redemptions is reflected in current and non-current liability for guest loyalty program in our consolidated balance sheets. The liability for guest loyalty programs is developed based on an estimate of the eventual redemption rates and point values using various actuarial methods.
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.
Investing Activities Our Board of Directors authorized a program which permits us to offer financing, investment, and guaranty support to qualified franchisees, and allows us to acquire or develop and resell hotels to incentivize franchise development of our brands in strategic markets.
Our board of directors authorized a program which permits us to offer financing, investment, and guaranty support to qualified franchisees, and allows us to acquire or develop and resell hotels to incentivize franchise development of our brands in strategic markets.
During the year ended December 31, 2022, the Company realized net proceeds of $166.6 million from the sale of three Cambria hotels, one parcel of land and a sale and conversion of an international direct franchising market to a master franchising market.
During the year ended December 31, 2022, the Company recognized net proceeds of $166.6 million from the sale of three Cambria hotels, one parcel of land, and a sale and conversion of an international direct franchising market to a master franchising market.
In conjunction with brand and development programs, we strategically make certain payments to franchisees as an incentive to enter into new franchise agreements or perform-designated improvements to properties under existing franchise agreements ("franchise agreement acquisition costs").
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.
These measurements are primarily driven by the operations of our hotel franchise system and therefore, our analysis of the Company's operations is primarily focused on the size, performance and potential growth of the hotel franchise system, as well as our variable overhead costs.
These measures are primarily driven by the operations of our hotel franchise system and, therefore, our analysis of the Company's operations is primarily focused on the size, performance, and the potential growth of the hotel franchise system as well as our variable overhead costs.
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 investments and effecting mergers and/or asset sales.
The Restated Credit Agreement requires that the Company and its restricted subsidiaries comply with various covenants, including restrictions on liens, incurring indebtedness, making investments, and effecting mergers and/or asset sales.
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.
The timing and amount of these investments are subject to market and other conditions. 48 Table of Contents 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.
The primary performance obligations are brand intellectual property and material rights for free or discounted goods or services to hotel guests. Allocation of fixed and variable consideration to the performance obligations is based on standalone selling price as estimated based on market and income methods, which represent significant judgments.
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.
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, qualified vendor relationships and partnerships with other travel-related companies that provide services to our franchisees and guests.
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.
The Company used the net proceeds of this offering, after deducting underwriting discounts, commissions and other offering expenses, to repay the previously outstanding senior notes in the principal amount of $250 million due August 28, 2020, and for working capital and other general corporate purposes.
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.
With respect to dividends, the Company may not declare or make any payment if there is an existing event of default or if the payment would create an event of default.
With respect to the payment of dividends, 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.
The Company may elect to forgo the qualitative assessment and move directly to the quantitative impairment tests for goodwill and indefinite-lived intangibles. The Company determines the fair value of its reporting units and indefinite-lived intangibles using income and market methods. Goodwill is allocated to the Company's reporting units.
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 principal 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 effective royalty rate achieved on our franchise agreements; the level of franchise sales and relicensing activity; the number of qualified vendor arrangements and travel-related partnerships and the level of engagement with these partners by our franchisees and guests; and our ability to manage costs.
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 effective royalty rate 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 anticipated redemption pattern of the points is the basis for current and non-current designation of each liability. Loyalty program point redemption revenues are recognized within other revenues from franchised and managed properties in the consolidated statements of income.
The anticipated redemption pattern of the 59 Table of Contents points is the basis for the current and non-current designation of each liability. The loyalty program point redemption revenues are recognized within other revenues from franchised and managed properties in the consolidated statements of income.
Consequently, the Company will not record any additional deferred taxes for this item in 2022. With respect to uncertain income tax positions, a tax liability is recorded in full when management determines that the position does not meet the more likely than not threshold of being sustained on examination.
Consequently, the Company did not record any additional deferred taxes for this item in 2023. With respect to uncertain income tax positions, a tax liability is recorded in full when management determines that the position does not meet the more likely than not threshold of being sustained on examination.
The Company's legacy Choice franchise agreements require the payment of marketing and reservation system fees to be used exclusively by the Company for expenses associated with providing franchise services such as national marketing, media advertising, and central reservation systems.
The Company's franchise agreements require the payment of marketing and reservation system 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.
Changes in the estimates used in developing the breakage rate or other expected future program operations could result in material changes to the liability for guest loyalty program and deferred revenues. The Company maintains various agreements with third-party partners, including the co-branding of the Choice Privileges credit card.
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.
These gains are partially offset by a reduction to the carrying value of an asset held for sale in the third quarter of 2022 and the sale and conversion of an international direct franchising market to a master franchising market in the second quarter of 2022.
The gains were partially offset by a reduction in the carrying value of an asset held for sale in the third quarter of 2022 and the sale and conversion of an international direct franchising market to a master franchising market in the second quarter of 2022.
Revenues are also generated from partnerships with qualified vendors and travel partners that provide value-added solutions to our platform of guests hotels, owned hotels, and other sources. Historically, the hotel industry has been seasonal in nature. For most hotels, demand is ordinarily lower in November through February than during the remainder of the year.
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.
If the undiscounted expected cash flows are less than the carrying amount of the asset group, an impairment charge is measured and recorded, as applicable, for the excess of the carrying value over the fair value of the asset group.
If the undiscounted expected cash flows are less than the carrying amount of the asset group, then an impairment charge is measured and recognized, as applicable, for the excess of the carrying value over the fair value of the asset group.
The fee and cost structure of our franchising business provides opportunities to improve operating results by increasing the number of franchised hotel rooms and effective royalty rates of our franchise contracts resulting in increased initial fee revenue, ongoing royalty fees, and procurement services revenues.
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 effective royalty rates in our franchise contracts resulting in increased initial franchise fees, ongoing royalty and licensing fees, and platform and procurement services fees.
Results of Operations: Royalty, licensing and management fees, operating income, net income and diluted earnings per share ("EPS") represent key measurements of our financial performance.
Results of Operations - Royalty, licensing and management fees, operating income, net income, and diluted earnings per share ("EPS") represent the key measures of our financial performance.
We 43 Table of Content s 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.
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.
Debt issuance costs incurred in connection with the Restated Credit Agreement are amortized on a straight-line basis, which is not materially different than the effective interest method, through maturity. Amortization of these costs is included in interest expense in the consolidated statements of income.
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, and 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 Company did not identify any indicators of impairment of long-lived assets from the Hotel Franchising reporting unit during the years ended December 31, 2022, 2021 and 2020, other than impairments on franchise sales commission assets and franchise agreement acquisition cost intangibles primarily resulting from terminations of franchisees from the Choice system or significant delinquencies in construction or invoice payments.
The Company did not identify any indicators of impairment of long-lived assets in the Hotel Franchising reporting unit during the years ended December 31, 2023, 2022, and 2021, other than impairments on franchise sales commission assets and franchise agreement acquisition cost intangible assets primarily resulting from the termination of franchise agreements from the Choice system or significant delinquencies in construction or invoice payments.
No loyalty program revenues are recognized at the time the loyalty points are issued. The Company is an agent in coordinating delivery of the services between the loyalty program member and franchisee or third party, and as a result, revenues are recognized net of the cost of redemptions.
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 agreements typically provide for use of the Company’s marks, limited access to the Company’s distribution channels, and sale of Choice Privileges points, in exchange for fees primarily comprising variable consideration paid each month. Choice Privileges members can earn points through participation in the partner’s program. Partner agreements include multiple performance obligations.
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.
During the year ended December 31, 2022, the Company's Board of Directors declared cash dividends at a quarterly rate of $0.2375 per share of common stock.
Dividends During the year ended December 31, 2022, the Company declared cash dividends at a quarterly rate of $0.2375 per share of common stock.
If the Company fails to meet an annual performance condition, the Company may be required to repay a portion or all of the advances including accrued interest by April 30 th following the measurement date. Any outstanding advances at the expiration in 2023 of the Company's current ten year corporate headquarters lease will be forgiven in full.
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 30th following the measurement date. Any outstanding advances upon expiration of the Company's ten-year corporate headquarters lease agreement in 2023 will be forgiven in full.
As of December 31, 2022, the Company was in compliance with the financial covenants of its credit agreements and expects to remain in such compliance.
As of December 31, 2023, the Company was in compliance with all of its financial covenants under its credit agreements and the Company expects to remain in such compliance.
During the year ended December 31, 2022, the Company redeemed 36.1 thousand shares of common stock at a total cost of $5.4 million from employees to satisfy the option exercise price and statutory minimum tax-withholding requirements related to the exercising of stock options and vesting of PVRSUs and restricted stock grants. These redemptions were outside the share repurchase program.
During the year ended December 31, 2023, the Company redeemed 114.2 thousand shares of common stock at a total cost of $14.2 million from employees to satisfy the option exercise price and statutory minimum tax-withholding requirements related to the exercising of stock options and the vesting of PVRSUs and restricted stock grants. These redemptions were outside the share repurchase program.
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 companies.
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 guests.
The timing and amount of these cash flows 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 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.
During the year ended December 31, 2022, the Company received proceeds of $3.8 million from stock options exercised by employees.
During the year ended December 31, 2023, the Company received proceeds of $6.3 million from stock options exercised by employees.
During the years ended December 31, 2022 and 2021 other revenues from franchised and managed properties exceeded expenses by $49.7 million and $83.9 million, respectively. During the year ended December 31, 2020, other expenses from franchised and managed properties exceeded revenues by $44.3 million. Refer to MD&A heading "Operations Review" for additional analysis of our results.
During the years ended December 31, 2023, 2022, and 2021, other revenues from franchised and managed properties exceeded other expenses from franchised and managed properties by $1.8 million, $49.7 million, and $83.9 million, respectively. Refer to the Operations Review section of MD&A for additional analysis of our results of operations.
The Company maintains equity method investments in affiliates related to the Company's program to offer equity support to qualified franchisees to develop and operate Cambria Hotels in strategic markets. During the years ended December 31, 2022, 2021 and 2020, the Company invested $3.1 million, $2.8 million, and $5.5 million, respectively, to support these efforts.
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, 2023, 2022, and 2021, the Company invested $38.9 million, $3.1 million, and $2.8 million, respectively, to support these efforts.
The Amendment provides, among other things, for (i) an increase in the aggregate amount of commitments under the Revolver by $250 million (the “Increased Commitments”) to an aggregate amount of $850 million and (ii) the replacement of the interest reference rate for U.S. dollar-denominated borrowings under the Revolver from LIBOR to an adjusted Secured Overnight Financing Rate.
This amendment provides, among other things, for (i) an increase in the aggregate amount of commitments under the Company's existing $600 million unsecured credit facility (the "Revolver") by $250 million (the “Increased Commitments”) to an aggregate amount of $850 million, and (ii) the replacement of the interest reference rate for U.S. dollar-denominated borrowings under the Revolver from the London Interbank Offered Rate to an adjusted Secured Overnight Financing Rate.
Additionally, through the Radisson Hotels Americas acquisition, our brands expanded to include Country Inn & Suites® by Radisson, Radisson Blu®, Radisson RED®, Radisson®, Park Plaza®, Radisson Inn & Suites SM , Park Inn by Radisson®, Radisson Individuals®, and 42 Table of Content s Radisson Collection® (collectively, the "legacy Radisson brands"), which are located across the United States, Canada, the Caribbean and Latin America.
Additionally, through the Radisson Hotels Americas acquisition completed on August 11, 2022, our brands expanded to include Radisson Blu®, Radisson RED®, Radisson®, Park Plaza®, Country Inn & Suites® by Radisson, Radisson Inn & Suites SM , Park Inn by Radisson®, Radisson Individuals®, and Radisson Collection® (collectively, the "legacy Radisson brands"), which are located across the United States, Canada, the Caribbean and Latin America.
The Company may not declare or make any payment if there is an existing event of default under the Restated Credit Agreement or if the payment would create an event of default. Share Repurchases & Redemptions In 1998, we instituted a share repurchase program.
In accordance with the Restated Credit Agreement and the 2023 Term Loan, 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 In 1998, we instituted a share repurchase program.
In total through December 31, 2022, the Company repurchased 55.4 million shares of its common stock (including 33.0 million prior to the two-for-one stock split effected in October 2005) under the program at a total cost of $1.9 billion.
In total through December 31, 2023, the Company repurchased 58.3 million shares of its common stock (including 33.0 million prior to the two-for-one stock split effected in October 2005) under the program at a total cost of $2.3 billion.
The amounts allocated to brand intellectual property are recognized on a gross basis over time using the output measure of time elapsed, primarily within royalty, licensing and management fees and procurement services revenue.
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 royalty, licensing and management fees and platform and procurement services fees in the consolidated statements of income.
Our discussion of results generally excludes the Company’s other revenues and expenses from franchised and managed properties, which reflect franchise marketing and reservation system revenues and expenses and management agreement cost reimbursements.
Our discussion of our results of operations excludes reimbursable franchise marketing and reservation system revenues and expenses and the management agreement cost reimbursements and expenses included in the Company's other revenues from franchised and managed properties and other expenses from franchised and managed properties.
Our success is dependent on improving the performance of our hotels, increasing our system size by selling additional hotel franchises with a focus on revenue-intense chain scales and markets, improving our effective royalty rate, expanding our qualified vendor programs and travel-related partnerships and maintaining a disciplined cost structure.
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 effective royalty rate, expanding our qualified vendor and partnership platform programs and maintaining a disciplined cost structure.
The Company's domestic operations are conducted through direct franchising relationships, the ownership of 6 Cambria and 3 legacy Radisson Hotels Americas hotels, and the management of 13 legacy Radisson Hotels Americas hotels (inclusive of the Radisson Hotels Americas owned hotels), while its international franchise operations are conducted through a combination of direct franchising and master franchising relationships.
The Company's domestic operations are conducted through direct franchising relationships, the ownership of seven Cambria and three legacy Radisson Hotels Americas open and operating hotels, and the management of 14 hotels (inclusive of four owned hotels), while its international franchise operations are conducted through a combination of direct franchising and master franchising relationships.
The Restated Credit Agreement also provides that up to $35 million of borrowings under the Restated Credit Agreement may be used for alternative currency loans and up to $25 million of borrowings under the Restated Credit Agreement may be used for swingline loans.
The Restated Credit Agreement allows for up to $35 million of borrowings that may be used for alternative 55 Table of Contents currency loans and up to $25 million of borrowings that may be used for swingline loans.
In addition, the mortgage had an associated interest rate cap agreement (“Interest Swap”) with an effective date of July 30,2021 through August 6, 2024. On August 12, 2022, at Choice’s election, cash on hand was wired to pay off the outstanding loan principal, outstanding interest, and certain prepayment, exit and related fees in the amount of $56.0 million.
In addition, the mortgage loan had an associated interest rate cap agreement with an effective date of July 30, 2021 through August 6, 2024. On August 12, 2022, the Company paid off the outstanding mortgage loan principal, outstanding interest, and certain prepayment, exit and related fees in the amount of $56.0 million.
Therefore, our description of our business is primarily focused on the domestic operations, which encompasses the United States. Our Company generates revenues, income and cash flows primarily from our hotel franchising operations and the initial, relicensing and continuing royalty fees attributable to our franchise agreements.
Therefore, our description of our business is primarily focused on the domestic operations, which encompasses the United States. Our Company generates revenues, income, and cash flows primarily from our hotel franchising operations.
The Company performed the qualitative impairment analysis for the Hotel Franchising reporting unit, concluding 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 recorded and a quantitative test was not required.
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.
These significant judgments determine the required point liability attributable to outstanding points, which is relieved as redemption costs are processed. The amount of the loyalty program fees in excess of the point liability represents current and non-current deferred revenue, which is recognized to revenue as points are redeemed including an estimate of future forfeitures (“breakage”).
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 deployment and annual pace of future financial support activities will depend upon market and other conditions. The Company also strategically deploys capital in the form of franchise agreement acquisition payments across our brands to incentivize franchise development.
The deployment and annual pace of future financial 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 Restated Credit Agreement provides for a $600 million unsecured credit facility with a maturity date of August 20, 2023, subject to optional one-year extensions that can be requested by the Company prior to each of the first, second and third anniversaries of the closing date of the Restated Credit Agreement.
The Restated Credit Agreement provided for a $600 million unsecured credit facility with an original maturity date of August 20, 2023, subject to one-year extension options that could be requested by the Company prior to each of the first, second and third anniversaries of the closing date of the Restated Credit Agreement in exchange for the payment fees.
Operating Activities During the years ended December 31, 2022, 2021 and 2020, net cash provided by operating activities totaled $367.1 million, $383.7 million, and $110.1 million, respectively.
Cash Flows from Operating Activities During the years ended December 31, 2023, 2022, and 2021, the net cash provided by operating activities was $296.6 million, $367.1 million, and $383.7 million, respectively.
These advances bear interest at a rate of 3% per annum. Repayment of the advances is contingent upon the Company achieving certain performance conditions. Performance conditions are measured annually on December 31 st and primarily relate to maintaining certain levels of employment within the various jurisdictions.
Repayment of the advances is contingent upon the Company achieving certain performance conditions. The performance conditions are measured annually on December 31st and primarily relate to maintaining certain levels of employment within the various jurisdictions.
Loyalty points represent a performance obligation attributable to usage of the points, and thus revenues are recognized at the point in time when the loyalty points are redeemed by members for benefits. The transaction price is variable and determined in the period when the loyalty points are earned and the underlying gross room revenues are known.
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.
If the franchisee remains in the franchise system in good standing over the term specified in the incentive agreement, 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, the franchisee must repay the unamortized incentive payment plus interest.
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.
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. At December 31, 2022, the Company had been fully advanced the amounts due pursuant to these agreements.
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. These advances bear interest at a rate of 3% per annum.
Depreciation and amortization: Depreciation and amortization expense was $24.8 million and $30.4 million for the year ended December 31, 2021, and 2022, respectively, increasing primarily due to the acquisition of Radisson Hotels Americas on August 11, 2022 and associated amortization from the portion of the purchase price allocated to contract asset acquisition costs.
Depreciation and Amortization Depreciation and amortization expense was $39.7 million and $30.4 million for the years ended December 31, 2023 and 2022, respectively. Depreciation and amortization expense increased primarily due to the acquisition of Radisson Hotels Americas and the associated depreciation and amortization from the portion of the purchase price allocated to three hotel properties and contract asset acquisition costs.
In addition, during the years ended December 31, 2021 and 2020, the Company received distributions and sales proceeds from these affiliates totaling $15.6 million and $10.8 million, respectively. The Company received no distributions from affiliates for the year ended December 31, 2022.
In addition, during the years ended December 31, 2023 and 2021, the Company received proceeds from the sale of certain affiliates totaling $0.9 million and $15.6 million, respectively. The Company received no distributions from affiliates during the year ended December 31, 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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The Company will continue to monitor the exposure in these areas and make the appropriate adjustments as market conditions dictate. At December 31, 2022, the Company had $360.0 million of variable interest rate debt instruments outstanding at an effective rate of 5.37%.
The Company will continue to monitor the exposure in these areas and make the appropriate adjustments as market conditions dictate. As of December 31, 2023, the Company had $728.5 million of variable interest rate debt instruments outstanding at an effective interest rate of 6.74%.
We are also subject to risk from changes in debt and equity prices from our non-qualified retirement savings plan investments in debt securities and common stock, which have a carrying value of $32.4 million at December 31, 2022 and we account for as trading securities.
We are also subject to risk from changes in debt and equity prices from our non-qualified retirement savings plan investments in debt securities and common stock, which have a carrying value of $41.6 million as of December 31, 2023 and are accounted for as trading securities.
A hypothetical change of 10% in the Company’s effective interest rate from December 31, 2022 levels would increase or decrease annual interest expense by $1.9 million. The Company expects to refinance its fixed and variable long-term debt obligations prior to their scheduled maturities. 63 Table of Contents
A hypothetical change of 10% in the Company’s effective interest rate from the December 31, 2023 levels would increase or decrease annual interest expense by $4.9 million. The Company expects to refinance its fixed and variable long-term debt obligations prior to their scheduled maturities. The Company does not presently have any derivative financial instruments. 61 Table of Contents

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