Choice Hotels International Inc.
02/19/2026 | Press release | Distributed by Public on 02/19/2026 11:56
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand the consolidated financial condition and the results of operations of Choice Hotels International, Inc. and its subsidiaries (together as "Choice," the "Company," "we," "us," or "our") contained in this report. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes.
Overview
We are primarily a hotel franchisor operating in 49 states, the District of Columbia, and 50 countries and territories. As of December 31, 2025, we had 7,575 hotels with 656,825 rooms open and operating, and 825 hotels with 77,862 rooms under construction, awaiting conversion or approved for development, or committed to future franchise development on outstanding master development agreements (collectively, "pipeline") in our global system. Our brand names include Clarion®, Clarion Pointe™, Comfort Inn®, Comfort Suites®, Country Inn & Suites® by Radisson, Sleep Inn®, Quality®, Park Inn by Radisson®, Everhome Suites®, WoodSpring Suites®, MainStay Suites®, Suburban Studios™, Radisson Blu®, Park Plaza®, Cambria® Hotels, Ascend Collection®, Radisson RED®, Radisson Individuals®, Radisson®, Radisson Collection®, Radisson Inn & SuitesSM, Econo Lodge®, and Rodeway Inn®.
The hotel franchising business represents the Company's primary operations. The Company's U.S. operations are conducted through direct franchising relationships, the ownership of 17 open and operating hotels, and the management of 13 hotels (inclusive of four owned hotels), while its international franchise operations are conducted through a combination of direct franchising and master franchising relationships. Master franchising relationships are governed by master franchising agreements, which generally provide the master franchisee with the right to use our brands and sub-license the use of our brands in a specific geographic region, usually for a fee. As a result of our master franchise relationships and international market conditions, our revenues are primarily concentrated in the U.S. Therefore, our description of our business is primarily focused on the U.S. operations.
Our Company generates revenues, income, and cash flows primarily from our hotel franchising operations. Revenues are also generated from partnerships with qualified vendors and travel partners that provide value-added solutions to our platform of guests and hotels, hotel ownership, and other ancillary sources. Historically, the hotel industry has been seasonal in nature. For most hotels, demand is typically lower in November through February than during the remainder of the year. Our principal source of revenue is franchise fees, which is based on the gross room revenues or the number of rooms at our franchised properties. The Company's franchise and managed fees, as well as its owned hotels' revenues, normally reflect the industry's seasonality and historically have been lower in the first and fourth quarters than in the second and third quarters of the year.
Because our primary focus is hotel franchising, we benefit from the economies of scale inherent in the franchising business. The fee and cost structure of our franchising business provides opportunities to improve our operating results by increasing the number of franchised hotel rooms and the royalty rates in our franchise contracts. In addition, our operating results can also be improved through our company-wide efforts related to improving property-level performance and expanding the number of partnerships with travel-related and other companies with products and services that appeal to our franchisees and guests.
The primary factors that affect the Company's results are: the number and relative mix of hotel rooms in the various hotel lodging price categories, growth in the number of hotel rooms owned and under franchise, occupancy and room rates achieved by the hotels in our system, the average royalty rates achieved in our franchise agreements, the level of franchise sales and relicensing activity, the number of qualified vendor arrangements and partnerships and the level of engagement with these partners by our franchisees and guests, and our ability to manage costs. The number of rooms in our hotel system and the occupancy and room rates at those hotel properties significantly affect the Company's results because our fees are based upon room revenues or the number of rooms at owned and franchised hotels. The key industry standard for measuring hotel-operating performance is revenue per available room ("RevPAR"), which is calculated by multiplying the percentage of occupied rooms by the average daily room rate ("ADR") realized. Our variable overhead costs associated with the franchise system growth of our established brands have historically been less than the incremental royalty fees generated from new franchises. Accordingly, over the long-term, the continued growth of our franchise business should enable us to realize the benefits from the operating leverage in place and improve our operating results.
We are required by our franchise agreements to use the marketing and reservation fees we collect for system-wide marketing and reservation activities. These expenditures, which include advertising costs and the costs to maintain our central reservations systems, enhance awareness and consumer preference for our brands and deliver guests to our franchisees. Greater awareness and preference promote long-term growth in business delivery to our franchisees and increases the desirability of our brands to hotel owners and developers, which ultimately increases the franchise fees earned by the Company. Additionally, the
Company's management agreements include cost reimbursements, which is primarily related to payroll costs at the managed hotels where the Company is the employer.
Our Company articulates its mission as a commitment to our franchisees' profitability by providing our franchisees with hotel franchises that strive to generate the highest return on investment of any hotel franchise. We have developed an operating system dedicated to our franchisees' success that focuses on delivering guests to their hotels and reducing hotel operating costs.
We believe that executing on our strategic priorities creates value for our shareholders. Our Company focuses on the following strategic priorities:
Profitable Growth - Our success is dependent on improving the performance of our hotels, increasing the size of our system by selling additional hotel franchises with a focus on revenue-intense chain scales and markets, improving our royalty rates, expanding our qualified vendor and partnership programs and maintaining a disciplined cost structure. We attempt to improve our revenues and overall profitability by providing a variety of products and services designed to increase business delivery and/or reduce operating and development costs. These products and services include national marketing campaigns, a guest loyalty program, a central reservation system, property and yield management programs and systems, revenue management services, quality assurance standards, and qualified vendor relationships and partnerships with companies that provide products and services to our franchisees and guests. We believe that healthy brands, which deliver a compelling return on investment, will enable us to sell additional hotel franchises and raise royalty rates. We have multiple brands that meet the needs of many different types of guests, and can be developed at various price points and applied to both new and existing hotels. This ensures that we have brands suitable for creating growth in a variety of market conditions. Improving the performance of the hotels in our system, strategically growing the system through additional franchise sales, and improving franchise agreement pricing while maintaining a disciplined cost structure are the keys to profitable growth.
Maximizing Financial Returns and Creating Value for Shareholders - Our capital allocation decisions, including our capital structure and the uses of capital, are intended to maximize our return on invested capital and create value for our shareholders. Since our business has not historically required significant reinvestment of capital, we typically utilize cash in ways that management believes provides the greatest returns to our shareholders, which include acquisitions, share repurchases, and dividends. Refer to the Liquidity and Capital Resources section in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for more information regarding our capital returns to shareholders.
In addition to our hotel franchising business, we have also developed or acquired 17 open and operating hotels. We have strategically developed hotels to increase the presence of our newly introduced brands in the U.S., drive greater guest satisfaction and brand preference, and ultimately increase the number of franchise agreements awarded. When developing hotels, we seek key markets with strong growth potential that will deliver strong operating performance and improve the recognition of our brands. Our hotel development and ownership efforts currently focus on the Cambria Hotels and Everhome Suites brands. We believe our owned hotels provide us the opportunity to support and accelerate the growth of these brands. We do not anticipate owning hotels on a permanent basis and we expect to target dispositions to a franchisee encumbered with a long-term Choice franchise agreement in the future.
A key component of our strategy for owned hotels is to maximize revenues and manage costs. We strive to optimize revenues by focusing on revenue management, increasing guest loyalty, expanding brand awareness with targeted customer groupings, and providing superior guest service. Other than four owned hotels, we currently do not manage our owned hotels but utilize the services of third-party hotel management companies that provide their own employees. We manage costs by setting performance goals for our hotel management companies and optimizing distribution channels.
The Company also allocates capital to financing, investment, and guaranty support to incentivize franchise development for certain brands in strategic markets. The timing and amount of these investments are subject to market and other conditions.
We believe our growth investments and strategic priorities, when properly implemented, will enhance our profitability, maximize our financial returns, and continue to generate value for our shareholders. The ultimate measure of our success will be reflected in the items below.
Results of Operations - Franchise and management fees, operating income, net income, and diluted earnings per share ("EPS") represent the key measures of our financial performance. These measures are primarily driven by the operations of our hotel franchise system and therefore, our analysis of the Company's results of operations is primarily focused on the size, performance, and the potential growth of the hotel franchise system as well as our variable overhead costs.
Our discussion of our results of operations excludes reimbursable franchise marketing and reservation revenues and expenses and the management agreement cost reimbursements and expenses included in the Company's revenue for reimbursable costs from franchised and managed properties and reimbursable expenses from franchised and managed properties. The Company's franchise agreements require the payment of marketing and reservation fees to be used by the Company for the expenses associated with providing franchise services such as national marketing, media advertising, and central reservation systems. The
Company is obligated to expend the marketing and reservation fees it collects from its franchisees in accordance with the franchise agreements. Furthermore, the franchisees are required to reimburse the Company for any deficits generated by these marketing and reservation system activities. Over time, the Company expects the cumulative revenues and expenses of reimbursable components to break even and, therefore, no income or loss will be generated from the reimbursable marketing and reservation system activities. Additionally, the Company's management agreements include cost reimbursements, which is primarily related to payroll costs at the managed hotels where the Company is the employer. As a result, the Company generally excludes the revenue for reimbursable costs from franchised and managed properties and reimbursable expenses from franchised and managed properties from the analysis of its results of operations.
Due to the seasonal nature of the Company's hotel franchising and management business and the multi-year investments required to support the franchise operations, quarterly and/or annual surpluses or deficits may be generated. During the years ended December 31, 2025, 2024, and 2023, reimbursable expenses from franchised and managed properties exceeded revenue for reimbursable costs from franchised and managed properties by $47.1 million, $18.2 million, and $32.8 million, respectively.
Refer to the Operations Review section in MD&A for additional analysis of our results of operations.
Liquidity and Capital Resources - Historically, the Company has generated significant cash flows from operations.Since our business has not historically required a significant reinvestment of capital, we typically utilize cash in ways that management believes provide the greatest returns to our shareholders, which include acquisitions, share repurchases, and dividends.
We believe the Company's cash on hand, available borrowing capacity under the senior unsecured revolving credit facility, cash flows from operations, and access to additional capital in the debt markets is sufficient to meet the expected future operating, investing, and financing needs of the business. Refer to the Liquidity and Capital Resources section in MD&A for additional analysis.
Inflation - We believe that moderate increases in the rate of inflation will generally result in comparable or greater increases in hotel room rates. We continue to monitor future inflation trends along with the corresponding impacts to our business.
Operations Review
A summary of the financial results for the years ended December 31, 2025 and 2024 was as follows:
| December 31, | |||||||||||
| (in thousands) | 2025 | 2024 | |||||||||
| REVENUES | |||||||||||
| Franchise and management fees | $ | 673,197 | $ | 669,637 | |||||||
| Partnership services and fees | 113,789 | 99,491 | |||||||||
| Owned hotels | 121,373 | 113,459 | |||||||||
| Other | 72,230 | 64,060 | |||||||||
| Revenue for reimbursable costs from franchised and managed properties | 616,204 | 638,192 | |||||||||
| Total revenues | 1,596,793 | 1,584,839 | |||||||||
| OPERATING EXPENSES | |||||||||||
| Selling, general and administrative | 328,958 | 312,388 | |||||||||
| Business combination, diligence and transition costs | 4,701 | 17,233 | |||||||||
| Depreciation and amortization | 59,715 | 51,953 | |||||||||
| Owned hotels | 91,684 | 83,148 | |||||||||
| Reimbursable expenses from franchised and managed properties | 663,336 | 656,344 | |||||||||
| Total operating expenses | 1,148,394 | 1,121,066 | |||||||||
| Operating income | 448,399 | 463,773 | |||||||||
| OTHER EXPENSES AND (INCOME), NET | |||||||||||
| Interest expense | 91,148 | 87,131 | |||||||||
| Interest income | (6,237) | (8,646) | |||||||||
| Gain from an acquisition of a joint venture | (100,025) | - | |||||||||
| Gain on sale of assets | (713) | - | |||||||||
| Loss on extinguishment of debt | - | 331 | |||||||||
| Other (gains) losses, net | (6,989) | 1,641 | |||||||||
| Equity in net loss (gain) of affiliates | 14,324 | (12,329) | |||||||||
| Total other expenses and (income), net | (8,492) | 68,128 | |||||||||
| Income before income taxes | 456,891 | 395,645 | |||||||||
| Income tax expense | 86,945 | 95,980 | |||||||||
| Net income | $ | 369,946 | $ | 299,665 | |||||||
Results of Operations
For the year ended December 31, 2025, the Company recognized income before income taxes of $456.9 million, which is a $61.2 million increase from the year ended December 31, 2024. The increase in income before income taxes was primarily due to a $100.0 million gain from an acquisition of a joint venture in 2025 and an $8.6 million increase in other (gains) losses, net, all of which were partially offset by a $26.7 million decrease in the equity in net loss (gain) of affiliates and a $15.4 million decrease in operating income.
Operating income decreased $15.4 million primarily due to a $29.0 million increase in the net reimbursable deficit from franchised and managed properties, a $16.6 million increase in selling, general and administrative expenses, and a $7.8 million increase in depreciation and amortization expense, all of which were partially offset by a $14.3 million increase in partnership services and fees, an $8.2 million increase in other revenues, and a $12.5 million decrease in business combination, diligence and transition costs.
Franchise and Management Fees
Franchise and management fees increased $3.6 million primarily due to an $11.5 million increase in international royalty fees and an $8.2 million increase in revenues generated from programs, platforms, and services associated with the Company's franchise operations, all of which were partially offset by a $14.9 million decrease in U.S. royalty fees.
U.S. royalty fees decreased $14.9 million to $439.8 million for the year ended December 31, 2025 from $454.7 million for the year ended December 31, 2024. The decrease in U.S. royalty fees was primarily due to a 3.0% decrease in U.S. system-wide
RevPAR as a result of a 1.6% decrease in average daily rates and an 80 basis points decrease in occupancy, and a 2.9% decrease in open and operating U.S. hotel rooms, all of which were partially offset by a system-wide 8 basis points increase in the average royalty rate from 5.06% for the year ended December 31, 2024 to 5.14% for the year ended December 31, 2025.
A summary of the operating performance for the Company's U.S. franchised hotels, organized by chain scale, was as follows:
| 2025 | 2024 | Change | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Average Daily Rate | Occupancy | RevPAR |
Average Daily Rate |
Occupancy | RevPAR |
Average Daily Rate |
Occupancy | RevPAR | ||||||||||||||||||||||||||||||||||||||||||||||||
|
Upscale & Above (1)
|
$ | 149.75 | 56.3 | % | $ | 84.35 | $ | 151.91 | 57.7 | % | $ | 87.67 | (1.4) | % | (140) | bps | (3.8) | % | ||||||||||||||||||||||||||||||||||||||
|
Midscale & Upper Midscale (2)
|
99.21 | 54.9 | % | 54.50 | 100.91 | 55.9 | % | 56.41 | (1.7) | % | (100) | bps | (3.4) | % | ||||||||||||||||||||||||||||||||||||||||||
|
Extended Stay (3)
|
66.10 | 69.1 | % | 45.67 | 64.12 | 71.2 | % | 45.66 | 3.1 | % | (210) | bps | - | % | ||||||||||||||||||||||||||||||||||||||||||
|
Economy (4)
|
70.73 | 46.7 | % | 33.02 | 72.15 | 47.1 | % | 33.97 | (2.0) | % | (40) | bps | (2.8) | % | ||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 95.05 | 55.6 | % | $ | 52.85 | $ | 96.64 | 56.4 | % | $ | 54.51 | (1.6) | % | (80) | bps | (3.0) | % | ||||||||||||||||||||||||||||||||||||||
(1) Includes Ascend Collection, Cambria, Park Plaza, Radisson, Radisson Blu, Radisson Individuals, and Radisson RED brands.
(2) Includes Clarion, Comfort Inn, Comfort Suites, Country Inn & Suites, Park Inn, Quality Inn, and Sleep Inn brands.
(3) Includes Everhome Suites, Mainstay Suites, Suburban Studios, and WoodSpring Suites brands.
(4) Includes Econo Lodge and Rodeway brands.
A summary of the U.S. hotels and rooms by brand in our franchise system as of December 31, 2025 and 2024 was as follows:
| December 31, 2025 | December 31, 2024 | Variance | |||||||||||||||||||||||||||||||||||||||||||||
| Hotels | Rooms | Hotels | Rooms | Hotels | % | Rooms | % | ||||||||||||||||||||||||||||||||||||||||
|
Comfort (1)
|
1,652 | 128,836 | 1,674 | 131,495 | (22) | (1.3) | % | (2,659) | (2.0) | % | |||||||||||||||||||||||||||||||||||||
| Quality Inn | 1,571 | 113,613 | 1,627 | 118,725 | (56) | (3.4) | % | (5,112) | (4.3) | % | |||||||||||||||||||||||||||||||||||||
| Econo Lodge | 599 | 34,658 | 642 | 37,528 | (43) | (6.7) | % | (2,870) | (7.6) | % | |||||||||||||||||||||||||||||||||||||
| Rodeway | 432 | 23,838 | 447 | 24,948 | (15) | (3.4) | % | (1,110) | (4.4) | % | |||||||||||||||||||||||||||||||||||||
| Country | 402 | 32,333 | 422 | 33,771 | (20) | (4.7) | % | (1,438) | (4.3) | % | |||||||||||||||||||||||||||||||||||||
| Sleep Inn | 404 | 28,199 | 415 | 29,118 | (11) | (2.7) | % | (919) | (3.2) | % | |||||||||||||||||||||||||||||||||||||
| Ascend Collection | 236 | 38,426 | 233 | 38,589 | 3 | 1.3 | % | (163) | (0.4) | % | |||||||||||||||||||||||||||||||||||||
| WoodSpring Suites | 284 | 34,176 | 256 | 30,846 | 28 | 10.9 | % | 3,330 | 10.8 | % | |||||||||||||||||||||||||||||||||||||
|
Clarion (2)
|
181 | 18,562 | 193 | 19,944 | (12) | (6.2) | % | (1,382) | (6.9) | % | |||||||||||||||||||||||||||||||||||||
| MainStay Suites | 143 | 10,337 | 141 | 10,157 | 2 | 1.4 | % | 180 | 1.8 | % | |||||||||||||||||||||||||||||||||||||
| Suburban Studios | 115 | 9,558 | 111 | 9,159 | 4 | 3.6 | % | 399 | 4.4 | % | |||||||||||||||||||||||||||||||||||||
| Cambria Hotels | 76 | 10,189 | 76 | 10,344 | - | - | % | (155) | (1.5) | % | |||||||||||||||||||||||||||||||||||||
|
Radisson (3)
|
52 | 10,090 | 57 | 13,390 | (5) | (8.8) | % | (3,300) | (24.6) | % | |||||||||||||||||||||||||||||||||||||
| Park Inn | 15 | 1,294 | 27 | 2,926 | (12) | (44.4) | % | (1,632) | (55.8) | % | |||||||||||||||||||||||||||||||||||||
| Everhome Suites | 25 | 2,870 | 7 | 799 | 18 | 257.1 | % | 2,071 | 259.2 | % | |||||||||||||||||||||||||||||||||||||
| Total U.S. Franchises | 6,187 | 496,979 | 6,328 | 511,739 | (141) | (2.2) | % | (14,760) | (2.9) | % | |||||||||||||||||||||||||||||||||||||
(1)Includes the Comfort family of brand extensions, including Comfort Inn and Comfort Suites.
(2)Includes the Clarion family of brand extensions, including Clarion and Clarion Pointe.
(3)Includes the Radisson, Radisson Blu, Radisson Individuals, and Radisson RED brands.
International royalty fees increased $11.5 million to $41.3 million for the year ended December 31, 2025 from $29.8 million for the year ended December 31, 2024. The increase in international royalty fees was primarily due to an increase in the size of the international franchise system by 130 hotels (from 1,258 hotels as of December 31, 2024 to 1,388 hotels as of December 31, 2025) and 17,775 rooms (from 142,071 rooms as of December 31, 2024 to 159,846 rooms as of December 31, 2025), an increase in royalty fees as a result of the acquisition of the remaining 50% equity interest in Choice Hotels Canada, and an increase in international RevPAR.
Partnership Services and Fees
Partnership services and fees increased $14.3 million primarily due to an increase in the fees generated from the Company's co-branded credit card agreement and qualified vendors.
Other Revenues
Other revenues increased $8.2 million primarily due to an increase in liquidated damages resulting from the early termination of franchise agreements and other franchising revenues.
Selling, General and Administrative
Selling, general and administrative expenses increased $16.6 million primarily due to a $9.2 million increase in the provisions for credit losses on accounts receivable balances, a $4.5 million increase in costs related to the global enterprise resource planning ("ERP") system implementation, a $3.8 million increase in operating guarantee payments for a portfolio of managed hotels which was acquired in connection with the Company's purchase of Radisson Hotels Americas, and a $2.2 million increase in expenses to operate Choice Hotels Canada during the year ended December 31, 2025, all of which were partially offset by a $2.4 million litigation settlement that was recognized during the year ended December 31, 2024.
Business Combination, Diligence and Transition Costs
Business combination, diligence and transition costs decreased $12.5 million primarily due to the termination of the Wyndham acquisition pursuit on March 8, 2024, which was partially offset by the transaction costs associated with the acquisition of Choice Hotels Canada that were recognized during the year ended December 31, 2025.
Depreciation and Amortization
Depreciation and amortization expense increased $7.8 million primarily due to a $4.0 million increase in amortization expense for intangible assets as a result of the acquisition of the remaining 50% equity interest in Choice Hotels Canada in July 2025 and a $1.7 million increase in depreciation expense related to the opening of five owned hotels during the year ended December 31, 2025.
Gain from an Acquisition of a Joint Venture
During the year ended December 31, 2025, the Company recognized a $100.0 million gain on the fair value remeasurement of its previously held 50% equity investment in Choice Hotels Canada as a result of acquiring the remaining 50% equity interest in Choice Hotels Canada in July 2025.
Other (Gains) Losses, net
Other (gains) losses, net increased $8.6 million primarily due to a net loss of $8.3 million on the sales of equity securities during the year ended December 31, 2024, which was partially offset by dividend income of $1.5 million that was recognized during the year ended December 31, 2024.
Equity in Net Loss (Gain) of Affiliates
Equity in net loss (gain) of affiliates decreased $26.7 million primarily due to $6.5 million of non-recurring joint venture formation transaction costs that were associated with the Company entering into a new joint venture agreement, and a new loan facility, to develop and operate Everhome Suites in certain strategic markets during the year ended December 31, 2025, a $10.0 million decrease in the equity earnings from our unconsolidated affiliates, a $3.6 million decrease in equity earnings as a result of acquiring the remaining 50% equity interest in Choice Hotels Canada during the year ended December 31, 2025, and a distribution from an unconsolidated affiliate, which sold its underlying assets, resulting in the recognition of a $7.2 million gain during the year ended December 31, 2024.
Income Tax Expense
The Company's effective income tax rates were 19.0% and 24.3% for the years ended December 31, 2025 and 2024, respectively. The effective income tax rate for the year ended December 31, 2025 was lower than the U.S. federal income tax rate of 21.0% primarily due to the impact of a $100.0 million non-taxable gain from an acquisition of a joint venture and federal income tax credits, which were partially offset by the impact of state income taxes and tax expense related to compensation. The effective income tax rate for the year ended December 31, 2024 was higher than the U.S. federal income tax rate of 21.0% primarily due to the impact of state income taxes and tax expense related to compensation, which were partially offset by federal income tax credits.
Operations Review
A summary of the financial results for the years ended December 31, 2024 and 2023 was as follows:
| December 31, | |||||||||||
| (in thousands) | 2024 | 2023 | |||||||||
| REVENUES | |||||||||||
| Franchise and management fees | $ | 669,637 | $ | 652,060 | |||||||
| Partnership services and fees | 99,491 | 91,790 | |||||||||
| Owned hotels | 113,459 | 97,641 | |||||||||
| Other | 64,060 | 55,097 | |||||||||
| Revenue for reimbursable costs from franchised and managed properties | 638,192 | 647,577 | |||||||||
| Total revenues | 1,584,839 | 1,544,165 | |||||||||
| OPERATING EXPENSES | |||||||||||
| Selling, general and administrative | 312,388 | 312,701 | |||||||||
| Business combination, diligence and transition costs | 17,233 | 55,778 | |||||||||
| Depreciation and amortization | 51,953 | 45,038 | |||||||||
| Owned hotels | 83,148 | 71,474 | |||||||||
| Reimbursable expenses from franchised and managed properties | 656,344 | 680,410 | |||||||||
| Total operating expenses | 1,121,066 | 1,165,401 | |||||||||
| Impairment of long-lived assets | - | (3,736) | |||||||||
| Operating income | 463,773 | 375,028 | |||||||||
| OTHER EXPENSES AND (INCOME), NET | |||||||||||
| Interest expense | 87,131 | 63,780 | |||||||||
| Interest income | (8,646) | (7,764) | |||||||||
| Loss (gain) on extinguishment of debt | 331 | (4,416) | |||||||||
| Other losses (gains), net | 1,641 | (10,649) | |||||||||
| Equity in net gain of affiliates | (12,329) | (2,879) | |||||||||
| Total other expenses and (income), net | 68,128 | 38,072 | |||||||||
| Income before income taxes | 395,645 | 336,956 | |||||||||
| Income tax expense | 95,980 | 78,449 | |||||||||
| Net income | $ | 299,665 | $ | 258,507 | |||||||
Results of Operations
For the year ended December 31, 2024, the Company recognized income before income taxes of $395.6 million, which is a $58.7 million increase from the year ended December 31, 2023. The increase in income before income taxes was primarily due to an $88.7 million increase in operating income and a $9.5 million increase in the equity in net gain of affiliates, both of which were partially offset by a $23.4 million increase in interest expense, a $12.3 million decrease in other losses (gains), net, and a $4.7 million decrease in loss (gain) on extinguishment of debt.
Operating income increased $88.7 million primarily due to a $17.6 million increase in franchise and management fees, a $7.7 million increase in partnership services and fees, a $9.0 million increase in other revenues, a $14.7 million decrease in the net reimbursable deficit from franchised and managed properties, and a $38.5 million decrease in business combination, diligence and transition costs.
The primary reasons for these fluctuations are described in more detail below.
Franchise and Management Fees
Franchise and management fees increased $17.6 million primarily due to a $14.7 million increase in revenues generated from programs, platforms, and services associated with the Company's franchise operations and a $0.9 million increase in international royalty fees, all of which were partially offset by a $3.4 million decrease in U.S. royalty fees.
U.S. royalty fees decreased $3.4 million to $454.7 million for the year ended December 31, 2024 from $458.1 million for the year ended December 31, 2023. The decrease in U.S. royalty fees was primarily due to a 1.2% decrease in U.S. system-wide RevPAR as a result of a 0.3% decrease in average daily rates and a 50 basis points decrease in occupancy, all of which were
partially offset by a 3.0% increase in open and operating U.S. hotel rooms and a system-wide 7 basis points increase in the average royalty rate from 4.99% for the year ended December 31, 2023 to 5.06% for the year ended December 31, 2024.
A summary of the operating performance for the Company's U.S. franchised hotels, organized by chain scale, was as follows:
| 2024 | 2023 | Change | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Average Daily Rate | Occupancy | RevPAR |
Average Daily Rate |
Occupancy | RevPAR |
Average Daily Rate |
Occupancy | RevPAR | ||||||||||||||||||||||||||||||||||||||||||||||||
|
Upscale & Above (1)
|
$ | 151.91 | 57.7 | % | $ | 87.67 | $ | 151.19 | 56.6 | % | $ | 85.65 | 0.5 | % | 110 | bps | 2.4 | % | ||||||||||||||||||||||||||||||||||||||
|
Midscale & Upper Midscale (2)
|
100.95 | 55.9 | % | 56.45 | 101.12 | 56.8 | % | 57.43 | (0.2) | % | (90) | bps | (1.7) | % | ||||||||||||||||||||||||||||||||||||||||||
|
Extended Stay (3)
|
64.13 | 71.2 | % | 45.66 | 63.50 | 72.3 | % | 45.88 | 1.0 | % | (110) | bps | (0.5) | % | ||||||||||||||||||||||||||||||||||||||||||
|
Economy (4)
|
72.18 | 47.1 | % | 34.00 | 71.66 | 47.9 | % | 34.36 | 0.7 | % | (80) | bps | (1.0) | % | ||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 96.67 | 56.4 | % | $ | 54.54 | $ | 96.92 | 56.9 | % | $ | 55.19 | (0.3) | % | (50) | bps | (1.2) | % | ||||||||||||||||||||||||||||||||||||||
(1) Includes Ascend Collection, Cambria, Park Plaza, Radisson, Radisson Blu, Radisson Individuals, and Radisson RED brands.
(2) Includes Clarion, Comfort Inn, Comfort Suites, Country Inn & Suites, Park Inn, Quality Inn, and Sleep Inn brands.
(3) Includes Everhome Suites, Mainstay Suites, Suburban Studios, and WoodSpring Suites brands.
(4) Includes Econo Lodge and Rodeway brands.
A summary of the U.S. hotels and rooms by brand in our franchise system as of December 31, 2024 and 2023 was as follows:
| December 31, 2024 | December 31, 2023 | Variance | |||||||||||||||||||||||||||||||||||||||||||||
| Hotels | Rooms | Hotels | Rooms | Hotels | % | Rooms | % | ||||||||||||||||||||||||||||||||||||||||
|
Comfort (1)
|
1,674 | 131,495 | 1,675 | 131,637 | (1) | (0.1) | % | (142) | (0.1) | % | |||||||||||||||||||||||||||||||||||||
| Quality Inn | 1,627 | 118,725 | 1,620 | 119,153 | 7 | 0.4 | % | (428) | (0.4) | % | |||||||||||||||||||||||||||||||||||||
| Econo Lodge | 642 | 37,528 | 675 | 39,805 | (33) | (4.9) | % | (2,277) | (5.7) | % | |||||||||||||||||||||||||||||||||||||
| Rodeway | 447 | 24,948 | 470 | 26,309 | (23) | (4.9) | % | (1,361) | (5.2) | % | |||||||||||||||||||||||||||||||||||||
| Country | 422 | 33,771 | 428 | 34,122 | (6) | (1.4) | % | (351) | (1.0) | % | |||||||||||||||||||||||||||||||||||||
| Sleep Inn | 415 | 29,118 | 432 | 30,411 | (17) | (3.9) | % | (1,293) | (4.3) | % | |||||||||||||||||||||||||||||||||||||
| Ascend Collection | 233 | 38,589 | 209 | 23,484 | 24 | 11.5 | % | 15,105 | 64.3 | % | |||||||||||||||||||||||||||||||||||||
| WoodSpring Suites | 256 | 30,846 | 235 | 28,350 | 21 | 8.9 | % | 2,496 | 8.8 | % | |||||||||||||||||||||||||||||||||||||
|
Clarion (2)
|
193 | 19,944 | 186 | 19,813 | 7 | 3.8 | % | 131 | 0.7 | % | |||||||||||||||||||||||||||||||||||||
| MainStay Suites | 141 | 10,157 | 127 | 8,863 | 14 | 11.0 | % | 1,294 | 14.6 | % | |||||||||||||||||||||||||||||||||||||
| Suburban Studios | 111 | 9,159 | 105 | 9,112 | 6 | 5.7 | % | 47 | 0.5 | % | |||||||||||||||||||||||||||||||||||||
| Cambria Hotels | 76 | 10,344 | 74 | 10,239 | 2 | 2.7 | % | 105 | 1.0 | % | |||||||||||||||||||||||||||||||||||||
|
Radisson (3)
|
57 | 13,390 | 64 | 15,206 | (7) | (10.9) | % | (1,816) | (11.9) | % | |||||||||||||||||||||||||||||||||||||
| Park Inn | 27 | 2,926 | 4 | 363 | 23 | 575.0 | % | 2,563 | 706.1 | % | |||||||||||||||||||||||||||||||||||||
| Everhome Suites | 7 | 799 | 1 | 98 | 6 | 600.0 | % | 701 | 715.3 | % | |||||||||||||||||||||||||||||||||||||
| Total U.S. Franchises | 6,328 | 511,739 | 6,305 | 496,965 | 23 | 0.4 | % | 14,774 | 3.0 | % | |||||||||||||||||||||||||||||||||||||
(1)Includes the Comfort family of brand extensions, including Comfort Inn and Comfort Suites.
(2)Includes the Clarion family of brand extensions, including Clarion and Clarion Pointe.
(3)Includes the Radisson, Radisson Blu, Radisson Individuals, and Radisson RED brands.
International royalty fees increased $0.9 million to $29.8 million for the year ended December 31, 2024 from $28.9 million for the year ended December 31, 2023. The increase in international royalty fees was primarily due to an increase in the size of the international franchise system by 36 hotels (from 1,222 hotels as of December 31, 2023 to 1,258 hotels as of December 31, 2024) and 6,050 rooms (from 136,021 rooms as of December 31, 2023 to 142,071 rooms as of December 31, 2024), and an increase in international RevPAR.
Partnership Services and Fees
Partnership services and fees increased $7.7 million primarily due to an increase in the fees generated from the Company's co-branded credit card agreement and qualified vendors.
Owned Hotels
The Company's revenues, net of operating expenses, from the owned hotels increased $4.1 million primarily due to the improved operating performance at our owned hotels and the addition of two owned hotels during the year ended December 31, 2024 as compared to the prior year.
Other Revenues
Other revenues increased $9.0 million primarily due to an increase in liquidated damages that resulted from the early termination of franchise agreements and other franchising revenues.
Business Combination, Diligence and Transition Costs
Business combination, diligence and transition costs decreased $38.5 million primarily due to the termination of the Wyndham acquisition pursuit on March 8, 2024 and substantial completion of the integration of the Radisson Hotels Americas business in the fourth quarter of 2023.
Impairment of Long-Lived Assets
Impairment of long-lived assets decreased $3.7 million primarily due to a sublease agreement that was signed for the legacy Radisson corporate office space in Minneapolis, Minnesota. The long-lived asset group associated with the office space was determined to be impaired due to the carrying value exceeding its fair value, which resulted in the recognition of a $3.4 million impairment loss in 2023. The Company did not recognize any impairments of long-lived assets during the year ended December 31, 2024.
Interest Expense
Interest expense increased $23.4 million primarily due to increased borrowings and higher interest rates on the Company's outstanding borrowings. Refer to the discussion in the Liquidity and Capital Resources section in MD&A for more information.
Loss (Gain) on Extinguishment of Debt
Loss (gain) on extinguishment of debt decreased $4.7 million. During the year ended December 31, 2024, the Company recognized a loss on extinguishment of debt due to the repayment of the 2023 Term Loan. During the year ended December 31, 2023, the Company derecognized certain economic development loans from the consolidated balance sheets due to satisfying the relevant performance conditions in the loan agreement, resulting in a gain on extinguishment of debt.
Other Losses (Gains), net
Other losses (gains), net decreased $12.3 million primarily due to a net loss of $8.3 million on the sales of equity securities related to the pursuit of the Wyndham acquisition during the year ended December 31, 2024 and a $4.0 million unrealized gain on investments in equity securities during the year ended December 31, 2023, all of which were partially offset by dividend income of $1.5 million that was recognized during the year ended December 31, 2024 and a $0.6 million increase in the Company's deferred compensation and employee benefit plans assets based on increases in the fair value of the underlying investments.
Equity in Net Gain of Affiliates
Equity in net gain of affiliates increased $9.5 million primarily due to a distribution from an unconsolidated affiliate, which sold its underlying assets, resulting in the recognition of a $7.2 million gain during the year ended December 31, 2024. Refer to Note 7 to our consolidated financial statements for additional information.
Income Tax Expense
The Company's effective income tax rates were 24.3% and 23.3% for the years ended December 31, 2024 and 2023, respectively. The effective income tax rates for the years ended December 31, 2024 and 2023 were higher than the U.S. federal income tax rate of 21.0% primarily due to the impact of state income taxes and tax expense related to compensation, which were partially offset by federal income tax credits.
Liquidity and Capital Resources
Our Company historically generates strong and predictable operating cash flows primarily from our hotel franchising operations. Our capital allocation decisions, including capital structure and our uses of capital, are intended to maximize our return on invested capital and create value for our shareholders, while maintaining a strong balance sheet and financial flexibility. The Company's short-term and long-term liquidity requirements primarily arise from working capital needs, debt obligations, income tax payments, dividend payments, share repurchases, capital expenditures, and investments in growth opportunities.
As of December 31, 2025, the Company's primary sources of liquidity consisted of $571.4 million in cash and cash equivalents and available borrowing capacity under the senior unsecured revolving credit facility. As of December 31, 2025, the Company was in compliance with all of its financial covenants under its credit agreements and the Company expects to remain in such
compliance. The Company believes that its cash on hand, available borrowing capacity under the senior unsecured revolving credit facility, cash flows from operations, and access to additional capital in the debt markets will provide sufficient liquidity to meet the expected future operating, investing, and financing needs of the business.
Our board of directors authorized a program which permits us to offer investment and guaranty support to qualified franchisees, and to acquire or develop and then resell hotels to incentivize franchise development of our brands in strategic markets. We primarily engage in these investment and guaranty support activities to encourage acceleration of the growth of our Cambria Hotels and Everhome Suites brands. With respect to these activities, the Company had approximately $667.2 million of investments in the Cambria Hotels and Everhome Suites brands reflected in the consolidated balance sheet as of December 31, 2025. The Company is generally targeting to recycle these investments within a five year period, and expects our outstanding investments to not exceed $1.2 billion at any point in time based on the current board of directors' authorization. The deployment and annual pace of future investment and guaranty support activities will depend upon market and other conditions, including among others, our franchise sales results, the environment for new construction hotel development, and the hotel lending environment.
The Company also strategically deploys capital in the form of franchise agreement acquisition costs across our brands to incentivize franchise development. The timing and the amount of the franchise agreement acquisition cost payments are dependent on various factors including the implementation of various development and brand incentive programs, the level of franchise sales, and the ability of our franchisees to complete construction or convert their hotels to one of the Company's brands.
The Company has historically generated cash flows from operating activities that are in excess of the capital needed to invest in growth opportunities and to service debt obligations. As a result, the Company maintains a share repurchase program and typically pays a quarterly dividend. On March 11, 2024, the Company's board of directors approved an increase of 5 million shares in the number of shares authorized to be repurchased under its share repurchase program. As of December 31, 2025, the Company had 2.8 million shares remaining under the current share repurchase authorization. The 2025 annual dividend rate was $1.15 per share or approximately $53.5 million in aggregate dividend payments. Future dividends are subject to declarations by our board of directors.
Cash Flows from Operating Activities
During the years ended December 31, 2025, 2024, and 2023, the net cash provided by operating activities was $270.4 million, $319.4 million, and $296.6 million, respectively. Our operating cash flows decreased $49.0 million during the year ended December 31, 2025 primarily due to the timing of working capital items, the final installment payment made in 2025 for the one-time transition tax on earnings of foreign subsidiaries that was imposed by 2017 tax legislation, and the cash paid for the purchase of transferrable tax credits in 2025 of which a portion will be utilized in 2026, all of which were partially offset by a decrease in business combination, diligence and transition costs associated with the timing of the termination of the Wyndham acquisition pursuit during the first quarter of 2024, a decrease in deferred income taxes primarily attributable to the enactment of a tax act, and a decrease in the franchise agreement acquisition cost payments.
In conjunction with brand and development programs, we strategically make certain franchise agreement acquisition cost payments to franchisees as an incentive to enter into new franchise agreements or perform-designated improvements to properties under existing franchise agreements. If the franchisee remains in the franchise system in good standing over the term specified in the incentive agreement, then the Company forgives the incentive ratably. If the franchisee exits our franchise system or is not operating their franchise in accordance with our quality or credit standards and is terminated, then the franchisee must repay the unamortized franchise agreement acquisition cost payment plus interest to the Company. During the years ended December 31, 2025, 2024, and 2023, the Company's net franchise agreement acquisition costs were $83.4 million, $112.2 million, and $98.3 million, respectively.
The Company's franchise agreements require the payment of marketing and reservation fees to be used by the Company for the expenses associated with providing franchise services such as national marketing, media advertising, and central reservation systems. Additionally, the Company's management agreements include cost reimbursements, primarily related to the payroll costs at the managed hotels where the Company is the employer. These activities are reflected in revenue for reimbursable costs from franchised and managed properties and reimbursable expenses from franchised and managed properties. During the years ended December 31, 2025, 2024, and 2023, reimbursable expenses from franchised and managed properties exceeded revenue for reimbursable costs from franchised and managed properties by $47.1 million, $18.2 million, and $32.8 million, respectively.
Cash Flows from Investing Activities
The net cash used in investing activities was $218.3 million, $84.6 million, and $265.6 million for the years ended December 31, 2025, 2024, and 2023, respectively.
During the years ended December 31, 2025, 2024, and 2023, investments in owned hotel properties totaled $106.9 million, $106.8 million, and $68.6 million, respectively. These investments related to the ongoing hotel development efforts to support the continued growth of the Cambria Hotels and Everhome Suites brands. During the years ended December 31, 2025, 2024, and 2023, investments in other property and equipment totaled $38.9 million, $39.1 million, and $47.7 million, respectively. These investments primarily related to leasehold improvements, office equipment, and capitalized software.
The Company has equity method investments in affiliates related to the Company's program to offer equity support to qualified franchisees to develop and operate Cambria Hotels and Everhome Suites branded-hotels in strategic markets. During the years ended December 31, 2025, 2024, and 2023, the Company invested $93.7 million, $52.8 million, and $38.9 million, respectively, to support these efforts. During the years ended December 31, 2025, 2024, and 2023, the Company received distributions from these affiliates totaling $44.6 million, $15.9 million, and $0.9 million, respectively. For the year ended December 31, 2025, the Company received net cash proceeds of $52.0 million from the sale of four wholly-owned Everhome Suites under construction to a joint venture. Refer to Note 7 for more information.
The Company provides financing to franchisees for hotel development efforts and other purposes in the form of notes receivable loans. The loans bear interest and are expected to be repaid in accordance with the terms of the loan agreements. During the years ended December 31, 2025, 2024, and 2023, the Company issued a total of $6.9 million, $38.0 million, and $4.3 million of notes receivable loans, respectively, and received repayments totaling $7.4 million, $32.1 million, and $10.9 million on the notes receivable loans, respectively.
On July 2, 2025, the Company acquired the remaining 50% of the outstanding shares of Choice Hotels Canada for a purchase price, net of the cash acquired, of $73.4 million. The acquisition was funded with available cash and borrowings under the Company's senior unsecured revolving credit facility.
During the year ended December 31, 2025, there were no purchases or sales of equity securities. During the year ended December 31, 2024, the Company purchased no equity securities and received $108.1 million in proceeds from the sales of equity securities. During the year ended December 31, 2023, the Company purchased $112.4 million of equity securities in conjunction with the Wyndham acquisition pursuit and there were no sales of equity securities.
Cash Flows from Financing Activities
Cash flows from financing activities primarily relate to the proceeds or payments on the Company's borrowings, treasury stock repurchases, acquisition of shares in connection with the exercise or vesting of equity awards, the payment of dividends, and the payment of debt issuance costs.
Debt
Senior Unsecured Revolving Credit Facility
On June 28, 2024, the Company entered into a Second Amended and Restated Senior Unsecured Credit Agreement (the "Restated Credit Agreement"), which amended and restated the Company's existing amended and restated senior unsecured credit agreement dated August 20, 2018 (the "Former Credit Agreement"). The Former Credit Agreement provided for an $850 million unsecured revolving credit facility (the "Revolver") with a final maturity date of August 20, 2026. The Restated Credit Agreement increased the commitments under the Revolver to $1 billion and extended the final maturity date of the Revolver to June 28, 2029, subject to optional one-year extensions that can be requested by the Company prior to each of the third, fourth, and fifth anniversaries of the closing date of the Restated Credit Agreement.
The effectiveness of such extension is subject to the consent of the lenders under the Restated Credit Agreement and certain customary conditions. The Restated Credit Agreement also provides that up to $50 million of borrowings under the Revolver may be used for alternative currency loans, up to $10 million of capacity under the Revolver may be used for the issuance of letters of credit, and up to $25 million of borrowings under the Revolver may be used for swingline loans. The Company may from time to time designate one or more wholly-owned subsidiaries of the Company as additional borrowers under the Restated Credit Agreement, subject to the consent of the lenders and certain customary conditions.
At any time prior to the final maturity date, the Company may increase the amount of the Revolver or add one or more term loan facilities under the Restated Credit Agreement by up to an additional $500 million in the aggregate to the extent that any one or more lenders commit to being a lender for the additional amount of such increase or the term loan facility and certain other customary conditions are met.
The Restated Credit Agreement allows the Company to elect to have the Revolver bear interest at a rate equal to (i) the secured overnight financing rate (subject to a credit spread adjustment of 0.10% and a 0.00% floor) plus a margin ranging from 0.90% to 1.50% or (ii) a base rate plus a margin ranging from 0.00% to 0.50%. In each case, the margin is determined according to the
Company's senior unsecured long-term debt rating or under circumstances as set forth in the Restated Credit Agreement if the Company's total leverage ratio is less than 2.5 to 1.0.
The Restated Credit Agreement requires the Company to pay a fee on the total commitments under the Revolver, calculated on the basis of the actual daily amount of the commitments under the Revolver (regardless of usage) times a percentage per annum ranging from 0.075% to 0.25% (depending on the Company's senior unsecured long-term debt rating or under specific circumstances as set forth in the Restated Credit Agreement if the Company's total leverage ratio is less than 2.5 to 1.0).
The Restated Credit Agreement requires that the Company and its restricted subsidiaries comply with various covenants, including with respect to restrictions on liens, incurring indebtedness, making dividends and stock repurchases, making investments and effecting mergers and/or asset sales. The Restated Credit Agreement imposes financial maintenance covenants requiring the Company to maintain a consolidated fixed charge coverage ratio of at least 2.5 to 1.0 and a total leverage ratio of not more than 4.5 to 1.0, which may be increased up to two nonconsecutive occasions to 5.5 to 1.0 for up to four consecutive fiscal quarters commencing with the fiscal quarter in which certain material acquisitions are consummated. So long as the Company maintains an Investment Grade Rating, as defined in the Restated Credit Agreement, then the Company will not need to comply with the consolidated fixed charge coverage ratio covenant.
The Restated Credit Agreement includes customary events of default, the occurrence of which, following any applicable cure period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations of the Company under the Restated Credit Agreement to be immediately due and payable. As of December 31, 2025, the Company maintained a total leverage ratio of 2.86x, including outstanding debt of approximately $469.8 million on the senior unsecured revolving credit facility. The Company was in compliance with all financial covenants under the Restated Credit Agreement.
Debt issuance costs incurred in connection with the Restated Credit Agreement are amortized on a straight-line basis, which is not materially different from the effective interest method, through the loan's maturity date. The amortization of the debt issuance costs is included in interest expense in the consolidated statements of income.
The proceeds of the Restated Credit Agreement are expected to be used for general corporate purposes, including working capital, debt repayment, stock repurchases, dividends, investments, and other permitted uses as set forth in the Restated Credit Agreement.
2024 Senior Unsecured Notes Due 2034
On July 2, 2024, the Company issued unsecured senior notes with a principal amount of $600 million (the "2024 Senior Notes") at a discount of $6.4 million, bearing a coupon of 5.85%, with an effective rate of 6.11%, and mature on August 1, 2034. Interest on the 2024 Senior Notes is payable semi-annually on February 1stand August 1stof each year, commencing on February 1, 2025. The interest rate payable on the 2024 Senior Notes will be subject to adjustment based on certain rating events.
The Company may redeem the 2024 Senior Notes, in whole or in part, at any time prior to their maturity at the redemption price, which includes a make-whole premium. If the 2024 Senior Notes are redeemed on or after May 1, 2034 (three months prior to the applicable maturity date), then the redemption price will be equal to 100% of the principal amount of the 2024 Senior Notes being redeemed plus accrued and unpaid interest thereon to the redemption date. Additionally, at the option of the holders of the 2024 Senior Notes, the Company may be required to repurchase all or a portion of the holder's 2024 Senior Notes upon the occurrence of a change of control event, at a price equal to 101% of their aggregate principal amount, plus accrued and unpaid interest, to the date of repurchase.
2023 Term Loan Due 2024
On December 18, 2023, the Company entered into a $500 million unsecured term loan with an effective interest rate of 6.83% and a maturity date of December 16, 2024 (the "2023 Term Loan"). The 2023 Term Loan and all accrued but unpaid interest must be repaid in full on the maturity date.
The term loan agreement required that the Company comply with various covenants, including restrictions on liens, incurring indebtedness, making dividends, stock repurchases, investments, and completing mergers and/or asset sales. The term loan agreement had financial covenants which required the Company to maintain a consolidated fixed charge coverage ratio of at least 2.5 to 1.0, and a total leverage ratio of not more than 4.5 to 1.0 which may have been increased to 5.5 to 1.0 for up to three consecutive fiscal quarters commencing with the fiscal quarter in which certain material acquisitions are consummated. As long as the Company maintained an Investment Grade Rating, as defined in the term loan agreement, then the Company would not need to comply with the consolidated fixed charge coverage ratio covenant. The Company was in compliance with all covenants upon the repayment in full of the 2023 Term Loan.
On July 2, 2024, the Company used a portion of the net proceeds from the sale of the 2024 Senior Notes, after deducting underwriting discounts and commissions and other offering expenses, to repay in full the 2023 Term Loan.
2020 Senior Unsecured Notes Due 2031
On July 23, 2020, the Company issued unsecured senior notes with a principal amount of $450 million (the "2020 Senior Notes") bearing a coupon of 3.70%. The 2020 Senior Notes will mature on January 15, 2031, with interest to be paid semi-annually on January 15thand July 15th of each year. The Company used the net proceeds of the 2020 Senior Notes, after deducting underwriting discounts, commissions, and offering expenses, to repay in full the $250 million term loan entered in April 2020 and to fund the purchase price of the 2012 Senior Notes.
The interest rate payable on the 2020 Senior Notes is subject to adjustment based on certain rating events. The Company may redeem the 2020 Senior Notes, in whole or in part, at its option at the applicable redemption price before the maturity date. If the Company redeems the 2020 Senior Notes prior to October 15, 2030 (three months prior to the maturity date) (the "2020 Notes Par Call Date"), the redemption price will be equal to the greater of (a) 100% of the principal amount of the notes to be redeemed, or (b) the sum of the present values of the remaining scheduled principal and interest payments that would have been payable had the 2020 Senior Notes matured on the 2020 Notes Par Call Date, discounted to the redemption date on a semi-annual basis at the applicable Treasury Rate plus 50 basis points, plus accrued and unpaid interest. If the Company redeems the 2020 Senior Notes on or after the 2020 Notes Par Call Date, the redemption price will equal 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest. Additionally, at the option of the holders of the 2020 Senior Notes, the Company may be required to repurchase all or a portion of the 2020 Senior Notes upon the occurrence of a change of control event at a price equal to 101% of their aggregate principal amount, plus accrued and unpaid interest, to the date of repurchase.
2019 Senior Unsecured Notes Due 2029
On November 27, 2019, the Company issued unsecured senior notes with a principal amount of $400 million (the "2019 Senior Notes") at a discount of $2.4 million, bearing a coupon of 3.70% with an effective rate of 3.88%. The 2019 Senior Notes will mature on December 1, 2029, with interest to be paid semi-annually on December 1stand June 1stof each year. The Company used the net proceeds of this offering, after deducting underwriting discounts, commissions, and offering expenses, to repay the previously outstanding senior notes with a principal amount of $250 million due August 28, 2020, and for working capital and other general corporate purposes.
The Company may redeem the 2019 Senior Notes, in whole or in part, at its option at the applicable redemption price before maturity. If the Company redeems the 2019 Senior Notes prior to September 1, 2029 (three months prior to the maturity date) (the "2019 Notes Par Call Date"), the redemption price will be equal to the greater of (a) 100% of the principal amount of the notes to be redeemed, or (b) the sum of the present values of the remaining scheduled principal and interest payments that would have been payable had the 2019 Senior Notes matured on the 2019 Notes Par Call Date, discounted to the redemption date on a semi-annual basis at the applicable Treasury Rate plus 30 basis points, plus accrued and unpaid interest. If the Company redeems the 2019 Senior Notes on or after the 2019 Notes Par Call Date, the redemption price will equal 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest. Additionally, at the option of the holders of the 2019 Senior Notes, the Company may be required to repurchase all or a portion of the 2019 Senior Notes upon the occurrence of a change of control event at a price equal to 101% of their aggregate principal amount, plus accrued and unpaid interest, to the date of repurchase.
2025 Economic Development Loans
The Company entered into certain economic development agreements with various governmental entities in conjunction with the relocation of its corporate headquarters in November 2023. In accordance with these agreements, as December 31, 2025, the governmental entities advanced $1.9 million to the Company to offset a portion of the corporate headquarters relocation and tenant improvement costs in consideration of the employment of permanent, full-time employees within the jurisdictions. The Company has been advanced the full amounts that were due pursuant to these agreements, and these advances bear interest at a rate of 3% per annum.
Repayment of the advances is contingent upon the Company achieving certain performance conditions, which are measured annually on December 31st and primarily relate to maintaining certain levels of employment within the various jurisdictions. If the Company fails to meet an annual performance condition, then the Company may be required to repay a portion or all of the advances including accrued interest by April 1st following the measurement date. Any outstanding advances at the expiration of the Company's corporate headquarters lease in 2035 will be forgiven in full. The advances are presented in debt in the Company's consolidated balance sheets until the Company determines that the future performance conditions have been met over the entire term of the agreement and the Company will not be required to repay the advances. The Company accrues
interest on the portion of the advances that it expects to repay. The Company is in compliance with all applicable current performance conditions as of December 31, 2025.
2013 Economic Development Loans
The Company entered into economic development agreements with various governmental entities in conjunction with the relocation of its corporate headquarters in April 2013. In accordance with these agreements, the governmental entities agreed to advance approximately $4.4 million to the Company to offset a portion of the corporate headquarters relocation and tenant improvement costs in consideration of the employment of permanent, full-time employees within the jurisdictions. The Company has been advanced the full amounts that were due pursuant to these agreements, and these advances bore interest at a rate of 3% per annum.
Repayment of the advances was contingent upon the Company achieving certain performance conditions. The performance conditions were measured annually on December 31st and primarily related to maintaining certain levels of employment within the various jurisdictions. If the Company failed to meet an annual performance condition, then the Company may have been required to repay a portion, or all, of the advances including accrued interest by April 30th following the measurement date. Under the terms of the agreement, upon the expiration of the Company's previous ten-year corporate headquarters lease agreement in 2023, any outstanding advances would be forgiven in full. The $4.4 million of advances were previously recognized as debt in the consolidated balance sheets.
Upon the expiration of the Company's previous corporate headquarters lease agreement in 2023, the Company concluded that it had achieved the performance conditions over the entire term of the agreement and therefore, the Company was not required to repay the advances. As a result, during the year ended December 31, 2023, the Company derecognized the $4.4 million economic development loans debt from the consolidated balance sheets and recognized a gain on extinguishment of debt in the consolidated statements of income.
Dividends
During the year ended December 31, 2025, the Company declared aggregate annual cash dividends of $1.15 per share or approximately $53.5 million in aggregate dividend payments.
We expect that cash dividends will continue to be paid in the future, subject to the declaration by our board of directors, future business performance, economic conditions, changes in tax regulations, and other matters. In accordance with the Restated Credit Agreement, the Company may not declare or make any dividend payments if there is an existing event of default or if the dividend payment would create an event of default.
Share Repurchases & Redemptions
The Company has a share repurchase program. Treasury stock activity is recorded at cost in the consolidated balance sheets. During the year ended December 31, 2025, the Company repurchased 1.0 million shares of its common stock under the share repurchase program at a total cost, including accrued excise tax, of $125.9 million. As of December 31, 2025, the Company had 2.8 million shares remaining under the current share repurchase authorization.
During the year ended December 31, 2025, the Company redeemed 0.1 million shares of common stock at a total cost of $9.9 million from employees to satisfy the option exercise price and the statutory minimum tax-withholding requirements related to the exercising of stock options and the vesting of performance vested restricted stock units ("PVRSUs") and restricted stock grants. These redemptions were outside the share repurchase program. During the year ended December 31, 2025, the Company received proceeds of $6.8 million from stock options exercised by employees.
The Company has material future contractual obligations of $104.2 million (excluding the previously addressed debt obligations, the financing, investment, guaranty, and franchise agreement acquisition cost commitments to franchisees, and the deferred compensation plan liabilities) as of December 31, 2025.
Critical Accounting Estimates
The preparation of our consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements, the reported amounts of revenues and expenses during the reporting periods, and the related disclosures in the consolidated financial statements and the accompanying footnotes. On an ongoing basis, we evaluate these estimates and judgments based on historical experiences and various other factors that we believe reflect the current circumstances. While we believe our estimates, assumptions, and judgments are reasonable, they are based on information that was available when the estimate or assumption was made. Actual results may differ significantly from these estimates due to changes in assumptions, judgments, and conditions as a result of unforeseen events or otherwise, which could have a material effect on our financial condition or results of operations.
We believe that the following estimates, which are used in conjunction with our significant accounting policies, are critical because they involve a higher degree of judgment and are based on information that is inherently uncertain. Refer to Note 1 to our consolidated financial statements for information on our significant accounting policies.
Guest Loyalty Program
Choice Privileges is the Company's guest loyalty program, which enables members to earn points based on their spending levels with the Company's franchisees. The points, which the Company accumulates and tracks on the members' behalf, may be redeemed for free accommodations or other benefits (e.g., gift cards to participating retailers). The Company collects from franchisees a percentage of the loyalty program members' gross room revenue from completed hotel stays to operate the guest loyalty program. At the time the points are redeemed for free accommodations or other benefits, the Company reimburses the franchisees or third parties based on a rate derived in accordance with the franchise or vendor agreement.
Loyalty program points represent a performance obligation attributable to the usage of the points, and thus the revenues are recognized at a point in time when the loyalty program points are redeemed by the members for benefits. The transaction price is variable and determined in the period when the loyalty program points are earned and the underlying gross room revenues are known. No loyalty program revenues are recognized at the time the loyalty program points are issued.
The Company is an agent in coordinating the delivery of the services between the loyalty program member and the franchisee or third party, and as a result, the revenues are recognized net of the cost of redemptions. The estimated value of the future redemptions is reflected in the current and non-current liability for guest loyalty program in the consolidated balance sheets. The liability for the guest loyalty program is developed based on an estimate of the eventual redemption rates and point values using various actuarial methods. These significant judgments determine the required point liability attributable to the outstanding points, which is relieved as the redemption costs are processed. The amount of the loyalty program fees in excess of the guest loyalty program point liability represents current and non-current deferred revenue, which is recognized to revenue as the points are redeemed including an estimate of the future forfeitures ("breakage"). The anticipated redemption pattern of the points is the basis for the current and non-current designation of each liability. The loyalty program point redemption revenues are presented within revenue for reimbursable costs from franchised and managed properties in the consolidated statements of income. Any changes in the estimates used in developing the breakage rate or other future guest loyalty program operations could result in a material change to the liability for the guest loyalty program and the deferred revenues.
The Company maintains various agreements with third-party partners, including the co-branding of the Choice Privileges credit card. The agreements typically provide for use of the Company's marks, limited access to the Company's distribution channels, and the sale of Choice Privileges points, in exchange for the payment of fees which primarily comprises variable consideration each month. Choice Privileges members can earn points through participation in the third-party partner's program. The partner agreements include multiple performance obligations. The primary performance obligations are brand intellectual property and material rights for free or discounted goods or services to the hotel guests. The allocation of fixed and variable consideration to the performance obligations is based on the standalone selling price, which is estimated based on the market and income methods which contain significant judgments. The amounts allocated to the brand intellectual property are recognized on a gross basis over time using the output measure of time elapsed, and are presented within partnership services and fees in the consolidated statements of income. The amounts allocated to material rights for free or discounted goods or services to hotel guests are recognized to revenue as the points are redeemed including an estimate of breakage, within revenue for reimbursable costs from franchised and managed properties.
Goodwill and Intangible Assets
The Company evaluates the impairment of goodwill and intangible assets with indefinite lives annually as of October 1st or earlier upon the occurrence of substantive unfavorable changes in economic conditions, industry trends, costs, cash flows, or ongoing declines in market capitalization that indicate that the Company may not be able to recover the carrying amount of the asset. During the year ended December 31, 2025, the Company changed its annual impairment assessment date from December
31st to October 1st. In evaluating these assets for impairment, the Company may elect to first assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit or the indefinite-lived intangible asset is less than its carrying amount. If the conclusion is that it is not more likely than not that the fair value of the asset is less than its carrying value, then no further testing is required. If the conclusion is that it is more likely than not that the fair value of the asset is less than its carrying value, then a quantitative impairment test is performed whereby the carrying value is compared to the fair value of the asset and an impairment charge is recognized, as applicable, for the excess of the carrying value over the fair value. The Company may elect to forgo the qualitative assessment and move directly to the quantitative impairment tests for goodwill and indefinite-lived intangible assets. The Company determines the fair value of its reporting units and indefinite-lived intangible assets using the income and market methods.
Goodwill is allocated to the Company's reporting units. The Company's reporting units are determined primarily by the availability of discrete financial information relied upon by the chief operating decision maker ("CODM") to assess performance and make operating segment resource allocation decisions. As of December 31, 2025, the Company's goodwill is allocated to the Hotel Franchising reporting unit. The Company performed a qualitative impairment analysis for the Hotel Franchising reporting unit and concluded that it is more likely than not that the fair value of the reporting unit is greater than its carrying amount. As such, no impairment was recognized and a quantitative test was not required.
New Accounting Standards
Refer to the "Recently Adopted & Issued Accounting Standards" section of Note 1 to the consolidated financial statements for information related to our adoption and assessment of new accounting standards.
Choice Hotels International Inc. published this content on February 19, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on February 19, 2026 at 17:56 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]