What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-06 compared with 2020-05-11 · 288 added, 148 removed, 353 unchanged (55% of the section changed)

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Impact of the COVID-19 Pandemic

The rapidly evolving spread of COVID-19 has caused significant disruptions to the global economy and the hospitality industry, including in the U.S.

where the majority of our franchised hotels are located.

The COVID-19 pandemic has led governments and other authorities around the world to impose or recommend measures intended to control its spread, including temporary closures of many businesses, "shelter in place" orders, travel restrictions, cancellation of events including sporting events, conferences and meetings, social distancing measures and other governmental regulations that have significantly reduced demand for travel.

As a result of the reduced demand for travel and other governmental actions, there have been complete or partial suspension of hotel operations in certain markets in which our hotels are located.

All of these effects of the COVID-19 pandemic have negatively impacted the hospitality industry and the Company both financially and operationally.

For the Company, the impacts of COVID-19 were experienced most sharply in the final ten days of the first quarter of 2020.

Domestic occupancy levels were below 50% overall for the month of March, but ranged between 25.5% and 32.5% in the last ten days of the month.

As a result of these occupancy levels, we experienced decreases in revenue per available room ("RevPAR") from the comparative prior year quarter of 15.0%, and comparative prior year March of 36.5%.

Lower occupancy and RevPAR trends have continued into April and May and, as a result, we expect significant impact on our second quarterly results of operations.

As of March 31, 2020 , and May 6, 2020, there were approximately 10% and 3% , respectively, of the Company's domestic hotel system that had temporarily suspended operations due to governmental restriction or a franchisee’s election.

The evolving spread of COVID-19 has caused significant disruptions to the global economy and the hospitality industry, including in the United States, where more than 80% of our franchised hotels are located.

The COVID-19 pandemic has led governments and other authorities and businesses around the world to impose or recommend measures intended to control its spread, including temporary closures of many businesses, "shelter in place" orders, travel restrictions, cancellation of events including sporting events, conferences and meetings, social distancing measures and other governmental regulations.

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 the hospitality industry and the Company both financially and operationally.

The impacts of COVID-19 on the Company's business were first experienced toward the end of the first quarter of 2020.

Domestic occupancy levels fell below 50% overall for the month of March, ranging between 25.5% and 32.5% in the last ten days of the month, which was reflected in decreases in revenue per available room ("RevPAR").

Lower occupancy trends continued into the second quarter of 2020, where we experienced decreases in domestic RevPAR of 60.1% from the comparative prior year April and 49.6% from the comparative prior year second quarter.

Since early April, we have observed steadily increasing domestic occupancy levels, with weekly domestic occupancy exceeding 50% during the final week of June 2020.

In July, domestic RevPAR declined approximately 33.3% over the comparative prior year monthly period.

The extent to which the COVID-19 pandemic will continue to impact the hospitality industry and our operations is uncertain and will depend largely on future developments, including the severity and duration of resurgences of the virus and actions by government authorities to contain the pandemic.

We continue to expect significant impact on our results of operations for the third quarter as well as the full year 2020.

However, we expect the impact of the pandemic on our third quarter results to be less significant than that on our second quarter results.

As of both June 30, 2020 , and July 31, 2020 , there were less than 1% of the Company's domestic hotel system that had temporarily suspended operations due to governmental restriction or a franchisee’s election, compared to approximately 10% as of March 31, 2020.

While the ultimate impact and duration of COVID-19 is uncertain and will depend on future developments, which are difficult to predict, the Company believes that it will continue to benefit in the long-term from its primarily franchise-only business model, which has historically provided a relatively stable earnings stream and low capital expenditure requirements.

In addition, as of March 31, 2020 , the Company has approximately $507.0 million in cash and additional available borrowing capacity through its senior unsecured revolving credit facility.

The Company also entered into a $250 million unsecured term loan (the "Term Loan") on April 16, 2020 , further bolstering its liquidity.

Based on our business model, the financial mitigation measures describe below, and information known at this time, the Company believes that cash flows from operations and available financing capacity are adequate to meet the expected future operating, investing and financing needs of the business.

Further, as of June 30, 2020 , the Company had approximately $725.6 million in cash and additional available borrowing capacity through its senior unsecured revolving credit facility, which was bolstered by a $250 million unsecured term loan (the "Term Loan") that the Company entered into on April 16, 2020 .

In July 2020, the Company issued $450 million aggregate principal amount of 3.700% senior unsecured notes due 2031 (the "2020 Senior Notes") and announced the early tender results of a cash tender offer (the "Tender Offer") for the purchase of approximately $183.4 million aggregate principal amount of the Company's 5.750% senior unsecured notes due 2022 (the "2012 Senior Notes").

The Company used the net proceeds from the 2020 Senior Notes offering to repay the Term Loan in full and fund the purchase price of the 2012 Senior Notes tendered.

Based on our business model, the financial mitigation measures described below, and information known at this time, the Company believes that cash flows from operations and available financing capacity are adequate to meet the expected future operating, investing and financing needs of the business.

In response to the COVID-19 pandemic, we have implemented measures to focus on the safety of our customers, employees, franchisees and their staff, while at the same time seeking to mitigate the impact on franchisees' and our Company's financial position and operations.

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Implemented fee-deferral programs for domestic and international franchisees.

Suspended one-time finance charges, reputation management fees and guest relations handling fees through June 30, 2020.

Suspended one-time finance charges, reputation management fees and guest relations handling fees.

Extended capital-intensive brand deadlines and created more flexible brand standard options to assist franchisees.

Successfully advocated to expand the amount of and eligibility requirements for government relief SBA programs and other CARES Act benefits to help franchisees retain employees and service their debt.

Advocated to expand the amount of and eligibility requirements for government relief SBA programs and other CARES Act benefits to help franchisees retain employees and service their debt.

Established a proactive, ongoing multi-channel franchisee outreach and education program that is actively helping thousands of hotel owners access this newly available capital.

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The Company has made a priority of working closely with its franchisees to drive business to their hotels across a wide variety of industries and government and emergency-management agencies.

Many of the Company's franchisees have committed their rooms inventory at discounted rates, or on a complimentary basis, to support their communities in dealing with the effects of

the pandemic, opening their hotels for hospital overflows and providing temporary housing for first responders, the National Guard, healthcare workers, critical infrastructure workers and others in dire need.

Many of the Company's franchisees have committed their rooms inventory at discounted rates, or on a complimentary basis, to support their communities in dealing with the effects of the pandemic, opening their hotels for hospital overflows and providing temporary housing for first responders, the National Guard, healthcare workers, critical infrastructure workers and others in dire need.

In addition, to support local communities, the Company is working with its philanthropic partner, Operation Homefront, to provide complimentary lodging to service members and their families who have been displaced from their current housing.

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Reduced the compensation of the Board of Directors, chief executive officer, and other executive officers for the remainder of 2020.

Implemented furloughs of certain domestic and international positions through June 30, 2020, subject to reevaluation by the Company.

During the furlough period, impacted employees will continue to be covered under the Company’s healthcare plans in which they currently participate, and the Company will cover each impacted employee’s portion of their healthcare premiums.

Terminated approximately 20 employees in connection with the consolidation of its call center operations.

Reduced global work force by more than 20% through a combination of layoffs and furloughs.

Introduced a hiring freeze except with respect to certain critical positions and suspended associates’ 401(k) match.

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Entered into the Term Loan on a precautionary basis, enhancing the Company’s financial flexibility by increasing its borrowing capacity by $250 million .

Offered $450 million of 3.700% senior notes due 2031, using net proceeds to repay the Term Loan in full and fund the $183.4 million aggregate principal purchase price of the senior notes tendered in connection with the Tender Offer.

As disclosed above, domestic occupancy has been severely impacted.

However, approximately 90% of the Company’s domestic hotels are in suburban, small town and interstate locations and have to-date experienced less severe occupancy declines related to COVID-19 than hotels in urban centers or resorts.

Based on industry data, the Company's brands have been performing ahead of its upper-midscale, midscale and economy chain scale competitors, and the Company’s hotels have experienced relatively stronger same-store RevPAR share gains versus their local competition for the past eight weeks.

Given the uncertainty as to the potential duration of the crisis and its severity, the Company does not expect material improvement in the industry until there is a sense that the spread of the virus has been contained, shelter-in-place orders have been lifted and economic forecasts begin to improve.

Once the industry begins to recover, the Company believes it will benefit from the expected faster rebound of leisure demand as a result of its higher share of leisure travel mix relative to competitors.

As the industry continues to recover, the Company believes it will continue to benefit from the expected faster rebound of leisure demand as a result of its higher share of leisure travel mix relative to competitors.

The Company's properties are also well distributed in drive-to markets, which we believe will lead in the demand recovery for the industry.

While the Company believes that the long-term fundamentals of the business remain strong, it will continue to adjust business contingency plans as the COVID-19 pandemic evolves.

Reference updates to the Company Risk Factors in Part II, Item 1A.

We are primarily a hotel franchisor with franchise agreements and owned hotels representing 7,145 hotels open comprising 598,223 rooms and 1,055 hotels under construction, awaiting conversion or approved for development comprising 86,590 rooms as of March 31, 2020 , located in 50 states, the District of Columbia and over 40 countries and territories outside the United States.

For additional information, see Risk Factors in Part II, Item 1A of this Form 10-Q.

We are primarily a hotel franchisor with franchise agreements and owned hotels representing 7,118 hotels open comprising 597,018 rooms and 1,035 hotels under construction, awaiting conversion or approved for development comprising 85,129 rooms as of June 30, 2020 , located in 50 states, the District of Columbia and over 40 countries and territories outside the United States.

Our brand names include Comfort Inn®, Comfort Suites®, Quality®, Clarion®, Clarion Pointe™, Ascend Hotel Collection®, Sleep Inn®, Econo Lodge®, Rodeway Inn®, MainStay Suites®, Suburban Extended Stay Hotel®, WoodSpring Suites®, Everhome™ Suites, and Cambria® Hotels (collectively, the "Choice brands").

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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.

All of these factors have been materially disrupted by the COVID-19 pandemic.

All of these factors have been and we expect will continue to be materially disrupted by the COVID-19 pandemic.

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 realized.

Our variable overhead costs associated with franchise system growth of our established brands have historically been less than incremental royalty fees generated from new franchises.

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.

The effects of the COVID-19 pandemic on our first quarter 2020 results and anticipated trends are discussed below under the heading "Operations Review."

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.

The effects of the COVID-19 pandemic on our second quarter 2020 results and anticipated trends are discussed below under the heading "Operations Review."

We are required by our franchise agreements to use the marketing and reservation system fees we collect for system-wide marketing and reservation activities.

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Greater awareness and preference promotes long-term growth in business delivery to our franchisees and increases the desirability of our brands to hotel owners and developers, which ultimately increases franchise fees earned by the Company.

While we are actively managing and eliminating certain discretionary marketing and reservation system expenditures, as a result of lower occupancy and therefore lower marketing and reservation system fees generated, we anticipate marketing and reservation expenditures will exceed fees for the remainder of this year.

While we continue to actively manage and eliminate certain discretionary marketing and reservation system expenditures, as a result of lower occupancy and therefore lower marketing and reservation system fees generated, we continue to anticipate marketing and reservation expenditures will exceed fees for the remainder of this year.

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.

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Improving the performance of the hotels in our system, growing the system through additional franchise sales and improving franchise agreement pricing while maintaining a disciplined cost structure are the keys to profitable growth.

As disclosed above, the Company's hotels are presently experiencing significant declines in occupancy and RevPAR and there are numerous hotels with temporarily suspended operations resulting from the impacts of the COVID-19 pandemic, which will impact the profitability of the Company in the current year and an indeterminate period in the future.

As disclosed above, the Company's hotels are presently experiencing significant declines in occupancy and RevPAR and there remains a subset of hotels with temporarily suspended operations resulting from the impacts of the COVID-19 pandemic, which will impact the profitability of the Company in the current year and an indeterminate period in the future.

Maximizing Financial Returns and Creating Value for Shareholders.

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Due to the seasonal nature of the Company’s hotel franchising business or multi-year investments that are required to support franchise operations, in addition to incremental spend by the Company to support franchisees during the COVID-19 pandemic, quarterly or annual deficits and surpluses may be generated.

During the three months ended March 31, 2020 and 2019 , marketing and reservation system expenses exceeded revenues by $20.1 million and $9.8 million , respectively.

During the three and six months ended June 30, 2020 , marketing and reservation system expenses exceeded revenues by $9.6 million and $29.7 million , respectively.

During the three and six months ended June 30, 2019 , marketing and reservation system revenues exceeded expenses by $12.3 million and $2.6 million , respectively.

Refer to MD&A heading "Operations Review" for additional analysis of our results.

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Calculation of Revenues, excluding marketing and reservation system activities

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

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Operations Review

Comparison of Operating Results for the Three-Month Periods Ended March 31, 2020 and 2019

Summarized financial results for the three months ended March 31, 2020 and 2019 are as follows:

Comparison of Operating Results for the Three-Month Periods Ended June 30, 2020 and 2019

Summarized financial results for the three months ended June 30, 2020 and 2019 are as follows:

(in thousands)

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Marketing and reservation system

Provision for credit losses

Total operating expenses

Impairment of goodwill

Impairment of long-lived assets

Loss on asset dispositions and impairments

Loss on sale of business

Gain on sale of assets, net

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Loss on extinguishment of debt

Other losses (gains)

Other (gains) losses

Equity in net loss of affiliates

Total other income and expenses, net

Income before income taxes

Income (loss) before income taxes

Income tax (benefit) expense

Net (loss) income

Results of Operations

The Company recorded income before income taxes of $30.4 million for the three -month period ended March 31, 2020 , a $6.1 million or 17% decrease from the same period of the prior year.

The decrease in income before income taxes primarily reflects a $1.3 million increase in operating income, a $6.5 million decrease in other losses (gains), and a $0.6 million in loss on extinguishment of debt.

Operating income increased $1.3 million primarily due to a $10.7 million decrease in selling, general and administrative ("SG&A") expenses, a $3.4 million increase in owned hotels revenues in excess of expenses, a $1.9 million increase in procurement services revenues, a $0.5 million increase in initial franchise and relicensing fees, and the first quarter 2019 recognition of a $10.4 million impairment of long-lived assets and goodwill related to the Company's software as a service ("SaaS") for vacation rentals reporting unit which was disposed of on June 3, 2019, partially offset by a $10.1 million decrease in royalty revenues, a $10.3 million increase in the net deficit generated from marketing and reservation system activities, a $2.9 million increase in depreciation and amortization, and a $2.2 million decrease in other revenues.

The Company recorded income (loss) before income taxes of $(2.9) million for the three -month period ended June 30, 2020 , a $97.1 million decrease from the same period of the prior year.

The decrease in income (loss) before income taxes primarily reflects a $94.7 million decrease in operating income, a $2.5 million increase in equity in net loss of affiliates, and a $2.0 million increase in interest expense, partially offset by a $2.7 million increase in other (gains) losses.

Operating income decreased $94.7 million primarily due to a $56.2 million decrease in royalty revenues, a $22.0 million increase in the net deficit generated from marketing and reservation system activities, a $10.1 million decrease in procurement services revenues, a $8.9 million decrease in other revenues, a $7.8 million increase in the provision for credit losses, a $3.0 million increase in depreciation and amortization, and recognition of a $1.2 million loss on asset disposition, offset by a $10.9 million decrease in selling, general and administrative ("SG&A") expenses, and the second quarter 2019 recognition of a $4.6 million loss on sale of the SaaS for vacation rental reporting unit.

The primary reasons for these fluctuations, including the impact of the COVID-19 pandemic, are described in more detail below.

Domestic royalty fees for the three months ended March 31, 2020 decreased $9.3 million to $66.3 million from $75.6 million for the three months ended March 31, 2019 , a decrease of 12% .

Domestic royalty fees for the three months ended June 30, 2020 decreased $52.5 million to $48.3 million from $100.8 million for the three months ended June 30, 2019 , a decrease of 52% .

The decrease in domestic royalties reflect a 49.6% decrease in domestic RevPAR.

System-wide RevPAR decreased due to a 19.9% decrease in average daily rates and a 2,300 basis point decrease in occupancy.

The decrease in domestic royalties is partially offset by an increase in the number of domestic franchised hotel rooms and a 10 basis point increase in the effective royalty rate from 4.84% for the three months ended March 31, 2019 to 4.94% for the three months ended March 31, 2020 .

The decrease in domestic royalties is partially offset by an increase in the number of domestic franchised hotel rooms and a 10 basis point increase in the effective royalty rate from 4.84% for the three months ended June 30, 2019 to 4.94% for the three months ended June 30, 2020 .

A summary of the Company's domestic franchised hotels operating information is as follows:

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Three Months Ended

March 31, 2020

March 31, 2019

June 30, 2020

June 30, 2019

Cambria Hotels

Ascend Hotel Collection

As noted, the impacts of COVID-19 were experienced most sharply in the final ten days of March.

Domestic occupancy levels were below 50% overall for the month of March and softened in the last ten days of the month to trend in a range between 26.5% and 32.5% daily occupancy.

These occupancy trends have continued into April and May.

There is uncertainty as to the potential duration of the COVID-19 pandemic and its severity, and thus corresponding uncertainty as to the duration and severity of the impact on our occupancy, which will impact our future results.

During the quarter, the Company revised its calculation of Occupancy.

The impacts of COVID-19 on the Company’s business were first experienced by the Company toward the end of the first quarter of 2020, with domestic occupancy ranging between 25.5% and 32.5% in the last ten days of March, which was reflected in decreases in RevPAR.

Since early April, we have observed steadily increasing domestic occupancy levels, with weekly occupancy exceeding 50% during the final week of June 2020.

In July, domestic RevPAR declined approximately 33.3% over the comparative prior year monthly period.

During the first quarter of 2020, the Company revised its calculation of Occupancy.

Historically, Occupancy has excluded rooms unavailable to our guests for operational reasons, as reported by our franchisees.

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The revised ADR, Occupancy, and RevPAR are reflected in the table above for all periods noted.

Based on our previous calculation of ADR, Occupancy, and RevPAR, these metrics for first quarter 2020 would have been $73.83, 51.8%, and $38.22, respectively, versus first quarter 2019 of $76.75, 57.7%, and $44.29, respectively, with period over period declines of 3.8%, 594 bps, and 13.7%, respectively.

The number of total domestic rooms in our franchise system increased by 2.7% to 461,873 rooms as of March 31, 2020 from 449,712 as of March 31, 2019 .

The total number of domestic hotels in our franchise system increased by 1.2% to 5,926 as of March 31, 2020 from 5,858 as of March 31, 2019 .

A summary of domestic hotels and rooms in our franchise system at March 31, 2020 and 2019 by brand is as follows:

March 31, 2020

March 31, 2019

Based on our previous calculation of ADR, Occupancy, and RevPAR, these

metrics for the three months ended June 30, 2020 would have been $66.61, 47.4%, and $31.60, respectively, versus three months ended June 30, 2019 of $83.57, 67.2%, and $56.17, respectively, with period over period declines of 20.2%, 1,979 bps, and 43.8%, respectively.

The number of total domestic rooms in our franchise system increased by 2.0% to 461,484 rooms as of June 30, 2020 from 452,375 as of June 30, 2019 .

The total number of domestic hotels in our franchise system increased by 0.6% to 5,917 as of June 30, 2020 from 5,879 as of June 30, 2019 .

A summary of domestic hotels and rooms in our franchise system at June 30, 2020 and 2019 by brand is as follows:

June 30, 2020

June 30, 2019

Cambria Hotels

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Total Domestic Franchises

These temporarily suspended hotels are included in the summary table above of domestic hotels in our franchise system.

As of May 6, 2020, 97% of the Company’s domestic branded hotels are continuing to operate, however there is uncertainty as to the potential duration of the crisis and its severity, which will likely impact the number of hotels which temporarily suspend operations.

International royalty fees for the three months ended March 31, 2020 decreased $0.7 million to $4.1 million compared to the three months ended March 31, 2019 .

International rooms in our franchise system increased by 17,950 from 118,400 as of March 31, 2019 to 136,350 as of March 31, 2020 , with the total number of hotels in our franchise system increasing by 72 from 1,147 as of March 31, 2019 to 1,219 as of March 31, 2020 .

As of March 31, 2020 and April 30, 2020, approximately a quarter of the Company's international branded hotels temporarily suspended operations due to governmental restriction or a franchisee’s election due to lack of demand.

There is uncertainty as to the potential duration of the crisis and its severity, which will impact the number of hotels which temporarily suspend operations.

As a result of the temporarily suspended operations and declines in RevPAR performance, international royalty fees decreased .

As of July 31, 2020 , greater than 99% of the Company’s domestic branded hotels are continuing to operate, however there is uncertainty as to the potential duration of the crisis and its severity, which will likely impact the number of hotels which temporarily suspend operations.

International royalty fees for the three months ended June 30, 2020 decreased $3.8 million to $1.8 million compared to the three months ended June 30, 2019 as a result of temporarily suspended operations and declines in RevPAR performance.

International rooms in our franchise system increased by 15,250 from 120,284 as of June 30, 2019 to 135,534 as of June 30, 2020 , with the total number of hotels in our franchise system increasing by 35 from 1,166 as of June 30, 2019 to 1,201 as of June 30, 2020 .

However, as of June 30, 2020 and July 31, 2020 , approximately 7% and 4% , respectively, of the Company's international branded hotels temporarily suspended operations due to governmental restriction or a franchisee’s election.

There is uncertainty as to the potential duration of the crisis and its severity, which will continue to impact the number of hotels which temporarily suspend operations.

Initial Franchise and Relicensing Fees

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relicensing fees include fees charged to new owners of a franchised property whenever an ownership change occurs and the property remains in the franchise system, as well as fees required to renew existing franchise agreements.

During the first quarter of 2020 , the Company awarded 58 domestic franchise agreements representing 4,656 rooms compared to 79 franchising agreements representing 6,226 rooms for the first quarter of 2019 .

Domestic franchise agreements awarded for new construction hotels totaled 16 contracts representing 1,361 rooms during the three months ended March 31, 2020 , compared to 32 contracts representing 2,609 rooms for the three months ended March 31, 2019 .

Conversion hotel awarded franchise agreements totaled 42 representing 3,295 rooms for the three months ended March 31, 2020 , compared to 47 agreements representing 3,617 rooms for the three months ended March 31, 2019 .

The Company awarded 75 domestic relicensing contracts during the three months ended March 31, 2020 , compared to 103 executed during the three months ended March 31, 2019 .

The Company awarded 10 domestic renewal agreements during the three months ended March 31, 2020 , compared to 9 awarded during the three months ended March 31, 2019 .

During the second quarter of 2020 , the Company awarded 93 domestic franchise agreements representing 6,793 rooms compared to 181 franchising agreements representing 14,301 rooms for the second quarter of 2019 .

Domestic franchise agreements awarded for new construction hotels totaled 34 contracts representing 2,936 rooms during the three months ended June 30, 2020 , compared to 60 contracts representing 5,100 rooms for the three months ended June 30, 2019 .

Conversion hotel awarded franchise agreements totaled 59 representing 3,857 rooms for the three months ended June 30, 2020 , compared to 121 agreements representing 9,201 rooms for the three months ended June 30, 2019 .

The Company awarded 35 domestic relicensing contracts during the three months ended June 30, 2020 , compared to 89 executed during the three months ended June 30, 2019 .

The Company awarded 10 domestic renewal agreements during the three months ended June 30, 2020 , compared to 10 awarded during the three months ended June 30, 2019 .

Initial franchise and relicensing fees are generally collected at the time the franchise agreement is awarded.

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Upon the termination of a franchise agreement, previously deferred initial and relicensing fees are recognized immediately in the period the agreement is terminated.

Initial franchise and relicensing fee revenue increased $0.5 million or 7% from $6.8 million for the three months ended March 31, 2019 to $7.3 million for the three months ended March 31, 2020.

As of March 31, 2020 , the Company had 1,000 franchised hotels with 80,390 rooms under construction, awaiting conversion or approved for development in its domestic system as compared to 976 hotels and 77,784 rooms at March 31, 2019 .

The number of new construction franchised hotels in the Company's domestic pipeline increased 2% to 762 at March 31, 2020 from 749 at March 31, 2019 .

The growth in the number of new construction hotels in the domestic pipeline reflects the increase in new construction franchise agreements executed over the last several years.

Initial franchise and relicensing fee revenue remained unchanged from $6.7 million for the three months ended June 30, 2019 to $6.7 million for the three months ended June 30, 2020 .

As of June 30, 2020 , the Company had 982 franchised hotels with 78,517 rooms under construction, awaiting conversion or approved for development in its domestic system as compared to 988 hotels and 78,613 rooms at June 30, 2019 .

The number of new construction franchised hotels in the Company's domestic pipeline decreased 2% to 741 at June 30, 2020 from 753 at June 30, 2019 .

New construction hotels typically average 18 to 36 months to open after the franchise agreement is executed.

The number of conversion franchised hotels in the Company's domestic pipeline increased by 11 hotels or 5% from 227 hotels at March 31, 2019 to 238 hotels at March 31, 2020 , primarily due to the timing of hotel openings and the timing of signing new conversion franchise agreements.

The number of conversion franchised hotels in the Company's domestic pipeline increased by 6 hotels or 3% from 235 hotels at June 30, 2019 to 241 hotels at June 30, 2020 .

Conversion hotels typically open three to six months after the execution of a franchise agreement.

The Company had an additional 55 franchised hotels with 6,200 rooms under construction, awaiting conversion or approved for development in its international system as of March 31, 2020 compared to 128 hotels and 27,841 rooms at March 31, 2019 .

The Company had an additional 53 franchised hotels with 6,612 rooms under construction, awaiting conversion or approved for development in its international system as of June 30, 2020 compared to 123 hotels and 27,997 rooms at June 30, 2019 .

Fluctuations in the Company’s domestic pipeline are primarily due to the timing of hotel openings and the timing of signing new franchise agreements.

While the Company's hotel pipeline provides a strong platform for growth, a hotel in the pipeline does not always result in an open and operating hotel due to various factors.

While the Company has not experienced a dramatic change in the number of franchise agreement executions since the COVID-19 pandemic began, given the uncertainty as to the potential duration of the crisis and its severity, we anticipate a reduction in total new franchise agreements for the year.

Given the uncertainty as to the potential duration of the COVID-19 pandemic and its severity, we anticipate a continued reduction in total new franchise agreements for the year.

Further, these factors create additional uncertainty with respect to the opening of new construction hotels, which are reliant on, amongst other things, access to liquidity, availability of construction labor, and local governmental approvals and entitlements, all of which may be constrained during the pendency of the pandemic.

Procurement Services:

Revenues increased $1.9 million or 16% from $11.9 million for the three months ended March 31, 2019 to $13.8 million for the three months ended March 31, 2020 .

The increase in revenues primarily reflects the implementation of new brand programs as well as an increase in the volume of business transacted with existing and new qualified vendors and strategic alliance partners.

Because of impacts from COVID-19, for at least the remainder of the year we expect lower occupancy at our franchised hotels and as a result we expect there to be fewer purchases made from qualified vendors, from which we earn a fee.

Owned Hotels:

The Company acquired four operating hotels in the third quarter of 2019.

A fifth hotel previously under development by the Company opened in the third quarter of 2019.

Revenues of $9.4 million and expenses of $6.0 million represent fees earned from and costs incurred for the hotel operations.

We anticipate the profit recognized from owned hotels for the remainder of 2020 will be significantly impacted by the COVID-19 pandemic.

Revenues decreased $10.1 million or 49% from $20.8 million for the three months ended June 30, 2019 to $10.7 million for the three months ended June 30, 2020 .

The decrease in revenues primarily reflects the cancellation of the Company's annual convention as a result of the COVID-19 pandemic and a decrease in fees affiliated with travel related partnerships.

Other Revenues:

Other revenues declined $2.2 million from $9.1 million for the three months ended March 31, 2019 to $6.9 million in the same period of the current year.

The decline primarily represents the sale of the SaaS for vacation rental reporting unit on June 3, 2019 , which earned $1.9 million during the three months ended March 31, 2019 .

Other revenues declined $8.9 million from $11.3 million for the three months ended June 30, 2019 to $2.4 million in the same period of the current year.

The decline primarily represents the suspension of reputation management and guest relation charges to our franchisees.

Additionally, the SaaS for vacation rental reporting unit was sold on June 3, 2019 , which earned $2.3 million during the three months ended June 30, 2019.

Selling, General and Administrative Expenses:

The cost to operate the business is reflected in SG&A on the consolidated statements of income.

SG&A expenses were $28.8 million for the three months ended March 31, 2020 , which decreased $10.7 million from the three months ended March 31, 2019 .

SG&A expenses for the three months ended March 31, 2020 and 2019 include approximately $1.0 million and $3.7 million , respectively, related to the Company's alternative growth initiatives and expenses related to operations of an office building leased to a third party.

SG&A expenses were $36.1 million for the three months ended June 30, 2020 compared to $47.0 million for the three months ended June 30, 2019 , which decreased $10.9 million from the three months ended June 30, 2019 .

SG&A expenses for the three months ended June 30, 2020 and 2019 include approximately $0.5 million and $2.6 million , respectively, related to the Company's alternative growth initiatives and expenses related to operations of an office building leased to a third party.

The decrease of $2.1 million from the same period of the prior year is primarily due to decreased expenses of the SaaS for vacation rentals reporting unit, which was sold on June 3, 2019 .

Excluding SG&A expenses for alternative growth initiatives and office building operations, SG&A for the three months ended March 31, 2020 decreased $7.9 million to $27.8 million in the current year primarily due to reductions in the Company's deferred compensation liabilities based on significant declines in the underlying investments during March 2020 resulting from the COVID-19 pandemic, partially offset by general cost increases to support the hotel franchising business.

Excluding SG&A expenses for alternative growth initiatives and office building operations, SG&A for the three months ended June 30, 2020 decreased $8.8 million to $35.6 million in the current year primarily due to implemented cost mitigation measures resulting from the COVID-19 pandemic, including cancellation of the annual convention, furloughs and layoffs of certain domestic and international positions and reduction of non-essential expenditures, partially offset by an increase in the Company's deferred compensation liabilities based on increases in the underlying investments.

Depreciation and amortization:

Depreciation and amortization expense for the three months ended March 31, 2020 increased $2.9 million to $6.5 million from the same period of the prior year primarily due to an additional $3.2 million in depreciation related to the Company's owned hotels acquired and opened during the third quarter of 2019.

Impairment of Goodwill and Long-lived Assets and Loss on Sale of Business:

No impairments of goodwill or long-lived assets occurred for the three months ended March 31, 2020.

Comparatively, during the first quarter of 2019, the Company recorded goodwill and long-lived assets impairments of $3.1 million and $7.3 million , respectively, related to the SaaS for vacation rentals reporting unit which was disposed of on June 3, 2019.

Depreciation and amortization expense for the three months ended June 30, 2020 increased $3.0 million to $6.4 million from the same period of the prior year primarily due to an additional $3.1 million in depreciation related to the Company's owned hotels acquired and opened during the third quarter of 2019.

Provision for credit losses :

Provision for credit losses during the three months ended June 30, 2020 increased to $7.8 million and represent provisions on Trade receivables and Notes receivables recorded in accordance with Topic 326 (see Note 1) with contemplation to economic and credit conditions resulting from the COVID-19 pandemic and estimates of other expected

credit losses.

The provision for Trade receivables have increased $5.0 million primarily due to the aging of customer receivables, while the provision for Notes receivable have increased $2.8 million based on re-assessment of our loan portfolio risk characteristics and provisioning on loan proceeds issued.

Loss on Asset Dispositions and Impairments and Loss on Sale of Business:

In the second quarter of 2020, the Company recognized a $1.2 million charge related to a prospective self-development project the Company is no longer pursing.

In the second quarter of 2019, the Company recorded a $4.6 million loss on sale of the SaaS for vacation rentals reporting unit.

Interest Expense:

The Company recorded interest expense of $13.1 million for the three months ended June 30, 2020 , an increase of $2.0 million from the three months ended June 30, 2019 .

The increase in interest expense is a result of increased borrowings in response to the COVID-19 pandemic.

We anticipate borrowings and associated interest expense will remain elevated relative to comparable periods for the remainder of 2020.

Other (Gains) Losses:

The Company recorded other net gains of $3.6 million for the three months ended June 30, 2020 , compared to other net gains of $0.9 million for the three months ended June 30, 2019 .

The gains relate to increases in the Company's deferred compensation assets based on increases in the underlying investments.

Equity in Net Loss of Affiliates :

The Company recorded net losses of $3.5 million from its unconsolidated joint ventures for the three months ended June 30, 2020 , compared to net losses of $1.0 million for the three months ended June 30, 2019 .

These investments relate to the Company's program to offer equity support to qualified franchisees to develop and operate Cambria Hotels in strategic markets.

We anticipate the results recognized from these investments for the remainder of 2020 will be significantly impacted by the COVID-19 pandemic.

Income Tax (Benefit) Expense:

The effective income tax rates were 11.8% and 21.0% for the three months ended June 30, 2020 and 2019 , respectively.

The effective income tax rate for the three months ended June 30, 2020 was lower than the U.S.

federal income tax rate of 21.0% due to excess tax benefits from share-based compensation and the impact of foreign operations, partially offset by state income taxes and a change in estimated uncertain tax positions.

The effective income tax rate for the three months ended June 30, 2019 was the same as the U.S.

federal income tax rate of 21.0% due to excess tax benefits from share-based compensation of $1.0 million and the impact of foreign operations, offset by state income taxes.

Operations Review

Comparison of Operating Results for the Six -Month Periods Ended June 30, 2020 and 2019

Summarized financial results for the six months ended June 30, 2020 and 2019 are as follows:

(In thousands)

Initial franchise and relicensing fees

Procurement services

Marketing and reservation system

Total revenues

OPERATING EXPENSES:

Selling, general and administrative

Depreciation and amortization

Marketing and reservation system

Provision for credit losses

Total operating expenses

Impairment of goodwill

Loss on asset dispositions and impairments

Loss on sale of business

Gain on sale of assets, net

Operating income

OTHER INCOME AND EXPENSES, NET:

Interest expense

Interest income

Loss on extinguishment of debt

The Company recorded a loss on the extinguishment of debt of $0.6 million related to the early payoff of the Company's construction loan in the amount of $33.1 million , inclusive of accrued and unpaid interest.

Refer to the Liquidity and Capital Resources header and Note 12 to our consolidated financial statements for additional information.

Other Losses (Gains):

The Company recorded other net losses of $4.3 million for the three months ended March 31, 2020 , compared to other net gains of $2.2 million for the three months ended March 31, 2019 .

The losses relate to reductions in the Company's deferred compensation assets based on significant declines in the underlying investments during March 2020 resulting from the COVID-19 pandemic.

Other (gains) losses

Equity in net loss of affiliates

The Company recorded net losses of $2.0 million from its unconsolidated joint ventures for the three months ended March 31, 2020 , compared to net losses of $2.2 million for the three months ended March 31, 2019 .

Total other income and expenses, net

Income before income taxes

Income tax (benefit) expense

Results of Operations

The Company recorded income before income taxes of $27.5 million for the six -month period ended June 30, 2020 , a $103.1 million decrease from the same period of the prior year.

The decrease in income before income taxes reflects a $93.4 million decrease in operating income, a $3.8 million decrease in other (gains) losses, a $2.2 million increase in interest expense, a $2.2 million increase in net loss of affiliates, and a $0.6 million in loss on extinguishment of debt.

Operating income decreased $93.4 million primarily due to a $66.3 million decrease in royalty revenues, $32.3 million reduction in the net surplus generated from marketing and reservation system activities, a $11.0 million decrease in other revenues, an $8.3 million decrease in procurement services revenues, a $5.9 million increase in depreciation and amortization, and recognition of $1.2 million loss on asset disposition;

partially offset by a $23.5 million decrease in SG&A expenses;

recognition of $15.0 million loss on impairment of long-lived assets and goodwill related to the Company's SaaS for vacation rentals reporting unit which was disposed of on June 3, 2019 ;

and a $2.5 million increase in owned hotels revenues in excess of expenses.

The primary reasons for these fluctuations are described in more detail below.

Domestic royalty fees for the six months ended June 30, 2020 decreased $61.7 million to $114.7 million , a 35% decrease compared to the six months ended June 30, 2019 .

The decrease in royalties reflect a 34.5% decrease in RevPAR.

System-wide RevPAR decreased due to a 1,460 basis point decrease in occupancy rates and a 12.1% decrease in average daily rates.

The decrease in domestic royalties is partially offset by a 2.0% increase in the number of domestic franchised hotel rooms and a 10 basis point increase in the effective royalty rate from 4.84% for the six months ended June 30, 2019 to 4.94% for the six months ended June 30, 2020 .

A summary of the Company's domestic franchised hotels operating information is as follows:

Six Months Ended

June 30, 2020

June 30, 2019

Cambria Hotels

Ascend Hotel Collection

The impacts of COVID-19 on the Company's business were first experienced by the Company toward the end of the first quarter of 2020, with domestic occupancy ranging between 25.5% and 32.5% in the last ten days of March, which was reflected in decreases in RevPAR.

Since early April, we have observed steadily increasing domestic occupancy levels, with weekly occupancy exceeding 50% during the final week of June 2020.

In July, domestic RevPAR declined approximately 33.3% over the comparative prior year monthly period.

During the first quarter of 2020, the Company revised its calculation of Occupancy, ADR, and RevPAR.

The revised ADR, Occupancy, and RevPAR are reflected in the table above for all periods noted.

Based on our previous calculation of ADR, Occupancy, and RevPAR, these metrics for the six months ended June 30, 2020 would have been $70.59, 49.7%, and $35.10, respectively, versus six months ended June 30, 2019 of $80.49, 62.6%, and $50.36, respectively, with period over period declines of 12.3%, 1,283 bps, and 30.3%, respectively.

International royalty fees for the six months ended June 30, 2020 decreased $4.6 million to $5.8 million compared to the six months ended June 30, 2019 as a result of the temporarily suspended operations and declines in RevPAR performance.

There is uncertainty as to the potential duration of the crisis and its severity, which continues to impact the number of hotels which temporarily suspend operations.

Initial Franchise and Relicensing Fees

Initial franchise fees are fees paid to the Company when a franchisee executes a franchise agreement;

During the six months ended June 30, 2020 , the Company awarded 151 domestic franchise agreements representing 11,449 rooms compared to 260 franchise agreements representing 20,527 rooms for the six months ended June 30, 2019 .

Domestic franchise agreements awarded for new construction hotels totaled 50 representing 4,297 rooms during the six months ended June 30, 2020 compared to 92 franchise agreements representing 7,709 rooms for the six months ended June 30, 2019 .

Conversion hotel awarded franchise agreements totaled 101 representing 7,152 rooms for the six months ended June 30, 2020 compared to 168 franchise agreements representing 12,818 rooms for the six months ended June 30, 2019 .

The Company awarded 110 domestic relicensing contracts during the six months ended June 30, 2020 , compared to 192 executed during the six months ended June 30, 2019 .

The Company awarded 20 domestic renewal agreements during the six months ended June 30, 2020 , compared to 19 executed during the six months ended June 30, 2019 .

Initial franchise and relicensing fees are generally collected at the time the franchise agreement is awarded.

However, the recognition of revenue is deferred until the hotel is open or the franchise agreement is terminated.

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 and relicensing fees are recognized immediately in the period the agreement is terminated.

Initial franchise and relicensing fee revenue increased $0.5 million from $13.5 million during the six months ended June 30, 2019 to $14.0 million during the six months ended June 30, 2020 .

Procurement Services:

Revenues decreased $8.3 million or 25% from $32.8 million for the six months ended June 30, 2019 to $24.5 million for the six months ended June 30, 2020 .

Owned Hotels:

The Company acquired four operating hotels in the third quarter of 2019.

A fifth hotel previously under development by the Company opened in the third quarter of 2019.

Revenues of $11.5 million and expenses of $9.0 million represent fees earned from and costs incurred for the hotel operations during the six months ended June 30, 2020 .

Selling, General and Administrative Expenses:

The cost to operate the business is reflected in SG&A on the consolidated statements of income.

SG&A expenses were $61.9 million for the six months ended June 30, 2020 , a decrease of $23.5 million from the six months ended June 30, 2019 .

SG&A expenses for the six months ended June 30, 2020 and 2019 include approximately $1.5 million and $6.3 million , respectively, related to the Company's alternative growth initiatives and expenses related to the operations of an office building leased to a third party.

The decrease of $4.8 million from the same period of the prior year is primarily due to the sale of the SaaS for vacation rentals reporting unit on June 3, 2019 .

Excluding SG&A for alternative growth initiatives and office building operations, SG&A for the six months ended June 30, 2020 decreased $19.8 million or 25% to $60.4 million primarily due to implemented cost mitigation and cash preservation measures resulting from the COVID-19 pandemic, including cancellation of the annual convention;

furloughs and layoffs of certain domestic and international positions and reduction of non-essential expenditures;

and reductions in the Company's deferred compensation liabilities based on declines in the underlying investments.

Depreciation and amortization:

Depreciation and amortization expense for the six months ended June 30, 2020 increased $5.9 million to $12.9 million from the same period of the prior year primarily due to an additional $6.3 million in depreciation related to the Company's owned hotels acquired and opened during the third quarter of 2019.

Provision for credit losses :

Provision for credit losses during the six months ended June 30, 2020 increased $9.8 million to $10.9 million and represent provisions on Trade receivables and Notes receivables recorded in accordance with Topic 326 (see Note 1) with contemplation to economic and credit conditions resulting from the COVID-19 pandemic and estimates of other expected credit losses.

The provision for Trade receivables have increased $6.9 million primarily due to the aging of customer receivables, while the provision for Notes receivable have increased $2.9 million based on re-assessment of our loan portfolio risk characteristics and provisioning on loan proceeds issued.

Impairment of Goodwill, Loss on Asset Dispositions and Impairments, and Loss on Sale of Business:

In the second quarter of 2020, the Company recognized a $1.2 million charge related to a prospective self-development project the Company is no longer pursing.

For the six months ended June 30, 2019 , the Company recognized a $15.0 million loss on impairment of long-lived assets and goodwill related to the Company's SaaS for vacation rentals reporting unit which was disposed of on June 3, 2019 .

Interest Expense:

The Company recorded interest expense of $24.5 million for the six months ended June 30, 2020, an increase of $2.2 million from the six months ended June 30, 2019.

The increase in interest expense is a result of increased borrowings in response to the COVID-19 pandemic.

We anticipate borrowings and associated interest expense will remain elevated relative to comparable periods for the remainder of 2020.

Other (Gains) Losses :

Other (gains) losses decreased from a $3.1 million gain for the six months ended June 30, 2019 to $0.7 million loss for same period of the current year.

The losses relate to reductions in the Company's deferred compensation assets based on declines in the underlying investments.

Equity in Net Loss of Affiliates :

The Company recorded net losses of $5.4 million from its unconsolidated joint ventures for the six months ended June 30, 2020 compared to net losses of $3.2 million for the six months ended June 30, 2019 .

These investments relate to the Company's program to offer equity support to qualified franchisees to develop and operate Cambria Hotels in strategic markets.

We anticipate the results recognized from these investments for the remainder of 2020 will be significantly impacted by the COVID-19 pandemic.

Income Tax (Benefit) Expense:

The effective income tax rates were (82.5)% and 17.5% for the three months ended March 31, 2020 and 2019 , respectively.

The effective income tax rates were (92.3)% and 20.0% for the six months ended June 30, 2020 and 2019 , respectively.

On January 1, 2018, the Company adopted ASU 2016-16, Income Taxes (Topic 740) - Intra-Entity Transfers of Assets Other than Inventory ("ASU 2016-16"), which provides guidance on recognition of current income tax consequences for inter-company asset transfers (other than inventory) at the time of transfer.

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In accordance with ASU 2016-16, the Company recorded the $30.6 million benefit and a corresponding deferred tax asset in the first quarter of 2020.

The effective income tax rate for the three months ended March 31, 2020 was further lowered by $2.4 million of excess tax benefits from share-based compensation, partially offset by state income taxes.

The effective income tax rate for the three months ended March 31, 2020 would have been 18.1% without the reorganization of its foreign legal entity structure.

The effective income tax rate for the three months ended March 31, 2019 was lower than the U.S.

federal income tax rate of 21.0% primarily due to $2.0 million of excess tax benefits from share-based compensation and the impact of foreign operations, partially offset by state income taxes.

On March 27, 2020, the CARES Act was signed into law.

The CARES Act provides opportunities for additional liquidity, loan guarantees, and other government programs to support companies affected by the COVID-19 pandemic and their employees.

Based on our preliminary analysis of the CARES Act, we do not expect a significant impact to our consolidated financial statements.

The effective income tax rate for the six months ended June 30, 2020 was lower than the U.S.

federal income tax rate of 21.0% due to this $30.6 million benefit, $2.7 million of excess tax benefits from share-based compensation and the impact of foreign operations, partially offset by state income taxes and a change in estimated uncertain tax positions.

The effective income tax rate for the six months ended June 30, 2019 was lower than the U.S.

federal income tax rate of 21.0% due to excess tax benefits from share-based compensation of $3.0 million and the impact of foreign operations, partially offset by state income taxes.

Liquidity and Capital Resources

In response to the COVID-19 pandemic, we have taken steps to adjust the company’s cost structure and increase its financial flexibility and liquidity.

At March 31, 2020 , the Company had approximately $507.0 million in cash and additional available borrowing capacity through its senior unsecured revolving credit facility.

In addition, the Company entered into the $250 million Term Loan on April 16, 2020 , further bolstering our liquidity.

At June 30, 2020 , the Company had approximately $725.6 million in cash and additional available borrowing capacity through its senior unsecured revolving credit facility, which was bolstered by the $250 million Term Loan as entered in to by the Company on April 16, 2020 .

In July 2020, the Company issued $450 million aggregate principal 2020 Senior Notes and announced the early tender results of the Tender Offer for the purchase of $183.4 million aggregate principal amount of the Company's 2012 Senior Notes.

The Company used the net proceeds from the 2020 Senior Notes offering to repay the Term Loan in full and fund the purchase price of the 2012 Senior Notes tendered.

To preserve capital, we determined to suspend future, undeclared dividends for at least the remainder of 2020 and have temporarily suspended activity under our share repurchase program as well as limited discretionary spending and investments until such time as we determine conditions are appropriate to resume any such activity.

Based on our business model, the financial mitigation measures taken, and information known at this time, the Company believes that cash flows from operations and available financing capacity are adequate to meet the expected future operating, investing and financing needs of the business.

As of March 31, 2020 , we were in compliance with the financial covenants of our credit agreements and expect to remain in such compliance.

As of June 30, 2020 , we were in compliance with the financial covenants of our credit agreements and expect to remain in such compliance.

Operating Activities

During the three months ended March 31, 2020 and 2019 , net cash provided by operating activities totaled $5.8 million and $17.9 million , respectively.

Operating cash flows decreased $12.1 million primarily due to a decrease in operating income as driven by incremental marketing and reservation spend, excluding certain non-cash charges.

There were also operating cash flow decreases attributable to the timing of working capital items.

During the six months ended June 30, 2020 and 2019 , net cash provided by operating activities totaled $1.5 million and $97.7 million , respectively.

Operating cash flows decreased $96.2 million primarily due to a decrease in operating income as driven by a reduction in royalty fees and the net surplus generated from marketing and reservation system activities, excluding certain non-cash charges, and timing of working capital items.

In conjunction with brand and development programs, we make certain payments to franchisees as an incentive to enter into new franchise agreements or perform designated improvements to properties under existing franchise agreements.

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If the franchisee exits our franchise system or is not operating their franchise in accordance with our quality or credit standards, the franchisee must repay the unamortized incentive payment plus interest.

During the three months ended March 31, 2020 and 2019 , the Company's net advances for these purposes totaled $7.1 million and $6.4 million , respectively.

During the six months ended June 30, 2020 and 2019 , the Company's net advances for these purposes totaled $12.6 million and $19.1 million , respectively.

The timing and amount of these cash flows is 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.

At March 31, 2020 , the Company had commitments to extend an additional $296.3 million for these purposes provided the conditions of the payment are met by its franchisees.

At June 30, 2020 , the Company had commitments to extend an additional $288.2 million for these purposes provided the conditions of the payment are met by its franchisees.

The Company’s franchise agreements require the payment of marketing and reservation system fees.

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Conversely, to the extent expenditures incurred exceed revenues collected, the Company has the contractual enforceable right to recover such advances in future periods through additional fee assessments or reduced spending.

During the three months ended March 31, 2020 and 2019 , marketing and reservation system expenses exceeded revenues by $20.1 million and $9.8 million , respectively.

During the six months ended June 30, 2020 , marketing and reservation system expenses exceeded revenues by $29.7 million .

During the six months ended June 30, 2019 marketing and reservation system revenues exceeded expenses by $2.5 million .

Investing Activities

Cash utilized for investing activities totaled $14.8 million and $4.3 million for the three months ended March 31, 2020 and 2019 , respectively.

The increase in cash utilized for investing activities for the three months ended March 31, 2020 primarily reflects the following items:

During the three months ended March 31, 2020 and 2019 , the Company invested $2.2 million and $8.5 million , respectively, in joint ventures accounted for under the equity method of accounting.

In addition, the Company received distributions from these joint ventures totaling $0.2 million and $5.7 million for the three months ended March 31, 2020 and 2019 , respectively.

Cash utilized for investing activities totaled $29.5 million and $45.3 million for the six months ended June 30, 2020 and 2019 , respectively.

The increase in cash utilized for investing activities for the six months ended June 30, 2020 primarily reflects the following items:

During the six months ended June 30, 2020 and 2019 , the Company invested $3.0 million and $13.7 million , respectively, in joint ventures accounted for under the equity method of accounting.

In addition, the Company received distributions from these joint ventures totaling $3.1 million and $7.5 million for the six months ended June 30, 2020 and 2019 , respectively.

The Company's investment in these joint ventures primarily relates to ventures that support the Company's efforts to promote the growth of our Cambria Hotels brand.

To the extent existing unconsolidated joint ventures proceed to the hotel construction phase, the Company is committed to make capital contributions totaling $9.3 million to support these efforts.

During the three months ended March 31, 2020 and 2019 , capital expenditures in property and equipment totaled $6.2 million and $14.9 million , respectively.

During the six months ended June 30, 2020 and 2019 , capital expenditures in property and equipment totaled $21.1 million and $38.2 million , respectively.

The decrease in capital expenditures primarily reflects the Company's investment in improvements to an office building in 2019 that was converted to a Cambria Hotel.

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These loans bear interest and are expected to be repaid in accordance with the terms of the loan arrangements.

During the three months ended March 31, 2020 , the Company advanced and received repayments totaling $5.8 million and $0.1 million for these purposes, respectively.

For the three months ended March 31, 2019 , the Company advanced and received repayments totaling $1.8 million and $5.1 million for these purposes, respectively.

At March 31, 2020 , the Company had commitments to extend an additional $10.7 million for these purposes provided certain conditions are met by its franchisees.

During the three months ended March 31, 2019 , the Company realized proceeds of $10.6 million from the sale of one parcel of land.

The Company did not have any sale of land parcels during the three months ended March 31, 2020 .

During the six months ended June 30, 2020 , the Company advanced and received repayments totaling $7.7 million and $0.1 million for these purposes, respectively.

For the six months ended June 30, 2019 , the Company advanced and received

repayments totaling $4.9 million and $5.4 million for these purposes, respectively.

At June 30, 2020 , the Company had commitments to extend an additional $2.2 million for these purposes provided certain conditions are met by its franchisees.

During the six months ended June 30, 2019 , the Company realized proceeds of $10.6 million from the sale of one parcel of land.

The Company did not have any sale of land parcels during the six months ended June 30, 2020 .

During the six months ended June 30, 2019 , the Company sold the SaaS for vacation rentals reporting unit and made payments, net of sales proceeds, of $10.8 million for net costs incurred to complete the disposition.

From time to time, our board of directors authorizes specific transactions and general programs which permit us to provide financing, investment and guaranties, and similar credit support to qualified franchisees, as well as to acquire, develop, and resell real estate and hotels to incent franchise development.

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With respect to our lending, hotel ownership and joint venture investments, we generally expect to recycle these loans and investments within a five year period.

At March 31, 2020 , the Company had approximately $581.3 million outstanding pursuant to these financial support activities.

At June 30, 2020 , the Company had approximately $579.3 million outstanding pursuant to these financial support activities.

Financing Activities

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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.

At March 31, 2020 , the Company maintained a total leverage ratio of 3.03 x and was in compliance with all financial covenants under the Restated Credit Agreement.

The Company increased borrowings on its senior unsecured revolving credit facility by $396.8 million in the first quarter of 2020, primarily in response to the COVID-19 pandemic.

At June 30, 2020 , the Company maintained a total leverage ratio of 3.69 x and was in compliance with all financial covenants under the Restated Credit Agreement.

The Company increased borrowings on its senior unsecured revolving credit facility by $170.3 million in the six months ended June 30, 2020 , primarily in response to the COVID-19 pandemic.

The additional borrowings that were not otherwise utilized for operational purposes during the quarter are being held as cash on the Company’s consolidated balance sheet.

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The proceeds of the Term Loan were utilized to reduce borrowings on the Company’s senior unsecured revolving credit facility.

The Term Loan was subsequently paid off in full in July 2020 from the proceeds of the 2020 Senior Notes.

Senior Unsecured Notes Due 2031

On July 23, 2020, the Company issued unsecured senior notes in the principal amount of $450 million (the "2020 Senior Notes") bearing a coupon of 3.70%.

The 2020 Senior Notes will mature on January 15, 2031, with interest to be paid semi-annually on January 15 th and July 15 th beginning January 15, 2021.

The Company used the net proceeds of the 2020 Senior Notes, after deducting underwriting discounts, commissions and other offering expenses, to repay the Term Loan in full and fund the purchase price of the 2012 Notes tendered and accepted by the Company for purchase pursuant to the tender offer (discussed below under "Senior Unsecured Notes due 2022").

Interest on the 2020 Senior Notes is payable semi-annually on January 15 th and July 15 th of each year, commencing on January 15, 2021.

The interest rate payable on the 2020 Senior Notes will be 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 maturity.

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 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.

Senior Unsecured Notes Due 2029

On November 27, 2019, the Company issued unsecured senior notes in the principal amount of $400.0 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%.

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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 “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 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 Par Call Date, the redemption price will equal 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest.

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 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.

Senior Unsecured Notes due 2022

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The Company may redeem the 2012 Senior Notes at its option at a redemption price equal to the greater of (a) 100% of the principal amount of the notes to be redeemed and (b) the sum of the present values of the remaining scheduled principal and interest payments from the redemption date to the date of maturity discounted to the redemption date on a semi-annual basis at the Treasury rate, plus 50 basis points.

Additionally, at the option of the holders of the 2012 Senior Notes, the Company may be required to repurchase all or a portion of the 2012 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.

On July 9, 2020, the Company commenced the Tender Offer to purchase up to $160.0 million aggregate principal amount of the Company’s 2012 Senior Notes subject to increase or decrease.

The Tender Offer was subsequently upsized to $180.0 million aggregate principal amount of the 2012 Notes.

On July 23, 2020 , the Company amended the Tender Offer by increasing the aggregate principal maximum tender amount from $180.0 million to $183.4 million .

The Tender Offer settled on July 24, 2020 for $197.8 million, including an early tender premium, settlement fees, and accrued interest paid.

Fixed Rate Collateralized Mortgage

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In conjunction with the court award, the Company also assumed the $9.5 million mortgage on the property with a fixed interest rate of 7.26%.

The mortgage which is collateralized by the office building requires monthly payments of principal and interest and matures in December 2020 with a balloon payment due of $6.9 million.

The mortgage is collateralized by the office building, requires monthly payments of principal and interest, and matures in December 2020 with a balloon payment due of $6.9 million.

At the time of acquisition, the Company determined that the fixed interest rate of 7.26% exceeded market interest rates and therefore the Company increased the carrying value of the debt by $1.2 million to record the debt at fair value.

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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 March 31, 2020 , the Company had been fully advanced the amounts due pursuant to these agreements.

At June 30, 2020 , the Company had been fully advanced the amounts due pursuant to these agreements.

These advances bear interest at a rate of 3% per annum.

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The Company accrues interest on the portion of the advances that it expects to repay.

The Company was in compliance with all current performance conditions as of March 31, 2020 .

The Company was in compliance with all applicable current performance conditions as of June 30, 2020 .

Construction Loan Commitment

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In 2012, the Company elected to pay a special cash dividend totaling approximately $600 million.

During the three months ended March 31, 2020 , the Company maintained the payment of a quarterly dividend on its common shares outstanding of $0.225 per share, which remained unchanged from the previous quarterly declaration, and paid cash dividends totaling $12.8 million .

On February 28, 2020, the Company’s board of directors declared a quarterly cash dividend of $0.225 per share of common stock.

The dividend is payable on April 16, 2020 to shareholders of record on April 2, 2020.

However, in light of uncertainty resulting from the COVID-19 pandemic, and as previously disclosed, we determined to suspend future, undeclared dividends for at least the remainder of 2020.

During the six months ended June 30, 2020 , the Company maintained the payment of a quarterly dividend on its common shares outstanding of $0.225 per share, which remained unchanged from the previous quarterly declaration, and paid cash dividends totaling $25.2 million .

In light of uncertainty resulting from the COVID-19 pandemic, and as previously disclosed, we determined to suspend future, undeclared dividends for at least the remainder of 2020.

Share Repurchases

In 1998, we instituted a share repurchase program which has generated substantial value for our shareholders.

During the three months ended March 31, 2020 , the Company repurchased 0.5 million shares of its common stock under the share repurchase program at a total cost of $43.3 million .

Through March 31, 2020 , the Company had repurchased 51.6 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 $1.5 billion .

During the six months ended June 30, 2020 , the Company repurchased 0.5 million shares of its common stock under the share repurchase program at a total cost of $43.3 million .

Through June 30, 2020 , the Company had repurchased 51.6 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 $1.5 billion .

Considering the effect of the two-for-one stock split, the Company has repurchased 84.6 million shares at an average price of $17.55 per share.

As of March 31, 2020 , the Company had 3.4 million shares remaining under the current share repurchase authorization.

As of June 30, 2020 , the Company had 3.4 million shares remaining under the current share repurchase authorization.

However, in light of uncertainty resulting from the COVID-19 pandemic, and as previously disclosed, we have temporarily suspended activity under our share repurchase program.

During the three months ended March 31, 2020 , the Company redeemed 128,103 shares of common stock at a total cost of approximately $12.1 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 performance vested restricted stock units and restricted stock grants.

During the six months ended June 30, 2020 , the Company redeemed 115,525 shares of common stock at a total cost of approximately $11.2 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 performance vested restricted stock units and restricted stock grants.

These redemptions were outside the share repurchase program.

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The maximum exposure of principal incidental to these limited payment guaranties is $5.7 million , plus unpaid expenses and accrued unpaid interest.

As of March 31, 2020 and December 31, 2019 , the Company believed the likelihood of having to perform under the aforementioned limited payment guaranties was remote.

In the event of performance, the Company has recourse for two of the transactions in the form of a membership interest pledge as collateral for our guaranty.

As of June 30, 2020 and December 31, 2019 , the Company believed the likelihood of having to perform under the aforementioned limited payment guaranties was remote.

In the event of performance, the Company has recourse for one of the transactions in the form of a membership interest pledge as collateral for our guaranty.

Refer to Note 12 for further discussion of our off-balance sheet arrangements.

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Certain matters discussed in this quarterly report constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Generally, our use of words such as "expect," "estimate," "believe," "anticipate," "should," "will," "forecast," "plan," "project," "assume" or similar words of futurity identify such forward-looking statements.

Certain, but not necessarily all, of such forward-looking statements can be identified by the use of forward-looking terminology, such as "expect," "estimate," "believe," "anticipate," "should," "will," "forecast," "plan," "project," "assume" or similar words of futurity.

All statements other than historical facts are forward-looking statements.

These forward-looking statements are based on management's current beliefs, assumptions and expectations regarding future events, which in turn are based on information currently available to management.

Such statements may relate to projections of the Company's revenue, expenses, earnings, debt levels, ability to repay outstanding indebtedness, payment of dividends, repurchases of common stock, and other financial and operational measures, including occupancy and open hotels, the Company's ability to benefit from any rebound in travel demand, our liquidity, our ability to assist franchisees through relief or other financial measures, our ability to minimize or manage disruptions posed by COVID-19, our ability to achieve cost savings and reduce discretionary spending and investments, and the impact of COVID-19 and economic conditions on our future operations, among other matters.

Such statements may relate to projections of the Company's revenue, expenses, earnings, debt levels, ability to repay outstanding indebtedness, payment of dividends, repurchases of common stock, and other financial and operational measures, including occupancy and open hotels, the our ability to benefit from any rebound in travel demand, our liquidity, our ability to assist franchisees through relief or other financial measures, our ability to minimize or manage disruptions posed by COVID-19, our ability to achieve cost savings and reduce discretionary spending and investments, and the impact of COVID-19 and economic conditions on our future operations, among other matters.

We caution you not to place undue reliance on any such forward-looking statements.

Forward-looking statements do not guarantee future performance and involve known and unknown risks, uncertainties and other factors.

Several factors could cause actual results, performance or achievements of the Company to differ materially from those expressed in or contemplated by the forward-looking statements.

Such risks include, but are not limited to, continuation, resurgance or worsening of the COVID-19 pandemic, including quarantines, "shelter-in-place" orders, or other travel restrictions;

Several factors could cause our actual results, performance or achievements to differ materially from those expressed in or contemplated by the forward-looking statements.

Such risks include, but are not limited to, continuation, resurgence or worsening of the COVID-19 pandemic, including quarantines, "shelter-in-place" orders, or other travel restrictions;

new information which may emerge concerning the severity or impact of the COVID-19 pandemic and the development of vaccines and treatments for COVID-19;

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foreign currency fluctuations;

impairments or declines in value of the company’s assets;

impairments or declines in the value of our assets;

operating risks common in the travel, lodging or franchising industries;

changes to the desirability of our brands as viewed by hotel operators and customers;

changes to the

terms or termination of our contracts with franchisees and our relationships with our franchisees;

desirability of our brands as viewed by hotel operators and customers;

changes to the terms or termination of our contracts with franchisees and our relationships with our franchisees;

our ability to keep pace with improvements in technology utilized for marketing and reservations systems and other operating systems;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis