What changed in this filing

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Item 1. Business

2021-02-26 compared with 2020-03-02 · 421 added, 247 removed, 427 unchanged (61% of the section changed)

We are one of the largest hotel franchisors in the world with 7,153 open hotels comprising 590,897 rooms and 1,135 hotels under construction, awaiting conversion or approved for development comprising 100,868 rooms as of December 31, 2019 , located in 50 states, the District of Columbia and over 40 countries and territories outside the United States.

Choice franchises lodging properties under the following proprietary brand names:

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

Impact of the COVID-19 Pandemic

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 a material adverse impact on the hospitality industry and the Company both financially and operationally.

The development of effective vaccines and initial distribution efforts are significant and positive developments.

However, the extent to which the COVID-19 pandemic will continue to impact the hospitality industry and our operations remains uncertain and will depend largely on future developments, including the rate and pace of vaccination in the broader population, the severity and duration of resurgences or variants of the virus, and the effectiveness of actions by government authorities and the public to contain the pandemic.

The impacts of COVID-19 on the Company's business were first experienced toward the end of the first quarter of 2020, with domestic occupancy levels ranging between 25.5% and 32.5% in the last ten days of March resulting in significant decreases in revenue per available room ("RevPAR").

Lower occupancy and RevPAR trends continued into the second quarter of 2020, with

domestic RevPAR experiencing a decline of approximately 60.1% from the comparative prior year April.

These trends have steadily improved, albeit remained significantly impacted, in the third and fourth quarters, with domestic RevPAR experiencing a decline of approximately 28.8% over the comparative prior year third quarter and 25.1% over the comparative prior year fourth quarter.

For the reasons cited above, we expect significant impact on our results of operations to continue in 2021.

As of March 31, 2020, approximately 10% of the Company's domestic hotel system that had temporarily suspended operations due to governmental restriction or a franchisee’s election, compared to less than 1% as of both December 31, 2020, and January 31, 2021.

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.

Further, as of December 31, 2020, the Company had approximately $834.8 million in cash and additional borrowing capacity through its senior unsecured revolving credit facility.

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.

The duration of these measures cannot be predicted at this time.

These measures include, but are not limited to, the following:

• Implemented fee-deferral programs for domestic and international franchisees.

• Reduced one-time reputation management fees and guest relations handling fees.

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

• Advocated to increase the benefits and eligibility requirements for government relief SBA programs and other CARES Act benefits to support franchisees in retaining employees and servicing debt.

• Established a proactive, ongoing multi-channel franchisee outreach and education program that is actively assisting our franchisees in accessing newly available capital.

• Revised the Company's guest cancellation policy to provide travelers greater flexibility during these challenging times.

• Implemented travel restrictions and work-from-home practices for the Company’s employees.

The Company 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 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, the Company provided hotel room donations to Operation Homefront to help ill and injured service members that were displaced by the pandemic.

The Company also teamed up with Serta, Inc.

to contribute to its “Stay Home, Send Beds” initiative, which provided bed donations to help address nationwide shortages at hospitals and temporary medical facilities.

Since the onset of the pandemic, management and the Board of Directors have taken steps to adjust the Company’s cost structure and increase its financial flexibility, which include, but are not limited to, the following actions:

• Reduced the compensation of the Board of Directors, chief executive officer, and other executive officers.

• Reduced global workforce by approximately 18% since December 31, 2019 through a combination of layoffs and furloughs.

• Introduced a hiring freeze, except with respect to certain critical positions.

• Suspended associates’ 401(k) match through the end of 2020.

• Eliminated, reduced or deferred non-essential expenditures, discretionary capital expenditures and investments.

We are actively working with vendors to achieve relief on fees or timing of fee payment.

• Temporarily suspended activity under the Company’s share repurchase program.

• Determined to temporarily suspend future, undeclared dividends while the COVID-19 pandemic is significantly impacting travel.

• Entered into a $250 million unsecured term loan (the "Term Loan") on a precautionary basis, enhancing the Company’s financial flexibility by increasing its borrowing capacity.

• Offered $450 million of 3.70% senior unsecured notes due 2031 (the "2020 Senior Notes"), using net proceeds to repay the Term Loan in full and fund the $197.8 million purchase price of the cash tender offer (the "Tender Offer") for approximately $183.4 million aggregate principal amount of the Company's 5.75% senior unsecured notes due in 2022 (the "2012 Senior Notes").

As disclosed above, domestic occupancy of the Company's branded hotels has been severely impacted.

However, approximately 90% of the Company’s domestic hotels are in suburban, small town and interstate locations and have 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 from mid-March through the end of 2020.

Given the uncertainty as to the potential duration of the crisis, including a potential resurgence of the virus, 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.

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 the Company believes 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.

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

We are primarily a hotel franchisor with franchise agreements and owned hotels representing 7,147 hotels open comprising 597,977 rooms and 1,022 hotels under construction, awaiting conversion or approved for development comprising 86,264 rooms as of December 31, 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").

On January 27, 2020, we announced the launch of Everhome Suites, a new-construction midscale extended-stay brand offering.

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The Company's primary segment is the hotel franchising business, which represents approximately 96% of the Company's total revenues.

The Company's domestic franchise operations are conducted through direct franchising relationships, while its international franchise operations are conducted through a combination of direct franchising and master franchising relationships.

The Company's domestic operations are conducted through direct franchising relationships and the ownership of five Cambria 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.

With a primary focus on hotel franchising, we benefit from the economies of scale inherent in the franchising business.

The fee and cost structure of our business provides opportunities to improve operating results by increasing the

number of franchised hotel rooms and effective royalty rates of our franchise contracts resulting in increased initial and relicensing fee revenue, ongoing royalty fees and procurement services revenues.

In addition to these revenues, we also collect marketing and reservation system fees to support centralized marketing and reservation activities for the franchise system.

Our hotel franchise operating results can also be improved through our company-wide efforts related to improving property-level performance.

The principal factors that affect the Company’s franchise operations results are:

the number and mix of hotel rooms in the various hotel lodging price categories;

The fee and cost structure of our franchising business provides opportunities to improve operating results by increasing the number of franchised hotel rooms and effective royalty rates of our franchise contracts resulting in increased initial and relicensing fee revenue, ongoing royalty fees, and procurement services revenues.

In addition, our operating results can also be improved through our company-wide efforts related to improving property-level performance and expanding the number of partnerships with travel related companies.

The principal factors that affect the Company’s results are:

the number and relative mix of hotel rooms in the various hotel lodging price categories;

growth in the number of hotel rooms owned and under franchise;

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the level of franchise sales and relicensing activity;

the number of qualified vendor arrangements and travel related partnerships and the level of engagement with these partners by our franchisees and guests;

and our ability to manage costs.

The number of rooms, occupancy and room rates at the Company's 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 realized.

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 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, continued growth of our franchise business should enable us to realize benefits from the operating leverage in place and improve operating results.

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

These expenditures, which include advertising costs and costs to maintain our central reservations and property management systems, help to enhance awareness and increase consumer preference for our brands and deliver guests to our franchisees.

Greater awareness and brand 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.

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 annual 2020 results and anticipated trends are discussed above under the heading "Impact of the COVID-19 Pandemic" and Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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

These expenditures, which include advertising costs and costs to maintain our central

reservations and property management systems, enhance awareness and consumer preference for our brands and deliver guests to our franchisees.

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 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 realized marketing and reservation expenditures in excess of fees in 2020.

As a result of the COVID-19 pandemic, we expect significant impact to our marketing and reservation fees generated to continue in 2021.

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 hotels and reducing hotel operating costs.

The Company has taken numerous measures to combat the significant impact of the COVID-19 pandemic on our business.

These measures have been and remain an immediate priority in order to mitigate the financial impacts to our franchisees and the Company.

We believe these immediate measures support the Company's preparedness and complement the strategic priorities we execute against to create value for our shareholders over the long-term.

In addition to our hotel franchising business, we have also developed or purchased five Cambria hotels.

We intend to continue to strategically develop or purchase Cambria hotels to increase the presence of our Cambria Hotel brand in the United States, drive greater guest satisfaction and brand preference, and ultimately increase the number of franchise agreements awarded.

When developing or purchasing hotels, we seek key markets, including major business centers and leisure destinations, with strong growth potential that will improve the recognition of the Cambria Hotel brand.

When developing or purchasing hotels, we seek key markets with strong growth potential that will improve the recognition of the Cambria Hotel brand.

We believe our owned Cambria hotels provide us the opportunity to support and accelerate growth of the brand.

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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 Cambria Hotel's brand awareness with targeted customer segments and providing superior guest service.

We manage costs by setting performance goals for our hotel management companies and optimizing distribution channels.

We strive to optimize revenues by focusing on revenue management, increasing guest loyalty, expanding Cambria Hotels' brand awareness with targeted customer segments, and providing superior guest service.

We currently do not manage our owned hotels but utilize the services of third-party management companies who provide their own employees.

We manage costs by setting performance goals for our hotel management companies and optimizing distribution channels.

As a result of the COVID-19 pandemic, the operations of our owned hotels was significantly impacted in 2020 and we expect such impacts to continue in 2021.

Our capital allocation decisions, including capital structure and uses of capital, are intended to maximize our return on invested capital and create value for our shareholders.

We believe our strong and predictable cash flows create a strong financial position.

We strive to maintain a capital structure that generates high financial returns and use our excess cash flow to return value to our shareholders primarily through share repurchases, dividends or investing in growth opportunities.

Historically, we have returned value to our shareholders in two primary ways:

share repurchases and dividends.

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

Since the program's inception through December 31, 2019 , we repurchased 51.1 million shares (including 33.0 million prior to the two-for-one stock split effected in October 2005) of common stock at a total cost of $1.4 billion .

Considering the effect of the two-for-one stock split, the Company repurchased 84.1 million shares at an average price of $17.15 per share.

During the third quarter of 2019, the Company's board of directors approved an increase to the number of shares authorized under the share repurchase program by approximately 2.3 million shares to a total of 4.0 million shares.

As of December 31, 2019 , the Company had 3.9 million shares remaining under the current share repurchase authorization.

We currently believe that our cash flows from operations will support our ability to complete the current board of directors repurchase authorization and upon completion of the current authorization, our board of directors will evaluate the advisability of additional share repurchases.

The Company commenced paying quarterly dividends in 2004 and in 2012 the Company elected to pay a special cash dividend totaling approximately $600 million.

The Company currently maintains the payment of a quarterly dividend on its common shares outstanding;

however the declaration of future dividends is subject to the discretion of the board of directors.

fourth quarter of 2019, the Company's board of directors announced a 5% increase to the quarterly dividend rate to $0.225 per share from $0.215 per share.

We expect to continue to pay dividends in the future, subject to quarterly declaration by our board of directors as well as future business performance, economic conditions, changes in income tax regulations and other factors.

In light of uncertainty resulting from the COVID-19 pandemic, during the second quarter of 2020 we determined to suspend future, undeclared dividends and have temporarily suspended activity under the Company's share repurchase program.

Given our long-standing commitment to returning value to shareholders, we expect to consider resuming payment of a quarterly dividend and/or resuming activity under the share repurchase program at such time that conditions are appropriate.

We currently have no estimated time frame for when these may occur.

The Company also allocates capital to financing, investment and guaranty support to incent franchise development for certain brands in strategic markets;

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The timing and amount of these investments are subject to market and other conditions.

Our direct real estate exposure is currently limited to activity in the United States, including our owned Cambria hotel assets and an office building owned by the Company.

In light of uncertainty resulting from the COVID-19 pandemic and to preserve liquidity, we have limited significant discretionary investments and intend to continue to do so until such time as we determine conditions are appropriate to resume any such activity.

Our direct real estate exposure is currently limited to activity in the United States, including our Cambria hotel assets open and under development and a commercial office building.

In addition, our development activities that involve financing, equity investments and guaranty support to hotel developers create limited additional exposure to the real estate markets.

For additional information, see the "Investing Activities" caption under the "Liquidity and Capital Resources" section in Management's Discussion and Analysis of Financial Condition and Results of Operations.

For additional information, see the "Investing Activities" caption under the "Liquidity and Capital Resources" section in Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations.

The Company was incorporated in 1980 under the laws of the State of Delaware.

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• Franchisors license their brands to a hotel owner, giving the hotel owner the right to use the brand name, logo, operating practices, and reservations systems in exchange for a fee and an agreement to operate the hotel in accordance with the franchisor’s brand standards.

Under a typical franchise agreement, the hotel owner pays the franchisor an initial fee, a percentage-of-revenue royalty fee and a marketing/reservation fee.

Under a typical franchise agreement, the hotel owner pays the franchisor an initial fee, a percentage-of-revenue royalty fee and a marketing & reservation systems fee.

A franchisor’s revenues are dependent on the number of rooms in its system and the top-line performance of those hotels.

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These companies collect management fees predominately based on revenues earned and/or profits generated.

Similar to franchising activities, the key drivers of revenue based management fees are RevPAR and unit growth and similar to ownership activities, profit based fees are driven by improved hotel margins and RevPAR growth.

Similar to franchising activities, the key drivers of revenue based management fees are RevPAR and unit growth.

Similar to ownership activities, profit based fees are driven by improved hotel margins and RevPAR growth.

Similar to other industries, lodging experiences both positive and negative operating cycles.

The COVID-19 pandemic and its consequences have dramatically reduced travel and demand for hotel rooms, which has had a material adverse impact on the hospitality industry and the Company both financially and operationally.

The duration of the negative operating cycle resulting from the pandemic remains unknown, however we anticipate negative impacts to persist in 2021.

Independent of the present operating cycle, there are general trajectories and characteristics of positive and negative cycles.

Positive cycles are characterized as periods of sustained occupancy growth, increasing room rates and hotel development.

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The increase in occupancy and room rates serves as a catalyst for increased hotel development.

The following chart demonstrates these trends over the last fifteen years:

US Lodging Industry Trends:

Smith Travel Research and US Department of Labor

As a franchisor with 7,153 opened hotels, including ownership of five hotels, we believe we are well positioned in any stage of the lodging cycle as our fee-for-service business model has historically delivered predictable, profitable, long-term growth in a variety of lodging and economic environments.

As a franchisor with 7,147 opened hotels, including ownership of five hotels, we believe we are generally well positioned in any stage of the lodging cycle as our fee-for-service business model has historically delivered predictable, profitable, long-term growth in a variety of lodging and economic environments.

We have historically benefited from both the RevPAR gains typically experienced in the early stages of recovery, as our revenues are based on our franchisees’ gross room revenues, and the supply growth normally occurring in the later stages as we increase our portfolio size.

The ultimate impact and duration of the present negative operating cycle resulting from the pandemic remains to be seen.

The Company’s portfolio of brands offers both new construction and conversion opportunities.

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Our conversion brands also benefit from periods of supply growth as the construction of hotels increases the need for existing hotels to seek new brand affiliations.

Furthermore, the Company's conversion brands benefit from lodging cycle downturns as our unit growth has been historically driven from the conversion of independent and other hotel chain affiliates into our system as these hotels endeavor to improve their performance.

Furthermore, the Company's conversion brands generally benefit from lodging cycle downturns as our unit growth has been historically driven from the conversion of independent and other hotel chain affiliates into our system as these hotels endeavor to improve their performance, which typically outpace closures of hotels in our system resulting from the downturn.

The lodging industry can be divided into chain scale categories or groupings of generally competitive brands as follows:

Brand Examples

Chain Scale Brand Examples Room Count % of Total Avg.

of Rooms Per Hotel

Four Seasons, Ritz Carlton, W Hotel, JW Marriott

Upper Upscale

Marriott, Hilton, Hyatt, Sheraton

Cambria Hotels, Courtyard, Hyatt Place, Hilton Garden Inn

Upper Midscale

Comfort Inn, Holiday Inn Express, Hampton Inn, Fairfield Inn

Quality Inn, Sleep Inn, Best Western, Baymont

Econo Lodge, Super 8, Days Inn, Motel 6

Luxury Four Seasons, Ritz Carlton, W Hotel, JW Marriott 113,401 2.1 % 316.8

Upper Upscale Marriott, Hilton, Hyatt, Sheraton 584,309 11.1 % 313.1

Upscale Cambria Hotels, Courtyard, Hyatt Place, Hilton Garden Inn 812,110 15.4 % 143.3

Upper Midscale Comfort Inn, Holiday Inn Express, Hampton Inn, Fairfield Inn 1,130,570 21.4 % 97.4

Midscale Quality Inn, Sleep Inn, Best Western, Baymont 428,025 8.1 % 79.5

Economy Econo Lodge, Super 8, Days Inn, Motel 6 761,884 14.4 % 75.2

Sub-Total Brand Affiliated 3,830,299 72.5 % 109.4

Independents 1,455,526 27.5 % 65.9

Total All Hotels 5,285,825 100 % 92.6

According to Smith Travel Research, the lodging industry consisted of approximately 57,000 hotels representing approximately 5.4 million rooms open and operating in the United States at December 31, 2019 .

During the year ended December 31, 2019 , the industry added approximately 123,000 gross rooms to the industry supply and net room growth was approximately 2.1%.

Approximately, 82% of the new rooms opened during the year were positioned in the Upscale, Upper Midscale, Midscale and Economy chain scale categories in which we primarily operate.

According to STR, the lodging industry consisted of over 57,000 hotels representing approximately 5.3 million rooms open in the United States at December 31, 2020.

Approximately 78% of the new rooms opened during the year ended December 31, 2020 were positioned in the Upscale, Upper Midscale, Midscale and Economy chain scale categories in which we primarily operate.

The lodging industry consists of independent operators of hotels and those that have joined national hotel franchise chains.

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Over the years, the industry has seen a significant movement of hotels from independent to chain affiliation, with affiliated hotels increasing from 46% of the rooms in the market in 1990 to 72.5% of the market in 2020.

However, the pace of this increase has moderated over the last several years and in 2019 the percentage of rooms in the market affiliated with a chain increased by approximately 30 basis points from 71.5% to 71.8%.

However, the pace of this increase has moderated over the last several years and in 2020 the percentage of rooms in the market affiliated with a chain increased by approximately 70 basis points from 71.8% in 2019.

Due to the fact that a significant portion of the costs of owning and operating a hotel are generally fixed, increases in revenues generated by affiliation with a franchise lodging chain can improve a hotel’s financial performance.

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Furthermore, we believe that hotel operators choose lodging franchisors based primarily on the perceived value and quality of each franchisor’s brand and its services, and the extent to which affiliation with that franchisor may increase the hotel operator profitability.

We believe these factors enhance the resiliency of hotels affiliated with brands, and as a result the value proposition of the franchise lodging chains, during a negative operating cycle.

Choice’s Franchising Business

Choice operates primarily as a hotel franchisor offering 14 brands.

This family of well-known and diversified new construction and conversion brands competes at various hotel consumer and developer price points.

As discussed above, the Company has taken numerous measures to combat the significant impact of the COVID-19 pandemic on our business.

These measures have been and remain an immediate priority in order to mitigate the financial impacts to our franchisees and the Company.

We believe these immediate measures support the Company's preparedness and complement the strategic priorities, addressed below, we execute against to create value for our shareholders over the long-term.

The impacts of the pandemic have not materially changed the fundamentals of the Choice franchising business nor our vision for deploying our family of fourteen brands, which represent both new construction and conversion brands and compete at various hotel consumer and developer price points.

Economics of Franchising Business .

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The initial fee and ongoing royalty portion of the franchise fees are intended to cover our operating expenses, such as expenses incurred in business development, quality assurance, administrative support, certain franchise services and to provide us with operating profits.

The marketing and reservation system fees are used for the expenses associated with marketing, media, advertising, providing a central reservation system, property management systems, e-commerce initiatives and certain franchise services.

The marketing and

reservation system fees are used for the expenses associated with marketing, media, advertising, providing a central reservation system, property management systems, e-commerce initiatives and certain franchise services.

Our fees depend on the number of rooms in our system, the gross room revenues generated by our franchisees and effective royalty rates under our franchise contracts.

We enjoy significant operating leverage since the variable operating costs associated with the franchise system growth of our established brands have historically been less than incremental royalty fees generated from new franchises.

We believe that our business is well positioned in the lodging industry since we benefit from both increases in RevPAR and unit growth from new hotel construction or conversion of existing hotel assets into our system.

We believe that our business is well positioned in the lodging industry since we generally benefit from both increases in RevPAR and unit growth from new hotel construction or conversion of existing hotel assets into our system.

In addition, improving business delivery to our franchisees should allow us to improve the effective royalty rate of our franchise contracts.

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Our business strategy is to create franchise system growth by leveraging Choice’s large and well-known hotel brands, franchise sales capabilities, effective marketing and reservation delivery efforts, training and education programs, RevPAR enhancing services and technologies and financial strength created by our significant free cash flow.

We believe our brands’ growth will be driven by our ability to create a compelling return on

investment for franchisees.

We believe our brands’ growth will be driven by our ability to create a compelling return on investment for franchisees.

Our strategic objective is to improve profitability of our franchisees by providing services which increase business delivery, enhance RevPAR, reduce hotel operating and development costs, and/or improve guest satisfaction.

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In addition, we provide our franchisees with education and training programs as well as revenue management technology and services designed to improve property-level performance.

These services and products promote revenue gains for franchisees and improve guest satisfaction which translate into both higher royalties for the Company and improved returns for owners, leading to further room growth by making our brands even more attractive to prospective franchisees.

brands even more attractive to prospective franchisees.

We develop our services based on customer needs and focus on activities that generate high return on investment for our franchisees.

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Our continued focus on overall brand quality coupled with our marketing initiatives is designed to stimulate room demand for our franchised hotels through improved guest awareness and satisfaction.

Our central reservations system is a critical technology used to deliver guests to our franchisees through multiple channels, including our call centers, proprietary web and mobile sites, global distribution systems (e.g., SABRE, Amadeus), on-line travel agents ("OTAs") (e.g., Expedia, Booking.com) and internet referral or booking services (e.g., Kayak, Trip Advisor).

our well-known brands, combined with our relationships with many internet distribution web sites, benefits our franchisees by facilitating increased rate and reservations delivery, and reducing costs and operational complexity.

Our central reservations system is a critical technology used to deliver guests to our franchisees through multiple channels, including our call centers, proprietary web and mobile sites, global distribution systems (e.g., SABRE, Amadeus), online travel agents ("OTAs") (e.g., Expedia, Booking.com) and internet referral or booking services (e.g., Kayak, Trip Advisor).

We believe our well-known brands, combined with our relationships with many internet distribution web sites, benefits our franchisees by facilitating increased rate and reservations delivery, and reducing costs and operational complexity.

Leveraging Size, Scale and Distribution .

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The majority of our standard domestic franchise agreements are 10 to 30 years in duration with certain rights for each of the franchisor and franchisee to terminate the agreement, such as upon designated anniversaries of hotel opening, before the stated duration.

Our franchisees operate domestically under one of 14 Choice brand names:

Comfort Inn, Comfort Suites, Quality, Clarion, Clarion Pointe, Sleep Inn, Econo Lodge, Rodeway Inn, Mainstay Suites, Suburban Extended Stay Hotel, WoodSpring Suites, Everhome Suites, Cambria Hotels and Ascend Hotel Collection.

Our franchisees operate domestically under one of fourteen Choice brands.

The following table presents key statistics related to our domestic franchise system over the five years ended December 31, 2020.

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.

With the onset of the COVID-19 pandemic resulting in reduced travel and lesser demand, our franchisees began closing greater portions of inventory as compared to previous periods.

To provide a more representative depiction of system occupancy and with reference to industry standards for RevPAR reporting for partially closed hotels during the COVID-19 pandemic, we have revised our Occupancy calculation to be reflective of full room availability for open hotels.

Additionally, the Company made minor revisions to the calculation of ADR with respect to complimentary rooms.

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

As of and For the Year Ended December 31,

2016 2017 2018 2019 (3)

Number of properties, end of period 5,362 5,501 5,863 5,955 5,967

Number of rooms, end of period 404,498 413,015 450,028 462,973 464,682

Royalty fees ($000) (1)

Royalty fees (in thousands) (1)

$ 300,383 $ 323,674 $ 359,502 $ 371,396 $ 258,151

Average royalty rate (2)

4.41 % 4.60 % 4.75 % 4.86 % 4.94 %

Average occupancy percentage (2)

57.8 % 58.4 % 58.0 % 57.7 % 45.6 %

Average daily room rate (ADR) (2)

$ 79.66 $ 80.97 $ 82.17 $ 81.83 $ 71.63

Revenue per available room (RevPAR) (2)

$ 46.01 $ 47.28 $ 47.68 $ 47.18 $ 32.70

(1) Royalty fees exclude the impact of franchise agreement acquisition cost amortization.

2015 amounts exclude operating statistics from Cambria Hotel properties open during these periods as the operating statistics are not representative of a stabilized brand which the Company defines as having at least 25 units open and operating for a twelve month period.

Additionally, the periods prior to 2018 exclude operating statistics from WoodSpring Suites properties, while 2018 includes full year operating statistics.

2019 amounts include operating statistics of the Company's owned hotels, including intersegment royalties of $0.9 million .

(2) The periods prior to 2018 exclude operating statistics from WoodSpring Suites properties, while 2018 includes full year operating statistics.

(3) 2020 and 2019 amounts include operating statistics of the Company's owned hotels, including intersegment royalties of $0.8 million and $0.9 million, respectively.

Currently, no individual franchisee accounts for more than 4% of the Company's total domestic royalty fees.

Industry Positioning

Our brands offer consumers and developers a wide range of options for transient and extended stay customers, including economy, mid-scale, upper mid-scale and upscale hotels.

Our brands offer consumers and developers a wide range of options for transient and extended stay customers, including economy, midscale, upper midscale, and upscale hotels.

Our brands are as follows:

Cambria Hotels:

Cambria Hotels is a select service hotel chain that operates in the upscale lodging category, targeting top primary market locations.

Designed for the modern business traveler, Cambria offers guests a distinct experience with simple, guilt-free indulgences allowing them to treat themselves while on the road.

The brand is designed to provide guests with the freedom to be their best self.

The environment matches guests' casual lifestyle but tailored to their business travel needs.

Properties feature compelling design inspired by the location, spacious and comfortable rooms, spa inspired bathrooms, flexible meeting space, and locally sourced prepared food and craft beer.

Principal competitor brands include Courtyard by Marriott, Aloft, Hyatt Place, Hotel Indigo and Hilton Garden Inn.

Cambria Hotels is a select service hotel brand that operates in the upscale lodging category, targeting top primary market locations and mid-market locations with a mix of business and leisure demand.

Designed for the modern traveler, Cambria offers guests a distinct experience with simple, guilt-free indulgences and little luxuries allowing them to stay at their best while on the road.

The environment matches guests' casual lifestyles but tailored to their business travel needs.

Properties feature compelling design inspired by the location, spacious and comfortable rooms, spa inspired bathrooms, flexible meeting space, and a locally sourced menu and craft beer.

Principal competitor brands include:

Courtyard by Marriott, Aloft, Hyatt Place, Hotel Indigo, AC Hotels and Hilton Garden Inn.

Ascend Hotel Collection:

Ascend Hotel Collection is an innovative membership program that enables individual hotels (resort, boutique and historic) to retain their individuality and identity yet have access to Choice Hotels' global distribution, technology, services, training and loyalty benefits.

Ascend Hotel Collection is an innovative member program that enables upscale hotels (resort, boutique and historic) to retain their individual brand equity and identity, and yet have access to Choice Hotels' global distribution, technology, performance support services, training and loyalty benefits.

Ascend Hotel Collection offers the best of both worlds:

independence backed up by a powerful global distribution network.

Principal competitors include Tapestry, Autograph Collection, BW Premier Collection, BW Signature Collection and Small Luxury Hotels.

independence backed by a powerful platform for customer acquisition, delivery and distribution, volume purchasing benefits and operational efficiency.

Principal competitors include:

Tapestry, BW Premier Collection, Tribute, TRYP and Autograph Collection.

Comfort Inn & Comfort Suites:

The Comfort brands are primarily upper mid-scale limited service hotels that offer a warm and welcoming guest experience designed to help travelers feel refreshed and ready to take on the day.

The Comfort brands are primarily upper midscale limited service hotels that offer a warm and welcoming guest experience designed to help travelers feel refreshed and ready to take on the day.

The brand family includes Comfort Inn, Comfort Inn & Suites, and Comfort Suites.

One of the original brands in the limited service category, Comfort has built a reputation for consistent high-value accommodations for both business and leisure travelers.

Comfort hotels offer complimentary hot breakfast with hearty and healthy options, a swimming pool and/or fitness center, free high-speed internet access and a 100% smoke-free environment.

One of the original brands in the limited service category, Comfort has built a reputation for consistent high-value accommodations that appeal to both business and leisure travelers.

Comfort hotels offer complimentary hot breakfast, a swimming pool and/or fitness center, free high-speed internet access and a 100% smoke-free environment.

Comfort Suites properties are tailored to meet the demands of today's business traveler, with each oversized suite featuring separate areas for working and relaxing, along with a sleeper sofa, refrigerator and microwave.

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Principal competitor brands include Hampton, Holiday Inn Express and Fairfield Inn & Suites.

Sleep Inn is a midscale new construction brand offering developers a lower cost to build with competitive mid-scale average daily rates.

Sleep Inn delivers a reliable, simply stylish guest experience, providing both business and leisure travelers with free high-speed internet access, a complimentary Morning Medley hot breakfast, and an exercise room and/or pool.

Sleep Inn is a midscale new construction brand offering developers a lower cost to build with competitive midscale average daily rates.

Sleep Inn delivers a reliable, simply stylish guest experience, providing both business and leisure travelers

with free high-speed internet access, a complimentary Morning Medley hot breakfast, and an exercise room and/or pool.

Sleep Inn’s competitors include AmericInn, Baymont and Country Inn & Suites.

Clarion & Clarion Pointe:

Clarion helps owners of existing midscale assets with food and beverage capabilities achieve strong returns with reasonable investment.

Clarion allows a more focused and efficient food and beverage operational model that works well with a variety of conversion property configurations.

Clarion helps business and leisure guests "get together" by providing meeting/banquet facilities with catering, hot breakfast, a simplified menu of basic evening meals and lounge with at least beer and wine selections.

Clarion helps business and leisure guests "get together" by providing meeting/banquet facilities, restaurants, and lounges.

Amenities include free high-speed internet access, a pool or fitness center, and a business center.

Principal competitor brands include Four Points by Sheraton and Radisson.

Clarion Pointe is a select service franchise that is ideal for owners who want to strategically reposition their limited service property into a brand with strong awareness and a concept that satisfies the expectations of emerging travelers-a convenient and affordable experience with premium elements in just the right places.

The first Clarion Pointe hotel opened during 2019.

Clarion Pointe:

Clarion Pointe is a select service franchise that is ideal for owners who want to strategically reposition their limited-service property into a brand with strong awareness and a concept that satisfies the expectations of emerging travelers.

Hotels offer guests a convenient and affordable experience with elevated essentials in just the right places, including contemporary design touches, curated food and beverage options, and on-demand connectivity.

Since launching in 2019, 25 Clarion Pointe hotels are open and operating, with a pipeline in excess of 15 hotels.

Quality helps both guests and owners "get your money's worth" in the midscale category.

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MainStay Suites:

MainStay Suites competes in the mid-scale extended stay category.

The Mainstay Suites guest experience delivers on a "Live Like Home" promise for guests whose stays are longer than a few nights.

Typically, longer hotel stays involve relocations, leisure travel, training, or temporary job assignments.

All MainStay guest rooms feature free high-speed internet, a sleeper sofa or lounge chair, fully equipped kitchens with a two-burner cooktop, dishes, utensils, dishwasher, sink with disposal, microwave, and full-size refrigerator.

Rooms include a sleeper sofa or lounge chair and comfortable work area with ergonomic chair.

MainStay Suites offer a well-equipped exercise room and a business center with computer and printer, as well as complimentary continental breakfast.

MainStay Suites operates in the midscale extended stay category, offering developers flexible conversion and new construction opportunities in a variety of market types.

The Mainstay Suites guest experience delivers on a "Live Like Home" promise for guests traveling for business or pleasure whose stays are longer than a few nights.

All guest rooms feature fully equipped kitchens as well as separate lounge and work areas.

MainStay Suites offer free high-speed internet, an exercise room and a business center, 24/7 laundry facilities, weekly housekeeping, as well as breakfast options for guests.

Each hotel also has a "MainStay Marketplace" where guests may purchase a variety of food and sundry items.

Guests also have complimentary access to small kitchen appliances, including blenders, toasters and slow cookers through the "Things I Use at Home" program.

MainStay Suites' principal competitors include TownePlace Suites, Candlewood Suites and Hawthorn Suites.

Guests also have complimentary access to small kitchen appliances through the "Things I Use at Home" program.

Principal competitors include TownePlace Suites, Candlewood Suites and Hawthorn Suites.

Everhome Suites :

Everhome Suites are new construction, mid-scale extended stay hotels purposefully designed for the longer staying, value conscious guest.

Everhome offers guests a choice of room type options with separate spaces to work, relax, and eat, including spacious studios and larger apartment style one-bedroom suites with in-unit washers and dryers.

All rooms include a fully equipped, modern kitchen complete with a full-sized refrigerator, dishwasher, stovetop, microwave, and ample counter space.

Dishes, utensils, glassware, and cookware are provided in room for free to enable guests to cook their own meals.

Guests have 24/7 access to laundry facilities, a modern fitness room with strength training and cardio equipment, and a marketplace with for purchase meal and snack options.

Small appliances, such as blenders, crock-pots, and foreman grills are available to rent at the front desk.

Free high speed internet and weekly housekeeping is provided.

Principal national competitors include Candlewood Suites, Hawthorn Suites, Home2 Suites and TownePlace Suites.

The Everhome Suites brand was launched in January 2020 and the Company expects the first hotel to open in 2021.

Everhome Suites operates in the midscale extended stay category, offering developers a value-engineered new construction prototype for entry into major markets.

Everhome Suites provides a “Closer to Home” experience, empowering longer staying guests to stay productive and feel connected while away from home.

All suites include a fully equipped kitchen with separate spaces to work, relax and eat.

Larger one-bedroom signature suites come equipped with in-unit washers and dryers.

Guests have access to free high-speed internet, a modern fitness room and pool, business center, 24/7 laundry facilities and weekly housekeeping service.

Each hotel also has a “Homebase Market” with food, drink and personal items available for purchase.

Small kitchen appliances are available to check out at the front desk.

Principal competitors include Candlewood Suites, Home2 Suites and TownePlace Suites.

The Everhome Suites brand was launched in January 2020 and the first hotel will open in 2021.

Suburban Extended Stay Hotel:

Suburban Extended Stay Hotel competes in the economy extended stay category and offers developers access to the extended stay category through conversion.

Suburban Extended Stay Hotel suites are built with today’s

value-conscious extended stay guest in mind.

All suites provide in-room kitchens, including a full-sized refrigerator, two-burner cooktop, microwave and sink, free high-speed internet access, and 24/7 access to on-site laundry facilities.

Suburban’s “just what you need” philosophy matches attractive weekly and multi-week pricing with bi-weekly housekeeping to provide extended stay guests with the all-suite accommodations they want without the cost of services they do not need.

Principal competitors include Extended Stay America, InTown Suites, MyPlace, HomeTowne Studios, Affordable Suites of America and Studio 6.

Suburban Extended Stay Hotels operate in the economy extended stay category, offering developers access to this category through flexible conversion options.

Suburban’s “just what you need” philosophy provides value-conscious, long staying guests with a simple, unpretentious experience with just the right hotel amenities.

All suites provide in-room kitchens.

Guests have access to free high-speed internet, 24/7 laundry facilities and bi-weekly housekeeping.

Principal competitors include Extended Stay America, InTown Suites, HomeTowne Studios, and Studio 6.

WoodSpring Suites:

WoodSpring Suites hotels are value-engineered, purpose built new construction hotels that operate in the economy extended stay category.

WoodSpring guests typically stay longer than guests at a traditional hotel with stay occasions including relocations, traveling medical assignments, crew projects, and life circumstances necessitating alternatives to traditional hotels.

WoodSpring developers adhere to strict prototype/design specifications.

Every room is a suite with chairs or sofa, free premium movie channel, well-designed kitchen with full-size refrigerator, two-burner cooktop, and microwave oven.

Free high-speed internet and bi-weekly housekeeping is included.

Guests may purchase additional linen replacement/housekeeping services.

Most hotels are pet-friendly and offer a 24/7 guest laundry room.

Principal national competitors include Extended Stay America, HomeTowne Studios, MyPlace and Studio 6.

WoodSpring Suites are all new construction, value-engineered hotels that operate in the economy extended stay category.

WoodSpring developers adhere to strict prototype/design specifications and an operating model that embody WoodSpring’s promise of “It’s Simple.

Done Better.” Every suite includes a well-designed kitchen, seating area and free premium movie channel.

Guests have access to free high-speed internet, 24/7 laundry facilities and biweekly housekeeping.

Principal competitors include Extended Stay America, HomeTowne Studios, MyPlace and Studio 6.

Econo Lodge is Choice Hotel’s premiere economy brand, providing an “easy stop on the road” for value-oriented travelers.

Free high-speed internet, a premium movie channel and complimentary continental breakfast are just some of the amenities that position Econo Lodge as a great value in the economy category.

Free high-speed internet, bedside recharge outlets, refrigerators and free morning coffee are just some of the amenities that position Econo Lodge as a great value in the economy category.

The brand competes primarily with Days Inn, Super 8 and Red Roof Inn.

Rodeway Inn offers sensible lodging for travelers on a budget.

With free coffee to get guests started in the morning, free high-speed internet and a free premium movie channel, Rodeway is a great option for practical travelers looking for:

With free coffee to get guests started in the morning and free high-speed internet, Rodeway is a great option for practical travelers looking for:

Great Savings.” Principal competitor brands include Americas Best Value Inn and Motel 6.

The following table presents key statistics related to the domestic system for our brands over the five years ended December 31, 2019 :

The following table presents key statistics related to the domestic system for the Choice brands over the five years ended December 31, 2020.

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.

With the onset of the COVID-19 pandemic resulting in reduced travel and lesser demand, our franchisees began closing greater portions of inventory as compared to previous periods.

Additionally, the Company made minor revisions to the calculation of ADR with respect to complimentary rooms.

As of and For the Year Ended December 31,

2016 2017 2018 2019 2020

COMFORT DOMESTIC SYSTEM (4)

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Number of rooms, end of period 129,920 128,655 127,282 127,000 129,711

Royalty fees ($000) (1)

Royalty fees (in thousands) (1)

$ 149,554 $ 153,009 $ 153,013 $ 151,885 $ 98,164

Average occupancy percentage 62.7 % 63.5 % 62.7 % 62.2 % 46.1 %

ADR $ 94.34 $ 95.57 $ 96.17 $ 95.84 $ 83.72

RevPAR $ 59.12 $ 60.66 $ 60.30 $ 59.66 $ 38.58

QUALITY DOMESTIC SYSTEM

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Number of rooms, end of period 114,582 120,227 126,533 129,232 128,807

Royalty fees ($000) (1)

Royalty fees (in thousands) (1)

$ 69,799 $ 80,924 $ 90,128 $ 94,228 $ 66,052

Average occupancy percentage 53.2 % 54.3 % 54.4 % 54.1 % 41.8 %

ADR $ 78.60 $ 80.06 $ 80.82 $ 80.11 $ 72.13

RevPAR $ 41.79 $ 43.48 $ 43.95 $ 43.33 $ 30.16

CLARION DOMESTIC SYSTEM (5)

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Number of rooms, end of period 22,941 22,138 22,179 22,498 22,072

Royalty fees ($000) (1)

Royalty fees (in thousands) (1)

$ 12,137 $ 12,589 $ 12,798 $ 13,383 $ 7,991

Average occupancy percentage 51.1 % 51.3 % 50.3 % 49.5 % 32.9 %

ADR $ 83.31 $ 84.89 $ 85.14 $ 84.73 $ 73.37

RevPAR $ 42.54 $ 43.57 $ 42.85 $ 41.90 $ 24.15

SLEEP INN DOMESTIC SYSTEM

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Number of rooms, end of period 27,097 27,410 27,962 28,361 28,790

Royalty fees ($000) (1)

Royalty fees (in thousands) (1)

$ 21,925 $ 23,093 $ 24,003 $ 24,747 $ 16,771

Average occupancy percentage 61.8 % 62.5 % 61.9 % 61.1 % 46.2 %

ADR $ 82.87 $ 84.16 $ 85.66 $ 85.28 $ 75.92

RevPAR $ 51.18 $ 52.57 $ 52.99 $ 52.09 $ 35.08

MAINSTAY SUITES DOMESTIC SYSTEM

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Number of rooms, end of period 4,108 4,249 4,268 4,636 6,374

Royalty fees ($000) (1)

Royalty fees (in thousands) (1)

$ 2,909 $ 3,252 $ 3,669 $ 4,110 $ 3,427

Average occupancy percentage 60.7 % 64.4 % 65.4 % 64.0 % 55.6 %

ADR $ 77.19 $ 77.67 $ 83.82 $ 84.85 $ 77.14

RevPAR $ 46.83 $ 50.05 $ 54.83 $ 54.32 $ 42.86

ECONO LODGE DOMESTIC SYSTEM

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Number of rooms, end of period 52,791 51,233 50,692 48,538 47,023

Royalty fees ($000) (1)

Royalty fees (in thousands) (1)

$ 22,598 $ 23,867 $ 24,455 $ 24,510 $ 18,343

Average occupancy percentage 47.8 % 47.6 % 47.6 % 47.7 % 40.9 %

ADR $ 62.24 $ 63.68 $ 64.26 $ 63.75 $ 59.12

RevPAR $ 29.74 $ 30.31 $ 30.59 $ 30.44 $ 24.16

RODEWAY INN DOMESTIC SYSTEM

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Number of rooms, end of period 32,515 34,488 35,124 34,727 31,828

Royalty fees ($000) (1)

Royalty fees (in thousands) (1)

$ 7,010 $ 8,799 $ 9,772 $ 10,380 $ 8,980

Average occupancy percentage 49.3 % 49.3 % 49.2 % 49.0 % 43.6 %

ADR $ 63.99 $ 65.60 $ 65.36 $ 64.25 $ 59.48

RevPAR $ 31.53 $ 32.32 $ 32.15 $ 31.48 $ 25.94

SUBURBAN EXTENDED STAY HOTEL DOMESTIC SYSTEM

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Number of rooms, end of period 6,561 6,698 5,699 6,082 6,470

Royalty fees ($000) (1)

Royalty fees (in thousands) (1)

$ 3,511 $ 3,716 $ 3,725 $ 3,783 $ 3,483

Average occupancy percentage 69.0 % 69.3 % 69.4 % 66.9 % 63.6 %

ADR $ 50.39 $ 52.32 $ 56.47 $ 57.25 $ 51.44

RevPAR $ 34.76 $ 36.27 $ 39.18 $ 38.30 $ 32.73

CAMBRIA HOTEL DOMESTIC SYSTEM (2)

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Number of rooms, end of period 3,503 4,917 5,685 7,277 7,697

Royalty fees ($000) (1)

Royalty fees (in thousands) (1)

$ 4,955 $ 6,731 $ 8,872 $ 10,527 $ 5,574

Average occupancy percentage (2)

73.7 % 69.2 % 67.6 % 67.5 % 38.2 %

$ 132.70 $ 138.86 $ 148.10 $ 145.45 $ 112.30

$ 97.76 $ 96.08 $ 100.12 $ 98.12 $ 42.87

ASCEND HOTEL COLLECTION DOMESTIC SYSTEM

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Number of rooms, end of period 10,480 13,000 14,693 22,143 20,890

Royalty fees ($000) (1)

Royalty fees (in thousands) (1)

$ 5,985 $ 7,694 $ 10,085 $ 11,942 $ 7,275

Average occupancy percentage 65.8 % 61.8 % 60.8 % 61.2 % 43.4 %

ADR $ 128.23 $ 126.45 $ 125.31 $ 125.16 $ 116.52

RevPAR $ 84.37 $ 78.12 $ 76.23 $ 76.57 $ 50.59

WOODSPRING SUITES DOMESTIC SYSTEM (3)

Number of properties, end of period

Number of rooms, end of period

Royalty fees ($000) (1)

Number of properties, end of period N/A N/A 249 270 291

Number of rooms, end of period N/A N/A 29,911 32,479 35,020

Royalty fees (in thousands) (1)

N/A N/A $ 18,982 $ 21,901 $ 22,091

Average occupancy percentage (3)

N/A N/A 77.1 % 75.3 % 71.5 %

N/A N/A $ 45.89 $ 47.10 $ 46.16

N/A N/A $ 35.37 $ 35.46 $ 33.02

(1) Royalty fees exclude the impact of franchise agreement acquisition cost amortization.

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2018 and full year statistics for average occupancy percentage, ADR and RevPAR.

Includes Comfort family of brand extensions including Comfort and Comfort Suites.

(4) Includes Comfort family of brand extensions including Comfort Inn and Comfort Suites.

(5) Includes Clarion family of brand extensions including Clarion and Clarion Pointe.

International Franchise Operations

The Company conducts its international franchise operations through a combination of direct franchising and master franchising relationships.

Master franchising relationships are governed by master franchising agreements that generally provide the master franchisee with the right to use and sub-license the use of our brands in a specific geographic region, usually for a fee.

The Company conducts its international franchise operations through a combination of direct franchising and master franchising or master development (collectively, "master franchising") relationships.

Master franchising relationships are governed by agreements that generally provide the master franchisee with the right to use and sub-license the use of our brands in a specific geographic region, usually for a fee.

Our business strategy has been to conduct direct franchising in those international markets where both franchising is an accepted business model and we believe our brands can achieve significant distribution.

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When entering into master franchising relationships, we strive to select partners that have professional hotel and asset management capabilities together with the financial capacity to invest in building the Choice brands in their respective markets.

Master franchising relationships typically provide lower revenues to the Company as the master franchisees are responsible for managing certain necessary services (such as training, quality assurance, reservations and marketing) to support the franchised hotels in the master franchise area and therefore retain a larger percentage of the hotel franchise fees to cover their expenses.

Master franchising relationships typically provide lower revenues to the Company as the master franchisees are responsible for managing certain necessary services (such as training, quality assurance, reservations and marketing) to support the franchised hotels in the assigned development territory and, therefore, retain a larger percentage of the hotel franchise fees to cover their expenses.

In certain circumstances, the Company has and may continue to make equity investments in our master franchisees.

In some territories outside the United States hotel franchising is less prevalent, and many markets are served primarily by independent operators.

We believe that chain and franchise affiliation will increase in certain international markets as local economies grow and hotel owners seek the economies of centralized reservations systems and marketing programs.

We believe that international franchise operations will provide a significant long-term growth opportunity for the Company and as a result

we continue to invest in information technology and marketing which is expected to enhance the value proposition for prospective international franchisees.

The following chart and narrative summarizes our franchise system outside of the United States (1) :

In some territories outside the United States, hotel franchising has less prevalence in favor of independent operators.

We believe chain and franchise affiliation will increase in certain international markets as local economies grow and hotel owners seek the economies of centralized reservations systems and marketing programs.

We believe that international franchise operations will provide a long-term growth opportunity for the Company and as a result we continue to make investments which are expected to enhance the value proposition for prospective international franchisees.

The following chart summarizes our franchise system and operating results outside of the United States (1) .

The 2020 operating results were significantly impacted by the COVID-19 pandemic, and we anticipate impacts of the pandemic on international operating results to persist in 2021.

As of and For the Year Ended December 31,

2016 2017 2018 2019 2020

Number of properties, end of period 1,152 1,126 1,158 1,198 1,180

Number of rooms, end of period 111,624 112,558 119,080 127,924 133,295

Royalty fees ($000) (2)

Reporting of operating statistics (e.g., average occupancy percentage and average daily room rate) of international franchisees is not required by all master franchise contracts, thus these statistics and RevPAR are not presented for all international franchisees.

Royalty fees (in thousands) (2)

$ 19,887 $ 21,396 $ 22,005 $ 21,680 $ 12,358

(1) Reporting of operating statistics (i.e., average occupancy percentage, average daily room rate) of international franchisees is not required by all master franchise contracts, thus these RevPAR metrics are not presented for our international franchisees.

(2) Royalty fees exclude the impact of franchise agreement acquisition cost amortization.

The Company's direct franchising operations are primarily conducted in the following countries and territories.

Note, as of both December 31, 2020 and January 31, 2021, approximately 5% of the Company's international branded hotels temporarily suspended operations due to governmental restriction or a franchisee’s election.

The hotels online figures below include those with temporarily suspended operations.

Continental Europe.

The Company conducts direct franchising operations in Germany, Italy, Czech Republic, Austria and Hungary, and portions of Switzerland through Choice Hotels Licensing B.V.

The Company conducts direct franchising operations in Germany, Italy, Czech Republic, Austria and Hungary through Choice Hotels Licensing B.V.

("Choice BV"), a wholly-owned subsidiary, and in France, Portugal and Belgium through a wholly-owned subsidiary of Choice BV, Choice Hotels France SAS.

The Company also operates in Spain through a strategic alliance with Sercotel Hotels.

At December 31, 2019 , the Company had 199 franchised properties open and operating in continental Europe.

The Company also has an affiliation with properties in Spain through a strategic alliance with Sercotel Hotels.

At December 31, 2020, the Company had 176 franchised properties online in the Choice system in continental Europe.

United Kingdom .

The Company conducts direct franchising operations in the United Kingdom through Choice BV.

At December 31, 2019 , the Company had 33 franchised properties open and operating in the United Kingdom.

The Company conducts direct franchising operations in India through wholly-owned subsidiaries for the Comfort, Quality, Sleep and Clarion brands.

As of December 31, 2019 , the Company had 32 franchised properties open and operating in India.

At December 31, 2020, the Company had 29 franchised properties online in the United Kingdom.

The Company conducts direct franchising operations in India through wholly-owned subsidiaries for the Comfort, Quality and Clarion brands.

As of December 31, 2020, the Company had 35 franchised properties online in India.

The Company conducts direct franchising operations in Australia, New Zealand, and Singapore through a wholly-owned subsidiary, Choice Hotels Asia-Pac Pty.

As of December 31, 2019 , CHAP had 176 franchised properties open and operating in Australasia.

As of December 31, 2020, CHAP had 164 franchised properties online in Australasia.

The Company’s wholly-owned subsidiary Choice Hotels Mexico S.

("CHM") conducts direct franchising operations in Mexico on behalf of Choice BV, which acts as the franchisor in Mexico.

At December 31, 2019 , the Company had 55 franchised properties open and operating in Mexico.

The Company conducts direct franchising operations in Canada through its wholly-owned subsidiary, Choice Hotels International Licensing ULC, and had 2 properties open and operating at December 31, 2019 .

At December 31, 2020, the Company had 40 franchised properties online in Mexico.

The Company conducts direct franchising operations in Canada through its wholly-owned subsidiary, Choice Hotels International Licensing ULC, and had 2 properties online at December 31, 2020.

Other International Relationships .

The Company, through Choice BV, has direct franchise relationships with properties in Colombia, and Turkey.

At December 31, 2019 , 4 properties were open and operating in Colombia and 4 properties were open and operating in Turkey.

At December 31, 2020, 4 properties were online in Colombia and 4 properties were online in Turkey.

The Company also has an affiliation with properties in Mexico and Central America through a strategic alliance with AMResorts.

At December 31, 2020, 35 international properties are online in the Choice system through the strategic alliance.

The Company utilizes master franchising relationships primarily in the following countries and territories:

We conduct our operations in Scandinavia through a master franchise relationship with Nordic Choice Commercial Services A/S ("NCH"), formerly known as Choice Hotels Scandinavia.

As of December 31, 2019 , NCH had 203 open properties in its development territory, which includes Denmark, Norway and Sweden on an exclusive basis and Latvia, Lithuania and Finland on a non-exclusive basis.

As of December 31, 2020, NCH had 206 properties online in its development territory, which includes Denmark, Norway and Sweden on an exclusive basis and Lithuania and Finland on a non-exclusive basis.

The Company’s master franchise agreement with NCH grants rights to the Comfort, Quality, Sleep and Clarion brand and expires in 2023.

Through a separate agreement signed in 2010, NCH also possesses the right to franchise Ascend Hotel Collection hotels in its territory.

Through a separate agreement

signed in 2010, NCH also possesses the right to franchise Ascend Hotel Collection hotels in its territory.

This agreement also expires in 2023.

The Company conducts its operations in Japan through a master franchise relationship with Choice Hotels Japan Co.

CHJ possesses exclusive rights to develop the Comfort and Quality brands and non-exclusive rights to the Sleep and Clarion brands.

The Company’s master franchise agreement with CHJ was extended in 2019 and now expires in December 2033.

As of December 31, 2019 , CHJ had 63 open properties.

CHJ possesses exclusive rights to develop the Comfort brands and non-exclusive rights to the Sleep and Clarion brands.

The Company’s master franchise agreement with CHJ expires in December 2033.

As of December 31, 2020, CHJ had 64 properties online.

We conduct our operations in Canada for the majority of our brands through Choice Hotels Canada Inc.

("CHC"), a joint venture owned 50% by us and 50% by InnVest Management Holdings Ltd.

CHC is one of the largest lodging organizations in Canada with 329 of our franchised properties open and operating as of December 31, 2019 .

The Company is a party to a master franchising agreement with Luckwell Limited for the exclusive right to develop our Clarion, Quality and Comfort brands in Ireland and Northern Ireland.

CHC is one of the largest lodging organizations in Canada with 330 of our franchised properties online as of December 31, 2020.

The Company is a party to a master franchising agreement with Luckwell Limited for the exclusive right to develop our Clarion, Quality and Comfort brands in Ireland and a non-exclusive right in Northern Ireland.

The agreement also provides Luckwell Limited with limited rights to franchise Ascend Hotel Collection hotels in the territory.

The master franchise agreement with Luckwell Limited expires in 2027.

As of December 31, 2019, Luckwell Limited had 3 properties open and operating in Ireland and Northern Ireland.

As of December 31, 2020, Luckwell Limited had 3 properties online in Ireland and Northern Ireland.

South America.

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("Atlantica").

As of December 31, 2019 , Atlantica had 73 open properties in its development territory.

As of December 31, 2020, Atlantica had 66 properties online, all in Brazil.

The Company’s master franchise agreement with Atlantica grants rights to the Comfort, Quality, Sleep and Clarion brands, which rights are exclusive in Brazil and non-exclusive in Atlantica's remaining territory.

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We conduct our operations in certain Central American territories through a master franchise relationship with Real Hotels and Resorts, Inc.

As of December 31, 2019 , Real had 15 open properties in its development territory which consists of Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, and Panama.

As of December 31, 2020, Real had 14 properties online in its development territory which consists of Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, and Panama.

The Company’s master franchise agreement with Real grants rights to the Comfort, Quality, Sleep and Clarion brands.

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Through a separate agreement signed in 2011, we have also granted Real limited non-exclusive rights to franchise Ascend Hotel Collection hotels in Colombia, Costa Rica, Ecuador, Honduras and Panama.

Other International Relationships .

We also have non-exclusive master development and area representative arrangements in place with local hotel management and franchising companies doing business in China and Southeast Asia.

At December 31, 2019 , 7 properties were open and operating in China.

Master Development Agreement and Other International Relationships .

We also have non-exclusive master development and area representative arrangements in place with local hotel management and franchising companies doing business in China and Southeast Asia, and an exclusive master development agreement in the Kingdom of Saudi Arabia.

At December 31, 2020, 8 properties were online in China.

The following table presents key worldwide system size statistics as of and for the year ended December 31, 2020:

Open and Operational

Open and Operational Approved

for Development

Hotels Rooms Hotels Rooms

Comfort 2,134 175,719 291 25,069

Quality 2,006 162,786 66 5,725

Ascend Hotel Collection 355 46,888 52 4,118

Clarion 315 43,412 28 3,171

Sleep Inn 433 31,580 150 8,348

MainStay Suites 91 6,474 141 6,620

Everhome — — 8 891

Econo Lodge 834 49,611 18 1,325

Rodeway Inn 568 32,320 23 1,468

Suburban 66 6,470 17 927

Cambria Hotel 54 7,697 78 10,443

WoodSpring Suites 291 35,020 150 18,159

Totals 7,147 597,977 1,022 86,264

Franchise Sales

Brand growth is important to our business model.

The number of franchise agreements awarded in 2020 was significantly impacted by the COVID-19 pandemic, and we anticipate negative impacts to franchise sales activity to persist during the duration of the pandemic.

We have identified key market areas for hotel development based on supply/demand relationships and our strategic objectives.

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and, (v) franchisees of non-hotel related products such as restaurants.

Our franchise sales organization is structured to support the continued growth of the Company through awarding franchise agreements.

Our franchise sales organization is structured to support the continued growth of the Company through awarding franchise agreements with a focus on revenue-intense chain scales and markets.

The franchise sales organization employs both sales managers as well as franchise sales directors.

services, our training and support systems (including our proprietary property management systems) and our Company’s track record of delivering growth and profitability.

This organization emphasizes the benefits of affiliating with the Choice system, our commitment to helping hotels improve profitability, our central reservation delivery services, our marketing and customer loyalty programs, our revenue management services, our training and support systems (including our proprietary property management systems) and our Company’s track record of delivering growth and profitability.

Franchise sales directors are assigned to specific brands to leverage their brand expertise to enhance product consistency and deal flow.

Our sales managers ensure each prospective hotel is placed in the appropriate brand, facilitate teamwork and information sharing amongst the sales directors and provide better service to our potential franchisees.

The structure of this organization supports the Company’s efforts to leverage its core strengths in order to take advantage of opportunities for further growth.

Integrating our brands and strategies allow our brand teams to focus on understanding, anticipating and meeting the unique needs of our customers.

Our objective is to continue to grow our portfolio by continuing to sell our existing brands, creating extensions of our existing brands and introducing new brands, either ourselves or via acquisition, within the various lodging categories.

Based on market conditions and other circumstances, we may offer certain incentives to developers to increase development of our brands such as discounting various fees including the initial franchise fee, royalty fee and system fee as well as provide financing for property improvements and other purposes.

The structure of this organization integrates our brands and strategies, and allows our brand teams to focus on understanding, anticipating and meeting the unique needs of our customers.

Our objective is to continue to strategically grow our portfolio by selling the Choice brands spanning the various lodging categories.

Based on market conditions and other circumstances, we may offer certain incentives to developers to increase development of our brands, such as discounting various fees including the initial franchise fee, royalty fee and system fee, and providing franchise agreement acquisition payments to support development, property improvements and other hotel expenditures.

Because retention of existing franchisees is important to our growth strategy, we have a formal impact policy.

For most of our brands, this policy offers existing franchisees protection from the opening of a same-brand property within a specified distance, depending upon the market in which the property is located.

This policy offers existing franchisees protection from the opening of a same-brand property within a specified distance, depending upon the market in which the property is located.

The policy applies to most, but not all, of the Choice brands.

Investment, Financing and Guaranty Franchisee Support

Our board of directors authorized a program which permits us to offer financing, investment, and guaranty support to qualified franchisees as well as allows us to acquire and resell real estate to incent franchise development for certain brands in strategic markets.

We deploy capital pursuant to this program opportunistically to promote growth of our emerging brands.

We deploy capital pursuant to this program opportunistically to promote growth of the brand.

The amount and timing of the investment in this program will be dependent on market and other conditions and we generally expect to recycle these investments within a five year period.

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We also have the right to terminate a franchise agreement if a franchisee fails to bring the property into compliance with contractual or quality standards within specific time periods.

The franchise agreements also typically contain liquidated damages provisions which represent a fair and reasonable measure of damages that both our franchisee and we agree should be paid to us upon an early termination of the franchise agreement.

The Company utilizes master development agreements (“MDA”) with respect to the WoodSpring Suites brand (and on occasion other brands).

In exchange for a non-refundable fee, developers are provided geographic exclusivity to enter into a specified number of franchise agreements and develop WoodSpring Suites properties.

The upfront fees received on signing of the MDA are allocable to the affiliation fees due upon the execution of each franchise agreement between the parties in the regions covered by the MDA.

The franchise agreements typically contain liquidated damages provisions addressing franchisee termination at intervals other than those specified in the agreement which represent a fair and reasonable measure of damages that both parties agree should be paid to us.

The Company utilizes master development agreements (“MDA”) with respect to the WoodSpring Suites and Everhome Suites brands (and on occasion other brands).

In exchange for a non-refundable fee, developers are provided geographic exclusivity to enter into a specified number of franchise agreements and develop properties of the specified brand.

The upfront fees received on signing of the MDA are non-refundable and are allocable to the affiliation fees due upon the execution of each franchise agreement between the parties in the regions covered by the MDA.

The MDA specifies development schedules the developer must maintain;

if not met, the Company can terminate the geographic exclusivity, however the upfront fees remain allocable to future franchise agreement affiliation fees as long as the MDA remains in effect.

When the responsibility for development is transferred to an international master franchisee, that party has the responsibility to develop and grow our brands in the international master franchise area.

Additionally, the international master franchisee generally must manage the delivery of certain necessary services (such as quality assurance, reservations and marketing) to support the franchised hotels in the international master franchise area.

When the responsibility for development is transferred to a master franchisee in an international market, that party has the responsibility to develop and grow our brands in the covered region.

The international master franchisee generally must manage the delivery of certain necessary services (such as quality assurance, reservations and marketing) to support the franchised hotels in the covered region.

The international master franchisee collects the fees paid by the local franchisee and remits an agreed upon share to us.

International master franchise agreements generally have a term of at least 10 years.

We have only entered into international master franchise agreements with respect to franchised hotels outside the United States.

Franchise agreements are generally individually negotiated and vary among the different Choice brands and franchises, but we believe they are competitive with the industry standard within their market group.

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a royalty fee;

and a system fee (for marketing and reservation system).

and a system fee (for the marketing and reservation system).

Our standard franchise fees are as follows:

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Initial Fee Per

Relicensing and Renewal Fee Per Room/Minimum

Royalty Fees (1)

Room/Minimum Relicensing and Renewal Fee Per Room/Minimum Royalty Fees (1)

Marketing and Reservation System

Cambria Hotels $500/$60,000 $750/$65,000 6.00 % 3.00 %

Ascend Hotel Collection

Comfort $500/$50,000 $750/$65,000 6.00 % 3.50 %

Quality Inn $400/$40,000 $550/$45,000 5.25 % 3.50 %

Ascend Hotel Collection $525/$45,000 N/A/$45,000 5.00 % 2.50 %

Clarion $300/$40,000 $550/$45,000 5.00 % 3.00 %

Clarion Pointe $400/$40,000 $650/$45,000 5.50 % 3.25 %

Sleep Inn $300/$40,000 $550/$45,000 5.50 % 3.50 %

MainStay Suites (2)

$300/$50,000 $550/$30,000 6.00 % 2.50 %

Econo Lodge $250/$25,000 $500/$35,000 5.00 % 3.00 %

Rodeway Inn $125/$15,000 $375/$15,000 5.00 % 3.00 %

Suburban Extended Stay Hotel (2)

WoodSpring Suites

$225/$30,000 $475/$30,000 6.00 % 2.50 %

WoodSpring Suites N/A/$50,000 N/A/$50,000 6.00 % 2.50 %

Everhome Suites (3)

$300/$50,000 $550/$50,000 6.00 % 2.50 %

(1) Fees are based on a percentage of gross room revenue.

For dual brand hotels that combine either the Mainstay Suites or Suburban Extended Stay Hotel brand with another Choice brand, we may increase the System Fee up to the standard amount for such other Choice brand.

As previously noted, the Company’s franchise agreements are generally individually negotiated and therefore actual fees may differ from those noted above.

From time to time, the Company may discount the standard royalty fees and/or system fees in the initial years of the agreement as a franchisee acquisition strategy.

(2) For dual brand hotels that combine either the Mainstay Suites or Suburban Extended Stay Hotel brand with another Choice brand, we may increase the Royalty Fee and/or System Fee up to the standard amount for such other Choice brand.

(3) The initial fee is $50,000 for properties with 113 rooms or less.

Each additional room is $300/per room for initial fees and $550/per room for transfers or renewals.

The Company’s franchise agreements are generally individually negotiated and, therefore, actual fees may differ from those noted above.

From time to time, the Company may discount the standard Royalty fee and/or System fee in the initial years of the agreement as a franchisee acquisition strategy.

Typically, these discounts expire as the contract matures until the contractual fees reach the standard franchise fees in effect at the time the agreement was executed.

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Our marketing and advertising programs are designed to heighten consumer awareness and preference for our brands as offering the greatest value and convenience in the lodging categories in which we compete.

Marketing and advertising efforts include national television, internet and radio advertising, on-line advertising, social media/digital advertising, print advertising in consumer and trade media and promotional events, including joint marketing promotions with qualified vendors and corporate partners.

We also actively seek to maximize our presence on the internet by purchasing key search related terms from the various search engine providers to help ensure that our franchisees' hotels are prominently displayed to all potential guests.

We conduct numerous marketing and sales programs and deploy field-based sales agents which target specific groups, including business travelers, senior citizens, automobile club members, families, government and military employees, educational organizations and meeting planners.

Other marketing efforts include domestic and international trade show

programs, publication of group and tour rate directories, direct-mail programs, electronic direct marketing e-mail programs, centralized commissions for travel agents, fly-drive programs in conjunction with major airlines, and the publication of electronic travel and vacation directories.

We operate a loyalty program, Choice Privileges, for all of the Choice brands to attract and retain travelers by rewarding stays with points towards free hotel nights and other rewards.

Choice Privileges participants can earn points redeemable for free nights at Choice brand properties and through our partners that also provide travel related accommodations.

The loyalty program also offers guests the ability to earn airline miles for qualifying stays redeemable for flights with various airline partners as well as redeem points for gift certificates at participating retailers.

These programs allow us to conduct lower cost, more targeted marketing campaigns to our consumers, help us deliver business to our franchised hotels and are an important selling point for our franchise sales personnel.

Marketing and advertising efforts include national television, social media and digital advertising, online radio advertising, print advertising in trade media, and

promotional events which include joint marketing promotions with qualified vendors and corporate partners.

We also actively seek to reach travelers who are shopping for travel online by purchasing key search related terms and meta search ads from the various search engine providers to help ensure that our franchisees' hotels are prominently displayed to potential guests.

We conduct numerous marketing and sales programs and deploy field-based sales agents which target corporate, travel agency and group sales including business travelers, senior citizens, automobile club members, government and military employees, educational organizations, and meeting planners.

Other marketing efforts include domestic and international trade show programs, targeted marketing campaigns (including print, digital, and social media), direct-mail programs, marketing e-mail programs, and centralized commissions for travel agents.

We operate a loyalty program, Choice Privileges, for all the Choice brands (except WoodSpring Suites) to attract and retain travelers by rewarding stays with points towards free hotel nights at Choice brand properties and through our partners that provide travel related accommodations.

The loyalty program also offers guests the ability to redeem points for gift certificates at participating retailers, and earn airline miles from qualifying stays redeemable for flights with various airline partners.

These programs allow us to conduct lower cost, more targeted marketing campaigns to our consumers;

help us deliver business to our franchised hotels;

and are an important selling point for our franchise sales personnel.

The Choice Privileges program had approximately 47 million members worldwide as of December 31, 2020.

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These consultants advise franchisees on topics such as marketing their hotels, improving quality and maximizing the benefits offered by the Choice reservations system.

Our proprietary property management system includes a rate and selling management tool to help our franchisees better manage rates and inventory which are designed to help them improve RevPAR by optimizing ADR and occupancy.

In addition, we offer revenue management services to our franchisees to assist them in maximizing their room rates and minimize costs of reservation delivery.

Our proprietary property management system, choiceADVANTAGE, includes a rate and selling management tool to help our franchisees better manage rates and inventory which are designed to help them improve RevPAR by optimizing ADR and occupancy.

In addition, we offer revenue management services to our franchisees to assist them in optimizing their room rates and minimizing costs of reservation delivery.

Central Reservation System ("CRS") .

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These agreements typically offer our brands preferred placement on these third-party sites at reduced transaction fees.

We continue to educate our individual franchisees about the risk of an unfavorable impact to their business of contracting with sites with which we do not have preferred agreements.

We continue to educate our individual franchisees about the risk of an unfavorable impact to their business from contracting with sites with

which we do not have preferred agreements.

We currently have agreements with many, but not all, major online third-party booking sites.

We also continue to upgrade our technology to ensure that our CRS can effectively handle the current and future volume on digital channels and support the industry's shift toward accelerated digital communications and guest experience personalization.

In support of these initiatives, in the first quarter of 2018, the Company transitioned to choiceEDGE, a cloud-

based software developed by the Company to manage all distribution for the Company by optimizing rate, inventory, availability, shopping, booking and reservations for its website, mobile apps and third-party distribution partners.

In support of these initiatives, in the first quarter of 2018, the Company transitioned to choiceEDGE, a cloud-based software developed by the Company to manage all distribution for the Company by optimizing rate, inventory, availability, shopping, booking and reservations for its website, mobile apps and third-party distribution partners.

Property Management Systems .

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choiceADVANTAGE synchronizes each hotel’s inventory with our central reservation system, giving our reservation sales agents and other proprietary channels last room sell capabilities at every hotel.

Our property management system also includes a proprietary revenue management feature ("SmartRates") that calculates and suggests optimum rates based on each hotel’s past performance and projected occupancy.

Our property management system also includes a proprietary revenue management feature that calculates and suggests optimum rates based on each hotel’s past performance and projected occupancy.

These tools are critical to business delivery and yield improvement as they facilitate a franchisee's ability to effectively manage hotel operations, determine appropriate rates, help drive occupancy and participate in our marketing programs.

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We have established quality standards for all of our franchised brands that cover cleanliness, condition, brand standards and minimum service offerings.

We inspect most properties for compliance with our quality standards when application is made for admission to the franchise system.

We inspect most properties for compliance with our quality standards before allowing a property to open as one of our franchised brands.

The compliance of existing franchisees with quality standards is monitored through scheduled and unannounced quality assurance reviews conducted by a third-party periodically at the property and through the use of guest surveys.

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We offer an interactive computer and mobile-based training system to help train hotel employees in real-time as well as at their own pace.

Additional training is conducted through a variety of methods, including group instruction seminars and live on-line instructor-led programs.

Additional training is conducted through a variety of methods, including group instruction seminars and live online instructor-led programs.

Opening Services .

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Department personnel assist franchisees in meeting our brand specifications by providing technical expertise and cost-savings suggestions.

Competition among franchise lodging brands is intense in attracting potential franchisees, retaining existing franchisees and generating reservations for franchisees.

Competition among franchise lodging brands is strong with regard to attracting potential franchisees, retaining existing franchisees and generating reservations for franchisees.

Franchise contracts are typically long-term in nature, but most allow either the hotel owner or the Company to opt-out of the agreement at mutually agreed upon anniversary dates.

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We also believe that hotel operators select a franchisor in part based on the franchisor’s reputation among other franchisees and the success of its existing franchisees.

Since our franchising revenues are based on franchisees’ gross room revenues or number of rooms, our prospects for growth are largely dependent upon the ability of our franchisees to compete in the lodging market, our ability to return existing franchises, our ability to convert competitor franchises and independent hotels to our brands and the ability of existing and potential franchisees to obtain financing to construct new hotels.

Since our franchising revenues are generated primarily from a percentage of franchisees’ gross room revenues, our prospects for growth are largely dependent upon the ability of our franchisees to compete in the lodging market, our ability to retain existing franchises, our ability to convert competitor franchises and independent hotels to our brands and the ability of existing and potential franchisees to obtain financing to construct new hotels.

The ability of a hotel to compete may be affected by a number of factors, including the location and quality of the property, the abilities of the franchisee, the number and quality of competing lodging facilities nearby, its affiliation with a recognized name brand and general regional and local economic conditions.

We believe the effect of local economic conditions on our results is

substantially reduced by our range of products and room rates and the geographic diversity of our franchised properties, which are open and operating in 50 states, the District of Columbia and over 40 countries and territories outside the United States.

While the COVID-19 pandemic has significantly impacted the operating results of the Company in 2020, we generally believe the effect of local economic conditions on our results is substantially reduced by our range of products and room rates and the geographic diversity of our franchised properties, which are open and operating in 50 states, the District of Columbia and over 40 countries and territories outside the United States.

We believe that our focus on core business strategies, combined with our financial strength and size, geographic diversity, scale and distribution will enable us to remain competitive.

Service Marks and Other Intellectual Property

The service marks Choice Hotels International, Comfort Inn, Comfort Suites, Quality, Clarion, Clarion Pointe, Sleep Inn, Econo Lodge, Rodeway Inn, MainStay Suites, Cambria Hotels, Suburban Extended Stay Hotel, Ascend Hotel Collection, WoodSpring Suites, Everhome Suites, Choice Privileges, and related marks and logos are material to our business.

The service marks Choice Hotels, Comfort Inn, Comfort Suites, Quality, Clarion, Clarion Pointe, Sleep Inn, Econo Lodge, Rodeway Inn, MainStay Suites, Cambria, Suburban Extended Stay Hotel, Ascend Hotel Collection, WoodSpring Suites, Everhome Suites, Choice Privileges, and related marks and logos are material to our business.

We, directly and through our franchisees, actively use these marks.

All of the material marks are registered with the United States Patent and Trademark Office.

In addition, we have registered certain of our marks with the appropriate governmental agencies in the countries where we are doing business or anticipate doing business in the foreseeable future.

All of the material marks are registered or have registrations pending with the United States Patent and Trademark Office.

We seek to protect our brands and marks throughout the world, although the strength of legal protection available varies from country to country.

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The hotel industry is seasonal in nature.

For most hotels, demand is lower in November through February than during the remainder of the year.

For most hotels, demand is lower from November through February than during the remainder of the year.

Our principal source of revenues is franchise fees based on the gross room revenues of our franchised properties.

The Company's franchise fee revenues reflect the industry's seasonality and historically have been lower in the first and fourth quarters than in the second and third quarters.

The Federal Trade Commission ("FTC"), various states and certain other foreign jurisdictions (including Australia, France, Canada, and Mexico) regulate the sale of franchises.

The FTC requires franchisors to make extensive disclosure to prospective franchisees but does not require registration.

A number of states in which our franchisees operate require registration and disclosure in connection with franchise offers and sales.

In addition, several states have "franchise relationship laws" that, among other things, limit the ability of the franchisor to terminate franchise agreements or to withhold consent to the renewal or transfer of these agreements.

While our franchising operations have not been materially adversely affected by such regulations, we cannot predict the effect of future regulation or legislation.

However, as a result of the COVID-19 pandemic, historical trends may not be reliable to predict future performance.

Our business subject to various U.S.

and international regulations, including regulations of the Federal Trade Commission ("FTC"), various states and certain other foreign jurisdictions (including Australia, France, Canada, and Mexico) that relate to the sale of franchises.

The FTC requires franchisors to make extensive disclosure to prospective franchisees and a number of states in which our franchisees operate require registration and disclosure in connection with franchise offers and sales.

Our franchisees are responsible for compliance with all laws and government regulations applicable to the hotels they own or operate.

The lodging industry is subject to numerous federal, state and local government regulations, including those relating to the preparation and sale of food and beverage (such as health and liquor license laws), building and zoning requirements and laws governing employee relations, including minimum wage requirements, overtime, working conditions and work permit requirements.

In addition, our business is subject to numerous federal, state and local government regulations, including those relating to the preparation and sale of food and beverages (such as health and liquor license laws), safety and health standards, building and zoning requirements, tax laws, and laws governing employee relations, including minimum wage requirements, overtime, working conditions and work permit requirements.

Further, we are also subject to various U.S.

and international privacy and data protections laws, including the California Consumer Protection Act and the European Union General Data Protection Regulation.

Impact of Inflation and Other External Factors

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A weak economy could also reduce demand for new hotels, negatively impacting the franchise fees received by us.

Among other unpredictable external factors, which may negatively impact us, are wars, acts of terrorism, pandemic, airline strikes, gasoline shortages, severe weather and the risks described below under the Item 1A.

Among other unpredictable external factors, which may negatively impact us, are wars, acts of terrorism, pandemics, airline strikes, gasoline shortages, severe weather and the risks described below under the Item 1A.

Risk Factors.

We employed approximately 1,807 people in our global operations as of February 14, 2020 .

None of our employees are represented by unions or covered by collective bargaining agreements.

We consider our relations with our employees to be good.

Human Capital Management

The strength of our people is one of our greatest assets as a franchisor.

We seek to attract and retain the best talent in the hospitality, franchising, and technology industries and provide an open and inclusive environment.

We believe these objectives will yield a high performing organization that drives positive business outcomes for the Company, our shareholders, and our franchisees.

Our board of directors provides oversight on certain human capital matters, including through its Diversity Committee that seeks to assist and advise management and the board of directors in developing a workplace culture that values working with diverse groups of people, offering diversity of thought and perspective.

Career Development

We empower our 1,498 associates across the globe to advance their careers by providing a career framework that allows them to understand and proactively manage their career path potential.

Guided by a personalized development plan, each associate is empowered to identify and develop the skills and competencies necessary to prepare for their next, and future, desired roles.

As of December 31, 2020, the Company has 1,353 domestic and 145 international employees.

Leadership development programs offer level specific career-building experiences, increasing the potential for broader levels of responsibility and leadership.

These programs focus on competency-based self-development, creating customized action plans to grow and develop leaders, and the transformation of functional managers to business leaders, increasing their potential for broader levels of leadership responsibility.

The Company conducts talent review and succession planning discussions across all leadership levels.

These are conducted with the board of directors semi-annually, focusing primarily on senior leadership levels.

Further, eleven Corporate Resource Groups (“CRGs”) allow groups of associates to join together based on shared characteristics, life experiences or interests.

The CRGs are open to all associates to join.

CRGs provide support, enhance career development, contribute to personal development, and provide networking opportunities.

Choice Culture and Diversity

At Choice, we are committed to nurturing an environment where every associate feels welcome, wanted, and respected – that’s our brand promise.

Part of how we deliver on this promise is by weaving deliberate diversity initiatives throughout all levels of the enterprise, focusing on three core commitments:

• Diversity – Ensuring that the Choice workforce is an authentic representation of the world we live in where associates from different backgrounds may thrive.

• Equity - Providing fair and competitive pay regardless of gender, race, or other demographics.

• Trust, Belonging, and Engagement – Fostering a culture of belonging where associates are inspired and engaged and feel welcome, wanted, and respected.

At the end of fiscal year 2020, our domestic workforce was 35% diverse and 43% female.

Our leadership, defined as Senior Director level and above was 11% diverse and 38% female.

For these purposes, we define diverse as the self-identified demographic categories of Black, Hispanic, Asian, and other.

We are committed to providing fair and competitive pay.

To ensure that we are delivering on our commitment to equitable compensation decisions, Choice conducts a gender and diversity pay parity study annually on all U.S.

based roles and reports the results of this analysis to the board of directors.

During 2020, we conducted this analysis and promptly resolved discrepancies identified between diverse / female base salary versus non-diverse / male base salary for positions of similar value (i.e., by career track, level, and salary grade) that cannot be sufficiently explained by the level of experience, performance, or other pay-related attributes.

The board of directors biannually reviews a diversity report focused on success against the Company’s annual diversity, equity, belonging objectives in workplace practices, franchisee development, advertising and marketing goals.

The board of directors also receives updates on the Diversity Advisory Council (“DAC”), CRGs, and general inclusion activities.

Our Diversity Framework that supports all our efforts is shown below.

The Company is proud to have been named as one of the Best Employers for Diversity, as well as one of the Best Employers for Veterans in 2020 by Forbes magazine.

The Company has also been named one of the "Best Places to Work for People with Disabilities” with a top score in the 2020 Disability Equality Index and “Best Places to Work for LGBTQ Equality” with a 100% Corporate Equality Index designation from the Human Rights Campaign in 2020.

The Company offers a generous benefits package including a 401(k) matching program, paid family leave, paid caregiver leave, a monthly fitness subsidy, commuter benefits, a legal services plan, charitable gift matching, a LEED certified workspace, and paid volunteer leave.

COVID-19 Related Human Resource Matters

2020 was obviously an unusual year.

The COVID-19 pandemic had a significant impact on our 2020 human capital management.

As of December 31, 2019, the Company employed 1,833 associates;

on December 31, 2020, the Company employed 1,498 associates, resulting in a year-over-year reduction of 18% of its workforce.

Given the cost management required to effectively respond to the pandemic and the accompanying economic slowdown, Choice rightsized its workforce, evaluating key positions and re-prioritizing associate focus on matters that most effectively supported franchisees and drove targeted business outcomes.

One of our highest priorities has been to safeguard the physical health and emotional well-being of our associates, all of whom showed incredible dedication to the needs of our franchisees, guests, and each other amid rapidly evolving circumstances all while caring for their own families.

Key features include mental health support, including employee assistance and financial wellness programs, as well as creating opportunities for belonging and connections within the organization.

Information about our Executive Officers

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The business address of each executive officer is 1 Choice Hotels Circle, Suite 400, Rockville, Maryland 20850.

Name Age Position

74 Chairman of the Board of Directors

President and Chief Executive Officer

Chief Financial Officer

Chief Development Officer

Senior Vice President, General Counsel, Corporate Secretary & External Affairs

Senior Vice President, Enterprise Operations and Technology

Robert McDowell

Chief Commercial Officer

Chief Human Resources Officer

Senior Vice President, Finance and Chief Accounting Officer

Pacious 54 President and Chief Executive Officer

Dragisich 38 Chief Financial Officer

Pepper 53 Chief Development Officer

Simone Wu 55 Senior Vice President, General Counsel, Corporate Secretary & External Affairs

Bonds 49 Senior Vice President, Enterprise Operations and Technology

Robert McDowell 54 Chief Commercial Officer

Cimerola 52 Chief Human Resources Officer

Oaksmith 49 Senior Vice President, Real Estate and Finance

Director from 1977 to 1996 and since 1997, serving as Chairman of the Board from March 1987 to November 1996 and since October 1997;

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He was Senior Vice President, Development from January 2005 until December 2005.

President, Franchise Sales from June 2002 until January 2005.

He was Vice President, Franchise Sales from June 2002 until January 2005.

Prior to joining the Company, he was Vice President, Franchise Sales with U.S.

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She was Senior Vice President, General Counsel, Corporate Secretary & Chief Compliance Officer from 2012 to 2015.

Prior to joining the Company in 2012, she was employed by XO Communications and its affiliates as Executive Vice President, General Counsel and Secretary from 2011 until 2012, Senior Vice President, General Counsel and Secretary from 2006 to 2011, Vice President, the acting General Counsel and Secretary from 2005 to 2006, Vice President and Assistant General Counsel from 2004 until 2005, and Senior Corporate Counsel from 2001 until 2004.

acting General Counsel and Secretary from 2005 to 2006, Vice President and Assistant General Counsel from 2004 until 2005, and Senior Corporate Counsel from 2001 until 2004.

Before that she was Vice President of Legal and Business Affairs at LightSource Telecom, held legal and business positions at MCI and AOL, and began her legal career in 1989 at Skadden, Arps, Slate, Meagher & Flom.

Wu serves on the Board of Alarm.com.

Senior Vice President, Enterprise Operations and Technology since September 2017.

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He was Vice President, Corporate Strategy from March 2011 to December 2012.

Prior to joining the Company in 2006, he was employed by Navigant Consulting from 2003 to 2006, BearingPoint from 2002 to 2003 and Arthur Andersen Business Consulting from 1999 to 2002.

Prior to joining the Company in 2006, he was employed by Navigant Consulting from 2003 to 2006, BearingPoint Inc.

from 2002 to 2003 and Arthur Andersen Business Consulting from 1999 to 2002.

Robert McDowell.

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He was Senior Vice President, Marketing and Distribution from May 2011 until January 2016.

Prior to joining the Company, he was employed by United Airlines from 1995 to 2006 and 2006 to 2011 as Managing Director of Distribution and eCommerce and C&H International as Chief Operating Officer from January 2007 to December 2007.

Prior to joining the Company, he was employed by United Airlines from 1995 to 2006.

He joined C+H International as Chief Operating Officer from January to December 2007.

He rejoined United Airlines January 2008 to 2011 as Managing Director of Distribution and eCommerce.

Chief Human Resources Officer since 2015.

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Director of Human Resources from January 2002 to January 2003.

Senior Vice President, Finance & Chief Accounting Officer since May 2016 and Controller of the Company from September 2006 until May 2016.

He was Senior Director & Assistant Controller of Choice from February 2004 to September 2006.

He was Director, Marketing and Reservations, Finance from October 2002 until February 2004.

Senior Vice President, Real Estate and Finance since March 2020.

He was Senior Vice President, Finance & Chief Accounting Officer from May 2016 to March 2020.

He was Controller of the Company from September 2006 until May 2016, was Senior Director & Assistant Controller of Choice from February 2004 to September 2006, and was Director, Marketing and Reservations, Finance from October 2002 until February 2004.

Prior to joining the Company, he was employed by American Express Tax & Business Services, Inc.

1 unchanged sentence

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-K

Item 1. Business