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Item 7. Management’s Discussion and Analysis

2021-02-26 compared with 2020-03-02 · 425 added, 288 removed, 309 unchanged (70% of the section changed)

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The following Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand the consolidated financial condition and results of operations of Choice Hotels International, Inc.

and its subsidiaries (together the "Company") contained in this report.

MD&A is provided as a supplement to—and should be read in conjunction with—our consolidated financial statements and accompanying notes.

and its subsidiaries (together the "Company", "we", "us", or "our") contained in this report.

MD&A is provided as a supplement to — and should be read in conjunction with — our consolidated financial statements and the accompanying notes.

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 to 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 more than 40 countries and territories outside the United States.

The Choice brands include 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.

On February 1, 2018, the Company acquired all of the issued and outstanding equity interests of the previous franchisor of the WoodSpring Suites brand and at acquisition had 239 hotels comprising 28,680 rooms operating in the economy extended stay segment in 35 states in the United States.

The acquisition allowed the Company to accelerate its growth in the economy extended stay segment.

The transaction was accounted for as a business combination and the results from the acquisition have been consolidated within the Company's hotel franchising segment since February 1, 2018.

Our brand names include Comfort Inn®, Comfort Suites®, Quality®, Clarion®, Clarion Pointe TM , 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.

We expect to open the first Everhome Suites hotel in 2021.

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.

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

master franchising or master development (collectively, "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.

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

As a result of master

franchise relationships and international market conditions, our revenues are primarily concentrated in the United States.

As a result of master franchise relationships and international market conditions, our revenues are primarily concentrated in the United States.

Therefore, our description of our business is primarily focused on the domestic operations, which encompasses the United States and Caribbean countries and territories.

Our Company generates revenues, income and cash flows primarily from our franchising operations and the initial, relicensing and continuing royalty fees attributable to our franchise agreements.

Revenues are also generated from five owned hotels, partnerships with qualified vendors and travel partners that provide value-added solutions to our platform of guests and over 7,000 hotels and other sources.

The hotel industry is seasonal in nature.

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

Revenues are also generated from five owned hotels, partnerships with qualified vendors and travel partners that provide value-added solutions to our platform of guests, hotels, and other sources.

Historically, the hotel industry has been seasonal in nature.

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

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

The Company’s franchise fee revenues, as well as its owned hotels, reflect the industry’s seasonality and historically have been lower in the first and fourth quarters than in the second and third quarters.

The Company’s franchise fees, as well as its owned hotels revenues, normally reflect the industry’s seasonality and historically have been lower in the first and fourth quarters than in the second and third quarters.

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

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 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 Company currently estimates, based on its current domestic portfolio of hotels under franchise, that a 1% change in revenue per available room ("RevPAR") or rooms under franchise would increase or decrease royalty revenues by approximately $3.7 million and a 1 basis point change in the Company’s effective royalty rate would increase or decrease annual domestic royalties by approximately $0.8 million .

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

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

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The number of rooms in our hotel system and the occupancy and room rates at those properties significantly affect the Company’s results because our fees are based upon room revenues or the number of rooms at owned and franchised hotels.

All of these factors have been 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.

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 below under the heading "Operations Review".

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

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

While we 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.

We believe that executing our strategic priorities creates value for our shareholders.

Our Company focuses on two key goals:

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 we execute against to create value for our shareholders over the long-term.

These key long-term goals are as follows:

Profitable Growth.

Our success is dependent on improving the performance of our hotels, increasing our system size by selling additional hotel franchises, improving our effective royalty rate, expanding our qualified vendor programs and travel related partnerships and maintaining a disciplined cost structure.

We attempt to improve our revenues and overall profitability by providing a variety of products and services designed to increase business delivery to and/or reduce operating and development costs.

Our success is dependent on improving the performance of our hotels, increasing our system size by selling additional hotel franchises with a focus on revenue-intense chain scales and markets, improving our effective royalty rate, expanding our qualified vendor programs and travel related partnerships and maintaining a disciplined cost structure.

As noted above, we have introduced several temporary measures designed to assist franchisees during the COVID-19 pandemic.

We attempt to improve our revenues and overall profitability by providing a variety of products and services designed to increase business delivery and/or reduce operating and development costs.

These products and services include national marketing campaigns, maintaining a guest loyalty program, a central reservation system, property and yield management programs and systems, revenue management services, quality assurance standards, qualified vendor relationships and expanding our partnerships with other travel related companies that provide services to our franchisees and guests.

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This ensures that we have brands suitable for creating growth in a variety of market conditions.

Improving the performance of the hotels in our system,

growing the system through additional franchise sales and improving franchise agreement pricing while maintaining a disciplined cost structure are the keys to profitable growth.

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

As disclosed above, the Company's hotels have and are presently continuing to experience significant declines in occupancy and RevPAR and there remains a subset of hotels with temporarily suspended operations resulting from the impacts of the COVID-19 pandemic.

These declines and suspended operations have impacted the profitability of the Company in 2020 and will impact the Company for as long as the COVID-19 pandemic is significantly impacting travel.

Maximizing Financial Returns and Creating Value for Shareholders.

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 that provides us a competitive advantage.

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

Historically, we have returned value to our shareholders through share repurchases and dividends.

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

During the year ended December 31, 2019 , the Company purchased 0.6 million shares of common stock under the share repurchase program at a total cost of $44.1 million .

Since the program's inception through December 31, 2019 , we have 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 has repurchased 84.1 million shares at an average price of $17.15 per share.

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

At December 31, 2019 , we had approximately 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 repurchase authorization.

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.

During the 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, beginning with the dividend payable in the first quarter of 2020.

During the year ended December 31, 2019 , we paid cash dividends totaling approximately $48.1 million .

We expect to continue to pay dividends in the future, subject to declaration by our board of directors as well as future business performance, economic conditions, changes in income tax regulations and other factors, including limitations in the Company's unsecured credit facility.

Based on the present outstanding share count and annual dividend rate of $0.90 per common share outstanding, we expect that aggregate annual regular dividends for 2020 would be approximately $50.1 million .

We believe our historically strong and predictable cash flows create a strong financial position that provides us a competitive advantage.

We maintain a capital structure intended to generate high financial returns and use our excess cash flow to provide returns to our shareholders primarily through share repurchases, dividends and investing in growth opportunities.

In light of uncertainty resulting from the COVID-19 pandemic, 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.

Notwithstanding investments in these alternative growth strategies, the Company expects to continue to return value to its shareholders over time through a combination of share repurchases and dividends.

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.

We believe our growth investments and strategic priorities, when properly implemented, will enhance our profitability, maximize our financial returns and continue to generate value for our shareholders.

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The Company is obligated to expend the marketing and reservation system fees it collects from franchisees in accordance with the franchise agreements.

Furthermore, franchisees are required to reimburse the Company for any deficits generated by these marketing and reservation system activities.

Furthermore, franchisees are required to reimburse the Company for any deficits

generated by these marketing and reservation system activities.

Over time, the Company expects cumulative revenues and expenses to break even and therefore, no income or loss will be generated from marketing and reservation system activities.

As a result, the Company generally excludes the financial impacts of this program from the analysis of its operations.

Due to the seasonal nature of the Company’s hotel franchising business or multi-year investments that are required to support franchise operations, quarterly or annual deficits and surpluses may be generated.

During the year ended December 31, 2019 ,

marketing and reservation system expenses exceeded revenues by $1.7 million .

During the year s ended December 31, 2018 and 2017 , marketing and reservation system revenues exceeded expenses by $9.4 million and $20.2 million , respectively.

Due to the seasonal nature of the Company’s hotel franchising business and the multi-year investments required to support franchise operations, in addition to the Company's incremental spend to support franchisees and lower marketing and reservation system fees due to the impacts of the COVID-19 pandemic, quarterly and/or annual deficits and surpluses may be generated.

During the years ended December 31, 2020, and 2019, marketing and reservation system expenses exceeded revenues by $44.3 million and $1.7 million, respectively.

During the year ended December 31, 2018, marketing and reservation system revenues exceeded expenses by $9.4 million.

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

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Since our business has not historically required significant reinvestment of capital, we typically utilize cash in ways that management believes provide the greatest returns to our shareholders which include share repurchases and dividends.

However, we may decide to utilize cash for acquisitions and other investments in the future.

However, in light of uncertainty resulting from the COVID-19 pandemic, we do not intend to declare dividends and we have temporarily suspended activity under the share repurchase program for as long as the pandemic significantly impacts travel.

We believe the Company’s cash flow from operations and available financing capacity is sufficient to meet the expected future operating, investing and financing needs of the business.

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Inflation has been moderate in recent years and has not had a significant impact on our business.

We are monitoring the implications of governmental assistance programs related to COVID-19 on future inflation trends and any resulting impacts on our business.

Non-GAAP Financial Statement Measurements

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Marketing and reservation system revenues (402,568) (577,426) (543,677)

Revenues, excluding marketing and reservations system activities

Revenues, excluding marketing and reservation system activities $ 371,504 $ 537,394 $ 497,627

Operations Review

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(in thousands) 2020 2019

Royalty fees $ 263,308 $ 388,151

Initial franchise and relicensing fees 25,906 27,489

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Marketing and reservation system 402,568 577,426

Owned hotels 20,168 20,282

Other 16,880 40,043

Total revenues 774,072 1,114,820

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Marketing and reservation system 446,847 579,139

Owned hotels 16,066 14,448

Total operating expenses 637,268 781,248

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Income before income taxes 53,006 269,929

Income tax (benefit) expense (22,381) 47,051

Net income $ 75,387 $ 222,878

Results of Operations

The Company recorded income before income taxes of $269.9 million for the year ended December 31, 2019 , a $3.3 million or 1% decrease from the same period of the prior year.

The decrease in income before income taxes primarily reflects a $7.2 million loss on the extinguishment of debt, a $4.3 million increase in equity in loss of affiliates, a $0.9 million increase in interest expense, offset by a $6.3 million increase in other (gain) loss, a $2.6 million increase in interest income, and a $0.2 million increase in operating income.

Operating income was positively impacted by an $11.5 million or 3% increase in royalty revenues, a $9.3 million increase in procurement services revenues, and a $1.4 million increase in initial franchise and relicensing fees, as the Company’s core franchising operations continue to expand and selling, general and administrative (“SG&A”) expenses were controlled.

In addition, operating income was further improved by the operation of 5 wholly owned hotels which were either purchased or opened in 2019 and generated $0.9 million in revenues in excess of operating expenses and depreciation.

Operating income was negatively impacted by the recognition of a $15.0 million loss on sale and impairment of long-lived assets and goodwill related to the Company's software as a service ("SaaS") for vacation rentals reporting unit which was disposed of on June 3, 2019.

In addition, the net deficit generated from marketing and reservation system activities was $1.7 million for the year ended December 31, 2019 compared to a net surplus of $9.4 million generated in the prior year.

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

Domestic royalty fees for the year ended December 31, 2019 increase d $11.9 million to $366.6 million from $354.7 million for the year ended December 31, 2018 , an increase of 3% .

The increase in domestic royalties reflect a 2.9% increase in the number of domestic franchised hotel rooms and an increase in the effective royalty rate, partially offset by a 0.9% decrease in domestic RevPAR.

System-wide RevPAR decreased due to a 0.3% decrease in average daily rates and a 40 basis point decrease in occupancy rates.

The Company's effective royalty rate for the domestic hotel system increase d 11 basis points from 4.75% for the year ended December 31, 2018 to 4.86% for the year ended December 31, 2019 .

Additionally, domestic royalties increased $1.5 million for the year ended December 31, 2019 as compared to the prior year resulting from the inclusion of an additional month of WoodSpring revenue in operations based on the Company's acquisition date of February 1, 2018.

The Company recorded income before income taxes of $53.0 million for the year ended December 31, 2020, a $216.9 million decrease from the same period of the prior year.

The decrease in income before income taxes primarily reflects a $196.5 million decrease in operating income, a $9.4 million increase in the loss on the extinguishment of debt, a $5.7 million increase in equity in net loss of affiliates, a $2.2 million increase in interest expense, and a $2.3 million decrease in interest income.

Operating income decreased $196.5 million primarily due to a $124.9 million decrease in royalty revenues, a $42.5 million decrease in the net deficit generated from marketing and reservation system activities, a $23.1 million decrease in other revenue, a $16.2 million decrease in procurement services revenues, the recognition of $14.8 million in impairments of long-lived assets in 2020, a $7.0 million increase in depreciation and amortization, partially offset by a $20.3 million decrease in selling, general and administrative (“SG&A”) expenses and a recognition of a $15.0 million loss on sale and impairment of long-lived assets and goodwill in 2019 related to the Company's software as a service ("SaaS") for vacation rentals reporting unit which was disposed of in the second quarter of 2019.

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

Domestic royalty fees for the year ended December 31, 2020 decreased $115.4 million to $251.2 million from $366.6 million for the year ended December 31, 2019, a decrease of 31%.

The decrease in domestic royalties reflect a 30.7% decrease in domestic RevPAR.

System-wide RevPAR decreased due to a 12.5% decrease in average daily rates and a 1,210 basis point decrease in occupancy.

The decrease in domestic royalties is partially offset by an increase in the number of domestic franchised hotel rooms and an 8 basis point increase in the effective royalty rate from 4.86% for the year ended December 31, 2019 to 4.94% for the year ended December 31, 2020.

A summary of the Company’s domestic franchised hotels operating information for the years ending December 31, 2020 and 2019 is as follows:

Cambria Hotels

Ascend Hotel Collection

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

2 Includes Clarion family of brand extensions including Clarion and Clarion Pointe.

3 WoodSpring was acquired on February 1, 2018 ;

however Average Daily Rate, Occupancy, and RevPAR reflect operating performance for the year ended December 31, 2018, as if the brand had been acquired on January 1, 2018.

The number of total domestic rooms on-line increase d by 2.9% to 462,973 rooms as of December 31, 2019 from 450,028 as of December 31, 2018 .

The total number of domestic hotels on-line increase d by 1.6% to 5,955 as of December 31, 2019 from 5,863 as of December 31, 2018 .

Excluding the Company's economy branded hotels, Econo Lodge and Rodeway, total domestic units and rooms increased 3.1% and 4.3%, respectively, which reflects the Company's focus on growing the brands in

its upscale, midscale and extended stay chain scale categories, which are more revenue intensive due to higher average RevPAR and number of rooms per hotel.

A summary of domestic hotels and rooms on-line at December 31, 2019 and 2018 by brand is as follows:

December 31, 2019

December 31, 2018

2020 2019 Change

Daily Rate Occupancy RevPAR Average

Daily Rate Occupancy RevPAR

Comfort $ 83.72 46.1 % $ 38.58 $ 95.84 62.2 % $ 59.66 (12.6) % (1,610) bps (35.3) %

Sleep 75.92 46.2 % 35.08 85.28 61.1 % 52.09 (11.0) % (1,490) bps (32.7) %

Quality 72.13 41.8 % 30.16 80.11 54.1 % 43.33 (10.0) % (1,230) bps (30.4) %

Clarion 73.37 32.9 % 24.15 84.73 49.5 % 41.90 (13.4) % (1,660) bps (42.4) %

Econo Lodge 59.12 40.9 % 24.16 63.75 47.7 % 30.44 (7.3) % (680) bps (20.6) %

Rodeway 59.48 43.6 % 25.94 64.25 49.0 % 31.48 (7.4) % (540) bps (17.6) %

WoodSpring 46.16 71.5 % 33.02 47.10 75.3 % 35.46 (2.0) % (380) bps (6.9) %

MainStay 77.14 55.6 % 42.86 84.85 64.0 % 54.32 (9.1) % (840) bps (21.1) %

Suburban 51.44 63.6 % 32.73 57.25 66.9 % 38.30 (10.1) % (330) bps (14.5) %

Cambria Hotels 112.30 38.2 % 42.87 145.45 67.5 % 98.12 (22.8) % (2,930) bps (56.3) %

Ascend Hotel Collection 116.52 43.4 % 50.59 125.16 61.2 % 76.57 (6.9) % (1,780) bps (33.9) %

Total $ 71.63 45.6 % $ 32.70 $ 81.83 57.7 % $ 47.18 (12.5) % (1,210) bps (30.7) %

The impacts of COVID-19 on the Company's business were first experienced at 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 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.

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

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 Average Daily Rate ("ADR") with respect to complimentary rooms.

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

Based on our previous calculation of ADR, Occupancy, and RevPAR, these metrics for the year ended December 31, 2020 would have been $71.13, 53.0%, and $37.68, respectively, versus the year ended December 31, 2019 of $81.42, 62.9%, and $51.19, respectively, with period over period declines of 12.6%, 990 basis points, and 26.4%, respectively.

The number of total domestic rooms online increased by 0.4% to 464,682 rooms as of December 31, 2020 from 462,973 as of December 31, 2019.

The total number of domestic hotels online increased by 0.2% to 5,967 as of December 31, 2020 from 5,955 as of December 31, 2019.

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

December 31, 2020 December 31, 2019 Variance

Hotels Rooms Hotels Rooms Hotels % Rooms %

Comfort 1,648 129,711 1,616 127,000 32 2.0 % 2,711 2.1 %

Sleep 408 28,790 402 28,361 6 1.5 % 429 1.5 %

Quality 1,697 128,807 1,688 129,232 9 0.5 % (425) (0.3) %

Clarion 183 22,072 178 22,498 5 2.8 % (426) (1.9) %

Econo Lodge 777 47,023 807 48,538 (30) (3.7) % (1,515) (3.1) %

Rodeway 559 31,828 600 34,727 (41) (6.8) % (2,899) (8.3) %

WoodSpring 291 35,020 270 32,479 21 7.8 % 2,541 7.8 %

MainStay 90 6,374 73 4,636 17 23.3 % 1,738 37.5 %

Suburban 66 6,470 60 6,082 6 10.0 % 388 6.4 %

Cambria Hotels 54 7,697 50 7,277 4 8.0 % 420 5.8 %

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Total Domestic Franchises 5,967 464,682 5,955 462,973 12 0.2 % 1,709 0.4 %

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

2 Includes Clarion family of brand extensions including Clarion and Clarion Pointe.

International royalty fees for the year ended December 31, 2019 decrease d $0.4 million to $21.6 million , a decrease of 1.8% compared to the year ended December 31, 2018 .

International rooms on-line increased by 8,844 from 119,080 as of December 31, 2018 to 127,924 as of December 31, 2019 .

International hotels on-line increased by 40 from 1,158 as of December 31, 2018 to 1,198 as of December 31, 2019 .

International rooms grew at a faster pace than the number of hotels due to a focus on new entrants with higher per unit room counts than currently in the Company's international franchised hotel portfolio, as well as a recent strategic partnership that added 12 luxury, all-inclusive resorts in December 2019 to our Ascend Hotel Collection portfolio representing over 5,000 rooms.

Despite the increase in international hotels and rooms, international royalty fees declined slightly due to RevPAR performance and foreign currency exchange rate fluctuations in the various countries where we operate.

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

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

International royalty fees for the year ended December 31, 2020 decreased $9.4 million to $12.2 million compared to the year ended December 31, 2019 as a result of temporarily suspended operations and declines in RevPAR performance resulting from impacts of the pandemic.

International rooms online increased by 5,371 from 127,924 as of December 31, 2019 to 133,295 as of December 31, 2020, while hotels online decreased by 18 from 1,198 as of December 31, 2019 to 1,180 as of December 31, 2020.

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.

There is uncertainty as to the potential duration of the pandemic, including a resurgence or increase in prevalence in variants as well as the timing of vaccinations around the world, and its severity, which we expect will continue to impact the number of domestic and international hotels that temporarily suspend operations.

Initial Franchise and Relicensing Fees

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Domestic franchise agreements awarded for new construction hotels totaled 126 representing 11,847 rooms during the year ended December 31, 2020 compared to 269 contracts representing 22,814 rooms for the year ended December 31, 2019.

The 2018 acquisition of WoodSpring Suites resulted in 74 new construction franchise agreements, including 19 with WoodSpring's largest franchisee concurrent with the acquisition, compared to 66 new construction franchise agreements in 2019 .

Conversion hotel awarded franchise agreements totaled 415 representing 36,827 rooms for the year ended December 31, 2019 compared to 434 agreements representing 33,467 rooms for the year ended December 31, 2018 .

Conversion hotel awarded

franchise agreements totaled 301 representing 23,461 rooms for the year ended December 31, 2020 compared to 415 agreements representing 36,827 rooms for the year ended December 31, 2019.

The Company awarded 204 domestic relicensing contracts during the year ended December 31, 2020 compared to 403 executed during the year ended December 31, 2019.

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Upon hotel opening, revenue is recognized ratably as services are provided over the enforceable period of the franchise license agreement.

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

the agreement is terminated.

Initial franchise and relicensing fee revenue increased $1.4 million or 5% from $26.1 million to $27.5 million during the years ended December 31, 2018 and 2019 , respectively.

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

Initial franchise and relicensing fee revenue decreased $1.6 million from $27.5 million to $25.9 million during the years ended December 31, 2019 and 2020, respectively.

As of December 31, 2020, the Company had 966 franchised hotels with 79,470 rooms under construction, awaiting conversion or approved for development in its domestic system as compared to 1,052 hotels and 84,950 rooms at December 31, 2019.

The number of new construction franchised hotels in the Company’s domestic pipeline increased 3% to 794 at December 31, 2019 from 773 at December 31, 2018 .

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

The number of new construction franchised hotels in the Company’s domestic pipeline decreased 8% to 727 at December 31, 2020 from 794 at December 31, 2019.

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

The number of conversion franchised hotels in the Company’s domestic pipeline increased by 5 hotels or 2% from December 31, 2018 to 258 hotels at December 31, 2019 , primarily due to the timing of hotel openings and the timing of signing new conversion franchise agreements.

The number of conversion franchised hotels in the Company’s domestic pipeline decreased by 19 hotels or 7% from December 31, 2019 to 239 hotels at December 31, 2020.

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

The Company had an additional 56 franchised hotels with 6,794 rooms under construction, awaiting conversion or approved for development in its international system as of December 31, 2020 compared to 83 hotels and 15,918 rooms at December 31, 2019.

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

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

Given the uncertainty as to the potential duration of the COVID-19 pandemic and its severity, there is additional uncertainty with respect to the opening of new construction hotels, which are reliant on, amongst other things, access to liquidity, availability of construction labor, and local governmental approvals and entitlements, all of which may be constrained during the duration of the pandemic.

Procurement Services:

Revenues increased $9.3 million or 18% from $52.1 million for the year ended December 31, 2018 to $61.4 million for the year ended December 31, 2019 .

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

Owned Hotels:

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

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

Revenues of $20.3 million and expenses of $14.4 million represent fees earned from and costs incurred for the hotel operations.

Refer to Note 25 of our consolidated financial statements.

Other Revenue:

Revenue decrease d $2.7 million from the year ended December 31, 2018 to $40.0 million for the year ended December 31, 2019 .

The decrease in other revenue reflects a $4.7 million decline in revenue from the SaaS for vacation rental reporting unit which was sold on June 3, 2019 and a $4.0 million decrease in revenues from the early termination of franchise agreements and the sale of chip-enabled credit card readers to our franchisees which was substantially completed in 2018;

offset by a $6.0 million increase in non-compliance fees and other franchising revenues.

Revenues decreased $16.2 million from $61.4 million for the year ended December 31, 2019 to $45.2 million for the year ended December 31, 2020.

The decrease in revenues primarily reflects the cancellation of the Company's 2020 annual convention as a result of the COVID-19 pandemic and a decrease in fees affiliated with travel-related partnerships.

The Company has also announced the cancellation of the 2021 annual convention, which the Company expects will adversely impact procurement services revenue in 2021.

Further, due to anticipated lower occupancy at our franchised hotels in 2021, we anticipate fewer purchases made from qualified vendors and travel-related partners in 2021, from which we earn a fee.

Other Revenues:

Other revenues decreased $23.1 million from $40.0 million the year ended December 31, 2019 to $16.9 million for the year ended December 31, 2020.

The decline primarily represents the reduction and, in some cases, suspension of reputation management, guest relation, and finance charges to our franchisees in addition to a decrease in termination fees.

Selling, General and Administrative Expenses:

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SG&A expenses for the years end December 31, 2020 and 2019 include approximately $2.3 million and $9.9 million, respectively, related to the Company's alternative growth initiatives and expenses related to the operations of an office building leased to a third party.

The $9.9 million decrease in SG&A expenses is primarily due to decreased investment in vacation rental activities and decreased SG&A expenses due to the sale of the SaaS for vacation rentals reporting unit on June 3, 2019.

In addition, SG&A for the year ended December 31, 2018 included $6.9 million of transaction and transition costs incurred in conjunction with the acquisition of the WoodSpring brand on February 1, 2018 and the establishment of a $2.8 million valuation allowance related to restructured terms of a note receivable from a franchisee.

Excluding the SG&A for alternative growth initiatives, office building operations, and the prior year one-time charges noted above, SG&A for the year end December 31, 2019 increased $18.3 million from $140.6 million in the prior year to $158.9 million in the current year primarily due to a $6.1 million net increase in mark to market expenses due to our non-qualified retirement plan investments, $1.5 million in operational restructuring charges, and a 7.5% increase in cost to support the hotel franchising business.

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

Excluding the SG&A for alternative growth initiatives and office building operations, SG&A for the year end December 31, 2020 decreased $12.8 million from $158.9 million in the prior year to $146.3 million in the current year primarily due to implemented cost mitigation measures as a result of the COVID-19 pandemic, including furloughs and layoffs of certain domestic and international positions and a reduction of discretionary expenditures, partially offset by operational restructuring charges and provisions for credit losses recorded in accordance with Topic 326.

Depreciation and Amortization:

Depreciation and amortization expense for the year ended December 31, 2019 increased $4.5 million to $18.8 million for the same period of the prior year primarily due to an additional $4.9 million in depreciation related to the Company's owned hotels acquired and opened during the third quarter of 2019, offset by $1.0 million in reduced deprecation related to the SaaS for vacation rental reporting unit, which was sold in the second quarter of 2019.

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

During the first quarter of 2019, the Company recorded $3.1 million goodwill impairment and a $7.3 million long-lived assets impairment related to the SaaS for vacation

rentals reporting unit, in comparison to a $4.3 million goodwill impairment recorded in the fourth quarter of 2018.

During the second quarter of 2019, the Company recorded a $4.7 million loss on sale of the SaaS for vacation rentals reporting unit.

Refer to Item 7.

Critical Accounting Policies and Note 6 to our consolidated financial statements for additional information.

Depreciation and amortization expense for the year ended December 31, 2020 increased $7.0 million to $25.8 million for the same period of the prior year primarily due to an additional $7.4 million in depreciation from a full year of operations for the Company's owned hotels acquired or opened during the third quarter of 2019.

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

For the year ended December 31, 2020, the Company recognized a $1.2 million charge related to a prospective self-development project the Company is no longer pursing,

a $4.3 million impairment charge related to the long-lived assets of a commercial office building owned by the Company, and a $9.2 million impairment charge related to a parcel of real estate.

For the year ended December 31, 2019, the Company recognized a $15.0 million loss on impairment of long-lived assets and goodwill related to the Company's SaaS for vacation rentals reporting unit which was disposed of in the second quarter of 2019.

Interest Expense:

The Company recorded interest expense of $49.0 million for the year ended December 31, 2020, an increase of $2.2 million from the year ended December 31, 2019.

The increase in interest expense is a result of increased borrowings over the course of 2020 in response to the COVID-19 pandemic.

Interest Income:

Interest income increased $2.6 million to $10.0 million in the current year primarily due to the issuance of additional notes receivable related to the Company’s program to incent development of its Cambria Hotel brand in new markets.

Interest income decreased $2.3 million to $7.7 million in the current year primarily due to certain loans being in non-accrual status during 2020 resulting from impacts of the COVID-19 pandemic.

The notes receivable relate to the Company’s program to incent development of its Cambria Hotel brand in new markets.

Loss on Extinguishment of Debt:

The Company recorded a loss on extinguishment of debt of $7.2 million for the early redemption of the Company's unsecured senior notes in the principal amount of $250 million which were due in August 2020.

During the first quarter of 2020, the Company recorded a loss on the extinguishment of debt of $0.6 million related to the early pay off of a construction loan in the amount of $33.1 million, inclusive of accrued and unpaid interest.

During the third quarter of 2020, the Company recorded a loss on the extinguishment of debt of $16.0 million related to the Tender Offer and early pay off of the Term Loan.

For the year ended December 31, 2019, the Company recorded a loss on extinguishment of debt of $7.2 million for the early redemption of the Company's unsecured senior notes in the principal amount of $250 million which were due in August 2020.

The loss on extinguishment represents a $6.3 million make-whole premium to redeem the notes prior to maturity and the acceleration of unamortized deferred financing fees and underwriting discounts.

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

Other (Gain) Loss:

Other (gain) loss increased from a loss of $1.4 million for the year ended December 31, 2018 to a gain of $4.9 million for the year ended December 31, 2019 due to fluctuations in the fair value of investments held in the Company's non-qualified employee benefit plans.

Equity in Net Loss of Affiliates:

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

The fluctuation is primarily attributable to the sale of an unconsolidated joint venture resulting in a loss of $6.0 million in the third quarter of 2019.

The year-over-year fluctuation is primarily attributable to increased losses of operating joint venture hotels as impacted by the COVID-19 pandemic and recognition of $7.3 million of impairment charges during the fourth quarter of 2020 related to four separate unconsolidated joint ventures.

This fluctuation is partially offset by the recognition of a loss of $6.0 million in the third quarter of 2019 related to the sale of an unconsolidated joint venture.

Refer to Note 8 to our consolidated financial statements for additional information.

Income Tax Expense :

We anticipate the results recognized from these investments will continue to be significantly impacted by the COVID-19 pandemic during 2021.

Income Tax (Benefit) Expense :

The Company's effective income tax rates were (42.2)% and 17.4% for the years ended December 31, 2020 and 2019, respectively.

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

On January 1, 2020, the Company completed a reorganization of its foreign legal entity structure.

In accordance with ASU 2016-16, the Company recorded a $34.6 million tax benefit and a corresponding deferred tax asset due to the reorganization.

As of December 31, 2020, the balance of this deferred tax asset is $30.2 million, net of current year amortization utilization.

Due to a decrease in the forecasted international income resulting from adverse impacts of the COVID-19 pandemic, the Company recorded a valuation allowance of $5.7 million reflecting a change in the anticipated realizability of this deferred tax asset.

The effective income tax rate for the year ended December 31, 2020 was lower than the U.S.

federal income tax rate of 21.0% due to tax credits recognized during the year of $11.6 million , excess tax benefits from share-based compensation, and the impact of foreign operations, partially offset by the impact of state income taxes.

federal income tax rate of 21.0% due to the impact of our international reorganization under ASU 2016-16 (partially offset by the related valuation allowance), tax credits recognized during the year of $3.0 million, $4.2 million of excess tax benefits from share-based compensation, and the impact of foreign operations, partially offset by the impact of state income taxes and a change in estimated uncertain tax positions.

The effective income tax rate for the year ended December 31, 2019 was lower than the U.S.

federal income tax rate of 21% due to excess tax benefits from share-based compensation and the impact of foreign operations, partially offset by the impact of state income taxes.

federal income tax rate of 21% due to tax credits recognized during the year of $11.6 million, $4.4 million of excess tax benefits from share-based compensation and the impact of foreign operations, partially offset by the impact of state income taxes.

Refer to Choice Hotels International, Inc.

2018 10-K Annual Report "Comparison 2018 and 2017 Operating Results" under Item 7.

2019 10-K Annual Report "Comparison of 2019 and 2018 Operating Results" under Item 7.

Management's Discussion and Analysis for details regarding changes between 2019 and 2018.

Liquidity and Capital Resources

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

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

In April 2020, the Company entered into the $250 million Term Loan.

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

The Company used the net proceeds from the 2020 Senior Notes offering to repay the Term Loan in full and fund the $197.8 million purchase price of the 2012 Senior Notes tendered, inclusive of the aggregate principal, an early tender premium, settlement fees, and accrued interest paid.

In September 2020, the Company utilized excess cash on hand to pay down the senior unsecured revolving credit facility balance in full, which remains undrawn upon as of December 31, 2020.

To preserve capital, we determined to suspend future, undeclared dividends while the COVID-19 pandemic is significantly impacting travel and have temporarily suspended activity under our share repurchase program, as well as limited discretionary spending and investments until such time as we determine conditions are appropriate to resume any such activity.

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

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

Operating Activities

Net cash flows provided by operating activities were $270.6 million for the year ended December 31, 2019 compared to $242.9 million for the same period of 2018 , a n increase of $27.7 million .

Operating cash flows increased primarily due to an increase in operating income, excluding certain non-cash charges, and a decrease in cash outflows related to franchise agreement acquisition costs partially offset by a decrease in the timing of working capital items.

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

We recognize such payments as an adjustment to transaction price and capitalize as an intangible asset.

These intangibles are amortized on a straight-line basis over the estimated benefit period of the arrangement as an offset to revenues.

If the franchisee remains in the system in good standing over the term specified in the incentive agreement, the Company forgives the incentive ratably.

During the years ended December 31, 2020 and 2019, net cash provided by operating activities totaled $110.1 million and $270.6 million, respectively.

Operating cash flows decreased $160.5 million primarily due to a decrease in operating income as driven by a reduction in royalty fees and the net deficit generated from marketing and reservation system activities, excluding certain non-cash charges, and timing of working capital items.

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

If the franchisee remains in the franchise system in good standing over the term specified in the incentive agreement, the Company forgives the incentive ratably.

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

During the years ended December 31, 2020, 2019 and 2018, the Company's net advances for these purposes totaled $36.5 million, $38.9 million, and $52.9 million, respectively.

The timing and amount of these cash flows are dependent on various factors including the implementation of various development and brand incentive programs, the level of franchise sales and the timing of hotel openings.

At December 31, 2019 , the Company had commitments to extend an additional $300.4 million for these purposes provided certain conditions are met by its franchisees.

At December 31, 2020, the Company had commitments to extend an additional $304.6 million for these purposes provided the conditions of the payment are met by its franchisees.

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

In accordance with the terms of our franchise agreements, the Company is obligated to use these marketing and reservation system fees to provide

marketing and reservation services such as advertising, providing a centralized reservation and property management system, providing reservation and revenue management services, and performing certain franchise services to support the operation of the overall franchise system.

Marketing and reservation system expenses are those expenses incurred to facilitate the delivery of marketing and reservation system services, including direct expenses and an allocation of costs for certain administrative activities required to carry out marketing and reservation services.

Marketing and reservation system expenses are recognized as services are incurred or goods are received, and as such may not equal marketing and reservation system revenues in a specific period but are expected to equal revenues earned from franchisees over time.

In accordance with the terms of our franchise agreements, the Company is obligated to use these marketing and reservation system fees to provide marketing and reservation services.

To the extent revenues collected exceed expenditures incurred, the Company has a commitment to the franchisee system to make expenditures in future years.

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

During the year ended 2019 , marketing and reservation system expenses exceeded revenues by $1.7 million .

During the year s ended 2018 and 2017 , marketing and reservation system revenues exceeded expenses by $9.4 million and $20.2 million , respectively.

During the years ended 2020 and 2019, marketing and reservation system expenses exceeded revenues by $44.2 million and $1.7 million, respectively.

During the year ended 2018, marketing and reservation system revenues exceeded expenses by $9.4 million.

Investing Activities

Cash utilized in investing activities totaled $251.2 million , $321.3 million and $90.1 million for the years ended December 31, 2019, 2018 and 2017 , respectively.

The increase in cash utilized for investing activities from 2018 to 2019 primarily reflects the following items:

During the year ended December 31, 2018, the Company completed the acquisition of the brand and franchise business of WoodSpring.

The acquisition closed on February 1, 2018 and added 239 new extended-stay hotels in 35 states to the Company's portfolio.

The acquisition was funded with cash on hand and available borrowings.

The total cash consideration was $231.3 million, which consisted of cash paid, net of cash acquired.

Prior to July 23, 2019, the Company held a 40% ownership interest of a joint venture that owned five Cambria hotels recorded as an investment in unconsolidated entities of $40.0 million.

On July 23, 2019, the Company redeemed the remaining 60% ownership interest in four of the hotels for approximately $169.0 million , net of cash acquired, and sold its 40% ownership interest in the fifth hotel for approximately $8.9 million .

The transaction was funded with cash and borrowings under the Company's revolving credit facility and accounted for as an asset acquisition.

During the third quarter of 2018, a partner in a variable interest entity ("VIE") previously accounted for under the equity method of accounting exercised a put option to the Company for its membership interest.

As a result, the Company paid $3.2 million for the remaining interest and the purchase was accounted for as an asset acquisition.

The financial results of the 100% owned entity have been consolidated in the Company's financial statements since August 9, 2018.

There were no asset acquisitions during the year ended December 31, 2017 .

During the year ended December 31, 2019 , the Company realized proceeds of $10.6 million from the sale of one parcel of land and an office building.

During the years ended December 31, 2018 and December 31, 2017 the Company realized proceeds of $3.1 million and $1.0 million , respectively, from the sale of one parcel of land in each period.

During the year ended December 31, 2019 , the Company sold the SaaS for vacation rentals reporting unit and made payments, net of sales proceeds, of $10.8 million for net costs incurred to complete the disposition.

There were no business dispositions in 2018 and 2017.

During the year ended December 31, 2019, 2018 and 2017 , the Company invested $27.8 million , $9.6 million , and $50.6 million in joint ventures accounted for under the equity method of accounting.

Cash utilized for investing activities totaled $24.5 million, $251.2 million and $321.3 million for the years ended December 31, 2020, 2019 and 2018, respectively.

The decrease in cash utilized for investing activities from 2019 to 2020 primarily reflects the following items:

During the year ended December 31, 2020, 2019 and 2018, the Company invested $5.5 million, $27.8 million, and $9.6 million, respectively, in joint ventures accounted for under the equity method of accounting.

In addition, the Company received distributions from these joint ventures totaling $3.4 million, $10.2 million, and $1.4 million for the years ended December 31, 2020, 2019 and 2018, respectively.

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

The Company expects to make additional capital contributions totaling $10.1 million to existing unconsolidated and consolidated joint ventures supporting these efforts.

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

To the extent unconsolidated joint ventures proceed to

the hotel construction phase, the Company is committed to make additional capital contributions totaling $8.4 million to support these efforts.

During the year ended December 31, 2020, the Company received sales proceeds of $7.4 million from a sale of an unconsolidated joint venture.

Prior to July 23, 2019, the Company held a 40% ownership interest of a joint venture that owned five Cambria Hotels recorded as an investment in unconsolidated entities of $40.0 million.

During the year ended December 31, 2019, the Company redeemed the remaining 60% ownership interest in four of the hotels for approximately $169.0 million, net of cash acquired, and sold its 40% ownership interest in the fifth hotel for approximately $8.9 million.

During the years ended December 31, 2020, 2019 and 2018, capital expenditures in property and equipment totaled $33.6 million, $57.3 million, and $47.7 million, respectively.

The increase in capital expenditures during 2019 primarily reflects the Company's investment in improvements to an office building that was converted to a Cambria hotel, which opened in the third quarter of 2019.

During the year ended December 31, 2018 , capital expenditures primarily reflects the Company's acquisition of an aircraft, including avionics and interior upgrades, as well as improvements to an office building that is converting to a Cambria Hotel.

The decrease in capital expenditures during 2020 primarily reflects the Company's 2019 improvements to a historic building that was converted to a Cambria Hotel.

The hotel opened in the third quarter of 2019.

During the year ended December 31, 2020, the Company realized proceeds of $9.2 million from the sale of state historic rehabilitation tax credits earned from the improvements made to this building, which were applied to lower the basis of the owned hotel property and equipment.

The Company provides financing to franchisees for hotel development efforts and other purposes in the form of notes receivable.

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

the years ended December 31, 2019, 2018 and 2017 , the Company advanced $20.7 million , $36.0 million , and $19.7 million for these purposes, respectively.

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

During the years ended December 31, 2020, 2019 and 2018, the Company advanced $9.8 million, $20.7 million, and $36.0 million for these purposes, respectively.

In addition, the Company received repayments totaling $6.5 million, $14.2 million, and $5.0 million for these purposes, respectively.

At December 31, 2020, the Company had commitments to extend an additional $1.0 million for these purposes provided certain conditions are met by its franchisees.

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

During the years ended December 31, 2019 and 2018, the Company realized proceeds of $10.6 million and $3.1 million from the sale of one parcel of land in each period.

The Company did not sell any land parcels during the year ended December 31, 2020.

During the year ended December 31, 2019, the Company sold the SaaS for vacation rentals reporting unit and made payments, net of sales proceeds, of $10.8 million for net costs incurred to complete the disposition.

There were no business dispositions during the years ended December 31, 2020 and December 31, 2018.

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

Since 2006, we have engaged in these financial support activities to encourage acceleration of the growth of our Cambria Hotels brand, primarily in strategic markets and locations.

Over the next three to five years, depending on market and other conditions, we expect to continue to deploy capital in support of this brand and expect our investment to total approximately $725 million over that time period.

The annual pace of future financial support activities will depend upon market and other conditions including among others, our franchise sales results, the environment for new construction hotel development and the hotel lending environment.

Our support of the Cambria Hotels brand’s growth is expected to be primarily in the form of joint venture investments, hotel ownership, franchise agreement acquisition costs, senior mortgage loans, development loans, mezzanine lending, and through the operation of a land-banking program.

Over the next three to five years, we expect to continue to deploy capital in support of this brand and expect our outstanding investment not to exceed $725 million over that time period.

The deployment and annual pace of future financial support activities will depend upon market and other conditions, including among others, our franchise sales results, the environment for new construction hotel development and the hotel lending environment, and our assessment of the ongoing impacts of the COVID-19 pandemic.

Our support of the Cambria Hotels brand’s growth is expected to be primarily in the form of franchise agreement acquisition costs, joint venture investments, hotel ownership, senior mortgage loans, development loans, mezzanine lending, and through the operation of a land-banking program.

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

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Financing Activities

Financing cash flows relate primarily to the Company’s borrowings, open market treasury stock repurchases, acquisitions of shares in connection with the exercise or vesting of equity awards and dividends.

Senior Unsecured Notes Due 2029

On November 27, 2019 , the Company issued unsecured senior notes in the principal amount of $400.0 million (the "2019 Senior Notes") at a discount of $2.4 million, bearing a coupon of 3.70% with an effective rate of 3.88% .

The 2019 Senior Notes will mature on December 1, 2029 , with interest to be paid semi-annually on December 1 st and June 1 st .

The Company used the net proceeds of this offering, after deducting underwriting discounts, commissions and other offering expenses, to repay the 2010 Senior Notes (referenced below) and for working capital and other general corporate purposes.

Bond discounts and debt issuance costs incurred in connection with the 2019 Senior Notes are amortized on a straight-line basis, which is not materially different than the effective interest method, through maturity.

Amortization of these costs is included in interest expense in the consolidated statements of income.

The Company may redeem the 2019 Senior Notes, in whole or in part, at its option at the applicable redemption price before maturity.

If the Company redeems the 2019 Senior Notes prior to September 1, 2029 (three months prior to the maturity date) (the “Par Call Date”), the redemption price will be equal to the greater of (a) 100% of the principal amount of the notes to be redeemed, or (b) the sum of the present values of the remaining scheduled principal and interest payments that would have been payable had the 2019 Senior Notes matured on the Par Call Date, discounted to the redemption date on a semi-annual basis at the applicable Treasury Rate plus 30 basis points, plus accrued and unpaid interest.

If the Company redeems the 2019 Senior Notes on or after the Par Call Date, the redemption price will equal 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest.

Senior Unsecured Notes due 2022

On June 27, 2012 the Company issued unsecured senior notes in the principal amount of $400 million (the "2012 Senior Notes") at par, bearing a coupon of 5.75% with an effective rate of 6.0%.

The 2012 Senior Notes will mature on July 1, 2022, with interest to be paid semi-annually on January 1 st and July 1 st .

The Company utilized the net proceeds of this offering, after deducting underwriting discounts and commissions and other offering expenses, together with borrowings under the Company's senior credit facility, to pay a special cash dividend totaling approximately $600.7 million paid to stockholders on August 23, 2012.

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

Senior Unsecured Notes due 2020

On August 25, 2010, the Company issued unsecured senior notes in the principal amount of $250 million (the "2010 Senior Notes”) at a discount of $0.6 million, bearing a coupon of 5.70% with an effective rate of 6.19%.

The 2010 Senior Notes were scheduled to mature on August 28, 2020, with interest on the 2010 Senior Notes to be paid semi-annually on February 28 th and August 28 th .

The Company used the net proceeds from the offering, after deducting underwriting discounts and other offering expenses, to repay outstanding borrowings and other general corporate purposes.

On December 16, 2019, with the net proceeds from the issuance of the 2019 Senior Notes, the Company redeemed the 2010 Senior Notes prior to the maturity date of August 28, 2020.

The early redemption provisions of the 2010 Senior Notes required the Company to redeem the notes at a price equal to the sum of the present values of the remaining scheduled principal and interest payments from the redemption date to the date of maturity discounted to the redemption date on a semi-annual basis at the Treasury rate, plus 45 basis points.

The Company paid $256.3 million to redeem the notes and recorded a loss on extinguishment of debt in the amount of $7.2 million , which included the make-whole premium of $6.3 million and the write-off of previously unamortized deferred financing fees and discounts.

Financing cash flows relate primarily to the Company’s borrowings, open market treasury stock repurchases, acquisition of shares in connection with the exercise or vesting of equity awards, and dividends.

Restated Senior Unsecured Credit Facility

On August 20, 2018, the Company entered into the Amended and Restated Senior Unsecured Credit Agreement (the "Restated Credit Agreement"), which amended and restated the Company’s existing senior unsecured revolving credit agreement, dated July 21, 2015.

The Restated Credit Agreement increased the commitments under the credit facility to $600 million and extended the final maturity date to August 20, 2023, subject to optional one-year extensions that can be requested by the Company prior to each of the first, second and third anniversaries of the closing date of the Restated Credit Agreement.

The effectiveness of such extensions are subject to the consent of the lenders under the Restated Credit Agreement and certain customary conditions.

On July 2, 2019, the Company exercised the first one-year extension option on the Restated Credit Agreement, extending the maturity date from August 20, 2023 to August 20, 2024.

The Restated Credit Agreement also provides that up to $35 million of borrowings may be used for alternative currency loans and up to $25 million of borrowings may be used for swingline loans.

On August 20, 2018, the Company entered into the Restated Senior Unsecured Credit Agreement (the "Restated Credit Agreement"), which amended and restated the Company’s existing senior unsecured revolving credit agreement, dated July 21, 2015.

The Restated Credit Agreement provides for a $600 million unsecured credit facility with a maturity date of August 20, 2023, subject to optional one-year extensions that can be requested by the Company prior to each of the first, second and third anniversaries of the closing date of the Restated Credit Agreement.

The effectiveness of such extensions are subject to the

consent of the lenders under the Restated Credit Agreement and certain customary conditions.

The Restated Credit Agreement also provides that up to $35 million of borrowings under the Restated Credit Agreement may be used for alternative currency loans and up to $25 million of borrowings under the Restated Credit Agreement may be used for swingline loans.

The Company may from time to time designate one or more wholly owned subsidiaries of the Company as additional borrowers under the Restated Credit Agreement, subject to the consent of the lenders and certain customary conditions.

On July 2, 2019, the Company exercised a one-year extension option on the Restated Credit Agreement, extending the maturity date from August 20, 2023 to August 20, 2024.

On August 12, 2020, the Company exercised an additional one-year extension on the Restated Credit Agreement for $525 million of the $600 million total capacity in exchange for a fee of $0.3 million.

The extended maturity date is August 20, 2025.

There are no subsidiary guarantors under the Restated Credit Agreement.

Previously, if certain subsidiaries of the Company subsequently incur certain recourse debt or become obligors in respect of certain recourse debt of the Company or certain of its other subsidiaries, the Restated Credit Agreement required such obligated subsidiaries to guarantee the Company’s obligations under the Restated Credit Agreement (the "springing guarantee").

In the event that the springing guarantee was triggered under the Restated Credit Agreement, the same subsidiary guarantees would be required under the Company’s 2012 and 2019 Senior Notes and certain hedging and bank product arrangements, if any, with lenders that are parties to the Restated Credit Agreement.

However, on February 18, 2020, the Company amended the Restated Credit Agreement to, among other things, remove the springing guarantee and other provisions and references in the Restated Credit Agreement related to the potential existence of subsidiary guarantors.

However, if certain subsidiaries of the Company subsequently incur certain recourse debt or become obligors in respect of certain recourse debt of the Company or certain of its other subsidiaries, the Restated Credit Agreement requires such obligated subsidiaries to guarantee the Company’s obligations under the Restated Credit Agreement (the "springing guarantee").

In the event that these subsidiary guarantees are triggered under the Restated Credit Agreement, the same subsidiary guarantees would be required under the Company’s $400 million senior unsecured notes due 2022 and certain hedging and bank product arrangements, if any, with lenders that are parties to the Restated Credit Agreement.

On February 18, 2020, the Company entered into the First Amendment to the Amended and Restated Senior Unsecured Credit Agreement (the "Amendment") among the Company, Deutsche Bank AG New York Branch, as administrative agent and the lenders party thereto.

The Amendment, among other things, removes the springing guarantee and other provisions and references in the Restated Credit Agreement related to the potential existence of subsidiary guarantors.

The Company may at any time prior to the final maturity date increase the amount of the Restated Credit Agreement or add one or more term loan facilities under the Restated Credit Agreement by up to an additional $250 million in the aggregate to the extent that any one or more lenders commit to being a lender for the additional amount of such term loan facility and certain other customary conditions are met.

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The Restated Credit Agreement requires the Company to pay a fee on the total commitments, calculated on the basis of the actual daily amount of the commitments (regardless of usage) times a percentage per annum ranging from 0.075% to 0.25% (depending on the Company’s senior unsecured long-term debt rating or under circumstances as set forth in the Restated Credit Agreement, the Company’s total leverage ratio in the event that such total leverage ratio is less than 2.5 to 1.0).

The Restated Credit Agreement requires that the Company and its restricted subsidiaries comply with various covenants, including with respect to restrictions on liens, incurring indebtedness, making investments and effecting mergers and/or asset

With respect to dividends, the Company may not declare or make any payment if there is an existing event of default or if the payment would create an event of default.

The Restated Credit Agreement imposes financial maintenance covenants requiring the Company to maintain a consolidated fixed charge coverage ratio of at least 2.5 to 1.0 and a total leverage ratio of not more than 4.5 to 1.0 or, on up to two nonconsecutive occasions, 5.5 to 1.0 for up to three consecutive quarters following a material acquisition commencing with the fiscal quarter in which such material acquisition occurred.

The Company currently maintains an Investment Grade Rating, as defined in the Restated Credit Agreement, and therefore is not currently required to comply with the consolidated fixed charge coverage ratio covenant.

The Company maintains an Investment Grade Rating, as defined in the Restated Credit Agreement, and therefore is not currently required to comply with the consolidated fixed charge coverage ratio covenant.

The Restated Credit Agreement includes customary events of default, the occurrence of which, following any applicable cure period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations of the Company under the Restated Credit Agreement to be immediately due and payable.

At December 31, 2020, the Company maintained a total leverage ratio of 3.90x and was in compliance with all financial covenants under the Restated Credit Agreement.

The proceeds of the Restated Credit Agreement are expected to be used for general corporate purposes, including working capital, debt repayment, stock repurchases, dividends, investments and other permitted uses set forth in the Restated Credit Agreement.

During the year ended December 31, 2020, the Company utilized excess cash on hand to pay down the senior unsecured revolving credit facility balance in full.

Debt issuance costs incurred in connection with the Restated Credit Agreement are amortized on a straight-line basis, which is not materially different than the effective interest method, through maturity.

Amortization of these costs is included in interest expense in the consolidated statements of income.

The proceeds of the Restated Credit Agreement are generally expected to be used for general corporate purposes, including working capital, debt repayment, stock repurchases, dividends, investments and other permitted uses set forth in the Restated Credit Agreement.

However, in light of uncertainty resulting from the COVID-19 pandemic, we determined to suspend future, undeclared dividends while the pandemic is significantly impacting travel and have temporarily suspended activity under our share repurchase program.

To preserve financial flexibility and liquidity during the COVID-19 pandemic, on April 16, 2020, the Company entered into a credit agreement (the "Credit Agreement"), which provided for the $250 million Term Loan (the "Term Loan") with a scheduled maturity date of April 15, 2021, subject to an optional one-year extension if requested by the Company prior to the initial maturity date.

The effectiveness of such extension was subject to the consent of the lenders under the Credit Agreement and certain customary conditions.

The Term Loan and all accrued but unpaid interest thereon was required to be repaid in full on the maturity date.

Upon the occurrence of certain asset sales, debt issuances and equity issuances, subject to the exceptions set forth in the Credit Agreement, the Company was required to make certain mandatory principal prepayments of the Term Loan in an amount equal to 100% of the net cash proceeds of such transactions.

The Credit Agreement provided that the Company may elect to have the Term Loan bear interest at a rate equal to (i) LIBOR (subject to a floor of 1.00%) plus a margin ranging from 200 to 275 basis points or (ii) a base rate plus a margin ranging from 100 to 175 basis points, in each case, with the margin determined according to the Company’s senior unsecured long-term debt rating.

The Credit Agreement required that the Company and its restricted subsidiaries comply with various covenants, including with respect to restrictions on liens, incurring indebtedness, making investments and effecting mergers and/or asset sales.

With respect to dividends and stock repurchases, the Company could not declare or make any payment, subject to certain exceptions set forth in the Credit Agreement, if (i) there is an existing event of default or if the payment would create an event of default or (ii) (x) the Company’s total leverage ratio exceeds 4.0 to 1.0 or (y) liquidity (defined in the Credit Agreement as the Company’s unrestricted cash and cash equivalents plus undrawn amounts under the Company’s existing senior unsecured revolving credit facility) is less than $250 million, in each case, both before or immediately after giving effect to such payment.

The Credit Agreement imposed financial maintenance covenants requiring the Company to maintain a consolidated fixed charge coverage ratio of at least 2.5 to 1.0 and a total leverage ratio of not more than 4.5 to 1.0.

If the Company maintained an Investment Grade Rating, as defined in the Credit Agreement, then the Company would not need to comply with the consolidated fixed charge coverage ratio covenant.

The Credit Agreement included customary events of default, the occurrence of which, following any applicable cure period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations of the Company under the Credit Agreement to be immediately due and payable.

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

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

In combination with the Tender Offer, the Company recorded a loss on extinguishment of debt of $16.0 million in the third quarter of 2020.

Senior Unsecured Notes Due 2031

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

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

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

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

The interest rate payable on the 2020 Senior Notes will be subject to adjustment based on certain rating events.

The Company may redeem the 2020 Senior Notes, in whole or in part, at its option at the applicable redemption price before maturity.

If the Company redeems the 2020 Senior Notes prior to October 15, 2030 (three months prior to the maturity date) (the “2020 Notes Par Call Date”), the redemption price will be equal to the greater of (a) 100% of the principal amount of the notes to be redeemed, or (b) the sum of the present values of the remaining scheduled principal and interest payments that would have been payable had the 2020 Senior Notes matured on the 2020 Notes Par Call Date, discounted to the redemption

date on a semi-annual basis at the applicable Treasury Rate plus 50 basis points, plus accrued and unpaid interest.

If the Company redeems the 2020 Senior Notes on or after the 2020 Notes Par Call Date, the redemption price will equal 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest.

Additionally, at the option of the holders of the 2020 Senior Notes, the Company may be required to repurchase all or a portion of the 2020 Senior Notes of a holder upon the occurrence of a change of control event at a price equal to 101% of their aggregate principal amount, plus accrued and unpaid interest, to the date of repurchase.

Senior Unsecured Notes Due 2029

On November 27, 2019, the Company issued unsecured senior notes in the principal amount of $400 million (the "2019 Senior Notes") at a discount of $2.4 million, bearing a coupon of 3.70% with an effective rate of 3.88%.

The 2019 Senior Notes will mature on December 1, 2029, with interest to be paid semi-annually on December 1 st and June 1 st .

The Company used the net proceeds of this offering, after deducting underwriting discounts, commissions and other offering expenses, to repay previously outstanding senior notes in the principal amount of $250 million due August 28, 2020, and for working capital and other general corporate purposes.

The Company may redeem the 2019 Senior Notes, in whole or in part, at its option at the applicable redemption price before maturity.

If the Company redeems the 2019 Senior Notes prior to September 1, 2029 (three months prior to the maturity date) (the “2019 Notes Par Call Date”), the redemption price will be equal to the greater of (a) 100% of the principal amount of the notes to be redeemed, or (b) the sum of the present values of the remaining scheduled principal and interest payments that would have been payable had the 2019 Senior Notes matured on the 2019 Notes Par Call Date, discounted to the redemption date on a semi-annual basis at the applicable Treasury Rate plus 30 basis points, plus accrued and unpaid interest.

If the Company redeems the 2019 Senior Notes on or after the 2019 Notes Par Call Date, the redemption price will equal 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest.

Additionally, at the option of the holders of the 2019 Senior Notes, the Company may be required to repurchase all or a portion of the 2019 Senior Notes of a holder upon the occurrence of a change of control event at a price equal to 101% of their aggregate principal amount, plus accrued and unpaid interest, to the date of repurchase.

Senior Unsecured Notes Due 2022

On June 27, 2012 the Company issued unsecured senior notes with a principal amount of $400 million (the "2012 Senior Notes") at par, bearing a coupon of 5.75% with an effective rate of 6.00%.

The 2012 Senior Notes will mature on July 1, 2022, with interest to be paid semi-annually on January 1 st and July 1 st .

The Company utilized the net proceeds of this offering, after deducting underwriting discounts, commissions and other offering expenses, together with borrowings under the Company's senior unsecured senior credit facility, to pay a special cash dividend to stockholders totaling approximately $600.7 million paid on August 23, 2012.

Additionally, at the option of the holders of the 2012 Senior Notes, the Company may be required to repurchase all or a portion of the 2012 Senior Notes of a holder upon the occurrence of a change of control event at a price equal to 101% of their aggregate principal amount, plus accrued and unpaid interest, to the date of repurchase.

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

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

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

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

In combination with the early pay off of the Term Loan, the Company recorded a loss on extinguishment of debt of $16.0 million in the third quarter of 2020.

Construction Loan

In March 2018, the Company entered into a construction loan agreement for the rehabilitation and development of a former office building into a Cambria Hotel through a consolidating joint venture with a commercial lender, which is secured by the building.

The construction loan can be drawn up to $34.9 million.

The construction was completed and the hotel opened in the third quarter of 2019, resulting in the satisfaction of the completion guaranty.

On March 5, 2020, the Company paid off the construction loan in the amount of $33.1 million inclusive of accrued and unpaid interest and recorded a loss on extinguishment of debt of $0.6 million.

Fixed Rate Collateralized Mortgage

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

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

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

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

The fair value adjustment will be amortized over the remaining term of the mortgage utilizing the effective interest method.

The fair value adjustment was amortized over the remaining term of the mortgage utilizing the effective interest method.

The mortgage principal and outstanding interest was paid off in the amount of $6.9 million at maturity in December 2020.

Economic Development Loans

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Any outstanding advances at the expiration of the Company's ten year corporate headquarters lease in 2023 will be forgiven in full.

The advances will be included in long-term debt in Company's consolidated balance sheets until the Company determines that the future performance conditions will be met over the entire term of the agreement and the Company will not be required to repay the advances.

The advances will be included in long-term debt in the Company's consolidated balance sheets until the Company determines that the future performance conditions will be met over the entire term of the agreement and the Company will not be required to repay the advances.

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

The Company was in compliance with all current performance conditions as of December 31, 2019 .

Construction Loan

In March 2018, the Company entered into a construction loan agreement for the rehabilitation and development of a former office building into a hotel through a consolidating joint venture with a commercial lender, which is secured by the building.

The construction loan can be drawn up to $34.9 million , bears an interest rate at LIBOR plus a margin of 435 basis points and has a maturity date of March 28, 2022 with two one-year extension options.

The Company has a carve-out guaranty and the unaffiliated joint venture partner has a completion guaranty in relation to the loan, in which both parties are required to meet certain financial covenants relating to liquidity and net worth.

The rehabilitation of the building is considered a qualified asset that requires a significant amount of time to prepare for its intended use.

Therefore, any interest costs incurred during the development period of the building is considered an element of the historical cost of the qualifying asset.

At December 31,

2019 , the Company has drawn on $33.1 million of the construction loan and recorded $0.9 million of capitalized interest costs.

During the third quarter of 2019, the Company completed construction of the hotel and purchased the remaining interest of the unaffiliated joint venture partner.

On December 28, 2020, the Company reached an agreement to amend the performance conditions and waive any defaults associated with employment levels until April 1, 2021.

The Company was in compliance with all applicable current performance conditions in accordance with the amended terms of the agreement as of December 31, 2020.

Transfer of Interest

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In February 2019, in connection with the Company's restructuring negotiations with the borrower, the Company mutually agreed with the counter party to repurchase the $24.4 million previously transferred prior to the maturity date.

The Company retains the full loan balance as recorded in Notes receivable, net of allowances as of December 31, 2019 .

Regular Quarterly Dividends

The Company currently maintains the payment of a quarterly dividend on its common shares outstanding, however, the declaration of future dividends are subject to the discretion of our board of directors.

During the year ended December 31, 2019, 2018 and 2017 , the Company paid cash dividends at a quarterly rate of $0.215, per share.

In December 2019, the Company's board of directors increased the quarterly dividend rate to $0.225 per share, beginning with the first dividend payable in 2020, representing a 5% increase from the previous quarterly declarations.

During the year ended December 31, 2019, 2018 and 2017 , the Company paid regular quarterly cash dividends totaling $48.1 million , $48.7 million , and $48.7 million , respectively.

We expect that cash dividends will continue to be paid in the future, subject to declaration by our board of directors, future business performance, economic conditions, changes in tax regulations and other matters.

Based on our present dividend rate and outstanding share count, aggregate annual regular dividends for 2020 are estimated to be approximately $50.1 million .

At both December 31, 2020 and 2019, there were no remaining balances on the consolidated balance sheets pursuant to this transfer.

The Company commenced paying quarterly dividends in 2004.

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

During the year ended December 31, 2020, the Company paid cash dividends totaling $25.3 million.

The most recent dividend declaration from the Company's board of directors was on February 28, 2020 in the amount of $0.225 per share and paid on April 16, 2020.

In light of uncertainty resulting from the COVID-19 pandemic, we determined to suspend future, undeclared dividends while the pandemic is significantly impacting travel.

Prior to suspension of dividends in 2020, the Company paid a quarterly dividend on its common stock of $0.225 per share.

The Company may not declare or make any payment if there is an existing event of default under the Restated Credit Agreement or if the payment would create an event of default.

Share Repurchases

During the year ended December 31, 2019 , the Company repurchased 0.6 million shares of its common stock under the repurchase program at a total cost of $44.1 million .

Through December 31, 2019 , the Company repurchased 51.1 million shares of its common stock (including 33.0 million prior to the two -for-one stock split effected in October 2005) under the share repurchase program at a total cost of $1.4 billion .

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.

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

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

Through December 31, 2020, the Company repurchased 51.6 million shares of its common stock (including 33.0 million prior to the two-for-one stock split effected in October 2005) under the program at

a total cost of $1.5 billion.

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

As of December 31, 2020, the Company had 3.4 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.

During 2019 , the Company redeemed 79,603 shares of common stock at a total cost of $6.5 million from employees to satisfy the option price and minimum tax-withholding requirements related to the exercising of options and vesting of performance vested restricted stock units and restricted stock grants.

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

During 2020, the Company redeemed 125,996 shares of common stock at a total cost of $12.2 million from employees to satisfy the option exercise price and statutory minimum tax-withholding requirements related to the exercising of stock options and vesting of performance vested restricted stock units and restricted stock grants.

During 2019 and 2018, the Company redeemed 79,603 and 92,366 shares of common stock at a total cost of $6.5 million and $7.4 million, respectively.

These redemptions were outside the share repurchase program initiated in June 1998.

These redemptions were outside the 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 the repurchase of the Company's stock in the future, at such time that conditions are appropriate.

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

The following table summarizes our contractual obligations as of December 31, 2020:

Payment due by period

Contractual Obligations:

(in millions)

(in thousands) Total Less than

1 year 1-3 years 3-5 years More than

Long-term debt (1)

$ 1,401,830 $ 41,121 $ 296,340 $ 62,900 $ 1,001,469

Purchase obligations (2)

388,740 98,509 176,342 56,727 57,162

Operating lease obligations 24,417 11,237 13,129 51 —

Other long-term liabilities (3)

36,698 — 6,910 3,562 26,226

Total contractual obligations $ 1,851,685 $ 150,867 $ 492,721 $ 123,240 $ 1,084,857

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Assumes forward estimates of LIBOR rates as of December 31, 2020 for our variable interest rate debt.

Purchase obligations also include commitments to provide loan and joint venture financing under various Company programs.

(2) Purchase obligations include commitments to provide franchise agreement acquisition payments and loan financing, provided certain conditions are met, in addition to joint venture financing.

(3) Other long-term liabilities primarily consist of deferred compensation plan liabilities.

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Off Balance Sheet Arrangements

The Company has entered into various limited payment guaranties with regards to the Company’s VIEs supporting the VIE’s efforts to develop and own hotels franchised under the Company’s brands.

Under these limited payment guaranties, the Company has agreed to guaranty a portion of the outstanding debt until certain conditions are met, such as (a) the loan matures, (b) certain debt covenants are achieved, (c) the maximum amount guaranteed by the Company is paid in full or (d) the Company, through its affiliates, ceases to be a member of the VIE.

The Company has entered into various limited payment guaranties with regards to the Company’s variable interest entities ("VIEs") supporting the VIE’s efforts to develop and own hotels franchised under the Company’s brands.

Under these limited payment guaranties, the Company has agreed to guarantee a portion of the outstanding debt until certain conditions are met, such as (a) the loan matures, (b) certain debt covenants are achieved, (c) the maximum amount guaranteed by the Company is paid in full or (d) the Company, through its affiliates, ceases to be a member of the VIE.

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

The Company believes the likelihood of having to perform under the aforementioned limited payment guaranties was remote as of December 31, 2020 and December 31, 2019.

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

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

Refer to Note 23 to our consolidated financial statements for further discussion of our off-balance sheet arrangements.

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or (iii) existing franchise agreements are extended.

These revenues are recognized as revenue ratably as services are provided over the enforceable period of the franchise agreement.

These fees are recognized as revenue ratably as services are provided over the enforceable period of the franchise agreement.

The enforceable period is the period from hotel opening to the first point the franchisee or the Company can terminate the franchise agreement without incurring a significant penalty.

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The Company’s franchise agreements provide the Company the right to advance monies to the franchise system when the needs of the system surpass the balances currently available and recover such advances in future periods through additional fee assessments or reduced spending.

The deficit generated during the year ended December 31, 2020 of $44.3 million is a result of lower marketing and reservation fees generated and incremental spend by the Company to support franchisees during the COVID-19 pandemic.

Sales commissions earned by Company personnel upon execution of a franchise agreement (“franchise sales commissions”) meet the requirement to be capitalized as an incremental cost of obtaining a contract with a customer.

Capitalized franchise sales commission are amortized on a straight-line basis over the estimated benefit period of the arrangement, unless the franchise agreement is terminated and the hotel exits the system whereby remaining capitalized amounts will be expensed in the period of termination.

We make certain payments to customers as an incentive to enter into new franchise agreements (“franchise agreement acquisition cost”).

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Variable consideration is determined at the conclusion of each period, and recognized in the current period.

The Company owned five hotels at December 31, 2019, from which the Company derives revenues.

As a hotel owner, the Company has performance obligations to provide accommodations to hotel guests;

and, in return, the Company earns a nightly fee for an agreed upon period that is generally payable at the time the hotel guest checks out of the hotel.

typically satisfies the performance obligations over the length of the stay and recognizes the revenue on a daily basis, as the hotel rooms are occupied and services are rendered.

The Company owned five hotels at December 31, 2020 and December 31, 2019, from which the Company derives revenues.

As a hotel owner, the Company has performance obligations to provide accommodations to hotel guests and in return the Company earns a nightly fee for an agreed upon period that is generally payable at the time the hotel guest checks out of the hotel.

The Company typically satisfies the performance obligations over the length of the stay and recognizes the revenue on a daily basis, as the hotel rooms are occupied and services are rendered.

Other ancillary goods and services at owned hotels are purchased independently of the hotel stay at standalone selling prices and are considered separate performance obligations, which are satisfied at the point in time when the related good or service is provided to the guest.

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The amount of the loyalty program fees in excess of the point liability, represents current and non-current Deferred revenue , which is recognized to revenue as points are redeemed including an estimate of future forfeitures (“breakage”).

The anticipated redemption pattern of the points is the basis for current and non-current designation of each liability.

The anticipated redemption pattern of the points is the basis for current and non-current designation of each liability, which was adjusted in the first quarter of 2020 to reflect an anticipated longer issuance to redemption period in light of impacts from the COVID-19 pandemic.

Loyalty program point redemption revenues are recognized within marketing and reservation system revenue in the consolidated statements of income.

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Partner agreements include multiple performance obligations.

The primary performance obligations are brand intellectual property and material rights for free or discounted goods or services to hotel guests.

The primary performance obligations are brand intellectual property and material rights for free or

discounted goods or services to hotel guests.

Allocation of fixed and variable consideration to the performance obligations is based on standalone selling price as estimated based on market and income methods, which represent significant judgments.

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Valuation of Long-Lived Assets, Intangibles, and Goodwill

The Company evaluates the potential impairment of property and equipment and other long-lived assets, including franchise rights and other definite-lived intangibles, annually or earlier upon the occurrence of an event or other circumstances that indicates that the Company may not be able to recover the carrying value of the asset.

When indicators of impairment are present, recoverability is assessed based on net, undiscounted expected cash flows.

If the net, undiscounted expected cash flows are less than the carrying amount of the assets, an impairment charge is recorded for the excess of the carrying value over the fair value of the asset.

We estimate the fair value of intangibles and long lived assets primarily using undiscounted cash flow analysis.

The Company evaluates the potential impairment of property and equipment and other long-lived assets, including franchise rights and other intangible assets with definite lives, annually or earlier upon the occurrence of an event or when other circumstances indicate that the Company may not be able to recover the carrying value of the asset.

When indicators of impairment are present, recoverability is assessed based on undiscounted expected cash flows.

If the undiscounted expected cash flows are less than the carrying amount of the assets, an impairment charge is recorded for the excess of the carrying value over the fair value of the asset.

The fair value of intangibles and long lived assets are estimated primarily using undiscounted cash flow analyses.

Significant management judgment is involved in evaluating indicators of impairment and developing any required projections to test for recoverability or estimate the fair value of an asset.

Furthermore, if management uses different projections or if different conditions occur in future periods, future-operating results could be materially impacted.

Goodwill is allocated to the Company's reporting units, which are determined by the availability of discrete financial information relied upon by segment management.

Goodwill has been allocated to two reporting units:

(1) Hotel Franchising and (2) SaaS for vacation rentals (see note below).

Goodwill and indefinite lived intangibles are evaluated for impairment annually as of December 31 or earlier upon the occurrence of substantive unfavorable changes in economic conditions, industry

trends, costs, cash flows, or ongoing declines in market capitalization that indicate that the Company may not be able to recover the carrying amount of the asset.

The impairment test requires judgment, including the identification of reporting units, the assignment of assets, liabilities and goodwill to reporting units, and the determination of fair value of each reporting unit if a quantitative test is performed.

The Company did not identify any indicators of impairment of long-lived assets from the Hotel Franchising reporting unit during the years ended December 31, 2020, 2019 and 2018, other than impairments on franchise sales commission assets and franchise agreement acquisition cost intangibles resulting from terminations of franchisees from the Choice system.

During 2019, the Company recognized impairments of long-lived assets attributable to the SaaS for vacation rentals reporting unit, as discussed further below.

During 2020, the Company recognized impairments attributable to a the long-lived assets of a commercial office building and a real estate parcel.

• On December 30, 2014, a court awarded the Company title to a commercial office building as settlement of a portion of an outstanding loan receivable for which the building was pledged as collateral.

At the time of settlement, a single tenant fully occupied the building.

The initial lease term expiration was in December 2020 and the tenant had extension options for up to 30 years.

Prior to initial lease term expiration, the tenant provided notice that the lease renewal options would not be exercised.

Management identified this as a triggering event requiring the interim reevaluation of the commercial office building's long-lived assets.

The long-lived asset group had a carrying value prior to recoverability evaluation of $11.1 million in property and equipment and $0.2 million in intangible assets as of September 30, 2020.

During the third quarter of 2020, recoverability of the long-lived asset group was assessed based on undiscounted expected cash flows of the asset group aligned with management’s present long-term strategy for the building, and management concluded the undiscounted expected cash flows were less than the carrying amount of the asset group.

An impairment charge was recorded for the excess of the carrying value over the fair value of the asset group.

To estimate the fair value of the long-lived asset group, the Company utilized a combination of market and income approach valuation methods.

The Company recognized a non-cash pretax long-lived asset group impairment charge in the amount of $4.3 million during the third quarter of 2020.

• The Company purchases real estate as part of its program to incent franchise development in strategic markets for the Cambria brand.

The real estate is classified in other assets to the extent it is not presently under active construction.

During the third quarter of 2018, the Company purchased the remaining membership interests in a VIE previously accounted for under the equity method of accounting.

The VIE held a real estate parcel and the purchase was accounted for an asset acquisition.

The financial results of the 100% owned entity have been consolidated in the Company's financial statements since August 2018.

The real estate parcel represents a long-lived asset group with a carrying value prior to recoverability evaluation of $29.5 million in other assets as of December 31, 2020.

Based on the impact of the COVID-19 pandemic, the Company’s assessment of the highest and best use of the real estate parcel changed and therefore, the recoverability of the long-lived asset group was re-assessed based on undiscounted expected cash flows of the asset group from a sale, which were less than the carrying value of the asset group.

An impairment charge was recorded for the excess of the carrying value over the fair value of the asset group.

To estimate the fair value of the long-lived asset group, the Company utilized market approach valuation methods.

The Company recognized a non-cash pre-tax long-lived asset group impairment charge in the amount of $9.2 million during the fourth quarter of 2020.

The Company evaluates the impairment of goodwill and intangible assets with indefinite lives annually as of December 31 or earlier upon the occurrence of substantive unfavorable changes in economic conditions, industry trends, costs, cash flows, or ongoing declines in market capitalization that indicate that the Company may not be able to recover the carrying amount of the

In evaluating these assets for impairment, the Company may elect to first assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit or the indefinite lived intangible asset is less than its carrying amount.

If the Company believes that, as a result of its qualitative assessment, it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, a quantitative impairment test is not required.

However, the Company may elect to forgo the qualitative assessment and move directly to the quantitative impairment test for goodwill and the fair value determination for indefinite-lived intangibles.

If the Company forgoes the qualitative test, only step one of quantitative test is required, which requires a comparison of reporting unit fair value to carrying value.

If the conclusion is that it is not more likely than not that the fair value of the asset is less than its carrying value, then no further testing is required.

If the conclusion is that it is more likely than not that the fair value of the asset is less than its carrying value, then a quantitative impairment test is performed whereby the carrying value is compared to the fair value of the asset and an impairment charge is recognized for any excess.

The Company may elect to forgo the qualitative assessment and move directly to the quantitative impairment tests for goodwill and indefinite-lived intangibles.

The Company determines the fair value of its reporting units and indefinite-lived intangibles using income and market methods.

On January 29, 2019, the Company became aware that a key customer of the SaaS for vacation rentals reporting unit provided the unit’s management team with a letter purporting to terminate the customer’s contract.

The unit’s management team asserted, and the Company believed, that the purported termination notice was not valid.

The customer was contemplated in the SaaS for vacation rentals reporting unit's projected revenues, and the Company determined that the unit’s receipt of the purported termination notice, even though the validity of the notice was being actively contested by the unit, represented a triggering event which required an interim reevaluation of the reporting unit's long-lived assets group and goodwill in the first quarter of 2019.

The long-lived assets of the SaaS for vacation rentals reporting unit were comprised of $4.3 million of intangible assets, $1.7 million of operating lease right-of-use assets, and $1.3 million of property and equipment.

The long-lived asset group was determined to be at the SaaS for vacation rentals reporting unit level.

Recoverability of the long-lived asset group was assessed based on net, undiscounted expected cash flows of the asset group, which were less than the carrying amount of the asset group.

An impairment charge was recorded for the excess of the carrying value over the fair value of the asset group.

To estimate the fair value of the long-lived asset group, the Company utilized a combination of income and market approach valuation methods via performance of a discounted cash flow analysis and quoted market prices.

In the first quarter of 2019, the Company recognized a non-cash pre-tax long-lived asset group impairment charge for the full amount of SaaS for vacation rentals long-lived assets of $7.3 million , as well as an additional $3.1 million reduction in the reporting unit's goodwill.

In performing the quantitative tests in the first quarter of 2019, the Company determined the fair value of the SaaS for vacation rentals reporting unit utilizing a combination of market and income approach valuation methods via performance of a discounted cash flow ("DCF") analysis and quoted market prices.

Goodwill is allocated to the Company's reporting units, which are determined by the availability of discrete financial information relied upon by segment management.

As of December 31, 2020, the Company's goodwill is allocated to the Hotel Franchising reporting unit.

The Company performed the qualitative impairment analysis for the Hotel Franchising reporting unit, concluding that it is more likely than not that the fair value of the reporting unit is greater than its carrying amount.

As such, no impairment was recorded and a quantitative test was not required.

Historically, goodwill has been partially allocated to the SaaS for vacation rentals reporting unit.

The Company performed the quantitative test for the SaaS for vacation rentals reporting unit during the fourth quarter of 2018 and first quarter of 2019 determining that the carrying value of the reporting unit exceeded the fair value.

As a result, the Company recognized a goodwill impairment of $4.3 million and $3.1 million in the fourth quarter of 2018 and first quarter of 2019, respectively.

In addition, during the first quarter of 2019 the Company recognized a long-lived asset group impairment charge for the full amount of SaaS for vacation rentals long-lived assets of $7.3 million.

To estimate the fair value of the SaaS for vacation rentals long-lived asset group, the Company utilized a combination of income and market approach valuation methods via performance of a discounted cash flow analysis and quoted market prices.

There were significant judgments and assumptions used in the DCF and market-based models including the amount and timing of expected future cash flows, long-term growth rates, discount rate, and our selection of guideline company revenue multiples.

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Discount rate assumptions were based on an assessment of the risk inherent in the future cash flows of the respective reporting unit and market conditions.

Given the inherent uncertainty in determining the assumptions underlying a DCF analysis, actual results may differ from those used in our valuations.

On June 3, 2019, the SaaS for vacation rentals reporting unit was sold.

As a result of costs incurred in completing the disposition and the de-recognition of net assets of the reporting unit, including the remaining goodwill balance, the Company recognized a loss on sale of $4.7 million .

The SaaS for vacation rentals reporting unit was sold during the second quarter of 2019, resulting in the write-off of the remaining goodwill of $6.3 million and recognition of a loss on sale of $4.7 million.

Other than the SaaS for vacation rentals reporting unit, the Company did not record any impairment of goodwill or intangible assets with indefinite lives during the years ended December 31, 2020, 2019 and 2018.

Valuation of Investments in Equity Method Investments

The Company evaluates an investment in an equity method investment for impairment when circumstances indicate that the carrying value may not be recoverable, for example due to loan defaults, significant under performance relative to historical or projected operating performance, and significant negative industry or economic trends.

The Company evaluates an investment in a venture for impairment when circumstances indicate that the carrying value may not be recoverable, for example due to loan defaults, significant under performance relative to historical or projected operating performance, and significant negative industry or economic trends.

When there is indication that a loss in value has occurred, the Company evaluates the carrying value compared to the estimated fair value of the investment.

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For declines in value that are deemed other-than-temporary, impairments are charged to earnings.

Notes Receivable and Loan Loss Reserves

The Company has provided financing to franchisees in support of the development of properties in strategic markets.

The Company expects the owners to repay the loans in accordance with the loan agreements, or earlier as the hotels mature and capital markets permit.

The Company estimates the collectibility and records an allowance for loss on its notes receivable when recording the receivables in the Company’s financial statements.

These estimates are updated quarterly based on available information.

The Company utilizes the level of security it has in the notes receivable as its primary credit quality indicator (i.e., senior, subordinated or unsecured) when determining the appropriate allowances for uncollectible loans.

The Company considers a loan to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.

All amounts due according to the contractual terms means that both the contractual interest payments and the contractual principal payments of a loan will be collected as scheduled in the loan agreement.

The Company measures loan impairment based on the present value of expected future cash flows discounted at the loan’s original effective interest rate or the estimated fair value of the collateral.

For impaired or restructured loans that are provided a concession, the Company establishes a specific impairment reserve for the difference between the recorded investment in the loan and the present value of the expected future cash flows or the estimated fair value of the collateral.

The Company applies its loan impairment policy individually to all notes receivable in the portfolio and does not aggregate loans for the purpose of applying such policy.

For impaired loans, the Company recognizes interest income on a cash basis.

For restructured loans that are provided a concession, the Company recognizes interest as earned as long as the borrower is in compliance with the restructured loan terms.

The Company assesses the adequacy of its loan reserves on a quarterly basis.

If it is likely that a loan will not be collected based on financial or other business indicators, it is the Company’s policy to establish a valuation allowance with a corresponding charge to SG&A expenses in the accompanying consolidated statements of income in the quarter when it is deemed uncollectible.

Recoveries of impaired loans are recorded as a reduction of SG&A expenses in the quarter received.

The Company assesses the collectibility of its senior notes receivable by comparing the market value of the underlying assets to the carrying value of the outstanding notes.

In addition, the Company evaluates the property’s operating performance, the borrower’s compliance with the terms of the loan and franchise agreements, and all related personal guaranties that have been provided by the borrower.

For subordinated or unsecured receivables, the Company assesses the property’s operating performance, the subordinated equity available to the Company, the borrower’s compliance with the terms of the loan and franchise agreements, and the related personal guaranties that have been provided by the borrower.

During the year ended December 31, 2020, the Company recognized impairment charges of $7.3 million related to four separate equity method investments.

The impairment charges are classified as equity in net loss of affiliates in the consolidated statements of income.

Accounts & Notes Receivable and Expected Credit Losses

The Company has developed a systematic methodology to determine its allowance for credit losses across our portfolio of notes receivable loans.

The Company monitors the risk and performance of our portfolio by the level of security in collateral (i.e., senior, subordinated or unsecured).

As each of the Company’s notes receivable loans has unique risk characteristics, the Company deploys its methodology to calculate allowances for credit losses at the individual notes receivable loan level.

The Company primarily utilizes a discounted cash flow ("DCF") approach to measure the credit allowance, influenced by the key economic variables of each note receivable loan.

The Company identified the key economic variables for these loans to be loan-to-cost ("LTC") or loan-to-value ("LTV") ratios and debt service coverage ratio ("DSCR").

The LTC or LTV ratio represents the loan principal relative to the project cost or value and is an indication of the ability to be re-paid principal at loan maturity.

The DSCR represents borrower net operating income as a percentage of the interest and principal payments incurred (i.e., debt service) on all debt of the borrower and is an indication of the ability of the borrower to timely pay amounts due during the term of the loan.

The LTC or LTV ratios and DSCR are considered during loan underwriting as indications of risk and, accordingly, we believe these factors are the most representative risk indicators for calculating the allowance for credit loss.

Loans with higher LTC or LTV ratios and lower DSCR ratios generally are representative of loans with greater risk and, accordingly, have higher credit allowances as a percentage of loan principal.

Conversely, loans with lower LTC or LTV ratios and higher DSCR ratios generally are representative of loans with lesser risk and, accordingly, have lower credit allowances as a percentage of loan principal.

Management assesses the credit quality of the portfolio and adequacy of credit loss allowances on an at least quarterly basis.

Significant judgment is required in this analysis.

Collateral-dependent financial assets are financial assets for which repayment is expected to be derived substantially through the operation or sale of the collateral and where the borrower is experiencing financial difficulty.

For collateral-dependent loans, expected credit losses are based on the fair value of the collateral, less selling costs.

The Company considers loans to be past due and in default when payments are not made when due.

Although the Company considers loans to be in default if payments are not received on the due date, the Company does not suspend the accrual of interest until those payments are more than 30 days past due.

The Company applies payments received for loans on non-accrual status first to interest and then principal.

The Company applies payments received for loans on non-accrual status first to interest and then to principal.

The Company does not resume interest accrual until all delinquent payments are received.

The Company classifies notes receivable due within one year as current assets.

Accounts receivable consist primarily of franchise and related fees due from hotel franchisees and are recorded at the invoiced amount.

The allowance for credit losses is the Company’s best estimate of the amount of expected credit losses inherent in the accounts receivable balance.

The Company determines the allowance considering historical write-off experience, review of aged receivable balances and customer payment trends, the economic environment, and other available evidence.

The Company records provisions for credit losses in SG&A expenses and marketing and reservation system expenses in the accompanying consolidated statements of income.

When the Company determines that an account is not collectible, the account is written-off to the associated allowance for credit losses.

Historically, the Company has considered its credit risk associated with accounts receivables to be partially mitigated due to the dispersion of these receivables across a large number of geographically diverse franchisees.

With contemplation to economic and credit conditions resulting from the COVID-19 pandemic and estimates of other expected credit losses, during the year ended December 31, 2020 the Company recorded provisions for credit losses on accounts receivable of $15.6 million in SG&A expenses and $26.0 million in marketing and reservation system expenses, and provisions for credit losses on notes receivable of $7.6 million in SG&A expenses.

As a result of the COVID-19 pandemic, the Company extended interest deferral terms on certain notes receivable.

The Company considers loans to be past due and in default when payments are not made when due in accordance with then current loan provisions or terms extended to borrowers, including loans with concessions or interest deferral.

The Company applies payments received for loans on non-accrual status first to interest and then to principal.

The Company does not resume interest accrual until all delinquent payments are received based on then current loan provisions.

Stock Compensation

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Compensation expense related to the fair value of share-based awards is recognized over the requisite service period based on an estimate of those awards that will ultimately vest.

The Company estimates the share-based compensation expense for awards that will ultimately vest upon inception of the grant and adjusts the estimate of share-based compensation for those awards with performance and/or service requirements that will not be satisfied so that compensation cost is recognized only for awards that ultimately vest.

The Company estimates the share-based compensation expense for awards that will ultimately vest upon inception of the grant and adjusts the estimate of share-based compensation for those awards with performance and/or service requirements that will not be satisfied so that compensation cost generally is recognized only for awards that ultimately vest.

Income taxes are recorded using the asset and liability method of accounting for income taxes.

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

A valuation allowance is provided for deferred tax assets if it is more likely than not such assets will be unrealized.

A valuation allowance is provided for deferred tax assets if it is more likely than not such

assets will be unrealized.

Historically, deferred United States income taxes have not been recorded for temporary differences related to investments in certain foreign subsidiaries and corporate affiliates.

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As a result of the new policy, the Company intends to limit any future foreign distributions to income which has been previously subject to US taxation, for which relevant taxes have been recorded.

Nonetheless, the Company will continue to assert that any other outside basis difference of the foreign

subsidiaries will be permanently (or indefinitely) reinvested outside of the U.S.

Nonetheless, the Company will continue to assert that any other outside basis difference of the foreign subsidiaries will be permanently (or indefinitely) reinvested outside of the U.S.

Consequently, the Company will not record any additional deferred taxes for this item in 2020.

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The Company records interest and penalties on unrecognized tax benefits in the provision for income taxes .

Additional information regarding the Company’s unrecognized tax benefits is provided in Note 16 to Consolidated Financial Statements.

New Accounting Standards

See Recently Adopted Accounting Standards section of Note 1 and Note 27 to our consolidated financial statements for information related to our adoption of new accounting standards in 2019 and anticipated adoption of recently issued accounting standards.

Refer to the "Recently Adopted Accounting Standards" section of Note 1 and the "Future Adoption of Accounting Standards" at Note 25 of our consolidated financial statements for information related to our adoption of new accounting standards in 2020 and anticipated adoption of recently issued accounting standards.

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 7. Management’s Discussion and Analysis