CHOICE HOTELS INTERNATIONAL INC /DE 10-K

Item 1. Business. Recent Developments Agreement to acquire Radisson Hotels Americas The Company entered into a Share Sale and Purchase Agreement, dated June 12, 2022, by and among the Company, Radisson Holdings, Inc., Radisson Hospitality, Inc., Aplite Holdings AB and Radisson Hospitality Belgium BV/SR to acquire (1) all of the issued and outstanding shares of Radisson Hospitality, Inc. and (2) certain trademarks held by Radisson Hospitality Belgium BV/SRL (collectively referred to as "Radisson Hotels Americas") for a base purchase price of approximately $675.2 million, adjusted for Disclosed Leakage (as defined in the Share Sale and Purchase Agreement) and certain other prepaid expenses. The transaction closed on August 11, 2022 for a purchase price of $673.9 million, net of leakage and certain prepaid expenses. Impact of the COVID-19 Pandemic The COVID-19 pandemic has caused and continues to cause disruptions to the global economy and the hospitality industry, including in the United States, where more than 80% of our franchised hotels are located. Reduced travel as a result of COVID-19 adversely impacted the hospitality industry generally and the Company, however, the development and distribution of effective vaccines and other containment efforts have been significant positive developments that have contributed to improved operating metrics since the second quarter of 2021. The extent to which the COVID-19 pandemic will continue to impact the hospitality industry generally and our operations remains uncertain and will depend in part on future developments, including the severity and duration of resurgences or variants of the virus, the effectiveness of actions by government authorities and the public to continue to contain the pandemic, and the potential for long-term adverse changes in consumer sentiment with respect to travel as a result of the pandemic. Since the impacts of COVID-19 on the Company's business were first experienced in March 2020, trends have improved steadily. The full year 2022 domestic RevPAR experienced an increase of approximately 12.4% and 14.6% relative to full year 2021 and full year 2019, respectively. As of both December 31, 2022 and December 31, 2021, less than 1% of the Company's domestic hotel system had temporarily suspended operations. 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, 2022, the Company had approximately $281.6 million in cash and additional borrowing capacity through its senior unsecured revolving credit facility. Based on our business model and information known at this time, the Company believes that cash flows from operations and available financing capacity provide sufficient liquidity to meet the expected future operating, investing and financing needs of the business, inclusive of those for the recently acquired Radisson Hotels Americas operations. While the Company believes that the long-term fundamentals of the business remain strong, it will continue to adjust business contingency plans as it deems necessary as the COVID-19 pandemic evolves. For additional information, refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 1A. Risk Factors. Overview We are primarily a hotel franchisor with franchise agreements and owned hotels representing 7,487 hotels open comprising 627,804 rooms and 988 hotels under construction, awaiting conversion or approved for development comprising 94,558 rooms as of December 31, 2022, located in 50 states, the District of Columbia and approximately 50 countries and territories outside the United States. Our brand names include Comfort Inn®, Comfort Suites®, Quality®, Clarion®, Clarion Pointe™, Ascend Hotel Collection®, Sleep Inn®, Econo Lodge®, Rodeway Inn®, MainStay Suites®, Suburban Studios™, WoodSpring Suites®, Everhome Suites®, and Cambria® Hotels (collectively, the "legacy Choice brands"). Additionally, through the Radisson Hotels Americas acquisition, our brands expanded to include Radisson Blu®, Radisson RED®, Radisson®, Park Plaza®, Country Inn & Suites® by Radisson, Radisson Inn & Suites SM , Park Inn by Radisson®, Radisson Individuals®, and Radisson Collection®, which are located across the United States, Canada, the Caribbean and Latin America ("the Americas"), collectively referred to for these markets as the "legacy Radisson brands". The hotel franchising business represents the Company's primary operations,which represents approximately 92% of the Company's total revenues. The Company's domestic operations are conducted through direct franchising relationships, the ownership of nine hotels, and the management of 13 hotels (inclusive of 3 owned hotels), while its international franchise operations are conducted through a combination of direct franchising and master franchising relationships. Master franchising 5 Table of Content s relationships are governed by master franchising agreements which generally provide the master franchisee with the right to use our brands and sub-license the use of our brands in a specific geographic region, usually for a fee. With a primary focus on hotel franchising, we benefit from the economies of scale inherent in the franchising business. The fee and cost structure of our franchising business provides opportunities to improve operating results by increasing the number of franchised hotel rooms and effective royalty rates of our franchise contracts resulting in increased initial fee revenue, ongoing royalty fees, and procurement services revenues. In addition, our operating results can also be improved through our company-wide efforts related to improving property-level performance and expanding the number of partnerships with travel-related companies. The principal factors that affect the Company’s results are: the number and relative mix of hotel rooms in the various hotel lodging price categories; growth in the number of hotel rooms owned and under franchise; occupancy and room rates achieved by the hotels in our system; the effective royalty rate achieved on our franchise agreements; the level of franchise sales and relicensing activity; the number of qualified vendor arrangements and travel-related partnerships and the level of engagement with these partners by our franchisees and guests; and our ability to manage costs. The number of rooms in our hotel system and the occupancy and room rates at those properties significantly affect the Company’s results because our fees are based upon room revenues or the number of rooms at owned and franchised hotels. The key industry standard for measuring hotel-operating performance is RevPAR, which is calculated by multiplying the percentage of occupied rooms by the average daily room rate ("ADR") realized. Our variable overhead costs associated with franchise system growth of our brands have historically been less than incremental royalty fees generated from new franchises. Accordingly, over the long term, any continued growth of our franchise business should enable us to realize benefits from the operating leverage in place and improve operating results. We are required by our legacy Choice franchise agreements to use marketing and reservation system fees we collect for system-wide marketing and reservation system activities. These expenditures, which include advertising costs and costs to maintain our central reservations and property management systems, enhance awareness and consumer preference for our brands and deliver guests to our franchisees. Greater awareness and preference promote long-term growth in business delivery to our franchisees and increases the desirability of our brands to hotel owners and developers, which ultimately increases franchise fees earned by the Company. The legacy Radisson Hotels Americas franchise agreements have similar provisions regarding marketing fees to be used for marketing activities. Additionally, the legacy Radisson Hotels Americas management agreements include cost reimbursements, primarily related to payroll costs at managed hotels where the Company is the employer. Our Company articulates its mission as a commitment to our franchisees’ profitability by providing our franchisees with hotel franchises that strive to generate the highest return on investment of any hotel franchise. We have developed an operating system dedicated to our franchisees’ success that focuses on delivering guests to hotels and reducing hotel operating costs. We believe that executing our strategic priorities creates 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 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. We attempt to improve our revenues and overall profitability by providing a variety of products and services designed to increase business delivery and/or reduce operating and development costs. These products and services include national marketing campaigns, a guest loyalty program, a central reservation system, property and yield management programs and systems, revenue management services, quality assurance standards, qualified vendor relationships and partnerships with other travel-related companies that provide services to our franchisees and guests. We believe that healthy brands, which deliver a compelling return on investment, will enable us to sell additional hotel franchises and raise royalty rates. We have multiple brands that meet the needs of many types of guests, and can be developed at various price points and applied to both new and existing hotels. This ensures that we have brands suitable for creating growth in a variety of market conditions. The addition of the legacy Radisson brands in the Americas increased Choice's footprint in the upper midscale and upscale chain scales and introduced presence in the upper upscale chain scale. We expect that the Radisson Americas acquisition will enable us to further build on our momentum in the upscale chain scale, accelerating the growth of our Cambria Hotels and Ascend Hotel Collection brands and allowing us to expand the Radisson portfolio. 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. 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 acquisitions, share repurchases and dividends. Refer to the heading Liquidity and Capital Resources under Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for additional analysis. In April 2020, in light of uncertainty resulting from the 6 Table of Content s COVID-19 pandemic, we suspended future, undeclared dividends and activity under the Company's share repurchase program. Given our strong liquidity and credit profile, in May 2021, the Company resumed the payment of quarterly dividends, subject to future declarations by our Board of Directors, and activity under the share repurchase program. On December 6, 2021, the Company's Board of Directors approved a 6% increase in the quarterly cash dividend and declared a quarterly cash dividend of $0.2375 per share of common stock, which was paid in January 2022. On February 24, 2022, May 24, 2022, September 22, 2022, and December 7, 2022, the Company's Board of Directors declared a quarterly cash dividend of $0.2375 per share of common stock. In addition to our hotel franchising business, we have also developed or acquired six Cambria hotels and three legacy Radisson Hotels Americas hotels. We intend to continue to strategically develop hotels to increase the presence of our brands in the United States, drive greater guest satisfaction and brand preference, and ultimately increase the number of franchise agreements awarded. When developing hotels, we seek key markets with strong growth potential that will deliver strong operating performance and improve the recognition of our brands. For legacy Choice brands, our hotel development and ownership efforts currently focus on the Cambria Hotels and Everhome Suites brands. We believe our owned hotels provide us the opportunity to support and accelerate the growth of our brands. We do not anticipate owning hotels on a permanent basis and expect to target dispositions to a franchisee in the future. As a result of the Radisson Hotels Americas acquisition, we also manage 13 legacy Radisson Hotels Americas hotels (including the owned Radisson Hotels Americas hotels). A key component of our strategy for owned hotels is to maximize revenues and manage costs. We strive to optimize revenues by focusing on revenue management, increasing guest loyalty, expanding brand awareness with targeted customer groupings, and providing superior guest service. We currently do not manage our owned hotels, other than the acquired Radisson Hotels Americas hotels, but utilize the services of third-party management companies that provide their own employees. We manage costs by setting performance goals for our hotel management companies and optimizing distribution channels. The Company also allocates capital to financing, investment and guaranty support to incentivize franchise development for certain brands in strategic markets and to explore growth opportunities in business areas that are adjacent or complementary to our core hotel franchising business, which leverage our core competencies and are additive to our franchising business model. The timing and amount of these investments are subject to market and other conditions. Our direct real estate exposure is currently limited to activity in the United States, including our owned hotel assets open and under development. In addition, our development activities that involve financing, equity investments and guaranty support to hotel developers create limited additional exposure to the real estate markets. For additional information, see the "Investing Activities" caption under the "Liquidity and Capital Resources" section in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The Company was incorporated in 1980 under the laws of the State of Delaware. The Lodging Industry Companies participating in the lodging industry primarily do so through a combination of one or more of the three primary lodging industry activities: ownership, franchising and management. A company’s relative reliance on each of these activities determines which drivers most influence its profitability. • Ownership requires a substantial capital commitment and involves the most risk but offers high returns due to the owner’s ability to influence margins by driving RevPAR, managing operating expenses and providing financial leverage. The ownership model has a high fixed-cost structure that results in a high degree of operating leverage relative to RevPAR performance. As a result, profits escalate rapidly in a lodging up-cycle but erode quickly in a downturn as costs rarely decline as fast as revenue. Profits from an ownership model increase at a greater rate from RevPAR growth attributable to ADR growth than from occupancy gains since there are more incremental costs associated with higher guest volumes compared to higher pricing. • Franchisors license their brands to a hotel owner, giving the hotel owner the right to use the brand name, logo, operating practices, and reservations systems in exchange for a fee and an agreement to operate the hotel in accordance with the franchisor’s brand standards. Under a typical franchise agreement, the hotel owner pays the franchisor an initial fee, a percentage-of-revenue royalty fee and a marketing & reservation systems fee. A franchisor’s revenues are dependent on the number of rooms in its system and the top-line performance of those hotels. Earnings drivers include RevPAR increases, unit growth and effective royalty rate improvement. Franchisors enjoy significant operating leverage in their business model since it typically costs little to add a new hotel franchise to an existing system. Franchisors normally benefit from higher industry supply growth, because unit growth usually outpaces lower RevPAR resulting from excess supply. As a result, franchisors benefit from both RevPAR growth and supply increases, which aids in reducing the impact of lodging industry economic cycles. 7 Table of Content s • Management companies operate hotels for owners that do not have the expertise and/or the desire to self-manage. These companies collect management fees predominately based on revenues earned and/or profits generated. Similar to franchising activities, the key drivers of revenue-based management fees are RevPAR and unit growth. Similar to ownership activities, profit based fees are driven by improved hotel margins and RevPAR growth. Similar to other industries, lodging experiences both positive and negative operating cycles. Independent of any persisting impacts from the COVID-19 pandemic, there are general trajectories and characteristics of positive and negative operating cycles. Positive cycles are characterized as periods of sustained occupancy growth, increasing room rates and hotel development. These cycles usually continue until either the economy sustains a prolonged downturn, conditions create excess supply, or some external factor occurs such as war, terrorism, pandemic and/or natural resource shortages. Negative cycles are characterized by hoteliers reducing room rates to stimulate occupancy and a reduction of hotel development. Industry recovery usually begins with an increase in occupancy followed by hoteliers increasing room rates. As demand begins to exceed room supply, occupancies and rates continue to improve. These factors result in increased hotel development. Hotel room supply growth is cyclical as hotel construction responds to interest rates, construction and material supply conditions, capital availability and industry fundamentals. Historically, the industry has added hotel rooms to its inventory through new construction due largely to favorable lending environments that encouraged hotel development. Typically, hotel development continues during favorable lending environments until the increase in room supply outpaces demand. The excess supply eventually results in lower occupancies, which results in hoteliers reducing room rates to stimulate demand, and reduced hotel development. Over time, the slow growth in hotel supply results in increased occupancy rates and allows hotels to again raise room rates. The increase in occupancy and room rates serves as a catalyst for increased hotel development. As a franchisor with 7,487 opened hotels, including ownership of nine hotels and management of 13 hotels (inclusive of 3 owned hotels), we believe we are generally well positioned in any stage of the lodging cycle as our fee-for-service business model has historically delivered predictable and profitable, long-term growth in a variety of lodging and economic environments. We have historically benefited from both the RevPAR gains typically experienced in the early stages of recovery as our revenues are based on our franchisees’ gross room revenues, and the supply growth normally occurring in the later stages as we increase our portfolio size. The ultimate impact and duration of the present dynamic operating cycle resulting from the pandemic remains to be seen. The Company’s portfolio of brands offers both new construction and conversion opportunities. Our new construction brands typically benefit from periods of supply growth and favorable capital availability and pricing. Our conversion brands also benefit from periods of supply growth as the construction of hotels increases the need for existing hotels to seek new brand affiliations. Furthermore, the Company's conversion brands generally benefit from lodging cycle downturns as our unit growth has been historically driven from the conversion of independent and other hotel chain affiliates into our system as these hotels endeavor to improve their performance, which typically outpace closures of hotels in our system resulting from the downturn. The lodging industry can be divided into chain scale categories or groupings of generally competitive brands as follows: Chain Scale Brand Examples Luxury Four Seasons, Ritz Carlton, W Hotel, JW Marriott Upper Upscale Radisson Blu, Marriott, Hilton, Hyatt, Sheraton Upscale Cambria Hotels, Radisson, Courtyard, Hyatt Place, Hilton Garden Inn Upper Midscale Comfort Inn, Country Inn & Suites, Holiday Inn Express, Hampton Inn, Fairfield Inn Midscale Quality Inn, Sleep Inn, Best Western, Baymont Economy Econo Lodge, Super 8, Days Inn, Motel 6 The lodging industry consists of independent operators and those that have joined national hotel franchise chains. Independent operators of hotels not owned or managed by major lodging companies have increasingly joined national hotel franchise chains as a means of remaining competitive with hotels owned by or affiliated with national lodging companies. Due to the fact that a significant portion of the costs of owning and operating a hotel are generally fixed, increases in revenues generated by affiliation with a franchise lodging chain can improve a hotel’s financial performance. The large franchise lodging chains, including us, generally provide a number of support services to hotel operators designed to improve the financial performance of their properties including central reservation and property management systems, marketing and advertising programs, training and education programs, revenue enhancement services and relationships with qualified vendors to streamline purchasing processes and make lower cost products available. We believe that national franchise chains with a large number of hotels enjoy greater brand awareness among potential guests and greater bargaining power with suppliers than those with fewer hotels, and that greater brand awareness and bargaining power can increase the desirability of a hotel to its potential guests and reduce operating costs of a hotel. Furthermore, we believe that hotel operators choose lodging franchisors based 8 Table of Content s primarily on the perceived value and quality of each franchisor’s brand and its services, and the extent to which affiliation with that franchisor may increase the hotel operator profitability. We believe these factors enhance the resiliency of hotels affiliated with brands, and as a result, the value proposition of the franchise lodging chains, during a negative operating cycle. Choice’s Franchising Business We operate primarily as a hotel franchisor and deploy our family of 22 brands and brand extensions, which represent both new construction and conversion brands and compete at various hotel consumer and developer price points. Economics of Franchising Business . The fee and cost structure of our business provides opportunities for us to improve operating results by increasing the number of franchised hotel rooms, improving RevPAR performance and increasing the effective royalty rates of our franchise contracts. As a hotel franchisor, we derive our revenue primarily from various franchise fees. Our franchise fees consist primarily of an initial fee and ongoing royalty, marketing and reservation system fees that are typically based on a percentage of the franchised hotel’s gross room revenues. The initial fee and ongoing royalty portion of the franchise fees are intended to cover our operating expenses, such as expenses incurred in business development, quality assurance, administrative support, certain franchise services and to provide us with operating profits. The marketing and reservation system fees are used for the expenses associated with marketing, media, advertising, providing a central reservation system, property management systems, e-commerce initiatives and certain franchise services. Our fees depend on the number of rooms in our system, the gross room revenues generated by our franchisees and effective royalty rates under our franchise contracts. We enjoy significant operating leverage since the variable operating costs associated with the franchise system growth of our established brands have historically been less than incremental royalty fees generated from new franchises. We believe that our business is well positioned in the lodging industry since we generally benefit from both increases in RevPAR and unit growth from new hotel construction or conversion of existing hotel assets into our system. In addition, improving business delivery to our franchisees should allow us to improve the effective royalty rate of our franchise contracts. Our family of well-known and diversified brand offerings positions us well within the lodging industry. Our new build brands such as Cambria Hotels, Comfort, Sleep Inn, WoodSpring, Everhome Suites, and Country Inn & Suites offer hotel developers an array of choices at various price points for transient and extended stay business during periods of supply growth in the various hotel chain scale categories. Our brands such as Quality, Clarion Pointe, Ascend Hotel Collection, Econo Lodge, and Radisson offer conversion opportunities during both industry contraction and growth cycles to independent operators and non-Choice affiliated hotels who desire to affiliate with our brands and take advantage of the services we have to offer. Strategy. Our mission is a commitment to franchisee profitability by providing our franchisees with hotel franchises that strive to generate the highest return on investment of any hotel franchise. Our business strategy is to create franchise system growth by leveraging Choice’s large and well-known hotel brands, franchise sales capabilities, effective marketing and reservation delivery efforts, training and education programs, RevPAR enhancing services and technologies and financial strength created by our significant free cash flow. We believe our brands’ growth will be driven by our ability to create a compelling return on investment for franchisees. Our strategic objective is to improve profitability of our franchisees by providing services which increase business delivery, enhance RevPAR, reduce hotel operating and development costs, and/or improve guest satisfaction. Specific elements of our strategy include: building strong brands, delivering exceptional services, reaching more consumers and leveraging our size, scale and distribution to reduce costs for hotel owners. We believe that by focusing on these elements we can increase the gross room revenues generated by our franchisees by increasing the business delivered to existing franchisees and expanding our market share of franchised hotels in the chain scale categories in which we operate or seek to operate. Improving the desirability of our brands should also allow us to continue to improve the effective royalty rate of our contracts. Building Strong Brands . Each of our brands has particular attributes and strengths, including awareness with both consumers and developers. Our strategy is to utilize the strengths of each brand for room growth, RevPAR gains and royalty rate improvement that create revenue growth. We believe brand consistency, brand quality and guest satisfaction are critical in improving brand performance and building strong brands. We have multiple brands that are positioned to meet the needs of many types of guests. These brands can be developed at various price points and are suitable for both new construction properties and conversion of existing hotels. This flexibility ensures that we have brands suitable for creating room growth in various types of markets, with various types of customers, and during both industry contraction and growth cycles. During times of lower industry supply growth and tighter capital markets, we can target conversions of existing non-Choice affiliated hotels seeking the awareness and proven performance provided by our brands. During periods of strong industry supply growth, we generally expect a greater portion of our room growth to come from our new construction brands. We believe that a large number of markets can still support our hotel brands and that the growth potential for our brands remains strong. 9 Table of Content s We strive to maintain the strength of our brands by enhancing product consistency and quality. We attempt to achieve consistency and quality for new entrants into the franchise system by placing prospective hotels in the appropriate brand based on the physical characteristics, performance and amenities of the hotel and by requiring property improvement plans, when necessary, to ensure the new hotel meets the quality standards of the brand. Furthermore, we may require hotels currently in our franchise system to execute property improvement plans at specified contractual windows to ensure that they continue to maintain the product consistency and quality standards of the brand. We believe each of our brands appeals to targeted hotel owners and guests because of unique brand standards, marketing campaigns, loyalty programs, reservation delivery, revenue enhancing programs, service levels and pricing. Delivering Exceptional Services. We provide a combination of services and technology-based offerings to help our franchisees improve performance. We have field services staff members located nationwide that help franchisees improve RevPAR performance, efficiency of their hotel operations and guest satisfaction. In addition, we provide our franchisees with education and training programs as well as revenue management technology and services designed to improve property-level performance. These services and products promote revenue gains for franchisees and improve guest satisfaction which translate into both higher royalties for the Company and improved returns for owners, leading to further room growth by making our brands even more attractive to prospective franchisees. We develop our services based on customer needs and focus on activities that generate high return on investment for our franchisees. Reaching More Consumers . We believe hotel owners value and benefit from the large volume of guests we deliver through a mix of activities including brand marketing, reservation systems, account sales (corporate, government, social, military, educational and fraternal organizations), and the Company’s loyalty programs, Choice Privileges ® and Radisson Rewards Americas. Our strategy is to maximize the effectiveness of these activities in delivering both leisure and business travelers to Choice-branded hotels. The Company intends to continue to increase awareness of its brands through its national marketing campaigns and its loyalty program promotions. These campaigns are intended to generate a compelling message to consumers to create even greater awareness for our brands with the ultimate goal of driving business through our central reservation system. Local and regional co-op marketing campaigns will continue to be utilized to leverage the national marketing programs to drive business to our franchised properties at a local level. We expect our efforts at marketing directly to individual guests and corporate customers will continue to be enhanced through the use of our customer relationship management technology and programs, as well as our field based sales agents that are focused on increasing our share of business travelers. Our continued focus on overall brand quality coupled with our marketing initiatives is designed to stimulate room demand for our franchised hotels through improved guest awareness and satisfaction. Our central reservations system is a critical technology used to deliver guests to our franchisees through multiple channels, including our call centers, proprietary web and mobile sites, global distribution systems (e.g., SABRE, Amadeus), online travel agents ("OTAs") (e.g., Expedia, Booking.com) and internet referral or booking services (e.g., Kayak, Trip Advisor). We believe our well-known brands, combined with our relationships with many internet distribution websites, benefits our franchisees by facilitating increased rate and reservations delivery, and reducing costs and operational complexity. Leveraging Size, Scale and Distribution . We continually focus on identifying methods for utilizing our significant platform of hotels in our system, our relationships with hospitality-related vendors and partnerships with travel-related providers to reduce costs and increase returns for our franchisees. We are focused on expanding our platform business, which is reflected in our procurement services revenues, through key partnerships, new technology and other key franchisee resources. The expansion of these relationships has enabled us to further drive our top-line revenue and deliver tangible value-added solutions to our hotel owners and customers. For example, we create relationships with qualified vendors to: (i) make low-cost products available to our franchisees; (ii) streamline the purchasing process; and (iii) maintain brand standards and consistency. We also create relationships with key partners to market their services directly to our guests. These relationships provide value-added travel-related services to our guests and generate revenues for the Company. We continue to expand these relationships and identify new methods for decreasing hotel operating costs by increasing penetration within our existing franchise system and enhancing our existing vendor relationships and/or creating new vendor relationships. We believe our efforts to leverage the Company’s size, scale and distribution benefit the Company by enhancing brand quality and consistency, improving our franchisees returns and satisfaction, and creating procurement services revenues. Domestic Franchise System Our standard domestic franchise agreements grant franchisees the non-exclusive right to use certain of our trademarks and receive other benefits of our franchise system to facilitate the operation of their franchised hotels at specified locations. The majority of our standard domestic franchise agreements are 20 to 30 years in duration with certain rights for each of the 10 Table of Content s franchisor and franchisee to terminate the agreement, such as upon designated anniversaries of hotel opening, before the stated duration. Our franchisees operate domestically under one of 22 brands and brand extensions. The following table presents key statistics related to our domestic franchise system over the five years ended December 31, 2022. 2018 (4) 2019 (3)(4) 2020 (3)(4) 2021 (3)(4) 2022 (3) Number of properties, end of period (5) 5,853 5,945 5,943 5,913 6,296 Number of rooms, end of period (5) 448,749 461,674 456,528 458,030 494,409 Royalty fees (in thousands) (1) $ 359,502 $ 371,396 $ 258,151 $ 391,336 $ 436,174 Average royalty rate (2) 4.75 % 4.86 % 4.94 % 5.01 % 5.05 % Average occupancy percentage (2) 58.0 % 57.6 % 45.6 % 57.2 % 58.0 % Average daily rate (ADR) (2) $ 82.17 $ 81.86 $ 71.67 $ 84.06 $ 93.17 Revenue per available room (RevPAR) (2) $ 47.68 $ 47.18 $ 32.69 $ 48.10 $ 54.06 (1) Royalty fees reflect legacy Choice brands, excluding the impact of franchise agreement acquisition cost amortization. Total global royalty fees for legacy Radisson brands were $19.5 million for the period from the August 11, 2022 acquisition date through December 31, 2022. (2) Statistics for average occupancy percentage, ADR and RevPAR exclude acquired legacy Radisson brands. Additionally, the operating statistics exclude the Everhome Suites brand since the operating statistics are not representative of a stabilized brand, which the Company defines as having at least 25 units open and operating for over a twelve month period. (3) These periods include operating statistics of the Company's legacy Choice owned hotels, including intersegment royalties of $2.2 million for 2022, $1.6 million for 2021, $0.8 million for 2020, and $0.9 million for 2019. (4) The Company calculates RevPAR based on information as reported by franchisees. To accurately reflect RevPAR, the company revised its prior years' operating statistics for the most current information provided. (5) In 2022, the Company reclassified seven properties located in the Caribbean from Domestic Franchises to International Franchises. 2021 and prior properties and rooms data have been reclassified for comparability. Currently, no individual franchisee accounts for more than 1% of the Company's total domestic royalty fees. Owned and Managed Hotels While the hotel franchising business represents the Company's primary operations, the Company also owns six Cambria hotels and three legacy Radisson Hotels Americas hotels and manages 13 hotels (inclusive of 3 owned hotels). We derive revenue from the owned hotels primarily from guest stays. We derive revenue from the managed hotels from base and incentive management fees, in addition to cost reimbursements, primarily for payroll costs at managed hotels where the Company is the employer. We intend to continue to strategically develop and manage hotels to increase the presence of our brands in the United States, drive greater guest satisfaction and brand preference, and ultimately increase the number of franchise agreements awarded. We believe these avenues provide us the opportunity to support and accelerate the growth of our brands. Industry Positioning Our brands offer consumers and developers a wide range of options for transient and extended stay customers, including economy, midscale, upper midscale, upscale, and upper upscale hotels. Our legacy Choice and legacy Radisson brands are as follows: Cambria Hotels: Cambria Hotels is a select service hotel brand that operates in the upscale lodging category, targeting top primary market locations and secondary markets with a mix of business and leisure demand. Cambria offers guests a distinct experience with simple, guilt-free indulgences and little luxuries allowing them to stay at their best while on the road. The environment matches guests' casual lifestyles but tailored to the needs of the modern traveler. Properties feature compelling design inspired by the location, spacious and comfortable rooms, spa inspired bathrooms, outdoor spaces featuring pools and rooftop bars, flexible meeting space, and a locally sourced menu and craft beer. Principal competitor brands include: Courtyard by Marriott, Aloft, Hyatt Place, Hotel Indigo, AC Hotels and Hilton Garden Inn. Ascend Hotel Collection: Ascend Hotel Collection is an innovative global soft brand collection offering resort, boutique and historic properties that reflect and are woven into the fabric of their destination. Ascend enables upscale hotels to retain their individual brand equity and identity, and yet have access to Choice Hotels' global distribution, technology, performance support services, training and loyalty benefits. Ascend Hotel Collection offers the best of both worlds: independence backed by a powerful platform for customer acquisition, delivery and distribution, volume purchasing benefits and operational efficiency. Principal competitors include: Tapestry, BW Premier, Voco, Trademark, and Tribute. Comfort: The Comfort brand family - consisting of Comfort Inn, Comfort Suites, and Comfort Inn & Suites - is an upper midscale brand that offers guests a warm and welcoming experience that is designed to help travelers feel refreshed and ready to take on the day. Comfort hotels are ready to welcome business and leisure travelers everywhere. The launch of our new 11 Table of Content s prototype – Rise & Shine™ – marks a new chapter in Comfort’s journey and this milestone comes off the heels of a multiyear transformation initiative that resulted in updated guest rooms, refreshed public spaces, and a new, modern logo. As the largest 100% smoke-free hotel brand in North America, Comfort hotels offer complimentary amenities that include a hot breakfast, free Wi-Fi, business center, and fitness center and swimming pool at most locations. Each spacious guest room offers premium bedding and bath amenities along with a refrigerator and microwave. Comfort Suites properties are tailored to meet the demands of today's traveler, with each oversized suite featuring separate areas for working and relaxing, along with a sleeper sofa. Principal competitor brands include Hampton, Holiday Inn Express and Fairfield Inn & Suites. Sleep Inn: Sleep Inn is a midscale new construction brand offering developers cost-efficient property to build, operate, and maintain with competitive midscale average daily rates. Sleep Inn delivers a reliable, simply stylish guest experience that’s designed to help guests "Dream Better Here." Guests find fresh, nature-inspired design elements that are modern but timeless, that create a relaxed and serene environment, providing both business and leisure travelers with free Wi-Fi, free hot breakfast, amenities to support a better night’s rest, and an exercise room and/or pool. Sleep Inn’s competitors include AmericInn, Baymont and Wingate. Clarion: Clarion helps owners of existing assets with food and beverage capabilities achieve strong returns with reasonable investment. Clarion allows a more focused and efficient food and beverage operational model that works well with a variety of conversion property configurations. Clarion helps business and leisure guests "get together" by providing meeting/banquet facilities, restaurants, and lounges. Amenities include free high-speed internet access, a pool or fitness center, and a business center. Principal competitor brands include Four Points by Sheraton. Clarion Pointe: Launched in 2019, Clarion Pointe is a select service franchise that is ideal for owners who want to strategically reposition their limited-service property into a brand with strong awareness and a concept that satisfies the expectations of emerging travelers. Hotels offer guests a convenient and affordable experience with elevated essentials in just the right places, including contemporary design touches, curated food and beverage options, and on-demand connectivity. As of December 31, 2022, there are over 50 Clarion Pointe hotels open and operating. Quality: Quality helps both guests and owners "get your money's worth" in the midscale category. Quality hotels provide clean, comfortable, and affordable accommodations, as well as the "Value Qs" - Q Bed, Q Breakfast, Q Shower, Q Service, and the Q Essentials including free high-speed internet access, coffee, and in-room refrigerators. Principal competitor brands include Best Western and Ramada. MainStay Suites: MainStay Suites operates in the midscale extended stay category, offering developers flexible conversion and new construction opportunities in a variety of market types. The Mainstay Suites guest experience delivers on a "Live Like Home" promise for guests traveling for business or pleasure whose stays are longer than a few nights. All guest rooms feature fully equipped kitchens as well as separate lounge and work areas. MainStay Suites offer free high-speed internet, an exercise room, 24/7 laundry facilities, weekly housekeeping, as well as breakfast options for guests. Each hotel also has a "MainStay Marketplace" where guests may purchase a variety of food and sundry items. Guests also have complimentary access to small kitchen appliances through the "Things I Use at Home" program. Principal competitors include TownePlace Suites, Candlewood Suites and Hawthorn Suites. Everhome Suites : Everhome Suites operates in the midscale extended stay category, offering developers a value-engineered new construction prototype for entry into major markets. Everhome Suites provides a “Closer to Home” experience, empowering longer staying guests to stay productive and feel connected while away from home. All suites include a fully equipped kitchen with separate spaces to work, relax and eat. Larger one-bedroom suites come equipped with in-unit washers and dryers. Guests have access to free high-speed internet, a modern fitness room and outdoor amenity space, 24/7 laundry facilities and weekly housekeeping service. Each hotel also has a “Homebase Market” with food, drink and personal items available for purchase. Small kitchen appliances are available to check out at the front desk through the “Homebase Essentials” program. Principal competitors include Candlewood Suites, Home2 Suites, TownePlace Suites and Extended Stay America Premier Suites. The Everhome Suites brand was launched in January 2020 and the first hotel opened in Southern California in September 2022. Suburban Studios: Suburban Studios operate in the economy extended stay category, offering developers access to this category through flexible conversion options. Suburban Studios’ “longer stays made easy” philosophy provides value-conscious, long staying guests with clean, comfortable rooms, friendly service and the amenities they need. All guestrooms provide in-room kitchens. Guests have access to free high-speed internet, 24/7 laundry facilities and bi-weekly housekeeping. Principal competitors include Extended Stay America, InTown Suites, HomeTowne Studios, and Studio 6. WoodSpring Suites: WoodSpring Suites are all new construction, value-engineered hotels that operate in the economy extended stay category. WoodSpring developers adhere to strict prototype and design specifications and an operating model that embodies WoodSpring’s promise of “It’s Simple. Done Better.” Every suite includes a well-designed kitchen, seating area and 12 Table of Content s free premium movie channel. Guests have access to free high-speed internet, 24/7 laundry facilities and bi-weekly housekeeping. Principal competitors include Extended Stay America, Echo by Wyndham, HomeTowne Studios, MyPlace and Studio 6. Econo Lodge: Econo Lodge is Choice Hotel’s economy brand, providing an “easy stop on the road” for value-oriented travelers. Free high-speed internet, bedside recharge outlets, refrigerators and free morning coffee are just some of the amenities that position Econo Lodge as a great value in the economy category. The brand competes primarily with Days Inn, Super 8 and Red Roof Inn. Rodeway Inn: Rodeway Inn offers sensible lodging for travelers on a budget. With free coffee to get guests started in the morning and free high-speed internet, Rodeway is a great option for practical travelers looking for: “Good night. Great Savings.” Principal competitor brands include Americas Best Value Inn and Motel 6. Country Inn & Suites by Radisson : Country Inn & Suites by Radisson seeks to inspire guests with a sense of belonging, community, and shared experiences. Each location offers inviting design, products, and services that create a warm, welcoming atmosphere for both business and leisure travelers. Hotel teams also help guests feel like they matter through welcoming and attentive service. The brand’s three signature amenities are free Wi-Fi, fitness centers, and a free, hot breakfast served daily. Radisson: Radisson offers an upscale travel experience. With clean, modern designs, thoughtfully considered details, and a variety of services, these properties focus on providing excellent work/life balance for guests during their travels. To ensure a harmonious stay, hotel teams seek to build meaningful personal relationships with guests. Radisson hotels are found in suburban and city settings, near airports and leisure destinations. Radisson RED: An upscale, select service hotel brand, Radisson RED is characterized by a love of bold design, social connectedness, and playful twists on the conventional. These urban hotels inject new life into hospitality through informal services where anything goes. Hotel spaces kick-start the fun with vibrant designs, encourage social sharing, and easily switch from work to play and back. Connected, trend-savvy travelers will love this unique opportunity to tailor their stay to their style. Radisson Blu: The Radisson Blu brand provides an upper upscale hotel experience distinguished by positive, personalized service and iconic buildings with stylish spaces. Designed with contemporary flair and local flavor, each property offers a range of services such as premium dining and on-site spas. Hotel teams shine in their thoughtful attention to the smallest details so that guests enjoy truly unforgettable experiences. Radisson Blu hotels are located in major cities, key airport gateways, as well as growing and key markets. Radisson Individuals: Radisson Individuals is an upscale affiliation brand that offers hotels the benefits of our expertise, infrastructure, and brand recognition while celebrating each property’s distinct personality. A Radisson Individuals hotel gives guests the charm of a one-of-a-kind travel experience while providing the high-quality services and genuine hospitality we’re known for. These hotels are located in renowned cities, close to airports and key business and leisure destinations. Park Inn : Characterized by a positive, stress-free environment, an upper economy to midscale brand, Park Inn by Radisson, provides good food and upbeat surroundings. Mood-lifting contemporary design and clever use of color are combined with friendly, personalized service and feel-good extras like complimentary breakfast to ensure our guests experience a happy stay. These hotels are located in primary and secondary cities, around economic and transit hubs, and conveniently near airports and railway stations. Park Plaza: An upper upscale brand combines engaging service, contemporary elegance, and local flavor. At each hotel, team members warmly welcome guests and make it a point to foster genuine and meaningful interactions. Refined spaces incorporate the essence of each location and provide a vibrant social setting for guests and the local community alike. Located in capital cities and key business and leisure destinations, these charmingly distinctive hotels help travelers connect with the authentic character and culture of their location. The Company's brands also include the Radisson Collection and Radisson Inn & Suites, however there are no open properties under these brands in the Company's markets as of December 31, 2022. The following table presents key statistics related to the domestic system for the legacy Choice brands over the five years ended December 31, 2022. As of December 31, 2022, legacy Radisson brands accounted for 508 and 51,473 domestic hotels and rooms, respectively, and 90 and 12,927 international hotels and rooms, respectively. 2018 (1) 2019 (1) 2020 (1) 2021 (1) 2022 COMFORT DOMESTIC SYSTEM (2) Number of properties, end of period (3) 1,623 1,612 1,645 1,665 1,685 Number of rooms, end of period (3) 126,823 126,541 129,372 130,963 132,523 Average occupancy percentage 62.7 % 62.2 % 46.1 % 60.1 % 61.8 % 13 Table of Content s ADR $ 96.17 $ 95.84 $ 83.72 $ 98.22 $ 108.31 RevPAR $ 60.30 $ 59.65 $ 38.58 $ 59.05 $ 66.88 QUALITY DOMESTIC SYSTEM Number of properties, end of period 1,636 1,688 1,697 1,652 1,633 Number of rooms, end of period 126,533 129,232 128,807 123,549 121,275 Average occupancy percentage 54.4 % 54.1 % 41.8 % 53.5 % 53.5 % ADR $ 80.82 $ 80.11 $ 72.13 $ 83.88 $ 90.64 RevPAR $ 43.95 $ 43.34 $ 30.16 $ 44.84 $ 48.53 CLARION DOMESTIC SYSTEM (4) Number of properties, end of period 174 178 183 189 178 Number of rooms, end of period 22,179 22,498 22,072 21,837 19,630 Average occupancy percentage 50.3 % 49.3 % 32.9 % 43.1 % 45.5 % ADR $ 85.14 $ 84.73 $ 73.37 $ 88.09 $ 94.83 RevPAR $ 42.85 $ 41.81 $ 24.12 $ 37.99 $ 43.13 SLEEP INN DOMESTIC SYSTEM Number of properties, end of period 393 402 408 414 423 Number of rooms, end of period 27,962 28,361 28,790 29,194 29,775 Average occupancy percentage 61.9 % 61.1 % 46.2 % 58.7 % 59.5 % ADR $ 85.66 $ 85.28 $ 75.92 $ 86.55 $ 95.29 RevPAR $ 52.99 $ 52.09 $ 35.08 $ 50.85 $ 56.72 MAINSTAY SUITES DOMESTIC SYSTEM Number of properties, end of period 63 73 90 101 115 Number of rooms, end of period 4,268 4,636 6,374 6,994 7,891 Average occupancy percentage 65.4 % 63.9 % 54.8 % 62.1 % 62.3 % ADR $ 83.82 $ 85.28 $ 78.31 $ 80.25 $ 87.07 RevPAR $ 54.83 $ 54.49 $ 42.89 $ 49.79 $ 54.24 ECONO LODGE DOMESTIC SYSTEM Number of properties, end of period 839 807 777 734 702 Number of rooms, end of period 50,692 48,538 47,023 44,107 42,112 Average occupancy percentage 47.6 % 47.7 % 40.9 % 50.1 % 49.6 % ADR $ 64.26 $ 63.75 $ 59.12 $ 68.08 $ 72.04 RevPAR $ 30.59 $ 30.43 $ 24.16 $ 34.08 $ 35.72 RODEWAY INN DOMESTIC SYSTEM Number of properties, end of period 612 600 559 528 503 Number of rooms, end of period 35,124 34,727 31,828 30,275 28,364 Average occupancy percentage 49.2 % 49.0 % 43.6 % 50.9 % 50.9 % ADR $ 65.36 $ 64.25 $ 59.48 $ 68.01 $ 72.55 RevPAR $ 32.15 $ 31.48 $ 25.94 $ 34.64 $ 36.96 SUBURBAN DOMESTIC SYSTEM Number of properties, end of period 54 60 66 71 75 Number of rooms, end of period 5,699 6,082 6,470 6,395 6,719 Average occupancy percentage 69.4 % 66.0 % 63.6 % 70.0 % 67.5 % ADR $ 56.47 $ 57.46 $ 51.45 $ 55.36 $ 59.94 RevPAR $ 39.18 $ 37.91 $ 32.72 $ 38.77 $ 40.46 CAMBRIA HOTEL DOMESTIC SYSTEM Number of properties, end of period 40 50 54 57 65 Number of rooms, end of period 5,685 7,277 7,697 7,869 8,865 Average occupancy percentage 67.6 % 67.5 % 38.2 % 56.2 % 64.2 % ADR $ 148.10 $ 145.45 $ 112.30 $ 132.48 159.18 RevPAR $ 100.12 $ 98.12 $ 42.87 $ 74.47 102.13 ASCEND HOTEL COLLECTION DOMESTIC SYSTEM Number of properties, end of period (3) 170 205 173 200 196 14 Table of Content s Number of rooms, end of period (3) 13,873 21,303 13,075 20,473 20,091 Average occupancy percentage 60.8 % 61.2 % 43.4 % 53.7 % 56.3 % ADR $ 125.31 $ 125.16 $ 116.51 $ 138.01 $ 154.32 RevPAR $ 76.23 $ 76.57 $ 50.59 $ 74.11 $ 86.83 WOODSPRING SUITES DOMESTIC SYSTEM (5) Number of properties, end of period 249 270 291 302 212 Number of rooms, end of period 29,911 32,479 35,020 36,374 25,592 Average occupancy percentage (5) 77.1 % 75.3 % 71.7 % 79.6 % 79.2 % ADR (5) $ 45.89 $ 47.10 $ 46.18 $ 51.66 $ 58.02 RevPAR (5) $ 35.37 $ 35.44 $ 33.09 $ 41.10 $ 45.94 EVERHOME SUITES DOMESTIC SYSTEM (6) Number of properties, end of period N/A N/A N/A N/A 1 Number of rooms, end of period N/A N/A N/A N/A 99 Average occupancy percentage N/A N/A N/A N/A N/A ADR N/A N/A N/A N/A N/A RevPAR N/A N/A N/A N/A N/A (1) The Company calculates RevPAR based on information as reported by franchisees. To accurately reflect RevPAR, the Company revises its prior years' operating statistics for the most current information provided. (2) Includes Comfort family of brand extensions including Comfort Inn and Comfort Suites. (3) In 2022, the Company reclassified properties located in the Caribbean from Domestic Franchises to International Franchises. 2021 and prior properties and rooms data have been reclassified for comparability. (4) Includes Clarion family of brand extensions including Clarion and Clarion Pointe. (5) WoodSpring Suites statistics for 2018 include royalties after acquisition on February 1, 2018 and full year statistics for average occupancy percentage, ADR and RevPAR. (6) Statistics for average occupancy percentage, ADR and RevPAR for the Everhome Suites brand, launched in January 2020, are not provided, as the operating statistics are not representative of stabilized brand, which the company defines as having at least 25 units open and operating for over a twelve month period. International Franchise Operations The Company conducts its international franchise operations through a combination of direct franchising and master franchising relationships. Master franchising relationships are governed by agreements that generally provide the master franchisee with the right to use and sub-license the use of our brands in a specific geographic region, usually for a fee. Our business strategy has been to conduct direct franchising in those international markets where both franchising is an accepted business model and we believe our brands can achieve significant distribution. We typically elect to enter into master franchise agreements in those markets where direct franchising is currently not a prevalent or viable business model. When entering into master franchising relationships, we strive to select partners that have professional hotel and asset management capabilities together with the financial capacity to invest in building the Choice brands in their respective markets. Master franchising relationships typically provide lower revenues to the Company as the master franchisees are responsible for managing certain necessary services (such as training, quality assurance, reservations and marketing) to support the franchised hotels in the assigned development territory and, therefore, retain a larger percentage of the hotel franchise fees to cover their expenses. The international master franchisee collects the fees paid by the local franchisee and remits an agreed upon share to us. Our master franchise and similar multi-unit licensing agreements have expiration dates, which we actively manage and potentially renew as we deem beneficial. Certain of these agreements have expiration dates in 2024. In certain circumstances, the Company has and may continue to make equity investments in our master franchisees. In some territories outside the United States, hotel franchising has less prevalence in favor of independent operators. We believe chain and franchise affiliation will increase in certain international markets as local economies grow and hotel owners seek the economies of centralized reservations systems and marketing programs. We believe that international franchise operations will provide a long-term growth opportunity for the Company and as a result we continue to make investments which are expected to enhance the value proposition for prospective international franchisees. 15 Table of Content s The hotels and room online figures below include those with temporarily suspended operations. The 2020 and 2021 operating results were significantly impacted by the COVID-19 pandemic. However, the development and distribution of effective vaccines and other containment efforts have resulted in significant positive developments that have contributed to improved operating metrics since the second quarter of 2021, with lingering impacts in some markets. The following chart summarizes our legacy Choice franchise system and operating results outside of the United States (1) : 2018 2019 2020 2021 2022 Number of properties, end of period (2) 1,168 1,208 1,204 1,117 1,101 Number of rooms, end of period (2) 120,359 129,223 141,449 121,716 120,468 Royalty fees (in thousands) (3) $ 22,005 $ 21,680 $ 12,358 $ 14,958 $ 18,564 (1) Reporting of operating statistics (i.e., average occupancy percentage, average daily room rate) of international franchisees is not required by all master franchise contracts, thus RevPAR metrics are not presented for our international franchisees. (2) In 2022, the Company reclassified seven properties located in the Caribbean from Domestic Franchises to International Franchises. 2021 and prior properties and rooms data have been reclassified for comparability. (3) Royalty fees exclude the impact of franchise agreement acquisition cost amortization and impairment. The open hotels and rooms by region and franchising relationship as of December 31, 2022 for legacy Choice are presented below: Direct Franchising Master Franchising Total Hotels Rooms Hotels Rooms Hotels Rooms Asia-Pacific 202 9,868 81 12,569 283 22,437 Europe & Middle East 91 7,994 264 45,834 355 53,828 Latin America, Caribbean & Canada 52 6,249 411 37,954 463 44,203 International Total 345 24,111 756 96,357 1,101 120,468 As a result of the Radisson transaction, we expanded our international operations in several countries and territories in Latin America and the Caribbean. As of December 31, 2022, Radisson Hotels Americas brands accounted for 90 and 12,927 international hotels and rooms, respectively. The Company's international operations, inclusive of legacy Radisson, are primarily conducted in the following countries and territories, as organized by region: Asia-Pacific. Australia, China, India, Japan, New Zealand, Thailand Europe & Middle East . Austria, Czech Republic, Denmark, Finland, France, Germany, Ireland, Italy, Kingdom of Saudi Arabia, Lithuania, Norway, Portugal, Slovakia, Spain, Sweden, Turkey, United Kingdom Latin America, Caribbean & Canada. Aruba, Bahamas, Barbados, Belize, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Dominica, Dominican Republic, Ecuador, El Salvador, Grenada, Guatemala, Honduras, Mexico, Panama, Peru, Trinidad and Tobago, Uruguay 16 Table of Content s The worldwide open and pipeline hotels and rooms for the year ended December 31, 2022 are presented below: Open Pipeline (3) Hotels Rooms Hotels Rooms Comfort (1) 2,141 176,994 205 17,201 Quality 1,930 154,440 49 4,369 Ascend Hotel Collection 326 35,422 41 7,510 Clarion (2) 304 41,186 20 2,239 Sleep Inn 448 32,525 102 5,669 MainStay Suites 116 7,991 90 4,030 Everhome Suites 1 99 46 5,206 Econo Lodge 759 44,697 21 1,359 Rodeway Inn 512 28,874 21 1,188 Suburban 75 6,719 35 2,198 Cambria Hotel 65 8,865 69 8,611 WoodSpring Suites 212 25,592 223 26,874 Radisson Hotels Americas 598 64,400 66 8,104 Total excluding MDA commitments 7,487 627,804 988 94,558 MDA commitments — — 102 12,332 Total including MDA commitments 7,487 627,804 1,090 106,890 (1) Includes Comfort family of brand extensions including Comfort Inn and Comfort Suites. (2) Includes Clarion family of brand extensions including Clarion and Clarion Pointe. (3) Pipeline is defined as hotels with executed franchise agreements awaiting conversion, under construction or approved for development, and master development agreements ("MDA") committing owners to future franchise development. Franchise Sales Brand growth is important to our business model. We have identified key market areas for hotel development based on supply/demand relationships and our strategic objectives. Development opportunities are typically offered to: (i) existing franchisees; (ii) developers of hotels or multi-family housing; (iii) owners of independent hotels and motels; (iv) owners of hotels leaving other franchisors’ brands; and (v) franchisees of non-hotel related products such as restaurants. Our franchise sales organization is structured to support the continued growth of the Company through awarding franchise agreements with a focus on revenue-intense chain scales and markets. The franchise sales organization employs both sales managers as well as franchise sales directors. This organization emphasizes the benefits of affiliating with the Choice system, our commitment to helping hotels improve profitability, our central reservation delivery services, our marketing and customer loyalty programs, our revenue management services, our training and support systems (including our proprietary property management systems) and our Company’s track record of delivering growth and profitability. Franchise sales directors are assigned to specific brands to leverage their brand expertise to enhance product consistency and deal flow. Our sales managers ensure each prospective hotel is placed in the appropriate brand, facilitate teamwork and information sharing amongst the sales directors and provide better service to our potential franchisees. The structure of this organization integrates our brands and strategies, and allows our brand teams to focus on understanding, anticipating and meeting the unique needs of our customers. Our objective is to continue to strategically grow our portfolio by selling the Choice brands spanning the various lodging categories. Based on market conditions and other circumstances, we may offer certain incentives to developers to increase development of our brands, such as discounting various fees including the initial franchise fee, royalty fee and system fee, and providing franchise agreement acquisition payments to support development, property improvements and other hotel expenditures. Because retention of existing franchisees is important to our growth strategy, we have a formal impact policy. This policy offers existing franchisees protection from the opening of a same-brand property within a specified distance, depending upon the market in which the property is located. The policy applies to most, but not all, of the Choice brands. Investment, Financing and Guaranty Franchisee Support Our Board of Directors authorized a program which permits us to offer financing, investment, and guaranty support to qualified franchisees, and allows us to acquire or develop and resell hotels to incentivize franchise development of our brands in strategic markets. We deploy capital pursuant to this program opportunistically to promote growth of our brands. The amount and timing 17 Table of Content s of the investment in this program will be dependent on market and other conditions and we generally expect to recycle these investments within a five year period. For additional information, see the "Investing Activities" caption under the "Liquidity and Capital Resources" section in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Franchise Agreements Our standard domestic franchise agreements grant franchisees the non-exclusive right to use certain trademarks we own and receive other benefits of our franchise system to facilitate the operation of their franchised hotel at a specified location. Our standard domestic franchise agreements generally have a term of 20 to 30 years. Generally, either party to our standard domestic franchise agreement can terminate the agreement prior to the conclusion of the agreement’s term under certain circumstances, such as upon designated anniversaries of the agreement, subject to applicable law. Early termination options give us flexibility in eliminating or re-branding properties for reasons other than contractual failure by the franchisee. This allows us the opportunity to strengthen our brand portfolio in various markets by replacing weaker performing hotels. We also have the right to terminate a franchise agreement if a franchisee fails to bring the property into compliance with contractual or quality standards within specific time periods. The franchise agreements typically contain liquidated damages provisions addressing franchisee termination at intervals other than those specified in the agreement which represent a fair and reasonable measure of damages that both parties agree should be paid to us. The Company utilizes master development agreements (“MDA”) with respect to the WoodSpring Suites and Everhome Suites brands (and on occasion other brands). In exchange for a non-refundable fee, developers are provided geographic exclusivity to enter into a specified number of franchise agreements and develop properties of the specified brand. The upfront fees received on signing of the MDA are non-refundable and are allocable to the affiliation fees due upon the execution of each franchise agreement between the parties in the regions covered by the MDA. The MDA specifies development schedules the developer must maintain; if not met, the Company can terminate the geographic exclusivity, however the upfront fees remain allocable to future franchise agreement affiliation fees as long as the MDA remains in effect. 18 Table of Content s Franchise agreements are generally individually negotiated and vary among the different Choice brands and franchises, but we believe they are competitive with the industry standard within their market group. Franchise fees usually have three primary components: an affiliation fee; a royalty fee; and a system fee (for the marketing and reservation system). Our standard franchise fees are as follows: QUOTED FEES BY BRAND AS OF December 31, 2022 Initial Fee Per Room/Minimum Relicensing and Renewal Fee Per Room/Minimum Royalty Fees (1) Marketing and Reservation System Fees (1) Cambria Hotels $500/$60,000 $750/$65,000 6.00 % 3.00 % Comfort (2) $500/$50,000 $750/$65,000 6.00 % 3.50 % Quality Inn $500/$45,000 $550/$45,000 5.25 % 3.50 % Ascend Hotel Collection $525/$45,000 N/A/$45,000 5.00 % 3.00 % Clarion $400/$45,000 $550/$45,000 5.50 % 3.25 % Clarion Pointe $500/$45,000 $650/$45,000 5.50 % 3.25 % Sleep Inn $300/$40,000 $550/$45,000 5.50 % 3.50 % MainStay Suites (3) $300/$50,000 $550/$50,000 6.00 % 2.50 % Econo Lodge $300/$30,000 $500/$35,000 5.00 % 3.50 % Rodeway Inn $200/$20,000 $375/$15,000 5.00 % 3.50 % Suburban Studios (3) $225/$30,000 $475/$30,000 6.00 % 2.50 % WoodSpring Suites (4) N/A/$50,000 N/A/$50,000 6.00 % 2.50 % Everhome Suites (5) N/A/$50,000 $550/$50,000 6.00 % 2.50 % Country Inn & Suites $500/$50,000 NA/$50,000 5.75 % 3.75 % Park Inn $450/$45,000 NA/$45,000 5.50 % 3.25 % Radisson $500/$75,000 NA/$75,000 5.00 % 4.00 % Radisson Blu $500/$100,000 NA/$100,000 5.00 % 4.00 % Radisson Individuals $500/$75,000 NA/$75,000 5.00 % 4.00 % Park Plaza $450/$50,000 NA/$50,000 4.00 % 3.50 % Radisson Collection $500/$100,000 NA/$100,000 5.00 % 4.00 % Radisson Inn & Suites $450/$50,000 NA/$50,000 5.00 % 3.75 % Radisson Red $450/$75,000 NA/$75,000 5.00 % 4.00 % (1) Fees are based on a percentage of gross room revenue. (2) Includes Comfort family of brand extensions including Comfort Inn and Comfort Suites. (3) In 2022, we rebranded Suburban Extended Stay to Suburban Studios. For dual brand hotels that combine either the Mainstay Suites or Suburban Studios brand with another Choice brand, we may increase the Royalty Fee and/or System Fee to the standard amount for such other Choice brand. (4) The WoodSpring Suites initial or transfer fee is $50,000 for properties with 122 rooms or less. Each additional room is $300/per room for initial fees. (5) The Everhome Suites initial fee is $50,000 for properties with 114 rooms or less. Each additional room is $300/per room for initial fees and $550/per room for transfers or renewals. The Company’s franchise agreements are generally individually negotiated and, therefore, actual fees may differ from those noted above. From time to time, the Company may discount the standard Royalty Fee and/or System Fee in the initial years of the agreement as a franchisee acquisition strategy. Typically, these discounts expire as the contract matures until the contractual fees reach the standard franchise fees in effect at the time the agreement was executed. Franchise Operations Our operations are designed to help our franchisees improve RevPAR and lower their operating and development costs, as these are the measures of performance that most directly impact franchisee profitability. Our focus is not only to help increase the number of reservations delivered to our franchisees, but also to help increase the percentage of guest reservations processed through our proprietary channels. We believe that our proprietary channels, which include our loyalty program, propriety internet sites (including mobile and tablet applications), global sales programs and interfaces with global distribution systems, help in delivering guests to our franchisees' hotels at the lowest cost to the franchisee. We believe helping our franchisees become more profitable we will enhance our ability to retain our existing franchisees, attract new franchisees, and improve the pricing of our franchise agreements. The key aspects of our franchise operations are: 19 Table of Content s Brand Name Marketing and Advertising . The majority of our franchised hotels are typically located in areas conveniently accessible to business and leisure travelers, and therefore, a significant portion of hotel room nights are sold to guests who either walk-in or contact the hotel directly. As a result, we believe that brand name recognition and the strength of the brand reputation are important factors in influencing business and leisure traveler hotel accommodation choices. Our marketing and advertising programs are designed to heighten consumer awareness and preference for our brands as offering the greatest value and convenience in the lodging categories in which we compete. Marketing and advertising efforts include national television, social media and digital advertising, online radio advertising, print advertising in trade media, and promotional events which include joint marketing promotions with qualified vendors and corporate partners. We also actively seek to reach travelers who are shopping for travel online by purchasing key search related terms and meta search ads from the various search engine providers to help ensure that our franchisees' hotels are prominently displayed to potential guests. We conduct numerous marketing and sales programs and deploy field-based sales agents which target corporate, travel agency, group and small and medium size enterprises including business travelers, senior citizens, automobile club members, government and military employees, educational organizations, and meeting planners. Other marketing efforts include domestic and international trade show programs, targeted marketing campaigns (including print, digital, and social media), direct-mail programs, marketing e-mail programs, and centralized commissions for travel agents. We operate loyalty programs, (Choice Privileges, for all legacy Choice brands except WoodSpring Suites, and Radisson Rewards Americas for all legacy Radisson Americas brands) to attract and retain travelers by rewarding stays with points towards free hotel nights at properties and through our partners that provide travel related accommodations. The loyalty program also offers guests the ability to redeem points for gift cards at participating retailers, and earn airline miles from qualifying stays redeemable for flights with various airline partners. These programs allow us to conduct lower cost, more targeted marketing campaigns to our consumers; help us deliver business to our franchised hotels; and are an important selling point for our franchise sales personnel. As of December 31, 2022, the Choice Privileges program had approximately 55 million worldwide members and the Radisson Rewards Americas program had approximately 11 million worldwide members. Growing the membership of the Choice Privileges and Radisson Rewards Americas programs as well as increasing the number of room nights consumed by existing members will continue to be a focus of the Company. Marketing and advertising programs are directed by our marketing department, which utilizes the services of independent advertising agencies. We also employ home-based sales personnel geographically located across the United States using personal sales calls, telemarketing and other techniques to target specific customer groups, such as potential corporate clients in areas where our franchised hotels are located, the group travel market, and meeting planners. Our field-based franchise services area directors work with franchisees to help them maximize RevPAR and improve the efficiency of their hotel operations. These consultants advise franchisees on topics such as marketing their hotels, improving quality and maximizing the benefits offered by the Choice reservations system. Our proprietary property management system, choiceADVANTAGE, includes a rate and selling management tool to help our franchisees better manage rates and inventory which are designed to help them improve RevPAR by optimizing ADR and occupancy. In addition, we offer revenue management services to our franchisees to assist them in optimizing their room rates and minimizing costs of reservation delivery. Central Reservation System ("CRS") . Our central reservation system consists of our toll-free telephone reservation system, our proprietary internet sites, mobile phone and tablet reservation applications, interfaces with global distribution systems, and other internet reservations sites. We strive to improve the percentage of business delivered by our CRS as room nights reserved through these channels are typically at higher average daily rates than reservations booked directly through the property. In addition, increasing the percentage of business delivered through the CRS improves our value proposition to a hotel owner and therefore assists in retention of existing franchisees and acquisition of new franchisees. Our CRS provides a data link to our franchised properties as well as to travel reservation systems such as Amadeus, Galileo, SABRE and Worldspan that facilitate the reservation process for travel agents and corporate travelers. We also offer rooms for rent on our website (http://www.choicehotels.com) and mobile applications as well as those of OTA's and other third-party internet referral or booking services. Our toll-free telephone reservation system primarily utilizes third-party call center service providers. Reservation agents trained on the reservation system have the goal of matching each caller with a Choice-branded hotel meeting the caller’s needs. We also operate a call forwarding program through which our franchisees can leverage our central reservation system capabilities by forwarding reservation calls received directly by the property to one of our reservation centers. Typically, this helps reduce the hotel’s front desk staffing needs, improves customer service and results in a higher average daily rate than reservations booked directly through the property. 20 Table of Content s We continue to implement our integrated reservation and distribution strategy to help improve reservations delivery, reduce franchisee costs and improve franchisee satisfaction by enhancing our website, http://www.choicehotels.com. We design our marketing campaigns to drive reservation traffic directly to our proprietary channels to minimize the impact that third party reservation sites may have on the pricing of our franchisees' inventory. In addition, we have introduced programs such as our Lowest Price Guarantee program which has greatly reduced the ability of the travel intermediaries to undercut the published rates at our franchisees' hotels. Further, we selectively distribute our franchisees' inventory to key third-party travel intermediaries that we have established agreements with to help drive additional business to our franchisees' hotels. These agreements typically offer our brands preferred placement on these third-party sites at reduced transaction fees. We continue to educate our individual franchisees about the risk of an unfavorable impact to their business from contracting with sites with which we do not have preferred agreements. We currently have agreements with many, but not all, major online third-party booking sites. We also continue to upgrade our technology to ensure that our CRS can effectively handle the current and future volume on digital channels and support the industry's shift toward accelerated digital communications and guest experience personalization. In support of these initiatives, the Company developed choiceEDGE, a cloud-based software to manage all distribution for the Company by optimizing rate, inventory, availability, shopping, booking and reservations for its website, mobile apps and third-party distribution partners. Property Management Systems . Our proprietary property and yield management system, choiceADVANTAGE, is designed to help franchisees maximize profitability and compete more effectively by assisting them in managing their room inventory, rates and reservations. choiceADVANTAGE synchronizes each hotel’s inventory with our central reservation system, giving our reservation sales agents and other proprietary channels last room sell capabilities at every hotel. Our property management system also includes a proprietary revenue management feature that calculates and suggests optimum rates based on each hotel’s past performance and projected occupancy. These tools are critical to business delivery and yield improvement as they facilitate a franchisee's ability to effectively manage hotel operations, determine appropriate rates, help drive occupancy and participate in our marketing programs. As a cloud-based solution, the choiceADVANTAGE system helps to reduce each hotel’s investment in on-site computer equipment, typically resulting in a lower total cost of ownership for property management systems than traditional on-site solutions. Quality Assurance Programs . Consistent quality standards are critical to the success of a hotel franchise. We have established quality standards for all of our franchised brands that cover cleanliness, condition, brand standards and minimum service offerings. We inspect most properties for compliance with our quality standards before allowing a property to open as one of our franchised brands. The compliance of existing franchisees with quality standards is monitored through scheduled and unannounced quality assurance reviews conducted by a third-party periodically at the property and through the use of guest surveys. Properties that fail to maintain a minimum score are reinspected on a more frequent basis until deficiencies are cured, or until such properties are terminated. To encourage compliance with quality standards, various brand-specific incentives and awards are used to reward franchisees that maintain consistent quality standards. We identify franchisees whose properties operate below minimum quality standards and assist them to comply with brand specifications. Franchisees who fail to improve on identified quality issues may be subject to consequences ranging from written warnings, the payment of re-inspection, non-compliance and guest satisfaction fees, attendance at mandatory training programs and ultimately to the termination of the franchise agreement. Actual consequences, if any, are determined in the Company’s discretion on a case-by-case basis and may take into account a variety of factors apart from a franchisee’s level of compliance with our quality standards and brand specifications. Training . We maintain a training department that conducts mandatory and voluntary training programs for all franchisees and general managers. Regularly scheduled regional and national training meetings are also conducted for owners and general managers. We offer an interactive computer and mobile-based training system to help train hotel employees in real-time as well as at their own pace. Additional training is conducted through a variety of methods, including group instruction seminars and live online instructor-led programs. Opening Services . We maintain an opening services department that ensures incoming hotels meet or exceed brand standards and are properly displayed in our various reservation distribution systems to help ensure that each incoming hotel opens successfully. We also maintain a design and construction department to assist franchisees in refurbishing, renovating, or constructing their properties prior to or after joining the system. Department personnel assist franchisees in meeting our brand specifications by providing technical expertise and cost-savings suggestions. Competition Competition among franchise lodging brands is strong with regard to attracting potential franchisees, retaining existing franchisees and generating reservations for franchisees. Franchise contracts are typically long-term in nature, but most allow either the hotel owner or the Company to opt-out of the agreement at mutually agreed upon anniversary dates. 21 Table of Content s We believe that hotel operators choose lodging franchisors based primarily on the value and quality of each franchisor’s brand(s) and services and the extent to which affiliation with that franchisor may increase the franchisee’s reservations and profits. We also believe that hotel operators select a franchisor in part based on the franchisor’s reputation among other franchisees and the success of its existing franchisees. Since our franchising revenues are generated primarily as a percentage of franchisees’ gross room revenues, our prospects for growth are largely dependent upon the ability of our franchisees to compete in the lodging market, our ability to retain existing franchises, our ability to convert competitor franchises and independent hotels to our brands and the ability of existing and potential franchisees to obtain financing to construct new hotels. The ability of a hotel to compete may be affected by a number of factors, including the location and quality of the property, the abilities of the franchisee, the number and quality of competing lodging facilities nearby, its affiliation with a recognized name brand and general regional and local economic conditions. We generally believe the effect of local economic conditions on our results is substantially reduced by our range of products and room rates and the geographic diversity of our franchised properties, which are open and operating in 50 states, the District of Columbia and nearly 50 countries and territories outside the United States. We believe that our focus on core business strategies, combined with our financial strength and size, geographic diversity, scale and distribution will enable us to remain competitive. Service Marks and Other Intellectual Property The service marks Choice Hotels, Comfort Inn, Comfort Suites, Quality, Clarion, Clarion Pointe, Sleep Inn, Econo Lodge, Rodeway Inn, MainStay Suites, Cambria, Suburban Extended Stay Hotel, Ascend Hotel Collection, WoodSpring Suites, Everhome Suites, Country Inn & Suites, Radisson Collection, Radisson, Radisson Blu, Radisson Red, Park Plaza, Park Inn, Choice Privileges, Radisson Rewards Americas, and related marks and logos are material to our business. We, directly and through our franchisees, actively use these marks. All of the material marks are registered or have registrations pending with the United States Patent and Trademark Office. We seek to protect our brands and marks throughout the world, although the strength of legal protection available varies from country to country. Depending on the jurisdiction, trademarks and other registered marks are valid as long as they are in use and/or their registrations are properly maintained and they have not been found to have become generic. Seasonality The hotel industry is seasonal in nature. For most hotels, demand is lower from November through February than during the remainder of the year. Our principal source of revenues is franchise fees based on the gross room revenues of our franchised properties. The Company's franchise fee revenues reflect the industry's seasonality and historically have been lower in the first and fourth quarters than in the second and third quarters. Regulation Our business subject to various U.S. and international regulations, including regulations of the Federal Trade Commission ("FTC"), various states and certain other foreign jurisdictions (including Australia, France, Canada, and Mexico) that relate to the sale of franchises. The FTC requires franchisors to make extensive disclosure to prospective franchisees and a number of states in which our franchisees operate require registration and disclosure in connection with franchise offers and sales. In addition, several states have "franchise relationship laws" that, among other things, limit the ability of the franchisor to terminate franchise agreements or to withhold consent to the renewal or transfer of franchise agreements. Our franchisees are responsible for compliance with all laws and government regulations applicable to the hotels they own or operate. With respect to our owned and managed hotels, we are also subject to laws governing our relationship with employees, including minimum wage requirements, overtime, working conditions and work permit requirements. In addition, our business is subject to numerous federal, state and local government regulations, including those relating to the preparation and sale of food and beverages (such as health and liquor license laws), safety and health standards, building and zoning requirements, tax laws, and laws governing employee relations, including minimum wage requirements, overtime, working conditions and work permit requirements. Further, we are also subject to various U.S. federal, state and international privacy and data protections laws, including the California Consumer Protection Act, the Virginia Consumer Data Protection Act, and the European Union General Data Protection Regulation, as well as privacy laws in Connecticut, Colorado and Utah that will take effect during 2023. 22 Table of Content s Impact of Inflation and Other External Factors Franchise fees can be impacted by external factors, including, in particular, the supply of hotel rooms within the lodging industry relative to the demand for rooms by travelers and inflation. We expect to benefit in the form of increased franchise fees from future growth in consumer demand for hotel rooms as well as growth in the supply of hotel rooms, to the extent it does not result in excess lodging industry capacity. However, a prolonged decline in demand for hotel rooms would negatively impact our business. Although we believe that increases in the rate of inflation will generally result in comparable increases in hotel room rates, severe inflation could contribute to a slowing of the economies in which we operate. Such a slowdown could result in reduced travel by both business and leisure travelers, potentially resulting in less demand for hotel rooms, which could result in a reduction in room rates and fewer room reservations, negatively impacting our revenues. A weak economy could also reduce demand for new hotels, negatively impacting the franchise fees received by us. Among other unpredictable external factors, which may negatively impact us, are wars, acts of terrorism, pandemics, airline strikes, gasoline shortages, severe weather and the risks described below under Item 1A. Risk Factors. Human Capital Management The strength of our people is one of our greatest assets as a franchisor. We seek to attract and retain the best talent in the hospitality, franchising, and technology industries and provide an open and inclusive environment. The quality of our talent delivers a high performing organization that drives positive business outcomes for the Company, our shareholders, and our franchisees. Our Board of Directors provides oversight on certain human capital matters through two committees. • Human Capital and Compensation Committee - Providing a broad scope of oversight on talent, including: (1) overall associate wellbeing, (2) succession planning for the top 30 leadership roles, (3) talent management and leadership development oversight for the top 125 leadership roles, (4) oversight of pay parity goals, and (5) overall organizational engagement, including the work environment. • Diversity Committee - Providing guidance to management and the Board of Directors in developing a workplace culture that values working with diverse groups of people, offering diversity of thought and perspective. Career Development We empower our nearly 1,800 associates across the globe to advance their careers by providing a career framework that allows them to understand and proactively manage their career path potential. Guided by a personalized development plan, each associate is empowered to identify and develop the skills and competencies necessary to prepare for their next, and future, desired roles. As of December 31, 2022, the Company has 1,659 domestic and 130 international associates, excluding employees at our 13 managed hotels. Leadership development programs offer level specific career-building experiences, increasing the potential for broader levels of responsibility and leadership. These programs focus on competency-based self-development, creating customized action plans to grow and develop leaders, and the transformation of functional managers to business leaders, increasing their potential for broader levels of leadership responsibility. The Company conducts talent review and succession planning discussions across all leadership levels. The talent landscape is reviewed with the Board of Directors semi-annually, focusing primarily on senior leadership levels. Further, eleven Choice Resource Groups (“CRGs”) allow groups of associates to come together based on shared demographics and affinities, life experiences and/or interests. The CRGs are open to all associates to join. CRGs provide support, enhance career development, contribute to personal development, provide networking opportunities, and enhance wellbeing engagement. Choice Culture and Diversity At Choice, we strive to create an environment where every associate feels welcome, wanted, and respected. Part of how we deliver on this promise is by weaving deliberate diversity initiatives throughout all levels of the enterprise, focusing on three core commitments: • Diversity – Striving to build a workforce that is an authentic representation of the world we live in where associates from different backgrounds may thrive. 23 Table of Content s • Equity – Committed to an equitable work environment, inclusive of fair and competitive pay regardless of gender, race, or other demographics. • Trust, Belonging, and Engagement – Fostering a culture of belonging where associates are inspired and engaged and feel welcome, wanted, and respected. At the end of fiscal year 2022, our domestic workforce, excluding employees at our 13 managed hotels, was 32% diverse and 46% female. Our leadership, defined as Senior Director level and above was 11% diverse and 41% female. For these purposes, we define diverse as the self-identified demographic categories of American Indian or Alaska Native, Asian, Black or African American, Hispanic or Latino, Native Hawaiian or Other Pacific Islander, or Two or More Races. We are committed to providing fair and competitive pay. To ensure that we are delivering on our commitment to equitable compensation decisions, Choice conducts a gender and diversity pay parity study annually on all U.S. based roles and reports the results of this analysis to the Board of Directors. During 2022, we conducted a pay parity analysis of the legacy Choice Hotels corporate-based associate population and discrepancies between diverse / female base salary versus non-diverse / male base salary for positions of similar value (i.e., by career track, level, and salary grade) that cannot be sufficiently explained by the level of experience, performance, or other pay-related attributes were promptly reviewed. In 2023, our pay parity analysis will include the legacy Radisson associates. The Board of Directors biannually reviews a diversity report focused on success against the Company’s annual diversity, equity, and belonging objectives in workplace practices, franchisee development, advertising and marketing goals. The Board of Directors also receives updates on the Diversity Advisory Council (“DAC”), CRGs, and general inclusion activities. Our Diversity Framework that supports all our efforts is shown below. Health, Wellbeing, and Engagement One of our highest priorities has been to safeguard the physical health and emotional wellbeing of our associates, all of whom show incredible dedication to the needs of our franchisees, guests, and each other while caring for their own families. Key features include mental health support, employee assistance and financial wellness programs, as well as creating opportunities for belonging and connections within the organization. In addition, the Company offers a generous benefits package including a 401(k) matching program (increased the match in 2022 to 100% on the first 5% of associates contributions), paid family leave, paid caregiver leave, wellbeing days, commuter benefits, a legal services plan, charitable gift matching, a LEED certified workspace, and paid volunteer leave. In 2022, we enhanced our leave offerings with a cultural day for associates to celebrate the cultural observance of their choice. 24 Table of Content s We conduct a variety of confidential surveys throughout the year to seek input and better understand the associate life-cycle experience. In 2022, these touchpoints included: an engagement survey, diversity, equity and belonging survey, 30-60-90-180-day onboarding surveys, exit surveys, and a Radisson acquisition transition pulse survey. Nearly 85% of our associates participated in the 2022 engagement survey and we achieved a very high engagement score, five points above the benchmark, meaning associates have a positive commitment to our organization and goals. Award Winning Culture The Company is proud to have been named by Forbes magazine in 2022 as one of the “World's Best Employers,” one of "America's Best Midsize Employers,” one of the "Word's Top Female Friendly Companies" as well as one of the “Best Employers for Veterans.” The Company has also been named one of "America's Best Places to Work for Disability Inclusion” with a top score on the 2022 Disability Equality Index for the tenth year in a row, one of the “Best Places to Work for LGBTQ+ Equality” with a 100% Corporate Equality Index designation from the Human Rights Campaign in 2022. Our CEO was recognized by Comparably as "Best CEO 2022," earned for the fourth year in a row, and the Association for Talent Development recognized Choice as a "Best Award" winner, earned for the third year in a row. Information about our Executive Officers The name, age, title, present principal occupation, business address and other material occupations, positions, offices and employment of each of the executive officers of the Company as of December 31, 2022 are set forth below. The business address of each executive officer is 1 Choice Hotels Circle, Suite 400, Rockville, Maryland 20850. Name Age Position Stewart W. Bainum, Jr. 76 Chairman of the Board of Directors Patrick S. Pacious 56 President and Chief Executive Officer Dominic E. Dragisich 40 Chief Financial Officer David A. Pepper 55 Chief Development Officer Simone Wu 57 Senior Vice President, General Counsel, Corporate Secretary & External Affairs John E. Bonds 51 Senior Vice President, Enterprise Operations and Technology Robert McDowell 56 Chief Commercial Officer Patrick J. Cimerola 54 Chief Human Resources Officer Scott E. Oaksmith 51 Senior Vice President, Real Estate and Finance Raul Ramirez Sanchez 39 Chief Strategy and International Operations Officer Stewart W. Bainum, Jr. Director from 1977 to 1996 and since 1997, serving as Chairman of the Board from March 1987 to November 1996 and since October 1997; Managing Member of Artis Senior Living, LLC, a developer-owner-operator of assisted living residences, since 2012; Board of Advisors of UCLA's School of Management; Director of Realty Investment Company, Inc., a real estate management and investment company, from December 2005 through December 2016 and Chairman from December 2005 through June 2009; Director of Sunburst Hospitality Corporation, a real estate developer, owner and operator, from November 1996 through December 2016 and Chairman from November 1996 through June 2009. Director of SunBridge Manager, LLC from September 2011 through December 2016. Mr. Bainum was a director of Manor Care, Inc. from September 1998 to September 2002, serving as Chairman from September 1998 until September 2001. From March 1987 to September 1998, he was Chairman and Chief Executive Officer of Manor Care, Inc. He served as President of Manor Care of America, Inc., and Chief Executive Officer of ManorCare Health Services, Inc., from March 1987 to September 1998, and as Vice Chairman of Manor Care of America, Inc., from June 1982 to March 1987. Patrick S. Pacious. President and Chief Executive Officer since September 2017; President and Chief Operating Officer from May 2016 until September 2017; and Chief Operating Officer from January 2014 until May 2016. He was Executive Vice President, Global Strategy & Operations from February 2011 through December 2013. He was Senior Vice President Corporate Strategy and Information Technology from August 2009 to February 2011. He was Senior Vice President, Corporate Development and Strategy from December 2007 to August 2009. He was Vice President, Corporate Development and Innovation from May 2006 to December 2007 and was Senior Director of Corporate Strategy from July 2005 to May 2006. Prior to joining the Company, he was employed by BearingPoint Inc. as a Senior Manager from 2002 until 2005 and Arthur Andersen Business Consulting LLP as a Senior Manager from 1996 until 2002. Dominic E. Dragisich . Chief Financial Officer since joining the Company in March 2017. Prior to joining the Company, he was employed by XO Communications as Chief Financial Officer from July 2015 to February 2017 and Vice President, Financial Planning and Analysis ("FP&A") and Strategic Finance from September 2014 to July 2015. Before that, he was Senior Director, 25 Table of Content s IR Business Consultancy of Marriott International from October 2013 to September 2014, Global Director of FP&A of NII Holdings, Inc. from March 2012 to October 2013, and held various management positions at Deloitte Consulting from 2004 to 2012. David A. Pepper. Chief Development Officer since May 2015. He was Senior Vice President, Global Development from October 2009 to May 2015. He was Senior Vice President, Franchise Development & Emerging Brands from July 2007 to October 2009. He was Senior Vice President and Division President Cambria Suites and Extended Stay Market Brands from January 2007 to July 2007 and was Senior Vice President, Franchise Growth and Performance of Choice from December 2005 until January 2007. He was Senior Vice President, Development from January 2005 until December 2005. He was Vice President, Franchise Sales from June 2002 until January 2005. Prior to joining the Company, he was Vice President, Franchise Sales with U.S. Franchise Systems, Inc. (USFS), a hotel franchisor, from 1996 through June 2002. Simone Wu. Senior Vice President, General Counsel, Corporate Secretary & External Affairs since 2015. She was Senior Vice President, General Counsel, Corporate Secretary & Chief Compliance Officer from 2012 to 2015. Prior to joining the Company in 2012, she was employed by XO Communications and its affiliates as Executive Vice President, General Counsel and Secretary from 2011 until 2012, Senior Vice President, General Counsel and Secretary from 2006 to 2011, Vice President, the acting General Counsel and Secretary from 2005 to 2006, Vice President and Assistant General Counsel from 2004 until 2005, and Senior Corporate Counsel from 2001 until 2004. Before that she was Vice President of Legal and Business Affairs at LightSource Telecom, held legal and business positions at MCI and AOL, and began her legal career in 1989 at Skadden, Arps, Slate, Meagher & Flom. Ms. Wu serves on the Board of Alarm.com. John E. Bonds. Senior Vice President, Enterprise Operations and Technology since September 2017. He was Senior Vice President, Strategy and Services from January 2013 to August 2017. He was Vice President, Corporate Strategy from March 2011 to December 2012. Prior to joining the Company in 2006, he was employed by Navigant Consulting from 2003 to 2006, BearingPoint Inc. from 2002 to 2003 and Arthur Andersen Business Consulting from 1999 to 2002. Robert McDowell. Chief Commercial Officer since February 2016. He was Senior Vice President, Marketing and Distribution from May 2011 until January 2016. Prior to joining the Company, he was employed by United Airlines from 1995 to 2006. He joined C+H International as Chief Operating Officer from January to December 2007. He rejoined United Airlines January 2008 to 2011 as Managing Director of Distribution and eCommerce. Patrick J. Cimerola. Chief Human Resources Officer since 2015. He was Senior Vice President, Human Resources and Administration from September 2009 to 2015. He was Vice President of Human Resources from January 2003 to September 2009. He was Sr. Director of Human Resources from January 2002 to January 2003. Scott E. Oaksmith. Senior Vice President, Real Estate and Finance since March 2020. He was Senior Vice President, Finance & Chief Accounting Officer from May 2016 to March 2020. He was Controller of the Company from September 2006 until May 2016, was Senior Director & Assistant Controller of Choice from February 2004 to September 2006, and was Director, Marketing and Reservations, Finance from October 2002 until February 2004. Prior to joining the Company, he was employed by American Express Tax & Business Services, Inc. from January 1994 to October 2002, last serving as Senior Manager from October 2000 to October 2002. Raul Ramirez Sanchez . Chief Strategy and International Operations Officer since October 2021. He was Senior Vice President, Head of International and Strategic & Financial Planning from June 2020 until October 2021. He was Senior Vice President, International Strategic Planning and Global Head of Financial Planning and Analysis from August 2019 until June 2020 and was Vice President, Strategic Finance and Financial Planning and Analysis from August 2017 until August 2019. Prior to joining the Company, he was Head of Finance, XO Business Unit for Verizon Communications from February 2019 until August 2019 and was employed at XO Communications as Vice President, Financial Planning and Analysis and Corporate Development from September 2015 until January 2019.