What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-08 · 184 added, 104 removed, 267 unchanged (52% of the section changed)

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We are primarily a hotel franchisor operating in 49 states, the District of Columbia, and 45 countries and territories.

As of March 31, 2024, we had 7,488 hotels with 630,128 rooms open and operating, and 1,012 hotels with 115,481 rooms under construction, awaiting conversion or approved for development, or committed to future franchise development on outstanding master development agreements (collectively, "pipeline") in our global system.

As of June 30, 2024, we had 7,486 hotels with 631,063 rooms open and operating, and 1,007 hotels with 114,653 rooms under construction, awaiting conversion or approved for development, or committed to future franchise development on outstanding master development agreements (collectively, "pipeline") in our global system.

Our brand names include Radisson Blu®, Park Plaza®, Cambria® Hotels, Ascend Hotel Collection®, Radisson RED®, Radisson Individuals®, Radisson®, Radisson Collection®, Clarion®, Clarion Pointe™, Comfort Inn®, Comfort Suites®, Country Inn & Suites® by Radisson, Radisson Inn & Suites SM , Sleep Inn®, Quality®, Park Inn by Radisson®, Everhome Suites®, WoodSpring Suites®, MainStay Suites®, Suburban Studios™, Econo Lodge®, and Rodeway Inn®.

The hotel franchising business represents the Company's primary operations.

The Company's domestic operations are conducted through direct franchising relationships, the ownership of ten open and operating hotels, and the management of 13 hotels (inclusive of four owned hotels), while its international franchise operations are conducted through a combination of direct franchising and master franchising relationships.

The Company's domestic operations are conducted through direct franchising relationships, the ownership of 11 open and operating hotels, and the management of 13 hotels (inclusive of four owned hotels), while its international franchise operations are conducted through a combination of direct franchising and master franchising relationships.

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

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

Greater awareness and preference promote long-term growth in business delivery to our franchisees and increases the

desirability of our brands to hotel owners and developers, which ultimately increases the franchise fees earned by the Company.

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

Additionally, the Company's management agreements include cost reimbursements, which is primarily related to payroll costs at the managed hotels where the Company is the employer.

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Refer to the Liquidity and Capital Resources section in MD&A for more information regarding our capital returns to shareholders.

In addition to our hotel franchising business, we have also developed or acquired ten open and operating hotels.

In addition to our hotel franchising business, we have also developed or acquired 11 open and operating hotels.

We intend to continue to strategically develop hotels to increase the presence of our newly introduced 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.

Our hotel development and ownership efforts currently focus on the Cambria Hotels and Everhome Suites brands.

Our hotel development and ownership efforts primarily focus on the Cambria Hotels and Everhome Suites brands.

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

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Results of Operations - Royalty, licensing and management fees, operating income, net income, and diluted earnings per share represent the key measures of our financial performance.

These measures are primarily driven by the operations of our hotel franchise system and, therefore, our analysis of the Company's operations is primarily focused on the size, performance, and the potential growth of the hotel franchise system as well as our variable overhead costs.

These measures are primarily driven by the operations of our hotel franchise system and therefore, our analysis of the Company's results of operations is primarily focused on the size, performance, and the potential growth of the hotel franchise system as well as our variable overhead costs.

Our discussion of our results of operations excludes reimbursable franchise marketing and reservation system revenues and expenses and the management agreement cost reimbursements and expenses included in the Company's other revenues from franchised and managed properties and other expenses from franchised and managed properties .

The Company's franchise

agreements require the payment of marketing and reservation system fees to be used by the Company for the expenses associated with providing franchise services such as national marketing, media advertising, and central reservation systems.

The Company's franchise agreements require the payment of marketing and reservation system fees to be used by the Company for the expenses associated with providing franchise services such as national marketing, media advertising, and central reservation systems.

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

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As a result, the Company generally excludes the other revenues and other expenses from franchised and managed properties from the analysis of its operations.

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

During the three months ended March 31, 2024, other expenses from franchised and managed properties exceeded other revenues from franchised and managed properties by $12.4 million.

During the three months ended March 31, 2023, other revenues from franchised and managed properties exceeded other expenses from franchised and managed properties by $2.1 million.

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

During the three months ended June 30, 2024 and 2023, other revenues from franchised and managed properties exceeded other expenses from franchised and managed properties by $10.1 million and $7.0 million, respectively.

During the six months ended June 30, 2024, other expenses from franchised and managed properties exceeded other revenues from franchised and managed properties by $2.3 million.

During the six months ended June 30, 2023, other revenues from franchised and managed properties exceeded other expenses from franchised and managed properties by $9.1 million.

Refer to the Operations Review section in MD&A for additional analysis of our results of operations.

Liquidity and Capital Resources - Historically, the Company has generated significant cash flows from operations .

Since our business has not historically required 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.

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

We believe the Company’s cash on hand, available borrowing capacity under the senior unsecured revolving credit facility, cash flows from operations, and access to additional capital in the debt markets is sufficient to meet the expected future operating, investing, and financing needs of the business.

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We continue to monitor future inflation trends along with the corresponding impacts to our business.

Wyndham Proposal

As previously disclosed, the Company publicly announced the expiration of the exchange offer to acquire all of the outstanding shares of Wyndham Hotels & Resorts, Inc.

("Wyndham") at a price of $90.00 per share, payable in a mix of cash and stock.

The exchange offer expired on March 8, 2024.

The Company instructed the exchange agent to return all tendered shares of Wyndham stock to the tendering stockholders.

In addition, the Company announced the withdrawal of its nomination of director candidates for election at Wyndham's 2024 Annual Meeting of Stockholders.

Operations Review

The summarized financial results were as follows:

Comparison of the Operating Results for the Three Months Ended June 30, 2024 and 2023

Three Months Ended

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Other loss (gain) 2,544 (2,187)

Equity in net loss of affiliates 155 63

Equity in net gain of affiliates (7,933) (185)

Total other expenses and income, net 16,041 11,842

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Results of Operations

For the three months ended March 31, 2024, the Company recognized income before income taxes of $40.2 million, which is a $27.3 million decrease from the same period in the prior year.

The decrease in income before income taxes is primarily due to a $17.7 million decrease in operating income and a $6.1 million increase in interest expense.

Operating income decreased $17.7 million primarily due to a $14.5 million decrease in the net activity generated from other revenues from franchised and managed properties and other expenses from franchised and managed properties and a $5.4 million increase in business combination, diligence and transition costs, partially offset by a $5.8 million increase in other revenues.

For the three months ended June 30, 2024, the Company recognized income before income taxes of $116.6 million, which is a $4.1 million increase from the same period in the prior year.

The increase in income before income taxes is primarily due to an $8.2 million increase in operating income and a $7.7 million increase in equity in net gain of affiliates, partially offset by a $7.5 million increase in interest expense and a $4.7 million decrease in other loss (gain).

Operating income increased $8.2 million primarily due to a $3.9 million increase in other revenues, a $3.1 million increase in the net activity generated from other revenues from franchised and managed properties and other expenses from franchised and managed properties, and an $8.5 million decrease in business combination, diligence and transition costs, all of which were partially offset by a $6.6 million increase in selling, general and administrative expenses.

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

Royalty, Licensing and Management Fees

Domestic royalty fees decreased $5.2 million to $92.9 million for the three months ended March 31, 2024 from $98.2 million for the three months ended March 31, 2023.

The decrease in domestic royalty fees is primarily due to a 5.9% domestic system-wide RevPAR decrease as a result of a 2.1% decrease in average daily rates and a 200 basis points decrease in occupancy during the current period, all of which was partially offset by a system-wide 4 basis points increase in the effective royalty rate from 4.99% for the three months ended March 31, 2023 to 5.03% for the three months ended March 31, 2024.

Domestic royalty fees decreased $0.1 million to $125.0 million for the three months ended June 30, 2024 from $125.1 million for the three months ended June 30, 2023.

The decrease in domestic royalty fees is primarily due to a 0.5% domestic system-wide RevPAR decrease as a result of a 0.6% decrease in average daily rates during the current period, which was partially offset by a 10 basis points increase in occupancy and a system-wide 5 basis points increase in the effective royalty rate from 4.99% for the three months ended June 30, 2023 to 5.04% for the three months ended June 30, 2024.

A summary of the operating performance for the Company's domestic franchised hotels, organized by chain scale, was as follows:

Three Months Ended Three Months Ended Change

March 31, 2024 March 31, 2023

June 30, 2024 June 30, 2023

Rate Occupancy RevPAR Average

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(4) Includes Econo Lodge and Rodeway brands.

A summary of the domestic hotels and rooms by brand in our franchise system as of March 31, 2024 and 2023 was as follows:

March 31, 2024 March 31, 2023 Variance

A summary of the domestic hotels and rooms by brand in our franchise system as of June 30, 2024 and 2023 was as follows:

June 30, 2024 June 30, 2023 Variance

Hotels Rooms Hotels Rooms Hotels % Rooms %

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(3) Includes the Clarion family of brand extensions, including Clarion and Clarion Pointe.

International royalty fees increased to $6.9 million for the three months ended March 31, 2024 from $6.4 million for the three months ended March 31, 2023.

The increase in international royalty fees is attributable to an increase in international RevPAR and an increase in the international franchise system size by 16 hotels (from 1,199 as of March 31, 2023 to 1,215 as of March 31, 2024) and 3,087 rooms (from 132,945 as of March 31, 2023 to 136,032 as of March 31, 2024).

International royalty fees decreased $0.2 million to $7.3 million for the three months ended June 30, 2024 from $7.5 million for the three months ended June 30, 2023.

The decrease in international royalty fees is primarily due to the expiration of a licensing fee arrangement in 2023, partially offset by an increase in international RevPAR and an increase in the international franchise system size by 5 hotels (from 1,205 as of June 30, 2023 to 1,210 as of June 30, 2024) and 2,214 rooms (from 134,766 as of June 30, 2023 to 136,980 as of June 30, 2024).

Initial Franchise Fees

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If a franchise agreement is terminated, then the previously deferred initial franchise fees are recognized as revenue immediately in the period the franchise agreement is terminated.

Initial franchise fee revenue decreased $1.2 million to $6.7 million for the three months ended March 31, 2024 from $7.9 million for the three months ended March 31, 2023.

The decrease is primarily attributable to the lower number of domestic franchise agreement terminations as compared to the prior year.

As of March 31, 2024, the Company had 1,012 hotels with 115,481 rooms in its pipeline.

Initial franchise fees revenue decreased $0.6 million to $6.6 million for the three months ended June 30, 2024 from $7.2 million for the three months ended June 30, 2023.

The decrease is primarily due to the lower number of domestic franchise agreement terminations as compared to the prior year.

As of June 30, 2024, the Company had 1,007 hotels with 114,653 rooms in its pipeline.

Approximately 85% of our pipeline is located in the United States and approximately 71% of the domestic portion of the pipeline is new construction.

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Other Revenues

Other revenues increased $5.8 million to $16.4 million for the three months ended March 31, 2024 from $10.6 million for the three months ended March 31, 2023.

The increase was primarily due to an increase in liquidated damages resulting from the early termination of franchise agreements and other franchising revenues.

Other revenues increased $3.9 million to $15.0 million for the three months ended June 30, 2024 from $11.1 million for the three months ended June 30, 2023.

The increase was primarily due to an increase in liquidated damages that resulted from the early termination of franchise agreements and other franchising revenues.

Selling, General and Administrative

Selling, general and administrative expenses, which includes the costs to operate the business, decreased $0.3 million to $48.6 million for the three months ended March 31, 2024 from $48.9 million for the three months ended March 31, 2023.

The decrease in selling, general and administrative expenses primarily related to declines in spending for general corporate purposes, including compensation, benefits, and travel, that were driven by the substantial completion of integrating the Radisson Hotels Americas operations, and a decrease in the provisions for credit losses on accounts receivable balances.

The overall decrease in selling, general and administrative expenses was partially offset by a $1.9 million increase in the Company's deferred compensation liabilities based on increases in the fair value of the underlying investments.

Selling, general and administrative expenses, which includes the costs to operate the business, increased $6.6 million to $65.0 million for the three months ended June 30, 2024 from $58.4 million for the three months ended June 30, 2023.

The increase in selling, general and administrative expenses was primarily due to a $2.4 million litigation settlement and an increase in the provisions for credit losses on accounts receivable balances.

The overall increase in selling, general and administrative expenses was partially offset by a $1.1 million decrease in the Company's deferred compensation liabilities based on decreases in the fair value of the underlying investments.

Business Combination, Diligence and Transition Costs

Business combination, diligence and transition costs increased $5.4 million to $15.8 million for the three months ended March 31, 2024 from $10.4 million for the three months ended March 31, 2023.

The increase was due to the costs related to the Wyndham acquisition pursuit, which we terminated on March 8, 2024.

Business combination, diligence and transition costs decreased $8.5 million to $0.9 million for the three months ended June 30, 2024 from $9.4 million for the three months ended June 30, 2023.

The decrease was primarily due to the termination of the Wyndham acquisition pursuit on March 8, 2024.

Interest Expense

Interest expense increased $6.1 million to $20.2 million for the three months ended March 31, 2024 from $14.1 million for the three months ended March 31, 2023.

Interest expense increased $7.5 million to $23.8 million for the three months ended June 30, 2024 from $16.3 million for the three months ended June 30, 2023.

The increase in interest expense was due to increased borrowings and higher interest rates on the Company's senior unsecured revolving credit facility.

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Other Loss (Gain)

Other loss (gain) decreased $3.2 million to other losses of $1.3 million for the three months ended March 31, 2024 from other gains of $1.9 million for the three months ended March 31, 2023.

The decrease was primarily due to a $5.3 million unrealized loss on investments in equity securities, partially offset by dividend income of $1.1 million and a $1.6 million increase in the Company's deferred compensation assets based on increases in the fair value of the underlying investments.

Other loss (gain) decreased $4.7 million to other losses of $2.5 million for the three months ended June 30, 2024 from other gains of $2.2 million for the three months ended June 30, 2023.

The decrease was primarily due to a $3.2 million unrealized loss on investments in equity securities, a $0.7 million realized loss on the sale of equity securities, and a $1.1 million decrease in the Company's deferred compensation assets based on decreases in the fair value of the underlying investments, all of which were partially offset by dividend income of $0.5 million.

Equity in Net Gain of Affiliates

Equity in net gain of affiliates increased $7.7 million to $7.9 million for the three months ended June 30, 2024 from $0.2 million for the three months ended June 30, 2023.

The increase was primarily due to a distribution from an unconsolidated affiliate, which sold its underlying assets, so the Company recognized a gain of $7.2 million.

Refer to Note 4 to our consolidated financial statements for additional information.

Income Tax Expense

The Company's effective income tax rates were 22.9% and 21.7% for the three months ended March 31, 2024 and 2023, respectively.

The Company's effective income tax rates were 25.3% and 24.7% for the three months ended June 30, 2024 and 2023, respectively.

The effective income tax rates were higher than the U.S.

federal income tax rate of 21.0% primarily due to the impact of state income taxes.

Comparison of the Operating Results for the Six Months Ended June 30, 2024 and 2023

Six Months Ended

(in thousands) 2024 2023

Royalty, licensing and management fees $ 247,280 $ 247,991

Initial franchise fees 13,267 15,046

Platform and procurement services fees 41,882 42,644

Owned hotels 53,409 47,836

Other 31,394 21,775

Other revenues from franchised and managed properties 379,873 384,920

Total revenues 767,105 760,212

OPERATING EXPENSES

Selling, general and administrative 113,620 107,345

Business combination, diligence and transition costs 16,739 19,742

Depreciation and amortization 21,762 19,835

Owned hotels 40,027 35,296

Other expenses from franchised and managed properties 382,186 375,754

Total operating expenses

574,334 557,972

Operating income 192,771 202,240

OTHER EXPENSES AND INCOME, NET

Interest expense 44,026 30,354

Interest income (4,146) (3,939)

Other loss (gain) 3,880 (4,095)

Equity in net gain of affiliates (7,778) (122)

Total other expenses and income, net 35,982 22,198

Income before income taxes 156,789 180,042

Income tax expense 38,644 42,512

Net income $ 118,145 $ 137,530

Results of Operations

For the six months ended June 30, 2024, the Company recognized income before income taxes of $156.8 million, which is a $23.2 million decrease from the same period in the prior year.

The decrease in income before income taxes is primarily due to a $9.5 million decrease in operating income, an $8.0 million decrease in other loss (gain), and an increase of $13.6 million in interest expense, all of which were partially offset by a $7.7 million increase in equity in net gain of affiliates.

Operating income decreased $9.5 million primarily due to an $11.5 million decrease in the net activity generated from other revenues from franchised and managed properties and other expenses from franchised and managed properties, a $1.7 million decrease in initial franchise fees revenue, and a $6.3 million increase in selling, general and administrative expenses, all of which were partially offset by a $9.6 million increase in other revenues and a $3.0 million decrease in business combination, diligence and transition costs.

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

Royalty Fees, Licensing and Management Fees

Domestic royalty fees decreased $5.3 million to $217.9 million for the six months ended June 30, 2024 from $223.2 million for the six months ended June 30, 2023.

The decrease in domestic royalty fees was primarily due to a 2.9% domestic system-wide RevPAR decrease as a result of a 1.2% decrease in average daily rates and a 100 basis points decrease in occupancy, all of which were partially offset by a system-wide 5 basis points increase in the effective royalty rate from 4.99% for the six months ended June 30, 2023 to 5.04% for the six months ended June 30, 2024.

A summary of the operating performance for the Company's domestic franchised hotels, organized by chain scale, was as follows:

Six Months Ended Six Months Ended Change

June 30, 2024 June 30, 2023

Rate Occupancy RevPAR Average

Rate Occupancy RevPAR

Upscale & Above (1)

$ 150.36 56.5 % $ 85.02 $ 148.04 55.8 % $ 82.53 1.6 % 80 bps 3.0 %

Midscale & Upper Midscale (2)

99.20 54.9 % 54.47 100.19 56.3 % 56.45 (1.0) % (140) bps (3.5) %

Extended Stay (3)

62.98 71.5 % 45.03 64.08 72.9 % 46.74 (1.7) % (140) bps (3.7) %

69.75 46.2 % 32.26 70.35 47.6 % 33.52 (0.9) % (140) bps (3.8) %

Total $ 94.84 55.5 % $ 52.65 $ 95.96 56.5 % $ 54.22 (1.2) % (100) bps (2.9) %

(1) Includes Ascend Hotel Collection, Cambria, Radisson, Radisson Blu, Radisson Individuals, and Radisson RED brands.

(2) Includes Clarion, Comfort Inn, Country Inn & Suites, Park Inn, Park Plaza, Quality, and Sleep Inn brands.

(3) Includes Everhome Suites, Mainstay Suites, Suburban Studios, and WoodSpring Suites brands.

(4) Includes Econo Lodge and Rodeway brands.

International royalty fees increased $0.3 million to $14.2 million for the six months ended June 30, 2024 from $13.9 million for the six months ended June 30, 2023.

The increase in international royalty fees was primarily due to an increase in international RevPAR and an increase in the size of the international franchise system.

Initial Franchise Fees

Initial franchise fees revenue decreased $1.7 million to $13.3 million for the six months ended June 30, 2024 from $15.0 million for the six months ended June 30, 2023.

The decrease was primarily due to the lower number of domestic franchise agreement terminations as compared to the prior year.

Other Revenues

Other revenues increased $9.6 million to $31.4 million for the six months ended June 30, 2024 from $21.8 million for the six months ended June 30, 2023.

The increase was primarily due to an increase in liquidated damages that resulted from the early termination of franchise agreements and other franchising revenues.

Selling, General and Administrative

Selling, general and administrative expenses, which includes the costs to operate the business, increased $6.3 million to $113.6 million for the six months ended June 30, 2024 from $107.3 million for the six months ended June 30, 2023.

The increase in selling, general and administrative expenses was primarily due to a $2.4 million litigation settlement, an increase in the provisions for credit losses on accounts receivable balances, and a $0.8 million increase in the Company's deferred compensation liabilities based on increases in the fair value of the underlying investments.

Business Combination, Diligence and Transition Costs

Business combination, diligence and transition costs decreased $3.0 million to $16.7 million for the six months ended June 30, 2024 from $19.7 million for the six months ended June 30, 2023.

The decrease was primarily due to the termination of the Wyndham acquisition pursuit on March 8, 2024 and substantially completing the integration of the Radisson Hotels Americas business in the fourth quarter of 2023.

Interest Expense

Interest expense increased $13.6 million to $44.0 million for the six months ended June 30, 2024 from $30.4 million for the six months ended June 30, 2023.

The increase in interest expense was due to increased borrowings and higher interest rates on the Company's senior unsecured revolving credit facility.

Refer to the discussion in the Liquidity and Capital Resources section in MD&A for more information.

Other Loss (Gain)

Other loss (gain) decreased $8.0 million to other losses of $3.9 million for the six months ended June 30, 2024 from other gains of $4.1 million for the six months ended June 30, 2023.

The decrease was primarily due to a $8.4 million unrealized loss on investments in equity securities, $0.8 million increase in foreign currency transaction losses, and a $0.7 million realized loss on the sale of equity securities, all of which were partially offset by dividend income of $1.5 million and a $0.5 million increase in the Company's deferred compensation assets based on increases in the fair value of the underlying investments.

Equity in Net Gain of Affiliates

Equity in net gain of affiliates increased $7.7 million to $7.8 million for the six months ended June 30, 2024 from $0.1 million for the six months ended June 30, 2023.

The increase was primarily due to a distribution from an unconsolidated affiliate, which sold its underlying assets, so the Company recognized a gain of $7.2 million.

Refer to Note 4 to our consolidated financial statements for additional information.

Income Tax Expense

The Company's effective income tax rates were 24.6% and 23.6% for the six months ended June 30, 2024 and 2023, respectively.

The effective income tax rates were higher than the U.S.

federal income tax rate of 21.0% primarily due to the impact of state income taxes.

Liquidity and Capital Resources

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The Company's short-term and long-term liquidity requirements primarily arise from working capital needs, debt obligations, income tax payments, dividend payments, share repurchases, capital expenditures, and investments in growth opportunities.

As of March 31, 2024, the Company's primary sources of liquidity consisted of $537.1 million in cash and cash equivalents and available borrowing capacity under the senior unsecured revolving credit facility.

As of March 31, 2024, the Company was in compliance with all of its financial covenants under its credit agreements and the Company expects to remain in such compliance.

As of June 30, 2024, the Company's primary sources of liquidity consisted of $530.4 million in cash and cash equivalents and available borrowing capacity under the senior unsecured revolving credit facility.

As of June 30, 2024, the Company was in compliance with all of its financial covenants under its credit agreements and the Company expects to remain in such compliance.

The Company believes that its cash on hand, available borrowing capacity under the senior unsecured revolving credit facility, cash flows from operations, and access to additional capital in the debt markets will provide sufficient liquidity to meet the expected future operating, investing, and financing needs of the business.

Our board of directors authorized a program which permits us to offer financing, investment, and guaranty support to qualified franchisees, and to acquire or develop and then resell hotels to incentivize franchise development of our brands in strategic markets.

We are currently engaged in these financial support activities to encourage acceleration of the growth of our Cambria Hotels and Everhome Suites brands.

With respect to these activities, the Company had approximately $499.4 million in financial support of the Cambria Hotels and Everhome Suites brands reflected in the consolidated balance sheet as of March 31, 2024.

We primarily engage in these financial support activities to encourage acceleration of the growth of our Cambria Hotels and Everhome Suites brands.

With respect to these activities, the Company had approximately $526.3 million in financial support of the Cambria Hotels and Everhome Suites brands reflected in the consolidated balance sheet as of June 30, 2024.

The Company is generally targeting to recycle these investments within a five year period, and expects our outstanding investments to not exceed $1.2 billion at any point in time based on the current board of directors' authorization.

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The Company has historically generated cash flows from operating activities that are in excess of the capital needed to invest in growth opportunities and to service debt obligations.

As a result, the Company maintains a share repurchase program and typically pays a quarterly dividend.

As a result, the Company maintains a share repurchase program and

typically pays a quarterly dividend.

On March 11, 2024, the Company's board of directors approved an increase of 5 million shares in the number of shares authorized to be repurchased under its share repurchase program.

As of March 31, 2024, the Company had 6.4 million shares remaining under the current share repurchase authorization.

As of June 30, 2024, the Company had 4.4 million shares remaining under the current share repurchase authorization.

The projected 2024 annual dividend rate is $1.15 per share or approximately $56.1 million in aggregate dividend payments, which is subject to future declarations by our board of directors.

Cash Flows from Operating Activities

During the three months ended March 31, 2024 and 2023, the net cash provided by operating activities was $1.7 million and $12.0 million, respectively.

Our operating cash flows decreased $10.3 million primarily due to a decrease in the net reimbursable amounts from the franchised and managed properties activities, an increase in the franchise agreement acquisition cost payments, an increase in business combination, diligence and transition costs associated with the Wyndham acquisition pursuit, and an increase in borrowing costs, all of which were partially offset by the timing of working capital items.

During the six months ended June 30, 2024 and 2023, the net cash provided by operating activities was $113.6 million and $125.7 million, respectively.

Our operating cash flows decreased $12.1 million primarily due to a decrease in the net reimbursable amounts from the franchised and managed properties activities, an increase in the franchise agreement acquisition cost payments, and an increase in borrowing costs, all of which were partially offset by the timing of working capital items and a decrease in business combination, diligence and transition costs associated with the timing of the termination of the Wyndham acquisition pursuit during the first quarter of 2024 and the due diligence and transition costs related to the integration of the Radisson Hotels Americas business in 2023.

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

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

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

If the franchisee exits our franchise system or is not operating their franchise in accordance with our quality or credit standards and is terminated, then the franchisee must repay the unamortized franchise agreement acquisition cost payment plus interest to the Company.

During the three months ended March 31, 2024 and 2023, the Company's net franchise agreement acquisition costs were $33.5 million and $28.1 million, respectively.

During the six months ended June 30, 2024 and 2023, the Company's net franchise agreement acquisition costs were $52.0 million and $46.2 million, respectively.

The Company’s franchise agreements require the payment of marketing and reservation system fees to be used by the Company for the expenses associated with providing franchise services such as national marketing, media advertising, and central reservation systems.

Additionally, the Company's management agreements include cost reimbursements, primarily related to payroll costs at managed hotels where the Company is the employer.

Additionally, the Company's management agreements include cost reimbursements, primarily related to the payroll costs at the managed hotels where the Company is the employer.

These activities are reflected in other revenues from franchised and managed properties and other expenses from franchised and managed properties.

During the three months ended March 31, 2024, the activity from other expenses from franchised and managed properties exceeded the activity of other revenues from franchised and managed properties by $12.4 million.

During the three months ended March 31, 2023, the activity from other revenues from franchised and managed properties exceeded the activity of other expenses from franchised and managed properties by $2.1 million.

During the six months ended June 30, 2024, the activity from other expenses from franchised and managed properties exceeded the activity of other revenues from franchised and managed properties by $2.3 million.

During the six months ended June 30, 2023, the activity from other revenues from franchised and managed properties exceeded the activity of other expenses from franchised and managed properties by $9.1 million.

Cash Flows from Investing Activities

The net cash used in investing activities was $42.7 million and $29.5 million for the three months ended March 31, 2024 and 2023, respectively.

The net cash used in investing activities was $62.0 million and $59.2 million for the six months ended June 30, 2024 and 2023, respectively.

The net cash used in investing activities was primarily due to the following:

During the three months ended March 31, 2024 and 2023, capital expenditures in property and equipment totaled $32.8 million and $19.6 million, respectively.

These capital expenditures primarily reflect the costs incurred to support the continued growth of the Cambria Hotels and Everhome Suites brands and the ongoing hotel development efforts, as well as the leasehold improvements in the Company's new corporate headquarters office in North Bethesda, Maryland.

The Company has equity method investments in affiliates related to the Company's program to offer equity support to qualified franchisees to develop and operate Cambria Hotels and Everhome Suites branded-hotels in strategic markets.

During the three months ended March 31, 2024 and 2023, the Company invested $9.3 million and $3.6 million, respectively, to support these efforts.

In addition, during the three months ended March 31, 2023, the Company received proceeds from the sale of certain affiliates totaling $0.9 million.

During the three months ended March 31, 2024, the Company did not sell any affiliates.

During the three months ended March 31, 2024, the Company received proceeds of $1.2 million from the sale of equity securities.

There were no purchases of equity securities during the three months ended March 31, 2024.

The Company did not purchase or sell any equity securities during the three months ended March 31, 2023.

During the six months ended June 30, 2024 and 2023, capital expenditures in property and equipment totaled $73.5 million and $45.7 million, respectively.

These capital expenditures primarily reflect the costs incurred to support the continued growth of the Cambria Hotels and Everhome Suites brands and the ongoing hotel development efforts.

The Company has equity method investments in affiliates related to the Company's program to offer equity support to qualified franchisees in order to develop and operate Cambria Hotels and Everhome Suites branded-hotels in strategic markets.

During the six months ended June 30, 2024 and 2023, the Company invested $19.5 million and $15.3 million, respectively, to support these efforts.

In addition, during the six months ended June 30, 2024 and 2023, the Company received distributions from these affiliates totaling $15.9 million and $0.9 million, respectively.

During the six months ended June 30, 2024, the Company received proceeds of $16.8 million from the sale of equity securities.

There were no purchases of equity securities during the six months ended June 30, 2024.

The Company did not purchase or sell any equity securities during the six months ended June 30, 2023.

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

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

During the three months ended March 31, 2024, the Company issued $1.0 million in notes receivable loans and received $0.9 million in notes receivable loan repayments.

During the three months ended March 31, 2023, the Company issued $3.7 million in notes receivable loans and received $0.3 million in notes receivable loan repayments.

During the six months ended June 30, 2024, the Company issued $1.5 million in notes receivable loans and received $1.7 million in notes receivable loan repayments.

During the six months ended June 30, 2023, the Company issued $4.3 million in notes receivable loans and received $9.3 million in notes receivable loan repayments.

Cash Flows from Financing Activities

Cash flows from financing activities primarily relate to the proceeds or payments on the Company's borrowings, treasury stock repurchases, acquisition of shares in connection with the exercise or vesting of equity awards, the payment of dividends, and the payment of debt issuance costs.

Restated Senior Unsecured Credit Facility

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

The Restated Credit Agreement provided for a $600 million unsecured credit facility with an original maturity date of August 20, 2023, subject to one-year extension options that could be requested by the Company prior to each of the first, second, and third anniversaries of the closing date of the Restated Credit Agreement in exchange for the payment fees.

The Company has exercised the one-year extension option on multiple occasions, which has resulted in a new maturity date of August 20, 2026.

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

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

There are no subsidiary guarantors under the Restated Credit Agreement.

On February 18, 2020, the Company entered into the First Amendment to the Amended and Restated Senior Unsecured Credit Agreement which, among other things, removed a springing guarantee (requiring subsidiaries to guarantee the Company's obligations under the Restated Credit Agreement if the subsidiary incurs certain recourse debt) and other provisions and references in the Restated Credit Agreement related to the potential existence of subsidiary guarantors.

On February 14, 2023, the Company entered into a Third Amendment to the Amended and Restated Senior Unsecured Credit Agreement.

This amendment provides, among other things, for (i) an increase in the aggregate amount of commitments under the Company's existing $600 million unsecured credit facility (the "Revolver") by $250 million (the “Increased Commitments”) to an aggregate amount of $850 million, and (ii) the replacement of the interest reference rate for U.S.

dollar-denominated borrowings under the Revolver from the London Interbank Offered Rate to an adjusted Secured Overnight Financing Rate.

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

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

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

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

In addition, on up to two nonconsecutive occasions, the Company will be required to maintain a total leverage ratio of not more than 5.5 to 1.0 for up to three consecutive quarters following a material acquisition commencing with the fiscal quarter in which the material acquisition occurred.

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

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

As of March 31, 2024, the Company maintained a total leverage ratio of 2.73x, including outstanding debt of approximately $353.3 million on the senior unsecured revolving credit facility.

Senior Unsecured Revolving Credit Facility

On June 28, 2024, the Company entered into a Second Amended and Restated Senior Unsecured Credit Agreement (the "Restated Credit Agreement"), which amended and restated the Company’s existing amended and restated senior unsecured credit agreement dated August 20, 2018 (the “Former Credit Agreement”).

The Former Credit Agreement provided for an $850 million unsecured revolving credit facility (the “Revolver”) with a final maturity date of August 20, 2026.

The Restated Credit Agreement increased the commitments under the Revolver to $1 billion and extended the final maturity date of the Revolver to June 28, 2029, subject to optional one-year extensions that can be requested by the Company prior to each of the third, fourth, and fifth anniversaries of the closing date of the Restated Credit Agreement.

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

The Restated Credit Agreement also provides that up to $50 million of borrowings under the Revolver may be used for alternative currency loans, up to $10 million of capacity under the Revolver may be used for the issuance of letters of credit, and up to $25 million of borrowings under the Revolver may be used for swingline loans.

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

At any time prior to the final maturity date, the Company may increase the amount of the Revolver or add one or more term loan facilities under the Restated Credit Agreement by up to an additional $500 million in the aggregate to the extent that any one or more lenders commit to being a lender for the additional amount of such increase or the term loan facility and certain other customary conditions are met.

The Restated Credit Agreement allows the Company to elect to have the Revolver bear interest at a rate equal to (i) the secured overnight financing rate (subject to a credit spread adjustment of 0.10% and a 0.00% floor) plus a margin ranging from 0.90% to 1.50% or (ii) a base rate plus a margin ranging from 0.00% to 0.50%.

In each case, the margin is determined according to the Company’s senior unsecured long-term debt rating or under circumstances as set forth in the Restated Credit Agreement if the Company’s total leverage ratio is less than 2.5 to 1.0.

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

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

The Restated Credit Agreement imposes financial maintenance covenants requiring the Company to maintain a consolidated fixed charge coverage ratio of at least 2.5 to 1.0 and a total leverage ratio of not more than 4.5 to 1.0, which may be increased up to two nonconsecutive occasions to 5.5 to 1.0 for up to four consecutive fiscal quarters commencing with the fiscal quarter in which certain material acquisitions are consummated.

So long as the Company maintains an Investment Grade Rating, as defined in the Restated Credit Agreement, then the Company will not need to comply with the consolidated fixed charge coverage ratio covenant.

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

As of June 30, 2024, the Company maintained a total leverage ratio of 3.02x, including outstanding debt of approximately $526.0 million on the senior unsecured revolving credit facility.

The Company was in compliance with all financial covenants under the Restated Credit Agreement.

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

The amortization of the debt issuance costs is included in interest expense in the consolidated statements of income.

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

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

Term Loan Due 2024

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

On July 2, 2024, the Company repaid the 2023 Term Loan in full using the net proceeds from the issuance of the $600 million unsecured senior notes.

Refer to Note 14 to the consolidated financial statements for more information.

Senior Unsecured Notes Due 2031

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

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

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

The Company used the net proceeds of the 2020 Senior Notes, after deducting underwriting discounts, commissions, and offering expenses, to repay in full the $250 million term loan entered in April 2020 and to fund the purchase price of the 2012 Senior Notes.

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

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

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

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

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

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

If the Company redeems the 2019 Senior Notes prior to September 1, 2029 (three months prior to the maturity date)

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

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

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In March 2023, the Company's board of directors approved a 21% increase in the quarterly cash dividend to $0.2875 per share, which is the current per share dividend amount that was utilized in each of the dividends that were declared in 2023 and 2024.

During the three months ended March 31, 2024, the Company paid $14.7 million in cash dividends.

During the six months ended June 30, 2024, the Company paid $28.9 million in cash dividends.

Based on the current per share dividend amount and our outstanding share count, the aggregate annual dividends for the year ended December 31, 2024 is projected to be $1.15 per share or approximately $56.1 million in aggregate dividend payments.

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

In accordance with the Restated Credit Agreement and the 2023 Term Loan, the Company may not declare or make any dividend payments if there is an existing event of default or if the dividend payment would create an event of default.

In accordance with the Restated Credit Agreement, the Company may not declare or make any dividend payments if there is an existing event of default or if the dividend payment would create an event of default.

Share Repurchases and Redemptions

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On March 11, 2024, the Company's board of directors approved an increase of 5.0 million shares in the number of shares authorized to be repurchased under its share repurchase program.

During the three months ended March 31, 2024, the Company repurchased 0.4 million shares of its common stock under the share repurchase program at a total cost, including accrued excise tax, of $49.2 million.

During the six months ended June 30, 2024, the Company repurchased 2.3 million shares of its common stock under the share repurchase program at a total cost, including accrued excise tax, of $284.6 million.

In total, the Company has repurchased 60.6 million shares of its common stock (including 33.0 million shares prior to the two-for-one stock split effected in October 2005) under the share repurchase program at a total cost of $2.6 billion.

Considering the effect of the two-for-one stock split, the Company has repurchased 93.6 million shares at an average price of $27.28 per share.

As of March 31, 2024, the Company had 6.4 million shares remaining under the current share repurchase authorization.

During the three months ended March 31, 2024, the Company redeemed 0.1 million shares of common stock at a total cost of $11.4 million from employees to satisfy the option exercise price and the statutory minimum tax-withholding requirements related to the exercising of stock options and the vesting of PVRSUs and restricted stock grants.

These redemptions were outside the share repurchase program.

During the three months ended March 31, 2024, the Company received proceeds of $4.2 million from stock options exercised by employees.

As of June 30, 2024, the Company had 4.4 million shares remaining under the current share repurchase authorization.

During the six months ended June 30, 2024, the Company redeemed 0.1 million shares of common stock at a total cost of $11.6 million from employees to satisfy the option exercise price and the statutory minimum tax-withholding requirements related to the exercising of stock options and the vesting of PVRSUs and restricted stock grants.

These redemptions were outside the

share repurchase program.

During the six months ended June 30, 2024, the Company received proceeds of $4.3 million from stock options exercised by employees.

Critical Accounting Estimates

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We have discussed the estimates that we believe are critical because they involve a higher degree of judgment in their application and are based on information that is inherently uncertain in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

During the three months ended March 31, 2024, there were no material changes to the critical accounting estimates that were previously disclosed.

During the six months ended June 30, 2024, there were no material changes to the critical accounting estimates that were previously disclosed.

New Accounting Standards

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Such risks include, but are not limited to, changes to general, domestic and foreign economic conditions, including access to liquidity and capital;

the ability to realize the anticipated long-term benefits and synergies of the acquisition of Radisson Hotels Americas as rapidly or to the extent anticipated;

changes in consumer demand and confidence, including consumer discretionary spending and the demand for travel, transient and group business;

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the outcome of litigation;

and our ability to effectively manage our indebtedness and secure our indebtedness, including additional indebtedness incurred as a result of the acquisition of Radisson Hotels Americas.

and our ability to effectively manage our indebtedness and secure our indebtedness.

These and other risk factors are discussed in detail in the Risk Factors section of this Quarterly Report on Form 10-Q and of the Company's Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 20, 2024.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis