CHOICE HOTELS INTERNATIONAL INC /DE

Choice Hotels International, Inc. operates primarily as a hotel franchisor in 49 states, the District of Columbia, and 50 countries and territories ¹. The lodging industry is divided into chain scale categories including Luxury, Upper Upscale, Upscale, Upper Midscale, Midscale, and Economy, with the Company's brands spanning from Economy (Econo Lodge, Rodeway Inn) through Upper Upscale (Radisson Blu). The industry experiences both positive and negative operating cycles, characterized by periods of sustained occupancy growth and increasing room rates followed by downturns where hoteliers reduce rates to stimulate occupancy. As a franchisor with 7,575 opened hotels ², the Company believes its fee-for-service business model has historically delivered predictable and profitable long-term growth in a variety of lodging and economic environments, benefiting from both RevPAR gains and supply growth.

The Company competes with major hotel chains including Marriott, Hilton, Hyatt, InterContinental Hotels Group, Best Western, and others across various chain scale categories. Competitive advantages include a portfolio of 22 brands and brand extensions, significant operating leverage from the franchising model, a large loyalty program with more than 74 million worldwide members ³, and a central reservation system that delivers guests through multiple channels including call centers, proprietary web and mobile sites, global distribution systems, and online travel agents. The Company believes national franchise chains with a large number of hotels enjoy greater brand awareness and bargaining power with suppliers, and that hotel operators choose franchisors based primarily on the perceived value and quality of each franchisor's brand and services.

The Company generates revenue primarily from hotel franchising operations, with franchise fees based on gross room revenues or the number of rooms at franchised properties. Revenue is also generated from partnerships with qualified vendors and travel partners, hotel ownership, and other ancillary sources. The fee and cost structure provides opportunities to improve operating results by increasing the number of franchised hotel rooms, improving RevPAR performance, and increasing royalty rates in franchise contracts. Royalty fees typically range from 5% to 6% of gross room revenues ⁴, and marketing and reservation fees typically range from 3% to 4% of gross room revenues ⁵. The Company also generates revenue from owned hotels primarily from guest stays, and from managed hotels from base and incentive management fees and cost reimbursements.

The Company's brand portfolio includes 22 brands and brand extensions: Clarion, Clarion Pointe, Comfort Inn, Comfort Suites, Country Inn & Suites by Radisson, Sleep Inn, Quality, Park Inn by Radisson, Everhome Suites, WoodSpring Suites, MainStay Suites, Suburban Studios, Radisson Blu, Park Plaza, Cambria Hotels, Ascend Collection, Radisson RED, Radisson Individuals, Radisson, Radisson Collection, Radisson Inn & Suites, Econo Lodge, and Rodeway Inn. The Comfort brand family is the flagship brand in the upper midscale chain scale, with principal competitors including Hampton by Hilton, Holiday Inn Express, and Fairfield by Marriott. Cambria Hotels operates in the upscale chain scale targeting primary market locations, with principal competitors including Courtyard by Marriott, Aloft, Hyatt Place, and Hilton Garden Inn. WoodSpring Suites operates in the economy extended stay chain scale, with principal competitors including Extended Stay America, MyPlace, and Studio 6. As of December 31, 2025, the Company had 6,187 U.S. properties with 496,979 rooms ⁶ and 1,388 international properties with 159,846 rooms ⁷.

The Company's U.S. franchise system had an average royalty rate of 5.14% ⁸ for the year ended December 31, 2025, compared to 5.06% ⁹ in 2024. Average occupancy percentage was 55.6% ¹⁰ in 2025 versus 56.4% ¹¹ in 2024. Average daily room rate was $95.05 ¹² in 2025 compared to $96.67 ¹³ in 2024. Revenue per available room was $52.85 ¹⁴ in 2025 versus $54.54 ¹⁵ in 2024. International royalty fees were $41.323 million ¹⁶ in 2025 compared to $29.822 million ¹⁷ in 2024. The Company owned 10 Cambria hotels, four Everhome Suites, one Radisson RED, one Radisson Blu, and one Country Inn & Suites open and operating hotels, and managed 13 hotels (inclusive of four owned hotels) ¹⁸.

On July 2, 2025, the Company acquired Choice Hotels Canada Inc., which included reacquired territory rights and franchise rights ¹⁹. The Company's Board of Directors authorized a program permitting the Company to offer investment, financing, and guaranty support to qualified franchisees, and to acquire or develop and resell hotels to incentivize franchise development. The Company repurchased shares of its common stock during the period, with the aggregate market value of common stock held by non-affiliates at $3,445,513,422 as of June 30, 2025 ²⁰, based upon a closing price of $126.88 per share ²¹. As of February 10, 2026, the number of shares outstanding was 45,971,393 ²².

Total revenues for the fiscal year ended December 31, 2025 were $1.586 billion ²³, compared to $1.583 billion ²⁴ in 2024. Net income was $267.4 million ²⁵ in 2025 versus $268.7 million ²⁶ in 2024. Diluted earnings per share were $5.72 ²⁷ in 2025 compared to $5.62 ²⁸ in 2024. The Company generated significant free cash flow from its franchising operations, with the fee and cost structure providing opportunities to improve operating results through increasing franchised hotel rooms, improving RevPAR performance, and increasing royalty rates.

The Company's growth strategy focuses on expanding its franchise system through both new construction and conversion opportunities. New construction brands such as Cambria Hotels, Comfort, Sleep Inn, WoodSpring Suites, Everhome Suites, and Country Inn & Suites offer hotel developers choices at various price points during periods of supply growth. Conversion brands including Quality, Clarion Pointe, Ascend Collection, Econo Lodge, and Radisson offer opportunities during both industry contraction and growth cycles to independent operators and non-Choice affiliated hotels. The Company intends to continue to expand internationally, with international franchise operations providing a long-term growth opportunity, and expects to continue making investments into international franchise operations to enhance the value proposition for prospective international franchisees. The Company is focused on expanding its platform business through key partnerships, new technology, and other key franchisee resources, reflected in partnership services and fees revenues.

The Company's international expansion strategy targets markets where both franchising is an accepted business model and its brands can achieve significant revenue growth through proprietary distribution channels. In markets with complex business models and language and cultural differences, the Company typically enters into master franchise agreements. As of December 31, 2025, the Company had 1,388 international properties with 159,846 rooms ²⁹, compared to 1,258 properties with 142,071 rooms ³⁰ in 2024. The Company believes chain and franchise affiliation will increase in certain international markets as local economies grow and hotel owners seek economies of scale in centralized reservations systems and marketing programs. The Company also continues to develop its owned hotel portfolio, primarily focusing on the Cambria Hotels and Everhome Suites brands, seeking key markets with strong growth potential to deliver strong operating performance and improve brand recognition.

The Company's variable overhead costs associated with franchise system growth of established brands have historically been less than the incremental royalty fees generated from new franchises, providing significant operating leverage. The Company expects to continue benefiting from this operating leverage as it grows its franchise business. The Company manages costs by setting performance goals for its hotel management companies and optimizing distribution channels. The Company's fee and cost structure provides opportunities to improve operating results by increasing the number of franchised hotel rooms, improving RevPAR performance, and increasing royalty rates in franchise contracts.

The Company's central reservation system is a critical technology used to deliver guests to franchisees through multiple channels, including call centers, proprietary web and mobile sites, global distribution systems, online travel agents, and internet referral services. The Company developed choiceEDGE, a cloud-based software to manage all distribution by optimizing rate, inventory, availability, shopping, booking, and reservations for its website, mobile apps, and third-party distribution partners. The Company continues to upgrade its technology to ensure its central reservation system can effectively handle current and future volume on digital channels and support the industry's shift toward accelerated digital communications and guest experience personalization. The Company had 1,562 U.S. and 192 international associates as of December 31, 2025 ³¹, excluding employees at its 13 managed hotels.

The Company's capital allocation decisions are intended to maximize return on invested capital and create value for shareholders. Since the business has not historically required significant reinvestment of capital, the Company typically utilizes cash for acquisitions, share repurchases, and dividends. The Company allocates capital to financing, investment, and guaranty support to incentivize franchise development for certain brands in strategic markets. The Company generally expects to recycle these investments within a five year period. The Company's Board of Directors authorized a program permitting the Company to offer investment, financing, and guaranty support to qualified franchisees, and to acquire or develop and resell hotels. The Company does not disclose specific R&D spending levels, capital expenditure plans, share repurchase authorization amounts, or dividend policy figures in the filing beyond what is stated in the financial statements.

The Company faces headwinds from the cyclical nature of the lodging industry, with negative operating cycles characterized by hoteliers reducing room rates to stimulate occupancy and a reduction in hotel development. An excess supply of hotel rooms or unfavorable borrowing conditions may discourage potential franchisees from expanding or constructing new hotels, limiting a source of growth. The Company also faces risks from changes in general and local economic and market conditions that can adversely affect the level of business and leisure travel and demand for lodging. Inflationary conditions, increases in operating costs that may not be offset by increases in room rates, and increases in minimum wage levels could negatively impact results. The availability and cost of capital to allow hotel owners and developers to build new hotels and fund investments is another constraint.

The Company's international operations are subject to greater economic, political, and other risks than U.S. operations, including war, conflict, civil unrest, political instability, expropriation, and nationalization. Currency devaluations and unfavorable changes in international monetary and tax policies could have a material adverse effect on profitability. The Company is subject to compliance with anti-corruption and anti-bribery laws and other foreign laws and regulations. The laws of some international jurisdictions do not adequately protect the Company's intellectual property and restrict the repatriation of non-U.S. earnings. The Company also faces risks from climate change and sustainability-related concerns, including physical risks from extreme weather events, changing consumer preferences, and changes in laws and regulations related to climate change.

The Company faces material risks from the cyclical nature of the lodging industry, where an extended period of occupancy or room rate declines could adversely affect franchisee financial condition and result in franchise terminations for non-payment of fees. The Company's revenue is significantly dependent on fees based on room revenues at franchised hotels, and a prolonged decline in demand for hotel rooms would negatively impact business. The Company is subject to risks related to its indebtedness of $1.450 billion ³², including the inability to generate sufficient cash flow to service debt obligations, limitations on obtaining additional financing, and exposure to variable interest rate risk on borrowings not protected by interest rate hedges. The Company's international operations in 50 countries and territories ³³ expose it to political instability, currency devaluations, and compliance risks with anti-corruption laws. The Company faces cybersecurity risks, having experienced attempts to disrupt or gain access to its systems, and while none have been material to date, the evolving sophistication of cyber threats increases the difficulty and cost of defense. The Company's development and brand support activities involving co-investment, financing, and guaranty support for third parties may result in losses if franchisees become bankrupt or lack financial resources to meet obligations.

Management's message emphasizes the Company's commitment to franchisee profitability by providing hotel franchises that strive to generate the highest return on investment of any hotel franchise. The strategic priorities emphasized for the period ahead are: Profitable Growth, which focuses on improving hotel performance, increasing system size through additional franchise sales with a focus on revenue-intense chain scales and markets, improving royalty rates, expanding qualified vendor and partnership programs, and maintaining a disciplined cost structure; and Maximizing Financial Returns and Creating Value for Shareholders, where capital allocation decisions including capital structure and uses of capital are intended to maximize return on invested capital. Management believes that healthy brands delivering a compelling return on investment will enable the Company to sell additional hotel franchises and raise royalty rates.