CHOICE HOTELS INTERNATIONAL INC DE

Previous wording

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

Current wording

We are primarily a hotel franchisor operating in 49 states, the District of Columbia, and 45 countries and territories. As of September 30, 2024, we had 7,515 hotels with 634,952 rooms open and operating, and 970 hotels with 110,380 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®.

Previous wording

The hotel franchising business represents the Company's primary operations. 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. As a result of our master franchise relationships and international market conditions, our revenues are primarily concentrated in the United States. Therefore, our description of our business is primarily focused on the domestic operations, which encompasses the United States.

Current wording

The hotel franchising business represents the Company's primary operations. The Company's domestic operations are conducted through direct franchising relationships, the ownership of 12 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. As a result of our master franchise relationships and international market conditions, our revenues are primarily concentrated in the United States. Therefore, our description of our business is primarily focused on the domestic operations, which encompasses the United States.

Previous wording

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 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. We do not anticipate owning hotels on a permanent basis and we expect to target dispositions to a franchisee encumbered with a long-term Choice franchise agreement in the future.

Current wording

In addition to our hotel franchising business, we have also developed or acquired 12 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 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. We do not anticipate owning hotels on a permanent basis and we expect to target dispositions to a franchisee encumbered with a long-term Choice franchise agreement in the future.

Previous wording

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.

Current wording

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 September 30, 2024 and 2023, other revenues from franchised and managed properties exceeded other expenses from franchised and managed properties by $20.1 million and $10.3 million, respectively. During the nine months ended September 30, 2024 and 2023, other revenues from franchised and managed properties exceeded other expenses from franchised and managed properties by $17.7 million and $19.5 million, respectively.

Previous wording

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).

Current wording

For the three months ended September 30, 2024, the Company recognized income before income taxes of $137.1 million, which is a $15.9 million increase from the same period in the prior year. The increase in income before income taxes was primarily due to a $16.7 million increase in operating income and a $5.3 million increase in other gains, all of which were partially offset by a $5.8 million increase in interest expense.

Previous wording

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.

Current wording

Operating income increased $16.7 million primarily due to a $9.8 million increase in the net activity generated from other revenues from franchised and managed properties and other expenses from franchised and managed properties, a $2.5 million increase in other revenues, and a $9.9 million decrease in business combination, diligence and transition costs, all of which were partially offset by a $5.1 million increase in selling, general and administrative expenses.

Previous wording

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.

Current wording

Domestic royalty fees decreased $1.9 million to $131.6 million for the three months ended September 30, 2024 from $133.5 million for the three months ended September 30, 2023. The decrease in domestic royalty fees is primarily due to a 2.5% domestic system-wide RevPAR decrease as a result of a 1.2% decrease in average daily rates and an 80 basis points decrease in occupancy during the current period, which was partially offset by a system-wide 6 basis points increase in the effective royalty rate from 4.99% for the three months ended September 30, 2023 to 5.05% for the three months ended September 30, 2024.

Previous wording

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).

Current wording

International royalty fees increased $0.5 million to $8.4 million for the three months ended September 30, 2024 from $7.9 million for the three months ended September 30, 2023. The increase in international royalty fees is primarily due to an increase in the international franchise system size by 30 hotels (from 1,207 hotels as of September 30, 2023 to 1,237 hotels as of September 30, 2024) and 5,098 rooms (from 134,660 rooms as of September 30, 2023 to 139,758 rooms as of September 30, 2024), which was partially offset by a decrease in international RevPAR.

Previous wording

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.

Current wording

Initial franchise fees revenue decreased $0.3 million to $5.9 million for the three months ended September 30, 2024 from $6.2 million for the three months ended September 30, 2023. The decrease is primarily due to a lower number of domestic franchise agreement terminations as compared to the prior year.

Previous wording

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. After the execution of a franchise agreement, new construction hotels typically average 18 to 36 months to open, while conversion hotels typically average three to six months to open.

Current wording

As of September 30, 2024, the Company had 970 hotels with 110,380 rooms in its pipeline. Approximately 86% of our pipeline is located in the United States and approximately 71% of the domestic portion of the pipeline is new construction. After the execution of a franchise agreement, new construction hotels typically average 18 to 36 months to open, while conversion hotels typically average three to six months to open.

Previous wording

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.

Current wording

Selling, general and administrative expenses, which includes the costs to operate the business, increased $5.1 million to $49.1 million for the three months ended September 30, 2024 from $44.0 million for the three months ended September 30, 2023. The increase in selling, general and administrative expenses was primarily due to a $3.4 million increase in the Company's deferred compensation liabilities based on increases in the fair value of the underlying investments and a $1.0 million increase in the provisions for credit losses related to the issuance of new notes receivable.

Previous wording

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.

Current wording

Business combination, diligence and transition costs decreased $9.9 million to $1.0 million for the three months ended September 30, 2024 from $10.9 million for the three months ended September 30, 2023. The decrease was primarily due to the termination of the Wyndham acquisition pursuit on March 8, 2024.

Previous wording

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

Current wording

Interest expense increased $5.8 million to $22.0 million for the three months ended September 30, 2024 from $16.2 million for the three months ended September 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.

Previous wording

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.

Current wording

Other (gain) loss increased $5.3 million to other gains of $4.0 million for the three months ended September 30, 2024 from other losses of $1.3 million for the three months ended September 30, 2023. The increase in other gains was primarily due to a $3.5 million increase in the Company's deferred compensation assets based on increases in the fair value of the underlying investments and a net gain of $0.9 million on the sales of equity securities.

Previous wording

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.

Current wording

The Company's effective income tax rates were 22.9% and 24.1% for the three months ended September 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.

Previous wording

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

Current wording

Comparison of the Operating Results for the Nine Months Ended September 30, 2024 and 2023

Previous wording

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.

Current wording

For the nine months ended September 30, 2024, the Company recognized income before income taxes of $293.9 million, which is a $7.4 million decrease from the same period in the prior year. The decrease in income before income taxes is primarily due to a $2.7 million decrease in other (gain) loss and an increase of $19.6 million in interest expense, all of which were partially offset by a $7.3 million increase in operating income and a $7.2 million increase in equity in net gain of affiliates.

Previous wording

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.

Current wording

Operating income increased $7.3 million primarily due to a $12.1 million increase in other revenues and a $12.9 million decrease in business combination, diligence and transition costs, all of which were partially offset by a $2.1 million decrease in royalty, licensing and management fees revenue, a $2.1 million decrease in initial franchise fees revenue, a $1.8 million decrease in the net activity generated from other revenues from franchised and managed properties and other expenses from franchised and managed properties, and an $11.3 million increase in selling, general and administrative expenses.

Previous wording

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.

Current wording

Domestic royalty fees decreased $7.3 million to $349.4 million for the nine months ended September 30, 2024 from $356.7 million for the nine months ended September 30, 2023. The decrease in domestic royalty fees was primarily due to a 2.7% domestic system-wide RevPAR decrease as a result of a 1.2% decrease in average daily rates and a 90 basis points decrease in occupancy, all of which were partially offset by a 0.4% increase in open and operating domestic hotel rooms and a system-wide 6 basis points increase in the effective royalty rate from 4.99% for the nine months ended September 30, 2023 to 5.05% for the nine months ended September 30, 2024.

Previous wording

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.

Current wording

International royalty fees increased $0.8 million to $22.6 million for the nine months ended September 30, 2024 from $21.8 million for the nine months ended September 30, 2023. The increase in international royalty fees was primarily due to an increase in the size of the international franchise system, which was partially offset by a decrease in international RevPAR.

Previous wording

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.

Current wording

Initial franchise fees revenue decreased $2.1 million to $19.1 million for the nine months ended September 30, 2024 from $21.2 million for the nine months ended September 30, 2023. The decrease was primarily due to a lower number of domestic franchise agreement terminations as compared to the prior year.

Previous wording

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.

Current wording

Other revenues increased $12.1 million to $45.3 million for the nine months ended September 30, 2024 from $33.2 million for the nine months ended September 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.

Previous wording

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.

Current wording

Selling, general and administrative expenses, which includes the costs to operate the business, increased $11.3 million to $162.7 million for the nine months ended September 30, 2024 from $151.4 million for the nine months ended September 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 $4.2 million increase in the Company's deferred compensation liabilities based on increases in the fair value of the underlying investments.

Previous wording

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.

Current wording

Business combination, diligence and transition costs decreased $12.9 million to $17.7 million for the nine months ended September 30, 2024 from $30.6 million for the nine months ended September 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.

Previous wording

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.

Current wording

Interest expense increased $19.6 million to $66.1 million for the nine months ended September 30, 2024 from $46.5 million for the nine months ended September 30, 2023. The increase in interest expense was due to increased borrowings and higher interest rates on the Company's outstanding borrowings. Refer to the discussion in the Liquidity and Capital Resources section in MD&A for more information.

Previous wording

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.

Current wording

Other (gain) loss decreased $2.7 million to other gains of $0.1 million for the nine months ended September 30, 2024 from other gains of $2.8 million for the nine months ended September 30, 2023. The decrease was primarily due to a net loss of $8.3 million on the sales of equity securities, which was partially offset by dividend income of $1.5 million and a $4.0 million increase in the Company's deferred compensation assets based on increases in the fair value of the underlying investments.

Previous wording

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.

Current wording

Equity in net gain of affiliates increased $7.2 million to $9.1 million for the nine months ended September 30, 2024 from $1.9 million for the nine months ended September 30, 2023. The increase was 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.

Previous wording

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.

Current wording

The Company's effective income tax rates were 23.8% for both of the nine months ended September 30, 2024 and 2023. 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.

Previous wording

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.

Current wording

As of September 30, 2024, the Company's primary sources of liquidity consisted of $675.6 million in cash and cash equivalents and available borrowing capacity under the senior unsecured revolving credit facility. As of September 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.

Previous wording

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

Current wording

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 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 $595.4 million in financial support of the Cambria Hotels and Everhome Suites brands reflected in the consolidated balance sheet as of September 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. The deployment and annual pace of future financial support activities will depend upon market and other conditions, including among others, our franchise sales results, the environment for new construction hotel development, and the hotel lending environment.

Previous wording

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. 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 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.

Current wording

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. 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 September 30, 2024, the Company had 4.0 million shares remaining under the current share repurchase authorization. The projected 2024 annual dividend rate is $1.15 per share or approximately $56.0 million in aggregate dividend payments, which is subject to future declarations by our board of directors.

Previous wording

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.

Current wording

During the nine months ended September 30, 2024 and 2023, the net cash provided by operating activities was $236.5 million and $247.2 million, respectively. Our operating cash flows decreased $10.7 million primarily due to an increase in the franchise agreement acquisition cost payments, an increase in deferred income taxes, 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.

Previous wording

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, 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 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.

Current wording

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, 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 nine months ended September 30, 2024 and 2023, the Company's net franchise agreement acquisition costs were $84.1 million and $72.9 million, respectively.

Previous wording

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 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 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.

Current wording

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 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 nine months ended September 30, 2024 and 2023, the activity from other revenues from franchised and managed properties exceeded the activity of other expenses from franchised and managed properties by $17.7 million and $19.5 million, respectively.

Previous wording

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:

Current wording

The net cash used in investing activities was $63.4 million and $103.3 million for the nine months ended September 30, 2024 and 2023, respectively. The net cash used in investing activities was primarily due to the following:

Previous wording

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.

Current wording

During the nine months ended September 30, 2024 and 2023, investments in owned hotel properties totaled $81.2 million and $45.5 million, respectively. These investments related to the continued growth of the Cambria Hotels and Everhome Suites brands and the ongoing hotel development efforts. During the nine months ended September 30, 2024 and 2023, capital expenditures in other property and equipment totaled $33.6 million and $35.9 million, respectively. These capital expenditures primarily related to leasehold improvements, office equipment, and capitalized software.

Previous wording

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.

Current wording

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 nine months ended September 30, 2024 and 2023, the Company invested $47.7 million and $24.6 million, respectively, to support these efforts. In addition, during the nine months ended September 30, 2024 and 2023, the Company received distributions from these affiliates totaling $15.9 million and $0.9 million, respectively.

Previous wording

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.

Current wording

During the nine months ended September 30, 2024, the Company received proceeds of $108.1 million from the sale of equity securities. There were no purchases of equity securities during the nine months ended September 30, 2024. The Company did not purchase or sell any equity securities during the nine months ended September 30, 2023.

Previous wording

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 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.

Current wording

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 nine months ended September 30, 2024, the Company issued $24.4 million in notes receivable loans and received $2.3 million in notes receivable loan repayments. During the nine months ended September 30, 2023, the Company issued $4.3 million in notes receivable loans and received $9.9 million in notes receivable loan repayments.

Previous wording

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.

Current wording

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 September 30, 2024, the Company maintained a total leverage ratio of 2.85x, including outstanding debt of approximately $379.2 million on the senior unsecured revolving credit facility. The Company was in compliance with all financial covenants under the Restated Credit Agreement.