CHOICE HOTELS INTERNATIONAL INC /DE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements of Choice Hotels International, Inc. and subsidiaries (collectively, "Choice" or the "Company") have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America ("GAAP") pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). All significant intercompany accounts and transactions between the Company and its subsidiaries have been eliminated in consolidation.

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments that are necessary to fairly present the Company's financial position and results of operations. Except as otherwise disclosed, all adjustments are of a normal recurring nature.

Certain information and footnote disclosures normally included in the consolidated financial statements presented in accordance with GAAP have been condensed or omitted. The Company believes the disclosures made are adequate to prevent the information presented from being misleading. These consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2025 and the notes thereto included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on February 19, 2026. The interim results are not necessarily indicative of the entire year's results.

Summary of Significant Accounting Policies

The Company’s significant accounting policies are included in the “Significant Accounting Policies” section of Note 1 in the Annual Report on Form 10-K for the year ended December 31, 2025.

Recently Issued Accounting Standards

In November 2024, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2024-03, Disaggregation of Income Statement Expenses("ASU 2024-03"). ASU 2024-03 requires public entities to provide detailed disclosure of the income statement expenses in the footnotes to the consolidated financial statements. ASU 2024-03 does not require any changes to the expense captions on the face of the consolidated income statement. ASU 2024-03 is effective for the annual reporting period beginning after December 15, 2026 and for the interim periods within the annual reporting period beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the potential impact that ASU 2024-03 will have on the Company's consolidated financial statements.

In September 2025, the FASB issued ASU 2025-06, Targeted Improvements to the Accounting for Internal-Use Software ("ASU 2025-06"). ASU 2025-06 eliminates all references to the software development project stages and revises the criteria that must be met to begin capitalizing internal-use software costs. ASU 2025-06 is effective for the annual reporting period beginning after December 15, 2027, including the interim periods within that annual reporting period. Early adoption is permitted. The Company is currently evaluating the potential impact that ASU 2025-06 will have on the Company's consolidated financial statements.

In December 2025, the FASB issued ASU 2025-11, Interim Reporting("ASU 2025-11"). ASU 2025-11 provides a comprehensive list of required interim disclosures and requires entities to disclose events that have a material impact on the entity since the end of the last annual reporting period. ASU 2025-11 is effective for the annual reporting period beginning after December 15, 2027, including the interim periods within that annual reporting period. Early adoption is permitted. The Company is currently evaluating the potential impact that ASU 2025-11 will have on the Company's consolidated financial statements.

2. Revenue

Contract Liabilities

Contract liabilities relate to (i) advance consideration received related to services considered to be a part of the brand intellectual property performance obligation, such as initial franchise fees that are paid when a franchise agreement is executed and system implementation fees that are paid at the time of installation, and (ii) amounts received when loyalty points are issued but the associated revenue has not yet been recognized because the related loyalty points have not been redeemed.

Deferred revenues from initial franchise fees and system implementation fees are typically recognized over aten-year period, unless the franchise agreement is terminated and the hotel exits the franchise system whereby the remaining deferred revenue amounts are recognized to revenue in the period of termination. Loyalty points are typically redeemed within three years of issuance.

The following table summarizes the significant changes in the contract liabilities balances during the period from December 31, 2025 to September 30, 2026:

Remaining Performance Obligations

The aggregate amount of the transaction price that is allocated to unsatisfied, or partially unsatisfied, performance obligations was $236.5 million as of September 30, 2026. This amount represents the fixed transaction price that will be recognized as revenue in future periods, which is presented as current and non-current deferred revenue in the consolidated balance sheets.

Based on the practical expedient elections permitted by ASU 2014-09, Revenue From Contracts with Customers (Topic 606)and subsequent amendments ("Topic 606"), the Company does not disclose the value of unsatisfied performance obligations for (i) variable consideration subject to the sales or usage-based royalty constraint or comprising a component of a series (including franchise, partnership, qualified vendor, and SaaS agreements), (ii) variable consideration for which the Company recognizes revenue at the amount to which it has the right to invoice for the services performed, or (iii) contracts with an expected original duration of one year or less.

The loyalty points represent a performance obligation attributable to the usage of the points, and thus the revenues are recognized at the point in time when the loyalty points are redeemed by the members for benefits (with both franchisees and third-party partners), net of the cost of redemptions. The loyalty net revenues, inclusive of adjustments to the estimated redemption rates, were $28.7 million and $31.8 million for the three months ended September 30, 2026 and 2025, respectively, and $81.6 million and $88.5 million for the nine months ended September 30, 2026 and 2025, respectively.

3. Receivables and Allowance for Credit Losses

Notes Receivable

The Company has provided financing in the form of notes receivable loans to franchisees in order to support the development of hotel properties in strategic markets. The Company's credit quality indicator is the level of security in the note receivable.

The following table summarizes the composition of the notes receivable balances by credit quality indicator and the allowance for credit losses:

The following table summarizes the amortized cost basis of the notes receivable by the year of origination and credit quality indicator:

The following table summarizes the activity related to the Company’s notes receivable allowance for credit losses:

As of September 30, 2026 and December 31, 2025, three note receivable loans with senior credit quality indicators met the definition of collateral-dependent and are collateralized by the membership interests in the borrowing entities, the associated land parcel, or the operating hotel. The Company used both a market approach that uses quoted market prices and an income approach that uses discounted cash flows to value the underlying collateral. The Company reviewed the borrower's financial statements, economic trends, industry projections for the market, and comparable sales capitalization rates, which represent significant inputs to the cash flow projections. These nonrecurring fair value measurements are classified as Level 3 in the fair value measurement hierarchy because they are unobservable inputs which are significant to the overall fair value. Based on the Company's analysis, the fair value of the collateral secures substantially all of the carrying value of the respective note receivable loans. The allowance for credit losses attributable to the collateral-dependent note receivable loans was $4.6 million as of both September 30, 2026 and December 31, 2025.

The following table summarizes the past due balances by credit quality indicator of the notes receivable:

The amortized cost basis of the notes receivable in a non-accrual status was $42.9 million as of both September 30, 2026 and December 31, 2025.

Variable Interest through Notes Receivable

The Company has issued notes receivable loans to certain entities that have created variable interests in the associated borrowers totaling $81.7 million and $103.2 million as of September 30, 2026 and December 31, 2025, respectively. The Company has determined that it is not the primary beneficiary of these variable interest entities ("VIEs"). For collateral-dependent loans, the Company has no exposure to the borrowing VIE beyond the respective note receivable and the limited commitments which are addressed in Note 11.

Transactions with Unconsolidated Affiliates

The Company has extended loans to various unconsolidated affiliates or members of our unconsolidated affiliates. The Company had a total principal balance on these loans of $42.5 million and $65.3 million as of September 30, 2026 and December 31, 2025, respectively.

Accounts Receivable

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

During the nine months ended September 30, 2026, the Company recognized provisions for credit losses on accounts receivable of $26.0 million in selling, general and administrative expenses, and $20.4 million in reimbursable expenses from franchised and managed properties, in the consolidated statements of income. During the year ended December 31, 2025, the Company recognized provisions for credit losses on accounts receivable of $20.2 million in selling, general and administrative expenses, and $15.0 million in reimbursable expenses from franchised and managed properties, in the consolidated statements of income. During the nine months ended September 30, 2026, the Company recorded write-offs, net of recoveries, through the accounts receivable allowance for credit losses of $14.9 million. During the year ended December 31, 2025, the Company recorded write-offs, net of recoveries, through the accounts receivable allowance for credit losses of $29.6 million.

4. Investments in Affiliates

The Company has equity method investments in affiliates primarily 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.

As of September 30, 2026 and December 31, 2025, the Company had total investments in affiliates in the consolidated balance sheets of $139.7 million and $135.0 million, respectively, which included investments in affiliates that represent VIEs of $139.2 million and $134.4 million, respectively. The Company has determined that it is not the primary beneficiary of any of these VIEs, however the Company does exercise significant influence through its equity ownership and as a result, the investments in these affiliates are accounted for under the equity method of accounting. During the three months ended September 30, 2026 and 2025, the Company recognized losses totaling $6.9 million and $10.9 million, respectively, from these investments that represent VIEs. During the nine months ended September 30, 2026 and 2025, the Company recognized losses totaling $14.3 million and $12.8 million, respectively, from these investments that represent VIEs. The Company's maximum exposure to losses related to its investments in the VIEs is limited to the total of its respective equity investment as well as certain limited payment guaranties, which are described in Note 11 to these consolidated financial statements.

On August 31, 2026, the Company sold its 50% equity interest in CS Hotel West Orange, LLC to the remaining member. For the three and nine months ended September 30, 2026, the Company recognized a loss on sale of $3.8 million in equity in net loss of affiliates in the consolidated statements of income.

On July 10, 2025, the Company entered into a joint venture agreement to develop and operate Everhome Suites in certain strategic markets (the "Joint Venture"). The Company contributed $71.6 million in cash to the Joint Venture in exchange for an equity ownership interest. The Company concluded that the Joint Venture represents a VIE. The Company determined that it is not the primary beneficiary of the VIE, however the Company does exercise significant influence through its equity ownership and as a result, the Company's investment in the Joint Venture is accounted for under the equity method of accounting and reported within investments in affiliates in the consolidated balance sheets.

In 2025, subsequent to the formation of the Joint Venture, the following transactions were completed:

•The Joint Venture entered into a loan facility for up to $500 million. In connection with the loan facility, the Company has provided a limited payment guarantee, which applies to all hotel projects funded by the loan facility, with the applicable guaranteed amount being determined on a hotel project by hotel project basis. The Company’s obligation under the limited payment guarantee with respect to any hotel project is effective upon the earlier of (a) the hotel's opening date or (b) 18 months after the date on which construction first started for the hotel. The maximum exposure to losses related to this limited payment guarantee is described in Note 11 to these consolidated financial statements.

•The Company sold four wholly-owned Everhome Suites hotels under construction to the Joint Venture for an aggregate sale price of $52.0 million, resulting in a gain of $0.7 million which is reported within gain on sale of assets in the consolidated statements of income. Prior to the sale, the four wholly-owned Everhome Suites hotels were reported within property and equipment in the consolidated balance sheets.

•Seven of the Company's unconsolidated affiliates, which the Company previously accounted for under the equity method of accounting, contributed their underlying assets to the Joint Venture. Prior to the transaction, the seven unconsolidated affiliates had an aggregate investment balance of $42.1 million, which was reported within investments in affiliates in the consolidated balance sheets.

During the three and nine months ended September 30, 2026 and 2025, the Company recognizedno impairment charges related to its equity method investments.

5. Debt

Debt consisted of the following:

2026 Term Loan

On August 28, 2026, the Company entered into a $500.0 million senior unsecured term loan with a maturity date of August 28, 2029 (the "2026 Term Loan"), which has an optionalone-year extension that can be requested by the Company prior to the initial maturity date. The extension option is subject to the consent of the lenders and certain customary conditions. The 2026 Term Loan and all accrued but unpaid interest must be repaid in full on the maturity date.

The Company may elect to have the 2026 Term Loan bear interest at a rate equal to (i) the secured overnight financing rate (subject to a 0.00% floor) plus a margin of 125 basis points, or (ii) a base rate plus a margin of 25 basis points.

The credit agreement governing the 2026 Term Loan (the "Term Loan Credit Agreement") requires that the Company comply with various covenants, including restrictions on liens, incurring indebtedness, making dividends, stock repurchases, investments, and completing mergers and/or asset sales. The Term Loan Credit Agreement has financial covenants which require the Company to maintain a consolidated fixed charge coverage ratio of at least 2.5 to 1.0, and a consolidated leverage ratio of not more than 4.5 to 1.0, which may be increased to 5.5 to 1.0 on up to two nonconsecutive occasions for up to four consecutive fiscal quarters commencing with the fiscal quarter in which certain material acquisitions are consummated. As long as the Company maintains an Investment Grade Rating, as defined in the Term Loan Credit Agreement, then the Company will not need to comply with the consolidated fixed charge coverage ratio covenant.

The Term Loan 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 Term Loan Credit Agreement to be immediately due and payable.

6. Fair Value Measurements

The Company estimates the fair value of its financial instruments utilizing a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The following summarizes the three levels of inputs, as well as the assets that the Company values using those levels of inputs on a recurring basis.

Level 1 - Quoted prices in active markets for identical assets and liabilities. The Company’s Level 1 assets consist of mutual funds held in the Company's Deferred Compensation Plan.

Level 2 - Observable inputs, other than quoted prices in active markets for identical assets and liabilities, such as quoted prices for similar assets and liabilities, quoted prices in markets that are not active, or other inputs that are observable. The Company’s Level 2 assets consist of money market funds held in the Company's Deferred Compensation Plan.

Level 3 - Unobservable inputs, supported by little or no market data available, where the reporting entity is required to develop its own assumptions to determine the fair value of the instrument. The Company does not currently have any assets recorded at fair value on a recurring basis whose fair value was determined using Level 3 inputs and there were no transfers of Level 3 assets during the nine months ended September 30, 2026 and during the year ended December 31, 2025.

The Company recognized the following assets at fair value on a recurring basis in the consolidated balance sheets:

(1) The current assets at fair value noted above are presented in prepaid expenses and other current assets in the consolidated balance sheets. The long-term assets at fair value noted above are presented in investments for employee benefit plans, at fair value in the consolidated balance sheets.

Other Financial Instruments Disclosure

The Company believes that the fair values of its current assets and current liabilities approximate their reported carrying amounts due to the short-term nature of these items. In addition, the interest rates on the senior unsecured revolving credit facility and the 2026 Term Loan adjust frequently based on current market interest rates; therefore, the Company believes the carrying amount approximates the fair value.

The fair values of the Company's senior unsecured notes are classified as Level 2 because the significant inputs are observable in an active market. Refer to Note 5 for additional information on debt. As of September 30, 2026 and December 31, 2025, the carrying amounts and the fair values were as follows:

The fair value estimates are determined at a specific point in time, are subjective in nature, and involve uncertainties and matters of significant judgment. The settlement of such fair value amounts may not be possible or a prudent management decision.

7. Income Taxes

The Company's effective income tax rates were 22.8% and 14.7% for the three months ended September 30, 2026 and 2025, respectively. The Company's effective income tax rates were 25.5% and 19.3% for the nine months ended September 30, 2026 and 2025, respectively. The effective income tax rates for the three and nine months ended September 30, 2026 were higher than the U.S. federal income tax rate of 21.0% primarily due to the impact of state income taxes and tax expense related to compensation, which were partially offset by the impact of federal income tax credits. The effective income tax rates for the three and nine months ended September 30, 2025 were lower than the U.S. federal income tax rate of 21.0% primarily due to the impact of a $100.0 million non-taxable gain from an acquisition of a joint venture and federal income tax credits, which were partially offset by the impact of state income taxes.

8. Share-Based Compensation

The components of the Company’s share-based compensation expense were as follows:

A summary of the share-based award activity during the nine months ended September 30, 2026 is presented below:

(1)Revisions to the outstanding performance vested restricted stock units ("PVRSUs") during the nine months ended September 30, 2026 are based on the Company's performance relative to the targeted performance conditions in the respective PVRSUs.

The fair value of the restricted stock and the PVRSUs with performance conditions that were granted during the nine months ended September 30, 2026 was equal to the market price of the Company’s common stock on the date of the grant. The fair value of the PVRSUs with market conditions that are based on the Company’s total shareholder return relative to a predetermined peer group was estimated using a Monte Carlo simulation method as of the date of the grant. The requisite service periods for the restricted stock and the PVRSUs were between 9 months and 48 months.

9. Earnings Per Share

The Company’s shares of restricted stock contain rights to receive nonforfeitable dividends and thus are participating securities that require the computation of basic earnings per share using the two-class method. The shares of restricted stock are both potential shares of common stock and participating securities so the Company calculates diluted earnings per share by using the more dilutive of the treasury stock method or the two-class method. The calculation of earnings per share for the net income available to common shareholders excludes the distribution of dividends and the undistributed earnings attributable to the participating securities from the numerator. The diluted earnings per share includes stock options, PVRSUs, and restricted stock units ("RSUs") in the calculation of the weighted average shares of common stock outstanding.

The computation of basic and diluted earnings per share was as follows:

The following securities have been excluded from the calculation of the diluted weighted average shares of common stock outstanding because the inclusion of these securities would have an anti-dilutive effect:

10. Reportable Segments

The Hotel Franchising & Management reportable segment includes the Company's hotel franchising operations, which consists of its 22 brands and brand extensions and the hotel management operations of 13 hotels (inclusive offour owned hotels). The 22 brands and brand extensions and hotel management operations are aggregated together within this reportable segment because they have similar economic characteristics, types of customers, distribution channels, and regulatory business environments. The revenues from the hotel franchising and management business include royalty fees, initial franchise fees and relicensing fees, cost reimbursement revenues, partnership services and fees, base and incentive management fees, and other hotel franchising and management-related revenue. The Company provides certain services under its franchise and management agreements which result in direct and indirect reimbursements. The cost reimbursement revenues received from the franchisees are included in Hotel Franchising & Management revenues and are offset by the related expenses in order to calculate Hotel Franchising & Management operating income. The equity in the earnings or losses from the hotel franchising-related investment in affiliates is allocated to the Hotel Franchising & Management reportable segment.

The Company evaluates its Hotel Franchising & Management reportable segment based primarily on the operating income of the segment without allocating corporate expenses or indirect general and administrative expenses. The Corporate & Other column includes the operations of the Company's owned hotels.

Intersegment Eliminations to revenues is the elimination of Hotel Franchising & Management revenue which includes royalty fees, management and cost reimbursement fees charged to our owned hotels against the franchise and management fee expense that is recognized by our owned hotels in Corporate & Other operating income (loss).

Our Chief Executive Officer, who is our chief operating decision maker ("CODM"), utilizes budgeted and forecasted financial information as well as industry metrics, such as revenue per available room ("RevPAR"), occupancy, and average daily room rate, to assess the performance and to make resource allocation decisions. The CODM does not use assets by operating segment when assessing the performance or when making operating segment resource allocation decisions and therefore, assets by segment are not disclosed below.

The following tables present the financial information for the Company's segments:

11. Commitments and Contingencies

The Company is not a party to any material litigation other than litigation in the ordinary course of business. The Company's management and legal counsel do not expect that the ultimate outcome of any of its current legal proceedings, individually or in the aggregate, will have a material adverse effect on the Company's financial position, results of operations, or cash flows.

Contingencies

The Company entered into various limited payment guaranties with regards to the Company’s VIEs in order to support its efforts to develop and own hotels that are franchised under the Company’s brands. Under these limited payment guaranties, the Company has agreed to guarantee a portion of the outstanding debt until certain conditions are met, such as (a) the loan matures, (b) certain debt covenants are achieved, (c) the maximum amount guaranteed by the Company is paid in full, or (d) the Company, through its affiliates, ceases to be a member of the VIE. As of September 30, 2026, the maximum unrecorded exposure of the principal associated with these limited payment guaranties was $40.8 million, plus unpaid expenses and accrued but unpaid interest. The Company believes the likelihood of having to perform under these guaranties is remote. In the event of performance, the Company has recourse for certain of the guaranties in the form of partial guaranties from third parties.

Commitments

The Company had the following outstanding commitments as of September 30, 2026:

•As part of the acquisition of Radisson Hotels Americas in August 2022, the Company entered into a long-term management arrangement, with an expiration date of July 31, 2031, to manage hotels owned by a third-party. As of September 30, 2026, the Company managed seven hotels pursuant to the long-term management arrangement. In conjunction with the management arrangement, the Company entered into a guarantee with the third-party to fund any shortfalls in the payment of the third-party owner’s priority that is stipulated in the management agreement. As of September 30, 2026, no liability was recognized in the consolidated balance sheets. For the nine months ended September 30, 2026, the Company recognizedno guarantee payments in selling, general and administrative expenses in the consolidated statements of income. As of September 30, 2026, the maximum unrecorded exposure of the guarantee was $18.2 million.

•The Company strategically deploys capital in the form of franchise agreement acquisition cost payments across our brands to incentivize franchise development. These payments are typically made at the commencement of construction or the hotel's opening, in accordance with agreed upon provisions in the individual franchise agreements. The timing and the amount of the franchise agreement acquisition cost payments are dependent on various factors, including the implementation of various development and brand incentive programs, the level of franchise sales, and the ability of our franchisees to complete construction or convert their hotels to one of the Company’s brands.

•The Company’s franchise agreements require the payment of franchise fees, which include marketing and reservation fees. In accordance with the terms of our franchise agreements, the Company is obligated to use the marketing and reservation revenues it collects from the current franchisees to provide marketing and reservation services that are appropriate to support the operation of the overall system. To the extent the revenues collected exceed the expenditures incurred, the Company has a commitment to the franchisee system to make expenditures in future years. Conversely, to the extent the expenditures incurred exceed the revenues collected, the Company has the contractual enforceable right to assess and collect such amounts from the franchisees.

•The Company has committed to purchase transferable production tax credits generated by qualified solar energy facilities. As of September 30, 2026, the Company has a remaining commitment of approximately $179 million through 2036. The Company’s commitments are contingent upon the satisfaction of certain legal and contractual conditions from the sellers, and the continued availability of the credits under federal tax laws. The Company expects to utilize these credits in the same quarter in which they are purchased, offsetting federal income tax estimated payments and reducing income tax expense each year.

In the ordinary course of business, the Company enters into numerous agreements that contain standard indemnities whereby the Company indemnifies another party for breaches of representations and warranties. Such indemnifications are granted under various agreements, including those governing (i) purchases or sales of assets or businesses, (ii) leases of real estate, (iii) licensing of trademarks, (iv) access to credit facilities, (v) issuances of debt or equity securities, and (vi) certain operating agreements. The indemnifications issued are for the benefit of the (i) buyers in sale agreements and sellers in purchase agreements, (ii) landlords in lease contracts, (iii) franchisees in licensing agreements, (iv) financial institutions in credit facility arrangements, (v) underwriters in debt or equity security issuances, and (vi) parties under certain operating agreements. In addition, these parties are also generally indemnified against any third-party claim resulting from the transaction that is contemplated in the underlying agreement. While some of these indemnities extend only for the duration of the underlying agreement, many survive the expiration of the term of the agreement or extend into perpetuity (unless subject to a legal statute of limitations). There are no specific limitations on the maximum potential amount of the future payments that the Company could be required to make under these indemnities, nor is the Company able to develop an estimate of the maximum potential amount of the future payments that could be made under these indemnifications as the triggering events are not subject to predictability. With respect to certain of the aforementioned indemnities, such as the indemnifications of the landlords against third-party claims for the use of real estate property leased by the Company, the Company maintains insurance coverage that mitigates any potential liability.

Chief Executive Officer Transition Post-Employment Benefits

The Company previously announced a leadership transition whereby Patrick Pacious stepped down as the Company’s President & Chief Executive Officer, effective May 20, 2026, and transitioned to serving as an advisor to the Company through August 31, 2026. In connection with the leadership transition, the Company and Mr. Pacious entered into a transition and separation agreement, pursuant to which Mr. Pacious was entitled to post-employment benefits, including cash severance, continued equity award vesting, and other benefits. For the three and nine months ended September 30, 2026, the Company recognized

$2.5 million and $2.7 million, respectively, of post-employment benefits in selling, general and administrative expenses in the consolidated statements of income.

The Company entered into an agreement, effective September 16, 2026, to terminate an arrangement whereby the Company had, amongst other rights, an option to acquire 100% of the outstanding shares of a European hospitality business. During the three and nine months ended September 30, 2026, the Company recognized a contract termination cost of $24.3 million in contract termination costs in the consolidated statements of income. The contract termination cost is included in the Corporate & Other segment in Note 10.

12. Acquisitions

Choice Hotels Canada Acquisition

On July 2, 2025, the Company completed the acquisition (the “Transaction”) of the remaining 50% of the outstanding shares of Choice Hotels Canada, Inc. ("Choice Hotels Canada") and amended the existing master franchise agreement for a purchase price of approximately $114.5 million, inclusive of customary adjustments related to working capital and cash. The acquisition was funded with available cash and borrowings under the Company's senior unsecured revolving credit facility. Choice Hotels Canada franchises more than 26,000 rooms in Canada, which have historically been included in the Company's franchised hotel statistics as a result of the prior master franchise agreement. Choice Hotels Canada now has the ability to offer developers access to all of the Company's 22 hotel brands and brand extensions, including the Company's extended stay brands. Prior to the acquisition date, the Company owned 50% of the outstanding shares of Choice Hotels Canada, which was accounted for under the equity method of accounting and reported within investments in affiliates in the consolidated balance sheets. As a result of the Transaction, Choice Hotels Canada is now a wholly-owned and consolidated subsidiary of the Company, and the Transaction was accounted for as a business combination using the acquisition method.

In connection with the Transaction, the Company remeasured the value of its previously held 50% equity investment to its acquisition date fair value of $114.5 million, which resulted in a gain of approximately $100.0 million that is reported within gain from an acquisition of a joint venture in the consolidated statements of income. The fair value of the previously held equity investment was determined using a market approach based on the cash consideration exchanged for the newly acquired 50% equity interest.

The following is a summary of the purchase consideration transferred:

During the nine months ended September 30, 2026, the Company recognized transaction and transition costs of $0.6 million in business combination, diligence and transition costs in the consolidated statements of income. The Company didnot recognize any transaction and transition costs during the three months ended September 30, 2026. During both the three and nine months ended September 30, 2025, the Company recognized transaction and transition costs of $1.5 million in business combination, diligence and transition costs in the consolidated statements of income.

Fair Values of the Assets Acquired and the Liabilities Assumed

The Company allocated the purchase price based upon an assessment of the fair value of the assets acquired and the liabilities assumed on July 2, 2025. The final valuation and related allocation of the purchase price was completed in the first quarter of 2026. There were no measurement period adjustments. The final allocation of the purchase price, as presented in our consolidated balance sheets is as follows:

Identified Intangible Assets

The following table presents the estimated fair values of the acquired identified intangible assets and their estimated useful lives:

The reacquired territory rights represent the reacquired rights for the use of certain Choice brands within Canada. The fair value of the reacquired territory rights and the franchise agreements was estimated using a multi-period excess earnings method, which is a variation of the income approach. This method uses the present value of the incremental after-tax cash flows attributable to the intangible asset in order to estimate the fair value. This valuation methodology utilizes Level 3 inputs.

Income Taxes

As the Transaction is accounted for as a business combination, deferred tax assets and liabilities are generally recognized on the differences between the fair value of the assets acquired and the liabilities assumed and the tax bases of the assets acquired and the liabilities assumed in the business combination. The Transaction consists of a foreign entity, so the Company asserts an indefinite reinvestment and has not recorded a deferred tax liability on the outside basis difference in its investment.

Pro Forma Results of Operations

The following unaudited pro forma information presents the combined results of operations of Choice and Choice Hotels Canada as if the Company had completed the Transaction on January 1, 2024, but using the fair values of the assets acquired and the liabilities assumed as of the acquisition date. The unaudited pro forma information reflects adjustments relating to (i) the allocation of the purchase price and related adjustments, including the incremental amortization expense based on the fair values of the intangible assets acquired, (ii) the incremental impact of the senior unsecured revolving credit facility draw on interest expense, (iii) nonrecurring transaction costs, and (iv) the income tax impact of the aforementioned pro forma adjustments.

As required by GAAP, these unaudited pro forma results do not reflect any cost saving synergies from operating efficiencies. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the Transaction had occurred at the beginning of the period presented, nor are they indicative of the future results of operations.

(1)The gain on the previously held 50% equity interest in Choice Hotels Canada is excluded from the pro forma results of operations.

Choice Hotels Canada Results of Operations

The Company's consolidated statements of income include Choice Hotels Canada's results of operations since the July 2, 2025 acquisition date. Choice Hotels Canada contributed $16.0 million and $7.7 million in total revenues and net income, respectively, for the three months ended September 30, 2026. Choice Hotels Canada contributed $36.8 million and $14.9 million in total revenues and net income, respectively, for the nine months ended September 30, 2026. Choice Hotels Canada contributed $13.2 million and $5.9 million in total revenues and net income, respectively, for both the three and nine months ended September 30, 2025.

Goodwill

The $86.2 million of goodwill recognized is primarily attributable to the value that the Company expects to realize from the existing customer base, cost synergies, and new agreements signed with new franchisees and developers. The goodwill for the Transaction is fully attributable to the Hotel Franchising & Management reportable segment and is not deductible for tax purposes.

The following table summarizes the carrying amount of the Company's goodwill, including the goodwill arising from the acquisition of Choice Hotels Canada, as of September 30, 2026.

13. Impairment of Long-lived Assets

During the three and nine months ended September 30, 2026, the Company identified indicators of impairment for two owned hotels operating under the Radisson RED and Cambria brands, each of which represents its own long-lived asset group. The Company assessed the recoverability of these asset groups and determined that the carrying values exceeded the fair values. The Company estimated the fair values of these assets using a market approach that utilizes market participant data, which resulted in an impairment loss of $6.0 million recognized in impairment of long-lived assets in the consolidated statements of income and included within the Corporate & Other segment in Note 10. These nonrecurring fair value measurements are classified as Level 3 in the fair value measurement hierarchy.

14. Subsequent Events

On October 1, 2026, the Company acquired 100% of Harvest Hosts, LLC ("Harvest Hosts") for a purchase price of approximately $130.0 million, subject to customary adjustments related to working capital and cash. The acquisition was funded with available cash and borrowings under the Company's senior unsecured revolving credit facility. Harvest Hosts is a subscription-based information service provider that connects recreational vehicle travelers with a small business host for overnight parking. Due to the close proximity of the Harvest Hosts acquisition date and the Company's filing of its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2026, the initial accounting for the acquisition is incomplete as of the filing date. The initial accounting for the acquisition will be included in the Company's Annual Report on Form 10-K for the annual period ended December 31, 2026.

On October 2, 2026, the Company sold a Cambria hotel for a purchase price of $27.7 million. On October 22, 2026, the Company sold a Radisson RED hotel for a purchase price of $8.0 million. Prior to the sale transactions, the Cambria hotel and the Radisson RED hotel were reported within property and equipment in the consolidated balance sheets. Due to the close proximity of the settlement dates and the Company's filing of its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2026, the accounting for the sale transactions is incomplete as of the filing date. The accounting for the sale transactions will be included in the Company's Annual Report on Form 10-K for the annual period ended December 31, 2026.