CHOICE HOTELS INTERNATIONAL INC /DE [CHH] Filings

10-Q 1 chh-20220630.htm 10-Q chh-20220630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_____________________________________________

FORM 10-Q

_____________________________________________

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED June 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NO. 001-13393

_____________________________________________

CHOICE HOTELS INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

_____________________________________________


Delaware		52-1209792
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1 Choice Hotels Circle		20850
Suite 400
Rockville,	Maryland
(Address of Principal Executive Offices)		(Zip Code)

(Registrant’s telephone number, including area code): (301) 592-5000

(Former name, former address and former fiscal year, if changed since last report): N/A

________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, Par Value $0.01 per share

CHH

New York Stock Exchange

_____________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of common stock outstanding on July 29, 2022 was 55,779,959.

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CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

INDEX



			PAGE NO.

PART I. FINANCIAL INFORMATION

Item 1—Financial Statements (Unaudited)			3
Consolidated Statements of Income -- For the three and six months ended June 30 , 2022 and 2021			3
Consolidated Statements of Comprehensive Income -- For the three and six months ended J une 3 0 , 2022 and 2021			4
Consolidated Balance Sheets -- As of June 3 0 , 2022 and December 31, 2021			5
Consolidated Statements of Cash Flows -- For the six months ended June 30 , 2022 and 2021			6
Consolidated Statements of Shareholders' Equity -- For the three and six months ended June 30, 2022 and 2021			7
Notes to Consolidated Financial Statements			8
Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
Item 3—Quantitative and Qualitative Disclosures About Market Risk			33
Item 4—Controls and Procedures			33

PART II. OTHER INFORMATION

Item 1—Legal Proceedings			34
Item 1A—Risk Factors			34
Item 2—Unregistered Sales of Equity Securities and Use of Proceeds			35
Item 3—Defaults Upon Senior Securities			35
Item 4—Mine Safety Disclosures			35
Item 5—Other Information			35
Item 6—Exhibits			36

SIGNATURES			37

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PART I. FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
REVENUES
Royalty fees	$	121,449	$	106,242	$	212,188	$	172,289
Initial franchise and relicensing fees	6,222		7,328		14,624		12,755
Procurement services	21,803		12,092		33,486		23,283
Marketing and reservation system	189,382		135,988		316,019		227,509
Owned hotels	17,191		8,993		29,228		13,347
Other	11,927		7,701		20,156		12,108
Total revenues	367,974		278,344		625,701		461,291
OPERATING EXPENSES
Selling, general and administrative	43,888		34,470		74,212		64,737
Depreciation and amortization	5,479		6,232		11,710		12,594
Marketing and reservation system	153,846		113,285		267,496		211,458
Owned hotels	10,692		5,333		18,846		9,480
Total operating expenses	213,905		159,320		372,264		298,269



Gain on sale of business and assets, net	3,280		—		3,309		—
Operating income	157,349		119,024		256,746		163,022
OTHER INCOME AND EXPENSES, NET
Interest expense	11,252		11,691		22,722		23,468
Interest income	(1,628)		(1,234)		(2,908)		(2,515)

Other loss (gain)	5,559		(2,108)		7,275		(3,313)
Equity in net loss (gain) of affiliates	40		(1,179)		(204)		4,818
Total other income and expenses, net	15,223		7,170		26,885		22,458
Income before income taxes	142,126		111,854		229,861		140,564
Income tax expense	35,958		25,972		56,302		32,345
Net income	$	106,168	$	85,882	$	173,559	$	108,219

Basic earnings per share	$	1.90	$	1.54	$	3.11	$	1.95
Diluted earnings per share	$	1.89	$	1.53	$	3.08	$	1.93

Cash dividends declared per share	$	0.2375	$	0.225	$	0.4750	$	0.225

The accompanying notes are an integral part of these consolidated financial statements.

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CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(IN THOUSANDS)

(UNAUDITED)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021

Net income	$	106,168	$	85,882	$	173,559	$	108,219
Other comprehensive income (loss), net of tax:

Foreign currency translation adjustment	(103)		71		(237)		123
Other comprehensive income (loss), net of tax	(103)		71		(237)		123
Comprehensive income	$	106,065	$	85,953	$	173,322	$	108,342

The accompanying notes are an integral part of these consolidated financial statements.

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CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

(UNAUDITED)


	June 30, 2022		December 31, 2021
ASSETS
Current assets
Cash and cash equivalents	$	607,185	$	511,605
Accounts receivable (net of allowance for credit losses of $21,822 and $34,149, respectively)	203,890		153,147
Income taxes receivable	3,123		12,511
Notes receivable (net of allowance for credit losses of $4,483 and $4,318, respectively)	53,760		54,453
Prepaid expenses and other current assets	115,651		29,945
Total current assets	983,609		761,661
Property and equipment, at cost (net of accumulated depreciation and amortization of $236,191 and $232,492, respectively)	319,161		377,367
Operating lease right-of-use assets	29,669		34,183
Goodwill	159,196		159,196
Intangible assets (net of accumulated amortization of $213,000 and $195,909, respectively)	319,922		312,389
Notes receivable (net of allowance for credit losses of $7,048 and $12,461, respectively)	48,649		66,451
Investments, employee benefit plans, at fair value	29,821		33,946
Investments in affiliates	27,789		27,967
Deferred income taxes	74,049		68,643
Other assets	84,976		90,021
Total assets	$	2,076,841	$	1,931,824
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	106,427	$	81,169
Accrued expenses and other current liabilities	100,631		104,472
Deferred revenue	79,767		81,538
Current portion of long-term debt	216,571		216,351
Liability for guest loyalty program	78,955		86,765
Total current liabilities	582,351		570,295
Long-term debt	844,729		844,123
Long-term deferred revenue	107,690		105,785
Deferred compensation and retirement plan obligations	34,468		38,690
Income taxes payable	15,482		20,642

Operating lease liabilities	30,355		35,492
Liability for guest loyalty program	37,684		41,785
Other liabilities	7,357		9,130
Total liabilities	1,660,116		1,665,942
Commitments and Contingencies
Common stock, $0.01 par value; 160,000,000 shares authorized; 95,065,638 shares issued at June 30, 2022 and December 31, 2021; 55,780,322 and 55,609,226 shares outstanding at June 30, 2022 and December 31, 2021, respectively	951		951
Additional paid-in-capital	274,384		259,317
Accumulated other comprehensive loss	(4,811)		(4,574)
Treasury stock, at cost; 39,285,316 and 39,456,412 shares at June 30, 2022 and December 31, 2021, respectively	(1,276,090)		(1,265,032)
Retained earnings	1,422,291		1,275,220
Total shareholders’ equity	416,725		265,882
Total liabilities and shareholders’ equity	$	2,076,841	$	1,931,824

The accompanying notes are an integral part of these consolidated financial statements.

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CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)


	Six Months Ended
	June 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	173,559	$	108,219
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	11,710		12,594
Depreciation and amortization – marketing and reservation system	14,608		12,076
Gain on sale and disposal of business and assets, net	(3,309)		—
Franchise agreement acquisition cost amortization	7,623		6,294






Stock compensation and other charges	17,770		16,295
Interest and investment loss (income)	7,459		(6,824)
Deferred income taxes	(5,493)		(3,465)
Equity in net loss of affiliates, less distributions received	745		7,398



Franchise agreement acquisition costs, net of reimbursements	(27,016)		(18,078)

Change in working capital and other	(38,307)		(32,102)





Net cash provided by operating activities	159,349		102,407
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in property and equipment	(49,866)		(23,393)
Investment in intangible assets	(1,824)		(2,976)
Asset acquisitions, net of cash paid	(856)		—

Proceeds from sale of business and assets	32,893		—


Contributions to investments in affiliates	(669)		(1,136)

Proceeds from sale of equity method investments	—		11,830
Purchases of investments, employee benefit plans	(3,294)		(931)
Proceeds from sales of investments, employee benefit plans	1,854		1,994
Issuance of notes receivable	(1,987)		(17,918)
Collections of notes receivable	63		63

Other items, net	(305)		(486)
Net cash used in investing activities	(23,991)		(32,953)
CASH FLOWS FROM FINANCING ACTIVITIES







Debt issuance costs	(24)		—
Purchase of treasury stock	(15,140)		(5,362)
Dividends paid	(26,453)		—

Proceeds from exercise of stock options	2,359		9,115
Net cash (used in) provided by financing activities	(39,258)		3,753
Net change in cash and cash equivalents	96,100		73,207
Effect of foreign exchange rate changes on cash and cash equivalents	(520)		(11)
Cash and cash equivalents at beginning of period	511,605		234,779
Cash and cash equivalents at end of period	$	607,185	$	307,975

Supplemental disclosure of cash flow information:
Cash payments during the period for
Income taxes, net of refunds	$	40,144	$	17,108
Interest, net of capitalized interest	$	21,614	$	21,885
Non-cash investing and financing activities
Dividends declared but not paid	$	13,249	$	12,521
Investment in property, equipment and intangibles acquired in accounts payable and accrued liabilities	$	5,715	$	4,085
Asset acquisition from extinguishment of note receivable	$	20,446	$	—

The accompanying notes are an integral part of these consolidated financial statements.

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CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

(UNAUDITED)


	Common Stock - Shares Outstanding	Common Stock - Par Value		Additional Paid-in- Capital		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Retained Earnings		Total
Balance as of December 31, 2020	55,535,554	$	951	$	233,921	$	(4,646)	$	(1,260,478)	$	1,024,500	$	(5,752)
Net income	—	—		—		—		—		22,337		22,337
Other comprehensive income (loss), net of tax	—	—		—		52		—		—		52
Share-based payment activity(1)	48,781	—		3,617		—		4,030		(3)		7,644
Dividends declared(1)	—	—		—		—		—		—		—
Treasury purchases	(46,499)	—		—		—		(5,046)		—		(5,046)
Balance as of March 31, 2021	55,537,836	$	951	$	237,538	$	(4,594)	$	(1,261,494)	$	1,046,834	$	19,235
Net income	—	—		—		—		—		85,882		85,882
Other comprehensive income (loss)	—	—		—		71		—		—		71
Share based payment activity(1)	111,895	—		9,066		—		3,516		1		12,583
Dividends declared ($0.225 per share)(1)	—	—		—		—		—		(12,521)		(12,521)
Treasury purchases	(2,738)	—		—		—		(317)		—		(317)
Balance as of June 30, 2021	55,646,993	$	951	$	246,604	$	(4,523)	$	(1,258,295)	$	1,120,196	$	104,933


	Common Stock - Shares Outstanding	Common Stock - Par Value		Additional Paid-in- Capital		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Retained Earnings		Total
Balance as of December 31, 2021	55,609,226	$	951	$	259,317	$	(4,574)	$	(1,265,032)	$	1,275,220	$	265,882
Net income	—	—		—		—		—		67,391		67,391
Other comprehensive income (loss), net of tax	—	—		—		(134)		—		—		(134)
Share-based payment activity(1)	262,008	—		6,068		—		3,486		4		9,558
Dividends declared ($0.2375 per share)(1)	—	—		—		—		—		(13,250)		(13,250)
Treasury purchases	(100,912)	—		—		—		(14,802)		—		(14,802)
Balance as of March 31, 2022	55,770,322	$	951	$	265,385	$	(4,708)	$	(1,276,348)	$	1,329,365	$	314,645
Net income	—	—		—		—		—		106,168		106,168
Other comprehensive income (loss), net of tax	—	—		—		(103)		—		—		(103)
Share based payment activity(1)	12,422	—		8,999		—		596		—		9,595
Dividends declared ($0.2375 per share)(1)	—	—		—		—		—		(13,242)		(13,242)
Treasury purchases	(2,422)	—		—		—		(338)		—		(338)
Balance as of June 30, 2022	55,780,322	$	951	$	274,384	$	(4,811)	$	(1,276,090)	$	1,422,291	$	416,725

(1) In April 2020, in light of uncertainty resulting from the COVID-19 pandemic, we suspended future, undeclared dividends. In May 2021, the Company resumed the payment of quarterly dividends, subject to future declarations by our board of directors, and declared a quarterly cash dividend of $0.225 per share of common stock. On December 6, 2021, the Company's board of directors approved a 6% increase in the quarterly cash dividend and declared a quarterly cash dividend of $0.2375 per share of common stock. During certain periods presented, accumulated dividends were paid to certain shareholders upon vesting of performance vested restricted stock units ("PVRSU") which are captured in Share-based payment activity.

The accompanying notes are an integral part of these consolidated financial statements.

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CHOICE HOTELS INTERNATIONAL, INC. AND SUBSIDIARIES

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 its subsidiaries (together 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 consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at 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 financial statements presented in accordance with GAAP have been omitted. Although we believe the disclosures made are adequate to prevent the information presented from being misleading, these financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2021 and notes thereto included in the Company’s Annual Report on Form 10-K, filed with the SEC on February 24, 2022. Interim results are not necessarily indicative of the entire year results.

Summary of Significant Accounting Policies

The Company’s significant accounting policies are detailed in the “Summary of Significant Accounting Policies” section of Note 1 in the Annual Report on Form 10-K for the year ended December 31, 2021.

Recently Adopted Accounting Standards

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASU 2021-08"). ASU 2021-08 requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities in accordance with Topic 606, as opposed to at fair value. ASU 2021-08 is effective for annual reporting periods beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption is permitted.

The Company has elected to early adopt ASU 2021-08 in the second quarter of 2022. The adoption has no present impact on the Company's consolidated financial statements, but will impact the accounting for contract assets and contract liabilities acquired in future business combinations.

Recently Issued Accounting Standards

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses ("ASU 2022-02"). ASU 2022-02 eliminates the recognition and measurement guidance on troubled debt restructuring for creditors that have adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) ("Topic 326"), requires enhanced disclosures about loan modifications for borrowers experiencing financial difficulty, and includes new guidance on current-period gross write-offs presentation. ASU 2022-02 is effective for annual reporting periods beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the potential impact that ASU 2022-02 will have on the consolidated financial statements and disclosures.

2. Revenue

Contract Liabilities

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

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

Significant changes in the contract liabilities balances during the period December 31, 2021 to June 30, 2022 are as follows:


(in thousands)
Balance as of December 31, 2021	$	175,425
Increases to the contract liability balance due to cash received	56,392
Revenue recognized in the period	(57,127)
Balance as of June 30, 2022	$	174,690

Remaining Performance Obligations

The aggregate amount of transaction price allocated to unsatisfied or partially unsatisfied performance obligations is $174.7 million as of June 30, 2022. This amount represents fixed transaction price that will be recognized as revenue in future periods, which is captured in the consolidated balance sheet as current and non-current deferred revenue.

Based on 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 software as a service ("SaaS") agreements), (ii) variable consideration for which we recognize revenue at the amount to which we have the right to invoice for services performed, or (iii) contracts with an expected original duration of one year or less.

Disaggregation of Revenue


	Three Months Ended						Three Months Ended
	June 30, 2022						June 30, 2021
(in thousands)	Over time		Point in time		Total		Over time		Point in time		Total
Royalty fees	$	121,449	$	—	$	121,449	$	106,242	$	—	$	106,242
Initial franchise and relicensing fees	6,222		—		6,222		7,328		—		7,328
Procurement services	20,744		1,059		21,803		11,502		590		12,092
Marketing and reservation system	148,126		41,256		189,382		121,944		14,044		135,988
Owned hotels	14,694		2,388		17,082		7,550		1,336		8,886
Other	11,927		—		11,927		7,701		—		7,701
Total Topic 606 revenues	$	323,162	$	44,703	367,865		$	262,267	$	15,970	278,237
Non-Topic 606 revenues					109						107
Total revenues					$	367,974					$	278,344

	Six Months Ended						Six Months Ended
	June 30, 2022						June 30, 2021
(in thousands)	Over time		Point in time		Total		Over time		Point in time		Total
Royalty fees	$	212,188	$	—	$	212,188	$	172,289	$	—	$	172,289
Initial franchise and relicensing fees	14,624		—		14,624		12,755		—		12,755
Procurement services	31,876		1,610		33,486		22,241		1,042		23,283
Marketing and reservation system	260,382		55,637		316,019		200,995		26,514		227,509
Owned hotels	24,635		4,385		29,020		11,068		2,058		13,126
Other	20,156		—		20,156		12,108		—		12,108
Total Topic 606 revenues	$	563,861	$	61,632	625,493		$	431,456	$	29,614	461,070
Non-Topic 606 revenues					208						221
Total revenues					$	625,701					$	461,291

Marketing and reservation system and Procurement services point in time revenues represent loyalty points redeemed by members for benefits (with both franchisees and third-party partners), net of the cost of redemptions.

As presented in Note 11, the Corporate & Other segment amounts represent $19.4 million and $10.9 million for the three months ended June 30, 2022 and 2021, respectively, and $33.7 million and $17.0 million for the six months ended June 30, 2022 and 2021, respectively, and are included in the Over time column of Other revenues and the Owned hotels and Non-Topic 606 revenues rows. The remaining revenues relate to the Hotel Franchising segment.

Royalty fees and Marketing and reservation system revenues are presented net of intersegment revenues of $1.3 million and $0.7 million for the three months ended June 30, 2022 and 2021, respectively, and $2.2 million and $1.0 million for the six months ended June 30, 2022 and 2021, respectively.

3. Receivables and Allowance for Credit Losses

Notes Receivable

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

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The composition of notes receivable balances by credit quality indicator and the allowance for credit losses is as follows:


(in thousands)	June 30, 2022		December 31, 2021
Senior	$	91,981	$	108,370
Subordinated	20,506		27,801
Unsecured	1,453		1,512
Total notes receivable	113,940		137,683
Total allowance for notes receivable credit losses	11,531		16,779
Total notes receivable, net of allowance	$	102,409	$	120,904
Current portion, net of allowance	$	53,760	$	54,453
Long-term portion, net of allowance	$	48,649	$	66,451

Amortized cost basis by year of origination and credit quality indicator are as follows:


(in thousands)	2022		2021		2020		Prior		Total
Senior	$	—	$	4,211	$	—	$	87,770	$	91,981
Subordinated	—		—		—		20,506		20,506
Unsecured	—		—		—		1,453		1,453
Total notes receivable	$	—	$	4,211	$	—	$	109,729	$	113,940

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


(in thousands)	June 30, 2022		December 31, 2021
Beginning balance	$	16,779	$	19,484
Provision for credit losses	230		709
Write-offs	(5,478)		(3,414)

Ending balance	$	11,531	$	16,779

As of June 30, 2022 and December 31, 2021, one loan and two loans, respectively, with senior and/or subordinated tranches met the definition of collateral-dependent and are collateralized by membership interests in the borrowing entities and either the associated land parcels or an operating hotel. The Company used a discounted cash flow ("DCF") technique to project cash flows or a market approach via quoted market prices 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 three of the fair value measurement hierarchy, as there are unobservable inputs which are significant to the overall fair value. Based on these analyses, the fair value of collateral secures the carrying value of each loan to a significant extent. Allowances for credit losses attributable to collateral-dependent loans are $0.9 million and $6.3 million as of June 30, 2022 and December 31, 2021, respectively.

The write-offs for the year ended June 30, 2022 and December 31, 2021 are associated with loans previously classified as collateral-dependent that were settled in exchange for an operating hotel on April 14, 2022 and October 1, 2021, respectively. Refer to Note 15 regarding the second quarter 2022 asset acquisition accounting.

As a result of the COVID-19 pandemic, the Company extended interest deferral terms on certain notes receivable. The Company considers loans past due and in default when payments are not made when due in accordance with then current loan provisions or terms extended to borrowers, including loans with concessions or interest deferral. The Company suspends the accrual of interest when payments on loans are more than 30 days past due or upon a loan being classified as collateral-dependent. The Company applies payments received for loans on non-accrual status first to interest and then to principal. The Company does not resume interest accrual until all delinquent payments are received based on then current loan provisions. The amortized cost basis of notes receivable on non-accrual status was $18.2 million and $44.1 million at June 30, 2022 and December 31, 2021, respectively.

The Company has identified loans totaling approximately $7.5 million as of both June 30, 2022 and December 31, 2021, respectively, with stated interest rates that are less than market rate, representing a total unamortized discount of $0.2 million and $0.3 million as of June 30, 2022 and December 31, 2021, respectively. These discounts are reflected as a reduction of the outstanding loan amounts and are amortized over the life of the related loan.

Table of Contents

The past due balances by credit quality indicator of notes receivable are as follows:


(in thousands)	1- 30 days Past Due		31-89 days Past Due		> 90 days Past Due		Total Past Due		Current		Total Notes Receivable
As of June 30, 2022
Senior	$	—	$	—	$	15,200	$	15,200	$	76,781	$	91,981
Subordinated	—		—		2,209		2,209		18,297		20,506
Unsecured	—		—		—		—		1,453		1,453
	$	—	$	—	$