Choice Hotels targets global growth with 5% annual Canadian lodging market forecast through 2030

Key Highlights from Choice Hotels International's Q2 2025 Earnings Call

Choice Hotels International (CHH) delivered a strong performance in the second quarter of 2025, driven by strategic investments and continued expansion across global markets. The company reported an adjusted EBITDA of $165 million, marking a 4% year-over-year increase in adjusted earnings per share. This growth was supported by a more than 2% year-over-year net increase in global rooms, with a 3% rise in revenue-intensive rooms.

Patrick S. Pacious, President and CEO, emphasized that the company’s international business saw 10% growth in adjusted EBITDA, along with a 5% year-over-year expansion in the room portfolio. Notably, there was a 15% increase in hotel openings, highlighting the company's focus on new market entry and development.

The acquisition of the remaining 50% interest in Choice Hotels Canada marked a significant step toward a fully direct franchising model. Pacious noted that Canada presents a compelling opportunity, with the lodging market expected to grow at an average annual rate of over 5% through 2030, reaching more than $50 billion in total revenues.

In South America, the company extended its master franchise agreement for over 10,000 rooms in Brazil. In the EMEA region, Choice Hotels expanded its room count to over 63,000, a 7% increase from the previous year, and entered Poland. In Asia Pacific, a new master franchising agreement in China is anticipated to accelerate mid-scale portfolio growth, with approximately 10,000 rooms expected to be added over the next five years.

The domestic extended stay segment also saw significant growth, adding over 5,000 rooms year-over-year. The WoodSpring Suites brand experienced a 43% increase in domestic franchise agreements awarded, with half of industry-wide economy extended stay rooms under construction attributed to the brand.

Pacious highlighted the company's deliberate exit from underperforming hotels, which has led to higher-performing additions and improved guest satisfaction scores. The upscale global room system size increased by 15% year-over-year to over 110,000 rooms.

Scott E. Oaksmith, CFO, noted that despite a weaker-than-anticipated RevPAR environment, the company achieved a record second-quarter adjusted EBITDA of $165 million, representing a 2% year-over-year increase. Adjusted earnings per share rose 4% to $1.92, with global rooms growth of 3% among revenue-intensive brands.

Outlook for 2025

Oaksmith confirmed that the company maintains its adjusted EBITDA outlook range for 2025 at $615 million to $635 million. However, domestic RevPAR expectations have been adjusted to a range of minus 3% to flat, reflecting a more uncertain macroeconomic backdrop. Guidance for adjusted SG&A is now expected to grow at a low-single-digit rate from the 2024 base of $276 million.

The outlook does not account for any additional M&A, stock repurchases after June 30, or other capital markets activity.

Financial Results

Adjusted earnings per share reached a second-quarter record of $1.92 per share, a 4% year-over-year increase. Global system-wide rooms grew by 3% year-over-year in revenue-intensive segments. The Everhome Suites brand has 17 hotels open, with 11 of them opening this year, and 55 domestic projects in the pipeline.

Domestic RevPAR declined approximately 1.6% for Q2 2025 compared to Q2 2024, with overall second-quarter results down 2.9%, attributed to reduced government and international travel and softer leisure demand.

The effective royalty rate increased by 8 basis points year-over-year. Partnership-related revenue increased 16% in the first half and 7% in Q2 over the prior year. Non-RevPAR-related franchise fees increased 6% year-over-year.

Operating cash flows for the six months ended June 30, 2025, were $116 million, with $96 million generated in the second quarter. Year-to-date, $137 million was returned to shareholders via dividends and share repurchases.

Q&A Highlights

Analysts raised several questions during the call, including the decision-making process between direct franchising and master franchising in international markets. Pacious explained that direct franchising is chosen where market fundamentals and regulatory environments are favorable, and the mix is now more direct following the Canada acquisition.

Questions about Canadian growth dynamics and revenue/cost synergies were addressed, with Pacious noting that growth in Canada mirrors U.S. trends, with new construction taking longer than conversions. Franchisee interest remains high.

Regarding long-term EBITDA contribution from international operations, Oaksmith confirmed it was about 6% of current EBITDA before the Canada acquisition, with a 10% quarterly increase prior to the acquisition.

Concerns about the softer RevPAR outlook were discussed, with Pacious citing headwinds from international inbound and government travel but noting positive consumer trends and industry fundamentals support future RevPAR growth.

A question about a reported loan to a non-Choice brand was clarified as being for a Park Inn brand property, with most of the company's loans in good standing and focused on brand launches.

Sentiment Analysis

Analysts focused on clarifying international expansion strategy, Canadian growth synergies, RevPAR outlook, and franchise economics, with a tone that was neutral to slightly cautious, particularly regarding RevPAR guidance and loan activity.

Management maintained a confident and optimistic tone in prepared remarks, emphasizing resilience and long-term growth prospects. During Q&A, management provided detailed, direct responses and reiterated positive fundamentals: "We are very optimistic about the continued accelerated growth of our more than 140,000 rooms outside of the U.S."

Compared to the previous quarter, analyst sentiment was steady, with continued emphasis on macroeconomic headwinds. Management sustained a positive tone but addressed more questions on international strategy and RevPAR headwinds than before.

Quarter-over-Quarter Comparison

The company held its adjusted EBITDA outlook steady at $615 million to $635 million for the full year, unchanged from Q1. Domestic RevPAR guidance was lowered from negative 1% to positive 1% in Q1 to minus 3% to flat in Q2, reflecting softer government and international travel.

Strategic focus shifted slightly more to international expansion, highlighted by the full acquisition of Choice Hotels Canada and new agreements in China and Poland.

Management's tone remained confident, while analysts continued to probe on RevPAR softness and international franchise economics. The number of questions about international markets and strategic churn of underperforming properties increased this quarter.

Risks and Concerns

Management cited macroeconomic uncertainty, reduced government and international travel, and the impact of specific calendar events (Easter, eclipse) as headwinds.

Oaksmith discussed an operating guarantee payment related to managed hotels and clarified loan exposures, stating "nothing of significance other than that, that has any financial difficulty at this point."

Analyst questions reflected concerns about the sustainability of RevPAR, loan exposures, and the effect of churn on net room growth.

Final Takeaway

Choice Hotels International emphasized robust adjusted EBITDA performance, ongoing international expansion, and a strategic shift toward higher revenue-intensive segments, despite headwinds in domestic RevPAR. The company highlighted the acquisition of Choice Hotels Canada, new franchising agreements in China and Europe, and continued strength in the extended stay and upscale segments. Management maintained full-year adjusted EBITDA guidance, adjusted domestic RevPAR expectations downward, and reiterated confidence in the company’s asset-light, fee-based growth model while noting deliberate churn of underperforming hotels and sustained investment in technology, partnerships, and the rewards program as keys to long-term value creation.