Choice Hotels International (NYSE:CHH) reported second-quarter results marked by higher adjusted EBITDA, improving U.S. room-growth trends and an increase in full-year guidance for several operating measures.
Adjusted EBITDA rose 6% year over year to $175 million, while adjusted diluted earnings per share increased 5% to $2.02. Revenue excluding reimbursable revenue from franchised and managed properties rose 7% to $277 million, Chief Financial Officer Scott Oaksmith said.
Openings Rise as Exits Decline
Choice said global room openings increased 16% year over year. In the U.S., gross room openings rose 27% from the prior-year period and 9% sequentially, while room exits declined 50% year over year to the lowest level in six years. U.S. franchise agreements awarded increased 30% during the quarter.
Dragisich said the company’s conversion-led development model remains central to its growth strategy. About 75% of U.S. agreements signed year to date are expected to open during 2026, while conversions are projected to account for about 90% of U.S. openings for the full year.
The U.S. conversion pipeline expanded 6% sequentially and was up 24% from a year earlier, according to management. Choice also shortened the average time from signing to opening for conversion properties by nearly one month.
Extended Stay remained a significant development contributor, representing more than 40% of the U.S. pipeline and posting its 12th consecutive quarter of double-digit rooms growth. International net rooms increased 13% year over year, including a 5.4% increase in Canada, where Choice has transitioned to a direct franchising model.
Management said it expects U.S. net rooms growth to return to positive territory for the full year, aided by stronger openings and an anticipated 250-basis-point improvement in the U.S. net exit rate compared with 2025. Third-quarter U.S. net rooms growth is expected to remain broadly consistent with second-quarter levels before accelerating in the fourth quarter.
RevPAR Improvement and Commercial Initiatives
U.S. revenue per available room, or RevPAR, increased 1.3% year over year in the second quarter, while global RevPAR rose 1.7% on a currency-neutral basis. International RevPAR increased 2.1%, led by the Caribbean and Latin America and supported by Canada and Asia-Pacific.
Oaksmith said the FIFA World Cup contributed about 60 basis points to second-quarter U.S. RevPAR. Choice estimates the event will provide roughly a 30-basis-point benefit for the full year because its activity was concentrated in the second quarter.
Dragisich said the company is seeking to improve competitive RevPAR through its commercial and technology capabilities rather than relying solely on industry demand. He noted that Choice has lower representation in urban markets and business-transient travel, areas that contributed to a gap in its RevPAR index performance during the quarter.
The company cited early results from several commercial initiatives:
- Choice Privileges membership rose 7% year over year to 77 million, while loyalty contribution increased by more than 250 basis points.
- Members acquired since the loyalty-program relaunch are generating higher average revenue than comparable members acquired a year earlier.
- Revenue from small and medium-sized business travelers increased 8% year over year, supported by the Business Direct platform.
- AI-enabled EasyBid improved group request-for-proposal conversion by 360 basis points and helped drive 16% growth in group revenue.
- An early pilot of the AI-enabled CHARLIE tool reduced operational support requests by about 40%, according to the company.
U.S. average royalty rate increased 11 basis points in the quarter, reflecting a mix shift toward higher-revenue brands and newer franchise agreements. In response to an analyst question, Oaksmith said the increase did not represent higher rates for existing franchisees; rather, older contracts are being replaced over time by agreements using the company’s current published contractual rates.
Asset-Light Transition and Capital Returns
Choice continued to reduce investment in hotel development as it shifts back toward an asset-light franchising model. Capital outlays for hotel development declined 80% year over year in the first half of 2026.
The company owns 19 operating hotels and one hotel under construction, including properties associated with developing the Cambria and Everhome brands and properties acquired in the Radisson Americas transaction. Oaksmith said Choice does not plan to retain hotel ownership as a long-term strategy and expects its first asset disposition in the first half of 2027, subject to market conditions.
Choice reported $475 million of total liquidity and net leverage of 3.1 times adjusted EBITDA at quarter-end. Operating cash flow totaled $67 million for the first six months, compared with $116 million in the prior-year period, reflecting higher franchise agreement acquisition costs and increased spending on franchisee-facing tools and guest-delivery capabilities.
Through July 31, Choice returned $172 million to shareholders, including $133 million in share repurchases and $39 million in dividends. The company continues to expect $175 million to $225 million in share repurchases during 2026.
Outlook Raised
Choice raised its full-year outlook for adjusted EBITDA, U.S. and global RevPAR, U.S. average royalty rate and global net rooms growth. The company now expects:
- Adjusted EBITDA of $635 million to $650 million.
- Adjusted diluted EPS of $6.86 to $7.10, reflecting higher expected interest expense and a higher effective tax rate, partly offset by repurchases.
- U.S. RevPAR growth of 0% to 1.25% and global RevPAR growth of 0% to 1%.
- U.S. average royalty rate expansion of 7 to 9 basis points.
- Global net rooms growth of approximately 1.5%, up from its prior outlook of about 1%.
Oaksmith said third-quarter adjusted EBITDA comparisons will be affected by approximately $9.5 million in liquidated damages recognized in other revenue during the prior-year quarter that are not expected to recur. He added that the company expects adjusted SG&A growth to moderate in the second half from the first-half run rate.
About Choice Hotels International (NYSE:CHH)
Choice Hotels International, Inc is a hospitality franchisor specializing in the development and support of lodging brands across the economy, midscale and upscale segments. Through a network of franchisees, Choice Hotels supplies proprietary reservation and distribution systems, comprehensive marketing programs, and operational support services. The company’s core activities include brand management, franchise development, and technology-driven revenue optimization tools designed to enhance guest acquisition and retention for its partners.
Founded in 1939 as Quality Courts United, the company rebranded to Choice Hotels International in 1982 to reflect its expanding brand portfolio and global ambitions.
