Choice Hotels: Capitalizing on Global Diversification Amid U.S. RevPAR Headwinds

The hospitality industry is at a crossroads. In the U.S., RevPAR (revenue per available room) trends have turned volatile, with domestic operators grappling with macroeconomic headwinds, shifting consumer preferences, and the rise of alternative lodging. Yet, amid this turbulence, Choice Hotels International has emerged as a standout example of strategic resilience. By doubling down on global diversification—most notably through the acquisition of its Canadian operations and aggressive international franchising—the company is positioning itself as a cycle-resistant, long-term value creator. For investors seeking to hedge against domestic market fragility, Choice Hotels offers a compelling case study in geographic and operational agility.

The U.S. RevPAR Dilemma: A Tale of Two Markets

The second quarter of 2025 underscored the fragility of the U.S. lodging sector. Domestic RevPAR fell 2.9% year-over-year, dragged down by a 0.7 percentage point decline in occupancy and a 1.8% drop in average daily rates. While luxury segments and extended-stay properties showed resilience, the broader market was hit by a trifecta of challenges: reduced government and international travel, softer leisure demand, and a bifurcation in consumer behavior favoring short-term rentals.

The data paints a stark picture. U.S. hotel supply grew by 0.8% in Q2, outpacing a 0.6% decline in demand, while short-term rentals captured 13.9% of total demand in May 2025—a 0.7 percentage point increase from the prior year. For Choice Hotels, the domestic environment has forced a recalibration of expectations. The company revised its 2025 U.S. RevPAR guidance to a range of -3% to 0%, reflecting the broader industry malaise. Yet, even in this context, the company's extended-stay segment outperformed the total lodging industry by 40 basis points, and its WoodSpring Suites brand grew rooms by 9.7% year-over-year.

The Canadian Acquisition: A Strategic Masterstroke

While the U.S. market sputters, Choice Hotels has turned its gaze northward. In July 2025, the company completed the $112 million acquisition of the remaining 50% stake in Choice Hotels Canada, consolidating full ownership of a joint venture that had operated since 1955. This move marks a pivotal shift from a master franchising model to direct franchising, unlocking operational efficiencies and brand expansion.

The Canadian portfolio now spans 350 hotels and 30,000 rooms, with 2,500 additional rooms in the development pipeline. By expanding its brand offerings from 8 to 22 in Canada, Choice is tapping into a market projected to grow to $50 billion by 2030. The acquisition is expected to generate $18 million in EBITDA for 2025 alone, with the extended-stay segment—already a strength for the company—poised to benefit from Canada's robust demand for mid-scale and upscale accommodations.

This consolidation is not merely a financial play. It reflects a deep commitment to the Canadian market, its franchisees, and the capabilities of the in-country leadership team. CEO Brian Leon, a 18-year veteran, will continue to steer operations, ensuring continuity and leveraging local expertise. Meanwhile, InnVest Hotels, the former joint venture partner, remains a key player by operating 50 Comfort hotels nationwide. This partnership model mitigates risk while accelerating growth.

Global Franchising: A Diversified Engine for Growth

Choice Hotels' international strategy extends far beyond Canada. In Brazil, a 20-year master franchise agreement with Atlantica Hospitality International is set to add over 10,000 rooms. In France, a direct franchise deal with Zenitude Hotel-Residences nearly tripled the room count. And in China, strategic agreements with SSAW Hotels & Resorts are projected to add 9,500 rooms in 2025 and 10,000 over the next five years.

These moves are not isolated but part of a broader trend. In Q2 2025, Choice's international system size grew by 5%, with global net international rooms surpassing 140,000. The company's upscale and extended-stay brands are seeing particularly strong traction, with global net rooms up 14.7% year-over-year. This diversification is critical: while U.S. RevPAR struggles, international markets offer a buffer against domestic volatility.

Why Now Is the Time to Invest

The case for investing in Choice Hotels rests on three pillars: risk mitigation, growth potential, and operational resilience.

1. Risk Mitigation: By reducing reliance on the U.S. market, Choice Hotels insulates itself from domestic RevPAR declines. The Canadian acquisition and international franchising create a diversified revenue base, with exposure to high-growth markets like Brazil and China.
2. Growth Potential: The company's global pipeline is expanding rapidly. With 43,000 domestic extended-stay rooms in development and international agreements adding tens of thousands more, Choice is positioned to capitalize on long-term demand trends.
3. Operational Resilience: Even in a soft domestic environment, Choice's extended-stay and upscale segments have shown durability. The company's focus on SME demand, group travel, and infrastructure-driven business travel provides a stable revenue stream.

For investors, the key question is whether the market has priced in these opportunities. Choice's stock has underperformed the broader hotel sector in 2025, reflecting near-term U.S. challenges. However, the company's EBITDA margin of 30% and strong balance sheet (with $112 million in cash and a manageable debt load) suggest a compelling risk-reward profile. With international markets growing at 5% year-over-year and the Canadian acquisition already generating $23 million in fee revenue, the stock appears undervalued relative to its long-term growth trajectory.

Conclusion: A Global Play in a Fragmented Market

The hospitality sector is entering a new era of fragmentation. Domestic RevPAR trends will remain volatile, but global diversification offers a path to stability. Choice Hotels has executed a masterclass in strategic expansion, leveraging its Canadian acquisition and international franchising to build a resilient, cycle-resistant business. For investors seeking exposure to a company that is both a defensive play and a growth story, Choice Hotels represents a rare opportunity. The time to act is now—before the market fully recognizes the value of its global footprint.