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DATE
Wednesday, November 5, 2025 at 10 a.m. ET
CALL PARTICIPANTS
President & Chief Executive Officer — Patrick S. Pacious
Chief Financial Officer — Scott E. Oaksmith
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RISKS
U.S. RevPAR — CFO Oaksmith reported that U.S. RevPAR declined 3.2% year over year in Q3 2025, primarily due to softer government and international inbound demand.
Full-Year RevPAR Guidance — Management expects U.S. RevPAR to range between minus 3% and minus 2% for the full year 2025. Noting continued headwinds and fourth quarter comparisons impacted by hurricane-related demand in the prior year.
Adjusted EPS Decline — CFO Oaksmith disclosed "adjusted earnings per share were $2.10 for the third quarter of 2025, compared to $2.23 in the prior year quarter," attributing the decrease to higher amortization expense and temporary tax impacts from the Canadian acquisition in Q3 2025.
TAKEAWAYS
Adjusted EBITDA -- $190 million in adjusted EBITDA for Q3 2025, representing a 7% year-over-year increase driven by a higher-revenue brand mix and international gains.
Net Global Rooms Growth -- Net global rooms grew 2.3% year over year in Q3 2025, led by 3.3% growth in upscale, extended stay, and midscale segments.
Rooms Pipeline Quality -- 98% of rooms in the global pipeline are in higher-revenue brands, and hotels in the pipeline are estimated to be 1.7x more accretive than the current portfolio as of Q3 2025.
International Adjusted EBITDA -- International adjusted EBITDA grew 35% year over year in Q3 2025, with the international portfolio room count expanding over 8% to surpass 150,000 rooms.
EMEA Portfolio -- The EMEA portfolio reached nearly 64,000 rooms, up 7% year over year as of Q3 2025, with France expected to nearly double its midscale presence by year-end.
Canadian Operations -- Choice Hotels Canada is now fully consolidated, reporting Q3 2025 RevPAR up 7% year over year across 355 hotels.
Asia Pacific Expansion -- In China, nearly 80% of the anticipated 9,500+ Ascend Collection rooms were onboarded within five months of launch (with the remainder expected by year-end 2025), and MainStay Suites launched in Australia with nearly 600 rooms.
U.S. Extended Stay Segment -- U.S. extended stay room count grew 12% year over year in Q3 2025; Everhome openings more than doubled, with 40% of the segment pipeline under construction belonging to Choice brands.
Economy Transient Segment -- The U.S. pipeline was up 35% year over year, with a 27% increase in U.S. franchise agreements awarded in Q3 2025 versus the prior year.
Midscale Brand Performance -- The global midscale pipeline was up 5% year over year in Q3 2025; Country Inn & Suites U.S. franchise agreements doubled, with the U.S. pipeline up 15% year over year and a continued track record of pipeline growth for 2026.
Upscale Segment Expansion -- Global system size increased 21% to 118,000 rooms, while U.S. franchise agreements rose 33% year over year in Q3 2025.
Conversion Hotels Velocity -- Average conversion hotel opens within three to six months, about 80% faster than new construction, with conversions expected to be roughly 80% of U.S. openings in 2025.
Business Travel and Group Revenue -- In the third quarter of 2025, group revenue rose 35% year over year, while small and medium business revenue climbed 18%, with business travelers now representing about 40% of stays.
Loyalty Program Growth -- Choice Privileges membership exceeded 73 million, up 8% year over year as of 2025, with planned benefit enhancements launching in January.
Adjusted SG&A Guidance -- Adjusted SG&A is expected to rise at a low single-digit rate from the 2024 base of $270 million.
Technology Investments -- A $6 million technology investment program is now nearing completion and on track to conclude next year, aimed at building an AI-driven, cloud-based platform for autonomous rate and revenue management.
Year-to-Date Operating Cash Flow -- Operating cash flow totaled $185 million through September, including $69 million in the third quarter.
Capital Allocation -- $150 million was returned year to date through September 2025 in dividends and share repurchases, with an additional $25 million generated from asset recycling in Q3 2025.
Debt and Liquidity -- The company ended Q3 2025 with net debt to trailing twelve-month EBITDA of three times and liquidity of $564 million.
Full-Year Adjusted EBITDA Guidance -- Full-year 2025 adjusted EBITDA is now expected to be between $620 million and $632 million, with the midpoint raised by $1 million.
Full-Year Adjusted EPS Guidance -- Projected full-year 2025 adjusted EPS is in the range of $6.82 to $7.05, due to increased amortization from the Canadian acquisition and lower equity earnings from joint ventures.
SUMMARY
Choice Hotels International (CHH +5.51%) raised its full-year adjusted EBITDA guidance and tightened its 2025 range, reflecting broad-based earnings growth led by higher-revenue segments and international expansion. The franchise pipeline remains heavily weighted toward higher-yielding brands, with rapid conversion cycles accelerating revenue capture. Management highlighted robust international performance, specifically citing EMEA and Canada, and underscored sustained room growth in extended stay, upscale, and midscale categories alongside strong demand from business travelers and retirees. The company is nearing completion of key technology investments focused on AI-driven tools to enhance franchisee productivity and guest loyalty, while maintaining disciplined capital allocation and supporting operational efficiency through controlled SG&A.
CEO Pacious said, "98% of rooms in our global pipeline are in higher revenue brands," emphasizing the company's strategic mix shift and potential to enhance average unit economics.
CFO Oaksmith highlighted, "Our extended stay segment in the United States outperformed the industry RevPAR by 20 basis points in the quarter and delivered a 1.4% year-to-date growth through September," signaling relative segment resilience.
International adjusted EBITDA margins expanded to 70% over the past three years, with per-unit EBITDA tripling as direct franchising rose to 40% of the international portfolio.
Business travel and group revenue saw substantial gains in Q3 2025, fueled by a 35% increase in group revenue and 18% SMB revenue growth, repositioning Choice for a more balanced guest mix and enhanced midweek occupancy.
The completed Canadian acquisition and related accounting effects weighed on Q3 2025 reported EPS, but adjusted EPS excluding these items would have been $2.27, up 2% year over year.
INDUSTRY GLOSSARY
RevPAR: Revenue per available room, a standard metric measuring hotel revenue on a per-room basis over a specific period.
Unit Growth: The percentage increase in the total number of rooms under franchise or management.
Key Money: Upfront payments or incentives provided to hotel owners to encourage signing franchise or management agreements.
Conversion Hotel: A hotel property that switches brands/franchise systems rather than being newly constructed as part of a chain.
SMB: Small and medium business traveler segment, reflecting corporate guests from small and midsize companies.
PIP: Property Improvement Plan, typically an agreement or required set of renovations/franchise upgrades for hotel owners.
MFA: Master Franchise Agreement, wherein a local or regional entity is granted rights to franchise and develop brands within a market.
Full Conference Call Transcript
Patrick S. Pacious: Thank you, Allie, and good morning, everyone. We appreciate you joining us today. In the third quarter, we drove adjusted EBITDA 7% higher to $190 million, reflecting the strength of our higher revenue brand mix, a surge in our small and medium business traveler and group business revenue, continued momentum across our partnership revenue streams, and the accelerating earnings contribution now coming from our expanding international business. The strength of these earnings drivers allows us to raise the midpoint of our full-year earnings outlook and tighten the range, reinforcing our confidence in the growth of our global business going forward.
During the quarter, we increased our net global rooms by nearly 2.5% year over year, and growth was led by continued expansion in higher revenue segments where we grew by nearly 3.5%, along with higher revenues per hotel across all segments. Today, 90% of our global portfolio consists of those higher revenue-generating rooms, further strengthening the value we deliver to guests, franchisees, and shareholders. The future growth of our portfolio is compelling, fueled by robust developer interest with global franchise agreements awarded up 54% year over year. And today, 98% of rooms in our global pipeline are in higher revenue brands.
As shown in our investor supplementary materials, these hotels are expected to be 1.7 times more accretive than our current portfolio, driven by their RevPAR premium, higher effective royalty rates, and larger average room count. This pipeline strength underscores our ability to continue to elevate our earnings per unit by adding accretive hotels to our platform. Our pipeline is important not only for its size but also for the quality of the hotels within it and the velocity at which we are able to convert signings into openings. In fact, the number of hotels that opened over the past year without ever appearing in our global pipeline accounted for approximately 1% of the system-wide unit growth.
As we look ahead, we're optimistic about the next phase of the U.S. lodging cycle and its impact on new construction openings. In the U.S., we expect last week's lowering of interest rates, continued investments in the build-out of AI infrastructure, and a constructive regulatory environment will drive stronger demand, especially for our travelers. Combined with low industry supply growth, continued favorable demographic trends, and significant demand catalysts such as the 2026 World Cup, the U.S. 250th anniversary, and the Route 66 Centennial, these tailwinds are expected to generate incremental travel across our markets and set the stage for stronger RevPAR growth in the years ahead.
Backed by the strength of our core travel base, retirees, road trippers, and America's blue and gray collar workforce, our purpose-built hotel portfolio is well-positioned for sustained growth. As we look for signs as to when the cycle in the U.S. may turn positive for our business, two indicators are moving in the right direction. First, our economy transient segment occupancy performance has begun to improve year to date and has shown year-over-year growth in each of the last two quarters, excluding the impact of the third quarter 2024 hurricane. This segment was also the first to recover after the last period of demand softening, followed by the midscale segment.
Second, occupancy index across our entire U.S. portfolio is up slightly year to date, a constructive early indicator that in prior cycles has preceded broader U.S. RevPAR growth. Turning to our business outside the U.S., 2025 has been the year that we $3 billion in gross rooms revenue, is now our highest growth opportunity. As highlighted in our supplemental investor materials, our teams have made incredible progress in improving the value proposition of our brands. They've delivered higher earnings per hotel, higher royalties, and higher operating margins for our business internationally.
We've built a scalable global platform and successfully repositioned the business towards a higher value direct franchising business model, which has grown by 22 percentage points over the past three years and now represents 40% of our international rooms portfolio. Over that same period, our international EBITDA margins have expanded to 70% and per unit EBITDA has tripled. The foundation we've built gives us high confidence in our ability to capture rising demand across markets where our brands have a meaningful runway for growth, for continued royalty rate. With this momentum, we expect to generate more than $50 million in international adjusted EBITDA by 2027, doubling from our 2024 baseline.
In the third quarter alone, we achieved 35% growth in adjusted international EBITDA and we expanded our international portfolio by over 8% year over year, surpassing 150,000 rooms outside the U.S. That growth was fueled by a 66% year-over-year increase in hotel openings. In EMEA, our portfolio grew to nearly 64,000 rooms, up 7% year over year. We're especially encouraged by the progress in France, where we expect to onboard over 4,800 midscale rooms under direct franchise agreements by year-end, nearly doubling our presence. This milestone highlights our ability to continue to scale our direct franchising market.
We also recently entered Africa, with our first development agreement including a flagship property in Kenya's Masai Mara game reserve, marking the start of broader expansion across Central and Southern Africa. In the Caribbean and Latin America, we expanded our footprint by nearly 50% over the past three years, to more than 25,000 rooms across more than 20 countries. Just two weeks ago, we hosted our first Choice Hotels CALA convention in Mexico, where we saw tremendous enthusiasm for our upscale and midscale brands. Our targeted business travel strategy is reshaping the guest mix, with about 60% of stays in the region now business-related, driving weekday demand, higher spend, and long-term loyalty.
We also entered a new direct market, Argentina, with the opening of the Radisson Blu in Patagonia, and recently signed an agreement for a new upscale Radisson Red. This follows the successful opening of the Radisson Red Sao Paulo a couple of months ago, further strengthening our upscale and upper upscale presence in the region. Elsewhere in the Americas, following the full consolidation of Choice Hotels Canada, we've transitioned to a direct franchising model and are already seeing impressive results from the 355 Canadian hotels, with third quarter Canadian RevPAR up 7% year over year and growing franchisee interest across our brands.
In Asia Pacific, since launching our Ascend collection in China just five months ago, we've already onboarded nearly 80% of the more than 9,500 anticipated rooms, with the remainder expected by year-end. We are on track to add roughly 10,000 midscale rooms over the next five years, significantly expanding our reach among Chinese travelers and driving valuable outbound traffic to our hotels in the rest of Asia and beyond. We also successfully launched our midscale extended stay brand, MainStay Suites, in Australia, marking the first expansion outside North America. This direct franchise agreement adds nearly 600 rooms and marks the first step in extended stay growth across the region.
All of this exciting progress around the world has positioned our international business as our fastest-growing segment. Our second fastest earnings growth segment is extended stay in the U.S. Over the past five years, we've expanded our U.S. extended stay portfolio by more than 20%, now exceeding 55,000 rooms. We've delivered nine consecutive quarters of double-digit system size growth, outpacing the industry. Today, this cycle-resilient segment represents nearly half of our U.S. pipeline, offering longer average stays, higher margins, and a stable revenue stream. Despite a challenging new construction environment for the industry, our 23 hotels open, six of which opened this year, and 40 more U.S. projects in the pipeline, including 12 under construction.
In the third quarter, we more than doubled Everhome openings year over year, expanding into fast-growing markets like San Antonio, Texas, a key emerging data center hub. Nationwide, the manufacturing and data center build-out is fueling strong long-term demand for extended stay. And with 40% of all economy and midscale extended stay rooms under construction belonging to Choice brands, we're exceptionally well-positioned to maintain segment leadership. Our strategic expansion into higher revenue-generating segments is also strengthening our economy transient brand. Through deliberate portfolio optimization, we've been replacing lower-performing assets with higher quality, more profitable hotels, lifting guest satisfaction and brand equity.
As a result, our economy transient hotels are outperforming comparable hotels within their chain scale in RevPAR growth and gaining RevPAR index share. This strong performance is attracting developer interest, driving a 35% year-over-year increase in our U.S. economy transient rooms pipeline and a 27% year-over-year rise in U.S. franchise agreements awarded in the third quarter. Importantly, the new hotels entering our system are expected to generate on average higher royalty revenue than those we strategically exited. In our midscale segment, developer interest remains strong, with our global pipeline up 5% year over year. The redesigned Country Inn and Suites by Radisson prototype, engineered for cost efficiency and ease of conversion, has reinvigorated the brand.
In the third quarter, we doubled the U.S. franchise agreements awarded and grew the U.S. pipeline by 15% year over year, reflecting renewed developer confidence. And we remain on track to deliver year-over-year growth in brand openings in 2026. In our upscale category, we continue to expand rapidly, increasing our global system size by 21% year over year to 118,000 rooms and driving a 33% increase in U.S. franchise agreements executed during the quarter. As I mentioned earlier, the velocity with which we move hotels through our pipeline remains a key differentiator. On average, our conversion hotels open within three to six months, about 80% faster than new construction, allowing both Choice and our franchisees to capture revenue earlier.
Choice remains the leader in the share of conversion hotels in its segment. In the third quarter, our U.S. conversion franchise agreement increased 7% year over year, and we expect conversions to remain a core growth driver through year-end and to account for approximately 80% of total U.S. openings in 2025. Now let's turn to the exciting investments we are making in our franchisees' system. Choice continues to have the best technology team in the business. We're especially proud that Forbes recently recognized Choice as one of America's best employers for tech workers, a testament to our culture of innovation and talented teams.
Today, we're building on our leadership in cloud computing and data to evolve Choice's technology stack into an intelligent, always-on ecosystem, one where autonomous agents continuously help franchisees optimize rate and revenue management, streamline operations, and free franchisees to focus on delivering exceptional guest experiences. Our systems are advancing from a tool to a true teammate, reflecting Choice's long-standing commitment to helping owners succeed from day one. Backed by our $6 million technology investment program, now nearing completion and on track to conclude next year, this transformation will mark a pivotal step forward in how our platforms empower franchisees to achieve more.
These next-generation systems will understand intent, reason across data sources, and take action autonomously, equipping our owners with predictive insights, automated workflows, and real-time decision support to unlock new levels of efficiency, profitability, and growth. As part of our technology investment program, we're also expanding our reach in business travel and deepening guest loyalty, driving higher customer lifetime value and further strengthening our competitive edge. The transformation is designed to deliver durable RevPAR growth, expand RevPAR index share, and support long-term rooms expansion. We're already seeing measurable impact with year-to-date occupancy share gains versus competitors through September. In business travel, we've strengthened our position by expanding and elevating our global sales capabilities.
Business travelers now represent roughly 40% of stays, creating a balanced mix that supports rate stability across economic cycles. In the third quarter, group revenue rose 35% year over year, while small and medium business revenue grew 18%. Importantly, Choice's U.S. business traveler base continues to provide steady demand, made up of guests whose jobs require travel, representing industries such as construction, utilities, healthcare staffing, logistics, and manufacturing. Today, we manage more than 1,600 global business accounts and serve a strong SMB and SMART base, underscoring our role as a trusted partner for business, group, and event travel.
Next year, we'll launch a dedicated digital platform for small and medium businesses, tapping into a $13 billion opportunity to grow midweek occupancy and extend our corporate reach. In addition, we're developing new AI-enabled RFP management and sales tools designed to streamline group sales, accelerate responsiveness, and drive more high-value bookings. Let me now turn to the exciting progress we're making in the types of guests we serve. Across our portfolio, the quality of our guests continues to rise. Half of our U.S. guests now have household incomes above $100,000, and one in five exceeds $200,000, representing an increasingly attractive customer base for both our franchisees and partners.
Our Choice Privileges rewards program now exceeds 73 million members, up 8% year over year. Recent enhancements in 2025 are delivering results. Loyal members stay nearly twice as many nights, spend more per stay than nonmembers, and are seven times more likely to book direct, driving greater customer lifetime value for Choice and our franchisees. Just yesterday, we announced new benefits launching in January. This meaningful transformation of our program is designed to accelerate member growth, increase co-brand card revenue, and strengthen direct bookings, further deepening engagement and fueling demand. The last time we revamped the program, we achieved a 700 basis point increase in loyalty contribution, giving us strong confidence in this next evolution.
The enhancements in our rewards program are designed to further activate the expanding core demographic that we expect will drive demand well into the future: retirees and near retirees. This growing demographic now represents nearly 30% of our revenue and continues to be among the most valuable and active travelers on the road. They spend more at our hotels and are twice as likely to be members of our rewards program. This year alone, more than 4 million Americans are reaching retirement age, the largest cohort in U.S. history, entering their peak leisure travel years with record levels of disposable income.
By 2030, one in five Americans will be 65 or older, representing an expanding base of affluent, travel-ready consumers who spend more on travel than younger generations. Studies show that spending by this golden generation is expected to increase by 70%, reaching nearly $15 billion over this time period. With gas prices at multiyear lows and expected to go lower next year, Choice is uniquely positioned to serve these travelers, supported by our extensive portfolio of convenient, drive-to locations that appeal to the millions of road trippers hitting the open road for new experiences. Our next-generation loyalty program is built to capture this growing demand, giving these high-value guests even more reasons to stay with Choice.
And in an AI-driven world, travelers will gravitate towards brands they know and trust and those they have real relationships with. That's why our loyalty evolution is focused on deepening those connections, positioning Choice to capture this next wave of demand. Together, these initiatives are driving greater demand and creating higher customer lifetime value for our franchisees. We're confident these investments and those still to come will expand our growth opportunities and create meaningful long-term shareholder value. Importantly, we're positioning Choice for enhanced performance and sustained growth. Our technology-forward strategy and disciplined execution, combined with an asset-light fee-based model, have meaningfully strengthened our growth trajectory even in a dynamic macroeconomic environment.
We continue to generate substantial free cash flow, enabling us to reinvest in high-return initiatives that fuel growth while delivering sustainable value to our shareholders. We are confident that our strategy will continue to unlock scalable growth opportunities, expand market share, and drive long-term returns. With that, I will now turn the call over to our CFO, Scott.
Scott E. Oaksmith: Thanks, Patrick. Good morning, everyone. Today, I will cover three key areas: our third quarter financial results, our balance sheet and capital allocation, and our outlook for the remainder of 2025. We delivered record third quarter adjusted EBITDA of $190 million, up 7% year over year despite a softer U.S. RevPAR environment. This performance underscores the strength of our diversified revenue stream and the early returns from our strategic investments. Our record quarterly performance was driven by system-wide rooms growth in our higher revenue extended stay and upscale segments, a higher average royalty rate, the continued expansion of our international business, including the introduction of our brands in new markets, and strong partnership revenue.
Let's turn to the three drivers of royalty fee growth: unit growth, RevPAR performance, and royalty rate. In the third quarter, we grew our global rooms 2.3% year over year, led by a 3.3% growth across our higher revenue segments: upscale, extended stay, and midscale. Each segment delivered strong results in the third quarter, reflecting the benefits of our deliberate investments and disciplined portfolio focus. Our U.S. extended stay room system size grew 12% year over year, highlighted by a 14% increase in openings. At the same time, we awarded 30% more franchise agreements in the U.S. year over year. We strengthened our position in the midscale segment, with our global pipeline increasing 5% year over year.
Specifically, our flagship Comfort brand saw U.S. new construction franchise agreements double year over year, with the new construction U.S. pipeline accelerating quarter over quarter. In the upscale segment, we expanded our global rooms portfolio by 7% quarter over quarter and attracted strong developer demand. Our Ascend collection, now exceeding 72,000 rooms worldwide, saw a six-fold increase in global openings and twice as many franchise agreements awarded in the U.S. versus last year. Even in a challenging construction environment, we awarded more U.S. new construction franchise agreements than last year and opened 15% more U.S. new construction hotels in the third quarter year over year. Our focus remains on elevating the quality of our portfolio.
We continue to strategically exit select assets that under-index our portfolio and fail to meet our requirements while maintaining system-wide growth, clear evidence that our portfolio optimization strategy is working. Turning to our RevPAR performance, our global RevPAR for the third quarter was flat compared to the prior year, led by strong performance from our international markets. We achieved third quarter RevPAR growth across every region outside the U.S., with overall international RevPAR up 9.5% year over year. On a constant currency basis, international RevPAR growth was led by the EMEA region, which delivered an 11% year-over-year increase. The Americas and Asia Pacific regions each posted 5% year-over-year RevPAR growth.
We were particularly pleased with the performance of our Canadian operations, where RevPAR increased 7% in the third quarter. Our U.S. third quarter RevPAR declined 3.2% year over year, primarily reflecting softer government and international inbound demand. Even so, we achieved year-to-date share index gains versus our competitors, driven by strategic investments that enhance customer lifetime value for our franchisees. Our extended stay segment in the United States outperformed the industry RevPAR by 20 basis points in the quarter and delivered a 1.4% year-to-date growth through September. At the same time, our U.S. transient economy segment outperformed its chain scale RevPAR by 310 basis points and gained RevPAR index share versus competitors year to date through September.
Looking ahead, we remain confident in our ability to deliver sustained RevPAR growth and expand our RevPAR index share. This confidence is grounded in our disciplined high-return investments that broaden our business travel base, deepen loyalty engagement, and position us to capture long-term demand supported by favorable demographic trends, particularly the expanding retiree leisure segment and America's blue and gray collar workforce. Moving to royalty rate, our third lever of royalty fee growth, in the third quarter, the average U.S. royalty rate increased by 10 basis points year over year, reflecting our continued strategic focus towards higher revenue brands and a stronger franchisee value proposition.
We remain confident in the future growth trajectory of our system-wide royalty rate, supported by ongoing investments that improve reservation delivery to our franchisees and a robust development pipeline. This pipeline reflects contracts with higher royalty rates, larger average room counts, and a RevPAR premium, all of which provide a clear path for long-term revenue growth. Turning to our partnership business, our focus remains on strengthening relationships with our strategic partners and suppliers, which was evidenced in a 19% year-over-year increase in revenues for the quarter. Growth was driven by strong co-brand credit card fees, as well as increased suppliers and strategic partnership fees.
As we've enhanced our franchisee-facing service offerings, adoption has continued to rise, driving steady growth in our non-RevPAR related franchise fees across the broad range of services we provide. Expanding our partnership revenue streams and non-RevPAR franchise fees remains one of our key priorities and represents a meaningful opportunity for continued earnings diversification and growth. We continue to focus on driving our top-line growth while enhancing associate productivity and operational efficiency. We see meaningful opportunities to deploy labor-saving technologies that will deliver significant productivity gains across the enterprise and help mitigate SG&A growth. As a result, we continue to expect adjusted SG&A to increase at a low single-digit rate from our 2024 base of $270 million.
Finally, our adjusted earnings per share were $2.10 for the third quarter of 2025, compared to $2.23 in the prior year quarter. The year-over-year comparison reflects the impact of our acquisition of the remaining 50% interest in the Choice Hotels Canada joint venture, which resulted in higher amortization expense related to the acquired intangible assets, a temporary increase in income tax expense expected to reverse in the fourth quarter, the reevaluation of our previously held ownership interest in the joint venture, and unrealized foreign currency adjustments. Across our broader operations, excluding these items, third quarter adjusted EPS would have been $2.27, representing a 2% year-over-year increase. Now let's move to the balance sheet and capital allocation.
As of September 30, we generated $185 million in operating cash flow through September, including $69 million in the third quarter. This strong cash generation and a healthy balance sheet underpin our capital allocation priorities: investing in growth initiatives and accretive acquisitions while returning capital to shareholders. Year to date through September, we returned $150 million to shareholders in dividends and share repurchases. We continue to deploy capital selectively to scale Cambria Hotels and Everhome Suites while maintaining a disciplined approach to recycling that capital at the right time. In the third quarter, we generated $25 million in net proceeds from recycling activities, and year to date, our hotel development-related net outlays and lending declined by $53 million.
We expect 2025 to be the final year of developing new company-owned Cambria hotels, followed by Everhome Suites in 2026, with investments expected to be completed in 2027. As the interest rate environment continues to improve and the hotel transaction market recovers, we also expect our capital recycling activity to accelerate. We ended the quarter with a net debt to trailing twelve-month EBITDA of three times and liquidity of $564 million. Finally, I'd like to discuss our outlook for the remainder of the year. For the full year, we now expect U.S. RevPAR to range between minus 3% and minus 2%.
As a reminder, fourth quarter comparisons will be impacted by elevated hurricane-related demand in the prior year, and we continue to monitor potential impacts related to the government shutdown. We are tightening our full-year adjusted EBITDA with the midpoint up by $1 million. We now expect adjusted EBITDA to range between $620 million and $632 million. We are adjusting our full-year adjusted EPS guidance to range from $6.82 to $7.05, primarily reflecting additional amortization expense related to the intangible assets from the Choice Hotels Canada acquisition, which was not included in prior guidance, as well as lower equity earnings from joint ventures due to the timing of hotel openings.
Our fourth quarter recurring effective income tax rate is expected to be approximately 21%, reflecting the timing of tax recognition between the third and fourth quarters, as previously discussed. Our full-year effective recurring rate guidance remains at approximately 25%. We now expect full-year 2025 franchise agreement acquisition costs to be lower than in 2024. Our outlook excludes any additional M&A, share repurchases after September 30, or other capital markets activity. Our third quarter results demonstrate the success of our strategy and highlight the benefits of our expanded scale and diversified business model, even in a softer U.S. RevPAR environment. We'll continue to invest in high-return areas that enhance our long-term trajectory and drive meaningful shareholder value.
Looking ahead, we remain confident in the durability and strength of our fee-based business model. We expect growth to be driven by higher revenue hotels, average royalty rate growth, expanding partnership revenues, sustained international momentum, and strategic initiatives designed to enhance customer lifetime value for our franchisees. Patrick and I are now happy to take your questions.
Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please lift the handset before pressing any key. One moment, please, for your first question. Your first question comes from Michael Bellisario with Baird. Please go ahead.
Michael Bellisario: Thank you. Good morning, everyone. Good morning. Questions for you. First on this Everhome joint venture that you guys announced in July. Just in the past, you had mentioned that you were gonna recycle owned assets. I know, Scott, you provided some comments there too. I think we all assume that means those assets get sold to a third party and use it cash, but in this joint venture deal, you still own 80%, and you're sort of committing to owning and developing hotels for longer or at least more of a medium-term holding period? I guess help us understand the motivation, thought process here.
And how the economics of this deal are maybe better or different than previously owning and developing assets on your own balance sheet?
Scott E. Oaksmith: Yeah. Our preferred vehicle has been to develop hotels through the joint ventures that we have. So what you saw in this transaction was really more of a timing of the transaction. So we had started a few hotels on our own balance sheet, owning them. That were always intended to go into the joint venture. Just it had not been fully set up at the time. So when you take a look at the overall transaction, there were some sales from an accounting perspective that were treated as, you know, proceeds from sales. But ultimately, the way that transaction worked, it netted us about a $25 million recycling.
This doesn't change in terms of our long-term viewpoint on holding assets. As I've always said, we're in the moving business, not the storage business, and we have developed a 100% franchised brand. So even in this joint venture, we either expect our JV partner to buy out our interest at some point in time or to go to market and sell those to additional third parties encumbered with long-term franchise agreements. As we talked about in the remarks, we're towards the tail end of our capital investment in both Cambria and Everhome.
We expect to wrap up with no new development in Cambria after this year and then finishing the Everhome development in 2026, where our net capital outlays will be significantly lower. In fact, you look at our Q3 results this year, we're actually about $50 million less in capital being used on our development of hotels. So we're at the tail end of that. And as the transaction environment and interest rate environment improves, we do expect to be sellers of those hotels, whether they're on our own assets or in these JVs.
Michael Bellisario: Okay. That's helpful. And then just similarly on capital allocation, what was the rationale for not buying back stock during the quarter, especially when it was down so much versus levels where you had previously been repurchasing stock? And that's all for me. Thank you.
Scott E. Oaksmith: Yeah. Michael, I mean, that's when we look at our capital allocation hierarchy to invest in the business, to do accretive M&A, and then return capital to shareholders through dividends and share repurchases. We bought the other half of Canada we did not own in the third quarter. So that capital outlay was sort of the kind of it rises higher from that standpoint as to, you know, what creates more long-term value for shareholders. I would say if you look at our pace of sort of how we've been deploying capital, we're effectively on pace through the third quarter with the acquisition and the share repurchases we did in the prior part of the year.
But yes, absolutely, it's at a very attractive price at this point. But that was the way we deployed our capital in the third quarter.
Operator: Thank you. The next question comes from Lizzie Dove with Goldman Sachs. Please go ahead.
Lizzie Dove: I just wanted to ask about the longer-term outlook for rooms growth, particularly in the U.S. It's been tracking down year over year, at least when you kind of strip out Westgate from there. And so, you know, as we move forward over the next year or two, what's the kind of base case expectation and what are you kind of seeing in the development environment or the conversion environment really in the U.S. to drive that? Thanks.
Patrick S. Pacious: Sure. So if you look at our pipeline and where we've been focused really for the last five years is on bringing higher quality product into the pipeline and therefore moving that into the system. And that is going to continue. If you look at the makeup that we talked about in our remarks, about 98% of what's in the pipeline today is in those higher value segments. What we've been opening, as we've mentioned in the remarks, there's actually because we're doing a lot more conversions, they open anywhere between three and six months on average. But that also means we're opening hotels in less than three months.
And so many of those show up as openings but never even show up in the pipeline. And that's really, as we mentioned in the remarks, about 1% of our unit growth came from hotels that opened that quickly. So when you look at the pipeline, it's not only the size of it, it's also the quality of the hotels that are in there. But as importantly is the velocity with which, because we've been doing conversions as a company for so many years, we're able to get these hotels open quickly for owners, and that allows them to capture revenue early and us as well.
And so as I think as we look into next year, just given the limited supply growth that's been going on in the U.S., from a new construction perspective, I would expect that trend to continue well into 2026. So that's sort of probably how we would think about the setup for the conversions coming out of the pipeline and the net rooms growth in the U.S.
Lizzie Dove: Got it. That's helpful. And then on to the RevPAR environment, I appreciate the comments you made, you know, with some of the green shoots and also, you know, World Cup and whatnot next year. I'm curious how you would think about just how much of, you know, what's going on at the lower end is structural or cyclical, especially in terms of, you know, competition from conversion brands like Spark, Premium Economy, things like that, the K-shape recovery. Anything you can share there of then how you think about the long-term trajectory to, you know, be able to potentially grow domestic RevPAR again longer term? Thanks.
Patrick S. Pacious: Yes. Sure, Lizzie. From our perspective, this is a cyclical business. I mean, when I've been at Choice for twenty years, and this is probably the third one of these we've been through. The green shoots you do look for is when does occupancy stop dropping. That then gives owners confidence when they set price. And so that's kind of early indicators that we've seen where the cycle starts to turn, and that's in fact what we're starting to see in our chain scales, our segments, in our brands. And we're pretty excited with what we're actually seeing in the economy segment, which again is the segment that usually leads you out of one of these cyclical downturns.
So feel pretty good about sort of what we're seeing on that front. I'd say on the consumer front, this is that sort of question around this K-shape recovery. I think it's missing the fact that you've got a ton of, I mean, 75% of the people who work in this country work for a small and medium-sized business. And when we're seeing that surge in the SMB business in our hotels, it's because of the types of travelers that are the labor force is effectively shifting towards the types of travelers that stay in our hotels.
Construction, utilities, medical staffing, which is traveling nurses and the like, there's a pretty significant tailwind that we see from a business traveler's perspective. The other is what we talked about, is our retirees and road trippers. And about 30% of our business today are those folks who are 60 years old and older. They're sitting on tremendous wealth in their homes, they're sitting on very attractive stock portfolios, and they've got discretionary income and the time to travel. So we are seeing that traveler on the road, and we expect to see more of them.
The investments we're making in loyalty program that are going to kick off here on January 1 are really designed to drive more of that business. And we know that those are the folks who spend more in our hotels, they stay more often, and they book direct, which is all a real positive from a unit economics within the hotels themselves. So we feel pretty good about how the setup is coming for 2026. And those core demographics, the road trippers and retirees, and then those blue and gray collar workers, those are expected to be demand drivers, and those are the folks who are in our hotels today.
We would expect we'll get more of that share as we move forward.
Operator: Thank you. The next question comes from David Katz with Jefferies. Please go ahead.
David Katz: Yes. Hi. Good morning. Thanks for taking my question. Two things, if I may. I just wanted to get whatever early perspectives you can share with us regarding, you know, 2026? I know I understand your business, obviously, and the booking window is short. But, you know, any thoughts on how we might use 2025 as, you know, a platform off of which to measure 2026. And then I have one quick follow-up. Please.
Patrick S. Pacious: Yeah, David. I would look at the two things I just spoke about. I mean, I think when you look at our share, and we talked about that in the remarks, of those 60-year-old travelers and above, you know, research shows that they call them the golden travelers because they've got all this time and they've got all this wealth. And they are traveling more this year, and that number, that cohort is going to grow. We've talked about by 2030, one in five Americans is going to be at retirement age, and so over the next five years, that cohort only continues to grow. And we intend to lean in on that.
And then I think on the business travel side, when you look at our business traveler mix, I know you've been around the stock a long time, we used to be seventy-thirty leisure business. We're now sixty-forty, and that small business traveler is a much more resilient traveler because they have to travel for their jobs. And what we're seeing, particularly with what AI is doing to the workforce, we're gonna see more people who are in that sort of blue and gray travel segment when you look at the job gains. And you look at the small business formation that's occurring, they're in the segments that travel in our hotels.
And so when we look at that overall total available market for small medium business, it's about $13 billion of travel on an annual basis. And I think our ability to capture more and more of that share is another positive that we're looking forward to. So on top of that, I would just add our group's business revenue, which again is up 35% this year. That's a function of the fact that we have put more sellers out there. We have about 20% more sellers who are selling into our business category and our group's business.
And so those are the things that I would point to as opportunities that Choice is leaning into where the TAM is getting larger.
Scott E. Oaksmith: And David, what I'd add to that is when you step back and look at the broader business, for 2026, obviously, we're still working through our planning process. But as we talked about in our remarks, our international business, we feel really strongly about continued growth there and believe we're on pace to double that EBITDA contribution for the base year of 2024. So we do expect strong growth from international next year. In addition, from both our partnerships and services business and our platform and ancillary revenues, as we've talked in the past, we do think we have a very good base to grow off and that mid to high single-digit growth on those.
Then we also believe that we can continue to keep our cost relatively contained, especially with all the new tools and AI tools that are really driving cost efficiency throughout the business. So we're very optimistic about 2026.
David Katz: Understood. And if I can just ask one follow-up. You know, so much of the industry has evolved, you know, in terms of growth on ancillary fees. Non-RevPAR fees, particularly around cards, and I know that you have some. Can you just elaborate on what the strategy or the vision for that is over time? Thanks.
Patrick S. Pacious: Yeah. I mean, when you look at the scale of our business, David, so you look at 7,500 hotels, you know, we probably have somewhere 36 million room nights every year. And you've got multiple people staying in those room nights. So we have a significant opportunity to provide more services to our customers, to our guests in our hotels, and that is everything from co-brand to what we do on the timeshare side and the gaming side as well. And so that's a real opportunity for us. We do see those trends growing, and that's reflected in our numbers.
I would say on the franchisee side of the house, we are offering more services to our franchisees, and the adoption rate of those services is increasing. So those are the drivers that are impacting the owner side of the house, but franchisee side of the house. So both of those trends, the consumer growth and the franchisee growth, and our ability to sell more services into both of those customer bases, are what's we from a strategy perspective, those are things that we're leaning into and have been pretty earnings accretive over the last several years, and we would expect them to be so in the future.
Operator: Thank you. The next question comes from Stephen Grambling with Morgan Stanley.
Stephen Grambling: Hey. Thank you. I know it's early to be putting pen to paper for 2026 expectations, but with all the moving parts on expenses and I know you talked about AI opportunities, how should we be thinking about the run rate or baseline for SG&A this year and then what the growth rate might look like next year, particularly if RevPAR does start recovering?
Scott E. Oaksmith: Yeah. We, as I mentioned, we continue to believe we can maintain SG&A at a low single-digit growth rate. If you look at our results so far through this year, year-to-date SG&A is up about 3%. And when you take out the acquisition of our Canadian joint venture, it's about 2.5%. We mentioned we're finding a lot of labor-saving tools, efficiencies with the AI tools that we've already been brought into the system. And so I would say going forward, we would be able to model something around that low to mid-single-digit SG&A going forward.
Patrick S. Pacious: Yeah. Steven, it's pretty exciting that the tools we've already deployed across our workforce and the things that we are working on today. You know, we implemented a new ERP system that went live a couple of months ago, but the intelligence in that system is reducing a huge amount of manual processes and helping our folks in the finance group, for instance. They don't have to do as much exception reporting, that type of stuff, because the system is providing that information to them. We're seeing it in our software development group. We're seeing significant productivity gains for our folks who build these tools that we deploy to our franchisees.
And so it's a pretty exciting time for workforce productivity, and you're going to see that number reflected in lower SG&A growth. I would expect as we move forward in the coming years.
Stephen Grambling: That's helpful. And maybe one follow-up on AI. Are you currently providing any inventory to AI partners or large language models such as Gemini, AttachiveVetri, or others? And maybe how do you think about the opportunity to partner from some of these channels and what maybe the cost of that channel looks like versus things like Google Ads or OTAs rather?
Patrick S. Pacious: Yeah, Steve, it's a great question, and it's, you know, I think at this point when we look at the distribution landscape and AI's impact on it, the players are still taking the field right now. And so there's a lot of testing and learning, and we are doing some of that with some of these partners. Behind the scenes really to kind of say, is this going to work for us? You know, to be successful in this new world, you gotta have two things, and we have both of them. The first is all your systems need to be in the cloud.
And the second is you need to have control of and a high-quality level of your data. And most companies don't have that. Choice Hotels does. It's an area that we've invested in significantly. All of our systems are in the cloud now. We don't have any data centers anymore that are company-owned. And all of our data is accessible through the cloud as well. And so those are the two things that these LLMs are looking for.
If you build the right scaffolding around your data, which we have done, you then have the ability to communicate with these LLMs and work through the ways that consumers who are starting their search for hotels, if that's where they're gonna start, we want to be able to provide our inventory rates and availability through those models as well. And so I would say at this point, the answer is we are exploring, as I'm sure many others are. But I feel like it's a pretty exciting opportunity for us because of the investments we've made over the last three or four years in particular.
To make ourselves AI-ready, and we've actually been using AI in our tools for our franchisees for about ten years. It used to be called robotic process optimization, and it was called machine learning. We're using it in a number of our franchisee-facing tools already. But this next step function change that we're working on, I think, is gonna be really exciting because the tools that they have today effectively help them record what they're doing. Where we're moving to is a world where the tools that they'll be using are going to help them understand what's the recommended next best action I should take. With regard to my rate, with regard to my channel management, whatever it might be.
And we're really excited about the future for that because at Choice, we've always kept those sort of franchisee-facing systems in-house. So we're able to sort of take the benefits of AI, productivity gains, and the tools that are available and really bring them to our owners in a meaningful way. And so got some interesting things we're going to be launching with them in the coming months. And so from an excitement perspective, we really feel like the AI boom is going to help our owners make more money, and it's gonna help our shareholders do so as well.
Operator: Thank you. The next question comes from Dan Pletzer with JPMorgan. Please go ahead.
Dan Pletzer: Thank you, and good morning, everyone. Pat, Scott, I was wondering if you could talk about the key money environment. It sounds like you're taking the expectations there for 2025 to be a little bit lower year over year, but maybe puts and takes into 2026 as it seems like other competitors are still looking to increasingly grow their presence in that midscale segment, in particular.
Scott E. Oaksmith: Yeah. As we mentioned on the call, we do expect our key money to be lower than where we were in 2024. Really, think that's a reflection of just the quality of our brands in terms of the competition. So we believe that we're driving top-line revenue to our franchisees, and our brands are very valuable. So when people are looking to convert, we're seeing that we don't need to use as much key money as some of our competitors to win those contracts. In fact, our average key money per deal has been down about 11% for the first nine months of the year.
So yes, it is a competitive environment, but we do believe that our brands, especially in that midscale and upper midscale space where really Choice has been a leader for many years, we do understand what our franchisees need, what it takes to run a very successful business, and capture those customers that Pat talked about a little bit earlier. So we're optimistic that the key money environment should be kind of hitting a peak here. As interest rates come down and hopefully we'll see a turnaround on the RevPAR front, where that'll be needed less to win deals.
Patrick S. Pacious: Yeah. And I would just add, you know, since Labor Day, I've been out at five franchisee events that collectively probably represent about 1,500 hotels. So these are all owner meetings that we do for a couple of days. And without fail, our owners are telling us that they value our brands, and some of them who moved to try these other brands have come back and said, you know, we made a mistake. Our performance is down. When you look at the value of a brand that has the awareness of a Quality Inn or Comfort Inn, those things are driving guests, and we own those guests. We own those midscale travelers.
So the need for key money in the ability to win these contracts is not as necessary when you have strong, powerful brands, particularly in the midscale segment.
Dan Pletzer: Got it. And then in terms of just free cash flow conversion, was there anything kind of nuanced in the quarter as it relates to that? And then can we think about the best way to think about full-year 'twenty-five at that level that you might be able to convert?
Scott E. Oaksmith: Yeah. There were some temporary timing differences in the quarter that drove the free cash flow a little bit lower, particularly as you'll see in our 10-Q. We did purchase some investment tax credits during the quarter that will have a reduction of our federal tax rates going forward. But the timing of the payment of those versus the realization of the taxes will be between the third and the fourth quarter. So I mentioned in my remarks, our third quarter rate was a little bit higher than where it'll be for the full year. But that caused a little volatility.
So we would generally believe that we'll be in a free cash flow conversion more similar to where our percentages were last year in that 60 to 65% range.
Dan Pletzer: Got it. Thanks so much.
Operator: The next question comes from Dany Asad with Bank of America. Please go ahead.
Dany Asad: Hi. Good morning, Pat and Scott. Look, your international growth strategy seems to be picking up steam. So the question is just, can you give us a sense for how much rooms growth we could expect in the coming year on the international front? And then any color you can give us on key regions that would be driving that growth would be super helpful. Thank you.
Patrick S. Pacious: Yeah. So let me just start with, I mean, you look at our current business as we sit here today, it's about $3 billion in annual gross room revenue outside of the U.S. And so we have a real significant opportunity to capture more of the fees from that by improving our value proposition. And so that's really the upside that we've been experiencing.
And if you look at the supplemental materials that we put on the website, we've really transformed that business over the last couple of years, moving to now a 40% direct franchising business, which is up 20%, moving about 1,400 hotels, which is about up two three hotels from 2022, and then getting our EBITDA margin up over 70%. So those are all really positive, healthy metrics. And we now have the talent and the brands and the business model to be successful in all three regions of the world.
So just looking at your question, looking at The Americas, bringing the other half of Canada into our platform and being owned by us now is a real huge opportunity for us. We have 355 hotels up there, and we now have the opportunity to unlock more value there. And it's important to recognize that the quality of the product up there, and this is true throughout the world, but when you look at Clarion and Quality Inference, and you're talking about three and four-star hotels outside of the U.S. So the RevPAR that those hotels are able to generate is significantly higher.
I was just down in Mexico a couple of weeks ago with our Caribbean and Latin American teams. We had about 110 franchisees down there who came to the event. And, you know, we've grown our rooms portfolio down there by 60% over the last four years. We're now in 21 countries. And the excitement around our brands, particularly the Radisson brands that we have down in that part of the world, is pretty significant. When you shift over to EMEA, we've really got to focus on two key markets. It's France and Spain. And the teams out there have done a really remarkable job in bringing more new direct franchise agreements in.
We doubled our presence in France this year, which is a really healthy market. And we're continuing to grow in Spain as well. And we've mentioned a few of the new markets that we've entered into in EMEA as well. And then when you shift to Asia Pac, we've always had a strong business in Australia direct franchising, and we just introduced the Mainstay Suites brand there with seven hotels opening and additional pipeline for more. With the developers of the largest extended stay brand in Australia. So we've got a really strong partnership there. But a good opportunity to bring extended stay to Australia and New Zealand.
And then as we mentioned in China, we now have a really significant growth partner, an upscale hotel company. I think they're probably the fifth largest in China. But we've already onboarded about 80% of the 9,800 rooms there. With a long-term agreement to grow some of our midscale brands in China. So we really feel good about this sort of across the world. We've laid the foundation. All we need to do now is execute. And I feel like with the talent we have, the new business model that we have in some of these markets, and the brand strength that we have, that's a very achievable goal for us going forward.
Operator: Thank you. The next question comes from Robin Farley with UBS. Please go ahead.
Robin Farley: Great. Thanks. My question is on the, you know, the growth in international units and how should what should we expect for, you know, fee revenue in 2026 so you have a full year of them? I know China's master franchise. A lot of the other countries are direct franchise. So are the franchise fee percentages the same? And when you give the royalty rate increase, I think that's only for your domestic property. So will you start including international or giving us international separately just so we can think about the franchise fees per room from the international, you know, whether that will look different and kind of fees fee per room than U.S.? Thanks.
Patrick S. Pacious: Yeah, Robin. We will going forward, probably we get to February, we'll be giving you more of a kind of global RevPAR number to look at. The growth we've seen this year is not like an anomaly. The growth is something that has been present in our business. And so what we're seeing with the kind of lack of international inbound is a lot of those travelers are staying home and traveling in their domestic market. And our presence in a lot of those markets has always been focused on the domestic traveler, whether it be Canada or Mexico, or France or Spain.
So we feel like we're well set up for the trends that we would expect to see on a go-forward basis. Think when you look at the royalty fee, that's the opportunity for us as the value proposition gets better. In the U.S., we have that sort of effective royalty rate north of 5%. We have in our direct franchise markets something less than that, and then in the MFA markets, it's even smaller. So as we shifted from MFA to direct, we're picking up that effective royalty rate gain. And we would expect that to grow as we invest more in the value proposition. I talked in our remarks about this $60 million investment that we have.
We're almost to the end of it. A lot of that capability is global in nature. So whether it's rate management or our revenue management tools or these platforms we have for capturing small and medium business travelers, these are tools not just for the U.S. market, were built to be global in nature. And we do expect as we deploy those in these regions, we're going to improve the value prop, which will then be constructive towards moving franchise fees higher.
Scott E. Oaksmith: And just to add to that, Robin, if you look at our direct franchising business internationally, the effective royalty rates there are around 2.7%. For a direct franchise, and that's really where we've been focused as we talked about. We've seen a 21 percentage point increase in the percentage of our business that's direct versus master franchise agreements. So certainly an area that we're focused on. And really what I look at, as Pat mentioned, really focusing on continuing to improve our value proposition. Canada, which we recently acquired, probably where we're the most advanced in terms of our capabilities in terms of delivering business. And that royalty rate is closer to 4%.
So we have a lot of opportunity across the other as we continue to increase our business delivery to be able to raise the effective royalty rates on those contracts.
Robin Farley: Okay. Great. That's super helpful. Thanks. Maybe just as a follow-up, you gave some pretty big increases for U.S. economy pipeline. And, you know, it doesn't seem like broadly there's a lot of new construction going on in the U.S. economy segment. Is there something is it is it just that it's a small base is making a large percent change? Or what is it that you are seeing with new construction for U.S. economy rooms that we're kind of not seeing broadly? Thanks.
Patrick S. Pacious: Yeah. The economy segment's been a conversion market for a number of years. And so what you're seeing there is the value prop as it has gotten better for the entire system. The value prop within the economy segment has benefited as well. And so think a lot of people have interpreted our revenue intense strategy means we're not focused on the economy segment. Far from that's very far from the truth. What we've been doing in the economy segment is improving the product quality. And so as owners see that we are exiting hotels that no longer stick up or stick to the brand standards or unable to.
They're seeing that we're not letting our economy brands deteriorate, that we're actually improving the likelihood to recommend scores, the product quality. And that's important for the types of guests that we serve, that we keep that product quality moving in the right direction. And that's what's increasing the owner interest, that's what's increasing the franchise agreements being awarded, and the pipeline being higher.
Scott E. Oaksmith: And that's really illustrated by the RevPAR performance we saw both in the quarter for the economy segment as well as the full year. We outpaced the STR economy segment by 180 basis points in the quarter, and we're up 310 basis points year to date. It really speaks to the quality of that segment for us.
Robin Farley: Okay. Great. Thanks very much.
Operator: The next question comes from Brandt Montour with Barclays. Please go ahead.
Brandt Montour: Great. Thanks for sneaking me in here. So just a quick question on the accounting and the revenue side. You know, you guys talked about ancillary and credit card being helpful. And I was just hoping you could help us with some of the geography because the partnership line grew 20%. I think that I thought that was with credit card, but the other revenue line sort of doubled year over year on a restated basis. And I just wanted to understand what was in that. If there's anything one-time that we need to think about on that other line.
Scott E. Oaksmith: Yeah. Brandt, to your point, our co-branded credit card as well as our procurement businesses and other our timeshare businesses. Those are all on the partnership line item on our financial statements, so that's where you're seeing the significant growth in those revenues. Our other revenues include more kind of event-driven one-time items at times, so there was some timing of recognition during the quarter. In addition, there were some items that really were grossed up pass-through type expenses and revenue. So you'll see about 3.5 million dollars of that other revenue line item was offset by the increase in SG&A in the quarter.
If you took a look at our SG&A in the quarter, it was a little more elevated really mainly due to those pass-through items. So I'd say the other revenue is up due to some pass-through items and some one-event-driven revenues. But overall, we're still on track to hit full-year forecast.
Brandt Montour: Okay. That's really helpful. And then another question on business travel. You guys gave some helpful stats. Business travel, 40%. I think that's a global basis of mix. And SME grew 18%, which is obviously a huge number for revenue. If you could just square those data points with RevPAR overall and U.S. being down two plus percent, I mean, the only way I can really do it is if SMEs are a really small piece of business travel overall, but maybe you can just sort of help us square that.
Patrick S. Pacious: Yeah. I think part of this is the business or the product mix that we are shifting towards. So we are shifting towards more product that is appealing to business travelers. So it's not just we're attracting more of them, but the product mix has shifted, particularly with this extended stay segment growth that we have here in the U.S. It's a lot of business travelers that are in those hotels for weeks. And so that's a key driver of that. Overall, our business travel was up about 2.5%. And within SMB, that in particular has grown pretty significantly by 18%.
So we're really leaning in on those types of travelers because of the product that we now have and the locations we now have. That's where they're going. They're going to these secondary and tertiary markets where they have to travel. So when I look at the mix of that and the significantly higher total available market being $13 billion, we are not yet at our fair share of that, and we expect that to grow. As we get better in our sales tools and we get better in our RFP responses that our owners are doing. And so I would expect to see that percentage growth continue into the future.
Scott E. Oaksmith: The other thing I would just add to that is when you think about the headwinds, the two areas that are offsetting that are really government travel, which was down about 20% for us during the quarter. And then inbound travel from the Canadian travelers has continued to be down since the first quarter. So that was down about 30%. So those two things have brought down RevPAR even though we've seen tremendous success in growing our business travel.
Brandt Montour: Great. Thanks, everyone.
Operator: Thank you. The next question comes from Meredith Jensen with HSBC. Please go ahead.
Meredith Jensen: Thanks. Good morning. Was hoping you might speak a little bit more on the international growth side. I know you've spoken a lot about it. But in terms of building sort of the support infrastructure for this really strong growth that we expect, could you help us walk through some of these associated investments that might be necessary or how to view that expense ramp? And relatedly, as you weigh those kinds of investments that need to be made in certain complex regions, again, I know you've discussed direct versus master franchise metrics before. But given the investments you may need to make, just sort of how that may evolve over time. Thank you.
Patrick S. Pacious: Yeah, Meredith. I think what we want to emphasize here is most of those investments are things we've done in the last four years. If you look at the exhibit we put on our investor website today, you can see the margin growth that we've had over that timeframe. So the investments are not in adding people or in adding systems. A lot of the systems that we have put in place are already there. And the investment I talked about that's going to effectively start deploying in early 2026 and throughout next year, those investments are in the rearview mirror for the most part. So what we have to do internationally is execute.
And so there is a real opportunity here to do that. Bringing, you know, the other half of Canada into the full company was really an opportunity for us to bring all that we do here in the U.S. to our hotels that are in Canada. And so it's not a new market for us. We've been in Canada for seventy years. We operated as part of those seventy years with a very good joint venture partner for thirty of those years. So we know these markets very well. And whether it's Canada or Australia, New Zealand, Mexico, Caribbean, Latin America, EMEA, we've got people who've been in those markets for a significant period of time.
Development teams are based in those markets. We run the markets effectively as domestic markets, so they're not relying on U.S. inbound for their growth. And so the autonomy that has allowed them to have has given them the opportunity to build the talent and really protect the brands. The other thing that's really important for shareholders to understand is outside of the U.S., the business traveler mix is 60% and 40% leisure in many of our markets. So we have a much more resilient and higher-paying customer base, and our brands, the Quality and Clarion brands in particular, are of higher quality. They're usually three and four-star hotels. So it's a very different business outside of the U.S.
And so the opportunity for us to continue to grow there is significant, but we just have to execute. It's an opportunity for us to grow our value prop and therefore grow the effective royalty rate we're able to drive in those markets.
Meredith Jensen: Thanks so much. That's super helpful. And one other quick addition to sort of follow on to what Lizzie asked about. We've been following the, you know, the cost pressures on the franchisees, and I have noticed that, you know, some of the brands, notably Hyatt, I think, working to sort of evolve brand standards so that they have more flexibility to take on limited service brands with sort of less ability to invest at this point. Are you seeing any of that in the market raising the competitive environment, especially as you uplevel your franchisee base or if you're seeing any of that dynamic or if it's different in terms of PIPs than in the past? Thank you.
Patrick S. Pacious: Yes, no, it's a great question. And I think what we talk about the Country Inn and Suites brand in particular, we redid that prototype with that franchisee margin compression in mind. To make sure that the hallmarks of the brand are being preserved. But as we think about the types of changes that we would need an owner who's converting or a new build to build one of our brands, we are constantly looking at that. It's the reason why Choice has always been the leader in conversion hotels. You know, the flexibility to make sure that a PIP is affordable for the owner, makes sense for the market, and preserves the brand hallmarks.
Those are the three things that we look to do. That's something that we always do as a matter of course. It's not new for Choice. So I think, you know, when you look at our ability to continue to grow our business in good times and bad, that's a key factor in driving all of that.
Meredith Jensen: Super clear. Thanks so much.
Operator: You're welcome. Thank you. There are no further questions at this time. I will now turn the call over to Scott Oaksmith for closing remarks. Please go ahead, sir.
Scott E. Oaksmith: Well, thank you, operator, and thanks, everyone, for joining us this morning. We look forward to speaking with you again in February when we report our fourth quarter results. Have a great day. Thank you.
Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.