Choice Hotels raises 2026 RevPAR outlook as data center demand lifts Q3

Roughly three in ten Choice Hotels properties in the U.S. sit within 10 miles of a major data center, CEO Dom Dragisich told analysts on the company's Nov. 2 earnings call, as Jenna Graber reported for Hotel Dive. Choice "continued to benefit from infrastructure-related demand, including data center development," he said.

U.S. RevPAR rose 3.8% year over year, which Dragisich said was ahead of expectations and a clear step up from the second quarter, and the franchisor raised its full-year 2026 RevPAR outlook to between 1.5% and 2.5%. For an owner deciding where to build, or which tired independent to put a flag on, the real question is what kind of demand produced that growth and whether it lasts long enough to underwrite.

Filled rooms, modest rate

Dragisich said the gain came mainly from higher occupancy, with rate growth also picking up. Business travel led demand growth in the quarter. Leisure got better as the summer went on, which he said reflected "the resilience of the value-minded travelers we serve," and the World Cup gave RevPAR a lift. He also said Choice kept benefiting from infrastructure-related demand, and named data center development specifically.

The split matters. A 3.8% gain built mostly on occupancy is consistent with project-based business travel, where crews and contractors fill rooms night after night and the win comes from volume more than pricing. That reading is an inference, but it lines up with what Choice says about its own mix: business travelers led, and the hotels closest to data center construction did best.

The call put numbers on that split. U.S. occupancy rose 160 basis points while rate grew 1%, according to the Investing.com transcript of the call. Occupancy did the heavy lifting. For a guest base Dragisich himself describes as value-minded, growth that comes from selling more nights rather than charging more per night is the less fragile kind, because it doesn't depend on how much price those travelers will absorb.

The international figure is a useful check. RevPAR outside the U.S. grew almost as fast as it did at home, and the 10-mile data center split Choice offered covers only its U.S. hotels. That suggests data centers are one contributor to the quarter rather than the whole explanation for it.

Asset managers who track a property's performance mainly through average daily rate may be underweighting what's going on here. When the gain is coming from occupancy, the metric worth watching is how many rooms are booked by the week or the month, and by whom.

A pipeline built for the long-stay guest

Extended stay remains a key growth driver, CFO Scott Oaksmith said on the call. The segment has now posted 13 straight quarters of double-digit rooms growth and makes up more than 40% of Choice's U.S. pipeline. Earlier this year, Matt McElhare, Choice's vice president and extended stay segment lead, told Hotel Dive that the extended stay portfolio was especially well placed to capture infrastructure demand.

The wider numbers point the same way. Choice's earnings release puts the global pipeline at 78,200 rooms at quarter-end, with 96% of it in extended stay, midscale and upscale brands. Global net rooms grew 1.7% year over year, and those same higher-revenue brands grew 2.5%.

The upscale end got its own push, with multiple Cambria and Ascend Collection openings in the quarter, Hotel Dive reported. Those brands belong to the higher-revenue group that is growing faster than the system as a whole, which helps explain why the 2.5% figure runs ahead of the 1.7% total.

Distance to a data center is now a number Choice puts on its earnings call, and in Q3 the hotels within 10 miles of one outgrew the rest of its U.S. system by more than 400 basis points.

There's a limit to how far that figure can carry a feasibility study. It covers one quarter, and a quarter that included the World Cup. And with about 30% of Choice's U.S. hotels inside the 10-mile ring, that group is big and varied enough that being near a data center may be standing in for other things, such as being in a fast-growing metro. The gap shows the two move together. It doesn't show that a new data center will lift any given hotel near it.

Conversions and the owner's math

Owners are feeling the squeeze. At the Lodging Conference in Phoenix in October, Sloan Dean, founder and CEO of AI Hospitality Group, said U.S. hotel net operating margins are down 20% since 2019, Noor Adatia reported for Hotel Dive. Panelists pointed to higher labor, operating, construction and insurance costs.

"Nothing has ever gotten less expensive," said Julienne Smith, Hyatt's head of Americas growth. "But we, as brand leaders, what we can do is try to take out some of that pain." Smith said the brand looks hard at what its prototypes cost to build. Hyatt recently updated its Hyatt Place and Hyatt Studios prototypes to need fewer rooms and less space. Even so, deals are still being made in 2026, and some executives at the conference voiced optimism for the year ahead, including for new builds.

Choice's answer leans heavily on existing buildings. Its U.S. conversion pipeline grew to 25,500 rooms, up 6% from June 30 and 29% from a year earlier, according to the release. U.S. franchise agreements awarded rose 24% in the quarter, adding 6,900 rooms for development. U.S. room openings increased 17% year over year for the first nine months of 2026, CEO Dom Dragisich said, according to Hotel Dive.

Dragisich called conversions an "important advantage" for net rooms growth, and management expects them to make up about 90% of U.S. openings in 2026, per the call transcript. If that holds, this year's openings growth is overwhelmingly a reflagging story, one that sidesteps much of the construction cost line the Phoenix panelists flagged. Management also said Choice's own capital spending on hotel development is falling sharply.

Retention has improved too. Third-quarter room exits fell 23% from a year earlier, which helped bring U.S. rooms roughly level with September 2025 after three straight quarters of improvement in the net growth rate. Royalties are the franchisee's side of the deal: the U.S. average royalty rate rose 8 basis points to 5.23%.

Choice is also shifting its own balance sheet toward franchising. After the quarter closed, it sold two owned hotels for about $34 million in estimated net cash proceeds and kept the franchise agreements on both. During the quarter it also bought RV travel membership company Harvest Hosts, which Dragisich described as widening Choice's options for asset-light growth.

How the occupancy gain reaches Choice's books

For a franchisor, a franchisee's RevPAR is revenue once removed. Franchise and management fees rose 5% to $204 million in the quarter, which the release attributes primarily to higher U.S. royalties driven by RevPAR growth and royalty rate expansion, along with more franchisee programs and services revenue and higher international royalties. Every extra room night a crew books near a data center feeds that royalty line.

Adjusted EBITDA rose 1% to $193 million, held back by lower liquidated damages revenue and higher adjusted SG&A. Strip out liquidated damages, which came to $3.3 million this year against $9.5 million in the prior-year quarter, and adjusted EBITDA grew 5%. Choice raised its adjusted EBITDA guidance range alongside the RevPAR outlook.

Net income tells a noisier story: $58 million, down 68%, mostly because the prior-year quarter included a $100 million gain from acquiring a joint venture. This year's results also carried a $24 million charge for terminating an option to acquire a European hospitality business that operates primarily under a lease-based model, plus a $6 million non-cash impairment related to two owned hotels. Walking away from a lease-based business fits the asset-light direction Dragisich keeps describing.

Wall Street liked it, within reason. Adjusted EPS of $2.33 beat the $2.28 consensus, revenue of $458 million topped the $447.29 million forecast, and shares rose 4.51% to $116.18 in premarket trading. Investing.com characterized the result as steady execution rather than a sharp acceleration. Choice also returned $211 million to shareholders through dividends and buybacks in the first nine months of 2026.

The year-end markers

Dragisich expects U.S. net rooms growth to reach about 1% by year-end, and said stronger demand trends were carrying into the fourth quarter. On the commercial side, Choice is changing its digital content approach as more travelers search with AI tools. For franchisees, that shift helps decide how much of the infrastructure-driven demand reaches their front desk through brand channels.

That content work sits inside a broader enterprisewide AI deployment, and management also pointed to loyalty-program changes and a new rate-management platform as future growth drivers. Dragisich framed the spending as investment in "commercial and technology capabilities that help franchisees capture more demand." For an owner near a data center, a rate tool matters in a specific way: with occupancy already doing most of the work, the next gain would have to come from pricing those booked weeks better.

Choice's fourth-quarter results will test the read. If the data center gap holds once the World Cup lift is out of the comparison, and U.S. net rooms growth reaches the 1% target, the case for building and converting near infrastructure projects gets much stronger than one good quarter can make it.