Q4 2022 Wyndham Hotels & Resorts Inc Earnings Call
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Good day and welcome to the Wyndham hotels, <unk> resorts fourth quarter and full year 2022 earnings conference call.
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I would now like to turn the call over to Matt <unk> Senior Vice President of Investor Relations. Please go ahead.
Thank you operator, good morning, and thank you for joining US with me today are Jeff <unk>, our CEO and Michele Allen our CFO .
Before we get started I want to remind you that our remarks today will contain forward looking statements.
These statements are subject to risk factors that may cause our actual results to differ materially from those expressed or implied.
These risk factors are discussed in detail in our most recent annual report on Form 10-K filed with the Securities and Exchange Commission and any subsequent reports filed with the SEC.
We will also be referring to a number of non-GAAP measures.
Corresponding GAAP measures and a reconciliation of non-GAAP measures to GAAP metrics are provided in our earnings release, which is available on our Investor Relations website at Investor Dot Wyndham hotels Dot com.
We are providing certain measures discussing future impact on a non-GAAP basis, only because without unreasonable efforts. We are unable to provide the comparable GAAP metric.
In addition last evening, we posted an investor presentation containing supplemental information on our Investor Relations website.
We may continue to provide supplemental information on our website in the future.
Accordingly, we encourage investors to monitor our website. In addition to our press releases filings submitted with the SEC and any public conference calls our webcast.
With that I will turn the call over to Jeff.
Thanks, Matt and thanks, everyone for joining us. This morning, we're thrilled to report that our Q4 results finished stronger than our expectations with full year reported global revpar growth of over 16% net room growth of 4% and adjusted EBITDA of $650 million.
We generated $360 million of free cash flow in 2022.
And returned over $560 million to our shareholders, which represented 7% of our market cap by all accounts. It was an outstanding year for Wyndham hotels and resorts.
We grew net rooms by 4%, including 80 basis points of growth from the acquisition of R 23rd brand Vienna House by Wyndham.
Excluding Vienna House, we opened 64000 rooms for the year more than one hotel each and every day.
This represents 20% more rooms than we added last year.
Here in the United States, we added 27000 rooms, with some great new hotels like the Stonehill Laurence a AAA three Diamond hotel.
Outside of Kansas City, who converted to our trademark collection brand.
And the opening of our first two dual brand new construction La Quinta Hawthorn suite hotels in Texas.
Bind extended stay and select service hotel in the Midscale space designed to streamline development and operational costs by utilizing a shared lobby fitness center meeting rooms bar and other amenities inter.
Internationally, we opened 37% more rooms organically in 2022 than we did last year and 2% more than we did back in 2019.
Latin America led the way with 14 luxury resort editions to our registry collection brand across the Caribbean and Mexico and in the fourth quarter, Our Latin America team welcomed our first Wyndham Grand in Mexico with the opening of the beachfront Wyndham Grand Ken Kun resort centrally located and can Koons Hotel zone.
Our EMEA region also had a tremendous year opening 57% more rooms organically than they did last year or 6% higher than 2019 with impressive fourth quarter additions like the Balkan Jewel resort a trademark collection conversion in the resort town of Razaq near Sofia.
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And there were a motto Riyadh King Fahd. The first new Romana addition, since buying back our master license agreement in Saudi Arabia.
In Southeast Asia, we grew net rooms by 5% opening 40% more rooms in 2022 than we did in 2021.
And after many years of development, we welcomed a beautiful new 949 room Wyndham denying Golden Bay resort directly on the beach in this former French colonial Port <unk>.
<unk> the 14th hotel opening for our Asia Pacific Development team in Vietnam.
And finally, our China direct development team grew net rooms by another impressive 10% and.
And despite the sporadic lockdowns and travel restraints many of our team members continue to face throughout the fourth quarter, which you've now thankfully dissipated the team added more direct franchise rooms now than they did in the fourth quarter of 2019 and nearly twice as many rooms than they did in the fourth quarter of last year.
With the opening of hotels like the Wyndham, the Wyndham Grand and the La Quinta Shang C. Three beautiful new hotels located in the business district in the heart of Shang see province feature.
Featuring quarter direct access to Shang sees International Convention and Expo Center.
And this new La Quinta Shang C represents our second new construction Laquita to open in China in 2022.
On the retention front, we improved for the second consecutive year to a record high global rate of 95, 3%, including the first time that our international retention rate has exceeded 95% an indication of our ever improving owner <unk> value proposition.
We grew our development pipeline sequentially by 3% and by 12% versus prior year to a record 219000 rooms and 1700 hotels.
This marks <unk> 10th consecutive quarter of sequential pipeline growth.
Our teams awarded 882 contracts globally for over 113000 room additions, which is over three new contracts awarded each and every business day.
The number of domestic contract signed in the fourth quarter was 40% higher than what we awarded last year and nearly 90% higher than what we awarded in the fourth quarter of 2019, reflecting record developer interest in our brands for the full year, we signed 563 contracts in the U.
For 62000 room additions, which is nearly double the amount signed in 2019 and 65% more than last year.
Fourth quarter, new construction domestic executions increased 95%.
Notably we awarded another 50 echo suites by Wyndham contracts. This quarter, two established developers and experienced extended stay operators, bringing the total number of contracts awarded to 170 hotels in just nine short months since launching the brand last March and making Echo the hotel industries.
Fastest growing new brand launch of 2022.
We broke ground on our first three eco hotels in the last few months of 2022.
And we expect to open our first echo suites by Wyndham hotels later this year as we break ground on another two dozen echo hotels in 2023.
On a full year basis, new construction domestic executions increased 130% year over year, while domestic conversion execution increased 30% compared to 2021.
Developers are selecting by Wyndham, new construction offerings now more than they ever have our economy, new construction brand microtel added 2200 rooms to its domestic pipeline in 2022, driven by developer interest in its cost efficient moda prototype, while upper Midscale brands like Wyndham Garden added one.
300 rooms to its domestic new construction pipeline.
In the upscale segment, we saw continued strong new construction demand.
For brands like Wyndham, which grew its U S pipeline by 1700 rooms this year.
Consumer demand remains strong our middle class customers continue to spend more on travel than they ever have and they're staying longer than they were back in 2019, given hybrid work environments. We saw booking windows increased 18% versus prior year to over 14 days with guests planning further.
Given space constraints and the fear of being blocked out as so many were last spring and summer.
Thursday, and Sunday night Occupancies in our guests average length of stays have both continued to climb in the fourth quarter versus where they were back in 2019.
All of these trends are giving our franchisees the confidence to continue to yield up in their pricing with the new revenue management tools, we're providing to them combined with a constant messaging that real ADR for the select service space remains essentially flat to where it was four years ago.
We believe that leisure travel remains the number one priority for discretionary consumer spend among middle income Americans in 2023.
As so many recent consumer surveys from organizations, such as NMC Y and the American Society of travel advisors have indicated.
At the same time, we've seen strong growth in our infrastructure related revenues, which makes up about 20% of our U S royalties.
This area has always been a strength for Wyndham and with the size of the pie to grow substantially as the government begins to deploy that $1 five trillion in infrastructure and chips Act spending we've been making further investments here to grow our share.
Those investments have already begun paying off with domestic weekday occupancy in our economy hotels at their highest absolute levels on record.
Our general infrastructure related revenues increased double digits in the fourth quarter versus 2019.
That began back in the second quarter of 2021.
And we're confident that it will continue to strengthen throughout 2023 as projects for new roads bridges rail water systems airports broadband in public transit begin.
Funneling the hundreds of billions of dollars to the states is a heavy lift it will take time and require coordination from agencies on both the federal and state levels as these projects commence over the next several years in the markets, where our economy and mid scale small business owners will benefit.
We estimate that this new level of spend represents an opportunity for us to generate over $3 $3 billion of incremental revenue for our franchisees and over $150 million of incremental royalties for wyndham over the spend period.
Our award winning Wyndham rewards loyalty program recognizes the best Hotel loyalty program for the fifth consecutive year by the readers of USA today.
Louis enrollments by 8% over the past 12 months and now stands at 99 million members.
Wyndham rewards helped drive a 23% increase in direct bookings to our brand dot com sites.
Facing the rate of growth across all third party channels and once again, representing a record high level of contribution for our brand Dot com sites.
Our core values and our economy service culture are at the heart of what drives our growth.
And what makes Wyndham such a great place to work there's no better measure of why we are such a great place to work that our most recent team member engagement survey, which generated record high results.
And it was no surprise to see Wyndham hotels and resorts qualify as a constituent of the 2020 to Dow Jones sustainability Index, a global index, consisting of the top 10% of the largest 2500 companies in the S&P global broad market index based on sustainability and environmental practices.
We sincerely thank our valued team members without who support none of this would be possible.
And with that I'll turn the call over to our CFO Michele Allen Michelle.
Thanks, Jeff and good morning, everyone.
My remarks today with a detailed review of our fourth quarter and full year results.
In review of our cash flows and balance sheet, followed by our 2023 outlook.
We generated $310 million of fee related and other revenues and 126 million of adjusted EBITDA in the fourth quarter, bringing our full year fee related and other revenues to 1.35 billion and adjusted EBITDA to $650 million both above our expectation.
Our franchising segment grew fourth quarter revenue by 12% year over year, primarily reflecting global revpar growth and higher license fees.
<unk> EBITDA increased 8% to $138 million as the revenue increases were partially offset as expected by the timing of higher marketing spend in the quarter, which unfavorably impacted margin by 200 basis points. Excluding this timing impact our adjusted EBITDA grew 13% in the fourth quarter and our adjusted EBITDA margin remained consists.
With prior year.
In our hotel management segment fourth quarter revenue and adjusted EBIT declined reflecting the sale of our select service management and hotel businesses, which collectively contributed approximately $38 million in fee related and other revenue and $12 million and adjusted EBITDA in 2021.
Within our corporate and other segment, our fourth quarter expenses were in line with expectations were relatively flat compared to 2021.
Fourth quarter adjusted diluted EPS was <unk> 72.
4% increase year over year or approximately 16% on a comparable basis. This increase reflects adjusted EBITDA growth in our hotel franchising segment as well as the benefit from our share repurchase activity now.
Now turning to full year results. Our franchising segment grew revenue by 16% year over year, primarily reflecting global revpar growth and higher license fees adjusted EBITDA increased 15% to $679 million and our adjusted EBITDA margin was consistent with 2021, despite ongoing inflationary pressures.
In our hotel management segment full year revenue and adjusted EBIT declines reflected the first half of 2020 to exit of our select service management and owned hotel businesses, which contributed fee related and other revenue of $50 million during 2022 and $125 million in 2021, and adjusted EBITDA of 18 million.
During 2022 and $37 million in 2021.
Within our corporate and other segment, we saw $7 million of higher expenses due to inflationary cost pressures in line with expectations.
Full year adjusted diluted EPS was $3 96 at <unk>.
95% increase or approximately 29% on a comparable basis. This increase reflects adjusted EBITDA growth in our hotel franchising segment, lower net interest expense and a benefit from our share repurchase activity.
Before moving on to free cash flow, let me take a moment to discuss current regional Revpar performance global Revpar in constant currency grew 15% year over year in the fourth quarter up from 12% in the third quarter.
Domestically Revpar finished 12% ahead of 2021 and 9% ahead of 2019 U.
U S revpar growth accelerated to 480 basis points in the fourth quarter from 250 basis points in the third quarter and for the first six weeks of 2023 Revpar for our brands has continued to accelerate with the U S up approximately 600 basis points year over year.
Internationally fourth quarter constant currency Revpar rose, 46% ahead of last year and 23% above 2019.
All regions with the exception of Asia Pacific generated revpar, well in excess of about 2019 and 2021 level.
Full year International occupancy finished down 21% to 2019 and will continue to provide a meaningful tailwind for us in the coming quarters as demand continues to grow overseas, especially in our Asia Pacific and EMEA regions, which for the whole of 2022 are only 68% and 88% respectively.
<unk> of 2019 levels.
Now turning to free cash flow, we generated $360 million in 2022 compared to $389 million in 2021, reflecting as expected lower cash collected from 2020 COVID-19 related fee deferrals as well as higher development advances.
Importantly, we converted 55% of our adjusted EBITDA to free cash flow right in line with our target.
We successfully executed on our stated capital allocation strategy by investing over $120 million to grow the business, while returning a record high $561 million to our shareholders, representing 7% of our market cap grew $445 million of share repurchases and $116 million.
Common stock dividends.
As we move into 2023, our capital allocation strategy remains unchanged, we will remain disciplined on the core tenets of our M&A strategy and pursue transactions that are accretive from an earnings and net room growth perspective, and complementary to our existing brand portfolio. We will also continue to incentivize franchisees.
That's a new brand prototype design.
<unk> overall brand equity.
And based on the success of our new Echo suites extended stay brand to date, we expect to begin to deploy a portion of the $100 million of development capital, we earmarked as the first Echo suite hotels near opening in late 2023.
Finally, we expect to maintain our industry, leading dividend payout ratio subject to board approval and share repurchases will continue to be an integral element of our capital allocation strategy, albeit lower than 2022, given the absence of the onetime proceeds from last year's transaction.
We ended the quarter with approximately $900 million of total liquidity and our net leverage ratio was two nine times just below the low end of our stated range moving on to outlook for full year 2023, we expect global net room growth of 2% to 4% and global Revpar growth of 4% to 6%, which translates to 6%.
8% above 2019 levels, a data point that we still consider to be relevant since the select service space, which represents over 90% of our U S portfolio recovered to pre COVID-19 levels much faster than the industry's full service space.
Fee related and other revenues are expected to be 138 billion to one point for $1 billion.
We're projecting adjusted EBITDA of $650 million to $660 million, which reflects comparable basis growth of approximately 5% when neutralizing for the variability in the marketing front year over year, which will contribute approximately $10 million less adjusted EBITDA in 2023, and we expect to completely recapture our 2020.
Right.
Adjusted net income is projected to be 337 million to $349 million and adjusted diluted EPS is projected at $3 84 to.
<unk> to $3 98.
Based on a diluted share count of $87 7 million, which excludes any potential share repurchases.
Finally, we are expecting free cash flow conversion from adjusted EBITDA of 50% to 55%, which reflects the impact from our expected increase in development of AD spend from $48 million in 2022 to approximately $60 million in 2023, as well as higher interest expense.
As a reminder, we have provided two slides in our investor presentation to help with your modeling Slide 40 provides the historical financial impact of our select service management business and owned hotels, which will need to be adjusted from your base and slide 41 provides revenue sensitivity.
In closing we are very pleased with our 2022 performance, we successfully executed on our key business objectives growing our system, increasing our owners' profitability and simplifying our business model, while generating significant adjusted EBITDA and free cash flow and returning a record amount of capital to our shareholders.
Enter 2023 with a strong balance sheet, a record pipeline tremendous momentum behind our new extended stay brand Echo suite by Wyndham and a great deal of optimism surrounding the largest infrastructure bill in our nation's history.
With that Jeff and I will be happy to take your questions operator.
The floor is now open for questions.
At this time, if you have a question or comment please press star one on your telephone keypad.
If at any time. Your question has been answered you may remove yourself from the queue by pressing star two.
Again, we ask that you limit yourself to one question and one follow up.
Thank you.
Our first question comes from Joe Greff with J P. Morgan.
Hi, good morning, everybody.
Jeff can you talk about the environment for this.
What we characterize as tuck in acquisition.
How much is out there is there anything in warm that youre working on how competitive is the environment.
Today four tuck in acquisition.
Versus a year or two years ago and as a follow up.
I think the environment will continue and improve Jo Vienna House is a good example of that our latest tuck in acquisition and I think.
When you look at.
Domestically and internationally it will continue to pick up and deals will continue to present themselves and we'll be strategic will be methodical and are evaluating the deals as they come along we're going to be looking for brands that are.
Both EPS NRG accretive as Vienna Housewives of brands that are of high quality and brands.
Brands with high ROI potential in four of the last five brand launches, though for US trademark Altra registry and Echo have all been launched organically and Theres. No reason, we can't continue to do that.
But we now have great brands in every segment of the industry.
But you know better than anyone that M&A is always in our DNA, having covered us for as long as you have with 19 of the 24 brands we haven't been.
Wired in and we do believe that size matters scale matters.
We'll continue to look for deals, but we're not we're not going to do a deal just to do a deal will remain disciplined.
And ensure that any deal that we do do in the next year or two have compelling returns for our shareholders as Vienna, how sad.
Thank you for that.
And then switching over to echo and nice to see the sequential growth continue here.
And I heard.
Jeff Your comments Michelle your comments.
It doesn't sound to us that your 2% to 4% 2023 system wide rooms growth incorporates much from echo is that more of a 2024 contributor and then.
Is there any pivot Jeff on on multi development Echo deals has yet to single.
Questions you've asked before offline, yes, there is a pivot.
We've not yet offered echo to the thousands of individual franchisees, which we expect to do later this year.
And to your direct question there is no impact.
Really much impact in 2023 net room growth.
We'll have our first deco openings later this year, we have broken ground and <unk>.
Some phenomenal Revpar markets, Plano, Texas, Sterling, Virginia, Richmond, Virginia.
And the team is unbelievably excited I mean, we said on the Q2 call. It would have a 100 and the pipeline. We're at 170 and those are as you say all all with multi unit development agreements with some of the nation's most successful extended stay developers because we want to.
Really open these develop these buildings and open these to have as big an impact as we can.
Thank you.
Thanks, Joe.
Thank you. Our next question comes from Stephen Grambling with Morgan Stanley .
Hey, thanks so.
First one maybe a follow up to those comments on macro and just development more broadly just hoping to dig into the components of your loan growth guidance in the context of gross additions and attrition, especially in the context of a pipeline I guess, it's now up 13% year over year and attrition rates.
It continued to improve.
So I guess any color you can provide kind of splitting out as we think about the guidance and the gross adds attrition in any nuances by geography.
Yes sure. Good morning, So I would say from net net room growth perspective, we don't see a.
Significant impact in 2023 from the growth in the pipeline, 80% of the pipeline today is new construction and in the U S. Construction starts within about a year or two with the deal being signed so on average.
Dara said 18 to 24 month build from there. So it's typically in the pipeline for.
For years and internationally, it's a little longer so.
Overall, we would expect pipeline.
Pipeline to be realized over a four to five year period. So.
Big part of our pipeline growth is the Apple brand and that's not going to have a material impact to 2023 as as Jeff just mentioned moving our our net room growth.
Bob will will also then require athlete as we've always talked about improvement in the retention rate and I think if you look back to pre 2019, we ran at $93 94.
Per cent range and we've been steadily improving at 20 to 30 basis points every year, since then and you're marching toward that 96%, 96% target but.
But when you see us get there that's when you could expect to see our our overall net room growth expectations left.
Sounds good for $24 25, then maybe changing gears.
You had some good details on China and the direct.
Component there can you provide a bit more color on how the reopening there may not only impact domestic revpar in the country, but also the broader region as outbound potentially resumes.
Yeah, we do we see the us outbound resumes a big beneficiary certainly for our hotels, where the Chinese are going to be looking to travel I mean, we're already seeing and hearing from our teams in South Korea, where we have over 10000 rooms that are they're seeing more Chinese arrivals, Thailand, Indonesia, Australia, Singapore those are all big.
Big beneficiaries, China represented.
Over 150 million International travelers 19, Stephen in that number as we know dropped to under 20 for the last two years. So we're excited to see that on the ground. We're just encouraged as all get out to see the strong rebound during the Chinese new year, our last three weeks of Revpar.
We're up 60% in China to last year, and 8% to 2019.
Given that pent up family holiday travel demand and in our resorts in the vacation destinations, we got big resorts.
Hainan in Sanya came back really really strong I mean through the last 14 days after.
After Chinese new year, our Wyndham Sandia was up 30% to last year.
Our hotel in Hainan or Big one gate was up 60% to last year, but importantly, they were up over 10% and 30% respectively to 2019, and while that was Chinese new year, driven it was great to see the results that came out last night from Smith travel, where overall, China last week Revpar.
It was up 1%.
And what was almost a clean comp week versus 19 with occupancy running around 90% of 19 level. So we're really really excited about what we're hearing from our teams over there and just thrilled with everything our team accomplished despite the challenges with that 10%.
Q4, net room growth in our direct franchising business.
And how many more hotels they were able to open in a tough quarter than they were last year.
Thanks, so much.
Okay.
Thanks, Steve Thank you.
Thank you. Our next question comes from Danny Assad with Bank of America.
Hi, good morning, Jeff and Michelle.
When we look at your 2023 guidance. So if we just look at your unit growth expectations. Your revpar growth expectations kind of if you can.
Combine them you are looking at like 6% to 10% fee growth.
As a whole.
But your EBITDA guidance, if we strip out marketing reservation is more like 5% to 6%. So can you maybe just help us understand what's causing.
A drag on the algorithm for 2023, and how should we think about that dynamic longer term.
Yeah, Yeah, Danny Euro your math, there is correct and I think there are some there's two contributing factors. The first one is a higher expenses, mostly due to inflation. Some of that we saw roll on in 2022, but we didn't have a full 12 months of it and we will have a full 12 months in 2023 and then the second.
Impact really is is the.
The mix effect of higher Revpar growth internationally versus revpar growth in the U S and that.
That really is because the international regions are still in recovery mode. In 2023, while the U S business had been fully recovered.
As of the second the second half of.
Of 2021.
How that plays into the long term growth algorithm I would say tips.
Typically if all regions are growing at similar.
Rates of growth.
The algorithm the algorithm works, but we knew over these last two to three years with the Covid impact playing out we are we knew that there was going to be some some differences and the algorithm, which is why when we provide the sensitivities we provide sensitivity per point of Revpar for the U S business.
Separate and apart from the international business.
Perfect. Thank you very much.
Thank you.
Okay.
Our next question comes from David Katz with Jefferies.
Hi, Good morning, everyone. Thanks for taking my question so.
Following through on on some of that one of the themes. We started to focus on largely one of your peers is revenue intensity and as you.
For build out internationally I wonder if you can shed some light on the deals that you are making or the signings that you are making.
In China, where I think the intensity has historically been a bit lower but the other areas of the world how those compare with the U S.
Thanks for the question, David and it's good to hear your Mum's doing better guide lessor.
I appreciate it.
In China certainly yeah.
Yes, I mean, we're we're growing our rooms.
The growth is coming in our direct franchising business, which as you know is three times more revenue intensive than our master license agreements, which.
Have nowhere near the growth that we're seeing with our direct franchising right now at a double digit.
And Youre correct and on slide nine and the IP that might put out last night you see that.
70 over 70% 73% of our.
Our pipeline or in that higher revenue generating.
Segments in the Midscale and above brands that are driving that over 60% of our domestic pipeline are in the midscale and above and over 85% or about 85% of our international pipeline. So what that means for us is that our average deal values per room in the pipeline are increasing there they're up 800 Bay.
This points domestically, which is important.
Up 240 basis points internationally.
And that represents over $100 million of royalty fees for us over the next four years.
Domestically is there more weighted to higher revpar.
Higher segments upscale brands and internationally as they are weighted in higher revpar markets, especially notably in Latin America and.
And in Europe , with <unk> with some of our more.
For mid scale.
Brands are our upscale brands, our Wyndham hotels and resorts full service brand or <unk>.
Registry collection luxury brands. So yeah, we're very excited about that.
Understood and if you could just talk a bit more I think one of the issues where alternative process is how people are what people people being you are factoring into your guidance with respect to the macro environment as the year progresses.
Sure.
I would say.
Really are factoring into our guidance well first argues business have been fully recovered.
Pre COVID-19 level since the second half of 2021, I mentioned and finished 2022, 9% above 2019, so we're looking to add another 4% to 6%.
On top of on top of that growth this year.
And I would say from a macro perspective.
In the U S. We began to lap more normalized comps in the second half of 2022, we were seeing about 3% year over year growth that we're expecting.
Uhm of that trend into 2023 and <unk>.
Nationally, we're not all markets are yet recovered to the pre pandemic levels. There thought there was a bigger year over year growth opportunities to we're expecting.
All of our international regions with the exception of Asia Pac to get to get pretty close back to 22019 occupancy levels. So overall.
We're looking for about.
Half of our growth telecom occupancy recovery and and the other half kickoff.
A modest 80 aircraft.
Okay. Thank you very much.
Okay.
Okay.
Thank you. Our next question comes from Michael Bellisario with Baird.
Thanks, Good morning, everyone.
Okay.
Michele just one follow up there just a four to six sort of system wide globally.
Can you give any more specifics on what the.
U S expectation is versus international just the spread.
The components of the four to six I know you sort of touched on a little bit, but any more specifics would be helpful.
U S is certainly going to be a lower growth overall compared to international since they are still be in <unk>.
In recovery mode for sure so like I said.
There is probably in the U S. There's going to be a few points of occupancy growth and a few points of of ADR growth.
Internationally, we're expecting to see again, some modest ADR growth, but a much bigger lift coming out of occupancy.
Okay. Thank you and then.
Geoff for you you have a big.
A competitor now getting into the economy space, maybe big picture what are the risks to you on the conversion front and what are you hearing so far from your franchisees.
Thanks, Mike and Hey, Congrats to you and Mary on the birth of Lucy.
That's Tuesday.
And he needs a need to play made as a father of four girls I wish you a two more.
You talk about that offline.
Yeah, we're not seeing any impact to your question on our economy brands. We have the most recognized economy brands in the space and we've been in this space for over 30 years. We know these customers we know these owners.
And we know what's important to both.
The one thing that Covid has demonstrated through our economy owner base is that they wished they own more wyndham product given just how well our brands performed throughout Covid and how well they performed after 911 in the great financial crisis.
Everyday essential construction and infrastructure workers never stopped traveling and they were staying in our economy brands in record numbers, which was what allowed our franchisees to never have to to close down. So we will continue to provide the most flexible and the most competitively priced economy brands with a with a focus on what we know is important too.
Our guests and but we also know is important to our owners and our renovation in our Pip costs run three to five times less than many of our larger brand peers, and our technology stack installation and our technology stack operating costs remain the lowest at 4% to six times less with.
Just a continued focus on generating the best cash on cash returns and the economy segment.
Okay.
Helpful. Thank you.
Okay.
Thank you. Our next question comes from Patrick <unk> of <unk> Securities.
Hi, good morning, everyone.
Okay.
Patrick.
One question.
You talked in your press release about achieving your goal a retention rate of 95%.
Going forward.
Do you see that as sort of the equilibrium level.
At this point or do you see there is continued opportunity too.
Improve that thank you.
Absolute opportunity to continue to improve it Patrick.
As Michelle said, we were in the 94% and 19, we move that to 95% in 2021, and we've moved it to 95.
And three and.
'twenty two.
Our teams are incredibly focused on that you blend that in with what we're doing on the gross unit edition sides, which we've also been moving up.
And we achieved a 7% gross additions in 'twenty, one we moved that organically take up your in house to an 8% organic gross addition in 2022.
And all time record of organic gross room additions for our system and you blend those two and it's to Michelle's point how are how we're confident that we can move over time that that too to Florida to three to five.
Great. Thank you.
Thanks, Patrick.
Thank you. Our next question comes from Brent <unk> of Barclays.
Hey, good morning, everybody. Thanks for taking my questions.
So maybe.
On that same theme.
Jeff or Michel the retention goal of just over 95, 3% this year versus 95, 3% last year.
I'm just curious because it seems to me that a lot of folks in the industry. I think this is the year, where the brands will start pushing back on owners that.
You know, maybe maybe have some deferred capex via.
During COVID-19 that they held off and this is the year that the brand sort of.
The rubber meets the road on a lot of hotels.
Having to deal with that and we saw Marriott guide too higher deletion rate this year versus what they what they had last year. So I'm just curious what you guys think about your system about your brands and your own or is that you think youll be able to sort of moving in the opposite direction of that.
Well I think the progress that we've been making brand from the 93 to 94 to 95 to 95 three to your point.
Gives us gives us confidence I think theres still an opportunity out there with the best brand value proposition in the economy and Midscale space to pick up on the conversion front and we think our transaction volumes are going to continue to to accelerate distressed sales are expected to to increase by the second half of this year.
So we saw good good movement on the.
The ads as we've said and we've been we've been really focused over the last few years, we had significant sub standard deletions that were very well.
We're very targeted and very focused in 2018 in 2019, when our retention rates were lower than where they are today and you know.
Our brand quality and all of the efforts that we're doing on the quality front.
Continue to give us.
Give us give us great confidence that we can move that number higher.
Okay, Okay, great and then if we move to the other side of the equation to gross adds.
Because if you say.
Retention might get a little better stay the same.
But if you look at your sort of the midpoint of your your net unit growth guidance.
Maybe we're splitting hairs here, but it would imply not.
Not a slight DSL versus what you actually did due in 'twenty. Two so is that just conservatism or is there a part regionally or.
Part of the chain scales that you would focus on in terms of your gross adds that that isn't as strong as last year.
Yeah, Brent I don't think that's actually a slight decelerate that when you look at the net the net room growth in 2022, you'll have to remember there is 80 basis points of growth in there from from the tuck in acquisition of the Vienna House. So I think we delivered at three 3% on an organic basis in the midpoint of our guide this year.
Would imply 3% I would say, we're looking for 20 to 30 basis points of improvement every year end.
And the retention rate and then and that.
3% is a is that is a rounded number so it could be 3.2, it could be $3 three.
It could be 2.8, but.
But where we're expecting it to be 3% or or better at the midpoint.
And so I think if you if you target a retention rate of let's say 95, and a half and youre looking at.
At 3% net room growth than that then that would imply that you are youre driving somewhere between eight 9% and gross openings.
Super helpful. Thanks, so much everyone.
Thanks Brent.
Yeah.
Thank you. Our next question comes from in Saphena with Oppenheimer.
Hi, great. Thank you very much.
Just you know.
And another question on guidance here.
When can we expect the impact of the government spending on the infrastructure build other bills.
Flow through in 2023.
I don't know if you really can do this but.
Any kind of magnitude you might be able to give us or at least directionally, what we should expect thanks.
Sure.
We would expect in the back half of the year if you.
You follow everything that's being put up by the congressional budget office that does.
That next round of the one trillion well set to fund in late 'twenty three.
Or many preexisting and time sensitive projects that have moved forward.
$350 billion Highway Reauthorization Act as a good example of that with $40 billion already being spent on on bridges.
The in terms of the size.
I think we said in our prepared remarks that it's over a 3 billion dollar revenue opportunity for our franchisees over the next five to eight years, which would mean, another 150 million ish of incremental royalties over that over that period, we're super excited about it.
We have been making investments in people for a while and processes and technologies.
We're adding more sellers to win a greater share of these federal and state allocations.
And we're creating a dedicated business to business sales team to identify the biggest opportunity targets out there there are $1 8 million infrastructure company.
Businesses in the United States today, and we're leveraging our relationships with with.
Our third party partners or travel management companies like CLC, who have over 1400 paying centers across the country.
We're sending our teams to events and conventions and conferences, they've never been to before like the.
American society of kind of concrete contractors.
And calling on companies, we haven't called with before so but this has been a competitive strength of ours forever.
We're continuing to invest heavily in it the best is yet to come and for the seventh consecutive quarter.
We've seen we've seen a pickup in terms of what our franchisees are experiencing we were up 16%.
In this business in the third quarter and that accelerated to 21% in the fourth so we're really excited about what's to come.
Okay, Great factor that.
Really quick.
About $17 million a year from from this part of our business. So it does continue to increase in the double digit category it would be about $3 million of incremental EBITDA.
And of course, we're not looking just for something you see aircrafts are we're looking for an expansion of the size of the pie wants to spend actually hits the market.
That's really good color. Thank you and then just as a quick quick follow up on the room growth.
Rejections.
Can you give us maybe the puts and takes on like what you're assuming here with rates going higher maybe a softening in the economy, how does that the algorithm change with those two factors.
Yeah. So.
Bye.
Uh huh.
That current pipeline are either <unk> or new construction projects that are already in the ground. So that's going to significantly reduce our exposure to the correct alright.
Alright Martin.
And one more just in the other half of that pipeline.
Yeah.
The rapid rise in interest rates have impacted all asset classes, including hotels the hotels are.
Okay.
Can offset that cost.
Side of that of that equation, whether it be inflation, our interest on higher pricing and they have the ability to do that daily which is what we saw during 2022 and developers are underwriting sustained increases in ADR, which is either partially or in some cases fully offsetting the higher interest expense.
<unk> and <unk> and the well capitalized developers that were working with we all believe this is the best time to build even though interest rates are higher than their historic lows that we've seen over the past decade. We are all expecting that they will decrease a bit once inflation is under control and the economic uncertainty that we're facing.
In the past is over and <unk>.
Select service hotels have minimal staffing requirements are delivering really high ROI for owners and offering very attractive rates even in this environment.
Okay, great. Thank you very much.
Thanks Danny.
Okay.
Thank you. Our next question comes from Dan <unk> with Morningstar.
Hey, good morning, guys. Thanks for taking the questions. So maybe wondering if you'd give us update on your loyalty membership where that's at how that's grown and the engagement of it.
Pertaining to the number of room nights or percentage of room nights as being booked by the let's say base and then some.
Second question, just I think you mentioned that the direct bookings were up 23% was that for 2022 and wondering if you could also give a similar figure for the OTH channel. Thank you sure our enrollments to the first part of that question grew 8% down year over year, we're at nine.
9 million members globally.
And it is whats driving our that double digit year on year percentage of quota our brand dot com growth is at the highest level, it's ever been and to the OTI piece. It is outpacing the OTI growth R. R.
<unk> share of occupancy.
Has increased 500 basis points domestically to where it was pre pandemic.
Which is pretty remarkable nearly one out of every two check ins to.
Our economy mid scale.
Upper mid scale upscale brands are coming through the program, but we've got a nearly that same percentage now in the economy space.
And we have certain brands like La Quinta and American that are pushing 60% share of occupancy blended it's about it's about a 50% share of occupancy domestically.
Great. Okay. Thank you.
Yes.
Okay.
Thank you at this time I show no further questions in queue.
I'll turn the call back to Jeff <unk> for closing remarks.
Thanks, Todd and thanks, everyone for your questions and your interest in Wyndham hotels and resorts, we'd like to once again, thank our valued team members for their significant accomplishments around the world and for helping us deliver our eighth sequential quarter of organic net room growth along with a 12% growth.
The development pipeline that has never been stronger than it is today.
Domestic and global Revpar growth accelerated to both prior year and 2019 levels and occupancy continues its recovery, providing a meaningful tailwind for us in the year ahead with consumer travel demand holding steadfast in our iconic and trusted brands delivering record levels of direct contribution.
Through our brand dotcom channels, we are very enthusiastic about the opportunities that lie ahead, and our ability to deliver outstanding value to our shareholders our guests our franchisees.
And our team members Michele Matt and I look forward to talking to and seeing many of you in the weeks and months ahead and at many of the upcoming investor conferences will be attending we wish everyone a happy Presidents' day weekend.
And look forward to seeing you soon.
Yeah.
Thank you. This does conclude today's Wyndham hotels, <unk> resorts fourth quarter and full year 2022 earnings conference call.
Please disconnect your line at this time.
And have a wonderful day.
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