Earnings Call Transcript - CHH Q1 2024

Operator, Operator

Ladies and gentlemen, thank you for standing by. Welcome to Choice Hotels International's First Quarter 2024 Earnings Call. I will now turn the conference over to Allie Summers, Investor Relations Senior Director for Choice Hotels.

Allie Summers, Investor Relations Senior Director

Good morning, and thank you for joining us today. Before we begin, we'd like to remind you that during this conference call, certain predictive or forward-looking statements will be used to assist you in understanding the company and its results. Actual results may differ materially from those indicated in the forward-looking statements, and you should consult the company's Forms 10-Q, 10-K and other SEC filings for information about important risk factors affecting the company that you should consider. These forward-looking statements speak as of today's date, and we undertake no obligation to publicly update them to reflect subsequent events or circumstances. You can find a reconciliation of our non-GAAP financial measures referred to in our remarks as part of our first quarter 2024 earnings press release, which is posted on our website at choicehotels.com under the Investor Relations section. This morning, Pat Pacious, President and Chief Executive Officer, will speak through our first quarter operating results; while Scott Oaksmith, Chief Financial Officer, will discuss our financial performance and 2024 outlook. Following our prepared remarks, we'll be glad to answer your questions. And with that, I'll turn the call over to Pat.

Patrick Pacious, President and CEO

Thank you, Allie, and good morning, everyone. We appreciate you taking the time to join us. It has been a successful start to the year. We drove our adjusted EBITDA 17% higher and our adjusted EPS, 14% higher year-over-year to record first quarter levels, and we expect to carry this strong momentum through the rest of the year. The impressive results we delivered in the first quarter clearly demonstrate that we are unlocking the revenue synergies from the Radisson Americas integration. The Radisson Americas acquisition has meaningfully enhanced our growth profile as it created a step function change in the size of our business, expanded our rewards program, broadened our geographic reach, unlocked new value through our platform capabilities and opened new incremental, non-RevPAR-related earnings streams, which are resulting in additional profitability. By increasing our scale, network of franchisee relationships and customer reach, we have significantly increased our future growth opportunities, resulting in a record global pipeline of over 115,000 rooms at quarter end, which is a 10% increase quarter-over-quarter. Our strategic focus on more revenue-intense hotels means that the pipeline continues to be a significantly higher value than the current hotel portfolio. Importantly, the hotels in our domestic pipeline now represent a more than 30% RevPAR premium compared to our existing portfolio, a meaningfully higher average effective royalty rate, driven by our strengthened value proposition to franchisees, and they have, on average, a 40% higher room count per hotel as compared to our current domestic system. With this positive momentum, we are very encouraged by our existing and future portfolio prospects. At the same time, the strategic investments we continue to make in our franchisee-facing systems and tools, our brand portfolio and our platform capabilities are increasingly contributing to our earnings results and are providing additional levers for us to drive our growth. The successful execution of our strategy, which has accelerated over the past year, demonstrates the versatility of our business model. The four growth drivers each uniquely contributing to our performance include: First, driving the revenue-intense growth of our brand portfolio, with a focus on hotels that generate higher-than-brand average royalties per unit. Second, increasing the velocity of new hotel openings as we leverage our best-in-class hotel conversion capability, which remains a distinct advantage in today's development environment. Third, expanding our international growth. And finally, bolstering our platform earnings capabilities through strategic partnerships and other ancillary revenue opportunities. Just last week, we hosted our 68th Annual Convention, which is a hallmark of Choice Hotels; a record number of our franchisees joined us, and the level of enthusiasm and support we heard about the upward trajectory of our brands and our plans to build on that momentum was remarkable. The success of this event every year is a direct outcome of our steadfast commitment to our franchise owners and the deep personal relationships we've developed with them over the years. The convention is always a significant new hotel business development opportunity. The event was a chance for us to award new franchise agreements, share our long-term brand growth plans, and discuss many new investment opportunities across the portfolio. One of the most exciting announcements we made was the relaunch of Park Inn by Radisson. This conversion brand is a part of our portfolio of revenue-intense brands. The brand delivers a premium lodging option aimed at the younger, value-conscious traveler, which we know is a growing segment. The innovative conversion model offers a compelling investment for our franchise owners while filling a market opportunity in our portfolio just below the Quality Inn brand. Over the past several months, hundreds of prospective owners have expressed interest in opening a Park Inn by Radisson franchise. In fact, we expect our first Park Inn by Radisson to open next quarter. We are encouraged by the initial reception, and we believe there is a meaningful opportunity for this brand offering in the coming years. Our Annual Convention, which is a significant learning opportunity for our franchisees, and the enhanced value proposition we continue to deliver are among the reasons why our existing owners choose to expand their hotel portfolio with Choice Hotels and contribute to our industry-leading voluntary franchisee retention rate. Our distinct unit growth strategy continues to deliver results and enriches the attractiveness of our brands. Since we embarked on our strategy of enhancing our franchise business with more revenue-intense hotels, we have meaningfully expanded our mix of higher revenue-generating hotels and importantly, we expect it to continue to increase in the coming years. These new revenue-intense franchises are more accretive to our earnings and are a key driver of future growth, as hotels within a brand, on average, generated royalty revenue over 20% higher than hotels exiting the brand. In the current hotel development environment, our core competency of a best-in-class hotel conversion capability has an even greater impact. Through our superior speed-to-market conversion processes and best-in-class franchisee support, we are able to move projects quickly through the pipeline, which allows Choice to start generating revenues sooner. In fact, of the domestic franchise agreements we executed for conversion hotels over the trailing 12 months, we opened 113 during the same period, a 43% increase over the same period of the prior year. This core competency will continue to be a key growth driver throughout this year as developers choose to convert to our brands. Specifically, as of the end of March, we grew our global rooms pipeline for conversion hotels by 36% quarter-over-quarter, including a 9% increase coming from our Radisson upscale brand. We are especially encouraged by the prospects for this brand given that each hotel generates, on average, 6 times more royalty revenue than our economy portfolio. Fueling our success is our ongoing commitment to strengthening the value proposition we provide to our franchise owners. This is supported by our investments in creating a best-in-class franchisee success system. In fact, over the past 2 years, we have grown the direct online contribution to our franchisees by over 10%. We continue to meaningfully enhance the performance of our Radisson Americas hotels by driving higher traffic and booking conversion rates, which in turn lowers customer acquisition costs for our franchisees. Specifically, since the digital integration back in August last year through March of 2024, we drove over a 20% increase in stays through our domestic direct online channels for the Radisson Americas brands year-over-year, with particularly strong results for the Country Inn & Suites brand, which grew by over 30%. The significant performance lift since the integration is attracting new hotel development commitments. In fact, in the first quarter, we saw a 60% year-over-year increase in new applications for domestic franchise agreements for the Country Inn & Suites by Radisson brand. Thanks to our portfolio being better positioned, we organically grew our rewards program by 9% in the first quarter year-over-year. And this increase is exclusive of the Radisson Americas Rewards program integration. We now have approximately 65 million Choice Privileges members, and these loyal guests booked directly through our lowest-cost channels. They drive more revenue and return more often than non-members, which translates to lower customer acquisition costs and higher margins for our franchisees. In addition, our recently enhanced partnership with the world's largest independent hotel brand, Preferred Hotels & Resorts, is expected to provide expanded opportunities for our rewards members to redeem their stays at more than 300 luxury properties. Another benefit of our broader and higher-quality portfolio of hotels is that it allows us to attract more blue-chip national travel brands and strengthens our existing strategic partnerships. For example, we were recently named the first new AAA Preferred Hotel supplier in a decade. All our key brands were awarded the prestigious AAA Diamond designated status, which brings added visibility and credibility to our hotels. This endorsement is particularly meaningful given that AAA and its Canadian counterpart CAA's 64 million members account for over 30% of paid room nights annually across North America and look to these exclusive designations to help them make travel choices. We are excited about the long-term opportunity from this partnership and anticipate that it will start to deliver more business to our franchisees as we enter the busy summer leisure travel season. Turning now to our international business. We had another strong quarter with growth across all our key metrics, including unit growth, RevPAR, EBITDA performance, and guest satisfaction scores. Importantly, in France, we recently signed a franchise agreement with Zenitude Residential Hotels, representing more than 4,000 rooms. As the Summer Olympics approach, I'm pleased to say we are on track to onboard these units which will double our hotel footprint in the country. We believe we have a significant opportunity to further gain international market share and realize additional EBITDA growth in the coming years. Moving on to our platform business. We are very encouraged by the traction we are gaining in our efforts to expand that business and our non-RevPAR ancillary revenue growth opportunities. One of these revenue streams is our new co-brand credit cards, which have exceeded our target for new account sign-ups in the first quarter. This strategic partnership is a long-term tailwind, given that it drives loyalty to our brands as our rewards members with credit cards stay with us on average 4 times as often as non-rewards members. And it delivers revenues based on cardholder spend. In closing, we remain focused and committed to executing on each of our long-term growth drivers that I have discussed. Choice Hotels has a meaningfully enhanced growth profile with additional embedded value, which we will continue to unlock as we move forward to create incremental shareholder value. We have positioned the company with a portfolio of brands and a value proposition that allows our franchisees to capitalize on the long-term trends propelling travel. Specifically, we are capitalizing on the increasing number of retirees, the continuation of remote work, rising middle-class wages, and the rebuilding of American manufacturing and infrastructure, all of which expand the pool of our target travelers. Furthermore, with more than 5,000 Choice Hotels within 2 minutes of a highway, our portfolio is well positioned to continue to benefit from the ongoing affinity for drive-to vacations. We are confident that these long-term trends that favor our brands will allow us to attract and capture an even larger share of leisure and business travel demand and enable us to maximize growth opportunities well into the future. I will now be turning the call over to our CFO, Scott.

Scott Oaksmith, CFO

Thanks, Pat, and good morning, everyone. Today, I will discuss our first quarter results, update you on our balance sheet and allocation of capital and comment on our outlook for the remainder of 2024. Throughout my remarks today, I would like to note that our figures exclude certain onetime items, including transaction pursuit costs, which impacted our reported results. For first quarter 2024 compared to the same period of 2023, revenues, excluding reimbursable revenue from franchised and managed properties, increased 16% to $203 million, and our adjusted EBITDA grew 17% to a record $124.3 million. This was driven by a combination of the successful integration of the Radisson Americas portfolio, organic growth in more revenue-intense segments and markets, strong effective royalty rate growth, and the robust performance of our international businesses and non-RevPAR dependent programs. Our first quarter adjusted earnings per share reached a record $1.28 per share, a 14% increase year-over-year. Let me first discuss our key revenue levers, which include our unit growth, royalty rate, and RevPAR performance. In terms of unit growth, our strategic goal has been to accelerate quality room growth across more revenue-intense brands and markets, while simultaneously growing our effective royalty rates, which ultimately results in an outsized increase in royalties. We have successfully increased our portfolio of these revenue-intense brands to now comprise 82% of our total domestic hotels. For the first quarter, we reported domestic unit growth of 1.2% year-over-year across our more revenue-intense, upscale, extended-stay, and mid-scale portfolio. We expect to see an acceleration for the remainder of the year and continue to anticipate achieving our full-year target of approximately 2%. At the same time, we increased the number of domestic franchise agreements for our revenue-intense brands awarded in the first quarter by 7% over the prior year. We also executed new hotel openings at an impressive pace. Through March, we averaged more than 4 openings per week. This resulted in a 20% increase in openings year-over-year with 55 domestic hotel openings. We are also pleased to report that our international rooms portfolio grew by 2.3% year-over-year. As a result of our strong organic growth and the acquisition of Radisson Americas, we also increased our international EBITDA contribution to over $9 million in the first quarter. These results demonstrate that the deliberate decisions and strategic investments in our franchise tools, brand portfolio, and platform capabilities are delivering strong returns across our company. First, we strengthened our upscale franchise business. For the first quarter, we nearly doubled our domestic rooms pipeline quarter-over-quarter. We expect to see continued strength in this segment over the coming years, fueled by strategic investments in transforming our upscale brands. Second, we accelerated our growth across the Extended Stay brands portfolio. For the first quarter, we grew our domestic Extended-stay Unit system size by 17% year-over-year, highlighted by more than 10 incremental new hotel openings. We are seeing particularly strong traction with our newest Extended Stay brand, Everhome Suites, with 4 hotels now open and nearly 70 domestic projects in the pipeline, including 20 under construction; we continue to be very optimistic about our extended-stay Franchise business. Last year, we communicated an anticipated 15% average annual extended-stay unit growth through 2027, and we are pleased that we remain on track to achieve this impressive growth rate. And third, we continue to invest in our mid-scale portfolio with our overall domestic mid-scale rooms pipeline at quarter end totaling approximately 22,000 rooms, which represents nearly one-fourth of our total domestic pipeline. Our effective royalty rate also continues to be a significant source of revenue growth. Our domestic system effective royalty rate for first quarter 2024 increased 4 basis points to over 5% year-over-year, representing approximately $4 million of incremental royalties on an annual basis. We continue to expect our full-year effective royalty rate to increase in the mid-single digits, driving significant growth in our overall adjusted EBITDA. This performance demonstrates the positive impact of our strategy to drive the growth of our revenue-intense brand portfolio and our enhanced value proposition to franchise owners. We are very optimistic about the continued upward trajectory of our effective royalty rate for years to come, given that contracts in our domestic pipeline have, on average, a 70 basis point higher effective royalty rate than those in our current portfolio of open hotels. The third revenue lever I will discuss is our RevPAR performance. Our first quarter domestic RevPAR increased 8.2% from the same quarter of 2019. RevPAR was down 5.9% year-over-year in the quarter, reflecting the timing of the Easter weekend and tougher year-over-year comps as we were the first hotel company to return to and significantly exceed pre-pandemic RevPAR levels. For the first quarter, our overall domestic upscale portfolio delivered RevPAR growth led by our Radisson upscale brand, increasing by 8.5% year-over-year. Importantly, our Radisson upscale brand outperformed STR's upscale segment by 8 percentage points and achieved RevPAR index share gains versus competitors. For the remainder of the portfolio, we had anticipated year-over-year softness in domestic RevPAR at the start of this year, followed by improvements beginning in the second quarter. Importantly, we are pleased to see favorable RevPAR trends from March to April. When combining the recent RevPAR trajectory with the initiatives we implemented to capitalize on long-term business and leisure trends, resilient domestic consumer spending, and the first quarter being the lightest due to seasonality, we continue to project full-year domestic RevPAR growth to range between flat and 2%. We continue to build on the strong momentum of our platform business. Our platform and procurement services fees benefit from expanded offerings to our franchisees and guests, increased transaction volume with our qualified vendors, and the broader reach of our initiatives. While for the first quarter, these fees were essentially flat at $13.8 million year-over-year, it was driven by timing. Excluding this impact, the platform and procurement services fees would have increased by 9%, continuing to expand our platform business and increase the number of products and services we offer is one of our key initiatives. And we believe that we can drive this strong revenue growth in the years ahead. As Pat mentioned, what gives us even more optimism is a continuation of the realization of benefits from the Radisson Americas integration that is driving additional profitability. In 2023, the synergies were more cost-driven; while this year, we expect these to be revenue synergies. This is not a one-time benefit for ongoing earnings streams that we have unlocked from the combination of the two companies as we serve more customers and maximize other revenue-generating opportunities. As we have discussed in our prior calls, the opportunity to unlock these ancillary revenue streams began in the fourth quarter of 2023 upon the successful integration of Radisson Americas. These revenue synergies generated incremental EBITDA of approximately $10 million in the first quarter. In terms of capital allocation, our well-positioned balance sheet and growth trajectory, coupled with a significant valuation discount, provide a very attractive return opportunity for the repurchase of shares. In March, the company's Board of Directors increased the authorization of our share purchase program by 5 million shares. Year-to-date through April, we returned approximately $226 million to shareholders, including $29 million in cash dividends and $197 million in share repurchases. We repurchased 1.5 million shares, representing over 3% of our outstanding share count, and we had approximately 5.3 million shares remaining in our authorization as of the end of April. With a strong cash position and total available liquidity of nearly $540 million, our capital allocation priorities remain unchanged. We intend to build on our long record of delivering outsized value by accretively investing to further expand our business while returning excess cash to shareholders. I'd like to now turn to our expectations for what lies ahead. For the full year 2024, we are reaffirming our adjusted EBITDA and adjusted earnings per share guidance. We continue to expect adjusted EBITDA to be in the range of $580 million and $600 million and adjusted earnings per share to range between $6.30 and $6.60 per share. We anticipate this growth to be driven by incremental contribution from Radisson Americas, including revenue synergies and the expected additional cost synergies of approximately $2 million. Organic growth across more revenue-intense hotels and markets, robust effective royalty rate growth, continued growth from our co-branded credit card, strong international business, and other factors. This outlook does not account for any M&A or purchase of the company's stock after April 30 or other capital markets activity. Today's results are a testament that our strategy is working, and we intend to keep investing in those areas of our business that will generate the highest return on our capital. At this time, Pat and I would be happy to answer any of your questions. Operator?

Operator, Operator

Your first question comes from Shaun Kelley from Bank of America.

Shaun Kelley, Analyst

Thank you for the all the prepared remarks and the overview. If I could, for Scott or Pat, I would love to just run through a little bit on the cash flow side. So we've talked a lot about investments across the platform, obviously, what you're doing to drive the revenue-intensive strategy. We're getting a lot of questions around the free cash flow conversion and free cash flow bridge. So specifically, I just want to drill in a little bit more. If you could help us think through the major buckets, what's your expectation for key money that's going into some of the franchise support side? What's the expected investment for Cambria? And then I think third and most important, we're seeing a pretty big set of just pure CapEx and would love to kind of understand a little bit more about is that the platform that you're investing in? Or what's driving that? Because it is pretty high relative to a lot of your peers in the asset-light hospitality space?

Scott Oaksmith, CFO

Thanks, Shaun. I'll take that one. In terms of our operating cash flow, we expect to continue increasing it compared to 2023 levels. Last year, our key money was about $98 million for the full year. As mentioned in our previous call, we anticipate being generally in line with that, possibly slightly higher, reflecting more openings this year. For example, in the first quarter, our openings were up 20%, leading to a similar increase in our key money, although the average amount per deal was slightly lower than in the first quarter of 2023. Regarding our recycled capital support, we expect to allocate around $130 million for this year. This will be a mix of support for both the Cambria and Everhome brands, focusing on joint venture investments, some small mezzanine lending, and a few self-developed assets to help those brands scale quickly before transitioning to a franchise model. Considering all these factors, and in response to the question about capital expenditures, some of the self-developed assets will reflect in the capital expenditure line item. Therefore, if we look at capital expenditures along with investments in joint ventures and lending, we expect around $130 million for the year. So for our normal capital expenditures and cash flow conversion, excluding key money and other support programs, we anticipate a free cash flow conversion rate from EBITDA to free cash flow in the mid-60% to 65% range for the year.

Shaun Kelley, Analyst

Could you provide us with the latest update on the consumer market? You mentioned some improvement in April; could you quantify that for us? We have heard mixed reports—some say there was a downturn after Easter due to Passover, while others, especially those in the lower-end chains, are saying April has been strong and thriving. Can you give us a brief insight into how the second quarter is beginning? We understand the visibility is limited.

Patrick Pacious, President and CEO

Yes. Thanks, Sean. Our forecast sort of how we're progressing is very consistent. We expected Q1 to be softer. April did turn positive. So we are feeling pretty good about the trend. As we expect to see both in our forecast and in our guidance, we expect to see RevPAR improvement from here forward. So we would be in the camp where April was better and not seeing a shift backwards. When you look forward, the research that we're looking at shows that family travel, in particular, is really up this year and families do expect to travel, and we have effectively the right brands for that type of traveling consumer. Their budgets are higher. We look at consumers that are continuing to prioritize travel; the employment numbers are strong. When people have a job, they're going to travel, so they might cut back in other areas like fast food or retail, but travel has been pretty resilient and the research shows that's expected to continue. The thing we keep looking at, and which I think people keep missing is, if you look at the Atlanta Fed numbers, the middle-class wages have grown 5%, which is now ahead of where inflation is. That continuation of continuing to outpace inflation gives us a lot of confidence that the RevPAR expectations we expect to see, particularly for our brands and for our segments, will be pretty strong throughout the rest of the year.

Operator, Operator

Your next question comes from the line of Michael Bellisario from Baird.

Michael Bellisario, Analyst

This is part for Scott. Just can you add some color on the reservation income that you guys record and help us understand the mismatch between the reimbursable line items on the income statement versus what gets added back in the EBITDA reconciliation? It looks like you got about $12 million of earnings in the first quarter. Any one-timers in there? Is that the right run rate? And then what's assumed in your full-year guide would be helpful.

Scott Oaksmith, CFO

Thanks, Michael. So as we discussed in prior calls, the full integration of the Choice and the Radisson platforms at the beginning of the fourth quarter of 2023 provided us an opportunity to unlock the ancillary incremental revenue streams. These are not onetime benefits, but ongoing earnings streams, and we believe that we can further drive additional profitability through these as we expand our scale of our portfolio of network of franchise relationships and customer reach. In terms of kind of run rate during the fourth quarter of last year, these generated about $8 million of incremental EBITDA, and we were about $10 million in the first quarter of 2024, we would expect this run rate of about $8 million to $10 million to continue per quarter for the remainder of the year.

Michael Bellisario, Analyst

And then just on the Wyndham shares, it looks like you did not sell any in late March. If you could comment on what you did in April and how you've funded the buybacks quarter-to-date so far that would be helpful, and that's all for me.

Scott Oaksmith, CFO

Yes. At the end of March, we still owned about 1.3 million shares of Wyndham stock, which was valued at around $110 million. But as we discussed, we're not long-term holders of the stock, and the proceeds of those sales will be available along with our outstanding debt capacity and free cash flow to execute our share repurchase program. So we'll be unwinding those shares over time, and the initial share buybacks in April were mainly funded with debt.

Operator, Operator

Your next question comes from the line of Stephen Grambling from Morgan Stanley.

Stephen Grambling, Analyst

You mentioned that your capital allocation priorities are unchanged, and you just talked about this a little bit. But I think you had mentioned that you were willing to take up the leverage to a degree now that you're not pursuing the Wyndham transaction. Can you just remind us maybe where you are, where that could go and how you think about buyback versus other areas of investment?

Patrick Pacious, President and CEO

Our target range has been three to four times gross debt to EBITDA. We have typically operated at the lower end of that range due to the free cash flow generation talked about earlier. Over the years, we have considered opportunities for transformational acquisitions where leverage levels might be closer to the higher end or slightly above, with a plan to bring it back down. Last year, we successfully bought back a significant amount of stock and invested in our brands while remaining within the lower end of our leverage targets. Our capital allocation strategy remains the same; we will continue to invest in our brands and our business. Much of what we discussed in our prepared remarks relates to those investments, which are paying off. For instance, we had over 6,500 attendees at our recent convention, generating excitement around our brand refreshes for Sleep Inn, Comfort Inn, and the Rise & Shine prototype. We will keep making these investments to ensure our brands stay relevant and fresh, and we plan to either launch new brands or relaunch existing ones like Park Inn. We also continue to explore tuck-in M&A opportunities. The Radisson acquisition was executed effectively without increasing our leverage levels, demonstrating the growth and free cash flow generation of our business, which allows us to operate within the three to four times range.

Stephen Grambling, Analyst

And then one other clarification. Just in response to the last question, where you were referencing the mismatch and the reimbursed costs versus reimbursed expenses, and I think you said $10 million a quarter. Is that going to continue into next year? I guess I just want to make sure that I understand if that's recurring or not?

Scott Oaksmith, CFO

Yes, those are recurring fees. So on an ongoing basis for the quarter and for the rest of the year, it's $8 million to $10 million per quarter, and that will continue into 2025. We will also be looking to grow that as our portfolio size and consumer reach continue to expand.

Operator, Operator

Your next question comes from the line of David Katz from Jefferies.

David Katz, Analyst

Number one, I know you sort of talked about RevPAR. But could you maybe give us a bit more insight about RevPAR cadence for the remainder of the year, whether that's exactly or relatively qualitative as possible. And then my follow-up is, post the endeavors with Wyndham, were there or are there any opportunities that may have been on hold that may be coming back to life or becoming more active now that you've moved on from that?

Patrick Pacious, President and CEO

Sure, David. So let me just start with the sort of seasonality of RevPAR, just as a reminder. When you look at the weighting of each quarter for us, about 20% of the RevPAR for the year is in the first quarter, you get about 60%-ish in Q2 and Q3, and then another sort of 20% in Q4. The fact that Q1 was softer and we're seeing the trend turn is the reason why we feel pretty good about the cadence, as you call it, going forward. I mentioned the drivers that we feel really good about with regard to employment numbers and wages and the like. When you look at projects that were on pause during the Wyndham pursuit, there's always opportunity out there for additional tuck-in acquisitions. There's opportunity for us to launch brands. Some of those things, while we have in our long-range plan, we might have hit the pause button just as we were reflecting on how putting the two companies together would create a lot of value and maybe there's no need to do a specific project. But there's certainly a number of things that we have in the queue to continue to grow our portfolio. As we've mentioned in past calls, we have some white space in our portfolio. I think the relaunch of Park Inn as that sort of gap filler between Quality Inn and Econo Lodge is a key aspect of that. We're really excited about what we're seeing in upscale. We had a really fantastic set of sessions with our upscale owners at the convention last week, and the growth we have in now 8 brands that are in that segment for us; we feel really good about that. The one that's lying in front of all of us is the international front. There are a lot of what we did last week is meet with our international franchisees in Asia Pacific, the Americas, and in EMEA. There's a lot of interest in growing with us regarding our brands and other brands that might be available out there. To your point, there are a lot of future growth opportunities, both organic and inorganic that will present themselves to us. As we have in the past, we're going to continue to take advantage of.

Operator, Operator

Your next question comes from the line of Robin Farley from UBS.

Robin Farley, Analyst

I wonder if you could tell us if you're still expecting a full-year increase in total units. I know the revenue-intense units, it sounds like your view on that is unchanged. Just wondering what's happening outside of that segment? And then also, can you help us think about how to size the opportunity of the Park Inn by Radisson, where you think that could go, say, on a full-year basis in '25? And you referenced you potentially still looking at acquisitions, I think. I wonder if you could just clarify that a little bit more. You kind of made the comment, I think, more having to do with your leverage levels. But if you could talk about what your latest thoughts are on that?

Patrick Pacious, President and CEO

Sure. So the first question with regard to total units, we do expect to grow total units. If you look, Robin, at the pipeline, we're really excited about what we're seeing. I'll just remind everybody what's in that pipeline is worth double what's in our existing system. We talked about a 30% RevPAR premium, 40% more rooms, and a higher effective royalty rate. It translates to what we've been saying on prior calls that what's coming is worth double what's leaving. That pipeline of 115,000 rooms grew 10% quarter-over-quarter. It's grown 20% year-over-year. As Scott mentioned, our Q1 openings grew by 20%. So that more robust earnings potential per unit is starting to flow into the system. With regard to Park Inn by Radisson, if you look at that segment, there's about 20,000 existing properties that are in the independent sector unbranded, which are ripe for conversion. The total available market there is significant. We mentioned that the enthusiasm at last week's convention, the booth around Park Inn was full for the full 3 days that we were there. A lot of owners who are looking for that opportunity and looking for a fresh brand that's connected to a robust delivery platform that we offer. We're pretty excited about where that can go, but I wouldn't try to put a number on it yet. I think we want to try to get some traction here first. Just to clarify on acquisitions, as a company, if you look at our current portfolio today, probably half of the brands are ones we've grown ourselves, and half are ones we've acquired over time. This is a scale business, and finding the right acquisitions, be they transformational like Radisson or more tuck-in like WoodSpring, that's something we're going to continue to look at. We don't have anything that we're pursuing today, but it is something that I think when you look out in the near term here, there'll be more domestic opportunities, but also more international opportunities that come available. Given the strength we have internally, to acquire brands, integrate them and grow them. It's what we did with WoodSpring. It's clearly what's happening with Radisson and Country Inn & Suites. We feel really good about our internal capability and core competency to execute M&A really well and create a lot of shareholder value and value for our franchisees.

Operator, Operator

Your next question comes from the line of Joe Greff from JPMorgan.

Joseph Greff, Analyst

A couple of quick questions here. Looking at your 2024 guidance, what's embedded for royalty fee growth this year? Can that match the level of EBITDA growth? Or does it lag? And then I have a follow-up.

Scott Oaksmith, CFO

If you look at the building blocks of our royalty growth, we've guided to our ring net unit growth of 2% and our RevPAR of 0 to 2%, so the midpoint of that being one. And then obviously, royalty rate in the mid-single digits. So that should be a good growth lever. But EBITDA should actually grow at a faster pace than that. Our EBITDA at the midpoint is between 9% and 10%. So with our ancillary revenues, cost control, and other levers, we'll actually grow our EBITDA faster than the royalty line item.

Joseph Greff, Analyst

And then within that royalty line item, can you remind us maybe you talked about it and I didn't catch it. What the composition within that royalty line is between the higher RevPAR intensive chain scale segment brands versus the lower ones? I don't know if you want to look at it on the first quarter or last 12 months? Or how do you see that for this year, but just to give us some proportionate weighting related to those segments that have better growth, that would be helpful.

Scott Oaksmith, CFO

Yes. If you look at our overall portfolio, 82% of that in hotels are our revenue-intensive brands. It's actually a little bit stronger when you look in terms of rooms; it's 87% of that. So the lion's share of our royalties are generated from our revenue-intensive brands. Most of the growth will be coming from there. We've talked about the 2% target for the revenue-intense brand growth. The overall portfolio for the U.S. will be positive. We do expect the Econo Lodge and Rodeway to be slightly negative for the year. So most of that revenue intensity will come through there, which is obviously where we want to grow stronger RevPAR, a stronger number of rooms per hotel, and a higher effective royalty rate for those brands. We feel good about the way we can grow those brands to really drive our overall royalty revenue.

Patrick Pacious, President and CEO

Joe, it's important to look at the pipeline too because while 82% of the system today is revenue intense, over 90% of the pipeline is revenue intense. So it speaks to the sort of future growth that trend is going to continue here.

Scott Oaksmith, CFO

I think the last thing I would just add, as we've talked about in the past with our revenue intention strategy, it's not just between the brands; it's within the brands, too. Despite the fact Econo Lodge and Rodeway may decline in overall number of units, the royalty contribution of them should be relatively flat as we're bringing in hotels that are generating 20% higher revenue than the ones we're exiting. So while the absolute number of hotels may be declining, the royalty contribution is not.

Joseph Greff, Analyst

Actually, one final question or maybe a comment. Are you guys thinking at all to disclose and guide similar to your peers? And just in terms of net rooms growth, and I don't know if it's an absolute RevPAR, but just to kind of validate some of the targets that you set for your peers, it's a much more straightforward way of disclosure. And to be honest, if you changed your disclosures or this is probably beneficial in your best interest to do it, but I don't know if you got any thought to that, but that's all for me.

Scott Oaksmith, CFO

It's something that I know we've talked about in the past, Joe, and we'll continue to look at that. But switching as we've started to talk more about our pipeline and number of rooms and starting to talk more about the system as international. Full global system as our international continues to grow. So we've given out guidance on a number of units, so we've stayed with that for now. But something we'll take under advisement as far as guiding to more on our rooms growth on a global basis on a go-forward basis.

Operator, Operator

Your next question comes from the line of Patrick Scholes from Truist Securities.

Charles Scholes, Analyst

My first question, then I'll have a follow-up question. Pat, would you completely rule out trying again for Wyndham and sort of lay out a scenario here. Let's say Wyndham stock a year from now is still hovering at $75. We all know they've laid out a plan sort of in defense to your proposed acquisition to organically get their stock at least to $90 or above. But hypothetically, if the stock was still at $75 a year from now, would you try again for Wyndham? Or because of your concerns around the FTC and Department of Justice and all that, would that not be something you would be interested in, in that scenario? I'm just trying to see if it's something at this point you would completely rule out if that were the case, say, a year from now?

Patrick Pacious, President and CEO

Yes, Patrick. If you refer to the press release regarding our decision to move away from acquiring the business, the strategic reasoning still holds. Ultimately, that's a question for the Wyndham shareholders. Regarding the regulatory concerns, as stated in our press release, we are quite confident about the progress we're making in that area. We experienced no clear price discovery, and our $90 offer reflected a full premium value for the potential we could create. Opportunities to generate over $2 billion in value for shareholders on both sides are rare. I believe this is a question that Wyndham shareholders should address in the future.

Charles Scholes, Analyst

Okay. I did not hear a definitive no in there. My next question, a little bit more straightforward here, on your earnings, it looks like your other revenue line was up materially year-over-year. Can you talk about what drove that? I think it was up 55% year-over-year. I know in the past, we've seen outsized growth that's from termination fees. Just a little bit more color on that and then expectations for that revenue line item for the rest of the year.

Scott Oaksmith, CFO

Yes. To your point, that line item has various revenue streams, including termination awards, and there was one larger termination award that we received during the quarter. We would expect that line item to be up kind of in the mid-single digits for the year, so a little bit of timing on the recognition of some revenue in the first quarter compared to the rest of the year.

Operator, Operator

Your next question comes from the line of Alex Brignall from Redburn Atlantic.

Alex Brignall, Analyst

The first one, just on the reimbursed revenue and cost dynamic. It's slightly different. IHG has had something slightly similar in that quarter, but it is a slightly different methodology to some of your peers in terms of the accounting for other fee types and suggest that you're not going to be running that line item to break even. Is that going to move into a different line in terms of where you account for those revenues? And the revenues or the kind of permanent gains, the $8 million to $10 million a quarter that you talked about, do they come into your guidance of mid-single-digit royalty rate increases because you're kind of permanent net revenue that you got to keep?

Scott Oaksmith, CFO

Yes. Regarding our presentation, we briefly discussed this since acquiring Radisson, mainly due to the different contract structures and fee treatments. These have been classified under other revenue. After completing a full year, we anticipate in the first quarter of 2025 to categorize these line items separately, restoring our traditional presentation where other reimbursable revenue truly reflects just those reimbursable items. Accounting requirements dictate their current classification in financials. In Q1, we plan to separate them. These represent ancillary revenue streams not related to royalties. We will have a distinct earnings stream separate from royalties, which will rely on our ability to expand our scale and enhance services for our franchisees to grow these revenue streams in the future. Our focus will be on non-RevPAR growth areas, contributing to our business's adaptability to grow not only through unit additions and RevPAR but also via additional services we offer to our franchisees.

Alex Brignall, Analyst

Fantastic. As a follow-up, a significant part of the pipeline increase came from the rooms you signed in France. Could you discuss the economics of that deal? Is it a conversion deal? What is the source of the property owners? Additionally, how do the fee stream and key money relate to any brand or property changes?

Patrick Pacious, President and CEO

Yes, Alex. That's a direct franchise market for us. These are direct franchise agreements. It's a full fee sort of model there. It has effectively doubled the size of our footprint in France. That's kind of how we're doing it. The brand is Zenitude. They're going to continue to operate with that flag as well. So it's a good opportunity for us to continue to drive the growth of our direct franchise business in Europe on the continent in particular.

Operator, Operator

There are no further questions at this time. I will turn the call back to our speakers for any closing remarks.

Patrick Pacious, President and CEO

Great. Well, thank you, operator, and thanks again, everybody, for your time this morning. We'll talk to you again in August when we announce our second quarter results. Have a great rest of your day.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.