Earnings Call Transcript - WH Q4 2022

Operator, Operator

Good day, and welcome to the Wyndham Hotels & Resorts Fourth Quarter and Full Year 2022 Earnings Conference Call. I would now like to turn the call over to Matt Capuzzi, Senior Vice President of Investor Relations. Please go ahead.

Matt Capuzzi, Senior Vice President of Investor Relations

Thank you, operator. Good morning, and thank you for joining us. With me today are Geoff Ballotti, 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.wyndhamhotels.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 or webcasts. With that, I will turn the call over to Geoff.

Geoffrey Ballotti, CEO

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 our 23rd brand, Vienna House by Wyndham. Excluding Vienna House, we opened 64,000 rooms for the year, more than 1 hotel each and every day. This represents 20% more rooms than we added last year. Here in the United States, we added 27,000 rooms with some great new hotels, like the Stone Hill Lawrence, a AAA 3-diamond hotel outside of Kansas City, which converted to our Trademark Collection brand, and the opening of our first two La Quinta Hawthorn Suite hotels in Texas, a combined extended stay and select-service hotel in a mid-scale space designed to streamline development and operational costs by utilizing a shared lobby, fitness center, meeting rooms, bar and other amenities. 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 additions 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 Beach Front, Wyndham Grand Cancun Resort, centrally located in Cancun's 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 Bulk and Jewel resort, a trademark collection conversion in the resort town of Razlog near Sofia, Bulgaria, and the Ramada Riyadh King Fahd, the first new Ramada addition since buying back our master license agreement in Saudi Arabia. In Southeast Asia, we grew net rooms by 5% and opened 40% more rooms in 2022 than we did in 2021. And after many years of development, we welcomed the beautiful new 949-room Wyndham Benin Golden Bay Resort directly on the beach in this former French Colonial port, marking 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 despite the sporadic lockdowns and travel restraints that many of our team members faced throughout the fourth quarter, which have now thankfully dissipated, the team added more direct franchise rooms than they did in the fourth quarter of 2019 and nearly twice as many rooms as they did in the fourth quarter of last year. With the opening of hotels, such as the Wyndham Grand and the La Quinta Shanxi, three beautiful new hotels located in the business district in the heart of Shanxi province featuring direct access to Shanxi's International Convention and Expo Center. This new La Quinta Shanxi represents our second new construction La Quinta 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 for the first time that our international retention rate has exceeded 95%, an indication of our ever-improving owner-first value proposition. We grew our development pipeline sequentially by 3% and by 12% versus the prior year to a record 219,000 rooms and 1,700 hotels. This marks Wyndham's tenth consecutive quarter of sequential pipeline growth. Our teams awarded 882 contracts globally for over 113,000 room additions, which is over 3 new contracts awarded each and every business day. The number of domestic contracts 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.S. for 62,000 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 to established developers and experienced extended stay operators, bringing the total number of contracts awarded to 170 hotels in just 9 short months since launching the brand last March, making Echo the hotel industry's fastest-growing new brand launch of 2022. We broke ground on our first 3 Echo 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 2 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 Wyndham new construction offerings now more than they ever have. Our economy new construction brand, Microtel, added 2,200 rooms to its domestic pipeline in 2022, driven by developer interest in its cost-efficient motor prototype. While upper mid-scale brands like Wyndham Garden added 1,300 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 1,700 rooms this year. Consumer demand remains strong. Our middle-class customers continue to spend more on travel than they ever have, and they are staying longer than they were back in 2019, given hybrid work environments. We saw booking windows increase 18% versus the prior year to over 14 days, with guests planning further ahead given space constraints and the fear of being blocked out, as so many were last spring and summer. Thursday and Sunday night occupancies and our guest average length of stays have both continued to climb in the fourth quarter versus where they were back in 2019. All 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 the constant messaging that real ADR for the select-service space remains essentially flat to where it was 4 years ago. We believe that leisure travel remains the #1 priority for discretionary consumer spending among middle-income Americans in 2023. Simultaneously, 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 growing substantially as the government begins to spend $1.5 trillion on infrastructure and CHIPS Act spending, we've been making further investments here to grow our share. Those investments have 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, a trend that began back in the second quarter of 2021. We're confident that it will continue to strengthen throughout 2023, as projects for new roads, bridges, rail, water systems, airports, broadband, and public transport commence over the next several years in the markets where our economy and mid-scale small business owners will benefit. We estimate this new level of spending 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, recognized as the best hotel loyalty program for the fifth consecutive year by the readers of USA Today, grew its enrollment 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.com sites, outpacing the rate of growth across all third-party channels and, once again, representing a record high level of contribution for our brand.com sites. Our core values and our service culture are at the heart of what drives our growth and what makes Wyndham such a great place to work. There is no better measure of why we are such a great place to work than our most recent team member engagement survey, which generated record high results. It was no surprise to see Wyndham Hotels & Resorts qualify as a constituent of the 2022 Dow Jones Sustainability Index, a global index consisting of the top 10% of the largest 2,500 companies in the S&P Global Broad Market Index based on sustainability and environmental practices. We sincerely thank our valued team members, without whose support none of this would be possible. And with that, I'll turn the call over to our CFO, Michele Allen. Michele?

Michele Allen, CFO

Thanks, Geoff, and good morning, everyone. I'll begin my remarks today with a detailed review of our fourth quarter and full year results. I'll then review 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 expectations. Our franchising segment grew fourth quarter revenue by 12% year-over-year, primarily reflecting global RevPAR growth and higher license fees. Adjusted 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 consistent with the prior year. In our Hotel Management segment, fourth quarter revenue and adjusted EBITDA declined, reflecting the sale of our select-service management and owned hotel businesses, which collectively contributed approximately $38 million in fee-related and other revenue and $12 million in adjusted EBITDA in 2021. Within our Corporate and Other segment, our fourth quarter expenses were in line with expectations or relatively flat compared to 2021. Fourth quarter adjusted diluted EPS was $0.72, a 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 a benefit from our share repurchase activity. 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 EBITDA declines reflected the first half of 2022 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, a 25% 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.S. RevPAR growth accelerated to 480 basis points in the fourth quarter from 250 basis points in the third quarter. And for the first 6 weeks of 2023, RevPAR for our brand has continued to accelerate with the U.S. up approximately 600 basis points year-over-year. Internationally, fourth quarter constant currency RevPAR ran 46% ahead of last year and 23% above 2019. All regions, with the exception of Asia Pacific, generated RevPAR well in excess of both 2019 and 2021 levels. Full year international occupancy finished down 21% from 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, were only 68% and 88%, respectively, 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-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 through $445 million of share repurchases and $116 million of 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 to invest in new brand prototype designs to improve overall brand equity. 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 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 one-time proceeds from last year's transaction. We ended the quarter with approximately $900 million of total liquidity, and our net leverage ratio was 2.9x, 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% to 8% above 2019 levels. This data point remains relevant since the select-service space, which represents over 90% of our U.S. portfolio, recovered to pre-COVID levels much faster than the industry’s full-service base. Fee-related and other revenues are expected to be $1.38 billion to $1.41 billion. We are projecting adjusted EBITDA of $650 million to $660 million, which reflects comparable base growth of approximately 5% when neutralizing for the variability in the marketing funds year-over-year, which will contribute approximately $10 million less adjusted EBITDA in 2023 as we expect to completely recapture our 2020 investment. Adjusted net income is projected to be $337 million to $349 million and adjusted diluted EPS is projected at $3.84 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 advancement 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. 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. We enter 2023 with a strong balance sheet, a record pipeline, tremendous momentum behind our new extended stay brand, Echo Suites by Wyndham, and a great deal of optimism surrounding the largest infrastructure bill in our nation's history. With that, Geoff and I would be happy to take your questions.

Operator, Operator

Our first question comes from Joe Greff with JPMorgan.

Joseph Greff, Analyst

Geoff, can you talk about the environment for what we characterize as tuck-in acquisitions? How much is out there? Is there anything warm that you're working on? How competitive is the environment today for tuck-in acquisitions versus a year or two years ago? And I have a follow-up.

Geoffrey Ballotti, CEO

I think the environment will continue and improve, Joe. Vienna House is a good example of that, our latest tuck-in acquisition. When you look at domestically and internationally, it will continue to pick up and deals will continue to present themselves. We will be strategic and methodical in evaluating the deals as they come along. We are looking for brands that are both EPS and NRG accretive, just as Vienna House was, brands of high quality and brands with high ROI potential. Four of the last five brand launches for us—Trademark, Ultra, Registry, and ECHO—have all been launched organically. There is no reason we can't continue to do that, but we now have great brands in every segment of the industry. But better than anyone, M&A is always in our DNA, having covered us for as long as you have. With 19 of the 24 brands we have being acquired, we believe that size matters and scale matters. We will continue to look for deals but will not do a deal just for the sake of doing a deal. We remain disciplined and ensure that any deal we do in the next year or two has compelling returns for our shareholders, as Vienna House did.

Joseph Greff, Analyst

And then switching over to ECHO. It's nice to see the sequential growth continue here. It doesn't sound to us that your 2% to 4% 2023 systemwide rooms growth incorporates much from ECHO; is that more of a 2024 contributor? And then is there any pivot, Geoff, on multi-development ECHO deals as yet to single?

Geoffrey Ballotti, CEO

Questions you've asked before offline. Yes, there is a pivot. We have not yet offered ECHO to the thousands of individual franchisees, which we expect to do later this year. To your direct question—there is no impact really much on 2023 net room growth. We will have our first ECHO openings later this year. We have broken ground in some phenomenal RevPAR markets: Plano, Texas; Sterling, Virginia; Richmond, Virginia. The team is unbelievably excited. We said on the Q2 call that we have 100 in the pipeline; we're now at 170. Those are all with multi-unit development agreements with some of the nation's most successful extended stay developers because we want to really develop and open these to have as big an impact as we can.

Operator, Operator

Our next question comes from Stephen Grambling with Morgan Stanley.

Stephen Grambling, Analyst

This first one may be a follow-up to those comments on ECHO and just development more broadly. We just hope to dig into the components of your loan growth guidance in the context of gross additions and attrition, especially in the contract pipeline. I guess it's now up 13% year-over-year in attrition rate; do you continue to see improvement? So any color you can provide on gross adds, attrition, and any nuances by geography?

Michele Allen, CFO

Yes, sure. From a net room growth perspective, we don't see 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 occur within about a year or two of the deal being signed. On average, there is an 18- to 24-month build from there, so it's typically in the pipeline for about 4 years. Internationally, it's a little longer. Overall, we would expect the pipeline to be realized over a 4- to 5-year period. A big part of our pipeline growth is the ECHO brand, and that's not going to have a material impact on 2023, as Geoff just mentioned. Moving our net room growth will also require improvement in the retention rate. If you look back to pre-2019, we were in the 93% to 94% range, and we've been steadily improving at 20 to 30 basis points each year since then. We're marching toward that 96% target, and when we reach it, that’s when we would expect to see our overall net room growth expectations lift.

Stephen Grambling, Analyst

Sounds good for '24 and '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 impact domestic RevPAR in the country, but also the broader region as outbound travel potentially resumes?

Geoffrey Ballotti, CEO

Yes, we see the outbound travel as a big beneficiary. Certainly for our hotels, the Chinese will be looking to travel. We are hearing from our teams in South Korea, where we have over 10,000 rooms, that they are seeing more Chinese arrivals, and this applies to Thailand, Indonesia, Australia, Singapore as well. Those are all big beneficiaries. China represented over 150 million international travelers in '19, and that number dropped to under 20 million for the last 2 years. We are excited to see that. We observed a strong rebound during the Chinese New Year. Our last 3 weeks of RevPAR were up 60% in China compared to last year and 8% compared to 2019, given the pent-up holiday travel demand. Our resorts in the vacation destinations, including large resorts in Hainan and Sanya, performed really strongly. Our Wyndham Sanya was up 30% compared to last year, and our hotel in Hainan was up 60%. They were also up over 10% and 30% respectively compared to 2019. While that performance was driven by the Chinese New Year, it was great to see the results reported from Smith Travel, where overall last week, China’s RevPAR was up 1% in what was almost a clean comp week versus '19, with occupancy running around 90% at 2019 levels. We're really excited about what we're hearing from our teams over there and just thrilled with everything our team accomplished despite the challenges, achieving a 10% Q4 net room growth in our direct franchising business and the number of hotels they were able to open in a tough quarter compared to last year.

Operator, Operator

Our next question comes from Dany Asad with Bank of America.

Dany Asad, Analyst

When we look at your 2023 guidance, if we just look at your unit growth expectations and your RevPAR growth expectations, if you combine them, you're looking at like a 6% to 10% fee growth as a whole. But your EBITDA guidance, if we strip out marketing reservations, is more like 5% to 6%. Can you help us understand what's causing a drag on the algorithm for 2023? And how should we think about that dynamic longer term?

Michele Allen, CFO

Yes, Dany. Your math there is correct, and I think there are two contributing factors. The first one is 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 in 2023. The second impact is the mix effect of higher RevPAR growth internationally versus RevPAR growth in the U.S.—that is because the international regions are still in recovery mode in 2023, while the U.S. business recovered fully in the second half of 2021. As for the long-term growth algorithm, if all regions are growing at similar rates, it typically works quite well. However, over the last 2 to 3 years, given the impacts of COVID, we knew that there would be some differences in the algorithm. This is why when we provide sensitivities, we provide sensitivity per point of RevPAR for the U.S. business separately from the international business.

Operator, Operator

Our next question comes from David Katz with Jefferies.

David Katz, Analyst

Following through on some of that, one of the themes we've started to focus on is revenue intensity. As you build out internationally, could you shed some light on the deals and signings you're making in China, where the intensity has historically been a bit lower, and how those compare to the U.S.?

Geoffrey Ballotti, CEO

It's good to hear your mom's doing better; God bless her. In China, certainly, where we're growing our rooms, the growth is coming in our direct franchising business, which is 3x more revenue-intensive than our master license agreements, which aren't seeing the same growth as our direct franchising with its double-digit expansion. Over 70%—73% of our pipeline is in the higher revenue-generating segments in the midscale and above brands driving that. Over 60% of our domestic pipeline is in the midscale and above, and over 85% of our international pipeline. What this means for us is our average deal values per room in the pipeline are increasing; they're up 800 basis points domestically, which is important and up 240 basis points internationally. This represents over $100 million of royalty fees for us over the next 4 years, with the domestic foundation weighted toward higher RevPAR, higher-segment, upscale brands. Internationally, higher RevPAR markets, especially notably in Latin America and Europe, host some of our more upper midscale brands. We're very excited about that.

David Katz, Analyst

Understood. Could you talk a bit more about how you're factoring the macro environment into your guidance for the year?

Michele Allen, CFO

Sure. I would say what we are factoring into our guidance is—well, first, our U.S. business has fully recovered to pre-COVID levels since the second half of 2021, finishing 2022 at 9% above 2019. We're looking to add another 4% to 6% on that growth this year. From a macro perspective in the U.S., we began to lap more normalized comps in the second half of 2022, where we were seeing about 3% year-over-year growth. We expect this trend to continue into 2023. Internationally, where not all markets have yet recovered to pre-pandemic levels, there is a larger year-over-year growth opportunity. We expect all of our international regions, with the exception of Asia Pacific, to get closer to 2019 occupancy levels. Overall, we're anticipating about half our growth to come from occupancy recovery and the other half from modest ADR growth.

Operator, Operator

Our next question comes from Michael Bellisario with Baird.

Michael Bellisario, Analyst

Michele, just one follow-up here. The 4% to 6% sort of system-wide globally—can you provide any specifics on what the U.S. expectation is versus international? Any spread in the components of the 4% to 6%?

Michele Allen, CFO

The U.S. is certainly going to have lower growth overall compared to international, since there is still recovery. In the U.S., we're looking at a few points of occupancy growth alongside a few points of ADR growth, while internationally, we're expecting to see some modest ADR growth with a significantly larger occupancy lift.

Geoffrey Ballotti, CEO

Congrats to you and Mary on the birth of Lucy, last Tuesday! You need to play the father of four girls, I wish you two more. We talked about this offline. Yes, we’re not seeing any impact on the economy brands due to your question. 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 and owners, and we know what is important to both. The one thing that COVID has demonstrated to our economy owner base is that they wish they owned more Wyndham product, given just how well our brands performed during COVID and the financial crisis as well as post-9/11. These essential construction and infrastructure workers never stopped traveling and were staying in our economy brands in record numbers, which is what allowed our franchisees to never have to close down. We will continue to provide the most flexible and competitively-priced economy brands with a focus on what we know is important to our guests and owners. Our renovation and PIP costs run 3 to 5 times less than many larger brand peers, and our technology stack operating costs remain the lowest at 4 to 6 times less, with continued focus on generating the best cash-on-cash returns in the economy segment.

Operator, Operator

Our next question comes from Patrick Scholes of Truist Securities.

Charles Scholes, Analyst

You talked in your press release about achieving your goal of a retention rate of 95%. Going forward, do you see that as the equilibrium level at this point, or do you see continued opportunity to improve that?

Geoffrey Ballotti, CEO

We absolutely have an opportunity to continue to improve, Patrick. As Michele said, we were in the 94% range in '19. We moved that to 95% in 2021, and now we've moved to 95.3% in '22. Our teams are incredibly focused on that. When you combine this with our gross unitization side, we've also been making progress. We achieved 7% gross additions in '21 and moved to an 8% organic growth addition in 2022, a record high for organic room additions for our system. Blending those two together, I am confident we can eventually push that 2% to 4% to perhaps 3% to 5%.

Operator, Operator

Our next question comes from Brandt Montour of Barclays.

Brandt Montour, Analyst

On the retention goal of just over 95.3% this year versus 95.3% last year, many people in the industry seem to think that this is the year where brands will begin to push back on owners who might have deferred CapEx during COVID. Do you believe you can move in the opposite direction of that trend?

Geoffrey Ballotti, CEO

I think the progress we’ve made, Brandt, from the 93% to 94% to 95% to 95.3% gives us confidence. I believe there's an opportunity out there with our strong brand value proposition in the economy and mid-scale space to pick up on conversions. We think transaction volumes will continue to accelerate. Stress sales are expected to increase in the second half of this year. We saw good movement on the additions and have been focused over the last few years. Our significant, targeted, and focused substandard deletions occurred back in 2018 and 2019 when retention rates were lower than they are today. Our brand quality efforts are boosting confidence in moving that number higher.

Brandt Montour, Analyst

If you look at your net unit growth guidance, would it imply a slight deceleration compared to what you accomplished in '22? Is that just conservatism, or are there regional factors or chain scales contributing to that?

Michele Allen, CFO

Brandt, I don’t think it’s actually a slight deceleration. If you look at the net room growth in 2022, you have to remember there was an 88 basis point growth from the tuck-in acquisition of Vienna House. We delivered at about 3% on an organic basis. The midpoint of our guidance this year would imply 3% as well. We’re targeting a 95.5% retention rate and expecting 3% net room growth, suggesting gross opens between 8% and 9%.

Operator, Operator

Our next question comes from Ian Zaffino with Oppenheimer.

Ian Zaffino, Analyst

When do we expect the impact of the government spending on infrastructure to flow through in 2023? Is there any kind of magnitude you could give us or at least directionally what we should expect?

Geoffrey Ballotti, CEO

We expect it to impact the back half of the year. If you follow everything put out by the Congressional Budget Office, the next round of the $1 trillion will set the fund in late '23. There are many preexisting, time-sensitive projects moving forward, such as the $350 billion highway reauthorization Act, which already has $40 billion designated for spending on bridges. We mentioned earlier that this represents an over $3 billion revenue opportunity for our franchisees over the next 5 to 8 years, equating to around $150 million of incremental royalties over that period. We are excited about this and have been investing in processes and technologies with a greater focus on winning a share of these federal and state allocations. We have a dedicated business-to-business sales team identifying major opportunity targets. There are 1.8 million infrastructure business companies in the U.S. today, and we are leveraging our relationships to extend our reach further. We've never attended events and conventions like the American Society of Concrete Contractors previously and are now engaging companies we haven't approached before. This has been a competitive strength of ours, and we’re continuing to heavily invest in it. For the seventh consecutive quarter, we're seeing a pickup based on what our franchisees are experiencing. We were up 16% in this business in the third quarter, accelerating to 21% in the fourth. We're excited about what's to come.

Michele Allen, CFO

To add to that quickly, we're generating about $17 million a year from this part of our business. If growth continues in the double-digit category, we could see about $3 million of incremental EBITDA, and we’re aiming for an expansion in the size of the pie once the spend hits the market.

Ian Zaffino, Analyst

That’s solid color. Just as a quick follow-up, regarding room growth projections—what assumptions are you making with rates going higher and maybe a softening economy? How does that alter your algorithm?

Michele Allen, CFO

Let me start by saying half the rooms in the current pipeline are either conversions or new construction projects already in the ground. This significantly reduces our exposure to current market dynamics. The rapid rise in interest rates has impacted all asset levels in Canadian hotels, but hotels are unique in that they have value rates and can offset cost sides, whether it be inflation or interest and can adjust daily. Developers' underwriting sustained ADR increases are partially or, in some cases, fully offsetting higher interest expense. We, along with our well-capitalized developers, believe this is the best time to build. Even though interest rates are higher than the historic lows over the past decade, we're expecting a slight decrease once inflation is under control and the economic uncertainty passes. Select-service hotels have minimal staffing requirements, delivering high ROI for owners and offering attractive rates even in this environment.

Operator, Operator

Our next question comes from Dan Wasiolek with Morningstar.

Dan Wasiolek, Analyst

I'm wondering if you could provide an update on your loyalty membership, where that's at, how it's grown, and the engagement concerning the number of room nights or the percentage of room nights being booked by the loyalty base? Also, I think you mentioned that direct bookings were up 23%. Was that for 2022? Can you provide a similar figure for the OTA channel?

Geoffrey Ballotti, CEO

Sure. Our enrollments grew 8% year-over-year, Dan; we're currently at 99 million members globally. This is driving double-digit growth year-on-year percentage quotes. Our brand.com growth is at an all-time high, outpacing OTA growth. Our share of occupancy has essentially increased 500 basis points domestically compared to pre-pandemic, remarkably, with nearly 1 out of every 2 check-ins to our economy mid-scale, upper mid-scale, and upscale brands coming through the loyalty program. Certain brands, like La Quinta and AmericInn, are approaching 60% share of occupancy blended, which reflects about a 50% share of occupancy domestically.

Operator, Operator

At this time, I show no further questions in the queue. I'll turn the call back to Geoff Ballotti for closing remarks.

Geoffrey Ballotti, CEO

Thanks, Todd, and thanks, everyone, for your questions and your interest in Wyndham Hotels & Resorts. We would 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 in our development pipeline, which has never been stronger than it is today. Domestic and global RevPAR growth accelerated to both the prior year and 2019 levels, and occupancy continues its recovery, providing a meaningful tailwind as we move forward. With consumer travel demand holding steadfast and our trusted brands delivering record levels of direct contribution through our brand.com channels, we are enthusiastic about the opportunities ahead of us to deliver outstanding value to our shareholders, guests, franchisees, and team members. Michele, Matt, and I look forward to talking with many of you in the upcoming weeks and months at various investor conferences. We wish everyone a happy President's Day weekend and look forward to seeing you soon.

Operator, Operator

Thank you. This does conclude today's Wyndham Hotels & Resorts Fourth Quarter and Full Year 2022 Earnings Conference Call. Please disconnect your line at this time and have a wonderful day.