Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Wyndham Hotels & Resorts, Inc.  (NYSE:WH)
Q4 2018 Earnings Conference Call
Feb. 13, 2019, 8:30 a.m. ET

Contents:

Prepared Remarks:

Operator

Good day, and welcome to the Wyndham Hotels & Resorts Fourth Quarter and Full Year 2018 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode and the floor will be open for your questions following the presentation. (Operator Instructions)

I would now like to turn the call over to Matt Capuzzi, Vice President of Investor Relations. Please go ahead.

Matt Capuzzi -- Vice President of Investor Relations

Good morning and thank you for joining us. With me today are Geoff Ballotti, our CEO; and David Wyshner, 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 Form 10 and other filings 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 www.investor.wyndhamhotels.com.

Consistent with the information that we shared with you in October, our further adjusted metrics reflect what our results would have looked like if we had completed our spin-off and the acquisition and integration of La Quinta on January 1st of 2018

With that, I'll turn the call over to Geoff.

Geoff Ballotti -- President and Chief Executive Officer

Thanks, Matt. Good morning, and thanks for joining us today. We capped off our first year as an independent public company by delivering solid full-year growth in rooms, RevPAR, adjusted EBITDA and adjusted diluted EPS. Just as importantly, we finished 2018 with another strong quarter where adjusted EBITDA increased 64% to $125 million and grew 16% in constant currency, excluding our 2018 acquisitions and dispositions.

Moreover, we continued to deliver organic room growth and organic RevPAR growth and system size and grow our development pipeline to a record 180,000 rooms. We accomplished a tremendous amount in 2018 and we could not be prouder of all of our team members who seamlessly kept things running through our spin, yet remained very focused on both growing earnings and growing our business.

The La Quinta transaction is proceeding very well. La Quinta's results post acquisition and in the fourth quarter have been solid with RevPAR up 3.2% in Q4 and our integration efforts progressing as planned. We remain impressed by La Quinta's amazing sales, marketing, operations support, revenue management and franchise development teams, who have smoothly transition to Wyndham. In the fourth quarter, we signed 13 new franchise agreements bringing our post acquisition La Quinta pipeline growth to 6% on an annualized basis. 27 new La Quinta's were opened in 2018 and 16 of these were new construction Del Sol prototypes.

Retention for the brand ran over 98% in 2018, and in a seven months since our acquisition, the La Quinta brand has seen a 140 basis points of average monthly RevPAR index growth. Because of its RevPAR growth, La Quinta has been for the first time in its over 50-year history moved from the mid-scale to the upper mid-scale segment of the industry by Smith Travel Research, something that our development team believes will help drive our franchise sales efforts. For the portfolio of La Quinta properties that we manage for CorePoint Lodging, we're making solid progress to lower payroll and benefit expenses, lower insurance costs and sourcing expenses and lower third-party travel agency commissions as we work to improve both their hotels operating margins and RevPAR indices. During the third quarter RevPAR for the CorePoint portfolio, grew 4%.

Most importantly, we're raising our estimated range of full run rate La Quinta synergies from $55 million to $70 million to $60 million to $70 million. We also continue to expect that the last two major integration milestones, the migration of La Quinta off of legacy central system technology on to our state-of-the-art cloud-based distribution systems as well as the merging of their loyalty program will be substantially completed in the first half of this year. This will allow us to deliver virtually all of our synergies by the second half of 2019.

As we begin 2019, we remain focused on continuing to grow as the world's largest and most international hotel franchise company by concentrating on our four strategic objectives to maximize return for our shareholders, namely, driving system growth, brand quality, property level market share and employee engagement. This morning, we would like to review some of our accomplishments and goals related to each of these objectives. David will then dive deeper into the numbers for the quarter and the year as well as provide our outlook for 2019.

Our number one priority continues to be increasing our system size with quality room growth. As of December 31, our total system had grown to approximately 810,000 rooms, which represents an 11% increase compared with the fourth quarter of 2017 and a 2% increase excluding our 2018 acquisitions and dispositions. In the United States, we added over 1,600 net rooms sequentially from Q3 to Q4. And importantly, we have now seen three straight quarters of net room growth in the United States. We opened more than 21,000 domestic rooms in 2018, which increased 6% organically from 2017 and 45% organically from 2016.

In addition, we increased our new construction signings by 28% in the United States, which was the highest level on the development front in five years. This growth reflects meaningful progress on our path to positive long-term domestic room growth and great work by our North America franchise sales team. Internationally, we grew our direct franchise system by 8% organically, while cleaning up and taking back control of the master license agreement for Days Inn in China. This strong direct franchising growth allowed us to deliver an overall 5% increase in international net room count and we had double-digit net room growth in our Latin America region, Southeast Asia region and China direct franchising system. With our continued focus on brand quality, our 2018 full year global franchise retention rate of 94% remained consistent with 2017 and improved as the year progressed.

International terminations in Q4 were 35% below the average of the prior four quarters due to significantly lower termination by our Super 8 China master licensee. One of the keys to driving room growth and room openings around the world has been introducing our brands to continents and to countries where they've never been sold before. We introduced nine Wyndham brands to 15 new markets during 2018, including China, where we leveraged our existing development and franchise sales teams to launch Microtel by Wyndham and open our first Wingate by Wyndham. In 2018, we grew our direct franchise system in China by over 20% from 28,000 to 33,000 rooms at a higher royalty rate than our traditional master licensee rates in that market.

Another significant objective of ours is to continue elevating the economy and mid-scale experience, including new prototypes for many of our brands. For our largest US economy brand, we are working with our franchise advisory council to initiate a refresh of Days Inn by Wyndham, requiring our franchisees to invest in the quality of the sleep experience and the overall standards of the economy brand which focuses on the little things that surprise and delight and a brand that has moved up to third place from sixth place in the J.D. Power economy guest satisfaction rankings over the past three years. We know from our experience with Super 8's new Innovate brand standard, that a thoughtful, cost-effective refresh program could have a very meaningful impact on guest experience, while driving favorable market share and operating margin improvements.

Our high quality, high value brands like J.D. Powers number one ranked economy brand, Microtel by Wyndham and J.D. Powers number one ranked mid-scale brand, Wingate by Wyndham both outperformed their economy in mid-scale competitors in 2018 with RevPAR index premiums of 115% and 105% respectively. A disciplined focus on developing new and refreshed design prototypes and standards is what we're focused on in the years ahead for all of our brands.

Our third strategic initiative continues to be growing systemwide revenue contribution and property level market share through our best-in-class sales, marketing, distribution, loyalty and technology. We have continued to invest in the speed, effectiveness and responsiveness of our mobile and our brand sites which have remained our fastest growing distribution channels growing nearly 20% in the quarter. Overall contribution, reached a record 52% of all room nights delivered to our franchisees globally and over 65% of all room nights domestically, an increase of 490 basis points in 2018. Total direct contribution growth was driven not only by strong digital performance but also by our signature reservation services program or our experience global contact centers handle front desk calls on behalf of both managed and franchise owners.

Voice still represents an important channel for us, and our goal is to turn every incoming call into a future reservation. During the fourth quarter, we grew this program to over 3,200 hotels participating in North America. And hotels transitioning experienced a 16% increase in average daily rate average along with a 25% average increase in Wyndham rewards enrollments. Given the tremendous success of this program here in the United States and in Canada, we will begin rolling it out to Europe later this month.

Our Wyndham Rewards loyalty program added over 6 million new members in 2018 and continued to strengthen the power of our brands by delivering double-digit growth in direct revenue. For the first time in the program's history, over 35% of our domestic check-ins asked for their loyalty points, and the program drove another 140 basis point increase in Wyndham Rewards global share of occupancy. And nothing makes us broader than to see Wyndham rewards build upon its award winning history. Since its relaunch only three short years ago, Wyndham Rewards has garnered over 60 industry awards.

Most recently, Best hotel loyalty program as voted by the readers of USA TODAY and the number one ranking on Wallet Hub's list of best Hotel Rewards program for the fourth consecutive year. In the last three years, the program has evolved dramatically to include redemption opportunities at four new brands, tens and thousands of club resorts and vacation destination partners, and soon more than 900 La Quinta hotels.This rapid expansion combined with an increasingly competitive loyalty landscape means it's absolutely vital that we continue to enhance and build upon our award winning foundation and that's exactly what we intend to do.

Finally, I'd like to spend a few minutes talking about our continued commitment to fostering a values driven culture to attract, retain and engage the best and brightest in our industry. Our core values, integrity, accountability, inclusiveness, carrying and fun underpin our culture, nurture our innovation, drive our growth and enhance our overall shareholder value proposition. We believe our values not only inform how our team members go about their work each day, but also have broader impacts. Examples of our team members devotion to charitable causes across the globe abound from our very important work with Ecpat and Polaris to combat and end human trafficking in our industry, to our commitment to veterans, military personnel and their families and the communities in which we serve.

At Super 8 in the United States, for example, we provide a preferred parking space for veterans as a small thank you, a very small thank you for their service. Our support of the Fisher House Foundation helping families of patients receiving care at military and VA Medical centers has resulted in the donation of over 5,500 room nights from La Quinta team members and loyalty members to this very noble cause.

And lastly, at each and every one of our 20 brands, we proudly offer discounts on room rates to active and retired military and their families, bringing our signature Count On Me! service culture to life. We look back on 2018 as a transformative year for Wyndham Hotels. We completed the largest acquisition on our history, we became an independent public company and we didn't miss a beat in terms of delivering strong operational and financial results. Our teams enthusiasm for the future is palpable and it's contagious. We expect our business to grow and to prosper in 2019 and beyond.

And with that, I'll now turn the call over to David.

David Wyshner -- Chief Financial Officer

Thanks, Geoff, and good morning everyone. Today, I'll discuss our strong fourth quarter and full year results, as well as our balance sheet, capital allocation and our 2019 outlook. My comments will be primarily focused on our adjusted metrics. You can find our complete results in our earnings release including reconciliations of adjusted and further adjusted amounts to GAAP numbers. We believe that the adjusted figures we're providing are helpful in understanding how our business performed and how it will look on a go-forward basis.

Our top line grew 69% in the fourth quarter to $527 million, including a $198 million of incremental revenues from La Quinta. Adjusted EBITDA increased 64% in the fourth quarter and was up 16% in constant currency and excluding our 2018 acquisitions and divestitures. Royalty and franchise fee revenues increased $23 million or 26% largely due to the inclusion of looking to La Quinta. License fees, primarily from Wyndham

Destinations were $32 million compared to $19 million during the fourth quarter of 2017. Our global RevPAR grew 10% in constant currency in the fourth quarter, including almost 7 points from La Quinta and 2 points of organic growth.

US RevPAR grew 13% in the quarter, reflecting 9 points from La Quinta and to 2 points of organic growth. We saw a good demand throughout the quarter with RevPAR up in the US and internationally up for economy and mid-scale brands, up on the cost and in the middle of the country and excluding hurricane effects, up in energy related and non-energy related markets. At the same time, our fourth quarter RevPAR growth was dampened by nearly 2 points due to lapping our hurricane related benefit that we had in the fourth quarter of 2017.

You'll recall the hurricane impacts were a benefit in the first half of 2018 and became a headwind in the third and fourth quarters as we anniversaried them. When we back out hurricane effects in our 2018 acquisitions and divestitures, we estimate that our US RevPAR growth with 2.5% in the first quarter, 2.6% in the second quarter, 3.1% in the third quarter and 3% during the fourth quarter. The takeaway from this is that, excluding hurricane effects, our domestic RevPAR growth was remarkably consistent over the course of the year. International RevPAR increased 3% in constant currency in the fourth quarter all of which was organic, reflecting strong performance in a range of geographies, including EMEA and Canada.

As Geoff noted, our system size was up 11% year-over-year and 2% excluding the impact of acquisitions and divestitures. Importantly, we saw a 13% increase indirectly franchised new construction openings during 2018. We've also seen good growth in our trademark collection brand which has grown to roughly 100 hotels since we launched it in 2017, making it one of the fastest scale brands in the history of the lodging industry. Our development pipeline increased to nearly 180,000 rooms at year end, of which 73% are new construction and 54% are international. Sequentially compared to the third quarter, our global pipeline increased 2%. Excluding our 2018 acquisitions and divestitures, our global pipeline is up 6% year-over-year.

In the La Quinta pipeline alone is approximately 25,000 rooms, which is 3% more than when we acquired the brand in May. For the full year, our total revenues grew 46% to $1.9 billion, including $513 million of incremental revenues from La Quinta. Excluding our 2018 acquisitions and divestitures, revenues increased 6% primarily due to higher license, royalty and other franchise fees. Royalty and franchise fees increased $77 million or 21%, including a 16 point contribution from La Quinta. License fees, primarily from Wyndham Destinations were $111 million compared to $75 million during 2017.

Our 2018 adjusted EBITDA was $507 million, a year-over-year increase of 32%. Excluding currency effects in our 2018 acquisitions and divestitures, we turned to our 6% revenue growth into 11% growth in adjusted EBITDA. And our full-year adjusted EBITDA was toward the higher end of our October projections. Our global RevPAR grew 9% in constant currency in the full year, including 4.5 points from La Quinta and 3 points of organic growth. Our US RevPAR grew 10% reflecting 6 points from La Quinta and 3 points of organic growth. Our international RevPAR increased 4% in constant currency in the full year, all of which was organic, reflecting strong performance in EMEA, Canada and Latin America.

We believe our strong fourth quarter and full year RevPAR trends reflect both general market conditions and factors specific to us. STR data for the US indicate that demand growth continues to outpace supply growth in our core economy and mid-scale segments. And in addition to this positive macro dynamic, we think the growing strength of our brands, the benefits from our signature reservation services program and our addition of by Wyndham cross-branding are also boosting our and our franchisees RevPAR performance.

As Geoff mentioned, we are on target to achieve the synergies we expected from the La Quinta acquisition both in terms of timing and amount. As a reminder, virtually all of the synergies we projected are cost savings. We realized $9 million of synergies during the fourth quarter, which put our run rate of annual synergies at $36 million. As planned, our goal is to complete substantially all of our integration work during the first half of 2019, as we La Quinta onto our technology platforms and loyalty program. As a result, we are well positioned to be close to a full run rate synergies of $60 million to $70 million a year, sometime in the third quarter of 2019.

Turning to our balance sheet. At December 31, our debt balance remained at approximately $2.1 billion carrying a weighted average interest rate of 4.7%. We had $366 million of cash, which includes a $205 million of temporary cash that is year earmarked to be paid to Tax Authorities and CorePoint Lodging in 2019 in conjunction with our acquisition of La Quinta. Excluding this temporary cash, our net leverage was 3.3 times, our 2018 further adjusted EBITDA in the lower half of our 3 times to 4 times net leverage target.

Our free cash flow was only $158 million in 2018 because of our $150 million of specific cash outflow items. Namely, $98 million of transaction and separation related expenses, $17 million of insurance reimbursed hurricane related capital expenditures and $35 million tax payment tied to the La Quinta acquisition. Nonetheless in the seven months following our spin-off, we were able to return $194 million to shareholders through share repurchases and common stock dividends. Going forward, we expect our free cash flow excluding the onetime payout of our temporary cash will approximate our adjusted net income over time as our business is inherently a cash business.

Our capital allocation framework is unchanged. We remain focused on growing our business organically and we will deploy a modest portion of our free cash flow for development advances and similar opportunities. We will also keep using free cash to pay dividends. Beyond that, we will allocate cash flow to bolt-on acquisitions that are both strategic and accretive and to share repurchases, with the amount going to each depending largely on the acquisition opportunities that are available.

In the fourth quarter, we repurchased 1.2 million shares of common stock for $60 million, which was 36% more than in the third quarter. In the seven months after spin-off, we repurchased a total of 2.3 million shares of stock or 2% of shares outstanding at a cost of $119 million. Our Board of Directors recently authorized a 16% increase in our quarterly cash dividend from $0.25 to $0.29 per share beginning with the dividend that is expected to be declared in the first quarter of 2019.

Now let me turn to our outlook for full year 2019, the details of which are in our earnings release. We expect revenue of $2.11 billion to $2.16 billion, adjusted net income of $301 million to $313 million, adjusted EBITDA of $605 million to $620 million and adjusted diluted EPS of $3.05 to $3.17 based on an adjusted diluted share count of $98.7 million, which excludes future share repurchases.

We also expect rooms growth of 2% to 4% and organic RevPAR growth of 1% to 3% in constant currency. There is an adjusted P&L walk down on Table 6 of our earnings release. As you think about our outlook for RevPAR growth, please remember that the late 2017 hurricanes helped US RevPAR by almost 3 points in last year's first quarter and a 1.5 point in the second quarter. As a result, we had tough RevPAR comps in the first half of this year and close to a 1 point headwind for the year as a whole.

Importantly, as we laid out in our release, we build our $605 million to $620 million adjusted EBITDA projection based on our fully synergized 2018 EBITDA figure of $600 million. From that, we adjust for the La Quinta synergies, that as planned, we are still in the process of delivering. And we adjust for the fact that our owned hotel in Puerto Rico, which benefited from insurance recoveries in 2018 won't be back to normalized earnings levels in 2019. From there, we are projecting 5% to 7% growth in adjusted EBITDA driven largely by rooms and RevPAR growth in consistent with the longer-term target we previously laid out.

So while we expect our adjusted EBITDA to grow 19% to 22% from the $507 million that we reported in 2018, our growth rate versus our 2018 further adjusted EBITDA is more modest. The reason that we provided to EBITDA walk down in our earnings release is to highlight that the two items that are negatively impacting our growth compared to our further adjusted 2018 EBITDA are both temporary. In particular, we will have a full year of full synergies from the La Quinta acquisition in 2020 and we estimate that the results at our owned hotel and Puerto Rico will move back toward normalized levels in 2020 and should be all the way back in 2021.

Separately, while we don't factor share repurchases into our EPS forecast, we do anticipate buying back stock this year. From a seasonality perspective, we expect to generate roughly 17% to 18% of our adjusted EBITDA in the first quarter, 26% in the second quarter, 30% in the third quarter and the remainder in the fourth quarter. The timing of our marketing expenses will work against us in the first quarter this year compared to last.

From a segment perspective, we expect more than 103% of our total adjusted EBITDA to come from hotel franchising, 8% to 10% to come from hotel management and to have approximately $75 million of unallocated corporate and other expenses. The corporate and other figure reflects spending consistent with the pro forma projections we have published last year, plus about $10 million of cost reallocations that we needed to make following the La Quinta acquisition.

We're projecting our capital expenditures to be $60 million to $65 million in 2019, which is about $10 million to $15 million more than what we would consider typical because of incremental CapEx associated primarily with the integration of La Quinta. The substantial majority of our capital expenditures are for information technology.

In conclusion, our fourth quarter and full year results were strong and consistent with the upper half of our earlier projections. The La Quinta integration remains on track to deliver the amount and timing of synergies we had planned. We remain highly enthusiastic about the opportunities in front of us in 2019 and beyond, and we will maintain a disciplined capital allocation framework to drive shareholder value.

With that, I would like to turn the call back over to Geoff.

Geoff Ballotti -- President and Chief Executive Officer

Thank, David. )Technical Difficulty) As David said, our results for the fourth quarter and the year were strong and demonstrate sustained progress against our strategic objectives. Our business model, our culture, the strength of our brands and our recent results all continue to make us very excited about our future and our ability to capitalize on the opportunities ahead of us.

And with that Keith, David and I would be pleased to take questions.

Questions and Answers:

Operator

(Operator Instructions) Thank you. We'll take today's first question from Stephen Grambling with Goldman Sachs. Please go ahead.

David Wyshner -- Chief Financial Officer

Hey, good morning. Thanks for taking the questions. I guess first on free cash flow. I guess maybe can you -- you talk to the net income flowing through over time at about 100% of free cash flow. What are some of the puts and takes you should think about that relationship in 2019? Is there any chance you can quantify any outstanding integration spend in the year and any outstanding maybe tax payments, that you have coming?

Geoff Ballotti -- President and Chief Executive Officer

Sure. I think the -- clearly, the big item we have is the $205 million cash outflow, the payment of the temporary cash that will be part of it. As we think about other items, we are expecting a tax payment to us, a tax rebate in the $30 million range to come in this quarter or early next. We'll have a little bit of a tail, but I described it's fairly small related to transaction and separation related costs. So those two should relatively offset with each other. And I think we're going to look to have a development advances in the $20 million, $25 million, $30 million maybe even $35 million range. You may have noted that our development advances were below our longer-term average last year.

I think we had a few timing issues there that may make them a little bit larger this year. And I think the opportunities to deploy some cash into various projects are relatively attractive for us. So, I think we may see that sort of normalize over the two-year period to the $25 million -- $20 million to $25 million average that we expect over time. So generally speaking, I would look for our free cash flow to be at or modestly above our adjusted net income in 2019.

Stephen Grambling -- Goldman Sachs -- Analyst

Super helpful. And then, maybe changing gears. The net unit growth, there was a bunch of puts and takes there when you kind of include or exclude La Quinta in the US specifically. I guess how should we be thinking about the growth in the year ahead? Should we expect kind of growth in net unit to be up, excluding La Quinta, and what are some of the building blocks between kind of gross adds versus attrition?

Geoff Ballotti -- President and Chief Executive Officer

Thanks. Well, on attrition, Stephen, we've always been targeting that 95% retention rate. We've been moving toward that, we had improvement in 2018. But the building blocks domestically as we've seen in the last three years as we've been focused on our North American system quality. We've been moving from down to flat which we've now achieved for three consecutive quarters to zero to 1% this year. And I think as we've said, our long-term growth has always been domestically 1% to 2%.

Stephen Grambling -- Goldman Sachs -- Analyst

Thanks. I'll jump back in the queue Good luck this year.

Geoff Ballotti -- President and Chief Executive Officer

Thanks, Stephen.

Operator

We'll take our next question from David Katz with Jefferies. Please go ahead.

David Katz -- Jefferies -- Analyst

Hi. Good morning, everyone.

Geoff Ballotti -- President and Chief Executive Officer

Good morning, David.

David Katz -- Jefferies -- Analyst

I just wanted to follow-up that very last question and answer and comment, which is, the long-term domestic unit growth of 1% to 2%. Is that something, without giving any formal guidance, is that something that's reasonably achievable in 2020? Or is it something that you think might be longer term?

Geoff Ballotti -- President and Chief Executive Officer

We think longer term. We think 2020, we're looking -- continuing to look at at 0% to 1% is, we still have some work to do from a systems standpoint in the economy size of our, and the economy segment of our business with certain brands. But to the extent that we've now had three consecutive quarters of positive net room growth domestically, we feel that moving from 0% to 1% to 1% to 2% excluding excluding La Quinta and AmericInn which are both performing very nicely for us is achievable.

David Katz -- Jefferies -- Analyst

And if I could just delve into the La Quinta pipeline a bit. Is that made up of what we would consider to be the individual franchisee population? Is there any institutional money involved there? Is that a potential focus that could accelerate La Quinta over time? And I ask the question in the context that, we always check La Quinta out in our travels when we talk to institutional grade folks. Where is that coming from? And where can it go?

Geoff Ballotti -- President and Chief Executive Officer

It's a mix of both and it could go more toward the institutional. When we look at 13 openings that we had in the fourth quarter or the 27 La Quinta openings that we had in -- throughout 2018, it was more individual then institutional. But as our sales teams expand, there's no reason it could not go more institutional.

David Wyshner -- Chief Financial Officer

That's right. To your point, we view that as a significant opportunity for the La Quinta brand and for some of our other brands as well, particularly on the new construction side.

David Katz -- Jefferies -- Analyst

Great. If I can just follow that up with one quickly, which is, sometimes we've experienced the need for key money and upfront investment when approaching institutional grade franchisees. Is that something that's on your consciousness is a possibility for La Quinta?

Geoff Ballotti -- President and Chief Executive Officer

Absolutely. We haven't had -- in La Quinta in it's, David has not had to use key money, but we would absolutely be willing to use it and we do use it

use it for the right developer, for the right market. Historically, we've been under 5% of our system growth has been generated with the use of key money. And I think it's something we would absolutely look at for the right hotel and the right market.

David Katz -- Jefferies -- Analyst

Got it. Thank you very much.

Operator

We'll take our next question from Joe Greff with JPMorgan. Please go ahead.

Joseph Greff -- JPMorgan -- Analyst

Good morning, guys. With respect to the $605 million to $620 million of 2019 adjusted EBITDA guidance. What's the absolute dollar amounts in there related to La Quinta?

David Wyshner -- Chief Financial Officer

The La Quinta, as we said, has been performing well. And the amount of EBITDA that's in there is in the $165 million to $170 million range. And what we've seen with La Quinta is growth from a little under $100 million in 2017 to about $127 million contribution in 2018 to somewhere in the $165 million to $70 million range expected for this year, both due to organic growth in the business and the delivery of synergies.

Joseph Greff -- JPMorgan -- Analyst

And of that $150 million to $170 million range, the synergy amount, is that $60 million to $70 million less than $12 million?

David Wyshner -- Chief Financial Officer

Correct. That's correct.

Joseph Greff -- JPMorgan -- Analyst

And then, David, you mentioned earlier, about $75 million of unallocated corporate other expense. Can you just talk about that a little bit? Maybe you said it, and I didn't quite grasp exactly what that is. But is that a different presentation of the expenses that you've been reporting, i.e. relative to the $15 million that you have on Table 1 in the 4Q and $55 million that you have in that same table for the year-end number?

David Wyshner -- Chief Financial Officer

I think slightly. And as I've mentioned in my remarks, we had projected corporate and other costs of $60 million to $65 million in our May presentation. And as we went through our budget process and with La Quaint, we have certain costs that need to be considered corporate costs because they're now serving multiple segments. And so there's about $10 million of costs that were previously down in the segments that in 2019 get reallocated if you will back up to corporate.

So the $75 million-ish million corporate cost that we are predicting for this year are very much the $60 million to $65 million that we had anticipated when we laid out our pro forma in May. And then there's a $10 million reallocation above that.

Joseph Greff -- JPMorgan -- Analyst

Great. And then my final question is with respect to the cash you have to pay the tax authorities related to the La Quaint acquisition. Is there a chance that, the tax liability is lower than $205 million or is it just really a timing issue versus the potential for that to be lower?

David Wyshner -- Chief Financial Officer

There is a potential for that to be lower, but that does not benefit us. The $205 million was part of our $1.95 billion purchase price. And whatever does not go to tax authorities goes to CorePoint Lodging. And we're still in the process of working through that. But from our perspective, no matter what, that $205 million is temporary cash because it's going either to taxes authorities, either to the IRS or to CorePoint Lodging.

Joseph Greff -- JPMorgan -- Analyst

Great. Thank you, guys.

Operator

We'll take our next question for Patrick Scholes with SunTrust. Please go ahead.

Patrick Scholes -- SunTrust -- Analyst

Hi, gruff morning.

Geoff Ballotti -- President and Chief Executive Officer

Good morning, Pat.

Patrick Scholes -- SunTrust -- Analyst

I saw that you fairly recently reacquired the master license Days Inn in China. Do you anticipate any other similar acquisitions in the next year or two?

Geoff Ballotti -- President and Chief Executive Officer

Patrick, we'd love to look at any of our master license agreements which became available for sale or for purchase at the right price. I mean, our master license agreements date back to 1992. Our last deal was 10 years ago. We -- our biggest is, as we've talked about is our Super 8 master license in China which actually made great progress this year and has begun to grow again. And there are another half a dozen that are in Asia and in Canada that would continually look at. But China presented itself and it's something we're excited about on Days.

Patrick Scholes -- SunTrust -- Analyst

Okay, thank you. Then my next question is, I noticed that the royalty rate was approximately 6 basis points below the 3Q level. How should we think about the trajectory of the royalty rate for 2019?

David Wyshner -- Chief Financial Officer

Sure, I think like we've seen -- there is a little bit of seasonality that will impact the royalty rates. So we tend to look at it on a full year basis. And what we've seen over time is that our royalty rates I think have been fairly consistent. And what we have is the opportunity to grow our royalty rates in the international regions as our brands become more and more impactful there. And I think the offset to that is that the royalty rates there are, right now, a bit lower.

So as we grow faster internationally, even though we're moving -- we look to move our international rates up, the overall impact due to mix will probably result in royalty rates being relatively steady over time. And that's what we've seen over the last several years pretty consistently is a stability in average royalty rate as we grow faster in international markets.

Patrick Scholes -- SunTrust -- Analyst

Okay, thank you. That's it.

Operator

And we'll take our next question from Jared Shojaian with Wolfe Research. Please go ahead.

Jared Shojaian -- Wolfe Research -- Analyst

Hey, good morning, everyone. Thanks for taking my questions. So I wanted to ask a question on the 2019 guidance. Can you help me understand the 5% to 7% organic growth that you're calling out. Because if I look at your rooms growth 3%, RevPar 2%. I would think that EBITDA could grow faster than the 5% to 5%, but maybe the mix of room growth more weighted toward master versus direct. So maybe can you just help me understand how that algorithm works. And then, should we be thinking about 5% to 7% is sort of the right way to think about the longer-term EBITDA growth going forward?

David Wyshner -- Chief Financial Officer

Sure. I think when you look at the strength of our franchising margin, we have significant drop through already from royalty revenues. And as a result, the good news is that when royalty revenues increase, we get a really good drop through from those. But we don't have a lot of operating leverage that would cause EBITDA growth to be faster than the royalty revenue growth. And as a result, that's why we would expect the 2% to 3% -- the 2% to 4% rooms growth call it 3% at the middle and the 1% to 3% RevPAR growth, 2% at the middle to produce roughly the 5% to 7% EBITDA growth that we're talking about on an organic basis.

What's interesting about that, EBITDA growth is that, it does not include any benefits from capital deployment, which you'll remember from our May Investor Day presentation, we estimated it could be another 3% to 5% a year, which will benefit EBITDA. If it comes in the form of investments or acquisitions, it will benefit EPS, if it comes in the form of share repurchases. And when you add that 3% to 5% in our 5% to 7% organic revenue growth, it looks more like 8% to 12% on the EPS line, whether it's in the form of acquisitions or share repurchases. And that 8% to 12%, we think is consistent with the 8% to 14% long-term earnings growth potential that we laid out in May.

Jared Shojaian -- Wolfe Research -- Analyst

Okay, thank you. And just switching gears here. Just back to the unit growth. Couple of questions, I mean, how much of your international growth in 2018 came from masters from versus direct? And how do you foresee that trending in the future? And then separately, you talked about getting to a target retention rate of 95%. Can you just talk about why that's the right target? I know as you move up the chain scale, some of the other brands are closer to 98% plus. I know there some structural differences in the lower chain scale. But maybe you can just talk about, as you've clean through and prune through the system, why 95% is the right number and not something higher than that?

Geoff Ballotti -- President and Chief Executive Officer

Sure. So our rooms growth, Jared, was, as we said up a 11% in the year, it was 2% up excluding all of our acquisitions. And internationally, was up

5%. When we look internationally, most of the growth in the direct franchising business was in China, where we saw that 20% increase in our ability to grow to the 33,600 rooms, I mentioned earlier. And what's so exciting about that is where that growth is coming from and the brands it's coming from? I mean, we added, for example, 23 Ramadas in China.

China team had a incredible year, and we opened new brands that have never been sold there before. So master growth in China, the biggest one I just mentioned and touched on, Super 8 is the brand that we've been focused on. It was not growing in the first few quarters and it began growing in the fourth and grew overall 1% in the year and that's by far and away our largest remaining master license agreement overseas.

David Wyshner -- Chief Financial Officer

And then, with respect to retention as we look at the properties that leave us there -- in the economy in the mid-scale space there is just a -- there are some properties that are on land or in locations where it makes sense eventually for that property to be redeveloped for a different use. And as a result, I think the highest number we could possibly get to, may very well be in the 90s, 98% range. And as a result the key for us is, is the -- that remaining two or three points that's in there that can be an opportunity for us to get hotels to do the work that's required and necessary either in terms of capital investment or in an investment and operations or both to be able to meet our standards and stay with us.

And I think as we look at that potentially two or three points of opportunity there what we want to do is grab one, one to two of that and then keep working on it from there, but that's sort of the way we thought about it and we look very carefully at the properties that are -- that have left us and what the reasons are. And that's what gives us I think confidence that over time we can move retention rates from a 94% to 95% where we've been running up north of 95% and ideally north of 96% as well.

Geoff Ballotti -- President and Chief Executive Officer

And also, Jared, when we add brands in the mid-scale as we did with AmericInn last year run at 97.5% retention rate 200 or so units, and at an upper mid-scale brand now La Quinta with its Del Sol prototype which ran last year, a 98.5% retention on a 1,000 units. It's another building block for us moving forward.

Jared Shojaian -- Wolfe Research -- Analyst

Great. Thank you very much

Geoff Ballotti -- President and Chief Executive Officer

Thank you.

Operator

Our next question is from Ian Zaffino with Oppenheimer. Please turn ahead.

Ian Zaffino -- Oppenheimer -- Analyst

Hi, great thank you very much. Just on La Quinta can you maybe help us understand what the or tell us what the RevPar was or at least the trend you saw in the fourth quarter vis-a-vis the whole portfolio or maybe what you're seeing going forward in 2019? Thanks.

Geoff Ballotti -- President and Chief Executive Officer

Sure. La Quinta's fourth quarter RevPAR Ian, it was up 6% and it was 5.2% for the full-year. And what excites us the most has been the share growth across the brand to see continued pickup in its RevPAR index throughout the year has been something that we've been really excited about.

Ian Zaffino -- Oppenheimer -- Analyst

So going forward, you expect it to outperform the rest of the portfolio?

Geoff Ballotti -- President and Chief Executive Officer

We do.

Ian Zaffino -- Oppenheimer -- Analyst

Okay. And then also just touching on some M&A activities what are you basically seeing out there right now as far as know tuck-ins and how you think about leverage vis-a-vis the opportunities out there. Thanks.

Geoff Ballotti -- President and Chief Executive Officer

Sure. With respect to opportunities that are out there what it tends to be highest on our radar screen is any opportunities to acquire brands. We're pretty passionate about being asset light and that is -- that combination is what we look for a good brand in an asset light context is what captures our attention the most as we look at opportunities both in North America and around the world. I would say that from a leverage perspective, we're comfortable with our leverage where it is right now 3.3 times.

Net leverage on a pro forma basis and our target is t 3 times to 4 times for the right transaction we would be willing to move above 4 times but only temporarily I think we'd want to be in a position where we could get that back down into the three times to times range and I would say our preference is being in the lower half of the 3 to to 4 times range.

Ian Zaffino -- Oppenheimer -- Analyst

All right. Thank you very much.

Geoff Ballotti -- President and Chief Executive Officer

Thanks, Ian.

Operator

And we'll take our next question from Alton Stump with Longbow Research. Please go ahead.

Alton Stump -- Longbow Research -- Analyst

Good morning and thanks for taking my question. Just wanted to ask with the updated synergy guidance that you gave us for La Quinta I presume still the lions share that it just simply costs synergies. As you kind of think about top line energies now that you've of course own the concept here for a -- since last couple of quarters. Are there any sort of kind of potential areas that you maybe see now that you didn't see when you bought the brand as far as generating top line synergies as kind of look forward?

David Wyshner -- Chief Financial Officer

Sure. Yes. We're very -- we're feeling very good about the synergies, which was why we raised the range -- public company synergies, we feel very good about and we've raised from 2017 to 2018. The IT and the sales and marketing synergies are still ahead of us and we're feeling very confident and that was the biggest piece of what drove us to raise the bottom end of that range. We have been conservative on the revenue -- consist on the revenue -- consistently conservative on the revenue synergies but looking ahead both on what we're seeing in terms of growing RevPAR, growing index, growing our system size none of those are yet built-in.

Alton Stump -- Longbow Research -- Analyst

Great. That's helpful. And then, just on consumer front obviously, you guys have lot more leisure exposure than most of your peers, how are you seeing from the consumer end as kind of look ahead to the rest on that, can you --

Geoff Ballotti -- President and Chief Executive Officer

Sure. We're seeing a great strength which is why we feel our brands outperformed in 2018 and we're continuing to feel that going into 2019 from the strength of the leisure transient market, we're seeing more strength on the weekends than we ever have. We're seeing really strong weekend occupancies, we continue to see strong pickup in not only rate but also in occupancy and we can continue to experience that. We saw in the fourth quarter 50 basis points of occupancy pickup in both our economy and our mid-scale brands. Again, I think pointing back to the strength of the consumer right now in terms of how they're feeling in that segment of the marketplace.

David Wyshner -- Chief Financial Officer

And one of the reasons I walk through the quarterly numbers excluding hurricane effects is really to highlight how consistent that's been over the last year almost every quarter being the 2.5% to 3.1% range without a lot of variability in there, that's really points to the consumer behavior being both relatively strong and remarkably stable over the last 12 months.

Alton Stump -- Longbow Research -- Analyst

Well, thanks so much, Geoff and David.

Geoff Ballotti -- President and Chief Executive Officer

Thank you.

Operator

And next we'll go to a follow-up from Stephen Grambling with Goldman Sachs. Please go ahead.

Stephen Grambling -- Goldman Sachs -- Analyst

Hi, thanks for sneaking me in. I guess as you look at the upcoming combination of the La Quinta loyalty program and also the integration with your systems with La Quinta, I guess aside from scale is there anything unique about their systems as you transition them over that could make it more difficult or easier relative to prior tuck-ins?

Geoff Ballotti -- President and Chief Executive Officer

Nothing more difficult or nothing more complex, Stephen, we've done this now for 8,000 of our hotels across 19 brands and we are very confident that what we are going to provide for the La Quinta franchisees in terms of a state-of-the-art and easier to train server less property management system is something that is going to fire on all cylinders.

Stephen Grambling -- Goldman Sachs -- Analyst

And has any kind of training begun for the folks in there or do you have to wait until things are on the systems.

Geoff Ballotti -- President and Chief Executive Officer

Oh gosh, yes. We have been training now and beginning to move, actually La Quinta franchisees who have joined the system in the fourth quarter over to over to our SynXis property management system which will in the short order would be connected to SynXis. But the teams have been training and continue to train and are together today training and our franchise service directors and our directors of franchise operations are all actually together training today.

Stephen Grambling -- Goldman Sachs -- Analyst

Great. Thanks so much.

Operator

And it appears we have no further questions. I return the floor to Geoff Ballotti for any closing remarks.

Geoff Ballotti -- President and Chief Executive Officer

Thank you, Keith. And again, thanks everybody for your time this morning. David, Matt, and I appreciate your attention and your interest in Wyndham Hotels & Resorts, and we look forward to talking to you again after our first quarter if our paths don't cross before then which we think they may well. Take care and have a great Valentine's Day tomorrow and President's Day weekend ahead hopefully traveling with your loved ones.

Operator

And this does conclude today's Wyndham Hotels & Resorts fourth quarter and full-year 2018 earnings conference call. Please disconnect your lines at this time, and have a great day.

Duration: 56 minutes

Call participants:

Matt Capuzzi -- Vice President of Investor Relations

Geoff Ballotti -- President and Chief Executive Officer

David Wyshner -- Chief Financial Officer

Stephen Grambling -- Goldman Sachs -- Analyst

David Katz -- Jefferies -- Analyst

Joseph Greff -- JPMorgan -- Analyst

Patrick Scholes -- SunTrust -- Analyst

Jared Shojaian -- Wolfe Research -- Analyst

Ian Zaffino -- Oppenheimer -- Analyst

Alton Stump -- Longbow Research -- Analyst

More WH analysis

Transcript powered by AlphaStreet

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.