Geoff Ballotti: Yes. Thanks Joe. We could assign deals in the fourth quarter to your question. We’ve seen both deals and groundbreaks pause. Many of these small business owners have experience with Choice and they want to see this resolved certainly before moving forward. I mean with Echo, we were thrilled with the 268, I believe, we executed in 2023, that was 90% of what we committed to do last year. Our focus has shifted on Echo from the large multiunit developers to individuals. And we certainly had some progress. I think we executed three in the quarter. But we could have executed more. But look, we’re thrilled with the tremendous success in selling through this uncertainty. I mean it really began back in May with the Wall Street Journal leak, and we expect to continue to do the same in 2024.
Our franchise sales teams around the world, I could tell you, are fired up. Fourth quarter, as you say, was a record of openings, but more deal noise, to your point, certainly creates a more challenging sales environment, which really comes in two forms. Owners, as I said, moving more slowly on committing to deals with us. And a second sort of increased competitive deal landscape, to your point on Dan’s is becoming more prevalent as Choice pushes through, really reverse its declining system. But yes, we know our record Q4 could have been better, both domestically and internationally without the noise.
Michele Allen: Yes. And to your last question, Joe — to the last part of your question, Joe, I would say pushing through Choice is probably less than 10% of the total $90 million budgeted for 2024.
Joe Greff: Thank you.
Operator: Thank you. Our next question will come from David Katz with Jefferies. Please go ahead.
David Katz: Hi good morning everyone. Thanks for taking my question. I do want to talk about sort of the NUG [ph] environment in a broader sense. Obviously, there’s a lot of discussion out there about conversions and conversion competitiveness. If you could color in for us just a little bit sort of where you fit in that landscape. And obviously, we look at this through a public company lens. But give us a sense for just how competitive that conversion environment is as well as sort of new builds like in your segments, given the Street’s perception, right, that it’s become much more competitive.
Geoff Ballotti: Sure. I think if you were talking to our Chairman, Steve Holmes would tell you, David, it’s always been competitive. But the biggest question aside from the strength of our brands and how our franchisees are feeling about us, and they’re certainly feeling great about us with our attention at record highs. We have a saying that people do business with us because they know us, they like us and they trust us. It’s really when it comes down to competition, it’s all about the size and the strength of our franchise sales team. And our franchise sales team has never been larger, and it’s never been stronger, and that’s really around the world, whether we’re in Europe, Africa, Middle East, Asia-Pacific, down in Latin America.
They are, as I said, putting up record numbers right now. On the conversion front, we had a great year. We had a great quarter. We didn’t slow down. Our quarter was up 60% versus 2019. And in conversion signings with transaction volumes, as we pointed out in the script, were a lot lower. And on the new construction side, look, our pipeline grew 8% to prior year. We have a record 1,400 new construction hotels in our pipeline. And we saw no slowdowns in new construction starts. Those were also up year-to-date. Developers are seeing very strong ROIs despite higher interest rates, our in-ground percentage improved. It was up, I think, 90 basis points from the third quarter. So, projects are still getting built. And yes, developer advance notes are being used on competitive deals.
But we’re really pleased with our brand offerings, how our brands are performing. And from a competitive standpoint, just how our franchisees are feeling and our sales teams are selling our products.
David Katz: Thank you. And look, as my follow-up, yesterday, Choice did put out a preliminary proxy, which has some commentary in there just in an open-ended way. Anything — any thoughts, perspectives or comments you can share about that? I’m sure we’d all be interested in hearing.
Geoff Ballotti: Yes. No surprise. To your question, it was completely expected by our team and really just a procedural moment and a nonevent. I mean this was Choice’s first step, of course, to hold a preliminary proxy for a special meeting of the shareholders, required to approve the issuance of Choice’s shares in connection with a deal that they believe they could do. The filing didn’t change the offer. It didn’t remove any of the numerous conditions to it like the financing contingency or, I don’t know, their due diligence out or most importantly, their need for FTC clearance to name just a few. Their offer, David, remains highly conditional and it still does not address adequately our Board’s three key issues that we talked about in the script.
David Katz: Got it. Thank you very much.
Geoff Ballotti: Thanks David.
Operator: Our next question comes from Patrick Scholes with Truist Securities. Please go ahead.
Patrick Scholes: Hi, good morning Geoff and Michele.
Geoff Ballotti: Good morning Patrick.
Patrick Scholes: Two questions. My first one, Geoff, you briefly touched on the feedback you had been receiving from your large or top shareholders. Can you just give us a little bit more color what specifically the feedback has been?
Geoff Ballotti: Sure. I mean we — Michele and I, there’s not a day that goes by we’re not talking to our large shareholders. And the feedback consistently has been from them, and I’m sure we’ll be on the phone with many of them this afternoon is that they’re generally supportive of the risks, the asymmetrical risks that are out there that we’ve been talking about that our Board has objected to certainly would want to see addressed before continuing discussions.
Patrick Scholes: Okay. Secondly, a question regarding the 2% to 3% RevPAR growth for this year. How would you break that out between international and domestic? And again, you noted you expect a sizable acceleration. Certainly, I wouldn’t say January for domestic. And domestic hotels, especially economy, midscale has been spectacular. What — I guess, what you mentioned about what drives that acceleration domestically, but what’s your expectations for international to get to those numbers? Thank you.
Michele Allen: Sure Patrick. I would say international is definitely going to grow faster than the U.S. in the full year. And we see that in January as well, right? International is up about 4%, and the domestic system is certainly down. January’s results, not a surprise to us given how difficult the comps were this year. January last year, RevPAR was up 6%. So, it’s — it was always going to be our most difficult month to compare against. And then as you move throughout the quarter, the comp gets progressively easier by the end of — by the end of the quarter. And in March, I think RevPAR had only grown 1%. So, we started 6%, we go all the way down to 1%. And then obviously, as you move out of the first quarter, the comps get tremendously easier for the remainder of the year.
So, when we think about the full year forecast at 2% to 3%, specifically answering your question with respect to domestic, we’re expecting really three movements. We’re expecting to see some benefits from the infrastructure pickup. That’s the continued momentum we have coming out of 2023, and we know projects — new projects are getting approved every day. We are also expecting to see some impact from occupancy tailwinds. We’re still trailing 2019 levels by about 9 points. So, we’re only assuming a very small impact, maybe a point, a little bit less of that coming back into the 2024 results. And then — and then from an ADR perspective, it’s just really modest growth across the globe. We continue to see ADR trail the rate of inflation in the US by 3 points and a couple of points internationally as well.
And we’re still in this very limited new supply environment in economy and midscale, which generally favors pricing. And overall, RevPAR growth is highly correlated to GDP, and that’s still expected to grow 2% to 3%. And then finally, I’d say fundamentals remain strong. Despite kind of the headlines, we still see our middle income cohort consumers growing way just faster than the rate — than the ADR growth. We’re seeing savings still elevated probably about 30% versus their pre-pandemic levels, and unemployment still remains really low. And very importantly, I’d say the intent to travel and the prioritization of travel spend continues to increase. And we were just looking at a recent survey by [Indiscernible] that showed 60% of the respondents are expecting are expecting to take one to four additional trips this year.
So, that’s pretty meaningful. Of course, we’re not seeing any of that in the January results, but like I said, that is the toughest comp we have year-over-year. So, when we put it all together and with the international, we see multiple paths to that two to three-year full year assumption — 2% to 3% full year assumption.
Patrick Scholes: Okay, Michele. Thank you for the detail. I’m all set.
Michele Allen: Thank you.
Operator: Thank you, Our next question comes from Michael Bellisario with Baird. Please go ahead.
Michael Bellisario: Thanks everyone. Good morning. First question, just can you help us understand what is the FTC asking for? How long is the list? Maybe any examples on customer-facing or franchisee-facing type questions and requests would be helpful.
Geoff Ballotti: Sure. The list is long, Michael. We are complying expeditiously with the second request, which we predicted all along would occur and which happens in less than, as we said, 1% of FTC reviews. And of course, we’re also working with four State Attorney Generals who we mentioned who are also now investigating it. It is a tremendous effort. It has over 300 different work streams and data requests generated by a 44-page letter that we received from them. Boy, in terms of examples, Michele, can you think of a good one from your side?
Michele Allen: Yes. I most certainly can. I’m living it every day. Maybe just to give some flavor, one of the 300 work streams is asking for a listing of every bid we’ve ever provided for any franchise service. And that would be — they want it over the past five years. They want to fight brand. It must include a bunch of details, including whether there was a prior brand affiliation across the industry, the details of each state to the negotiation, so the initial interim and final bids for each deal. It’s so broad. It’s asking for all factors considered in establishing the pricing for those bids and then our cost around those negotiating activities, whether those costs are fixed or variable, the part of the chain scale that the hotel switched to, who we were competing against, on and on and on. That’s one of the 300 work streams, so multiple parts in that one request. So, as Geoff points out, it’s a tremendous effort.
Michael Bellisario: Helpful. And then just my follow-up, maybe a clarification on sort of the spending commentary. Are you putting more dollars into the same number of deals? Or are you having to put more dollars into more deals? And then is it really just Echo or is it across the brand portfolio? Thank you.
Michele Allen: Sure. When we look at the 2024 budget versus 2023, it really is Echo and — but we did see the increase in 2023 versus our budget. And that’s where we saw an opportunity to invest more heavily in the business. We did have over 500 hotels that we opened this year, but I would say, more importantly, it’s the type of hotels we’re bringing into the system and the type of hotels that we’re bringing into the pipeline. You know that we grew our midscale above pipeline another 6% this year. A good part of that is the ability to use key money to attract those hotel owners into the system. We’re also gaining more exposure to top 25 MSAs in line with our strategy of increasing our footprint in higher RevPAR and fee PAR markets and brands.
And so this year, we added cities like Chicago, San Diego, Phoenix, for example. And we’re able to do that because we’re deploying more dollars per key in those high RevPAR markets. And then I’d also say we are putting a little bit of money to work in the existing system to improve the quality of the product and franchisee engagement and franchisee retention. One example is we doubled the number of renovated rooms through our capital support programs, including Days Inn, where we renovated nearly 5,000 rooms. So, we’re doing all of this while targeting above WACC returns. So, more hotels, but probably more impactful, the higher fee PAR hotels coming into the system.
Michael Bellisario: Helpful. Thank you.
Michele Allen: Thank you.
Geoff Ballotti: Thanks Mike.
Operator: Thank you. Our next question comes from Dany Asad with Bank of America. Please go ahead.
Dany Asad: Hi, good morning Geoff and Michele. I just wanted to touch on the three-year EBITDA CAGR target of 7% to 10% through 2026. So, if EBITDA is going to grow, let’s call it, 5% to 6% for this year, can you help us piece the parts of the business that would help drive the acceleration from the 5% to 6% to 7% to 10% kind of for the full three-year period?
Michele Allen: Sure. So, we ended 2023 with 6%. I think we’re expecting to get to 6% to 8% in 2024, and then that 6% to 8% moves to 7% to 10% over the planned period. So, if you just think about where we ended in 2023, it’s really only 1 additional point at the low end, 6% to 7% and then 2.5% probably at the midpoint, moving from 6% in 2023 to 8.5% at the midpoint of the 7% to 10% growth. Again, three categories, Dany. The first one we’ll start with is net room growth. We have a high degree of visibility into this number. We know the pipeline has been expanding up 10% year-over-year. We’ve got Echo starting to come into the system this year. You can see in our IP, some of the progress that we’re making there. And we’ve got momentum now for three consecutive years on the retention rate having improved a total of 80 basis points over those three years.
