Wyndham Hotels & Resorts, Inc. (WH) Q3 2019 Earnings Report, Transcript and Summary

Welcome to the Wyndham Hotels & Resorts, Third Quarter 2019 Earnings Conference Call. At this time all participants have been placed on a listen-only mode and the floor will be opened 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.

Thanks Katharine. 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 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 www.investor.wyndhamhotels.com.In addition, we will provide supplemental information on our website after the call. We may use our website as a means of disclosing material non-public information. Such disclosures will be included on our website in the Investor section.With that, I will turn the call over to Geoff.

Thanks Matt. Good morning and thanks to everyone for joining us today.Our team’s continued sharp execution against our strategic and operating plans, allowed us to produce solid results in the third quarter. We delivered ongoing expansion of our system size, including our six consecutive quarter of positive domestic net room’s growth.International rooms grew by 6%. Adjusted EBITDA increased 14% despite a softer than expected RevPAR environment and we deployed more than $100 million of free cash flow for share repurchases and dividends.This morning David and I would like to highlight key accomplishments in the third quarter and provide an update on our strategic goals. As we previously discussed, our priorities are to drive global growth, to elevate the economy and mid-scale lodging experience, and to increase the reservation contribution that we make to hotel owners through our branding, our marketing, sales, loyalty and technology distribution platforms.Starting with our objective to drive quality net room’s growth, we ended the third quarter with 822,000 rooms in our system, a 3% increase since last September, including a positive 1% year-over-year growth here in the United States.In the U.S. we opened 5,400 rooms in the third quarter, an increase of 6% versus last year's third quarter. Internationally we opened over 9,000 rooms, 20% more than we did last year and we grew our international system size by nearly 19,000 rooms.Our fastest growing region was once again Southeast Asia which grew 23%. In China we grew our direct franchise system by 7%, including the addition of our first Microtel in the region. This beautiful new construction Microtel by Wyndham Guiyang is located in the heart of southwest China's Guizhou province and represents the 11th of our 20 brands now operating in China with two additional new construction Microtel’s slated to open later this year.In Latin America we grew net rooms by 7% highlighted by our first trademark collection by Wyndham in Mexico. The upscale La Quinta Hotels in Playa del Carmen on the shores of the Riviera Maya. And in our Europe, Middle East, Eurasia and Africa region we continue to expand into new markets, including the introduction of the first of two Dolce by Wyndham Destination Meeting Hotels in Denmark, located in Aarhus with another planned opening in Copenhagen.On the retention front, our international retention rate over the past 12 months stands at 94%. Our global direct franchise retention rate has increased to 95% and our domestic retention rate has now increased to 95.6% as third quarter terminations declined 8% year-over-year.Our development pipeline closed the quarter at 1,450 hotels and a record 190,000 rooms. Our global pipeline has grown 7% year-over-year, including 10% growth in domestic new construction and 13% growth in international new construction. The growth in our new construction pipeline illustrates our sales team’s ability and our new design led prototypes ability to attract select-service developers around the world to our brands.International RevPAR declined 1% in constant currency; we saw a continued straight across Europe and Latin America that was more than offset by RevPAR weakness in both China and Canada. Overall domestic RevPAR declined 1% consistent with recent industry trends.Our experience over the last three months reflects continued softness in ADR, especially in the mid-scale midweek segments and most noticeably in the oil and gas markets. However despite this industry wide softness we're not seeing any signs of overbuilding, as supply growth remains steady at sub-2% in the roadside markets that are important to our pipeline growth.RevPAR for our La Quinta-branded declined 4% year-over-year in the third quarter. About half of this decline is due to the brand’s heavier concentration in hurricane impacted and energy related markets, and the remainder is reflective of the industry wide softness we saw in the third quarter with newer prototype and recently renovated hotels significantly outperforming older and exterior quarter properties, especially those in the oil and gas and hurricane recovery markets.Now, let me take a moment to discuss the recent resolution of our issues with CPLG, CorePoint Lodging Group for whom we managed nearly 300 La Quinta properties.Earlier this month we entered into an agreement with CPLG to resolve any open issues that existed between us, and per the agreement we will make payments of approximately $20 million to CPLG, and CPLG has agreed to maintain cash operating reserves with us of approximately $20 million.In addition, we will continue to invest in several ongoing pricing, revenue management, direct sales and reservation enhancements to further support CPLG and the La Quinta brand. We will also work with CPLG to help identify and support the sale of their non-core hotels to buyers whom we look forward to working with, especially as they renovate and elevate these assets under the properties 20-year franchise agreements with us. Importantly, the agreement with CPLG does not change in any way the underlying fee structures set forth in either the management or franchise agreements between Wyndham and CPLG.Our teams remain deeply committed to elevating experience of our brands for the everyday traveller and our overall online review scores which measure the overall experience of our guests during their stays continue to improve. As we mentioned on our last call we're very proud of operating two of the top three brands in both the economy and new scale segments of the 2019 J.D. Power guest satisfaction survey released in July.Microtel by Wyndham finished number one in the economy segment for the 16th time in the past 18 years and Wingate by Wyndham again finished number one in the mid-scale segment for its fifth consecutive year.More recently in a business travel news, 2019 hotel brand survey Wingate by Wyndham and La Quinta by Wyndham finished number one, and number two respectively in the mid-scale category, representing another significant vote-of-confidence in our brands from BTNs Corporate Travel audience.Of all of the messages delivered by our teams to a record of nearly 6,000 attendees at a Global Conference in Las Vegas last month, remaining focused on elevating their service and quality ratings is more important than ever in terms of online reputation and its direct correlation to driving RevPAR and market share performance.A significant portion of our conference was dedicated to our new design lead brand prototypes and guest room refresh standards. Through the involvement and approval of our brands franchisee advisory councils, we continue to invest in the quality of our brands in order to further enhance the value proposition that we provide to hotel developers in each of our core chain scales.In the economy segment, and following the recent launch of the new Microtel Moda prototype, days in unveiled a new interior design package for it’s over 1400 U.S. hotels. This new in-room design prototype known as DON takes inspiration from Days Inn Roots with bright rooms, sun-centric art and a modern touch that builds on a considerable success that Super 8s Innovate and Howard Johnson's renew prototypes have been having.In the mid-scale segment we showcased our American Gen 4 prototype with its new, modern lodge guestroom refresh package. In the upper mid-scale segment we introduced Arbor a new interior and exterior prototype to our rapidly expanding Wyndham Garden brand, offering a modern look that creates a natural serenity experience for guests, at a reduced cost per key for developers.The addition of Arbor, coupled with La Quinta’s award winning Del Sol prototype gives developers two new low cost and high return upper mid-scale development options. And for the extended stay segment, Hawthorn Suites new dual branded prototype with La Quinta attached continues to attract significant attention from interested franchisees with one of the very first sooner to break ground near our headquarters here in New Jersey.Overall our conference proved to be a tremendous success for our franchise sales teams for whom it was a great opportunity not only to sign incremental contracts, but also to generate new development leads.Delivering reservations to our franchisees and growing that contribution represents an important part of our value proposition. Overall, central system contribution reach 58% globally and a record 71% of all room night revenue delivered domestically in Q3, an increase of over 300 basis points compared to the third quarter of 2018.In the quarter Wyndham Rewards represented a record 41% of U.S. occupancy, which is up more than 500 basis points from a year ago. Total Wyndham Rewards enrolled members increased 34% and 2 million new members were added to the program this quarter bringing the program to 79 million members.Wyndham Rewards has consistently been ranked among the top hotel loyalty programs in the industry and in August was voted one of the two best programs in the industry by the readers of U.S News and World Report, and this month our loyalty program receive the Number 1 ranking in the lodging industry from the Readers of USA TODAY for the second year in a row.Our “by Wyndham” cross-branding initiative, umbrella marketing campaign and other selling programs are having positive impacts. Search volumes, brand.com visits and direct online bookings are all up and we are reminding customers every day the chances are, you're only 10 minutes away from a hotel by Wyndham.We are extremely proud of what our over 15,000 team members have helped us achieve this quarter and throughout the year, as we continue to build on our track record of delivering consistent earnings growth and making Wyndham Hotels and Resorts, the world's largest and best franchisor in the over 80 countries we serve.And with that, I’ll now hand the call over to David who will walk you through the financial highlights. David.

Thanks Geoff and good morning everyone. Today I'll discuss our third quarter results, as well as our balance sheet, capital allocation, our 2019 outlook and the progress we’ve made since our Investor Day last year. My comments will be primarily focused on our adjusted metrics. You can find our complete results in our earnings release, including reconciliations of adjusted amounts to GAAP numbers. We believe 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 reported revenues declined due to lower cost reimbursement revenues that had no impact on earnings, as well as the accrual for payments we agreed to make to CorePoint Lodging. Excluding these items, our revenues increased 9% driven by growth in fee revenues, as well as the timing of our global franchisee conference, which was in April last year, but in September this year.Adjusted EBITDA increased 14% to $190 million in the third quarter, primarily reflecting growth in fee revenues, as well as increased synergies from the acquisition of La Quinta. Our adjusted-EPS increased 29% to $1.10 in the third quarter. It’s encouraging and invigorating to see our organic growth efforts, our acquisition synergies and our share purchases combining to drive 29% growth in this key metric.As we previewed in July, in Q3 we terminated an unprofitable hotel management arrangement that was initiated in 2012 and covered eight U.S. Hotels and 2,500 rooms, all of which will remain in our system this year. As a result we recorded a $34 million contract termination charge in the third quarter. With the termination of this arrangement and the planned termination of another legacy hotel management arrangement that we accrued for in the second quarter, we expect our future maximum annual hotel management guarantee obligations will be only $5 million.In the third quarter U.S. RevPAR declined 1% year-over-year, which we believe is consistent with broader industry trends, with lower average rate being the primary source of the decline. We saw the strongest results in our Wyndham Grand, Hawthorn, Microtel and American Brands and in the Mountains in mid-Atlantic regions. Texas and its neighboring states properties in energy related markets and brands like La Quinta that are concentrated in these markets were softer.Our international RevPAR declined 1% in constant currency and was unchanged on a same store basis, as higher rates were offset by lower occupancy. Softness in China and Canada was partially offset by strength in Latin America, EMEA and Southeast Asia. In our hotel franchising segment revenues increased 9% year-over-year in the third quarter due to higher fee revenues and the timing of our global conference.Adjusted EBITDA for the segment grew 10% to $195 million, reflecting the growth in revenues and increased synergies from the acquisition of La Quinta, partially offset by a $7 million impact from higher marketing expenses.In our hotel management segment revenues declined $72 million compared to the prior year period, primarily due to lower cost reimbursement revenues which have no impact on adjusted EBITDA and payments we agreed to make to CorePoint, which are considered transaction related and therefore do not impact adjusted EBITDA.Excluding these items, segment revenues increased $6 million, primarily reflecting higher revenues from our owned properties and $2 million of management contract termination fees received upon CorePoint sale of 12 hotels. Adjusted EBITDA increased $8 million compared to the prior year quarter, driven by the revenue increases and reduced marketing expenses.After finishing the migration of La Quinta technology platform and loyalty program in the second quarter, we focused our integration efforts in Q3 on decommissioning legacy La Quinta reservation systems and completing someday two items associated with the migration. During the third quarter our results included $17 million of synergies from La Quinta, which means we have reached full-run rate synergies of $68 million annually.On our balance sheet, at September 30 we had $134 million of cash and our debt balance was approximately $2.1 billion, caring an all-in weighted average interest rate of 4.8%. Our net leverage was 3.25x the midpoint of our full year 2019 outlook for adjusted EBITDA in the lower half of our 3x to 4x net leverage target range.Excluding specific cash outflow items such as $188 million of tax payments related to the La Quinta acquisition and $60 million of transaction and separation related expenses, free cash flow in the first nine months of 2019 was $222 million compared to $186 million in 2018.The growth in free cash flow, excluding certain items is driven by higher adjusted EBITDA, partially offset by higher interest expense due to our debt being in place for all of 2019, but only part of 2018. As a reminder, over time we continue to expect our normalized free cash flow to approximate our adjusted net income as our business is inherently a cash business.In August our Board increase our share repurchase authorization by $300 million to reflect our strong free cash flow and our sustained focus on returning cash to our shareholders. During the third quarter we returned $103 million to shareholders through $75 million of share purchases and $28 million of common stock dividends. Our share repurchase activity in the quarter represented a 50% sequential increase from Q2 and a 70% increase from last year's third quarter.Our approach to capital allocation remains unchanged. We are focused on the organic growth of our business and we will deploy a portion of our free cash flow for development advances and similar opportunities in order to support that growth. We also intend to grow our divided over time. Beyond that, we will allocate cash flow to execute opportunistic tuck-in acquisitions that are both strategic and accretive and for share repurchases.Finally, we are reaffirming our 2019 full year outlook for room’s growth. We have updated our outlook for organic global RevPAR growth to zero to minus-1% to reflect a softer RevPAR environment than we had anticipated. We have tweaked our earnings outlook slightly to reflect our lower RevPAR outlook, cost savings and other items. Our 2019 adjusted EBITDA forecast is now $610 million to $615 million.Our outlook now reflects our third quarter share repurchase activity and we have increased the mid-point of our adjusted EPS estimate by $0.05. As a reminder, our adjusted EPS guidance excludes the impact of future share purchases we expect to make this year. Consistent with our past practice, we intend to provide our full year 2020 outlook in February when we announce our full year 2019 results.More generally when we look back and compare the progress we've made since our Mary 2018 Investor Day, we are pleased with our results. We have driven growth in our system size, through six consecutive quarters of positive U.S. net room’s growth and consistent high single digit growth of our international direct franchise system.We have strengthened the quality of our brands as evidenced by our J.D. Power and BTN rankings, as well as improved guest online ratings across our brands. We’ve made enhancements to our Wyndham Rewards loyalty program and have maintained our position as one of the top loyalty programs in the hotel industry.We have completed the integration of La Quinta and delivered all of the cost synergies we initially projected. We have adhered to a discipline capital allocation framework to drive shareholder value and have returned almost $450 million to shareholders through share repurchases and dividends since we spun off from Wyndham Worldwide.And with the system of more than 9,200 affiliated hotels primarily in the select service segment, we have the advantage of being able to serve the majority of the needs of the majority of travelers in markets throughout the world. As a result, we remain confident and passionate about our business and our prospects.With that, I would like to turn the call back over the Geoff.

Thanks again everyone for joining us today. As David said, we are enthusiastic about our progress and momentum. We are successfully executing on our business objectives, expanding on our strong market position and strengthening our industry leading loyalty program. We continue to work to enhance the value of our contributions to our franchisees and we're very excited about the opportunities that lie ahead.And with that, David and I would now be pleased to take your questions. Katherine?

[Operator Instructions] And our first question today will come from Joe Greff with JP Morgan. Please go ahead.

Hi, good morning everybody.

Good morning Joe.

Two sets of questions. One, just given the overall softer industry wide RevPAR performance, the question we have is when this may lead to lower development activity? Can you speak to this, and can you speak to hotel developer attitudes now versus earlier in the year. With increased macro-uncertainties there are much lower propensity to sign these development deals. Maybe how do these shifting attitudes very when looking at it across different geographies like the U.S. and China.And then lastly related to this topic, you think your pipeline can continue that you get sequential growth or does that feel like a little flattened out for decline over the coming months and quarters?

Yes, thanks for the question Joe. We are not seeing any slowness or softening in our pipeline, and we're absolutely thrilled with what happened in the third quarter. We saw a pickup domestically where our pipeline increased and internationally where it increased double digit, we certainly felt that sentiment at our recent global conference.I think developers are looking to this select service market in our brands, we've seen great interest domestically in our new construction prototype brands, but we are also increasingly seeing interest in some of our more traditional brands, our Days Inn pipeline is improving, our Super 8 pipeline is improving.A lot of what we do is conversions and that's a really exciting thing to see, so we're not seeing any slowdown domestically and we're certainly not seeing it international. You ask about China and we were again there thrilled with what happened in China in the third quarter. We saw our pipeline pick up, both from a master standpoint. We saw a strong unit growth from both our masters and our franchise, our direct business, but we also saw our pipeline pickup in China and continue to see that.We have an ability in China to continue to add new brands as we've been doing. You’ve seen the growth of our direct franchising brands in that country. We've added now as we said in the script, our 11th brand with our new Microtel by Wyndham brand, but we've been able to do that with Wingate with Wyndham Garden, which is seeing great growth. We've taken Ramada from a dozen hotels to over 100 hotels in a direct franchising base.But recall that China is less than 5% of our royalty fee income today, but it has the potential to continue to grow, but great growth internationally in Asia, Latin America and Europe, Africa, India and the Middle East.

Great! Thank you and then my last question, my follow-up question. Related to the terminated managed hotel deal, it sounds like your base case scenario is that these rooms will lead the system next year. Can you remind us how much these hotels generated in revenues and expenses in 2019, and then grow all of the revenues and expenses for the allocated, for the management section or did you have some allocation for the franchise segment?

Sure, and here we are talking about the two legacy hotel management arrangements that we're terminating. Those, your right that the base case assumption for us is that of those 6100 rooms, 700 will leave this quarter and the remaining 5,400 in our base case will leave next year, although we are speaking with the owners of those properties to see if their opportunities for them to stay in our system depending on what their long term plans for those properties are or if they were a seller of any of those properties who the buyers are going to be.But you're right, our base cases is assuming that those 5,400 leave next year, and going back to why we were so, I guess eager and pleased to exit these relationships, they were not contributing to our EBITDA because of the structure of those deals. There’s about $6 million or $7 million, a negative EBITDA impact associated with one of the transactions and the other one was a net zero impact on us. They weren't contributing royalty fees because of the structure of the deal, and the guarantees that we had. So that’s the -- really the benefit associated with exiting those arrangements.

And in terms of looking at the revenues and expenses and whether that was all in the management segment or any allocation to the franchise segment?

Yeah, thanks. It was essentially all in the managed segment. There would be some pass-through revenues that go away, but there's no profitable revenue associated with that.

Thank you.

The next question today comes from Stephen Grambling with Goldman Sachs. Please go ahead.

Thanks, it’s a little bit of a multi-part follow up to Joe’s question, the backdrop in the U.S.? Why do you think the economy segment in aggregate has been trailing overall U.S. RevPAR? Do you expect that will continue in your guidance for 4Q and as you think about ways to bolster growth in that backdrop, what are some of the different levers you can consider pulling as you think about reinvestment in the brand's, pursuing M&A or driving additional cost cuts? Thanks.

Sure, thank you Stephen. It was certainly a more subdued Q3 in the economy and mid-scale segment. I think a difficult laid August and early September for economy in mid-scale hotels, especially with Dorian hitting us during the Labor Day week and impacting us both of the Florida and the Carolinas. We estimate that there was about a 50 basis point drag to our first quarter RevPAR.We also have a lot of economy and mid-scale hotels in the oil and gas markets which Q3 last year hit record RevPAR levels in those STR Energy markets and they were also lapping much more difficult comps with the hurricane recovery business that were also in those tracks. So combined, about a 70 basis point drag from the oil and gas market, a 50 basis point drag from the hurricanes in Q3 and I'd say that would be about the bulk of the drag David. Anything to add to that?

Sure! As we look going forward, I would say that at this point we probably expect that Q4 will look a fair amount like Q3. The pressures in energy related markets are going to be there on a year-over-year basis and from our perspective we see opportunities both on the development side and on the sales and marketing side.So in a little bit of a tougher environment that we're seeing in the economy mid-scale space, we are going to look for additional conversion opportunities, primarily from independence where we can bring additional value to the table and we're are having those discussions on a regular basis with independent hotel owners and so ideally over the next few quarters we'll see benefits from the ability, the increased ability to convert properties.And then for our existing franchisees, given our size in the economy and mid-scale space, we're always going to I think tend to move with the industry, but we wanted to look for opportunities to over perform that a bit through our loyalty program, through the marketing efforts that we’re pursuing to how we continue to refine some of our promotional strategies in ways that we think will be a positive and through the advertising campaigns we have, both the media advertising and particularly online advertising where we've been seeing some very good results and then lastly through some sales efforts and some new strategies we've been deploying in that area to drive both local and national sales.

That's helpful, thanks, and maybe a follow-up turning to the international segment. I’m not sure I caught this, but it looks like there may have been a little bit of an uptick in deletions in the third quarter in the international segment. Well, I guess what drove that and how should we be thinking about deletions in that segment going forward. Thanks.

Sure. Our international retention rates have continued to improve over time. We did call out in the script that our master deletions internationally were up. I think when we enter master license agreement and when we take over a master license agreement as we did in China, we want to make sure that those hotels are up to our standards and that they are with franchisees who are paying us and I think that's where you saw most of the up-tick Stephen.

And so I guess in terms of where that process stands, it sounds like you're still going through you know quality control and so we should be expecting that to continue until you have built that.

Yeah, there’ll be some of that. I mean we're thrilled that our international retention rates have moved over time from the sort of 92% to 93% to nearly – I think we're at 93.8% over the last 12 months and you know to the extent that we have the opportunity to move those retention rates as we've been able to move our U.S. retention rates from 92% to 93% to 94% to 95.6% today.The opportunity is certainly there for us to do that as we continue to emphasize the growth in our direct franchising business, which in a country like China now is a third of our room count and growing double digit as we mentioned and all of our business internationally aside, essentially from China is direct franchising where we have much more ability to improve and our retention rates are in control of the deletion rate.

Great! Thank you so much.

Our next question today comes from David Katz with Jefferies. Please go ahead.

Hi, good morning everyone. Just a couple of details and then a bigger picture question. Did you refer to the year-over-year comps you know moving the franchisee conference. Have you given us some detail and I did look back at the 2Q that which would have included April last year. How much you know movement is that in revenue and how do we think about that as we model next year. Where is that going to be placed?

Sure, the conference is about $16 million or $17 million of revenue that's comprised both of the attendees that we charged. Think of it as you know ballpark 5000 plus attendees at $2000 each, plus sponsorship revenues that we get. We run the conference essentially to breakeven roughly speaking, so there's not really a significant EBIDA effect with that.In next calendar year we don't have a conference. Our approach is to have a conference every 18 months, so the next one is scheduled for April 2021, and that every 18 months cycle is what we've been on for a while and game plan is to continue that. So again, on our next conference will be in April ‘21.

Got it! And so there's no profit associated with that in either period.

Correct.

We write it at a breakeven.

The other revenues line item that you have on the P&L you know went up considerably also. Is that all La Quinta driven or is there something else in that bucket?

Yeah, the other revenue includes credit card revenues that we generate, I.T. fees that we charge to franchisees, certain reservation fees and then as a catch all for other things. It has moved up and we are collecting some additional fees, and we’ve been using that to support our marketing reservation and loyalty programs. So when you look at some of the overspend, marking reservation and loyalty expenses compared to revenues, the additional other fees that we've had, we've been using some of those to support those marking reservation loyalty activities and to offset the overspend you could see running through our P&L.

Got it. And just one last bigger picture question about La Quinta. I know there's been a lot of you know comparability noise; there's obviously been you know the CorePoint goings on – is it fair to say that you are essentially where you expected to be from a return perspective on La Quinta, and you know when we get into next year, is it fair to assume a much cleaner set of comparisons and little clear information around La Quinta going forward.

Thanks David. We absolutely are where we expected to be from our return standpoint with La Quinta. We’re ahead of where we expected to be on our synergy numbers, we’re extremely pleased with the resolution. With La Quinta we look forward to working with them on what's most important, which is driving their market share and driving their margin growth and we do feel that the RevPAR is moving in the right direction.

Okay, perfect. Thank you.

Our next question comes from Patrick Scholes with SunTrust. Please go ahead.

Hi, good morning Geoff and David.

Hi Patrick.

A question for you on capital allocation. It looks like in the most recent quarter you stepped up your level of a buy backs. My question for you is, you know should we think about that as sort of the new run rate going forward or was that sequential up-tick more a result of your stock pulling back after those comments from CorePoint, and then you were moving – backing up the truck a little bit.

Hey, good morning Patrick. I think it's a bit of both. Our strong free cash flow excluding items has allowed us to lean in to share purchases as our stock price and multiple were under pressure and we've been able to do this while keeping our net leverage in the lower half of our targeted range.So as we look ahead and think about this, we continue to feel our stock is undervalued, particularly on a multiple basis compared to peers. And while we don't publish a specific forecast for share purchases, I do see us near term looking to deploy most or all of our free cash flow for share repurchases and dividends, absent any significant acquisitions.So when you look at the numbers over the last few quarters, we've averaged around $55 million to $60 million a quarter in share repurchases and we were at $75 million this past quarter. Those seem like the right sort of numbers to be thinking about for us.

Okay, great. David, thank you for the color.

Thanks Patrick.

Our next question comes from Anthony Powell with Barclays. Please go ahead.

Hi, good morning guys. A question on the CPLG agreement. You agreed to invest in what you call ongoing pricing direct sales or revenue management tools. How will you pay for those when those come out of the synergies that you've already achieved from La Quinta?

Sure. I think some of the activity is going to be part of our normal course of capital expenditures over the next nine or 12 months and I don't see them changing our capital spending numbers significantly. I view that as fitting into what we typically do.I think with respect to a few other elements of the agreement, there will be probably a few million dollars of additional annual costs that we're taking on as part of that and that will run through our normal P&L. I think you could look at it as part of – I guess as an offset to either some of the synergies we tend to – I think our inclination is to feel that we’re essentially done with the integration.We’ve achieved $68 million of annual synergies, we’ll continue to look for a few million dollars more there, but to view some of the additional support that we're providing to CPLG and the La Quinta brand as more of a normal operational item that we’ll have going forward, and if there's some additional costs there, we’ll look to offset them in other ways.

Got it, thanks. And just stepping back, I mean you publish an 8% to 40% EPS growth potential in your Investor Day presentation from May 18, that we’ll assume RevPAR growth to 2% to 3% and the current environment of I think 0% RevPAR growth. What can you do to offset that to get back to that high fuel digits or low teens EPS growth over time?

Sure, I think a couple of things. The first is that when we look at our long term earnings and growth forecast, we do view that as being over time and so I think there will be some periods that are a little bit stronger and some that maybe a little bit tougher, and certainly the RevPAR environment over the last few months has fallen into the tougher category.And so as we look ahead in terms of opportunities to mitigate any continued softness, what we want to do is take advantage of the opportunity we've seen in the past to increase conversions from independent brands, to toss at that. The timing from one quarter the next may not be perfect, but we see opportunities to offset in that area.And the second opportunity for us is to continue to manage costs very carefully and we have been doing that. I think you can see a bit of that in our third quarter results and we’ll continue to look for cost savings opportunities to mitigate any softness that’s there.And then lastly, I think the international growth opportunities for us continue to be very significant and we want to take advantage of those. We've been investing over time to build up the position and the strength we have in international markets, to be able to deliver the high single digit direct franchising growth we're seeing in a lot of markets, and that I would say is a third key opportunity for us to cease.

Okay. So, on a conversion point we've seen a lot of press on Oyo being very aggressive in the U.S. conversion market. Have you run into them in any of your deals and what's your comments around that competitor?

Sure, we have been watching Oyo for a few years now in both India and China and have seen no impact in either of those very important markets for us. We're certainly watching them here in the United States and to-date I’ve seen no impact.

Great. Thank you.

Our next question comes from Shaun Kelley with Bank of America. Please go ahead.

Hey, good morning guys. This is actually Dany Asad on for Shaun. My question is on the development side. So can you just first remind us how much of your pipeline is conversions versus new build, and if the conversions that you're seeing are primarily coming from independence or you are getting other brand. And then I'll just – my follow-up is, what was your experience and conversion activity during prior cycles or periods of industry softness.

Sure, thanks Dany. Just to recall, our pipeline right now is at a record of 190,000 rooms. It's never been stronger and what excites us most about the pipeline is how as David pointed out, a while ago it's growing fastest in our new construction segment and that's both domestically and internationally. We are seeing really strong growth, a 10% growth in our new construction pipeline domestically. Again we think it's largely because of the success of our new prototypes which in the economy and mid-scale space developers are looking to build, and it's grown 13% internationally on the new construction front.So 73% is new construction, roughly 60% is international and we have tremendous opportunity to grow as we add new brands into markets like we did this quarter in China, adding brands and we continue to do in Southeast Asia, Latin America, Europe, Africa, India and the Middle East.To the second part of your question, during slower economies we have seen consistent 3% net unit growth. We saw that in ’07, ’08 and ’09. Our conversion activity during that period picked up, our brands becoming way more attractive during slowdowns and we’re seeing great interest is as David pointed out in our conversion brands right now.

Great! That’s it from me. Thank you.

Our next question comes from Michael Bellisario with Baird. Please go ahead.

Good morning everyone.

Good morning Michael.

Just first one follow-up on guidance. I know you mentioned 4Q RevPAR should be about similar to 3Q, but are we correct to assume the midpoint of the updated full year range is really kind of plus or minus down 2% at the midpoint, is that right math there?

No, I think the – you know the right way to look at it is more consistent with what we've seen in the third quarter. And in particular we had U.S. and International, each down 1% in the third quarter. And strangely because our international business is lower RevPAR but growing faster, minus-1 international and minus-1 in the U.S., we are doubt to be minus-2 on a global basis and so I think it’s helpful to break those a apart a little bit, and locate at each of them as having been minus-1.

Got it, that’s helpful. And then just on the royalty rate decline, I believe it was down 7 basis points. Can you just talk about the main drivers of that reduction versus the prior quarters increase and then how we should be thinking about that trend going forward?

Sure. I think over – there obviously is a little bit of noise or non-comparability in the royalty rate numbers here to-date, because of the inclusion and the addition of La Quinta. The other thing that’s going on is that so far this year we've seen some faster growth in some of our lower royalty rate brands, and particularly faster growth in trade mark has impacted royalty rate a little bit. And as I would expect that impact to continue, call it into the fourth and first quarters and then we should be at I would expect a more consistent run rate there.Generally speaking, over time what we've seen is that our royalty rate tends to be pretty consistent over time and even internationally where the royalty rate is lower as we get more and more critical mass in particular countries, we are able to move royalty rates up. So as I looked at it both, our or U.S. royalty rate and our global royalty rate, I think we'll see probably a little bit of pressure over the next couple of quarters, but over a longer period of time I expect those to be pretty steady consistent with our longer term trends.

Thank you.

Our final question today comes from Dan Wasiolek with Morningstar. Please go ahead.

Good morning guys. It seems like your brand are resonating pretty well here. I was wondering if you could maybe give some steps around our RevPAR index for the overall portfolio or our specific brands. And then in regards to RevPAR and slowing environments during past cycles, how has your economy and its scale, mostly non-urban powerful you'll performed relative to the overall industry. We’ve come across some data that kind of shows that maybe those segments skills could be more resilient and slow down periods relative to say luxury scale segments? Thank you.

Sure, thanks Dan. We’re thrilled with our RevPAR index and the progress we're making. Internationally our RevPAR is up 60 basis points in the quarter. Domestically where we are most focused is on our economy brands and we're now able to say that all five of our large economy brands have seen their RevPAR trend up over 100% fair market share and we were not able to say that several years ago.To see a brand like Super 8 moved from the mid-90s to 100% fair share; to see Days Inn now running 104%, 105% market share as is Howard Johnson's is something that is, hats off to all of our teams that are working so hard on the quality front and on the refresh and prototype front as we're doing.To the second part of your question, our brands have performed well from a market share standpoint during slowdowns. Again, I think there's great interest from developers in our brands, but also from consumers in our brands as times get a little bit tougher and consumers tend to trade down into the leisure markets we are in.

Okay, great. Thank you.

We have no further questions at this time. I would now like to turn the floor back over to Geoff Ballotti for closing remarks.

Thanks again, Katherine, and thanks everyone for your time this morning. We appreciate your attention and your interest in Wyndham Hotels & Resorts. David and I look forward to talking with you along with Matt at the upcoming Investor Conferences that we might be seeing you at or talking to you on the phone soon. Happy Halloween!

This does conclude today's program. Thank you for your participation. You may disconnect at any time.