Wyndham credits organic growth, M&A for strong Q3
 
Wyndham credits organic growth, M&A for strong Q3
30 OCTOBER 2018 10:01 AM

Systemwide rooms growth for Wyndham Hotels & Resorts grew 13% in the third quarter, driven by integration of the La Quinta brand as well as introduction of brands to new markets internationally, executives said.

PARSIPPANY, New Jersey—While integration of the La Quinta Inn & Suites brand, acquired in May, had a significant impact on its third-quarter results, Wyndham Hotels & Resorts executives said during a call with investors today that the company’s primary focus remains on growing its system organically.

Wyndham reported 13% growth in its systemwide rooms compared to Q3 2017, which as of 30 September 2018 consisted of more than 798,000 rooms at more than 9,000 properties. Excluding acquisitions and divestitures (including the sale of economy brand Knights Inn to RLH Corporation), the company saw rooms growth of 3% during the quarter. 

Nearly 1,400 hotels, representing nearly 176,000 rooms, are in the development pipeline—a 20% year-over-year increase in rooms. Of those projects, 54% are international and 71% are new-construction.

La Quinta’s contribution to rooms and pipeline growth is significant, with 550 new La Quinta rooms opening in the third quarter and 1,000 rooms expected to open in the fourth quarter. The La Quinta pipeline overall has grown by 2% to more than 24,000 rooms, executives said.

But also driving system growth are the introduction of brands to new markets globally, as well as a stabilization in domestic U.S. markets, where 6,000 rooms were added in the third quarter as rooms deletions were moderated somewhat.

“We introduced three brands to four countries they’ve never been sold in before,” Wyndham President and CEO Geoff Ballotti said during a call with investors to discuss earnings in the company’s first full quarter as a public company. This includes the introduction of Tryp by Wyndam to Peru and the country of Georgia, Dolce by Wyndham to both Greece and Malaysia, and the first Ramada by Wyndham in Portugal.

The opening of “more rooms than we ever have domestically”—including more than 14,000 rooms in the first nine months of 2018, which is up 15% from 2017 and nearly 35% from 2016—helped stabilize rooms growth in the U.S., Ballotti said.

The company continues to expect organic room growth of 2% to 4% this year, “more likely in the lower half of the range, driven by 6% to 8% of international net room growth and a stabilized domestic system size,” Ballotti said.

“This is the second year where we’re seeing a stabilized domestic system size,” he said, adding Wyndham will “continue to focus on that bottom 5% to 10% of our portfolio on a quality basis.”

Much of the hold-back domestically is the company’s focus on quality and terminating hotels not meeting quality standards, he said, though he added that Wyndham is seeing “tremendous growth” and opportunity in its economy brands.

“Our target is to continue to stabilize the system this year and see our domestic system begin to grow. On a long-term basis, we’d like to see it move from 0 to 1% to 1% to 2%; that will do great things for our overall rooms growth,” Ballotti said.

“Where we’re most encouraged is our progress internationally, where our rooms growth declined in first and second quarters. Based on work we’re doing with our master franchises … with 6,000 rooms of positive international rooms growth, we’re excited about that growth and where we’re seeing it overseas,” he said.

Q3 performance
Wyndham Hotels & Resorts reported third-quarter revenue of $604 million, a 74% increase from $347 million in Q3 2017. This result was partially driven by $238 million in incremental revenue from the integration of La Quinta, the company stated in its earnings news release.

Global revenue per available room in the third quarter increased 9% year over year to $48.21. Excluding acquisitions and divestitures, RevPAR grew 4% in constant currency.

Adjusted earnings before interest, taxes, depreciation and amortization increased 34% to $166 million, up from $124 million in Q3 2017. This was primarily driven by EBIDTA growth in the company’s hotel franchising operations, which grew 35% year over year to $178 million from $132 million in Q3 2017.

Net income for the quarter was flat compared to the same quarter last year, at $58 million, which the company attributed to “revenue growth and a lower effective tax rate, partially offset by higher interest and depreciation and amortization expense,” according to the earnings release. Adjusted net income was $85 million, up 39% year over year.

Wyndham CFO David Wyshner said the company also saw some negative impact from tough comps due to hurricane-related demand in Q3 2017, as well as demand related to last year’s solar eclipse. That was partially offset by strong leisure demand this quarter in energy markets, particularly in oil tracts, “from Texas all the way through West Virginia and parts of the Midwest,” he said.

For full-year 2018, the company is projecting adjusted revenue of $2.1 billion to $2.11 billion, adjusted net income of $300 million to $315 million, adjusted EBIDTA of $594 million to $605 million and constant-currency RevPAR growth of 7% to 8% (or 3% excluding 2018 acquisitions and divestitures), according to the company’s earnings news release.

At press time, Wyndham Hotels & Resorts’ stock was trading at $47.28, down 23% since the completion of the spin. The Baird/STR Hotel Stock Index was down 13.4% for the same period.

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