Wyndham back in the black with Q3 net income
 
Wyndham back in the black with Q3 net income
29 OCTOBER 2020 9:37 AM

With 99% of its U.S. hotels open, Wyndham Hotels & Resorts leaned on drive-to leisure demand to turn a profit in the third quarter.

PARSIPPANY, New Jersey—Drive-to leisure demand kept Wyndham Hotels & Resorts above water in the third quarter despite a flood of uncertainty across the hotel industry.

The company reported positive net income for the quarter of $27 million ($34 million in adjusted net income), and adjusted earnings before interest, tax, deprecation and amortization of $101 million. The company’s net income in Q3 2019 was $45 million.

At the same time, global comparable revenue per available room fell 35% year over year, still something of an accomplishment when much of the industry is struggling to maintain RevPAR at better than half 2019 levels.

Wyndham benefitted from 99% of its U.S. hotels and 97% of its global portfolio being open.

Executives refrained from providing guidance on future earnings due to continued uncertainty around the pandemic, but said they are encouraged by several factors, including growing demand for travel as well as an increase in advance bookings.

“Same-day bookings are coming down and multi-night bookings are increasing,” Wyndham President and CEO Geoff Ballotti said on a call with analysts to report third-quarter earnings.

“Something else that we’re really pleased to see is that our average length of stay is increasing. It went up 3% in July and was up 7% by the end of September. That type of increased consumer demand as people feel safer and are willing to travel will certainly continue to support us through what we’re all concerned about right now with the recent COVID spikes,” he said.

Domestic drive-to leisure demand on weekends improved 26 percentage points compared to the second quarter, Ballotti said.

The company also benefitted from “a robust return of our everyday business traveler during the weekdays, which increased 19 points compared to the second quarter,” he said.

“Approximately 70% of our bookings at our hotels are leisure oriented, with the other 30% coming from business travel,” he added.

The largest percentage of leisure travelers are those booking short weekend getaways of four days or fewer, CFO Michele Allen said.

Meanwhile “two-thirds of our business bookings come from the infrastructure industries, including construction crews, utility workers and engineers,” Ballotti said.

“While this travel demand declined 49% in the second quarter, we’ve experienced a strong rebound in the third quarter, with this business down only 24%, a 25-point improvement sequentially. The vast majority of the remaining one-third of business bookings at our hotels come from logistics industries, including manufacturing trucking rail and warehouse workers. We’ve seen similar rebounds in this segment with bookings improving being down 40% in the second quarter to down 26% in the third quarter, a 14-point improvement sequentially,” he said.

Third-quarter results
Wyndham reported Q3 revenues totaling $337 million, down $143 million from 2019, and a $78 million decline in adjusted earnings before interest, tax, depreciation and amortization, according to a company earnings release.

Systemwide room count declined 2% year over year, largely as a result of removal of hotels that were noncompliant or “brand-detracting.” In the second quarter, the company announced plans to remove 19,300 rooms from its system, and 9,200 of those have exited to date, Allen said.

“The remaining 7,500 rooms are scheduled for termination in the fourth quarter,” she said. “About 70% of these rooms were related to master franchise relationships (in China), where the effective royalty rate was only 1.2%. We have been de-emphasizing master franchise license agreements given our direct franchise capabilities and growing infrastructure in these markets.”

Ballotti noted that excluding strategic rooms deletions, Wyndham’s net unit growth for the quarter “would have been flat domestically and up 4% internationally.”

Wyndham also continues to see tremendous potential to grow its system through conversions.

“We were very pleased with our conversion signings picking up. Our executions sequentially were up 30% domestically and then 60% internationally for convergence,” Ballotti said.

“But in terms of when this is going to peak or plateau, there’s a number of things that I think need to happen, and it’s going to be a ways away as we work through extended forbearance and the hope from so many of our franchisees looking for more stimulus and just a sort of lack of deal flow that’s out there. I could tell you this, having been out there on the road traveling with our franchisees this quarter, we’re having conversations with developers that we’ve never been able to have before. There are so many independent developers that are out there that are realizing that a brand can provide high premiums and lower distribution costs and operating cost savings, but they’re just not ready to make to make that that decision.”

The company’s construction pipeline grew by 3% in the quarter to 185,000 rooms globally.

“Importantly, we executed 152 hotel agreements, including 23% more domestic conversion signings than the third quarter of 2019,” Ballotti stated in the news release.

The company opened 76 hotels comprising 9,600 rooms in the third quarter, down 34% from the same period in 2019 “due to delays resulting from the pandemic,” the release stated. Approximately 64% of the company’s pipeline is international, and 76% is new-construction, 33% of which have broken ground.

Wyndham’s franchised hotels system shrank by 1%, including the transfer of 8,500 rooms from its management operations related to the company’s sale of CorePoint Lodging assets. Excluding that transfer, the system was down 2% globally, which reflects the exit of 7,900 non-compliant rooms during the third quarter, according to the release.

The franchised system reported a 36% RevPAR decline globally (-50% internationally and -31% at its U.S. hotels) for the quarter, and $236 million in revenue (-38% year over year).

The company’s managed hotel portfolio was downsized to 55,800 rooms in the third quarter, down 12% year over year. RevPAR at managed hotels was down 48% globally (-56% internationally and -45% in the U.S.), and revenue declined 44% to $101 million.

As of press time, Wyndham Hotels & Resorts’ stock was trading at $45.98, down 26.8% year to date. The Nasdaq was up 23.5% for the same period.

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