During a first-quarter earnings call with investors, Wyndham Worldwide executives expressed enthusiasm about record Q1 performance, the progress toward the spinoff of its hotel operations, and acquisition of La Quinta’s hotel and franchise management business, both on track to close this quarter.
PARSIPPANY, New Jersey—Amidst a sea of change, which includes the pending spinoff of its hotel operations and acquisition of La Quinta Holdings’ hotel franchise and management business, Wyndham Worldwide reported “a record first quarter,” executives said on a call with analysts.
Wyndham Worldwide saw first-quarter revenues from continuing operations increase 3% year over year to $1.2 billion, despite a 36.2% decrease in net income to $81 million due to the impact of after-tax costs related to transactions and its pending split, the company stated in an earnings news release.
“Our first-quarter results exceeded the high end of the estimates we provided in February,” Wyndham EVP and CFO David Wyshner told analysts on a call. He noted that hotel operations adjusted earnings before interest, taxes, depreciation and amortization increased 10%, reflecting revenue growth and a $5-million net benefit from hurricane-related insurance recoveries.
Meanwhile, Wyndham Worldwide Chairman and CEO Stephen Holmes said the spinoff of the hotel and vacation ownership operations is “progressing rapidly.”
“License, cross-marketing and transition services agreements are in place. We’ve established separate company infrastructures, organizational designs and corporate identities,” he said. “We’ve determined our go-forward capital structures in both companies are ready and looking forward to telling their stories to the street, a process we expect to begin in a couple of weeks, with our plan still being to complete the spinoff by the end of the quarter.”
After the split, Wyndham Worldwide will change its name to Wyndham Destinations, trading on the New York Stock Exchange as “WYND.” Its independent hotel franchising and management company, Wyndham Hotels & Resorts, is expected to trade on the NYSE under the symbol “WH.”
Wyndham’s $1.95-billion acquisition of La Quinta Holding’s hotel franchise and management business—announced on 18 January—is on track to close in this quarter, as is the split of its hotel group and the timeshare businesses into separate publicly traded companies, the company announced.
The La Quinta addition will expand Wyndham’s portfolio to 21 brands and more than 9,000 hotels across more than 75 countries. Wyndham Hotel Group President and CEO Ballotti said the “financings to fund the acquisition are already in place.”
Wyshner said La Quinta is expected “to contribute about $8 million of EBITDA a month when we first acquire it, subject to some seasonality, growing to around $13 million a month by 2019 as the business is fully integrated.”
Focus on growth, quality
Ballotti said that while the primary focus will continue to be on rooms growth and driving revenue per available room with attention to quality, he sees “significant opportunity to supplement our organic growth with proven ability to create value through tuck-in acquisitions.”
“Over last 30 years, we have averaged one brand acquisition every 18 months,” he said, adding Wyndham has the proven “ability to integrate quickly and seamlessly, as we did last year with AmericInn and as we will do this year with La Quinta.
“We will continue to look to opportunistically acquire and integrate brands into our franchising platform and for brand acquisition and hotel management opportunities in new and international markets,” he said.
Ballotti attributed the hotel group’s success to a business model that is “easily adaptable to changing economic environments and yields attractive margins and predictable cash flows.” That model, he said, will continue to be “asset-light with low operating costs, recurring fee streams and limited capital expenditures.”
Also expected to close this quarter is Wyndham’s sale of the Knights Inn brand to RLH Corporation—which was first announced in April—and the sale of its European vacation rentals business, according to the company’s earnings news release.
Ballotti and Wyshner said that the dispensation of the Knights Inn brand made sense in terms of how the company is strategically positioning its portfolio and will have a positive effect on its balance sheet.
“It is the first time we’ve ever considered the sale of a brand,” Ballotti said. “It is our deep budget brand with a domestic RevPAR of roughly 50% below our lowest economy brand and a loyalty rate which is several hundred basis points below. With the … push for Wyndham Rewards engagement, we felt this was a great time to entertain an offer for a brand that does not enjoy the same level of awareness that some of our economy brands do.”
Wyshner said the Knights Inn brand was “an outlier in our portfolio in terms of how it was positioned” in that it represents slightly less than 1% of total EBIDTA. As a result of the sale of the brand, overall RevPAR is expected to increase by a point.
Wyndham Hotel Group reported first-quarter revenue of $302 million, a 4% increase over $289 million in Q1 2017, which the company attributed to higher royalties and franchise fees as well as higher profits from marketing, reservations and its loyalty program.
RevPAR in the first quarter increased 5.6% domestically and 4.7% globally year over year on a constant-currency basis. Average daily rate grew 4.5% to $66.94, and occupancy was up 2.4% to 50.7% compared with the same quarter last year.
Wyndham reported 3% growth in its hotel system compared to Q1 2017, which as of 31 March 2018 consisted of approximately 723,000 rooms at more than 8,300 properties, including nearly 12,000 rooms that were added with the acquisition of AmericInn in October 2017. More than 1,100 hotels, representing nearly 147,700 rooms, are in the development pipeline—a 3% year-over-year increase in rooms. Of those projects, 58% are international, and 67% are new-construction.
Wyndham kept its 2018 full-year outlook mostly unchanged from last quarter, projecting revenue between $5.2 billion and $5.3 billion, an increase of 4% to 7% year over year, and adjusted net income of $702 million to $717 million from continuing operations (+25% to +28% over 2017). The projections are based on the impact of the adoption of a new federal revenue recognition standard, as well as a lower effective tax rate.
The projections, according to the company release, “exclude the impact of the La Quinta acquisition and the financing thereof, exclude the impact from our European vacation rentals business, which is treated as a discontinued operation (and) exclude costs associated with the company’s planned separation into two separate publicly traded companies.”
Wyndham Worldwide’s stock was trading at $110.30, down 4.8% year to date, as of press time. The Baird/STR Hotel Stock Index was down 2.9% year to date.