Newly independent Wyndham Hotels reflects on busy Q2
Newly independent Wyndham Hotels reflects on busy Q2
01 AUGUST 2018 9:34 AM

In its first earnings report since becoming an independent public company, Wyndham Hotels & Resorts touted solid performance, portfolio and pipeline growth, much of it related to its integration of the La Quinta brand.

PARSIPPANY, New Jersey—Wyndham Hotels & Resorts’ second quarter, and its first as an independent public company, was groundbreaking, executives said, pointing to developments and growth that were in line with the company’s transformation.

The second quarter call capped off a period of significant transformation for the company, which included not only the spinoff from parent Wyndham Worldwide (now Wyndham Destinations, which includes the vacation ownership operations) in early June, but also the completion of its acquisition of La Quinta Holdings’ hotel management and franchising business on 31 May and the divestiture of the Knights Inn brand, which removed approximately 350 franchised hotels with approximately 21,000 rooms from its portfolio.

“Our team’s sharp focus on executing our strategic and operating plans allowed us to deliver solid growth, in line with our prior projections, in our initial quarter as an independent public company,” Wyndham Hotel Group President and CEO Geoff Ballotti said in the company’s earnings news release. “We also continued to strengthen our presence in the midscale hotel segment with the addition of the La Quinta brand and its over 900 hotels in May.”

La Quinta integration
The La Quinta acquisition expanded Wyndham’s portfolio to 21 brands and more than 9,000 hotels across more than 75 countries. The company projects the acquisition will “generate $55 million to $70 million in annual synergies,” which Wyndham CFO David Wyshner said are on schedule. Much of that cost savings will come from eliminating public company infrastructure, including executive positions and leveraging operational support.

Raj Trivedi, president of the La Quinta brand, and Chip Ohlsson, Wyndham’s EVP and chief development officer for North America, told HNN last month that the La Quinta integration was already creating new opportunities for both the brand and the company.

Ballotti told analysts on the Q2 call that the integration of La Quinta into the Wyndham family of brands has “reignited La Quinta franchise sale and pipeline efforts,” with 15 new La Quinta construction deals signed and ground broken on 10 new La Quinta projects since the acquisition. As a result, the La Quinta pipeline has grown to 24,000 rooms in 266 hotels, an “all-time record for this pipeline,” he said.

La Quinta franchisee response to the integration so far has been positive, Ballotti said, adding that he is “thrilled that the La Quinta franchisee advisory board has already decided that they want the brand to be known as La Quinta By Wyndham as soon as possible.” Twelve other Wyndham brands added “By Wyndham” to their name earlier this year.

The next stages in the La Quinta integration are focused extensively on technology and loyalty, with franchisees expected to be able to plug into Wyndham’s central reservations systems and La Quinta Returns’ 13 million members being matched with Wyndham Rewards toward the end of the first quarter of 2019, Ballotti said.

“With respect to La Quinta, the longest poles in the tent are really the integration of technology and the loyalty program, and I think that’s fairly typical in terms of what we see in transactions,” Wyshner said. “Our hope in La Quinta is to have that done within a 12- to 13-month period, and as a result, that should put us in good position to deliver full-run-rate synergies as we move into the second half of 2019.”

Q2 performance
Wyndham Hotels & Resorts reported second-quarter revenue of $435 million, a 31% increase over $331 million in Q2 2017. Excluding the La Quinta acquisition, revenues grew 8%, according to Wyshner. The company attributes revenue growth to higher royalties and franchise fees as well as higher profits from marketing, reservations and its loyalty program. The company noted that global franchisee conference revenues in the quarter were fully offset by conference-related expenses.

Overall revenue per available room in the second quarter increased 9% year over year to $42.95. Excluding acquisitions and divestitures, RevPAR grew 4% in constant currency.

Adjusted earnings before interest, taxes, depreciation and amortization increased 19% to $125 million, up from $105 million in Q2 2017. Broken down by business segment, adjusted EBIDTA for the company’s hotel franchising operations grew 16% year over year to $129 million from $111 million in Q2 2017, reflecting 24% revenue growth, and adjusted EBIDTA for its hotel management operations grew 100% from $4 million to $8 million during the same period.

Net income for the quarter was down 56% year over year to $21 million, which the company attributed to separation- and transaction-related costs.

Wyndham reported 12% growth in its hotel system compared to Q2 2017, which as of 30 June 2018 consisted of more than 792,000 rooms at more than 9,000 properties. Nearly 1,400 hotels, representing nearly 171,000 rooms, are in the development pipeline—a 13% year-over-year increase in rooms, which includes 24,000 in the La Quinta pipeline and reflects the removal of 2,000 Knights Inn pipeline rooms. Of those projects, 51% are international, and 70% are new-construction.

For full-year 2018, the company is projecting adjusted revenues of $1.99 billion to $2.04 billion, adjusted net income of $300 million to $320 million, adjusted EBIDTA of $590 million to $610 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.

Wyndham Hotels & Resorts’ stock was trading at $60.10, down 7.5% since the completion of the spin, as of press time. The Baird/STR Hotel Stock Index was down 2.9% for the same period.

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