Wyndham in spend mode after strong Q4, 2018
Wyndham in spend mode after strong Q4, 2018
13 FEBRUARY 2019 10:56 AM

Share repurchases and potentially new brand acquisitions can be expected from Wyndham Hotels & Resorts in 2019 as the company moves toward full realization of synergies from its acquisition of the La Quinta brand, executives said.

PARSIPPANY, New Jersey—Wyndham Hotels & Resorts continues to realize synergies, primarily in cost savings, from its acquisition of the La Quinta brand, freeing up cash flow that the company expects to put into stock buybacks and potentially further bolt-on acquisitions of brands in 2019, executives said during a call to discuss fourth-quarter and full-year 2018 earnings.

The company realized $9 million in synergies during the fourth quarter, which brought annual synergies to $36 million, Wyndham CFO David Wyshner said.

Wyndham raised its estimate for full-run synergies from the La Quinta integration to a range of $60 million to $70 million. Previously the low end of that range was estimated at $55 million. With the merging of the La Quinta and Wyndham Rewards loyalty programs, as well as integration of La Quinta onto Wyndham distribution systems, expected to be completed in the first half of 2019, the company expects to fully realize synergies by the second half of the year, Wyndham President and CEO Geoff Ballotti said.

The La Quinta portfolio of more than 900 hotels also has performed above expectations since the May acquisition, executives said. Revenue per available room for the portfolio grew by 3.2% in the fourth quarter, compared to 2% RevPAR growth for Wyndham systemwide excluding acquisitions and divestitures.

“In the seven months since our acquisition, the La Quinta brand has seen 140 basis points of average monthly RevPAR index growth,” Ballotti said. “Because of its RevPAR growth, La Quinta has been for the first time in its 50-year history moved from midscale to upper midscale by (STR), which is something that our development teams believe will help to drive franchise sales efforts.” (STR is parent company of Hotel News Now.)

The company opened 27 La Quinta properties in 2018, 16 of which were new construction, representing pipeline growth of 6% year over year for the portfolio.

After the company was sidelined for much of 2018 amid the spinoff of its hotels and timeshare businesses, Wyndham resumed stock buyback activity, repurchasing approximately 1.25 million shares of its common stock for $60 million during the fourth quarter. In the seven months since the spinoff was completed in May 2018, the company repurchased 2.3 million shares of stock (2% of outstanding shares) for $119 million. Wyndham had 98.1 million shares outstanding at year end.

“Our free cash flow was only $158 million in 2018 because of $150 million of specific cash out-flow items, namely $98 million of transaction- and separation-related expenses, $17 million of insurance-reimbursed, hurricane-related capital expenditures and a $35 million tax payment tied to the La Quinta acquisition,” Wyshner said. “Nevertheless, we were able to return $194 million to shareholders through share repurchases and common stock dividends.”

As the company looks for tuck-in and leverage opportunities for investment, Wyshner said potential brand acquisitions “tend to be highest on our radar screens.”

“We’re pretty passionate about being asset-light, and that combination is what we look for: a good brand in an asset-light context is what captures our attention the most as we look at opportunities both in North America and around the world.”

Wyndham also expects $60 million to $65 million in CapEx spending for 2019, which Wyshner said is “$10 million to $15 more than we would consider typical.”

Q4, full-year performance
Wyndham Hotels & Resorts reported fourth-quarter revenue of $527 million, a 69% increase from $312 million in Q4 2017. Those numbers reflect $198 million of incremental revenues from La Quinta, according to an earnings news release.

Global RevPAR in the fourth quarter increased 8% year over year to $37.54. Excluding acquisitions and divestitures, RevPAR was up 2% in constant currency from the same quarter in 2017. Full-year 2018 RevPAR was up 8%, or up 3% excluding acquisitions and divestitures, from the previous year.

Wyshner noted that excluding impact of lapping hurricane benefits from 2017, RevPAR growth was consistently strong throughout 2018, pointing to strong consumer demand, particularly in the economy and midscale segment, where the company saw a pickup in average daily rate and occupancy over the prior year. Much of that strength comes from leisure, transient business, he said.

“We saw more strength on weekends than we’ve ever had,” he said.

Adjusted earnings before interest, taxes, depreciation and amortization increased 64% to $125 million, up from $76 million in Q4 2017. This was primarily driven by EBITDA growth in the company’s hotel franchising operations, which grew 51% year over year to $122 million from $81 million in Q4 2017.

Net income for the quarter was $43 million, down from $92 million during the same quarter last year, which the company attributed in part to expenses related to transactions and its separation from Wyndham’s vacation rental business. Adjusted net income was $57 million, up 50% year over year. The company also reported an $85 million tax benefit from the Tax Cuts and Jobs Act.

As of 31 December 2018, Wyndham’s portfolio consisted of 810,000 rooms at 9,200 properties, an 11% year-over-year increase (+2% excluding acquisitions and divestitures). The company has a development pipeline of approximately 1,400 hotels and 180,000 rooms (including 25,000 at La Quinta properties), which is an increase of 21% year over year.

One of the driving forces behind that development growth has been Wyndham’s introduction of “brands to new continents and countries where they have never been sold before,” Ballotti said, notably in China, where the company launched its Microtel brand and opened its first Wingate by Wyndham property in 2018.

For full-year 2018, Wyndham reported revenues of $1.9 billion, up from $1.3 billion in 2017. The difference accounts for $513 million of incremental revenues from La Quinta. Excluding the impact from acquisitions and divestitures, revenues were up 6%, which the company attributes in part to an increase in fees, including 6% higher royalties and franchise fees.

Adjusted EBITDA for 2018 came in at $507 million, up from $383 million in 2017, which reflects approximately $89 million of adjusted EBIDTA from La Quinta. Excluding impact from acquisitions and divestitures, adjusted EBIDTA grew 11% in constant currency.

For full-year 2019, the company projects revenues growth of 13% to 16% to $2.11 billion to $2.16 billion; adjusted net income of $301 million to $313 million; adjusted EBIDTA of $605 million to $620 million; and organic RevPAR growth of 1% to 3%.

At press time, Wyndham Hotels & Resorts’ stock was trading at $51.15, down 14.1% since the completion of the spinoff. The Baird/STR Hotel Stock Index was down 10.2% for the same period.

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