Wyndham rides La Quinta wave to stay on pace in Q1
 
Wyndham rides La Quinta wave to stay on pace in Q1
30 APRIL 2019 9:39 AM

Revenue and EBITDA contribution from the company’s La Quinta portfolio drove year-over-year growth in the first quarter for Wyndham Hotels & Resorts.

PARSIPPANY, New Jersey—Nearly a year since it acquired the La Quinta Inn & Suites brand, Wyndham Hotels & Resorts has endured what has been a relatively weak first quarter for the U.S. hotel industry as a whole, in large part due to continued synergies and bottom-line boost from that deal.

The company reported incremental revenue of $169 million from La Quinta during Q1, which lifted overall revenue by 55% year over year to $468 million.

Without that bump from La Quinta, Wyndham’s Q1 revenues grew by 4% in constant currency, which the company stated in its earnings release reflects “higher license, royalty and other fees, offset by lower cost-reimbursement revenues.”

First-quarter adjusted earnings before interest, taxes, depreciation and amortization growth also was driven by La Quinta, which the company estimates contributed approximately $33 million to boost EBITDA by 21% to $111 million. Excluding the impact from acquisitions and divestitures, the company reported adjusted EBITDA decreased by 13% in constant currency.

“Our first-quarter results were consistent with our expectations and included double-digit growth in adjusted EBITDA despite our decision to incur a higher proportion of our 2019 marketing expenses in the early part of the year,” Wyndham President and CEO Geoff Ballotti said. “We remain enthusiastic about our prospects for growth, the synergies we expect from the La Quinta acquisition, and our leading presence in the economy and midscale segments of the lodging industry.”

Synergies projection raised
Progress on the integration of La Quinta in the first quarter motivated the company to raise its projection for full-run synergies from the acquisition to between $64 million and $70 million, which is up from between $60 million and $70 million. Wyndham CFO David Wyshner said “virtually all projected synergies are cost savings,” and the company expects “to reach its full run-rate synergy target in the third quarter.”

Synergies include those realized with the 3 April integration of La Quinta hotels to Wyndham’s central reservation, property management, loyalty, digital and call-center systems, which Ballotti called “a key deliverable in the first quarter” and “the last major milestone of the integration.”

“The migration proceeded exactly as planned, and in what may be one of the largest same-day migrations in the history of the hospitality industry, La Quinta is now operating entirely on our cloud-based central reservations, property management, digital, loyalty, reporting and call-center platforms,” Ballotti said.

M&A versus organic growth
The completion of the La Quinta integration is expected to free up Wyndham to potentially consider additional acquisitions, primarily tuck-in brands, Wyshner said.

“The good news is, with La Quinta largely behind us, we’re positioned to be able to look at brand acquisitions,” he said. “We intend to approach this area with real prudence and discretion, and we don’t want anyone to be disappointed if we don’t add a brand this year after having completed our largest acquisition ever (with La Quinta) in 2018.”

The company’s focus in scoping out potential future acquisitions will be in the select-service space, “though we’re not completely limited to that,” Wyshner said. “Geographically, expect us to look across regions, whether that’s in the Americas, in Europe or other parts of the world, for attractive or grow-able brands.”

Still, organic growth remains a top priority for Wyndham.

Ballotti noted that Wyndham’s net rooms grew 3% organically—12% including acquisitions and divestitures—to approximately 812,000 rooms at 9,200 properties as of 31 March.

“In the first quarter, we opened approximately 5,600 domestic rooms, which is an organic increase of over 50% versus last year’s first quarter,” he said.

System size growth is also partially attributed to fewer rooms deletions as the company realizes the benefits of its focus on quality and retention, Ballotti said, noting that first-quarter terminations declined 12% year over year, and retention rates both domestically and internationally stand at 95%.

The company has a development pipeline of approximately 1,400 hotels and 181,000 rooms—including more than 25,000 La Quinta properties—which is an increase of 23% year over year.

“Excluding La Quinta, our global pipeline grew 7%, which includes a 13% increase in international new construction and a 7% increase in domestic new construction,” Ballotti said. “We expect to open more than 2,000 hotels over the next three years, with about half of that being in the U.S. and the remainder being split between China and other international markets.”

Q1 performance
Wyndham Hotels & Resorts reported global revenue per available room in the first quarter increased 7% year over year to $36.21. Excluding acquisitions and divestitures, RevPAR was up 1% in constant currency from the same quarter in 2018. RevPAR for the company’s U.S. portfolio increased 13% year-over-year to $40.56 and also rose 1% in constant currency excluding acquisitions and divestitures.

The company’s hotel franchising operations saw adjusted EBITDA grow 31% year over year to $113 million from $86 million in Q1 2018.

Net income for the quarter was $21 million, down 46% from $39 million during the same quarter last year. Adjusted net income was $51 million, down 7% year over year. The company stated in its earnings release that “prior-year results predate the spinoff and acquisition of La Quinta and therefore included substantially lower separation-related, interest and corporate expenses.”

Wyndham also reported negative impact to its Q1 performance from comparisons to hurricanes-related demand in 2018, noting in its earnings release “the absence of $4 million of net hurricane-related insurance proceeds received during first quarter 2018.”

Wyndham reaffirmed its outlook for full-year 2019 of revenue growth between 13% and 16% to between $2.11 billion and $2.16 billion; adjusted net income of $301 million to $313 million; adjusted EBITDA of $605 million to $620 million; and organic RevPAR growth of 1% to 3%.

At press time, Wyndham Hotels & Resorts’ stock was trading at $55.95, up 24.2% year to date. The Baird/STR Hotel Stock Index was up 16% year to date.

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