Wyndham in growth mode despite headwinds
 
Wyndham in growth mode despite headwinds
13 FEBRUARY 2020 11:12 AM

Wyndham Hotels & Resorts executives said even in China, which represents about 25% of its global pipeline and where a coronavirus outbreak could delay openings, the question with growth is when, not if.

PARSIPPANY, New Jersey—Wyndham Hotels & Resorts executives remain bullish about growth in 2020 despite a softening revenue environment and headwinds including the coronavirus (COVID-19) originating in central China that to date has forced closure of 1,000 Wyndham-branded hotels on the mainland.

Wyndham grew its system 3% in size in 2019, adding 27,000 rooms in the U.S. for a total of 831,000 rooms at 9,280 properties, according to Wyndham President and CEO Geoff Ballotti.

“We saw the strongest opening activity for our La Quinta, Ramada, Wingate, Trademark and Travelodge brands, and tremendous progress on the new-construction front, with openings up over 30%, led again by La Quinta and Wingate new-construction prototypes,” he said.

Much of that growth came internationally, with 36,500 rooms opened outside of the U.S. in 2019, Ballotti said.

“We introduced 11 of our 20 brands into 24 new countries and territories, strengthening our foundation for future growth in those regions,” he said.

The fastest growing region for Wyndham was Southeast Asia, where net rooms increased by 20% in 2019.

In terms of unit growth outlook, the company expects 2% to 4% rooms growth in 2020.

The company’s development pipeline grew 7% year over year in 2019. Of the 1,500 hotels and approximately 193,000 rooms in the pipeline at the close of 2019, 57% are international and 70% are new-construction.

Impact from the coronavirus (COVID-19) could include approximately a half-a-point hit to projected net rooms growth if openings in the company’s China pipeline are pushed out of 2020, said Wyndham CFO Michele Allen.

On a global basis, about 25% of the pipeline is in China, she said.

Ballotti said his team in the region fully expects those properties to open; “the question is when.”

Coronavirus impact
Executives were careful to quantify the potential impact of the coronavirus (COVID-19) outbreak on performance in 2020.

Wyndham provided outlook for 2020 that does not account for the coronavirus, calling for revenues of $1.89 billion to $1.93 billion, adjusted net income of $329 million to $339 million, and adjusted earnings before interest, taxes, depreciation and amortization of $635 million to $645 million.

Revenue per available room for 2020 is projected to be flat to down 2%, which reflects a 0.7% adverse impact from room deletions due to exiting unprofitable hotel management agreements, according to the company’s earnings news release.

Though the “situation in China continues to unfold,” Allen said that “given what we know today, we would estimate a headwind of 200-400-basis-point on full-year global RevPAR” as a result of the coronavirus outbreak.

To put that figure into perspective, she noted that “in China, a 100-basis-point change in net rooms or RevPAR growth equates to approximately $250,000 in adjusted EBITDA on a full-year basis,” while that same change equates to approximately $125,000 in southeast Asia and approximately $4 million in the U.S. for Wyndham.

“We are providing these full-year sensitivities as a point of reference and to illustrate the relative and manageable magnitude of this issue in the context of our overall financial results,” Allen said.

She noted that currently “approximately 70% of our hotels in China remain closed” due to the outbreak, “with the balance experiencing occupancy declines of approximately 75%, which is expected to continue through at least the end of March.”

Ballotti noted that China represents only 2% of the company’s adjusted EBIDTA, but “it is becoming a more important factor to our international, direct franchising business.”

He said in the first week of the coronavirus outbreak, 60 Wyndham hotels were closed by government mandate. Those closures peaked over the weekend, with 1,000 properties closed (approximately 900 of those are Super 8 master license franchisees), he said.

“Hotel closures appear to be stabilizing. We’ve seen approximately 500 hotels reopen over the past several days,” he said. “A majority of the closures resulted from franchisees doing everything they can to protect their team members and prevent the spread of the virus.”

Q4 and full-year 2019
In its Q4 and full-year 2019 earnings release, Wyndham reported systemwide RevPAR decreased 3% year over year to $36.36 in the fourth quarter, but was flat for 2019. The decline in the fourth quarter was attributed solely to the company’s U.S. portfolio, as international RevPAR was flat compared to the same period in 2018. For full-year 2019, RevPAR at the company’s U.S. hotels was up 2% to $46.39.

Net revenues were down 7% year over year in the fourth quarter to $492 million, but up 10% for full-year 2019 to $2.05 billion. Net income was up 49% to $64 million in the fourth quarter, but down 3% for the year to $157 million.

Adjusted EBIDTA increased 22% year over year to $153 million in the fourth quarter, and was up 21% for full-year 2019 to $613 million, which met the company’s projections of between $610 million and $615 million in adjusted EBITDA for the year. When excluding $63 million of incremental EBIDTA from La Quinta, as well as $17 million in incremental synergies, adjusted EBITDA increased 6%.

Wyndham’s hotel franchising operations grew adjusted EBITDA by 24% year over year to $151 million in the fourth quarter, while for its hotel management operations, that metric increased 17% in the quarter to $21 million. Franchising revenue was up 2% for the quarter to $300 million, while revenue for its management operations was down 17% to $190 million.

At press time, Wyndham Hotels & Resorts’ stock was trading at $59.38 a share, down 5.5% year to date. The Baird/STR Hotel Stock Index was down 1.6% for the same period.

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