A U.S. portfolio with nearly 90% of properties located outside of major cities in drive-to, leisure destinations positions Wyndham Hotels & Resorts for a quicker recovery once demand returns, executives say.
PARSIPPANY, New Jersey—Rough first-quarter performance for Wyndham Hotels & Resorts was somewhat mitigated by efforts to reduce expenses, which included the elimination of 440 positions and a refocused capital strategy.
“During the most challenging crisis the hotel industry has ever endured, our highest priority has remained the well-being and safety of our guests, owners and team members. We have taken the difficult but prudent measures to reduce our costs and bolster our liquidity while providing support and relief for our franchisees to help them weather this downturn,” Wyndham President & CEO Geoff Ballotti said.
Despite being unable to “accurately predict and provide 2020 outlook,” due to the “rapidly evolving circumstances and uncertainty in travel demand,” according to an earnings news release, Wyndham executives believe the company is well-positioned for a quick rebound once the current crisis, brought on by the COVID-19 pandemic, begins to subside.
The positioning of its U.S. portfolio, of which approximately 5,900 of its 6,000 hotels remain open, gives it an advantage, according to Ballotti.
“With nearly 90% of those properties located outside of major cities in drive-to destinations that cater to a leisure customer base, we believe that our asset-light business is well positioned for a quick recovery when travel demand returns,” he said.
A portfolio which is 90% select-service also is an advantage for Wyndham, he said.
“These hotels are less labor-intensive and typically operate at higher margins than full-service hotels. They generally average fewer than a dozen full-time employees, and staff levels are highly scalable to demand,” he said.
As a result, he said, “we believe majority of our hotels can support debt service at occupancy levels of approximately 30% before receiving any governmental assistance, which lowers the 30% break-even considerably.”
The company’s asset-light, franchise model also is uniquely resilient during times of downturn, Wyndham CFO Michele Allen said, noting that 96% of its hotels are franchised.
That means minimal exposure to asset risk and incentive fees so that as occupancy improves, revenues will improve, she said.
Wyndham also sees continued opportunity to grow, particularly through conversions of independent hotels to its brands, which mirrors development strategy in past downturns, Ballotti said.
“Converting independent hotels to our brands has always been an important part of Wyndham’s consistent rooms growth through both up and down cycles. As this industry recovers from COVID-19, we believe conversions will become an even more important growth vehicle for us,” he said.
Allen added Wyndham has a proven track record of adding rooms during downturns, noting that even during the financial crisis of 2008, its system grew by 3%, largely driven by conversions.
Despite cratering oil prices, Wyndham hotels located in oil-and-gas markets are “performing no worse and even a little bit better than the rest of our system,” Ballotti said, noting that hotels in these markets make up about 12% of the company’s system and 96% of them are open.
“We’re seeing muted to no impacts in those markets,” he said.
Wyndham is also starting to see positive signs in China, where approximately 1,400 of its 1,600 hotels are now open, which is up from about 400 open hotels at the peak of the COVID-19 crisis in the country.
Ballotti said occupancy at the company’s China hotels “continues to tick up,” now running in the 20%-range, up from occupancies in the single digits and teens two weeks ago.
Wyndham reported a 12% year-over-year decline in revenues to $410 million in Q1, but 5% growth in net income to $22 million due to lapsed costs related to the company’s spinoff from Wyndham Worldwide and its vacation rental business, Wyndham Destinations.
Cash savings totaling approximately $255 million in Q1 included, in addition to layoffs, “reduced capital spend to focus only on the highest priority projects,” consolidation of facilities, and indefinite suspension of Ballotti’s salary and cash compensation to the company’s Board of Directors, according to a company earnings release.
Restructuring costs in the first quarter of $13 million were primarily related to severance and benefits payments to 260 laid-off employees.
Also for the quarter, global revenue per available room declined 23% compared to Q1 2019, and adjusted earnings before interest, tax, depreciation and amortization was down 4% to $107 million.
RevPAR was down 17% at the company’s U.S. hotels; and a 37% decline internationally was driven primarily by a 70% drop in China.
By segment, Wyndham’s economy hotels in the U.S. reported the least impact to RevPAR (-15%) while midscale and upper-midscale hotels were hit hardest (-20%), according to earnings results.
The company still managed to grow its systemwide room count by 2% in the first quarter, opening 58 new hotels representing 6,200 rooms; and its development pipeline grew 4% year-over-year to 189,000 rooms.
Wyndham’s managed hotel portfolio shrank by 11% with the transfer of 7,100 rooms to its franchising segment as a result of the sale of CorePoint Lodging assets.
Hotel openings, however, were down 47% from Q1 2019, due primarily to construction delays in China and fewer conversions in the U.S. during March, the company stated.
“The pandemic inhibited our ability to open rooms both internationally and domestically,” Ballotti said. “New construction projects are being completed, but some owners are waiting to open until travel demand begins to recover.”
As of press time, Wyndham Hotels & Resorts’ stock was trading at $38.13, down 39% year to date. The Baird/STR Hotel Stock Index was down 43.3% for the same time period.