PARSIPPANY, NJ—For the third quarter ended Sept. 30, Wyndham Hotels & Resorts reported a global comparable RevPAR decline of 35% year-over-year, with net income of $27 million.
“In the face of continued industry uncertainty, our leisure-oriented, drive-to franchise business model generated $101 million of adjusted EBITDA and $92 million of free cash flow,” said Geoff Ballotti, president/CEO. “Over 99% of our domestic and over 97% of our global portfolio are open today. RevPAR improved sequentially across the globe, and in the U.S., our economy and midscale brands continued to gain market share. Third-quarter room openings also improved sequentially both in the U.S. and internationally, and we grew our pipeline by 3% to 185,000 rooms globally. Importantly, we executed 152 hotel agreements, including 23% more domestic conversion signings than the third quarter of 2019. As always, we remain dedicated to supporting our owners around the world during these very challenging times.”
Highlights include:
- Diluted earnings per share was 29 cents, and adjusted diluted earnings per share was 36 cents.
- Net income was $27 million for Q3 and adjusted net income was $34
- Adjusted EBITDA was $101 million.
- Generated $97 million of net cash provided by operating activities and $92 million of free cash flow.
- Global comparable RevPAR declined 35% year-over-year (YOY).
- System-wide rooms declined 2% YOY.
- Issued $500 million aggregate principal amount of 4.375% senior unsecured notes in August 2020, due 2028, the net proceeds of which were used in full to repay then-outstanding revolver borrowings.
Revenues declined from $560 million in Q3 of 2019 to $337 million in Q3 of 2020. The decline includes lower pass-through cost-reimbursement revenues of $79 million, which have no impact on adjusted EBITDA, in the company’s hotel management business. Excluding cost-reimbursement revenues, revenues declined $144 million primarily reflecting a 35% decline in comparable RevPAR and the impact from hotels temporarily closed due to COVID-19.
The company generated net income of $27 million, or 29 cents per diluted share, compared to $45 million, or 47 cents per diluted share, in Q3 of 2019. The decline in net income of $18 million, or 18 cents per diluted share, was primarily due to the revenue declines, which were partially offset by cost containment initiatives, lower volume-related expenses and the absence of contract termination and transaction-related expenses.
Hotel Franchising
The company’s franchised system, which included 8,500 rooms transferred from the hotel management segment related to the CorePoint Lodging asset sales, declined 1% globally. Excluding the transfer, franchised net rooms declined 2% globally, reflecting the previously announced removal of non-compliant and brand detracting rooms, of which approximately 9,000 were removed during the second quarter and approximately 7,900 were removed during the third quarter.
RevPAR declined 36% globally, reflecting a 31% decline in the U.S. and a 50% decline internationally. On a comparable basis, which is in constant currency and excludes hotels temporarily closed due to COVID-19, global RevPAR declined 33%, reflecting a 30% decline in the U.S. and a 43% decline internationally.
Revenues decreased $143 million compared to Q3 2019 reflecting the impact of COVID-19 on travel demand globally, while a decline in adjusted EBITDA of $78 million was partially mitigated by cost containment initiatives and lower volume-related expenses.
Hotel Management
The company’s managed system globally decreased 12%, primarily reflecting the transfer of 8,500 rooms to the hotel franchising segment as a result of CorePoint Lodging asset sales. Excluding the transfer of rooms to the hotel franchising segment, the company’s managed system increased 2% primarily reflecting growth internationally, partially offset by the previously announced removal of approximately 1,300 unprofitable management guarantee hotel rooms during the third quarter.
RevPAR declined 48% globally, including a 45% decline in the U.S. and a 56% decline internationally. On a comparable basis, which excludes hotels temporarily closed due to COVID-19, global RevPAR declined 46%, including a 43% decline in the U.S. and a 51% decline internationally.
Revenues decreased $79 million compared to the prior-year period primarily due to lower cost-reimbursement revenues, which have no impact on adjusted EBITDA. Absent cost-reimbursements, revenues were unchanged as the unfavorable impact of COVID-19 on travel demand globally was offset by the absence of a $20 million fee credit recorded as a reduction to hotel-management revenues in Q3 2019, which was considered transaction-related and therefore did not impact adjusted EBITDA. Adjusted EBITDA declined $11 million as the RevPAR impacts were partially mitigated by cost containment initiatives and lower volume-related expenses.
Development
As of Sept. 30, the company’s hotel system of approximately 9,000 properties and 804,000 rooms declined 2% year-over-year. During Q3 2020, it opened 76 hotels totaling 9,600 rooms, a year-over-year decline of 34% due to delays resulting from the pandemic.
As expected, the global retention rate over the last 12 months declined to 92.6% compared to 94.9% during the same period last year due to the removal of approximately 9,000 non-compliant master franchise rooms in China during the second quarter; and the removal of approximately 9,200 additional non-compliant, unprofitable and brand detracting rooms in the third quarter.
