Wyndham Hotels & Resorts, for the third quarter ended Sept. 30, reported a record-high development pipeline of 1,930 hotels. Global RevPAR grew 3% for Q3 compared to the same period last year.
“We recently announced our board of directors unanimously rejected an unsolicited stock-and-cash proposal by Choice Hotels to acquire our company,” said Geoff Ballotti, president/CEO. “Our board of directors, together with our financial and legal advisors, closely reviewed Choice’s latest proposal and determined, for multiple reasons, that it is not in the best interest of our shareholders. They remain confident that our standalone growth prospects offer superior, risk-adjusted returns to Wyndham shareholders.”
He continued, “Supporting that belief are our third-quarter results, which were highlighted by continued growth in global RevPAR, ongoing domestic and international organic net room growth and another 8% increase in hotel contracts awarded to franchisees driving our development pipeline to a record 1,930 hotels. Our economy brands gained market share domestically amidst a backdrop of normalizing U.S. leisure demand, and international occupancy continued to recover. Adjusted EBITDA grew in line with our expectations, we generated strong free cash flow and we returned significant capital to our shareholders. We remain focused on our growth strategy, which includes continued system expansion through our ECHO Suites by Wyndham brand and further improvements in franchisee retention, as well as the multiyear benefit expected from the U.S. infrastructure bill. We’re enthusiastic about our ability to deliver exceptional value to our shareholders, guests, franchisees and team members in the months and years ahead.”
Third-quarter financial results
Fee-related and other revenues was $400 million compared to $375 million in third-quarter 2022 reflecting global RevPAR and net room growth, higher license and ancillary fees as well as the pass-through revenues associated with the company’s global franchisee conference in September, which was held for the first time since 2019.
Wyndham generated net income of $103 million, or $1.21 per diluted share, compared to $101 million, or $1.13 per diluted share, in third-quarter 2022. The increase was reflective of higher adjusted EBITDA in the company’s hotel franchising segment and a lower effective tax rate, partially offset by higher interest expense. Adjusted diluted EPS grew 8% reflecting higher net income and a lower share count due to share repurchase activity. Adjusted EBITDA increased 5% to $200 million primarily reflecting higher fee-related and other revenues as well as marketing fund variability. During third-quarter 2023, the company’s marketing fund revenues exceeded expenses by $17 million; while in third-quarter 2022, marketing fund revenues exceeded expenses by $12 million.
System size
The company’s global system grew 3%, reflecting 1% growth in the U.S. and 6% growth internationally. As expected, these increases included strong growth in both the higher RevPAR midscale and above segments in the U.S. and the direct franchising business in China, which grew 4% and 16%, respectively.
RevPAR
Third-quarter global RevPAR grew by 3% in constant currency compared to 2022 reflecting a 1% decline in the U.S. and growth of 16% internationally. Wyndham had achieved record-breaking RevPAR in the U.S. during the preceding year due to COVID-impacted travel patterns. The company’s U.S. economy brands gained market share of 100 basis points in the third quarter. Compared to 2019 to neutralize for COVID-impacted travel patterns, U.S. RevPAR grew 9%, a 30 basis point acceleration from second-quarter 2023 growth. International RevPAR growth was driven by higher occupancy levels and stronger pricing power in connection with COVID recovery, and compared to 2019 grew 45% on a constant-currency basis, a 120 basis point acceleration from second quarter 2023 growth.
Development
- On Sept. 30, the global development pipeline consisted of 1,930 hotels and approximately 237,000 rooms, representing a 12% YOY increase, including 16% growth in the U.S.
- Approximately 69% of the pipeline is in the midscale and above segments.
- Approximately 58% of the pipeline is international.
- Approximately 80% of the pipeline is new construction, of which approximately 34% has broken ground.
During the quarter, Wyndham awarded 172 new contracts for its legacy brands, an increase of 4% YOY. Additionally, the company awarded 60 additional new contracts for its ECHO Suites Extended Stay by Wyndham brand and, as of Sept. 30, the total number of contracts awarded for the brand was 265 (nearly 33,000 rooms).
Balance sheet and liquidity
As of Sept. 30, Wyndham had $2.2 billion of long-term debt outstanding with a weighted average interest rate of 4.9%. The company borrowed $110 million on its revolving credit facility during the third quarter and had an available borrowing capacity of $631 million after considering $9 million of outstanding letters of credit as of Sept. 30. The company ended the quarter with a cash balance of $79 million and approximately $710 million in total liquidity.
The company generated net cash provided by operating activities of $77 million and free cash flow of $67 million in third quarter 2023.
Wyndham has pay-fixed/receive-variable interest rate swaps in place to hedge $600 million of the Term Loan B Facility, set to expire in the second quarter of 2024. During the third quarter of 2023, the company executed $600 million of new forward-starting interest rate swaps on the Term Loan B Facility, which will begin in second-quarter 2024 and expire in 2028. The fixed rate of the new swaps is 3.8%.
Rejection of unsolicited offer
On Oct. 17, the company’s board of directors unanimously rejected a highly conditional, unsolicited stock-and-cash proposal by Choice Hotels International Inc. to acquire all outstanding shares of Wyndham. Wyndham’s board of directors, together with its financial and legal advisors, closely reviewed Choice’s latest proposal with a nominal value of $90 per share, comprised of 45% in stock and 55% in cash, and determined that it is not in the best interest of Wyndham shareholders to accept the proposal.
