Wyndham Hotels & Resorts reported net income of $103 million for the three months ended Sept. 30, with Q3 RevPAR for the U.S. surpassing 2019 levels. The company also updated its 2021 full-year outlook.
“Our resilient select-service franchising business model continues to lead the industry’s recovery with RevPAR well in excess of 2019 levels,” said Geoffrey A. Ballotti, president/CEO. “These results have been fueled by the many investments we made over the last two years to capture an increasing share of both leisure and everyday business travel. Developer interest in our brands is strong. Our pipeline grew another 440 basis points and is now at pre-pandemic levels. At the same time, our teams opened over 50% more rooms than we opened last year, and more rooms than we opened in the third quarter of 2019. Our diversified brand portfolio, now including our newly launched upper-midscale all-inclusive brand, Alltra, and compelling owner value proposition, combined with our asset-light business model, positions us to deliver strong free cash flow and shareholder returns well into the future.”
Q3 highlights:
- U.S. RevPAR exceeded 2019 levels by 7%, growing 59% vs. 2020.
- System-wide rooms grew 60 basis points sequentially, including 40 basis points of growth in the U.S. and 80 basis points of growth internationally.
- Diluted earnings per share (EPS) of $1.09 compared to $0.29 in third quarter 2020; adjusted diluted EPS of $1.16 compared to $0.36 in third quarter 2020.
- Net income of $103 million compared to $27 million in third quarter 2020; adjusted net income of $109 million compared to $34 million in third quarter 2020.
- Adjusted EBITDA of $194 million compared to $103 million in third quarter 2020.
- Net cash provided by operating activities of $147 million compared to $97 million in third quarter 2020; free cash flow of $141 million compared to $92 million in third quarter 2020.
Fee-related and other revenues increased 48% to $377 million compared to $255 million in the third quarter of 2020 primarily reflecting the ongoing recovery in travel demand and its impact on global RevPAR, which has now recovered to 97% of 2019 levels, including domestic RevPAR at 7% above 2019.
The company generated net income of $103 million, or $1.09 per diluted share, compared to net income of $27 million, or $0.29 per diluted share, in the third quarter of 2020. The increase of $76 million, or $0.80 per diluted share, reflects the increase in fee-related and other revenues and lower net interest expense, partially offset by higher volume-related expenses due to the ongoing recovery in travel demand.
System size
Year-to-date, Wyndham’s global system grew 80 basis points, reflecting quarter-over-quarter sequential growth of 60 basis points driven by 40 basis points of growth in the U.S. and 80 basis points of growth internationally. Third-quarter room openings exceeded 2019 levels by 4% globally reflecting a 46% increase in domestic additions. The company’s annualized retention rate through the third quarter stood at approximately 95%, putting it solidly on track with its goal of achieving a 95% retention rate and its net room growth outlook of 1.5% to 2% for full-year 2021.
RevPAR
Global and international RevPAR began to lap the onset of the COVID-19 pandemic in January, while the U.S. began to lap its onset in March. As such, comparisons to 2019 (on a two-year, constant currency basis) are more meaningful when evaluating trends. On this basis, third-quarter RevPAR in the U.S. exceeded 2019 levels by 7%, while global RevPAR recovered to 97% of 2019 levels and international RevPAR declined 25%. The 7% increase in the U.S. represents continued sequential improvement compared to a decline of 5% in the second quarter of 2021.
Notably, RevPAR for the company’s economy brands exceeded 2019 levels by 14% in the third quarter. The 25% international decline demonstrates strong sequential progress from a 44% decline in the second quarter led by growth in regions where travel restrictions subsided. Canada improved 32 points to a 17% decline and Europe, Middle East and Africa (EMEA) improved 43 points to a 25% decline, partially offset by a 10-point sequential decrease to a 17% decline in China due to travel restrictions resulting from local COVID outbreaks in August and September.
Business segment results
Hotel franchising revenues increased 43% year-over-year (YOY) to $337 million primarily due to the global RevPAR increase. Hotel franchising adjusted EBITDA increased 62% to $193 million reflecting the growth in revenues as well as a timing benefit from the marketing fund, partially offset by higher volume-related expenses.
Hotel management revenues increased 25% YOY to $126 million, including a $4 million increase in cost-reimbursement revenues, which have no impact on adjusted EBITDA. Absent cost-reimbursements, hotel management revenues increased $21 million, or 111%, to $40 million primarily due to the global RevPAR increase, as well as improved performance at the company’s owned hotels. Hotel management adjusted EBITDA increased $14 million YOY reflecting the revenue increases, partially offset by higher volume-related expenses, and reflecting significant margin expansion (excluding cost reimbursements) to 40% in 2021 from 11% in 2020.
During Q3 2021, the company’s marketing fund revenues exceeded expenses by $19 million; while in Q3 2020, its marketing fund expenses exceeded revenues by $8 million.
Development
Wyndham awarded 151 new contracts this quarter, 3% higher than 2019. On Sept. 30, the company’s global development pipeline consisted of more than 1,450 hotels and approximately 193,000 rooms.
The pipeline grew 440 basis points YOY and 120 basis points sequentially—including 90 basis points domestically and 140 basis points internationally. Approximately 65% of the company’s development pipeline is international and 76% is new construction, of which approximately 34% has broken ground.
Cash and liquidity
Wyndham generated $147 million of net cash provided by operating activities in the third quarter of 2021 compared to $97 million in the third quarter of 2020. The company generated $141 million of free cash flow in Q3 2021 compared to $92 million in Q3 2020.
At Sept. 30, the company had $193 million of cash on its balance sheet and approximately $930 million in total liquidity. Its net debt leverage ratio was 3.7 times at Sept. 30, and within its three-to-four times stated target range.
2021 outlook
The company updated its outlook for full-year 2021 as follows:
- Net rooms growth of 1.5% to 2% versus our prior outlook of 1% to 2%.
- RevPAR growth of approximately 43% versus 2020, or a decline of approximately 14% compared to 2019, which is improved from growth of approximately 40% versus 2020, or a decline of approximately 16% compared to 2019.
- Fee-related and other revenues of $1.21 billion to $1.23 billion, up from $1.16 billion to $1.19 billion.
- Adjusted EBITDA of $560 million to $570 million, up from $525 million to $535 million.
- Adjusted net income of $275 million to $285 million, up from $244 million to $254 million.
- Adjusted diluted EPS of $2.93 to $3.03, up from $2.60 to $2.70, based on a diluted share count of 94.0 million that excludes any share repurchases after Sept. 30
- Free cash conversion from Adjusted EBITDA of approximately 60%, up from approximately 55%.
