Since this time last year, Wyndham Hotels & Resorts has added approximately 31,500 rooms to its global portfolio, reflecting 4% year-over-year growth in the first quarter. Most of that has been outside of the U.S.
But looking ahead, Wyndham's portfolio growth prospects are largely driven by enthusiasm for its extended-stay brand Echo Suites, which since launching in March 2022 has signed 205 development contracts with owners — including 35 in the first quarter.
During the first quarter, Wyndham also awarded 123 new development contracts for its legacy brands, up 7% year over year.
Wyndham President and CEO Geoff Ballotti said the first quarter represented the company's "11th consecutive quarter of sequential growth in our development pipeline."
Year-over-year systemwide rooms growth in the first quarter was 4%, reflecting 1% growth in the U.S. and 9% growth internationally. That raised the company's room count to approximately 844,800 globally — 494,400 in the U.S. and 350,400 outside of the U.S. — compared to 813,300 rooms in its system as of March 31, 2022.
More than 6,000 rooms in the U.S. came from approximately 40 hotel conversions, along with five new-build projects.
"Internationally, we opened over 4,000 rooms and grew net rooms by 7%," Ballotti said. "Organically our Latin America team added some fantastic conversions from competitive brands, like our new Wyndham Garden Torreón in this booming Mexican city, along with the new La Quinta Quito steps from the upscale stores and entertainment and Ecuador's capital city."
The company's development pipeline, meanwhile, grew 11% year over year to approximately 226,000 rooms across 1,800 hotels. More than 25,000 of those rooms in the pipeline are associated with the Echo Suites brand. Sequentially from the fourth quarter, the development pipeline grew by 3%.
"We expect to break ground on another two dozen Echo hotels throughout 2023, with the brand beginning to contribute meaningfully to room count in 2024 and beyond," Ballotti said.
"Excluding Echo, the number of domestic contracts signed in the first quarter was 13% higher than what we awarded last year, reflecting continued developer interest in our new-construction prototype and conversion brands. If there's one thing that our franchise sales and development teams experienced at the Hunter Hotel Investment Conference last month and at the Asian American Hotel Owners Association convention a few weeks ago, it's that our owners believe that there has never been a better time to build or own another hotel than now, especially in the select-service segment."
The pipeline growth reflects a 28% increase for Wyndham in the U.S., but approximately 57% of the projects in development are outside of the U.S. and 80% of projects are new-construction. Approximately 72% of the pipeline is in the midscale segment and above.
Macroeconomic challenges are not shaking Wyndham's confidence in the performance of its hotel portfolio for 2023, Ballotti said.
"Our guests who are primarily middle class with household incomes of over $90,000, nearly 30% above the U.S. median, are allocating a higher share of their wallets to travel this year," he said. "This surge in travel spending has been unabated by the economic headlines throughout the year and reflects their strong desire to reconnect with family and friends, explore new destinations and create lasting memories."
Recent challenges tied with the collapse of banks in the U.S. also are not anticipated to slow Wyndham's development plans, Wyndham Chief Financial Officer Michele Allen said.
"Our owners source financing from multiple lender types including community banks, credit unions, regional lenders and non-bank lenders, as well as SBA financing, which is government-backed and limits exposure for the lender," she said.
"Many of our new development opportunities are with existing owners who have a track record developing our brands and have established strong lender relationships. Owners with whom we have discussed the situation have been reassured by their lender that financing for credit-worthy, well- established borrowers will remain available. To that point, new-construction projects continue to progress with almost a dozen fields beginning site work in the first quarter."
Confidence is also tied to growing demand for Wyndham's hotels from infrastructure workers in the U.S. Revenues from infrastructure-related accounts have increased by double digits compared to 2019 for eight consecutive quarters, Ballotti said.
"Our domestic footprint of hotels overlaps very well with the states expected to receive the highest levels of future infrastructure spend. And these top six states of ours by system size have received over one-third of the allocated federal spend to date," he said.
"We've estimated that this new level of infrastructure spending represents an opportunity to generate over $3.3 billion of incremental revenue for our franchisees and over $150 million of incremental royalties for Wyndham ... as we continue to invest in the people, the processes and the technology to support our growing global sales teams to capture more share from these infrastructure accounts."
Earnings Results
Wyndham's global revenue per available room grew 12% year over year in the first quarter, driven in large part by its portfolio outside of the U.S. International RevPAR was up 37% year over year in the quarter, while in the U.S. the metric was up only 4%, according to its earnings release.
"Approximately two-thirds of this increase is driven by stronger pricing power, while the remainder is driven by higher occupancy levels," the company states in the release.
Fee-related and other revenues dropped to $308 million from $316 million in the first quarter of 2022. In 2022, that figure included $38 million from the company's select-service management business and owned hotels, which Wyndham exited and sold last year.
As a result, the company reported adjusted earnings before interest, tax, depreciation and amortization of $147 million for the quarter, down from $159 million in 2022. The exit of its select-service management business and sale of owned hotels had a $15 million negative impact on EBITDA.
Net income for the quarter was $67 million, compared to $106 million in 2022.
Net cash of $93 million and free cash flow of $84 million was generated by operations in the first quarter, and the company ended the quarter with a cash balance of $150 million and approximately $890 million in total liquidity.
For full-year 2023, Wyndham projects year-over-year rooms growth of between 2% and 4% and global RevPAR growth between 4% and 6%. The company has adjusted its outlook on adjusted EBITDA up to between $654 million and $664 million, compared to a previous range of $650 million to $660 million. Expectations for adjusted net income also improved by $3 million on the low end of the range.
As of press time, Wyndham Hotels & Resorts' stock was trading at $65.85 per share, down 6.3% year to date. The NYSE Composite Index was up 0.3% for the same period.
