Though some select-service hotels have seen weaker performance as of late, Wyndham Hotels & Resort's chief executive said he's optimistic about the long-term prospects for the hotel segment.
During the company's second-quarter earnings call, Wyndham President and CEO Geoff Ballotti said that he and others in the industry believe the current revenue per available room environment is transitory. Since 2000 and through four lodging cycles, RevPAR for the select-service segments, which make up a majority of Wyndham’s domestic system, has a compound average growth rate of 2.6% despite the occasional downturn.
STR reaffirmed this perspective with its latest outlook projecting 2.7% U.S. RevPAR growth in 2025 for the select-service segments, he said.
“We've been through similar situations before, and we're confident that the select-service RevPAR will bounce back, as it always has historically,” he said.
International RevPAR grew by 7% year over year in constant currency and accelerated by 250 basis points from the first quarter to the second when compared to 2019, Ballotti said. International occupancy remains a tailwind for the remainder of the year and is now 19% behind where it was in 2019.
RevPAR in Europe, the Middle East and Africa, as well as Latin America, was strong this quarter, growing by 15% and 37%, respectively, he said. Greece, Spain, Turkey, the Middle East and Caribbean were particularly strong performers.
As of press time, Wyndham’s stock was trading at $75.69, down 5.7% year to date but up 7.5% on the day. The NYSE Composite Index was up 9.1% year to date.
Hotel Pipeline
Wyndham’s global system grew by 4%, which breaks down to 1% growth in the U.S. and 8% internationally, according to its earnings release. The company reports it’s on track to achieve net room growth of 3% to 4% for the full year.
By the end of the quarter, the global development pipeline had approximately 2,000 hotels with 245,000 rooms, a record amount and 7% year-over-year increase. That represents 5% growth in the U.S. and 9% internationally. Approximately 70% of the pipeline is in the midscale segment or higher. Roughly 14% of the pipeline represents its new brand Echo Suites Extended Stay by Wyndham. The total pipeline is about 58% outside the U.S.
During the quarter, Wyndham awarded 180 new contracts, including 96 in the U.S., a 33% year-over-year increase.
Wyndham is seeing a lot of deals on the horizon, which is why the company increased its key money guidance up by $20 million, Ballotti said. Owners are much more receptive in sitting down to talk deals now that the industry is moving past the uncertainty.
Ballotti said in the next week, he and his executive team have “several development meetings with prospects across the country, deals that are not yet signed that I’m not sure they’d be sitting down with us a quarter or two ago.”
During the second quarter, the company’s opening of 18,000 rooms was the best second quarter it’s had in new openings, Ballotti said. Seventy-five percent of those openings were in the midscale and above segments, driven by strong domestic openings. Of those, 7,000 were domestic rooms, up 16% compared to last year, with solid conversions coming into the system.
Long term, Wyndham has said it’s targeting 3% to 5% rooms growth, he said. Year-to-year transaction volumes are down, which is a driver of rooms growth. Conversions are still about 25% below last year as well as 2019, but despite that, Wyndham executed in 96 deals domestically, a 30% increase over last year. New construction prototype brands are selling well, and the company has 84 deals internationally.
“This was the 16th consecutive quarter of sequential pipeline growth,” he said. “We’re up to a record 245,000 rooms across 60 countries, and we’re very optimistic about what net room growth looks like going forward.”
By the Numbers
Wyndham reported net income of $86 million during the quarter, a 23% year-over-year increase, according to the earnings release. Adjusted net income was $91 million, a 14% year-over-year increase.
Adjusted earnings before interest, taxes, depreciation and amortization grew 13% year over year to $178 million.
It ended the quarter with a cash balance of $70 million and approximately $820 million in total liquidity.
Global RevPAR improved sequentially, and second-quarter trends represented a more gradual return to year-over-year growth than previously anticipated, said Michele Allen, chief financial officer and head of strategy. As a result, the company has lower its full-year 2024 growth outlook to reflect essentially flat year-over-year RevPAR from a prior guidance of 2% to 3% growth.
The company has revised its fee-related and other revenues to range from $1.41 billion to $1.43 billion, down from the prior outlook of $1.43 billion to $1.46 billion, she said. The decline is roughly split between royalties and franchisee fees and the marketing, reservation and loyalty revenues, the latter of which has no impact on adjusted EBITDA.
There’s no change in outlook for net rooms growth, which remains at 3% to 4%, or adjusted EBITDA, which is $690 million to $700 million, and applies a year-over-year improvement in EBIDTA margin of about 130 basis points, the midpoint of its outlook.
Wyndham is revising its adjusted net income outlook to $338 million to $348 million to reflect an increase in interest due to the upsizing of its Term Loan B facility net of the savings from the spread reduction.
The company's repricing of its Term Loan B Facility reduced its interest rate by 60 basis points to SOFR plus 1.75%. The loan facility has an outstanding principal balance of $1.5 billion, which includes an upsize of $400 million.
Wyndham repurchased about 1.8 million shares of its common stock for $131 million. Year to date, the company has repurchased roughly 2.6 million of these shares for $188 million. It paid common stock dividends of $31 million.