As the broad hotel industry reeled from demand falling off a cliff in 2020, Wyndham Hotels & Resorts focused on strengthening its hotel portfolio, both by subtraction and offering franchisees cost savings.

The company completed a "strategic termination plan" in the fourth quarter. The plan, which was announced in May 2020, sought to remove Wyndham brand flags from hotels that underperformed and failed to comply with brand standards, Wyndham President and CEO Geoff Ballotti said.

"Removing these from our system will not only strengthen our long-term royalty rate, and the quality and performance of our brands, it will open up development tracks in important markets where we now have teams in place to sell direct franchise agreements," he said on a call to discuss fourth quarter and full-year 2020 earnings.

"Take a city like Riyadh in Saudi Arabia where we no longer have that master license agreement — our teams are right now in that city, trying to sell a Ramada, which we have the ability to have directly, and a Wyndham brand. We have grown our international direct net room growth in 2018 and 2019 in the high single digits. We want to get back to that. ... It is going to be what continues to move our royalty rates internationally and globally, which you're beginning to see over time, and with higher-quality product and newer product," he added.

According to a company earnings release, hotels representing approximately 26,700 rooms exited the Wyndham portfolio — 18,500 of those rooms were deflagged for noncompliance, while 5,300 were sold and 2,900 were removed as a result of an "unprofitable management guarantee deal," which likely refers to severed ties with real estate investment trust Service Properties Trust.

As a result, Wyndham's systemwide room count declined 4% year over year — to approximately 796,000 rooms in more than 8,900 hotels.

Wyndham’s franchised hotels system shrank by 3% in the fourth quarter, and its managed hotels declined 19% — or 7% excluding 7,800 rooms that were transferred to the franchising segment as a result of the sale of CorePoint Lodging assets.

Portfolio strength, however, was also gained by sequentially growing the number of hotel openings in the quarter and the number of hotels under development, Ballotti said.

"We opened over 70% more domestic [U.S.] rooms and over 30% more international rooms than we did in the third quarter," he said on the call, adding those openings included 52 new-construction hotels.

The company's development pipeline grew to approximately 1,400 hotels representing 185,000 rooms — up 120 basis points sequentially to 67,000 rooms in the U.S. and up 20 basis points internationally — with the signing of 580 contracts in 2020. International projects represent 64% of the pipeline; and 75% of projects are new construction, 34% of which have broken ground.

"Here in the U.S., we signed 108 new hotel agreements in the fourth quarter of 2020 than we did in the fourth quarter of 2019. Internationally, we have signed 91 new contracts, which was down from 116 ... as restrictions continue to hamper many of our team's ability to travel cross-border in Europe, Latin America and in parts of Southeast Asia," Ballotti said.

Significant growth also has come from converting hotels.

"Conversion activity continued to accelerate and drove the majority of our over 14,000 room openings in the quarter. Second-half conversion openings increased over 60% versus the first half of the year," Ballotti said.

"Conversion signings grew 70% from the first half to the second half [of 2020], and we expect this conversion percentage to grow. ... After the 2008-09 financial crisis that conversion percentage was 90% of openings, and we could see that happening [now]. ...There's 100,000 non-branded economy and midscale rooms out there globally. We have strong conversion franchise sales and development teams in place, and I would expect that to continue to pick up," he said.

He added that Wyndham's "most demanded conversion brands this year domestically have been Days Inn, Super 8 and Travelodge in the economy segment, and Baymont [Inn & Suites], Ramada and Trademark in the midscale segments."

The company did not offer full guidance, due to continued "uncertainties ahead," but projects net rooms growth of between 1% and 2% for 2021.

"We are highly optimistic about what lies ahead. We're encouraged that the [COVID-19] vaccines are working, and we believe that they will help to deliver a multiyear resurgence in leisure travel, unlike any other in our industry's history, providing an opportunity to grow our brands globally like never before," Ballotti said.

Wyndham's Chief Financial Officer Michele Allen said success with a "cost containment plan, combined with our strong balance sheet entering the crisis, positioned [the company] well to support our franchisees with a number of industry-leading financial initiatives."

"Not only were we able to provide all of our franchisees with fee waivers and interest-free fee deferrals for the lowest occupancy month of the pandemic. We were also able to subsidize our marketing funds to drive room revenue for our hotel owners throughout the year. And we continue to invest in technology to optimize rate, drive direct bookings and capture cost efficiencies at the hotel level, positioning our brands to gain market share throughout 2020," she said.

"We took difficult but prudent steps to manage our costs and strengthen our liquidity, while providing our franchisees with the support and relief needed during their most challenging time. Our business continues to be exceptionally well-positioned for the recovery that we believe lies ahead," she added.

In most key performance metrics, Wyndham reported significant year-over-year declines, but Ballotti said positioning allowed the company's hotels to continue to capture some demand and drive improvements in the metrics, compared to the third quarter.

Global comparable revenue per available room fell 33% year over year in the fourth quarter, compared to a 35% decline in the third quarter. RevPAR was down 35% for full-year 2020 compared to 2019.

That trend continued in January, when global RevPAR was down 24% year over year.

"Our non-urban, drive-to economy and midscale hotels, combined with our ongoing investment in sales and marketing, captured rising pent-up leisure travel demand, which continued to produce sequential RevPAR improvements and domestic market share gains for our franchisees over the course of 2020," Ballotti said.

In China, where the coronavirus pandemic originated and where the company's hotels thus have gotten a jump-start on the recovery, fourth quarter RevPAR was down 10% year over year, which represented a 20-basis-point improvement over the the third quarter.

Still, net income came in at a $7 million loss for the fourth quarter, and was down $132 million for full-year 2020. Adjusted earnings before interest, tax, deprecation and amortization was $56 million for the quarter and $327 million for the year.

The company generated $34 million of free cash flow in 2020, and had more than $1.2 billion in total liquidity available at the end of the year, according to the earnings release. However, during the fourth quarter, repayment of borrowings from its revolving credit facility reduced Wyndham's cash balance by $242 million to $493 million.

Wyndham reported fourth quarter revenues totaling $296 million, down from $429 million for the same quarter in 2019. Full-year 2020 revenues were 1.3 billion, compared to 2 billion in 2019.

As of press time, Wyndham Hotels & Resorts’ stock was trading at $61.23, up 3% year over year. The S&P 400 MidCap Index was up 22.1% for the same period.