After a 2022 that exceeded executives' expectations, Wyndham Hotels & Resorts is firmly in building mode, with more hotel rooms in its development pipeline than ever before.
In a presentation of its fourth-quarter and full-year earnings, the company cited its "highest pipeline on record," with approximately 219,000 rooms in development across more than 1,700 hotels, nearly two-thirds of which are in the midscale segment or above in the U.S. More than 80% of those projects are new-construction, and of those, 36% had broken ground as of Dec. 31.
On a call with analysts to discuss results, Wyndham Chief Financial Officer Michele Allen said the company's executives "all believe this is the best time to build even though interest rates are higher than the historic lows that we've seen over the past decade."
She added that a softening of the global economy, which many analysts have forecast for 2023, is not expected to have a big impact on many of the projects Wyndham has in its development pipeline, which "are either on paper or new-construction projects that are already in the ground."
"The rapid rise in interest rates has impacted all asset classes," she said, but the hotels in Wyndham's pipeline "are unique in that they have daily rates that can offset the cost side of that equation, whether it be inflation or interest on higher pricing.
"They have the ability to do that daily, which is what we saw all during 2022. And developers are underwriting sustained increases in [average daily rate], which is either partially or in some cases fully offsetting the higher interest expense."
Included in pipeline figures, Wyndham's extended-stay brand Echo Suites has signed 170 contracts for hotels since its launch in March 2022. Three of the brand's new-build hotels broke ground in 2022 and are expected to open in the second half of this year.
In total, the company signed 882 contracts for hotels in 2022, compared to 655 contracts awarded in 2021. The development pipeline, which includes hotel conversions from other brands, grew 12% year over year globally and 34% in the U.S. Approximately 60% of the hotels in development are outside of the U.S.
"Our development pipeline increased sequentially for the 10th consecutive quarter, reflecting robust developer interest in our brands for both conversion and new-construction opportunities despite the broader macroeconomic climate," Wyndham President and CEO Geoff Ballotti said in a news release announcing the earnings results.
The hotels in development will add to Wyndham's global portfolio, which grew 4% year over year in 2022 to approximately 842,500 rooms. That systemwide growth was largely international — with rooms increasing 1% year over year in the U.S., and 9% outside of the U.S. — and in the midscale segment and above, according to the earnings release. The company also reported a 95% rooms retention rate for the full year.
Approximately 2% of the system growth outside of the U.S. is attributed to the company's $44 million acquisition of European hotel brand Vienna House in September 2022. That acquisition added approximately 40 hotels in Europe, with more than 6,000 rooms in the upscale and midscale segment, and grew Wyndham's brand offerings to 23.
The company has the cash and liquidity to grow further through acquisitions this year. According to the earnings release, Wyndham "generated $399 million of net cash provided by operating activities and free cash flow of $360 million in the full-year 2022 ... and ended the [fourth] quarter with a cash balance of $161 million and approximately $900 million in total liquidity."
Earnings Results
Wyndham's global revenue per available room grew 15% year over year in the fourth quarter and was 116% of pre-pandemic 2019 levels, according to its earnings release. For the full year, the metric was up 20% from 2021.
In the U.S., RevPAR was up 5% year over year in the fourth quarter and up 12% for the full year.
Franchising revenues were also up 12% in the fourth quarter to $303 million, and up 16% for the full year, "primarily due to the global RevPAR increase and higher license fees."
As a result, the company reported adjusted earnings before interest, tax, depreciation and amortization of $126 million for the quarter and $650 million for the full year, exceeding its outlook of $636 million to $644 million for 2022.
For full-year 2023, Wyndham projects year-over-year rooms growth of between 2% and 4%, global RevPAR growth between 4% and 6% and adjusted EBITDA between $650 million and $660 million.
Global macroeconomic factors are tempering the company's EBIDTA outlook somewhat, Ballotti said on the call with analysts.
"There's two contributing factors. The first one is higher expenses, mostly due to inflation. Some of that we saw roll on in 2022, but we didn't have a full 12 months of it, and we will have a full 12 months in 2023," he said. "Then the second impact really is the mix effect of higher RevPAR growth internationally versus RevPAR growth in the U.S., and that really is because the international regions are still in recovery mode in 2023, while the U.S. business had been fully recovered as of the second half of 2021."
As of press time, Wyndham Hotels & Resorts' stock was trading at $77.15 per share, up 8.19% year to date. The NYSE Composite Index was up 5.48% for the same period.
