Wyndham Hotels & Resorts executives continue to make their case for rejecting a takeover bid by Choice Hotels International.
In a court of public, shareholder and franchisee opinion, one of the principal arguments is that Wyndham's growth strategy is working, without and despite Choice's interference.
Wyndham reported record systemwide growth of its rooms portfolio in 2023, which it achieved organically across its 24 brands rather than through mergers or brand acquisitions. Wyndham also has a record-high 240,000 rooms in its global development pipeline.
In a news release, Wyndham Hotels & Resorts President and CEO Geoff Ballotti said the company's fourth-quarter and full-year 2023 performance demonstrates "the continued success of our global strategy and our accelerating momentum ... despite the distraction, uncertainty and misperceptions caused by Choice and their slanted and constant communications to our franchisee base."
Choice's latest efforts to acquire Wyndham have included pitching its exchange offer of $90 per share for all outstanding shares of Wyndham directly to shareholders and nominating eight people to stand for election to Wyndham's board of directors who presumably would vote to approve the merger. On a call with analysts to present earnings results, Ballotti said Choice "nominated directors with the sole purpose of advancing its inadequate, hostile and risk-laden offer."
Wyndham's board of directors has systematically rejected Choice's overtures, with board chairman Stephen Holmes calling it "a desperate grab to try to solve problems that [Choice] has."
A combined Wyndham-Choice would dominate the economy and midscale hotel segments, which Wyndham executives argue is part of why such a deal faces outsize regulatory risk, which could prove costly for Wyndham hotel owners.
Ballotti said the "unique risks of this transaction have only increased as the process has unfolded, starting with the Federal Trade Commission's unsolicited outreach to us in subsequent investigation, even before Choice launched its exchange offer. Moreover, state attorneys general from Washington, Colorado Kansas and Vermont have also now opened their own separate investigations."
He added that FTC oversight has increased partly due to "the continued opposition of franchisees and the Asian American Hotel Owners Association, which represents more than two-thirds of both companies' domestic hotel owners."
"In a recent survey of members who own either a Choice or Wyndham hotel, over two-thirds say they'd consider leaving were the merger to occur," he said.
Growth Strategy
In its fourth-quarter and full-year 2023 earnings report, Wyndham touted systemwide, organic rooms growth of 3.5% year over year. That includes 66,000 rooms opened, and reflects 1% growth in the U.S. and 7% growth internationally. It marked the 12th consecutive quarter of growth.
Its development pipeline also grew by 10% year over year. That includes 98 new contract signings for its extended-stay brand Echo Suites, officially launched in November 2022, and 766 contracts signed for its legacy brands. As of the end of 2023, 268 contracts representing more than 33,000 rooms had been signed for Echo Suites.
Wyndham stated that approximately 70% of its hotels in development are in the midscale and above segments, 58% is international and 79% is new-construction, of which approximately 34% has broken ground.
"Our team opened 27% more rooms than [in 2022] in the fourth quarter and we welcomed 500 new hotels to our system in 2023. This, when combined with our improving franchisee engagement and record retention rate, drove the best organic system growth we've ever achieved," Ballotti said.
"We are confident in the continued effectiveness of our growth strategy and see exceptional value-creation opportunities in the year ahead."
The company issued guidance for full-year 2024, which includes 3% to 4% growth of its rooms portfolio and 2% to 3% growth in global revenue per available room year over year.
Ballotti said the "noise" around the Choice bid has created a "more challenging sales environment."
"We're thrilled with the tremendous success in selling through this uncertainty ... but our record could have been better, both domestically and internationally, without the noise," he said.
That's because "owners are moving more slowly on committing to deals with us," he said. "They want to see this resolved certainly before moving forward." As a result, Wyndham has seen "both deals and groundbreaks pause."
On Wednesday, Choice filed a preliminary proxy statement with the Securities and Exchange Commission announcing a special meeting of its stockholders to discuss the Wyndham proposal.
On Wyndham's earnings call, Ballotti responded, calling that filing "procedural" and a "non-event."
"This was Choice's first step, of course, to hold a preliminary proxy for a special meeting of the shareholders required to approve the issuance of Choice's shares in connection with a deal that they believe they could do. The filing didn't change the offer. It didn't remove any of the numerous conditions to it ... and it still does not address adequately our board's three key issues," he said.
Earnings Results
Global RevPAR declined 1% in the fourth quarter but grew 5% for full-year 2023. The fourth-quarter results reflect a 4% decline in the U.S., partially offset by a 7% increase across its portfolio outside of the U.S. For the full year, RevPAR outside the U.S. grew 21%, more than offsetting a 1% decline in the U.S.
In its earnings release, Wyndham stated that year-over-year comparisons were skewed by "record-breaking RevPAR in the U.S. during the preceding year due to COVID-impacted travel patterns."
"Comparing to 2019 to neutralize for COVID-impacted travel patterns, U.S. RevPAR grew 10% in fourth quarter — a 120-basis-point acceleration from third-quarter 2023 growth — and 9% for the full year," the release states.
"Internationally, year-over-year RevPAR growth for both the fourth quarter and the full-year was primarily driven by higher occupancy levels. Compared to 2019, international RevPAR grew in fourth quarter and full-year by 44% and 36%, respectively, on a constant-currency basis."
Fourth-quarter net income was $50 million, compared to $56 million in 2022. Adjusted earnings before interest, tax, depreciation and amortization grew 22% to $154 million.
For the full year, net income was $289 million, compared to $355 million the year prior, which included $37 million from select-service managed and owned hotels, which Wyndham exited in 2022. Adjusted EBITDA was $659 million, compared to $650 million in 2022, which included an $18 million impact from the exited select-service hotels.
At publication time, Wyndham stock was trading at $79.49 a share, down 1.1% year to date. The S&P 500 is up 4.5% over the same period.