Wyndham CEO Expects Upcoming Summer To Be the 'Best Ever' – CoStar Group

By Robert McCune
Hotel News Now

After a busy first quarter in which the company announced a new brand, exited its select-service management business, sold one of its two owned hotels and neared a sale on the other, Wyndham Hotels & Resorts is optimistic that 2022 could be the company's best year since it was founded in 1981, according to President and CEO Geoff Ballotti.
"Our franchisees are feeling that the summer of '22 could replace the summer of 2021 as the best ever," Ballotti said on a call with analysts to report first quarter earnings. "And that's certainly what they saw in the first quarter. … We've been crisscrossing the country talking to our franchisees … and we always start with a show of hands for how many believed they had a better 2021 than they did back in 2019. And most of the hands are up in the air. I asked them to keep their hands up if they feel that 2022 is going to be better than the 2021 and most of those most of those hands remain in the air."
Wyndham is also actively on the hunt for potential merger and acquisition opportunities, according to Wyndham Chief Financial Officer Michele Allen, who added the company has more than $600 million in cash to deploy this year toward deals that are "both accretive to earnings and net-room growth and complementary to our existing portfolio."
"Our first priority, as always, is to invest in the business. We are actively following both external and organic growth opportunities," she said. "While we've been tracking some actionable opportunities this year, nothing so far has met our investment criteria. However, M&A is in our DNA, and we will continue to aggressively pursue fields that fit our investment criteria."
The company also expects to step up share repurchasing to return value to shareholders.
"What I can say on M&A is that nothing is really off the table," Allen said. "We look for opportunities globally. We're looking in high-growth markets or in regions where we have gaps in our portfolio. They could easily be bolted on to smaller brands, or they could be large brands if that's a strategic fit."
In updated full-year guidance, the company projects that global revenue per available room will grow by 12% to 16% year over year in 2022, adjusted net income will range between $317 million and $329 million — a $9 million premium over prior projections — and adjusted earnings before interest, tax, depreciation and amortization will be between $605 million and $625 million. Wyndham, which as of March 31 had 813,300 rooms in its global system, also is on track for net rooms growth of 2% to 4% this year.
This optimism follows a quarter in which Wyndham grew global RevPAR by 39% year over year and 4% over 2019, the best year on record for the hotel industry at large. In the first quarter, the company's development pipeline also increased to a record 204,000 rooms, in large part due to the signing of 50 new-construction hotels for its yet unnamed economy, extended-stay brand. Executives teased the new extended-stay brand — under the working title Project ECHO, which stands for Economy Hotel Opportunity — in February.
Ballotti said that developer reaction to the new brand "has been overwhelmingly positive given its ultra-cost efficient prototype and operating model," and the company expects to break ground on at least four of the brand's first new-build hotels this year.
"Our architecture, design and construction teams believe they could get those four opened next year. We'll see generally a 12- to 18-month construction time, but we're hoping to have another two dozen break ground next year and would expect at least 300 hotels over the next 10 years," he said.
Signings of franchise contracts were also ahead of expectations for the quarter — up 25% over 2021 and 10% over 2019 — adding 16,000 rooms to the company's portfolio.
Ballotti said continuing efforts to "simplify operations" in the first quarter included exiting Wyndham's select-service management business. Select-service management agreements that the company picked up in its acquisition of La Quinta Holdings in 2018, as part of La Quinta spinoff CorePoint Lodging, ended March 3 with the closing of a deal in which a joint venture of Highgate Holdings and Cerberus Capital acquired CorePoint. Wyndham received proceeds of $84 million from CorePoint, and those franchise agreements transferred to the new owners.
The company also advanced its asset-light strategy by selling the Wyndham Grand Bonnet Creek Resort in Orlando, one of only two owned hotels, for gross proceeds of approximately $121 million. With the sale of the Wyndham Grand Rio Mar Resort in Puerto Rico, which is under contract and expected to close in May, the company will exit hotel ownership. On the Wyndham Grand Bonnet Creek, the company entered into a 20-year franchise agreement with the buyer, and executives expect to do the same with the sale of the Puerto Rico hotel.
Wyndham reported $159 million in adjusted EBITDA in the first quarter, up 64% year over year. Adjusted net income was $88 million, compared to $33 million in the same quarter of 2021. Net revenues were $371 million, compared to $303 million in same quarter of 2021.
Ballotti said results were driven by record-setting performance in RevPAR, occupancy and rates for the quarter.
"Here in the United States, we continued to see strong leisure demand … and we did not see any meaningful impact from rising gasoline costs as occupancy for our select-service brands remain steady at about 96% of 2019 levels in the weeks before and after the gas price increase in March," he said. "And with the U.S. Travel Association reporting that nearly 9 out of every 10 Americans are expecting to travel this summer, we expect to see continued strong demand throughout the summer season."
Allen said occupancy has "exceeded 2019 levels now for four consecutive quarters," with particular strength in the first quarter in "snowbird states such as Arizona, Florida and Louisiana, as well as ski destinations such as Colorado, Utah and Montana."
In a one-on-one interview with Hotel News Now at the Hunter Hotel Investment Conference in March, Ballotti said “in economy and midscale, [travel demand] is double digits ahead of 2019 … [and] we do think that trend is going to continue and we’re going to see people traveling this summer in record numbers.”
As of press time, Wyndham Hotels & Resorts’ stock was trading at $88.62, down 2.8% year to date. The S&P 400 MidCap Index was down 10.8% for the same period.
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