PARSIPPANY, New Jersey—Wyndham Hotels & Resorts announced results for the three months ended September 30, 2023. Highlights include:
- Global RevPAR grew 3 percent compared to the third quarter of 2022 in constant currency.
- System-wide rooms grew 3 percent year-over-year.
- The development pipeline grew 4 percent sequentially and 12 percent year-over-year to a record 237,000 rooms.
- Signed over 230 contracts, an increase of 8 percent year-over-year, including 60 new construction projects for ECHO Suites Extended Stay by Wyndham.
- Returned $134 million to shareholders through $105 million of share repurchases and a quarterly cash dividend of $0.35 per share.
“We recently announced our Board of Directors unanimously rejected an unsolicited stock-and-cash proposal by Choice Hotels to acquire our company. Our Board of Directors, together with our financial and legal advisors, closely reviewed Choice’s latest proposal and determined, for multiple reasons, that it is not in the best interest of our shareholders. They remain confident that our standalone growth prospects offer superior, risk-adjusted returns to Wyndham shareholders,” said Geoff Ballotti, president and CEO. “Supporting that belief are our third quarter results, which were highlighted by continued growth in global RevPAR, ongoing domestic and international organic net room growth, and another 8 percent increase in hotel contracts awarded to franchisees driving our development pipeline to a record 1,930 hotels. Our economy brands gained market share domestically amidst a backdrop of normalizing U.S. leisure demand, and international occupancy continued to recover. Adjusted EBITDA grew in line with our expectations, we generated strong free cash flow, and we returned significant capital to our shareholders. We remain focused on our growth strategy, which includes continued system expansion through our ECHO Suites by Wyndham brand and further improvements in franchisee retention, as well as the multi-year benefit expected from the U.S. infrastructure bill. We’re enthusiastic about our ability to deliver exceptional value to our shareholders, guests, franchisees, and team members in the months and years ahead.”
Third Quarter Financial Results
Fee-related and other revenues were $400 million compared to $375 million in the third quarter of 2022, reflecting global RevPAR and net room growth, higher license and ancillary fees, as well as the pass-through revenues associated with the company’s global franchisee conference in September, which was held for the first time since 2019.
The company generated net income of $103 million, or $1.21 per diluted share, compared to $101 million, or $1.13 per diluted share, in the third quarter of 2022. The increase was reflective of higher adjusted EBITDA in the company’s hotel franchising segment and a lower effective tax rate, partially offset by higher interest expense. Adjusted diluted EPS grew 8 percent, reflecting higher net income and a lower share count due to share repurchase activity. Adjusted EBITDA increased 5 percent to $200 million primarily reflecting higher fee-related and other revenues as well as marketing fund variability. During the third quarter of 2023, the company’s marketing fund revenues exceeded expenses by $17 million; while in the third quarter of 2022, the company’s marketing fund revenues exceeded expenses by $12 million.
System Size
The company’s global system grew 3 percent, reflecting 1 percent growth in the United States and 6 percent growth internationally. As expected, these increases included strong growth in both the higher RevPAR midscale and above segments in the United States and the direct franchising business in China, which grew 4 percent and 16 percent, respectively.
RevPAR
Third quarter global RevPAR grew by 3 percent in constant currency compared to 2022 reflecting a 1 percent decline in the United States and growth of 16 percent internationally. The company had achieved record-breaking RevPAR in the United States during the preceding year due to COVID-impacted travel patterns. The company’s U.S. economy brands gained market share of 100 basis points in the third quarter. Comparing to 2019 to neutralize for COVID-impacted travel patterns, U.S. RevPAR grew 9 percent, a 30 basis point acceleration from second quarter 2023 growth. International RevPAR growth was driven by higher occupancy levels and stronger pricing power in connection with COVID recovery, and compared to 2019 grew 45 percent on a constant-currency basis, a 120 basis point acceleration from second quarter 2023 growth.
Development
On September 30, 2023, the company’s global development pipeline consisted of over 1,930 hotels and approximately 237,000 rooms, representing a 12 percent year-over-year increase, including 16 percent growth in the United States.
- Approximately 69 percent of the company’s pipeline is in the midscale and above segments.
- Approximately 58 percent of the company’s development pipeline is international.
- Approximately 80 percent of the company’s pipeline is new construction, of which approximately 34 percent has broken ground.
During the third quarter of 2023, the company awarded 172 new contracts for its legacy brands, an increase of 4 percent year-over-year. Additionally, the company awarded 60 additional new contracts for its ECHO Suites Extended Stay by Wyndham brand, and, as of September 30, 2023, the total number of contracts awarded for the brand was 265, or nearly 33,000 rooms.
Balance Sheet and Liquidity
As of September 30, 2023, the company had $2.2 billion of long-term debt outstanding with a weighted average interest rate of 4.9 percent. The company borrowed $110 million on its revolving credit facility during the third quarter and had an available borrowing capacity of $631 million after considering $9 million of outstanding letters of credit as of September 30, 2023. The company ended the quarter with a cash balance of $79 million and approximately $710 million in total liquidity.
The company generated net cash provided by operating activities of $77 million and free cash flow of $67 million in the third quarter of 2023.
The company has pay-fixed/receive-variable interest rate swaps in place to hedge $600 million of the Term Loan B Facility, set to expire in the second quarter of 2024. During the third quarter of 2023, the company executed $600 million of new forward-starting interest rate swaps on the Term Loan B Facility, which will begin in the second quarter of 2024 and expire in 2028. The fixed rate of the new swaps is 3.8 percent.
Share Repurchases and Dividends
During the third quarter, the company repurchased approximately 1.4 million shares of its common stock for $105 million. Year-to-date through September 30, the company repurchased approximately 3.8 million shares of its common stock for $270 million.
The company paid common stock dividends of $29 million, or $0.35 per share.
Rejection of Unsolicited Offer
On October 17, 2023, the company announced that its Board of Directors unanimously rejected a highly conditional, unsolicited stock-and-cash proposal by Choice Hotels International, Inc. to acquire all outstanding shares of Wyndham. Wyndham’s Board of Directors, together with its financial and legal advisors, closely reviewed Choice’s latest proposal with a nominal value of $90 per share, comprised of 45 percent in stock and 55 percent in cash, and determined that it is not in the best interest of Wyndham shareholders to accept the proposal.
Full-Year 2023 Outlook
Year-over-year growth rates are not comparable due to the sale of the company’s owned hotels and the exit of its select-service management business, both of which occurred during 2022, as well as the variability in its marketing funds due to the support that the company provided to its owners during 2020.
The company’s expectations for full-year 2023 marketing funds contribution to adjusted EBITDA is unchanged at $10 million. The company expects fund revenues will outpace fund expenses by approximately $11 million during the fourth quarter.
More detailed projections are available in Table 8 of this press release. The company is providing certain financial metrics only on a non-GAAP basis because, without unreasonable efforts, it is unable to predict with reasonable certainty the occurrence or amount of all of the adjustments or other potential adjustments that may arise in the future during the forward-looking period, which can be dependent on future events that may not be reliably predicted. Based on past reported results, where one or more of these items have been applicable, such excluded items could be material, individually or in the aggregate, to the reported results.
