PARSIPPANY, New Jersey—Wyndham Hotels & Resorts announced results for the three months ended June 30, 2023. Highlights include:
- Global RevPAR grew 7 percent compared to the second quarter of 2022 in constant currency.
- System-wide rooms grew 4 percent year-over-year.
- Development pipeline grew 1 percent sequentially and 10 percent year-over-year.
- Signings of 24,000 rooms grew 6 percent year-over-year and 7 percent compared to 2019.
- Awarded 60 new construction projects for ECHO Suites Extended Stay by Wyndham in July, including its first hotels in Canada, bringing the total number of contracts to 265.
- Returned $139 million to shareholders through $109 million of share repurchases and a quarterly cash dividend of $0.35 per share.
- Completed the refinancing of its Term Loan B Facility, extending maturity from 2025 to 2030.
“During the second quarter, we celebrated the tremendous progress we’ve made in our five-year journey as a new public company with another quarter of solid results including global RevPAR growth of 7 percent, net room growth of 4 percent, and the 12th consecutive quarter of sequential growth in our development pipeline, which has never been stronger,” said Geoff Ballotti, president and CEO. “International travel demand continues to accelerate, our U.S. economy brands continue to outperform the industry, and our nation’s infrastructure bill spend is expected to represent a meaningful tailwind for our franchisees in the months and years ahead. We remain very confident in our ability to deliver outstanding value for our franchisees and shareholders, as does our Board of Directors who approved a $400 million increase in our share repurchase authorization, reflecting their confidence in the ongoing strength of our business and our strong free cash flow.”
Second Quarter Financial Results
The comparability of the company’s second-quarter results is impacted by the sale of its owned hotels and the exit of its select-service management business, both of which occurred in 2022, as well as quarterly timing variances from its marketing funds. The company’s reported results and comparable-basis results (adjusted to neutralize these impacts) are presented below to enhance transparency and provide a better understanding of the results of the company’s ongoing operations.
- Fee-related and other revenues were $358 million compared to $354 million in the second quarter of 2022, which included $12 million from the company’s select-service management business and owned hotels. On a comparable basis, fee-related and other revenues increased 5 percent year-over-year primarily reflecting higher royalties and franchise fees resulting from global RevPAR and system growth.
- The company generated a net income of $70 million, or $0.82 per diluted share, compared to $92 million, or $1.00 per diluted share, in the second quarter of 2022. The decline in net income was expected and reflective of the marketing fund variability, higher interest expense, and transaction-related costs primarily related to the company’s refinancing of its Term Loan B Facility. On a comparable basis, adjusted diluted earnings per share grew 10 percent reflecting 8 percent growth in comparable basis adjusted EBITDA and a lower share count due to share repurchase activity.
- Adjusted EBITDA was $158 million compared to $175 million in the second quarter of 2022. On a comparable basis, adjusted EBITDA increased 8 percent year-over-year primarily reflecting higher fee-related and other revenues.
- During the second quarter of 2023, the company’s marketing fund expenses exceeded revenues by $15 million; while in the second quarter of 2022, the company’s marketing fund revenues exceeded expenses by $12 million, resulting in $27 million of marketing fund variability.
System Size
The company’s global system grew 4 percent, reflecting 1 percent growth in the United States and 9 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 13 percent, respectively, as well as 80 basis points of growth globally and 200 basis points internationally from the acquisition of the Vienna House brand. The company remains solidly on track to achieve its net room growth outlook of 2 to 4 percent for the full year 2023, including an increase in its retention rate compared to 2022.
RevPAR
Second quarter global RevPAR grew by 7 percent in constant currency compared to 2022 reflecting a 1 percent decline in the United States and growth of 34 percent internationally. The company had achieved record-breaking RevPAR in the United States during the preceding year due to COVID-impacted travel patterns. Compared to 2019 to neutralize these impacts, U.S. RevPAR grew 8 percent, a 30 basis point acceleration from first quarter 2023 growth. The international RevPAR growth was driven equally by more substantial pricing power and higher occupancy levels.
Development
- On June 30, 2023, the company’s global development pipeline comprised nearly 1,850 hotels and approximately 228,000 rooms, representing a 10 percent year-over-year increase, including 22 percent growth in the United States.
- Approximately 72 percent of the company’s pipeline is in the midscale and above segments.
- Approximately 57 percent of the company’s development pipeline is international.
- Approximately 81 percent of the company’s pipeline is new construction, of which approximately 35 percent has broken ground.
- During the second quarter of 2023, the company awarded 179 new contracts for its legacy brands, an increase of 8 percent year-over-year. In July, the company awarded 60 additional new contracts for its ECHO Suites Extended Stay by Wyndham brand to established and experienced developers, including what will be the brand’s first hotels in Canada. This brings the total number of contracts awarded for the brand to 265 since its launch, or nearly 33,000 rooms.
Cash and Liquidity
The company generated net cash provided by operating activities of $83 million and free cash flow of $74 million in the second quarter of 2023. The company ended the quarter with a cash balance of $63 million and approximately $800 million in total liquidity.
In May 2023, the company amended and extended its outstanding Senior Secured Term Loan B Facility (Prior Term Loan B), which was due May 2025. The new $1.1 billion Senior Secured Term Loan B Facility (New Term Loan B) matures in May 2030 and carries an interest rate of SOFR plus 2.25 percent (with a 0.10 percent credit spread adjustment). The net proceeds from the New Term Loan B were used to repay all outstanding principal under the company’s Prior Term Loan B.
As a result of this transaction, the company moved its next material debt maturity to 2027 and increased its weighted average maturity from 3.2 to 6.0 years, providing significant financial flexibility to execute the company’s strategic objectives of delivering outstanding value to its guests and franchisees while driving strong shareholder returns.
Share Repurchases and Dividends
During the second quarter, the company repurchased approximately 1.6 million shares of its common stock for $109 million at an average price of $68.56 per share. Year-to-date through June 30, the company repurchased approximately 2.4 million shares of its common stock for $165 million at an average price of $69.20 per share. The company’s Board of Directors recently increased the company’s share repurchase authorization by $400 million.
The company paid common stock dividends of $30 million, or $0.35 per share.
Full-Year 2023 Outlook
Reduction in adjusted net income represents an increase in interest expense due, in part, to the refinancing of the company’s Term Loan B. This impact was offset in adjusted diluted EPS by second-quarter share repurchase activity.
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 $29 million in the second half of 2023 with approximately $10 million to $15 million per quarter.
