Compared to the previous two Wyndham Hotels & Resorts quarterly earnings calls, President and CEO Geoffrey Ballotti was relatively reticent regarding Choice Hotels International’s recent acquisition bid while discussing the company’s Q1 2024 performance.
“We are seeing a lot less uncertainty out there in the development community,” he said. “Owners who were uncertain on committing to deals with us, those who did not want to wind up in the Choice system, have agreed to sign—and I think there's no better example of that than the dozen WaterWalk conversions that we did this month.” The company, he added, now has “a lot more activity on both the conversion and the new-construction signing front.”
CFO Michele Allen said the company now expects costs related to the takeover to be approximately $50 million in total, down from the previous $75 million estimate.
Performance
For the quarter, global revenue per available room grew 1 percent in constant currency year over year, reflecting a 5 percent decline in the U.S. and growth of 14 percent internationally. Other domestic challenges included a decline of 440 basis points in occupancy and 50 basis points in average daily rates. “Domestic occupancy finished at 90 percent of 2019 levels,” Ballotti said. “Pricing power remains strong with ADRs 14 percent higher than pre-COVID levels, yet still trailing inflation, which has increased 23 percent over the same period.” However, the company saw improving trends in March with RevPAR improving 240 basis points compared to February.
Internationally, the company generated year-over-year RevPAR growth for the first quarter in all regions primarily driven by continued pricing power, with ADR up 12 percent and occupancy up 2 percent. The largest contributors to first quarter growth were the Latin America and EMEA regions.
Wyndham generated net income of $16 million compared to $67 million in the first quarter of 2023, which the company said reflects transaction-related expenses from Choice’s acquisition bid, an impairment charge primarily related to development advance notes and higher interest expense.
Adjusted earnings before interest, taxes, depreciation and amortization was $141 million compared to $147 million in the first quarter 2023. This decrease included a $10 million unfavorable impact from marketing fund variability, excluding which adjusted EBITDA grew 3 percent primarily reflecting favorable timing of expenses to better match revenue seasonality.
System Growth
Wyndham’s global system grew 4 percent year-over-year, reflecting 1 percent growth in the U.S. and 8 percent internationally. The company opened more than 13,000 rooms in the quarter, representing a year-over-year increase of 27 percent. Ballotti noted that this marked the company’s largest first-quarter of room openings since Wyndham went public nearly six years ago.
These increases included growth in both the higher RevPAR midscale and above segments in the U.S. and the direct franchising business in China, which grew 3 percent and 13 percent, respectively. The company remains on track to achieve its net room growth outlook of 3 to 4 percent for the full year 2024, including an increase in its retention rate compared to 2023.
In early April, Wyndham entered the upscale extended-stay segment through a relationship with WaterWalk, creating the new WaterWalk Extended Stay by Wyndham. Eleven of the 50 hotels added to the company’s pipeline in the quarter are WaterWalk conversions, Ballotti said.
Wyndham awarded 171 development contracts, an increase of 8 percent year-over-year and 1 percent sequentially. This marked the 15th consecutive quarter of sequential pipeline growth. The company’s pipeline now stands at a record 243,000 rooms,
Approximately 69 percent of the pipeline is in the midscale and above segments, which grew 4 percent year-over-year. An estimated 58 percent of the pipeline is international and approximately 79 percent is new construction, of which about 35 percent has broken ground.