After strong Q1, Wyndham on the prowl for deals

Wyndham Hotels & Resorts' high exposure to the economy and midscale segments has allowed it to navigate successfully through the rocky past two years. With accomplishment could come acquisitiveness.

The hotel franchisor's CFO Michele Allen alluded multiple times on its first-quarter earnings call to potential, but not specific, acquisitions, but that it "won't do a deal just to do a deal," she said.

With some $600 million in capital to deploy this year, Wyndham is seeking out what Allen called "deals that are accretive, complementary and [would add] to net-room growth." With the caveat that they are disciplined, "but if we see something, we will green light it."

With regards to M&A, nothing is off the table, she said. "We look where the gaps are," she said, with the potential to bolt on smaller or larger brands and growing them potentially via key money.

In lieu of acquisitions, Allen said the company would step up its volume of stock repurchases, which companies do when they have cash on hand and want to increase the value of its stock. 

Operating Impact

Wyndham finds itself on strong footing. It posted revenues of $371 million for the quarter, up around $70 million from the same quarter a year ago. Profit was recorded at $106 million compared to $24 million in Q1 2021 and CEO Geoff Ballotti indicated that corporate demand and withdrawing from management and ownership helped fuel growth. "Strong leisure and everyday business travel demand drove RevPAR 4 percent above 2019 levels domestically and we continued to simplify our operations by exiting our select-service management business and selling one of our two owned assets."

Ballotti said that RevPAR was currently at 104% of 2019 levels

The company also completed the sale of the Wyndham Grand Bonnet Creek Resort and said the Wyndham Grand Rio Mar Resort is under contract and expected to close in May 2022. The hotel has a net book value of around $60 million, according to Allen.

Part of Wyndham's success is attributable to its low exposure internationally. Ninety-five percent of the the company's EBITDA is generated in the U.S. Consider China, where stringent lockdowns in Shanghai and the potential for another in Beijing hampered business. Wyndham RevPAR in China is at 71% of 2019 levels, but Ballotti said China has shown the ability to recover quickly.

Ballotti said Europe slipped some, but that there was cause for optimism in Europe with travel restrictions loosening. 

Domestically, Wyndham's business is thriving, with external forces not having a drastic impact. Gas prices have not measurably impacted Wyndham's select-service occupancy, which has remained at or above 95 percent as gas prices have increased above $4 in some areas. 

Healthy demand is giving franchisees the impetus to raise rates. "Americans are ready to travel," Ballotti said, citing a U.S. Travel survey that noted 91 percent of respondents stating they would travel in the next six months. "Drive-to markets continue to outperform and drive rate," Ballotti said.

Developing Story

According to both Ballotti and Allen, the current landscape is a prime time for developers to build new hotels, with financing readily available for new branded projects, despite rising construction costs and interest rates. "It's never been easier now to get financing," Ballotti said, adding what he said could be the start of a new 10-year upcycle, despite recession worry.  

Allen recommended building now within an environment where hotels were trading above replacement cost to 2019. She said that return on investment in the hotel space is still attractive versus other asset classes.

Ballotti called the Biden administration's Infrastructure Bill, which earmarks $110 billion in funding to repair roads and bridges and billions more for airports and rail, transformative. He said that half of Wyndham's new corporate-negotiated contracts were infrastructure related.  

Technology, through the use of amenities such as digital key, remains a key component for Wyndham as a way to enhance the customer experience and succor staffing shortages. Guests can access their rooms through the Wyndham Rewards app and check in and check out.

Wyndham Rewards currently comprises 94 million members and reportedly contributes to one of every two hotel check-ins.