Strong U.S. development signings and record revenue per available room in the U.S. helped drive Wyndham Hotels & Resorts’ third quarter results. These helped spur the company to improve its outlook for the rest of the year.
"With our brands delivering record U.S. RevPAR and our global development teams driving net unit growth towards the top end of our initial guidance, we are raising our full-year 2022 outlook. Despite the broader macro-economic climate, we are confident in the continued resiliency of our franchise model as we continue to invest in the business and generate substantial shareholder returns," said Geoffrey A. Ballotti, president and CEO.
In addition, the company grew its development pipeline 10 percent, surpassed its full-year development goal for its new extended-stay brand and completed the acquisition of its 23rd brand, Vienna House.
“Our teams again delivered sequential organic net room growth in all regions around the world, as well as very strong growth in our development pipeline,” Ballotti said. “Global RevPAR once again exceeded 2019 levels and occupancy continued its recovery, which we believe will provide U.S. and international tailwinds in the quarters ahead.”
Highlights from the quarter:
- Global RevPAR grew 12 percent compared to third quarter 2021 in constant currency.
- U.S. RevPAR grew 2 percent compared to third quarter 2021 and represents 110 percent of 2019 levels.
- Systemwide rooms grew 4 percent year-over-year, including 1 percent of growth in the U.S. and 9 percent of growth internationally.
- Development pipeline grew 10 percent year-over-year to 212,000 rooms and U.S. development signings increased 82 percent, including 48 new construction projects for the Company's new extended-stay brand, bringing the total number to 120 since launch in March.
- Hotel franchising segment revenues grew 9 percent year-over-year.
- Diluted earnings per share of $1.13 and adjusted diluted earnings per share of $1.21; net income of $101 million and adjusted net income of $108 million.
- Adjusted earnings before interest, taxes, depreciation and amortization of $191 million.
- Year-to-date net cash provided by operating activities of $349 million and free cash flow of $321 million.
- Returned $161 million to shareholders through $132 million of share repurchases and a quarterly cash dividend of 32 cents per share.
Fee-related and other revenues was $375 million compared to $377 million in third quarter 2021, which included $34 million from the company's select-service management business and owned hotels, both of which were exited in the first half of this year. On a comparable basis, fee-related and other revenues increased 9 percent year-over-year reflecting global constant currency RevPAR growth of 12 percent and higher license fees.
The company generated net income of $101 million, or $1.13 per diluted share, compared to $103 million, or $1.09 per diluted share, in third quarter 2021. The decline in net income was primarily due to the exit of the company's select-service management business and owned hotels, partially offset by higher adjusted EBITDA in the company's hotel franchising segment. Adjusted EBITDA was $191 million compared to $194 million in third quarter 2021, which included a $10 million contribution from the company's select-service management business and owned hotels, both of which were exited in the first half of this year. On a comparable basis, adjusted EBITDA increased 4 percent year-over-year, reflecting higher fee-related and other revenues, partially offset by a 600 basis point unfavorable timing impact from the marketing fund.
System Size
The company's global system grew 4 percent, reflecting 1 percent growth in the U.S. and 9 percent growth internationally. As expected, these increases included strong growth in both the higher RevPAR midscale and above segments in the U.S. and the direct franchising business in China, which grew 6 percent and 8 percent, respectively, as well as 80 basis points of growth globally and 200 basis points internationally from the acquisition of the Vienna House brand.
RevPAR
Third quarter global RevPAR grew by 12 percent in constant currency compared to 2021 as the U.S. grew 2 percent and international grew 46 percent. Global RevPAR was 111 percent of 2019 levels in constant currency, with the U.S. at 110 percent and international at 117 percent. The increases compared to both 2021 and 2019 were driven primarily by stronger pricing power.
Business Segment
Hotel franchising revenues increased 9 percent year-over-year to $367 million primarily due to the global RevPAR increase and higher license fees. Hotel franchising adjusted EBITDA of $201 million increased 4 percent reflecting the growth in revenues, partially offset by an unfavorable timing impact from the marketing fund, excluding which hotel franchising adjusted EBITDA would have increased 12 percent.
Hotel management revenues decreased 68 percent year-over-year to $40 million, including a $54 million decrease in cost-reimbursement revenues, which have no impact on adjusted EBITDA. Absent cost-reimbursements, hotel management revenues decreased $32 million, or 80 percent, and adjusted EBITDA decreased $9 million reflecting the exit of the company's select-service management business and owned hotels.
During the third quarter 2022, the company's marketing fund revenues exceeded expenses by $12 million; while in third quarter 2021, the company's marketing fund revenues exceeded expenses by $19 million.
Development
Wyndham awarded 214 new contracts this quarter compared to 151 in the third quarter 2021. On Sept. 30, 2022, the company's global development pipeline consisted of over 1,600 hotels and over 212,000 rooms, of which approximately 76 percent is in the midscale and above segments (61 percent in the U.S.). The pipeline grew 10 percent year-over-year: 24 percent in the U.S. and 2 percent internationally. Approximately 60 percent of the company’s development pipeline is international and 80 percent is new construction, of which approximately 36 percent has broken ground. The pipeline includes 120 new contracts awarded for Wyndham’s new extended-stay brand since its launch in March 2022.
Acquisition of Vienna House
On Sept. 8, 2022, the company completed the acquisition of the Vienna House brand, adding an upscale and midscale portfolio of over 40 hotels and more than 6,400 rooms to the company's existing footprint in the EMEA region. The purchase price was $44 million.
Cash and Liquidity
Wyndham generated year-to-date net cash provided by operating activities of $349 million and free cash flow of $321 million. The company ended the quarter with a cash balance of $286 million and approximately $1.0 billion in total liquidity.
Share Repurchases and Dividends
During the third quarter, Wyndham repurchased approximately 2.0 million shares of its common stock for $132 million. In October 2022, the Wyndham’s board of directors increased the company's share repurchase authorization by $400 million.
The company paid common stock dividends of $29 million, or 32 cents per share.
Full-Year 2022 Outlook
The company is updating its outlook in terms of year-over-year rooms growth from 2 to 4 percent to about 4 percent, as well as year-over-year global RevPAR growth from 12 to 16 percent to 14 to 16 percent. Fee-related and other revenues now are anticipated at $1.33 billion to $1.34 billion versus the previous $1.29 billion to $1.32 billion. Adjust EBITDA has been updated to $636 million to $644 million while the outlook for adjusted net income has been updated to $349 million to $354 million.