Sharing its third-quarter 2023 numbers, Wyndham Hotels & Resorts reported a record-high development pipeline of 1,930 hotels for the quarter. Global revenue per available room grew 3 percent for Q3 compared to the same period last year.
In a call with investors, President and CEO Geoff Ballotti said the company's system grew 1 percent sequentially and 3 percent year over year on an organic basis for the 11th consecutive quarter. "Our teams opened over 14,500 new rooms in the third quarter with 5,900 of those rooms opening in the U.S. year to date through September 30," he said. "We've opened over 42,600 rooms across 326 hotels, opening more than one hotel each and every day."
The company increased its hotel contracts awarded to franchisees 8 percent, driving its development pipeline to "a record 1,930 hotels," Ballotti continued. "Our economy brands gained market share domestically amidst a backdrop of normalizing U.S. leisure demand, and international occupancy continued to recover.
"Adjusted [earnings before interest, taxes, depreciation or amortization] 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 multiyear 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
Wyndham generated net income of $103 million, compared to $101 million in third quarter 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 EBITDA increased 5 percent to $200 million primarily reflecting higher fee-related and other revenues as well as marketing fund variability. During third quarter 2023, the company's marketing fund revenues exceeded expenses by $17 million while in the same quarter 2022, the company's marketing fund revenues exceeded expenses by $12 million.
Third quarter global RevPAR grew 3 percent in constant currency compared to 2022 reflecting a 1 percent decline in the U.S. and growth of 16 percent internationally. The company had achieved "record-breaking" RevPAR in the U.S. 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.
The company's global system grew 3 percent, reflecting 1 percent growth in the U.S. and 6 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 4 percent and 16 percent, respectively.
Development
Wyndham’s global development pipeline consisted of more than 1,930 hotels and approximately 237,000 rooms, representing a 12 percent year-over-year increase, including 16 percent growth in the U.S.
Approximately 69 percent of the company's pipeline is in the midscale and above segments while approximately 58 percent of the company's development pipeline is international.
Approximately 80 percent of the company's pipeline is new construction, of which about 34 percent has broken ground.
During the quarter, 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 Sept. 30, the total number of contracts awarded for the brand was 265, or nearly 33,000 rooms.
Full Year
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.