Wyndham Hotels & Resorts is reaping the rewards of its $1.95 billion purchase of La Quinta Holdings’ hotel operations earlier this year. During the megachain's Q3 earnings call, CEO Geoff Ballotti said the company continues to be impressed by La Quinta’s performance.
“In the first full quarter, as the proud owner of La Quinta, we together signed nine new franchise agreements all for new-construction Del Sol prototypes,” Ballotti said during the call. “We opened 550 new La Quinta rooms and we grew the La Quinta pipeline sequentially by 2 percent to over 24,000 rooms, which includes over 1,000 rooms that we plan to open in the fourth quarter.”
La Quinta was the star of Wyndham’s performance this past quarter. During that time frame, Wyndham Hotels & Resorts recorded profits of $58 million and revenue of $604 million, beating Wall Street forecasts. This revenue growth represents a 74 percent increase, including $238 million in incremental revenue gained from La Quinta. Excluding the acquisition, Wyndham Hotels & Resorts’ revenue grew 5 percent, thanks to gains in royalties and growing franchise fees, which increased 29 percent to $31 million.
La Quinta’s development pipeline currently contains more than 24,000 rooms, 90 percent of which are new construction. In addition, Ballotti said Wyndham anticipates realizing between $55 million and $70 million in synergies gained through the La Quinta acquisition, nearly all of them cost savings. During Q3 alone Wyndham was able to make use of $8 million in synergies with La Quinta. Ballotti said the majority of these synergies will be generated over time, and will include the assumption of La Quinta Rewards under the Wyndham Rewards loyalty program. Others will come from improvements to La Quinta’s websites and digital presence.
“But just to be clear, the synergies that we've assumed [with] the $55 million to $70 million of synergies are virtually all cost savings, and the only revenue synergy that's built into that is tied to adding La Quinta to our credit card program,” Ballotti said. “So, we think we can do a number of things that will be helpful from a RevPAR and rooms growth perspective over time. Those are not part of the synergy assumption numbers that we've shared.”
Integrating disparate systems is never easy, but Wyndham has been chipping away at the process throughout the year. David Wyshner, EVP and CFO at Wyndham Hotels & Resorts, said Wyndham is targeting first-half 2019 to complete La Quinta’s integration.
Crunching Numbers
Global RevPAR for the organization increased 10 percent during Q3, with a 6-point boost coming from La Quinta. Domestic RevPAR for Wyndham increased 11 percent during this period, and excluding La Quinta and gains made from the sale of the Knights Inn brand in April, the company’s RevPAR growth was 2.4 percent, consistent with the rest of the industry.
One commonality among hotel company earnings periods at this point is the impact of hurricanes. Wyshner said hurricanes benefitted the company during the first half of the year and became a headwind by Q3.
“When we back out hurricane effects and 2018 acquisitions and divestitures, our U.S. RevPAR growth was 2.5 percent in the first quarter, 2.6 percent in the second quarter and 3.1 percent in the third quarter,” Wyshner said.
Anticipating the impact of current and future hurricanes has taken greater precedence in the industry over the past few years, and Wyshner said the company anticipates RevPAR growth of approximately 3 percent due to the impact of the storms.
Wyndham’s international RevPAR was up 6 percent in Q3, which Wyshner attributed to strong performances in Canada, Turkey and Brazil. The company’s net system size also increased 13 percent year over year, or 3 percent excluding 2018 acquisitions and divestitures—namely, La Quinta and Knights Inn. Ballotti said 2018 is now just the second year in a row where the company has seen stabilized domestic system size despite opening more rooms than ever before.
“We'll be continuing to focus on that bottom 5 percent to 10 percent of our portfolio from a quality basis…and our target is to continue to stabilize the system this year and see our domestic system begin to grow on a long-term basis,” Ballotti said. “Where we're most encouraged right now is the progress we're making internationally, where our room growth as you saw declined in the first and second quarters based on the work we're doing with our master franchisees. But when you look at what happened as we expected in the third quarter, with 6,000 rooms of positive international growth, we're really excited about that growth and where we're seeing it overseas.”