Wyndham Q4 'strong,' but coronavirus uncertainty looms

La Quinta San Luis Obispo
As of Dec. 31, Wyndham Hotels & Resorts' hotel system consisted of approximately 9,300 properties, including the La Quinta Inn & Suites by Wyndham San Luis Obispo (Calif.) Downtown. Photo credit: Wyndham Hotels & Resorts
Wyndham Hotels & Resorts' Q4 2019 was a “strong finish” to the year, according to President/CEO Geoff Ballotti on this morning's call to discuss year-end results, but COVID-19—more commonly known as the coronavirus—is spreading uncertainty over performance moving forward.

“We’re pleased with the progress we made in 2019 on our strategic goals,” Ballotti said in the call. “We look ahead to build on our track record of delivering consistent earnings and cash flow growth.”

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Impact of Coronavirus

According to Ballotti, hotel closures in China peaked last weekend with 1,000 of Wyndham’s properties—approximately 900 of which were Super 8 master licensee franchisees—closing. Over the past several days, he said approximately 50 hotels have reopened. “Importantly, the majority of the closures resulted from owners and franchisees doing everything they could to protect their team members and prevent the spread of the virus,” he said.

Michele Allen, Wyndham’s CFO, said approximately 70 percent of Wyndham’s Chinese hotels remain closed with the balance experiencing occupancy declines of approximately 75 percent. The company expects this to continue through at least the end of March. “We are assuming that as hotels in China reopen, the market will remain soft for the vast majority of the year as occupancy recovers over a three- to six-month period,” Allen said.

To illustrate the magnitude of this issue in the context of Wyndham’s overall financial results, Allen noted that a 100 basis point change in net rooms or revenue per available room growth equates to approximately $250,000 in adjusted earnings before interest, taxes, depreciation and amortization on a full-year basis in China, roughly $125,000 in Southeast Asia—where the company is seeing varying degrees of occupancy decline—and approximately $4 million in the U.S.

“Given what we know today, we would estimate a headwind of 200 to 400 basis points on our full-year global RevPAR, potential adverse impact of approximately $5 million to our first-quarter adjusted EBITDA and a potential adverse impact of approximately $8 to 12 million to our full-year adjusted EBITDA,” Allen said.

In terms of net rooms, Allen said the company expects flat to negative growth during the first quarter due to the virus. Though the company expects the vast majority of openings to occur later this year, she said if these openings slip into next year, this would affect net room growth by approximately half a point.

RevPAR Down, Adjusted EBITDA, Revenues Up in 2019

The company saw global RevPAR dip 2 percent year-over-year last quarter, in part due to a 3 percent decrease year over year in the U.S. Allen attributed this decline to supply outpacing demand in both the economy and midscale segments. Interstate, suburban and oil-and-gas markets were particularly challenged in both rate and occupancy, she added.

Internationally, Wyndham saw RevPAR remain flat YOY. According to Allen, the metric saw growth in Latin America, Europe and Southeast Asia, about a half-point decline in China and softness in Canada mirroring the United States. Full-year organic global RevPAR finished down 80 basis points on a constant-currency basis, in line with the company’s October guidance.

Wyndham’s net income rose 49 percent to $64 million for the quarter and decreased 3 percent for the full year. Its adjusted net income rose 35 percent for the quarter and 17 percent for the year. Adjusted EBITDA rose 22 percent for the quarter and 21 percent for the year.

Revenues decreased 7 percent year-over-year in Q4 due to lower pass-through cost-reimbursement revenues, which are inconsequential to adjusted EBITDA, in the company’s hotel management business. Excluding cost reimbursements, revenue rose 2 percent, reflecting growth in royalty and franchise fees, higher license fees and an increase in marketing, reservation and loyalty fees, partially offset by lower other revenues.

For full-year 2019, revenues rose 10 percent to $2.05 billion, reflecting $267 million of incremental revenues from La Quinta and $115 million of lower cost-reimbursement revenues. Excluding these items, revenues rose 3 percent.

Wyndham experienced 3 percent YOY systemwide rooms growth, comprising U.S. rooms growth of 1 percent and international rooms growth of 6 percent. The company’s pipeline, 57 percent of which is international and 70 percent of which is new construction, grew 7 percent YOY to 193,000 rooms. As of Dec. 31, the company’s hotel system consisted of approximately 9,300 properties and more than 831,000 rooms.

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Excluding any potential impact from the coronavirus, the company forecasted 2020 revenue to be $1.89 billion to $1.93 billion; adjusted net income to be $329 million to $339 million and adjusted EBITDA to be $635 million to $645 million. The company also forecasted rooms growth of 2 to 4 percent, including a 0.7 percent adverse impact from loss or rooms that were previously covered by unprofitable hotel-management guarantees. It predicts RevPAR will be flat to down 2 percent for the full year, also including a 0.7 percent adverse impact from loss or rooms that were previously covered by unprofitable hotel-management guarantees.