Wyndham Hotels & Resorts released its earnings report for the third quarter of the year—and while the numbers were expectedly down from the same quarter a year ago, the company's president and CEO expressed some reasons for optimism.
Revenues declined from $560 million in the third quarter of 2019 to $337 million in the third quarter of 2020. Excluding cost-reimbursement revenues, revenues declined $144 million, primarily reflecting a 35 percent decline in comparable revenue per available room and the impact from hotels temporarily closed due to COVID-19.
The company generated net income of $27 million this quarter, compared to $45 million in the third quarter of 2019. The $18 million net income decline was primarily due to the revenue declines, which were partially offset by cost containment initiatives, lower volume-related expenses and the absence of contract termination and transaction-related expenses.
“In the face of continued industry uncertainty, our leisure-oriented, drive-to franchise business model generated $101 million of adjusted [earnings before interest, taxes, depreciation and amortization] and $92 million of free cash flow,” said President and CEO Geoffrey Ballotti. “Over 99 percent of our domestic and over 97 percent of our global portfolio are open today. [Revenue per available room] improved sequentially across the globe, and in the U.S., our economy and midscale brands continued to gain market share. Third-quarter room openings also improved sequentially both in the U.S. and internationally and we grew our pipeline by 3 percent to 185,000 rooms globally. Importantly, we executed 152 hotel agreements, including 23 percent more domestic conversion signings than the third quarter of 2019. As always, we remain dedicated to supporting our owners around the world during these very challenging times.”
The company’s franchised system, which included 8,500 rooms transferred from the hotel management segment related to the CorePoint Lodging asset sales, declined 1 percent globally. Excluding the transfer, franchised net rooms declined 2 percent globally, reflecting the company’s previously announced removal of noncompliant and brand-detracting rooms, of which approximately 9,000 were removed during the second quarter and approximately 7,900 were removed during the third quarter.
Revenues decreased $143 million compared to third quarter 2019, reflecting the impact of COVID-19 on travel demand globally, while a decline in adjusted EBITDA of $78 million was partially mitigated by cost containment initiatives and lower volume-related expenses.
RevPAR declined 36 percent globally, reflecting a 31 percent decline in the U.S. and a 50 percent decline internationally. On a comparable basis, which is in constant currency and excludes hotels temporarily closed due to COVID-19, global RevPAR declined 33 percent, reflecting a 30 percent decline in the U.S. and a 43 percent decline internationally.
The company’s managed system globally decreased 12 percent, primarily reflecting the transfer of 8,500 rooms to the hotel franchising segment as a result of the CorePoint Lodging asset sales. Excluding the transfer of rooms to the hotel franchising segment, the company’s managed system increased 2 percent primarily reflecting growth internationally, partially offset by the company’s previously announced removal of approximately 1,300 unprofitable management guarantee hotel rooms during the third quarter.
RevPAR declined 48 percent globally, including a 45 percent decline in the U.S. and a 56 percent decline internationally. On a comparable basis, which excludes hotels temporarily closed due to COVID-19, global RevPAR declined 46 percent, including a 43 percent decline in the U.S. and a 51 percent decline internationally.
Revenues decreased $79 million compared to the prior-year period primarily due to lower cost-reimbursement revenues, which have no impact on adjusted EBITDA. Absent cost-reimbursements, revenues were unchanged as the unfavorable impact of COVID-19 on travel demand globally was offset by the absence of a $20 million fee credit recorded as a reduction to hotel-management revenues in the third quarter of 2019, which was considered transaction-related and therefore did not impact Adjusted EBITDA. Adjusted EBITDA declined $11 million as the RevPAR impacts were partially mitigated by cost containment initiatives and lower volume-related expenses.
As of Sept. 30, the company’s hotel system of approximately 9,000 properties and 804,000 rooms declined 2 percent year over year. During the third quarter of 2020, the company opened 76 hotels totaling 9,600 rooms, a year-over-year decline of 34 percent due to delays resulting from the pandemic.
As expected, the company’s global retention rate over the past 12 months declined to 92.6 percent compared to 94.9 percent during the same period last year due to the company’s removal of approximately 9,000 noncompliant master franchise rooms in China during the second quarter and the company’s removal of approximately 9,200 additional noncompliant, unprofitable and brand-detracting rooms in the third quarter.
The company’s development pipeline consisted of 1,400 hotels and approximately 185,000 rooms, a 3 percent decline year over year, or a 3 percent increase sequentially. Approximately 64 percent of the company’s development pipeline is international and 76 percent is new construction, of which 33 percent have broken ground.