Stephen Holmes began Wyndham Worldwide’s Q1 2018 earnings call eulogizing the company’s name as it prepares to spin off its hotel and timeshare businesses and become Wyndham Hotel Group and Wyndham Vacation Ownership. “It has been an extraordinary 12 years, and I am pleased to report a typical Wyndham quarter,” Holmes, Wyndham Worldwide's chairman and CEO, said on the call, but the company’s Q1 results are anything but normal. With the spinoff expected to close this quarter, the company has taken part in a buying and selling spree as it rearranges itself.
There is no question that Wyndham has been busy. The company acquired La Quinta this January in a deal valued at $1.9 billion, adding 900 hotels to its portfolio ahead of its planned hotel/timeshare spinoff. Holmes said in the call this acquisition is part of a bid to become “the preferred partner for developers and guests” throughout the industry, and the transaction is on track to close this quarter. Wyndham quickly recouped the majority of the expense by selling its European vacation-ownership business to Platinum Equity for $1.3 billion in cash.
It isn’t easy to split one immense company into two separate entities, and Wyndham is feeling some of the strain. Wyndham saw a significant drop in profits for the first quarter of 2018, down 62 percent year over year. Net income for the company came in at $34 million, compared to $90 million reported in Q1 2018. The reasons for this are myriad, but a focus on the spinoff and significant spend allocated to acquisitions could have had a hand in it.
Though Wyndham is juggling quite a few balls at once, the company did manage to post results for the first quarter that exceeded its February estimations. David Wyshner, EVP and COO at Wyndham Worldwide, reported that first-quarter revenues at the company were $1.2 billion, up 3 percent compared to the same period last year, and Wyndham’s hotel group saw revenues increase 4 percent to $302 million. First-quarter domestic revenue per available room was also up 5.6 percent over Q1 2017, while global RevPAR increased 7 percent.
Wyndham also sold its Knights Inn brand in April, a decision Wyshner said was a result of the brand not being a part of Wyndham’s core business. As a result, it shed approximately 350 franchised hotels consisting of roughly 21,000 rooms. “It was the lowest domestic RevPAR brand in our portfolio by a considerable margin, and was responsible for only 1 percent of our hotel group’s pro forma adjusted [earnings before interest, taxes, depreciation and amortization]," Wyshner said. "Knights Inn, I would describe as an outlier in our portfolio as it was positioned. And as we looked at the 'by Wyndham' co-branding tagline we put in, that was a key part of how we determined Knights was not going to be a core part of our business going forward. We have no plans to dispose of other brands.”
“One of the things we loved about La Quinta was how it overlapped,” Geoff Ballotti, president and CEO of Wyndham Hotel Group, said on the call. “We really do not have significant presence in the upper-midscale space. It’s a brand that has tremendous potential.”
Seeking Stability
This rapid-fire selling and buying spree seems to be behind the company. With the acquisition of La Quinta (and AmericInn in October of 2017), the company is doing just fine. Wyndham Worldwide’s hotel system now comprises 21 brands with more than 8,300 properties and roughly 723,000 guestrooms. The company’s development pipeline has grown 3 percent year-over-year, reaching 1,100 hotels and roughly 147,700 rooms, 58 percent of which are located internationally and 67 percent are new builds.
For Wyndham’s vacation-ownership business, revenues were up 3 percent, reaching $661 million, representing a 6-percent increase in both gross vacation-ownership-interest sales and consumer-financing revenues. Michael Brown, president and CEO of Wyndham Vacation Ownership group, said Wyndham Destinations aspires to be the world’s largest destination-ownership company, and will operate the world’s largest vacation-exchange network.
“To put some numbers around it, we will be a company targeting pro-forma revenues of approximately $4 billion,” Brown said. “We have 221 resorts, 878,000 owners and 3.9 million exchange members across 110 countries and territories.”
Wyndham has a lot to look forward to in the latter half of this year—it just has a spinoff to navigate first. The company is still forecasting an increase in revenue of 4 percent to 7 percent (or between $5.2 billion and $5.3 billion), and is optimistic for its performance going forward.
“If we weren’t separating into two independent companies, my comments on our outlook would be simple,” Wyshner said. “Our revenue forecast is down about $65 million, which is entirely due to our adoption of a new revenue-recognition standard.”
“I, for one, am incredibly proud of what this team has accomplished, and I look foreword to continuing to help guide this process as these companies’ nonexecutive chairman going forward,” Holmes said.