Despite the overall gloom the hotel industry is mired in, there was some positive news in Wyndham Hotels & Resorts' newly released fourth-quarter and full-year 2020 results.
The company generated strong adjusted earnings before interest, taxes, depreciation and amortization and free cash flow in the worst year the industry has ever experienced, said President and CEO Geoffrey Ballotti in a statement delivered before the company's earnings call with investors. During that call, Ballotti noted that approximately 97 percent of the company’s nearly 9,000 hotels are open today. “Our fourth quarter continued to demonstrate that our drive-to, nonurban franchise business model can deliver in any environment,” he said. The leisure-focused hotels in this segment produced sequential revenue per available room improvements and domestic market share gains for the company.
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Wyndham also completed its strategic termination plan that was announced during the Q2 call, removing noncompliant brand-detracting rooms from its system and removing an unprofitable management guarantee deal signed in 2012. Ultimately, the company reported sequential growth in hotel openings and the development pipeline, Ballotti said.
Q4 2020 Operating Results
Revenues declined from $492 million in the fourth quarter of 2019 to $296 million in the fourth quarter of 2020. The decline includes lower pass-through cost-reimbursement revenues of $70 million, which have no impact on adjusted EBITDA, in the company’s hotel management business. Excluding cost-reimbursement revenues, revenues declined $126 million, primarily reflecting a 33 percent decline in comparable RevPAR and the impact from hotels temporarily closed due to COVID-19, as well as a $15 million decline in license and other fees also reflecting the impact of COVID-19 on travel demand globally.
The company generated a net loss of $7 million compared to net income of $64 million in the fourth quarter of 2019. The decrease of $71 million was primarily due to the RevPAR and license fee declines, as well as excess marketing fund spend, which were partially offset by cost-containment initiatives, lower volume-related expenses and the absence of transaction-related expenses.
Demand from construction crews and utility workers improved 300 basis points from Q3, Ballotti said during the earnings call, while demand from the trucking, rail and manufacturing workers in the logistics segment remains stable. “These traveling, everyday workers combined with the strength of leisure travel in our sales and marketing efforts boosted market share for our economy and midscale brands by 210 and 520 basis points, respectively, in the fourth quarter,” he said.
Average daily rate also has been performing well in the select-service space, said CFO Michele Allen. “Since the low point we experienced in mid-April, ADR for our domestic economy and midscale brands has steadily climbed from down 21 percent to down only 10 percent in January. Importantly, we continue to see significant enough price differentials between the chain scale segments to impact decision making for our value-conscious everyday travelers.”
Related: One-on-One with Wyndham's Michele Allen
Franchising
The company’s franchised system declined 3 percent, primarily reflecting the company’s previously announced removal of approximately 18,500 noncompliant and brand-detracting rooms. In addition, net franchised rooms includes approximately 7,800 rooms that were transferred from the hotel management segment primarily related to the CorePoint Lodging asset sales, which were partially offset by the deletion of approximately 5,300 low-royalty rooms in connection with the sale of certain hotels by a strategic partner.
RevPAR declined 33 percent globally, reflecting a 28 percent decline in the U.S. and a 43 percent decline internationally. On a comparable basis, which is in constant currency and excludes hotels temporarily closed due to COVID-19, global RevPAR declined 31 percent, reflecting a 28 percent decline in the U.S. and a 40 percent decline internationally.
Revenues decreased $98 million compared to fourth quarter 2019, reflecting the impact of COVID-19 on travel demand globally, while a decline in adjusted EBITDA of $76 million further reflected excess marketing fund spend, partially mitigated by cost containment initiatives and lower volume-related expenses.
Management
The company’s managed system declined 19 percent primarily reflecting approximately 7,800 rooms that were transferred to the hotel franchising segment primarily as a result of CorePoint Lodging asset sales. Excluding the transfer of these rooms, the company’s managed system decreased 7 percent primarily reflecting the company’s previously announced removal of approximately 2,900 unprofitable management guarantee hotel rooms.
RevPAR declined 44 percent globally, domestically and internationally. On a comparable basis, which excludes hotels temporarily closed due to COVID-19, global RevPAR declined 43 percent, including a 44 percent decline in the U.S. and a 42 percent decline internationally.
Revenues decreased $96 million compared to the previous-year period, primarily due to lower cost-reimbursement revenues, which have no impact on adjusted EBITDA. Absent cost-reimbursements, revenues decreased $26 million due to the unfavorable impact of COVID-19 on travel demand globally. Adjusted EBITDA declined $22 million as the RevPAR impacts were partially mitigated by lower volume-related expenses.
Full-Year 2020 Operating Results
Revenues declined from $2.053 billion in 2019 to $1.3 billion in 2020. The decline includes lower pass-through cost-reimbursement revenues of $273 million, which have no impact on adjusted EBITDA, in the company’s hotel management business. Excluding cost-reimbursement revenues, revenues declined $480 million, primarily reflecting a 35 percent decline in comparable RevPAR and the impact from hotels temporarily closed due to COVID-19, as well as a $47 million decline in license and other fees also reflecting the impact of COVID-19 on travel demand globally.
The company generated a net loss of $132 million in 2020 compared to net income of $157 million in 2019. The decline of $289 million was primarily due to the revenue decline, impact of the non-cash impairment charges and excess marketing fund spend, which were partially offset by cost-containment initiatives, lower volume-related, separation-related and transaction-related expenses and the absence of contract termination expenses.
Development
In the third quarter of 2020, Wyndham opened 20 percent more rooms domestically than in the second quarter. “That momentum continued into our seasonally busiest fourth quarter as we opened [more than] 70 percent more domestic rooms and [more than] 30 percent more international rooms than we did in the third quarter,” Ballotti said. The company opened 52 new-construction hotels in Q4, including seven new La Quintas, and signed 94 new-construction deals in the fourth quarter, compared to 97 new-construction deals signed in the fourth quarter of 2019. In the U.S, the new-construction signings increased more than 15 over the previous year.
In the U.S., Wyndham signed 108 new hotel agreements in the fourth quarter, nearly 75 percent higher than in Q3, Ballotti noted. “And remarkably, our teams executed only one less deal in the fourth quarter of 2020 than they did in the fourth quarter of 2019,” he said during the call.
The company’s most in-demand conversion brands in 2020 were Days Inn, Super 8 and Travelodge in the economy segment, while Baymont, Ramada and Trademark dominated the midscale segment domestically. Openings nationwide were strongest in Texas, Florida and North Carolina while international openings were strongest in the company’s direct franchising business across Mainland China and Southeast Asia.
As of Dec. 31, 2020, the company’s hotel system of more than 8,900 properties and approximately 796,000 rooms declined 4 percent year over year, primarily reflecting unusual termination events resulting in the deletion of approximately 26,700 rooms, comprised of 18,500 noncompliant, brand-detracting rooms, 5,300 rooms in connection with the strategic partner hotel sales and 2,900 unprofitable management guarantee rooms. As a result, the company’s global retention rate declined 330 basis points year over year to 91.5 percent.
The company awarded more than 580 new contracts in 2020 and its development pipeline at year-end consisted of approximately 1,400 hotels and approximately 185,000 rooms, growing sequentially by 120 basis points domestically and 20 basis points globally. Approximately 64 percent of the company’s development pipeline is international and 75 percent is new construction, of which 34 percent have broken ground.
Wyndham is putting more capital to work in rooms growth, Allen said, because the company sees an improved opportunity to to attract deals due to where financing is. “Owners are going to be more attracted to deals where we can participate in the capital stack,” she said. “That's not always the case, but that is certainly the case right now.” The company hopes the confluence of various factors will attract the right hotels in the right markets—“for the brands that we really want to grow and, more importantly, conversion opportunities in the near term to help fill the gap on the transaction volume side and then, as well, to get us back to the 2019 openings level.”
2021 Projections
Given the RevPAR uncertainties ahead, the company is not providing a complete outlook for full-year 2021. However, Ballotti said the company’s focus for 2021 is threefold: “First, to return to positive net rooms growth. We've been investing in multiple strategies, tools and technologies to increase not only our franchise sales footprint and capabilities but also our win rates. Second, to carry on with the meaningful sales, operations, marketing and digital investment we talked to you about on last quarter's call that are contributing so importantly to our guests’ evolving travel habits, and our franchisees' market share premiums and profitability. And third, to remain intensely focused on the guest experience while continuing to elevate the reputation and the quality of our brands.”
The company is aiming for for net rooms growth of 1 percent to 2 percent for the year. At the same time, every point of RevPAR change versus 2020 is expected to generate approximately $2.5 million of adjusted EBITDA change compared to 2020. “While this concept is similar to last year’s sensitivity, the calculation is a bit different,” Allen said. “The sensitivity now excludes license fees as well as the marketing funds, both of which should be modeled separately as incremental impacts as their year-over-year change will not move linear with RevPAR.” License fees are expected to be $70 million, reflecting the minimum levels outlined in the underlying agreements.
Marketing, reservation and loyalty expenses are not expected to exceed marketing, reservation and loyalty revenues. As such, the company expects no meaningful impact to full-year 2021 adjusted EBITDA from the marketing, reservation and loyalty funds.
The company does not expect any meaningful special-item cash outlays in 2021.