Occupancy at Wyndham Hotels & Resorts has grown for 15 weeks in a row, the company said on 29 July following release of second quarter earnings figures.
The US-based company, which is primarily a franchise operation, also said that more than 70% of its US-franchise hotels had occupancy rates above 40% in July. It said that RevPAR rates were improving as well. In April, US RevPAR was down as much as 71% while it was off by around 39% in July.
In the three months to 30 June, however, global RevPAR fell by 61% from $44 to $17. About 500,000 of the company’s 800,000 rooms are in the US. In the Europe, Middle East and Africa region, where the company has 69,000 rooms, RevPAR fell 90% and, Wyndham said, it remains weaker than in Asia, Canada and the US.
Wyndham said it was continuing to add rooms despite the downturn. It opened 62 new hotels and 5,700 rooms in the second quarter but that represented a year-on-year decline of 65%. In total, it has a development pipeline of 180,000 rooms and 1,350 hotels across the globe. It said 64% of the sites were outside the US and that 24% were conversions – that is, existing hotels that join the franchise system. Overall room numbers were flat year on year. As of 30 June, it had 9,000 properties and 813,000 rooms.
It said that general financial strains were leading to added interest from would-be converters but that it was also “removing unprofitable and operationally challenged hotels, redeploying infrastructure to support more engaged and compliant franchisees.”
Geoffrey Ballotti, president and chief executive officer, said: “We generated positive adjusted ebitda in the second quarter, driven by our drive-to and leisure-oriented franchise business model, along with our immediate and concerted cost savings initiatives.”
Nearly nine out of ten of its US hotels were in “drive-to” locations with only 5% at airports. It said that 96% of its US customers were from the US.
“We were pleased to see a steady improvement in average daily rate, occupancy and RevPAR over the past three months,” said Mr Ballotti.
Wyndham waived $12 million in non-royalty fees up to 30 June and deferred $67 million fees until 1 September. It added, however, that more than 40% of the deferrals had so far paid ahead of the deadline but that it was prepared to extend relief measures “as circumstances warrant.”
Mr Ballotti also said: “Approximately 85% of our hotels have remained open globally throughout the pandemic, and over 99% of our domestic hotels are open today. Importantly, our economy and midscale brands continue to outperform versus their local markets.”
Overall, Wyndham lost more money in the April to June quarter than it made in either of the 2018 and 2019 full financial years.
Stung by a $206 million net impairment charge, the company made a net income loss of $174 million compared to profits of $157 million and $162 million in 2019 and 2018 respectively. Wyndham made $26 million and $21 million in the second quarters of 2019 and 2018 and $22 million in the first quarter of the current year. The impairment charge, which Wyndham described as a “non-cash” item, related primarily to the value of the La Quinta tradename acquired in May 2018. The company said the writedown would have no material effect on future cashflows and was a function of discount rates calculated with reference to volatile equity market values.
Wyndham shares have fared better than many peers in recent months. The stock, quoted on the New York Stock Exchange, traded at $63 at the end pf 2019. The stock fell to nearly $20 in mid-March but has since recovered to $46.
Insight: Wyndham Hotels & Resorts is emerging from the Covid crisis in decent shape. That’s partly thanks to the flexibility over costs that comes with the franchising model that accounts for the lion’s share of its business activity. Unlike owner-managed hotels, the franchisees take much of the heat.
Wyndham’s position in economy to mid-market properties is another boon, as is the fact that leisure travellers account for about 70% of its guests and its rooms are well-located for the drive-to (as opposed to fly-to) holiday spots. It also helps that Wyndham primarily serves domestic rather than international customers.
Occupancy rates have fallen, of course, as has RevPAR but Wyndham’s resilience is well illustrated by the fact that 85 percent of its hotels remained open, even in March and April. It is a significant sign of confidence, meanwhile, that the company remains willing to pay dividends.
Wyndham may be doing better than many peers but things have changed for the worse. One clear signal of that is the “impairment” charge taken by Wyndham against the value of its La Quinta and other brands. It is a non-cash item, after all, an accounting requirement pertaining to intangible assets that leaves the operating profit numbers unsullied.
But it is a reminder that, for all Wyndham’s well-placed confidence, the trading environment has changed for the worse even in the stronger segments of the market. Conditions are likely to be “impaired” for a while yet.