PARSIPPANY, NJ—For the first quarter of 2020, ended March 31, which was impacted by the COVID-19 pandemic, Wyndham Hotels & Resorts’ revenues decreased 12% to $410 million, compared with $468 million in the first quarter of 2019. Excluding cost-reimbursement revenues, revenues declined $29 million or 9%, reflecting a 23% decline in constant-currency RevPAR, as well as lower license fees, which were adversely impacted by declining travel demand.
“Our franchise, leisure-transient, fee-for-service business model is highly resilient during economic turmoil,” said Geoffrey A. Ballotti, CEO. “We have made difficult and measured decisions to adjust our cost base to this new reality, to preserve liquidity and to support our franchisees. Altogether, our actions since the start of this crisis have resulted in the identification of approximately $255 million in cash savings that will help mitigate revenue declines and provide us with the funds to continue to offer support to our franchisees.”
Net income increased 5% to $22 million, or 23 cents per diluted share, compared to $21 million, or 22 cents per diluted share, in the first quarter of 2019 due to lower separation-related expenses associated with the company’s spin-off and a decline in overall expenses due to cost reduction initiatives, partially offset by the decline in revenue (excluding cost-reimbursement revenues).
“Nearly 5,900 of our 6,300 hotels in the U.S. remain open, and with nearly 90% of those properties located outside of major cities in drive-to destinations that cater to a leisure customer base, we believe that our asset-light business is well positioned for a quick recovery when travel demand returns,” said Ballotti.
The company noted that first-quarter results do not yet reflect the full effect of the pandemic. Highlights from the earnings report include the following:
- First-quarter adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) decreased 4% to $107 million.
- First-quarter adjusted diluted earnings per share (EPS) decreased 4% to $0.50.
- System-wide rooms grew 2% year-over-year, including international rooms growth of 5% while U.S. rooms remained unchanged.
- Development pipeline grew 4% year-over-year to 189,000 rooms.
- U.S. RevPAR declined 18% in the first quarter; international constant-currency RevPAR declined 33% in the first quarter.
Hotel Franchising
The company’s franchised system increased 3% globally, which included the transfer of 7,100 rooms from the hotel management segment related to the CorePoint Lodging asset sales. Excluding the transfer, franchised net rooms grew 2% globally, including 40 basis point growth in the U.S. and 5% growth internationally.
RevPAR declined 23% globally due to travel restrictions related to COVID-19. In the U.S., RevPAR declined 17%, and internationally, RevPAR declined 37% primarily due to a 70% decline in China.
Revenues decreased $26 million, or 10%, compared to first quarter 2019 reflecting the impact of COVID-19 on travel demand globally, while a decline in adjusted EBITDA of $5 million, or 4%, was partially mitigated by cost savings initiatives.
“Our thousands of franchisees are very much top of mind. This is an incredibly challenging time for them, and their long-term success is critically important to us,” Ballotti said. “We have taken proactive steps to help them preserve cash during this period; have suspended certain fees; and have provided payment relief by deferring receivables and suspending interest charges and late fees. And we’ve deferred property improvement plans and certain nonessential brand standards requiring cash outlays. In addition, we are dropshipping difficult to procure emergency supplies for all of our U.S. hotels, employees and guests. And, we have partnered with industry associations to advocate for increased government relief.”
Ballotti noted that while Wyndham is not applying for any federal loan assistance, industry estimates suggest that 95% of its franchisees have applied for a Payroll Protection Program (PPP) loan and/or an Economic Industry Disaster Loan (EIDL). Nearly 80% have been approved for one or both.
“A large portion of our franchisees are SBA loan borrowers and are benefitting from the six months of debt relief the SBA is providing,” the CEO added. “Furthermore, with more than 90% of Wyndham’s hotels in the select-service space, these hotels are less labor intensive and operate at higher margins than full-service hotels. They average fewer than a dozen full-time employees and staff levels are highly scalable to demand. We believe that a majority of our hotels can support debt service at occupancy levels of approximately 30% before receiving any governmental assistance, which lowers this 30% break-even considerably.”
Hotel Management
The company’s managed system decreased 11% globally primarily reflecting the transfer of 7,100 rooms to the hotel franchising segment as a result of CorePoint Lodging asset sales. Excluding the transfer of rooms to the hotel franchising segment, the company’s managed system decreased 1% primarily due to the loss of rooms in the U.S. that were previously covered by unprofitable hotel management guarantees.
RevPAR declined 21% globally, primarily reflecting a 17% decline in the U.S. and a 31% decline internationally.
Revenues decreased $30 million compared to the prior-year period due to lower cost-reimbursement revenues, which have little to no impact on adjusted EBITDA. The decline in cost-reimbursement revenues is due to the loss of management properties resulting from the CorePoint Lodging asset sales and the termination of unprofitable hotel-management guarantees. Absent cost-reimbursements, revenues and adjusted EBITDA were unchanged as the unfavorable impact of COVID-19 on owned and managed properties was offset by $5 million of management contract termination fees received from CorePoint Lodging asset sales.
Development
During the first quarter of 2020, the company opened 58 new hotels totaling 6,200 rooms, a year-over-year decline of 47%, as new-construction openings were delayed in China and conversion volumes were materially lower in the U.S. during March. The company retained 94.8% of its hotel system over the last 12 months compared to 94.7% during the same period last year. As of March 31, the company’s hotel system consisted of approximately 9,300 properties and more than 828,000 rooms, a 2% year-over-year increase.
The company’s development pipeline consisted of 1,500 hotels and approximately 189,000 rooms, a 4% year- over-year room increase, or 2% decline sequentially. Approximately 58% of the company’s development pipeline is international and 72% is new construction, of which nearly 40% have broken ground.
“The pandemic has inhibited our ability to open rooms internationally and domestically. Room openings in the quarter declined from approximately 12,000 last year to 6,000 this year as franchisees have been focused on the crisis, and our development and opening teams have had to curtail travel,” Ballotti said. “New-construction projects are being completed but some owners are waiting to open until travel demand begins to recover. We expect that new-construction starts will slow over the next 12 to 24 months as financing is expected to be constrained until there are signs of a recovery.”
He also noted the company’s new construction pipeline grew by 3%, while the conversion pipeline increased 8%.
