PARSIPPANY, NJ—Wyndham Hotels & Resorts saw a 23% revenue increase in the second quarter of 2019.
Revenues were $533 million, compared with $435 million in the second quarter of 2018. Results reflect $98 million of incremental revenues from La Quinta, which the company acquired in May 2018. Excluding the impact from 2018 acquisitions and divestitures, revenues increased 1% in constant currency, primarily due to higher license, royalty and other fee revenues, partially offset by lower cost-reimbursement revenues as well as the timing of the company’s global franchisee conference, which was in April last year, but will be in September this year.
“We continued to deliver solid results in the second quarter, highlighted by continued organic expansion of our system size and significant growth in adjusted EBITDA,” said Geoffrey A. Ballotti, CEO. “We remain enthusiastic about our domestic and international growth prospects, driven by the strength of our brands and our award-winning Wyndham Rewards loyalty program.”
Net income was $26 million, or $0.27 per diluted share, compared to $21 million, or $0.21 per diluted share, in the second quarter of 2018. 2019 results reflect $40 million of primarily non-cash after-tax expense due to the company’s intention to exit a legacy hotel-management arrangement that has been unprofitable for it. Prior-year results were impacted by the company’s spin-off and the acquisition of La Quinta and therefore included substantially higher interest, separation-related and transaction-related expenses.
Adjusted net income was $82 million, or $0.84 per diluted share, compared with $73 million, or $0.73 per diluted share, in the second quarter of 2018. Second quarter earnings comparisons were impacted by the acquisition of La Quinta, higher interest expense and the timing of marketing expenses.
Second quarter adjusted EBITDA was $159 million, compared with $125 million in the second quarter of 2018. Management estimates that second quarter results reflect approximately $30 million of incremental adjusted EBITDA from La Quinta. Excluding the impact from 2018 acquisitions and divestitures, adjusted EBITDA increased 5% in constant currency primarily reflecting the growth in license, royalty and other fee revenues, partially offset by the timing of marketing expenses, which suppressed growth by $14 million, or 13 percentage points. Consistent with the company’s expectations, second quarter adjusted EBITDA represented 26% of the company’s projected full-year adjusted EBITDA.
U.S. RevPAR and constant-currency global RevPAR increased a fraction of a point in second quarter 2019 compared to the prior-year period excluding our 2018 acquisitions and divestitures through their anniversary dates, as second quarter 2018 U.S. and global RevPAR benefited by approximately 150 and 80 basis points, respectively, from incremental post-hurricane demand.
As of June 30, 2019, the company’s hotel system consisted of approximately 9,200 properties and approximately 817,000 rooms, a 3% increase compared with the second quarter of 2018. The company’s development pipeline consisted of 1,400 hotels and approximately 188,000 rooms, a 10% year-over-year room increase. The company also increased its pipeline sequentially by 4% compared to first quarter 2019. Approximately 55% of the company’s development pipeline is international and 74% is new construction.
Hotel Franchising
Revenues increased 15% compared to second quarter 2018, including $36 million of incremental revenues from La Quinta. Excluding the impact from 2018 acquisitions and divestitures, revenues increased 3% in constant currency due to higher license, royalty and other fees, partially offset by the timing of the Company’s global franchisee conference, which was in April last year but will be in September this year. Adjusted EBITDA grew 26% to $162 million, including an estimate of approximately $24 million of incremental adjusted EBITDA from the acquisition of La Quinta. Excluding the impact from 2018 acquisitions and divestitures, adjusted EBITDA grew 9% in constant currency reflecting the growth in revenues and the impact of reorganizing certain functions and related expenses into our Corporate segment as a result of our spin-off, partially offset by the timing of marketing expenses, which reduced adjusted EBITDA by $14 million.
Hotel Management
Revenues increased $55 million compared to the prior-year period, reflecting $62 million of incremental revenues from La Quinta (including $55 million of cost-reimbursement revenues). Excluding the impact from the acquisition of La Quinta, revenues declined $7 million primarily due to lower cost-reimbursement revenues, which have no impact on adjusted EBITDA. Adjusted EBITDA increased $8 million compared to the prior-year quarter, reflecting an estimated $6 million of incremental adjusted EBITDA from La Quinta.
Hotel Management Contract Terminations
The company expects to exit two unprofitable hotel-management arrangements that were initiated in 2012 and 2013. In conjunction with one arrangement that covers 22 hotels and 3,600 U.S. rooms, the company’s guaranty obligations have been exhausted. The company expects that this will result in the arrangement, including the company’s ability to recapture out-of-pocket payments it had made to the hotels’ owner, being terminated. The company recorded a non-cash impairment expense of $45 million and a $9 million contract termination charge in the second quarter, which were primarily related to the anticipated loss of the recapture opportunity.
In order to terminate the other arrangement, which covers eight hotel properties and 2,500 U.S. rooms, the company has signed a non-binding letter of intent to make payments representing a significant discount to its remaining potential guarantee exposure, which is currently approximately $70 million. The company expects to record a contract termination expense in the third quarter related to these future payments.
With the termination of these two arrangements, the company’s future maximum annual hotel-management guaranty obligations will be reduced from $26 million to $5 million.
