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Wyndham wants to retain its stronghold in economy lodging while expanding into higher-end properties that generate larger franchise fees. The company saw a swift increase in development deal signings after rival Choice Hotels abandoned its hostile takeover attempt last month.
Wyndham‘s executives saw March 11 as a fresh start for their hotel franchising company – that was the day Choice Hotels abandoned its hostile merger bid.
Wyndham’s bosses said Thursday during an earnings call that they’re now pursuing a two-pronged strategy. They want to retain their substantial position in economy hotels while growing their market share in more premium properties that generate higher franchise fees.
“We are actively pushing into higher chain scales,” said Geoff Ballotti, president and CEO. “But we will always look to lead in the economy segment.”
Wyndham shifts its portfolio mix upscale
When Wyndham went public in 2018, the group had about a dozen percentage points less of its portfolio in the budget segment and more of a weighting in midscale and higher-end hotels.
In the quarter, Wyndham notched a company record with a 3.7% rise in net rooms added to its system size. It grew its development pipeline by 8% year-over-year to a company record of 243,000 rooms.
Yet that growth was incrementally more in higher-end chain scales.
A couple of factors explain this mix shift toward premium brands.
Wyndham’s management is deliberately pursuing this policy. In the U.S., most of its domestic pipeline is expected to bring in 15% higher average revenue per available room (RevPAR) than the current average of its already open hotels. Those incoming hotels would bring an average royalty rate — essentially franchise fees — that is at least 5 basis points higher than its current system. Wyndham is putting more of its own money into the financing of these deals to help secure them than it ordinarily has.
“Our strategy of using key money to penetrate those upper chain scale and higher RevPAR markets is working,” said Michele Allen, chief financial officer.
A post-Choice rise in deal flow
Managers of the Parsippany, New Jersey-based hotel operator claimed to see a quick lift in signings for development deals after March 11.
“Owners who were uncertain on committing to deals with us, those who did not want to wind up in the Choice system, have since agreed to sign,” Ballotti said. “There’s no better example of that, since the dozen WaterWalk [its new extended stay brand] conversions we did this month.”
“On the conversion side, from a signing standpoint, we’re up over 20% year-over-year in the quarter,” Balloti said. “New construction executions were also up over 20% versus both the first quarter and even back before Covid. We’re positive about the tenor of conversations.”
Wyndham’s first-quarter 2024
The company generated a net income of $16 million, down from $67 million in the quarter a year ago. Management blamed the drop mainly on “transaction-related expenses resulting from the unsuccessful hostile takeover attempt by Choice Hotels.”
It generated $305 million in revenue, down from $313 million a year earlier. Its adjusted EBITDA was $141 million, down from $147 million a year earlier.
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