Wyndham Hotels & Resorts said that, with 94% of its hotels in the US open, it expected to see a “quick recovery”.
The company reported a 5% increase in net income in the first quarter, to $22m, as the company said that it was looking to conversions to drive growth.
CEO Geoff Ballotti told analysts: “Nearly 90% of our domestic properties are positioned along highways and suburban small metro locations, which have fared better than those in downtown metro markets. Our customer profile in the US is about 70% leisure and almost 90% drive to making us less reliant on business days and air travel.”
Ballotti said that the company had taken “proactive steps” to helps its franchisees preserve cash, including suspending some fees and providing payment relief by “deferring receivables and suspending interest charges and late fees. And we've deferred property improvement plans in certain non-essential brand standards requiring cash outlays”.
The group had also identified approximately $255m in cash savings to help mitigate revenue declines and provide us with the funds to continue to offer support to its franchisees.
Ballotti said that pandemic had “inhibited our ability to open rooms both internationally and domestically” and that it had restructured its franchise sales and development teams to increase its conversion coverage by approximately three times.
He added: “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 months to 24 months as financing is expected to be constrained until there are signs of recovery.”
The global development pipeline ended the quarter up 4%, with the conversion pipeline increasing by 8%. In the US the pipeline was 52% conversion and 48% new construction. The CEO said: “While we still believe we can continue to grow our new construction system with low cost and highly efficient prototypes in our select service brands. We believe that this growth will continue at a slower pace than it has in recent years.
“Converting independent hotels to our brands has always been an important part of Wyndham's consistent rooms growth through both up and down cycles. And as this industry recovers from COVID-19, we believe conversions will become an even more important growth vehicle for us.”
Ballotti said that, while Wyndham was not applying for any federal loan assistance, industry estimates suggested that more than 95% of its franchisees had applied for a PPP and/or an idle loan. He said: “As a reminder, the vast majority of our franchisees are financed by local and regional banks of which nearly 90% are already providing forbearance or other forms of debt relief according to the American Hotel and Lodging Association. And a large portion of our franchisees are SBA loan borrowers and are benefiting from the six months of debt relief the SBA is providing.
“Furthermore with over 90% of the hotels in our system in the select service space these hotels are less labour-intensive and typically operate at higher margins than full-service hotels. They generally average fewer than a dozen full-time employees and staff levels are highly scalable to demand.
“We believe that the majority of our hotels can support debt service at occupancy levels of approximately 30% before receiving any governmental assistance, which lowers this 30% breakeven considerably.”
The group said that globally breakeven was at about 40% occupancy, 50% internationally.
For the quarter, revpar declined 17% on a comparable basis, which excluded closed hotels. Comparable revpar was down 16% in the US and 20% internationally, led by China, where revpar declined 61%. Adjusted Ebitda declined $4m or 4% to $107m.
In China, the group said that it had over 85% of its system back open and was seeing gradual signs of recovery with recent occupancy levels running in the mid-20s up from low single digits back in March.
As at 31 March, the company had $749m of cash on hand.
Insight: For those franchisors not operating in the city centres in the US, this is very much business as usual. We hear that, even if rooms aren’t being used for the more traditional travellers, they are being hired by parents looking for quiet work space and better wifi. They are, as Wyndham noted, making hay.
But without wishing to be all Cassandra, there is a virus out there and one can’t help but think that governments around the world haven’t just closed hotels because they’re sick of their Club sandwiches being tepid by the time they reach their rooms. One hopes, of course, that the country is largely spared, but, er…
It will at this point, when the bite comes, that Wyndham will be looking to sell itself as a provider of heads in beds and this is where that switch to conversions will start to warm up. As the need to fill rooms becomes pressing, more owners are likely to seek shelter in the brands. The group has great reach in the US, but less overseas, where the higher marketing costs mean the higher breakeven. Now is not the time to dial up the spending, but for a group with such a strong domestic market it doesn’t have to, at this point.