Wyndham CEO on why he thinks the current RevPAR market is ‘transitory’

PARSIPPANY, New Jersey — Despite cutting its full-year RevPAR guidance, Wyndham Hotels & Resorts president and CEO Geoff Ballotti said he is still bullish on the economy segment, which makes up the majority of the company’s U.S. portfolio.

“We believe, along with many in the industry, that the current RevPAR environment is transitory in nature,” Ballotti said, noting that historically, since 2000 — through four lodging cycles — U.S. RevPAR for select-service segments has grown at a CAGR of 2.6%, despite the occasional downturn. He also noted that last month, STR reaffirmed that perspective by projecting U.S. RevPAR growth of 2.7% for select-service segments in 2025.

“For the select-service segments, we’ve been through similar situations before, and we’re confident that the select-service RevPAR will bounce back, as it always has, historically,” he said.  

The CEO said during Wyndham’s second-quarter earnings call on Thursday that he’s optimistic for several reasons, one of which is the company’s technology upgrades.

“We’re bringing technology typically offered in luxury and upscale segments to select-service hotels,” he said.

Development pipeline

Another reason is the company’s robust pipeline. Wyndham said systemwide rooms grew 4% year-over-year as it opened over 18,000 globally (7,000 in the U.S., a 16% year-over-year increase), including its first ECHO Suites Extended Stay by Wyndham hotel in Spartanburg, South Carolina. The company said it awarded 180 development contracts globally, a 33% increase year over year. Its development pipeline grew 1% sequentially and 7% year over year to a record 245,000 rooms.

“We’re confident in our growth strategy and in our ability to create substantial value both in the short term and the long term,” Ballotti said.  

Wyndham is so confident in the potential deals for its pipeline that CFO Michele Allen said the company was increasing its key money guidance by $20 million. 

Ballotti said during the call that his team had several development meetings in the following week and that he wasn’t sure if those potential franchisees would have been talking to the company six months ago. 

Allen said the key money investment is because of Wyndham’s ability to make deals happen, especially in higher RevPAR markets and particularly for the economy extended-stay ECHO Suites, its fastest-growing brand.

The increase of $20 million really represents pipeline deals. There are a number of investment opportunities that have recently presented themselves in higher RevPAR markets that we’re really excited about.

Michele Allen

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“The increase of $20 million really represents pipeline deals,” she said.  “There are a number of investment opportunities that have recently presented themselves in higher RevPAR markets that we’re really excited about… we’ve always said our first priority for free cash flow is to invest in the business, and the fact that we’re seeing incremental demand for our brands, especially in top markets, is something we view very positively.”

Despite the RevPAR adjustment, Ballotti said his team is seeing demand improving. 

“We are seeing positive trends,” he said. “We’re confident in the continued recovery of our segments here in the United States.

“We’re not seeing any differences in who’s checking into our hotels; our middle-income guests are still both more employed and have higher wages and savings than they had back in 2019. Our booking windows are up…  and we’re seeing longer lengths of stay.”

Analyst Michael Bellisario of R.W. Baird said Wyndham’s cost savings offset the softer RevPAR outlook. 

“Wyndham’s growth trajectory remains positive despite a reduced fundamental outlook (the RevPAR guidance revision was not a directional surprise, though); other/license fees, net unit growth, cost-cutting, and buybacks are driving per-share earnings growth,” he said. “All eyes are on RevPAR, though, and the slower-to-inflect U.S. trends – the positive inflection is what is needed for [Wyndham] shares to re-rate higher, in our opinion.”

Bellisario said Wyndham’s results were ahead of Wall Street forecasts because of insurance recovery and better operating margins. 

“The core business performed generally in line with our expectations; however, still-sluggish RevPAR growth, particularly domestically, caused Wyndham to reduce its core fee outlook by ~$10-$15 million.”

Wyndham didn’t change its adjusted EBITDA guidance for the full year ($690-$700 million), which is something analyst C. Patrick Scholes of Truist Securities said was unprecedented. 

“As we have talked about, [Wyndham] is the least sensitive hotel company in our coverage to changes in RevPAR,” he said. “The EBITDA guide was unchanged despite the RevPAR guidance being lowered by 250 bps at the midpoint. This may be the only time we have seen a guidance move like this.”

Earnings highlights

• Reported net income was $86 million in Q2, a 23% YOY increase.
• Adjusted net income was $91 million, a 14% YOY increase.
• Adjusted EBITDA grew 13% YOY to $178 million.
• Global RevPAR growth was 2% YOY in constant currency, reflecting flat growth in the U.S. and 7% growth internationally.
• Ancillary revenue grew 6% YOY.
• Fee-related and other revenues increased by $8 million YOY, reflecting increases in royalties and franchise fees, marketing revenues, and ancillary fee streams.
• Wyndham revised its fee-related and other revenues to $1.41-$1.43 billion, down from the prior outlook of $1.43-$1.46 billion.
• Its net room growth remains unchanged at 3-4%.
• The company repurchased about 1.8 million shares of its common stock for $131 million in the quarter and roughly 2.6 million shares for $188 million in the first half of 2024.