Wyndham eyes a brand takeover after a profitable start to the year

Wyndham Hotels & Resorts, owner of brands like La Quinta and Days Inn, this week reported a $106 million profit for the first three months of the year. Profits during a pandemic are always a good thing, but company executives also zeroed in on brand growth during a Wednesday investor call.

It was a strong financial showing considering the omicron variant hindered travel demand earlier this year in the U.S. and continues to in many parts of the world like China, where lockdowns in Shanghai have Wyndham’s hotels there operating at roughly 30% of pre-pandemic levels. But in the U.S., where Wyndham does a bulk of its business, 2019 performance levels were exceeded by 4%.

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Wyndham has been one of the more resilient hotel companies during the pandemic, as its 22 brands largely cater to drive-to and leisure travelers at affordable price points. Company leaders Wednesday indicated the brand lineup is likely to grow if they can find the right kind of acquisition.

“We are focused on growing our business, so our first preference is to always invest for future growth, but we’re going to be disciplined,” Michele Allen, Wyndham’s chief financial officer, said during the company’s first-quarter earnings call. “We’re not just going to do a deal to do a deal.”

Allen didn’t provide too much in the way of specifics of what kind of brand the company is chasing. It could be a “bolt-on” deal, where the brand is smaller but fills a gap Wyndham might have in its portfolio.

Marriott’s executive team last year signaled they were pursuing these kinds of deals in their own mergers and acquisition strategy going forward. They previously did this when acquiring AC Hotels, which was initially concentrated in Europe, and Protea, a major hotel brand in sub-Saharan Africa.

However, Allen also noted Wyndham could eventually purchase a larger brand. The only specifics mentioned were the takeover target would have to be “accretive to earnings” and help the company beef up its overall guest room count within the first 12 months of the acquisition.

Wyndham’s pursuit of a new brand comes months after executives at Choice Hotels, seen as a direct competitor to Wyndham due to its extensive lineup of affordably priced brands like Comfort and Clarion, indicated they were looking to add an upscale extended-stay brand, as well as an “upper upscale” brand. Marriott’s Residence Inn is an example of an upscale extended-stay brand while Hyatt Regency is considered an upper upscale brand.

Like Wyndham, the Choice executive team didn’t disclose what specific brands might fit the bill in their expansion plans.

“While we've been tracking some actionable opportunities this year, nothing so far has met our investment criteria,” Allen noted Wednesday of Wyndham’s brand pursuit.

No Inflation Pain

There was some industry speculation Wyndham’s first-quarter earnings report could be a signal of whether travelers were going to shy away from booking hotel stays due to inflation.

The idea is that budget-conscious travelers are more sensitive to higher gas prices and hotel rates. That could be a hindrance to companies like Wyndham and Choice, which is why analysts have generally rallied around these companies pushing more into the higher-end brand segment.

However, Wyndham’s leadership team refuted the idea inflation was taking a bite out of business. Instead, it appears to be a question of how high rates can go.

“We did not see any meaningful impact from rising gasoline costs, as occupancy for our select-service brands remained steady, about 96% of 2019 levels, in the weeks before and after the gas price increase in March,” Wyndham CEO Geoffrey Ballotti said. “We expect to see continued strong drive-to, leisure demand throughout the summer season.”

Wyndham’s ability to maintain occupancy while rates soar backs Ballotti’s claim. Average daily rates were up 8% in the first three months of this year compared to the same time in 2019. It has since moved to a 13% increase so far in April, and weekend rates are 18% higher than 2019 levels. Weekend rates at La Quinta are sometimes running as much as 25% higher than 2019 levels, Ballotti shared.

“I think the trend is that our franchisees are feeling that the summer of [2022] could replace the summer of 2021 as the best ever,” he added.

That just means their best summer ever involves making a bigger dent in travelers' wallets. So far, occupancy rates at Wyndham indicate that travelers don’t appear to mind.

Feature photo by Jonathan Weiss/Shutterstock.