Wyndham is poised to make "tuck-in" acquisitions in the hotel market as the industry enters what Wyndham forecasts will be a period of restructuring over the next 12 to 18 months.
The company believes the worst is over for the recession and it is expecting an improvement next but it still expects there to be opportunities.
CEO Steve Holmes last week said during a conference call that there are opportunities for single and multi-unit conversions alongside the acquisitions. Conversions have historically accounted for 80% of Wyndham's room openings so it is well positioned to exploit the anticipated environment.
In terms of the size of acquisitions, Holmes would not commit to a number but indicated that deals like the $100m Microtel-Hawthorn Suites, bought by Wyndham just over a year ago, would certainly be considered.
"We have worked hard over the past several years to clarify our brands' positions in the market. We have made great progress in growing the Wyndham footprint," said Holmes.
International opportunities "are very strong" and more than 40% of the pipeline is now outside the US. The pipeline currently stands at 111,000.
The new CFO, Tom Conforti, who arrived in September after the exit of Gina Wilson in June, stressed that he has come from a company (DinEquity, operator of Applebee's restaurants) that was transformed from a net user of capital to a generator of free cash flow. "I'm a big advocate of delivering strong cash flow to drive shareholder value," he said.
Within the hotel group, Conforti wants to achieve a greater proportion of EBITDA from fee-for-services businesses.
During the third quarter, hotel group revenues were down 14% and EBITDA down 24%. Worldwide revpar was down 17%, 16% in the US and 19% internationally. The full-year revpar is now thought likely to come in slightly below previous guidance.
Franchisees were in some cases being offered extended payment terms to help them through the difficult economy. Conforti added that the managed portfolio, which comprises 2% of the total system, was also seeing "some turmoil".
Due to tough financing for development and difficulties with conversion prospects extricating themselves from existing relationships, the number of rooms in the system at the year end is expected to be below guidance but still slightly positive. Total room count at the end of the quarter was 591,000.
International growth was slower than we would like, admitted Conforti. But the company had added more than 10,000 rooms outside the US in the year to date including 4,900 in China, 2,200 in Canada and 1,400 in the UK.
HA Perspective: Wyndham claimed that its brands were seeing great success, pointing to the increased awareness for Days Inn and Ramada in the UK and its foothold in China where its 30,000 rooms made it the largest US hotelier there.
The challenge ahead for it, however, is cleaning up some of its weaker domestic brands and reinforcing its international presence without deploying large amounts of capital.
The new CFO clearly articulated its approach of focusing on fees. And this absence of "skin in the game" means that international growth will continue to be a long, hard slog.