• Wyndham to pursue brand growth

Wyndham Worldwide, which last week reported a 10% increase in revpar in the fourth quarter, said that it would continue to pursue its strategy of expanding its brand presence.

In the past year the group has bolstered its stable with, amongst others, the Tryp brand, which it acquired from Sol Melia, in addition to signing deals to licence the Planet Hollywood brand and franchise the Dream and Night brands.

The group said that it would continue to grow its system, under Wyndham Hotel Group, and increase revenues through brand affiliations which, CEO Stephen Holmes said, would allow it to increase its overall presence "with little or no capital investments".

In a conference call, Holmes said that the acquisition of the James Villa Holiday brand in November had given it "geographic and product expansion, growth opportunities in Europe" providing scale in Spain and Portugal and good representation in Greece.

While Wyndham spent much of 2010 looking outside its existing stable to strengthen the range of brands that it would be able to offer owners in the future, Holmes said that the group was also keen to grow its Wyndham Hotels and Resort brand.

Wyndham brand openings were up over 60% in 2010, with 2,000 rooms added in the fourth quarter, in locations including Orlando and Chicago, as well as international openings, including Mexico, Panama and Australia.

Holmes was confident of growth in the current year, commenting that the outlook in the hotel owner community had "significantly improved", adding that the company expected asset trading "to increase in 2011 as the credit markets continue to improve". Revpar growth that the company had seen in the US was also expected to gain momentum globally.

Revenues at the hotel group were up 9%, Ebitda increased 25% and margins improved over 300 basis points. In the US, revpar improved 8%, with the majority coming from occupancy gain. With other operators in the hotel market seeing rate increases, Wyndham said that it was looking to 2012 to see growth in rate. In constant currency, revpar in China and the UK grew 18% and 13%, respectively. The UK, China and UK represent 84% of the group's total system, which is set to change as the group looks to expand its brands overseas, both organically and through acquisitions.

Excluding the Tryp acquisition, the group opened over 54,000 rooms in 2010 and terminated approximately 52,000, half of which it attributed to financial difficulties amongst franchisees. CFO Tom Conforti said that the group expected "these types of terminations to moderate over time as the economy continues to recover. In general, retaining our strong franchisees remains a key priority for our lodging business".

In addition to the company's hotel business, the 6.9% increase in fourth-quarter earnings was attributed to the group's timeshare business, Wyndham Vacation Ownership, which ended the year with adjusted Ebitda of 32% above 2009. vacation ownership interest sales rose 9% after falling 21% a year earlier, with the increase was attributed to 13% growth in tour flow.

Holmes commented: "While credit markets for timeshare developers are still in the recovery process, sentiment among developers … was markedly positive."

During the year Wyndham generated $600m of free cash flow, which it spent on dividends, buybacks, and acquisitions. The group said that it would continue to strengthen its financial position, with Holmes adding that the group would look to "continue to deploy free cash flow to create more value for our shareholders in 2011 through acquisitions, share repurchases and dividends".

Despite the Q4 increase, the markets were disappointed that the recovery was not as strong as that reported by Starwood Hotels & Resorts in the previous week and the group saw its share price drop by 2% after the announcement.

Fred Lowrance, analyst with Avondale Partners, described the group as the most acquisitive of the hotel groups, excluding Reits and commented: "They will perform just fine considering their bias towards mid- to lower-tier hotels and their focus on leisure travellers".

 

HA Perspective: It is easy to forget that Wyndham is a timeshare company with a hotel franchise business attached given the scale of the company's hotel franchise operation, the biggest in the world on some measures.

The timeshare focus, which sees Wyndham make money out of both selling timeshare and via its exchange programme formerly called RCI, means Wyndham is skewed to the leisure market. This is a challenge given the fastest recovery right now is in corporate travel rather than leisure.

With timeshare related sales at 80% of total revenue, it is interesting that the company has moved to re-label itself under a hotel brand rather than anything to do with timeshare or even the more euphemistic vacation ownership.

This naming decision should at least give the hotel company reassurance that it is fully joined to the greater whole. More worrying though is the lack of capital commitment to grow this same hotel business.

Rather than buying up brands, Wyndham ought to be focused on cleaning up its existing portfolio. This is a longer term, less immediately rewarding, exercise. But ultimately it is where there is the opportunity to build the greatest value.

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