PART I
Forward-Looking Statements
This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These statements include, but are not limited to, statements related to our expectations regarding our strategy and the performance of our business, our financial results, our liquidity and capital resources and other non-historical statements. Forward-looking statements include those that convey management’s expectations as to the future based on plans, estimates and projections and may be identified by words such as “will,” “expect,” “believe,” “plan,” “anticipate,” “intend,” “goal,” “future,” “outlook,” “guidance,” “target,” “objective,” “estimate” and similar words or expressions, including the negative version of such words and expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of Wyndham Hotels to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Factors that could cause actual results to differ materially from those in the forward-looking statements include without limitation general economic conditions, the performance of the financial and credit markets, the economic environment for the hospitality industry, operating risks associated with the hotel franchising and management businesses, the impact of war, terrorist activity or political strife, risks related to our spin-off as a newly independent company and risks related to our ability to obtain financing as well as the risks described under Part I, Item 1A - Risk Factors. Except as required by law, Wyndham Hotels undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, subsequent events or otherwise.
Where You Can Find More Information
We file annual, quarterly and current reports, proxy statements, reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and other information with the Securities Exchange Commission (“SEC”). Our SEC filings are available free of charge to the public over the Internet at the SEC’s website at https://www.sec.gov. Our SEC filings are also available on our website at https://www.wyndhamhotels.com as soon as reasonably practicable after they are filed with or furnished to the SEC. We maintain an internet site at https://www.wyndhamhotels.com. Our website and the information contained on or connected to that site are not incorporated into this Annual Report.
Item 1. Business.
OUR BUSINESS
Wyndham Hotels & Resorts, Inc. (“Wyndham Hotels”, the “Company”, or “we”) is the world’s largest hotel franchisor, with nearly 9,200 affiliated hotels located in over 80 countries. We license our 20 renowned hotel brands to franchisees, who pay us royalty and other fees to use our brands and services. We are the leader in the economy and midscale segments and have a growing presence in the upscale segment of the global hotel industry. We have grown our franchised hotel portfolio over time both organically and through acquisitions, and we have a robust pipeline of hotel owners and developers who have executed franchise agreements for our brands. Wyndham Hotels became an independent public company in May 2018 when it was spun-off from Wyndham Worldwide Corporation (“former Parent”). In 2018, Wyndham Hotels generated revenues of $1,868 million, net income of $162 million and Adjusted EBITDA of $507 million. (See Item 6. Selected Financial Data for our definition of Adjusted EBITDA and the reconciliation of Net Income to Adjusted EBITDA.)
We enable our franchisees, who range from sole proprietors to public real estate investment trusts, to optimize their return on investment. We drive guest reservations to our franchisees’ properties through strong brand awareness among consumers and businesses, our global reservation system, our award-winning Wyndham Rewards loyalty program and our national, local and global marketing campaigns. We establish brand standards, provide our franchisees with property-based operational training and turn-key technology solutions, and help reduce their costs by leveraging our scale. These capabilities enhance returns for our franchisees and therefore help us to attract and retain franchisees. With over 5,900 franchisees, we have built the largest network of franchisees of any global hotel company.
Our portfolio of global brands enables us to franchise hotels in virtually any market at a range of price points, catering to both our guests’ and franchisees’ preferences. We welcome over 150 million guests annually worldwide. We primarily target economy and midscale guests, as they represent the largest demographic in the United States and around the world. We have
the leading position in the economy and midscale segments of the hotel industry, where our hotel brands represent approximately two of every five branded rooms in the United States. Approximately 70% of the hotels affiliated with our brands are located in the United States and approximately 30% are located internationally. The following table summarizes our brand portfolio as of December 31, 2018:
Our business model is asset-light, as we generally receive a percentage of each franchised hotel’s room revenues but do not own the underlying properties. Our business is adaptable to changing economic environments due to a low operating cost structure, which, together with our recurring fee streams and limited capital expenditures, yields attractive margins and predictable cash flows. Our franchise agreements are typically 10 to 20 years in length, providing significant visibility into future cash flows. Under these agreements, our franchisees pay us royalty fees and marketing and reservation fees, which are based on a percentage of their gross room revenues. We are required to spend marketing and reservation fees on marketing and reservation activities, enabling us to predictably match these expenses with an offsetting revenue stream on an annual basis. We also license the “Wyndham” trademark and certain other trademarks and intellectual property to Wyndham Destinations, Inc. (formerly known as Wyndham Worldwide Corporation) through a long-term license agreement under which we receive royalty fees. In addition to hotel franchising, we are a leading hotel management company. Our portfolio of managed hotels includes 438 third-party-owned properties and two owned properties. Virtually all of the hotels in our system are franchised to third parties, and substantially all of our Adjusted EBITDA is generated by our Hotel Franchising segment.
We pursue multiple avenues of growth to generate returns for our stockholders. We use our scale, brands, guest loyalty, franchisee network and sales capabilities to add new hotels to our system. Our long-established franchising experience and ability to innovate, together with favorable macroeconomic and lodging industry fundamentals, continue to support our organic growth around the world. Additionally, we intend to use our cash flow to continue to return capital to stockholders and to invest in the business and pursue external growth opportunities.
Our Competitive Strengths
We believe our success has been and will be driven by significant competitive strengths that we have developed over time:
Industry-leading footprint in the hotel industry
Wyndham Hotels is the world’s largest hotel franchisor, with nearly 9,200 affiliated hotels in over 80 countries as of December 31, 2018. Our brands have substantial presence, welcoming over 150 million guests annually worldwide. The following chart presents the number of branded hotels associated with each of the six largest hotel companies:
Global Hotel Companies by Number of Branded Hotels as of September 30, 2018
* As of June 30, 2018.
Source: Companies’ public disclosures.
Our scale enhances brand awareness among consumers and businesses and provides numerous benefits to franchisees. Our global reservation system, extensive distribution network and award-winning Wyndham Rewards program drive over 65 million guest reservations annually to our franchisees. We also help our franchisees reduce overall costs through our marketing campaigns, technology solutions and purchasing programs with third-party suppliers. Our ability to provide these benefits helps us to attract and retain franchisees.
Strong portfolio of well-known brands
We have assembled a portfolio of 20 well-known hotel brands, from leading economy and midscale brands such as Super 8, Days Inn and La Quinta to upscale brands such as Wyndham and Dolce. Our Super 8 brand, with over 2,800 affiliated hotels, has more hotel properties than any other hotel brand in the world. Our brands are located in primary, secondary and tertiary cities and are among the most recognized in the industry. Over 80% of the U.S. population lives within ten miles of one or more of our affiliated hotels. Furthermore, with the addition of the “by Wyndham” endorser, our brands now enjoy even higher awareness.
Our brands offer a breadth of options for franchisees and a wide range of price points and experiences for our guests, including members of our award-winning Wyndham Rewards loyalty program. Our brands have also won numerous industry awards, both for guest satisfaction and as franchise opportunities for entrepreneurs. With many of our affiliated hotels located along major highways, our brands not only drive online and telephone reservations to hotels, they also help attract guests on a “walk-in” or direct-to-hotel basis.
Global leader in the economy and midscale segments
We have built a leading position in the economy and midscale segments of the hotel industry, with our brands representing approximately 40% of both U.S. economy and U.S. midscale hotel inventory. Our central reservation channels generate nearly half of our franchisees’ occupied room-nights annually and over 60% of guests at our franchised hotels in the United States. In addition, we have substantial experience in property design, hotel management training, establishing brand standards, advertising, structuring promotional offerings and online marketing for economy and midscale brands. Our economy and midscale brands are consistently highly ranked in J.D. Power’s North American Hotel Guest Satisfaction Index Study for those segments.
Our strength in the economy and midscale segments is attractive to potential franchisees and positions us well to benefit from favorable demographic and consumer demand trends. According to the Brookings Institution, just over 50 percent of the world’s population, or some 3.8 billion people, is considered part of the global middle class. As this population increasingly participates in the global travel and leisure industry, we expect the economy and midscale segments will be a natural entry point.
Award-winning loyalty program
Wyndham Rewards, our award-winning loyalty program, is a key component of our ongoing efforts to build consumer and franchisee engagement while driving more guest reservations directly to our affiliated hotels. Approximately 61 million people have enrolled in Wyndham Rewards since its inception, and substantially all 9,157 hotels affiliated with our hotel brands participate in the program. In addition, over 25,000 vacation ownership and rental properties participate in the program. Wyndham Rewards generates significant repeat business by rewarding frequent stays with points. Since being redesigned in 2015, Wyndham Rewards has been recognized as one of the simplest, most rewarding loyalty programs in the hotel industry, providing more value to members than any other program. It has won more than 60 awards, including “Best Hotel Loyalty Program” from US News & World Report, “Best Hotel Loyalty Program” in USA TODAY, “10 Best Readers’ Choice Awards”, “Most Rewarding Hotel Loyalty Program” from IdeaWorks and the #1 ranking on WalletHub’s list of “Best Hotel Rewards Programs” in 2018 for the fourth consecutive year.
Wyndham Rewards loyalty program members now account for approximately one-third of occupancy at our affiliated hotels. Total membership has been growing by over 10% annually for the past six years. Our franchisees benefit from the program through increased guest loyalty and the more than one million room-nights for which award points were redeemed for each of the past two years. These members are an important driver of our growth, as they spend nearly twice as much as non-members, on average.