Choice Hotels International’s unsolicited bid for Wyndham Hotels & Resorts is now in its fifth month with neither side retreating. Wyndham made that eminently clear on its fourth-quarter and full-year 2023 earnings call, which was overshadowed by what Wyndham Hotels & Resorts CEO Geoff Ballotti referred to as Choice’s inadequate offer, which triggered a litany of onerous requests upon Wyndham by the Federal Trade Commission, Ballotti said, and subsequent cost to Wyndham shareholders.
According to Ballotti, Choice’s unsolicited offer has already cost the company real money, to the tune of an estimated $75 million, which includes approximately $15 million related solely to the FTC review. “The potential value destruction that could arise from this ongoing and elongated process remains significant,” he said.
On January 11, shared Ballotti, Wyndham received a second request from the FTC requiring the company to provide what he called “virtually every communication and every piece of data that relates in any way to our competition with Choice.”
Wyndham said these asks include more than 300 different work streams and data requests, laid out in a 44-page letter it received from the FTC. Wyndham Hotels & Resorts CFO Michele Allen added further color, listing one example that included the FTC asking for every bid Wyndham ever provided for any franchise service, by brand, over the past five years. “The initial interim and final bids for each deal is so broad,” she said. “It’s asking for all factors considered in establishing the pricing for those bids. It’s a tremendous effort.”
Beyond the FTC scrutiny, Wyndham reported that the muddled situation has impacted development. “We’ve seen both deals and ground breaks pause as many of these small business owners want to see this resolved,” Ballotti said.
Wyndham from the jump has held steadfast to its rejection of Choice’s bid around three reasons: 1) the inadequacy of the value of the offer compared with its future growth prospects; 2) the significant amount of Choice stock included in the consideration mix; 3) the asymmetrical risks to Wyndham and its shareholders resulting from a prolonged and an uncertain regulatory review.
Choice Hotels will report its fourth-quarter and full-year earnings on February 20.
Wyndham’s Quarter/Year
Beyond the kerfuffle, Wyndham reported net income of $289 million for the year, $66 million less than in 2022. Fourth quarter global RevPAR declined 1% compared to 2022, reflective of a 4% decline in the U.S. and growth of 7% internationally. For the full year, global RevPAR grew 5% compared to 2022.
Wyndham reported that its global development pipeline grew by 10% to an all-time high of 240,000 rooms. It opened 66,000 rooms in the year, a year-over-year increase of 3%, and its largest organic room growth in the company’s history. Ballotti emphasized the record in the shadow of transaction volumes that were off by some 50% last year—the less hotels trade hands, the less opportunity to convert a hotel to another brand family.
Wyndham’s global retention rate, which includes all terminations, reached 95.6% for the year, a 30-basis point YOY improvement.
Shift to Higher Fee Business
Wyndham’s business has traditionally been in the midscale to economy segments, which drive the higher RevPARs seen in the higher chain scales, which also tend to exist in gateway markets—a Howard Johnson off a highway will not record higher RevPAR than a Residence Inn in Manhattan (or even a Howard Johnson in Manhattan, for that matter). Though Wyndham’s biggest share of business remains in the those segments (Wyndham, for example, executed around 270 Echo Suites Extended Stay by Wyndham deals in 2023), one of the company’s major shifts is into higher RevPAR and fee PAR brands and markets.
Wyndham opened 500 new hotels in 2023, but Allen stressed that it was the caliber of hotels it welcomed to the system and the sort its adding to the pipeline. “We’re getting more exposure to the top 25 [metropolitan statistical areas] in line with our strategy of increasing our footprint in higher RevPAR markets and fee markets and brands,” she said, including cities such as Chicago, San Diego and Phoenix. “We’re able to do that because we’re deploying more dollars per key in those high RevPAR markets.”
Part of the way that Wyndham is generating that business is through incentives, mainly key money, which is an up-front payment by a franchisor to an owner to secure a franchise agreement. “A good part of that is the ability to use key money to attract those hotel owners into the system,” Allen said.
In January, Wyndham signed a partnership with Sam Nazarian’s sbe to launch a new brand with the working name Project HQ, in what is being billed as “smart lifestyle.” Though still in early stages, the idea is to have 50 opened by 2030. It’s a brand that will likely be in a higher chain scale than Wyndham’s core brands. Pricing for the product would be more in the range of $250 to $500 a night, Ballotti said, “which our dual-income guests can increasingly afford.”