Wyndham Hotels & Resorts, Inc. — Fiscal 2020 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2020, including fourth-quarter results. Wyndham is an asset-light hotel franchisor and manager with 20 brands, 8,941 affiliated properties, approximately 795,900 rooms, and operations in nearly 95 countries. Only two hotels are owned. The business was materially affected by COVID-19, travel restrictions, reduced occupancy, and lower hotel revenue per available room (RevPAR).
The portfolio is concentrated in economy and midscale, select-service, highway, suburban, and small-market hotels. Approximately 70% of bookings are from leisure customers, 30% from business travel, and less than 5% from corporate or group business.
Financial and operating metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Net revenue | $1.300 billion | $2.053 billion | Down 37% |
| Operating income/(loss) | $(46) million | $307 million | Down $353 million |
| Net income/(loss) | $(132) million | $157 million | Down $289 million |
| Diluted EPS | $(1.42) | $1.62 | Declined |
| Adjusted EBITDA | $327 million | $613 million | Down 47% |
| Operating cash flow | $67 million | $100 million | Down $33 million |
| Capital expenditures | $33 million | $50 million | Down $17 million |
| Cash and cash equivalents | $493 million | $94 million | Up $399 million |
| Total debt | $2.597 billion | $2.122 billion | Up $475 million |
| Global RevPAR | $24.51 | $40.92 | Down 40% |
Hotel Franchising generated $863 million of revenue and $383 million of adjusted EBITDA, down 33% and 38%, respectively. Hotel Management generated $437 million of revenue and $13 million of adjusted EBITDA, down 43% and 80%, respectively. Cost-reimbursement revenue accounted for $350 million of 2020 revenue and was substantially offset by corresponding expenses.
Year-end liquidity included approximately $1.2 billion of cash and additional borrowing capacity. The $750 million revolving credit facility had no borrowings and $735 million of available capacity, net of $15 million of letters of credit. The principal debt components were a $1.554 billion term loan due 2025, $496 million of senior notes due 2026, $492 million of senior notes due 2028, and $55 million of finance leases.
Cash dividends declared totaled $53 million, or $0.56 per share, consisting of $0.32 per share in the first quarter and $0.08 per share in each of the next three quarters. The company repurchased $45 million of stock before suspending repurchases on March 17, 2020.
Material changes versus the prior comparable period
- Global RevPAR declined 40%; U.S. RevPAR declined 35% and international RevPAR declined 52%.
- Net rooms declined 4% to 795,900, primarily because of strategic terminations, termination of unprofitable management arrangements, and hotel sales by a strategic partner. Approximately 26,700 rooms were removed in unusual termination events.
- Revenue declines included $152 million of lower royalties and franchise fees, $192 million of lower marketing, reservation and loyalty fees, $61 million of lower management and other fees, and $47 million of lower license and other fees.
- Expenses declined 23%, aided by lower cost-reimbursement, marketing, operating, and general and administrative expenses, but the reduction was insufficient to offset the revenue decline.
- The company recorded $206 million of net impairment charges, primarily related to trademarks and goodwill, compared with $45 million in 2019.
- The company recorded $34 million of COVID-19-related restructuring charges and eliminated 846 positions. Expected annual savings from restructuring are $50 million to $55 million.
- In August 2020, the company issued $500 million of 4.375% senior notes due 2028, receiving net proceeds of $492 million. It repaid the remaining $234 million drawn under the revolving credit facility in November 2020.
- Cash flow from operations remained positive but declined to $67 million, while investing cash outflows decreased to $31 million because of lower capital spending.
Guidance, outlook, commentary, risks, and unusual items
Management did not provide a quantified 2021 revenue or earnings forecast in the filing. It expects approximately $40 million of 2021 capital expenditures and approximately $40 million of development advance spending. The company expects cash needs to be funded through cash on hand, operating cash flow, and revolving-credit availability.
Management believes the economy and midscale portfolio, leisure exposure, drive-to locations, and limited reliance on international, corporate, and group travel position the company for recovery. However, the timing and strength of recovery remain uncertain, and normal hotel seasonality may not resume predictably.
- COVID-19 remains the principal risk, including renewed outbreaks or variants, travel restrictions, reduced demand, hotel closures, franchisee distress, bankruptcies, additional impairments, and constrained access to capital.
- The April 2020 credit amendment waived quarterly leverage testing until April 1, 2021, imposed a minimum liquidity covenant of $200 million, restricted share repurchases, and limited dividends to $0.16 per share or potentially $0.01 per share if liquidity fell below $300 million.
- Approximately $1.1 billion of the term loan was hedged with interest-rate swaps. Variable-rate borrowings net of swaps totaled $464 million; a one-percentage-point rate change would affect annual interest expense by approximately $5 million.
- CorePoint accounted for approximately 25% of total revenue and approximately 70% of managed hotels, creating counterparty and concentration exposure.
- The company identified approximately 40 sex-trafficking-related cases naming the company or subsidiaries but could not estimate potential losses. Recorded legal reserves were $4 million, and aggregate exposure in other legal proceedings could be up to approximately $6 million above recorded accruals.
- The company provided approximately $127 million of post-closing credit support guarantees related to the former parent’s sale of its European vacation rentals business. The company’s allocated share of related losses is generally one-third.
- Wyndham Rewards liabilities totaled $81 million at year-end. A change in redemption assumptions produced a $16 million cumulative increase in loyalty revenue during the second quarter.
- The company’s auditor issued an unqualified opinion and concluded that internal control over financial reporting was effective as of December 31, 2020. Critical audit matters included trademark impairment and loyalty-program liabilities.
Most important facts for investors to verify
- Whether lodging demand and RevPAR recover sufficiently to restore royalty, management, and loyalty fee revenue.
- The company’s ability to maintain covenant compliance after the temporary leverage-test waiver expires and to refinance or repay the 2025 term-loan maturity.
- Whether additional impairment charges could arise for the $1.2 billion trademark balance, $1.525 billion of goodwill, and other intangible assets.
- The financial health, retention, and bankruptcy risk of franchisees and hotel owners, particularly CorePoint and the China Super 8 master franchisee.
- The timing and terms of dividend normalization and reinstatement of share repurchases after debt-agreement restrictions expire.
- Potential cash exposure from litigation, guarantees, indemnities, hotel-management disputes, and tax matters.
- The assumptions supporting Wyndham Rewards redemption liabilities and future loyalty revenue recognition.