Wyndham is currently divided into three business lines:
- Wyndham Hotel Group: Almost entirely a low capital requirement franchise business, Wyndham has over 8400 hotels in its stable which primarily skew to economy and midscale brands. Their brands include the namesake Wyndham, along with brands well known to those that travel US interstates like Super 8, Days Inn, Ramada, Howard Johnson, Baymont and Travelodge. Franchise fees are usually structured with an initial on-boarding fee, plus a percentage of revenues royalty irrespective of the underlying profitability of the hotel making the business less cyclical than the hotel operator REITs. The essential components of the hotel management business are the number of rooms in your system and the revenue per available room (RevPar), both of which have been growing for Wyndham's hotel group. To illustrate where Wyndham's brands are on the hotel segment landscape, the RevPAR for the entire in U.S. lodging industry was $83.57 in 2017, Wyndham's RevPAR was $37.63 for the same period. Management guidance has this segment projected to do $445-$455MM of EBITDA in 2018.
- Wyndham Destination Network: Wyndham operates the largest timeshare exchange network, RCI, which allows members (for an annual fee plus transaction fees) to trade their weeks or points in their own timeshare for another. This is another low capital requirements business, but faces headwinds as consolidation across the timeshare industry has lessened the need for exchange networks. Smaller or one off timeshare developers would typically give away an RCI membership in order to entice a sale, sell that the owner on having the option to be apart of a greater exchange network. As larger brands entered the space, they've created their own exchange network ecosystems putting pricing pressure on RCI and their main competitor, Interval Internation (ILG's exchange network). Management guidance has this segment projected to do $265-$275MM of EBITDA in 2018.
- Wyndham Vacation Ownership: Wyndham is the largest timeshare business globally, they have 221 resorts under management representing 25,000 units and 878,000 owners. Their model is almost entirely points based giving timeshare owners flexibility in how they book their vacation, plus more importantly to Wyndham it makes it easier for a current timeshare owner to upgrade/buy additional points than it would be to sell the same owner additional weeks under the old model. Like everyone else in the industry, Wyndham has moved to a less capital intensive model where 80% of the units sold in 2017 were not developed by the company, instead buy a developer or via a just-in-time purchase of inventory. Additionally, Wyndham provides financing to timeshare owners and then securitizes these loans in the ABS market. Management guidance has this segement projected to do $735-$750MM of EBITDA in 2018.
In order to come up with the post-spin picture, I took management's guidance and added the impacts of the European vacation rental business being sold (but it's already excluded from EBITDA guidance), the purchase of LQ's management business (and varying synergies levels), a potential 5% timeshare royalty to the spinoff, and then added some additional overhead to account for running two separate public companies.
If you're interested in WYN and in the Chicago area, we're covering WYN on 3/19 at the CFA Chicago meeting I co-host every month, details here: https://specialsituationsresearchforum.wordpress.com/meeting-registration/
Disclosure: I own shares of WYN