Q3 2020 Wyndham Hotels & Resorts Inc Earnings Call
Welcome to the Wyndham hotels, <unk> resorts third quarter 2020 earnings conference call.
At this time, all participants have been placed on a western only mode and the floor will be opened for your questions. Following the presentation.
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I would now like to turn the call over to Mack <unk> Senior Vice President of Investor Relations. Please go ahead.
Thank you operator, good morning, and thank you for joining US today with me today are Jeff a lot of your CEO and Michele Allen our CFO.
Before we get started I want to remind you that our remarks today will contain forward looking statements. These statements are subject to risk factors that may cause our actual results to differ materially from those expressed or implied these.
Approximately 80% of our franchisees are now running at occupancy levels above 30%.
We've already received payment on over 70% of the fee deferrals, we provided to our franchisees for the month of March April and May and.
We continue to see our overall cash collections tracking within 10% of prior year levels.
Nevertheless, we know that some small business owners are struggling and may be forced to close without more government support which is why we along with the rest of our industry are doing everything we possibly can to advocate at both the state and federal levels.
Our brands collectively gain more than 300 basis points of market share domestically during the quarter.
This improvement was driven by rising demand and drive to leisure travel during the weekends, which improved 26 percentage points compared to the second quarter combined with a robust return of our everyday business traveler during the weekdays, which increased 19 points compared to the second quarter.
Approximately 70% of our bookings at our hotels are leisure oriented with the other 30% coming from business travel.
Our everyday business traveller is a steady and reliable segment of business travel that has been far less disrupted by the pandemic.
Is the backbone of Americans workforce R. Everyday business travelers have continued to travel and seek a safe and comfortable stay after work day on the road.
Two thirds of our business bookings come from the infrastructure industries, including construction crews utility workers and engineers.
While this travel demand declined 49% in the second quarter, we've experienced a strong rebound in the third quarter with this business down only 24% of 25 point improvement sequentially.
The vast majority of the remaining one third of business bookings that are hotels come from logistics industries, including manufacturing trucking rail and warehouse workers we've.
We've seen similar rebounds in this segment with bookings improving from being down 40% in the second quarter to down 26% in the third quarter of 14 point improvement sequentially.
As a lodging leader for these everyday business travelers, we're not relying on air travel.
Internationally Bounder large convention based corporate travel, which is one reason why our business is uniquely position to continue to outperform.
La Quinta was a beneficiary of the improving trends in our business and leisure travel demand. It was once again, our strongest performing brand growing it's red part index against it's direct competitive set by over 700 basis points.
Globally over 97% of our hotels are now open and is Michelle will cover.
Asia Pacific was our strongest performing region internationally in China, where recovery is already a reality our strongest performing market.
Over 96% of our 1400 hotels in China have reopened and hotel Occupancies have returned to near normal levels.
Room openings, which declined 64% to prior year in the second quarter improved to down 33 per cent in the third quarter.
As we opened 21% more rooms domestically.
And 106% more rooms internationally in the third quarter than we did in the second quarter.
Our domestic pipeline grew 3% sequentially to approximately 66000 rooms.
With a 6% increase in conversion rooms, and a 1% increase in new construction rooms.
Our international pipeline increased 2% sequentially to over 118000 rooms, and it increased 12% to prior year.
Globally, our pipeline grew 3% sequentially to approximately 185000 rooms.
Despite varying degrees of travel restrictions, both domestically and overseas for our development teams, we were encouraged with their ability to execute 152 hotel agreements.
Over 30% more than they executed in the second quarter.
And the United States, We signed 11% more hotel contracts then we sign in the third quarter of 2019.
This double digit year over year growth and domestic executions was driven by a twenty-three per cent increase in conversion signings.
Slightly offset by and expect a decline of 4% and new construction signings versus prior year.
Nevertheless, we were encouraged to see developer demand for twenty-four new construction hotel executions, representing continued interest in our highly efficient microtel moda in La Quinta del Sol prototypes as.
As well as for our new dual branded Laquita Hawthorn suites extended stay prototypes.
We were also encouraged to see six hotels complete construction and open and another seven new construction hotels break ground in the third quarter. Despite the crisis.
None of these sequential revenue.
Adjusted EBITDA or room opening improvements would have been possible without the hard work and dedication of our corporate team members.
Who support our owners around the world and who are now all back to work full time.
Along with our frontline associates, who have gone above and beyond to keep our guests both safe and satisfied.
Throughout the pandemic are overall guest satisfaction in net promoter scores continue to improve.
And what continues to inspire and motivate our teams around the world is just how much has been accomplished throughout this unimaginable crisis with so many members of our organization, both domestically and internationally working remotely.
And it's been encouraging to see consumer confidence and feeling extremely safe, while staying in our hotels dull.
Double from April levels. According to the October travel intention pulse survey conducted by M. M. G y global.
So it's been a tumultuous time for all of us in our industry. Our teams continue to innovate with an eye towards the future with an eye towards maximizing the value we provide to our franchisees.
We recently deployed three state of the art initiatives aimed at increasing bookings that are hotels.
And increasing overall franchisee profitability.
First is part of our broader digital investment strategy. We've recently launched a best in class customer data platform to better enable our teams to compile to visualize into analyzed data from multiple sources and deliver increasingly sophisticated and actionable guest insights.
We can now better understand guests behavior, and preferences and leverage that knowledge to keep them loyal to our brands, which increases direct bookings and lowers overall customer acquisition costs for our franchisees, thereby increasing their profitability.
Investing in our team's understanding of our guests and how we can incentivize them to book direct enhances the return on the marketing dollars we spend.
Second to support our everyday business traveller, we launched a powerful business to business solution called Windham direct.
Business travelers can now simply book on any direct channel, including our new mobile App using a windham direct I D number.
All guest room and incidental charges are now process through our new Windom direct platform with one monthly bill and without the need for company credit cards.
We've also automated the tracking in payment for these business customers and in doing so we're saving them in our franchisees time and money.
This new technology is expected to continue to increase our bookings from both the infrastructure and logistic industries, we service and position as well to capture an increase share of the eventual return of corporate transient business travelers.
And third we launch what we believe to be the fastest mobile app in the industry, providing a first class user experienced that travelers are demanding book.
Booking a room is now easier and faster than ever with Lightning books, three tap booking process powered by geolocation that immediately displays up to three hotels within 15 miles of the guest providing both our leisure and business Road warriors the opportunity to book on the go touch.
[noise] touching face I D removed the friction of authentication and account management, while in stay features anticipate where guests are in the travel journey and allow for remote check in and check out directly from the App, which will be available to the majority of our properties in North America by the end of 2020.
Since its launch in late summer App bookings over September and October are running 4% above prior year as compared to 7% below prior year during July and August and 11 point improvement in such a critical booking channel.
An important element in driving increased direct bookings for our franchisees is are highly engaged 85 million houyhnhnm reward members.
These members of made Wyndham rewards the most rewarding program and the economy in mid scale space. They seek redemption at our 9000 hotels and tens of thousands of aspirational vacation opportunities at Windham rewards affiliated club resorts vacation rentals and marketing partners.
We're incredibly proud of our Wyndham rewards loyalty program and just three weeks ago. The readers of USA today named Wyndham rewards the best Hotel loyalty program in the industry, marking the third consecutive year that we received the highest honor and the hotel loyalty program category above all peers.
And this was also the second consecutive year that the readers of USA today named Wyndham rewards Cobranded credit card, the best travel and hotel card in the industry.
This year's rankings come on the heel of Windham rewards newly announced and updated credit card sweet of new products, including the Wyndham rewards business card. The first Wyndham credit card built for the small business owner staying at Windham properties, who is also spending heavily on marketing advertising utility expenses for which they can now earn.
Stand out five points per dollar spent in.
And the program also provides an industry leading eight points per dollar spent on gas purchases and Wyndham hotel stays.
Despite all of the challenges our industry is facing our drive to lose your focus franchise business has never been better positioned for growth.
Our teams continue to innovate and deliver impressive results in the face of so many obstacles.
Where are deeply appreciative of their faith in our ability to emerge from this crisis is a stronger company.
As we strive to deliver continued support and value for our franchisees and hotel owners.
And with that I'll turn the call over to Michelle Michelle.
Thanks, Jeff Good morning, everyone I'll begin my remarks today with a detailed per view of our third quarter results offhand revenue, our balance sheet and cash flows and provide our best view of 2020 protections.
As Jeff mentioned in the face of continued industry headwinds, we generate at $337 million have for Avenue $101 million of adjusted EBITDA and $110 million of it just it free cash flow our performance with Kevin by the return of leisure demand our everyday business travelers that drive two nature of our part fully.
And our ability to tightly manage costs.
Third quarter revenues, excluding costs reimbursement revenues decreased $144 million or 36%, primarily reflecting 838% decline in global wrap part adjust.
It just it EBITDA declined $89 million from 190 million to 101 million in the third quarter, reflecting the revenue changes, partially offset by a 33% reduction in cost adjusted diluted earnings per share was 36 cents.
Comparable rat park, which is in constant currency and excludes hotels temporarily closed due to COVID-19 declined 35% on a global basis in the third quarter, including declines of 32 per cent in the U S and 43% internationally.
In the U S or select service brands solve wrap part the clients of 30% with two thirds coming from occupancy and one third coming from a D. R. A.
Occupancy picked up 50% in July as this summer travel season button in full swing and consistent with typical seasonality pulled back slightly to 49% in August and 47% in September.
He's occupancy levels translate two year over year reduction of 25% in July 21% in August and 17% in September continuing the sequential improving trends we've experienced since our April Lois and through the week ending October 17th month date occupancy is running at 50%.
80 or has also been performing well in the select surface space since the trough we experienced in mid April 80 are far domestic economy in mid scale brands has steadily climbed from down 23% at its low point to currently down only 12%.
Importantly, we continue to see significant enough price differentials between the chain scale segments to impact decision, making for our value conscious everyday travelers.
Internationally occupancy levels for the third quarter also showed improvement month to month, but third quarter, averaging 34% compared to 19% in the second quarter Port China, where we have our largest presence occupancy declines narrowed considerably from 54% in the second quarter to 33% and the third.
Water and October Must've date, China is nearing 2019 occupancy levels.
Canada, our second largest presidents internationally also saw significant occupancy improvements from down 61% of the second quarter to down 36% in the third quarter a level currently being maintained month to date in October.
Moving to our plant terminations for 2020.
Last quarter, we disclosed that we would be strategically removing 19300 unprofitable noncompliant rooms to better position. The company for a long term success 9200 of these rooms have been removed to date <unk>.
2600 have been retained as we were able to bring these from back into compliance.
The remaining 7500 problems are scheduled for termination in the fourth quarter, though there is potential that some of these problems may also be retained.
Year to date, we have proactively removed approximately 18200, noncompliant underperforming and royalty dilutive rooms from our system about 70% of these rooms were related to master franchisee relationships, where the effective royalty rate with only 1.2%.
As you know we have been deemphasizing master franchise license agreements, given our direct franchise capabilities and growing infrastructure in these markets there.
The remaining 30% include those loyalty properties that have a history of compliance issues as well as hotels that were previously covered by unprofitable managed to make guarantees which would have had a significantly negative impact on EBITDA and 2020, and 2021 had we not negotiated our way out of them last year.
More L. A R exiting noncompliant hotels from our system provides us the opportunity to redeploy operational and financial resources to more engaged franchisees much in need of our support.
And to replace these markets with hotels that are profitable for us and better representation of our brands.
Strategic terminations adversely impacted our net rooms growth by 220 basis points absent, which our system size as of September 30th would have been slightly above last year.
Turning now to cash we ended the quarter with $735 million of cash on hand free cash flow for the quarter was 92 million or 102 million. Excluding special item cash outlay is primarily related to our restructuring actions.
As Jeff mentioned franchisee collection rates are trending within 10% of prior year rates and to date, we've collected better than 70% of the fees. We have previously deferred in support of our franchisees.
The remaining 30% will take some time to work through our cash flows as we are providing our franchisees most in need with extended payment terms.
As mentioned on last quarter's call, we've taken a number of actions to mitigate that revenue losses from the COVID-19 travel disruption.
In the third quarter, we achieved $73 million of cash savings related to these actions or 203 million year to date, we remain on track to deliver the full year target of approximately 255 million as previously discussed.
As expected third quarter cash savings were lower than second quarter as we welcomed our furloughed corporate employees back to work in August and also resumed advertising spend to capture the increasing summer and fall travel demand.
We ended the third quarter with over $1.2 billion of liquidity up from $665 million at the end of the second quarter.
The increase reflects the August bond issuance as well as free cash flow generated in the third quarter, though.
Though our balance sheet had afforded us the luxury of being patient and we weren't compelled to take on additional that the credit markets were too attractive to ignore in August as a result, we raised $500 million of cash by issuing eight year bonds at four and three eight.
100 basis points lower than our inaugural bond issuance in 2018, we attribute this execution to an appreciation for the unique strength and resiliency of our business model. The proceeds from this issuance we're used to repay a portion of our outstanding revolver borrowings.
Our board of directors continue to demonstrate his confidence in our business model and our ability to generate significant cash flow through its decision in August once again, a proof of quarterly dividend, which continues to be unique among our peers in the hotel industry. We expect to recommend a similar dividend for the board to consider in November and tickets.
Or an increase dividend in 2021.
Moving to our best feel a certain operating and financial matrix for the remainder of this year.
Full year 2020, global Revpar is expected to be down approximately 40%. We are updating the rough part sensitivities. We previously provided from an 8 million dollar impact per point to approximately 7.3 million per point.
The 40% Revpar decline assumption this translates to adjusted EBITDA of approximately $318 million to $324 million for the full year 2020.
We are expecting our marketing funds to overspend by approximately $50 million in 2020, the effective which is reflected in our adjusted EBITDA estimated range and.
In a typical revpar environment, we manage our marketing funds to break even on a full year basis, however to optimize franchisees topline production, we elected to maintain advertising spend and revenue generating functions, despite lower revenues, particularly and our seasonally slower fourthquarter.
Note that our accounting for the marketing funds is not comparable to our peers and that we do not remove their negative effect from our results of operations or cash flows.
Hello, adjusted EBITDA, we expect Stock-based compensation of approximately 19 million depreciation and amortization expense, excluding acquisition related amortization expense of 60 to 62 million.
Interest expense of 112 to 114 million and then adjusted tax rate of approximately 29%.
Adjusted EPS is expected to be in the range of 94 cents to a dollar in one sense based on a diluted share count of approximately 93.4 million shares.
Last I'll remind you that we have $5 million a special item cash-out, ladies remaining this year and looking forward to 2021, we expect to move past the current noise of one time charges and cash outlays as we emerge from the pandemic and little further away from our spinoff an acquisition and integration of La Quinta.
In closing our business has showed tremendous resilience through this unprecedented crisis we.
We are innovating our way to increase market share for our hotel owners were strategically removing noncompliant and brands attracting hotels from our portfolio, while building a pipeline of quality assets and we're supporting our franchisees.
Our focus is on the long term success of our brands and our franchisees both of which are uniquely position to continue to outperform through the recovery and well into the future with that Jeff and I would be happy to take your questions operator.
And at this time, if you'd like to ask a question. Please press star and one on your Touchtone phone.
Yeah put any report your question has been answered you may remove yourself from the queue by pressing the pound key again, we do ask that you limit yourself to one question no one followed up thank you.
We'll take today. The first question from Jo Greff with J P. Morgan M. Please go ahead.
Good morning, everybody. Thank you.
Jeff I'd like to start off by just talking about conversions I think we all have it sent in this kind of environment companies like wisdom.
Wisdom, you'll have an opportunity with conversions and it's nice to see that the gross sequentially.
About 14000 rooms quarter over quarter.
Can you give us a sense of what Geography's what brands could you give us more specificity on maybe the drivers of that increase how much of it is.
You'll pull from your development guys or push for third party owners that are dealing with stress and looking to improve ensure up its operations.
And then when would you suspect conversion opportunities or conversion growth in the pipeline might peak or plateau and maybe understanding.
The relationship between if you. If you are segments are at breakeven occupancies, and thereby have less stress and others.
You your conversion opportunity and your target segments does that piece before maybe others in the industry. Thank.
Thank you.
Thanks, Joe and it's the million dollar question. That's out there we were very pleased with our conversion signings picking up or.
Executions sequentially were up 30% domestically and and 60% internationally for convergence, but in terms of when it is going to peak or plateau, there's there's a number of things that I.
Think needs to happen and I think it's it's gonna be a ways away as we worked through extended forbearance in in the hope from so many of our franchisees looking for more stimulus and just Ah Ah sort of lack of deal flow. That's out there I could tell you. This having been out there on the road traveling with our franchisees this quarter that we're having conversations with.
With developers that we've never been able to have before I mean there.
There are so many independent developers that are out there that are are are realizing that.
That that Ah brand could could provide revpar premiums and lower distribution costs and operating cost savings, but they're just not ready to make to make that decision in terms of the signings on conversions in terms of where we were we saw them domestically. They they were really from Ah Ah Ah.
Geographical standpoint, strong in Georgia in Arizona and Florida.
In Texas, There was there was a great pickup and signings.
In terms of our brands there there was great interest in the economy space and travelodge.
And and also in in our basement from a conversion or or or even la quinta people willing to put in key money, but I think it's gonna be a ways away until it's gonna Pinker plateau, and whether that's gonna happen in the fourth quarter of this year or the first and second quarter is is is up for anybody's guess.
Great that's helpful, Jeff and Michelle Uhm I was hoping maybe you can give us.
Not so much for the for this year for the fourth quarter, but just as we come to think about next year, we kind of think about.
The approximate conversion of EBITDA, it's a free cashflow, obviously it was very favorable more favorable than what we had modeled in the <unk> in and you had a sort of nice working capital contribution from that how do you think about that going forward.
And maybe including in that had to think about working capital.
Good morning, Joe you know I I think as we as we move into 2021, obviously, we are working through the budget cycle right. Now so we're not prepared to discuss in detail I would expect to see stronger free cashflow conversion from adjusted EBITDA for the for the full year I don't think that Q3 level.
Walls are going to be the 232020 levels would be representative of a full year 2021 at the at these lower revenue number or some converting at at 60% is is probably not realistic. However that still remains are longer term target and as we approached 2019 levels 20.
19 demand levels, that's where that's where we should we would look to be.
Okay. Thank you guys.
Thanks, Joe Thank you.
Yeah, we'll take our next question from Daddy Assad with Bank of America. Please go ahead.
Hey, good morning, everybody.
I just wanted to follow up on Joe's question from earlier, Jeff You gave really good color on the the puts and takes for 2021.
When it comes to unit growth, but if we boil it all down.
Are you comfortable giving us maybe like a best guess for how 2021 unit growth could shape up.
Thanks, Danny for the question, we are we're not providing a unit growth guidance, but but we are absolutely committed to the 2% to 4% net room growth that we were delivering pre covid and.
I think it's excluding the proactive removals of the low low royalty Noncompliant Master license agreements, which we were delighted to to exit along with the unprofitable management guarantee rooms, you know.
Net room growth would've been flat domestically and it would've been up 4% internationally.
And you know, we're certainly committed to that 2% to 4% and moving that over time to 3% to 5%, but again I think as I said to Joe.
A number of things have to happen to aside from what I mentioned on.
Forbearance and stimulus or deal teams need to be allowed to travel again, they they can't be constrained again, and we're certainly concerned in terms of our European teams being able to get out and about right now and I think again the bid ask need to narrow on on hotels that are going to Trans Act. There is so much significant cash in on the sidelines both with owners.
And with funds.
But there is not yet a lot of transaction, but there certainly is a lot of opportunity with the conversations we're having with the very strong sequential growth in our opens I mean, we opened sequentially 20 per cent more rooms domestically at 100% more rooms internationally and and really strong growth.
And Ah in our pipeline overseas and again good growth in regions.
Year on year, like Southeast Asia, and the Pacific rooms. So.
We're not providing guidance on this call, but we are committed to getting back to that 2% to 4%.
Understood and maybe if I could just sneak when on China. I mean, it was your best performing region, but youre domestic numbers weren't actually that far off from what you put up in China. So, but we don't really have as much granularity over there as we do domestically. So maybe you can you just help us parse out what the performance was for the quarter either.
My Geography's or segments sure and then how can we apply that to.
Recover your spot on.
In terms of.
We we were thrilled with the with the performance in China, but it is a much lower average daily right. When when you look at the 1400 hotels that we have over there less than 20 per cent are in tier one cities and that 80%.
Or another satellite cities to the tier one or more importantly to two and three and four which are are much slower and we run an economy system over there I mean over 70% of our of our 1400 hotels, our economy and it was to your point very.
They're similar but actually better than than here in the United States. If you think of occupancy in China for US. It was down 18 points in August it and prove to down eight points in September and improved a little bit in October as we've been seeing and it was great to see last week's economy occupancy again improve.
And you know I think there's a there's a lot of reasons for that consumer confidence is up.
And and our teams are are out there and they're they're travelling and.
And we're seeing really strong production from them on both both the openings in the pipeline.
Alright. Thank you from thank you.
Uh-huh.
The next question is from David Cats with Jeffries. Please go ahead.
Good morning, everyone morning, Thanks for thanks for taking my questions.
I wanted to go back to La Quinta, and they'll just a little bit deeper.
You know you've made some general commentary about it and some high level metrics, but well you know what else can you share with us about the progress of that Brown. Both in terms of driving unit growth in terms of driving Revpar returns on that investment to the degree that you can you know what.
Your vision for it is.
Your term long term.
Sure Thanks to.
It is as we said in our prepared remarks continues to be throughout this year, our strongest performing brand or a rip her index just continues to grow it was up you know again.
Another.
Seven 800 basis points overall, and and continues to run the highest occupancy in the the highest 80 hours and.
And and it's segment in terms of being able to grow. It again, you know when we began.
We from a franchise standpoint, we have seen seen great growth with.
Executed 103, new deals since acquisition the.
The net unit growth since acquisition is running at 8% and.
The strongest as we've talked about before a measure is franchisee engagement and our attention right with our owners with are looking to owners, who right now or I would say happy with the Revpar index gains that they're seeing our franchise retention rate for the last 12 months still exceeds 98% which is is it.
The top of our.
Of our performance for all of our brands I mean, we're we're really happy with what we're seeing in terms of improved pretension retention in our economy, midscale, but nobody's running higher than a 98% retention rate our pipeline. We continue to see deals are a pipeline increased 3% sequentially.
And and we're seeing growth internationally, we're seeing growth and that's really I guess, our vision is for our teams to continue to be able to execute deals [noise].
Across Latin America is they're doing in Europe Africa and in the Middle East is we've been seeing in and now we're beginning to see signings in in Asia Pacific. So we're really pleased with the performance of the brand I would say Michelle from a from an Rois standpoint, we're feeling good about.
About how we're doing an exceeding everything that we set out to do on the on the synergy side.
Yeah, we we actually are with a cheap they right around the high end of our of our initial synergies actually Ah revise synergies estimate which was taking up taken up from our initial estimate and Tom R. O Y is a little difficult to measure right now just because of the covid impact. So so we we would have to we would have to lie would have.
Kind of kicked that down the road, David a little bit.
Understood and I know you've touched on this a little bit in the opening remarks, but you know thinking ahead, you know a couple of quarters as we get into early next year, you know the concern around franchisee financial health.
You know as you start to kind of normalized those interactions or what what kind of provisions or what discussions you having in anticipation of.
Kind of distrust starting to play a role.
Well I I would say our franchisees are ruled David have been really.
Pleased with the support that we've been providing them first on the deferred fees level with with our property improvement flexibility with some of the brand standard changes that we've made in in certain fixed fees, which we've which was brought down I think you know moving forward with our franchisees or.
Or most interested in is and and what we're spending the most time on is is is.
Trying to get them more support on the on the federal level I mean it is.
The the biggest hope is that that they will have a second drive of of P. P. P.
I'm optimistic that that that still cute could be done before the end of the year I along with the rest of the H L. A officers are hoping that.
There's a chance to to do a stand alone bill attached to the C. R. When Congress comes back and before it has to be signed in in December and I think that along with where they're occupancies are running right now would be the biggest thing in terms of support that that they could take it home for them and certainly we can hope for.
Great. Thank you for taking my questions be well everyone.
Thanks, Dave.
And our next question is from Anthony Powell with Parkways. Please go ahead.
Hi, Good morning, I have a question on the I guess everyday business travel that you talked about earlier in the prepared remarks. This is a higher or lower kind of a <unk> business their leisure and.
Over over time are you trying to increase your mix. It this everyday kind of busy travel beyond 20, 30% or or are you happy with the current level.
Yeah, it's a it's absolutely slightly higher rate Uhm, Anthony and we're we're very happy and when would love to see it increase I mean it is what has we believe as we've talked on the last call on this call really differentiate us from and our brands for from their ability to continue to grow sure.
We we think we're going to continue to see that every business traveller demand increase throughout the fourth quarter and and well into next year. I mean, we talked about the infrastructure business that was down 40 in queue to improving down 20 in Q3, and and and it is picking up and I think most of the network. The cable that utility crews are out there.
They're traveling in full force.
Residential and commercial construction is back in a in a much bigger way was in the third quarter than it was in the second and I think we'll continue and and there are large infrastructure projects that are just starting.
Anecdotally I was on the phone yesterday with one of our Howard Johnson owners, who was telling me about the S. K battery project and.
In in Georgia, I did not know that South Korea battery was building, a 2 million square foot plant and it's begun and his whole who's hotel is full and.
He is running full every night with construction workers that are driving in from Texas, and Alabama, and Louisiana. Those are the boots on the bed that we talk about on the on the infrastructure side on the logistics side that other big piece that we talked about and are prepared remarks, that's certainly benefiting from a pickup and manufacturing I think all you Gotta do is look at the rising.
S M manufacturing index and it supports that.
From an inventory handling and sortation standpoint, again, I think there'll be more deliveries of this this this fourth quarter and then they're they've ever been in.
The rising PMI data supports certainly that that business is picking up but transportation's back trucking is back rail is back and.
You're just another anecdotal standpoint talking to Carol into one of our who leads our global Salesforce. She was telling me that.
One of our big logistic accounts as a leading data collection service company and they're they're out there partnering with with hospitals to streamline inventory supply chains their business increased across our hotels. There are hundreds of our hotel six times versus.
Versus the second quarter, but more importantly, when I pressed her on it it's up 35% your over a year. So our job to your question is for our national sales teams or global sales teams to be out there finding more of these types of accounts and growing that sure.
And right now it you know it's it's it's what's again been really helping US differentiator are Revpar index growth.
And I was going to ask about Jeff that and and I would just add to that really quickly at the.
If the investments that we're making in the business today, specifically Wyndham business. So it just asked me the technology tools and the wind them to Iraq tool is it's it's it's really bare to increase that that set that capture a higher degree of that segments I that segment to spend.
That's a great point.
In terms of the the Revpar commentary for Ya down 40%.
Are you, taking any kind of softening from the increase Toby cases, we're seeing in the us and Europe another geography's in that number.
Our fourthquarter estimate right now is that about 30% to 35% and in in the U S and and globally really and so like we haven't been seeing a significant impact from there from from the Covid spikes, but I think just do you want to add anything to that no I mean it it.
A great question is the question. We're all worried about our franchisees are worried about Anthony it's it's certainly a concern and and we we saw a rising case loads earlier this summer and we were really worried about them and.
<unk> the July 4th would happen in California, and Florida, but you know what happened July was better than than June. It was down 13 point. This is just domestically and then September improved at around 11 points and as we showed in our investor deck that we sent out last night October is running down nine point. So we certainly we're we're looking at.
Both in the top states per.
Per capita north Dakota, South Dakota, Wisconsin.
Or by the number of cases, Texas, Illinois, California, Florida, and we're not yet seeing any any change, but it's it's certainly of concerns and certainly something that our teams are watching.
But thank you.
Thanks Anthony.
And the next question is from Stephen graduate with Goldman Sachs. Please go ahead.
Hey, Thanks, I guess I'm free cash flow, how are you thinking about the guardrails for offering support to existing owners and or even kimani, a new orders as you look to both bolster the base and drive that unit grip.
Any color you can provide specific good how to think about the free cash flow impact from these efforts.
Hi, Stephen as we as we look forward to to 2021 and beyond we are we are expecting him that there will be a good amount of opportunities coming our way Jeff Jeff has a has talked about that I'm on the last couple of quarters on the cost for the last couple of quarters.
And I could conceivably see us doubling our development advance spend from where we currently are which is approximately $20 million. This year I think I think there could be further opportunity beyond that as as we as we move past 2021, but but that that's my best guess 422.
One at this point.
That was dollars would be spent not just to attract new properties into the system, which obviously is a high priority for us but also they also could be spent to to help retain certain properties and our system as well.
And I guess as a quick follow up on that did you anticipate it's gonna be centered on any specific brands changed scales or images.
I I think there there's a probability a high probability that you could see it centered around the some of our new construction brands Microtel, and uhm and La Quinta I think there's also Ah probability you could see it.
Probably more more centered in the U S and and some of the higher Revpar markets. So we can drive higher higher R O eyes for us and for and for our hotel on Earth.
Okay. That's helpful. Thanks, so much will jump back in the queue.
Thank you.
The next question is from Patrick School. The Truest. Please go ahead.
Hi, good morning, everyone.
<unk>.
Jack Michelle you've talked about in the past.
That 40% is the occupancy level rule of thumb, where fees can be paid or has that changed at all of late from where you're worth a and took you.
Hi, Hi, Patrick I, it would be the breakeven level that we we look out for our franchisees is about 30% occupancy and then based upon how they're capitalized it could it could be sometimes a 40%. So I then L. T V up 70%, which is on average where our France.
Iz's are are leveraged or capitalized we expect the majority of them will be able to break even in the low thirties and that has that has not changed.
Our cash flow at Windham hotels is typically breaking even at the 40%.
Okay.
Okay. Thank you My next question and this is.
A difficult one to answer a very high level you know how quickly do you think it will take for your leisure business to get back to Ah 2019 bubble certainly some of the industry.
Gnostic caters out there, saying that that could actually happen by the back half of 2021 I'd like to hear your your thoughts on that.
Yeah, I mean again, we're we're not providing guidance Patrick but you know I I I guess, there's a couple of things that we we certainly look at and and and we're encouraged by I mean consumer demand is increasing.
The the drive to we can get away and the short breaks or increasing we talked last last call about something we continue to look at and one of the things. We're really thrilled with this new imparity customer database that we have is the ability to pull how our guests are traveling and we saw a 20% increase in our guests.
Willing to drive over 400 miles and and and that was encouraging to see.
I think remote work in remote learning, which which we certainly were benefiting from is certainly going to continue throughout the fourth quarter and throughout most of next year and it's it's what really drove when we look at September of Occupancies. I mean, we we ran over 50 per cent in the national parks over 50 per cent along the beaches.
Nearly 60% in in the Mountain States and I think we're gonna see demand shift to the Carolinas, we're seeing that now in Myrtle Beach, Florida, We're seeing that now in the Panhandle and to the Arizona as in California's but you know there. There are two measures that that that that we also look at advance bookings are increasing so that's <unk>.
Urging same same day bookings are coming down and multi night bookings are increasing and something else that we're we're really pleased to see is that our average length of stay are increasing it. It went up three per cent in July it was up 7% and by the end of September and and that type of.
Increase consumer demand as people feel safer.
And are willing to to to travel, we'll we'll certainly continue to support us through.
Through what we're all concerned about right now with the recent Covid spikes.
Okay. Thank you very much for the color.
I expected.
That's questions from in Zaffino with Oppenheimer. Please go ahead.
Okay, great. Thanks, No just totally I'm at last question you know can you actually.
Describe kind of who these leisure customers are what's driving them, what's motivating them and that's sort of how we think about modeling like the recovery of leisure travel and then I have a follow up thanks.
Yeah, sure Hi, Hi, Anne Uhm, there about about a third of our leisure customers are coming from short weekend getaway. So four days or less and then we have then we have another third traveling for for a family visits and until.
So they're going to visit mom or or a visit or visit grandparents for for instance, and then then we also another another large category of our leisure spend is is the stop along a trip so you're headed to a destination and.
And you were gonna stay on one of our hotels for for one night. So those are the three largest categories. After those three groupings that we have you know the the traditional five plus night leisure vacation.
Okay, Great and then as a follow up on just a different topic is is terminations you know how how we modeling that as well you know what can we expect any further terminations going forward any color you could get there will be really helpful. Thanks.
Yeah.
Sure. We are in I think it was actually we had disclose that on on slide eight of our.
Of our Investor presentation. So we do have some ah some additional rooms coming out in in the fourth quarter in connection with our previously announced termination strategic termination strategy and that's so so that should be about 7500 rooms and the fourth.
Quarter, and then there's about 2000 that we identified for 2021 I'm outside of that we you know what that's described that we performed in the second quarter was was very thorough of course, we're going to have franchisees that struggle through covid and what come Nack. What comes next for them remains to be seen as that for good off.
Readers you know with a with a history of of of Ah brand engagement, we're gonna do everything everything we can to help them avoid failure.
Alright, great Uhm really appreciate this thank you very much.
Thank you Ian.
Okay. We can take our last question for Michael Bellisario with Bird. Please go ahead.
Good morning, everyone.
Hey, good morning.
Just on the pipeline sink last quarter, you gave some financing stacks.
The new construction and what your estimate is of who is financing in place.
Where does that stand today, and then have you seen any changes domestically versus internationally over the last 90 days or so.
No we really haven't I I would say you know we scrubbed at really hard last quarter and you know it's in the investor deck in terms of is pretty consistent to what what we.
What we saw at the end of the second quarter I I would say that we've been pleased adding to the pipeline all of the new construction rooms. I mean, we were I think our teams were somewhat surprised to see the amount of interest in some of our new construction brands like our like our microtome moda or or looking to or are dual we've we've now signed 40.
Microtome motives.
And and there are developers out there that are looking for to either repurpose or take advantage of this so we had a we we we saw in domestically in our pipeline, we increased 3% to 66000 rooms.
A big pickup of that of course was in the conversion rooms, but but also in the new construction rooms and.
And then internationally, our our pipeline grew 12 per cent prior year and there was there was great growth and and.
In South East Asia, and again in China in and there was a.
Huge pickup and conversion rooms in China, but also a pickup and new construction rooms in China, it's great to see new construction rooms begin to for break ground again and.
And.
Both internationally and and and domestically.
Our ground breaks new construction in in queue.
Three totaled 24, new construction rooms, and six of those we're we're in the we're in the USA.
Got it and then just to be clear, though the percentage of your pipeline that's new construction that has financing in place.
What you said is really no change no changes verses two okay got it and then.
The second question I think you may be commented on it maybe a little qualitatively at the beginning but cause I wanted to ask differently.
On your signings in the quarter.
Give us a breakdown of what was with an existing franchisee versus new franchisee signings and how that split maybe I was turn it over time or how you expect it to maybe change going forward.
I would say more new signings, then with existing franchisees Michelle would you agree with that.
I I I would agree with that and I I think that's something we can follow up on and get more specific data points, but.
But I don't I don't know if you haven't seen much of a change there.
[laughter].
Okay. Thank you.
Okay does it appears we have no further questions I'll return, the Florida, Joe philosopher closing remarks alright.
Alright, thanks, very much Keith and and thanks, everyone for your time today, we we very much hope you'll go out to the App store and download and review our new mobile booking up on your I phone her head Android device. It is one gorgeous looking booking up Michelle Matt and I are very much look forward to speaking with many of you in the weeks ahead and more importantly, hopefully meet.
With your face to face in the not too distant future take care of everybody and thanks again.
And this will conclude today's program. Thanks for your participation you may now disconnect have a great day.
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