JUST TWO MONTHS after Wyndham Hotels & Resorts Inc. acquired La Quinta Inn & Suites franchise business, Wyndham CEO Geoff Ballotti said Wyndham will expand the brand’s name.
During a second-quarter earnings call on Aug. 1, Ballotti told analysts, “The La Quinta franchise advisory board said it wants the brand to be known as La Quinta by Wyndham as soon as possible.”
Not every owner, however, is pleased with the plan. Imesh Vaidya, CEO of Premier Hospitality in Albuquerque, New Mexico, and owner of a La Quinta Inn & Suites in Clovis, said he and other franchisees are “disappointed” that Wyndham will not help all La Quinta franchisees pay for the new signs. “Quite a few of us are frustrated,” Vaidya said.
More than 300 franchised hotels are owned by CorePoint Lodging Inc., a new REIT formed in a May 30 spinoff from La Quinta. The nearly 600 others are owned by individual franchisees.
Owners have completed or are finishing up a previously mandated PIP called LQ Up, which includes new signage. The PIP deadline is the end of this year. In addition, a lot of new La Quintas have been developed and opened this year. The owners now face an “unplanned expense” to adhere to Wyndham’s new sign requirements, Vaidya said.
At its brand conference in April, eight weeks before it closed on its $2 billion acquisition of La Quinta’s franchising and management businesses, Wyndham announced it would add its name to 12 of its brands. Ballotti on Aug. 1 called the brand extension, “a strategic decision” by Wyndham. “It helps guests understand which brands belong to the Wyndham Rewards program. We expect a halo effect that will elevate our economy brands. Online searches are up 10 percent and conversion rates are up.”
During the brand conference, Ballotti said Wyndham would seek the approval of La Quinta’s franchise advisory group before mandating a name change. If the owner representatives reject adding ‘by Wyndham’ to its signs, Ballotti said, “I will view it … as a failure on our part.”
Vaidya said he understands what Wyndham is trying to do by adding its name to the La Quinta brand, but he fears the unexpected cost will harm some franchisees’ business.
“We don’t mind adding ‘by Wyndham’ to our signs, but we have suggested that Wyndham follow the lead of other franchisers such as Hilton, which paid for the signs when it added ‘by Hilton’ to Hampton Inn,” he said.
It can cost up to $6,000 to change signs at a hotel, Vaidya said. Installation can run $1,500 to $2,000 and, depending on the square footage, a new sign can cost $1,000 to $4,000.
Owners also suggested that Wyndham negotiate a price with one or two sign vendors, Vaidya said. But instead the franchisees are responsible to shop around on their own.
Wyndham said it will finance the cost of new signs if a La Quinta rates 4.5 points or higher on TripAdvisor. It is the same offer made to owners of the other 12 brands. But not every La Quinta Inn or La Quinta Inn & Suites will qualify, Vaidya said. “We are disappointed in the sense that we thought Wyndham would be more receptive to what other franchisers have done.”
Integrating the Brand
Ballotti told analysts on Aug. 1 adding the brand name extension is part of Wyndham’s plan to quickly assimilate La Quinta into its company. By early next year, Wyndham hopes to have integrated all La Quinta hotels with its PMS and CRS technology platforms as well as with its loyalty program. Ballotti said Wyndham Rewards has 58 million members enrolled. La Quinta’s program has 13 million.
The second-quarter earnings call is the first since Wyndham Hotels Group spun off from Wyndham Worldwide on May 31, becoming Wyndham Hotels & Resorts Inc., an independent publicly traded company.
Besides acquiring La Quinta on May 30, Wyndham in mid-May sold its Knights Inn economy brand to Red Lion Hotels Corp. for $27 million. The franchise portfolio totals 350 hotels. Wyndham Hotels & Resorts system grew year over year by 12 percent in in the quarter ending on June 30. Excluding the La Quinta and Knights Inn deals, its system grew by 3 percent.
The company expects organic room growth this year to range from 6 percent to 8 percent.
Ballotti said La Quinta has significantly fueled the company’s overall growth in rooms and revenue as well as its development pipeline.
In the second quarter, Wyndham’s global development pipeline increased to nearly 1,400 hotels and more than 171,000 rooms, a 13 percent year-over-year room increase. The total reflects “the addition of 24,000 La Quinta pipeline rooms and the removal of 2,000 Knights Inn pipeline rooms,” Wyndham reported. “Approximately 51 percent of our pipeline is international and 70 percent is new construction.”
Ballotti told analysts La Quinta comprises 75 percent of its domestic pipeline. “The La Quinta pipeline is 90 percent new construction,” he said. “Developers want to do more, including those building our other brands.”
Since acquiring La Quinta, Wyndham has signed 15 new licensing agreements and broke ground on 10 hotels in the pipeline. The La Quinta pipeline has grown from 250 to 266, Ballotti said. “It’s an all-time high for the brand’s pipeline.”
David Weisner, CFO at Wyndham Hotels, said there are many markets in the U.S. where La Quinta is under-represented. The company also plans to expand La Quinta into international markets, he said.
Wyndham’s total revenue increased by 31 percent to $435 million compared to second quarter 2017. Adding to the amount was $77 million in incremental revenue from La Quinta. Overall, Wyndham’s revenue increased 8 percent because of higher royalty and franchise fees and a 17 percent increase in marketing, reservation and loyalty fees. Also adding to the revenue boost were fees franchisees paid to attend April’s global conference.
Net income was $21 million, a drop from the $48 million reported in 2Q17. Wyndham attributed the decrease to costs associated with the split and the acquisition of La Quinta.
Ballotti said Wyndham plans to grow both organically and through more acquisitions. Last fall, it acquired AmericInn for $130 million, adding 200 hotels to its portfolio. Wyndham calls it a tuck-in, where a smaller brand can easily assimilate into a larger company.
Those are the kind of deals Wyndham will continue to sniff out.
“There are still several single-brand companies and many regional-brand players that fit,” Ballotti said. “These are established, well-perceived brands with market opportunities. They are immediately accretive, with no owned real estate.”
As with AmericInn and La Quinta, Wyndham favors new-construction brands. By acquiring La Quinta, Wyndham “has inherited a new-construction team, and a design and architectural team,” Ballotti said. “These folks are end-to-end pros.” The team is reviewing new prototypes for five new-construction brands, including Microtel and Wingate, he said.