WYNDHAM HOTELS & RESORTS, INC. Forward-Looking Statements This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), as amended. These statements include, but are not limited to, statements related to our expectations regarding our strategy and the performance of our business, our financial results, our liquidity and capital resources, share repurchases and dividends and other non-historical statements. Forward-looking statements include those that convey management's expectations as to the future based on plans, estimates and projections at the time we make the statements and may be identified by words such as "will," "expect," "believe," "plan," "anticipate," "intend," "goal," "future," "outlook," "guidance," "target," "objective," "estimate," "projection" and similar words or expressions, including the negative version of such words and expressions. Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements ofWyndham Hotels to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Factors that could cause actual results to differ materially from those in the forward-looking statements include without limitation general economic conditions; the continuation or worsening of the effects from the coronavirus pandemic, ("COVID-19"); its scope and duration and impact on our business operations, financial results, cash flows and liquidity, as well as the impact on our franchisees and property owners, guests and team members, the hospitality industry and overall demand for travel; the success of our mitigation efforts in response to COVID-19; our performance in any recovery from COVID-19, the performance of the financial and credit markets; the economic environment for the hospitality industry; operating risks associated with the hotel franchising and management businesses; our relationships with franchisees and property owners; the impact of war, terrorist activity, political instability or political strife; concerns with or threats of pandemics, contagious diseases or health epidemics, including the effects of COVID-19 and any resurgence or mutations of the virus and actions governments, businesses and individuals take in response to the pandemic, including stay-in-place directives and other travel restrictions; risks related to restructuring or strategic initiatives; risks related to our relationship with CorePoint Lodging; our spin-off as a newly independent company; the Company's ability to satisfy obligations and agreements under its outstanding indebtedness, including the payment of principal and interest and compliance with the covenants thereunder; risks related to our ability to obtain financing and the terms of such financing, including access to liquidity and capital as a result of COVID-19; 23 -------------------------------------------------------------------------------- Table of Contents and the Company's ability to make or pay dividends, plans for and timing and amount of any future share repurchases and/or dividends, as well as the risks described in our most recent Annual Report on Form 10-K filed with the U.S.Securities and Exchange Commission (the "SEC") and subsequent reports filed with theSEC . The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, subsequent events or otherwise. We may use our website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Disclosures of this nature will be included on our website in the "Investors" section, which can currently be accessed at www.investor.wyndhamhotels.com. Accordingly, investors should monitor this section of our website in addition to following our press releases, filings submitted with theSEC and any public conference calls or webcasts. References herein to "Wyndham Hotels ," the "Company," "we," "our" and "us" refer toWyndham Hotels & Resorts, Inc. and its consolidated subsidiaries. BUSINESS AND OVERVIEWWyndham Hotels & Resorts is a leading global hotel franchisor, licensing its renowned hotel brands to hotel owners in nearly 95 countries around the world. We operate in the following segments: •Hotel Franchising - licenses our lodging brands and provides related services to third-party hotel owners and others. •Hotel Management - provides hotel management services for full-service and limited-service hotels as well as two hotels that are owned by us. RESULTS OF OPERATIONS Discussed below are our key operating statistics, combined results of operations and the results of operations for each of our reportable segments. The reportable segments presented below represent our operating segments for which discrete financial information is available and used on a regular basis by our chief operating decision maker to assess performance and to allocate resources. In identifying our reportable segments, we also consider the nature of services provided by our operating segments. Management evaluates the operating results of each of our reportable segments based upon net revenues and adjusted EBITDA. Adjusted EBITDA is defined as net income excluding net interest expense, depreciation and amortization, early extinguishment of debt charges, impairment charges, restructuring and related charges, contract termination costs, transaction-related items (acquisition-, disposition- or separation-related), foreign currency impacts of highly inflationary countries, stock-based compensation expense, income taxes and development advance notes amortization. We believe that adjusted EBITDA is a useful measure of performance for our segments and, when considered withU.S. Generally Accepted Accounting Principles ("GAAP") measures, gives a more complete understanding of our operating performance. We use this measure internally to assess operating performance, both absolutely and in comparison to other companies, and to make day to day operating decisions, including in the evaluation of selected compensation decisions. Adjusted EBITDA is not a recognized term underU.S. GAAP and should not be considered as an alternative to net income or other measures of financial performance or liquidity derived in accordance withU.S. GAAP. Our presentation of adjusted EBITDA may not be comparable to similarly-titled measures used by other companies. During the first quarter of 2021, we modified the definition of adjusted EBITDA to exclude the amortization of development advance notes to reflect how our chief operating decision maker reviews operating performance beginning in 2021. We have applied the modified definition of adjusted EBITDA to all periods presented. We generate royalties and franchise fees, management fees and other revenues from hotel franchising and hotel management activities, as well as fees from licensing our "Wyndham" trademark, certain other trademarks and intellectual property. In addition, pursuant to our franchise and management contracts with third-party hotel owners, we generate marketing, reservation and loyalty fee revenues and cost reimbursement revenues that over time are offset, respectively, by the marketing, reservation and loyalty costs and property operating costs that we incur. COVID-19 During 2020, the hotel industry experienced a sharp decline in travel demand due to COVID-19 and the related government preventative and protective actions to slow the spread of the virus, including travel restrictions. We and the entire industry experienced significant revenue losses in 2020 as a result of steep RevPAR declines. Yet, the impact on our business was mitigated by characteristics unique to our business model. With approximately 70% of bookings at our hotels being leisure-oriented, our hotel owners were more insulated from the rapid fall off of corporate transient and group bookings. In fact, less 24 -------------------------------------------------------------------------------- Table of Contents than 5% of our bookings come from this segment. Outside of leisure, our business customers are substantially comprised of truckers, contractors, construction workers, utility crews and others whose office is the road and do not have the ability to conduct their work remotely. These customers have provided a steady state of business for the majority of our hotel owners and, in fact, we have grown revenue from this customer set by 8% in the third quarter of 2021 versus pre-pandemic levels in the third quarter of 2019 levels. In addition, nearly 90% of hotels within ourU.S. system are located along highways and in suburban and small metro areas, on the way to or near outdoor destinations such as national parks and beach communities. Our hotels are in locations that travelers felt safe visiting and we invested in sales and marketing efforts to reach travel seekers and instill confidence that our hotels were clean, safe and welcoming guests. Finally, over 95% of ourU.S. business is originated domestically. As a result, our platform was naturally set up to capture returning demand throughout the pandemic and the recovery. Our economy and midscale brands in theU.S. have outperformed the industry's higher-end chain scales consistently since the onset of the pandemic and are now leading the industry's recovery with RevPAR in the third quarter well in excess of 2019 levels. Internationally, which drives less than 15% of our royalty revenues, recovery trails theU.S. due to a heavier business mix and a heavier reliance on inbound travel from theU.S. andChina . However, we have experienced significant improvement over the last few quarters and international RevPAR has recovered to 75% of its pre-pandemic levels during the third quarter compared to 56% in the second quarter and 55% in the first quarter of this year. The Company does not anticipate the pandemic to further materially impact the results from operations, however should there be a resurgence of COVID-19, our results of operations may be negatively impacted and certain intangible assets, such as our trademarks, and our franchised and managed goodwill may be exposed to impairments. For further discussion on the effect of COVID-19 on our financial condition and liquidity, see the section below Financial Condition, Liquidity and Capital Resources. OPERATING STATISTICS The table below presents our operating statistics for the three and nine months endedSeptember 30, 2021 and 2020. "Rooms" represent the number of hotel rooms at the end of the period which are either under franchise and/or management agreements, or are Company-owned, and properties under affiliation agreements for which we receive a fee for reservation and/or other services provided. "RevPAR" represents revenue per available room and is calculated by multiplying average occupancy rate by average daily rate. These operating statistics are drivers of our revenues and therefore provide an enhanced understanding of our business. Refer to the section below for a discussion as to how these operating statistics affected our business for the periods presented. As of September 30, 2021 2020 % Change Rooms United States 486,800 497,700 (2%) International 315,800 306,300 3% Total rooms 802,600 804,000 -% Three Months Ended September 30, 2021 2020 % Change RevPAR United States $ 57.73$ 36.31 59% International (a) 27.15 17.72 53% Global RevPAR (a) 45.80 29.23 57% Nine Months Ended September 30, 2021 2020 % Change RevPAR United States $ 45.64$ 30.99 47% International (b) 20.66 14.69 41% Global RevPAR (b) 35.94 24.73 45% ______________________ (a)Excluding currency effects, international RevPAR increased 49% and global RevPAR increased 56%. (b)Excluding currency effects, international RevPAR increased 34% and global RevPAR increased 44%. 25
-------------------------------------------------------------------------------- Table of Contents Rooms as ofSeptember 30, 2021 remained consistent with the prior year. Global RevPAR for the three months endedSeptember 30, 2021 increased 57% to$45.80 compared to the prior year due to the ongoing recovery in travel demand. Global and international RevPAR began to lap the onset of the COVID-19 pandemic inJanuary 2021 while theU.S. began to lap its onset inMarch 2021 . As such, comparisons to 2019 may be more meaningful when evaluating trends as such highlight the impact of COVID-19 from pre-pandemic levels. On this basis,U.S RevPAR exceeded 2019 levels by 7% while global RevPAR recovered to 97% of 2019 levels and international RevPAR declined 25%. The 7% increase in theU.S. compares to a 5% decline in the second quarter of 2021. Importantly, RevPAR for our economy brands exceeded 2019 levels by 14% in the third quarter representing improved rates. The 25% international decline demonstrates strong sequential progress from a 44% decline in second quarter led by growth in regions where travel restrictions abated such asCanada , which improved 32 points to a 17% decline, and EMEA, which improved 43 points to a 25% decline, partially offset by a 10 point sequential decrease inChina to a 17% decline, where temporary travel restrictions were reimposed due to local COVID outbreaks in August and September. THREE MONTHS ENDEDSEPTEMBER 30, 2021 VS. THREE MONTHS ENDEDSEPTEMBER 30, 2020 Three Months Ended September 30, 2021 2020 Change % Change Revenues Fee-related and other revenues $ 377$ 255 $ 122 48 % Cost reimbursement revenues 86 82 4 5 % Net revenues 463 337 126 37 % Expenses Marketing, reservation and loyalty expense 130 107 23 21 % Cost reimbursement expense 86 82 4 5 % Other expenses 86 77 9 12 % Total expenses 302 266 36 14 % Operating income 161 71 90 127 % Interest expense, net 22 29 (7) (24 %) Income before income taxes 139 42 97 231 % Provision for income taxes 36 15 21 140 % Net income $ 103$ 27 $ 76 281 % Net revenues for the three months endedSeptember 30, 2021 increased$126 million , or 37%, compared to the prior-year period, primarily driven by: •$48 million of higher royalty and franchise fees primarily due to the ongoing recovery of travel demand and its impact on RevPAR; •$50 million of higher marketing, reservation and loyalty fees, primarily reflecting the RevPAR increase; •$20 million of higher management and other fees primarily. also reflecting the RevPAR increase; and •$4 million of higher cost-reimbursement revenues in our hotel management business primarily due to ramping staff in response to the ongoing recovery of travel demand. Total expenses for the three months endedSeptember 30, 2021 increased$36 million , or 14%, compared to the prior-year period, primarily driven by: •$23 million of higher marketing, reservation and loyalty expenses primarily due to ongoing recovery of travel demand; and •$8 million of higher operating expenses, primarily associated with the recovery of travel demand at our owned hotels. Interest expense, net for the three months endedSeptember 30, 2021 decreased$7 million , or 24%, compared to the prior-year period as a result of the redemption of our$500 million senior notes inApril 2021 . Our effective tax rates were 25.9% and 35.7% tax provision on pre-tax income during the three months endedSeptember 30, 2021 and 2020, respectively. The decrease was primarily due to the impact COVID-19 had in 2020 on the mix of earnings and losses between theU.S. and foreign jurisdictions in which we operate that have different tax rates from theU.S. statutory rate. 26 -------------------------------------------------------------------------------- Table of Contents As a result of these items, net income for the three months endedSeptember 30, 2021 , increased$76 million compared to the prior-year period. The table below is a reconciliation of net income to adjusted EBITDA. Three Months Ended September 30, 2021 2020 (a) Net income $ 103 $ 27 Provision for income taxes 36 15 Depreciation and amortization 23 24 Interest expense, net 22 29 Stock-based compensation expense 7 5 Development advance notes amortization 3 2 Foreign currency impact of highly inflationary countries - 1 Adjusted EBITDA $ 194 $ 103 ______________________
(a)Adjusted EBITDA for 2020 has been recasted to conform with the current year presentation.
Following is a discussion of the results of each of our segments and Corporate and Other for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 : Net Revenues Adjusted EBITDA 2021 2020 % Change 2021 2020 (a) % Change Hotel Franchising$ 337 $ 236 43%$ 193 $ 119 62% Hotel Management 126 101 25% 16 2 700 % Corporate and Other - - n/a (15) (18) 17 %Total Company $ 463 $ 337 37%$ 194 $ 103 88%
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(a)Adjusted EBITDA for 2020 has been recasted to conform with the current year presentation.Hotel Franchising Three Months Ended September 30, 2021 2020 % Change Total rooms 758,600 748,200 1% Global RevPAR (a) $ 44.67$ 28.83 55% ______________________ (a) Excluding currency effects, global RevPAR increased 54%. Rooms increased 1% from the prior year period primarily due to higher international openings. Global RevPAR increased 55% from the prior year period primarily due to a 56% increase inU.S. RevPAR. Net revenues increased$101 million , or 43%, compared to the third quarter of 2020, primarily driven by the ongoing recovery of travel demand and its impact on global RevPAR which resulted in: •$46 million of higher royalty and franchise fees; and •$50 million of higher marketing, reservation and loyalty revenues. Adjusted EBITDA increased$74 million , or 62%, compared to the third quarter of 2020, primarily driven by higher royalty and franchise fees discussed above and a$29 million timing benefit in connection with our marketing, reservation and loyalty funds. 27 --------------------------------------------------------------------------------
Table of ContentsHotel Management Three Months Ended September 30, 2021 2020 % Change Total rooms 44,000 55,800 (21%) Global RevPAR (a) $ 64.63$ 34.34 88% ______________________ (a) Excluding currency effects, global RevPAR increased 87%. Rooms declined 21% from the prior year period, driven by CorePoint Lodging asset sales. Global RevPAR increased 88% from the prior year period primarily due to a 100% increase inU.S. RevPAR. Net revenues increased$25 million , or 25%, compared to the prior-year period, primarily driven by: •$18 million of higher owned hotel revenues due to ongoing recovery of travel demand; •$4 million of higher cost-reimbursement revenues as discussed above, which have no impact on adjusted EBITDA; and •$4 million of higher management fees and royalties and franchise fees primarily due to the increase global RevPAR. Adjusted EBITDA increased$14 million , compared to the prior-year period primarily driven by the revenue increases discussed above (excluding cost reimbursements), partially offset by$7 million of higher volume-related expenses primarily associated with the recovery of travel demand at our owned hotels. Corporate and Other Adjusted EBITDA was favorable by$3 million compared to the prior-year period, primarily due to lower general and administrative expenses. NINE MONTHS ENDEDSEPTEMBER 30, 2021 VS. NINE MONTHS ENDEDSEPTEMBER 30, 2020 Nine Months Ended September 30, 2021 2020 Change % Change Revenues Fee-related and other revenues $ 931$ 730 $ 201 28 % Cost reimbursement revenues 242 274 (32) (12 %) Net revenues 1,173 1,004 169 17 % Expenses Marketing, reservation and loyalty expense 327 311 16 5 % Cost reimbursement expense 242 274 (32) (12 %) Other expenses 246 486 (240) (49 %) Total expenses 815 1,071 (256) (24 %) Operating income/(loss) 358 (67) 425 n/a Interest expense, net 73 83 (10) (12 %) Early extinguishment of debt 18 - 18 n/a Income/(loss) before income taxes 267 (150) 417 n/a Provision for/(benefit from) income taxes 72 (25) 97 n/a Net income/(loss) $ 195$ (125) $ 320 n/a Net revenues for the nine months endedSeptember 30, 2021 increased$169 million , or 17%, compared to the prior-year period, primarily driven by: •$94 million of higher royalty and franchise fees primarily reflecting a 45% increase in global RevPAR due to the ongoing recovery in travel demand; •$65 million of higher marketing, reservation and loyalty fees primarily due to the RevPAR increase; and •$32 million of higher management and other fees due to the ongoing recovery in travel demand; partially offset by 28 -------------------------------------------------------------------------------- Table of Contents •$32 million of lower cost-reimbursement revenues in our hotel management business as a result of CorePoint Lodging asset sales. Total expenses for the nine months endedSeptember 30, 2021 decreased$256 million , or 24%, compared to the prior-year period, primarily driven by: • a$206 million decrease in impairment charges due to the absence of impairments in 2021; •$32 million of lower cost reimbursement expenses as discussed above; •$29 million of lower restructuring charges; and •$13 million of lower transaction-related expenses; partially offset by •$16 million of higher marketing, reservation and loyalty expenses primarily due to the ongoing recovery of travel demand. Interest expense, net for the nine months endedSeptember 30, 2021 decreased$10 million , or 12%, compared to the prior-year period as a result of the redemption of our$500 million senior notes inApril 2021 . Early extinguishment of debt was$18 million in the nine months endedSeptember 30, 2021 as a result of the redemption of our$500 million notes. Our effective tax rates were a 27.0% tax provision on pre-tax income and a 16.7% tax benefit on pre-tax loss during the nine months endedSeptember 30, 2021 and 2020, respectively. The change was primarily related to goodwill impairment charges that are nondeductible for tax purposes in 2020 and the absence in 2021 of nonrecurring foreign and state tax benefits. As a result of these items, net income for the nine months endedSeptember 30, 2021 increased$320 million compared to the prior-year period. The table below is a reconciliation of net income/(loss) to adjusted EBITDA. Nine Months Ended September 30, 2021 2020 (a) Net income/(loss) $ 195$ (125) Provision for/(benefit from) income taxes 72 (25) Depreciation and amortization 70 73 Interest expense, net 73 83 Early extinguishment of debt 18 - Stock-based compensation expense 20 14 Development advance notes amortization 7 7 Separation-related expenses 3 1 Impairments, net - 206 Restructuring costs - 29 Transaction-related expenses, net - 13 Foreign currency impact of highly inflationary countries 1 2 Adjusted EBITDA $ 459$ 278 ______________________ (a)Adjusted EBITDA for 2020 has been recasted to conform with the current year presentation. Following is a discussion of the results of each of our segments and Corporate and Other for the nine months endedSeptember 30, 2021 compared toSeptember 30, 2020 : Net Revenues Adjusted EBITDA 2021 2020 % Change 2021 2020 (a) % Change Hotel Franchising$ 829 $ 661 25%$ 464 $ 315 47% Hotel Management 344 343 -% 38 14 171% Corporate and Other - - n/a (43) (51) 16%Total Company $ 1,173 $ 1,004 17%$ 459 $ 278 65%
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(a)Adjusted EBITDA for 2020 has been recasted to conform with the current year presentation.
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--------------------------------------------------------------------------------Table of ContentsHotel Franchising Nine Months Ended September 30, 2021 2020 % Change Total rooms 758,600 748,200 1% Global RevPAR (a) $ 34.88$ 23.92 46% ______________________ (a) Excluding currency effects, global RevPAR increased 44%. Global RevPAR increased 46% from the prior year period primarily due to a 47% increase inU.S. RevPAR. Net revenues for the nine months endedSeptember 30, 2021 increased$168 million , or 25%, compared to the prior-year period, primarily driven by the ongoing recovery of travel demand and its impact on global RevPAR which resulted in: •$93 million of higher royalty and franchise fees; •$66 million of higher marketing, reservation and loyalty revenues; and •$12 million of higher other revenues. Adjusted EBITDA for the nine months endedSeptember 30, 2021 increased$149 million , or 47%, compared to the prior-year period, primarily driven by higher royalty and franchise fees discussed above and a$54 million timing benefit in connection with our marketing, reservation and loyalty funds.Hotel Management Nine Months Ended September 30, 2021 2020 % Change Total rooms 44,000 55,800 (21%) Global RevPAR (a) $ 52.67$ 35.20 50% ______________________ (a) Excluding currency effects, global RevPAR increased 49%. Global RevPAR increased 50% from the prior year period primarily due to a 59% increase inU.S. RevPAR and a 28% increase in international RevPAR. Net revenues for the nine months endedSeptember 30, 2021 increased$1 million compared to the prior-year period, primarily driven by: •$28 million of higher owned hotel revenues due to ongoing recovery of travel demand; •$5 million of higher management fees and royalties and franchise fees due to ongoing recovery of travel demand; partially offset by •$32 million of lower cost-reimbursement revenues as discussed above, which have no impact on adjusted EBITDA. Adjusted EBITDA for the nine months endedSeptember 30, 2021 increased$24 million , or 171%, compared to the prior-year period, primarily driven by the higher owned hotel revenues discussed above, partially offset by higher volume-related expenses principally related to our owned hotels. Corporate and Other Adjusted EBITDA for the nine months endedSeptember 30, 2021 was favorable by$8 million compared to the prior-year period primarily due to lower general and administrative costs. DEVELOPMENT We awarded 151 new contracts in the third quarter of both 2021 and 2020. The 151 new contracts in the third quarter of 2021 was 3% higher than 2019. OnSeptember 30, 2021 , our global development pipeline consisted of over 1,450 hotels and approximately 193,000 rooms. The pipeline grew 440 basis points year-over-year and 120 basis points sequentially, including 90 basis points domestically and 140 basis points internationally. Approximately 65% of our development pipeline is international and 76% is new construction, of which approximately 34% has broken ground. 30
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Table of Contents
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Financial condition
September 30, 2021 December 31, 2020 Change
Total assets $ 4,310 $ 4,644 $ (334)
Total liabilities 3,187 3,681 (494)
Total stockholders' equity 1,123 963 160
Total assets decreased $334 million from December 31, 2020 to September 30, 2021
primarily due to a reduction in cash as a result of the redemption of our $500
million 2026 senior notes, partially offset by cash generated from operations
year-to-date. Total liabilities decreased $494 million from December 31, 2020 to
September 30, 2021 primarily due to the redemption of our senior notes
(discussed above). Total equity increased $160 million from December 31, 2020 to
September 30, 2021 primarily due to our net income for the period, partially
offset by $53 million of dividends and $27 million of stock repurchases.
Liquidity and capital resources
Historically, our business generates sufficient cash flow to not only support
our current operations as well as our future growth needs and dividend payments
to our shareholders, but also to create additional value for our stockholders in
the form of share repurchases. However, due to the negative impact that COVID-19
was having on the travel industry, in 2020 we took a number of preventative
steps to conserve our liquidity and strengthen our balance sheet:
•In March 2020 , we suspended share repurchase activity;
•In April 2020 , we amended our revolving credit facility agreement to waive the
quarterly-tested leverage covenant until April 1, 2021 . The covenant was also
modified for the second, third and potentially fourth quarters of 2021 to use a
form of annualized EBITDA, as defined in the credit agreement, rather than the
last twelve months EBITDA, as previously required;
•In May 2020 , we decreased our quarterly cash dividend to $0.08 per share; and
•In August 2020 , we issued $500 million of senior unsecured notes, which mature
in 2028 and bear interest at a rate of 4.375% per year, for net proceeds of $492
million , which were used to repay a portion of the then outstanding borrowings
under our revolving credit facility.
As a result of our confidence in the continued recovery of travel demand, we
have taken the following actions in 2021:
•In the first quarter of 2021, we increased our quarterly cash dividend to $0.16
per share;
•On April 15, 2021 , we redeemed all $500 million of our outstanding 5.375%
senior notes due in 2026, primarily from cash on hand. We expect this redemption
to reduce our annual cash interest expense by approximately $27 million . Coupled
with the issuance of 4.375% senior notes in August 2020 , this redemption
effectively returns our balance sheet to pre-pandemic debt and liquidity levels
while extending $500 million of maturity by approximately 2.5 years at a 100
basis point or 19% lower interest rate;
•In July 2021 , we increased our quarterly cash dividend by $0.08 to $0.24 per
share;
•In August 2021 , we resumed our share repurchase program; and
•In October 2021 , our Board authorized a 33% increase in the quarterly cash
dividend to the pre-pandemic level of $0.32 per share, beginning with the
dividend expected to be declared in fourth quarter 2021.
As of September 30, 2021 , our liquidity approximates $930 million . Given the
minimal capital needs of our business, the flexible cost infrastructure and the
mitigation measures taken, we believe that our existing cash, cash equivalents,
cash generated through operations and our expected access to financing
facilities, together with funding through our revolving credit facility, will be
sufficient to fund our operating activities, anticipated capital expenditures
and growth needs. As of September 30, 2021 , we were in compliance with the
financial covenants of our credit agreement and expect to remain in such
compliance with no additional waivers or amendments required. As of September
30, 2021 , we had a term loan with an aggregate principal amount of $1.6 billion
maturing in 2025 and a five-year revolving credit facility maturing in 2023 with
a maximum aggregate principal amount of $750 million , of which none was
outstanding and $15 million was allocated to outstanding letters of credit. The
interest rate per annum applicable to our term loan is equal to, at our option,
either a base rate plus a margin of 0.75% or LIBOR plus a margin of 1.75%.
Our revolving credit facility is subject to an interest rate per annum equal to,
at our option, either a base rate plus a margin ranging from 0.50% to 1.00% or
LIBOR plus a margin ranging from 1.50% to 2.00%, in either case based upon the
total
31
-------------------------------------------------------------------------------- Table of Contents leverage ratio of the Company and its restricted subsidiaries. During the amendment period as discussed above, the revolving credit facility was subject to an interest rate per annum equal to, at our option, either a base rate plus a margin of 1.25% or LIBOR plus a margin of 2.25% with the LIBOR rate subject to a 0.50% floor. The amendment period expired onApril 1, 2021 . As ofSeptember 30, 2021 ,$1.1 billion of our$1.6 billion term loan is hedged with pay-fixed/receive-variable interest rate swaps hedging of our term loan interest rate exposure. The aggregate fair value of these interest rate swaps was a$42 million liability as ofSeptember 30, 2021 . TheFederal Reserve has established the Alternative Reference Rates Committee to identify alternative reference rates in the event thatU.S. dollar LIBOR ceases to exist afterJune 2023 . Our credit facility, which includes our revolving credit facility and term loan, gives us the option to use LIBOR as a base rate and our interest rate swaps are based on the one-monthU.S. dollar LIBOR rate. In the event that LIBOR is no longer published, the credit facility allows us and the administrative agent of the facility to replace LIBOR with an alternative benchmark rate, subject to the right of the majority of the lenders to object thereto.The International Swaps and Derivatives Association issued protocols to allow swap parties to amend their existing contracts, though the Company's existing swaps will continue to reference LIBOR for the foreseeable future. As ofSeptember 2021 , our credit rating was Ba1 from Moody's Investors Service and increased from BB to BB+ from Standard and Poor'sRating Agency . A credit rating is not a recommendation to buy, sell or hold securities and is subject to revision or withdrawal by the assigning rating organization. Reference in this report to any such credit rating is intended for the limited purpose of discussing or referring to aspects of our liquidity and of our costs of funds. Any reference to a credit rating is not intended to be any guarantee or assurance of, nor should there be any undue reliance upon, any credit rating or change in credit rating, nor is any such reference intended as any inference concerning future performance, future liquidity or any future credit rating. Our liquidity and access to capital may be impacted by our credit ratings, financial performance and global credit market conditions. We believe that our existing cash, cash equivalents, cash generated through operations and our expected access to financing facilities, together with funding through our revolving credit facility, will be sufficient to fund our operating activities, anticipated capital expenditures and growth needs. CASH FLOW
The following table summarizes the changes in cash, cash equivalents and
restricted cash during the nine months ended
Nine
Months Ended
2021 2020 Change
Cash provided by/(used in)
Operating activities $ 327 $ 57 $ 270
Investing activities (21) (24) 3
Financing activities (606) 609 (1,215)
Effects of changes in exchange rates on cash, cash equivalents and restricted cash
- (1) 1
Net change in cash, cash equivalents and restricted cash
Net cash provided by operating activities increased$270 million compared to the prior-year period primarily due to the ongoing recovery in travel demand and related RevPAR growth as well as favorable collections experience and working capital management, partially offset by$14 million of higher payments for development advance notes. Net cash used in investing activities decreased$3 million compared to the prior-year period, primarily due to repayments of loans. During the nine months endedSeptember 30, 2021 , we used$606 million of net cash in financing activities compared to generating$609 million of net cash during the nine months endedSeptember 30, 2020 , resulting in a reduction of$1,215 million in cash generated year-over-year from financing activities. This change reflects borrowing activities in 2020 in connection with the pandemic and repayment activities in 2021 as COVID-19 uncertainties were resolved. Specifically, in 2020, we issued$500 million of 4.375% senior unsecured notes and borrowed a net$234 million of funds from our revolving credit facility; while in 2021, we redeemed$500 million of higher-cost, nearer maturity debt effectively replacing it with theAugust 2020 issuance of lower-cost, longer maturity debt. 32
-------------------------------------------------------------------------------- Table of Contents Capital deployment Our first priority is to invest in the business. This includes deploying capital to attract high quality assets into our system, investing in select technology improvements across our business that further our strategic objectives and competitive position, business acquisitions that are accretive and strategically enhancing to our business, and/or other strategic initiatives. We also expect to maintain a regular dividend payment. Excess cash generated beyond these needs would be available for enhanced shareholder return in the form of stock repurchases. During the nine months endedSeptember 30, 2021 , we spent$23 million on capital expenditures, primarily related to information technology. During 2021, we anticipate spending approximately$40 million on capital expenditures. In addition, during the nine months endedSeptember 30, 2021 , we spent$25 million , net of repayments on development advance notes. During 2021, we anticipate spending approximately$40 million on development advances. We may also provide other forms of financial support. We expect all our cash needs to be funded from cash on hand and cash generated through operations, and/or availability under our revolving credit facility. Stock repurchase program InMay 2018 , our Board approved a share repurchase plan pursuant to which we were authorized to purchase up to$300 million of our common stock. InAugust 2019 , the Board increased the capacity of the program by another$300 million . Under the plan, we may, from time to time, purchase our common stock through various means, including, without limitation, open market transactions, privately negotiated transactions or tender offers, subject to the terms of the tax matters agreement entered into in connection with our spin-off. Due to our confidence in our ability to generate significant cash flow, the resiliency of our business model and the ongoing recovery of travel demand, we resumed our share repurchase program in August of 2021. Under our current stock repurchase program, we repurchased approximately 0.4 million shares at an average price of$73.13 for a cost of$27 million during the three months endedSeptember 30, 2021 . As ofSeptember 30, 2021 , we had$164 million of remaining availability under our program. Dividend policy In response to COVID-19, our Board approved a reduction in the quarterly cash dividend from$0.32 per share to$0.08 per share, beginning with the dividend that was declared during the second quarter of 2020. OnFebruary 10, 2021 , the Board approved an increase in the quarterly cash dividend to$0.16 per share and inJuly 2021 , the Board approved an additional increase in the quarterly cash dividend to$0.24 per share. We declared cash dividends of$0.16 per share in the first and second quarters of 2021 and$0.24 per share in the third quarter of 2021 ($53 million in aggregate), which is 75% of our pre-pandemic quarterly dividend per share. InOctober 2021 , our Board authorized a 33% increase in the quarterly cash dividend to the pre-pandemic level of$0.32 per share, beginning with the dividend expected to be declared in fourth quarter 2021. The declaration and payment of future dividends to holders of our common stock is at the discretion of our Board and depends upon many factors, including the impact of COVID-19 on travel demand, our financial condition, earnings, capital requirements of our business, covenants associated with certain debt obligations, legal requirements, regulatory constraints, industry practice and other factors that our Board deems relevant. LONG-TERM DEBT COVENANTS Our credit facilities contain customary covenants that, among other things, impose limitations on indebtedness; liens; mergers, consolidations, liquidations and dissolutions; dispositions, restricted debt payments, restricted payments and transactions with affiliates. Events of default in these credit facilities include, among others, failure to pay interest, principal and fees when due; breach of a covenant or warranty; acceleration of or failure to pay other debt in excess of a threshold amount; unpaid judgments in excess of a threshold amount, insolvency matters; and a change of control. The credit facilities require us to comply with a financial covenant to be tested quarterly, consisting of a maximum first-lien leverage ratio of 5.0 times. The ratio is calculated by dividing consolidated first lien indebtedness (as defined in the credit agreement) net of consolidated unrestricted cash as of the measurement date by consolidated EBITDA (as defined in the credit agreement), as measured on a 33
-------------------------------------------------------------------------------- Table of Contents trailing four-fiscal-quarter basis preceding the measurement date. As ofSeptember 30, 2021 , our annualized first-lien leverage ratio was 1.9 times. InApril 2020 , we completed an amendment to our revolving credit facility agreement to waive the quarterly-tested leverage covenant untilApril 1, 2021 . The covenant was also modified for the second, third and potentially fourth quarters of 2021 to use a form of annualized EBITDA, as defined in the credit agreement, rather than the last twelve months EBITDA, as previously required. However, during this period we never exceeded the maximum first-lien leverage ratio of 5.0 times. The indenture, as supplemented, under which the senior notes due 2028 were issued, contains covenants that limit, among other things, our ability and that of certain of our subsidiaries to (i) create liens on certain assets; (ii) enter into sale and leaseback transactions; and (iii) merge, consolidate or sell all or substantially all of our assets. These covenants are subject to a number of important exceptions and qualifications. As ofSeptember 30, 2021 , we were in compliance with the financial covenants described above. SEASONALITY While the hotel industry is seasonal in nature, periods of higher revenues vary property-by-property and performance is dependent on location and guest base. Based on historical performance, revenues from franchise and management contracts are generally higher in the second and third quarters than in the first or fourth quarters due to increased leisure travel during the spring and summer months. Our cash provided by operating activities tends to be lower in the first half of the year and substantially higher in the second half of the year. However, given the impact of COVID-19 in 2020, our second quarter was the most severely impacted and as such, we had higher revenues and cash flows in the third and fourth quarters. We believe during 2021 that our revenues and cash provided by operating activities will return to the historic seasonality as our business recovers from the pandemic. COMMITMENTS AND CONTINGENCIES We are involved in claims, legal and regulatory proceedings and governmental inquiries related to our business. Litigation is inherently unpredictable and, although we believe that our accruals are adequate and/or that we have valid defenses in these matters, unfavorable results could occur. As such, an adverse outcome from such proceedings for which claims are awarded in excess of the amounts accrued, if any, could be material to us with respect to earnings and/or cash flows in any given reporting period. As ofSeptember 30, 2021 , the potential exposure resulting from adverse outcomes of such legal proceedings could, in the aggregate, range up to approximately$11 million in excess of recorded accruals. However, we do not believe that the impact of such litigation should result in a material liability to us in relation to our financial position or liquidity. For a more detailed description of our commitments and contingencies see Note 11 - Commitments and Contingencies to the Condensed Consolidated Financial Statements contained in Part I, Item 1 of this report. CRITICAL ACCOUNTING POLICIES In presenting our financial statements in conformity withU.S. GAAP, we are required to make estimates and assumptions that affect the amounts reported therein. Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. However, events that are outside of our control cannot be predicted and, as such, they cannot be contemplated in evaluating such estimates and assumptions. If there is a significant unfavorable change to current conditions, it could result in a material impact to our consolidated results of operations, financial position and liquidity. We believe that the estimates and assumptions we used when preparing our financial statements were the most appropriate at that time. These Condensed Consolidated Financial Statements should be read in conjunction with our 2020 Consolidated and Combined Financial Statements included in our most recent Annual Report on Form 10-K filed with the U.S. Securities andExchange Commission (the "SEC") and any subsequent reports filed with theSEC , which includes a description of our critical accounting policies that involve subjective and complex judgments that could potentially affect reported results.
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