Wyndham Buys in Smoky Mountains

Wyndham Worldwide Corporation's ( WYN - Analyst Report ) vacation rental business recently took over the Smoky Mountain Property Management business. The financial terms of the deal were not disclosed. The deal affirms management’s intent to solidify its presence in the domestic rental business.

The Eastern Tennessee-based Smoky Mountain Property Management Group is known for its rental offerings at more than 400 upscale cabins and condominiums across the mountain destinations of Gatlinburg, Pigeon Forge, and Sevierville. Names like the Legacy Mountain Resort, Majestic Mountain Vacations, Sherwood Forest Resort, Sugar Maple Cabins, The Preserve Resort and Gatlinburg Cabins Online are some of the names in its portfolio.

The property is adjacent to the main entrance of the Great Smoky Mountains National Park, one of America's busiest national parks which caters to around nine million visitors annually. Hence, the property’s compelling geographic location made it a lucrative acquisition target.

The deal is in sync with Wyndham’s strategy to grow through geographical diversification in the domestic arena. Wyndham Vacation Rentals, a segment of the company providing mainly rental accommodations, currently offers more than 95,000 properties including over 7,000 units in North America. The destinations which so far included eminent ski, beach, golf and tennis resorts, will now have high-end cabins in one of the most preferred mountain vacation options.

Wyndham is a dominant player in the vacation rental business and seeks further inorganic growth. This fee-for-service business reduces the capital requirement, resulting in a higher free cash flow. Wyndham believes that these acquisitions will facilitate its expansion in around $10 billion U.S. serviced vacation rental market. Apart from the U.S., the U.K. remains another bright spot for Wyndham's vacation properties.

As a result, Parsippany, NJ-based Wyndham has been on an acquisition spree over the last several quarters in its rental segment. In August 2011, the company acquired The Resort Company LLC., which has rental offerings across several mountain destinations in Colorado. In February 2010, it acquired a European vacation rental business, Hoseasons Holdings Ltd.

In September 2010, Wyndham purchased ResortQuest, a vacation rental firm in the U.S. On December 1, 2010, Wyndham bought James Villa Holidays, a vacation rental specialist in the U.K. The company has acquired about 30 European rental brands since 2000.

We view the recent deal as strategically positive, given that it will expand the company’s vacation rental business in the domestic market where its market share is comparatively low. Going forward, we expect Wyndham to benefit from its repositioning as a more fee-for-service based business.

Wyndham which competes with the likes of Marriott International Inc. ( MAR - Analyst Report ) , currently carries a Zacks #3 Rank that translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.