In order to further strengthen its vacation rental portfolio, Wyndham Worldwide Corporation's (WYN - Analyst Report) namesake segment recently sealed three bolt-on acquisitions - two beach resorts in the U.S. and one in United Kingdom. Financial terms of the deals were not disclosed.
Wyndham Vacation Rentals (WVR), a segment of the company providing rental accommodations, currently offers more than 100,000 properties serving over 500 destinations. The latest deals are in sync with Wyndham’s strategy to grow through geographical diversification.
In the U.S., WVR got hold of the vacation rental assets of Oceana Resorts - a foremost provider with more than 25 years experience in Myrtle Beach, S.C. as well as Kaiser Realty with 30 years of experience and more than 450 condo and beach home accommodations in coastal Alabama.
In United Kingdom, WVR bought Cumbrian Cottages with more than 2,500 vacation homes in preferred destinations across Cumbria and The Lake District, Northumberland, Yorkshire, Derbyshire, Wales and Scotland.
We view the recent deals as strategically positive. While Oceana, Kaiser Realty and Cumbrian Cottages will enjoy the much higher scale of WVR business, Wyndham will benefit from the trio’s strong positioning in the hospitality industry over the decades.
While Oceana and Kaiser Realty’s extremely popular beach positioning makes these lucrative targets for acquisition, presence of Cumbrian Cottage in the portfolio will extend Wyndham’s reach to prime European vacation markets. Further, the two U.S. acquisitions will expand Wyndham’s vacation rental business in the domestic market where its market share is low. However, U.K. always remains the bright spot for Wyndham's vacation properties.
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.
Given the potential, 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 U.K. The company has acquired about 31 European rental brands since 2000. We believe that Wyndham’s repositioning as a more fee-for-service based business will benefit it over the long term.
Wyndham, which competes with the likes of Marriott International Inc. (MAR - Analyst Report), currently carries a Zacks #3 Rank (Hold). We are also maintaining our long-term Neutral recommendation on the stock.