RLH Corporation is continuing its franchise-focused model and announced today it has signed an agreement to acquire the Knights Inn brand from Wyndham Hotel Group for a total of $27 million.
DENVER—RLH Corporation is continuing its efforts to transform from a small regional brand that owned and operated hotels to a large-scale, asset-light franchisor with deal to add yet another brand to its portfolio.
RLHC executives announced today in a news release a definitive agreement to acquire the Knights Inn brand from Wyndham Hotel Group for $27 million. The deal is expected to close in early May, according to an SEC filing from RLHC.
The acquisition of Knights Inn will enhance RLHC’s position as “one of the 10 largest hotel franchisors in the world,” RLHC President and CEO Greg Mount said in the news release.
RLHC executed 144 licensed franchise agreements in 2017. As of 31 December, the company had 1,137 hotels comprised of 73,100 guestrooms in its portfolio. As of that same time period, the Knights Inn brand had 362 hotels and 22,006 guestrooms in its portfolio. Knights Inn currently has 47 hotels in its U.S. pipeline.
Wyndham officials declined comment and deferred inquiries to RLHC officials. As of press time, RLHC officials were not available for comment beyond the initial news release.
From owned assets to franchise-focused
In 2016, RLHC acquired Vantage Hospitality Group for an aggregate price of $23 million, which included Vantage’s Americas Best Value Inn, Canadas Best Value Inn, Lexington by Vantage, America’s Best Inns and Suites, Country Hearth Inns, Jameson Inns, Signature Inn and 3 Palms Hotels & Resorts brands.
RLHC’s brands at the time of that deal included Hotel RL, Red Lion Hotels, Red Lion Inn & Suites, GuestHouse and Settle Inn Brands.
Over the last few years, RLHC started to shed its assets to focus on its franchise model, starting with listing the sale of 11 of its 18 owned hotels. In 2017, the company’s franchise segment revenue nearly doubled year over year, growing 97.1% from $24.6 million to $48.6 million, the company announced on its 2017 fourth-quarter and full-year earnings call.
In the first quarter of 2018, RLHC added 10 new franchise license agreements, including midscale and upscale hotels owned by affiliates of Inner Circle Investments.
Mount alluded to more activity on Q4 earnings call, as well, saying: “I think you’ll see us be active (and) diligent. … We’re not going to overpay (for deals), that is important,” he said. “We also feel the consolidation going on in the industry is really creating an opportunity for companies like ours to acquire.”
Focus on economy
Michael Bellisario , VP of equity research and senior analyst at Baird, told Hotel News Now today that the deal underscores RLHC’s emphasis on the economy segment, where Knights Inn operates, but growing in that space could be more cost-effective then trying to acquire a luxury brand, because the economy segment is more fragmented and has less sophisticated competition.
“The dollars and cents are different, but think of the distribution,” he said.
There has to be a network effect, Bellisario said, and it needs to make one plus one equal three. It needs a good app, a good reservation system and a good loyalty program, he said. The platform has to allow owners benefit by being part of the system, he said.
“You need other points-earning and –redeeming hotels,” he said. “You need a network effect for the ‘bigger is better’ pieces to take hold. The more dots there are on the map, the better it is for guests and owners.”
Changes at Wyndham
Bellisario said recent and pending changes at Wyndham mean Knights Inn no longer fits into its portfolio as it once did.
Wyndham is clearly streamlining, refining and upgrading its hotel portfolio as it becomes a hotel-only company, he said, looking to appeal public market investors who like higher revenue per available room. He said the pending acquisition of La Quinta Holding’s hotel franchise and management business and the 2017 purchase of the AmericInn hotel brand likely set the table for Wyndham to jettison Knights Inn.
Wyndham Hotel Group President and CEO Geoff Ballotti in the news release said he is proud of how Wyndham grew the Knights Inn brand during its ownership.
“While we’re proud of what we’ve been able to accomplish, we believe now is the right time to make this move and are confident that RLH Corporation will only continue to support and grow the brand,” he said.