Officials on RLH Corporation’s first-quarter 2019 earnings call touched on the company’s position five years ago compared to now, and where the company is headed with its midscale and upscale focus and tech investments.
DENVER—RLH Corporation isn’t quite the same company it was five years ago, President and CEO Greg Mount said.
Mount told analysts on a recent earnings call that when he joined RLHC in 2014, the company owned 25 hotels and had 30 franchised hotels, which generated $1.5 million in franchise revenue. Today, it’s an asset-light franchise company with a franchise system of nearly 1,300 hotels generating $13 million in franchise revenue, he said.
As of the end of the first quarter of 2019, RLHC is down to eight owned hotels in its system, “several of which are actively marketed,” he said.
“We have come a long way and are excited about the direction we are headed,” he said. “With that said, 2019 is off to a terrific start.”
He said RLHC is “making headway” in adding to its upscale brands. During Q1, the company executed 56 franchise agreements. Eight were upscale and midscale hotels, and 48 were select-service, he said.
In 2017, the company realigned its brand portfolio, positioned Hotel RL as upscale, with Red Lion Hotels and Red Lion Inn & Suites in the midscale space.
Regarding RLHC’s asset strategy, Mount said, “overall the contracts we’re entering into are generally of higher quality and more profitable franchises than those that are leaving our system.”
The hotels that are for sale, including properties in Atlanta, Washington and Anaheim, California, are currently still in the marketing process, he said.
He cited market volatility, which “sent mixed signals” in the first quarter, as a factor in the slower pace of deals.
“Consequently, buyers are taking longer to come to the table,” he said. “In fact, we believe this reflects broader real estate transaction market conditions, as both real estate transactions and real estate transaction volume were down in first quarter 2019 by 22% and 11%, respectively, according to estimates,” he said.
Mount said he remains confident the hotels will be sold, but he now anticipates the sales will occur in the second half of 2019.
While RLHC is focusing on its core franchise business, it’s also investing more in technology.
In April, RLHC hired Vinod Sankar as SVP and chief digital officer to oversee growth of the company’s global digital strategy and technology innovations.
“He’s already developing a framework for enhancing our revenue management system,” Mount said. “Vinod’s analytical perspective will be a valuable element in our efforts to remain on the cutting edge of technology.”
Mount said RLHC looks to stay nimble in developing a full suite of services for its owners to enhance guest experience, which will rely heavily on technology, such as through building cloud-based system RevPAK, a product of the recently launched subsidiary RLabs.
During the company’s fourth-quarter 2018 earnings call, Mount told analysts that RLabs will “focus on the new revenue verticals for the hospitality industry, including end-to-end software, robotics and artificial intelligence … (which) will allow us to leverage and monetize what we created for (RLHC) by primarily targeting upscale independent hotels.”
Several independent hotel owners and operators are showing strong interest in RLabs, Mount said.
Q1 performance, outlook
RLHC reported net loss of $4.1 million compared to a net income of $2.6 million in the prior year, EVO, CFO and Treasurer Julie Shiflett said.
She attributed the quarter-over-quarter change in net income to a $14-million gain associated with the sale of five hotels during the first quarter of 2018. The change also reflects the impact of the sale of four additional hotels during the remainder of 2018, she said.
Those hotel sales also affected adjusted earnings before interest, taxes, depreciation and amortization, which remained flat at approximately $1 million, she said.
“On a year-over-year basis, nearly all of the EBITDA from the sold hotels was replaced by the growth in our core franchise business,” Shiflett said.
Franchise revenue increased nearly 29% to $13 million, driven by royalty fees, she said. Performance of the franchise business benefitted from the company’s acquisition of Knights Inn in 2018, as well as organic growth, she said.
Total revenue for all business segments for the quarter declined by 21% year over year to $26 million, which also reflects the impact of the hotel sales in 2018.
Shiflett said franchise margins are seasonally lower in the first few quarters of the year due to higher marketing spend devoted to driving reservations for the upcoming high travel season.
RLHC reaffirmed its guidance range for 2019, and is “well on our way to our guidance range of (executing) 160 to 200 franchise signings,” she said.
Guidance for adjusted EBITDA continues to be in the range of $20.5 million to $22.5 million.
As of press time, RLHC’s stock was trading at $7.39 a share, down 9.9% year to date. The Baird/STR Hotel Stock Index was up 16.6% for the same time period.