Red Roof moves past financial woes
 
Red Roof moves past financial woes
15 FEBRUARY 2011 10:21 AM

With a tentative deal in place with its creditors, the new president of the Columbus, Ohio-based chain of 343 hotels is looking forward to expanding the brand throughout the U.S. and Canada.

SAN DIEGO—Red Roof Inns president Andy Alexander is in a familiar position with a new title.

Alexander, who previously oversaw operations of the 343-hotel chain as senior VP and general counsel prior to being named president on 18 January, is using common sense and optimism to guide the Columbus, Ohio-based company through what is arguably its most challenging period. Red Roof has been without an official leader since 30 April 2009 when Joe Wheeling left as CEO.

 

Andy Alexander
President
Red Roof Inns

In December, Red Roof's parent company—a joint venture between Westbridge Hospitality Fund LP and Citigroup’s Global Special Situations Group—reached a tentative deal with holders of US$754 million of past-due commercial mortgage-backed securities to turn over 127 of the 203 hotels it owns. The agreement came after a series of lawsuits that led to speculation that Red Roof might not survive as a company. However, Red Roof will maintain management of the hotels under the terms of the tentative deal. The company also franchises 140 hotels that were not affected by the mortgage defaults, which occurred in 2009 and stemmed from the US$1.2-billion acquisition of Red Roof from Accor in Spring 2007.

 

“2009 made it very difficult for us with our lending group. We were one of the last groups into the foray here in 2007 with the lending transactions that closed the acquisition,” Alexander said during an interview conducted at last month’s America’s Lodging Investment Summit in San Diego. “Over the last year and a half, we’ve been working hard with the lenders to come to a resolution, and we’ve reached an agreement with them where they’ve jumped on board with Red Roof Inns management and franchise. They’ve entered into a long-term arrangement with the brand and the managers, and we look forward to having that relationship and growing the brand.”

Citigroup’s Global Special Situations Group is a principal investment group that invests Citigroup’s capital in event-driven and special situation strategies globally. Westbridge is a partnership between Westmont Hospitality Group and Canadian pension fund managers, including Cadim, a division of Caisse de dépôt et placement du Québec, and Régime de rentes du Mouvement Desjardins. Westmont is among the largest private owners/operators of hotels in the world.

Ready to grow
“In terms of moving the brand forward, the brand’s on solid ground and ready to grow,” said Alexander, who served as Red Roof’s senior VP and general counsel prior to being named president. He was general counsel for Boykin Lodging Company before joining Red Roof in 2008.

Acquiring a portfolio of properties to enhance the Red Roof brand isn’t out of the question, he said.

“There are no plans at this point, but Westmont Hospitality is one of our owners and they’re opportunistic buyers, so they’re always out there looking around, but I don’t have anything on the plate to bring to you as sort of breaking news here,” Alexander said. “On the other hand, to say that they wouldn’t look if the opportunity arises and take some action, I’m sure they would.”

Focus on franchising
The growth primarily will come from the franchising side of the business, where the company plans to add 40 properties per year for the next five years using the “One brand, one focus” marketing message, Alexander said. Because the company has a single brand in its portfolio and because it continues to own more than 70 hotels, Red Roof is in a perfect position to relate to franchisees.

“It allows us to focus more on a one-on-one basis with our franchisees,” he said. “At 140 units, I know our franchisees. They can call me any time they want and have a discussion about how we can help them in their business. So we’re looking forward to accelerated growth.”

During the past six months, the company added three new developers to the fold—one to focus on the Northeast United States, one to focus on the western U.S. and one to focus on Canada, where Red Roof has no properties. The brand’s properties are located throughout the U.S., but a large portion of those are east of the Mississippi River.

“But just given the (average daily rates) and the profitability that the Northeast can provide to us, we have assets there now so there’s a solid base, but it’s a place where we have lots of green space and can really grow,” Alexander said. “And certainly the West is a great opportunity for us. The number of units that we can place in many key markets out there would allow us to grow relatively easily.”

The top two markets to add to the portfolio are New Orleans and Las Vegas to satisfy the demands of customers.

Working in the brand’s favor for franchise expansion is that its target conversion properties are hotels that are part of chains that are culling 15- to 20-year-old hotels as part of their own expansion efforts (for example: Fairfield Inns, Holiday Inn Express and Hampton Inns).

“Those properties fit our profile very nicely,” he said. “We’re working in our system both to upgrade it in terms of quality but also increase the size of our pipeline. So those are primarily targets for us.”

The company will consider interior-corridor properties and exterior-corridor hotels as it seeks to expand, he said.

New design elements
Driving the expansion is a program called “NextGen,” which is a new style of room that Alexander said promotes a “boutique, economy experience.” New-build properties in Beaumont, Texas, and Locust Grove, Georgia, serve as the NextGen prototypes. Construction costs, excluding land, for the Beaumont property came in at just more than US$50,000 per key.

“(That) really is unheard of, even in the economy segment,” Alexander said. “Since we play at the top of that segment, competing against midscale product, being able to a build a midscale product in the low (US)$50,000 a key price range just allows for great opportunities for profitability.”

 

The “Next Gen” design program for Red Roof Inns include elements that give properties a “boutique economy” feel, according to brand president Andy Alexander.

The NextGen program includes renovations of existing hotels. The company recently completed the renovation of its downtown Columbus property. Features of the NextGen program include: rain-style showerheads; glass doors that don’t require the customer to manipulate them so the customer can just walk right into the shower with no shower curtain; hardwood floors; wall-mounted, flat-screen TVs; and fresh artwork.

 

“So it’s really that economy boutique feel, both in terms of the spa-inspired design but also in terms of the customer feeling that they’re getting a higher quality product and a clean product—the hardwood floors, the no-touch surfaces are things that our customers are telling us that cleanliness is of the upmost importance to them,” Alexander said.

The company hasn’t mandated the NextGen program be installed in all Red Roof properties, but it hasn’t ruled out the possibility, Alexander said.

“As they come to the point where they need to renovate, then it’s time to move to the NextGen standard,” he said. “That’s happening across the brand both on the corporate side and the franchise side alike over a timeframe that is reasonable given the current condition of the properties and the (furniture, fixtures & equipment) involved. But as we bring in new franchisees, we certainly assess their product and within a three-year (period) is the usually the normal timeframe to bring them up to speed and move them into the NextGen design.”

Alexander said the company is proud of its consistent history. Even when the headquarters was moved to Dallas in 2001, the company maintained its core operations group in Columbus—the city in which it was founded by Jim Truman in 1973.

Alexander pointed out several other things that are working in Red Roof’s favor:

  • The brand carries a 14% revenue per available room premium in the economy segment;
  • It is working hard to push on the social media front to reinforce the company is “working on getting back to basics and being good in the eyes of our customers”; and
  • The company posted the highest customer satisfaction score last year in the economy-hotel segment, based on more than 50,000 TripAdvisor online reviews, according to a survey by Market Metrix.

No Comments

  • piyush February 15, 2011 6:04 AM

    Please set the royalty in comparison with ABVI, RODEWAY OR KNIGHTS and we will support the red roof. We are very confident in Majid Mangalji's company. With him on top, this should be next sought after franchice.

  • anonymous February 16, 2011 4:06 AM

    Red Roof Inns are so much nicer, classier & cleaner than Rodeway or Knights Inn though. You need to compare apples to apples!

  • roof advocate February 16, 2011 4:30 AM

    Piyush, ABVI, Rodeway, or Knights Inn? You're right about Majid he is smart enough not to allow the brand to fall that low. There is a reason Red Roof penetration in economy segment is mostly +100. Red Roof is about the only economy brand hat can grab some midscale biz. I wouldn't stay at the brands you mentioned for $10/night...

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