RLHC counting on leisure transient demand for rebound
RLHC counting on leisure transient demand for rebound
08 MAY 2020 2:13 PM

Executives on RLHC’s first-quarter earnings call said they expect an uptick in demand from road travelers beginning in late May through the summer, which will boost the company’s economy and midscale brands.

DENVER—RLH Corporation experienced steep declines in revenue per available room during the first quarter, but company executives said they expect leisure transient business will bolster its rebound once shelter-in-place orders lift.

Interim CEO John Russell said during the company’s first-quarter earnings call Thursday that all RLHC franchisees have experienced a significant drop in business due to COVID-19 and non-essential travel restrictions across the U.S. However, nearly all 1,000-plus of its franchise hotels are open for essential workers, he said.

Russell was appointed interim CEO in December 2019.

RevPAR at the company’s midscale and economy hotels showed promising improvement in January and February, but experienced a “precipitous decline beginning in March once impact of COVID-19 took effect,” he said.

Since most of the company’s portfolio is in secondary and tertiary markets as well as warm-weather locations, a glimmer of hope resides in “drive-market travel,” he said.

“We feel that the drive business will pick up substantially … starting in late May going into June, July and August. We feel very strong about the leisure transient business,” he said.

Russell cited STR data showing submarkets such as Florida and Texas, which have eased COVID-19 restrictions, with weekend-versus-weekday occupancy gains of 10 percentage points or greater for the week of 2 May. (STR is the parent company of Hotel News Now.)

He also noted that RV sales have increased, indicating that many Americans are planning for road travel, which is great for RLHC’s economy brands such as Americas Best Value and Knights Inn. On the contrary, he said he expects corporate and group travel to come back slower, possibly picking up in October and November, which affects the company’s upscale brands such as Red Lion Hotels, Hotel RL and Red Lion Inns & Suites.

Response to COVID-19
In the fourth quarter, RLHC implemented its new corporate strategy, which emphasized the alignment of its cost structure to its size and revenue profitability requirements.

As the pandemic’s impact escalated, the company further accelerated the cost-cutting initiative, Russell said.

“These initiatives included a large reduction in workforce company-wide compensations, consolidations of operations in Denver with the closing of the Spokane office and meaningful reduction in capital spend. All of these challenging initiatives were undertaken as the team was sheltering in place and working from home,” he said.

Nate Troup, EVP and CFO, said during the call that the company is focused on automation where possible, process efficiencies and closely monitoring expenses. He said RLHC cut very judiciously and the goal is to stay at that level.

“From a cost side, a lot of the efficiencies that we’ve accelerated and latched onto through this process, we expect to maintain. It’s very important that we think about it that way,” he said.

Troup said RLHC announced on 23 April it had successfully received $4.2 million in proceeds from the Paycheck Protection Program. However, after receiving those funds, the government issued new guidance which RLHC felt introduced ambiguity to certain eligibility requirements, he said.

“While we believe that we met the eligibility requirements in place at the time that we applied for the loan, it did not appear that we met the new eligibility requirements accordingly,” said. “We made the decision to return the proceeds of our PPP loan in May.”

Russell said RLHC is keeping close tabs on the government support that its franchise owners are receiving. He said many have been getting access to PPP loans and IBL loans. However, a majority are getting forbearance loans from their community banks.

“That’s probably the No. 1 thing they’ve gotten,” he said. “They get a three- to four-month forbearance.”

In terms of operations and sanitation, Russell said RLHC has been heavily focused on putting best practices in place for its franchisees. He said the way hotels are operated is going to be quite different, with social distancing, check-in and cleaning practices, and guidance on breakfast, for example.

‘Keep our Country Moving’
On 15 April, the company launched its “Keep our Country Moving” program, which is aimed at assisting critical employees and first responders. The program offers a 50% discount per room.

Russell said as of late April the program produced 500 booked and redeemed roomnights. He said the promotion ends in June but will be extended if necessary. He said it has stimulated a lot of demand for its hotels that are located near hospitals.

Now demand is reaching beyond just health care workers and other essential employees, he said, noting an uptick in guests who have been working from home and look to book a quiet, clean room to work in. The hotels with this program give a reasonable rate and provide free coffee as well as access to a free printer, he said.

Q1 performance
During the quarter, RLHC executed 70 new franchise agreements, a 25% increase from Q1 2019, Russell said. These agreements included six midscale hotels and 64 economy hotels, 16 of which were in new markets for RLHC, he said.

Offsetting that, RLHC had 44 franchise terminations, which represents a 21% improvement year over year. These terminations included one midscale hotel and 43 economy hotels.

The company completed the sale of two properties: Hotel RL in Washington, D.C., and Red Lion Hotel Anaheim Resort in Anaheim, California, for a total of $9 million in proceeds.

RLHC reported a net loss of $8.1 million during the quarter, compared to a net loss of $4.3 million in the year prior, according to the company’s earnings release.

Troup said the year-over-year change was deeply affected by COVID-19, which influenced $9.7 million of bad debt expense, primarily associated with Inner Circle Investments and other franchisees. RLHC added 10 new franchise license agreements with hotels owned by affiliates of Inner Circle in Q1 2018.

As of press time, RLHC’s stock was trading $1.74, down 53.2% year to date. The Baird/STR Hotel Stock Index was down 42.3% during the same period.

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