On the company’s first-quarter earnings call, executives with RLH Corporation said they will continue to focus on midscale and upscale acquisitions, following its recent deal for the Knights Inn brand.
DENVER—RLH Corporation entered a definitive agreement to acquire the Knights Inn brand from Wyndham Hotel Group for $27 million last month, and RLHC executives say the company will continue the trend in looking for more midscale and potentially upscale acquisitions.
Greg Mount, RLHC president and CEO, said on the company’s first-quarter earnings call that he views those segments as great opportunities as bigger systems are consolidating and looking to focus on where the bulk of their revenue is coming from.
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“We are going to continue to focus on the midscale, upscale acquisitions,” he said. “We think there are going to be more opportunities, both from what we talked before about the smaller, regional brands that are really becoming constricted based on consolidation,” he said. “(And) … we should see more opportunities in the midscale and potentially upscale—some of the bigger systems.”
Mount said the deal with Knights Inn is expected to close in a little over a week. RLHC’s franchise-contract base is expected to increase more than 30%, and its annualized adjusted earnings before interest, taxes, depreciation and amortization expected to exceed $5 million.
Integrating Knights Inn
No additional employees will be added with this acquisition, Mount said, and RLHC isn’t expected to add to the cost base for Knights Inn properties.
“Our integration team is well-prepared to bring the Knights Inn properties and make sure that they are quickly operating on our technology platforms,” he said.
Franchise agreements and disposals
During Q1, RLHC executed 47 new franchise agreements and opened 27 new franchise hotels, according to a company earnings release. These agreements include 10 full-service hotels from the Inner Circle Investments deal.
Six of the 11 owned hotels that were listed for disposal sold in Q1, the release states, which generated $16 million in revenue. Three additional hotels are under contract to sell and are expected to close in the second and third quarters.
“As we … transition the company away from hotel division profits to franchise division profits, we continue to prioritize cost reductions and the efficiency of our franchise division staffing structure,” EVP, CFO and Treasurer Douglas Ludwig said.
Net income came in at $7.3 million for the quarter, compared to a net loss of $5.3 million in Q1 2017, according to the earnings release. Compared to the prior period, systemwide midscale revenue per available room was down 0.5% to $48.39, occupancy was down 10 basis points to 53.3% and average daily rate was down 0.3% to $90.74.
As of 31 March, the company had 16 total company-operated hotels and 1,054 franchised hotels, compared to 21 operated hotels and 1,061 franchised hotels in Q4.
The company’s franchise and hotel segment EBITDA from continuing operations were $2.4 million and $1.4 million, respectively.
RLHC’s stock as of press time was trading at $10.15, up 3.6% year to date. The Baird/STR Hotel Stock Index was down 0.2% during the same period.
Guidance for the rest of 2018, according to the earnings release, will have a large focus on RLHC’s franchise business and will represent “the majority of the ongoing future earnings.”
2018 midscale systemwide RevPAR is expected to fall between 1% to 3% and franchise division profit is expected to be between $18 million and $19 million, the release states.