During the company’s fourth-quarter and full-year earnings call, RLHC interim CEO John Russell gave color on his key initiatives for improving the franchise company as well as why it temporarily was unable to sign new franchise agreements in Q4.
DENVER—RLH Corporation is hitting the reset button after a challenging 2019. Interim CEO John Russell led the company’s fourth-quarter and full-year earnings call by outlining how he aims to drive that change.
This is Russell’s first earnings call with RLHC. Former President and CEO Greg Mount announced his resignation in November.
“While 2019 was a challenging year, we are dedicated to RLH Corporation being a thriving franchise and branding enterprise,” he said. “With our strong brands and engaged owners, we believe through our focus and hard work on three key priorities we can return RLH Corporation to stability and eventual growth.”
Russell said these key priorities include accelerating new franchise sales and franchise growth, delivering superior value of service to owners and franchisees and aligning the cost structure of the business to its size and revenue profitability requirements.
RLHC has also realigned its franchise development and operations structure to reach its dual goal of reducing franchise terminations and increasing development in gateway markets, he said.
In Q4 2019, RLHC executed 98 terminations, which included six midscale hotels and 92 economy hotels. A total of 274 terminations occurred for the full year, comprising 23 midscale hotels and 251 economy hotels, according to a company news release.
Other initiatives for RLHC include consolidating office space and offshoring its call center provider, Russell said.
“In the near-term, these initiatives will have costs associated with implementation; however, once completed, we anticipate operating at a reduced cost structure that’s better aligned with the size and scope of our business.”
He added these changes are suspected to have a positive impact on business, but will take time to complete.
Franchise agreements, asset sales
Russell said regulators require franchisors to put a pause on entering into new franchise agreements when a company is undergoing a change in leadership.
“Contract signings can resume once new (franchise disclosure documents) are filed and approved by regulatory agencies,” he said. “For RLHC, this meant that we were out of the market for most of November related to the change in the CEO and again in mid-December related to my hiring as the interim CEO.”
During Q4, 26 new franchise agreements were signed, bringing the full-year total to 169 agreements. That figure is slightly below RLHC’s 2019 guidance range of 175 to 210, he said.
“We believe the primary cause of the shortfall was due to being out of the market for nearly two months,” he added.
Once a permanent CEO is named, RLHC will again be out of the market while new FDDs are updated, refiled and approved, he said.
Russell said RLHC successfully completed the dispositions of the Hotel RL Salt Lake City for $33 million in gross proceeds and the Red Lion Hotel Atlanta Airport for $12.25 million in gross proceeds during Q4. The company continues to work on the sale of its Anaheim, California, property, with the expectation that it will close at the end of Q1, said Julie Shiflett, EVP and CFO of RLHC.
RLHC is also committed to selling Hotel RL Olympia in Washington and Hotel RL Baltimore Inner Harbor, she said, and has begun the marketing process.
“We continue to anticipate that cumulative net proceeds in the range of $32 million to $36 million from the combined 2019 and 2020 asset sales,” she said. “RLHC will be using the cash proceeds from these assets to retire existing hotel and corporate debt, support the franchise system initiatives and other options in the best interest of shareholder value.”
Q4 financial performance
The company recorded a net loss of $8.1 million for Q4, and adjusted earnings before interest, taxes, depreciation and amortization for the quarter was $1 million, compared to $2.3 million in 2018, according to the news release.
Core franchise revenues grew 2.6% year over year to $15.3 million during Q4.
As of press time, RLHC was trading at $2.64 per share, down 27.7% year to date. The Baird/STR Hotel Stock Index was down 22.3% for the same time period.