Red Lion Hotels Corporation (RLH, Financial) is a small hotel company with solid growth opportunity. The company has posted mixed results in the second quarter, but has enough opportunity in the future because of its growth strategy, new leadership, guest management system and strong operating results momentum.
Headquartered in Spokane, Washington, Red Lion Hotels is a hospitality and leisure company primarily engaged in the management, franchising and ownership of hotels under the Hotel RL, Red Lion Hotel, Red Lion Inn & Suites, GuestHouse International and Settle Inn brands. The company has 130 hotels systemwide, and also owns and operates an entertainment and event ticket distribution business.Ă‚
Performance check: Mixed figures posted
On Aug. 4, Red Lion reported financial results for the second quarter where revenue per available room (RevPAR) from comparable company operated hotels increased 13.7% to $71.65 year-over-year. Company-wide RevPAR increased 13.8% to $62.36, primarily from a 4.5% increase in ADR to $92.17 and a 560 basis point increase in occupancy.
Red Lion’s franchise revenue was $3.22 million, a decrease of $1.2 million or 27.5% compared with the same period a year ago.
Further, the company’s entertainment segment’s revenue was $2.06 million, a decrease of 62.8% compared with the same period a year ago, mainly due to a significant reduction in the number of show nights.
Red Lion’s net loss was $1.9 million compared with net income of $5.1 million in the same period a year ago. Net loss per share was $0.10 versus a net income of $0.26 per share for the same period in 2014.
On the other hand, the company’s adjusted EBITDA improved 14.2% to $4.4 million compared with $3.9 million in the same period a year ago. The increase is primarily due to improved company-operated hotel operations, partially offset by lower year-over-year income in the company's entertainment division. Red Lion ended the quarter with cash and cash equivalents of $81.33 million, and consolidated outstanding debt of $95.48 million.Â
Projections for 2015
Red Lion expects its 2015 RevPAR for comparable company-operated hotels will increase 7% to 9% over 2014, versus the company's prior guidance of 4% to 7%. The company estimates that its capital expenditures, including those associated with the 12 company-operated RL Venture hotels, will be between $25 and $30 million. Further, the company expects to add between 20 and 30 hotels in the Red Lion brands this year.
Growth strategies
After completing the acquisition of Red Lion Hotels in 2001, the company went into hibernation until 2013, and in that period there were no proper records of its performances. It then started fresh from the roots to gain a notable position in the industry. The following are the company’s growth strategies:
- To intensify franchise and brand development
- To unlock real estate value, which will fuel the company’s growth
- To reposition and expand Red Lion Hotel Corporation brands
- To deploy industry-leading technology
Red Lion’s RevPak is improving the performance of RLHC Brands. RevPak is a platform which integrates multiple capabilities to support reservations and distribution services, revenue management, customer relations and digital marketing.
In 2014 and early 2015, the company sold seven properties, all of which remained in the system either as franchised or managed property. Further, Red Lion has generated over $60 million in capital for growth investments. To intensify franchise and brand development, the company has signed 19 franchise agreements. Recently, Red Lion has opened two new franchise locations in California, and the company’s subsidiary has formed a joint venture with an affiliate of Shelbourne Falcon Investors to acquire the 3 Palms Atlanta Airport North for $6.3 million.
New management team
To drive the company’s corporate transformation, Red Lion has hired well-respected hospitality veterans with positive records. President and CEO Greg Mount is a proven growth strategist who has already shaped Red Lion’s position. Recently, the company has appointed Robert G. Wolfe as chairman, who has more than 30 years of experience in investment banking, financial management and operations.
A peek into the hotel industry
As per Smith Travel Research (STR), the U.S. hotel industry is expected to experience continued performance increases through 2016. STR has estimated that for 2016, the U.S. hotel industry will post 0.8% increase in occupancy to 65.8%, a 5% rise in ADR to $126.94 and a 5.8% increase in RevPAR to $83.56.
Over the past five years, the global hotel industry experienced strong growth due to the steady rise in global travel rates and increase in international tourism. It is expected that this growing trend will continue to remain strong over the next couple of years.Ă‚
On a concluding note
Overall, Red Lion is a rock solid company with a largely solid financial position and reasonable debt levels. Further, the company has nine consecutive quarters of year-over-year increases in comparable company-operated RevPAR and positive adjusted EBITDA. Additionally, Red Lion’s multi-faceted growth strategy is building a hospitality company with a national scale. Therefore, I expect that this small hotel company will deliver exceptional returns in the near future.
(Source: Company’s website)
