RLH Corp. looks to return to stability after challenging year

Hotel RL Salt Lake City
RLH Corp. sold the Hotel RL Salt Lake City for $33 million in December. Photo credit: RLH Corp.

RLH Corp., still looking for a new CEO following the resignation of Greg Mount a quarter ago, reported net loss of $19 million in 2019 in its fourth-quarter and year-end 2019 results.

“In my short time at RLH Corporation, I've been extremely impressed with the vibrant spirit of this company and of its franchisees,” interim CEO John Russell said on a call with investors. “While 2019 was a challenging year, we're dedicated to RLH Corporation being a thriving franchise and branding enterprise. With our strong brands and engaged owners, we believe through our focus and hard work on three key priorities, we can return RLH Corp. to stability and eventual growth.”

These three priorities consist of accelerating new franchise sales and franchise growth, improving franchise retention and aligning RLHC’s cost structure to its current size, revenue and profitability requirements. “In short, RLH Corp. is going back to basics from the perspective of our owners,” added Russell, alluding to the strategic plan the company released in January.

In addition to its efforts to improve franchise relations, retention and growth—the company has come up with the acronym R.O.A.R.: Recruit, Onboard, Add value and Retain—Russell said the company is committed to reducing and rightsizing its support structure.

“Some initiatives on this front include consolidating office space and offshoring our call center provider, reducing our administrative workforce and renegotiating outside service contracts to the current size of the organization,” said Russell. Though he admitted these efforts will have costs associated with their implementation in the near term, he said once completed, the company anticipates “operating under a reduced cost structure that is better aligned with the size and scope of our business.”

Financial Performance

In Q4 2019, RLHC reported a net loss of $8.1 million, compared to a net loss of $7.4 million in Q4 2018. For full-year 2019, the company posted a net loss of $19 million, compared to a net income of $1.3 million in 2018.

Adjusted earnings before interest, taxes, depreciation and amortization decreased from $2.3 million in Q4 2018 to $1 million in Q4 2019, reflecting lower contribution from the sale of owned hotels in the previous year and lower royalty revenues due to the impact of franchise terminations. Looking at the full year, adjusted EBITDA decreased from $15.8 million in 2018 to $11.6 million in 2019.

Due to the ongoing impact and timing of remaining hotel sales, initiatives to improve franchise owner satisfaction and reduce termination trends, timing and associated transition costs for the implementation of general and administrative expense reduction initiatives and the impacts of hiring of a permanent CEO, RLHC did not provide financial guidance for 2020.

Terminations Outnumber Signings

RLHC executed 169 franchise agreements in 2019, compared to 167 contracts signed the previous year. Of those signed last year, 43 were for new locations, compared to 61 in 2018. In 2020, the company anticipates signing 60 to 80 franchise agreements for new locations.

Offsetting these signings were 98 terminations—including 33 Knights Inns and 52 Americas Best Value Inns—in Q4 and 274 terminations—including 82 Knights Inns and 141 ABVIs—in the full-year. According to Julie Shiflett, EVP/CEO at RLHC, the 2019 terminated agreements had royalty revenue of $1.9 million in 2019 and, on a pro forma basis, would have contribute royalty revenue of $3.6 million for 2020. Shiflett attributed the elevated level of terminations to a mix of factors, including change of hotel ownership, individual hotel financial challenges and monetary default.

“We expect that the termination rate is going to remain above industry standards for the next couple of quarters and then level out back to close to industry standards in the last half of the year,” said Shiflett.