GuestHouse International and Settle Inn franchised hotels doubles RLHC's footprint in U.S. to 130 hotels in 30 states
Tuesday, April 28, 2015 – ALMOST A YEAR ago, RLHC (Red Lion Hotels Corp.) of Spokane, Wash., re-tooled in an effort to grow its brands coast to coast. Last fall it unveiled a new upper midscale lifestyle brand RL Hotel as a vehicle to expand its presence beyond its Pacific Northwest and West Coast borders. The first RL Hotel is expected to open this summer in Baltimore, Md.
Last week, the company moved to substantially add to its portfolio of franchised hotels by inking an agreement to acquire the hotel assets of Boomerang Hotels, namely its GuestHouse International and Settle Inn franchised brands.
The $8.5 million acquisition was announced Thursday, April 23, during the AAHOA Convention & Trade Show in Long Beach, Calif. The deal, expected to close on Friday, will expand RLHC’s U.S. footprint by 73 franchise license agreements in 24 states, more than doubling RLHC’s portfolio from 57 to 130 hotels in 30 states.
Greg Mount, CEO of RLHC, said in an interview with Asian Hospitality the company and Brendan Watters, CEO of Boomerang and its subsidiary GuestHouse International LLC, had first discussed the merger and acquisition about the same time RLHC launched its ground-breaking guest-management technology, RevPAK. “It took us some time to where we were in a position to really do justice to what Brendan had built over the years,” Mount said.
With RevPAK guest management technology fully operational and delivering record results to both RLHC-owned and franchised hotels, Mount said both sides are confident RLHC has the system to deliver more market share to GuestHouse and Settle Inn owners.
Mount said the marriage of brands is tangential to RLHC as GuestHouse International will be positioned as an economy brand and Settle Inn a midscale segmented brand. Besides RL Hotel, RLHC has Red Lion Hotel, an upper midscale product, and Red Lion Inns & Suites, a midscale brand.
“It creates value for us,” Mount said. The Boomerang acquisition is financed by the proceeds from RLHC’s January sale of its Bellevue, Wash., Red Lion Hotel for $35.4 million. At the time of the sale, the hotel was producing $2.5 million NOI. Boomerang’s NOI ranges from $1.5 million to $2 million.
Also at the time of the sale, Mount said RLHC would deploy the cash proceeds to grow its presence in the U.S.
Watters said he wanted a deal that would ensure GuestHouse and Settle Inn franchisees have a secure and profitable future. “The franchise agreements will stay as is, but there may be chances over time for some cross pollinizing,” he said. “That was one of the prime selling points. Red Lion is such a good fit for our hotels. We butt up against one another; the relationship is symbiotic. But Red Lion hotels do not cross over into my franchisees’ territories.”
Although Boomerang hotel owners liked doing business with Watters, they had often said they wished its chain was bigger and had more market reach. Watters had begun to examine technology solutions to deliver more business to his franchisees when he learned of RLHC’s RevPAK system. In the fourth quarter of last year, RevPAK increased RLHC’s system-wide RevPAR by 8.1 percent; its online bookings grew 20 percent year over year; and it saw a 12.9 percent boost in hotel gross operating profit year over year, surpassing fourth quarter gains made by larger hotel companies such as Hilton, Marriott, Hyatt and InterContinental Hotels Group.
“Their progress solidified my decision,” Watters said. “Do I replicate what they’ve done or do I connect my franchisees to a guest management eco system that has clearly performed?”
RLHC’s RevPAK system gives the Boomerang hoteliers what they’ve asked for, Watters said. “It’s a home run for them. The guest management system will drive guest acquisition without any territorial impact.”
Bill Linehan, executive vice president and chief marketing officer for RLHC, said the RevPAK system is scalable to Boomerang franchisees’ guest management needs now and in the future as the expanded brand family grows. “With the various segmentations, it allows us a greater footprint across the country to grow. With the additional brands RLHC will have more shelf space.
“RevPAK’s platform has various guest features that we will use to focus on finding the signature moments that differentiate the brands with consumers and our competitive sets,” Linehan said.
“The guest delivery system and marketing are clearly scalable to additional brands that want the system’s features and benefits; and with our guest programming we are looking at how to improve the branding for even more relevancy as consumer behavior starts to shift. With the platforms that we’ve established over the past year this is a huge scalable opportunity for us.”
The $8.5 million price tag may grow by $1.5 million if the hotels meet performance targets. “Our RevPAK guest management system will provide GuestHouse and Settle Inn hotel owners similar occupancy and ADR gains to those we have achieved in our current hotel system and anticipate a stabilized annual EBITDA contribution of $1.5 million to $2 million from this added portfolio,” Jim Bell, CFO of RLHC, said in a statement.
As for Watters’ next move, once the paperwork is signed, sealed and delivered Friday, Boomerang will transition into a hotel development company. Watters and his business partners Jeff Lamont of Lamont Cos., a developer of hotels and other commercial and residential real estate projects, and Richard Mahoney, a hotel valuation expert and former CEO of Westin and COO at Le Meridien, have already begun to develop hotels in high-end metropolitan markets. Among those developments, Watters said, will be a couple of RL Hotels.