DENVER — RLH Corporation executed 40 hotel franchise agreements during the second quarter—an increase of approximately 38 percent versus the number of contracts signed during the second quarter of 2018. The 40 contracts included five midscale and upscale hotels and 35 select-service hotels. Year-to-date (YTD), the company has signed 96 contracts, which include 13 midscale and upscale hotels and 83 select-service hotels. On a YTD basis, contract signings are 60 percent ahead of the first half of 2018.
Given this year’s momentum in contract signings, RLHC is raising its expectations on its executed franchise agreements in 2019 to between 175 and 210 contracts from its previous forecast of 160 to 200 contracts.
“Our development team’s strong start to the year illustrates the value of the RLHC brands. Our brands are seeing a great deal of interest and our contracts for new hotels are positioned to deliver higher value over time as compared to those hotels that have exited our platform,” said Paul Sacco, RLH Corporation president of global development. “We are enthusiastic about our pipeline and are working diligently to sign with owners that embrace RLHC’s ethos and values. The strong pace of signings in the first half of the year gives us the confidence to raise our executed contract range to 175 to 210 for 2019.”
The company uses the net present value of royalty revenue, which includes the contract acquisition cost, to evaluate the long term contribution of a contract to its core franchising business. YTD, contracts for new and existing locations for its midscale and upscale brands had an average net present value of more than $255,000 as compared to an average net present value of approximately $74,000 for the terminated midscale and upscale hotels.
In comparison, contracts for new and existing locations for its select-service brand brands had an average net present value of more than $36,000 as compared to an average net present value of approximately $24,000 for terminated select-service hotels. The company noted that the improvement in net present value for new contracts is demonstrative of the longer-term and higher-quality contracts that it’s entering into.
Of the 96 contracts signed during the first half of the year, 30 contracts were for new locations coming onto the RLH platform. These hotels will have phased openings over the next 24 months. The company is anticipating the new hotels will contribute approximately $228,000 in royalty revenue in 2019. The 30 hotels have an anticipated royalty revenue baseline of approximately $875,000 for their first twelve months of fees, after application of incentives and fee deferments. This royalty fee stream does not include incremental revenues generated from transaction, marketing, or other franchise fees.