SPOKANE, Washington—Executives from Red Lion Hotels Corporation are focused on growth as key component of their ongoing campaign to appease investors and increase shareholder value, hiring last week Ron Burgett, formerly of Northcott Hospitality and Choice Hotels International, to lead the mission.
Hiring Burgett as executive VP of brand development comes several months after the Spokane, Washington-based owner, operator and franchisor
received a letter from Columbia Pacific Opportunity Fund, which owns 28.8% of Red Lion’s outstanding shares, “requesting that the board hire an advisor to run a full and transparent process to sell Red Lion in whole or in parts.”The letter kicked off an avalanche of support from other investors who voiced concerns, forcing Red Lion executives to explore “strategic alternatives” to maximize the company’s value.
While those efforts remain ongoing, Red Lion also is focusing on growth.
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Ron Burgett |
“I’m on board with the goals that have been set with the company,” which include Red Lion’s plans to have 30 to 40 franchise contracts within the next 24 months, said Burgett, who was appointed executive VP of brand development 9 July. The company has 18 franchise contracts in its portfolio of 48 hotels.
A representative from Columbia Pacific Opportunity Fund did not return call for comment before press time.
Part of the Red Lion growth strategy is to develop a more balanced portfolio.
“We own 30 hotels out of our base. We own the majority of them, and we want to get that number closer to 50-50. That would be a better model for us,” he said.
The magic number of new properties the company aims to add to the portfolio during 2012 is 10, Burgett said. “Looking at the pipeline, we expect that to happen.”
Without having a complete strategy yet in place for 2013 and 2014, Burgett said executives of Red Lion are expecting to complete 10 to 15 deals during that timeframe.
But not everyone shares that optimism. A research note issued 2 July by Baird Equity Research said franchise growth will remain a challenge. Additionally, several of those contracts might come from existing assets rather than from new sites.
The note came after Baird downgraded Red Lion to underperform.
“We would be more constructive on the name should non-core asset sale dispositions and franchise unit growth progress accelerate,” Baird said in its release.
Expansion by conversion
Most of Red Lion’s deals will come in the form of property conversions, Burgett said. “We do have a new-build prototype, which is something we are not actively promoting because there’s not a lot of money out there for construction.”
Regardless of the type of the deal, Burgett said a crucial factor when signing a contract is making sure the resulting assets are in the right markets with the right people.
“We spend a lot of time on that when we add a new hotel (to make sure) that it is as beneficial to us as it is to our franchisees … That does affect growth, and there are times we walk away from a deal.”
For the time being, Red Lion is sticking to its familiar markets. “Our plans are to complement what we have. We’re in gateway cities in the West—Anaheim (California), Denver, Portland, Seattle … We are looking to spin-off in those locations and grow in those markets,” he said.
In addition, the company has devoted a significant amount of time in recent months learning about the type of guests who are staying at Red Lion hotels and what they expect to see when they check in.
By understanding their guests, executives of Red Lion are confident they can keep them coming back, Burgett said.
Strategic alternatives
As for the strategic alternative plan, Burgett declined to give specific details about what the company has in store. However, he did say Red Lion is working with third-party companies to help develop a course of action, which Red Lion could be ready to reveal in approximately six months.
Pam Scott, spokeswoman for Red Lion, said the strategic alternatives the board is addressing will looks at how the organization moves forward as a total company. Bringing in new investors is a key part of that, she said.
“The options are unlimited, and it’s an ongoing process. As soon as we have anything to announce, we will. Until then, there’s nothing to be said about the process,” Scott said.
Baird commented on Red Lion’s unlikelihood to find a buyer for its portfolio, one of several “strategic alternatives” the company is exploring to increase shareholder value.
“We do not believe Red Lion’s platform or assets will generate significant buyer interest at a value near the current share price,” Baird said in its release. The company’s stock closed Friday at $8.57 per share, up 23.67% year to date.