RLH Corporation (NYSE:RLH) announced today the Company executed 40 hotel franchise agreements during the second quarter, an increase of approximately 38% versus the number of contracts signed during the second quarter of 2018. The 40 contracts included 5 mid and upscale (USB) hotels and 35 select service (SSB) hotels. Year-to-date, the Company has signed 96 contracts, which include 13 USB hotels and 83 SSB hotels. On a year to date basis, contract signings are 60% ahead of the first half of 2018. Given the momentum in contract signings year to date, RLHC is raising its expectations on execution of franchise agreements in 2019 to 175 to 210 contracts from the prior guidance of 160 to 200 contracts.
RLH Corporation President of Global Development Paul Sacco stated: “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. We are enthusiastic about our pipeline and are working diligently to sign with owners that embrace RLHC’s ethos and values.” Mr. Sacco continued, “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. Year to date, contracts for new and existing locations for its USB brands had an average net present value of over $255,000 as compared to an average net present value of approximately $74,000 for the terminated USB hotels. In comparison, contracts for new and existing locations for its SSB brands had an average net present value of over $36,000 as compared to an average net present value of approximately $24,000 for terminated SSB hotels. The improvement in net present value for new contracts is demonstrative of the longer term and higher quality contracts being entered 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. It is anticipated 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.