Red Lion Hotels Corporation (RLH) recently inked a franchise license agreement with the owners of a hotel located at the Denver International Airport. The 87-guestroom property will now become the Red Lion Inn and Suites Denver Airport. This new property is scheduled to be unveiled by November 2012. Financial terms of the deal were not disclosed.
The new property, adjacent to the Denver International Airport, is strategically located in a dynamic, high-barrier-to-entry market as the Denver International Airport is the fifth busiest airport in the nation. Owing to its prime location, the property has easy downtown access and is in close proximity to several important venues, some of which are used by sports teams like Denver Broncos, Colorado Avalanche and Denver Nuggets.
We view the deal as strategically positive for both the parties. The deal paves the way for the owners of the hotel, Tower Hospitality, to reap the benefits from Red Lion’s much greater scale and brand name. This will aid the property in its competition in the mid-scale market.
On the other hand, Red Lion will enjoy the excellent positioning of the property. The company had been in search of an asset in the Denver Airport location. Management at Red Lion believes that the location of the property will complement and highlight its brand better.
Also, this partnership will extend Red Lion’s reach into the Denver market – the largest city and the capital of the U.S. state of Colorado, where tourism is the second largest industry, fueling the hospitality sector.
Denver itself is considered to be a prime destination for business and leisure travelers. With the presence of the Rocky Mountains as well as the prevailing cultural attractions and outdoor activities, Denver offers itself as one of the thriving markets in Colorado.
Presently, Red Lion has one property – Red Lion Hotel Denver Central – operating in that market. The company has decided to offload yet another property – Red Lion Hotel Denver Southeast. The sale of the Denver Southeast property is expected to close on or before October 31, 2012.
However, Red Lion’s new property will likely face stiff competition from its peers like Starwood Hotels & Resorts Worldwide Inc. (HOT), Hyatt Hotel Corp. (H) and Choice Hotels International Inc. (CHH) which are present in that airport location. Red Lion currently carries a Zacks #3 Rank, which translates into a short-term Hold rating.
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