With the increasingly fierce competition in the hotel industry，The pursuit of asset-light strategies is no longer a new trend in the hotel industry，Major international hotel groups have gradually moved away from the traditional self-owned property operation model，Realize the transformation to entrusted management and franchise (franchise) model。

This transformation provides new possibilities for large hotel groups to maintain rapid expansion in the face of fierce competition。2016 for Red Lion Hotel Group with more than 1,100 hotels，This is a critical year for the transformation to an asset-light operating model，Through investment and sales of own hotel assets in the past three years，Red Lion Hotel Group’s franchise stores increased 20 times。Income before interest, taxes, and depreciation from franchising has increased from 5% in 2014 to 25% in 2016，Among them，The transformation success of Red Lion Hotel comes more from its unique investment and acquisition strategy。

October 5，Red Lion Hotels board of directors approves sale of 11 of the company’s remaining 18 directly owned hotels。

Doug Ludwig, Chief Financial Officer of Red Lion Hotel Group said，The decision to sell these properties marks a major step in the company's pursuit of an asset-light strategy，In fact, the company has been planning this strategy four years ago。

Red Lion Hotel Group pursues this asset-light strategy not just because it makes good business sense，At the same time, it can also help the company obtain "franchise business similar to Vantage Hotel"，To enable the company to obtain greater benefits。188bet sports betting app download (Red Lion Hotels completed the acquisition of Vantage Hotels in September 2016，Acquisition value $27 million，Involving the operating rights of approximately 1,000 franchise hotels，Most of them are budget hotels。Vantage Hotels owns Signature Inn、America’s Best Value Inn、Canada’s Best ValueInn、Value InnWorldwide and many other brands。）

So what type of franchise hotel does Red Lion hope to acquire?？ Ludwig did not mention his name directly，But some hints were given in the words。

He said: “I think we will focus on acquiring mid- to high-end hotels in the future。The Vantage brand mainly focuses on budget hotels，The advantage of acquiring high-end hotels is that it brings more fee income，Because franchise and marketing expenses are calculated as a percentage of room revenue。Also，Different from the 5-10 year contract of joining a budget hotel，Mid-to-high-end hotel franchises usually require a long-term contract of 20-30 years。”

In addition, he also said，Potential future acquisition targets are likely to be private companies，Because they are not large enough to attract the world-renowned hotel chain groups，For example, like Marriott、Hyatt or Hilton’s attention。This will make the acquisition of Red Lion easier。

“In fact, in many aspects we have the same strong integration and management capabilities as these large hotel groups，The only difference is that our hotel properties are often regional，Tend to be smaller。They are probably 30 to 40 hotels with properties similar to Vantage，And I don’t think anyone will have heard of their name until we eventually acquire them。Except United States and Canada，I’m sure there are many other places with interesting opportunities like this，So we hope to work hard to find and accumulate。”

Although Red Lion is not known for its high-end hotel business，But Ludwig said，The company is building momentum for its high-end hotel brand RL，And all this is because 188bet sports betting app download the company wants to better "complete" its hotel brand portfolio，Thus attracting new franchisees to join。

“We are improving our contact and cooperation model with owners，And try to persuade them to join Red Lion’s brands。For example, our RL Hotel，As a high-end hotel brand launched by us，Has received very good market response。”

He also said，Red Lion has some new developments regarding Hard Rock Hotels’ intellectual property infringement regarding Hard Rock’s new Reverb hotel brand，But more details may not be released until next week or weeks later。

Ludwig said，With the completion of the acquisition of Vantage，Red Lion now has a total of nine brands: three budget hotels，Three mid-range and three high-end hotels。The company is working hard to promote these hotel brands。

“Our U.S. properties are located in all 50 states，40 properties in Canada，There are also some property operations in South Korea and India。We need to make sure our customers and dealers understand who we are and what each of our brands stands for。”

Red Lion’s relationship with distributors like Expedia is also different from its hotel counterparts。2016，Red Lion announces it will allow Expedia and Hotels.com and other OTAs are sold on the OTA platform at member-only prices，To automatically include these guests who booked through OTA channels into the Red Lion Hello Rewards customer loyalty program。If Red Lion wants to continue to grow and expand，It remains to be seen whether the company will retain this OTA-friendly distribution method in the future。

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The pursuit of asset-light strategies is no longer a new trend in the hotel industry，Major international hotel groups have gradually moved away from the traditional self-owned property operation model，Realize the transformation to entrusted management and franchise model。

Look at the spin-off Hilton completed earlier this year，and Marriott，It has been implementing an asset-light strategy for many years。And this process will continue，Marriott is currently transforming the traditional 188bet Online Sports Betting and Casino business of Starwood Hotels, which it just acquired for US$13.3 billion last year, into a business model that is more characteristic of Marriott hotel management.，In other words，Marriott is taking steps to expand its Starwood hotel assets，Implementing its asset-light development strategy。 Data display as of December 31, 2016，Marriott Group has 1821 managed stores、4006 franchise stores，There are only 253 self-owned rental and other hotels，Another example among the 7645 hotels of Wyndham Hotel Group, another global hotel giant，There are 7585 franchise stores，58 companies adopt the entrusted management model，Only 2 are self-owned。

Michael Bellisario, senior research analyst at Baird Equity Research, wrote in an investor note: "The shift to asset-light strategies will continue to accelerate across the hotel industry，Especially as shares of Marriott and Hilton are trading at multiples above their valuations。Hyatt is one of the few global hotel brands that still maintains its own real estate strategy。However，Even Hyatt’s asset strategy seems to be undergoing a subtle shift，They pursue a different “asset recovery” strategy，That is, selling some hotel assets，Then use the funds obtained to purchase more hotels。Management statement，The company's future profit growth will be mainly driven by its management and franchise operations。”

For a relatively small company like Red Lion，It is important to achieve continued growth while competing with larger hotel companies。

Four years ago，Red Lion has already begun formulating a light-asset strategy and begun disposing of its assets，Created multiple joint ventures at the same time，Help companies transition from 100% asset owner to 55% share，Ludwig said。

With the acquisition of Vantage，Red Lion adds approximately 1 to its portfolio,000 new properties，And all these properties belong to the franchise model。Ludwig said: “We acquired these franchises at very 188bet app favorable valuations，This means the purchase price is within our management capabilities，And we saw very good returns within the first year of investing。”

He also added: "We will realize the return of investment in Vantage within the next two to three years，This is one of the benefits of being asset-light。Assets often come with more debt than ownership，And it usually takes three to five years or even longer to recoup the investment, depending on the situation，The capital turnover period of the franchise model is obviously shorter。We completed the acquisition with cash reserves and no debt，And everything went well。”

Ludwig pointed out，Another benefit of the asset-light model is，It makes the business "more stable，Not easily affected by changes in the economic situation，At the same time, the profit margin of the business will be higher”。

"In ownership asset mode，Operating profit margins typically range from 18% to 20%，Higher may reach 22%。In franchise mode，We achieved a profit margin of nearly 30% in the second quarter，And we also see potential for further growth。”

“The reasons why the hotel industry has generally begun to shift to a light-asset operating model include: after signing a franchise agreement, the company does not need to invest a large amount of capital，Able to achieve profitability quickly，，The enterprise does not have any startup losses。Also，Businesses are not affected by capital flow like real estate。The asset-light strategy is one with low capital investment、Stable、Operation model with relatively high profit margin，Because of this，The investment community is willing to offer a higher valuation or price-to-earnings multiple。”

In view of this sustainable growth model，Ludwig believes，In the next two or three years, Red Lion’s profit margin may rise to 40% to 50%。

*The author of this article: Xu Liyang, an analyst at Zhihui.