Red Lion Reports Fourth Quarter and Full Year 2008 Results
Red Lion Hotels Corporation (NYSE:RLH) today announced its results for the fourth quarter and full year ended December 31, 2008. Summary results for the three-month and full year periods follow:
($ in thousands, except per share)
Three months ended Full year ended
December 31, December 31,
2008 2007 %change 2008 2007 %change
Total revenue,
as reported $41,313 $44,074 -6.3% $187,570 $186,893 0.4%
Continuing
operations
before
2008 Special
Item and
Restructuring
Expenses: (1)
EBITDA $3,622 $4,715 -23.2% $31,378 $33,138 -5.3%
Net income
(loss) $(2,598) $(1,097) NM $1,986 $5,231 -62.0%
Earnings
(loss)
per share -
diluted $(0.15) $(0.06) NM $0.11 $0.27 -59.4%
Continuing
operations
as reported:
EBITDA $1,555 $4,715 -67.0% $25,657 $33,138 -22.6%
Net income
(loss) $(3,931) $(1,097) NM
$(1,704) $5,231 NM
Earnings (loss)
per share -
diluted $(0.22) $(0.06) NM $(0.09) $0.27 NM
Total earnings
(loss) per
share -
diluted, as
reported $(0.22) $(0.07) NM $(0.09) $0.32 NM
(1) Excludes $2.1 million of restructuring expenses -- primarily
consisting of cash and non-cash severance charges totaling $1.2
million and a $0.9 million non-cash charge for intangible assets --
incurred in the fourth quarter of 2008, net of impact on income taxes.
Full year results also exclude $3.7 million of cash and non-cash
separation costs incurred in the first quarter of 2008 related to the
retirement of the company's former President and CEO, net of its
impact on income taxes.
Three months ended Full year ended
December 31, December 31,
2008 2007 %change 2008 2007 %change
RevPAR (revenue
per available
room) $41.35 $45.07 -8.3% $55.08 $55.33 -0.5%
ADR (average
daily rate) $84.38 $84.25 0.2% $90.12 $88.64 1.7%
Occupancy 49.0% 53.5% -450 bp 61.1% 62.4% -130 bp
Hotel Direct
Operating
Margin 13.6% 15.7% -210 bp 23.1% 23.3% -20 bp
Commenting on the fourth quarter results, President and Chief Executive Officer, Anupam Narayan said, "We were affected by the deteriorating economic environment throughout the quarter and expect the economy and the hotel industry will continue to be challenged in 2009. In response, we are aggressively implementing further cost-cutting steps at our hotels and at the corporate office. These include a reduction in work force, consolidation of management teams at hotels, a company-wide hiring freeze, a 5% wage cut for all salaried employees and other adjustments to our operations. Through these measures, we expect to reduce our overall annual expenses by $10 to 12 million."
Narayan continued, "Although we are cutting costs in many areas, we are taking advantage of the full service nature of our hotels by ramping up our sales and marketing efforts to attract preferred corporate business, groups, meetings and banquets. These are all types of business in our markets that are easier to influence than the transient traveler. We expect the steps we are taking now will place the company in a stronger position when industry demand improves. I am proud of the way our teams have responded to the challenges we are facing and the efforts of our associates to ensure our guests are consistently well served."
"We have a strong cash position, we have no debt maturing until 2011 and we have a valuable asset base of owned hotels and real estate in key Western markets. We believe our capital structure gives us an advantage in weathering the current economic conditions and allows us to focus even more closely on our operations in 2009," Narayan concluded.
Fourth Quarter Results
Red Lion's total revenue during the fourth quarter was $41.3 million, compared to $44.1 million for the prior-year period. Revenue from hotels was $35.2 million, down 4.8% from the fourth quarter of 2007, primarily due to the weak macroeconomic and industry environment, partially offset by the addition of the Red Lion Hotel Denver Southeast -- acquired in May 2008. On a same- store basis, ADR improved 0.2%, offset by a decline in occupancy of 450 basis points, which resulted in a decline in RevPAR of 8.3%. Hotel direct operating margin for the quarter was 13.6%, 210 basis points lower than the prior year period, driven primarily by lower revenues and lower than optimal margins at the company's Anaheim hotel, which was undergoing renovations, and at the company's Denver hotel, which is still ramping up since its acquisition. Absent the contributions of Anaheim and Denver in both periods, hotel direct operating margin in fourth quarter 2008 would have been 16.2%, 30 basis points lower than the prior-year period. System-wide (which would include franchised hotels), RevPAR on a comparable basis for the quarter decreased 7.1%, with a 390 basis point decrease in occupancy on a 0.2% increase in ADR.
Franchise and management revenue was $0.3 million, or $0.2 million lower than the prior-year period due to a lower number of franchisees in the system. Entertainment revenue was $5.0 million, a decrease of $0.8 million due to fewer shows presented in the fourth quarter of 2008 compared to the same quarter in 2007.
EBITDA from continuing operations for the fourth quarter of 2008 before restructuring expenses was $3.6 million, compared to $4.7 million for the fourth quarter of 2007. Net loss from continuing operations before restructuring expenses was $2.6 million, compared to a net loss of $1.1 million for the prior-year period. Loss per share from continuing operations before restructuring expenses was $0.15, compared to a loss of $0.06 per share for the fourth quarter of 2007.
Full Year 2008 Results
Red Lion's total revenue for the full year ended December 31, 2008, was $187.6 million, compared to $186.9 million in 2007. Reported revenue from hotels was $170.6 million, up 2.6% from the prior year, primarily related to the addition of the Anaheim hotel -- acquired in October 2007 -- and the Red Lion Hotel Denver Southeast -- acquired in May 2008. Hotel direct operating profit increased 1.6% to $39.3 million, while direct operating margin was down slightly to 23.1%.
RevPAR for owned and leased hotels on a comparable basis for 2008 was down 0.5%, due to a 130 basis point decrease in occupancy, partially offset by a 1.7% increase in ADR. System-wide, RevPAR on a comparable basis decreased 1.2% year-over-year, with a 220 basis point decrease in occupancy.
Results for 2008 included revenue from the Anaheim hotel, acquired in October 2007, and revenue from the Red Lion Hotel Denver Southeast, acquired in May 2008. Results for 2008 did not include revenue from the Red Lion Hotel Sacramento, which was subleased to a franchisee in July 2007.
Franchise and management revenue was $1.9 million, down $0.9 million from the prior year, primarily due to fewer franchisees in the system. Entertainment revenue was $12.0 million, down $2.8 million from the prior year related primarily to lower attendance year-over-year and the mix of shows presented during 2008.
EBITDA from continuing operations for the full year ended December 31, 2008 (before the 2008 special item for separation costs and restructuring expenses) was $31.4 million, compared to $33.1 million in the prior year. Net income from continuing operations before the 2008 special item and restructuring expenses was $2.0 million, compared to $5.2 million in the prior year. Earnings per fully diluted share for the full year ended December 31, 2008 before the 2008 special item and restructuring expenses was $0.11, compared to $0.27 in the prior year.
Red Lion System Update
Renovations at the 310-room Anaheim hotel are substantially complete and the hotel was renamed the Red Lion Hotel Anaheim in January 2009, with a formal grand opening planned by the end of the first quarter. Renovations at the recently acquired 478-room Denver hotel are progressing and, given the current economy, will be staged throughout the year.
Liquidity and Balance Sheet
As of December 31, 2008, the company had approximately $18.2 million in cash and cash equivalents, and outstanding debt of $150.2 million. The weighted average interest rate on the debt is 6.0%, and approximately 67% of the debt is at a fixed rate with the earliest maturity occurring in 2011. The company continues to maintain a $50 million credit facility with $36 million outstanding as of December 31, 2008, and is in compliance with all of the facility's covenants.
On November 26, 2008, the company announced that its Board of Directors authorized a common stock repurchase program that enables the Company to purchase up to $10 million of its common stock. In mid-December, the Company repurchased 303,000 shares of common stock at a cost of $0.9 million, or an average price per share of $2.95. No further repurchases of stock have been made since that time.
For 2009, the company has scaled back its capital expenditures to essential investments in maintenance, technology and necessary hotel improvement projects. These investments include completing the renovation of the Anaheim hotel and the remodel of the Denver Southeast hotel. Capital expenditures in 2009 are expected to be $20 million, which will be spread throughout 2009 and scaled back if necessary. Capital expenditures for 2009, excluding the investments in the Denver and Anaheim hotels, are expected to be $10 million.
Outlook for 2009
Given the current economic environment, it is very difficult to provide definitive guidance for 2009 at this time. In general, industry expectations suggest larger RevPAR declines in the first half of 2009 as comparisons continue to be challenging. In the second half of 2009, we expect RevPAR declines to abate as comparisons with the second half of 2008 become easier. Based on the outlook and information available today, the company is providing the following broad guidance for 2009, which it expects to update as the year unfolds:
• 2009 RevPAR for company owned and leased hotels is expected to decline 8% to 12% from 2008 on an annual basis
• 2009 direct hotel operating margin is expected to range from flat to down 200 basis points
• EBITDA from continuing operations is expected to be $28 to $34 million, before any special items
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