RLH Corporation Results

RLH Corporation Reports Third Quarter 2019 Results

Red Lion Hotels Corporation last week reported third quarter 2019 results.

 Third Quarter Highlights

  • Net loss attributable to RLH Corporation for the quarter was $3.5 million or ($0.14) per share compared to net income attributable to RLH Corporation of $8.9 million or $0.35 per diluted share in the prior year period. The year-over-year change is primarily due to a gain of $26.0 million from asset sales in the year ago period and lost revenue from hotels sold during 2018.  
  • Adjusted EBITDA for the third quarter was $5.9 million, an increase of $0.1 million as compared to the third quarter of 2018, reflecting the impact of cost controls the Company has implemented over the last year offset by lower company operated hotel profits and higher bad debt expense primarily due to one large customer.
  • Franchise related revenues grew 7% year-over-year to $16.2 million. Adjusted Core EBITDA was $1.9 million as compared to $0.8 million a year ago.
  • Executed 47 franchise agreements, an increase of 57% year-over-year. The agreements are comprised of 10 midscale hotels and 37 select service hotels; of these, 14 are for new locations. Offsetting new franchise agreements were 60 terminations, comprised of 9 midscale hotels and 51 economy hotels. Year-to-date, the Company executed 143 agreements, an increase of 43% from last year, and had 176 terminations compared to 68 in the prior year.  
  • Announced non-binding agreements for the sale of four hotels, Red Lion Hotel Atlanta Airport, Hotel RL Washington D.C., Hotel RL in Salt Lake City and Red Lion Hotel Anaheim, for an approximate total of $85 million in gross proceeds with net proceeds to the Company of $32 million to $36 million after hotel debt repayments and joint venture distributions. The sale of all four hotels are expected to close by the end of Q1 2020.
  • Realigned 2019 guidance for Adjusted EBITDA from continuing operations to a range of $11.5 million to $13.5 million from $20.5 million to $22.5 million prior, reflecting under-performance of company owned hotels, elevated terminations in the core franchise business year-to-date and increase in bad debt expense and related collection costs for a large customer.

Third Quarter 2019 Financial Results 

The Company reported a net loss attributable to RLH Corporation of $3.5 million or $(0.14) per share in the third quarter as compared to net income attributable to RLH Corporation of $8.9 million or $0.35 per diluted share in the prior year period. The year-over-year change was primarily related to the loss of revenue from sale of the Company Operated hotels as well as the associated gain of $26.0 million in the 2018 period.

Adjusted EBITDA for the third quarter was $5.9 million, an increase of $0.1 million as compared to the third quarter of 2018, reflecting a reduction in operating costs and compensation expense offset by lower company operated hotel profits and higher bad debt expense primarily due to one large customer.

Royalty fees decreased 9.5% to $5.9 million primarily due to terminated agreements in SSB branded hotels. Marketing, reservations and reimbursables revenue, which are fees from franchised properties associated with the Company’s brands and shared services, increased 9.3% to $8.3 million due to an increase in transaction and reservation fees.

Selling, general, administrative and other expenses, which include franchise sales, operations and corporate costs and bad debt expense, remained relatively flat at $8.2 million, as the Company’s continued  focused on leveraging technology to drive efficiencies, controlling costs and reducing payroll, including a decrease in incentive compensation, was offset by an increase in bad debt and related expenses due to a large customer. 

An asset impairment charge of $5.4 million was recorded in the current year quarter based on carrying values of hotels under non-binding sale agreements compared to the sale values.

For the quarter, the Company executed 47 franchise agreements comprised of 10 upscale and midscale hotels and 37 select service hotels, an increase of 56% from executed franchise agreements signed in the prior year period. Year-to-date, the Company has signed 143 contracts including 23 upscale and midscale hotels and 120 select service hotels. Of the 143 contracts signed to date, 40 are for new locations. Our midscale franchise contracts typically open six to eighteen months after signing and contain future royalty rate increases, which allow our revenue to increase without needing to increase support costs.  For instance, midscale contracts, signed throughout 2019, contributed just $0.1 million in 2019 royalty revenues and are expected to contribute approximately $0.5 million of royalty revenue in 2020 and increase annually by 10% to 20% for the following two years.

Offsetting the newly executed signings in the quarter were 60 terminations which included 9 midscale hotels as well as 51 economy hotels. Year to date, there have been 176 terminations comprised of 17 midscale hotels and 159 economy hotels.

Balance Sheet and Liquidity

RLH Corporation finished the third quarter with cash and restricted cash of $21 million including $7.3 million of cash and cash equivalents held by the joint ventures and debt of $55 million comprised of a corporate term loan of $4.0 million, a corporate level $10 million revolving line of credit, and $41 million of hotel mortgages. As of September 30, 2019, the Company had a low net debt to trailing 12 months Adjusted EBITDA ratio of 2.5 times.  Adjusted free cash flow for the nine months ended September 30, 2019 was approximately $3.8 million as compared to the prior year period of $(16) million and $(15.) million for the twelve months ended December 31, 2018.

Hotel Sales

During the quarter, the Company entered into non-binding agreements to sell four Company owned hotels for gross proceeds of approximately $85 million and net proceeds to the Company of $32 million to $36 million after hotel debt repayments and joint venture distributions. The hotels include Red Lion Atlanta Airport, Hotel RL Washington D.C. and Hotel RL Salt Lake City, all of which are held in joint venture entities of which RLH owns 55%. The Company also announced the execution of a non-binding sales agreement for the Red Lion Hotel Anaheim, which is a wholly owned unencumbered asset.  Net proceeds to the Company will be used to pay down corporate debt and fund future franchise growth opportunities.

The sales are expected to be completed by the end of Q1 2020.

2019 Expectations

The Company is providing updated guidance with respect to the number of franchise agreements, Corporate Selling General and Administrative expenses, and a reduction in Adjusted EBITDA from continuing operations. Revised expectations for 2019 do not contemplate the sale of the owned hotels under contract due to the unknown timing of the sales.  As each sale closes, the Company will disclose the material terms of each transaction in an 8K filing including the historical Adjusted EBITDA relating to the sold hotel.

  • The Company affirms its expectations for executed franchise agreements for 2019. The Company expects to execute between 175 to 210 contracts.
  • Adjusted EBITDA from continuing operations is now expected to be between $11.5 million and $13.5 million in 2019, down from $20.5 million and $22.5 million prior, reflecting the under performance of the remaining company owned hotels and the core franchise business as well as the additional expenses due to increases in bad debt and collection costs.
  • Selling, general, administrative and other expense guidance is being suspended while management and the board are reviewing how to align the cost structure with our revenue base.
  • The four hotels currently under non-binding sale agreements contributed $5.1 million and $6.3 million of Adjusted EBITDA for the nine months ended September 30, 2019 and 2018, respectively.  These four hotels also contributed $7.5 million of Adjusted EBITDA for the full year of 2018.  These four hotels contributed $25.3 million and $26.2 million of revenue for the nine months ended September 30, 2019 and 2018, respectively.  These four hotels also contributed $33.8 million of revenue for the full year of 2018. 

About RLH Corporation

Red Lion Hotels Corporation is a hotel company doing business as RLH Corporation which focuses on the franchising of upscale, midscale and economy hotels.



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