Financial

Red Lion Hotels Second Quarter 2012 Revenues Decline

Total revenue from continuing operations reported during the second quarter of 2012 was $38.8 million compared to $42.2 million in the second quarter of 2011.

Red Lion

Red Lion Hotels Corporation (NYSE: RLH), a western U.S. based owner and franchisor of midscale hotels, today announced its results for the second quarter ended June 30, 2012. The company reported second quarter revenues of $38.8 million and EBITDA of $5.5 million, each from continuing operations before special items.

Overview:

  • RevPAR for comparable owned and leased hotels increased 5.4 percent year-over-year
  • Occupancy increased 280 basis points year-over-year driven primarily by increases in the transient and group segments
  • ADR for comparable owned and leased hotels increased 1.0 percent during the quarter
  • Comparable EBITDA from continuing operations before special items increased $0.8 million compared with the second quarter of 2011
  • Subsequent to quarter end, the company announced a new franchise near Palm Springs, California and achieved significant progress on asset sales.

Comparable operating results and data from continuing operations (as disclosed in the table by the same title) for the periods included in this release exclude from hotel operations the results of the Red Lion Hotel on Fifth Avenue in Seattle, which was sold in the second quarter of 2011. Following the sale, this property continues to operate as a franchised hotel and the company is therefore required to report its financial results in continuing operations.

Total revenue from continuing operations reported during the second quarter of 2012 was $38.8 million compared to $42.2 million in the second quarter of 2011. On a comparable basis, hotel revenue increased by $1.6 million and franchise revenues increased by $0.4 million, offset by a decrease in entertainment revenues of $2.3 million. Second quarter net loss from continuing operations was $0.4 million, or $0.02 per share, compared to net income from continuing operations of $19.1 million or $1.00 per diluted share, in the second quarter of 2011. Second quarter of 2011 results include a $33.5 million gain on the sale of Seattle Fifth Avenue, which is classified as a special item for EBITDA purposes. In the second quarter of 2012, comparable EBITDA from continuing operations before special items increased to $5.5 million, compared to $4.7 million in the second quarter of 2011.

"We increased our overall market share driven by strong occupancy growth and improved our RevPAR performance. As a result of our continued occupancy growth, we are well-positioned to increase rates when the midscale segment rebounds. We also generated significant margin improvements in the first half of the year," said President and Chief Executive Officer Jon E. Eliassen.

"In addition, subsequent to quarter-end, we appointed an executive vice president for franchise development, and announced a new hotel franchise agreement in Southern California. We also closed on the sale of one non-core hotel and announced a sale agreement for another. These achievements are part of our continued execution of our strategy to improve the competitive position of our core hotel properties, expand our franchise network and reduce debt to enhance value for all Red Lion Hotels shareholders."

Summary Results

On the basis of comparable continuing operations before special items, key owned and leased hotel operating metrics and total company EBITDA for the three and six months ended June 30, 2012, and June 30, 2011, are highlighted below:

Three months ended June 30,

Six months ended June 30,

2012

2011

change

2012

2011

change

RevPAR (revenue per available room)

$ 56.32

$ 53.43

5.4%

$ 49.26

$ 46.38

6.2%

ADR (average daily rate)

$ 84.28

$ 83.42

1.0%

$ 81.29

$ 81.03

0.3%

Occupancy

66.8%

64.0%

280

bps

60.6%

57.2%

340

bps

Hotels revenue:

Rooms

$ 26,060

$ 24,724

5.4%

$ 45,585

$ 42,687

6.8%

Food and beverage

7,948

7,567

5.0%

14,940

14,425

3.6%

Other revenue

530

644

-17.7%

928

1,105

-16.0%

Total hotels revenue

$ 34,538

$ 32,935

4.9%

$ 61,453

$ 58,217

5.6%

Hotel direct operating margin

24.4%

23.1%

19.3%

17.7%

Comparable EBITDA from continuing operationsbefore special items(1)

$ 5,545

$ 4,697

18.1%

$ 6,931

$ 4,851

42.9%

(1)The above excludes an asset impairment which is included in the non-GAAP reconciliation schedule named, "Disclosure of Special Items" contained in this release.

Second Quarter 2012 Results

In the second quarter of 2012, for comparable owned and leased hotels from continuing operations, RevPAR increased 5.4 percent year-over-year driven by a 280 basis point increase in occupancy to 66.8 percent and a 1.0 percent increase in ADR to$84.28. On a comparable basis, EBITDA from continuing operations before special items increased to $5.5 million for the second quarter compared to $4.7 million in the prior year period. The acquisition of the previously leased iStar hotels contributed facility lease savings of $0.6 million in the quarter.

Comparable hotel revenue of $34.5 million was 4.9 percent higher compared to the same period a year ago. Comparable hotel direct operating margin increased to 24.4 percent from 23.1 percent in the same period in 2011 primarily driven by a change in mix of promotional activities targeting the transient segment partially offset by higher reservation and credit card fees related to the increases in occupancy and rooms revenue.

Revenue and profitability in the entertainment segment declined $2.3 million and $0.7 million, respectively. The declines were primarily a result of the mix of entertainment shows produced and fewer shows in the second quarter of 2012 as compared to the prior year period.

Franchise revenue increased to $1.3 million from $0.9 million. Profitability improved year-over-year primarily due to increased rooms revenue at the company's franchised hotels.

Subsequent Events

On July 31, the company closed on the sale of its Red Lion Colonial Hotel in Helena, Montana for $5.6 million. Upon completion of the sale of the hotel, the company entered into a franchise agreement under which the hotel will continue to operate as a Red Lion.

On August 6, the company announced it has reached a definitive agreement to sell its Red Lion Hotel Denver Southeast for$13.0 million. The sale of this property is anticipated to close by October 31, 2012. Under the agreement, the hotel will not continue to operate as a Red Lion. Accordingly, the financial results of this property have been classified as discontinued operations in the company's statement of operations for all periods presented.

In the past month, the company has signed separate letters of intent to sell the company's commercial mall in Kalispell, Montanaand the Red Lion Hotel in Medford, Oregon. Both sales are contingent on completion of mutually acceptable definitive agreements and on each of the prospective buyer's satisfactory completion of due diligence.

Franchise Update

On July 9, the company appointed Ron Burgett as Executive Vice President, Brand Development. His primary responsibility is expanding Red Lion's operations through new franchises. Burgett is also overseeing relationships with the company's franchise owners, including ensuring adherence to Red Lion brand standards and maximizing franchisees' results through Red Lion network benefits.

On July 18, the company announced the signing of a franchise agreement with the owners of a hotel in Cathedral City, California in the Palm Springs area. This 97 room property is expected to convert to a Red Lion Hotel in fall 2012.

Discontinued Operations

Under the sale agreement for the Red Lion Hotel Denver Southeast, the property will not continue to operate as a Red Lion hotel. Accordingly, the operations of this property have been classified as discontinued operations in the company's statement of operations. Also during the second quarter of 2012, based on the company's right to sell its franchised hotel in Sacramento, California to its tenant and on continuing negotiations regarding transaction terms, the company reclassified the real estate and land into assets held for sale. The operating results from the ownership of this real estate and land have appropriately been classified as discontinued operations for all periods presented. The operations of the aforementioned properties are in addition to the operations of the properties in Medford, Oregon and Missoula, Montana which were classified as discontinued operations in the fourth quarter of 2011. This presentation, as required under generally accepted accounting principles ("GAAP"), separately reports the revenue and expenses including any related asset impairment charges, net of income taxes as "net income (loss) from discontinued operations" on the company's statement of operations for all periods presented.

Liquidity and Balance Sheet

As of June 30, 2012, the company had $4.9 million in cash and cash equivalents, and $10.0 million available on its line of credit. As of June 30, 2012, the company had outstanding debt of $99.4 million, of which $30.3 million is classified as current debt. Proceeds from the announced asset sales in the aforementioned Subsequent Events will be primarily used to reduce debt.

Capital expenditures for the six months ended June 30, 2012, totaled $3.0 million.

Assets Held for Sale

As of June 30, 2012, the following were classified as assets held for sale on the balance sheet, the Red Lion Colonial Hotel inHelena, Red Lion Inn Missoula, Red Lion Hotel Denver Southeast, Red Lion Hotel Medford and a hotel property in Sacramentowhich is leased to a franchise tenant. The company's hotel property in Sacramento was added to this classification in the second quarter of 2012.

Outlook for 2012

The company is reaffirming its RevPAR guidance for 2012, previously provided on February 28, 2012, based on the management team's outlook for the markets in which the company operates and currently available information:

  • Full year 2012 RevPAR for company owned and leased hotels is expected to increase 2 to 4 percent compared to 2011 on an annual basis.
  • The company expects to invest approximately $10.0 million in capital improvements in 2012.

About Red Lion Hotels Corporation:

Red Lion Hotels Corporation is a hospitality and leisure Company primarily engaged in the ownership, operation and franchising of midscale hotels under its Red Lion® brand. As of June 30, 2012, the RLH hotel network was comprised of 47 hotels located in nine states and one Canadian province, with 8,872 rooms and 443,587 square feet of meeting space. The Company also owns and operates an entertainment and event ticket distribution business. 

Red Lion Hotels Corporation

Consolidated Statements of Operations

(unaudited)

($ in thousands, except footnotes and per share amounts)

Three months ended June 30,

2012

2011

$ Change

% Change

Revenue:

Hotels

$ 34,538

$ 36,081

$ (1,543)

-4.3%

Franchise

1,309

945

364

38.5%

Entertainment

2,376

4,640

(2,264)

-48.8%

Other

582

519

63

12.1%

Total revenues

38,805

42,185

(3,380)

-8.0%

Operating expenses:

Hotels

26,123

27,813

(1,690)

-6.1%

Franchise

1,096

968

128

13.2%

Entertainment

2,567

4,138

(1,571)

-38.0%

Other

448

435

13

3.0%

Depreciation and amortization

4,065

4,299

(234)

-5.4%

Hotel facility and land lease

1,243

1,796

(553)

-30.8%

Asset impairment

252

-

252

n/m

Loss (gain) on asset dispositions, net

(103)

(33,497)

(33,394)

99.7%

Undistributed corporate expenses

1,902

1,553

349

22.5%

Total expenses

37,593

7,505

30,088

n/m

Operating income (loss)

1,212

34,680

(33,468)

96.5%

Other income (expense):

Interest expense

(1,820)

(2,272)

452

19.9%

Other income, net

16

381

(365)

-95.8%

Income (loss) before income taxes

(592)

32,789

(33,381)

n/m

Income tax (benefit) expense

(225)

13,674

13,899

n/m

Net income (loss) from continuing operations

(367)

19,115

(19,482)

n/m

Discontinued operations (2,3,4):

Income (loss) from operations of discontinued business units, net of income tax (benefit) expense of $202 and $(201) respectively

356

(355)

711

n/m

Impairment of the assets of the discontinued business units, net ofincome tax (benefit) expense of $(1,679) and $0 respectively

(2,959)

-

(2,959)

n/m

Net income (loss) from discontinued operations

(2,603)

(355)

(2,248)

n/m

Net income (loss)

(2,970)

18,760

(21,730)

n/m

Less net income or loss attributable to noncontrolling interest

-

112

(112)

n/m

Net income (loss) attributable to Red Lion Hotels Corporation

$ (2,970)

$ 18,648

$(21,618)

n/m

Earnings per share - basic and diluted

Net income (loss) from continuing operations

$ (0.02)

$ 1.00

Net Income (loss) from discontinued operations

$ (0.13)

$ (0.01)

Net income (loss) attributable to Red Lion Hotels Corporation

$ (0.15)

$ 0.98

Weighted average shares - basic

19,292

19,023

Weighted average shares - diluted

19,292

19,182

Non-GAAP Financial Measures:

EBITDA (1)

$ 1,276

$ 39,150

$(37,874)

-96.7%

EBITDA as a percentage of revenues

3.3%

92.8%

EBITDA from continuing operations (1)

$ 5,293

$ 39,248

$(33,955)

-86.5%

EBITDA from continuing operations

13.6%

93.0%

as a percentage of revenues

(1)

The definition of "EBITDA" and how that measure relates to net income (loss) attributable to Red Lion Hotels Corporation is discussed further in this release under Non-GAAP Financial Measures.

(2)

During the fourth quarter 2011, the company listed for sale its hotels in Medford, Oregon and Missoula, Montana, two non-core assets in which the company does not expect to maintain significant continuing involvement. Accordingly, the operations of these properties have been classified as discontinued operations for all periods presented.

(3)

On July 30, 2012, the company entered into a definitive agreement to sell its hotel in Aurora, Colorado in which the company does not expect to maintain significant continuing involvement. Accordingly, the operation of this property has now been classified as discontinued operations for all periods presented.

(4)

During the second quarter 2012, based on the company's right to sell its hotel in Sacramento, California to its tenant and on continuing negotiations regarding transaction terms, the operating results from the ownership of this real estate and land have been classified as discontinued operations for all periods presented.

Red Lion Hotels Corporation

Consolidated Statements of Operations

(unaudited)

($ in thousands, except footnotes and per share amounts)

Six months ended June 30,

2012

2011

$ Change

% Change

Revenue:

Hotels

$ 61,453

$ 64,204

$ (2,751)

-4.3%

Franchise

2,398

1,652

746

45.2%

Entertainment

4,900

7,440

(2,540)

-34.1%

Other

1,195

1,126

69

6.1%

Total revenues

69,946

74,422

(4,476)

-6.0%

Operating expenses:

Hotels

49,621

52,528

(2,907)

-5.5%

Franchise

2,268

1,753

515

29.4%

Entertainment

4,770

6,752

(1,982)

-29.4%

Other

886

828

58

7.0%

Depreciation and amortization

8,124

9,167

(1,043)

-11.4%

Hotel facility and land lease

2,423

3,428

(1,005)

-29.3%

Asset impairment

2,263

-

2,263

n/m

Loss (gain) on asset dispositions, net

(207)

(33,583)

(33,376)

99.4%

Undistributed corporate expenses

3,283

2,897

386

13.3%

Total expenses

73,431

43,770

29,661

67.8%

Operating income (loss)

(3,485)

30,652

(34,137)

n/m

Other income (expense):

Interest expense

(3,637)

(4,573)

936

-20.5%

Other income, net

22

384

(362)

-94.3%

Income (loss) before income taxes

(7,100)

26,463

(33,563)

n/m

Income tax (benefit) expense

(2,792)

11,198

13,990

n/m

Net income (loss) from continuing operations

(4,308)

15,265

(19,573)

n/m

Discontinued operations (2,3,4):

Income (loss) from operations of discontinued business units, net of income tax (benefit) expense of $60 and $(724) respectively

106

(1,276)

1,382

n/m

Impairment of the assets of the discontinued business units, net ofincome tax (benefit) expense of $(3,367) and $0 respectively

(5,936)

-

(5,936)

n/m

Net income (loss) from discontinued operations

(5,830)

(1,276)

(4,554)

n/m

Net income (loss)

(10,138)

13,989

(24,127)

n/m

Less net income or loss attributable to noncontrolling interest

(7)

102

(109)

n/m

Net income (loss) attributable to Red Lion Hotels Corporation

$(10,131)

$ 13,887

$(24,018)

n/m

Earnings per share - basic and diluted

Net income (loss) from continuing operations

$ (0.23)

$ 0.80

Net Income (loss) from discontinued operations

$ (0.30)

$ (0.06)

Net income (loss) attributable to Red Lion Hotels Corporation

$ (0.53)

$ 0.73

Weighted average shares - basic

19,257

18,999

Weighted average shares - diluted

19,257

19,163

Non-GAAP Financial Measures:

EBITDA (1)

$ (4,341)

$ 38,998

$(43,339)

n/m

EBITDA as a percentage of revenues

-6.2%

52.4%

EBITDA from continuing operations (1)

$ 4,668

$ 40,101

$(35,433)

-88.4%

EBITDA from continuing operations

6.7%

53.9%

as a percentage of revenues

(1)

The definition of "EBITDA" and how that measure relates to net income (loss) attributable to Red Lion Hotels Corporation is discussed further in this release under Non-GAAP Financial Measures.

(2)

During the fourth quarter 2011, the company listed for sale its hotels in Medford, Oregon and Missoula, Montana, two non-core assets in which the company does not expect to maintain significant continuing involvement. Accordingly, the operations of these properties have been classified as discontinued operations for all periods presented.

(3)

On July 30, 2012, the company entered into a definitive agreement to sell its hotel in Aurora, Colorado in which the company does not expect to maintain significant continuing involvement. Accordingly, the operation of this property has now been classified as discontinued operations for all periods presented.

(4)

During the second quarter 2012, based on the company's right to sell its hotel in Sacramento, California to its tenant and on continuing negotiations regarding transaction terms, the operating results from the ownership of this real estate and land have been classified as discontinued operations for all periods presented.

Red Lion Hotels Corporation

Consolidated Balance Sheets

(unaudited)

($ in thousands, except share data)

June 30,

December 31,

2012

2011

Assets:

Current assets:

Cash and cash equivalents

$ 4,911

$ 1,981

Restricted cash

2,756

3,358

Accounts receivable, net

7,561

7,591

Inventories

1,451

1,346

Prepaid expenses and other

3,361

1,973

Deferred income taxes

8,202

4,291

Assets held for sale

31,969

30,380

        Total current assets

60,211

50,920

Property and equipment, net

215,154

232,589

Goodwill

8,512

8,512

Intangible assets

6,992

6,992

Other assets, net

5,232

5,883

        Total assets

$ 296,101

$ 304,896

Liabilities:

Current liabilities:

Accounts payable

$ 5,409

$ 4,928

Income taxes payable

65

-

Accrued payroll and related benefits

4,753

2,103

Accrued interest payable

1,115

231

Advance deposits

753

380

Other accrued expenses

10,269

9,249

Revolving credit facility

-

844

Long-term debt, due within one year

30,325

3,274

        Total current liabilities

52,689

21,009

Long-term debt, due after one year

38,201

66,378

Deferred income

4,157

4,643

Deferred income taxes

13,698

16,176

Debentures due Red Lion Hotels Capital Trust

30,825

30,825

        Total liabilities

139,570

139,031

Stockholders' equity:

Red Lion Hotels Corporation stockholders' equity

Preferred stock - 5,000,000 shares authorized; $0.01 par value;

no shares issued or outstanding

-

-

Common stock - 50,000,000 shares authorized; $0.01 par value;

19,348,355 and 19,172,670 shares issued and outstanding

194

192

Additional paid-in capital, common stock

149,879

149,027

Retained earnings

6,458

16,589

        Total Red Lion Hotels Corporation stockholders' equity

156,531

165,808

Noncontrolling interest

-

57

        Total stockholders' equity

156,531

165,865

        Total liabilities and stockholders' equity

$ 296,101

$ 304,896

Red Lion Hotels Corporation

Additional Hotel Statistics

(unaudited)

System-wide Hotels as of June 30, 2012

Meeting Space

Hotels

Rooms

(sq. ft.)

Red Lion Owned or Leased Hotels(1):

Comparable Continuing Operations

27

5,085

255,574

Discontinued Operations

3

739

35,192

Red Lion Franchised Hotels (1)

17

3,048

152,821

Total Red Lion Hotels

47

8,872

443,587

Comparable Hotel Statistics from Continuing Operations (1,2)

Three months ended June 30, 2012

Three months ended June 30, 2011

Average

Average

Occupancy (3)

ADR(4)

RevPAR(5)

Occupancy (3)

ADR(4)

RevPAR(5)

Owned and Leased Hotels

66.8%

$ 84.28

$ 56.32

64.0%

$ 83.42

$ 53.43

Franchised Hotels

69.5%

$ 89.98

$ 62.57

69.8%

$ 87.15

$ 60.82

Total System Wide

67.6%

$ 85.91

$ 58.06

65.6%

$ 84.53

$ 55.49

Change from prior comparative period:

Owned and Leased Hotels

2.8

1.0%

5.4%

Franchised Hotels

(0.3)

3.2%

2.9%

Total System Wide

2.0

1.6%

4.6%

Six months ended June 30, 2012

Six months ended June 30, 2011

Average

Average

Occupancy (3)

ADR(4)

RevPAR(5)

Occupancy (3)

ADR(4)

RevPAR(5)

Owned and Leased Hotels

60.6%

$ 81.29

$ 49.26

57.2%

$ 81.03

$ 46.38

Franchised Hotels

64.0%

$ 87.24

$ 55.81

63.4%

$ 85.51

$ 54.19

Total System Wide

61.5%

$ 83.01

$ 51.08

58.9%

$ 82.37

$ 48.55

Change from prior comparative period:

Owned and Leased Hotels

3.4

0.3%

6.2%

Franchised Hotels

0.6

2.0%

3.0%

Total System Wide

2.6

0.8%

5.2%

(1)

Includes all hotels owned, leased and franchised, presented on a comparable basis for hotel statistics. The Seattle property has been excluded from the owned and leased hotel statistics and included in the franchised statistics for all periods shown.

(2)

Excludes three hotels identified as discontinued operations.

(3)

Average occupancy represents total paid rooms divided by total available rooms. Total available rooms represents the number of rooms available multiplied by the number of days in the reported period and includes rooms taken out of service for renovation.

(4)

Average daily rate ("ADR") represents total room revenues divided by the total number of paid rooms occupied by hotel guests.

(5)

Revenue per available room ("RevPAR") represents total room and related revenues divided by total available rooms.

Red Lion Hotels Corporation

Comparable Operating Results and Data From Continuing Operations

(unaudited)

($ in thousands)

Certain operating results for the periods included in this report are shown on a comparable hotel basis. Comparable hotels are defined as properties that are owned or leased by the company and the operations of which are included in the consolidated results from continuing operations for the entirety of the reporting

periods being compared.

Three months ended June 30,

Six months ended June 30,

2012

2011

2012

2011

Comparable total revenue(2)<



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