Red Lion Hotels Reports Second Quarter 2014 Results

SPOKANE, Wash., Aug. 6, 2014 (GLOBE NEWSWIRE) -- Red Lion Hotels Corporation RLH, a western U.S. based owner, operator and franchisor of midscale hotels, today announced its results for the second quarter ended June 30, 2014.

Highlights:

• Increased RevPAR for comparable owned and leased hotels by 5.5 percent for the quarter versus prior year
• Grew ADR for comparable owned and leased hotels by 2.5 percent for the quarter versus prior year
• Increased Adjusted EBITDA by $1.0 million in the second quarter over the prior year
• Reduced future annualized salary and benefits by approximately $1.8 million with about two-thirds to be strategically redeployed into revenue-generating initiatives
• Signed seven franchise agreements
• Opened two new franchise locations in Tucson, Ariz., and Renton, Wash.
• Sold four hotels for $16.9 million in proceeds; listed for sale real estate in Bellevue, Wash.

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 hotels or operations that have been sold in the past four quarters. Throughout this release the company refers to certain non-GAAP financial measures, such as EBITDA and Adjusted EBITDA. Please refer to the tables attached to this release for a reconciliation of these non-GAAP financial measures to their most directly comparable financial measure determined in accordance with GAAP.

"True to our plan to escalate our digital marketing and improve our eCommerce, technology and data capabilities, our team has implemented dynamic new platforms which allow us to better understand our guests, our inventory and our opportunities," said President and Chief Executive Officer Greg T. Mount. "This new guest management ecosystem, RevPak, can be previewed online at revpak.redlion.com. When the components of our new system are in place by the end of the third quarter, we will have significantly improved our capabilities to create meaningful one-to-one and one-to-many marketing campaigns. These updated technologies and marketing initiatives are already benefitting RLHC as we begin working on an opportunity for a new upscale brand, which we plan to launch later this year."

He continued, "Our recent asset sales generated net proceeds of $10 million and a reduction in debt of $9 million. With our cash reserves, proceeds from the sale of our Bellevue property and the strength of our balance sheet, we intend to invest in equity ownership of hotels in the top 80 markets. We believe this will provide the best return on investment to our shareholders."

Second Quarter 2014 Results

Comparable revenue from owned and leased hotels of $28.5 million increased $1.6 million or 6.1 percent compared to the same period a year ago, generated primarily by an increase in RevPAR. Year over year, comparable second quarter RevPAR increased 5.5 percent to $64.66 driven by a 2.5 percent increase in ADR to $92.91 and a 200 basis point increase in occupancy. Comparable hotel direct operating margin declined from 21.6 percent to 21.3 percent primarily due to increased marketing costs.

Franchise revenue increased $2.5 million to $4.5 million primarily due to the $2.1 million early termination fee for the Seattle Fifth Avenue franchise location. Net segment profits increased $2.4 million over prior year.

Entertainment revenue increased by $3.8 million and profitability improved by $1.1 million year-over-year, primarily due to over triple the number of Broadway show dates as compared to the prior year.

Total company Adjusted EBITDA for the second quarter increased $1.0 million, compared to the prior year period. The improvement is primarily attributable to improved profitability in the entertainment division, partially offset by an increase in marketing expenses and self-insured medical costs.

Net income from continuing operations in the second quarter of 2014 was $4.9 million compared to a loss of $0.8 million in the same period a year ago. During the second quarter of 2014, the company recorded $3.5 million in gains on hotel sales as well as an early termination fee for the Seattle Fifth Avenue franchise location. Also impacting the year over year difference is the recording of a valuation allowance against the company's net deferred tax assets in 2014.

Liquidity and Balance Sheet

At June 30, 2014, the company had $23.7 million in cash and cash equivalents and no cash borrowings on its $10 million revolving line of credit. Additionally, at June 30, 2014, the company had outstanding debt of $63.6 million, of which $2.4 million was current. In compliance with debt agreements, the company made additional principal payments of $8.9 million from the proceeds of assets sold during the quarter.

Capital expenditures, primarily for guest room and mechanical systems improvement projects, for the six months ended June 30, 2014, totaled $5.3 million.

Franchise Lodging Development Update

Year to date, the company has signed seven franchise agreements:

• Red Lion Hotel Yakima Center, Wash. – formerly owned
• Red Lion Inn & Suites Kennewick, Wash. – new franchise owner
• Red Lion Hotel & Conference Center - Kelso/Longview, Wash. – formerly owned
• Red Lion Inn & Suites Tucson North – Foothills, Ariz. – new location
• Red Lion Hotel Columbia Center, Wash. – formerly owned
• Red Lion Hotel Canyon Springs, Idaho – formerly owned
• Red Lion Hotel & Conference Center Seattle/Renton, Wash. – new location

Assets Sold or Held for Sale

During the quarter, the company generated $16.9 million in proceeds through the sale of four assets including:

• Red Lion Hotel Yakima Center, Wash.
• Red Lion Hotel & Conference Center - Kelso/Longview, Wash.
• Red Lion Hotel Columbia Center, Kennewick, Wash.
• Red Lion Hotel Canyon Springs, Twin Falls, Idaho

Subsequent to quarter end, the company listed the Red Lion Hotel Bellevue, which was included in assets held for sale at June 30, 2014. Also listed as held for sale are the Red Lion Hotel Pocatello, Idaho, and the Red Lion Hotel Wenatchee, Wash.

Discontinued Operations

The operating results of the previously owned properties in Yakima, Columbia Center and Kelso/Longview, Wash., and Twin Falls, Idaho, had been classified as discontinued operations in the fourth quarter 2013 financial statements as the properties were listed for sale and not expected to continue to operate as Red Lion franchises. However, in each of these cases the buyers of the assets signed franchise agreements upon closing during the second quarter 2014, therefore these properties are reported in continuing operations for the second quarter and all comparable periods presented. Listed in discontinued operations are the operating results of the hotels located in Pocatello, Idaho, Wenatchee, Wash., and Medford and Eugene, Ore., and the commercial mall in Kalispell, Mont., and a contract catering business in Yakima, Wash. As required under generally accepted accounting principles ("GAAP"), Red Lion separately reports the results of these operations including any related asset impairment charges, net of income taxes as "Income (loss) from discontinued operations" on the company's consolidated statement of comprehensive income (loss) for all periods presented.

Outlook for 2014

Based on the outlook for the markets in which the company operates and on currently available information, the company affirms its RevPAR guidance for 2014:

• Full year 2014 RevPAR for comparable owned and leased hotels is expected to increase 3 to 5 percent over 2013.

Conference Call Information

The company will conduct a conference call on Aug. 7, 2014, at 8:00 a.m. Pacific Time (11:00 a.m. Eastern Time), to discuss the results for interested investors, analysts and portfolio managers. Hosting the call will be President and Chief Executive Officer Greg Mount and Executive Vice President and Chief Financial Officer Julie Shiflett. The company will take questions from investors and analysts during the conference call. Additionally, questions can be submitted in advance of the conference call by email to 2Q14@redlion.com.

To participate in the conference call, please dial the following number ten minutes prior to the scheduled time: (800) 288-8961. International callers should dial (612) 332-0335.

This conference call will also be webcast live on www.redlion.com in the Investor Relations section of the website. To listen to the live call, please go to the Red Lion website at least fifteen minutes prior to the start of the call to register and to download and install any necessary audio software. For those unable to participate during the live broadcast, a replay will be available at 10:00 a.m. Pacific Time on Aug. 7, 2014, through Sept. 7, 2014, at (800) 475-6701 or (320) 365-3844 (International), using access code - 332387. The replay will also be available shortly after the call on the Red Lion website.

About Red Lion Hotels Corporation

Red Lion Hotels Corporation is a hospitality company primarily engaged in the franchising, ownership and operation of hotels. The company has more than 50 hotels system wide and also owns and operates an entertainment and event ticket distribution business. For more information, please visit the company's website at www.redlion.com.

This press release contains forward-looking statements within the meaning of federal securities law, including statements concerning plans, objectives, goals, strategies, projections of future events or performance and underlying assumptions (many of which are based, in turn, upon further assumptions). The forward-looking statements in this press release are inherently subject to a variety of risks and uncertainties that could cause actual results to differ materially from those expressed. Such risks and uncertainties include, among others, economic cycles; international conflicts; changes in future demand and supply for hotel rooms; competitive conditions in the lodging industry; relationships with franchisees and properties; impact of government regulations; ability to obtain financing; changes in energy, healthcare, insurance and other operating expenses; ability to sell non-core assets; ability to locate lessees for rental property; dependency upon the ability and experience of executive officers and ability to retain or replace such officers as well as other matters discussed in the company's annual report on Form 10-K for the year ended December 31, 2013, and in other documents filed by the company with the Securities and Exchange Commission.

NON-GAAP FINANCIAL MEASURES

EBITDA is defined as net income (loss), before interest, taxes, depreciation and amortization. EBITDA is considered a non-GAAP financial measurement. We believe it is a useful financial performance measure for us and for our shareholders and is a complement to net income and other financial performance measures provided in accordance with generally accepted accounting principles in the United States ("GAAP").

We use EBITDA to measure financial performance because it excludes interest, taxes, depreciation and amortization, which bear little or no relationship to operating performance. By excluding interest expense, EBITDA measures our financial performance irrespective of our capital structure or how we finance our properties and operations. We generally pay federal and state income taxes on a consolidated basis, taking into account how the applicable tax laws apply to our company in the aggregate. By excluding taxes on income, we believe EBITDA provides a basis for measuring the financial performance of our operations excluding factors that our hotels and other operations cannot control. By excluding depreciation and amortization expense, which can vary from hotel to hotel based on historical cost and other factors unrelated to the hotels' financial performance, EBITDA measures the financial performance of our hotels without regard to their historical cost. For all of these reasons, we believe that EBITDA provides us and investors with information that is relevant and useful in evaluating our business.

We use Adjusted EBITDA as another measure of financial performance. We believe that the inclusion or exclusion of certain recurring and non-recurring items, such as gains and losses on asset dispositions and impairments, is necessary to provide the most accurate measure of core operating results and as a means to evaluate comparative results.

Because EBITDA and Adjusted EBITDA exclude depreciation and amortization, they do not measure the capital we require to maintain or preserve our long-lived assets. In addition, because EBITDA and Adjusted EBITDA do not reflect interest expense, they do not take into account the total amount of interest we pay on outstanding debt nor do they show trends in interest costs due to changes in our borrowings or changes in interest rates. EBITDA and Adjusted EBITDA, as defined by us, may not be comparable to EBITDA and Adjusted EBITDA as reported by other companies that do not define EBITDA and Adjusted EBITDA exactly as we define the term. Because we use EBITDA and Adjusted EBITDA to evaluate our financial performance, we reconcile all EBITDA and Adjusted EBITDA measures to net income, which is the most comparable financial measure calculated and presented in accordance with GAAP. EBITDA and Adjusted EBITDA do not represent cash provided by operating activities determined in accordance with GAAP, and should not be considered as an alternative to operating income or net income determined in accordance with GAAP as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of liquidity.