SPOKANE, WA, August 3, 2006 - Red Lion Hotels Corporation (NYSE:RLH) today announced results for the second quarter and six months ended June 30, 2006.
Key Operating Results
Significant Corporate Events
Commenting on the quarter, Arthur M. Coffey, President and CEO of Red Lion Hotels Corporation, said, "This was a very successful quarter for our company on a number of fronts. We completed our room renovations at our owned and leased hotels, and believe that these renovations will drive RevPAR growth and is allowing us to deliver a great product to our guests in time for the summer travel season. We also improved our capital structure by raising $64.3 million through a public offering of common stock and subsequently retiring $16.1 million of our 9.5% trust preferred securities. We intend to further enhance our capital structure by applying substantially all of the remaining offering proceeds to retire secured indebtedness. Additionally, we received a commitment for a $50.0 million credit facility which we expect will facilitate our anticipated growth. These accomplishments, coupled with strong financial results like our double-digit growth in EBITDA from continuing operations, demonstrate the strength of our management team and the solid assets behind the Red Lion brand."
The company's total revenues from continuing operations during the quarter were $44.8 million, up 1.2% from the same quarter of 2005. Revenues in the hotels segment were up 2.6% to $40.5 million. Franchise and management revenues increased 5.6% to $0.6 million. Revenues in the entertainment segment declined 4.8% to $2.5 million, due to differences in the type and mix of shows presented. Revenues in the real estate segment declined $0.3 million due to the disposition of the real estate management business on April 30, 2006. Rental revenues from the remaining assets in the real estate segment increased modestly.
EBITDA from continuing operations was $8.7 million, up 15.8% from the second quarter of 2005, reflecting strong flow through and improved profit margins in the hotels, real estate and entertainment segments. Net income from continuing operations increased 141.2% to $1.9 million, or $0.12 per fully diluted share, compared to $0.8 million, or $0.06 per fully diluted share, in the same quarter last year. Overall, net income increased 20.1% to $2.1 million, or $0.13 per fully diluted share, compared to $1.7 million, or $0.13 per fully diluted share, in the same quarter last year. Net income for the second quarter reflects the results of only three hotels held for sale compared to 11 hotels and one office building held for sale in the second quarter of 2005. Results for the second quarter of 2006 also include a $1.0 million net gain from the sale of the real estate management business, offset by $0.8 million in pre-tax expenses associated with the mandatory redemption of the company's 9.5% trust preferred securities.
Total revenues from continuing operations for the six months ended June 30, 2006 were $81.4 million, up 2.1% from the same period last year. EBITDA from continuing operations increased 18.6%, to $11.0 million. Net loss from continuing operations improved to $0.8 million, or $(0.06) per fully diluted share, compared to the net loss from continuing operations of $2.2 million, or $(0.17) per fully diluted share, in the same period last year. Overall, net loss improved to $0.9 million, or $(0.06) per fully diluted share, compared to the net loss of $1.4 million, or $(0.11) per fully diluted share, in the same period last year. As with the second quarter results, net income for the first six months of 2006 reflects the results of only three hotels held for sale compared to 11 hotels and one office building held for sale in the first six months of 2005. Also, results for the six months ending on June 30, 2006 include a $1.0 million net gain from the sale of the real estate management business, offset by $0.8 million in pre-tax expenses associated with the mandatory redemption of the company's 9.5% trust preferred securities.
In the second quarter of 2006, RevPAR for system-wide hotels increased 4.4% over the same quarter of the previous year, to $49.67. This increase was the result of an 8.7% increase in ADR to $80.39, which was partially offset by a 2.5 percentage point decline in average occupancy during the quarter. The decrease in system-wide occupancy was driven by declines in occupancy at owned and leased hotels relating to displacement from room renovations.
Occupancy at franchised hotels increased 3.2 percentage points and ADR increased by 2.5% in the quarter, resulting in a 7.9% increase in RevPAR.
At the end of the first quarter of 2006, the company had substantially completed room renovations at 11 of its 31 company-owned and leased hotels. Aggregate RevPAR at these hotels increased 15.9% in the second quarter of 2006, driven by an increase of 15.6% in ADR and a 0.2 percentage point increase in occupancy. The increase in RevPAR was impacted by displacement from renovations at three of the 11 hotels during the second quarter of 2005.
Revenues from continuing operations for owned and leased hotels increased 2.6% to $40.5 million during the second quarter of 2006. This increase was due to a 3.2% increase in RevPAR combined with higher food and beverage revenues, which were partially offset by declines in other incidental room revenues associated with the lower occupancy during the quarter associated with displacement from room renovations. The increase in RevPAR was driven by a 12.0% increase in ADR, while occupancy declined by 5.2 percentage points. It should be noted that the company does not reduce the number of rooms available for occupancy to reflect rooms out of service due to renovations. The hotels segment direct operating margin improved 160 basis points to 24.5% in the second quarter of 2006 from 22.9% in the second quarter of 2005.
"Our quarterly results speak to the strength of the Red Lion brand, which produced another quarter of RevPAR growth at system-wide hotels, despite the decline in occupancy associated with rooms being out of service for renovation. The positive rate increases at the hotels that have completed room renovations confirm that guests are willing to pay more for these improvements. We look forward to having all of our rooms back in service as we enter the busiest travel season of the year," commented John Taffin, Executive Vice President, Hotel Operations.
Highlights and Recent Events
During the quarter, room renovations were substantially completed at company-owned and leased Red Lion hotels. Renovations remaining to be completed include upgrades to common areas such as lobbies, banquet rooms and restaurants. The company expects these public area renovations to be completed by the end of 2006.
During the quarter, the company executed agreements for the sale of the Red Lion Hotel Idaho Falls and the WestCoast Ridpath Hotel in Spokane, Washington. Both transactions are expected to close by the end of the third quarter. The company will receive $10.1 million in aggregate proceeds from these sales. The company continues to actively pursue disposition of one remaining hotel and surplus undeveloped land previously identified as assets held for sale.
On April 30, 2006, the company divested the real estate management portion of its real estate division in a tax-free reorganization for gross proceeds of $1.1 million, which resulted in a net gain of approximately $1.0 million. For the full year 2005, the real estate management business contributed $2.3 million and $0.1 million to the company's revenue and operating income, respectively. The company's real estate segment is now comprised of an owned office building and a retail center.
On July 20, 2006, the company received a commitment for a $50 million credit facility from Calyon New York Branch to be used for general corporate purposes and to finance its anticipated future growth.
On May 22, 2006, the company completed the public offering of 5,000,000 shares of its common stock at a price of $11.00 per share. On June 13, 2006, the underwriters of the offering exercised in full their over-allotment option and purchased an additional 845,302 shares at the public offering price. With the closing of the over-allotment, the company's gross proceeds from its public offering totaled $64.3 million. In the quarter, the company retired $16.1 million of its 9.5% trust preferred securities and intends to use substantially all of the remaining proceeds of the public offering to reduce secured debt and pay associated defeasance costs.
On June 26, 2006, the company completed the expansion, renovation and rebranding of the WestCoast Kalispell Center Hotel, now known as the Red Lion Kalispell Center Hotel. The hotel features a new lobby, 170 guest rooms and 10,500 square feet of meeting space.
"Our financial results this quarter are the result of our team's dedication and focus on executing our strategic initiatives. With our successfully completed room renovations, we look forward to a strong third quarter. While we are pleased with our progress to date, there is still plenty of work ahead of us," Mr. Coffey continued. "The next stage of our business strategy involves our long-term plan to expand the Red Lion brand to 100 markets. We believe that our renovated hotel network is the best platform from which to launch our expansion program."
The company will host a conference call at 11:00 a.m. PT (2:00 p.m. ET) on Thursday, August 3, 2006 to discuss financial results for the second quarter ended June 30, 2006. To participate in the conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: (877) 209-0397. International callers should dial (612) 332-1025. There is no pass code required for this call. This conference call will be broadcast live over the Internet and can be accessed by all interested parties at www.redlion.com, in the Investor Relations portion 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, download, and install any necessary audio software. For those unable to participate during the live broadcast, a replay will be available at 2:30 p.m. PT on August 3, 2006 through August 18, 2006 at (800) 475-6701 or (320) 365-3844 (International) access code - 837285. The replay will also be available shortly after the call on the Red Lion website for 90 days.
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 and upscale, full service hotels under its Red Lion® brand. As of June 30, 2006 the RLH hotel network was comprised of 60 hotels located in nine states and one Canadian province, with 10,424 rooms and 509,537 square feet of meeting space. The company 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 quarterly report on Form 10-Q for the quarter ended March 31, 2006 and in other documents filed by the company with the Securities and Exchange Commission.
Red Lion Hotels Corporation
Julie Langenheim, Investor Relations Manager
CCG Investor Relations
Crocker Coulson, President
(310) 231-8600 ext 103