1 Excludes $3.7 million of separation cost 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. A schedule called "Disclosure of 2008 Special Item" is included with this release.
In addition, key hotel operating metrics, on a comparable basis, and reported hotel operating margins for the second quarter and six-month periods ended June 30, 2008 are highlighted below for owned and leased hotels:
President and Chief Executive Officer Anupam Narayan, commenting on the second quarter results, said, "We are pleased to report another quarter of RevPAR growth from our owned and leased hotels, especially in the face of increasingly difficult economic conditions. Looking forward to the rest of 2008, we share many of the same economic concerns as our competitors, including concerns about the downturn in the airline industry and high fuel prices. We were effective in managing operations in the second quarter to produce increased margins, and we will continue to be proactive in how we respond to these negative pressures on the lodging industry."
Narayan continued, "In addition to our positive operating results, the recently acquired Red Lion Hotel Denver Southeast has been a great addition to the Red Lion brand and fits perfectly with our stated growth strategy. Our balance sheet remains strong and we will continue to take a disciplined approach in identifying properties that fit our criteria for expansion."
Second Quarter Results
Red Lion's total revenue during the second quarter was $49.8 million, up 1.7% from the prior-year period. Revenue from hotels was $46.7 million, up 4.1% from the second quarter of 2007, driven by the 3.2% increase in RevPAR at owned and leased hotels. Hotel direct operating margin increased by 150 basis points to 28.4%. On a comparable property basis, hotel revenue increased 3.2%.
The RevPAR increase for owned and leased hotels in the second quarter of 2008 was driven by a 1.4% increase in ADR and a 120 basis point increase in occupancy. System-wide, RevPAR increased 2.0% on a quarter-on-quarter basis, with a 2.0% increase in ADR and flat occupancy. The system-wide results were again negatively impacted by rooms out of service for renovation at a number of franchised hotels.
The second quarter 2008 results included revenue from the Anaheim hotel, acquired in October 2007, and the Red Lion Hotel Denver Southeast, acquired in May 2008. The second quarter 2008 results did not include revenue from the Red Lion Hotel Sacramento, which was subleased to a franchisee in July 2007.
Franchise and management revenue was $0.4 million, down $0.3 million from the prior-year period due both to fewer franchisees in the system and $0.2 million of termination fees received in the second quarter of 2007. Entertainment revenue was $1.9 million, a decrease of $0.7 million from the same quarter in 2007 due primarily to the difference in the number and type of shows presented.
EBITDA from continuing operations for the second quarter of 2008 was $10.4 million, an increase of 3.5% from the second quarter of 2007. Net income from continuing operations was $2.3 million - a decrease of 8.3% from the prior-year period. Earnings per fully diluted share from continuing operations was $0.12, versus $0.13 per fully diluted share in the second quarter of 2007.
First Half 2008 Results
Red Lion's total revenue for the six-month period ended June 30, 2008, was $89.4 million, up 1.2% from the same period in 2007. Reported revenue from hotels was $81.9 million, up 3.4% from the prior-year period in 2007, driven by a 3.4% increase in RevPAR at owned and leased hotels. Hotel direct operating profit increased 12.3% to $18.5 million, leading to a 180 basis point increase year-over-year to 22.6%. On a comparable property basis, hotel revenue increased 3.7%.
The RevPAR increase for owned and leased hotels for the first six months of 2008 was driven by a 2.2% increase in ADR and a 70 basis point increase in occupancy. System-wide, RevPAR increased 0.6% year-over-year led by a 2.7% increase in ADR, mostly offset by a 120 basis point decrease in occupancy, primarily a result of ongoing renovations at a number of franchised hotels.
Results for the first half of 2008 included revenue from the Anaheim hotel, acquired in October 2007, and the Red Lion Hotel Denver Southeast, acquired in May 2008. Results for the first half of 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 $0.8 million, down from the prior year primarily due to fewer franchisees in the system and non-recurring termination fees of $0.4 million from franchises that are no longer in the system. Entertainment revenue was $5.1 million, down 14.7% from the prior-year period.
EBITDA from continuing operations for the six-month period ended June 30, 2008 (excluding the 2008 special item for separation costs) was $13.6 million, an increase of 3.7% from the prior-year period, while net income from continuing operations excluding the 2008 special item was $0.1 million, down $0.4 million from the prior-year period. Earnings per fully diluted share for the six-month period ended June 30, 2008 (excluding the 2008 special item) was $0.01, down from $0.03 in the prior-year period.
Red Lion System Update
The company is continuing the complete renovation of its Anaheim hotel acquired in October 2007. We expect to brand the hotel as a Red Lion this fall and to substantially complete all renovations by the end of the year.
At the end of May 2008, the company acquired the 478-room Radisson Hotel Denver Southeast. Red Lion will continue to operate the hotel while it makes over $8 million in renovations, primarily to guest rooms and public spaces. The company expects to commence renovations after the busy summer season and the Democratic National Convention when the hotel is hosting the Texas and American Samoa delegations, and anticipates completion by the end of the first quarter of 2009.
At the end of June 2008, the company had 18 franchised hotels in the Red Lion system. All franchised hotels were required to meet Red Lion's elevated brand standards by the end of 2007. The majority of hotels met these standards by the end of 2007, while some are in the process of completing renovations. At the end of July, the company terminated the franchise agreement for a 186-room hotel in Modesto, California for the franchisee's failure to complete the required property improvements. The company is monitoring the compliance of its other franchisees that are completing improvements and will terminate additional agreements if satisfactory progress does not continue.
Liquidity and Balance Sheet
As of June 30, 2008, the company had $7.9 million in cash and cash equivalents, and interest bearing debt obligations of $131.7 million. The company continues to maintain a $50 million credit facility with $22 million outstanding as of June 30, 2008. To finance the May 2008 acquisition of the Red Lion Hotel Denver Southeast, the company used $23 million of the $50 million credit facility.
For the remainder of 2008, the company is projecting capital expenditures of $17.3 million for ongoing hotel improvement projects and the renovations at the Anaheim and Denver hotels.
Outlook for 2008
Consistent with others in the industry, the company is taking a more cautious outlook on the second half of 2008 given the current economic environment. The company is revising its 2008 guidance as follows:
Red Lion's 2008 EBITDA guidance does not include the impact of the $3.7 million special item for separation costs.
Conference Call Information
The company will hold a conference call at 11:00 a.m. Pacific Time (2:00 p.m. Eastern Time) on August 7, 2008, to discuss the results for interested investors, analysts and portfolio managers. Management on the call will include President and CEO Anupam Narayan and Chief Financial Officer Anthony Dombrowik.
To participate in the conference call, please dial the following number ten minutes prior to the scheduled time: (800) 230-1093. International callers should dial (612) 288-0337.
This conference call will also be webcast live at http://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, download and install any necessary audio software. For those unable to participate during the live broadcast, a replay will be available at 1:30 p.m. PDT on August 7, 2008, through September 7, 2008 at (800) 475-6701 or (320) 365-3844 (International) access code - 954084. 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 and leisure company primarily engaged in the ownership, operation and franchising of upscale and midscale hotels under its Red Lion® brand. As of June 30, 2008, the RLH hotel network was comprised of 50 hotels located in nine states and one Canadian province, with 9,326 rooms and 448,626 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 annual report on Form 10-K for the year ended December 31, 2007 and in other documents filed by the company with the Securities and Exchange Commission.
Red Lion Hotels Corporation
Julie Langenheim, Investor Relations Manager