SPOKANE, WA, November 5, 2008 - Red Lion Hotels Corporation (NYSE: RLH) today announced its results for the third quarter and nine months ended September 30, 2008. Despite a difficult market environment, RevPAR for the quarter at owned and leased hotels decreased by 1.0% while revenue improved 4.3%, primarily due to the addition of the Anaheim and Denver Southeast hotels. Summary results for the three and nine-month periods follow:
In addition, key hotel operating metrics, on a comparable basis, and reported hotel operating margins for the third quarter and nine-month periods ended September 30, 2008 and September 30, 2007 are highlighted below for owned and leased hotels:
President and Chief Executive Officer Anupam Narayan, commenting on the third quarter results, said, "The third quarter of 2008 was a challenge given the difficult economic environment that we have seen, particularly since Labor Day. We have proactively implemented cost-cutting measures with the goal of optimizing our margins, and have adequate liquidity, no near-term debt maturities and a strong balance sheet. We are confident in the underlying fundamentals and asset value of our company. "
Narayan continued, "In October, we announced that our review of strategic alternatives had concluded and that we did not receive any definitive offer from the interested parties. We will continue to concentrate on maximizing shareholder value by executing our operational plan and focusing on the basics in these challenging times."
Third Quarter Results
Red Lion's total revenue during the third quarter was $56.9 million, up 4.3% from the prior-year period. Revenue from hotels was $53.5 million, up 6.9% from the third quarter of 2007, primarily related to the addition of the Anaheim hotel - acquired in October 2007 - and the Red Lion Hotel Denver Southeast - acquired in May 2008. On a same-store basis, ADR improved 1.8%, offset by a decline in occupancy of 210 basis points, which resulted in a decline in RevPAR of 1.0%. The overall hotel segment's direct operating margin decreased by 290 basis points to 30.1%. This was driven primarily by spending on additional marketing and advertising to drive hotel revenues and lower than optimal margins at the company's two new hotels that are undergoing renovations. System-wide, RevPAR on a comparable basis for the quarter decreased 0.4%, with a 220 basis point decrease in occupancy partially offset by a 2.6% increase in ADR.
Franchise and management revenue was $0.8 million, up $0.1 million from the prior-year period due to franchise termination fees of $0.3 million received in the quarter, which more than offset the impact of the fewer number of franchisees in the system. Entertainment revenue was $1.9 million, a decrease of $1.2 million from the same quarter in 2007 due to the economic slowdown and because there were no major shows in the third quarter.
EBITDA from continuing operations for the third quarter of 2008 was $14.1 million, a decrease of 7.6% from the third quarter of 2007. Net income from continuing operations was $4.4 million - a decrease of $1.4 million from the prior-year period. Earnings per fully diluted share from continuing operations was $0.24, down $0.05 per fully diluted share from the third quarter of 2007.
Nine Months 2008 Results
Red Lion's total revenue for the nine-month period ended September 30, 2008, was $146.3 million, up 2.4% from the same period in 2007. Reported revenue from hotels was $135.4 million, up 4.8% from the prior-year period in 2007, driven by a 1.5% increase in RevPAR at owned and leased hotels. Hotel direct operating profit increased 4.9% to $34.6 million, while margins were 25.5%, flat with the prior-year quarter.
The RevPAR increase for owned and leased hotels on a comparable basis for the first nine months of 2008 was driven by a 1.9% increase in ADR, partially offset by a 20 basis point decrease in occupancy. System-wide, RevPAR on a comparable basis increased 0.5% year-over-year led by a 2.8% increase in ADR, partially offset by a 150 basis point decrease in occupancy primarily resulting from renovations at a number of franchised hotels.
Results for the first nine months 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 nine months 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 $1.5 million, down from the prior year primarily due to fewer franchisees in the system and non-recurring termination fees of $0.3 million received in 2007 from franchises that are no longer in the system. Entertainment revenue was $7.0 million, down 22.7% from the prior-year period primarily related to attendance and the mix of shows presented during the first nine months of 2008.
EBITDA from continuing operations for the nine-month period ended September 30, 2008 (excluding the 2008 special item for separation costs) was $27.8 million, a decrease of 2.4% from the prior-year period, while net income from continuing operations excluding the 2008 special item was $4.6 million, down $1.7 million from the prior-year period. Earnings per fully diluted share for the nine-month period ended September 30, 2008 (excluding the 2008 special item) was $0.25, down $0.07 from the prior-year period.
Red Lion System Update
The company continues the complete renovation of its 310-room Anaheim hotel acquired in October 2007. Refurbished rooms will start to come on line in November and the renovation should be substantially completed by the end of 2008. Renovations have also commenced on the recently acquired 478-room Red Lion Hotel Denver Southeast. The company waited until after the Democratic National Convention and the end of the summer travel season to start its work. Red Lion will continue to operate the hotel while it makes over $8 million in renovations, primarily to guest rooms and public spaces, and anticipates completion by the end of the first quarter of 2009.
At the end of September 2008, the company had 15 franchised hotels in the Red Lion system. As part of the strategy to enhance the Red Lion Brand, during the quarter, the company removed three hotels from the franchise system for insufficient progress in completing required property improvements. Those hotels were the former Red Lion Hotel Modesto (186 rooms), the Red Lion Hotel Hillsboro (123 rooms) and the Red Lion Hotel Klamath Falls (108 rooms). The company believes all but two of its current franchisees are either in full compliance with the company's enhanced brand standards or making sufficient progress to be in full compliance in the near term.
Liquidity and Balance Sheet
As of September 30, 2008, the company had approximately $16.0 million in cash and cash equivalents. The company continues to maintain a $50 million credit facility with $21 million outstanding as of September 30, 2008.
On October 13, 2008, the company announced that it had closed on a $14 million loan from Wells Fargo Bank, National Association on its hotel in Bellevue, Washington. The loan provides for a five-year term and a variable spread over LIBOR based on certain financial ratios. The current pricing is 1.75% over LIBOR. Red Lion used part of the proceeds of the loan to pay off the previous 9% loan of approximately $8.2 million and will use the remainder for general corporate purposes.
For the remainder of 2008, the company is projecting capital expenditures of $15.0 million for ongoing hotel improvement projects and the renovations at the Anaheim and Denver hotels.
Outlook for 2008
Consistent with others in the industry, and given the current challenging economic conditions, 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 incurred in the first quarter of 2008.
Conference Call Information
The company will hold a conference call at 9:00 a.m. Pacific Time (12:00 p.m. Eastern Time) on November 6, 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) 230-1096. International callers should dial (612) 332-0228.
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 2:00 p.m. PST on November 6, 2008, through December 6, 2008 at (800) 475-6701 or (320) 365-3844 (International) access code - 965898. 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 September 30, 2008, the RLH hotel network was comprised of 47 hotels located in nine states and one Canadian province, with 8,910 rooms and 437,626 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.
NON-GAAP FINANCIAL MEASURES
EBITDA is defined as net income 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"). EBITDA from continuing operations is calculated in the same manner, but excludes the operating results of business units identified as discontinued under GAAP.
We use EBITDA to measure the financial performance of our owned and leased hotels 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 taxing 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.
However, because EBITDA excludes depreciation and amortization, it does not measure the capital we require to maintain or preserve our long-lived assets. In addition, because EBITDA does not reflect interest expense, it does not take into account the total amount of interest we pay on outstanding debt nor does it show trends in interest costs due to changes in our borrowings or changes in interest rates. EBITDA, as defined by us, may not be comparable to EBITDA as reported by other companies that do not define EBITDA exactly as we define the term. Because we use EBITDA to evaluate our financial performance, we reconcile all EBITDA measures to net income, which is the most comparable financial measure calculated and presented in accordance with GAAP. EBITDA does not represent cash generated from 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.
Red Lion Hotels Corporation
Julie Langenheim, Investor Relations Manager