Red Lion Hotels Corporation
Nov 4, 2010
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Red Lion Hotels Reports Third Quarter 2010 Results

Rate and Mix Initiatives Drive 8.3% Increase in RevPAR

SPOKANE, WA, November 4, 2010 - Red Lion Hotels Corporation (NYSE: RLH), a western U.S.-based owner and franchisor of midscale hotels, today announced its results for the third quarter ended September 30, 2010.

Overview:

Revenue from hotels during the third quarter increased to $46.2 million from $44.8 million in the prior year period.  Total revenue during the third quarter was $49.8 million, compared to $50.3 million last year.  EBITDA from continuing operations for the third quarter of 2010 was $12.4 million, compared to $12.7 million for the third quarter of 2009.  Net income from continuing operations was $3.2 million in the quarter, or $0.17 per diluted share, compared to net income of $3.4 million, or $0.19 per diluted share, for the prior year period.

Interim President and Chief Executive Officer Jon Eliassen commented, "Our strong top-line performance in the hotel segment this quarter was fueled by a healthy 8.3% year-over-year increase in RevPAR.  This gain underscores the success of our strategies to increase rate, as well as our business mix initiatives aimed at capture of the group, preferred corporate and premium transient segments.  Consistent with our expectations, group demand rebounded during the third quarter and we also continued to capture share in the highest rate transient segments."  

Summary results for the third quarter and nine months ended September 30, 2010 and September 30, 2009 follow:

In addition, key hotel operating metrics on a comparable basis, and reported hotel revenues and operating margin for the third quarter and nine months ended September 30, 2010 and September 30, 2009, are highlighted below for owned and leased hotels:

Third Quarter 2010 Results

Comparing the third quarter of 2010 to the third quarter of 2009, RevPAR for owned and leased hotels increased 8.3%, driven by a 5.8% increase in ADR to $90.50 and a 160 basis point increase in occupancy to 70.1%. Including franchised hotels, system-wide RevPAR on a comparable basis for the quarter increased 7.2% due to a 4.8% increase in ADR and a 160 basis point increase in occupancy.

Revenue from hotels of $46.2 million increased $1.5 million, or 3.3%, from the prior year period. Rooms revenue increased approximately $2.7 million, or 8.3%, due to increased occupancy and rate as a result of business mix shifts favoring group and premium transient segments.  

Food and beverage revenue declined $1.4 million compared to the prior year period primarily due to the previously announced modification to food and beverage offerings.  

Hotel direct operating margin declined to 31.5% during the quarter from 32.4% in the same period in 2009.  This is primarily due to investments in sales, marketing and technology, coupled with higher labor costs associated with guest service initiatives, all of which are designed to position the brand for future success.

Franchise revenue declined 4.5% year-over-year reflecting the impact of one less hotel in the system. Profitability in the segment was impacted by development expenditures associated with the company's franchise growth strategy.  

Revenue and profitability in the entertainment segment declined due to the impact of one less Best of Broadway production during the quarter versus the prior year period.

Discontinued Operations

During the quarter, the company concluded that its leased hotel in Astoria, Oregon had reached the end of its useful life.  Accordingly, the operations of this facility have been classified as "discontinued operations" in the company's financial statements.  This presentation, as required under generally accepted accounting principles ("GAAP"), reports the revenue and expenses of the discontinued operations net of income taxes in one line item as "net income (loss) from discontinued operations" on the company's statement of operations for this quarter and any comparable periods presented.

Nine Months Ended September 30, 2010 Results

Total revenue for the nine months ended September 30, 2010 was $126.6 million compared to $129.7 million in the prior year period.  Revenue from hotels of $115.5 million was in line with the prior period's results of $115.9 million.  Hotel direct operating margin declined to 24.8% from 26.4% in the prior year period.

RevPAR for comparable owned and leased hotels increased 3.9%, driven by a 2.4% increase in ADR and a 90 basis point increase in occupancy. Including franchised hotels, system wide RevPAR on a comparable basis increased 2.4% due to a 1.6% increase in ADR and a 40 basis point improvement in occupancy.

Franchise Update

The Red Lion franchise development team announced that it has signed franchise license agreements with two owners of Northern California hotels. The first will be a Red Lion Inn, located in Rancho Cordova, near Sacramento.  The hotel was originally built as a Fairfield Inn by Marriott.  This 111-room limited service hotel is expected to open as a Red Lion Inn in January 2011.  

The second property will be the Red Lion Hotel Oakland International Airport.  This property is an independent full service airport hotel with 189 rooms, and is expected to be converted to a Red Lion in early 2011.

Eliassen said, "We are pleased to welcome these properties to the Red Lion system.  Historically, Red Lion has had a strong presence in California, and these hotels enhance our footprint and brand.  The franchise team has continued to identify quality properties in markets where Red Lion is interested in having a presence and we continue to have active discussions with other property owners."

Liquidity and Balance Sheet

As of September 30, 2010, the company had approximately $3.0 million in cash and cash equivalents, and outstanding debt of $124.8 million including $36.5 million now classified as current liabilities. The company is currently pursuing financing alternatives to address maturing debts and to supplement working capital.  

Capital expenditures during the quarter ended September 30, 2010 totaled $4.1 million.  Capital expenditures during 2010 are expected to total $10.8 million for investments in maintenance, technology and hotel improvement projects.  All capital needs are expected to be funded with operating cash flow.

Subsequent Event

The company's Board of Directors has appointed Dan Jackson as Senior Vice President and Chief Financial Officer effective November 10, 2010.  Jackson has been involved in senior level finance and strategic planning for more than 20 years, has significant expertise in the hospitality industry and possesses a proven record of motivating and building strong teams.  He returns to Red Lion, where he previously served in the roles of Vice President of Corporate Services and Controller from 1985 to 1997. Most recently, Jackson was Executive Vice President and Chief Financial Officer for KinderCare Learning Centers, Inc. and its successor, Knowledge Learning Corporation, where he oversaw all financial operations and worked with investment banks and lenders in negotiating financing for a company with over 1,650 locations.

Outlook for 2010  

Based on year-to-date performance and current visibility on the balance of the year, the company is updating its guidance for 2010 as follows:

Conference Call Information

The company will conduct a conference call today at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time), to discuss the results for interested investors, analysts and portfolio managers. Hosting the call will be Interim President and Chief Executive Officer Jon Eliassen and Executive Vice President and Chief Operating Officer George Schweitzer.

To participate in the conference call, please dial the following number ten minutes prior to the scheduled time: (800) 230-1085.  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 and to download and install any necessary audio software. For those unable to participate during the live broadcast, a replay will be available at 4:30 p.m. PDT on November 4, 2010 through December 4, 2010 at (800) 475-6701 or (320) 365-3844 (International) access code - 175826.  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 midscale full, select and limited service hotels under its Red Lion® brand. As of September 30, 2010, the RLH hotel network was comprised of 43 hotels located in eight states and one Canadian province, with 8,384 rooms and 419,987 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, 2009 and in other documents filed by the company with the Securities and Exchange Commission.