Red Lion Hotels Corporation
Feb 28, 2012
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Red Lion Hotels Reports Fourth Quarter and Full Year 2011 Results

SPOKANE, Wash., February 28, 2012 - Red Lion Hotels Corporation (NYSE: RLH), a western U.S. based owner and franchisor of midscale hotels, today announced its results for the fourth quarter and year ended December 31, 2011.

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 Red Lion Hotel on Fifth Avenue in Seattle, which was sold in the second quarter of 2011. Following the sale, this property continues to operate as a franchised hotel and the company is therefore required to report its financial results in continuing operations.

Fourth Quarter Overview:

  • RevPAR for comparable owned and leased hotels decreased 0.9 percent year over year
  • Comparable EBITDA from continuing operations before special items increased $1.9 million compared with fourth quarter 2010
  • Recorded pre-tax goodwill and asset impairment charges of $20.5 million in continuing operations
  • Net loss from continuing operations, including the impairment charges, was $20.2 million compared to $7.1 million in the prior year
  • Acquired 10 previously leased hotels in a tax-deferred exchange
  • Added three new franchised hotels in New Mexico

Full Year Overview:

  • RevPAR from comparable owned and leased hotels increased 2.7 percent
  • Comparable EBITDA from continuing operations before special items decreased $3.9 million compared to prior year
  • Recorded pre-tax goodwill and asset impairment charges of $22.7 million in continuing operations
  • Sold Seattle Fifth Avenue for $71 million and recorded a gain of $33.5 million.
  • Net loss from continuing operations was $6.0 million compared to $7.9 million in the prior year
  • Added six new franchised hotels

"In 2011, our RevPAR growth exceeded that of our competitors in our markets and we continued to maintain our market share," said Jon E. Eliassen, President and Chief Executive Officer of Red Lion Hotels Corporation. "At the same time, we significantly improved our balance sheet by paying down debt and acquiring previously leased hotels. As we look forward, we believe our hotels will be well positioned to compete for business when the economy recovers in our region."

Total revenue from continuing operations reported during the fourth quarter was $33.2 million compared to $36.0 million in the fourth quarter of 2010. On a comparable basis, total revenue increased $0.4 million from $32.8 million in the fourth quarter of 2010. Fourth quarter 2011 reported a net loss from continuing operations of $20.2 million, or $1.05 per share, compared to a net loss from continuing operations of $7.1 million, or $0.38 per share, for the prior year period. Fourth quarter 2011 results from continuing operations include $20.5 million in pre-tax impairment charges, of which $14.2 million is related to the Company's goodwill and $6.3 million is related to the assets of the Red Lion Hotel Denver Southeast and Red Lion Hotel Vancouver at the Quay hotels. These impairment charges are reflected as special items in 2011 results. In the fourth quarter of 2011, comparable EBITDA from continuing operations before special items was $1.7 million, compared to ($0.2) million, for the fourth quarter of 2010.

Summary Results
Revenue and EBITDA from continuing operations for the three months and full year ended December 31, 2011, and December 31, 2010, follow:

In addition, on a comparable continuing operations basis, key hotel operating metrics and EBITDA for the three months and full year ended December 31, 2011, and December 31, 2010, are highlighted below for owned and leased hotels:

Fourth Quarter 2011 Results
In the fourth quarter of 2011, for comparable owned and leased hotels from continuing operations, excluding Seattle Fifth Avenue, occupancy decreased 60 basis points to 49.6 percent and ADR increased 0.5 percent to $76.71. Both contributed to a 0.9 percent decrease in comparable RevPAR year over year.

On a comparable hotel basis, EBITDA from continuing operations before special items was $1.7 million for the fourth quarter compared to ($0.2) million in the prior year period. Hotel revenue on a comparable basis of $28.9 million was flat compared to the same period a year ago. Food and beverage revenue on a comparable basis increased $0.2 million compared to the prior year at $8.5 million. Hotel direct operating margin on a comparable basis increased to 13.8 percent from 8.4 percent in the same period in 2010. This improvement was due to prior year workers' compensation recoveries, payroll cost containment initiatives and an improvement in food margins.

Franchise revenue increased to $1.1 million from $0.8 million. Profitability improved year-over-year as fourth quarter 2010 results were negatively impacted by the termination of the franchise agreement with the previous subtenant of the Sacramento property.

Revenue in the entertainment segment was essentially flat at $2.4 million compared to the same period last year.

Full Year Ended December 31, 2011 Results
Total revenue on a comparable basis for the full year ended December 31, 2011 was $150.1 million versus $145.0 million in the prior year. Comparable revenue from hotels of $132.3 million was up $2.2 million, or 1.7 percent. Comparable hotel direct operating margin declined to 19.2 percent from 20.5 percent in the prior year period, primarily driven by increased sales, marketing, energy and maintenance costs. Labor costs for 2011 were positively impacted by seasonal reductions in the fourth quarter.

RevPAR for comparable owned and leased hotels increased 2.7 percent driven by a 120 basis point increase in occupancy and a 0.6 percent increase in ADR.

Franchise revenue increased to $4.0 million from $3.2 million. Profitability improved year-over-year as fourth quarter 2010 results were negatively impacted by the termination of the franchise agreement with the previous subtenant of the Sacramento property.

Entertainment revenue increased $2.1 million driven by a favorable mix of productions during the year. This increase was partially offset by a decrease in revenue from the ticketing portion of this segment. Ticketing revenue was negatively impacted by weak demand for entertainment events in the company's markets.

Discontinued Operations
During the quarter, the company listed for sale its hotels in Medford, Ore., and Missoula, Mont., two non-core assets in which the company does not expect to maintain significant continuing involvement. Accordingly, the operations of these properties have been classified as "discontinued operations" in the company's statement of operations. This presentation, as required under generally accepted accounting principles ("GAAP"), separately reports the revenue and expenses including any related asset impairment charges, net of income taxes as "net income (loss) from discontinued operations" on the company's statement of operations for this quarter and any comparable periods presented.

Asset Impairments
During the fourth quarter, the company recorded $20.5 million in pre-tax goodwill and asset impairment charges in continuing operations as follows:

In the third quarter, the company recorded a $2.2 million pre-tax asset and goodwill impairment charge related to the held for sale hotel in Helena, Mont., to reflect the estimated fair value of the hotel net of selling costs.

These impairment charges are excluded from our reported EBITDA from continuing operations before special items for 2011 and separately identified in the Company's operating results.

Liquidity and Balance Sheet
As of December 31, 2011, the company had $1.9 million in cash and cash equivalents, and $6.8 million available on its line of credit. Additionally, as of December 31, 2011, the company had outstanding debt of $101.3 million, of which $4.1 million is current. This compares to outstanding debt of $126.0 million, of which $43.3 million was current, at December 31, 2010.

Capital expenditures for the full year ended December 31, 2011, totaled $8.9 million primarily for hotel improvement projects.

The Red Lion Colonial Hotel in Helena, Red Lion Inn Missoula, Red Lion Hotel Denver Southeast and Red Lion Hotel Medford were classified as assets held for sale on the balance sheet at December 31, 2011. Denver Southeast, Medford and Missoula were added to this classification in the fourth quarter of 2011.

In November, the company paid $37 million to purchase 10 previously leased hotels from a subsidiary of iStar Financial Inc.

In October, the company completed an expanded $40 million credit facility with Wells Fargo Bank, making available up to $10 million on a revolving line, in addition to $30 million in term debt obtained in September 2011. In connection with the expansion of this credit facility, the company retired $22 million of CMBS debt.

Franchise Update
In November and December, the company added three franchised hotels in Farmington, Gallup and Grants, N.M. These hotels expanded the company's western United States footprint from eight states to nine.

Subsequent Events
In January, the company listed for sale the Red Lion Hotel Denver Southeast. The company expects to maintain the hotel's Red Lion affiliation as a franchised property.

Outlook for 2012
Based on the outlook for the markets in which the company operates and information available today, the company is providing the following guidance for 2012:

Conference Call Information
The company will conduct a conference call on February 28, 2012, 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 President and Chief Executive Officer Jon E. Eliassen and Executive Vice President and Chief Financial Officer Julie Shiflett. Executive Vice President and Chief Operating Officer George Schweitzer will also be available to answer questions.

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) 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 4:00 p.m. Pacific Time on February 28, 2012, through March 28, 2012, at (800) 475-6701 or (320) 365-3844 (International) access code - 236301. 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 hotels under its Red Lion® brand. As of December 31, 2011, the RLH hotel network was comprised of 48 hotels located in nine states and one Canadian province, with 9,010 rooms and 452,387 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, 2010 and in other documents filed by the Company with the Securities and Exchange Commission.

Company Contact:
Pam Scott
Director of Corporate Communications
(509) 777-6393