RLH Corporation Reports Second Quarter 2018 Results

Red Lion Hotel Corporation
Published: August 16th, 2018

DENVER, Aug. 09, 2018 // GLOBE NEWSWIRE // -- Red Lion Hotels Corporation (the “Company”) (NYSE: RLH), a growing hospitality company doing business as RLH Corporation that franchises upscale, midscale and economy hotels, today reported second quarter 2018 results.

Highlights

Net loss was $2.3 million for the three months ended June 30, 2018 compared to a net loss of $66,000 in the prior year period. The increased loss was tied to the lost income from seven hotels that have been sold in the first half of 2018.
The Company reported Adjusted EBITDA of $5.6 million for the three months ended June 30, 2018 and $6.0 million for the six months ended June 30, 2018. These results are in line with the Company’s expectations for the first six months of 2018. The second half of the year is expected to be positively affected by the Knights Inn acquisition which closed on May 15, 2018 and from reductions in costs associated with the Company transitioning out of the hotel ownership business and concentrating on growing more profitable franchise operations.;

Through July 2018, the Company has completed the sales of nine of the 11 hotels previously identified for disposal with eight of the buyers entering into new franchise agreements. These sales are expected to generate a gain of approximately $40 million. The sales to date have generated gross proceeds of more than $116 million and the prices achieved are in line with the guidance we provided earlier in the year. The $73 million of debt held by the joint venture at December 31, 2017 was repaid fully with the proceeds. The Company also received a joint venture distribution of more than $20 million that will be used strategically to reduce debt.
Given continued strong market conditions, the Company decided to market three additional hotels in Anaheim, Atlanta and Kalispell and anticipates gross proceeds in excess of $40 million.
The Company expects the completed hotel sales will provide cash reserves that can be used to execute additional franchise acquisitions in the future.
The Company has executed 93 franchise agreements through the date of this release against its target of 150 to 200 for 2018, excluding the 361 Knights Inn franchises strategically acquired in May 2018.

Midscale Franchise RevPAR increased 1.2 percent. Approximately eighty percent of the Company’s franchised hotels have a fixed fee representing an important hedge against an economic downturn and providing stability of its base franchise revenues and cash flow.
The Company focused efforts on rationalizing and reducing the costs of running franchise operations with the goal of increasing its divisional margins in 2018 by more than 600 basis points compared to 2017. These cost rationalization efforts began in November 2017 and are expected to continue throughout 2018. The Company recently closed its office in Florida and has consolidated most of those resources into the Denver office with the objective of improving productivity. In addition, the Company’s outside website operations has been consolidated into an internal department to handle development and operating costs internally with targeted strategic benefits and annual operating savings of $2 million.

“The first six months of 2018 demonstrates our team’s ability to quickly transform RLH Corporation into a high-margin non-capital-intensive franchise fee business,” said Greg Mount, RLH Corporation President and Chief Executive Officer. “We have significantly reduced the risk in our business model by selling nine hotels and repositioning our capital for growth. Those sales have fully eliminated joint venture debt of more than $73 million and resulted in a $20 million distribution from the joint venture to us. We are now positioned to use our cash reserves and capital capacity to grow our franchise business aggressively through targeted acquisitions. Our team has exceptional efficiency in executing this aggressive growth strategy, evidenced by the integration of Inner Circle’s 10 upscale hotels earlier this year and by the acquisition of Knights Inn in May.”

Balance Sheet

With the July sale of two additional properties nine of the targeted 11 hotel sales have been completed. We have generated more than $116 million of gross hotel proceeds, in line with the guidance the Company previously provided. Through July 2018, these proceeds allowed the Company to fully repay joint venture debt of $73 million and to receive a $20 million distribution from the joint venture.

2018 Expectations

In 2018, the anticipated sales of hotels will reduce the Company Hotel divisional profitability. As the sales are closed, the Company will disclose the material terms of each transaction in its 8K filings including the historical Adjusted EBITDA relating to the hotels sold. Due to the inability to predict the timing of the hotel sales, guidance for the 2018 fiscal year will concentrate on the Company’s Franchise business, which will represent the majority of the ongoing future earnings of the Company.

Franchise Division:

2018 midscale system-wide RevPAR expected to increase 1 percent to 3 percent year- over-year.
Franchise divisional profit expected to be between $19 million and $20 million.
Franchise divisional profit margin is expected to increase from 28.3 percent in 2017 to between 34 percent and 35 percent.
General and administrative expenses are expected to be $15.5 million to $16.5 million, consistent with the prior year.;
With our increased focus on our franchising operations, the Company expects to reduce Franchise division costs by $4 million to $5 million on an annualized basis and these cost reduction efforts will be ongoing. ;
The Company expects to execute between 150 and 200 license agreements in 2018 excluding the acquisition of Knights Inn. Knights Inn acquisition closed on May 15, 2018 and we have now integrated 361 franchised properties.

Hotel Division:

The aggregate Adjusted EBITDA contribution for the five hotels currently being marketed for sale was $8.7 million for 2017 and $4.2 million for the year to date for 2018. The 2018 Adjusted EBITDA for each of these five hotels will be included in reported results through the dates of each of the respective hotel sales.;
The 2018 Adjusted EBITDA for the nine hotels sold to date in 2018 was $3.1 million through the earlier of their respective sales dates or June 30, 2018. The Adjusted EBITDA for these nine hotels was $14.5 million for fiscal 2017.

Conference Call Information

RLH Corporation will conduct a conference call on Thursday, August 9th at 11:00 a.m. Eastern Time, to discuss the results for interested investors, analyst and portfolio managers. Hosting the call will be RLH Corporation President & Chief Executive Officer Greg Mount and Chief Financial Officer Doug Ludwig.

To participate in the conference call, please dial the following number 10 minutes prior to the scheduled time: (877) 407-8289. International callers should dial (201) 689-8341.

This conference call will also be webcast live on www.rlhco.com in the Investor Relations section of the website. To listen to the live call, please go to the RLH Corporation website at least 15 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 approximately 8:00 p.m. Eastern Time on August 9, 2018 through August 24, 2018, at (877) 660-6853 or (International) (201) 612-7415, using access code 13681694. The replay will also be available shortly after the call on the Company’s website.

About RLH Corporation

Red Lion Hotels Corporation is an innovative hotel company doing business as RLH Corporation and focuses on the franchising, management and ownership of upscale, midscale and economy hotels. The Company strives to maximize return on invested capital for hotel owners across North America through relevant brands, industry-leading technology and forward-thinking services. For more information, please visit the company’s website at www.rlhco.com.

Forward Looking Statements

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, 2017, and in other documents filed by the Company with the Securities and Exchange Commission.

To learn more about franchising with RLH Corporation, visit franchise.rlhco.com. We don’t wait for the future. We create it.

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Investor Relations Contact:

Amy Koch
Investor Relations Manager
509.777.6417
investorrelations@rlhco.com

Media Contact:

Dan Schacter
Director, Social Engagement and Public Relations
509-777-6222
dan.schacter@rlhco.com

View Original for Full Data Table

⁽¹⁾ Certain operating results for the periods included in this report are shown on a comparable hotel basis. Comparable hotels are defined as hotels that were in the system for at least one full calendar year as of the beginning of the current year under materially similar operations.
⁽²⁾ Average occupancy represents total paid rooms divided by total available rooms. Total available rooms represents the number of rooms available multiplied by the number of days in the reported period and includes rooms taken out of service for renovation.
⁽³⁾ Average daily rate (ADR) represents total room revenues divided by the total number of paid rooms occupied by hotel guests.
⁽⁴⁾ Revenue per available room (RevPAR) represents total room and related revenues divided by total available rooms.