DENVER, Feb. 27, 2020 // GLOBE NEWSWIRE // - Red Lion Hotels Corporation (the “Company”) (NYSE: RLH), a hospitality company doing business as RLH Corporation which franchises midscale and economy hotels, today reported fourth quarter and year-end 2019 results.
Fourth Quarter Highlights
Full Year Highlights
“We have focused our efforts on our core franchise business, relationship building, owner satisfaction, and lodging development are our key objectives right now,” said RLH Corporation Interim CEO John Russell. “Engagement with our existing franchisees is improving as we prioritize return on investment enhancing initiatives for our owners. We have a restructured and refocused franchise development group, which we believe will reinvigorate sales over time. In the near term, we anticipate terminations will likely remain elevated from average industry levels. We believe these rates will show improvement as the year progresses due to our efforts in owner satisfaction. Additionally, we are aligning the cost structure of the business to RLH’s current size, revenue and profitability.”
“On behalf of the RLH Corporation Board of Directors, we are committed to improving shareholder value by supporting the initiatives the RLHC management team is pursuing for franchise system stability and other opportunities that may become available,” said Carter Pate, Chairman of the Board of Directors. “The Board also is continuing the permanent CEO search with a strong due diligence process and active candidates.”
Fourth Quarter 2019 Financial Results
The Company reported a net loss attributable to RLH Corporation of $(8.1) million or $(0.32) per share in the fourth quarter compared to $(7.4) million or $(0.30) per share in the prior year period. The year-over-year change was primarily related to gains from the sale of Company operated hotels in the prior year and a decrease in royalty revenue, partially offset by higher other franchise revenue and a decrease in SG&A costs. The Company recorded an $8.7 million impairment charge on intangible assets related to its Americas Best Value Inn and Knights Inn brands, which was partially offset by $7.1 million in gains on asset sales, primarily from two joint venture owned hotels.
Adjusted EBITDA for the fourth quarter was $1.0 million compared to $2.3 million for the fourth quarter of 2018. The change reflects lower contribution from the sale of the owned hotels in the prior year as well as lower royalty revenues due to the impact of franchise terminations.
Royalty fees decreased 20% to $4.6 million primarily due to terminated agreements in economy hotels. Other franchise fees increased 137% to $2.0 million, primarily due to liquidated damages from terminated agreements.
Selling, general, administrative and other expenses, which include franchise sales, operations and corporate costs and bad debt expense, decreased 9% to $7.0 million. The decrease was primarily driven by a $1.6 million decrease in stock compensation related to recent organizational restructuring and a $1.2 million decrease in labor costs, partially offset by a $1.2 million increase in bad debt expense and $1.1 million related to employee separation costs.
Core Franchise Operations
The following table provides results for the Company’s core franchised hotel segment:
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The midscale hotels achieved a RevPAR index of (1.2)% and (2.6)% for the fourth quarter and year ended December 31, 2019, respectively. The economy hotels achieved a RevPAR index of 0.0% and 0.2% for the fourth quarter and the year ended December 31, 2019, respectively.
For the quarter, the Company executed 26 franchise agreements comprised of four midscale hotels and 22 economy hotels, versus 59 agreements in the year-ago period. Of the 26 contracts signed during the quarter three are for new locations. Franchise sales experienced some disruption in the quarter, as regulations require a franchisor to pause entering into new franchise agreements in the event of a change in certain leadership roles, such as a change in CEO. Contract signings resumed once new franchise disclosure documents were filed and approved by regulatory agencies.
Offsetting the new contracts in the quarter were 98 terminations which included six midscale hotels and 92 economy hotels.
Royalty revenue mix for 2019 was 70% from economy hotels and 30% from midscale hotels. Midscale hotels typically take three to 18 months to open and contain future royalty rate increases, generating franchise revenue growth. For instance, midscale contracts for new locations signed in 2019, contributed in the year $0.07 million in royalty revenue and are expected to contribute approximately $0.8 million of royalty revenue for their first 12 months of fees after opening and application of incentives and fee deferments. Royalty rates on these contracts will increase annually by 10% to 20% for the following few years. Similarly, economy contracts for new locations, signed in 2019, contributed just $0.04 million in 2019 royalty revenues and are expected to contribute approximately $0.4 million of royalty revenue for their first 12 months of fees after opening and application of incentives and fee deferments. With the increases in midscale royalty rate as well as a higher count of midscale hotels, we anticipate that midscale hotels will account for 35% of the royalty mix in 2020.
Offsetting the new signings for the year were 274 terminations which included 23 midscale hotels and 251 economy hotels.
Balance Sheet and Liquidity
RLH Corporation finished the year with cash and restricted cash of $31.8 million including $4.1 million of cash and cash equivalents held by the joint ventures. The Company had debt of $32.6 million comprised of a $10 million revolving line of credit, and $22.6 million of hotel mortgages. As of December 31, 2019, the Company had a net debt to trailing 12 months Adjusted EBITDA ratio of 0.1 times. Adjusted free cash flow for the twelve months ended December 31, 2019 was approximately $14.0 million as compared to $(15.1) million for the twelve months ended December 31, 2018.
Hotel Sales
As previously announced, to increase focus on its franchising business strategy, the Company has been engaged in an ongoing hotel asset disposition program. During 2019, the Company sold, or is under contract to sell, four hotels, including the Red Lion Airport Hotel Atlanta, Hotel RL Salt Lake City, Hotel RL Washington D.C. and the Red Lion Hotel Anaheim. These four hotels contributed approximately $32.1 million in revenue and $5.0 million in EBITDA in 2019.
On November 18, 2019, the Company completed the sale of its Red Lion Airport Hotel Atlanta for $12.25 million in gross proceeds. The hotel was held in a joint venture. RLH Corporation received $4.8 million in net proceeds after closing costs and the repayment of property level mortgage.
On December 20, 2019, the Company completed the sale of its Hotel RL Salt Lake City for $33 million in gross proceeds. The Company received approximately $11.9 million in net proceeds after closing costs, the repayment of property level mortgage debt of $11.0 million, and distributions to its joint venture partner.
Based on the two hotel sales in 2019, after the repayment of closing costs, property level debt and distributions to the joint venture partner, the Company netted $16.7 million. Proceeds were used to retire the corporate level debt of $4.2 million.
Subsequent to the end of the quarter, the Company completed the sale of its Hotel RL Washington D.C. for $16.35 million in gross proceeds. The Hotel RL Washington D.C. was held in a joint venture and all proceeds were applied toward the repayment of the secured term loan on the property and closing costs.
The Company has announced one hotel currently under a non-binding contract to be sold, the Red Lion Hotel Anaheim, California, which it expects to close in the first quarter of 2020. The Red Lion Hotel Anaheim is wholly owned and unencumbered.
In addition, the Company has listed its Hotel RL Baltimore for sale and is beginning the marketing process for the Hotel RL Olympia. The timing and proceeds of the hotel sales are subject to buyer negotiation, market conditions and the availability of buyer financing.
2020 Outlook
The Company is not providing financial guidance for 2020 at this time due to the following factors:
The company anticipates signing 60 to 80 franchise agreements for new locations in 2020.
Conference Call Information
RLH Corporation will host a conference call on Thursday, February 27 at 9:00 AM Eastern Time, to discuss the results for interested investors, analyst and portfolio managers. 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 11:00 AM Eastern Time on February 27 through midnight March 12, 2020 at (877) 660-6853 or (International) (201) 612-7415, using access code 13698294. The replay will also be available shortly after the call on the RLH Corporation website.
Red Lion Hotels Corporation is an innovative hotel company doing business as RLH Corporation which focuses on the franchising of 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, risks associated with our asset light model; relationships with our franchisees and properties; competitive conditions in the lodging industry; economic cycles; changes in future demand and supply for hotel rooms; international conflicts and conditions; impact of government regulations; ability to obtain financing; changes in energy, healthcare, insurance and other operating expenses; ability to sell non-core assets; dependency upon the ability and experience of executive officers and ability to retain or replace such officers as well as other risks and uncertainties discussed in the Company's annual report on Form 10-K for the year ended December 31, 2019, and in other documents filed by the Company with the Securities and Exchange Commission. The forward-looking statements contained herein speak only to the date of this press release. The Company undertakes no obligation to update or revise any forward-looking statements except as required by law.
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Nikki Sacks
Investor Relations
203-682-8263
investorrelations@rlhco.com
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A summary of our open franchise and company operated hotels as of December 31, 2019, including the approximate number of available rooms, is provided below:
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(1) During the fourth quarter of 2019 we identified a number of errors in our contract tracking system, primarily related to the status of acquired contracts from acquisitions. The impact of these adjustments is reflected on this line.
A summary of activity relating to our open midscale franchise and company operated hotels by brand from January 1, 2019 through December 31, 2019 is provided below:
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A summary of activity relating to our open economy franchise hotels by brand from January 1, 2019 through is provided December 31, 2019 below:
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(1) During the fourth quarter of 2019 we identified a number of errors in our contract tracking system, primarily related to the status of acquired contracts from acquisitions. The impact of these adjustments is reflected on this line.
A summary of our executed franchise agreements for the year ended December 31, 2019 is provided below:
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A summary of our executed franchise agreements for the year ended December 31, 2018 is provided below:
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(1) The prior year number of executed franchise license agreements for new locations has been adjusted to exclude contracts for transfers between brands. These contracts are now reported within new contracts for existing locations.
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SOURCE RLHC (Red Lion Hotels Corporation)
Red Lion Hotels Corporation is a hospitality company primarily engaged in the franchising, management and ownership of upscale, midscale and economy hotels.