DENVER, May 08, 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 first quarter 2020 results and provided an update regarding financial and operational activities in light of the ongoing COVID-19 pandemic.
First Quarter Highlights
RLH Corporation Interim CEO John Russell stated, “At the start of the year, we were seeing positive results from the strategic plan we implemented to focus on our franchise growth. This was evident with the increase in signed contracts and decrease in terminations year-over-year. However, as the impact of COVID-19 became more prevalent across the industry, the effect of stay-at-home orders and the unprecedented reduction of travel stalled our positive momentum meaningfully and new signings have slowed in April. In response, we took difficult but decisive action that allowed us to best concentrate our focus on the long-term success of our franchisees and our Company. While occupancy is down significantly, the vast majority of the Company’s franchise hotels have remained open and we have implemented programs to support our franchisees. Our franchisees are there to support the front-line heroes in this fight including health care providers, long distance truckers and traveling front line workers. We applaud these heroes for their efforts and recognize our franchisees for continuing to offer respite to these essential workers.”
Mr. Russell continued, “We ended the quarter with nearly $38 million of cash and no corporate level debt. We have taken significant steps to withstand this temporary disruption, including accelerating our reduction in cost structure. As we navigate through this difficult time, we will continue to work with our franchisees to make sure they have the resources necessary to operate their hotels now, and a plan for their full return in the future. We would like to thank all of our franchisees and RLHC team members for their dedication as we work toward building a strong recovery.”
First Quarter 2020 Financial Results
The Company reported a net loss to RLH Corporation of $(8.1) million or $(0.32) per share in the first quarter compared to a net loss of $(4.3) million or $(0.17) per share in the prior year period. The year-over-year change is attributable to first quarter bad debt expense of $9.7 million largely resulting from the economic impact of COVID-19 on receivable balances such as those associated with Inner Circle and other former franchisees, a $1.8 million asset impairment on the Red Lion Hotel Seattle Airport primarily due to the impact of COVID-19, a $1.3 million loss associated with the retirement of debt, and $0.5 million of employee separation costs. This was partially offset by a $7.9 million gain from the sale of two hotel properties.
Adjusted EBITDA for the first quarter was a loss of $(10.3) million compared to $1.0 million for the first quarter of 2019. The change reflects lower contribution from the sale of the owned hotels, lower royalty revenues due to the impact of franchise terminations and increased expenses primarily related to bad debt.
Royalty fees were $4.4 million compared to $5.7 million in the prior year quarter primarily due to terminated hotel agreements and the impact of COVID-19 on midscale brands, which generally pay royalties and marketing fees as a percentage of gross rooms’ revenues.
Selling, general, administrative and other expenses, which include franchise sales, operations and corporate costs and bad debt expense, were $16.3 million compared to $7.4 million in the year-ago period. The increase was driven by recognition of $9.7 million in bad debt expense which includes $6.3 million related to Inner Circle.
Core Franchise Operations
The following table provides results for the Company’s core franchised hotel segment:
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Royalty revenue mix for the first quarter of 2020 was 72% from economy hotels and 28% from midscale hotels.
During the first quarter of 2020, the Company executed 70 franchise agreements an increase of 25% year-over-year, comprised of 6 midscale hotels and 64 economy hotels, versus 56 agreements in the year-ago period. Of the 70 contracts signed during the quarter, 16 are for new locations.
Offsetting new contracts in the quarter were 44 terminations, a 21% improvement year-over-year, which included 1 midscale hotel and 43 economy hotels.
COVID-19 Update
The Company has taken a number of steps in response to the pandemic, which include the following:
On April 23 the Company announced the receipt of $4.2 million in proceeds from a loan entered into pursuant to the Paycheck Protection Program. Subsequent to our receipt of those funds, the US government issued new guidance, effective retroactively, that introduced significant ambiguity to certain eligibility requirements, particularly for publicly traded companies. While the Company believes that the eligibility requirements in place at the time of the loan application were met, it does not appear that the new eligibility requirements are met. The Company made the decision to return the proceeds of the loan in May.
While the Company saw solid momentum in franchise sales in the first quarter, as travel has been meaningfully impacted by COVID-19, the Company saw a notable slowdown in agreements to date in the second quarter. On April 2, 2020, the Company announced it has withdrawn its guidance of signing 60 to 80 franchise agreements for new locations in 2020 due to the impact of COVID-19.
Balance Sheet and Liquidity
As of March 31, 2020, RLH Corporation had cash and cash equivalents of $37.8 million. The Company had debt of $5.6 million comprised solely of one hotel mortgage in its joint venture. Adjusted free cash flow for the three months ended March 31, 2020 was approximately $6.1 million as compared to $5.4 million for the three months ended March 31, 2019.
Hotel Sales
On February 7, 2020, the Company completed the sale of its Hotel RL Washington D.C. for $16.35 million in gross proceeds.
On February 27, 2020, the Company completed the sale of its Red Lion Hotel Anaheim for $21.5 in gross proceeds. Proceeds were used to repay the Company’s $10 million credit facility, with the remaining funds being used to fund franchise growth opportunities and general business purposes.
In addition, the Company has listed its Hotel RL Baltimore for sale and continues 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, all of which have been disrupted due to the COVID-19 pandemic.
Conference Call Information
RLH Corporation will host a conference call on Friday, May 8 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 RLH website 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 May 8 through midnight May 22, 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 operational and financial impacts of the COVID-19 pandemic, 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; the extent and duration of the COVID-19 pandemic; 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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A summary of activity relating to our open midscale franchise and company operated hotels by brand from January 1, 2020 through March 31, 2020 is provided below:
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A summary of activity relating to our open economy franchise hotels by brand from January 1, 2020 through March 31, 2020 is provided below:
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A summary of our executed agreements for the three months ended March 31, 2020 is provided below:
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SOURCE RLH Corporation
Red Lion Hotels Corporation is a hospitality company primarily engaged in the franchising, management and ownership of upscale, midscale and economy hotels.