RLH Corporation Reports Third Quarter 2018 Results

RLH Corporation Reports Third Quarter 2018 Results

DENVER - Nov. 05, 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 third quarter 2018 results.

Highlights

  • Net income for the three months ended September 30, 2018 was $8.9 million or $0.35 per diluted share compared to net income of $2.8 million or $0.11 per diluted share in the prior year period.
  • Adjusted EBITDA from continuing operations for the third quarter was $4.6 million, compared to $11.4 million for the year-ago period. The change in adjusted EBITDA was primarily due to the lost contribution from the nine company owned hotels sold during the year.
  • Franchise revenue rose to $15.1 million; up 19.1% year over year.
  • Division profit from the Franchise segment increased 55% to $5.9 million from $3.8 million in the third quarter of 2017. The Franchise segment divisional profit margin expanded 900 basis points to 39.1%.
  • As of September 30, 2018, the Company sold 9 hotels which generated gross proceeds of more than $116 million. Sales early in the third quarter included a Red Lion Hotel in Port Angeles, Washington, and Hotel RL Spokane totaling $54.5 million.
  • Of the remaining hotels being marketed, Salt Lake City, Kalispell and Anaheim are in active stages of diligence.
  • The Company has executed 132 franchise agreements through the date of this release against its target of 150 to 200 for 2018, in addition to the Knights Inn franchises acquired in May 2018.
  • Launched state of the art and streamlined website redlion.com, which allows guests to book a room in as little as three clicks. Enhanced Hello Rewards program to include other features such as Hello Bucks and Hello Rates.

Greg Mount, RLH Corporation President and Chief Executive Officer stated: “Our franchise business continues to achieve outstanding growth and success with 132 contracts signed so far this year in addition to our successful acquisition of Knights Inn. With this continued growth and our focus on expense management, our franchise margins have improved to 39% for the quarter. We also launched our new website and enhanced Hello Bucks rewards system, both of which simplify and improve the customer experience for reservations, information and rewards. The innovative website changes the paradigm of booking and creates more revenue opportunities for our franchisees. We replaced complex rate codes with a simple process: select a room, then customize your stay. This gives guests the opportunity to pick and choose from a menu of options to make sure their stay is exactly what they need.” Mr. Mount continued, “Our hotel asset sales have been a huge success and we completed nine sales by mid-July. In addition, we have several other hotels being marketed with strong interest and we expect to see these sales close starting in the first half of 2019. Our asset light strategy has allowed us to fluidly manage our human capital to areas where we can garner the highest returns positioning us to drive topline franchise contribution and margin as we move ahead.”

FINANCIAL RESULTS

The Company reported Net Income of $8.9 million or $0.35 per diluted share in the third quarter as compared to $2.8 million or $0.11 per diluted share in the prior year period. The improvement in Net Income for the quarter was primarily due to the gain on sales from two hotel dispositions and meaningful improvement in the Company’s Franchise division, partially offset by a $7.1 million dollar impairment charge on Hotel RL Baltimore and the reduction in contribution of the hotel division as a consequence of its hotel asset sales.

EBITDA for the third quarter was $22.6 million as compared to $10.2 million in the same period 2017. Adjusted EBITDA from continuing operations in the quarter was $4.6 million as compared to $11.4 million in the prior year period. The change in Adjusted EBITDA from continuing operations year over year was primarily due to the lost contribution from the hotels which were sold during the year.

FRANCHISE DIVISION

Franchise revenues in the quarter ended September 30, 2018 increased 19.1% to $15.1 million from $12.7 million in the prior year as the Company continued to successfully expand its franchise network organically and through select acquisitions. Divisional profit improved by 55% while divisional expenses rose by 3.6% underscoring the benefits of scale and demonstrating operating leverage of a growing franchise network. Margins for the Franchise division rose to 39%, for an improvement of 900 basis points over the quarter ended September 30, 2017.

As of the date of this release, in addition to the Knights Inn acquisition, we have executed 132 franchise agreements, which compares favorably to the Company’s stated goal of executing 150 to 200 franchise contracts in 2018.

Franchisees across all brands continue to adopt RevPak, RLH Corporation’s industry leading systems which will enhance the owner’s profitability and return on investment. These proprietary tools amplify our ability to renew expiring franchise contracts.

In October, we launched the redesigned redlion.com and it has been received positively by guests and owners. Guests enjoy the seamless use of the website, which allows them to make reservations in as little as three clicks, customize their stay, interact with the hotel and make last minute changes to find the best deal available. The dynamic features of the website provide a wider range of ways to drive revenue to our franchisees. Complimenting the launch of the new website, we’ve upgraded our Hello Rewards currency to give Members faster access to rewards while driving down overall cost of sale for franchisees and program operating costs for RLH Corporation. The new currency, Hello Bucks, works like cash with one Hello Buck equaling one Canadian or US Dollar. Members can apply Hello Bucks to their next reservation booked on redlion.com or save for a free night. Early feedback from owners on the new currency has been positive.

HOTEL DIVISION

Hotel division revenue for the quarter ended September 30, 2018 was $20.9 million as compared to $38.3 million in the same quarter of 2017. The change in revenue is primarily due to the impact of the Company’s transformative hotel sale initiative. Hotel Division expenses in the quarter declined 40% year over year as a result of the sales. Margins for the Hotel division contracted 7% reflecting the operating margins on the mix of hotels remaining in the portfolio.

RLH Corporation commenced a hotel asset sales initiative in the fourth quarter of 2017, marketing 11 of its owned hotels. To date the company has sold nine hotels; seven were sold in the first and second quarters of 2018 generating gross proceeds of $62 million and an additional two hotels were sold early in the third quarter which generated gross proceeds of over $54 million. Proceeds from the hotel sales were used primarily for the paydown of debt. Collectively, the sold hotels contributed $14.5 million to Adjusted EBITDA in the full year ended 2017 and $3.3 million through the date of the respective sales in 2018. To further its full transition to an asset-light strategy, the Company is moving to outsource the management of the remaining owned hotels to leverage efficiencies.

On August 9, 2018, the Company announced that it would be marketing for sale its hotels in Anaheim, California, Kalispell, Montana and Atlanta, Georgia. The sale of these hotels is anticipated to generate gross proceeds in excess of $40 million.

On September 6, 2018, the Company elected to purchase the outstanding promissory note on Hotel RL Baltimore for a price of $13.6 million. In October 2018, the Company purchased the third-party interest in this asset. Having control over this property gives management the flexibility for refinancing of the asset, operations and timing of a future sale.

BALANCE SHEET AND LIQUIDITY

RLH Corporation finished the third quarter with cash and restricted cash of $22.9 million and debt of $44.6 million comprised of mortgage loans of $25.3 million, a term loan for $9.4 million loan and a $10.0 million revolving line of credit.

On a year-to-date basis, the Company’s indebtedness has declined by approximately 60% with the retirement of mortgage debt upon the sale of its hotels. The Company’s debt is expected to continue to decline as it completes the sale of its owned and lease hold interest hotels.

SUBSEQUENT EVENTS

On October 18, 2018, the Company reported that its Chief Financial Officer Doug Ludwig resigned for health reasons.

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, our updated guidance for the 2018 fiscal year concentrates on the Company’s Franchise business, which will represent the majority of the ongoing future earnings of the Company.

Franchise Division:

  • The Company expects to execute between 150 and 200 license agreements in 2018 in addition to the acquisition of Knights Inn.
  • Franchise divisional profit expected to be between $18 million and $19 million.
  • The Franchise divisional profit margin is expected to increase from 28.3 percent in 2017 to between 33 percent and 35 percent in 2018.To date this year, the Company has sold nine hotels and entered eight new franchise agreements with the sold hotels. These eight franchise contracts are expected to generate franchise fee revenues of $750,000 on an annualized basis.
  • General and administrative expenses are expected to be $19.5 million to $20.5 million. This increase from prior guidance reflects the allocation of additional resources out of the Hotel division to support the growth of the Company.

Hotel Division:

  • The 2018 Adjusted EBITDA for the nine hotels sold to date in 2018 was $3.3 million through the dates of their respective sales. 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 Monday, November 5th at 5:00 p.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 Senior Vice President & Chief Accounting Officer Nate Troup.

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 November 5, 2018 through November 19, 2018, at (877) 660-6853 or (International) (201) 612-7415, using access code 13683779. 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 focusing 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.

Social Media:

www.Facebook.com/myhellorewards
www.Twitter.com/myhellorewards
www.Instagram.com/myhellorewards
www.Linkedin.com/company/rlhco

Contacts:

Evelyn Infurna
Investor Relations
203-682-8265
investorrelations@rlhco.com

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

For Full Table Reports, Please go to: http://ir.redlion.com/news-releases/news-release-details/rlh-corporation-reports-third-quarter-2018-results

SOURCE Red Lion Hotels Corporation

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