Red Lion Hotels Reports Second Quarter 2013 Results

Red Lion Hotels Corporation

Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

($ in thousands, except footnotes and per share amounts)

Three months ended June 30,

2013

2012

$ Change

% Change

Revenue:

Hotels

$ 32,560

$ 36,525

$ (3,965)

-10.9%

Franchise

1,943

1,309

634

48.4%

Entertainment

1,778

2,376

(598)

-25.2%

Other

86

122

(36)

-29.5%

Total revenues

36,367

40,332

(3,965)

-9.8%

Operating expenses:

Hotels

25,472

27,832

(2,360)

-8.5%

Franchise 

2,013

1,096

917

83.7%

Entertainment

2,115

2,567

(452)

-17.6%

Other

132

209

(77)

-36.8%

Depreciation and amortization 

3,614

3,847

(233)

-6.1%

Hotel facility and land lease 

1,221

1,156

65

5.6%

Asset impairment

-

252

(252)

n/m

Loss (gain) on asset dispositions, net 

(28)

(103)

(75)

-72.8%

Undistributed corporate expenses

1,858

1,902

(44)

-2.3%

Total expenses

36,397

38,758

(2,361)

-6.1%

Operating income (loss)

(30)

1,574

(1,604)

n/m

Other income (expense):

Interest expense

(1,545)

(1,820)

275

15.1%

Other income, net

201

16

185

n/m

Income (loss) before income taxes

(1,374)

(230)

(1,144)

n/m

Income tax (benefit) expense

(471)

(93)

378

n/m

Net income (loss) from continuing operations

(903)

(137)

(766)

n/m

Discontinued operations ^(3,4,5,6):

 Income (loss) from operations of discontinued business units, net of income tax (benefit) expense of $7 and $71 respectively

11

126

(115)

-91.3%

Loss on disposal and impairment of the assets of the discontinued business units, net of income tax (benefit) expense of $(179) and $(1,678) respectively

(315)

(2,959)

2,644

-89.4%

Net income (loss) from discontinued operations

(304)

(2,833)

2,529

-89.3%

Net income (loss)

(1,207)

(2,970)

1,763

-59.4%

Less net income or loss attributable to noncontrolling interest

-

-

-

n/m

Net income (loss) attributable to Red Lion Hotels Corporation 

(1,207)

(2,970)

1,763

-59.4%

Comprehensive income (loss)

Unrealized gains (losses) on cash flow hedge, net of tax

(134)

-

(134)

n/m

Comprehensive income (loss) attributable to Red Lion Hotels Corporation 

$ (1,341)

$ (2,970)

$  1,629

-54.8%

Earnings per share - basic and diluted

Net income (loss) from continuing operations 

$  (0.04)

$  (0.01)

Net income (loss) from discontinued operations

$  (0.02)

$  (0.14)

Net income (loss) attributable to Red Lion Hotels Corporation

$  (0.06)

$  (0.15)

Weighted average shares - basic 

19,512

19,292

Weighted average shares - diluted

19,512

19,292

Non-GAAP Financial Measures:

EBITDA  ⁽¹⁾   

$  3,309

$  1,276

$  2,033

n/m

EBITDA as a percentage of revenues 

9.1%

3.2%

Comparable EBITDA from continuing operations before special items ⁽²⁾   

$  3,962

$  4,956

$   (994)

-20.1%

⁽¹⁾

The definition of "EBITDA" and how that measure relates to net income (loss) attributable to Red Lion Hotels Corporation is discussed further in this release under Non-GAAP Financial Measures.

⁽²⁾

The definition of "Comparable EBITDA from continuing operations before special items" can be found in the table named "Comparable Operating Results and Data From Continuing Operations".

⁽³⁾

During the fourth quarter 2011, the company listed for sale its hotel in Medford, Oregon, a non-core asset in which the company does not expect to maintain significant continuing involvement following a sale.  Accordingly, the operations of this property have been classified as discontinued operations for all periods presented.

⁽⁴⁾

During the second quarter 2012, based on the company's right to sell its hotel in Sacramento, California to its tenant and on negotiations regarding transaction terms, the operating results from the ownership of this real estate and land were classified as discontinued operations for all periods presented.  This hotel sale was completed in the third quarter of 2012.

⁽⁵⁾

During the third quarter 2012, the company listed for sale its commercial mall in Kalispell, Montana.   The company will not maintain significant continuing involvement in the property following a sale.  Accordingly, the operations of this property have been classified as discontinued operations for all periods presented.  The company completed the sale in the second quarter of 2013.

⁽⁶⁾

During the first quarter 2013, the company gave notice to the City of Yakima, Washington to terminate its contract to operate as the catering company for the Convention Center and ceased operations in the second quarter 2013.  Accordingly, the operations under this agreement have been classified as discontinued operations for all periods presented.

Red Lion Hotels Corporation

Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

($ in thousands, except footnotes and per share amounts)

Six months ended June 30, 

2013

2012

$ Change

% Change

Revenue:

Hotels

$ 58,154

$  64,677

$(6,523)

-10.1%

Franchise

3,207

2,398

809

33.7%

Entertainment

5,151

4,900

251

5.1%

Other

171

232

(61)

-26.3%

Total revenues

66,683

72,207

(5,524)

-7.7%

Operating expenses:

Hotels

48,784

52,870

(4,086)

-7.7%

Franchise 

3,312

2,268

1,044

46.0%

Entertainment

5,099

4,770

329

6.9%

Other

240

399

(159)

-39.8%

Depreciation and amortization 

7,278

7,689

(411)

-5.3%

Hotel facility and land lease 

2,345

2,282

63

2.8%

Asset impairment

-

6,929

(6,929)

n/m

Loss (gain) on asset dispositions, net 

(120)

(207)

(87)

-42.0%

Undistributed corporate expenses

3,664

3,283

381

11.6%

Total expenses

70,602

80,283

(9,681)

-12.1%

Operating income (loss)

(3,919)

(8,076)

4,157

-51.5%

Other income (expense):

Interest expense

(3,029)

(3,637)

608

16.7%

Other income, net

302

29

273

n/m

Income (loss) before income taxes

(6,646)

(11,684)

5,038

43.1%

Income tax (benefit) expense

(2,540)

(4,451)

(1,911)

-42.9%

Net income (loss) from continuing operations

(4,106)

(7,233)

3,127

-43.2%

Discontinued operations ^(3,4,5,6):

Income (loss) from operations of discontinued business units, net of income tax (benefit) expense of $86 and $31 respectively

149

54

95

n/m

Loss on disposal and impairment of the assets of the discontinued business units, net of income tax (benefit) expense of $(204) and ($1,678) respectively

(360)

(2,959)

2,599

-87.8%

Net income (loss) from discontinued operations

(211)

(2,905)

2,694

-92.7%

Net income (loss)

(4,317)

(10,138)

5,821

-57.4%

Less net income or loss attributable to noncontrolling interest

-

(7)

7

n/m

Net income (loss) attributable to Red Lion Hotels Corporation 

(4,317)

(10,131)

5,814

-57.4%

Comprehensive income (loss)

Unrealized gains (losses) on cash flow hedge, net of tax

(134)

-

(134)

n/m

Comprehensive income (loss) attributable to Red Lion Hotels Corporation 

$ (4,451)

$(10,131)

$  5,680

-56.1%

Earnings per share - basic and diluted

Net income (loss) from continuing operations 

$  (0.21)

$    (0.38)

Net income (loss) from discontinued operations

$  (0.01)

$    (0.15)

Net income (loss) attributable to Red Lion Hotels Corporation

$  (0.22)

$    (0.53)

Weighted average shares - basic 

19,490

19,257

Weighted average shares - diluted

19,490

19,257

Non-GAAP Financial Measures:

EBITDA  ⁽¹⁾   

$  3,335

$  (4,341)

$  7,676

n/m

EBITDA as a percentage of revenues 

5.0%

-6.0%

Comparable EBITDA from continuing operations before special items ⁽²⁾   

$  4,114

$    6,057

$(1,943)

-32.1%

⁽¹⁾

The definition of "EBITDA" and how that measure relates to net income (loss) attributable to Red Lion Hotels Corporation is discussed further in this release under Non-GAAP Financial Measures.

⁽²⁾

The definition of "Comparable EBITDA from continuing operations before special items" can be found in the table named "Comparable Operating Results and Data From Continuing Operations".

⁽³⁾

During the fourth quarter 2011, the company listed for sale its hotel in Medford, Oregon, a non-core asset in which the company does not expect to maintain significant continuing involvement following a sale.  Accordingly, the operations of this property have been classified as discontinued operations for all periods presented.

⁽⁴⁾

During the second quarter 2012, based on the company's right to sell its hotel in Sacramento, California to its tenant and on negotiations regarding transaction terms, the operating results from the ownership of this real estate and land were classified as discontinued operations for all periods presented.  This hotel sale was completed in the third quarter of 2012.

⁽⁵⁾

During the third quarter 2012, the company listed for sale its commercial mall in Kalispell, Montana.   The company will not maintain significant continuing involvement in the property following a sale.  Accordingly, the operations of this property have been classified as discontinued operations for all periods presented.  The company completed the sale in the second quarter of 2013.

⁽⁶⁾

During the first quarter 2013, the company gave notice to the City of Yakima, Washington to terminate its contract to operate as the catering company for the Convention Center and ceased operations in the second quarter 2013.  Accordingly, the operations under this agreement have been classified as discontinued operations for all periods presented.

Red Lion Hotels Corporation

Consolidated Balance Sheets

(unaudited)

($ in thousands, except share data)

June 30,

December 31, 

2013

2012

Assets:

Current assets:

Cash and cash equivalents

$

17,175

$

6,477

Restricted cash

8

2,417

Accounts receivable, net

6,243

5,774

Notes receivable

2,135

4,112

Inventories

1,507

1,329

Prepaid expenses and other

2,994

2,648

Deferred income taxes

778

2,342

Assets held for sale

2,768

18,288

Total current assets

33,608

43,387

Property and equipment, net

192,422

195,012

Goodwill

8,512

8,512

Intangible assets

6,992

6,992

Notes receivable, long term

4,644

2,902

Other assets, net

4,808

4,137

Total assets

$

250,986

$

260,942

Liabilities:

Current liabilities:

Accounts payable

$

6,237

$

5,967

Accrued payroll and related benefits

4,122

2,504

Accrued interest payable

57

190

Advance deposits

550

248

Other accrued expenses

9,981

9,286

Long-term debt, due within one year

3,000

49,178

Total current liabilities

23,947

67,373

Long-term debt, due after one year

42,000

-

Deferred income

3,689

3,923

Deferred income taxes

1,635

5,913

Debentures due Red Lion Hotels Capital Trust

30,825

30,825

Total liabilities

102,096

108,034

Stockholders' equity:

Preferred stock - 5,000,000 shares authorized;  $0.01 par value;

no shares issued or outstanding

-

-

Common stock - 50,000,000 shares authorized; $0.01 par value;  

19,574,572 and 19,451,849 shares issued and outstanding

196

195

Additional paid-in capital

151,230

150,798

Accumulated other comprehensive income/(loss), net of tax

(134)

-

Retained earnings (accumulated deficit)

(2,402)

1,915

Total stockholders' equity

148,890

152,908

Total liabilities and stockholders' equity

$

250,986

$

260,942

Red Lion Hotels Corporation

Additional Hotel Statistics

(unaudited)

System-wide Hotels as of June 30, 2013

Meeting Space

Hotels

Rooms

(sq. ft.)

Red Lion Owned or Leased Hotels ⁽¹⁾:

    Comparable Continuing Operations

25

4,766

230,305

    Discontinued Operations

1

185

9,552

Red Lion Franchised Hotels ⁽¹⁾

25

4,137

231,830

Leo Hotel Collection

1

2,956

220,000

Total

52

12,044

691,687

Comparable Hotel Statistics from Continuing Operations  ^(1,2,3)

Three months ended June 30, 2013

Three months ended June 30, 2012

Average

Average

Occupancy ⁽⁴⁾

ADR ⁽⁵⁾

RevPAR ⁽⁶⁾

Occupancy ⁽⁴⁾

ADR ⁽⁵⁾

RevPAR ⁽⁶⁾

Owned and Leased Hotels

66.8%

$  88.15

$  58.89

67.6%

$  84.53

$   57.15

Franchised Hotels

61.7%

$  87.49

$  54.02

59.7%

$  84.81

$  50.63

Total System Wide

64.7%

$  87.90

$  56.90

64.4%

$  84.64

$  54.49

Change from prior comparative period:

  Owned and Leased Hotels

(0.8)

4.3%

3.0%

  Franchised Hotels

2.0

3.2%

6.7%

  Total System Wide

0.3

3.9%

4.4%

Six months ended June 30, 2013

Six months ended June 30, 2012

Average

Average

Occupancy ⁽³⁾

ADR ⁽⁴⁾

RevPAR ⁽⁵⁾

Occupancy ⁽³⁾

ADR ⁽⁴⁾

RevPAR ⁽⁵⁾

Owned and Leased Hotels

60.5%

$  84.80

$  51.28

61.4%

$  81.44

$  49.98

Franchised Hotels

53.6%

$  85.15

$  45.64

53.2%

$  82.10

$  43.66

Total System Wide

57.7%

$  84.93

$  48.98

58.0%

$  81.69

$   47.41

Change from prior comparative period:

  Owned and Leased Hotels

(0.9)

4.1%

2.6%

  Franchised Hotels

0.4

3.7%

4.5%

  Total System Wide

(0.3)

4.0%

3.3%

(1)

Includes all hotels owned, leased and franchised, presented on a comparable basis for hotel statistics. The Helena, Denver Southeast, Missoula and Pendleton properties have been excluded from the owned and leased hotel statistics and included in the franchised statistics for all periods shown.         

(2)

Excludes one hotel identified as a discontinued operation.

(3)

Excludes statistics for the Leo Hotel Collection.

(4)

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.

(5)

Average daily rate ("ADR") represents total room revenues divided by the total number of paid rooms occupied by hotel guests.

(6)

Revenue per available room ("RevPAR") represents total room and related revenues divided by total available rooms. 

Red Lion Hotels Corporation

Comparable Operating Results and Data From Continuing Operations

(unaudited)

($ in thousands)

Certain operating results for the periods included in this report are shown on a comparable hotel basis.  Comparable hotels are defined as properties that are owned or leased by the company and the operations of which are included in the consolidated results from continuing operations for the entirety of the reporting periods being compared.  Comparable operating results from continuing operations and comparable operating results from continuing operations before special items represent reported operating results less the impact of the Helena property, which was sold in July 2012; the Denver Southeast property, which was sold in October 2012; the Missoula property, which was sold in February 2013 and  the Pendleton property, which was sold in April 2013; and less the impact of certain non-recurring charges that do not allow for a meaningful comparison between periods.  We utilize these measures because management finds them a useful tool to perform more meaningful comparisons of past, present and future operating results and as a means to evaluate the results of core, ongoing operations.  We believe they are a complement to reported operating results.  Comparable operating results from continuing operations and comparable operating results from continuing operations before special items are not intended to represent reported operating results defined by generally accepted accounting principles in the United States ("GAAP"), and such information should not be considered as an alternative to reported information or any other measure of performance prescribed by GAAP.                   

Three months ended June 30,

Six months ended June 30,

2013

2012

2013

2012

Total revenue per the consolidated statements of operations

$  36,367

$  40,332

$  66,683

$  72,207

less: Revenue from Helena, Denver Southeast, Missoula and Pendleton properties

(3)

(4,273)

(373)

(7,193)

Comparable total revenue

$ 36,364

$ 36,059

$ 66,310

$ 65,014

Room revenue from continuing operations

$  25,538

$  27,727

$  44,543

$  48,233

less: Room revenue from Helena, Denver Southeast, Missoula and Pendleton properties

(2)

(2,943)

(308)

(4,875)

Comparable room revenue

$ 25,536

$ 24,784

$ 44,235

$ 43,358

Food and beverage revenue from continuing operations

$    6,377

$    8,060

$  12,452

$  15,129

less: Food and beverage revenue from Helena, Denver Southeast, Missoula and Pendleton properties

(1)

(1,103)

(59)

(1,891)

Comparable food and beverage revenue

$   6,376

$   6,957

$ 12,393

$ 13,238

Other hotels revenue from continuing operations

$       645

$       738

$    1,159

$    1,315

less: Other hotels revenue from Helena, Denver Southeast, Missoula and Pendleton properties

-

(227)

(6)

(427)

Comparable other hotels revenue

$      645

$      511

$   1,153

$      888

Total hotel revenue from continuing operations

$  32,560

$  36,525

$  58,154

$  64,677

less: Total hotel revenue from Helena, Denver Southeast, Missoula and Pendleton properties

(3)

(4,273)

(373)

(7,193)

Comparable total hotels revenue

$ 32,557

$ 32,252

$ 57,781

$ 57,484

The reconciliation of hotel operating expense per the consolidated statements of operations to comparable hotel operating expense is as follows:

Three months ended June 30,

Six months ended June 30,

2013

2012

2013

2012

Hotel operating expenses from continuing operations

$  25,472

$  27,832

$  48,784

$  52,870

less: Hotel operating expenses from Helena, Denver Southeast, Missoula and Pendleton properties

(97)

(3,540)

(718)

(6,678)

Comparable hotel operating expenses

$ 25,375

$ 24,292

$ 48,066

$ 46,192

Hotel revenue from continuing operations

$  32,560

$  36,525

$  58,154

$  64,677

less: Hotel revenue from Helena, Denver Southeast, Missoula and Pendleton properties

(3)

(4,273)

(373)

(7,193)

Comparable hotel revenue

$ 32,557

$ 32,252

$ 57,781

$ 57,484

Hotel direct operating margin from continuing operations

$    7,088

$    8,693

$    9,370

$  11,807

less: Hotel direct operation margin from Helena, Denver Southeast, Missoula and Pendleton properties

94

(733)

345

(515)

Comparable hotel direct margin

$   7,182

$   7,960

$   9,715

$ 11,292

Comparable hotel direct margin %

22.1 %

24.7 %

16.8 %

19.6 %

The reconciliation of EBITDA from continuing operations before special items per the table entitled "Disclosure of Special Items" to comparable total EBITDA  before special items is as follows:

Three months ended June 30,

Six months ended June 30,

2013

2012

2013

2012

EBITDA before special items per the table "Disclosure of Special Items"

$    3,785

$    5,689

$    3,661

$    6,578

less: EBITDA of Helena, Denver Southeast, Missoula and Pendleton properties

177

(733)

453

(521)

Comparable total EBITDA from continuing operations before special items

$   3,962

$   4,956

$   4,114

$   6,057

Red Lion Hotels Corporation

Reconciliation of EBITDA to Net Income Attributable to Red Lion Hotels Corporation

(unaudited)

($ in thousands)

The following is a reconciliation of EBITDA and EBITDA from continuing operations to net income (loss) attributable to Red Lion Hotels Corporation for the periods presented:

Three months ended June 30, 

Six months ended June 30,

2013

2012

2013

2012

 EBITDA from continuing operations

$  3,785

$  5,437

$  3,661

$     (351)

Income tax benefit (expense) - continuing operations

471

93

2,540

4,451

Interest expense - continuing operations

(1,545)

(1,820)

(3,029)

(3,637)

Depreciation and amortization - continuing operations

(3,614)

(3,847)

(7,278)

(7,689)

Net income (loss) attributable to Red Lion Hotels Corporation

from continuing operations

(903)

(137)

(4,106)

(7,226)

Income (loss) on discontinued operations, net of tax

(304)

(2,833)

(211)

(2,905)

Net income (loss) attributable to Red Lion Hotels Corporation

$(1,207)

$(2,970)

$(4,317)

$(10,131)

Three months ended June 30, 

Six months ended June 30,

2013

2012

2013

2012

 EBITDA 

$  3,309

$  1,276

$  3,335

$  (4,341)

Income tax benefit (expense) 

643

1,700

2,658

6,098

Interest expense

(1,545)

(1,820)

(3,029)

(3,637)

Depreciation and amortization

(3,614)

(4,126)

(7,281)

(8,251)

Net income (loss) attributable to Red Lion Hotels Corporation

$(1,207)

$(2,970)

$(4,317)

$(10,131)

NON-GAAP FINANCIAL MEASURES

EBITDA is defined as net income attributable to Red Lion Hotels Corporation, before interest, taxes, depreciation and amortization.  EBITDA is considered a non-GAAP financial measurement.  We believe it is a useful financial performance measure for us and for our shareholders and is a complement to net income attributable to Red Lion Hotels Corporation and other financial performance measures provided in accordance with generally accepted accounting principles in the United States ("GAAP").

We use EBITDA to measure financial performance because it excludes interest, taxes, depreciation and amortization, which bear little or no relationship to operating performance. By excluding interest expense, EBITDA measures our financial performance irrespective of our capital structure or how we finance our properties and operations. We generally pay federal and state income taxes on a consolidated basis, taking into account how the applicable tax laws apply to our company in the aggregate. By excluding taxes on income, we believe EBITDA provides a basis for measuring the financial performance of our operations excluding factors that our hotels and other operations cannot control.  By excluding depreciation and amortization expense, which can vary from hotel to hotel based on historical cost and other factors unrelated to the hotels' financial performance, EBITDA measures the financial performance of our hotels without regard to their historical cost. For all of these reasons, we believe that EBITDA provides us and investors with information that is relevant and useful in evaluating our business.

However, because EBITDA excludes depreciation and amortization, it does not measure the capital we require to maintain or preserve our long-lived assets. In addition, because EBITDA does not reflect interest expense, it does not take into account the total amount of interest we pay on outstanding debt nor does it show trends in interest costs due to changes in our borrowings or changes in interest rates. EBITDA, as defined by us, may not be comparable to EBITDA as reported by other companies that do not define EBITDA exactly as we define the term.  Because we use EBITDA to evaluate our financial performance, we reconcile all EBITDA measures to net income attributable to Red Lion Hotels Corporation, which is the most comparable financial measure calculated and presented in accordance with GAAP.  EBITDA does not represent cash provided by operating activities determined in accordance with GAAP, and should not be considered as an alternative to operating income or net income attributable to Red Lion Hotels Corporation determined in accordance with GAAP as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of liquidity.

Red Lion Hotels Corporation

Disclosure of Special Items

(unaudited)

During the second quarter of 2012, the Company recorded a $0.3 million pre-tax impairment charge in continuing operations related to its property in Helena, Montana.  During the six months ended June 30, 2012, the Company recorded $3.9 million, $2.3 million and $0.7 million in pre-tax impairment charges in continuing operations related to its properties in Denver, Colorado, Helena, Montana and Missoula, Montana, respectively.  As a result, the operations as presented in the accompanying financial statements for the three and six months ended June 30, 2013 compared to 2012 do not reflect a meaningful comparison between periods.  The following table represents a reconciliation of EBITDA from continuing operations before special items to EBITDA from continuing operations.

Three months ended June 30, 

Six months ended June 30,

2013

2012

2013

2012

($ in thousands)

EBITDA from continuing operations ⁽¹⁾

EBITDA from continuing operations ⁽¹⁾

EBITDA from continuing operations ⁽¹⁾

EBITDA from continuing operations ⁽¹⁾

Amount before special items

$           3,785

$           5,689

$           3,661

$           6,578

Special items:

Asset impairment charges ⁽²⁾

-

(252)

-

(6,929)

EBITDA from continuing operations 

$           3,785

$           5,437

$           3,661

$            (351)

(1)

Amount defined on the preceding table "Reconciliation of EBITDA to Net Income Attributable to Red Lion Hotels Corporation".

(2)

Amounts as included in the line items "Asset impairment" on the accompanying consolidated statements of comprehensive income (loss)