Red Lion Hotels Reports Third 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 September 30,

2013

2012

$ Change

% Change

Revenue:

Hotels

$ 38,590

$ 42,397

$(3,807)

-9.0%

Franchise

2,368

1,555

813

52.3%

Entertainment

1,623

1,456

167

11.5%

Other

83

94

(11)

-11.7%

Total revenues

42,664

45,502

(2,838)

-6.2%

Operating expenses:

Hotels

27,442

31,324

(3,882)

-12.4%

Franchise 

1,862

1,219

643

52.7%

Entertainment

1,458

1,475

(17)

-1.2%

Other

131

201

(70)

-34.8%

Depreciation and amortization 

3,561

3,774

(213)

-5.6%

Hotel facility and land lease 

1,251

1,148

103

9.0%

Asset impairment

-

1,868

(1,868)

n/m

Loss (gain) on asset dispositions, net 

100

(16)

(116)

n/m

Undistributed corporate expenses

2,835

1,602

1,233

77.0%

Total expenses

38,640

42,595

(3,955)

-9.3%

Operating income

4,024

2,907

1,117

38.4%

Other income (expense):

Interest expense

(1,252)

(1,751)

499

28.5%

Other income, net

98

46

52

n/m

Income (loss) before income taxes

2,870

1,202

1,668

n/m

Income tax (benefit) expense

1,414

624

(790)

n/m

Income (loss) from continuing operations

1,456

578

878

n/m

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

Income (loss) from operations of discontinued business units,

  net of income tax (benefit) expense of ($55) and $46 respectively

(96)

82

(178)

n/m

Loss on disposal and impairment of the assets of the discontinued business 

  units, net of income tax (benefit) expense of ($75) and ($889) respectively

(133)

(1,566)

1,433

91.5%

Income (loss) from discontinued operations

(229)

(1,484)

1,255

84.6%

Net income (loss)

1,227

(906)

2,133

n/m

Less net income or loss attributable to noncontrolling interest

-

-

-

n/m

Net income (loss) attributable to Red Lion Hotels Corporation 

1,227

(906)

2,133

n/m

Comprehensive income (loss)

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

(30)

-

(30)

n/m

Comprehensive income (loss) attributable to Red Lion Hotels Corporation 

$  1,197

$   (906)

$  2,103

n/m

Earnings per share - basic and diluted

Income (loss) from continuing operations 

$    0.07

$    0.03

Income (loss) from discontinued operations

$  (0.01)

$  (0.08)

Net income (loss) attributable to Red Lion Hotels Corporation

$    0.06

$  (0.05)

Weighted average shares - basic 

19,631

19,366

Weighted average shares - diluted

19,672

19,438

Non-GAAP Financial Measures:

EBITDA  ⁽¹⁾   

$  7,324

$  4,478

$  2,846

63.6%

EBITDA as a percentage of revenues 

17.2%

9.8%

Comparable EBITDA from continuing operations before special items ⁽²⁾   

$  8,322

$  7,684

$    638

8.3%

⁽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 will not maintain significant continuing involvement 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 third quarter of 2013.

⁽⁴⁾

During the second quarter 2012, based on the company's right to sell its hotel in Sacramento, California to its tenant and certain 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)

Nine months ended September 30, 

2013

2012

$ Change

% Change

Revenue:

Hotels

$ 96,744

$ 107,074

$(10,330)

-9.6%

Franchise

5,574

3,953

1,621

41.0%

Entertainment

6,774

6,356

418

6.6%

Other

256

327

(71)

-21.7%

Total revenues

109,348

117,710

(8,362)

-7.1%

Operating expenses:

Hotels

76,226

84,196

(7,970)

-9.5%

Franchise 

5,174

3,487

1,687

48.4%

Entertainment

6,558

6,245

313

5.0%

Other

371

601

(230)

-38.3%

Depreciation and amortization 

10,839

11,459

(620)

-5.4%

Hotel facility and land lease 

3,597

3,430

167

4.9%

Asset impairment

-

8,797

(8,797)

n/m

Loss (gain) on asset dispositions, net 

(21)

(223)

(202)

-90.6%

Undistributed corporate expenses

6,500

4,885

1,615

33.1%

Total expenses

109,244

122,877

(13,633)

-11.1%

Operating income (loss)

104

(5,167)

5,271

n/m

Other income (expense):

Interest expense

(4,281)

(5,388)

1,107

20.5%

Other income, net

401

74

327

n/m

Income (loss) before income taxes

(3,776)

(10,481)

6,705

64.0%

Income tax (benefit) expense

(1,127)

(3,827)

(2,700)

-70.6%

Income (loss) from continuing operations

(2,649)

(6,654)

4,005

60.2%

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

Income (loss) from operations of discontinued business units,

  net of income tax (benefit) expense of $31 and $75 respectively

52

136

(84)

-61.8%

Loss on disposal and impairment of the assets of the discontinued business 

  units, net of income tax (benefit) expense of ($280) and ($2,566) respectively

(493)

(4,526)

4,033

89.1%

Income (loss) from discontinued operations

(441)

(4,390)

3,949

90.0%

Net income (loss)

(3,090)

(11,044)

7,954

72.0%

Less net income or loss attributable to noncontrolling interest

-

(7)

7

n/m

Net income (loss) attributable to Red Lion Hotels Corporation 

(3,090)

(11,037)

7,947

72.0%

Comprehensive income (loss)

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

(164)

-

(164)

n/m

Comprehensive income (loss) attributable to Red Lion Hotels Corporation 

$ (3,254)

$ (11,037)

$    7,783

70.5%

Earnings per share - basic and diluted

Income (loss) from continuing operations 

$  (0.14)

$    (0.34)

Income (loss) from discontinued operations

$  (0.02)

$    (0.23)

Net income (loss) attributable to Red Lion Hotels Corporation

$  (0.16)

$    (0.57)

Weighted average shares - basic 

19,538

19,294

Weighted average shares - diluted

19,538

19,294

Non-GAAP Financial Measures:

EBITDA  ⁽¹⁾   

$ 10,659

$       136

$  10,523

n/m

EBITDA as a percentage of revenues 

9.7%

0.1%

Comparable EBITDA from continuing operations before special items ⁽²⁾   

$ 12,437

$  13,740

$  (1,303)

-9.5%

⁽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 will not maintain significant continuing involvement 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 third quarter of 2013.

⁽⁴⁾

During the second quarter 2012, based on the company's right to sell its hotel in Sacramento, California to its tenant and certain 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)

September 30,

December 31, 

2013

2012

Assets:

Current assets:

Cash and cash equivalents

$        27,302

$           6,477

Restricted cash

6

2,417

Accounts receivable, net

5,565

5,774

Notes receivable

597

4,112

Inventories

1,370

1,329

Prepaid expenses and other

3,299

2,648

Deferred income taxes

950

2,342

Assets held for sale

-

18,288

Total current assets

39,089

43,387

Property and equipment, net

192,497

195,012

Goodwill

8,512

8,512

Intangible assets

6,992

6,992

Notes receivable, long term

4,407

2,902

Other assets, net

4,282

4,137

Total assets

$      255,779

$       260,942

Liabilities:

Current liabilities:

Accounts payable

$          6,736

$           5,967

Accrued payroll and related benefits

4,130

2,504

Accrued interest payable

39

190

Advance deposits

245

248

Other accrued expenses

11,795

9,286

Long-term debt, due within one year

3,000

49,178

Total current liabilities

25,945

67,373

Long-term debt, due after one year, net of discount

41,529

-

Deferred income

3,572

3,923

Deferred income taxes

3,070

5,913

Debentures due Red Lion Hotels Capital Trust

30,825

30,825

Total liabilities

104,941

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;  

19,658,833 and 19,451,849 shares issued and outstanding

197

195

Additional paid-in capital

151,980

150,798

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

(164)

-

Retained earnings (accumulated deficit)

(1,175)

1,915

Total stockholders' equity

150,838

152,908

Total liabilities and stockholders' equity

$      255,779

$       260,942

Red Lion Hotels Corporation
Additional Hotel Statistics 
(unaudited)

System-wide Hotels as of September 30, 2013

Meeting Space

Hotels

Rooms

(sq. ft.)

Red Lion Owned or Leased Hotels ⁽¹⁾

25

4,766

230,305

Red Lion Franchised Hotels ⁽¹⁾

25

4,137

231,830

Leo Hotel Collection

2

3,256

241,000

Total

52

12,159

703,135

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

Three months ended September 30, 2013

Three months ended September 30, 2012

Average

Average

Occupancy ⁽⁴⁾

ADR ⁽⁵⁾

RevPAR ⁽⁶⁾

Occupancy ⁽⁴⁾

ADR ⁽⁵⁾

RevPAR ⁽⁶⁾

Owned and Leased Hotels

75.5%

$ 93.85

$           70.86

76.5%

$ 90.09

$     68.92

Franchised Hotels

71.7%

$ 92.31

$           66.23

67.9%

$ 89.20

$     60.53

Total System Wide

74.0%

$ 93.24

$           68.97

73.0%

$ 89.75

$     65.50

Change from prior comparative period:

  Owned and Leased Hotels

(100)

 bps

4.2%

2.8%

  Franchised Hotels

380

 bps

3.5%

9.4%

  Total System Wide

100

 bps

3.9%

5.3%

Nine months ended September 30, 2013

Nine months ended September 30, 2012

Average

Average

Occupancy ⁽⁴⁾

ADR ⁽⁵⁾

RevPAR ⁽⁶⁾

Occupancy ⁽⁴⁾

ADR ⁽⁵⁾

RevPAR ⁽⁶⁾

Owned and Leased Hotels

65.5%

$ 88.31

$           57.88

66.5%

$ 84.78

$     56.34

Franchised Hotels

59.7%

$ 88.05

$           52.58

58.1%

$ 84.89

$     49.32

Total System Wide

63.2%

$ 88.21

$           55.72

63.1%

$ 84.82

$     53.48

Change from prior comparative period:

  Owned and Leased Hotels

(100)

 bps

4.2%

2.7%

  Franchised Hotels

160

 bps

3.7%

6.6%

  Total System Wide

10

 bps

4.0%

4.2%

(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 operations that was sold in the third quarter of 2013.        

(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 September 30,

Nine months ended September 30, 

2013

2012

2013

2012

Total revenue per the consolidated statements of comprehensive income (loss)

$  42,664

$  45,502

$   109,348

$   117,710

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

-

(4,596)

(373)

(11,790)

Comparable total revenue

$ 42,664

$ 40,906

$ 108,975

$ 105,920

Room revenue from continuing operations

$  31,062

$  33,614

$    75,605

$    81,847

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

-

(3,394)

(308)

(8,269)

Comparable room revenue

$ 31,062

$ 30,220

$   75,297

$   73,578

Food and beverage revenue from continuing operations

$    6,545

$    7,635

$    18,997

$    22,764

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

-

(969)

(59)

(2,859)

Comparable food and beverage revenue

$   6,545

$   6,666

$   18,938

$   19,905

Other hotel revenue from continuing operations

$       983

$    1,148

$      2,142

$      2,463

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

-

(233)

(6)

(662)

Comparable other hotel revenue

$      983

$      915

$     2,136

$     1,801

Total hotel revenue from continuing operations

$  38,590

$  42,397

$    96,744

$   107,074

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

-

(4,596)

(373)

(11,790)

Comparable total hotels revenue

$ 38,590

$ 37,801

$   96,371

$   95,284

The reconciliation of hotel operating expense per the consolidated statements of comprehensive income (loss) to comparable hotel operating expense is as follows:

Three months ended September 30,

Nine months ended September 30, 

2013

2012

2013

2012

Hotel operating expenses from continuing operations

$  27,442

$  31,324

$    76,226

$    84,196

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

-

(3,622)

(718)

(10,302)

Comparable hotel operating expenses

$ 27,442

$ 27,702

$   75,508

$   73,894

Hotel revenue from continuing operations

$  38,590

$  42,397

$    96,744

$   107,074

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

-

(4,596)

(373)

(11,790)

Comparable hotel revenue

$ 38,590

$ 37,801

$   96,371

$   95,284

Hotel direct operating margin from continuing operations

$  11,148

$  11,073

$    20,518

$    22,878

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

-

(974)

345

(1,488)

Comparable hotel direct margin

$ 11,148

$ 10,099

$   20,863

$   21,390

Comparable hotel direct margin %

28.9 %

26.7 %

21.6 %

22.4 %

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 September 30,

Nine months ended September 30, 

2013

2012

2013

2012

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

$    8,265

$    8,595

$    11,926

$    15,170

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

57

(911)

511

(1,430)

Comparable total EBITDA from continuing operations before special items

$   8,322

$   7,684

$   12,437

$   13,740

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 September 30,

Nine months ended September 30, 

2013

2012

2013

2012

 EBITDA from continuing operations

$ 7,683

$ 6,727

$ 11,344

$    6,373

Income tax benefit (expense) - continuing operations

(1,414)

(624)

1,127

3,827

Interest expense - continuing operations

(1,252)

(1,751)

(4,281)

(5,388)

Depreciation and amortization - continuing operations

(3,561)

(3,774)

(10,839)

(11,459)

 Net income (loss) attributable to Red Lion Hotels Corporation

from continuing operations

1,456

578

(2,649)

(6,647)

Income (loss) on discontinued operations, net of tax

(229)

(1,484)

(441)

(4,390)

 Net income (loss) attributable to Red Lion Hotels Corporation

$ 1,227

$  (906)

$ (3,090)

$(11,037)

Three months ended September 30,

Nine months ended September 30, 

2013

2012

2013

2012

 EBITDA 

$ 7,324

$ 4,478

$ 10,659

$      136

Income tax benefit (expense) 

(1,284)

219

1,376

6,318

Interest expense

(1,252)

(1,751)

(4,281)

(5,388)

Depreciation and amortization

(3,561)

(3,852)

(10,844)

(12,103)

 Net income (loss) attributable to Red Lion Hotels Corporation

$  (906)

$ (3,090)

$(11,037)

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)

Three months ended September 30,

Nine months ended September 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

$ 8,265

$ 8,595

$ 11,926

$ 15,170

Special items:

Asset impairment charges ⁽²⁾

-

(1,868)

-

(8,797)

Separation Costs ⁽³⁾

(582)

-

(582)

-

EBITDA from continuing operations

$ 7,683

$ 6,727

$ 11,344

$ 6,373

(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).

(3)

Amount as included in the line item "Undistributed corporate expenses" on the accompanying consolidated statements of comprehensive income (loss).