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| RLH > SEC Filings for RLH > Form 10-Q on 5-Nov-2009 | All Recent SEC Filings |
5-Nov-2009
Quarterly Report
Total Meeting
Available Space
Hotels Rooms (sq. ft.)
Owned and Leased Hotels 32 6,243 309,684
Franchised Hotels 13 2,428 121,560
Total Red Lion Hotels 45 8,671 431,244
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We operate in three reportable segments:
• The hotels segment derives revenue primarily from guest room rentals and
food and beverage operations at our owned and leased hotels.
• The franchise segment is engaged primarily in licensing the Red Lion brand to franchisees. This segment generates revenue from franchise fees that are typically based on a percent of room revenues and are charged to hotel owners in exchange for the use of our brand and access to our central services programs. These programs include the reservation system, guest loyalty program, national and regional sales, revenue management tools, quality inspections, advertising and brand standards.
• The entertainment segment derives revenue primarily from ticketing services and promotion and presentation of entertainment productions.
Our remaining activities, none of which constitute a reportable segment, have been aggregated into "other," and are primarily related to our retail mall direct ownership interest that is attached to one of our hotels and other miscellaneous real estate investments.
Executive Summary
Our company strategy in this difficult market is to focus on streamlining
operations and maximizing the value of our existing portfolio. This will be
accomplished through careful cost controls and a focus on brand consistency,
which may result in a change to our asset mix. Our goal over the next several
years is to maximize shareholder value and return it to shareholders.
Red Lion has created a unique guest experience by establishing an environment
that allows our customers to feel at home while they are away from home. Our
product and service culture is successful in both large urban and smaller
markets. Our hotels strive to reflect the character of the local markets in
which they operate, while maintaining a consistent experience. We believe
adherence to consistent customer service standards and brand touch-points allow
guests to "Stay Comfortable." Red Lion hotels have always been known for
providing a comfortable lodging experience complemented by genuine service. Our
goal is to create the most memorable guest experience possible, through
personalized, exuberant service, allowing us to be a leader in our markets. We
believe that leveraging the uniqueness of our physical assets and interacting
with our guests in the warm, authentic way that Red Lion has historically been
known for will drive our hotels' success. To achieve these goals, we will
continue to focus our resources on the following primary areas:
Infrastructure - We have improved the foundation of our company by focusing
on our core competencies and by investing in the infrastructure we use to manage
the distribution of our room inventory through online and traditional
reservations channels. We seek to maximize centrally sourced reservations
through our state-of-the art website and central reservations systems, enhanced
revenue management strategy and sophisticated interactions with our online
travel agency ("OTA") partners. Centrally sourced reservations (i.e. voice,
redlion.com, travel agent and third-party on-line travel agencies) accounted for
50.3% and 48.8% of total room revenues at owned and leased hotels during the
third quarters of 2009 and 2008, respectively.
Our owned and leased hotels all utilize MICROS Opera Property Management
Systems, which provides us with a single image database for managing, analyzing
and reporting customer activity, greatly enhancing both our customer service
levels and ability to e-market using sophisticated customer relations management
tools and tactics.
Physical Assets - Our assets provide us with a stable, positive cash flow
operation and a strong base from which to operate the Red Lion brand. As of
September 30, 2009, we owned and leased 32 hotel properties, including hotels in
many key markets in the western U.S. We also continue to hold properties with
strong development potential such as our Bellevue, Washington, Post Falls,
Idaho, and Kalispell, Montana locations. In February 2009, we announced the
completion of renovations at our newly flagged Red Lion Anaheim property in
Southern California. Including $0.7 million in renovations at our Denver
Southeast location, we expect to invest an additional $3.0 million throughout
the remainder of 2009 to maintain the condition and presentation of our physical
assets, which are key to our success. However, we may reduce our level of
anticipated capital spending as appropriate to align with our needs.
The Red Lion Way - We want our guests to feel our commitment to their
memorable experience through our associates. We are investing in our future by
developing leaders throughout all levels of our organization who understand that
a culture of associate satisfaction and excellent service is an integral
component of our long-term success. This includes ongoing service training,
leadership programs and an overall commitment to both operational excellence and
guest satisfaction. Our goal is to be known in our industry for leadership
excellence, superior guest satisfaction and a positive work environment, and to
be profitable under all economic climates.
Liquidity and Profitability - Given the current state of the hospitality and
travel markets, our focus is on maintaining liquidity and profitability. This
means intensifying our focused sales and marketing efforts and maximizing
revenue management programs to capture market share. We will also continue to
streamline operations where possible, given the current market environment.
As of September 30, 2009, in addition to $5.1 million in cash, we had an
unused capacity of $28 million under our $50 million revolving credit facility.
This credit facility can be increased by an additional $50 million to a maximum
of $100 million, subject to satisfaction of various conditions.
RevPAR in the three months ended September 30, 2009 for our owned and leased
properties declined 13.8% from the same period in 2008, with an 8.6% decrease in
ADR. Occupancy at owned and leased properties declined 420 basis points
quarter-over-quarter. Our franchise properties also experienced negative RevPAR
growth, down 18.6% in the third quarter of 2009 compared to the same period in
2008, with an ADR decrease of 8.4%. Average occupancy, average daily rate and
revenue per available room statistics provided below include all owned, leased
and franchised hotels on a comparable basis.
For the three months ended September 30, For the nine months ended September 30,
2009 2008 2009 2008
Average (1) Average (1) Average (1) Average (1)
Occupancy ADR (2) RevPAR (3) Occupancy ADR (2) RevPAR (3) Occupancy ADR (2) RevPAR (3) Occupancy ADR (2) RevPAR (3)
Owned and Leased Hotels 68.6 % $ 85.91 $ 58.94 72.8 % $ 93.95 $ 68.38 59.5 % $ 85.15 $ 50.69 64.7 % $ 90.49 $ 58.56
Franchised Hotels 62.6 % $ 75.42 $ 47.20 70.4 % $ 82.37 $ 57.97 55.5 % $ 76.33 $ 42.38 61.1 % $ 78.99 $ 48.24
Total Red Lion Hotels 67.0 % $ 83.24 $ 55.73 72.1 % $ 90.87 $ 65.53 58.4 % $ 82.73 $ 48.29 63.7 % $ 87.30 $ 55.58
Change from prior comparative
period:
Owned and Leased Hotels (4.2 ) -8.6 % -13.8 % (5.2 ) -5.9 % -13.4 %
Franchised Hotels (7.8 ) -8.4 % -18.6 % (5.6 ) -3.4 % -12.1 %
Total Red Lion Hotels (5.1 ) -8.4 % -15.0 % (5.3 ) -5.2 % -13.1 %
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(1) 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.
(2) Average
daily rate
("ADR")
represents
total room
revenues
divided by
the total
number of
paid rooms
occupied by
hotel
guests.
(3) Revenue per
available
room
("RevPAR")
represents
total room
and related
revenues
divided by
total
available
rooms.
Our goal in this current economically difficult environment is to maintain or
improve profit margins through cost controls while maintaining the Red Lion
culture so that our guests continue to Stay Comfortable®. We believe that we are
well positioned to achieve our strategic goals; however, the current economic
situation and its effects on our industry have created an uncertain operating
environment for the remainder of 2009 and beyond. There can be no assurance our
results of operations will be similar to our results reported in prior years if
changes in travel patterns continue or economic conditions do not improve.
Results of Operations
During the third quarter of 2009, we reported net income attributable to Red
Lion Hotels Corporation of $3.2 million (or $0.18 per share) compared to
$4.4 million (or $0.24 per share) during the third quarter of 2008. For the
first nine months of 2009, we reported net income attributable to Red Lion
Hotels Corporation of $2.1 million (or $0.12 per share) compared to net income
of $2.2 million (or $0.12 per share) during the first nine months of 2008. For
the third quarter and first nine months of 2009, total revenues decreased
$6.4 million and $16.5 million, respectively, compared to those same periods in
2008.
A summary of our consolidated statement of operations is provided below (in
thousands, except per share data).
Three months ended September 30, Nine months ended September 30,
2009 2008 2009 2008
Total revenue $ 50,467 $ 56,886 $ 129,736 $ 146,256
Operating expenses 43,544 48,149 121,046 137,481
Operating income 6,923 8,737 8,690 8,775
Other income (expense):
Interest expense (2,268 ) (2,321 ) (6,297 ) (6,955 )
Other income, net 189 420 537 1,331
Income before taxes 4,844 6,836 2,930 3,151
Income tax expense 1,631 2,391 825 926
Net income 3,213 4,445 2,105 2,225
(Income) loss attributable to
noncontrolling interest (5 ) (10 ) (5 ) 2
Net income attributable to Red Lion Hotels
Corporation $ 3,208 $ 4,435 $ 2,100 $ 2,227
EBITDA $ 12,447 $ 14,113 $ 24,825 $ 24,101
EBITDA as a percentage of revenues 24.7 % 24.8 % 19.1 % 16.5 %
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Operating expenses decreased $4.6 million, or 9.6%, quarter-over-quarter, primarily driven by a $6.1 million reduction in hotel operating expenses offset by a $1.3 million increase in the entertainment segment operating costs and a $0.4 million increase in depreciation expense. Operating expenses decreased $16.4 million, or 12.0%, in the nine-month comparable period, which included a $3.7 million charge for separation costs associated with the retirement of our former President and Chief Executive Officer for the nine-month period ended September 30, 2008. The following table details the impact of the $3.7 million charge on net income, earnings per share and EBITDA for the first nine months of 2008 (in thousands, except per share data):
Nine months ended
September 30, 2008
(in thousands)
Separation costs $ (3,654 )
Income tax benefit 1,297
Impact of separation costs on net income $ (2,357 )
Separation costs $ (0.20 )
Income tax benefit 0.07
Impact of separation costs on earnings per share $ (0.13 )
Impact of separation costs on EBITDA $ (3,654 )
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EBITDA represents net income attributable to Red Lion Hotels Corporation
before interest expense, income tax expense and depreciation and amortization.
We utilize EBITDA as a financial measure because management believes that
investors find it 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, on-going operations. We believe it is a complement to net income
attributable to Red Lion Hotels Corporation and other financial performance
measures. EBITDA is not intended to represent net income attributable to the
Company as defined by generally accepted accounting principles in the United
States ("GAAP"), and such information should not be considered as an alternative
to net income, cash flows from operations or any other measure of performance
prescribed by GAAP.
We use EBITDA to measure the financial performance of our owned and leased
hotels because we believe interest, taxes and depreciation and amortization bear
little or no relationship to our 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 taxing laws apply to us 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 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
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 fixed 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
it 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 generated from operating activities determined in
accordance with GAAP, and should not be considered as an alternative to
operating income or net income 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.
The following is a reconciliation of EBITDA to net income attributable to Red
Lion Hotels Corporation for the periods presented (in thousands):
Three months ended September 30, Nine months ended September 30,
2009 2008 2009 2008
EBITDA $ 12,447 $ 14,113 $ 24,825 $ 24,101
Income tax expense (1,631 ) (2,391 ) (825 ) (926 )
Interest expense (2,268 ) (2,321 ) (6,297 ) (6,955 )
Depreciation and amortization (5,340 ) (4,966 ) (15,603 ) (13,993 )
Net income attributable to Red Lion Hotels
Corporation $ 3,208 $ 4,435 $ 2,100 $ 2,227
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Revenue
A breakdown of our revenues for the three and nine months ended September 30,
2009 and 2008 is as follows (in thousands):
Three months ended September 30, Nine months ended September 30,
2009 2008 2009 2008
Operating revenue
Hotels:
Rooms $ 33,851 $ 39,280 $ 83,168 $ 95,399
Food and beverage 10,454 12,643 31,037 36,459
Other department 1,320 1,549 3,180 3,543
Total hotels segment 45,625 53,472 117,385 135,401
Franchise 389 769 1,397 1,549
Entertainment 3,861 1,869 8,968 6,975
Other 592 776 1,986 2,331
Total Operating Revenue $ 50,467 $ 56,886 $ 129,736 $ 146,256
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Three Months Ended September 30, 2009 and 2008
During the third quarter of 2009, revenue from the hotels segment decreased
$7.8 million, or 14.7%, compared to the third quarter of 2008, primarily as a
result of a $5.4 million decrease in room revenue, including
quarter-over-quarter decreases in group and transient revenues of $2.8 million
and $2.1 million, respectively. The current period reflects an 8.6% decrease in
average daily rate and a 420 basis point drop in occupancy.
Revenue from the franchise segment decreased $0.4 million due to the receipt
of $0.3 million in termination fees during the third quarter of 2008 from two
franchise properties that left the system in September 2008. In addition, there
was a decrease in royalty fees collected during the third quarter of 2009 as a
result of having fewer franchised hotels in our system year-over-year. Revenues
from the entertainment segment increased $2.0 million quarter-over-quarter a
result of our production of Disney's The Lion King in Anchorage, Alaska that
commenced in September 2009, with no comparable shows presented in the third
quarter of 2008.
Nine Months Ended September 30, 2009 and 2008
In the first nine months of 2009, revenue from the hotels segment decreased
$18.0 million, or 13.3%, compared to the first nine months of 2008. The decrease
was primarily driven by a $12.2 million, or 12.8%, decline in room revenue which
included a $6.4 million decrease in transient revenue and a $4.9 million
decrease in group revenue in the comparable periods. Compared to the first nine
months of 2008, average daily rate decreased 5.9% and occupancy levels dropped
520 basis points to 59.5%.
Revenue from the franchise segment decreased $0.2 million compared to the
first nine months of 2008, due to the receipt of $0.3 million in termination
fees during the third quarter of 2008, as discussed above, offset by
$0.3 million settlement received in the second quarter of 2009 from a franchise
that we terminated from the system in 2008 as well as a decrease in royalty fees
collected in 2009 as a result of fewer franchisees. Entertainment revenue
increased $2.0 million to $9.0 million during the first nine months of 2009
compared to 2008, primarily attributable to our production of Disney's The Lion
King as discussed above.
Operating Expenses
Operating expenses include direct operating expenses for each of the
operating segments, hotel facility and land lease expense, depreciation and
amortization, gain or loss on asset dispositions and undistributed corporate
expenses. In the aggregate, operating expenses during the three and nine months
ended September 30, 2009, decreased $4.6 million and $16.4 million,
respectively, over the same periods in 2008 as provided below:
Three months ended September 30, Nine months ended September 30,
2009 2008 2009 2008
(In thousands)
Operating Expenses
Hotels $ 31,253 $ 37,375 $ 86,289 $ 100,827
Franchise 153 81 297 226
Entertainment 2,987 1,712 7,375 6,886
Other 528 483 1,609 1,547
Depreciation and amortization 5,340 4,966 15,603 13,993
Hotel facility and land lease 1,826 1,850 5,476 5,496
Gain on asset dispositions, net (85 ) (64 ) (132 ) (204 )
Undistributed corporate expenses 1,542 1,746 4,529 8,710
Total operating expenses $ 43,544 $ 48,149 $ 121,046 $ 137,481
. . .
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