Red Lion Reports Third Quarter 2009 Results

. November 06, 2009

Red Lion's total revenue during the third quarter of 2009 was $50.5 million, compared to $56.9 million for the prior-year period.

NOVEMBER 5, 2009 - Red Lion Hotels Corporation (NYSE:RLH) today announced its results for the third quarter and nine-month period ended September 30, 2009

Third Quarter Results

Red Lion's total revenue during the third quarter of 2009 was $50.5 million, compared to $56.9 million for the prior-year period. Revenue from hotels was $45.6 million, down 14.7% from the third quarter of 2008. RevPAR for owned and leased hotels on a comparable basis for the third quarter of 2009 was down 13.8%, due to a 420 basis point decrease in occupancy and an 8.6% decrease in ADR. Despite the lower revenues, hotel direct operating margin for the quarter was 31.5%, an increase of 140 basis points from the prior-year period. System-wide RevPAR (which includes franchised hotels) on a comparable basis for the quarter decreased 15.0%, caused by a 510 basis point decrease in occupancy and an 8.4% decrease in ADR.

Franchise and management revenue was $0.4 million, a decrease of $0.4 million from the prior-year period due primarily to the receipt of $0.3 million in franchise termination fees in the third quarter of 2008. Entertainment revenue was $3.9 million, an increase of $2.0 million compared to the same quarter in 2008 which was due to the successful production of various shows during the quarter with no comparables during the prior-year period.

EBITDA for the third quarter of 2009 was $12.4 million, compared to $14.1 million for the third quarter of 2008, an 11.8% decline on a year-over-year basis. The company's net income was $3.2 million, compared to net income of $4.4 million for the prior-year period. Diluted earnings per share were $0.18, compared to diluted earnings per share of $0.24 for the third quarter of 2008.

Nine Months 2009 Results

Red Lion's total revenue for the nine months ended September 30, 2009 was $129.7 million, compared to $146.3 million in the same period in 2008. Reported revenue from hotels was $117.4 million, down 13.3% from the prior-year period, primarily due to the weak economic and industry environment. Hotel direct operating profit decreased 10.1% to $31.1 million, although direct operating margin increased approximately 100 basis points to 26.5%.

RevPAR for owned and leased hotels on a comparable basis for the first nine months of 2009 was down 13.4%, due to a 520 basis point decrease in occupancy and a 5.9% decrease in ADR. System-wide, RevPAR on a comparable basis decreased 13.1% from the prior-year period, with a 530 basis point decrease in occupancy and a 5.2% decrease in ADR.

Franchise and management revenue was $1.4 million, down $0.2 million from the prior-year period. Entertainment revenue was $9.0 million, up $2.0 million from the prior-year period.

EBITDA for the nine-month period ending September 30, 2009 was $24.8 million, compared to $27.8 million for the prior-year period before a one-time expense for separation costs. The company's net income was $2.1 million, compared to net income of $4.6 million for the prior-year period before the one-time expense for separation costs. Diluted earnings per share for the nine-month period ending September 30, 2009 was $0.12, compared to diluted earnings of $0.25 per share for the prior-year period before the one-time expense for separation costs.

Liquidity and Balance Sheet

As of September 30, 2009, the company had approximately $5.1 million in cash and cash equivalents, and outstanding debt of $133.9 million. The company's debt balance is comprised of $22.0 million outstanding under its variable rate credit facility, $13.3 million under a variable rate note with a bank, $30.8 million of publicly traded unsecured debt in the form of deeply subordinated trust preferred securities and a total of $67.8 million in fixed-rate non-recourse notes collateralized by individual hotels. The company's first term debt maturity is in September 2011 in the aggregate amount of $22.2 million. Only the credit facility, which also matures in September 2011, and the variable rate bank note have restrictive financial covenants, with which the company is in compliance as of September 30, 2009. During the seasonally strong third quarter, the company paid down $8 million of its variable rate credit facility.

Capital expenditures for the first nine months of 2009 totaled $15.1 million, including $5.7 million and $2.6 million spent on renovations at the company's Anaheim and Denver Southeast properties, respectively. The company expects to spend another $0.7 million on additional renovations at Denver Southeast in the fourth quarter of 2009 and another $2.3 million on normal capital expenditures at other properties. Combined, the total expected capital expenditures for 2009 will be approximately $18 million. Given current economic conditions, the company will continue to closely monitor capital spending.

Outlook for 2009

Based on currently available information, the company is revising its guidance for 2009 as follows:

2009 RevPAR for company owned and leased hotels is expected to decline 12% to 14% from 2008
2009 direct hotel operating margin is expected to range from flat to up 100 basis points
EBITDA is expected to be $27 to $29 million, before any special items

Commenting on the third quarter results, President and Chief Executive Officer Anupam Narayan said, "The weak economic and industry environment continued to drive declines in RevPAR; however, I was pleased with our aggressive sales and marketing efforts and revenue management during the quarter. Those efforts and our continued focus on cost controls enabled us to once again increase our hotel operating margin from the prior-year quarter."

Narayan continued, "We have no debt maturities until September 2011 and we expect to end the year funding all of our operational and capital needs from operating cash flow. The industry continues to have limited forward visibility, and as such we will continue to focus on maximizing our profitability and cash flow by keeping a close eye on our cost structure and driving revenues through our sales and marketing efforts. General expectations are for some stabilization in the industry in the second half of 2010, and we are managing the company with that outlook in mind."

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