Red Lion Hotels Reports Fourth Quarter and Full Year 2009 Results

Red Lion Hotels Corporation (NYSE: RLH), a western U.S.-based owner of midscale and upscale hotels, today announced its results for the fourth quarter and full year ended December 31, 2009.

Highlights:



Fourth quarter occupancy held steady year-over-year

2009 EBITDA was $27.6 million before special items, down $3.8 million year-over-year despite a $22.2 million revenue decline

The Company completed amendments to its credit facility that modified covenants and increased financial flexibility

The Company recognized an impairment charge of $8.7 million

Total revenue during the fourth quarter was $35.7 million, down 13.7 percent from $41.3 million in the prior-year period. Revenue from hotels was $32.0 million, down 9.0 percent from $35.2 million in the fourth quarter of 2008. EBITDA before special items for the fourth quarter of 2009 was $2.7 million, compared to $3.6 million for the fourth quarter of 2008. Net loss before special items was $3.1 million in the quarter, or $0.16 per diluted share, compared to a net loss of $2.6 million, or $0.15 per diluted share, for the prior-year period. Reported Net Loss for the fourth quarter including special items was $8.7 million, compared to $3.9 million in the prior year period.

President and Chief Executive Officer Jon Eliassen commented, "The lodging industry environment continues to be challenging, but I am encouraged by the fact that our RevPAR performance only declined at a single-digit level in the fourth quarter. Our performance was generally better than that of the industry, which on average continued to report double-digit RevPAR declines."

Eliassen continued, "Throughout early 2009, our active response to the economic downturn helped minimize the negative impact to the bottom line. Our expense management initiatives exceeded our goals for cost containment. We are well positioned to maximize profitability and cash flow when the economy begins to recover. While we reduced operating expense, we have continued to focus on customer service, as positively reflected in our customer satisfaction rankings. In parallel, our ongoing customer retention efforts helped us to grow revenue from our guest frequency program, the Red Lion R&R Club, by 3.7% and net membership by 35% year-over-year."

Fourth Quarter Results

Comparing the fourth quarter 2009 to 2008, occupancy for owned and leased hotels held steady at 46.9 percent year-over-year. ADR declined 7.0 percent resulting in a 7.2 percent decline in RevPAR. System-wide RevPAR (which includes franchised hotels) on a comparable basis for the quarter decreased 7.0 percent due to a 100 basis point decline in occupancy and a 4.9 percent decline in ADR.

Compared to the prior-year period, revenue from hotels was down 9.0 percent to $32.0 million primarily as a result of a 7.6%, or $1.7 million, decrease in room revenue reflecting continuing challenges across all market segments with the largest decline coming in the group segment. Hotel direct operating margin declined to 10.7 percent during the fourth quarter 2009 compared to 13.6 percent in 2008. The margin decrease in the quarter was primarily due to investments in sales and marketing technology and personnel resources, as well as promotional initiatives designed to help position the company for room revenue growth in 2010.

Franchise and management revenue was relatively flat at $0.3 million year-over-year, and entertainment revenue decreased to $2.7 million, a result of the mix of shows presented during the comparable periods. However, direct operating margin for the entertainment segment increased by over 900 basis points to 23.1% due primarily to expense management in ticketing operations.

Full Year 2009 Results

Total revenue for the full year ended December 31, 2009, was $165.4 million, down 11.8 percent from $187.6 million in 2008. Reported revenue from hotels was $149.4 million, down 12.4 percent from $170.6 million in the prior year. Despite a $4.8 million decline in hotel direct operating profit to $34.5 million, hotel direct operating margin was maintained at 23.1% year-over-year due to the Company's successful focus on profitability.

RevPAR for owned and leased hotels on a comparable basis for 2009 was down 12.1 percent due to a 380 basis point decrease in occupancy and a 6.3 percent decrease in ADR. System-wide, RevPAR on a comparable basis decreased 11.9 percent year-over-year due to a 420 basis point decline in occupancy and a 5.3 percent decline in ADR.

Franchise and management revenue declined $0.2 million to $1.7 million, primarily due to a reduction of franchised hotels in the system. Entertainment revenue decreased slightly to $11.7 million, or by 2.7 percent, and direct operating margin for Entertainment increased to 19.0 percent from 6.5 percent reported in 2008.

EBITDA before special items for the full year ended December 31, 2009 was $27.6 million, compared to $31.4 million in the prior year. Net loss in 2009 before special items totaled $1.0 million, or $0.05 per diluted share, compared to net income before special items of $2.0 million, or $0.11 per diluted share, in the prior year.

Asset Impairment

During the fourth quarter, the Company recognized an impairment loss of $8.5 million on the Red Lion Denver Southeast hotel. The property was purchased in May 2008 for $25.3 million and the Company has spent approximately $5.0 million in renovations since the acquisition. Since September 2008, the Denver market has experienced a substantial and sustained decline in demand for hotel rooms across all market segments. In addition, the Company also recognized a $0.2 million impairment loss on a second property. These impairments are reflected as a special item for 2009 and separately identified in the Company's operating results.

Liquidity and Balance Sheet

As of December 31, 2009, the company had approximately $3.9 million in cash and cash equivalents, and outstanding debt of $137.1 million. The Company was in compliance with all covenants of its credit facilities as of December 31, 2009.

On February 8, 2010, the Company signed an amendment to each of its primary credit line and term note to increase the Company's financial flexibility. The amendments modified the Company's total leverage ratio and senior leverage ratio covenants for 2010 and 2011. In exchange, the rate in each case was increased modestly and the capacity under the line of credit was reduced to $37.5 million from $50 million. Management does not expect the reduction in capacity under the line of credit to impact its liquidity or operating plans. None of the Company's other debt agreements contain restrictive financial covenants.

Capital expenditures during the full year ended December 31, 2009 totaled $16.4 million, including $5.6 million and $3.5 million spent on renovations at the Company's Anaheim and Denver Southeast properties, respectively. Capital expenditures during 2010 are expected to total $12.7 million for core investments in maintenance, technology and necessary hotel improvement projects, which reflects the Company's continued focus on investing as appropriate to maintain competitive guest services. All capital needs are expected to be funded with operating cash flow.

Outlook for 2010

Given the current economic environment, it is very difficult to provide definitive guidance for 2010 at this time. In general, industry expectations suggest continued RevPAR declines in the first half of 2010. In the second half of 2010, we expect RevPAR declines to abate. Based on the outlook and information available today, the Company is providing the following broad guidance for 2010, which it expects to update as the year unfolds:

2010 RevPAR for Company owned and leased hotels is expected to be flat to down 3% compared to 2009 on an annual basis;

2009 direct hotel operating margin is expected to range from flat to up 100 basis points; and

EBITDA is expected to be $27 to $29 million, before any special items.

Eliassen concluded, "In 2010, we will focus on our mix of business in an effort to drive revenue. We will also implement a strategy to expand the Red Lion brand through a refocused franchising effort across the western states where we possess strong brand recognition and loyalty. Longer term, we are committed to improving profitability and providing competitive returns for our investors."