DENVER, March 28, 2018 (GLOBE NEWSWIRE) — Red Lion Hotels Corporation (the “Company”) (NYSE:RLH), a growing hospitality company doing business as RLH Corporation that franchises upscale, midscale and economy hotels, today reported fourth quarter 2017 results.
- Adjusted EBITDA from continuing operations was $22.4 million for 2017, as compared to $17.2 million in 2016, representing a year-over-year improvement of 29.9 percent.
- Increased Franchise segment revenues to $48.6 million for 2017 as compared to $24.6 million for 2016 representing an increase of 97.1 percent. The significant increase in Franchise revenues resulted from brand acquisitions in 2016 and the organic unit growth that occurred throughout 2017.
- Divisional profit from the Franchise segment increased from $5.3 million in 2016 to $13.8 million in 2017 representing an increase of 158.8 percent. Divisional profit margin in the Franchise segment increased 675 basis points to 28.3 percent for the 2017 fiscal year.
- The Company executed 144 franchise license agreements in 2017. This total included 29 midscale and 115 economy properties.
- Midscale system-wide same store RevPAR increased by 2.5 percent in 2017.
- In early October 2017 the Company announced its intention to market for sale 11 of its hotels to significantly improve its balance sheet, increase its cash reserves and focus its future growth on its high-profit margin and less capital-intensive Franchise business. During the fourth quarter of 2017, the Company made significant progress in its marketing activities to sell the hotels identified for sale as part of its real estate divestiture strategy. During the first quarter of 2018 the company sold five of its hotels and has contracts or letters of intent to sell 2 more hotels in upcoming months.
- The Company sold its Entertainment business on October 3, 2017, and that segment is now disclosed as discontinued operations. Prior to the sale date, the Entertainment business generated $0.7 million of Adjusted EBITDA. Therefore, the continuing operations and discontinued Adjusted EBITDA for the year was $23.1 million, increasing $3.6 million over 2016 Adjusted EBITDA.
Fourth Quarter 2017 Highlights
- Adjusted EBITDA from continuing operations for the fourth quarter ending December 31, 2017 was $2.7 million, as compared to $2.5 million in the same period last year.
- Midscale system-wide same store RevPAR increased in the fourth quarter of 2017 by 2.0 percent, as compared to the fourth quarter of 2016.
- Divisional profit margin on the Franchise Business increased 670 basis points to 32.1 percent for the fourth quarter of fiscal year 2017.
“2017 was a year of fundamental strategic changes for RLH Corporation. We fully integrated the employees, infrastructure and technology of the hotel brands we acquired in 2016, which set the stage for the significant growth of our franchise business profitability in 2017,” said Greg Mount, RLH Corporation President and Chief Executive Officer. “We also successfully sold our entertainment business which helped to simplify our business model by eliminating a non-strategic business segment. In October, we announced our intention to market for sale 11 hotels representing the majority of our real estate holdings. We closed the sale of five hotels during the first quarter. These sales will allow us to significantly reduce long-term debt and the expected gains on the sales will increase our cash reserves. This cleanup of our balance sheet will further enhance our position as we pursue the aggressive growth of our franchise business through organic growth and brand and multi-franchise agreement acquisitions.”
Joint Venture Entities
Under generally accepted accounting principles, the Company is required to consolidate 100 percent of its joint venture entities’ assets, liabilities and operating results. Although the Company is required to consolidate these entities, its economic share of the joint venture entities is 55 percent, except for Baltimore where its economic share is 73 percent. The Company at year-end had ownership interests in 18 of its hotels. Four of the hotels were leaseholds, and the remaining 14 were in joint ventures. RLH Corporation engaged CBRE to market for sale 11 of the hotels held by a joint venture and recently closed the sales of five of these hotels. Over the course of the next few years the Company’s intention is to continue to reduce its majority real estate ownership.
For the year ended December 31, 2017, the Company’s consolidated Adjusted EBITDA from continuing operations was $22.4 million. The Company’s joint venture partners’ pro rata share of this Adjusted EBITDA was $6.9 million, and RLH Corporation’s share of the Adjusted EBITDA was $15.5 million.
The strength of the Company’s balance sheet should improve as it continues to close on the sales of its hotels, and the Company expects to use the resulting cash on its balance sheet to finance a significant portion of the growth of its Franchise business. RLH Corporation’s pro rata share of the consolidated debt position was $63.7 million, and its share of the consolidated cash equivalents balance was $29.7 million, resulting in $34.0 million of net debt as of December 31, 2017. Hotel sales since year end have resulted in $38.2 million in debt reduction, lowering our pro rata share of debt to $42.7 million.
In 2018, the anticipated sales of hotels will reduce our hotel divisional profitability. As the sales are closed, we will disclose the material terms of each transaction in our 8K filings including the historical Adjusted EBITDA relating to the hotels sold. Due to the inability to predict the timing of the hotel sales, our initial guidance for the 2018 fiscal year will concentrate on our Franchise business, which will represent the majority of the ongoing future earnings of the Company.
- 2018 Midscale system-wide RevPAR expected to increase 1 percent to 3 percent year over year.
- Franchise divisional profit from $16 million to $17 million representing a potential increase of 16 percent to 23 percent.
- The Franchise divisional profit margin is expected to increase from 28.3 percent in 2017 to between 30 and 32 percent in 2018. This profit margin should improve further as the hotels the Company sells enter new franchise agreements with the Company.
- So far, the Company has entered new franchise contracts on all five hotels sold in the first quarter of 2018. These five franchise contracts are expected to generate franchise fee revenues of $400 thousand to $600 thousand over the remainder of 2018.
- General and administrative expenses are expected to be $16.2 million to $16.5 million. With the change in focus from hotel ownership to franchising, the Company expects to reduce costs of $4 to $5 million as an initial target for 2018. Cost reduction efforts will be ongoing and impact will depend on the timing of additional hotel sales in 2018.
- The Company expects to execute between 150 and 200 license agreements in 2018.
- Adjusted EBITDA for the leasehold hotels (Anaheim, Seattle, Spokane, and Kalispell) and the three hotels not being marketed for sale (Washington DC, Baltimore and Atlanta) achieved an EBITDA contribution of $5.9M in 2017. We anticipate modest growth in these properties due to the generally favorable market conditions and the continued work to stabilize the JV properties to hire occupancies and achieve room rates.
- The 2018 Adjusted EBITDA for the five hotels sold in the seasonally slow first quarter of 2018 was $150,000 through the dates of their respective sales. The Adjusted EBITDA contribution for these five hotels was $4.7 million for fiscal 2017.
- The Adjusted EBITDA contribution for the six hotels currently being marketed for sale was $12.1M for fiscal 2017. Our 2018 Adjusted EBITDA for these six hotels will be for the period in 2018 through the dates of each of the hotel sales.