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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
OR 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 001-13957 
 
RED LION HOTELS CORPORATION
(Exact name of registrant as specified in its charter)
Washington
 
91-1032187
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
1550 Market St. #350
Denver, Colorado
 
80202
(Address of principal executive offices)
 
(Zip Code)
Registrant’s Telephone Number, Including Area Code: (509) 459-6100 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock, par value $0.01 per share
 
RLH
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  o
Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, or a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
 
o
  
Accelerated filer
 
ý
Non-accelerated filer
 
o
  
Smaller reporting company
 
ý
 
 
 
 
Emerging growth company
 
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  o    No  ý
As of May 1, 2019, there were 24,721,938 shares of the registrant’s common stock outstanding.


Table of Contents

TABLE OF CONTENTS
 
 
 
 
Item No.
Description
Page No.
 
 
 
 
PART I – FINANCIAL INFORMATION
 
 
 
 
Item 1
 
 
Condensed Consolidated Balance Sheets at March 31, 2019 and December 31, 2018
 
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2019 and 2018
 
Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2019 and 2018
 
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018
 
Notes to Condensed Consolidated Financial Statements
Item 2
Item 3
Item 4
 
 
 
 
PART II – OTHER INFORMATION
 
 
 
 
Item 1
Item 1A
Item 2
Item 3
Item 4
Item 5
Item 6
 



2

Table of Contents

PART I – FINANCIAL INFORMATION
Item 1.
Financial Statements

RED LION HOTELS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, 2019 and December 31, 2018
 
 
March 31,
2019
 
December 31,
2018
 
 
(In thousands, except share data)
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents ($5,916 and $4,564 attributable to VIEs)
 
$
18,008

 
$
17,034

Restricted cash ($2,678 and $2,652 attributable to VIEs)
 
6,862

 
2,755

Accounts receivable ($1,926 and $1,064 attributable to VIEs), net of an allowance for doubtful accounts of $2,559 and $2,345, respectively
 
19,339

 
18,575

Notes receivable, net
 
2,180

 
2,103

Other current assets ($674 and $680 attributable to VIEs)
 
6,658

 
6,218

Total current assets
 
53,047

 
46,685

Property and equipment, net ($73,049 and $74,250 attributable to VIEs)
 
114,270

 
115,522

Operating lease right-of-use assets ($12,912 and $0 attributable to VIEs)
 
50,860

 

Goodwill
 
18,595

 
18,595

Intangible assets, net
 
60,016

 
60,910

Other assets, net ($703 and $705 attributable to VIEs)
 
8,237

 
8,075

Total assets
 
$
305,025

 
$
249,787

 
 
 
 
 
LIABILITIES
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable ($1,175 and $650 attributable to VIEs)
 
$
6,512

 
$
5,322

Accrued payroll and related benefits ($327 and $369 attributable to VIEs)
 
2,417

 
5,402

Other accrued liabilities ($2,030 and $1,092 attributable to VIEs)
 
4,840

 
4,960

Long-term debt, due within one year ($24,994 and $25,056 attributable to VIEs)
 
29,160

 
25,056

Operating lease liabilities, due within one year ($966 and $0 attributable to VIEs)
 
4,694

 

Total current liabilities
 
47,623

 
40,740

Long-term debt, due after one year, net of debt issuance costs ($16,513 and $0 attributable to VIEs)
 
21,474

 
9,114

Line of credit, due after one year
 
10,000

 
10,000

Operating lease liabilities, due after one year ($11,946 and $0 attributable to VIEs)
 
47,294

 

Deferred income and other long-term liabilities ($458 and $480 attributable to VIEs)
 
2,035

 
2,245

Deferred income taxes
 
824

 
772

Total liabilities
 
129,250

 
62,871

 
 
 
 
 
Commitments and contingencies
 


 


 
 
 
 
 
STOCKHOLDERS’ EQUITY
 
 
 
 
RLH Corporation 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; 24,626,459 and 24,570,158 shares issued and outstanding
 
247

 
246

Additional paid-in capital, common stock
 
182,703

 
182,018

Accumulated deficit
 
(20,622
)
 
(16,512
)
Total RLH Corporation stockholders' equity
 
162,328

 
165,752

Noncontrolling interest
 
13,447

 
21,164

Total stockholders' equity
 
175,775

 
186,916

Total liabilities and stockholders’ equity
 
$
305,025

 
$
249,787


The accompanying notes are an integral part of these condensed consolidated financial statements.

3

Table of Contents

RED LION HOTELS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
For the Three Months Ended March 31, 2019 and 2018
 
 
Three Months Ended
 
 
March 31,
 
 
2019
 
2018
 
 
(In thousands, except per share data)
Revenue:
 
 
 
 
Royalty
 
$
5,740

 
$
4,275

Other franchise
 
542

 
592

Company operated hotels
 
12,970

 
22,896

Marketing, reservations and reimbursables
 
6,729

 
5,256

Other
 
3

 
20

Total revenues
 
25,984

 
33,039

Operating expenses:
 
 
 
 
Selling, general, administrative and other expenses
 
7,228

 
7,210

Company operated hotels
 
11,545

 
20,255

Marketing, reservations and reimbursables
 
7,161

 
5,559

Depreciation and amortization
 
3,447

 
4,392

Loss (gain) on asset dispositions, net
 
6

 
(14,043
)
Acquisition and integration costs
 
62

 
104

Total operating expenses
 
29,449

 
23,477

Operating income (loss)
 
(3,465
)
 
9,562

Other income (expense):
 
 
 
 
Interest expense
 
(882
)
 
(2,247
)
Other income (loss), net
 
33

 
158

Total other income (expense)
 
(849
)
 
(2,089
)
Income (loss) before taxes
 
(4,314
)
 
7,473

Income tax expense
 
82

 
135

Net income (loss)
 
(4,396
)
 
7,338

Net (income) loss attributable to noncontrolling interest
 
286

 
(4,750
)
Net income (loss) and comprehensive income (loss) attributable to RLH Corporation
 
$
(4,110
)
 
$
2,588

 
 
 
 
 
Earnings (loss) per share - basic
 
$
(0.17
)
 
$
0.11

Earnings (loss) per share - diluted
 
$
(0.17
)
 
$
0.10

 
 
 
 
 
Weighted average shares - basic
 
24,603

 
24,101

Weighted average shares - diluted
 
24,603

 
25,166


The accompanying notes are an integral part of these condensed consolidated financial statements.

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Table of Contents

RED LION HOTELS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
For the Three Months Ended March 31, 2019 and 2018
 
 
Red Lion Hotels Corporation Stockholders' Equity
 
 
 
 
 
 
Common Stock
 
Retained
Earnings (Accumulated Deficit)
 
RLH Corporation Total Equity
 
Equity Attributable to Non-controlling Interest
 
 
 
 
Shares
 
Amount
 
Additional
Paid-In Capital
 
 
 
 
Total
Equity
 
 
(In thousands, except share data)
Balances, January 1, 2019
24,570,158

 
$
246

 
$
182,018

 
$
(16,512
)
 
$
165,752

 
$
21,164

 
$
186,916

 
Net loss

 

 

 
(4,110
)
 
(4,110
)
 
(286
)
 
(4,396
)
 
Shared based payment activity
56,301

 
1

 
685

 

 
686

 

 
686

 
Distributions to noncontrolling interests

 

 

 

 

 
(7,431
)
 
(7,431
)
Balances, March 31, 2019
24,626,459

 
$
247

 
$
182,703

 
$
(20,622
)
 
$
162,328

 
$
13,447

 
$
175,775


 
 
Red Lion Hotels Corporation Stockholders' Equity
 
 
 
 
 
 
Common Stock
 
Retained
Earnings (Accumulated Deficit)
 
RLH Corporation Total Equity
 
Equity Attributable to Non-controlling Interest
 
 
 
 
Shares
 
Amount
 
Additional
Paid-In Capital
 
 
 
 
Total
Equity
 
 
(In thousands, except share data)
Balances, January 1, 2018
23,651,212

 
$
237

 
$
178,028

 
$
(18,042
)
 
$
160,223

 
$
27,381

 
$
187,604

 
Net income

 

 

 
2,588

 
2,588

 
4,750

 
7,338

 
Cumulative effect of the adoption of Topic 606

 

 

 
(427
)
 
(427
)
 

 
(427
)
 
Shared based payment activity
60,388

 

 
294

 

 
294

 

 
294

 
Vantage contingent consideration settled
414,000

 
4

 
(4
)
 

 

 

 

Balances, March 31, 2018
24,125,600

 
$
241

 
$
178,318

 
$
(15,881
)
 
$
162,678

 
$
32,131

 
$
194,809


The accompanying notes are an integral part of these condensed consolidated financial statements.

 
 
 
 

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RED LION HOTELS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months Ended March 31, 2019 and 2018
 
 
Three Months Ended
 
 
March 31,
 
 
2019
 
2018
 
 
(In thousands)
Operating activities:
 
 
 
 
Net income (loss)
 
$
(4,396
)
 
$
7,338

Adjustments to reconcile net income (loss) to net cash used in operating activities:
 
 
 
 
Depreciation and amortization
 
3,447

 
4,392

Amortization of debt issuance costs
 
47

 
592

Amortization of key money and contract costs
 
206

 
111

Amortization of contract liabilities
 
(197
)
 
(160
)
Loss (gain) on asset dispositions, net
 
6

 
(14,043
)
Deferred income taxes
 
52

 
82

Stock-based compensation expense
 
916

 
640

Provision for doubtful accounts
 
245

 
235

Fair value adjustments to contingent consideration
 

 
157

Change in current assets and liabilities:
 
 
 
 
Accounts receivable
 
(1,009
)
 
(442
)
Notes receivable
 
(8
)
 
(6
)
Other current assets
 
(844
)
 
(4,795
)
Accounts payable
 
1,383

 
1,807

Other accrued liabilities
 
(1,880
)
 
(2,676
)
Net cash used in operating activities
 
(2,032
)
 
(6,768
)
Investing activities:
 
 
 
 
Capital expenditures
 
(1,500
)
 
(1,692
)
Net proceeds from disposition of property and equipment
 

 
45,662

Collection of notes receivable
 
21

 

Advances on notes receivable
 
(90
)
 
(135
)
Net cash provided by (used in) investing activities
 
(1,569
)
 
43,835

Financing activities:
 
 
 
 
Borrowings on long-term debt, net of discounts
 
16,513

 

Repayment of long-term debt and finance leases
 
(170
)
 
(38,472
)
Distributions to noncontrolling interest
 
(7,431
)
 

Contingent consideration paid for Vantage Hospitality acquisition
 

 
(4,000
)
Stock-based compensation awards canceled to settle employee tax withholding
 
(342
)
 
(440
)
Stock option and stock purchase plan issuances, net and other
 
112

 
94

Net cash provided by (used in) financing activities
 
8,682

 
(42,818
)
 
 
 
 
 
Change in cash, cash equivalents and restricted cash:
 
 
 
 
Net increase (decrease) in cash, cash equivalents and restricted cash
 
5,081

 
(5,751
)
Cash, cash equivalents and restricted cash at beginning of period
 
19,789

 
44,858

Cash, cash equivalents and restricted cash at end of period
 
$
24,870

 
$
39,107


The accompanying notes are an integral part of these condensed consolidated financial statements.

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RED LION HOTELS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.
Organization

Red Lion Hotels Corporation ("RLH Corporation", "RLHC", "we", "our", "us", or "our company") is a NYSE-listed hospitality and leisure company (ticker symbol: RLH) doing business as RLH Corporation and primarily engaged in the franchising and ownership of hotels under the following proprietary brands: Hotel RL, Red Lion Hotels, Red Lion Inn & Suites, GuestHouse, Settle Inn, Americas Best Value Inn, Canadas Best Value Inn, Signature and Signature Inn, Knights Inn, and Country Hearth Inns & Suites.

A summary of our properties as of March 31, 2019, including the approximate number of available rooms, is provided below:
 
 
Upscale Service Brand
 
Select Service Brand
 
Total
 
 
Hotels
 
Total Available Rooms
 
Hotels
 
Total Available Rooms
 
Hotels
 
Total Available Rooms
Ending quantity, March 31, 2019
 
109

 
15,600

 
1,174

 
67,200

 
1,283

 
82,800



2.
Summary of Significant Accounting Policies

The unaudited condensed consolidated financial statements included herein were prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and in accordance with generally accepted accounting principles in the United States of America (GAAP). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted as permitted by such rules and regulations.

The Consolidated Balance Sheet as of December 31, 2018 was derived from the audited balance sheet as of such date. We believe the disclosures included herein are adequate; however, they should be read in conjunction with the consolidated financial statements and the notes thereto for the year ended December 31, 2018, filed with the SEC in our annual report on Form 10-K on March 8, 2019.

In the opinion of management, these unaudited condensed consolidated financial statements contain all of the adjustments of a normal and recurring nature necessary to present fairly our Condensed Consolidated Balance Sheet at March 31, 2019, the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2019 and 2018, the Condensed Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2019 and 2018, and the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018. The results of operations for the periods presented may not be indicative of that which may be expected for a full year or for any other fiscal period.

Leases

We determine if an arrangement is a lease or contains a lease at inception. If an arrangement is a lease or contains a lease, we then determine whether the lease meets the criteria of a finance lease or an operating lease. Finance leases are included in Property and equipment, net, Other accrued liabilities, and Deferred income and other long-term liabilities in our Condensed Consolidated Balance Sheets. Operating leases are included in Operating lease right-of-use assets, Operating lease liabilities, due within one year, and Operating lease liabilities, due after one year, in our Condensed Consolidated Balance Sheets. We reassess if an arrangement is or contains a lease upon modification of the arrangement.

At the commencement date of a lease, we recognize a lease liability for contractual fixed lease payments and a corresponding right-of-use asset representing our right to use the underlying asset during the lease term. The lease liability is measured initially as the present value of the contractual fixed lease payments during the lease term. The lease term additionally includes renewal periods only if it is reasonably certain that we will exercise the options. Contractual fixed leases payments are discounted at the rate implicit in the lease when readily determinable. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date. For the adoption of Accounting Standards Update (ASU) 2016-02, we measured our lease liabilities using our incremental borrowing rate as of January 1, 2019. Additionally, we elected not to recognize leases with lease terms of 12 months or less at the commencement date in our Condensed Consolidated Balance Sheets.

The right-of-use asset is recognized at the amount of the lease liability with certain adjustments, if applicable. These adjustments include lease incentives, prepaid rent, and initial direct costs.

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New Accounting Pronouncements Not Yet Adopted

In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments, which will change how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The ASU will replace the current "incurred loss" approach with an "expected loss" model for instruments measured at amortized cost. For trade and other receivables, held to maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. The ASU is effective in the first quarter of 2020. We are currently evaluating the effects of this ASU on our financial statements, and such effects have not yet been determined.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which provides modifications to the disclosure requirements over fair value measurements. The ASU is effective in the first quarter of 2020, with early adoption permitted. We are currently evaluating the effects of this ASU on our financial statements, and such effects have not yet been determined.

We have assessed the potential impact of other recently issued, but not yet effective, accounting standards and determined that the provisions are either not applicable to us or are not anticipated to have a material impact on our consolidated financial statements.

New Accounting Pronouncements Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. We adopted the standard on January 1, 2019 and applied the package of practical expedients included therein, which allows us to carry forward our historical assessments of whether contracts are leases or contain leases, the lease classification of each existing lease, and recognition of initial direct costs. The standard was adopted using the modified retrospective transition method and we did not apply the standard to the comparative periods presented in the year of adoption.

Due to the existence of certain operating lease obligations as of January 1, 2019, we recognized $51.1 million of ROU assets and corresponding lease liabilities of $52.2 million, with reductions of other accrued liabilities and deferred income and other long-term liabilities of $1.1 million. However, there was no impact to accumulated deficit and the future recognition of lease related expenses will not differ from the previous methodology in the Consolidated Statement of Comprehensive Income (Loss) for leases that existed at the adoption date.

3.
Business Segments

We have two operating segments: franchised hotels and company operated hotels. The "other" segment consists of miscellaneous revenues and expenses, cash and cash equivalents, certain receivables, certain property and equipment and general and administrative expenses, which are not specifically associated with an operating segment. Management reviews and evaluates the operating segments exclusive of interest expense, income taxes and certain corporate expenses; therefore, they have not been allocated to the operating segments. We allocate direct selling, general, administrative and other expenses to our operating segments. All balances have been presented after the elimination of inter-segment and intra-segment revenues and expenses.

Selected financial information is provided below (in thousands):
Three Months Ended March 31, 2019
 
Franchised Hotels
 
Company Operated Hotels
 
Other
 
Total
Revenue
 
$
13,011

 
$
12,970

 
$
3

 
$
25,984

Operating expenses:
 
 
 
 
 
 
 
 
Segment and other operating expenses
 
9,459

 
12,461

 
4,014

 
25,934

Depreciation and amortization
 
914

 
1,956

 
577

 
3,447

Gain on asset dispositions, net
 

 
6

 

 
6

Acquisition and integration costs
 
62

 

 

 
62

Operating income (loss)
 
$
2,576

 
$
(1,453
)
 
$
(4,588
)
 
$
(3,465
)



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Table of Contents

Three Months Ended March 31, 2018
 
Franchised Hotels
 
Company Operated Hotels
 
Other
 
Total
Revenue
 
$
10,123

 
$
22,896

 
$
20

 
$
33,039

Operating expenses:
 
 
 
 
 
 
 
 
Segment and other operating expenses
 
7,901

 
21,644

 
3,479

 
33,024

Depreciation and amortization
 
834

 
3,123

 
435

 
4,392

Gain on asset dispositions, net
 

 
(14,044
)
 
1

 
(14,043
)
Acquisition and integration costs
 
104

 

 

 
104

Operating income (loss)
 
$
1,284

 
$
12,173

 
$
(3,895
)
 
$
9,562



4.
Variable Interest Entities

Our joint venture entities have been determined to be variable interest entities (VIEs) because our voting rights are not proportional to our financial interest and substantially all of each joint venture's activities involve and are conducted on our behalf. We have determined that we are the primary beneficiary as (a) we exert power over two of the entity's key activities (hotel operations and property renovations) and share power over the remaining key activities with our joint venture partners, which do not have the unilateral ability to exercise kick-out rights, and (b) we have the obligation to absorb losses and right to receive benefits that could be significant to the entity through our equity interest and management fees. As a result, we consolidate the assets, liabilities, and results of operations of (1) RL Venture LLC (RL Venture), (2) RLS Atla Venture LLC (RLS Atla Venture) and (3) RLS DC Venture LLC (RLS DC Venture). The equity interests owned by our joint venture partners are reflected as a noncontrolling interest in the condensed consolidated financial statements.

In October 2018, we purchased the remaining 27% ownership interest in RLS Balt Venture LLC (RLS Balt Venture) from our joint venture partner, which dissolved the joint venture relationship, thus making the entity a wholly owned subsidiary and no longer a variable interest entity.

The following table includes the ownership percentages for each of our joint ventures as of March 31, 2019 and December 31, 2018:
 
RLH Corporation
 
Joint Venture Partner
RL Venture
55
%
 
45
%
RLS Atla Venture
55
%
 
45
%
RLS DC Venture
55
%
 
45
%

There were no cash contributions or distributions by partners to any of the joint venture entities during the three months ended March 31, 2019 or 2018 unless otherwise described below.

RL Venture

In February 2018, five of the RL Venture properties were sold for an aggregate sale price of $47.2 million. As of March 31, 2019, RL Venture has two remaining properties.

In March 2019, secured loans totaling principal of $16.6 million were executed for the two remaining properties. Shortly thereafter the net loan proceeds were distributed to us and our joint venture partner in accordance with our respective ownership percentages. Accordingly, during the three months ended March 31, 2019, RL Venture made cash distributions totaling $16.5 million, of which RLH Corporation received $9.1 million.

RLS Atla Venture

In March 2019, $2.8 million of previously made cash contributions payable to RLH Corporation from RLS Alta Venture, were classified as preferred capital and will be repaid only when the Atlanta hotel property is sold or when RLS Alta is liquidated. Upon such event, RLH Corporation will receive the $2.8 million plus a preferred return of 9%, compounded annually, prior to any liquidation proceeds being returned to members.


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Table of Contents

5.
Property and Equipment

Property and equipment is summarized as follows (in thousands):
 
 
March 31,
2019
 
December 31,
2018
Buildings and equipment
 
$
150,072

 
$
150,072

Furniture and fixtures
 
19,785

 
19,746

Landscaping and land improvements
 
2,713

 
2,713

 
 
172,570

 
172,531

Less accumulated depreciation
 
(84,793
)
 
(82,240
)
 
 
87,777

 
90,291

Land
 
19,372

 
19,372

Construction in progress
 
7,121

 
5,859

Property and equipment, net
 
$
114,270

 
$
115,522



During the three months ended March 31, 2018, we sold five hotel properties for a total gain of $13.9 million. There were no hotel properties sold during the three months ended March 31, 2019.

6.
Goodwill and Intangible Assets

The following table summarizes the balances of goodwill and other intangible assets (in thousands):
 
March 31,
2019
 
December 31,
2018
Goodwill
$
18,595

 
$
18,595

 
 
 
 
Intangible assets
 
 
 
Brand name - indefinite lived
$
41,278

 
$
41,278

Trademarks - indefinite lived
128

 
128

Brand name - finite lived, net
4,129

 
4,326

Customer contracts - finite lived, net
14,481

 
15,178

Total intangible assets, net
$
60,016

 
$
60,910



The following table summarizes the balances of amortized customer contracts and finite-lived brand names (in thousands):
 
March 31,
2019
 
December 31,
2018
Customer contracts
$
20,773

 
$
20,773

Brand name - finite lived
5,395

 
5,395

Accumulated amortization
(7,558
)
 
(6,664
)
Net carrying amount
$
18,610

 
$
19,504




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Table of Contents

7.
Revenue from Contracts with Customers

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers (in thousands):
 
 
Financial Statement Line Item(s)
 
March 31, 2019
 
December 31, 2018
Accounts receivable
 
Accounts receivable, net
 
$
19,339

 
$
18,575

Key money disbursed
 
Other current assets and Other assets, net
 
6,510

 
6,409

Capitalized contract costs
 
Other current assets and Other assets, net
 
1,318

 
1,172

Contract liabilities
 
Other accrued liabilities and Deferred income and other long-term liabilities
 
1,877

 
1,981


Significant changes in the key money disbursements, capitalized contract costs, and contract liabilities balances during the period are as follows (in thousands):
 
 
Key Money Disbursed
 
Capitalized Contract Costs
 
Contract Liabilities
Balance as of January 1, 2019
 
$
6,409

 
$
1,172

 
$
1,981

Key money disbursed
 
236

 

 

Costs incurred to acquire contracts
 

 
217

 

Cash received in advance
 

 

 
93

Revenue or expense recognized that was included in the January 1, 2019 balance
 
(135
)
 
(68
)
 
(188
)
Revenue or expense recognized in the period for the period
 

 
(3
)
 
(9
)
Balance as of March 31, 2019
 
$
6,510

 
$
1,318

 
$
1,877



Estimated revenues and expenses expected to be recognized related to performance obligations that were unsatisfied as of March 31, 2019, including revenues related to application, initiation and other fees were as follows (in thousands):
Years Ending December 31,
 
 Revenue
 
Contra Revenue
 
 Expense
2019 (remainder)
 
$
392

 
$
247

 
$
527

2020
 
515

 
277

 
500

2021
 
472

 
202

 
329

2022
 
453

 
170

 
248

2023
 
431

 
120

 
143

Thereafter
 
4,247

 
302

 
130

Total
 
$
6,510

 
$
1,318

 
$
1,877


We did not estimate revenues expected to be recognized related to our unsatisfied performance obligations for our: (i) royalty fees, as they are considered sales-based royalty fees recognized as hotel room sales occur in exchange for licenses of our brand names over the terms of the franchise contracts; and (ii) hotel management fees since they are allocated entirely to the wholly unsatisfied promise to transfer management services, which form part of a single performance obligation in a series, over the term of the management contract. Therefore, there are no amounts included in the table above related to these revenues.


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Table of Contents

8.
Debt and Line of Credit

The current and noncurrent portions of our debt as of March 31, 2019 and December 31, 2018 are as follows (in thousands):
 
 
March 31, 2019
 
December 31, 2018
 
 
Current
 
Noncurrent
 
Current
 
Noncurrent
Line of Credit
 
$

 
$
10,000

 
$

 
$
10,000

Senior Secured Term Loan
 
4,166

 
5,189

 

 
9,355

RL Venture - Salt Lake City
 

 
11,000

 

 

RL Venture - Olympia
 

 
5,600

 

 

RLH Atlanta
 
9,180

 

 
9,225

 

RLH DC
 
15,893

 

 
15,943

 

Total debt
 
29,239

 
31,789

 
25,168

 
19,355

Unamortized debt issuance costs
 
(79
)
 
(315
)
 
(112
)
 
(241
)
Debt net of debt issuance costs
 
$
29,160

 
$
31,474

 
$
25,056

 
$
19,114



Each of our debt agreements contain customary reporting, financial and operating covenants. We were in compliance with all of the financial covenants of our debt agreements at March 31, 2019.

RL Venture - Salt Lake City

In March 2019, RL Salt Lake, LLC, a subsidiary of RL Venture, executed a secured debt agreement with Umpqua Bank for a term loan with a principal balance of $11.0 million. The loan is fully secured by the Hotel RL Salt Lake City property. The loan has a maturity date of March 18, 2021 and a variable interest rate of LIBOR plus 2.25%, payable monthly. The borrower has the option to exercise two six-month extensions upon maturity of the loan. There are no principal repayment requirements prior to the maturity date and the loan includes a financial covenant to be calculated semi-annually in which the property must maintain a minimum debt service coverage ratio of not less than 1.6 to 1.0. We incurred approximately $54,000 of debt discounts and debt issuance costs in connection with the issuance of the loan.

RL Venture - Olympia

In March 2019, RL Olympia, LLC, a subsidiary of RL Venture, executed a secured debt agreement with Umpqua Bank for a term loan with a principal balance of $5.6 million. The loan is fully secured by the Hotel RL Olympia property. The loan has a maturity date of March 18, 2021 and a variable interest rate of LIBOR plus 2.25%, payable monthly. The borrower has the option to exercise two six-month extensions upon maturity of the loan. There are no principal repayment requirements prior to the maturity date and the loan includes a financial covenant to be calculated semi-annually in which the property must maintain a minimum debt service coverage ratio of not less than 1.6 to 1.0. We incurred approximately $33,000 of debt discounts and debt issuance costs in connection with the issuance of the loan.

Senior Secured Term Loan

In March 2019, we transferred approximately $4.2 million, which comprises a portion of the net proceeds received from the RL Venture loans as calculated and required by the provisions of the Senior Secured Term Loan, into a cash collateral account. The account is controlled by the lender as the balance is required by the debt agreement to be applied against the outstanding principal balance of the Senior Secured Term Loan at the lender's discretion. This balance is included within Restricted cash on the Condensed Consolidated Balance Sheet as of March 31, 2019.

In April 2019, the $4.2 million in the cash collateral account was applied against the outstanding principal balance of the Senior Secured Term Loan.


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Table of Contents

9.
Derivative Financial Instruments

We enter into derivative transactions to hedge our exposure to interest rate fluctuations, and not for trading purposes. We manage our floating rate debt using interest rate caps in order to reduce our exposure to the impact of changing interest rates and future cash outflows for interest. We estimate the fair value of our interest rate caps via calculations that use as their basis readily available observable market parameters. This option-pricing technique utilizes a one-month LIBOR forward yield curve, obtained from an independent external service, which is a Level 2 input. Changes in fair value of these instruments are recognized in interest expense on the Condensed Consolidated Statements of Comprehensive Income (Loss). At March 31, 2019 and December 31, 2018, the valuation of the interest rate caps resulted in the recognition of assets with minimal values both individually and in the aggregate, which are included within Other assets, net on the Condensed Consolidated Balance Sheets. We entered into cap rate transactions as described in the table below as of March 31, 2019.
Subsidiary
 
Institution
 
Original Notional Amount
 
LIBOR Reference Rate Cap
 
Expiration
 
 
 
 
(In millions)
 
 
 
 
RLH Atlanta
 
SMBC Capital Markets, Inc.
 
$
9.3

 
3
%
 
September 2019
RLH DC
 
Commonwealth Bank of Australia
 
$
16.0

 
3
%
 
October 2019


10.
Leases

We lease equipment and land and/or property at certain company operated hotel properties as well as office space for our headquarters through operating leases. We have elected the practical expedient so that leases with an initial term of 12 months or less are not recorded on the balance sheet.

We are obligated under finance leases for certain hotel equipment at our company operated hotel locations. The finance leases typically have a five-year term.

Balance sheet information related to our leases is included in the following table (in thousands):
Operating Leases
 
March 31, 2019
Operating lease right-of-use assets
 
$
50,860

 
 
 
Operating lease liabilities, due within one year
 
$
4,694

Operating lease liabilities, due after one year
 
47,294

Total operating lease liabilities
 
$
51,988

Finance Leases
 
March 31, 2019
Property and equipment
 
$
660

Less accumulated depreciation
 
(333
)
Property and equipment, net
 
$
327

 
 
 
Other accrued liabilities
 
$
127

Deferred income and other long-term liabilities
 
220

Total finance lease liabilities
 
$
347



13

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The components of lease expense during the three months ended March 31, 2019 are included in the following table (in thousands):
 
 
Financial Statement Line Item(s)
 
Three Months Ended March 31, 2019
Operating lease expense
 
Selling, general, administrative and other, and Company operated hotels
 
$
1,133

Short-term lease expense
 
Selling, general, administrative and other, and Company operated hotels
 
247

Finance lease expense:
 
 
 
 
Amortization of finance right-of-use assets
 
Depreciation and amortization
 
35

Interest on lease liabilities
 
Interest expense
 
8

Total finance lease expense
 
 
 
43

 
 
 
 
 
Total lease expense
 
 
 
$
1,423


Supplemental cash flow information for our leases is included in the following table (in thousands):
Cash paid for amounts included in the measurement of lease liabilities:
 
Three Months Ended March 31, 2019
Cash used in operating activities for operating leases
 
$
1,169

Cash used in operating activities for finance leases
 
8

Cash used in financing activities for finance leases
 
34



There were no leased assets obtained in exchange for new operating or finance lease liabilities during the three months ended March 31, 2019.

Information related to the weighted average remaining lease terms and discount rates for our leases as of March 31, 2019 is included in the following table:
 
 
March 31, 2019
Weighted average remaining lease term (in years)
 
 
Operating leases
 
69

Finance leases
 
3

Weighted average discount rate
 
 
Operating leases
 
7.2
%
Finance leases
 
9.1
%


The future maturities of lease liabilities at March 31, 2019, are as indicated below (in thousands):
Years Ending December 31,
 
Operating Leases
 
Finance Leases
2019 (remainder)
 
$
3,517

 
$
127

2020
 
4,716

 
149

2021
 
4,746

 
75

2022
 
4,776

 
38

2023
 
4,739

 
11

Thereafter
 
248,844

 

Total lease payments
 
271,338

 
400

Less: imputed interest
 
219,350

 
53

Total liability
 
$
51,988

 
$
347



The future maturities of lease liabilities in the table above do not differ materially from future minimum rental payments under the previous leasing standard.

14

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Two leases comprise $246.3 million of future operating lease maturities beyond 2023. One is a ground lease for our Hotel RL Washington DC property with a term through 2080 and the other is a ground lease for our Red Lion Anaheim property with a lease term through 2021, but includes renewal options through 2106 that are reasonably assured to be exercised.

11.
Commitments and Contingencies

At any given time we are subject to claims and actions incidental to the operations of our business. Based on information currently available, we do not expect that any sums we may receive or have to pay in connection with any legal proceeding would have a material effect on our consolidated financial position or net cash flow.

12.
Stock-Based Compensation

Stock Incentive Plans

The 2015 Stock Incentive Plan (2015 Plan) authorizes the grant or issuance of various option and other awards including restricted stock units and other stock-based compensation. The 2015 Plan was approved by our shareholders in 2015 and provided for awards of 1.4 million shares, subject to adjustments for stock splits, stock dividends and similar events. In May 2017, our shareholders approved an amendment to the 2015 Plan to authorize an additional 1.5 million shares, for a total authorized of 2.9 million shares. As of March 31, 2019, there were 369,232 shares of common stock available for issuance pursuant to future stock option grants or other awards under the 2015 Plan.

Stock-based compensation expense reflects the fair value of stock-based awards measured at grant date, including an estimated forfeiture rate, and is recognized over the relevant service period. For the three months ended March 31, 2019 and 2018 stock-based compensation expense is as follows (in thousands):
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Restricted stock units
 
$
612

 
$
417

Unrestricted stock awards
 
129

 
115

Performance stock units
 
147

 
77

Stock options
 
22

 
17

Employee stock purchase plan
 
6

 
14

Total stock-based compensation
 
$
916

 
$
640



Restricted Stock Units

Restricted stock units granted to executive officers and other key employees typically vest 25% each year for four years on each anniversary of the grant date. Under the terms of the plans upon issuance, we deliver a net settlement of distributable shares to employees after consideration of individual employees' tax withholding obligations, at the election of each employee. The fair value of restricted stock that vested during the three months ended March 31, 2019 and 2018 was approximately $1.2 million and $1.4 million, respectively. We expect to recognize an additional $6.5 million in compensation expense over the remaining weighted average vesting periods of 28 months.

A summary of restricted stock unit activity for the three months ended March 31, 2019, is as follows:
 
 
Number
of Shares
 
Weighted
Average
Grant Date
Fair Value
Balance, January 1, 2019
 
1,288,714

 
$
8.47

Granted
 
343,549

 
$
8.29

Vested
 
(149,602
)
 
$
7.98

Forfeited
 
(86,780
)
 
$
9.57

Balance, March 31, 2019
 
1,395,881

 
$
8.41



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Table of Contents


Performance Stock Units, Shares Issued as Compensation

We grant performance stock units (PSUs) to certain of our executives under the 2015 Plan. These PSUs include both performance and service vesting conditions. Each performance condition has a minimum, a target and a maximum share amount based on the level of attainment of the performance condition. Compensation expense, net of estimated forfeitures, is calculated based on the estimated attainment of the performance conditions during the performance period and recognized on a straight-line basis over the performance and service periods. The remaining compensation expense related to PSUs of approximately $2.8 million will be recognized over the next 31 months.

A summary of performance stock unit activity for the three months ended March 31, 2019, is as follows:
 
 
Number
of Shares
 
Weighted
Average
Grant Date
Fair Value
Balance, January 1, 2019
 
209,201

 
$
8.23

Granted
 
218,437

 
$
8.08

Balance, March 31, 2019
 
427,638

 
$
8.15



Unrestricted Stock Awards

Unrestricted stock awards are granted to members of our Board of Directors as part of their compensation. Awards are fully vested and expense is recognized when granted. The fair value of unrestricted stock awards is the market close price of our common stock on the date of the grant.

The following table summarizes unrestricted stock award activity for the three months ended March 31, 2019 and 2018:
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Shares of unrestricted stock granted
 
15,355

 
11,689

Weighted average grant date fair value per share
 
$
8.44

 
$
9.80



13.
Earnings (Loss) Per Share

The following table presents a reconciliation of the numerators and denominators used in the basic and diluted net income (loss) per share computations for the three months ended March 31, 2019 and 2018 (in thousands, except per share data):
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Numerator - basic and diluted:
 
 
 
 
Net income (loss)
 
$
(4,396
)
 
$
7,338

Net (income) loss attributable to noncontrolling interest
 
286

 
(4,750
)
Net income (loss) attributable to RLH Corporation
 
$
(4,110
)
 
$
2,588

 
 
 
 
 
Denominator:
 
 
 
 
Weighted average shares - basic