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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR 
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)
 

(509) 459-6100
Registrant's telephone number, including area code
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
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      No  
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer," "accelerated filer,” and "smaller reporting company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
 
  
Accelerated filer
 
Non-accelerated filer
 
  
Smaller reporting company
 
 
 
 
 
Emerging growth company
 
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. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes      No  
As of July 31, 2019, there were 25,117,263 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
 
Condensed Consolidated Statements of Comprehensive Income (Loss)
 
Condensed Consolidated Statements of Stockholders' Equity
 
Condensed Consolidated Statements of Cash Flows
 
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)

 
 
June 30,
2019
 
December 31,
2018
 
 
(In thousands, except share data)
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents ($6,074 and $4,564 attributable to VIEs)
 
$
19,916

 
$
17,034

Restricted cash ($2,888 and $2,652 attributable to VIEs)
 
2,890

 
2,755

Accounts receivable ($1,362 and $1,064 attributable to VIEs), net of an allowance for doubtful accounts of $2,638 and $2,345, respectively)
 
18,923

 
18,575

Notes receivable, net
 
1,967

 
2,103

Other current assets ($490 and $680 attributable to VIEs)
 
4,738

 
6,218

Total current assets
 
48,434

 
46,685

Property and equipment, net ($71,902 and $74,250 attributable to VIEs)
 
112,481

 
115,522

Operating lease right-of-use assets ($12,909 and $0 attributable to VIEs)
 
50,830

 

Goodwill
 
18,595

 
18,595

Intangible assets, net
 
59,124

 
60,910

Other assets, net ($703 and $705 attributable to VIEs)
 
8,696

 
8,075

Total assets
 
$
298,160

 
$
249,787

 
 
 
 
 
LIABILITIES
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable ($1,248 and $650 attributable to VIEs)
 
$
8,056

 
$
5,322

Accrued payroll and related benefits ($474 and $369 attributable to VIEs)
 
2,538

 
5,402

Other accrued liabilities ($1,437 and $1,092 attributable to VIEs)
 
5,255

 
4,960

Long-term debt, due within one year ($24,101 and $25,056 attributable to VIEs)
 
25,066

 
25,056

Operating lease liabilities, due within one year ($966 and $0 attributable to VIEs)
 
4,787

 

Total current liabilities
 
45,702

 
40,740

Long-term debt, due after one year, net of debt issuance costs ($16,487 and $0 attributable to VIEs)
 
21,462

 
9,114

Line of credit, due after one year
 
10,000

 
10,000

Operating lease liabilities, due after one year ($11,943 and $0 attributable to VIEs)
 
47,152

 

Deferred income and other long-term liabilities ($387 and $480 attributable to VIEs)
 
1,837

 
2,245

Deferred income taxes
 
870

 
772

Total liabilities
 
127,023

 
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; 25,075,912 and 24,570,158 shares issued and outstanding
 
251

 
246

Additional paid-in capital, common stock
 
181,669

 
182,018

Accumulated deficit
 
(23,456
)
 
(16,512
)
Total RLH Corporation stockholders' equity
 
158,464

 
165,752

Noncontrolling interest
 
12,673

 
21,164

Total stockholders' equity
 
171,137

 
186,916

Total liabilities and stockholders’ equity
 
$
298,160

 
$
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)
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(In thousands, except per share data)
Revenue:
 
 
 
 
 
 
 
 
Royalty
 
$
5,867

 
$
5,770

 
$
11,607

 
$
10,045

Other franchise
 
1,214

 
804

 
1,756

 
1,396

Company operated hotels
 
14,236

 
25,005

 
27,206

 
47,901

Marketing, reservations and reimbursables
 
7,603

 
7,027

 
14,332

 
12,283

Other
 
5

 
6

 
8

 
26

Total revenues
 
28,925

 
38,612

 
54,909

 
71,651

Operating expenses:
 
 
 
 
 
 
 
 
Selling, general, administrative and other expenses
 
6,497

 
8,268

 
13,725

 
15,478

Company operated hotels
 
12,532

 
18,618

 
24,077

 
38,873

Marketing, reservations and reimbursables
 
7,847

 
7,214

 
15,008

 
12,773

Depreciation and amortization
 
4,109

 
4,701

 
7,556

 
9,093

Loss (gain) on asset dispositions, net
 
38

 
(1,855
)
 
44

 
(15,898
)
Acquisition and integration costs
 
173

 
1,997

 
235

 
2,101

Total operating expenses
 
31,196

 
38,943

 
60,645

 
62,420

Operating income (loss)
 
(2,271
)
 
(331
)
 
(5,736
)
 
9,231

Other income (expense):
 
 
 
 
 
 
 
 
Interest expense
 
(1,109
)
 
(1,702
)
 
(1,991
)
 
(3,949
)
Loss on early retirement of debt
 
(164
)
 

 
(164
)
 

Other income (loss), net
 
44

 
22

 
77

 
180

Total other income (expense)
 
(1,229
)
 
(1,680
)
 
(2,078
)
 
(3,769
)
Income (loss) before taxes
 
(3,500
)
 
(2,011
)
 
(7,814
)
 
5,462

Income tax expense (benefit)
 
108

 
(348
)
 
190

 
(213
)
Net income (loss)
 
(3,608
)
 
(1,663
)
 
(8,004
)
 
5,675

Net (income) loss attributable to noncontrolling interest
 
774

 
(659
)
 
1,060

 
(5,409
)
Net income (loss) and comprehensive income (loss) attributable to RLH Corporation
 
$
(2,834
)
 
$
(2,322
)
 
$
(6,944
)
 
$
266

 
 
 
 
 
 
 
 
 
Earnings (loss) per share - basic
 
$
(0.11
)
 
$
(0.10
)
 
$
(0.28
)
 
$
0.01

Earnings (loss) per share - diluted
 
$
(0.11
)
 
$
(0.10
)
 
$
(0.28
)
 
$
0.01

 
 
 
 
 
 
 
 
 
Weighted average shares - basic
 
24,856

 
24,352

 
24,730

 
24,227

Weighted average shares - diluted
 
24,856

 
24,352

 
24,730

 
25,239


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

4

Table of Contents

RED LION HOTELS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)

 
 
Red Lion Hotels Corporation Stockholders' Equity
 
 
 
 
 
 
Common Stock
 
Retained
Earnings (Accumulated Deficit)
 
RLH Corporation Total Equity
 
Equity Attributable to Noncontrolling 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 (loss)

 

 

 
2,588

 
2,588

 
4,750

 
7,338

 
Cumulative effect of adopting ASC 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

 
Net income (loss)

 

 

 
(2,322
)
 
(2,322
)
 
659

 
(1,663
)
 
Shared based payment activity
120,918

 
1

 
1,004

 

 
1,005

 

 
1,005

 
Vantage contingent consideration settled

 

 
2,870

 

 
2,870

 

 
2,870

 
Distributions to noncontrolling interests

 

 

 

 

 
(4,081
)
 
(4,081
)
Balances, June 30, 2018
24,246,518

 
242

 
182,192

 
(18,203
)
 
164,231

 
28,709

 
192,940

 
Net income (loss)

 

 

 
8,943

 
8,943

 
8,670

 
17,613

 
Shared based payment activity
28,080

 

 
1,219

 

 
1,219

 

 
1,219

 
Distributions to noncontrolling interests

 

 

 

 

 
(16,891
)
 
(16,891
)
Balances, September 30, 2018
24,274,598

 
242

 
183,411


(9,260
)
 
174,393

 
20,488

 
194,881

 
Net income (loss)

 

 

 
(7,252
)
 
(7,252
)
 
(950
)
 
(8,202
)
 
Shared based payment activity
19,560

 

 
1,018

 

 
1,018

 

 
1,018

 
Vantage contingent consideration settled
276,000

 
4

 
4

 

 
8

 

 
8

 
Buyout of noncontrolling interest

 

 
(2,415
)
 

 
(2,415
)
 
2,111

 
(304
)
 
Distributions to noncontrolling interests

 

 

 

 

 
(485
)
 
(485
)
Balances, December 31, 2018
24,570,158

 
246

 
182,018

 
(16,512
)
 
165,752

 
21,164

 
186,916

 
Net income (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

 
Net income (loss)

 

 

 
(2,834
)
 
(2,834
)
 
(774
)
 
(3,608
)
 
Shared based payment activity
449,453

 
4

 
(1,034
)
 

 
(1,030
)
 

 
(1,030
)
Balances, June 30, 2019
25,075,912

 
$
251

 
$
181,669

 
$
(23,456
)
 
$
158,464

 
$
12,673

 
$
171,137


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


5

Table of Contents

RED LION HOTELS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Six Months Ended
 
 
June 30,
 
 
2019
 
2018
 
 
(In thousands)
Operating activities:
 
 
 
 
Net income (loss)
 
$
(8,004
)
 
$
5,675

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
 
Depreciation and amortization
 
7,556

 
9,093

Noncash PIK interest and amortization of debt issuance costs
 
249

 
781

Amortization of key money and contract costs
 
459

 
353

Amortization of contract liabilities
 
(534
)
 
(337
)
Loss (gain) on asset dispositions, net
 
44

 
(15,850
)
Noncash loss on early retirement of debt
 
67

 

Deferred income taxes
 
98

 
(560
)
Stock-based compensation expense
 
1,562

 
1,736

Provision for doubtful accounts
 
472

 
479

Fair value adjustments to contingent consideration
 

 
581

Change in operating assets and liabilities, net of business acquired:
 
 
 
 
Accounts receivable
 
(820
)
 
(2,308
)
Notes receivable
 
(16
)
 
(7
)
Key money disbursements
 
(535
)
 
(5,163
)
Other current assets
 
855

 
(1,374
)
Accounts payable
 
2,827

 
1,788

Other accrued liabilities
 
(1,225
)
 
367

Net cash provided by (used in) operating activities
 
3,055

 
(4,746
)
Investing activities:
 
 
 
 
Capital expenditures
 
(2,843
)
 
(3,684
)
Acquisition of Knights Inn
 

 
(27,000
)
Net proceeds from disposition of property and equipment
 

 
59,781

Collection of notes receivable
 
242

 

Advances on notes receivable
 
(90
)
 
(537
)
Net cash provided by (used in) investing activities
 
(2,691
)
 
28,560

Financing activities:
 
 
 
 
Borrowings on long-term debt, net of discounts
 
32,935

 
30,000

Repayment of long-term debt and finance leases
 
(20,283
)
 
(49,725
)
Debt issuance costs
 
(542
)
 
(1,193
)
Distributions to noncontrolling interest
 
(7,431
)
 
(4,081
)
Contingent consideration paid for Vantage Hospitality acquisition
 

 
(4,000
)
Stock-based compensation awards canceled to settle employee tax withholding
 
(2,131
)
 
(576
)
Stock option and stock purchase plan issuances, net and other
 
105

 
139

Net cash provided by (used in) financing activities
 
2,653

 
(29,436
)
 
 
 
 
 
Change in cash, cash equivalents and restricted cash:
 
 
 
 
Net increase (decrease) in cash, cash equivalents and restricted cash
 
3,017

 
(5,622
)
Cash, cash equivalents and restricted cash at beginning of period
 
19,789

 
44,858

Cash, cash equivalents and restricted cash at end of period
 
$
22,806

 
$
39,236


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



6

Table of Contents

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 June 30, 2019, including the approximate number of available rooms, is provided below:
 
 
Upscale Service Brand ("USB")
 
Select Service Brand ("SSB")
 
Total
 
 
Hotels
 
Total Available Rooms
 
Hotels
 
Total Available Rooms
 
Hotels
 
Total Available Rooms
Ending quantity, June 30, 2019
 
107

 
15,400

 
1,130

 
64,500

 
1,237

 
79,900



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 Sheets, the Condensed Consolidated Statements of Comprehensive Income (Loss), the Condensed Consolidated Statements of Stockholders' Equity, and the Condensed Consolidated Statements of Cash Flows. 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, as amended by multiple subsequent ASUs, 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), which we adopted on January 1, 2019. 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 are classified as either finance or operating, with classification effecting the pattern of expense recognition in the income statement. Upon adoption, we 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 Condensed Consolidated Statements 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 June 30, 2019
 
Franchised Hotels
 
Company Operated Hotels
 
Other
 
Total
Revenue
 
$
14,684

 
$
14,236

 
$
5

 
$
28,925

Operating expenses:
 
 
 
 
 
 
 
 
Segment and other operating expenses
 
9,921

 
12,863

 
4,092

 
26,876

Depreciation and amortization
 
1,110

 
1,917

 
1,082

 
4,109

Loss (gain) on asset dispositions, net
 
(1
)
 
37

 
2

 
38

Acquisition and integration costs
 
34

 

 
139

 
173

Operating income (loss)
 
$
3,620

 
$
(581
)
 
$
(5,310
)

$
(2,271
)


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Three Months Ended June 30, 2018
 
Franchised Hotels
 
Company Operated Hotels
 
Other
 
Total
Revenue
 
$
13,601

 
$
25,005

 
$
6

 
$
38,612

Operating expenses:
 
 
 
 
 
 
 
 
Segment and other operating expenses
 
9,365

 
19,024

 
5,711

 
34,100

Depreciation and amortization
 
1,224

 
3,035

 
442

 
4,701

Loss (gain) on asset dispositions, net
 

 
(1,807
)
 
(48
)
 
(1,855
)
Acquisition and integration costs
 
1,997

 

 

 
1,997

Operating income (loss)
 
$
1,015

 
$
4,753

 
$
(6,099
)

$
(331
)


Six Months Ended June 30, 2019
 
Franchised Hotels
 
Company Operated Hotels
 
Other
 
Total
Revenue
 
$
27,695

 
$
27,206

 
$
8

 
$
54,909

Operating expenses:
 
 
 
 
 
 
 
 
Segment and other operating expenses
 
19,380

 
25,324

 
8,106

 
52,810

Depreciation and amortization
 
2,024

 
3,873

 
1,659

 
7,556

Loss (gain) on asset dispositions, net
 
(1
)
 
43

 
2

 
44

Acquisition and integration costs
 
96

 

 
139

 
235

Operating income (loss)
 
$
6,196

 
$
(2,034
)
 
$
(9,898
)
 
$
(5,736
)

Six Months Ended June 30, 2018
 
Franchised Hotels
 
Company Operated Hotels
 
Other
 
Total
Revenue
 
$
23,724

 
$
47,901

 
$
26

 
$
71,651

Operating expenses:
 
 
 
 
 
 
 
 
Segment and other operating expenses
 
17,266

 
40,668

 
9,190

 
67,124

Depreciation and amortization
 
2,058

 
6,158

 
877

 
9,093

Loss (gain) on asset dispositions, net
 

 
(15,851
)
 
(47
)
 
(15,898
)
Acquisition and integration costs
 
2,101

 

 

 
2,101

Operating income (loss)
 
$
2,299

 
$
16,926

 
$
(9,994
)
 
$
9,231




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Table of Contents

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 June 30, 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 and six months ended June 30, 2019 or 2018 except as 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. In April 2018, one RL Venture property sold for $5.5 million, in May 2018, one RL Venture property sold for $9.3 million, and in July 2018 two additional RL Venture properties sold for $54.5 million. As of June 30, 2019, RL Venture has two remaining properties.

In March 2019, secured loans with an aggregate principal of $16.6 million were entered into 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 six months ended June 30, 2019, RL Venture made cash distributions totaling $16.5 million, of which RLH Corporation received $9.1 million.

Cash distributions also may be made periodically based on calculated distributable income. During the second quarter of 2018, RL Venture made a cash distribution totaling $9.0 million, of which RLH Corporation received $5.0 million.

RLS Atla Venture

In March 2019, $2.8 million of cash previously contributed to RLS Atla Venture by RLH Corporation, was classified as preferred capital and will be repaid only when the Atlanta hotel property is sold or when RLS Atla Venture 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.

RLS DC Venture

In May 2019, a secured loan with principal and accrued exit fee of $17.4 million was executed by RLS DC Venture. The net loan proceeds were used to pay off the previous debt with a principal balance of approximately $15.9 million. There were no cash distributions resulting from the refinancing.


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Table of Contents

5.
Property and Equipment

Property and equipment is summarized as follows (in thousands):
 
 
June 30,
2019
 
December 31,
2018
Buildings and equipment
 
$
154,301

 
$
150,072

Furniture and fixtures
 
20,055

 
19,746

Landscaping and land improvements
 
2,716

 
2,713

 
 
177,072

 
172,531

Less accumulated depreciation
 
(86,476
)
 
(82,240
)
 
 
90,596

 
90,291

Land
 
19,372

 
19,372

Construction in progress
 
2,513

 
5,859

Property and equipment, net
 
$
112,481

 
$
115,522



During the three months ended June 30, 2018, we sold two hotel properties and during the six months ended June 30, 2018, we sold seven hotel properties, for a total gain of $1.7 million and $15.6 million, respectively. There were no hotels sold during the three and six months ended June 30, 2019.

6.
Goodwill and Intangible Assets

The following table summarizes the balances of goodwill and other intangible assets (in thousands):
 
June 30,
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
3,932

 
4,326

Customer contracts - finite lived, net
13,786

 
15,178

Total intangible assets, net
$
59,124

 
$
60,910



The following table summarizes the balances of amortized customer contracts and finite-lived brand names (in thousands):
 
June 30,
2019
 
December 31,
2018
Customer contracts
$
20,773

 
$
20,773

Brand name - finite lived
5,395

 
5,395

Accumulated amortization
(8,450
)