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Analyst Blog

Red Lion Hotels Corporation (RLH - Snapshot Report) has sold yet another property – the Red Lion Hotel Pendleton, Oregon -- for $2.25 million. In third-quarter 2012, Red Lion Hotel Pendleton was categorized as an asset held for sale.

Red Lion is continuously adopting a strategy of franchising its hived-off properties to grow in a less capital-intensive way. In Feb 2013, Red Lion offloaded a hotel named Red Lion Inn Missoula, Montana, for $1.95 million. Post sale, the 76-room hotel is now operating under the Red Lion name and the company will likely enjoy a fee from the franchised property. It is likely that the recent asset sale will yield another franchise agreement for Red Lion.

Red Lion has been considering the divestiture option for quite some time to strengthen its financial flexibility, which in turn will maximize shareholder value. Management intends to use the sale proceeds to invest in brand positioning as well as to restructure the company’s balance sheet, including the payment of its debt. Red Lion is planning to dispose of 2 more properties, Red Lion Hotel Medford and the commercial mall in Kalispell, in the coming quarters.

Moreover, Red Lion is also concentrating on increasing its franchise activities. The company expects to add at least 30 to 40 franchised hotels by 2014.

We believe the latest asset sale is expected to serve the company’s dual motive -- offloading non-core assets and increasing exposure through franchising.

Nowadays, transition to an “asset light” business model has gained momentum in the hotels and real estate investment trust (REIT) industry. Many other hoteliers including Starwood Hotels & Resorts Worldwide Inc. (HOT - Analyst Report) as well as Morgans Hotel Group Co. and REIT company, Host Hotels & Resorts Inc. (HST - Analyst Report) have embarked on this strategy.

Washington-based Red Lion, which owns, operates and franchises mid-scale full, select and limited service hotels, currently carries a Zacks Rank #4 (Sell).