Red Lion Hotels Corporation
) has recently struck a deal to sell its 478-room hotel in
Southeast Denver, Colorado for $13.0 million. The deal is expected
to be sealed on or before October 31.
Last month, the hotelier sold another property, a 149-room Red Lion
Colonial Hotel in Helena, for $5.6 million. In this deal, the
hived-off property will continue to operate under the Red Lion name
and the company will likely enjoy a franchisee fee, unlike the
Washington-based Red Lion, which owns, operates and franchises
mid-scale full, select and limited service hotels, has been
considering the divesture option for quite sometime. In June 2011,
Red Lion also closed the sale of its hotel in Seattle for $71.0
million. During the fourth quarter of 2011, the hotelier also
listed its Medford and Missoula properties for sale.
The basic idea of asset disposition was to unlock real estate value
by giving away ownership of selective assets. Management intends to
use the sale proceeds to invest in brand positioning as well as
restructure the company's balance sheet that includes paying down
The asset sale is part of Red Lion's long-term strategy to
strengthen financial flexibility, which in turn will maximize
shareholder value. A higher concentration of franchise fees reduces
earnings volatility and provides a more stable growth profile.
Since late 2010, transition to an "asset light" business model has
gained momentum in the hotels and the REIT industry. Many of Red
Lion's close competitors including
Starwood Hotels & Resorts Worldwide Inc.
Morgans Hotel Group Co.
) have embarked on this strategy.
Another long-term initiative of Red Lion is to increase its
franchise activities. The company believes that refinancing in its
namesake brand will position it well for expansion through
franchising, once the market fully recovers. The company expects to
add at least 30 to 40 franchised hotels within 2014. Red Lion
currently carries a Zacks #3 Rank, which translates into a
short-term Hold rating.
STARWOOD HOTELS (HOT): Free Stock Analysis
MORGANS HOTEL (MHGC): Free Stock Analysis
RED LION HOTELS (RLH): Free Stock Analysis
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