Red Lion Hotels Corporation
) sold yet another property -- Hotel Sacramento at Arden Village,
California -- for $9.0 million. In second-quarter 2012, Red
Lion Hotel Sacramento at Arden Village was categorized as an asset
held for sale.
Before the sale, the property was leased to the buyer -- a
company owned by Kumar Sharma. However, following this deal, the
franchisee agreement for the Arden Village asset will come to an
The deal also paved the way for Sharma's subsidiary, Shri Vinayaka
Hotel Inc. to enter into a new franchise license agreement with Red
Lion for its Woodlake Hotel, Sacramento. The 306-room property will
now become the Red Lion Hotel Woodlake Conference Center
Sacramento. Management at Red Lion believes that the location and
services of the Woodlake property complement its brand better.
The new property is strategically located in a dynamic,
high-barrier-to-entry market and in close proximity to the
Sacramento city center. Sacramento is the capital city of the U.S.
state of California. According to California Travel Association,
with thriving international arrivals, the region is arguably one of
the most visited places by overseas visitors.
Further, the front view of a private lake, the lakeside Bar and
Grille facilities and the famous Mediterranean and California Fresh
cuisine make the Woodlake property a renowned wedding and meeting
venue. All these attributes in the Woodlake property compelled Red
Lion to opt for this new franchising deal.
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 some time. In the
last two months, Red Lion offloaded a 478-room hotel in Southeast
Denver, Colorado and a 149-room Red Lion Colonial Hotel in Helena.
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
debt. Many of Red Lion's close competitors, including
Starwood Hotels & Resorts Worldwide Inc.
Morgans Hotel Group Co.
), are following the same 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.
We believe, the latest deal serves the company's dual motive --
offloading non-core assets and increasing exposure through
franchise activities. 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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