Red Lion Hotels 8-K Red Lion Hotels Corporation Reports Strong First Quarter 2007 Results

Red Lion Hotels

corporation

For Immediate Release

Red Lion Hotels Corporation Reports Strong First Quarter 2007 Results

RevPAR from Continuing Hotel Operations Increases 13.9%

SPOKANE, WA, May 3, 2007 – Red Lion Hotels Corporation (NYSE:RLH) today announced results for the first quarter ended March 31, 2007.

Key First Quarter Operating Results

• RevPAR (revenue per available room) from continuing owned and leased hotels increased 13.9%

• ADR (average daily rate) increased 10.3% to $81.45 at continuing owned and leased hotels

• Occupancy increased 1.7 percentage points to 53.0% at continuing owned and leased hotels

• RevPAR increased 8.7% to $44.05 at system-wide hotels

• Total revenues from continuing operations increased 9.9% to $39.3 million

• Hotel segment direct operating margin improved 266 basis points

• EBITDA from continuing operations increased 53.8% to $3.1 million

• Net loss from continuing operations improved to $2.0 million, compared to a loss of $2.7 million in the first quarter of 2006

• EPS from continuing operations was $(0.10) per share, an improvement from $(0.20) per share in the first quarter of 2006

• Net loss was $2.0 million, up from a net loss of $3.0 million in the first quarter of 2006

Arthur M. Coffey, President and CEO of Red Lion Hotels Corporation, said, “We performed very well in what is our seasonally slowest quarter. We had strong growth in EBITDA, which we drove through solid improvements in RevPAR and direct hotel operating margins. Our renovated hotels are attracting more guests at higher rates, and we remain well-positioned for our long-term goal of growth into new markets.”

The company’s total revenues from continuing operations during the quarter were $39.3 million, up 9.9% from the same quarter of 2006. Revenues in the hotel segment were up 10.8% over the prior year period to $34.4 million. Franchise and management revenues increased to $0.8 million. Revenues in the entertainment segment were relatively unchanged at $3.3 million.

EBITDA from continuing operations in the first quarter increased 53.8% to $3.1 million. Net loss from continuing operations improved to $2.0 million, or $0.10 per share, compared to a net loss of

$2.7 million, or $0.20 per share, in the prior year period. Overall reported net loss was $2.0 million or $0.10 per share, compared to a net loss of $3.0 million, or $0.22 per share, in the prior year period.

Hotel Operations

RevPAR from continuing hotel operations at the company’s owned and leased hotels increased 13.9% in the first quarter of 2007, driven by a 10.3% increase in ADR and a 1.7 percentage point increase in occupancy. For comparable system-wide hotels, RevPAR increased 8.7% in the first quarter of 2007, driven by a 6.9% increase in ADR and a 0.9 percentage point increase in occupancy. In comparing 2007 first quarter RevPAR and occupancy to that in the 2006 first quarter, it should be noted that the company did not exclude rooms out of service for renovations at owned, leased or franchised hotels for either of the comparable periods.

Revenues from continuing operations for owned and leased hotels increased 10.8% to $34.4 million during the first quarter of 2007. This increase was primarily driven by a 14.7% increase in hotel room revenues, as well as a 5.6% increase in food and beverage revenues. The hotels segment direct operating profit increased $1.3 million, or 39.8%, to $4.4 million in the first quarter of 2007. Direct operating margin for the hotels segment improved 266 basis points to 12.8% in the first quarter of 2007 from 10.2% in the first quarter of 2006.

“During the quarter we continued to take advantage of our recently completed hotel renovations by targeting higher rate and more profitable business. Our success in gaining occupancy from the higher rate transient and group market segments drove our strong growth in RevPAR and also achieved improved margins,” commented John Taffin, Executive Vice President, Hotel Operations.

First Quarter 2007 Highlights and Key Events

Renovations at Company Owned Hotels

During the quarter, the company substantially completed renovations of public guest contact areas at company owned and leased hotels. Lobbies, restaurants and meeting rooms were remodeled with new finishes and furnishings. This was the final phase of the company’s previously announced reinvestment program to upgrade hotels by renovating guestrooms and public areas to increase customer comfort.

Non-core Real Estate

The company continues to actively pursue the disposition of non-core real estate, which includes one remaining non-core hotel, an office complex and surplus undeveloped land previously identified as assets held for sale.

Outlook for 2007

The company reaffirms its previous guidance for 2007. The company continues to expect 2007 RevPAR growth for company owned and leased hotels in the range of 8% to 10%, driven primarily by anticipated increases in ADR. It also continues to expect direct hotel operating margins in 2007 to improve between 100 and 200 basis points and EBITDA from continuing operations in 2007 to be in the range of $31 to $33 million.

Final Comments

“In the coming months, we expect continued growth and improved margins in our existing operations. Completion by our franchisees of the hotel upgrades we have implemented at our owned and leased hotels will help ensure that Red Lion is perceived as an upscale brand that offers an attractive franchise opportunity and is poised for growth into new markets,” Mr. Coffey concluded.

Conference Call

The company will host a conference call at 11:00 a.m. PT (2:00 p.m. ET) on Thursday, May 3, 2007 to discuss financial results for the first quarter ended March 31, 2007. To participate in the conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: (800) 230-1951. International callers should dial (612) 332-0637. There is no pass code required for this call. This conference call will be broadcast live over the Internet and can be accessed by all interested parties atwww.redlion.com, in the Investor Relations portion of the website. To listen to the live call, please go to the Red Lion website at least fifteen minutes prior to the start of the call to register, download and install any necessary audio software. For those unable to participate during the live broadcast, a replay will be available at 6:00 p.m. PST on May 3, 2007 through June 2, 2007 at (800) 475-6701 or (320) 365-3844 (International) access code – 871882. The replay will also be available shortly after the call on the Red Lion website for 90 days.

About Red Lion Hotels Corporation

Red Lion Hotels Corporation is a hospitality and leisure company primarily engaged in the ownership, operation and franchising of midscale and upscale, full service hotels under its Red Lion® brand. As of March 31, 2007 the Red Lion hotel network was comprised of 57 hotels located in eight states and one Canadian province, with 10,001 rooms and 503,529 square feet of meeting space. The company also owns and operates an entertainment and event ticket distribution business. For more information, please visit the company’s website atwww.redlion.com.

This press release contains forward-looking statements within the meaning of federal securities law, including statements concerning plans, objectives, goals, strategies, projections of future events or performance and underlying assumptions (many of which are based, in turn, upon further assumptions). The forward-looking statements in this press release are inherently subject to a variety of risks and uncertainties that could cause actual results to differ materially from those expressed. Such risks and uncertainties include, among others, economic cycles; international conflicts; changes in future demand and supply for hotel rooms; competitive conditions in the lodging industry; relationships with franchisees and properties; impact of government regulations; ability to obtain financing; changes in energy, healthcare, insurance and other operating expenses; ability to sell non-core assets; ability to locate lessees for rental property; dependency upon the ability and experience of executive officers and ability to retain or replace such officers as well as other matters discussed in the company’s annual report on Form 10-K for the year ended December 31, 2006 and in other documents filed by the company with the Securities and Exchange Commission.

Contact:

Red Lion Hotels Corporation	CCG Investor Relations
Julie Langenheim, Investor Relations Manager	Crocker Coulson, President
(509) 777-6322	Elaine Ketchmere, VP Financial Writing
	(310) 477-9800

###

Red Lion Hotels Corporation
Consolidated Statements of Operations
(unaudited)
($ in thousands, except footnotes)

	Three months ended March 31,
	2007			2006			$ Change			% Change
Revenue:
Hotels	$	34,381		$	31,028		$	3,353			10.8	%
Franchise and management		789			576			213			37.0	%
Entertainment		3,347			3,371			(24	)		-0.7	%
Other		787			773			14			1.8	%
Total revenues		39,304			35,748			3,556			9.9	%
Operating expenses:
Hotels		29,974			27,876			2,098			7.5	%
Franchise and management		263			222			41			18.5	%
Entertainment		2,855			2,900			(45	)		-1.6	%
Other		483			686			(203	)		-29.6	%
Depreciation and amortization		4,020			2,884			1,136			39.4	%
Hotel facility and land lease		1,714			1,695			19			1.1	%
Gain on asset dispositions, net		(190	)		(182	)		(8	)		-4.4	%
Undistributed corporate expenses		1,450			984			466			47.4	%
Total expenses		40,569			37,065			3,504			9.5	%
Operating loss		(1,265	)		(1,317	)		52			3.9	%
Other income (expense):
Interest expense		(2,242	)		(3,377	)		1,135			33.6	%
Minority interest in partnerships, net		12			106			(94	)		-88.7	%
Other income, net		309			327			(18	)		-5.5	%
Loss from continuing operations before income taxes		(3,186	)		(4,261	)		1,075			25.2	%
Income tax benefit		(1,206	)		(1,576	)		370			23.5	%
Net loss from continuing operations		(1,980	)		(2,685	)		705			26.3	%
Discontinued operations:
Loss from operations of discontinued business units, net of income tax benefits of $8 and $175		(14	)		(318	)		304			95.6	%
Net gain (loss) on disposal of discontinued business units, net of income tax benefit (expense) of $6 and $(16)		(12	)		30			(42	)		-140.0	%
Loss from discontinued operations		(26	)		(288	)		262			91.0	%
Net loss	$	(2,006	)	$	(2,973	)	$	967			32.5	%
EBITDA(1)	$	3,034		$	1,736		$	1,298			74.8	%
EBITDA as a percentage of revenues(2)		7.6	%		4.6	%
EBITDA from continuing operations(1)	$	3,076		$	2,000		$	1,076			53.8	%
EBITDA from continuing operations(2) as a percentage of revenues		7.8	%		5.6	%

(1)

The definition of “EBITDA” and how that measure relates to net income is discussed further in this release under Non-GAAP Financial Measures. EBITDA represents net income (or loss) before interest expense, income tax benefit or expense, depreciation, and amortization. EBITDA is not intended to represent net income as defined by generally accepted accounting principles in the United States and such information should not be considered as an alternative to net income, cash flows from operations or any other measure of performance prescribed by generally accepted accounting principles in the United States. We utilize EBITDA because management believes that investors find it to be a useful tool to perform more meaningful comparisons of past, present and future operating results and as a means to evaluate the results of core on-going operations. EBITDA from continuing operations is calculated in the same manner, but excludes the operating activities of business units identified as discontinued.

(2)

The calculation of EBITDA as a percentage of revenues is based upon total operating revenues, from both continuing and discontinued operations, of $39,887,000 and $37,433,000 for the three months ended March 31, 2007 and 2006, respectively. EBITDA from continuing operations as a percentage of revenues is based upon the operating results of continuing business units as presented in the statements.

Red Lion Hotels Corporation
Earnings Per Share and Hotel Statistics
(unaudited)
(shares in thousands)

	Three months ended March 31,
	2007			2006			$ Change
Loss per share — basic and diluted:(1)
Net loss from continuing operations	$	(0.10	)	$	(0.20	)	$	0.10
Income from discontinued operations		—			(0.02	)		0.02
Net loss	$	(0.10	)	$	(0.22	)	$	0.12
Weighted average shares — basic and diluted		19,148			13,235

	Three months ended March 31,
	2007			2006			$ Change		% Change
Key Comparable System-wide Hotel Statistics:(2)
Average occupancy(3)		53.6	%		52.7	%
ADR(4)	$	82.12		$	76.85		$	5.27		6.9	%
RevPAR(5)	$	44.05		$	40.54		$	3.51		8.7	%

(1)	For the three months ended March 31, 2007 and 2006, all of the 1,159,080 and 1,206,489 options to purchase common shares outstanding as of those dates, respectively, were considered anti-dilutive due to the loss for the period. Likewise, for the same periods, all of the 142,663 convertible operating partnership (“OP”) units were considered anti-dilutive, as were the 25,803 and 11,121 units of unissued restricted stock outstanding, respectively. All convertible debt instruments outstanding at March 31, 2006 were considered anti-dilutive.
(2)	Includes all hotels owned, leased, managed and franchised by Red Lion Hotels Corporation for each of the periods presented, including hotels classified as discontinued operations.
(3)	Average occupancy represents total paid rooms divided by total available rooms. Total available rooms represents the number of rooms available multiplied by the number of days in the reported period and includes rooms taken out of service for renovation.
(4)	Average daily rate (“ADR”) represents total room revenues divided by the total number of paid rooms occupied by hotel guests.
(5)	Revenue per available room (“RevPAR”) represents total room and related revenues divided by total available rooms.

Red Lion Hotels Corporation
Consolidated Balance Sheets
(unaudited)
($ in thousands, except share data)

	March 31,		December 31,
	2007		2006
Assets:
Current assets:
Cash and cash equivalents	$	13,600	$	13,262
Investments		—		7,635
Restricted cash		4,052		2,756
Accounts receivable, net		10,154		9,309
Inventories		1,493		1,523
Prepaid expenses and other		4,846		3,907
Assets held for sale:
Assets of discontinued operations		14,656		14,539
Other assets held for sale		715		715
Total current assets		49,516		53,646
Property and equipment, net		250,980		249,860
Goodwill		28,042		28,042
Intangible assets, net		11,966		12,097
Other assets, net		7,402		7,793
Total assets	$	347,906	$	351,438
Liabilities:
Current liabilities:
Accounts payable	$	7,482	$	8,732
Accrued payroll and related benefits		4,357		6,058
Accrued interest payable		364		422
Advance deposits		715		315
Other accrued expenses		11,344		10,381
Long-term debt, due within one year		2,261		2,267
Liabilities of discontinued operations		4,148		4,112
Total current liabilities		30,671		32,287
Long-term debt, due after one year		82,491		83,005
Deferred income		6,828		7,017
Deferred income taxes		14,247		14,259
Minority interest in partnerships		242		254
Debentures due Red Lion Hotels Capital Trust		30,825		30,825
Total liabilities		165,304		167,647
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; 19,191,433 and 19,118,692 shares issued and outstanding		192		191
Additional paid-in capital, common stock		148,707		147,891
Retained earnings		33,703		35,709
Total stockholders’ equity		182,602		183,791
Total liabilities and stockholders’ equity	$	347,906	$	351,438

Red Lion Hotels Corporation
Consolidated Statement of Cash Flows
(unaudited)
($ in thousands)

	Three months ended March 31,
	2007			2006
Operating activities:
Net loss	$	(2,006	)	$	(2,973	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		4,028			2,989
Gain on disposition of property, equipment and other assets, net		(190	)		(182	)
(Gain) loss on disposition of discontinued operations, net		—			(46	)
Deferred income tax provision		(12	)		300
Minority interest in partnerships		(12	)		(105	)
Equity in investments		9			(107	)
Imputed interest expense		52			—
Compensation expense related to stock issuance		217			190
Provision for (collection of) doubtful accounts		(13	)		182
Change in current assets and liabilities:
Restricted cash		(1,296	)		(1,376	)
Accounts receivable		(414	)		31
Inventories		30			57
Prepaid expenses and other		(726	)		(1,523	)
Accounts payable		(1,242	)		(1,990	)
Accrued payroll and related benefits		(1,705	)		(1,579	)
Accrued interest payable		(58	)		2
Other accrued expenses and advance deposits		1,396			841
Net cash used in operating activities		(1,942	)		(5,289	)
Investing activities:
Purchases of property and equipment		(5,160	)		(10,664	)
Proceeds from disposition of property and equipment		—			14
Proceeds from disposition of discontinued operations		—			5,137
Proceeds from short-term liquid investments		7,635			11,800
Advances to Red Lion Hotels Capital Trust		(17	)		(17	)
Other, net		(41	)		(71	)
Net cash provided by investing activities		2,417			6,199
Financing activities:
Repayment of long-term debt		(572	)		(910	)
Proceeds from issuance of common stock under employee stock purchase plan		88			65
Proceeds from stock option exercises		379			78
Additions to deferred financing costs		—			(6	)
Net cash used in financing activities		(105	)		(773	)
Net cash in discontinued operations		(32	)		48
Change in cash and cash equivalents:
Net increase in cash and cash equivalents		338			185
Cash and cash equivalents at beginning of period		13,262			13,533
Cash and cash equivalents at end of period	$	13,600		$	13,718

Red Lion Hotels Corporation
Additional Hotel Statistics
(unaudited)

System-wide Hotels as of March 31, 2007

					Meeting Space
	Hotels		Rooms		(sq. ft.)
Owned and Leased Hotels:
Red Lion Hotels		31		5,830		299,328
Other(1)		1		218		14,000
		32		6,048		313,328
Managed Hotels		1		254		36,000
Red Lion Franchised Hotels		24		3,699		154,201
Total		57		10,001		503,529
Total Red Lion Hotels		55		9,529		453,529

Comparable Hotel Statistics⁽²⁾

	Three months ended March 31, 2007									Three months ended March 31, 2006
	Average									Average
	Occupancy(3)			ADR(4)			RevPAR(5)			Occupancy(3)			ADR(4)		RevPAR(5)
Red Lion Hotels:
Owned and Leased Hotels		53.0	%	$	81.45		$	43.18			51.3	%	$	73.84	$	37.90
Franchised Hotels		56.6	%	$	79.52		$	45.00			57.4	%	$	78.54		45.07
Total Red Lion Hotels		54.2	%	$	80.77		$	43.80			53.4	%	$	75.56		40.35
System-wide(6)		53.6	%	$	82.12		$	44.05			52.7	%	$	76.85	$	40.54
Change from prior comparative period:
Red Lion Hotels:
Owned and Leased Hotels		1.7			10.3	%		13.9	%
Franchised Hotels		(0.8	)		1.2	%		-0.2	%
Total Red Lion Hotels		0.8			6.9	%		8.6	%
System-wide(6)		0.9			6.9	%		8.7	%

(1)	Included as part of discontinued operations.
(2)	Includes all hotels owned, leased, managed and franchised by Red Lion Hotels Corporation for each of the periods presented, excluding one hotel included as part of discontinued operations.
(3)	Average occupancy represents total paid rooms divided by total available rooms. Total available rooms represents the number of rooms available multiplied by the number of days in the reported period and includes rooms taken out of service for renovation.
(4)	Average daily rate (“ADR”) represents total room revenues divided by the total number of paid rooms occupied by hotel guests.
(5)	Revenue per available room (“RevPAR”) represents total room and related revenues divided by total available rooms.
(6)	Includes all hotels owned, leased, managed and franchised, presented on a comparable basis for hotel statistics. This includes one managed property and one hotel held as discontinued, neither utilizing the Red Lion brand.

Red Lion Hotels Corporation
Reconciliation of EBITDA to Net Loss
(unaudited)
($ in thousands)

The following is a reconciliation of EBITDA and EBITDA from continuing operations to net loss for the periods presented:

	Three months ended March 31,
	2007			2006
EBITDA from continuing operations	$	3,076		$	2,000
Income tax benefit — continuing operations		1,206			1,576
Interest expense — continuing operations		(2,242	)		(3,377	)
Depreciation and amortization — continuing operations		(4,020	)		(2,884	)
Net loss from continuing operations		(1,980	)		(2,685	)
Loss from discontinued operations		(26	)		(288	)
Net loss	$	(2,006	)	$	(2,973	)
EBITDA	$	3,034		$	1,736
Income tax benefit		1,220			1,734
Interest expense		(2,231	)		(3,455	)
Depreciation and amortization		(4,029	)		(2,988	)
Net loss	$	(2,006	)	$	(2,973	)

NON-GAAP FINANCIAL MEASURES

EBITDA is defined as net income (or loss), before interest, taxes, depreciation and amortization. EBITDA is considered a non-GAAP financial measurement. We believe it is a useful financial performance measure for us and for our shareholders and is a complement to net income and other financial performance measures provided in accordance with generally accepted accounting principles in the United States (“GAAP”). EBITDA from continuing operations is calculated in the same manner, but excludes the operating results of business units identified as discontinued under GAAP.

We use EBITDA to measure the financial performance of our owned and leased hotels because it excludes interest, taxes, depreciation and amortization, which bear little or no relationship to operating performance. By excluding interest expense, EBITDA measures our financial performance irrespective of our capital structure or how we finance our properties and operations. We generally pay federal and state income taxes on a consolidated basis, taking into account how the applicable taxing laws apply to our company in the aggregate. By excluding taxes on income, we believe EBITDA provides a basis for measuring the financial performance of our operations excluding factors that our hotels and other operations cannot control. By excluding depreciation and amortization expense, which can vary from hotel to hotel based on historical cost and other factors unrelated to the hotels’ financial performance, EBITDA measures the financial performance of our hotels without regard to their historical cost. For all of these reasons, we believe that EBITDA provides us and investors with information that is relevant and useful in evaluating our business.

However, because EBITDA excludes depreciation and amortization, it does not measure the capital we require to maintain or preserve our long-lived assets. In addition, because EBITDA does not reflect interest expense, it does not take into account the total amount of interest we pay on outstanding debt nor does it show trends in interest costs due to changes in our borrowings or changes in interest rates. EBITDA, as defined by us, may not be comparable to EBITDA as reported by other companies that do not define EBITDA exactly as we define the term. Because we use EBITDA to evaluate our financial performance, we reconcile all EBITDA measures to net income, which is the most comparable financial measure calculated and presented in accordance with GAAP. EBITDA does not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to operating income or net income determined in accordance with GAAP as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of liquidity.