Item 2.01. Completion of Acquisition or Disposition of Assets.
On February 7, 2020, RLH DC LLC completed the sale of the Hotel RL Washington D.C. (the “Hotel”) to UIP Acquire, LLC a District of Columbia limited liability company (the “Purchaser”). The purchase price for the Hotel was $16.35 million, which was paid in cash at closing.
RLH DC LLC is a wholly owned subsidiary of RLS DC Venture, LLC. RLS DC Venture, LLC is a variable interest entity in which Red Lion Hotels Corporation (the “Company”) holds a 55% interest, and therefore the Company consolidates the assets, liabilities and results of operations of this entity.
Proceeds from the sale of the Hotel, combined with the release of a loan reserve, were used to pay closing costs and repay a property level mortgage, including an accrued exit fee, and a prepayment penalty to the lender. See Item 2.04 below for additional information. No additional funds will be available for distribution to the members of RLS DC Venture, LLC, including the Company, as a result of the sale of the Hotel.
At closing, the Purchaser entered into a franchise agreement with Red Lion Hotels Franchising, Inc., a wholly owned subsidiary of the Company, to continue to operate the hotel under the Hotel RL® brand. The franchise agreement provides for a five (5) year term, and requires the payment of monthly royalty and program fees based upon the Hotel’s room count, with a minimum payment of $300,000 in royalty and program fees during the term. In the event the franchise agreement is terminated prior to the end of the license term for any reason, the Purchaser is required to pay to the Company the difference between $300,000 and the royalty and program fees paid at the date of termination. In addition, early termination of the franchise agreement by Red Lion Franchising upon default of the franchisee, or termination of the agreement by the franchisee without cause, will require the franchisee to pay a termination fee. Purchaser will not be required to pay a termination fee, and may cancel the franchise agreement upon 90 days written notice, in the event that the Hotel is converted to a different use (e.g. extended stay hotel and/or multi-family property).
Item 2.04 Triggering Events That Accelerate or Increase a Direct Financial Obligation or an Obligation under anOff-Balance Sheet Arrangement
Pursuant to the terms of the mortgage loan agreement between RLH DC LLC and CP Business Finance I, LP (the “Lender”), upon the sale of the Hotel the net proceeds from the sale, together with a release of $2.3 million in a loan reserve held by the Lender, were used to pay the outstanding $17.7 million principal balance on the loan, including an accrued exit fee, plus a prepayment penalty of $568,198, which was the amount of the remaining cash and PIK interest that would have been payable from the prepayment date through May 31, 2020.
