Red Lion Hotels Corporation (RLH) 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 end.
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. (HOT) and Morgans Hotel Group Co. (MHGC), 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.
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