NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.Organization
Red Lion Hotels Corporation ("RLH Corporation," "RLHC," "we," "our," "us," or "our company") is a NYSE-listed hospitality and leisure company (ticker symbol: RLH) doing business as RLH Corporation and primarily engaged, through its subsidiaries, in the franchising and ownership of hotels of its proprietary brands, including the following brands that are being actively sold in the United States and Canada: Hotel RL, Red Lion Hotels, Red Lion Inn & Suites, GuestHouse Extended Stay, Americas Best Value Inn, Canadas Best Value Inn, Signature and Signature Inn, and Knights Inn.
2.Summary of Significant Accounting Policies
The unaudited condensed consolidated financial statements included herein were prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and in accordance with generally accepted accounting principles in the United States of America ("GAAP"). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted as permitted by such rules and regulations.
The Consolidated Balance Sheet as of December 31, 2019 was derived from the audited balance sheet as of such date. We believe the disclosures included herein are adequate; however, they should be read in conjunction with the consolidated financial statements and the notes thereto for the year ended December 31, 2019, filed with the SEC in our annual report on Form 10-K on February 27, 2020.
In the opinion of management, these unaudited condensed consolidated financial statements contain all of the adjustments of a normal and recurring nature necessary to present fairly our Condensed Consolidated Balance Sheets, the Condensed Consolidated Statements of Comprehensive Loss, the Condensed Consolidated Statements of Stockholders' Equity, and the Condensed Consolidated Statements of Cash Flows. The results of operations for the periods presented may not be indicative of that which may be expected for a full year or for any other fiscal period.
New Accounting Pronouncements Not Yet Adopted
In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments, as amended by multiple subsequent ASUs, which will change how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The ASU will replace the current "incurred loss" approach with an "expected loss" model for instruments measured at amortized cost. For trade and other receivables, held to maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. In October 2019, an update was issued to the standard that deferred the effective date of the guidance to the first quarter of 2023 for smaller reporting companies such as us. We are currently evaluating the effects of this ASU on our financial statements, and such effects have not yet been determined.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which amends the existing guidance related to the accounting for income taxes. The ASU eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The ASU is effective the first quarter of 2021, with early adoption permitted. We are currently evaluating the effects of this ASU on our financial statements, and such effects have not yet been determined.
We have assessed the potential impact of other recently issued, but not yet effective, accounting standards and determined that the provisions are either not applicable to us or are not anticipated to have a material impact on our consolidated financial statements.
3. Business Segments
We have two operating segments: franchised hotels and company operated hotels. The "other" segment consists of miscellaneous revenues and expenses, cash and cash equivalents, certain receivables, certain property and equipment and general and administrative expenses, which are not specifically associated with an operating segment. Management reviews and evaluates the operating segments exclusive of interest expense, income taxes and certain corporate expenses; therefore, they have not been allocated to the operating segments. We allocate selling, general, administrative and other expenses to our operating segments. All balances have been presented after the elimination of inter-segment and intra-segment revenues and expenses.
Selected financial information is provided below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
|
Franchised Hotels
|
|
Company Operated Hotels
|
|
Other
|
|
Total
|
Revenue
|
|
$
|
10,021
|
|
|
$
|
3,262
|
|
|
$
|
—
|
|
|
$
|
13,283
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Segment and other operating expenses
|
|
6,170
|
|
|
3,248
|
|
|
2,885
|
|
|
12,303
|
|
Depreciation and amortization
|
|
927
|
|
|
512
|
|
|
1,070
|
|
|
2,509
|
|
Asset impairment
|
|
—
|
|
|
729
|
|
|
—
|
|
|
729
|
|
Loss (gain) on asset dispositions, net
|
|
—
|
|
|
104
|
|
|
3
|
|
|
107
|
|
Transaction and integration costs
|
|
—
|
|
|
—
|
|
|
860
|
|
|
860
|
|
Operating income (loss)
|
|
$
|
2,924
|
|
|
$
|
(1,331)
|
|
|
$
|
(4,818)
|
|
|
$
|
(3,225)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
Franchised Hotels
|
|
Company Operated Hotels
|
|
Other
|
|
Total
|
Revenue
|
|
$
|
16,225
|
|
|
$
|
16,633
|
|
|
$
|
5
|
|
|
$
|
32,863
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Segment and other operating expenses
|
|
10,963
|
|
|
13,007
|
|
|
4,184
|
|
|
28,154
|
|
Depreciation and amortization
|
|
1,015
|
|
|
1,777
|
|
|
844
|
|
|
3,636
|
|
Asset impairment
|
|
—
|
|
|
5,382
|
|
|
—
|
|
|
5,382
|
|
Loss (gain) on asset dispositions, net
|
|
—
|
|
|
2
|
|
|
(1)
|
|
|
1
|
|
Transaction and integration costs
|
|
(6)
|
|
|
164
|
|
|
43
|
|
|
201
|
|
Operating income (loss)
|
|
$
|
4,253
|
|
|
$
|
(3,699)
|
|
|
$
|
(5,065)
|
|
|
$
|
(4,511)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
Franchised Hotels
|
|
Company Operated Hotels
|
|
Other
|
|
Total
|
Revenue
|
|
$
|
29,715
|
|
|
$
|
11,062
|
|
|
$
|
—
|
|
|
$
|
40,777
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Segment and other operating expenses
|
|
29,357
|
|
|
12,704
|
|
|
9,643
|
|
|
51,704
|
|
Depreciation and amortization
|
|
2,703
|
|
|
1,801
|
|
|
2,952
|
|
|
7,456
|
|
Asset impairment
|
|
—
|
|
|
2,489
|
|
|
—
|
|
|
2,489
|
|
Loss (gain) on asset dispositions, net
|
|
—
|
|
|
(7,677)
|
|
|
223
|
|
|
(7,454)
|
|
Transaction and integration costs
|
|
—
|
|
|
53
|
|
|
2,207
|
|
|
2,260
|
|
Operating income (loss)
|
|
$
|
(2,345)
|
|
|
$
|
1,692
|
|
|
$
|
(15,025)
|
|
|
$
|
(15,678)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
Franchised Hotels
|
|
Company Operated Hotels
|
|
Other
|
|
Total
|
Revenue
|
|
$
|
43,920
|
|
|
$
|
43,839
|
|
|
$
|
13
|
|
|
$
|
87,772
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Segment and other operating expenses
|
|
30,669
|
|
|
38,331
|
|
|
12,290
|
|
|
81,290
|
|
Depreciation and amortization
|
|
3,039
|
|
|
5,650
|
|
|
2,503
|
|
|
11,192
|
|
Asset impairment
|
|
—
|
|
|
5,382
|
|
|
—
|
|
|
5,382
|
|
Loss (gain) on asset dispositions, net
|
|
(1)
|
|
|
45
|
|
|
1
|
|
|
45
|
|
Transaction and integration costs
|
|
90
|
|
|
164
|
|
|
182
|
|
|
436
|
|
Operating income (loss)
|
|
$
|
10,123
|
|
|
$
|
(5,733)
|
|
|
$
|
(14,963)
|
|
|
$
|
(10,573)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents identifiable assets for our reportable segments (in thousands):
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|
|
|
|
|
|
|
|
September 30,
2020
|
|
|
|
December 31,
2019
|
Franchised Hotels
|
$
|
79,905
|
|
|
|
|
$
|
91,832
|
|
Company Operated Hotels
|
58,617
|
|
|
|
|
138,477
|
|
Other
|
16,104
|
|
|
|
|
16,209
|
|
Total
|
$
|
154,626
|
|
|
|
|
$
|
246,518
|
|
4. Variable Interest Entities
Our joint venture entities have been determined to be variable interest entities ("VIEs") because our voting rights are not proportional to our financial interest and substantially all of each joint venture's activities involve and are conducted on our behalf. We have determined that we are the primary beneficiary as (a) we exert power over two of the entity's key activities (hotel operations and property renovations) and share power over the remaining key activities with our joint venture partners, which do not have the unilateral ability to exercise kick-out rights, and (b) we have the obligation to absorb losses and right to receive benefits that could be significant to the entity through our equity interest and management fees. As a result, we consolidate the assets, liabilities, and results of operations of (1) RL Venture LLC ("RL Venture"), (2) RLS Atla Venture LLC ("RLS Atla Venture"), and (3) RLS DC Venture LLC ("RLS DC Venture"). Subsequent to the hotel sales in the fourth quarter of 2019 and the first quarter of 2020 discussed further below, RLS Atla Venture and RLS DC Venture have had no additional financial statement activity and have no remaining asset or liability balances.
There were no cash contributions or distributions by partners to any of the joint venture entities during the three and nine months ended September 30, 2020 or 2019 except as otherwise described below.
RL Venture
For all periods presented, RLH Corporation owns 55% of RL Venture and our JV Partner owns 45%. In March 2019, secured loans with an aggregate principal of $16.6 million were entered into for two RL Venture properties, Hotel RL Salt Lake City and Hotel RL Olympia. Shortly thereafter the net loan proceeds were distributed to us and our joint venture partner in accordance with our respective ownership percentages. Accordingly, during the nine months ended September 30, 2019, cash distributions totaled $16.5 million, of which RLH Corporation received $9.1 million.
In December 2019, the Hotel RL Salt Lake City was sold for an aggregate sales price of $33.0 million. Proceeds from the sale were used to repay in full the secured loan entered into in 2019 for the Hotel RL Salt Lake City property. As of September 30, 2020, RL Venture has one remaining property, the Hotel RL Olympia, owned through RL Olympia, LLC. The equity interest owned by our JV Partner is reflected as a noncontrolling interest in the condensed consolidated financial statements.
RLS DC Venture
As of December 31, 2019, RLH Corporation owned 55% of RLS DC Venture and our Joint Venture Partner owned 45%. In May 2019, a secured loan with principal and accrued exit fee of $17.4 million was executed by RLS DC Venture. The net loan proceeds were used to pay off the previous debt with a principal balance of approximately $15.9 million. There were no cash distributions resulting from the refinancing. In February 2020, the Hotel RL in Washington DC, which was wholly-owned by RLS DC Venture, was sold for $16.4 million. Using proceeds from the sale, together with the release of $2.3 million in restricted cash held by CP Business Finance I, LP, RLS DC Venture repaid the remaining outstanding principal balance and accrued exit fee under the secured loan agreement. The $2.4 million balance remaining in non-controlling interest for the entity was reclassified to Additional paid-in capital on the Condensed Consolidated Balance Sheets as no remaining distributions to the joint venture partner are required.
RLS Atla Venture
In November 2019, RLH Atlanta LLC, which is wholly owned by RLS Atla Venture, sold the Red Lion Hotel Atlanta International Airport Hotel. Upon completion of the sale, no remaining distributions to our joint venture partner were required and the remaining noncontrolling interest for the entity was reclassified to Additional paid-in capital on the Condensed Consolidated Balance Sheets.
5. Property and Equipment
Property and equipment is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2020
|
|
December 31,
2019
|
Buildings and equipment
|
|
$
|
44,618
|
|
|
$
|
101,619
|
|
Furniture and fixtures
|
|
5,034
|
|
|
12,407
|
|
Landscaping and land improvements
|
|
487
|
|
|
2,038
|
|
|
|
50,139
|
|
|
116,064
|
|
Less accumulated depreciation
|
|
(25,289)
|
|
|
(57,491)
|
|
|
|
24,850
|
|
|
58,573
|
|
Land
|
|
6,871
|
|
|
6,871
|
|
Construction in progress
|
|
701
|
|
|
3,224
|
|
Property and equipment, net
|
|
$
|
32,422
|
|
|
$
|
68,668
|
|
A novel strain of coronavirus (COVID-19) was first identified in Wuhan, China in December 2019, and subsequently declared a pandemic by the World Health Organization on March 11, 2020. To date, COVID-19 has surfaced in nearly all regions around the world and resulted in travel restrictions and business slowdowns or shutdowns in affected areas. The economic impact of the pandemic thus far has been extremely punitive to travel related businesses across the nation, significantly affecting the operating results of companies within the hospitality industry. In the first quarter of 2020, we considered the actual and anticipated economic impacts of the COVID-19 pandemic on our financial results to be an indicator that the carrying value of our long-lived assets might not be recoverable. Accordingly, we performed a test for recoverability using probability-weighted undiscounted cash flows on our long-lived assets as of March 31, 2020. Only the Red Lion Hotel Seattle Airport ("RLH Seattle"), one of our company operated hotel properties under a lease through February 2024, did not recover the carrying value of the long-lived asset group in the test for recoverability, due to the short useful life and lack of terminal value. After calculating the fair value of the RLH Seattle property long-lived asset group, we recognized an impairment loss of $1.8 million in the first quarter of 2020.
During the third quarter of 2020, we noted an additional indicator that the carrying value of our long-lived assets might not be recoverable at RLH Seattle as the impacts of COVID-19 on business travel have been worse than initially projected in the first quarter of 2020, particularly impacting this airport location. We performed an updated test for recoverability using probability-weighted cash flows on the long-lived assets of RLH Seattle as of September 30, 2020, noting they did not recover the carrying value of the long-lived asset group. After calculating the fair value of the property's asset group, we recognized an additional impairment loss of $0.7 million in the third quarter of 2020.
Fair values for the RLH Seattle property were determined based on a discounted cash flow analysis, which is a Level 3 fair value measurement. The impairment losses were allocated to the assets within the long-lived asset group on a pro rata basis, with $2.1 million applied against the hotel building leasehold interest and other equipment, included within Property and equipment, net and $0.4 million applied against the Operating lease right-of-use asset on the Condensed Consolidated Balance Sheets. There were no other impairments of our long-lived assets in 2020.
During the three months ended September 30, 2019, we entered into individual non-binding sales agreements with third parties for four of our company operated hotels. Due to the potential for disposition within 12 months, we performed a test for recoverability using probability-weighted undiscounted cash flows on each of these four properties, noting only our Hotel RL Washington DC joint venture property did not recover the carrying value of the long-lived asset group. After calculating the fair value of the Hotel RL Washington DC joint venture property long-lived asset group, we recognized an impairment loss of $5.4 million. The fair value was determined based on the contractual selling price less expected costs to sell, which is a Level 3 fair value measurement. The impairment loss was allocated to the assets within the long-lived asset group on a pro rata basis, with $3.4 million applied against the hotel building, included within Property and equipment, net and $2.0 million applied against the Operating lease right-of-use asset on the Condensed Consolidated Balance Sheets. There were no impairments at the other three properties.
In February 2020, we sold the Hotel RL Washington DC joint venture hotel property, and our leasehold interest in the Red Lion Anaheim for a combined net gain of $7.9 million. There were no hotels sold during the three months ended September 30, 2020, or the three and nine months ended September 30, 2019.
6. Goodwill and Intangible Assets
Interim Impairment Assessment
In the first quarter of 2020, we considered the actual and anticipated economic impacts of the COVID-19 pandemic on our financial results to be an indicator that the fair value of our goodwill and indefinite-lived intangible assets might be less than their carrying amounts. Accordingly, we performed quantitative assessments to measure the fair values of these assets as of March 31, 2020. No impairments were identified based on the quantitative impairment calculations of our goodwill and other indefinite-lived intangible assets. No additional indicators of impairment were identified in the second or third quarter of 2020.
The following table summarizes the balances of goodwill and other intangible assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2020
|
|
December 31,
2019
|
Goodwill
|
$
|
18,595
|
|
|
$
|
18,595
|
|
|
|
|
|
Intangible assets
|
|
|
|
Brand name - indefinite lived
|
$
|
32,532
|
|
|
$
|
32,532
|
|
Trademarks - indefinite lived
|
128
|
|
|
128
|
|
Brand name - finite lived, net
|
3,020
|
|
|
3,554
|
|
Customer contracts - finite lived, net
|
10,639
|
|
|
12,398
|
|
Total intangible assets, net
|
$
|
46,319
|
|
|
$
|
48,612
|
|
The following table summarizes the balances of amortized customer contracts and finite-lived brand names (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2020
|
|
December 31,
2019
|
Customer contracts
|
$
|
20,773
|
|
|
$
|
20,773
|
|
Brand name - finite lived
|
5,395
|
|
|
5,395
|
|
Accumulated amortization
|
(12,509)
|
|
|
(10,216)
|
|
Net carrying amount
|
$
|
13,659
|
|
|
$
|
15,952
|
|
7. Revenue from Contracts with Customers
Inner Circle
In July 2019, the parent entities for eight Inner Circle franchisees and the operating entities for two other Inner Circle franchisees all filed for voluntary bankruptcy protection under Chapter 11 of the United States Bankruptcy Code.
Of the $7.1 million in accounts receivable and notes receivable balances related to these franchisees, including unamortized key money converted to notes receivable upon termination of contracts, we recognized bad debt expense and an allowance of $0.8 million in 2019 and bad debt expense and an allowance for the remaining $6.3 million in the first quarter of 2020 when the reduction in fair value of collateral combined with timing of bankruptcy proceedings made it apparent the balances were highly unlikely to be recoverable. There has been no additional activity recorded by RLHC related to these franchisees since the first quarter and the related balances continue to be fully reserved, but we continue to monitor the ongoing bankruptcy proceedings for any potential changes.
Other Allowances
We recognized additional bad debt expense of $3.4 million in the first quarter of 2020, primarily related to large balances under legal dispute and aged balances from terminated agreements that were negatively impacted by the economic effects of the COVID-19 pandemic. In the second and third quarters of 2020 we recognized an additional $0.6 million and $0.4 million of bad debt expense, respectively, primarily related to terminated franchise agreements.
The following table provides information about receivables, contract assets and contract liabilities from contracts with customers (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Statement Line Item(s)
|
|
September 30,
2020
|
|
December 31,
2019
|
Accounts receivable
|
|
Accounts receivable, net
|
|
$
|
10,772
|
|
|
$
|
15,143
|
|
Key money disbursed
|
|
Other current assets and Other assets, net
|
|
2,381
|
|
|
2,228
|
|
Capitalized contract costs
|
|
Other current assets and Other assets, net
|
|
706
|
|
|
941
|
|
Contract liabilities
|
|
Other accrued liabilities and Deferred income and other long-term liabilities
|
|
1,178
|
|
|
1,448
|
|
Significant changes in the key money disbursements, capitalized contract costs, and contract liabilities balances during the period are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Money Disbursed
|
|
Capitalized Contract Costs
|
|
Contract Liabilities
|
Balance as of January 1, 2020
|
|
$
|
2,228
|
|
|
$
|
941
|
|
|
$
|
1,448
|
|
Key money disbursed
|
|
429
|
|
|
—
|
|
|
—
|
|
Key money converted from accounts receivable
|
|
675
|
|
|
—
|
|
|
—
|
|
Key money converted to notes receivable
|
|
(639)
|
|
|
—
|
|
|
—
|
|
Costs incurred to acquire contracts
|
|
—
|
|
|
147
|
|
|
—
|
|
Cash received in advance
|
|
—
|
|
|
—
|
|
|
188
|
|
Revenue or expense recognized that was included in the January 1, 2020 balance
|
|
(241)
|
|
|
(358)
|
|
|
(437)
|
|
Revenue or expense recognized in the period for the period
|
|
(71)
|
|
|
(24)
|
|
|
(21)
|
|
Balance as of September 30, 2020
|
|
$
|
2,381
|
|
|
$
|
706
|
|
|
$
|
1,178
|
|
Estimated revenues and expenses expected to be recognized related to performance obligations that were unsatisfied as of September 30, 2020, including revenues related to application, initiation and other fees were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending December 31,
|
|
Contra Revenue
|
|
Expense
|
|
Revenue
|
2020 (remainder)
|
|
$
|
155
|
|
|
$
|
57
|
|
|
$
|
115
|
|
2021
|
|
524
|
|
|
195
|
|
|
394
|
|
2022
|
|
404
|
|
|
176
|
|
|
296
|
|
2023
|
|
359
|
|
|
132
|
|
|
181
|
|
2024
|
|
270
|
|
|
84
|
|
|
104
|
|
Thereafter
|
|
669
|
|
|
62
|
|
|
88
|
|
Total
|
|
$
|
2,381
|
|
|
$
|
706
|
|
|
$
|
1,178
|
|
We did not estimate revenues expected to be recognized related to our unsatisfied performance obligations for our royalty fees, as they are considered sales-based royalty fees recognized as hotel room sales occur in exchange for licenses of our brand names over the terms of the franchise contracts. Therefore, there are no amounts included in the table above related to these revenues.
8. Debt and Line of Credit
The current and noncurrent portions of our debt as of September 30, 2020 and December 31, 2019 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
|
Current
|
|
Noncurrent
|
|
Current
|
|
Noncurrent
|
Line of Credit
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RL Venture - Olympia
|
|
5,600
|
|
|
—
|
|
|
—
|
|
|
5,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RLH DC Venture
|
|
—
|
|
|
—
|
|
|
17,648
|
|
|
—
|
|
Total debt
|
|
5,600
|
|
|
—
|
|
|
17,648
|
|
|
15,600
|
|
Unamortized debt issuance costs
|
|
(12)
|
|
|
—
|
|
|
(664)
|
|
|
(24)
|
|
Debt net of debt issuance costs
|
|
$
|
5,588
|
|
|
$
|
—
|
|
|
$
|
16,984
|
|
|
$
|
15,576
|
|
RL Venture - Olympia
In March 2019, RL Olympia, LLC, a subsidiary of RL Venture, executed a secured debt agreement with Umpqua Bank for a term loan with a principal balance of $5.6 million. We incurred approximately $33,000 of debt discounts and debt issuance costs in connection with the issuance of the loan. The loan is secured by the Hotel RL Olympia property, on a nonrecourse basis. The loan has a maturity date of March 18, 2021, and a variable interest rate of LIBOR plus 2.25%, payable monthly. The borrower has the option to exercise two six-month extensions upon maturity of the loan, so long as the borrower is in compliance with covenants. There are no principal repayment requirements prior to the maturity date and the loan includes a financial covenant to be calculated semi-annually in which the property must maintain a minimum debt service coverage ratio of not less than 1.6 to 1.0.
Primarily due to the negative economic impact of the COVID-19 pandemic, the property failed to meet the minimum required financial covenants as of the semi-annual calculation of June 30, 2020. Due to the contractual cure period provisions the debt will not be called due prior to the maturity date in March 2021, however we will be unable to exercise the previously discussed extensions, and as such we have classified this debt as current in our Condensed Consolidated Balance Sheets as of September 30, 2020. We continue to pursue options to address the debt prior to maturity, such as the sale of property or alternative financing, which may include extending the maturity date.
Line of Credit
In August 2018, we drew the full $10.0 million available to us on the Line of Credit under a credit agreement with Deutsche Bank AG New York Branch (DB), Capital One, National Association and Raymond James Bank, N.A., as lenders and DB as the administrative agent. In the first quarter of 2020, we sold our leasehold interest in the Red Lion Anaheim for $21.5 million. Using proceeds from the sale, we repaid the outstanding Line of Credit balance of $10.0 million. This debt is no longer outstanding as of September 30, 2020 and as the credit agreement has been terminated we no longer have access to this Line of
Credit. Due to the early extinguishment of this debt, we recognized a Loss on early retirement of debt of $0.2 million in the first quarter of 2020.
RLH DC Venture
In the first quarter of 2020, we sold the Hotel RL Washington DC for $16.4 million. Using proceeds from the sale, together with the release of $2.3 million in restricted cash held by the lender CP Business Finance I, LP, RLH DC Venture repaid the remaining outstanding principal balance and accrued exit fee under the RLH DC Venture - CPBF loan agreement of $17.7 million. This debt is no longer outstanding as of September 30, 2020. Due to the early extinguishment of this debt, in the first quarter of 2020, we recognized a Loss on early retirement of debt of $1.1 million, including a prepayment penalty of $0.6 million.
Paycheck Protection Program ("PPP") Loan
On April 21, 2020, RLHC received $4.2 million in loan proceeds issued pursuant to the PPP of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). In accordance with the CARES Act, RLHC planned to use proceeds from the Loan primarily for payroll costs, rent, and utilities as we concluded we met the certification criteria under the initial requirements of the PPP. However, on April 24, 2020, the U.S. government published additional guidance regarding PPP eligibility. As a result of this new guidance, we determined it was no longer clear that we met the eligibility requirements and accordingly repaid the full amount of the loan in May.
9. Leases
We lease equipment and land and/or property at certain company operated hotel properties as well as office space for our headquarters through operating leases. The operating leases for office space generally provide for fixed annual rents and variable lease costs related to maintenance, real estate taxes and insurance.
We are obligated under finance leases for certain hotel equipment at our company operated hotel locations. The finance leases typically have a five year term.
We have elected the practical expedient so that leases with an initial term of 12 months or less are not recorded on the balance sheet.
During the first quarter of 2020, we sold the Hotel RL Washington DC joint venture property, which had a ground lease with a term through 2080. As of December 31, 2019, we had recorded an Operating lease right-of use asset of $10.8 million, and total operating lease liabilities of $12.9 million for this ground lease. The ground lease was transferred with the sale of the property, resulting in the removal of these balances from the Condensed Consolidated Balance Sheets.
Also in the first quarter of 2020, we sold our leasehold interest in the Red Lion Anaheim, which had a ground lease with a term through 2021 with renewal options through 2106 that were reasonably assured to be exercised. As of December 31, 2019, we had recorded an Operating lease right-of use asset of $31.4 million, with corresponding operating lease liabilities of $31.4 million for this ground lease. The ground lease was transferred with the sale of the property, resulting in the removal of these balances from the Condensed Consolidated Balance Sheets.
Balance sheet information related to our leases is included in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
September 30, 2020
|
|
December 31, 2019
|
Operating lease right-of-use assets
|
|
$
|
5,000
|
|
|
$
|
48,283
|
|
|
|
|
|
|
Operating lease liabilities, due within one year
|
|
$
|
1,521
|
|
|
$
|
4,809
|
|
Operating lease liabilities, due after one year
|
|
4,770
|
|
|
46,592
|
|
Total operating lease liabilities
|
|
$
|
6,291
|
|
|
$
|
51,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance Leases
|
|
September 30, 2020
|
December 31, 2019
|
Property and equipment
|
|
$
|
88
|
|
$
|
298
|
|
Less accumulated depreciation
|
|
(77)
|
|
(168)
|
|
Property and equipment, net
|
|
$
|
11
|
|
$
|
130
|
|
|
|
|
|
Other accrued liabilities
|
|
$
|
19
|
|
$
|
74
|
|
Deferred income and other long-term liabilities
|
|
1
|
|
76
|
|
Total finance lease liabilities
|
|
$
|
20
|
|
$
|
150
|
|
In March of 2020, we entered into a sublease for a portion of our leased corporate office space in an effort to reduce our operating costs. Income from this sublease is presented net with the operating lease expense for the corporate office space within Selling, general, administrative and other expenses on the Condensed Consolidated Statements of Comprehensive Loss.
The components of lease expense during the three and nine months ended September 30, 2020 and 2019 are included in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Statement Line Item(s)
|
|
Three Months Ended September 30, 2020
|
|
Three months ended September 30, 2019
|
|
Nine Months Ended September 30, 2020
|
|
Nine months ended September 30, 2019
|
Operating lease expense
|
|
Selling, general, administrative and other expenses, and Company operated hotels
|
|
$
|
313
|
|
|
1,168
|
|
|
$
|
1,442
|
|
|
$
|
3,444
|
|
Variable lease expense
|
|
Selling, general, administrative and other expenses
|
|
133
|
|
|
111
|
|
|
398
|
|
|
340
|
|
Short-term lease expense
|
|
Selling, general, administrative and other expenses, and Company operated hotels
|
|
52
|
|
|
56
|
|
|
87
|
|
|
232
|
|
Sublease income
|
|
Selling, general, administrative and other expenses
|
|
(138)
|
|
|
—
|
|
|
(227)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease expense
|
|
|
|
|
|
|
|
|
|
|
Amortization of finance right-of-use assets
|
|
Depreciation and amortization
|
|
6
|
|
|
35
|
|
|
20
|
|
|
104
|
|
Interest on lease liabilities
|
|
Interest expense
|
|
—
|
|
|
7
|
|
|
4
|
|
|
23
|
|
Total finance lease expense
|
|
|
|
6
|
|
|
42
|
|
|
24
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
Total lease expense
|
|
|
|
$
|
366
|
|
|
$
|
1,377
|
|
|
$
|
1,724
|
|
|
$
|
4,143
|
|
Supplemental cash flow information for our leases is included in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
Nine Months Ended September 30, 2020
|
|
Nine Months Ended September 30, 2019
|
Cash used in operating activities for operating leases
|
|
$
|
1,607
|
|
|
$
|
3,547
|
|
Cash used in operating activities for finance leases
|
|
4
|
|
|
23
|
|
Cash used in financing activities for finance leases
|
|
26
|
|
|
104
|
|
There were no new finance lease assets or associated liabilities during the three and nine months ended September 30, 2020 and 2019. There were no new operating lease assets or associated liabilities during the three and nine months ended September 30, 2020. During the second quarter of 2019, we recognized ROU assets of $181,000 and associated operating lease liabilities of $202,000 upon commencement of leases for space in our Spokane office.
Information related to the weighted average remaining lease terms and discount rates for our leases as of September 30, 2020 and December 31, 2019 is included in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
Weighted average remaining lease term (in years)
|
|
|
|
|
Operating leases
|
|
6
|
|
69
|
Finance leases
|
|
1
|
|
3
|
Weighted average discount rate
|
|
|
|
|
Operating leases
|
|
5.8
|
%
|
|
7.2
|
%
|
Finance leases
|
|
5.7
|
%
|
|
11.9
|
%
|
The future maturities of lease liabilities at September 30, 2020, are as indicated below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ending December 31,
|
|
Operating Leases
|
|
Finance Leases
|
2020 (remainder)
|
|
$
|
382
|
|
|
$
|
7
|
|
2021
|
|
1,522
|
|
|
14
|
|
2022
|
|
1,486
|
|
|
—
|
|
2023
|
|
1,449
|
|
|
—
|
|
2024
|
|
595
|
|
|
—
|
|
Thereafter
|
|
1,984
|
|
|
—
|
|
Total lease payments
|
|
7,418
|
|
|
21
|
|
Less: imputed interest
|
|
1,127
|
|
|
1
|
|
|
|
$
|
6,291
|
|
|
$
|
20
|
|
The future maturities of lease liabilities in the table above do not differ materially from future minimum rental payments under the previous leasing standard.
10. Commitments and Contingencies
At any given time we are subject to claims and actions incidental to the operations of our business. During the second quarter of 2019, we accrued approximately $952,000 for a settlement over a wage dispute with former hotel employees related to the calculation of pay for certain rest, break, meal, and other periods that are required under California law. Based on information currently available, we do not expect that any other sums we may receive or have to pay in connection with any legal proceeding would have a material effect on our consolidated financial position or net cash flow.
11. Stock Based Compensation
Stock Incentive Plans
The 2015 Stock Incentive Plan ("2015 Plan") authorizes the grant or issuance of various stock-based awards, including stock options, restricted stock units, and other stock-based compensation. The 2015 Plan was approved by our shareholders in 2015, and amended in 2017, and as amended provides for awards of 2.9 million shares, subject to adjustments for stock splits, stock dividends and similar events. As of September 30, 2020, there were 1.2 million shares of common stock available for issuance pursuant to future awards under the 2015 Plan, as amended.
Stock based compensation expense reflects the fair value of stock-based awards measured at grant date, including an estimated forfeiture rate, and is recognized over the relevant service period. For the three and nine months ended September 30, 2020 and 2019 stock-based compensation expense is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Restricted stock units
|
|
$
|
162
|
|
|
$
|
581
|
|
|
$
|
537
|
|
|
$
|
1,871
|
|
Unrestricted stock awards
|
|
97
|
|
|
158
|
|
|
266
|
|
|
417
|
|
Performance stock units
|
|
—
|
|
|
172
|
|
|
15
|
|
|
123
|
|
Stock options
|
|
—
|
|
|
22
|
|
|
—
|
|
|
65
|
|
Employee stock purchase plan
|
|
6
|
|
|
8
|
|
|
22
|
|
|
27
|
|
Total stock-based compensation
|
|
$
|
265
|
|
|
$
|
941
|
|
|
$
|
840
|
|
|
$
|
2,503
|
|
Restricted Stock Units
Restricted stock units granted to executive officers and other key employees typically vest 25% each year for four years on each anniversary of the grant date. Under the terms of the plan, upon issuance, we deliver a net settlement of distributable shares to employees after consideration of individual employees' tax withholding obligations, at the election of each employee. The fair value of restricted stock that vested during the nine months ended September 30, 2020 and 2019 was approximately $0.2 million and $5.8 million, respectively. We expect to recognize an additional $1.1 million in compensation expense over the remaining weighted average vesting periods of 21 months.
A summary of restricted stock unit activity for the nine months ended September 30, 2020, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Units
|
|
Weighted
Average
Grant Date
Fair Value
|
January 1, 2020
|
|
459,070
|
|
|
$
|
9.03
|
|
Granted
|
|
235,251
|
|
|
$
|
1.79
|
|
Vested
|
|
(122,720)
|
|
|
$
|
8.53
|
|
Forfeited
|
|
(242,215)
|
|
|
$
|
5.91
|
|
September 30, 2020
|
|
329,386
|
|
|
$
|
6.34
|
|
Performance Stock Units, Shares Issued as Compensation
Performance stock units ("PSUs") are granted to certain of our executives under the 2015 Plan. These PSUs include both performance and service vesting conditions. Each performance condition has a minimum, a target and a maximum share amount based on the level of attainment of the performance condition. Compensation expense, net of estimated forfeitures, is calculated based on the estimated attainment of the performance conditions during the performance period and recognized on a straight-line basis over the performance and service periods. No PSUs were granted during the three and nine months ended September 30, 2020.
During the nine months ended September 30, 2020, 25,796 PSUs vested at a weighted average grant date fair value of $6.45. The fair value of PSUs that vested during the nine months ended September 30, 2020 was approximately $38,000. No PSUs vested during the nine months ended September 30, 2019. There are no PSUs outstanding and no remaining compensation expense related to PSUs as of September 30, 2020.
Unrestricted Stock Awards
Unrestricted stock awards are granted to members of our Board of Directors as part of their compensation. Awards are fully vested, and expense is recognized when granted. The fair value of unrestricted stock awards is the market close price of our common stock on the date of the grant.
The following table summarizes unrestricted stock award activity for the three and nine months ended September 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Shares of unrestricted stock granted
|
|
40,843
|
|
|
22,075
|
|
|
117,270
|
|
|
52,986
|
|
Weighted average grant date fair value per share
|
|
$
|
2.38
|
|
|
$
|
7.19
|
|
|
$
|
2.28
|
|
|
$
|
7.89
|
|
12. Earnings (Loss) Per Share
The following table presents a reconciliation of the numerators and denominators used in the basic and diluted net income (loss) per share computations for the three and nine months ended September 30, 2020 and 2019 (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Numerator - basic and diluted:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,285)
|
|
|
$
|
(6,652)
|
|
|
$
|
(16,751)
|
|
|
$
|
(14,982)
|
|
Net loss attributable to noncontrolling interest
|
|
148
|
|
|
2,980
|
|
|
1,553
|
|
|
4,040
|
|
Net loss attributable to RLH Corporation
|
|
$
|
(3,137)
|
|
|
$
|
(3,672)
|
|
|
$
|
(15,198)
|
|
|
$
|
(10,942)
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average shares - basic
|
|
25,397
|
|
|
25,112
|
|
|
25,311
|
|
|
24,859
|
|
Weighted average shares - diluted
|
|
25,397
|
|
|
25,112
|
|
|
25,311
|
|
|
24,859
|
|
|
|
|
|
|
|
|
|
|
Loss per share - basic
|
|
$
|
(0.12)
|
|
|
$
|
(0.15)
|
|
|
$
|
(0.60)
|
|
|
$
|
(0.44)
|
|
Loss per share - diluted
|
|
$
|
(0.12)
|
|
|
$
|
(0.15)
|
|
|
$
|
(0.60)
|
|
|
$
|
(0.44)
|
|
The following table presents options to purchase common shares, restricted stock units outstanding, performance stock units outstanding, and warrants to purchase common shares excluded from the dilutive earnings per share calculation as they were considered antidilutive for the three and nine months ended September 30, 2020 and 2019. No options to purchase common shares, restricted stock units outstanding, performance stock units outstanding or warrants to purchase common shares were considered dilutive for the periods presented due to the net losses attributable to RLH Corporation.
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|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
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|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Stock Options(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antidilutive awards outstanding
|
|
—
|
|
|
81,130
|
|
|
—
|
|
|
81,130
|
|
Total awards outstanding
|
|
—
|
|
|
81,130
|
|
|
—
|
|
|
81,130
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antidilutive awards outstanding
|
|
329,386
|
|
|
738,544
|
|
|
329,386
|
|
|
738,544
|
|
Total awards outstanding
|
|
329,386
|
|
|
738,544
|
|
|
329,386
|
|
|
738,544
|
|
|
|
|
|
|
|
|
|
|
Performance Stock Units(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antidilutive awards outstanding
|
|
—
|
|
|
314,684
|
|
|
—
|
|
|
314,684
|
|
Total awards outstanding
|
|
—
|
|
|
314,684
|
|
|
—
|
|
|
314,684
|
|
|
|
|
|
|
|
|
|
|
Warrants(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antidilutive awards outstanding
|
|
—
|
|
|
442,533
|
|
|
—
|
|
|
442,533
|
|
Total awards outstanding
|
|
—
|
|
|
442,533
|
|
|
—
|
|
|
442,533
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
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|
|
|
|
|
|
|
|
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(1) All stock options for the three and nine months ended September 30, 2020 and 2019 were anti-dilutive as a result of the net loss attributable to RLH Corporation for these periods, and as a result of the RLH Corporation weighted average share price during the reporting period.
(2) Restricted stock units were anti-dilutive for the three and nine months ended September 30, 2020 and 2019 due to the net loss attributable to RLH Corporation in the reporting periods. If we had reported net income for the three and nine months ended September 30, 2020, then 25,092 and 17,002 units, respectively, would have been dilutive. If we had reported net income for the three and nine months ended September 30, 2019, then 12,771 and 337,035 units, respectively, would have been dilutive.
(3) Performance stock units are not included in the weighted average diluted shares outstanding until the performance targets are met. PSUs were anti-dilutive for the nine months ended September 30, 2020 due to the net loss attributable to RLH Corporation in the reporting period. If we had reported net income for the nine months ended September 30, 2020, then 3,393 units would have been dilutive. Certain PSUs were anti-dilutive for the three and nine months ended September 30, 2019 as their respective performance targets had not been achieved during those periods, in addition to the net loss attributable to RLH Corporation in the reporting periods. If we had reported net income and the performance targets had been met for the three and nine months ended September 30, 2019 then 96,141 and 92,907 units, respectively, would have been dilutive.
(4) All warrants expired without being exercised in January 2020. All warrants for the three and nine months ended September 30, 2019 were anti-dilutive due to the net loss attributable to RLH in each reporting period. If we had reported net income for the three and nine months ended September 30, 2019, 0 and 47,831 warrants, respectively, would have been dilutive.
13. Income Taxes
We recognized income tax expense of $18,000 and $486,000 for the three months ended September 30, 2020 and 2019, respectively. For the nine months ended September 30, 2020 and 2019 we recognized income tax (benefit) expense of $(586,000) and $676,000, respectively. On March 27, 2020, President Trump signed into law the CARES Act, which generally allows for unlimited use of net operating losses generated in 2019 and 2020 as well as a five year carryback provision and shortening the recovery period for qualified improvement property. The income tax benefit recognized for the nine months ended September 30, 2020 is principally related to the provisions of the CARES Act.
The income tax expense recognized for the three months ended September 30, 2020 and the three and nine months ended September 30, 2019 varies from the statutory rate primarily due to a partial valuation allowance against our deferred tax assets, as well as deferred tax expense associated with our acquired indefinite-lived intangible assets, which are amortized for tax purposes but not for GAAP purposes.
We have state operating loss carryforwards, which expire beginning in 2020, and both federal and state tax credit carryforwards, which begin to expire in 2024.
14. Fair Value
Applicable accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). We measure our assets and liabilities using inputs from the Level 1, Level 2 and Level 3 of the fair value hierarchy.
Cash, Restricted cash and Accounts receivable carrying values approximate fair value due to the short-term nature of these items. We estimate the fair value of our Notes receivable using expected future payments discounted at risk-adjusted rates, both of which are Level 3 inputs. We estimate the fair value of our Long-term debt and capital lease obligations using expected future payments discounted at risk-adjusted rates, both of which are Level 3 inputs. The fair values provided below are not necessarily indicative of the amounts we or the debt holders could realize in a current market exchange. In addition, potential income tax ramifications related to the realization of gains and losses that would be incurred in an actual sale or settlement have not been taken into consideration. Estimated fair values of financial instruments are shown in the table below (in thousands).
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September 30, 2020
|
|
December 31, 2019
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
Financial assets:
|
|
|
|
|
|
|
|
|
Notes receivable
|
|
$
|
424
|
|
|
$
|
424
|
|
|
$
|
5,709
|
|
|
$
|
5,709
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
Debt
|
|
$
|
5,600
|
|
|
$
|
5,480
|
|
|
$
|
33,248
|
|
|
$
|
32,737
|
|
Total finance lease obligations
|
|
20
|
|
|
20
|
|
|
150
|
|
|
150
|
|
15. Related Party Transactions
During the fourth quarter of 2018, we transitioned management of our company operated Hotel RL Baltimore Inner Harbor and Hotel RL Washington DC from RL Management, Inc., to Merritt Hospitality, LLC ("Merritt"), an affiliate of HEI Hotels and Resorts, of which one of the members of our Board of Directors, Ted Darnall, is currently the Chief Executive Officer. Additionally, during the first quarter of 2019, management of our company operated hotel Red Lion Hotel Seattle Airport was also transitioned from RL Management, Inc. to Merritt. During the three months ended September 30, 2020 and 2019, we paid $143,000 and $307,000, respectively, in management fees to Merritt for management of these properties. During the nine months ended September 30, 2020 and 2019, we paid $465,000 and $847,000, respectively, in management fees to Merritt for management of these properties.
Additionally, as of September 30, 2020, four hotels managed by Merritt purchased services provided by us through our all-in-one cloud-based hospitality management suite, Canvas Integrated Systems, operated by our wholly owned subsidiary, RLabs, Inc.. During the three months ended September 30, 2020 and 2019, we recognized revenue of $260,000 and $154,000, respectively, for services sold to these hotels. During the nine months ended September 30, 2020 and 2019, we recognized revenue of $657,000 and $480,000, respectively, for services sold to these hotels. Amounts owed to RLHC by Merritt as of September 30, 2020 and December 31, 2019 were $264,000 and $187,000, respectively.
On May 31, 2019 we executed a mortgage loan with a principal and accrued exit fee of $17.4 million with CP Business Finance I, LP, an affiliate of Columbia Pacific Opportunity Fund, LP, which, to our knowledge, currently holds 500,000 shares of RLH common stock. Alexander B. Washburn, who served as a member of our Board of Directors from May 2015 to April 2019, is one of the managing members of Columbia Pacific Advisor, LLC, which serves as the investment manager of Columbia Pacific Opportunity Fund, LP. This debt is no longer outstanding.
16. Dispositions
In the first quarter of 2020, we continued the execution of a hotel asset sales initiative consistent with our previously stated business strategy to focus on moving towards operations as primarily a franchise company, and disposed of two hotels from our company operated hotels segment. These dispositions resulted in a combined net gain of $7.9 million
The following summarizes the result of operations for the two properties sold during the first quarter of 2020 (in thousands):
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Pre-tax income (loss)
|
|
$
|
(104)
|
|
|
$
|
(6,086)
|
|
|
$
|
6,003
|
|
|
$
|
(6,562)
|
|
Net (income) loss attributable to noncontrolling interest
|
|
—
|
|
|
2,844
|
|
|
1,152
|
|
|
3,212
|
|
Net income (loss) attributable to RLHC
|
|
$
|
(104)
|
|
|
$
|
(3,242)
|
|
|
$
|
7,155
|
|
|
$
|
(3,350)
|
|