Royal Host Inc.
TSX : RYL
TSX : RYL.DB.B
TSX : RYL.DB.C
TSX : RYL.DB.D

March 24, 2011 14:11 ET

Royal Host Inc. Announces 2010 Financial Results

HALIFAX, NOVA SCOTIA--(Marketwire - March 24, 2011) - Royal Host Inc. ("Royal Host" or "the Corporation") (TSX:RYL) (TSX:RYL.DB.B) (TSX:RYL.DB.C) (TSX:RYL.DB.D) today announced results for the year ended December 31, 2010.

Effective January 1, 2011, Royal Host converted from a real estate investment trust to a corporation. The conversion was completed pursuant to a plan of arrangement (the "Arrangement") under the Canada Business Corporations Act in accordance with the final order of the Supreme Court of Nova Scotia. Unitholders of Royal Host approved the Arrangement on December 15, 2010. The business of Royal Host will continue to be carried on by the Corporation. The trustees and senior management of Royal Host are now the directors and senior management of the Corporation. Under the Arrangement, unitholders of Royal Host received, for each unit of Royal Host held (a "Unit"), one common share (a "Common Share") of the Corporation.

The hotel accommodation industry in Canada began to rebound in 2010 from a challenging 2009. Certain provinces and geographic regions within provinces experienced a stronger recovery than others. In 2010, Royal Host completed the outsourcing of the hotel management function for all hotels and reduced its operational and corporate overhead with the transition to third party management of Royal Host's full service hotels. During the year Royal Host paid down two mortgage pools financed through the sale of marketable securities. The repayment of these mortgage pools provides Royal Host with an additional 19 properties unencumbered with debt. These initiatives will provide future benefits in operational performance from hotel properties and provide greater operational and financial flexibility going forward.

FOURTH QUARTER HIGHLIGHTS:

  • Net loss from continuing operations was $6.5 million in Q4 of 2010 compared to net income of $1.2 million in Q4 of 2009 with the decline in 2010 primarily driven by reduced investment income coupled with one-time restructuring costs.
  • Average Daily Rate ("ADR") increased by $0.55 from Q4 of 2009 to $97.27 in Q4 of 2010, an increase of 1.6%. Occupancy had a 1.1 percentage point decline to 51.1% in Q4 of 2010 compared to 2009, which led to a decrease in Revenue Per Available Room ("RevPAR") during the fourth quarter of 2010 of $0.82, or 1.6%, from $50.51 to $49.69.
  • Hospitality revenues were down $0.2 million in Q4 of 2010 to $22.5 million from $22.7 million in 2009, a reduction of 1.0%. Hospitality gross margin declined from 18.9% to 15.9%, with a hospitality gross margin of $3.6 million in Q4 of 2010 compared to $4.3 million in Q4 of 2009. Training costs associated with implementation of new hotel operating software in Q4 of 2010 was a major factor in the decline in gross margin from Q4 2009 to Q4 2010.
  • Expenses of $2.2 million were booked in Q4 of 2010 related to restructuring Royal Host from a Trust to a Corporation, costs associated with closing administrative offices in Calgary and Toronto and costs to complete certain aspects of the 2008 reorganization. There were no such costs in Q4 of 2009. The savings expected from this restructuring will be reflected in our results in 2011.
  • Mortgage interest expense declined $0.8 million from Q4 2009 to Q4 2010 due to repayment of mortgage debt in 2010.
  • Recognized a loss on sale of marketable securities of $0.4 million in Q4 2010 and an other-than- temporary impairment of $0.5 million. In Q4 2009 Royal Host realized a gain on sale of marketable securities of $3.1 million.
  • Invested $1.3 million in the Oakville Holiday Inn in Q4 of 2010 continuing the renovation started in Q3. Incurred expenditures in Q4 of 2010 of $0.4 million completing the upgrade of hotel operating software at multiple hotels in Q4 of 2010.

RESULTS OF OPERATIONS

The following summarizes the key operating metrics for Royal Host during the three months and years ended December 31, 2010 and 2009:

  3 months ended     Year ended  
  December 31 ,   December 31 ,
($000's, except as otherwise noted)   2010       2009       2010       2009  
Paid RevPar $ 49.69     $ 50.51     $ 53.70     $ 53.42  
Paid Occupancy   51.1 %     52.2 %     55.3 %     54.1 %
Paid ADR $ 97.27     $ 96.72     $ 97.13     $ 98.79  

SELECTED FINANCIAL INFORMATION

Highlights of the annual consolidated financial statements for the three months and years ended December 31, 2010 and 2009 are as follows:

    3 months ended     Year ended  
    December 31 ,   December 31 ,
($000's, except as otherwise noted)   2010     2009     2010     2009  
Hospitality Revenue (continuing operations)   22,523     22,746     92,270     93,598  
Hospitality Expenses   18,950     18,448     75,305     73,074  
Hospitality Gross Margin(1)   3,573     4,298     16,965     20,524  
Hospitality Gross Margin %(1)   15.9 %   18.9 %   18.4 %   21.9 %
Investment Income (Loss)   (829 )   4,144     12,214     8,102  
Other Expenses   9,220     7,291     30,830     30,052  
Income (Loss) from Continuing Operations   (6,476 )   1,151     (1,651 )   (1,426 )
Income (Loss) from Discontinued Operations   (583 )   17     (1,078 )   (23 )
Net Income (Loss)   (7,059 )   1,168     (2,729 )   (1,449 )
Other Comprehensive Income (Loss)   813     4,075     (10,143 )   10,143  
Comprehensive Income (Loss)   (6,246 )   5,243     (12,872 )   8,694  
Basic Per Unit Net Income (Loss)                        
  From Continuing Operations   (0.36 )   0.06     (0.09 )   (0.07 )
  From Discontinued Operations   (0.03 )   -     (0.06 )   -  
    (0.39 )   0.06     (0.15 )   (0.07 )

FINANCIAL REVIEW

Years ended December 31, 2010 and 2009:

Royal Host had a net loss from continuing operations of $1.7 million in 2010 compared to a net loss from continuing operations of $1.4 million in 2009. The main drivers of 2010 financial results were as follows:

  • A $1.3 million (1.4%) decline in hospitality revenues in 2010 versus 2009. Occupancy increased in 2010 from 2009 by 1.2 points, a relative increase of 2.3%. This increase in occupancy was offset by a decrease is ADR of 1.7% from $98.79 to $97.13. Management revenues declined in 2010 as Royal Host ceased providing management services for external parties;
  • Hospitality expenses increased in 2010 by $2.2 million (3.1%) over 2009, largely attributable to the costs associated with transitioning the operation of Royal Host managed hotels to third party management companies and hotel software implementation expense.
  • Investment income of $12.2 million, an increase of $4.1 million from $8.1 million in 2009;
  • Royal Host continued investing in its properties with $5.5 million of capital expenditures in 2010 including upgraded hotel property management software at 18 hotels and the renovation of the Oakville Holiday Inn which was in progress at year-end and;
  • Repayment of two mortgage pools in full, with principal repayments totaling $33.7 million, in addition to scheduled mortgage payments;
  • Distributed $5.4 million, or $0.30 per unit. to Unitholders during the year;
  • Deploying $1.7 million towards the repurchase and subsequent cancellation of 647,802 trust units and $3.2 million towards the repurchase of $4.1 million of convertible debentures.

DIVIDEND

Royal Host has previously disclosed that it intended to declare dividends on a quarterly basis but that the declaration of such dividends would be subject to the discretion of the Board of Directors of Royal Host and may vary depending on, among other things, Royal Host's operating cash flow, financial requirements, limitations or restrictions under credit facilities, the requirements of the CBCA for the declaration of dividends and other conditions existing at such future time and that as a result, no assurance could be given as to whether Royal Host would pay dividends, or the frequency or amount of any such dividend.

The Directors have decided that the Company will not declare a dividend at this time. The Directors feel it is in the best interest of the Company and its shareholders to reinvest capital into the hotel properties and provide flexibility in the refinancing of debt coming due in 2011. The declaration of a dividend will be revisited at the end of each quarter.

ROYAL HOST INC.

Royal Host is a uniquely diversified hospitality corporation that delivers Shareholder value through hotel ownership and franchising. Royal Host's portfolio of Canadian hotels operates under a variety of recognizable brands as well as a number of unbranded properties. Royal Host's hotel portfolio is further enhanced by a stable franchising business.

Royal Host Inc.'s shares and convertible debentures are traded on the Toronto Stock Exchange under the trading symbols "RYL", "RYL.DB.B", "RYL.DB.C" and "RYL.DB.D", respectively.

The above statements in regard to the financial results should be read in conjunction with Royal Host's audited consolidated financial statements for the year ended December 31, 2010 and its Management's Discussion and Analysis, which are available on Royal Host's website at www.royalhost.com as well as the SEDAR website at www.sedar.com.

This press release contains certain forward-looking statements relating, but not limited to, Royal Host's operations, anticipated financial performance, business prospects, and strategies. Forward-looking information typically contains statements with words such as "anticipate", "believe", "expect", "plan", or similar words suggesting future outcomes. Such forward-looking statements are subject to risks, uncertainties, and other factors, which could cause actual results to differ materially from future results expressed, projected, or implied by such forward-looking statements. Such factors include, but are not limited to economic, competitive, and lodging industry conditions. Royal Host disclaims any responsibility to update any such forward-looking statements except as required by law.

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