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

Royal Host Inc.

November 12, 2013 08:32 ET

Royal Host Inc. Announces Third Quarter Results

HALIFAX, NOVA SCOTIA--(Marketwired - Nov. 12, 2013) - Royal Host Inc. ("Royal Host" or the "Company") (TSX:RYL) (TSX:RYL.DB.B) (TSX:RYL.DB.C) (TSX:RYL.DB.D) today announced results for the three and nine months ended September 30, 2013 (the "Third Quarter").

OVERVIEW OF THE THREE MONTHS ENDED SEPTEMBER 30, 2013

(All dollar amounts are shown in thousands of Canadian dollars unless otherwise indicated)

For the three months ended September 30, 2013 the Company's revenue declined compared to the same period in the prior year primarily due to the sale of four hotels in 2013. Also contributing to the decline was a 3.1% decline in Comparable Hotel1 revenue attributable to both the full service and select service portfolios. Despite the decline in revenue, the Company's emphasis on reducing its cost structure and debt levels resulted in improved margins and net loss. Particular operating highlights include a 0.7 percentage point increase in gross margin percentage from 23.7% to 24.4% year over year and a 4.1 percentage point increase in franchising gross margin percentage year over year from 80.1% to 84.2%. In addition, franchising revenue increased 14.8% year over year.

Additionally, during the three months ended September 30, 2013, the Company negotiated the termination of its relationship with Lakeview Management Inc. ("Lakeview"), which will result in the internalization of hotel management and accounting services for six select service properties located in Ontario, effective November 1, 2013. The Company also repurchased at a discount to par $2,135 principal amount of its convertible debentures during the three months ended September 30, 2013; this resulted in a gain on repurchase and reduced interest expense going forward.

Subsequent to September 30, 2013, the Company successfully amended its 6.0% convertible debentures due October 31, 2015 ("Series B Debentures") and 5.9% convertible debentures due June 30, 2014 ("Series D Debentures"). The Company does not have any convertible debentures maturing prior to 2018.

OUTLOOK

The Company has experienced negative cash flow (excluding proceeds received upon hotel dispositions) for several consecutive years. The Company's main focus for the remainder of the year is to create a corporate and operational structure that is sustainably cash flow positive. To that end, during the last two quarters, the Company has implemented a number of initiatives that we estimate will reduce hotel-level costs by approximately $1,750 annually. The Company has also reduced its corporate overhead expense and interest expense, in part by selectively disposing of hotels and either repaying debt or repurchasing debentures at a discount to their par value.

The Company believes it will be able to improve financial results in coming quarters through the cost savings initiatives described above, additional process improvements and cost reductions and through better hotel management generally. To that end, the Company is bringing management and accounting responsibilities for its portfolio of select service hotels in Ontario in house. The Company recently created the position of Regional Vice President, Ontario and appointed to that role an individual with significant on-the-ground hotel management experience who most recently held the position of General Manager at one of our largest full service hotels. The Company has also replaced general managers at 11 of its 19 hotels over the last year and we are excited by these new additions to our team. We have also hired a franchise sales representative dedicated to the Quebec and Atlantic Canada markets with a view to growing the Travelodge brand beyond the six properties currently located in Eastern Canada. We believe there is a great growth opportunity for Travelodge in these markets which are underpenetrated relative to Western Canada where we have seen considerable success.

The Company will continue to reduce its debt and repurchase its shares opportunistically.

1 Comparable Hotels are hotels which were owned by the Company for the entire current period as well as the comparable period from the prior year whose operations and available rooms are materially consistent for both periods. The hotels sold by the Company in 2012 and 2013 are not included in Comparable Hotel information throughout this MD&A (both financial information and operational Key Performance Indicators). Additionally, the Company's select service hotel in Thunder Bay, Ontario which suffered a fire in October 2011 and a flood in May 2012 and had the majority of its rooms out of service from October 2011 until the third quarter of 2012 has been excluded from Comparable Hotels.

SELECTED FINANCIAL INFORMATION

The following table provides key financial information for the three and nine months ended September 30, 2013 and 2012:

($000's, except as otherwise noted) Three months
ended September
30


Variance
Nine months
ended September
30


Variance
2013 2012 2013 2012
Hospitality Revenue (1) 18,614 20,548 (1,934 ) 53,195 57,713 (4,518 )
Hospitality Expenses excluding depreciation (1) (2) 14,066 15,677 1,611 41,917 46,528 4,611
Gross Margin (3) (2) 4,548 4,871 (323 ) 11,278 11,185 93
Gross Margin % (3) 24.4 % 23.7 % 0.7 % 21.2 % 19.4 % 1.8 %
Other Income (Expense)
Investment Income 137 815 (678 ) 347 678 (331 )
Finance Costs (2,382 ) (2,625 ) 243 (7,415 ) (8,145 ) 730
Impairment of Property and Equipment - (907 ) 907 (165 ) (1,903 ) 1,738
Gain (loss) on Sale of Property and Equipment (2) - (101 ) 101 2,737 48 2,689
Depreciation and Amortization (2,047 ) (2,224 ) 177 (6,241 ) (6,702 ) 461
Corporate Administration (502 ) (803 ) 301 (1,662 ) (2,480 ) 818
Insurance Proceeds, Net of Remediation Costs - 425 (425 ) 93 1,502 (1,409 )
Income Tax Recovery - 301 (301 ) - 1,673 (1,673 )
Net Loss (2) (246 ) (248 ) 2 (1,028 ) (4,144 ) 3,116
Basic and Diluted Income (Loss) per Share ($) (0.02 ) (0.01 ) (0.01 ) (0.06 ) (0.24 ) 0.18
FFO (3) 1,801 2,683 (882 ) 2,641 2,813 (172 )
Basic FFO per Share ($) 0.11 0.15 (0.04 ) 0.16 0.16 -
AFFO (3) 1,086 1,886 (800 ) 583 565 18
Basic AFFO per Share ($) 0.07 0.11 (0.04 ) 0.03 0.03 -
Number of Shares Outstanding (000's) 16,380 17,586 (1,206 ) 16,380 17,586 (1,206 )
Weighted Average Shares Outstanding (000's) 16,380 17,586 (1,206 ) 16,804 17,584 (780 )
As at November 8, 2013, the Company had 16,379,675 shares outstanding.
(1) Hospitality revenue and hospitality expenses have been reclassified for previously reported quarters of 2012 as the result of reclassification of loyalty expenses so that they reduce hospitality revenue rather than being grouped with hospitality expenses. This reclassification will result in changes to hospitality revenue and hospitality expenses throughout this MD&A as well as to any other measures calculated with hospitality revenue as a basis. Gross margin and net loss have not been impacted by this reclassification.
(2) Hospitality expenses, gain on sale of property and equipment, gross margin and net loss have been adjusted throughout this MD&A for previously reported quarters of 2012 and 2013 as the result of a change in accounting policy with respect to inventory. For further details see section titled "Changes in Accounting Policies and Critical Accounting Estimates".
(3) Items represent non-GAAP financial measures.

ROYAL HOST INC.

Royal Host is a diversified hospitality company that delivers shareholder value through hotel ownership, management, investment and franchising. The Company's hotels, which contain approximately 2,611 rooms, are located in four Provinces and Territories across Canada. Many of the Company's hotels operate under internationally recognized brands such as Travelodge®, Super 8®, Holiday Inn®, and Hilton®. In addition to its real estate holdings, the Company owns and operates the Travelodge Canada franchise business which is currently comprised of over 90 hotels across nine Provinces and Territories.

Royal Host's common 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.

This press release may contain 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", "does not anticipate", "believe", "estimate", "forecast", "intend", "expect", "does not expect", "could", "may", "would", "will", "should", "budgeted", "plan" or other similar terms and expressions 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. Readers are therefore cautioned that Royal Host's expectations, estimates and assumptions, although considered reasonable, may prove to be incorrect and readers should not place undue reliance on forward-looking statements.

Forward-looking statements contained herein are not guarantees of future performance and involve certain risks, uncertainties, and other factors that are difficult to predict, and could result in the outcome of such events being materially different from those intended, planned, anticipated, believed, estimated, or expected in this news release. Such factors and assumptions include, but are not limited to, general economic conditions, levels of travel in Royal Host's key market areas, political conditions and events, competitive pressures, changes in government policy or regulations, and lodging industry conditions. Royal Host does not undertake any obligation to update or release any revisions to these forward-looking statements to reflect events or circumstances, unanticipated events or circumstances, or should its estimates or assumptions change, after the date hereof, except as expressly required by law.

This press release contains registered trademarks that are the exclusive property of their respective owners. None of the owners of these trademarks has any responsibility or liability for any information contained in this press release.

Contact Information

  • Royal Host Inc.
    Michael McFeters
    Chief Financial Officer
    902.470.4515