Royal Host Real Estate Investment Trust

Royal Host Real Estate Investment Trust

March 12, 2005 20:17 ET

Royal Host Real Estate Investment Trust Announces Fourth Quarter and Year Ended December 31, 2004 Results


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: ROYAL HOST REAL ESTATE INVESTMENT TRUST

TSX SYMBOL: RYL.UN
TSX SYMBOL: RYL.DB
TSX SYMBOL: RYL.DB.A

MARCH 12, 2005 - 20:17 ET

Royal Host Real Estate Investment Trust Announces
Fourth Quarter and Year Ended December 31, 2004 Results

CALGARY, ALBERTA--(CCNMatthews - March 12, 2005) - Royal Host Real
Estate Investment Trust (TSX:RYL.UN) (TSX:RYL.DB) (TSX:RYL.DB.A), a
diversified hotel Real Estate Investment Trust (REIT), today announced
financial results for the fourth quarter and year ended December 31,
2004.

In 2004, for total operations, Royal Host announced a 3.3% growth in
revenue per available room ("RevPAR"). Occupancy and average daily rate
("ADR") increased 1.6% and 1.7%, respectively. Gross margin increased by
5.1% and adjusted cash available for distribution rose by 6.3%.

"We are pleased with our overall efforts this past year as we continued
to make significant progress in simplifying our business and focusing on
our core competencies," said Greg Royer, President and Chief Executive
Officer of Royal Host. "Our fourth quarter results were not as strong as
our exceptional fourth quarter in 2003 due primarily to a number of
one-time expenses as well as the performance of two non-core hotels
which are in the process of being sold. These one-time expenses which,
in the short-term, negatively impacted our performance, were the result
of implementing our strategic plan. The long-term benefits will be very
positive to our organization," added Royer.

Highlights for 2004

During 2004, Royal Host:

- Maintained uninterrupted cash distributions to Unitholders, bringing
the cumulative distributions to $5.48 per unit;

- Declared an increase in our per unit annual distributions from $0.24
to $0.36;

- Showed improvement in financial performance over 2003 through ongoing
operating expense reductions and increased RevPAR;

- Continued our strategy to remain focused on core competencies of hotel
management, ownership and franchising by exiting non-core businesses and
assets;

- Divested our 50% interest in the Yorkdale hotel;

- Sold the North Battleford hotel and the Oklahoma marina;

- Entered into a contract to sell the Orillia hotel;

- Improved the profitability of our third party management portfolio by
entering into management contracts for the 69 Humphrey Hospitality
properties as well as the Edmonton Wingate Inn;

- Negotiated three major debt refinancings which strengthened our
balance sheet while providing improved flexibility, with no significant
debt maturities until 2007;

- Invested approximately $6.4 million in capital improvements to
maintain the quality of our hotel properties, and installed wireless
technology solutions at 13 of our owned properties; and

- Began construction on the Royal Private Residence Club in Kelowna;
secured construction financing to complete the project; and sold
additional units, which increased the total number of presold units to
64%.

Year-end Results

Gross margin from continuing operations increased from $34.6 million
(25.1% operating margin) in 2003 to $36.7 million (25.7% operating
margin) in 2004 despite a number of one-time items.

In 2004, we incurred one-time expenses of $4.4 million, $3.4 million of
which were recorded in the fourth quarter. Approximately $1.8 million
was included in hospitality expenses and approximately $1.6 million was
included in other income and expenses in the fourth quarter. These
expenses included: asset write-downs; accounts receivable allowances;
severance expenses; and an asset impairment provision, most of which are
not cash or immediate cash items.

During 2004, Royal Host generated $12.4 million in basic adjusted cash
available for distribution, or $0.51 per unit, compared to $0.48 per
unit in 2003. Excluding the one-time items, basic per unit adjusted cash
available for distribution would have been $0.66. While adjusted cash
available for distribution is not recognized under Canadian generally
accepted accounting principles, it is a useful measure that indicates
the amount of cash generated by our operations that is available for
distribution to Unitholders, repayment of debt or for further investment
in capital assets.

For continuing operations for the year, total revenues increased by $4.5
million, a 3.3% increase from 2003. Total hospitality expenses for the
year ended December 31, 2004 were $2.4 million or 2.4% higher than 2003,
primarily due to the aforementioned one-time items.

Fourth Quarter Results

"We were the only hospitality REIT to show RevPAR growth in the fourth
quarter of 2003," continued Royer, "and subsequently we were
disappointed we could not build on that growth in the fourth quarter of
this year."

For total operations, ADR increased by $0.34 to $86.17 and occupancy
decreased 1.9 percentage points to 59.3%. While RevPAR was $1.45 lower
at $51.06 (a decrease of 2.8%) compared to the same quarter of 2003,
these results are more consistent with Royal Host's 2002 levels.

Compared to the same quarter of 2003, hospitality revenues from total
operations declined marginally. While other hospitality revenues
increased by $551,000 (1.6%), this increase was offset by a $644,000
(2.8%) decrease in room revenues.

OUTLOOK

"We are very encouraged by the current momentum in the hospitality
industry and by our strong December 2004 and January 2005 results,"
added Royer. "Looking forward, we are confident that our talented team
will continue to achieve sustainable improvements and we believe Royal
Host is well positioned to take advantage of a number of accretive
opportunities in 2005 as we continue to focus on expanding our core
businesses and increasing Unitholder value," concluded Royer.



Results (Total Operations)
------------------------------------------------------------------------
Three Months Ended Years Ended
December 31, December 31, December 31, December 31,
2004 2003 2004 2003
------------------------------------------------------------------------
ADR $86.17 $85.83 $89.45 $87.95
Occupancy 59.3% 61.2% 65.2% 64.2%
RevPAR $51.06 $52.51 $58.29 $56.45
------------------------------------------------------------------------
------------------------------------------------------------------------


(Additional information relating to Royal Host, including our financial
statements and Management's Discussion and Analysis, is available at
www.sedar.com)

Royal Host will host a conference call on Monday, March 14, 2005 at
11:30 a.m. Eastern Standard Time to discuss these results. Please dial
1-888-334-7880 or 1-416-695-9748 to access the call. You will be
required to identify yourself and whether you are participating on
behalf of an organization. Media will be in listen-only mode for the
duration of the call. A recording of this conference call will be made
available beginning March 14, 2005 through to March 20, 2005. To access
the recording please dial 1-866-518-1010 or 1-416-695-5275.
Alternatively, the audio file will be posted on our web page by end of
day, March 14, 2005.

Royal Host owns 37 hotels, manages 142 properties and franchises 120
locations for over 20,000 guestrooms in the mid-market to upscale
segments. Royal Host also owns the master franchise rights for
Travelodge in Canada and provides hotel and resort management services
for its portfolio and to third party owned properties.

Royal Host is committed to creating stable and repeatable earnings
through high quality assets, efficient operations and exceptional
people. Through strategic management, growth of its assets and ongoing
training, communication and teamwork, it will continue to achieve
ongoing improvements to its bottom line results. Royal Host units and
convertible debentures are traded on the Toronto Stock Exchange under
the trading symbols "RYL.UN", "RYL.DB" and RYL.DB.A", respectively.

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.

AUDITORS' REPORT

To the Unitholders of

Royal Host Real Estate Investment Trust

We have audited the consolidated balance sheets of Royal Host Real
Estate Investment Trust (the "Trust") as at December 31, 2004 and 2003
and the consolidated statements of net earnings and cash flows for the
years then ended. These consolidated financial statements are the
responsibility of the Trust's management. Our responsibility is to
express an opinion on these consolidated financial statements based on
our audits.

We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly,
in all material respects, the financial position of the Trust as at
December 31, 2004 and 2003 and the results of its operations and cash
flows for the years then ended in accordance with Canadian generally
accepted accounting principles.



signed "Deloitte and Touche LLP"

Chartered Accountants
Calgary, Alberta
February 25, 2005


ROYAL HOST REAL ESTATE INVESTMENT TRUST
Consolidated Balance Sheets
$000's


As At
December 31, December 31,
2004 2003
---------------------------
(Restated
- Note 11)
ASSETS
Current Assets
Cash and short-term investments (Note 2(l)) 9,375 5,183
Accounts and notes receivable 10,053 8,609
Deposits and prepaid expenses 3,719 3,453
Inventories 3,131 3,739
Property held for sale (Notes 3 and 4) 2,704 -
Property under development (Note 5) 6,870 2,068
Future income tax (Note 11) 1,004 583
---------------------------
36,856 23,635

Restricted Cash (Note 6) 5,677 4,247
Capital Assets (Note 7) 330,602 344,701
Long-term Notes Receivable
and Other Assets (Note 8) 3,276 3,297
---------------------------

376,411 375,880
---------------------------
---------------------------

LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and accrued liabilities 22,670 18,330
Current portion of mortgages
and other debt (Note 9) 39,083 39,515
Current portion of capital leases (Note 10) 563 864
Distributions payable 561 558
Other current liabilities 2,304 1,929
---------------------------
65,181 61,196

Mortgages and Other Debt (Note 9) 117,896 121,650
Capital Leases (Note 10) 961 1,490
Future Income Taxes (Note 11) 8,329 7,715
Deferred Revenue 688 963

Equity (Note 12) 183,356 182,866
---------------------------

376,411 375,880
---------------------------
---------------------------

See accompanying Notes to Consolidated Financial Statements


ROYAL HOST REAL ESTATE INVESTMENT TRUST
Consolidated Statements of Net Earnings
For the years ended December 31, 2004 and December 31, 2003
$000's


Years Ended
December 31, December 31,
2004 2003
---------------------------

Hospitality Revenues
Rooms 99,692 96,004
Food and beverage 25,876 25,353
Other hospitality revenues 16,987 16,664
---------------------------
142,555 138,021

Hospitality Expenses 105,857 103,414
---------------------------

Gross Margin 36,698 34,607
---------------------------

Other Expenses and (Income)
Amortization 16,567 17,368
Interest on mortgages and other debt 13,825 13,618
Trust administration 3,600 2,125
Property impairment provision (Note 4) 734 -
Future income tax 442 745
Capital and other taxes 228 484
Loss on foreign currency translation 131 158
Interest income (66) (29)
---------------------------
35,461 34,469
---------------------------
---------------------------

Earnings from continuing operations (Note 13) 1,237 138

Earnings (loss) from discontinued operations,
net of tax (Notes 4 and 13) 320 (119)
---------------------------

Net earnings 1,557 19
---------------------------
---------------------------

Basic per unit net (loss) earnings
- from continuing operations (0.23) (0.28)
- from discontinued operations 0.01 -
---------------------------
Basic per unit net loss (Note 13) (0.22) (0.28)
---------------------------
---------------------------

Diluted per unit net (loss) earnings
- from continuing operations (0.23) (0.29)
- from discontinued operations 0.01 -
---------------------------
Diluted per unit net loss (Note 13) (0.22) (0.29)
---------------------------
---------------------------

See accompanying Notes to Consolidated Financial Statements


ROYAL HOST REAL ESTATE INVESTMENT TRUST
Consolidated Statements of Cash Flows
For the years ended December 31, 2004 and December 31, 2003
$000's

Years Ended
December 31, December 31,
2004 2003
---------------------------

CASH PROVIDED BY (USED IN)

Operating Activities
Net earnings 1,557 19
Less: (earnings) loss from discontinued
operations (Note 4) (320) 119
Items not affecting cash:
Amortization of capital assets 15,973 16,708
Future income tax expense 442 745
Property impairment provision 734 -
---------------------------
18,386 17,591
Change in non-cash working capital:
(Increase) decrease in accounts and notes
receivable (1,444) 563
(Increase) decrease in deposits and prepaid
expenses (177) 330
Decrease in inventories 608 146
Increase (decrease) in accounts payable
and accrued liabilities 4,340 (802)
Increase (decrease) in other current
liabilities and deferred revenue 100 (704)
Amortization of deferred finance costs 594 660
---------------------------
Cash flows from continuing operations 22,407 17,784
Funds from discontinued operations 13 218
Net non-cash change in properties held for sale (406) -
---------------------------
Cash flows from operating activities 22,014 18,002
---------------------------
---------------------------

Financing Activities
Additions to mortgages and other debt 32,750 32,240
Principal repayments on mortgages and other
debt and capital leases (38,055) (13,816)
Issuance of trust units plan under employee
unit purchase 17 8
Contributed surplus (Note 12(g)) - 89
Issuance of convertible debentures, net of
retirements (Note 12 (f)(ii)) 13,000 -
Equity financing issue costs (1,607) -
Equity distributions (Note 12(b)) (12,475) (19,120)
---------------------------
(6,370) (599)
---------------------------
---------------------------
Investing Activities
Restricted cash (Note 6) (1,430) (88)
Capital expenditures (6,426) (26,115)
Property under development (4,802) (1,728)
Net cash from sale of properties 1,779 -
Increase in long-term notes receivable
and other assets (573) (395)
---------------------------
(11,452) (28,326)
---------------------------
---------------------------
Net Change in Cash and Short-term
Investments 4,192 (10,923)
Cash and Short-term Investments,
beginning of year 5,183 16,106
---------------------------
Cash and Short-term Investments,
end of year 9,375 5,183
---------------------------
---------------------------

See accompanying Notes to Consolidated Financial Statements


ROYAL HOST REAL ESTATE INVESTMENT TRUST
Notes to Consolidated Financial Statements
As at December 31, 2004 and December 31, 2003


1. GENERAL INFORMATION

Royal Host Real Estate Investment Trust ("Royal Host" or the "Trust")
was created pursuant to the Declaration of Trust dated August 27, 1997.
Royal Host is an unincorporated open-end mutual fund trust established
for the purpose of investing in hotel properties and hospitality
businesses, under specified guidelines as defined under the Declaration
of Trust. Royal Host's Declaration of Trust permits the development of
new facilities on property adjacent to its existing properties.

2. SIGNIFICANT ACCOUNTING POLICIES

a) Basis of Accounting

The Royal Host accounting policies and standards of financial disclosure
are in accordance with Canadian generally accepted accounting principles
("GAAP") as prescribed by the Canadian Institute of Chartered
Accountants ("CICA").

b) Use of Estimates

The preparation of the consolidated financial statements in conformity
with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the consolidated
financial statements and revenue and expenses for the reported periods.
Actual results could differ from those estimates.

c) Principles of Consolidation

These consolidated financial statements include the accounts of Royal
Host and its wholly-owned subsidiaries, and the accounts of all
partnerships, joint ventures and co-tenancies to the extent of the Royal
Host proportionate interest in their respective assets, liabilities,
revenues, expenses and cash flows. All inter-company transactions and
balances have been eliminated.

d) Revenue Recognition

Revenues consisting of rooms, food and beverage and other hospitality
revenues are recognized when services are provided and collection is
reasonably assured. Other hospitality revenues include management fees,
franchise royalties, parking, tenant leases, health club and spa,
timeshare maintenance fees and sales and other. Ongoing credit
evaluations are performed and an allowance for potential credit losses
is provided against the portion of accounts receivable which is
estimated to be uncollectible.

Timeshare revenues are recorded when the purchaser has complied with all
major conditions of the sale, including the payment of the full purchase
price or the arrangement of appropriate financing. Certain portions of
timeshare revenue are deferred until earned by Royal Host.

e) Capital Assets

Hotel properties are recorded at the lower of cost less accumulated
amortization or net recoverable amount. The net recoverable amount
represents the estimated undiscounted projected future net cash flow
generated from the property throughout its useful life, including its
residual value, and is intended to determine the recovery of an
investment and is not an expression of a property's fair market value.

Hotel properties are amortized using the straight-line method over their
estimated useful lives ranging between 25 and 40 years. Each individual
property is evaluated quarterly and a useful life is estimated based on
certain factors including construction materials used, location,
condition of the property and the particular capital maintenance program
and requirements of the property.

Maintenance and repair costs are expensed against operations as
incurred, while significant improvements, replacements and major
renovations are capitalized to hotel properties. Furniture, equipment
and certain improvements are amortized on a straight-line basis over
periods of up to ten years.

Intangible assets are amortized using the straight-line method based on
their estimated useful lives over the following periods:

i) Franchise rights and management contracts - 3-10 years,

ii) Customer lists and intellectual and human capital - 1-7 years.

Property under development consists of properties under construction and
are recorded at the lower of cost, including pre-development
expenditures, and their net recoverable amount.

f) Impairment of Long-Lived Assets

Long-lived assets are tested for recoverability whenever events or
changes in circumstances indicate that their carrying value may not be
recoverable. An impairment loss is recognized when their carrying value
exceeds the total undiscounted cash flows expected from their use and
eventual disposition. The amount of the impairment loss is determined as
the excess of the carrying value of the asset over its fair value.

g) Capitalized Costs

Costs associated with the acquisition of hotel properties are
capitalized to the respective hotel property. These costs typically
include realty agent commissions, property transfer taxes, legal fees,
environmental studies, engineering and other direct expenses.

The cost of hotel properties under development includes all expenditures
incurred in connection with the activities of acquiring, developing and
constructing these properties. These expenditures consist of all direct
costs including interest on debt and an appropriate allocation of
general and administrative costs incurred.

h) Inventory

Inventory consists of food, beverages, china, silverware, glassware,
linen and general supplies. These items are recorded at lower of cost or
net replacement value and are determined on a first-in, first-out basis.

i) Financing Costs

Debt financing costs are deferred and amortized on a straight-line basis
over the terms of the related loans.

j) Income Taxes

Royal Host is taxed as a "mutual fund trust" for income tax purposes.
Pursuant to the Declaration of Trust, the Trustees intend to distribute
all taxable income directly earned by Royal Host to its Unitholders and
to deduct such distributions and designations for income tax purposes.

Royal Host utilizes the future income tax asset and liability method of
accounting for future income taxes. This method requires recording a
future income tax amount for the Trust's subsidiaries based on
differences between the carrying amounts of balance sheet items and
their corresponding tax basis. In addition, the future tax benefits of
income tax assets, including unused tax losses, are recognized to the
extent that it is more likely than not that such losses will be
ultimately utilized by the Trust's subsidiaries. Future income tax
assets and liabilities are measured using the enacted tax rates and laws
that are expected to apply when the tax assets or liabilities are to be
either realized or settled.

k) Unit Option Plan

Royal Host has a unit option plan as described in Note 12(d). No
compensation expense is recognized for the plan when options are
granted. Consideration received on exercise of options is credited to
Unitholders' equity.

l) Cash and Cash Equivalents

Cash and short-term investments include all cash and highly liquid
investments with an original maturity of less than three months and
exclude restricted cash.

m) Foreign Currency Translation

The Trust's foreign operations are conducted through integrated
subsidiaries and financial statements are translated using the temporal
method. Accordingly, monetary assets and liabilities denominated in
foreign currencies are translated into Canadian dollars at rates of
exchange in effect at the date of the consolidated financial statements.
Non-monetary assets, liabilities and other items recorded in the net
earnings arising from transactions denominated in foreign currencies are
translated at rates of exchange in effect at the date of the
transaction. The Trust discloses exchange gains and losses as part of
net earnings.

3. CHANGES IN ACCOUNTING POLICIES

a) Disposal of Long-Lived Assets

Effective January 1, 2004, the Trust adopted the new CICA Handbook
Section 3475, Disposal of Long-Lived Assets and Discontinued Operations.
The recommendations of this section require that disposals of long-lived
assets be classified as held for sale, and the results of operations and
cash flows associated with the assets disposed and held for sale be
reported separately as discontinued operations, net of applicable income
taxes. A long-lived asset is classified by the Trust as an asset held
for sale at the point in time when it is available for immediate sale,
management has committed to a plan to sell the asset and is actively
locating a buyer for the asset at a sales price that is reasonable in
relation to the current fair value of the asset, and the sale is
probable and expected to be completed within a one-year period. For
unsolicited interest in a long-lived asset, the asset is classified as
held for sale if all the conditions of the purchase and sale agreement
have been met, a sufficient purchaser deposit has been received and the
sale is probable and expected to be completed shortly after the end of
the current period. The impact of adopting the new recommendations for
disposals of long-lived assets is disclosed in Note 4.

b) Impairment of Long-Lived Assets

Effective January 1, 2004, the Trust prospectively adopted the
recommendations of CICA Handbook Section 3063, Impairment of Long-Lived
Assets. The recommendations of this section require that an impairment
loss on long-lived assets to be held and used be recognized when their
carrying value exceeds the total undiscounted cash flows expected from
their use and eventual disposition. The amount of the impairment loss is
determined as the excess of the carrying value of the asset over its
fair value. The impact of adopting the new recommendations has been
reflected in the consolidated statements of net (loss) earnings as a
property impairment provision.

4. PROPERTY HELD FOR SALE, DISPOSAL OF LONG-LIVED ASSETS AND
DISCONTINUED OPERATIONS

During the second quarter of 2004, the Trust decided to sell certain
hotel properties and had pending sales to two separate, unrelated
buyers. The first pending sale involved an offer to purchase of $5.8
million in net consideration for three properties with a total of 190
rooms in Western Canada, two of which were conditional on mortgage
lender approval. On November 26, 2004 the Trust completed the sale of
one of these hotel properties located in North Battleford, Saskatchewan
for $1.2 million. The pending sale of the two remaining properties was
cancelled as the Trust was unable, as at December 31, 2004, to remove
the two properties from a pool of assets securing a debenture. As a
result, these properties were reclassified from property held for sale
to capital assets at reduced values, after taking a property impairment
provision of $734,000.

The second pending sale involves an offer to purchase of $2.7 million in
net consideration for one property with 95 rooms in Ontario, which is
conditional on a rezoning application. The expected completion date of
the remaining transaction is prior to June 30, 2005.

On May 28, 2004 the Trust completed the sale of a marina and
recreational vehicle facility in Oklahoma, USA for $1.2 million.

The following table sets forth the results of operations associated with
the above noted long-lived assets, separately reported as discontinued
operations for the current and prior years.



Years Ended
December 31, December 31,
2004 2003
---------------------------
($000's) ($000's)
Hospitality Revenues
Rooms 1,365 1,786
Food and beverage 154 1,170
Other hospitality revenues 168 567
---------------------------
1,687 3,523

Hospitality Expenses 1,701 3,241
---------------------------

Gross Margin (14) 282
---------------------------

Other Expenses
Interest on mortgages and other debt 6 4
Capital and other taxes 8 4
Amortization 94 411
Property impairment provision 406 -
(Gain) loss on foreign currency translation (39) 56
---------------------------
475 475
---------------------------
---------------------------

Operating loss from discontinued
operations before income taxes (489) (193)

Future income tax recovery (250) (74)
---------------------------
Operating earnings (loss) from discontinued
operations (239) (119)

Gain on disposition 559 -
---------------------------

Net earnings (loss) from discontinued
operations 320 (119)
---------------------------
---------------------------


5. PROPERTY UNDER DEVELOPMENT

A subsidiary of Royal Host is participating in a joint venture to
develop a portion of the property at the Grand Okanagan Lakefront Resort
and Conference Center in Kelowna, British Columbia for resale. Property
under development reflects Royal Host's proportionate share of the costs
incurred to date to develop the property. Construction of the first
phase of the project, a parkade, commenced January 2004 and was
completed in October 2004. Construction on the residence units commenced
May 2004. Revenue from the sale of land or property is recorded on
closing or, where sold by way of an agreement of purchase and sale, when
the agreement is duly executed and delivered. Profit from the sale of
land or property is recorded on closing or, where sold by way of an
agreement of purchase and sale, when the collection of the sale proceeds
is reasonably assured and all other material conditions are met.

Royal Host accounts for its subsidiary's interest in the above joint
venture on a proportionate consolidation basis. Accordingly, these
financial statements reflect Royal Host's undivided interest in the
assets, liabilities, revenues and expenses in the joint venture. As a
joint venture participant, Royal Host is subject to the normal
development risks associated with property development activity.

The following table sets out Royal Host's proportionate share of the
assets, liabilities, revenues and expenses in the joint venture:



(in $000's)
---------------------------
Years Ended
December 31, December 31,
2004 2003
---------------------------
Assets
Current 100 265
Work in progress 6,870 2,068
Other 146 146
---------------------------
7,116 2,479
---------------------------
---------------------------

Liabilities
Current 1,102 235
Long-term - -
Joint Venturer's Equity 6,014 2,244
---------------------------
7,116 2,479
---------------------------
---------------------------


As the project is still in the development phase during fiscal 2004, no
revenue has been recognized and all costs incurred have been capitalized
to work in progress.

In February 2005, Royal Host, along with its joint venture partner,
entered into a non-revolving $28.0 million financing arrangement
consisting of a $20.0 million construction loan and an $8.0 million
mezzanine loan. The loan proceeds will be used to complete the project.

6. RESTRICTED CASH

Restricted cash is $5,677,000 (2003 - $4,247,000) representing funds on
deposit with lenders pursuant to financing arrangements for future
planned capital expenditures within the next twelve months.



7. CAPITAL ASSETS

(in $000's)
-------------------------------------
Gross Book Accumulated Net Book
Value Amortization Value
-------------------------------------
December 31, 2004

Land 39,712 - 39,712
Buildings 320,723 56,344 264,379
Furniture, fixtures and equipment 38,066 30,765 7,301
Furniture, fixtures and equipment
under capital leases 7,348 4,081 3,267
Paving and other 1,320 460 860
-------------------------------------
407,169 91,650 315,519

Capital assets under development 2,647 - 2,647
Intangible assets
Franchise rights and management
contracts 27,414 15,278 12,136
Customer lists and intellectual
and human capital 7,270 6,970 300
-------------------------------------
444,500 113,898 330,602
-------------------------------------
-------------------------------------


(in $000's)
-------------------------------------
Gross Book Accumulated Net Book
Value Amortization Value
-------------------------------------
(Restated
December 31, 2003 - Note 11)

Land 41,433 - 41,433
Buildings 322,045 50,201 271,844
Furniture, fixtures and equipment 39,221 30,179 9,042
Furniture, fixtures and equipment
under capital leases 7,292 3,126 4,166
Paving and other 1,319 400 919
-------------------------------------
411,310 83,906 327,404

Capital assets under development 1,164 - 1,164
Intangible assets
Franchise rights and management
contracts 27,612 12,679 14,933
Customer lists and intellectual
and human capital 7,270 6,070 1,200
-------------------------------------
447,356 102,655 344,701
-------------------------------------
-------------------------------------


All hotel properties are wholly-owned by Royal Host, except one hotel
property representing less than 5% of total capital assets, which is
jointly owned by Royal Host and the vendor. Pursuant to the Exchange
Agreement dated September 11, 1998, the vendor has an option to exchange
its 50% ownership interest for units of Royal Host. The valuation of
such exchange is to be determined based on a specified industry average
historic capitalization rate and the units of Royal Host are to be
priced based on a 20 day weighted average trading price per unit. This
specified capitalization rate is not determined with reference to a
base-lending rate such as prime rate. This calculation has been taken
into consideration in the diluted per unit calculations in Note 13 and
determined to be anti-dilutive.

On April 1, 2003, Royal Host acquired the Calgary Best Western Village
Park Inn adding 160 guestrooms, for an aggregate purchase price of
$12,786,000.

Royal Host has spent $6,426,000 (2003 - $13,999,000) to renovate and
reposition the hotel properties, excluding capital lease additions
totaling $200,000 (2003 - $1,522,000) and the net purchases of hotel
property for an aggregate purchase price of $Nil (2003 - $12,116,000).

As at December 31, 2004, Royal Host has committed $530,000 to complete
capital assets under development (2003 - $Nil).



8. LONG-TERM NOTES RECEIVABLE AND OTHER ASSETS

(in $000's)
---------------------------
December 31, December 31,
2004 2003
---------------------------


Notes receivable 466 685
Deferred financing costs
(net of accumulated amortization) 2,810 2,612

---------------------------
3,276 3,297
---------------------------
---------------------------


The notes receivable mature between January 1, 2005 and March 18, 2009,
require monthly payments of principal and interest based on individual
customer amortization schedules, and bear interest at rates of between
9.8% and 16.9%. The carrying value of the notes receivable approximates
fair value.



9. MORTGAGES AND OTHER DEBT

(in $000's)
---------------------------
December 31, December 31,
2004 2003
---------------------------

Mortgages and other debt secured by
hotel properties 156,979 161,165
Less current portion 39,083 39,515
---------------------------
Long-term obligations 117,896 121,650
---------------------------
---------------------------

Principal repayments required
for the years ending December 31:
2005 39,083
2006 4,047
2007 21,518
2008 3,658
2009 25,305
Subsequent 63,368
-------------
156,979
-------------
-------------

---------------------------
Supplementary Information: December 31, December 31,
2004 2003
---------------------------
---------------------------
Cash interest paid in the years ended 13,220 13,697
---------------------------
---------------------------


On November 8, 2004, Royal Host completed a financing arrangement for a
$25.0 million, 5-year term mortgage, secured by The Hilton, London,
Ontario and The Chimo Hotel, Ottawa properties. The proceeds were used
to retire $24.5 million of the principal balance outstanding on an
existing $30.0 million portfolio mortgage which matured March 31, 2004.
The interest for the refinanced loan will be paid quarterly at a rate
equal to 7.35% per annum.

On September 29, 2003, Royal Host completed financing in the amount of
$8.7 million, of which the proceeds were used to pay down short-term
debt and for working capital and general corporate purposes. This is a
10 year term mortgage, secured by a certain hotel property. The interest
is 7.37% compounded semi-annually.

On March 27, 2003, Royal Host completed two financings with one lender
in the amounts of $2.4 and $3.7 million, the proceeds to be used for
working capital and corporate purposes. These are 20 year term mortgage
loans, secured by certain hotel properties. The interest is adjusted
semi-annually and is the greater of:

a) 3.2% over the yield on the Government of Canada mortgage benchmark
bond; and

b) A floor of 7.9% per annum.

On February 6, 2003, Royal Host completed financing in the form of a
revolving operating loan, repayable on demand, available to the Trust at
prime rate plus 2.0% per annum payable monthly in arrears or as a First
Bank Acceptance with a Stamping Fee of 3.0% per annum. The proceeds of
this loan are to be used for general working capital purposes. The loan
is secured by a certain hotel property. As at December 31, 2004, Royal
Host had received net advances of funds in the amount of $1,000,000
(2003 - $Nil) related to the arranged financing. Currently, the maximum
amount available for borrowing is $4.0 million.

On February 5, 2003, Royal Host completed financing in the amount of
$6.2 million, the proceeds to be used for working capital and corporate
purposes. This is an operating loan, repayable on demand, bearing
interest at prime plus 1.0% per annum, with interest payable monthly.
The loan is secured by a certain hotel property. As at December 31,
2004, Royal Host had received net advances of funds in the amount of
$1,050,000 (2003 - $3,740,000) related to the arranged financing.

Mortgages and other debt bear interest at rates ranging from 5.13% to
9.47% per annum (2003 - 5.25% to 9.47%) with a weighted average year-end
rate of 8.46% per annum (2003 - 8.62%) and mature between 2005 and 2018.
The mortgages and other debt are secured by fixed charges over specified
hotel properties. Monthly principal and interest payments pursuant to
the indebtedness total $1,365,000 at December 31, 2004 (2003 -
$1,405,000).

Financing charges are deferred and amortized over the term of the
related debt. In 2004, $594,000 was included in amortization (2003 -
$660,000).

10. OBLIGATIONS UNDER CAPITAL LEASES

Royal Host has entered into various capital lease obligations to acquire
computers and hotel furniture, fixtures and equipment. The present
values of minimum lease payments under capital lease as of December 31,
2004 are as follows:



(in $000's)
---------------------------
December 31, December 31,
2004 2003
---------------------------

Present value of future minimum lease
payments 1,524 2,354
Less current portion 563 864
---------------------------
Long-term obligations 961 1,490
---------------------------
---------------------------

Years ending December 31
2005 671
2006 475
2007 347
2008 238
2009 -
----------
Future minimum lease payments 1,731
Amounts representing interest 207
----------
Present value of future minimum lease payments 1,524
----------
----------


The leases outstanding at December 31, 2004 bear interest at a weighted
average annual rate of 8.25% per annum (2003 - 8.42%).

11. FUTURE INCOME TAXES

The Trust has tax losses of approximately $2,710,000 (2003 - $1,541,000)
available to reduce future taxable income. The losses will begin to
expire in 2008, but the majority of the losses will expire in 2010 and
2011. The adjustment for the change in effective tax rates reflects the
benefit from the reduction of the currently substantially enacted
federal rate resulting in combined federal and provincial rates of
between 34.1% and 39.1%, depending on the province.

The net future income tax liability is calculated as follows:



(in $000's)
---------------------------
December 31, December 31,
2004 2003
---------------------------
(Restated)
Tax assets relating to operating losses 1,004 583
Tax assets (liabilities) relating to
differences in tax and book basis and
other items (8,329) (7,715)
---------------------------

Net future tax liability (7,325) (7,132)
---------------------------
---------------------------


The prior year's future tax liability balance and capital asset balance
have been increased by $6,365,000 to reflect additional differences
between the carrying value of assets and their corresponding tax basis
for capital assets held in the Trust subsidiaries. This adjustment has
no material impact on the consolidated statements of net earnings or
equity of the prior year.



12. EQUITY

(in $000's)
---------------------------
December 31, December 31,
2004 2003
---------------------------

Balance, beginning of year 93,366 111,261
Net earnings 1,557 19
Issuance of trust units
Distribution reinvestment plan 309 629
Employee loans pursuant to
employee unit purchase program (Note 13(g)) 17 8
Equity financing issue costs (1,607) -
Contributed surplus - 89
Equity distributions
Trust units (5,872) (11,667)
Redeemable partnership units (756) (1,513)
Interest paid on convertible debentures (6,158) (5,460)
---------------------------
80,856 93,366
---------------------------
Convertible Equity
Redeemable partnership units 27,500 27,500
Convertible debentures 75,000 62,000
---------------------------
102,500 89,500
---------------------------

---------------------------
Balance, end of year 183,356 182,866
---------------------------
---------------------------

a) Unit Capital

Number
of units (in $000's)
---------------------------

Balance, December 31, 2002 24,634,976 222,908
Issuance of trust units
Distribution reinvestment plan 127,368 629
---------------------------
Balance, December 31, 2003 24,762,344 223,537
Issuance of trust units
Distribution reinvestment plan 62,598 309
---------------------------
Balance, December 31, 2004 24,824,942 223,846
---------------------------
---------------------------


As is common with REITs and other income trusts, Royal Host distributes
cash in excess of the net earnings, and accordingly an accumulated
deficit results, which at December 31, 2004 amounts to $142,990,000
(2003 - $130,171,000).

b) Distributions to Unitholders

For the year ended December 31, 2004, distributions declared to
Unitholders, excluding distributions on redeemable partnership units,
aggregated $5,872,000 (2003 - $11,667,000). The distributions to holders
of redeemable partnership units for fiscal 2004 were $756,000 (2003 -
$1,513,000) and interest on convertible debentures was $6,158,000 (2003
- $5,460,000).

c) Distribution Reinvestment Plan

Royal Host has established a Distribution Reinvestment Plan ("DRIP")
that is administered by its transfer agent and has reserved 500,000
units for issue under this Plan. For the period January 2001 to July
2001, the transfer agent purchased DRIP units on the open market.
Subsequent to July 2001, Royal Host has issued new units for DRIP
participants out of the previously authorized reserved units.

d) Unit Options

Royal Host has reserved 1,883,000 units under its unit option plan. As
at December 31, 2004, Royal Host has unit options outstanding to certain
board members, employees and consultants to purchase an aggregate total
of 137,500 units (December 31, 2003 - 852,500 units), at an exercise
price of $10.00 per unit (December 31, 2003 - weighted average exercise
price of $10.03). All unit options were issued prior to 1999 and were
fully vested and exercisable at the end of December 31, 2004 and 2003.
The options currently outstanding expire on October 31, 2007. Of the
options outstanding at December 31, 2003, 797,500 options were to expire
as of October 31, 2007 and 55,000 options as of March 23, 2008. During
2004 and 2003, no options were issued or exercised and no options
expired in the year ended December 31, 2004 (December 31, 2003 -
55,000). As per agreements signed April 21, 2004, 715,000 options held
by board members and executives of Royal Host were cancelled and
terminated by agreement of the Board of Trustees. Of these cancelled
unit options, 660,000 options were to expire October 31, 2007 and 55,000
options were to expire on March 23, 2008.

e) Redeemable Partnership Units

Holders of redeemable partnership units ("Holders") are entitled to
receive distributions indirectly from Royal Host equivalent to the
distributions paid by Royal Host to its Unitholders, commencing on
January 1, 1999. Each partnership unit is redeemable by the Holders
after January 1, 2000 at a cash price equal to the market value of a
Royal Host unit, or at the option of Royal Host and subject to
regulatory approval, one Royal Host unit or a combination thereof.
Subsequent to December 31, 2004, the holders of the redeemable
partnership units gave notice of redemption.

For accounting purposes, the redeemable partnership units have equity
characteristics and accordingly they are classified as equity
instruments.

f) Convertible Debentures

i) 9.25% Convertible Unsecured Subordinated Debentures

The convertible debentures of $40,000,000 bear interest at 9.25% per
annum and are payable semi-annually in arrears on March 1 and September
1 in each year commencing September 1, 2002.

On redemption or at maturity on March 1, 2007, Royal Host has the option
to repay the debentures in either cash or in equivalent units of Royal
Host. The number of units to be issued will be determined by dividing
the principal amount of the debentures by 95% of the current market
price of the units. The term "current market price" is defined in the
Indenture to mean the weighted average trading price of the units on the
TSE for the twenty (20) consecutive trading days ending on the fifth (5)
trading day preceding the date of maturity.

The debentures will not be redeemable on or before March 1, 2005.
Thereafter, the debentures will be redeemable, in whole at any time or
in part from time to time, at the option of Royal Host on at least 30
days prior notice at a price equal to the principal amount thereof, plus
accrued and unpaid interest, provided that the current market price
preceding the date upon which notice of redemption is given is at least
125% of the conversion price of $7.00 per unit.

Based on certain conditions, the debentures are convertible, at the
holders' discretion, at $7.00 per trust unit from date of issue to
maturity at March 1, 2007.

ii) 7.90% Convertible Unsecured Subordinated Debentures, Series A

During the quarter ended June 30, 2004, $35,000,000 convertible
unsecured subordinated debentures were issued. These debentures bear
interest at 7.90% per annum and are payable semi-annually in arrears on
April 30 and October 31 in each year commencing October 31, 2004.

The Series A debentures may not be redeemed by Royal Host prior to the
maturity date. At maturity on April 30, 2009, Royal Host has the option
to repay the debentures in either cash or in equivalent units of Royal
Host. The number of units to be issued will be determined by dividing
the principal amount of the debentures by 95% of the current market
price of the units. The term "current market price" is defined in the
Indenture to mean the weighted average trading price of the units on the
TSX for the twenty (20) consecutive trading days ending on the fifth (5)
trading day preceding the date of maturity.

Based on certain conditions, the debentures are convertible, at the
holders' discretion, at $6.00 per trust unit at any time from the date
of issue to close of business on the day prior to the maturity date,
April 30, 2009.

Royal Host used approximately $22.0 million of the net proceeds of the
Debentures to retire its 8.00% Convertible Secured Debentures and the
balance will be used for working capital and general trust purposes,
including acquisitions.

For accounting purposes, the convertible debentures have equity
characteristics and accordingly they are classified as equity
instruments in 2004. Effective January 1, 2005, the Trust will be
implementing the changes to CICA Handbook Section 3860, Financial
Instruments - Disclosure and Presentation. The recommendations of this
section require certain instruments that may be settled in cash or by a
variable number of an issuer's own equity instruments, at the issuer's
discretion, to be presented as liabilities. As a result, the convertible
debentures will be classified as liabilities in 2005.

g) Employee Unit Purchase Program

During 2000, the Trustees approved the issuance of up to 400,000 units
from treasury for an employee unit purchase program. Under this program,
certain approved Royal Host employees (excluding certain senior
executives) were eligible to finance the purchase of units from treasury
at a prescribed per unit rate based on current market values.

As at December 31, 2004, 182,500 units (2003 - 182,500 units) were
allocated under this plan. The employee unit purchase program represents
a financing program for selected employees to purchase units of Royal
Host. Royal Host has outstanding employee loans receivable, net of
additions and terminations, of $896,000 (2003 - $913,000) with respect
to the program. These loans bear interest at a fixed rate of 3.0% per
annum (2003 - 3.0%), a rate established based on consideration of
existing institutional rates and Canada Revenue Agency ("CRA")
guidelines for employee loan rates. This plan structure does not meet
the definition of stock based compensation plans, and therefore does not
fall under the Handbook Section 3870 - Stock Based Compensation Plans.

In accordance with EIC ("Emerging Issues Committee") 44, for accounting
purposes, these employee loans receivable have been offset against the
corresponding trust units equity.

13. PER UNIT COMPUTATIONS

There were 24,824,942 trust units outstanding as at December 31, 2004
(2003 - 24,762,344). Per unit computations are based on the weighted
average number of trust units outstanding for the year, after adjusting
the net earnings for payments on the convertible debentures of
$6,158,000 (2003 - $5,460,000) and payments on the redeemable
partnership units of $756,000 (2003 - $1,513,000).




For the years ended: December 31, 2004 December 31, 2003
--------------------------------------------------
($000's) Weighted Per ($000's) Weighted Per
Average Unit Average Unit
Units Units
(000's) (000's)

Earnings
Earnings-continuing
operations 1,237 138
Less:
Distributions on
redeemable
partnership units (756) (1,513)
Interest on 8.00%
convertible
debentures (524) (1,760)
Interest on 9.25%
convertible
debentures (3,700) (3,700)
Interest on 7.90%
convertible
debentures (1,934) -
--------------------------------------------------
Basic loss -
continuing
operations (5,677) 24,574 (0.23) (6,835) 24,550 (0.28)
Basic earnings
(loss)
- discontinued
operations 320 0.01 (119) -
--------------------------------------------------

Basic loss
- total operations (5,357) 24,574 (0.22) (6,954) 24,550 (0.28)
Unit options 138 852
Unit option
repurchase (271) (1,774)

--------------------------------------------------
Diluted loss
- total operations (5,357) 24,441 (0.22) (6,954) 23,628 (0.29)
--------------------------------------------------
Diluted earnings (loss)
- discontinued
operations 320 24,441 0.01 (119) 23,628 -
Diluted loss
- continuing
operations (5,677) 24,441 (0.23) (6,835) 23,628 (0.29)


In computing the diluted earnings per unit from total operations in
fiscal 2004 and 2003, the convertible debentures and redeemable
partnership units had an anti-dilutive impact on earnings and therefore
did not impact the calculation.

14. COMMITMENTS

a) Energy Contracts

Royal Host has entered into long-term supply arrangements with two
electrical utility companies and a natural gas provider to supply
electricity and natural gas requirements for certain properties.

i. Electricity

The electricity contracts are for a term of five years at a blended rate
of approximately 7.17 cents per kilowatt-hour, excluding delivery, for
annual usage of approximately 13.5 million kilowatt-hours in 2005 (2004
- approximately 7.12 cents per kilowatt-hour for approximately 14.9
million kilowatt-hours).

ii. Natural Gas

The natural gas contract is for a term of five years, at a rate of
approximately 26.90 cents per cubic meter, excluding delivery, on annual
usage of approximately 524,000 cubic meters for 2005 (2004 - 26.90 cents
per cubic meter for approximately 569,000 cubic meters). Royal Host is
not required to guarantee usage levels for any contracts.

b) Contractual Guarantee

Royal Host has guaranteed the lease obligations of an unincorporated,
independent vacation club society (the "Society") for a period of five
years, effective from the lease commencement date of January 1, 2002,
should the Society default on any obligations. Royal Host has avenues to
pursue recourse with the Society for the full extent of any default on
the lease payments. The maximum potential amount of future payments for
the period from January 1, 2005 to December 31, 2006 is approximately
$443,000. The estimated fair value of this obligation is $408,000. As at
December 31, 2004, the Society has not defaulted on any lease payments.

c) Private Residence Club Guarantee

Pursuant to the loan agreement described in Note 5, Royal Host has
provided a completion, cost overrun and debt service deficiency
guarantee on the construction loan along with a specific guarantee of
the payment of notes receivable from existing limited partnership
unitholders. In addition, Royal Host has guaranteed the full $8.0
million mezzanine loan.

d) Other Guarantees and Indemnifications

In the normal course of business, the Trust may provide indemnification
to counterparties in transactions such as credit facilities, leasing
transactions, service arrangements, director and officer indemnification
agreements and sales of assets. These indemnification agreements may
require the Trust to compensate the counterparties for costs incurred as
a result of changes in laws and regulations (including tax legislation)
or as a result of litigation claims or statutory sanctions that may be
suffered by counterparties as a consequence of the transaction. The
terms of these indemnification agreements may vary based on the contract
and do not provide any limit on the maximum potential liability. To
date, the Trust has not made any significant payments under such
indemnifications and no amount has been accrued in the financial
statements with respect to these indemnification agreements.

In the normal course of business, the Trust may enter into various
agreements that may meet the AcG-14 definition of a guarantee. AcG-14
defines a guarantee to be a contract (including an indemnity) that
contingently requires the Trust to make payments to the guaranteed party
based on (i) changes in an underlying interest rate, foreign exchange
rate, equity or commodity instrument, index or other variable, that is
related to an asset, a liability or an equity security of the
counterparty, (ii) failure of another party to perform under an
obligating agreement or, (iii) failure of a third party to pay its
indebtedness when due.

15. FRANCHISE AND MEMBERSHIP AGREEMENTS

Under the terms of the hotel franchise agreements expiring at various
dates commencing October 31, 2007 through to December 12, 2021, annual
payments for franchise expenses (including fees, reservation and
advertising services) are due to external parties for 34 of the 38
hotels owned by Royal Host (2003 - 35 of the 39 hotels).

In 2003, Royal Host acquired a hotel property (see Note 7) that required
it to enter into a membership agreement for which the member fees are
paid to an external party. The membership agreement is for one-year
terms, renewable annually at the end of the membership organization's
fiscal year (November 30).

The franchise royalties and membership fees paid to external parties are
calculated based upon percentages of defined revenues and amounted to
$2,209,000 for the year (2003 - $2,233,000).

16. OPERATING LEASES

Certain property and equipment is leased under operating lease
agreements expiring at varying intervals. The following is a five-year
schedule for future minimum rental payments required under these leases
as at December 31, 2004:



Years ending December 31 ($000's)

2005 853
2006 473
2007 252
2008 89
2009 24
-------
Total future minimum rental payments 1,691
-------
-------


17. RISK MANAGEMENT

Royal Host's key financial risk exposures include credit risks arising
from receivables from corporate accounts and amounts owed by purchasers
of timeshares, commodity price risk on utilities and interest rate risk
arising from fluctuations in interest rates.

Credit risks are minimized, as amounts due from any one debtor are not
significant and routine credit assessments are carried out prior to
credit being granted. The accounts receivable from timeshare owners are
secured by the timeshares purchased.

Commodity price risk is managed through the use of fixed price
contracts, where available, for the stable supply of natural gas and
electricity in the jurisdictions where such commodities have been
de-regulated.

Interest rate risk is continually monitored and managed through limiting
the amount of variable rate debt as well as the total amount of debt.
The amount of variable rate debt aggregated $7,031,000 or 3.0% of the
Royal Host total debt portfolio as at December 31, 2004 (2003 -
$9,157,000 or 4.1%). Variable rates for 2004 ranged from prime plus 3/4%
to prime plus 2.0% (2003 - prime plus 3/4% to prime plus 2.0%).

18. FAIR VALUES

Current assets and liabilities approximate their carrying values at
December 31, 2004, due to their short-term nature. The fair values of
the non-current portion of mortgages and other debt and convertible
equity instruments are as follows:




(in $000's) Carrying Values Fair Values
----------------------------------

Mortgages and other debt 117,896 125,414

Capital leases 961 1,035

Redeemable partnership units and
convertible debentures 102,500 107,341


Fair value estimates are made at a specific point in time based on
relevant market information. These are estimates and involve
uncertainties and matters of significant judgment and cannot be
determined with precision. Changes in assumptions and estimates could
significantly affect fair values.

19. SUBSEQUENT EVENTS

a) Refinancing

On January 13, 2005, Royal Host completed the early replacement of
mortgage debt on the Grand Okanagan Lakefront Resort and Conference
Center ("the Grand"). The existing $25.0 million mortgage, which was
originally scheduled to mature in August 2005, has been increased to
$35.0 million for a five-year term with a 7.50% fixed interest rate. The
additional proceeds will be utilized for working capital and general
corporate purposes.

b) Sale of Interest in Hotel Property

Effective February 23, 2005, Royal Host completed the sale of its 50%
interest in a hotel property located in Toronto, Ontario. The property
was sold for proceeds of $10.8 million consisting of $7.0 million cash
and a $3.8 million 8% vendor take-back ("VTB") mortgage with a 60-day
term. Royal Host will continue to operate the property as a hotel
following the closing date in order to wind up the hotel operations.
Royal Host will be entitled to all operating revenues and shall fund all
operating and closing costs during the wind up period. The net cost of
the winding up of the business will be reimbursed to Royal Host in the
form of a 0%, 18-month VTB mortgage.

20. COMPARATIVE FIGURES

Certain prior year's figures have been reclassified to conform to the
presentation adopted for 2004.

-30-

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