Royal Host Real Estate Investment Trust
TSX : RYL.UN
TSX : RYL.DB.B
TSX : RYL.DB.C
TSX : RYL.DB.D

Royal Host Real Estate Investment Trust

November 15, 2010 09:27 ET

Royal Host REIT Announces Second Quarter Results, Announces Distribution of $0.025 to Unitholders and Signs Agreement to Convert to a Corporation

HALIFAX, NOVA SCOTIA--(Marketwire - Nov. 15, 2010) - Royal Host Real Estate Investment Trust (TSX:RYL.UN) (TSX:RYL.DB.B) (TSX:RYL.DB.C) (TSX:RYL.DB.D) ("Royal Host" or the "Trust") today announced results for the three and nine months ending September 30, 2010.

For the three and nine month periods ended September 30, 2010, business at the Trust's hotels increased as compared to the same periods in 2009 with higher Occupancy rates offset by lower Average Daily Rate, an indication of the intense competition experienced in all markets.

For the three months ended September 30, 2010, Royal Host ($000's except as otherwise noted): 

  • Announced it's intention to convert to a dividend paying corporation;

  •  Repaid a mortgage pool in the amount of $10,218 utilizing cash on hand and the Trust's credit facility. Seven of the eight properties that previously secured the mortgage pool are now unencumbered.

  • Generated overall Occupancy of 61.9% (2009 – 59.4%), Average Daily Rate of $96.12 (2009 - $98.52) and Revenue per Available Room of $59.49 (2009 - $58.54);

  • Generated $5,499 of hospitality gross margin (2009 - $7,317) from $24,634 of hospitality revenue (2009 - $25,196);

  • Launched a complete renovation of the Oakville Holiday Inn to modernize and refresh the property as part of $2,792 in capital spending in the quarter;

  •  Had a comprehensive loss of $1,582, including an other comprehensive loss of $589 and a loss of $17 from discontinued operations (2009 – comprehensive income of $4,087, including other comprehensive income of $6,189 and income of $121 from discontinued operations);

  •  Realized net loss of $993 (2009 – net loss of $2,102), or loss of $0.05 per unit (2009 – loss of $0.10 per unit).

For the nine months ended September 30, 2010, Royal Host ($000's except as otherwise noted):

  • Generated overall Occupancy of 56.7% (2009 – 54.7%), Average Daily Rate of $97.09 (2009 - $99.50) and Revenue per Available Room of $55.05 (2009 - $54.47).

  • Generated $13,393 of hospitality gross margin (2009 - $16,229) from $69,748 of hospitality revenue (2009 - $70,856);

  • Had a comprehensive loss of $6,626, including an other comprehensive loss of $10,955 and a loss of $496 from discontinued operations (2009 – comprehensive income of $3,450, including other comprehensive income of $6,067 and loss of $39 from discontinued operations);

  • Realized net income of $4,329 (2009 – net loss of $2,617), or income of $0.24 per unit (2009 – loss of $0.13 per unit).

RESULTS OF OPERATIONS

The following summarizes the key operating metrics for Royal Host during the three and nine months ended September 30, 2010.

    Three months ended Nine months ended  
    September 30 September 30  
    2010 2009 2010 2009  
  RevPAR $59.49 $58.54 $55.05 $54.47  
  Occupancy 61.9% 59.4% 56.7% 54.7%  
  ADR $96.12 $98.52 $97.09 $99.50  

SELECTED FINANCIAL INFORMATION

The following table highlights the Trust's financial results for the three and nine months ended September 30, 2010.

  Three months ended Nine months ended
  September 30 September 30
    ($000's, except as otherwise noted) 2010 2009 2010 2009
  Hospitality Revenue (Continuing Operations) 24,634 25,196 69,748 70,856
  Hospitality Expenses 19,135 17,879 56,355 54,627
  Hospitality Gross Margin 5,499 7,317 13,393 16,229
  Hospitality Gross Margin % 22.3% 29.0% 19.2% 22.9%
  Investment Income 4 (2,260) 13,043 3,958
  Other Expenses 7,013 7,500 23,745 23,373
  Future Income Tax Recovery (534) (220) (2,134) (608)
  Income (Loss) From Continuing Operations (976) (2,223) 4,825 (2,578)
  Income (Loss) From Discontinued Operations (17) 121 (496) (39)
  Net Income (Loss) (993) (2,102) 4,329 (2,617)
  Other Comprehensive Income (Loss) (589) 6,189 (10,955) 6,067
  Comprehensive Income (Loss) (1,582) 4,087 (6,626) 3,450
  Basic Per Unit Net Income (Loss) ($)        
      From Continuing Operations (0.05) (0.11) 0.27 (0.13)
      From Discontinued Operations - 0.01 (0.03) -
        (0.05) (0.10) 0.24 (0.13)
  Distributable Income 754 3,205 (2,221) 5,725
  Basic Per Unit Distributable Income ($) 0.04 0.16 (0.12) 0.29
  Per Unit Distributions Declared ($) 0.075 0.105 0.225 0.435

Outlook

In its October 2010 Monetary Policy Report, the Bank of Canada suggests that the economic outlook for Canada has changed and now expects the economic recovery to be more gradual than previously projected. Real GDP is forecast to grow by 3.0% in 2010, 2.3% in 2011 and 2.6% in 2012. The Canadian economy is expected to return to full capacity and inflation return to the 2% target by the end of 2012.

PKF Consulting Inc, a hotel focused consulting group, released a market outlook in October, 2010 that forecast the Canadian hotel market will record a 4.1% increase to revenue per available room (RevPAR) in 2010 and projected a further 3.9% increase in 2011. These increases come after a 12% decline in 2009.

The improving economic conditions in Canada and positive projections for the hotel sector are encouraging for future results of the Trust. Royal Host continues its work to position hotel properties and its franchise business to take advantage of these positive trends.

Distribution

Royal Host has declared a distribution of $0.025 per unit, payable December 15, 2010, to unitholders of record on November 30, 2010.

Royal Host Real Estate Investment Trust Signs Agreement to Convert to a Corporation

Royal Host also announced today that it has signed a definitive agreement (the "Arrangement Agreement") with Royal Host Commercial Trust and Royal Host Inc. ("RHC"), a newly incorporated wholly- owned subsidiary of the Trust, setting out the principal terms of a proposed arrangement to convert the Trust to a publicly listed corporation (the "Arrangement").

The Arrangement will be submitted for approval to Royal Host's unitholders (the "Unitholders") at the Trust's special meeting of Unitholders (the "Meeting") to be held in Halifax, Nova Scotia on December 15, 2010.

Principal Terms of the Arrangement

Pursuant to the Arrangement, the Unitholders will receive, for each unit of the Trust ("Unit") held, one common share of RHC ("RHC Share") at the effective time of the Arrangement (the "Effective Time"), which is expected to be 12:01 a.m. (E.S.T) on January 1, 2011 (the "Effective Date").

In connection with the Arrangement, RHC will assume all of the covenants and obligations of the Trust under the indenture (the "Debenture Indenture") dated February 21, 2002, as amended and supplemented from time to time, between the Trust and Computershare Trust Company of Canada (the "Debenture Trustee") in respect of the Trust's outstanding 5.90% convertible unsecured subordinated debentures, 6.00% convertible unsecured subordinated debentures and 6.25% convertible unsecured subordinated debentures (collectively, the "Debentures").

Provided the Arrangement is completed, holders of Debentures will be entitled to receive RHC Shares rather than Units on conversion of such Debentures after the Effective Date, on the same conversion basis as Units were previously issuable on conversion thereof. All other terms and conditions of the Debenture Indenture will continue to apply. At the Effective Time, the Debentures to be assumed by RHC pursuant to the Arrangement and the RHC Shares to be reserved for issuance on conversion, redemption or maturity of such Debentures, will be listed on the Toronto Stock Exchange ("TSX"), subject to TSX approval. Immediately following the Effective Time, RHC and the Debenture Trustee will enter into a supplemental debenture indenture giving effect to the assumption of the Debentures by RHC in accordance with the requirements of the Debenture Indenture.

Approvals and Closing of the Transaction

The information circular being prepared in connection with the Meeting (the "Information Circular") will include a summary of the Arrangement Agreement and any additional details concerning the Arrangement. Unitholders should review the full text of the Arrangement Agreement (including the plan of arrangement attached as Exhibit "A" to the Arrangement Agreement) which will be filed on SEDAR at www.sedar.com.

Royal Host expects to mail the Information Circular to Unitholders in respect of the Arrangement on or about Tuesday, November 23, 2010. The Unitholder vote in respect of the Arrangement will take place at the Meeting. To proceed, the Arrangement must be approved by the holders of at least 66 2/3% of Royal Host's Units represented at the Meeting. The Arrangement is also subject to the approval of the Supreme Court of Nova Scotia and receipt of all regulatory approvals. If all conditions are met, the Arrangement is scheduled to close on or about January 1, 2011.

Board Recommendation

The Board of Trustees have unanimously determined that the Arrangement is fair to Unitholders and is in the best interests of the Trust and Unitholders, and recommend that the Unitholders vote in favour of the arrangement resolution as will be presented in the Information Circular.

Forward-Looking Statements

This press release contain forward-looking statements. Forward-looking information and statements are identified by words or phrases such as "anticipates", "expects", "believes", "estimates", "intends", "could", "may", "plans", "predicts", "projects", "will", "would", "foresees", "remain confident that" and other similar expressions or the negative of these terms and include, without limitation, forward-looking statements made in this press release relating to: (i) distributions and dividends; (ii) expected timing of the Arrangement; (iii) listing on stock exchanges and the timing thereof; (iv) expected timing of court hearings; (v) tax implications of the Arrangement; and (vi) mailing and filing date of meeting materials. Actual events or results may differ materially.

Forward-looking statements included in this press release are made based on management's belief as well as assumptions made by, and information currently available to, management of the Trust. While such beliefs and assumptions are considered reasonable by the Trust, they are inherently subject to significant business, economic and competitive uncertainties and contingencies. A number of important factors could cause actual results to differ materially from those projected in the forward-looking statements. These uncertainties and risks include, but are not limited to: (i) changes in laws and regulations affecting the Trust or Newco and their respective business operations, (ii) changes in taxation of the Trust or Newco, (iii) general economic and business conditions in the markets affecting the Trust or Newco, (iv) failure to satisfy the conditions of the conversion, (v) inability to meet stock exchange listing requirements, (vi) inability to obtain required consents, permits or approvals, for the conversion, including the requisite Unitholder approval and court approval of the Arrangement, (vii) inability to meet or continue to meet listing requirements; (viii) failure to realize anticipated benefits of the Arrangement; (ix) actual future market conditions and actual future operating and financial results being different than anticipated by management and the board of trustees of the Trust; (x) stock market volatility and the inability to access sufficient capital from internal and external sources; (xi) fluctuation in foreign exchange or interest rates. The foregoing list is not exhaustive. In addition, these forward-looking statements relate to the date on which they are made. Although the forward-looking statements contained herein are based upon what management believes to be reasonable assumptions, the Trust cannot assure Unitholders that actual results will be consistent with these forward-looking statements, and, except as required by law, the Trust disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In formulating the forward-looking statements herein, management has assumed that business and economic conditions affecting it will continue substantially in the ordinary course, including without limitation with respect to industry conditions, general levels of economic activity, regulation, taxes, foreign exchange rates and interest rates, that there will be no unexpected material changes in its facilities, customer and employee relations, credit arrangements or credit and collections experience.

About Royal Host

Royal Host is a uniquely diversified hospitality trust that delivers Unitholder value through hotel ownership, investment, and franchising. Royal Host's portfolio of Canadian hotels operates under a variety of recognizable brands as well as a number of unbranded properties. The Trust's hotel portfolio is further enhanced by a stable franchising business, and a portfolio of publicly-traded securities from within the hospitality and service sectors.

Royal Host trust units and convertible debentures are traded on the Toronto Stock Exchange under the trading symbols "RYL.UN", "RYL.DB.B", "RYL.DB.C" and "RYL.DB.D", respectively.

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