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Royal Host Inc. Announces Fourth Quarter Results, Annual Results and Board of Directors Changes

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HALIFAX, NOVA SCOTIA -- (Marketwire) -- 03/28/13 -- Royal Host Inc. (TSX: RYL) (TSX: RYL.DB.B) (TSX: RYL.DB.C) (TSX: RYL.DB.D) ("Royal Host" or the "Company") today announced results for the three months (the "Fourth Quarter") and year ended December 31, 2012.

ANNUAL HIGHLIGHTS

($000's except key performance indicators)

The Company experienced a slight decrease in its revenue and gross margin from Comparable Hotels(1) as compared to 2011. Revenues and gross margins were up overall at the Company's comparable full service hotels. These improvements were offset by an overall decline at the Company's select service hotels. 2012 RevPAR at Comparable Hotels was down 1.1% with comparable full service RevPAR steady and comparable select service RevPAR down 3.7%.

(1) Comparable Hotels are hotels owned by the Company for the entire current period as well as the comparable period from the prior year. The six hotels sold by the Company during 2011, two hotels sold during 2012 and one hotel damaged by a fire during 2011 and a flood in 2012 are not included in Comparable Hotel information throughout this press release (both financial information and operational Key Performance Indicators).

Highlights of the financial results of the year ended December 31, 2012 include:

-- Recorded a decline in Comparable Hotel revenue of 0.8% to $68,835 compared to $69,398 in 2011.-- Generated Comparable Hotel RevPAR of $54.02, a decrease of 1.1% over $54.61 in 2011, Comparable Hotel Occupancy of 56.7% (2011 - 56.9%), and Comparable Hotel ADR of $95.26 (2011 - $95.94).-- Achieved a 15.8% increase in franchising revenue to $2,039 from $1,761 in 2011.-- Experienced an increase in Comparable Hotel Gross Margin Percentage of 0.5 percentage points to 18.8% in 2012 from 18.3% in 2011.-- Recorded an increase in net loss of $8,394 including a $6,273 year-over- year decline in gains from property sales and a $5,108 year-over-year decline in gains from debenture repurchases.-- Funds From Operations declined by $4,490 including a $5,108 decline in year-over-year gains on the repurchases of convertible debentures.-- Adjusted Funds From Operations declined $3,973 to $168 from $4,141 in 2011.-- Invested $8,482 in capital improvements at its hotels compared to $3,218 in 2011, completing repositionings of three of its four hotels in Atlantic Canada.-- Achieved an increase in cash flow from operations of $2,222 to $3,155 from $933 in 2011 primarily as a result of decreased interest and corporate administration costs.-- Achieved an 8.6% decline in corporate administration costs.



Key events of the year ended December 31, 2012 include:

-- Completed substantial issuer bids ("SIB") which resulted in the repurchase in July 2012 of $2,000 in principal value of the Company's 6.25% convertible debentures (now known as 7.50% convertible debentures), $5,631 in principal value of the Company's 5.90% convertible debentures and $7,567 of the Company's 6.00% convertible debentures and when combined with repurchases under normal course issuer bids ("NCIBs") recorded an accounting gain of $865.-- Sold (i) two non-core select service hotels and a parcel of vacant land for gross proceeds of $5,262 yielding a pre-tax loss on disposition of properties of $54 and (ii) its entire investment of trust units in a lodging REIT for $369.-- Completed the refinancing of the $20,147 mortgage secured by the London Hilton and the Ottawa Chimo properties extending the mortgage maturity to 2017 and providing more than $9,000 to fund the renovation and branding of the Ottawa Chimo property which is currently underway. Executed franchise agreements with Holiday Inn® and Ramada® related to its hotels in Ottawa, Ontario and Trenton, Ontario, respectively. In addition, converted its full service hotel in Thunder Bay, Ontario to the independently branded Airlane Hotel and Conference Centre.-- Amended the terms of its Series C, 6.25% convertible subordinated debentures due September 30, 2013, extending the maturity to September 30, 2018, increasing the annual interest rate by 1.25% to 7.50%, and reducing the conversion price from $4.87 to $3.50 per Common Share in the Company.-- Borrowed $7,000 under two separate loan facilities with Clarke Inc. ("Clarke") to fund subsequent repurchases of convertible debentures under a Substantial Issuer Bid and also repaid $2,000 to extinguish one of the Clarke facilities.



SELECTED FINANCIAL INFORMATION

The following table highlights the Company's financial results for the three month and annual periods ending December 31:

---------------------------------------------------------------------------- Three months ended Year ended December 31 December 31 ------------------------------------------------($000's, except as otherwise noted) 2012 2011 2012 2011----------------------------------------------------------------------------Hospitality Revenue (1) 18,500 19,552 76,214 88,867Hospitality Expenses 14,807 16,172 61,402 70,623 ------------------------------------------------Gross Margin(2) 3,693 3,380 14,812 18,244Gross Margin % (2) 20.0% 17.3% 19.4% 20.5% Investment Income 3 3,914 681 4,542 Finance Costs (2,475) (3,052) (10,620) (13,637) Corporate and administrative (750) (811) (3,230) (3,533) Other (Expenses) Income (4,614) (3,016) (10,046) (5,645) ------------------------------------------------Net Income (Loss) 4,143 415 (8,403) (29) ------------------------------------------------Basic Income (Loss) per Share ($) $ 0.24 $ 0.02 $ (0.47) $ 0.00Diluted Income (Loss) per Share ($) $ 0.24 $ (0.11) $ (0.47) $ 0.00FFO (2) 340 4,454 3,135 7,625Basic FFO per Share $ 0.02 $ 0.25 $ 0.18 $ 0.43Number of Shares Outstanding (000's) 17,551 17,582 17,551 17,582Weighted Average Shares Outstanding (000's) 17,585 17,582 17,584 17,538Closing Share Trading Price ($) $ 1.02 $ 1.48 $ 1.02 $ 1.48



As at March 28, 2013, Royal Host had 17,490,675 common shares outstanding

(1) Hospitality revenue and hospitality expenses have been reclassified for 2011 and previously reported quarters of 2012 as the result of a 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) Items represent non-GAAP financial measures.



HOSPITALITY REVENUE

The following table highlights the Company's hospitality revenue composition for the three month and annual periods ending December 31:

---------------------------------------------------------------------------- Three months ended Year ended December 31 December 31 ----------------------------------------------------($000's) 2012 2011 Variance 2012 2011 Variance----------------------------------------------------------------------------Hotel revenue - full service 12,712 13,163 (451) 51,437 51,584 (147)Hotel revenue - select service 4,092 4,196 (104) 17,398 17,814 (416)----------------------------------------------------------------------------Comparable Hotel revenue 16,804 17,359 (555) 68,835 69,398 (563)----------------------------------------------------------------------------Non-comparable hotel revenue 418 1,001 (583) 2,239 14,329 (12,090)Franchise revenue 531 424 107 2,039 1,761 278Tenant revenue 294 297 12 1,165 1,232 (67)Other revenue 453 471 (87) 1,936 2,147 (211)----------------------------------------------------------------------------Hospitality Revenue 18,500 19,552 (1,052) 76,214 88,867 (12,653)----------------------------------------------------------------------------



Fourth Quarter Analysis

Overall, comparable full service hotel revenue declined 3.4% in the three months ended December 31, 2012 as compared to the same period in 2011 with declines experienced across all but two of these properties.

During the three months ended December 31, 2012, hotel revenue from the remaining thirteen comparable select service hotels decreased 2.5%, to $4,092 from $4,196 in the same period in 2011. Results across the portfolio were mixed with nine of the properties experiencing decreases in hotel revenue as compared to the same period in 2011. These decreases in hotel revenue were partially offset by improvements at the other four properties.

Annual Analysis

Overall, comparable full service hotel revenue in the year ended December 31, 2012 remained stable as compared to 2011, but mixed results were experienced across these properties. Three of the full service properties saw improvements in hotel revenue, however these results were offset by decreases in revenue at the remaining six full service properties. On a RevPAR basis, five full service properties saw improvements, however, overall hotel revenue was pulled down by declines in food and beverage revenue with a shift in business away from the group segment. The most notable positive contribution to comparable full service revenue was from the Holiday Inn Oakville property which had a renovation completed in the first quarter of 2011.

During the year ended December 31, 2012, hotel revenue from the thirteen comparable select service hotels decreased 2.3%, to $17,398 from $17,814 in 2011. Results across the portfolio were mixed with six of the properties experiencing improvements in hotel revenue as compared to 2011. These increases in hotel revenue were more than offset by declines at the other seven properties.

OPERATING STATISTICS

Key performance indicators for hotel revenue are summarized below for comparable full and select service hotels in the fourth quarter:

---------------------------------------------------------------------------- Three months ended December Three months ended December 31, 2012 31, 2011---------------------------------------------------------------------------- Occupancy ADR RevPAR Occupancy ADR RevPAR----------------------------------------------------------------------------Full Service 56.1% $102.23 $ 57.30 56.4% $105.89 $ 59.76Select Service 45.2% $ 81.53 $ 36.87 49.9% $ 80.37 $ 40.09----------------------------------------------------------------------------



The Company's comparable full service hotels experienced a 4.1% decline in RevPAR from $59.76 in the three months ended December 31, 2011 to $57.30 for the same period in 2012. This decline in RevPAR was due to a slight decline in occupancy from 56.4% to 56.1%, a relative decrease of 0.5 percentage points and a more significant decline in ADR from $105.89 to $102.23 or 3.5%. In order for these full service properties to compete in markets with significant downward pressure on occupancy, rates were lowered in the fourth quarter. Declines in RevPAR were experienced at six of the nine comparable full service properties.

There was a significant decrease in RevPAR for the Company's comparable select service hotels of 8.0%, to $36.87 for the three months ended December 31, 2012 from $40.09 for the same period in 2011. Occupancy declined from 49.9% to 45.2%, with its impact being tempered by an improvement in ADR from $80.37 to $81.53. Several hotels experienced significant declines due to local market and demand conditions and the hotels with positive performance did not achieve results significant enough to offset the declines.

Key performance indicators for hotel revenue are summarized below for comparable full and select service hotels in the annual period:

---------------------------------------------------------------------------- Year ended December 31, 2012 Year ended December 31, 2011 --------------------------------------------------------- Occupancy ADR RevPAR Occupancy ADR RevPAR----------------------------------------------------------------------------Full Service 61.4% $101.95 $ 62.56 60.1% $103.99 $ 62.50Select Service 49.8% $ 82.91 $ 41.25 52.2% $ 82.06 $ 42.82----------------------------------------------------------------------------



The Company's comparable full service hotels maintained the level of RevPAR achieved in 2011 increasing by only 0.1%, to $62.56 for the year ended December 31, 2012 compared to $62.50 for the same period in 2011. This consistency in RevPAR was due to an increase in occupancy from 60.1% for the year ended December 31, 2011 to 61.4% in 2012, a relative increase of 2.2%, tempered by a decline in ADR from $103.99 to $101.95 or 2.0%. The improvement in RevPAR that was achieved at the Company's comparable full service properties was across five of the nine hotels.

There was a decrease in RevPAR for the Company's comparable select service hotels of 3.7%, to $41.25 for the year ended December 31, 2012 from $42.82 in 2011. Occupancy declined from 52.2% to 49.8%, with its impact being tempered by a slight improvement in ADR from $82.06 to $82.91. The performance of our select service properties was mixed for the year ending December 31, 2012, with six of the thirteen comparable properties generating an increase in RevPAR.

2013 OUTLOOK

The hospitality industry in Canada has faced significant challenges in the last several years and this is expected to continue into 2013 as the Canadian economy continues to recover from recent downturns. We did not see the level of demand growth and pricing recovery that we expected in 2012. PKF Consulting Inc. forecasts 3.75% growth in RevPAR for the industry in Canada and we expect to achieve RevPAR growth at our comparable hotels in 2013. We also expect the comparable hotel RevPAR growth at our full service hotels to continue to exceed the comparable hotel RevPAR growth at our select service hotels.

BOARD OF DIRECTORS CHANGES

The Board of Directors of Royal Host has accepted the resignations of directors Scott McCrea and Alvin Poettcker. The Board would like to thank Mr. McCrea and Mr. Poettcker for their years of service and contributions to the Company and wish them well in their future endeavors.

The Board of Directors of Royal Host is pleased to announce the appointment of Michael Rapps as Chairman of the Company's Board of Directors. Michael Rapps is Vice President Investments for Clarke Inc., a publicly traded investment holding company based in Halifax and Managing Director of Geosam Capital Inc., a private investment company focused on investing in small and mid-capitalization companies, with a focus on real estate and industrial investments. Prior to joining Geosam, Mr. Rapps practiced law at Davies Ward Phillips & Vineberg LLP. Mr. Rapps holds a BCL and an LLB from McGill University. Mr. Rapps serves on the Board of Holloway Lodging REIT, Supremex Inc., Bonnett's Energy Corp. and Clarke Inc..

A full slate of Directors is expected to be presented for election at the Company's upcoming Annual General Meeting, filling the two seats currently vacant.

ROYAL HOST INC.

Royal Host is a diversified hospitality company that delivers shareholder value through hotel ownership, investment and franchising. The Company's hotels, which contain approximately 2,824 rooms, are located in five Provinces and Territories across Canada. Eighteen of the Company's hotels operate under internationally recognized brands such as Travelodge®, Super 8®, Holiday Inn®, Hilton® and Country Inns & Suites®. Three of the Company's hotels are independently branded. 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.



Contacts:
Royal Host Inc.
Michael McFeters
Chief Financial Officer
902.470.4515
www.royalhost.com



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