Real Estate — August 10, 2012Royal Host Inc. Announces Second Quarter Results
HALIFAX, NOVA SCOTIA--(Marketwire - Aug. 10, 2012) - 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 and six months ended June 30, 2012 (the "Second Quarter").
SECOND QUARTER HIGHLIGHTS
($000's except key performance indicators)
Financial results for the three months ended June 30, 2012:
- Recorded an increase in Comparable Hotel1revenue of 3.5% to $18,450 compared to $17,809 in the same period in 2011.
- Generated Comparable Hotel RevPAR of $55.26 (2011 - $53.09), an increase of 4.1% over the same period in 2011, Comparable Hotel Occupancy of 58.7% (2011 - 55.7%), and Comparable Hotel ADR of $94.14 (2011 - $95.29).
- Achieved an improvement in Gross Margin as a percentage of Comparable Hotel revenue of 4.1 percentage points to 21.0% in 2012 from 16.9% in 2011.
- Achieved a 28.5% increase in Gross Margin on Comparable Hotels to $3,889 from $3,026 in the same period in 2011.
- Recorded a net loss before impairment charge of $812 and a net loss after impairment of $1,808 compared to a net loss of $1,678 in the same period in 2011 where there was no impairment.
- Funds From Operations decreased by $188 to $508 for the period compared to $696 in the same period in 2011.
- Adjusted Funds From Operations decreased $21 to negative $269 for the period from negative $248 in the same period in 2011.
1Comparable 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 the year ended December 31, 2011, one hotel sold in the three months ended March 31, 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).
Key events of the three months ended June 30, 2012 include:
- 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 planned renovation and branding of the Ottawa Chimo property.
- Initiated 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 at a price of $950 per $1,000 face value, $5,631 in principal value of the Company's 5.90% convertible debentures at a price of $920 per $1,000 face value, and $7,567 of the Company's 6.00% convertible debentures at a price of $880 per $1,000 face value.
- Executed franchise agreements with Holiday Inn and Ramada related to its hotels in Ottawa, Ontario and Trenton, Ontario, respectively.
John Carnella, Royal Host's President and CEO commented, "As we had anticipated, our top line growth in the second quarter was positive for both our full service and our select service hotels on a comparable basis. Even though the revenue gains were driven entirely by higher occupancies, we and our hotel managers were effective in controlling costs such that our Gross Margin on Comparable Hotels improved by 4.1 percentage points from 16.9% in the second quarter of 2011 to 21.0% in the second quarter of 2012. While we continue to expect to achieve top line growth over the balance of 2012, our outlook is slightly more cautious than it was after the first quarter principally as the result of increased levels of uncertainty surrounding the direction of global and national economic trends."
He added, "During the second quarter we continued to make progress on our balance sheet by extending our only significant mortgage maturity to 2017 and launching Substantial Issuer Bids which resulted in our repaying over $15 million of our subordinated debentures at an approximate 10% discount to par.
SELECTED FINANCIAL INFORMATION
The following table highlights the Company's financial results for the three and six month periods ending June 30:
|Three months ended||Six months ended|
|($000's, except as otherwise noted)||June 30||June 30|
|Hospitality Expenses excluding depreciation||15,899||18,479||31,239||37,031|
|Gross Margin 2||4,022||5,541||6,249||8,691|
|Gross Margin % 2||20.1||%||23.0||%||16.6||%||19.0||%|
|Other Income (Expense)|
|Gain (loss) on sale of property and equipment||(20||)||-||110||-|
|Depreciation and Amortization||(2,244||)||(3,571||)||(4,478||)||(7,230||)|
|Impairment of property and equipment||(996||)||-||(996||)||-|
|Other Income (Expenses)||279||(590||)||1,124||(590||)|
|Income Tax Recovery||823||1,197||1,372||1,565|
|Other Comprehensive Income||-||(105||)||-||(133||)|
|Basic Loss per Share ($)||(0.10||)||(0.10||)||(0.22||)||(0.36||)|
|Diluted Loss per Share ($)||(0.10||)||(0.10||)||(0.22||)||(0.36||)|
|Basic FFO per Share||0.03||0.04||0.01||(0.04||)|
|Basic AFFO per Share||(0.02||)||(0.01||)||(0.08||)||(0.15||)|
|Number of Shares Outstanding (000's)||17,586||17,582||17,586||17,582|
|Weighted Average Shares Outstanding (000's)||17,583||17,479||17,582||17,492|
|Closing Share Price ($)||$||1.25||$||1.24||$||1.25||$||1.24|
|As at August 10, 2012, the Company had 17,586,175 shares outstanding|
2Items represent non-IFRS financial measures.
The following table highlights the composition of the Company's hospitality revenue for the three month and six month periods ending June 30:
|Three months ended||Six months ended|
|Hospitality Revenue - sources||June 30||June 30|
|Hotel revenue - Full service||13,658||13,152||506||3.8||25,674||25,324||350||1.4|
|Hotel revenue - Select service||4,792||4,657||135||2.9||8,805||8,810||(5||)||(0.1||)|
|Comparable Hotel revenue||18,450||17,809||641||3.6||34,479||34,134||345||1.0|
|Non-comparable hotel revenue 3||178||4,931||(4,753||)||(96.4||)||610||9,167||(8,557||)||(93.3||)|
Hotel revenue from our nine full service hotels increased 3.8%, to $13,658 for the three months ended June 30, 2012 from $13,152 for the same period in 2011.
Hotel revenue from our nine full service hotels increased 1.3%, to $25,674 for the six months ended June 30, 2012 from $25,324 for the same period in 2011.
Hotel revenue from our fourteen select service comparable hotels increased 2.8%, to $4,792 for the three months ended June 30, 2012 from $4,657 for the same period in 2011.
Hotel revenue from our fourteen select service comparable hotels decreased less than 0.1%, to $8,805 for the six months ended June 30, 2012 from $8,810 for the same period in 2011.
The following table details the composition of the Company's gross margin for the three months and six months ended June 30, 2012 and 2011:
|Three months ended||Six months ended|
|Gross Margin||June 30||June 30|
|Gross margin percentage||20.5%||18.0%||16.4%||14.4%|
|Gross margin percentage||22.6%||21.4%||17.0%||16.3%|
|Total - Comparable Hotels||3,890||3,377||513||5,721||5,083||638|
|Non-comparable hotels 3||(231)||1,813||(2,044)||(327)||3,029||(3,356)|
|Gross margin percentage||(129.8%)||36.8%||(53.6%)||33.0%|
|Gross margin percentage||28.1%||27.4%||35.6%||23.9%|
|Gross margin percentage||20.2%||23.1%||16.7%||19.0%|
3Includes five select service hotels sold during 2011, one full service hotel sold during 2011, one select service hotel sold during the three months ended March 31, 2012 as well as one select service hotel damaged by fire in 2011.
Gross margin from our nine full service hotels increased 18.0%, to $2,807 for the three months ended June 30, 2012 compared to $2,379 for the same period in 2011.
Gross margin from our nine full service hotels increased 16.0%, to $4,223 for the six months ended June 30, 2012 compared to $3,641 for the same period in 2011.
Gross margin from our fourteen select service hotels increased 8.5%, to $1,083 for the three months ended June 30, 2012 compared to $998 for the same period in 2011.
Gross margin from our fourteen select service hotels increased 3.9%, to $1,498 for the six months ended June 30, 2012 compared to $1,442 for the same period in 2011.
The following table highlights key performance indicators for hotel revenue for the Company's comparable full and select service hotels in the three month and six month periods ending June 30:
|Comparable Full Service Hotels and Select Service Hotels - Occupancy, ADR and RevPAR
|Three months ended June 30, 2012||Three months ended June 30, 2011|
|Comparable Full Service Hotels and Select Service Hotels - Occupancy, ADR and RevPAR|
|Six months ended June 30, 2012||Six months ended June 30, 2011|
The Company's comparable full service hotels experienced an increase in RevPAR of 4.4%, to $65.88 for the three months ended June 30, 2012 compared to $63.08 for the same period in 2011. This increase in RevPAR was driven by an increase in occupancy from 60.7% during the three months ended June 30, 2011 to 64.0% for the same period in 2012, a relative increase of 5.4%.
The Company's comparable full service hotels experienced an increase in RevPAR of 1.1%, to $62.13 for the six months ended June 30, 2012 compared to $61.42 for the same period in 2011. This increase in RevPAR was driven by an increase in occupancy from 58.9% during the six months ended June 30, 2011 to 59.9% for the same period in 2012, a relative increase of 1.6%.
The Company's comparable select service hotels experienced an increase in RevPAR of 3.2%, to $41.03 for the three months ended June 30, 2012 compared to $39.75 for the same period in 2011. The increase in RevPAR was due to an increase in occupancy from 49.1% during the three months ended June 30, 2011 to 51.6% for the same period in 2012, a relative increase of 5.0% and a decrease in ADR from $80.99 to $79.48 or 1.9%.
The Company's comparable select service hotels experienced a decrease in RevPAR of 0.2%, to $37.66 for the six months ended June 30, 2012 compared to $37.77 for the same period in 2011. The decrease in RevPAR was due to a decrease in ADR from $81.35 during the six months ended June 30, 2011 to $80.82 for the same period in 2012, a decrease of 0.7% and an increase in occupancy from 46.4% to 46.6% or 0.4%.
In October 2011, our 93-room select service hotel on Memorial Drive in Thunder Bay, Ontario was damaged as the result of a fire in its leased restaurant facility. The hotel re-opened with a portion of its room inventory in November 2011. In May 2012, the sub level of this property was damaged by a flood in resulting in it being shut down completely. The Company is in the process of finalizing insurance settlements for each of these events. The property re-opened with 78 of its 93 rooms in early August. As a result of the disruption to its business, this hotel has been removed from the comparable hotel data and it will not be included again in the comparable hotel data until it has been open in full for twelve consecutive months.
On July 13, 2012 the SIB's closed and the Company repurchased $2,000 in principal value of the 6.25% convertible debentures at a price of $950 per $1,000 face value, $5,631 in principal value of the 5.90% convertible debentures at a price of $920 per $1,000 face value, and $7,567 of the 6.00% convertible debentures at a price of $880 per $1,000 face value. The final payment for the repurchases was made on July 23, 2012.
On July 16, 2012, the Company entered into a standby facility with Clarke. The facility allows the Company to borrow a maximum of $2,000. Any borrowings are due no later than July 16, 2013. Interest will be charged at a graduated rate of 10.0% - 10.25%.
On July 23, 2012 the Company borrowed $7,000 under the two standby facilities it has with Clarke, a related party. These borrowings were used to fund a portion of the Company's repurchases of its convertible debentures under the SIB's. The balance of the repurchases were funded by borrowings under the Company's credit facility.
Our expectations about growth in the Canadian hospitality industry have moderated given its correlation to the broader Canadian economy which, in turn, is dependent on an ever-more volatile global economy. We expect to achieve quarterly comparable hotel RevPAR growth in the third and fourth quarter of 2012 of 1.5% to 2.5% and an increase in comparable hotel RevPAR for the year of 1.0% to 2.5%. Thus, we anticipate that the increase in comparable hotel RevPAR will be stronger in the second half of 2012 as compared to the 0.7% increase in comparable hotel RevPAR we achieved in the first six months of the year. We also expect that the comparable hotel RevPAR growth at our full service hotels will continue to exceed the comparable hotel RevPAR growth at our select service hotels.
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 3,092 rooms, are located in five Provinces and Territories across Canada. Twenty-two of the Company's hotels operate under internationally recognized brands such as Travelodge®, Super 8®, Holiday Inn®, Hilton® and Country Inns & Suites®. Two 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.
Royal Host Inc.
John A. Carnella
President and Chief Executive Officer
Royal Host Inc.
Chief Financial Officer
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