Real Estate — November 14, 2012

Royal Host Inc. Announces Third Quarter Results

HALIFAX, NOVA SCOTIA--(Marketwire - Nov. 14, 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 nine months ended September 30, 2012 (the "Third Quarter").

THIRD QUARTER HIGHLIGHTS

($000's except key performance indicators)

The Company experienced moderate declines in its revenue and gross margin from comparable hotels as compared to the same period in 2011. RevPAR was flat on a comparable hotel basis with comparable full service hotels achieving an overall increase in RevPAR of 1.9% and comparable select service hotels achieving an overall decrease in RevPAR of 3.9%.

Financial results for the three months ended September 30, 2012:

  • Recorded a decrease in Comparable Hotel1revenue of 1.2% to $18,566 compared to $18,786 in the same period in 2011.
  • Generated Comparable Hotel RevPAR of $60.84, which was roughly equivalent to the RevPAR of $60.85 for the same period in 2011, Comparable Hotel Occupancy of 64.3% (2011 - 64.0%), and Comparable Hotel ADR of $94.64 (2011 - $95.07).
  • Experienced a decline in Comparable Hotel Gross Margin Percentage of 0.8 percentage points to 22.8% in 2012 from 23.6% in 2011.
  • Experienced a 4.3% decrease in Gross Margin on Comparable Hotels to $4,238 from $4,427 in the same period in 2011.
  • Recorded a net loss of $305 which included the loss on the sale of one hotel property of $159 compared to net income of $5,828 in the same period in 2011 which included the gain on the sale of four properties of $4,847.
  • Funds From Operations decreased by $1,276 to $2,684 for the period compared to $3,960 in the same period in 2011.
  • Adjusted Funds From Operations decreased $1,137 to $1,880 for the period from $3,017 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, two hotels sold in the nine months ended September 30, 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 September 30, 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 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 and an accounting gain of $815.
  • Sold a 135-room select service hotel for gross proceeds of $2,600 yielding a pre-tax loss on disposition of properties of $159.
  • Borrowed $7,000 under two loan facilities with Clarke Inc. to fund repurchases of convertible debentures under a Substantial Issuer Bid and, within the quarter, also repaid $2,000 to extinguish one of the Clarke facilities.
  • Converted its full service hotel in Trenton, Ontario to a Ramada and its full service hotel in Thunder Bay, Ontario to the independently branded Airlane Hotel and Conference Centre.

Key events subsequent to September 30, 2012 include:

  • Announced on October 11, 2012 that it will seek the approval of holders of its Series C, 6.25% convertible unsecured subordinated debentures due September 30, 2013 to make certain amendments to these debentures at a serial meeting of the debenture holders to be held on November 15, 2012. Proposed amendments include extending the maturity date from September 30, 2013 to September 30, 2018, increasing the annual interest rate by 0.75% from 6.25% to 7.00% and reducing the conversion price from $4.87 to $4.00 for each common share in the Company. On November 13, 2012, the Company announced that the serial meeting had been rescheduled to November 29 and the proposed amendments further enhanced by increasing the interest rate to 7.50% and reducing the conversion price to $3.50 for each Common Share underlying the Debentures.
  • On October 29, 2012, the purchaser of the Company's 72-room Super 8 hotel in Red Deer, Alberta waived the conditions surrounding the sale of the property. The Company expects to complete the sale early in the first quarter of 2013. The property has a net book value of $1,273 and the purchase price is $1,650.

John Carnella, the Company's President & CEO commented "On a portfolio basis, our top line same store results did not meet our expectations as growth in RevPAR at our full service properties was offset by a decline in RevPAR at our select service properties. Notwithstanding our disappointment with the pace of recovery in certain of the markets that we operate in, we continue to make progress on our strategic initiatives to improve the overall quality of our portfolio by divesting of non-core assets and using the sale proceeds to right size our balance sheet and invest aggressively in upgrades at our core properties."

SELECTED FINANCIAL INFORMATION

The following table highlights the Company's financial results for the three and nine month periods ending September 30, 2012 and 2011:

Three months ended Nine months ended
($000's, except as otherwise noted) September 30 September 30
2012 2011 2012 2011
Hospitality Revenue 20,729 24,169 58,215 69,891
Hospitality Expenses excluding depreciation 15,857 17,996 47,096 55,027
Gross Margin (1) 4,872 6,173 11,119 14,864
Gross Margin % (1) 23.5 % 25.5 % 19.1 % 21.3 %
Other Income (Expense)
Investment Income 815 622 678 628
Finance Costs (2,625 ) (3,494 ) (8,145 ) (10,585 )
Gain (loss) on sale of property and equipment (159 ) 4,847 (48 ) 4,847
Depreciation and Amortization (2,224 ) (3,082 ) (6,702 ) (10,316 )
Impairment of property and equipment (907 ) - (1,903 ) -
Corporate Administration (803 ) (1,103 ) (2,480 ) (2,722 )
Insurance proceeds net of remediation costs 425 1,198 1,548 608
Income Tax Recovery 301 667 1,673 2,232
Net Income (Loss) (305 ) 5,828 (4,260 ) (444 )
Other Comprehensive Income - 133 - -
Comprehensive Income (Loss) (305 ) 5,961 (4,260 ) (444 )
Basic Income (Loss) per Share ($) (0.02 ) 0.33 (0.24 ) (0.03 )
Diluted Income (Loss) per Share ($) (0.02 ) 0.16 (0.24 ) (0.03 )
FFO (1) 2,684 3,960 2,793 3,172
Basic FFO per Share 0.15 0.22 0.16 0.18
AFFO (1) 1,880 3,017 525 430
Basic AFFO per Share 0.11 0.17 0.03 0.02
Number of Shares Outstanding (000's) 17,586 17,582 17,586 17,582
Weighted Average Shares Outstanding (000's) 17,586 17,479 17,584 17,545
Closing Share Price ($) $1.46 $1.20 $1.46 $1.20

As at November 13, 2012, the Company had 17,586,175 shares outstanding

(1) Items represent non-GAAP financial measures.

HOSPITALITY REVENUE

The following table highlights the composition of the Company's hospitality revenue for the three month and nine month periods ending September 30, 2012 and 2011:

Three months ended Nine months ended
Hospitality Revenue - sources September 30 September 30
($000's)
Variance Variance
2012 2011 $ % 2012 2011 $ %
Hotel revenue(1) - Full service 13,376 13,378 (2 ) (0.0 ) 39,049 38,702 347 0.9
Hotel revenue(1) - Select service 5,190 5,408 (218 ) (4.0 ) 13,463 13,752 (289 ) (2.1 )
Comparable Hotel revenue 18,566 18,786 (220 ) (1.2 ) 52,512 52,454 58 0.1
Non-comparable hotel revenue (2) 699 3,856 (3,157 ) (81.9 ) 1,841 13,489 (11,648 ) (86.4 )
Franchise revenue 633 591 42 7.1 1,508 1,337 171 12.8
Tenant revenue 292 328 (36 ) (11.0 ) 871 935 (64 ) (6.8 )
Other revenue 539 608 (69 ) (11.3 ) 1,483 1,676 (193 ) (11.5 )
Hospitality Revenue 20,729 24,169 (3,440 ) (14.2 ) 58,215 69,891 (11,676 ) (16.7 )

(1) Hotel revenue includes room revenue and food and beverage revenue.

(2) Non-comparable hotel revenue relates to hotels sold during 2011 and 2012 and one hotel which was damaged by a fire in 2011 and a flood in 2012.

Hotel revenue from our nine comparable full service hotels was flat at $13,376 for the three months ended September 30, 2012 compared to $13,378 for the same period in 2011.

Hotel revenue from our nine comparable full service hotels increased 0.9%, to $39,049 for the nine months ended September 30, 2012 from $38,702 for the same period in 2011.

Hotel revenue from our thirteen comparable select service hotels decreased 4.0%, to $5,190 for the three months ended September 30, 2012 from $5,408 for the same period in 2011.

Hotel revenue from our thirteen comparable select service hotels decreased 2.1%, to $13,463 for the nine months ended September 30, 2012 from $13,752 for the same period in 2011.

GROSS MARGIN

The following table details the composition of the Company's gross margin for the three months and nine months ended September 30, 2012 and 2011:

Three months ended Nine months ended
Gross Margin September 30 September 30
($000's) 2012 2011 Variance 2012 2011 Variance
Full service 2,731 2,809 (78 ) 6,952 6,450 502
Gross margin percentage 20.4 % 21.0 % 17.8 % 16.7 %
Select service 1,507 1,618 (111 ) 2,970 3,094 (124 )
Gross margin percentage 29.0 % 29.9 % 22.1 % 22.5 %
Total - Comparable Hotels 4,238 4,427 (189 ) 9,922 9,544 378
Gross margin percentage 22.8 % 23.6 % 18.9 % 18.2 %
Non-comparable hotels (1) (46 ) 1,305 (1,351 ) (338 ) 4,301 (4,639 )
Gross margin percentage (6.6 %) 33.8 % (18.4 %) 31.9 %
Other 680 441 239 1,535 1,019 516
Gross margin percentage 46.4 % 28.9 % 39.7 % 25.8 %
Gross Margin 4,872 6,173 (1,301 ) 11,119 14,864 (3,745 )
Gross margin percentage 23.5 % 25.5 % 19.1 % 21.3 %

(1) Non-comparable hotel gross margin relates to those hotels sold during 2011 and 2012 and the Thunder Bay Travelodge which was damaged by a fire during 2011 and by a flood during 2012

Gross margin from our nine comparable full service hotels decreased 2.8%, to $2,731 for the three months ended September 30, 2012 compared to $2,809 for the same period in 2011.

Gross margin from our nine comparable full service hotels increased 7.8%, to $6,952 for the nine months ended September 30, 2012 compared to $6,450 for the same period in 2011.

Gross margin from our thirteen comparable select service hotels decreased 6.9%, to $1,507 for the three months ended September 30, 2012 compared to $1,618 for the same period in 2011.

Gross margin from our thirteen comparable select service hotels decreased 4.0%, to $2,970 for the nine months ended September 30, 2012 compared to $3,094 for the same period in 2011.

OPERATING STATISTICS

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 nine month periods ending September 30, 2012 and 2011:

Comparable Full Service Hotels and Select Service Hotels - Occupancy, ADR and RevPAR
Three months ended September 30, 2012 Three months ended September 30, 2011
Occupancy ADR RevPAR Occupancy ADR RevPAR
Full Service 69.7% $98.57 $68.66 66.1% $101.94 $67.35
Percent change 5.4% (3.3%) 1.9%
Select Service 56.2% $87.37 $49.12 60.9% $83.94 $51.12
Percent change (7.7%) 4.1% (3.9%)
Total 64.3% $94.64 $60.84 64.0% $95.07 $60.85
Percent change 0.4% (0.5%) (0.0%)
Comparable Full Service Hotels and Select Service Hotels - Occupancy, ADR and RevPAR
Nine months ended September 30, 2012 Nine months ended September 30, 2011
Occupancy ADR RevPAR Occupancy ADR RevPAR
Full Service 63.1% $101.86 $64.33 61.3% $103.41 $63.42
Percent change 3.0% (1.5%) 1.4%
Select Service 51.3% $83.32 $42.72 53.0% $82.60 $43.74
Percent change (3.2%) 0.9% (2.3%)
Total 58.4% $95.34 $55.67 58.0% $95.79 $55.53
Percent change 0.7% (0.5%) 0.3%

The Company's comparable full service hotels experienced an increase in RevPAR of 1.9%, to $68.66 for the three months ended September 30, 2012 compared to $67.35 for the same period in 2011. This increase in RevPAR was driven by an increase in occupancy from 66.1% during the three months ended September 30, 2011 to 69.7% for the same period in 2012, a relative increase of 5.4% and a decrease in ADR from $101.94 to $98.57 or 3.3%.

The Company's comparable full service hotels experienced an increase in RevPAR of 1.4%, to $64.33 for the nine months ended September 30, 2012 compared to $63.42 for the same period in 2011. This increase in RevPAR was driven by an increase in occupancy from 61.3% during the nine months ended September 30, 2011 to 63.1% for the same period in 2012, a relative increase of 3.0% and a decrease in ADR from $103.41 to $101.86 or 1.5%.

The Company's comparable select service hotels experienced a decrease in RevPAR of 3.9%, to $49.12 for the three months ended September 30, 2012 compared to $51.12 for the same period in 2011. The increase in RevPAR was due to a decrease in occupancy from 60.9% during the three months ended September 30, 2011 to 56.2% for the same period in 2012, a relative decrease of 7.7% and an increase in ADR from $83.94 to $87.37 or 4.1%.

The Company's comparable select service hotels experienced a decrease in RevPAR of 2.3%, to $42.72 for the nine months ended September 30, 2012 compared to $43.74 for the same period in 2011. The decrease in RevPAR was due to a decrease in occupancy from 53.0% during the nine months ended June 30, 2011 to 51.3% for the same period in 2012, a relative decrease of 3.2% and an increase in ADR from $82.60 to $83.32 or 0.9%.

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 the hotel being shut down completely. The Company is in the process of finalizing insurance settlements for each of these events. All rooms were available for rent by September 30, 2012. 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.

OUTLOOK

Growth in lodging demand is generally correlated to the growth in real domestic product. As 2012 has progressed, expectations for growth in the Canadian economy have generally been revised downward. The Bank of Canada's estimates of economic growth for 2012 were 2.4% in January and were most recently revised downward to 2.2% in October. The Bank of Canada currently expects growth of 2.3% in 2013.

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 2,957 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.

Contact Information

Royal Host Inc.
John A. Carnella
President and Chief Executive Officer
902.470.4550

Royal Host Inc.
Michael McFeters
Chief Financial Officer
902.470.4515

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