Holloway Lodging Corporation reports 2014 second quarter results, declares quarterly dividend and announces Normal Course Issuer Bid

HALIFAX, Aug. 12, 2014 /CNW/ - Holloway Lodging Corporation (TSX: HLC, HLC.DB, HLC.DB.A, HLC.DB.B) ("Holloway") today announced financial results for the three months ended June 30, 2014.  All amounts are in Canadian dollars unless otherwise indicated.  Readers should refer to Holloway's unaudited interim consolidated condensed financial statements as at June 30, 2014 and its management discussion and analysis which are available on Holloway's website at www.hlcorp.ca and on SEDAR at www.sedar.com.

Second Quarter Overview and Outlook

Holloway had another strong quarter. The Company increased RevPar, operating margins, profits and most importantly, cash flow. These results are particularly good considering the Company operated two thirds of the quarter with one fewer hotel than in the prior year period. As usual, our Western Canadian hotels performed particularly well during the quarter with strong demand coming from companies involved in oil and gas, forestry and infrastructure projects. We continue to focus on cost control and capital investments that enhance the strength of our hotels. The following are select highlights for the quarter with full details below:

         
(in millions where indicated except percentages and per room measures) Q2, 2014 Q2, 2013 $ Increase % Increase
         
Hotel revenues $14.4 M $14.3 M $0.1 M 0.7%
Revenue per available room $84.92 $81.16 $3.76 4.6%
Hotel operating income per available room before depreciation $32.73 $29.90 $2.83 9.5%
Hotel operating income margin 36.0% 34.2% - 1.8%
Funds from operations $2.3M $2.2 M $0.1M 4.5%
Adjusted funds from operations $2.0M $1.9 M $0.1M 5.3%

During the second quarter, Holloway completed a number of strategic transactions that are expected to drive future cash flow growth. First, we sold the Holiday Inn Express® in Kamloops, BC for $8.9 million, representing a 7.6% cap rate. Second, we acquired the Days Inn® in Whitecourt, AB for $8.9 million, representing a cap rate in excess of 11.0%. For the same price, we will generate more NOI from the property we acquired than the property we sold and we believe there is more growth in the Whitecourt market than in Kamloops. Third, we acquired the remaining 10% interest in the Holiday Inn Express® hotel in Stellarton, NS that we did not own for $0.4 million. Fourth, we acquired an additional 35% interest in the Super 8® hotel located in St. John's, NL for $2.1 million bringing our ownership interest to 53%. We may seek to acquire a larger interest in this hotel in the future.

Finally, during the quarter we announced the acquisition of Royal Host ("Royal Host"). Royal Host owns 17 hotels across Canada, three freestanding single tenant properties, various parcels of excess land and the Canadian master franchise rights for the Travelodge® and Thriftlodge® brands. We completed the acquisition and assumed Royal Host's debentures in July 2014.

Holloway's priorities for the remainder of 2014 will be to integrate Royal Host and Holloway, continue the operational improvements that Royal Host has been executing over the last year and sell certain non-core assets (particularly excess land holdings that do not have material development potential). The operational integration of Royal Host and Holloway is well underway while the financial and administrative integration of the two companies will take several months to achieve as each company currently uses separate accounting and data analytics systems. We believe there are many operational improvements that can be made at our hotels, including supplier consolidation, energy efficiencies, property tax reductions, labour productivity improvements and general margin enhancement.

We expect continued positive results throughout the remainder of the year. Economic activity in Western Canada remains robust, corporate markets in Ontario are improving and our hotels in Eastern Canada are anticipated to generate stable operating results.

Dividend Declaration

On August 11, 2014, the Board of Directors declared a quarterly dividend of $0.035 per share, representing an annual dividend of $0.14 per share.  The dividend is payable on September 12, 2014 to shareholders of record on August 29, 2014.

Summary of Operating Results

The following table provides a summary of the operating results for the three and six months ended June 30, 2014 and 2013.

         
  Three months ended Six months ended
(in $000's except number of shares and per share results) June 30, 2014 June 30, 2013 June 30, 2014 June 30, 2013
Hotel revenues 14,385 14,283 29,737 28,981
Hotel expenses 9,206 9,396 19,023 18,959
Hotel operating income before depreciation and amortization 5,179 4,887 10,714 10,022
Hotel depreciation and amortization 2,267 2,261 4,557 4,481
Income from hotel operations 2,912 2,626 6,157 5,541
Other expenses 2,076 2,532 4,409 5,007
Reversal of impairment of asset held-for-sale - - (1,217) -
Income before income taxes 836 94 2,965 534
Provision for income taxes 230 30 800 177
Net income for the periods 606 64 2,165 357
Weighted average basic and diluted shares outstanding 17,927,847 18,046,031 17,928,919 18,342,851
Basic and diluted income per share 0.03 0.00 0.12 0.02
Reconciliation to funds from operations (FFO)        
Add / (deduct):        
Depreciation and amortization on real property 2,251 2,235 4,531 4,436
Provision for income taxes 230 30 800 177
Reversal of impairment of asset held-for-sale - - (1,217) -
Gain on disposal of hotel properties and equipment (45) - (7) (4)
Fair value adjustment and amounts reclassified to profit and loss on minority interest investments in hotel properties (689) - (689) -
Gain on disposal of minority interest investments in hotel properties - (106) - (96)
FFO - basic and diluted 2,353 2,223 5,583 4,870
Basic and diluted FFO per share 0.13 0.12 0.31 0.27
Reconciliation to adjusted funds from operations (AFFO)
Add/(deduct):
       
Depreciation and amortization - corporate and other assets 31 26 55 45
Accretion of mortgages, loan due to a related party, and deferred financing fees 41 45 81 88
Fair value adjustment of derivative liability - (10) - (14)
Share-based compensation 75 102 151 204
FF&E reserve (440) (437) (908) (885)
AFFO - basic and diluted 2,060 1,949 4,962 4,308
Basic and diluted AFFO per share 0.11 0.11 0.28 0.23
Dividends declared $0.035 $0.035 $0.07 $0.07

Holloway Announces Normal Course Issuer Bid

Holloway announced that the Toronto Stock Exchange (the "TSX") has approved the Company's notice of intention to make a normal course issuer bid for up to 978,628 of its common shares, representing 5% of the issued and outstanding shares as of August 11, 2014. During the period from August 15, 2013 to August 11, 2014, the Company purchased 13,400 shares under a previous normal course issuer bid.  The weighted average price paid was $4.07 per share.

Pursuant to the notice, the Company may, over the 12 month period commencing on August 15, 2014 and ending on August 14, 2015 (or on such earlier date as the Company completes its purchases pursuant to the bid or provides notice of cancellation), purchase shares through the facilities of the TSX or certain alternative exchanges at prevailing market prices in accordance with the rules and policies of the TSX or such other exchanges.  All shares purchased by the Company under the normal course issuer bid will be cancelled. As of August 12, 2014, the Company had a total of 19,572,565 shares issued and outstanding.  The average daily trading volume of the shares during the six months ended on July 31, 2014 was 17,637 shares and the daily repurchase limit for the shares is 4,409 shares other than block purchase exceptions.

The Company believes that, on occasion, the shares become available at prices that do not give full effect to their underlying value, based solely on management's opinion of the Company's future prospects. Accordingly, management believes that the purchase of shares pursuant to the normal course issuer bid represents an investment opportunity for Holloway and an appropriate use of its funds.

Holloway announces listing of former royal host debentures

On Thursday, August 7, 2014, the former Royal Host debentures were listed and posted for trading on TSX under the following new trading symbols. This change follows the assumption of the debentures by Holloway, which was approved by debenture holders on July 29, 2014.

Security Name Old Symbol New Symbol
6.25% Series B Convertible Unsecured Subordinated Debentures due October 31, 2020 RYL.DB.B HLC.DB
7.50% Series C Convertible Unsecured Subordinated Debentures due September 30, 2018 RYL.DB.C HLC.DB.A
6.25% Series D Convertible Unsecured Subordinated Debentures due June 30, 2019 RYL.DB.D HLC.DB.B

Holloway Lodging Corporation
Holloway is a real estate corporation focused on acquiring, owning and operating full service and select or limited service lodging properties and a small complement of full service hotels primarily in secondary, tertiary and suburban markets.  Holloway currently owns 36 hotels with 4,260 rooms.  Holloway's shares and debentures trade on the TSX under the symbol HLC, HLC.DB, HLC.DB.A and HLC.DB.B.

This press release contains forward-looking information within the meaning of applicable securities laws. Forward-looking information may relate to Holloway's future outlook and anticipated events or results and may include statements regarding Holloway's future financial position, business strategy, financial results, plans and objectives In some cases, forward-looking information can be identified by terms such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "intend", "estimate", "predict", "potential", "continue" or other similar expressions concerning matters that are not historical facts.   Forward looking-information is subject to certain factors, including risks and uncertainties, that could cause actual results to differ materially from what Holloway currently expects and there can be no assurance that such statements will prove to be accurate.  Some of these risks and uncertainties are described under "Risk Factors" in Holloway's Annual Information Form ("AIF"), dated March 3, 2014 which is available at www.sedar.com.  Holloway does not intend to update or revise any such forward-looking information should its assumptions and estimates change.

 

SOURCE Holloway Lodging Corporation

For further information:

please contact Michael Rapps, Chairman, at (416) 855-1925 or Jane Rafuse, Chief Financial Officer, at (902) 404-3499