Holloway Lodging Corporation Enters Into Agreement To Acquire Royal Host Inc.

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• Will become one of Canada's largest hotel companies with 34 hotels and 4,100 rooms.
• Combined business would have generated more than $120 million of revenue and more than $34 million of NOI in 2013.
• Will add the master franchise rights for Travelodge^® hotels in Canada.

HALIFAX, May 5, 2014 /CNW/ - Holloway Lodging Corporation (TSX: HLC) ("Holloway") and Royal Host Inc. (TSX: RYL) ("Royal Host") are pleased to announce that they have entered into an arrangement agreement pursuant to which Holloway has agreed to acquire all of the issued and outstanding common shares of Royal Host (the "RYL Shares"). Pursuant to the arrangement agreement, Royal Host shareholders will receive for each RYL Share they own a combination of $1.00 in cash and 0.1 of a Holloway common share (the "HLC Shares") (the "Acquisition").

The Acquisition is valued at approximately $23 million on an equity value basis and $157 million on an enterprise value basis (based on the closing price of the HLC Shares on May 2, 2014). This implies a purchase price per room of approximately $65,700 prior to allocating any of the purchase price to Royal Host's excess land holdings and other non-hotel assets and a cap rate of 8.0% after deducting an appropriate annual capital reserve allowance but before accounting for any synergies that are anticipated to be realized following the transaction.

The Acquisition represents a premium of 15% to the closing price of the RYL Shares on the Toronto Stock Exchange on May 2, 2014, the last trading day before this announcement, and to the weighted average trading price of the RYL Shares for the 20 trading days ending on May 2, 2014.

David Wood, Chair of the Special Committee of the Board of Directors of Holloway, stated: "We believe the acquisition of Royal Host represents a great opportunity for Holloway. We will diversify our portfolio from predominantly oil and gas markets in B.C. and Alberta to include mining markets in Northern Ontario and corporate markets in and around Toronto and Ottawa. We will expand our portfolio in several attractive markets where we currently operate, particularly Yellowknife. We will get access to several properties with excess land and development potential, offering Holloway's shareholders additional potential upside over time. In addition, we will add the master franchise rights for the Travelodge® brand in Canada, giving us a consistent and high margin revenue stream. Most importantly, taking into account anticipated synergies, the transaction is expected to be accretive to Holloway on both an NAV and a cash flow basis."

Mr. Wood added: "Since Holloway's board and management change in 2011, Holloway has focused on maximizing the cash flow from its portfolio through efficient management and optimizing its balance sheet. This has left us in a position to capitalize on strategic opportunities such as this one. With the addition of Royal Host's properties, Holloway will become one of the largest hotel companies in Canada. The cash flow from the combined portfolio and combined cost structure is expected to enable us to opportunistically pay down debt and repurchase our shares, repurpose or redevelop certain properties to their highest and best use and further grow our hotel portfolio." 

Blair Cook, the Chair of the Special Committee of the Board of Directors of Royal Host, stated: "In recent years, Royal Host has rationalized its hotel portfolio but, in the process, has become very small for the capital markets. We believe that this transaction provides Royal Host with a partner that understands the potential of the company's assets and that will provide Royal Host shareholders with a continued interest in the combined company and, therefore, an opportunity to participate in the growth of those assets. This transaction provides Royal Host shareholders with a premium for their shares, a continued interest in the combined company and the opportunity to receive dividends on the HLC shares they receive following the completion of the Acquisition."

Benefits of the Acquisition

Holloway and Royal Host believe the Acquisition brings a number of benefits to each company's shareholders, including:

1. Accretive: The acquisition is anticipated to be accretive to Holloway's cash flow after accounting for anticipated synergies. Among other things, Holloway will be able to eliminate duplicative administrative and public company costs, capitalize on the work Royal Host has done to date internalizing its hotel management and bring the management of Holloway's hotels in-house as its hotel management agreements begin to expire, and benefit from cost savings through joint contracting and adopting best practices across the combined portfolio.
2. Enhanced Geographic and Industry Diversification: Royal Host's properties are located predominantly in Ontario with a focus on corporate markets in and around Toronto, Ottawa and London as well as mining markets in Northern Ontario. These hotels complement Holloway's hotels which are located predominantly in oil, gas and forestry markets in B.C. and Alberta. The addition of the Royal Host properties to Holloway's portfolio will also allow Holloway to achieve greater scale in Yellowknife, which is a great market, and Atlantic Canada where Holloway will double the size of its portfolio. Following completion of the Acquisition, Holloway will own 34 hotels with 4,100 rooms as well as three freestanding single tenant properties that are leased to national restaurant chains and eight land development parcels.
3. Flexible Capital Structure: Initially the Acquisition will increase Holloway's financial leverage. However, the combined company will increase its balance sheet flexibility while maintaining its balance sheet strength with a pro forma interest coverage ratio of 2.0x and a pro forma debt service coverage ratio of 1.5x. Following completion of the Acquisition, Holloway expects to have access to Royal Host's existing credit line, which currently has $5.5 million of availability, and the combined company will have five unencumbered properties. In addition, the majority of Royal Host's current debt is in the form of exchange-traded convertible debentures that do not carry financial covenants and mature between 2018 and 2020.
4. Dividend: Royal Host shareholders will begin to receive a dividend on the HLC Shares they receive in the Acquisition as Holloway currently pays a dividend of $0.14 per HLC Share.
5. Redevelopment Potential: Royal Host's portfolio includes excess land parcels and properties that are not being employed to their highest and best use. Holloway believes the development of these lands and the redevelopment of certain existing properties can create significant shareholder value over time.
6. Improved Profile: Holloway anticipates that, over time, its increased cash flows, asset base and scale will allow it to reduce its cost of capital, increase the liquidity of the HLC Shares, increase Holloway's recognition in the public markets and close the gap that exists between its trading price and its intrinsic value, which Holloway believes is under-appreciated by the public markets.

Board Recommendation and Terms of the Arrangement Agreement

The Acquisition will be implemented by way of a court-approved plan of arrangement under the Canada Business Corporations Act. The Acquisition is conditional upon, among other things, the affirmative vote of at least 66 2/3% of the RYL Shares that are voted at the shareholder meeting that will be held to consider the Acquisition and the receipt of necessary third party consents. The arrangement agreement contains, among other things, a termination fee of $1.0 million payable to Holloway in certain circumstances, including if Royal Host accepts a superior proposal from a third party. Completion of the Acquisition is also subject to, among other things, the receipt of court approval and other customary closing conditions. Full details of the Acquisition will be included in a management information circular which is expected to be mailed to Royal Host shareholders within 10 days. Copies of the arrangement agreement and the management information circular will be available under Royal Host's profile at www.sedar.com.

The Board of Directors of Royal Host, acting on the unanimous recommendation of its Special Committee comprised solely of independent directors, has unanimously (with George Armoyan and Michael Rapps abstaining) approved the Acquisition and recommends that Royal Host shareholders vote in favour of the Acquisition. Further information regarding the appointment of the Special Committee and its process in reviewing the Acquisition will be provided in Royal Host's management information circular.

Trimaven Capital Advisors Inc. delivered an opinion to the Special Committee of Royal Host's Board of Directors to the effect that the purchase price for the RYL Shares is fair, from a financial point of view, to the Royal Host shareholders.

Holloway intends to finance the Acquisition with its existing cash on hand and credit facilities and by issuing HLC Shares as part of the purchase price.

Voting Support Agreements

Certain of the directors and officers of Royal Host who own RYL Shares, together with Clarke Inc., the holder of approximately 37% of the RYL Shares, have entered into voting support agreements pursuant to which they have agreed to vote their RYL Shares in favour of the Acquisition.

Royal Host Debentures

Upon completion of the Acquisition, Royal Host will be a subsidiary of Holloway and it is expected that each series of Royal Host's convertible debentures (TSX: RYL.DB.B; RYL.DB.C; RYL.DB.D) (the "RYL Debentures") will remain outstanding and continue to be listed on the TSX. Under the terms of the RYL Debentures, each debentureholder that exercises its conversion right following the completion of the Acquisition will receive the consideration that such holder would have been entitled to receive as a result of the Acquisition if, on the effective date of the Acquisition, such debentureholder had been the holder of the number of RYL Shares issuable on conversion of its RYL Debentures. The consideration received upon conversion will be approximately $285 in cash and 28 HLC Shares for each $1,000 principal amount of RYL Debentures converted.

Description of Royal Host's Properties

The following table provides a summary of the Royal Host properties.

City	Property	Number of Rooms
Northwest Territories
Yellowknife	Yellowknife Inn	129
Ontario
Barrie	Travelodge®	130
Belleville	Travelodge®	124
Etobicoke	Travelodge®	283
London	Hilton®	323
Oakville	Holiday Inn®	147
Ottawa	Chimo	256
Ottawa	Travelodge®	196
Thunder Bay	Airlane Hotel and Conference Center	153
Thunder Bay	Travelodge®	93
Timmins	Super 8®	74
Timmins	Travelodge®	92
Trenton	Ramada®	109
		1,980
New Brunswick
Moncton	Travelodge Suites®	75
Saint John	Travelodge Suites®	59
		134
Nova Scotia
Dartmouth	Travelodge Suites®	75
New Glasgow	Travelodge Suites®	64
		139
TOTAL		2,382

Advisors

The Special Committee of Holloway was advised on legal matters by Borden Ladner Gervais LLP. Royal Host was advised on legal matters by Bennett Jones LLP. The Special Committee of Royal Host was advised on legal matters by McCullough O'Connor Irwin LLP and on certain financial matters by Trimaven Capital Advisors Inc.

ABOUT HOLLOWAY LODGING CORPORATION

Holloway is a real estate corporation focused on acquiring, owning and operating select and limited service lodging properties and a small complement of full service hotels primarily in secondary, tertiary and suburban markets. Holloway currently owns 17 hotels with 1,718 rooms.  Holloway's shares trade on the TSX under the symbol "HLC". More information about Holloway can be found at www.sedar.com or at www.hlcorp.ca.

ABOUT ROYAL HOST INC.

Royal Host is a diversified hospitality company. Royal Host currently owns 17 hotels with 2,382 rooms across Canada. Royal Host also owns and operates the Travelodge Canada franchise business which is currently comprised of over 90 hotels across Canada. 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. More information about Royal Host can be found at www.sedar.com or at www.royalhost.com.

FORWARD LOOKING STATEMENTS

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.  More particularly, this press release includes, without limitation, forward looking statements concerning: the anticipated terms and timing for closing of the Acquisition; expectations and assumptions concerning time of receipt of required regulatory approvals and the satisfactory other conditions to the completion of the Acquisition; the anticipated size, property ownership, geographic property distribution, hotel room ownership, revenue and cash flow of Holloway upon completion of the Acquisition; the realization of the anticipated benefits of the Acquisition, including, the anticipated size, property ownership, hotel room ownership, revenue and cash flow of Holloway upon completion of the Acquisition; the anticipated accretive nature of the transaction to Holloway's cash flow; the enhancement of Holloway's geographic and industry diversification; the acquisition of the master franchise rights for Travelodge® hotels in Canada; the improvement of Holloway's capital structure, balance sheet flexibility and balance sheet strength; proposed dividend payments to Holloway shareholders; the upside potential associated with the redevelopment of land and property owned by Royal Host; the anticipated reduction in Holloway's cost of capital; the anticipated increase in the liquidity of HLC and the improvement of Holloway's overall valuation in the public markets; anticipated plans to pay down debt and/or repurchase HLC Shares upon completion of the Acquisition; the timing of printing and mailing of the Royal Host management information circular; Holloway's anticipated financing arrangements for the Acquisition; the support of Clarke Inc.; and the treatment of RYL Debentures. 

Forward looking statements contained in this press release are based on certain key expectations and assumptions made by Holloway, including, but not limited to, expectations and assumptions that the Acquisition will close on the terms and the time expected, all regulatory approvals and other conditions will be received or satisfied for closing the Acquisition, and concerning the success and financial performance of Holloway upon completion of the Acquisition.  Although Holloway believes that the expectations and assumptions on which the forward looking statements are based on are reasonable, undue reliance should not be placed on the forward looking statements because Holloway can give no assurance that they will prove to be correct.

Since forward looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. 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.  These risks include, but are not limited to, the risk that the conditions for the Acquisition will not be satisfied or the Acquisition will not close on the terms expected, Holloway will not achieve the anticipated benefits of the Acquisition, and risks associated with the hotel industry in general, some of which are described under "Risk Factors" in Holloway's annual information form for the year ended December 31, 2013 which is available on Holloway's profile on the SEDAR website 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

Michael Rapps, Chairman, at [phone].