Holloway Lodging Corporation Reports 2014 Third Quarter Results and Declares Quarterly Dividend

/NOT FOR DISTRIBUTION ON U.S. WIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES/

HALIFAX, NS, Nov. 10, 2014 /CNW/ - Holloway Lodging Corporation ("Holloway") (TSX: HLC, HLC.DB, HLC.DB.A) today announced financial results for the three months ended September 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 September 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.

Third Quarter Overview and Outlook

Holloway had a tremendous quarter. The base portfolio of hotels (the hotels previously owned by Holloway) realized a 4.1% increase in revenue, a 13.3% increase in operating income and an operating income margin of 43.2%, all phenomenal results. The strong performance was broad based with increases in occupancy and ADR in both Western and Atlantic Canada.

When looking at the Company's portfolio as a whole, the large increases in revenue and operating income were driven by the acquisition of Royal Host Inc. ("Royal Host") which closed on July 1, 2014. While operating margins for the company as a whole were slightly lower than the prior year period, we expect operating margins to increase as we continue to integrate the Royal Host hotels into Holloway, eliminate duplicative costs and functions and focus intensely on improving the cost structure of the newly acquired properties.

		Three Months Ended September 30
		2014	2013	Variance
Revenue		$36,086	$16,638	116.9%
Operating income^(1)		13,237	6,610	100.3%
Operating income margin		36.7%	39.7%	(3.0 ppt)
Net income		13,680	1,251	993.5%
	per basic share	0.70	0.07	900.0%
	per diluted share	0.66	0.07	842.9%
Funds from operations		7,508	4,007	87.4%
	per basic share	0.39	0.22	77.3%
Adjusted funds from operations		6,943	3,731	86.1%
	per basic share	0.36	0.21	71.4%
Dividends declared per share		0.035	0.035	-

(1) Before depreciation and amortization.

During the third quarter, work began in earnest to integrate Royal Host into Holloway. The financial and administrative integration of the two companies is ongoing and will take a few more months to complete as each company currently uses separate accounting and data analytics systems. We expect to complete the financial systems integration in early 2015.

From an operating perspective, we have accomplished a lot to date. On a non-financial level, we have adjusted our middle management and sales team staffing levels, streamlined our purchasing, capital expenditure and reporting processes and generated much excitement among our on-the-ground personnel about what the combined company is capable of achieving. From a financial perspective, we have already consolidated several larger suppliers, insurance policies and benefit plans and realized meaningful cost savings on a run-rate basis. We have also adjusted staffing levels, commenced energy efficiency upgrades at all Royal Host properties and settled more than a dozen property tax appeals, all of which will reduce our cost structure going forward. The positive financial impact from the vast majority of these actions is not yet reflected in our results. Management is currently engaged in its 2015 budget process and we believe material improvements in the performance of many Royal Host hotels is possible; this will come from all of the areas identified above as well as by concentrating on labour productivity, rate management and targeted investments in our properties.

From a balance sheet perspective, it is worth noting that on closing the Royal Host acquisition, Holloway assumed approximately $15.0 million of debt under Royal Host's credit line. At September 30, 2014 this had been reduced to $7.1 million. This reduction was funded almost entirely from cash flow from operations and is evidence of the cash flow generating power of Holloway today.

Holloway's priorities for the remainder of 2014 and early 2015 will be to (1) fully integrate Royal Host into Holloway, (2) continue to deleverage either by reducing our debt or by selling assets at low cap rates (high valuations) and reinvesting the proceeds in high cap rate properties (low valuations), (3) refinance certain of our mortgages in order to take advantage of the low interest rate environment and extend our debt maturity profile, (4) sell certain non-core assets (particularly excess land holdings that do not have material development potential), (5) continue to grow the Travelodge® franchise business,  and (6) strategically invest in certain of our hotel properties.

With respect to strategic investments in our properties, our Super 8® hotel in Timmins, ON has been closed since early September as we upgrade the hotel. We expect the property to re-open in December. In addition, we expect to commence the renovation of our Hilton® hotel in London, ON before year-end. This renovation will see the upgrading of all guestrooms, common area spaces and food and beverage operations and the introduction of a Starbucks® coffee shop in our lobby area. We are currently investigating the possibility of expanding two of our Western Canada hotels by converting meeting rooms or food and beverage outlets into additional guestrooms. We are very excited about these projects and their ability to improve our guests' experience, hotel profitability and shareholder value.

We expect continued positive results throughout the remainder of the year. Economic activity in Western Canada remains robust despite weaker energy prices in recent weeks, corporate markets in Ontario are improving and our hotels in Atlantic Canada are anticipated to generate stable operating results. We also expect solid unit growth in our Travelodge® franchise business which has several new hotel applications in process. Corporate and administrative expenses are expected to be lower in the future due to the realization of synergies, including the elimination of duplicative public company and other costs.

Dividend Declaration

On November 7, 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 December 15, 2014 to shareholders of record on November 28, 2014. 

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 owns 36 hotels with 4,260 rooms.  Holloway's shares and debentures trade on the TSX under the symbols HLC, HLC.DB and HLC.DB.A.

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 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] or Jane Rafuse, Chief Financial Officer, at [phone]

Related Links

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