By: Tomas Ronolski - AllPennyStocks.com News

Tuesday, May 13, 2014

A slipping Canadian dollar compared to the U.S. dollar, provided an opportunity for American travelers to explore Canada in 2013, according to eTurboNews’ Global Travel Industry News. A particular hotspot was Toronto, which supplanted Rome, Italy as the third most popular destination for U.S. travelers last year. Thanks in part to the $765-million deal for Starwood Capital Group to acquire five Westin Hotels, the Canadian hotel industry had one of its best years on record with $2.1 billion in activity. That was 94 percent higher than the $1.1 billion in 2013. If the hotel business is a proxy for resurgence in the Canadian economy, it’s a good sign for Holloway Lodging Corporation (TSX:HLC). Holloway owns 16 hotels with 1,604 rooms across Canada, as well as a Holiday Inn Express in Myrtle Beach, South Carolina. Amongst other growth opportunities this year, a sweet spot for Holloway in 2014 may be its four hotels in Grande Prairie, where business travel is expected to increase above the national average, according to a survey by the Hotel Association of Canada.

Holloway logged a solid performance in 2013, reporting $59.96 million in revenue, compared to $58.37 million in 2012. Net profit for the year was slashed to $4.48 million, or 25 cents per share, compared to $19.74 million, or $1.11 per share, in 2012, although most of the swing was the result of amortization, depreciation and the impact of an impairment charge. Funds from operations were up from $8.57 million, or 48 cents per share, in 2012 to $11.61 million, or 64 cents per share, in 2013.

The company said in its year-end report in March that it intended to remain conservative, but focused on its acquisition efforts in 2014. On that point, Holloway sold its Holiday Inn Express in Kamloops, British Columbia to realize cash proceeds of $8.9 million in April and bought the Days Inn in Whitecourt, Alberta for $8.9 million. Holloway said it views the Whitecourt property to generate higher net operating income than the B.C. Holiday Inn.

Eight days ago, Holloway announced that it struck a deal to acquire all of the issued and outstanding shares of Royal Host Inc. (TSX:RYL) in a cash and stock deal, making it one of the largest hotel companies in Canada. Per the agreement, RYL shareholders will get $1 in cash and 1/10th of a share of HLC for each Royal Host share held, equating to approximately $23 million acquisition price and enterprise value price of $157 million. Upon completion of the transaction, Holloway will own 34 hotels and 4,100 rooms.

Holloway also bought the remaining 10 percent interest that it didn’t already own in the Holiday Inn Express in Stellarton, Nova Scotia in April.

The first quarter seems to have gotten off on the right foot. On Tuesday, Holloway reported Q1 2014 hotel revenue of $15.35 million, up 4.4 percent from $14.7 million in the first quarter of 2013. The company boosted hotel operating income margin from 34.9 percent to 36.1 percent and managed to trim other expenses to generate $1.56 million in net income, or 9 cents per share, during the first quarter. This compares to $294,000, or 2 cents per share, in profits in the year prior quarter.

Adjusted funds from operations were $2.90 million, or 16 cents per share, versus $2.36 million, or 13 cents per share, in Q1 2013. The Holloway board also approved a quarterly dividend of 3.5 cents per share, representing a 14-cent per share annual dividend (the same amount it paid in 2013).

The steady approach has helped shares of HLC rise 15 percent in the past 12 months. Upon closing of the acquisitions and broadening its footprint, investors will be looking to see if Holloway can grind through a heavy area of resistance at $4.05 to breakout of a multi-year channel and get back over $5 per share where the stock was back in 2011. Proper due diligence is, as always, encouraged.

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