Skyline Investments : Management's Discussion & Analysis Q3 2024

Published: 2024-11-24 02:25:24 ET SKLN.TA

For the three and nine months ended September 30, 2024

-1-

MANAGEMENT'S DISCUSSION AND ANALYSIS

November 21, 2024

Introduction

This Management's Discussion and Analysis (this "MD&A") of the operating results and financial condition of Skyline Investments Inc. ("Skyline", "the Company", "we", "us" or "our") constitutes management's ("Management") review of the factors that affected the Company's operating performance for the three and nine months ended September 30, 2024 and its financial position as at September 30, 2024. This MD&A is dated and has been prepared with information available as of September 30, 2024.

This MD&A should be read in conjunction with the Company's condensed interim consolidated financial statements for the three and nine months ended September 30, 2024 and 2023 and accompanying notes (the "Financial Statements").

The Financial Statements have been prepared in accordance with International Financial Reporting Standards, using accounting policies adopted by the Company. These accounting policies are based on the International Accounting Standards, International Financial Reporting Standards and IFRS Interpretations Committee interpretations (collectively, "IFRS") that are applicable to the Company. Amounts discussed below are based on our consolidated financial statements for the three and nine months ended September 30, 2024 and are presented in thousands of Canadian dollars, unless otherwise stated.

Additional information relating to the Company is available under our SEDAR+ profile at www.sedarplus.com.

Except as expressly provided herein, none of the information on the SEDAR+ website is incorporated by reference into this document by this or any other reference.

Forward-Looking Information

Certain statements contained in this MD&A constitute forward-looking information within the meaning of securities laws. Forward- looking information may relate to the Company's future outlook and anticipated events or results and may include statements regarding the future financial position, business strategy, budgets, projected costs, capital expenditures, financial results, taxes and plans and objectives of or involving the Company. In particular, statements regarding the Company's future operating results and economic performance are forward-looking statements. 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. Examples of such statements include the statements with respect to the Company's strategy, objectives and intentions disclosed in the section entitled "Overview",", "Liquidity and Financial Position" and "The Company's Properties", including: the Company's intention to complete future acquisitions and/or dispositions, and the expected benefits from any such acquisitions or dispositions; and the introduction of value-added leasing and operational revenue streams and increased management efficiencies.

Forward-looking information is subject to certain factors, including risks and uncertainties, which could cause actual results to differ materially from what the Company currently expects. These factors include the ability of the Company to complete future acquisitions, obtain necessary equity and debt financing and grow its business; overall indebtedness levels, which could be impacted by the level of acquisition activity Skyline is able to achieve and future financing opportunities; general economic and market conditions and factors; local real estate conditions; competition; interest rates; changes in government regulation; and reliance on key personnel. For more information on these risks and uncertainties readers should refer to the risks disclosed in the section entitled "Risk Factors", as well as the risks disclosed in Skyline's materials filed with Canadian securities regulatory authorities from time to time, including the Annual Information Form of the Company dated March 27, 2024, which are available under the Company's profile on SEDAR+ at www.sedarplus.com.

Forward-looking information contained in this MD&A is based on the Company's current estimates, expectations and projections, which the Company believes are reasonable as of the date hereof. Readers should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While the Company may elect to, it is under no obligation and does not undertake to update this information at any particular time except as may be required by applicable securities laws.

-2-

Under Israeli law the Company is obligated to disclose an unconsolidated stand-alone financial statement of the parent public entity. These statements are unconsolidated and as a result have none of the operating activity or cash flow that takes place in the Company's subsidiaries. The parent public entity has minimal revenue but does have head office expenses and interest from the unsecured debt (which is funded from operating activity in the Company's subsidiaries). This document contains references to certain Israeli securities laws and publications; all the Company's public filings are available both on the Israeli stock exchange site, and on SEDAR+. In section Cash Flows from Operating Activities a translation of this disclosure under Israeli law is presented, and if not for the dual reporting requirements would not be included in this MD&A.

Non-IFRS Performance Measures

All financial information has been prepared in accordance with IFRS. However, Skyline uses certain non-IFRS measures as key performance indicators, including net operating income ("NOI"), funds from operations ("FFO"), FFO per share, and adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA"). Skyline believes these non-IFRS measures provide useful supplemental information to both Management and investors in measuring the financial performance of the Company.

These are key measures commonly used by entities in our industry as useful metrics for measuring performance. However, they do not have any standardized meaning prescribed by IFRS and should not be construed as alternatives to net income/loss, cash flow from operating activities or other measures of financial performance calculated in accordance with IFRS. NOI, FFO and Adjusted EBITDA may differ from similar measures as reported by other companies in similar or different industries. These measures should be considered as supplemental in nature and not as a substitute for related financial information prepared in accordance with IFRS. Please see "Performance Measures that are not based on IFRS" for the reconciliations of these non-IFRS performance measures.

Skyline also uses certain supplementary financial measures as key performance indicators, including same asset NOI. Supplementary financial measures are financial measures that are intended to be disclosed on a periodic basis to depict the historical or expected future financial performance, financial position, or cash flow, that are not disclosed directly in the financial statements and are not non-IFRS measures.

The balance of this page is intentionally left blank.

-3-

Overview

Skyline is a Canadian investment company listed on the Tel-Aviv Stock Exchange under the symbol SKLN and is a reporting issuer in Canada.

The Company is a reporting issuer in the Province of Ontario, Canada (following the filing and receipt of a non-offering long form prospectus in 2014) but, as of September 30, 2024, does not have any of its securities listed or quoted on any marketplace in Canada.

Unless otherwise expressly stated, all data set forth herein is presented in thousands of Canadian dollars and refers to the Company's consolidated information.

Property

Location

Number of Rooms

Commercial Space in Square

Meters

Courtyard Marriott

Tucson, AZ

149

Courtyard Marriott

Fort Myers, FL

149

Courtyard Marriott

Ithaca, NY

107

Total Select Service Hotels

405

Hyatt Hotel

Cleveland, Ohio

293

5,054

Autograph Renaissance

Cleveland, Ohio

491

2,865

Hotel

Total Full-Service Hotels

784

7,919

Total

1,189

7,919

In addition to the above, the Company owns development properties of insignificant value.

The following table summarizes the Company's contractual net cash flows from its VTBs3, and Note Receivable as of the date of the report:

-4-

VTB Loans

Total - Port McNicoll VTB

Freed VTBs

Equity Note Receivable (against the sale of the rights in the Partnership)

2026 and

Q3-Q4 2024

2025

Total

thereafter

2,500

2,400

23,012

27,912

21,388

33,800

Total - Freed Transaction 4

55,188

Bear Valley Notes Receivable

9,333

Total Inflows

2,500

57,588

32,346

92,434

The table below provides comparable data on the Company's operating segments for the three and nine months ended September 30, 2024, and 2023:

TOTAL INFORMATION

Three Months Ended September 30,

2024

2023

Number of rooms

2,804

2,856

Number of hotel properties

Occupancy rate

59%

55%

Average daily room rate (in CA dollars)

$190.59

$171.13

Revenue per available room (in CA dollars)

$113.02

$94.86

Nine Months Ended September 30,

2024

2023

Number of rooms

2,804

2,856

Number of hotel properties

Occupancy rate

53%

54%

Average daily room rate (in CA dollars)

$182.78

$174.88

Revenue per available room (in CA dollars)

$96.85

$94.53

HOSPITALITY

Consolidated

Three Months Ended September 30,

2024

2023

Revenue

$36,427

$29,719

Net Operating Income (NOI) 5

$5,747

$3,993

Nine Months Ended September 30,

2024

2023

Revenue

$91,721

$96,566

Net Operating Income (NOI) 5

$12,740

$14,362

-5-

DEVELOPMENT

Three Months Ended September 30,

2024

2023

Revenue

Net Operating Income (NOI) 6

($747)

($2)

Nine Months Ended September 30,

2024

2023

Revenue

$4,281

Net Operating Income (NOI) 6

($1,911)

($20)

CONSOLIDATED

Three Months Ended September 30,

2024

2023

Same Asset NOI 6;7

$5,755

$5,452

Adjusted EBITDA 6

$1,625

$1,731

Nine Months Ended September 30,

2024

2023

Same Asset NOI 6;7

$12,647

$14,266

Adjusted EBITDA 6

$3,946

$7,666

FUNDS FROM OPERATIONS (FFO) 6

Three Months Ended September 30,

2024

2023

Funds from operations

($6,585)

($2,035)

FFO per share (in CA dollars)

($0.40)

($0.12)

Nine Months Ended September 30,

2024

2023

Funds from operations

($10,153)

($1,931)

FFO per share (in CA dollars)

($0.62)

($0.12)

CAPITALIZATION AND LEVERAGE

As at September,

2024

2023

Equity to Total Assets

46%

44%

Unrestricted Cash

$16,507

$16,880

Net Debt to Net Cap8

46%

48%

Loan to Value (only Hospitality)

52%

51%

Weighted average debt face interest rate

8.01%

8.68%

Weighted average debt term to maturity (in years)

5.37

4.73

Below are updated statistics regarding the Autograph Hotel (formerly, the Renaissance) following the extensive renovation:

-6-

Below are details regarding the Autograph Hotel as of September 30, 2024:

(Data by 100%

Company's share of the property - 49.505%) Property name:

Property location:

Property area:

Structure of holdings relating to the property:

The Company's effective share of the property:

Names of the partners in the property:

Acquisition date of the property:

Details of the legal rights in the property:

Significant unused building rights:

Status of registration of legal rights:

Special matters (special construction anomalies, soil contamination, etc.)

Method of presentation in the financial statements:

Details as of September 30, 2024

Autograph Hotel

Cleveland

A project consisting of a hotel with 491 rooms, 34 conference halls and a covered parking garage with 332 parking spaces. The project's retail space of approximately 3,000 sq. m is classified as part of the hotel operating segment.

49.505% of the property is held by Hotel Cleveland, LLC (DE, of which 100% is owned by the Company.

The property is managed by the Marriott chain of hotels 49.505%

Elico

October 28, 2015

Ownership

N/A

Ownership

N/A

Fixed asset, by fair value

Main Data regarding the Property

Below are main data in connection with the Autograph Hotel as of September 30, 2024 and for the years 2022-2023:

Data by 100%. The Company's

September

December

30,

31,

As of the date of acquisition of the property

share of the property - 49.505%

2024

2023

2022

Acquisition cost

Book value (in USD thousands)

117,958

111,190

59,500

attributable to the

20,150

property (in USD

thousands)

Revaluation profit or loss (in USD

(8,098)

(432)

thousands)

If the property is measured at cost

- the decrease (cancellation of

N/A

decrease) in value attributable to

the period (in USD thousands)

Average occupancy rate (%)

31%

17%

44%

Acquisition date

28-Oct-15

Average number of operating

491

Occupancy rate

57%

rooms

Total revenue (in USD thousands)

13,670

7,951

19,289

NOI (in USD thousands)

4,196

Average rent per rented room per

day for valuation purposes (in US

184.42

159.15

151.09

dollars)

NOI (in USD thousands)

(182)

(4,048)

2,386

RevPar (in US dollars)9

57.88

27.57

66.66

NIS/USD exchange rate

3.71

3.63

3.52

9 The ratio of total room revenue to the number of the hotel available rooms.

-7-

Breakdown of Revenue and Cost Structure

Below are details regarding revenues and costs of the Autograph Hotel for 2022-2023 and the first, second and third quarters of 2024:

Data by 100%. The

Company's share

2023

2022

of the property -

2024

49.505%

Total revenues (in

1,581

5,031

7,058

7,951

19,289

USD thousands)10

Total expenses (in

3,200

4,677

5,975

11,999

16,903

USD thousands)

NOI (in USD

(1,619)

354

1,083

(4,048)

2,386

thousands)

Company's share

of profits

attributed to its

49.505%

50%

major

shareholders (49.505%)

The Company is a reporting issuer in accordance with the securities laws of Ontario, Canada, and therefore its Management Discussion and Analysis (MD&A) Report, is prepared in accordance with the applicable laws of Ontario, Canada, and for convenience is also reported separately in Israel. The Company also publishes its financial statements on Canada's SEDAR + system. The Company's set of reports is available on www.sedarplus.com.

The Company examines, on a regular basis, business opportunities in its operating segments and conducts various negotiations relating thereto, according to its needs, inter alia in connection with the expansion or sale of its property portfolio. Within the framework of the negotiations for the sale and/or purchase of property, it is generally customary to sign letters of intent (LOI) that include, inter alia, customary provisions relating to confidentiality, due diligence, no-shop period, deposit of small amounts in trust (which, under certain circumstances, are non-recoverable), determination of the period for conducting negotiations and signing a binding agreement, the cases where the Company may withdraw from the transaction, conditions precedent, etc.

3. Material Events that Occurred during the Period ended September, 2024, and After the Balance Sheet Date

For information about events that occurred prior to the date of the report for the first quarter of 2024, see the Company's report for the first quarter of 2024, as published on May 30, 2024 (Reference No.: 2024-01-057342) ("Q1 2024 Report") and for the second quarter of 2024, see the Company's report for the second quarter of 2024, as published on August 25, 2024 (Reference No.:092902) ("Q2 2024 Report") and Listed below are material events that occurred after the second quarter of 2024 and material events that occurred after the balance sheet date:

10 Revenue from fees, cancellations of inter-company turnovers, if any, were not taken into account.

-8-

to third parties for US $101 million was completed. Following the completion of the transaction, the Company retained ownership of three Courtyard properties: Ft. Myers, Ithaca and Tucson, which are in the process of being put up for sale.

The Company has contracted with another financing body for a US $20 million credit facility, net of a US $2.0 million interest reserve held by the financier, whereby the Company pledged its rights in Courtyard Tucson and Ft. Myers hotels. The Company fully repaid its two existing loans which were secured against the sold 11 hotels in the approximate amount of $106M from the proceeds of the completion of the sale of the hotels and the credit facility as aforesaid. For additional details, see immediate report published on October 1, 2024 (reference number: 2024-01-607365) and Note 11(n) in the financial statements as of September 30, 2024.

It should be noted that the Company is examining the need to publish a proforma report in relation to the sale of the 11 aforementioned assets and is holding a discussion with the Israel Securities Authority on that.

It should be emphasized that the information provided above is forward-looking information, as defined in the Securities Law, 5728-1968, which is based on information available to the Company at that time and includes data provided to the Company, as well as on the Company's forecasts and estimates. Such assessments may not be realized or materially different from what

-9-

is expected, as a result of factors that are independent and not the Company's control and due to the risk factors, that the Company faces and which derive from its activities, as mentioned in Section 20 of part A to the annual report.

4. Attention in the review report of the external auditor, as it appears in the auditor's examination of the accompanying financial statements

It should be noted that, without qualifying the auditor's conclusion, attention was drawn in the Company's Auditor's Review Report as of the date of the report, to Note 1b of the condensed consolidated financial statements which details, among other, Company's obligations and plans to repay the obligations when they become due, including the shareholder loans payable in April 2025 in the amount of approximately CAD 30 million and a credit facility in the amount of approximately CAD 27 million payable in September 2025. In the event that the Company's plans for the sale of its assets or VTBs repayments are delayed or unsuccessful, there may be additional funding required for the repayment of the Company's obligations, as well as certain capital expenditures including Property Improvement Plans that may be mandated by the Franchisor for some of the Company's hotels. Based on the Management and the Board of Directors analysis of the cash needs and available sources, the company's Board of Directors and Management are of the opinion that the Company will comply with its liabilities in the foreseeable future when they come due.

-10-

Disclaimer

Skyline Investments Inc. published this content on November 24, 2024, and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on November 24, 2024 at 07:24:25.170.