InnVest REIT Reports First Quarter Results
June 03 2011 - 8:00AM
Marketwired Canada
InnVest Real Estate Investment Trust (the "REIT") and InnVest Operations Trust
("IOT"), collectively "InnVest" (TSX:INN.UN), today announced financial results
for the three months ended March 31, 2011.
"We achieved solid RevPAR growth in the 2011 first quarter, benefiting from
improved economic climates in most markets. To date, our strategy has been
focused on driving demand and occupancy to the portfolio. We expect rate growth
to follow as we head into the busier summer season," commented Kenneth Gibson,
InnVest's President and Chief Executive Officer. "In addition, we recently
completed significant renovations at two of our largest hotels, positioning us
to gain market share and improve cash flows generated."
First Quarter Highlights
-- RevPAR on a same hotel basis improved 4.4% driven by a 2.3 point
improvement in occupancy. Two full-service hotels were disrupted by
major renovation projects during the quarter. Excluding these two
hotels, comparable hotel RevPAR would have increased 5.1%;
-- Hotel operating income ("HOI") was up 1.3% to $15.7 million. Excluding
renovation displacement of approximately $1.0 million during the first
quarter of 2011, HOI growth would have approximated 7.8%;
-- Funds from operations and distributable loss each improved modestly
reflecting the benefit of higher HOI;
-- During the first quarter, $13.2 million was invested in the portfolio
including room renovations in two key assets and markets. These
investments are expected to contribute to improved hotel performance in
future periods; and
-- In March, InnVest issued $25.2 million of equity and $50.0 million of
convertible debentures. Proceeds are expected to be used to fund capital
projects, to fund potential future acquisitions and for working capital
purposes.
The first quarter is traditionally InnVest's lowest earnings period. Given the
seasonality of the portfolio, the first quarter is not reflective of anticipated
results for the annual period. Revenues are typically higher in the second and
third quarters due to business and leisure travel trends as compared to the
first and fourth quarters.
The accompanying results incorporate changes required pursuant to International
Financial Reporting Standards ("IFRS"). For the periods presented, there is a
negative impact to net income as a result of transitioning from Canadian GAAP to
IFRS given the requirement to present components of InnVest's units as financial
liabilities under IFRS. The resulting non-cash charges do not impact funds from
operations, distributable income or cash flow.
InnVest's Consolidated Financial Statements and Management's Discussion and
Analysis for the three months ended March 31, 2011 and 2010 are available on
InnVest website at www.innvestreit.com.
SELECTED FINANCIAL INFORMATION
Three Three
Months Ended Months Ended
March 31, March 31,
($ 000s, except per unit amounts)(unaudited) 2011 2010
----------------------------------------------------------------------------
Hotel revenues $ 128,319 $ 125,445
Hotel expenses 112,571 109,903
----------------------------------------------------------------------------
Hotel operating income 15,748 15,542
Net loss and comprehensive loss $ (20,035) $ (98,710)
----------------------------------------------------------------------------
Reconciliation to funds from operations (FFO)
Add / (deduct)
Depreciation and amortization 23,530 23,255
Deferred income tax (recovery) expense (10,694) 413
Unrealized loss on liabilities presented at
fair value 2,474 60,390
Finance costs - distributions 1,725 10,959
----------------------------------------------------------------------------
FFO (1) $ (3,000) $ (3,693)
----------------------------------------------------------------------------
Reconciliation to distributable loss
Add / (deduct)
Non-cash portion of mortgage interest
expense 661 482
Non-cash portion of convertible debentures
interest and accretion 896 615
Reserve for replacement of furniture,
fixtures and equipment and capital
improvements (FF&E Reserve) (5,279) (5,154)
----------------------------------------------------------------------------
Distributable loss (1) $ (6,722) $ (7,750)
----------------------------------------------------------------------------
Per Unit:
Net loss - diluted $ (0.222) -
FFO - diluted $ (0.033) $ (0.042)
Distributable loss - diluted $ (0.074) $ (0.088)
Distributions declared (2) $ 0.1251 $ 0.1251
1. Funds from operations and distributable income are measures of earnings
and cash flow commonly used by industry analysts that are not required
under IFRS, and accordingly, may not be comparable to similar measures
used by other organizations.
2. Distributions per unit include cash distributions and distributions
arising from the Distribution Reinvestment Plan.
The operating statistics relating to room revenues are on a same-hotel basis and
exclude one hotel which is classified as an operating lease.
For the three months ended March 31, 2011
Occupancy ADR RevPAR
% Variance $ Variance $ Variance
to 2010 to 2010 to 2010
Ontario 54.0% 5.1 pts $ 104.99 (2.0%) $ 56.67 8.3%
Quebec 52.3% (0.1 pts) $ 106.02 (0.3%) $ 55.43 (0.6%)
Atlantic 49.6% 0.4 pts $ 107.58 3.4% $ 53.32 4.1%
Western 55.2% (0.1 pts) $ 138.37 2.8% $ 76.33 2.5%
------------------------------------------------------------------
Total 53.2% 2.3 pts $ 112.11 - $ 59.62 4.4%
FINANCIAL REVIEW
Three months ended March 31, 2011
The hospitality industry is highly correlated to the economy given its impact on
discretionary travel demand, including demand from corporate and leisure
customers. An improving economy has resulted in positive top-line operating
trends since mid-2010. For the three months ended March 31, 2011, hotel revenues
were up 2.3%, to $128.3 million.
Over this period, RevPAR increased 4.4% based on a 2.3 point improvement in
occupancy. Operating results during the quarter were negatively affected by
renovation displacement as a result of ongoing room renovations at the Fairmont
Palliser in Calgary and the Hilton Quebec. Excluding these two hotels, first
quarter RevPAR growth would have approximated 5.1%. Renovations at both hotels
were completed in the second quarter of 2011.
Room revenues for the three months ended March 31, 2011 increased 3.8%, or $3.6
million, to $100.4 million. Ontario experienced the strongest growth led by the
Greater Toronto Area which benefitted from strong group activity in the downtown
core. Displacement due to guest room renovations at the Hilton Quebec City
contributed to a modest RevPAR decline in the Quebec region during the quarter,
offsetting growth achieved in the balance of the region. Results in the Atlantic
region benefitted from group activity strength. Improved corporate transient
activity contributed to RevPAR growth in the Western region. Ongoing room
renovations at the Fairmont Palliser in Calgary displaced business volumes
through the quarter, negatively affecting year over year comparisons.
For the three months ended March 31, 2011, non-room revenues totalled $28.0
million, down $763, or 2.7%, owing to reduced catering revenues and the closure
of certain restaurants for renovations.
Hotel expenses for the three months ended March 31, 2011 increased $2.7 million
or 2.4% when compared to the same period in 2010 primarily reflecting
incremental costs associated with the 4.5% increase in room demand during the
period (2.3 point improvement in occupancy). Expenses also reflect higher
utility expenses of $731, up almost 10.0%, associated with increased utility
rates and consumption.
For the three months ended March 31, 2011, InnVest generated HOI of $15.7
million, up 1.3% as compared to the prior year. The growth in hotel revenues
during the quarter was achieved through occupancy gains. The marginal
contribution from this incremental demand was partially offset by higher
operating costs. In addition, various rooms were taken out of the rental pool as
result of renovations which resulted in a reduction in hotel operating income of
approximately $1.0 million for the quarter. Excluding the renovations
displacement, HOI growth would have approximated 7.8%.
InnVest realized a net loss of $20.0 million compared to a net loss of $98.7
million in 2010. Excluding non-cash charges relating to the IFRS implementation
and deferred income taxes, InnVest's net loss was relatively unchanged at $26.5
million compared to $26.9 million in 2010.
The first quarter of 2011 generated a distributable loss of $6.7 million ($0.074
per unit diluted) and an FFO loss of $3.0 million (loss of $0.033 per unit
diluted) each showing modest improvements from the prior year owing to higher
HOI.
BALANCE SHEET REVIEW
At March 31, 2011, InnVest has cash on hand totalling $45.6 million and $39.1
million available under its credit facility.
InnVest had mortgages payable of $827.2 million with a weighted average term of
2.6 years and a weighted average interest rate of 5.6%. InnVest has no mortgage
maturities until September 2011.
On March 15, 2011, the Trust closed its previously announced public issuance of
$50.0 million aggregate principal amount of 5.75% stapled convertible unsecured
subordinated debentures (the "Series F - 5.75% Debentures") due March 30, 2018
and 3,600,000 stapled units at a price of $7.00 per Unit for gross proceeds of
$25.2 million. Net proceeds will be used to fund capital improvements, to fund
potential future acquisitions and for general trust purposes.
During the first quarter, InnVest invested $13.2 million in capital
expenditures. These expenditures included room renovations at the Fairmont
Palliser and the Hilton Quebec City designed to increase cash flow and improve
profitability by capitalizing on changing market conditions and the favorable
locations of InnVest's properties. Renovations at both of these hotels were
completed late in the second quarter of 2011.
At March 31, 2011, InnVest's leverage excluding and including convertible
debentures was 46.7% and 63.9%, respectively. In order to address InnVest's
transition to IFRS which came into effect January 1, 2011, InnVest amended its
Declaration of Trust to adjust the maximum financial leverage ratio to 60% of
gross asset value (75% including convertible debentures). The amendments were
made in light of the impact of the conversion to IFRS which resulted in the
reduction of the book value of assets by approximately $217.0 million as well as
the elimination of accumulated depreciation and amortization.
INCOME TAX DEFERRAL PERCENTAGE
For 2011, InnVest estimates that the non-taxable portion of the distributions
made to unitholders during the year will approximate 60% (2010 - 67%).
OUTLOOK
Historically, the lodging industry performance has been highly correlated with
the general economy given the discretionary nature of leisure and business
travel and will typically lag an economic recovery until businesses and
consumers gain confidence in the sustainability of the recovery. The Canadian
economic recovery has contributed to improving occupancy trends in our portfolio
over the last four quarters. We expect this trend to continue with firming
occupancies leading to improvements in average daily rate in the second half of
2011.
We intend to selectively invest in a number of our full-service and
limited-service hotels in 2011 to improve their competitive positioning and
operating performance. These investments are expected to enable our hotels to
increase rates charged. An enhanced product, coupled with improving demand and
constrained new supply should enable InnVest to realize cash flow growth as
hotel operating performance improves.
InnVest's current portfolio is diversified by geography, customer and brand.
This diversity, combined with its partnerships with experienced hotel operators,
contributes to the resiliency of the portfolio and positions InnVest to
effectively benefit from the improving economic environment.
QUARTERLY CONFERENCE CALL
Management will host a conference call on Friday June 3, 2011 at 11:00 a.m.
Eastern time to discuss the performance of InnVest. Investors are invited to
access the call by dialing (416) 340-2216 or 1-877-240- 9772. You will be
required to identify yourself and the organization on whose behalf you are
participating. A recording of this call will be made available June 3rd
beginning at 1:00 pm through to 11:59 p.m. on June 17th. To access the recording
please call (416) 694-9451 or (800) 408-3053 and use the reservation number
2565278#.
INNVEST PROFILE
InnVest Real Estate Investment Trust (the "REIT") is an unincorporated
open-ended real estate investment trust which owns a portfolio of 144 hotels
across Canada representing approximately 19,000 guest rooms operated under
internationally recognized brands. The REIT leases its hotels to InnVest
Operations Trust ("IOT"), a taxable investment trust. IOT indirectly holds all
of the hotel operating assets, earns revenues from hotel customers and pays rent
to the REIT. IOT also holds a 50% interest in Choice Hotels Canada Inc., one of
the largest franchisor of hotels in Canada, and earns revenues from franchising
fees.
Each issued and outstanding REIT unit trades together with a non-voting unit of
IOT as a "stapled unit" on the Toronto Stock Exchange (the "TSX") under the
symbol INN.UN. The REIT's convertible debentures trade on the TSX under the
symbols INN.DB.B, INN.DB.C, INN.DB.D, INN.DB.E and INN.DB.F.
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