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Press release from Marketwire

InnVest REIT Reports First Quarter Results

Friday, June 03, 2011

InnVest REIT Reports First Quarter Results08:00 EDT Friday, June 03, 2011TORONTO, ONTARIO--(Marketwire - June 3, 2011) -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 HighlightsRevPAR 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 $50.0 million of convertible debentures. Proceeds are expected to be used to fund capital projects, to fund potential future acquisitions and for working capital purposes. The first quarter is traditionally InnVest's lowest earnings period. Given the seasonality of the portfolio, the first quarter is not reflective of anticipated results for the annual period. Revenues are typically higher in the second and third quarters due to business and leisure travel trends as compared to the first and fourth quarters.The accompanying results incorporate changes required pursuant to International Financial Reporting Standards ("IFRS"). For the periods presented, there is a negative impact to net income as a result of transitioning from Canadian GAAP to IFRS given the requirement to present components of InnVest's units as financial liabilities under IFRS. The resulting non-cash charges do not impact funds from operations, distributable income or cash flow.InnVest's Consolidated Financial Statements and Management's Discussion and Analysis for the three months ended March 31, 2011 and 2010 are available on InnVest website at www.innvestreit.com.SELECTED FINANCIAL INFORMATIONThreeThreeMonths EndedMonths Ended($ 000s, except per unit amounts)(unaudited)March 31, 2011March 31, 2010Hotel revenues$128,319$125,445Hotel expenses112,571109,903Hotel operating income15,74815,542Net loss and comprehensive loss$(20,035)$(98,710)Reconciliation to funds from operations (FFO)Add / (deduct)Depreciation and amortization23,53023,255Deferred income tax (recovery) expense(10,694)413Unrealized loss on liabilities presented at fair value2,47460,390Finance costs - distributions1,72510,959FFO (1)$(3,000)$(3,693)Reconciliation to distributable lossAdd / (deduct)Non-cash portion of mortgage interest expense661482Non-cash portion of convertible debentures interest and accretion896615Reserve for replacement of furniture, fixtures and equipment and capital improvements (FF&E Reserve) (5,279)(5,154)Distributable loss (1)$(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$0.12511. 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, 2011OccupancyADRRevPAR%Variance $Variance $Variance to 2010 to 2010 to 2010 Ontario54.0%5.1 pts$104.99(2.0%)$56.678.3%Quebec52.3%(0.1 pts)$106.02(0.3%)$55.43(0.6%)Atlantic49.6%0.4 pts$107.583.4%$53.324.1%Western55.2%(0.1 pts)$138.372.8%$76.332.5%Total53.2%2.3 pts$112.11-$59.624.4%FINANCIAL REVIEWThree months ended March 31, 2011The 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 REVIEWAt 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 PERCENTAGEFor 2011, InnVest estimates that the non-taxable portion of the distributions made to unitholders during the year will approximate 60% (2010 – 67%).OUTLOOKHistorically, 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 CALLManagement 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 PROFILEInnVest 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.FOR FURTHER INFORMATION PLEASE CONTACT: Kenneth D. GibsonInnVest Real Estate Investment TrustPresident and Chief Executive Officer(905) 206-7100(905) 206-7114 (FAX)ORTamara L. LawsonInnVest Real Estate Investment TrustChief Financial Officer and Corporate Secretary(905) 206-7100(905) 206-7114 (FAX)www.innvestreit.com