InnVest Real Estate Investment Trust (the "REIT") and InnVest Operations Trust
("IOT"), collectively "InnVest" (TSX:INN.UN), today announced financial results
for the three and twelve months ended December 31, 2011. All dollars are in
thousands of Canadian dollars unless otherwise specified.
"In 2011, we executed several initiatives to support long-term revenue growth
across the portfolio including notable profit-improving capital expenditures in
key markets and assets. These investments position our assets for increased
market share and room rates, helping to improve margins in the years to come,"
commented Kenneth Gibson, InnVest's President and Chief Executive Officer.
"While the Canadian lodging industry's recovery has been slower than
anticipated, we are encouraged by the rate growth achieved during the fourth
quarter and improving trends early in 2012."
Fourth Quarter Highlights
-- Revenue per available room ("RevPAR") on a same hotel basis increased
0.6% during the fourth quarter with a 2.0% improvement in average daily
rate ("ADR") offsetting a 0.8 point decline in occupancy.
-- Gross operating profit ("GOP") of $29.0 million was unchanged from the
prior period. GOP from hotel operations was $27.6 million.
-- InnVest realized a net loss of $4.3 million in the fourth quarter of
2011 compared to net income of $213.9 million in 2010. The prior year
results include a $232.1 million deferred income tax recovery recognized
following InnVest's reorganization to a stapled REIT on December 31,
2010.
-- Funds from operations and distributable income improved $1.5 million and
$1.4 million, respectively, reflecting the benefit of lower interest
charges.
InnVest's Consolidated Financial Statements and Management's Discussion and
Analysis for the years ended December 31, 2011 and 2010 are available on
InnVest's website at www.innvestreit.com.
SELECTED FINANCIAL INFORMATION
-------------- --------------
Three Months Three Months
Ended Ended
December 31, December 31, Year Ended Year Ended
($000s except per 2011 2010 December 31, December 31,
unit amounts) (unaudited) (unaudited) 2011 2010
(as restated) (as restated)
Revenue
Hotel
properties(1) $ 146,767 $ 145,905 $ 603,493 $ 600,755
Franchise business $ 2,764 $ 2,630 $ 10,182 $ 9,565
Other real estate
properties $ 830 $ 904 $ 3,433 $ 3,716
--------------------------------------------------------
$ 150,361 $ 149,439 $ 617,108 $ 614,036
Gross operating
profit (2)
Hotel properties $ 27,580 $ 27,512 $ 134,992 $ 137,535
Franchise business $ 1,103 $ 1,054 $ 3,645 $ 3,458
Other real estate
properties $ 316 $ 438 $ 1,370 $ 1,773
--------------------------------------------------------
$ 28,999 $ 29,004 $ 140,007 $ 142,766
Net (loss) income
and comprehensive
(loss) income $ (4,324) $ 213,928 $ 44,535 $ 69,469
--------------------------------------------------------
Reconciliation to
funds from
operations (FFO)
Add / (deduct)
Depreciation and
amortization 23,759 23,395 94,893 94,115
Deferred income
tax recovery (3,467) (232,052) (5,282) (240,527)
Unrealized (gain)
loss on
liabilities
presented at fair
value (4,245) (6,342) (77,922) 109,556
Finance costs -
distributions 42 20 2,434 18,403
Gain on sale of
asset held for
sale - - - (327)
SIFT transition
expenses 134 2,246 723 2,756
Non-recurring gain (2,798) - (2,798) -
Writedown of hotel
properties 1,000 7,412 8,711 7,412
--------------------------------------------------------
Funds from
operations (3) $ 10,101 $ 8,607 $ 65,294 $ 60,857
--------------------------------------------------------
Reconciliation to
distributable
income
Add / (deduct)
Non-cash portion
of mortgage
interest expense 624 675 2,633 2,209
Non-cash portion
of convertible
debentures
interest and
accretion 988 976 3,816 3,791
Reserve for
replacement of
furniture,
fixtures and
equipment and
capital
improvements (6,166) (6,116) (25,303) (25,081)
--------------------------------------------------------
Distributable income
(3) $ 5,547 $ 4,142 $ 46,440 $ 41,776
--------------------------------------------------------
Per unit data
FFO - diluted $ 0.108 $ 0.096 $ 0.678 $ 0.670
Distributable income
- diluted $ 0.059 $ 0.046 $ 0.492 $ 0.464
Distributions
declared $ 0.1083 $ 0.1251 $ 0.4836 $ 0.5004
-------------- --------------
(1) In accordance with IFRIC 13 - Loyalty Programs, customer loyalty awards
are accounted for as a separate component of the sales transaction in
which they are granted. The cost of loyalty program points is recorded
as a reduction in revenues. During the three months ended December 31,
2011, the impact of this difference resulted in a reduction in hotel
revenues and hotel expenses of $2.3 million (2010 - $2.5 million).
During the year ended December 31, 2011, the impact of this difference
resulted in a reduction in hotel revenues and hotel expenses of $9.2
million (2010 - $9.4 million). The impact of these reclassifications
had no impact on gross operating profit, net income and comprehensive
income, funds from operations or distributable income during the
periods presented.
(2) Gross operating income ("GOP") is defined as revenues less hotel, other
real estate properties and franchise expense.
(3) Funds from operations and distributable income are non-GAAP measures of
earnings and cash flow commonly used by industry analysts. Non-GAAP
financial measures do not have a standardized meaning and are unlikely
to be comparable to similar measures used by other organizations.
The operating statistics relating to gross room revenues are on a same-hotel
basis and exclude one hotel which is classified as an operating lease.
----------------------------------------------------------------------------
Three months
ended Year ended
December 31, Variance December 31, Variance
2011 to 2010 2011 to 2010
Occupancy
Ontario 53.8% (2.7 pts) 59.6% 0.6 pts
Quebec 57.1% 0.6 pts 62.1% 1.1 pts
Atlantic 52.9% (0.1 pts) 61.1% 0.1 pts
Western 58.8% 1.7 pts 61.4% 0.3 pts
----------------------------------------------------------------------------
Total 55.3% (0.8 pts) 60.7% 0.6 pts
ADR
Ontario $ 106.02 0.8% $ 105.75 (1.4%)
Quebec $ 112.22 0.2% $ 114.24 0.5%
Atlantic $ 110.59 0.7% $ 116.10 0.4%
Western $ 143.07 5.2% $ 140.87 2.4%
----------------------------------------------------------------------------
Total $ 115.55 2.0% $ 115.94 0.1%
RevPAR
Ontario $ 57.00 (4.1%) $ 63.00 (0.5%)
Quebec $ 64.04 1.1% $ 70.97 2.3%
Atlantic $ 58.45 0.4% $ 70.95 0.6%
Western $ 84.20 8.4% $ 86.53 2.8%
----------------------------------------------------------------------------
Total $ 63.95 0.6% $ 70.40 1.1%
----------------------------------------------------------------------------
FINANCIAL REVIEW
Three months ended December 31, 2011
For the three month ended December 31, 2011, revenues increased by 0.6% to
$150.4 million.
Revenues generated by hotel operations increased 0.6% to $146.8 million. RevPAR
over this period increased 0.6%, benefitting from a 2.0% increase in ADR which
offset a 0.8 point decline in occupancy. RevPAR growth of almost 30% at the
Fairmont Palliser in Calgary following recent renovations offset declines in
Ontario driven by two hotels which were completing renovations in order to enter
into new long-term franchise agreements.
InnVest generated gross operating profit from hotel operations of $27.6 million,
relatively unchanged from the prior year. GOP margins from hotel operations were
consistent with the prior year at 18.8%.
Corporate and administrative expenses during the quarter declined $2.1 million
reflecting costs incurred in the prior year relating to InnVest's 2010
reorganization to a stapled structure. Total interest expense declined $1.3
million with lower average interest rates on mortgages somewhat offset by
increased convertible debenture interest (March 2011 issuance of $50.0 million
Series F Stapled Debentures). InnVest recognized a non-cash impairment charge of
$1.0 million relating to one hotel during the quarter, triggered by changes in
the local market conditions.
Other income during the quarter includes $2.8 million relating to the successful
settlement of an outstanding lawsuit during the three months ended December 31,
2011.
The fourth quarter of 2011 generated distributable income of $5.5 million
($0.059 per unit diluted) and FFO of $10.1 million ($0.108 per unit diluted),
each up $1.4 million and $1.5 million, respectively, from the prior year
reflecting lower interest charges.
Year ended December 31, 2011
For the year ended December 31, 2011, revenues increased by 0.5% to $617.1 million.
Revenues generated by hotel operations increased 0.5%, to $603.5 million. Annual
RevPAR increased 1.1% based on a 0.6 point improvement in occupancy and a modest
0.1% increase in ADR. Growth in the Quebec and Western regions following
renovations undertaken during the year was offset by declines in Ontario.
Revenues during the year were negatively affected by business displacement
following the rebranding of two hotels in Ontario in 2011 as well as the
completion of renovations at two hotels in order to enter into new long-term
franchise agreements.
InnVest generated gross operating profit from hotel operations of $135.0
million, down 1.8% or $2.5 million as compared to the prior year. Hotel GOP
margins declined 50 basis points to 22.4%. The growth in hotel revenues during
the year was achieved through occupancy gains. The marginal contribution from
this incremental demand was offset by higher operating costs. In addition,
various rooms were taken out of the rental pool as a result of renovations which
resulted in business disruption during the year.
InnVest generated annual distributable income of $46.4 million ($0.492 per unit
diluted) and FFO of $65.3 million ($0.678 per unit diluted), each up $4.7
million and $4.4 million, respectively, from the prior year reflecting lower
interest charges incurred.
In 2011, distributions totalling $44.9 million, or $0.4836 per unit, were declared.
BALANCE SHEET REVIEW
InnVest has executed a number of transactions to strength its balance sheet
including:
-- Completed the five-year renewal of a $50.7 million mortgage at an
interest rate of 5.9%. The mortgage is secured by two full-service
hotels.
-- Completed the one year extension of its credit facility to August 31,
2013.
-- During the first quarter of 2012, InnVest amended its existing credit
agreement to increase the maximum amount available under its line of
credit on a seasonal basis. The credit line was increased from $40.0
million to $50.0 million through June 15, 2012 and to $45.0 million
through August 31, 2012. Thereafter the line of credit will return to
the $40.0 million level.
-- During the first quarter of 2012, InnVest completed the short-term
extension of a $146.7 million mortgage based on existing terms. The
mortgage is otherwise subject to a one year option through February
2013. InnVest entered into this short-term extension while it is
finalizing the terms of 5-year extensions on this maturity along with a
$164.2 million maturity in November 2012 with the same lender. Assuming
the completion of these two renewals, the proforma weighted average term
to maturity of InnVest's mortgages at December 31, 2011 would increase
to 3.9 years and the weighted average interest rate would remain at
approximately 5.6%.
As of December 31, 2011, InnVest had approximately $13.7 million of cash
(including restricted cash) and $39.2 million of available capacity under its
credit facility.
At December 31, 2011, InnVest's leverage including convertible debentures was
62.9% (45.6% excluding convertible debentures). This reflects an 80 basis point
leverage reduction over the year.
During the year, InnVest invested $56.2 million in capital expenditures
throughout its portfolio. These investments reflect a number of profit-improving
projects designed to increase cash flow and improve profitability by
capitalizing on changing market conditions and the favorable locations of
InnVest's properties. Significant investments undertaken during the year
included renovations to the executive gold floor and rooms at the Fairmont
Palliser in Calgary, room renovations at the Hilton Quebec City, upgrades at a
number of Delta hotels and the roll-out of a multi-year investment program to
revitalize InnVest's Comfort Inn portfolio. During the fourth quarter InnVest
completed renovations at two of its Holiday Inn hotels in order to renew
long-term franchise agreements and commenced the final phase of room and common
area renovations at its two Hilton properties.
DISTRIBUTIONS
During the fourth quarter, InnVest announced a reduction in distributions paid
to unitholders to $0.40 per unit annually, as compared to the prior distribution
level of $0.50 per unit annually. This equates to a monthly distribution of
$0.0333 per unit beginning in November 2011. The Board of Trustees unanimously
approved the reduction of distributions after careful consideration of the
environment faced by InnVest and its desire to conserve liquidity to fund
profit-improving capital investments throughout the portfolio.
For 2011, approximately 60% of the combined distributions to the REIT and IOT
will not be taxable to unitholders.
CORPORATE REORGANISATION
On July 20, 2011, the Minister of Finance (the "Minister") announced changes in,
among other things, the tax treatment of real estate investment trusts that have
issued "stapled" securities. If the Minister's announcement is enacted as
proposed and no changes are made to the existing structure of the REIT and IOT,
then rents (and certain other amounts) paid by IOT to the REIT after the
applicable transition date (expected to be July 20, 2012) (the "Transition
Period") would cease to be deductible in computing the income of IOT for
Canadian income tax purposes.
In November 2011, InnVest announced its intention to complete an internal
reorganization to unwind the stapled unit structure (the "Reorganization")
resulting in all the former stapled unitholders and stapled debenture holders of
the REIT and IOT holding only units or convertible debentures, as the case may
be, of the REIT. The merged entity would be governed as a trust.
The Reorganization was approved by 99.9% of the votes cast in person or by proxy
by InnVest unitholders at a special meeting held on February 23, 2012. On
February 29, 2012, InnVest received final court approval of the plan of
arrangement forming part of the Reorganization from the Ontario Superior Court
of Justice. InnVest anticipates that the effective date of the Reorganization
will be June 30, 2012.
Additional information about the Reorganization is contained in InnVest's
management information circular dated December 31, 2011, which is available on
SEDAR at www.sedar.com.
Pending completion of the proposed merger, InnVest is restricted from issuing
stapled securities during the Transition Period, subject to certain exceptions.
As a consequence, InnVest suspended its distribution reinvestment plan ("DRIP")
beginning in August 2011 until further notice and will satisfy all Trustee
compensation and the vesting of executive units in cash as opposed to the usual
satisfaction in the form of units.
OUTLOOK
Uncertainty in the world economy continues to impact our business. InnVest's
broad, diversified portfolio remains a key advantage in the current environment.
Looking ahead, we are focused on driving internal growth within our existing
portfolio. In 2011, we began an important multi-year capital program to enhance
our product offering at a number of our hotels. These targeted investments are
expected to improve our hotels' competitive positioning and operating
performance through increased occupancies and rates. An enhanced product,
coupled with improving demand and constrained new supply should enable InnVest
to realize cash flow growth.
QUARTERLY CONFERENCE CALL
Management will host a conference call on Friday March 16, 2012 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 1-866-226-1792. 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 March 16th
beginning at 1:00 pm through to 11:59 p.m. on March 30th. To access the
recording please call (905) 694-9451 or (800) 408-3053 and use the reservation
number 7573534#.
FORWARD LOOKING STATEMENTS
Statements contained in this press release that are not historical facts are
forward-looking statements which involve risk and uncertainties which could
cause actual results to differ materially from those expressed in the
forward-looking statements. Among the key factors that could cause such
differences are real estate investment risks, hotel industry risks and
competition. These and other factors are discussed in InnVest's 2011 annual
information form which is available at www.sedar.com or www.innvestreit.com.
InnVest disclaims any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise, unless required to do so by applicable securities law.
INNVEST PROFILE
InnVest Real Estate Investment Trust (the "REIT") is an unincorporated
open-ended real estate investment trust which owns a portfolio of 143 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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