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InnVest REIT Reports Fourth Quarter Results

Mar 15 2013 12:00AM

Marketwire

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TORONTO, ONTARIO -- (Marketwire) -- 03/15/13 -- InnVest Real Estate Investment Trust ("InnVest") (TSX: INN.UN) today announced financial results for the three months and year ended December 31, 2012. All dollars are in thousands of Canadian dollars unless otherwise specified.

"We delivered solid fourth quarter earnings with improvements realized across all key operating metrics. Lodging fundamentals remain favorable in the current environment, despite slow economic growth," commented Anthony Messina, InnVest's President and Chief Executive Officer. "As we look forward to 2013, we remain focused on our strategic initiatives to selectively invest in our portfolio, strengthen our balance sheet, maximize operating performance and sell non-core assets. We believe these initiatives will drive meaningful value for our unitholders."

Fourth Quarter Highlights

-- Revenue per available room ("RevPAR") on a same-hotel basis increased 3.0% driven by improvements in both average daily rate ("ADR") and occupancy;-- Gross operating profit improved 3.5% led by growth in hotel operations ("Hotel GOP");-- Net income of $147.5 million includes a non-cash deferred income tax recovery of $165.4 million. Excluding non-cash charges required by IFRS (unrealized gains and losses on liabilities presented at fair value and finance costs relating to the presentation of certain equity instruments as liabilities under IFRS), deferred income taxes, writedowns of hotel properties, certain other losses or income and depreciation and amortization, InnVest realized an adjusted net income of $11.7 million, up $1.9 million from the prior period;-- Funds from operations and distributable income improved $1.6 million and $1.7 million, respectively; and-- In early 2013, InnVest closed an offering of $115.0 million aggregate principal amount of Series G - 5.75% convertible debentures and sent notice of early redemption for its $75.0 million Series B - 6.00% convertible debentures due May 31, 2013.



InnVest's Consolidated Condensed Financial Statements and Management's Discussion and Analysis for the years ended December 31, 2012 and 2011 are available on InnVest's website at www.innvestreit.com.

SELECTED FINANCIAL INFORMATION

-------------- -------------- Three Months Three Months Year Year Ended Ended Ended Ended December 31, December 31, December 31, December 31, 2012 2011 2012 2011($000s except per unit amounts) (unaudited) (unaudited)Revenue Hotel properties $ 147,651 $ 146,768 $ 609,510 $ 603,493 Franchise business $ 3,224 $ 2,764 $ 12,402 $ 10,182 Other real estate properties $ 848 $ 830 $ 3,319 $ 3,433 -------------------------------------------------------- $ 151,723 $ 150,362 $ 625,231 $ 617,108Gross operating profit (1) Hotel properties $ 28,460 $ 27,580 $ 136,378 $ 134,992 Franchise business $ 1,239 $ 1,103 $ 4,118 $ 3,645 Other real estate properties $ 306 $ 316 $ 1,106 $ 1,370 -------------------------------------------------------- $ 30,005 $ 28,999 $ 141,602 $ 140,007Net income (loss) and comprehensive income (loss) $ 147,464 $ (4,324) $ (102,268) $ 44,535 --------------------------------------------------------Reconciliation to funds from operations (FFO)Add / (deduct) Depreciation and amortization 21,101 23,759 92,690 94,893 Deferred income tax (recovery) expense (165,363) (3,467) 20,840 (5,282) Unrealized (gain) loss on liabilities presented at fair value (4,033) (4,245) 10,154 (77,922) Finance costs - distributions 36 42 145 2,434 Gain on sale of assets (1,026) - (1,456) - Reversal of previous impairment 56 - (680) - Writedown of hotel properties 13,500 1,000 43,203 8,711 SIFT transition expenses - 134 980 723 Non-recurring gains - (2,798) - (2,798) --------------------------------------------------------Funds from operations (2) $ 11,735 $ 10,101 $ 63,608 $ 65,294 --------------------------------------------------------Reconciliation to distributable incomeAdd / (deduct) Non-cash portion of mortgage interest expense 624 624 2,389 2,633 Non-cash portion of convertible debentures interest and accretion 1,059 988 4,102 3,816 FF&E reserve (6,219) (6,165) (25,585) (25,303) --------------------------------------------------------Distributable income (2) $ 7,199 $ 5,548 $ 44,514 $ 46,440 --------------------------------------------------------Per unit data Net income (loss) and comprehensive income (loss) - diluted $ 1.227 $ (0.046) $ (1.093) $ 0.480 FFO - diluted $ 0.125 $ 0.108 $ 0.659 $ 0.678 Distributable income - diluted $ 0.077 $ 0.059 $ 0.470 $ 0.492 Distributions declared $ 0.0999 $ 0.1083 $ 0.3996 $ 0.4836 --------------------------------------------------------(1) Gross operating income ("GOP") is defined as revenues less hotel, franchise and other real estate properties expenses.(2) Funds from operations and distributable income are non-IFRS measures of earnings and cash flow commonly used by industry analysts. Non-IFRS 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 for the three months and years ended December 31, 2012 and 2011 are on a same-hotel basis and exclude hotels which were sold in 2012 and/or one hotel which was closed for a portion of the annual period.

Three months ended Year ended December 31, Variance December 31, Variance 2012 to 2011 2012 to 2011----------------------------------------------------------------------------Occupancy Ontario 57.3% 2.8 pts 61.0% 0.4 pts Quebec 58.7% 1.2 pts 62.6% 0.3 pts Atlantic 51.7% (1.2 pts) 60.0% (1.1 pts) Western 61.9% 0.4 pts 65.5% 1.7 pts----------------------------------------------------------------------------Total 57.6% 1.4 pts 62.1% 0.4 ptsADR Ontario $ 105.46 (1.8%) $ 107.56 0.9% Quebec $ 114.72 2.0% $ 114.63 - Atlantic $ 110.88 0.3% $ 115.84 (0.2%) Western $ 149.52 3.4% $ 150.96 5.7%----------------------------------------------------------------------------Total $ 117.13 0.5% $ 118.98 1.8%RevPAR Ontario $ 60.44 3.3% $ 65.60 1.6% Quebec $ 67.29 4.1% $ 71.76 0.5% Atlantic $ 57.34 (1.9%) $ 69.50 (2.0%) Western $ 92.52 4.0% $ 98.87 8.6%----------------------------------------------------------------------------Total $ 67.49 3.0% $ 73.84 2.5%



FINANCIAL REVIEW

Three months ended December 31, 2012

For the three months ended December 31, 2012, total revenues increased 0.9% to $151.7 million.

Revenues generated by hotel operations improved 0.6%, or $0.9 million, to $147.7 million. Same-store room revenues growth of 2.5% during the fourth quarter was offset by reduced revenues following asset sales completed during the year ($2.1 million). Fourth quarter results include a $0.4 million insurance recovery relating to a hotel closure earlier in the year. Additional insurance proceeds are anticipated in 2013.

Same-hotel RevPAR during the quarter increased 3.0% based on growth in occupancy and ADR. The Quebec region saw the highest growth this quarter benefitting from strong group activity in Quebec City. Western Canada continues to lead rate growth led by strength in Calgary and Edmonton. The Ontario region benefitted from renovations completed in the prior year and strength in the Greater Toronto Area. This offset shortfalls in Ottawa (soft demand) and the Atlantic markets (reduced group activity).

InnVest generated gross operating profit from hotel operations ("Hotel GOP") of $28.5 million, up 3.2% as compared to the prior period. Fourth quarter hotel GOP margins improved 50 basis points to 19.3%.

Corporate and administrative expenses include a one-time $1.1 million charge relating to an executive departure during the quarter.

During the fourth quarter, InnVest completed the sale of two hotels (140 rooms) for gross proceeds of $6.0 million resulting in a $1.0 million gain on sale. Other income during the prior period included $2.8 million relating to the successful settlement of an outstanding lawsuit.

Fourth quarter results include a $13.5 million non-cash writedown related to 9 assets which have been identified as non-core divestiture candidates. While management does not expect its divestiture program to result in an overall loss on sale, accounting rules require management to recognize impairment charges on assets based on their estimated recoverable amount, unlike gains, which can only be recognized upon sale.

The fourth quarter of 2012 generated distributable income of $7.2 million ($0.077 per unit diluted) and FFO of $11.7 million ($0.125 per unit diluted) each up $1.7 million and $1.6 million, respectively, from the prior year primarily reflecting higher Hotel GOP achieved.

Year ended December 31, 2012

For the year ended December 31, 2012, total revenues increased by 1.3% to $625.2 million.

Revenues generated by hotel operations increased 1.0% or $6.0 million to $609.5 million. Same-hotel RevPAR over this period increased 2.5% based on a 1.8% increase in ADR and modest growth in occupancy. The RevPAR growth was driven by strength in Western Canada.

For the year ended December 31, 2012, Hotel GOP improved 1.0% or $1.4 million to $136.4 million. Growth of 1.9% in InnVest's same-hotel portfolio was offset by asset sales and the closure of one hotel for several weeks during the second and third quarters. Overall Hotel GOP margins were unchanged at 22.4%.

InnVest generated distributable income of $44.5 million ($0.470 per unit diluted) and FFO of $63.6 million ($0.659 per unit diluted), $1.9 million and $1.7 million year-over-year declines, respectively, owing primarily to the prior period second quarter benefit of $2.1 million in interest earned related to GST/HST tax credits.

BALANCE SHEET REVIEW

Over the past year, InnVest executed a number of transactions to strengthen its balance sheet including:

-- Refinanced over $330.0 million of mortgages during the year, significantly extending the term to maturity of its mortgage debt at favorable interest rates;-- Extended its operating line through August 31, 2014;-- During the first quarter of 2013, InnVest closed an offering of $115.0 million aggregate principal amount of Series G - 5.75% convertible debentures and sent notice of early redemption for its Series B - $75.0 million 6.00% convertible debentures due May 31, 2013. Following this redemption, InnVest will not have any debt maturities until April of 2014.



As of December 31, 2012, InnVest had $19.7 million of cash (including restricted cash) and $23.6 million of capacity on its credit facility. Following the closing of the Series G debentures and redemption of the Series B debentures, InnVest's liquidity, after closing costs, would improve by over $35 million.

At December 31, 2012, InnVest's leverage including convertible debentures was 64.3% (46.2% excluding convertible debentures).

Capital expenditures during 2012 totaled $37.2 million. These investments reflect a number of profit- improving projects designed to increase cash flow and improve profitability including room and public space renovations at several Delta branded hotels as well as brand upgrades at a number of our Holiday Inn and Hilton hotels.

INCOME TAX DEFERRAL

For 2012, the non-taxable portion of the distributions made to unitholders during the year approximates 40% (2011 - 60%).

QUALIFIED REIT STATUS

Based on the substantive enactment of Bill C-48 containing proposed amendments to the tests for InnVest to qualify as a REIT for Canadian income tax purposes, and InnVest's valuation and measurement of its different categories of assets and revenues as required under these new tests, InnVest believes that it qualified as a REIT for such purposes during 2012. As a result, during the fourth quarter of 2012, InnVest reversed its previously accrued current income tax provision of $1.5 million and substantially eliminated its deferred tax liability and asset resulting in a $165.4 million deferred income tax recovery. There can be no assurances that InnVest will continue to qualify as a REIT for Canadian income tax purposes for subsequent taxation years.

OUTLOOK

Uncertainty in the world economy continues to impact the lodging industry. InnVest's broad, diversified portfolio remains a key advantage in the current environment.

Over the next two years, InnVest expects to divest of low-yielding assets and reinvest proceeds generated to undertake an extensive capital program to enhance its product offering at a number of select hotels. These targeted investments are expected to improve the portfolio's 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 15, 2013 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 15th, beginning at 1:00 pm through to March 29th, 2013. To access the recording please call 905-694-9451 or 1-800-408-3053 and use the reservation number 8214798#.

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, competition and the status of InnVest REIT as a REIT for Canadian federal income tax purposes in any year. These and other factors are discussed in InnVest REIT's annual information form for the year ended December 31, 2011, which is available at www.sedar.com. InnVest REIT 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 is an unincorporated open-ended real estate investment trust which owns a portfolio of 135 hotels across Canada representing approximately 18,000 guest rooms operated under internationally recognized brands. InnVest also holds a 50% interest in Choice Hotels Canada Inc., one of the largest franchisors of hotels in Canada.

InnVest's units and convertible debentures trade on the Toronto Stock Exchange (the "TSX") under the symbols INN.UN, INN.DB.B, INN.DB.C, INN.DB.D, INN.DB.E, INN.DB.F and INN.DB.G.



Contacts:
InnVest Real Estate Investment Trust
Chantal Nappert
Executive Director, Investor Relations
(905) 624-7806
(905) 206-7114 (FAX)
www.innvestreit.com





Source: Marketwire


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