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.
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 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.
InnVest Real Estate Investment Trust
Executive Director, Investor Relations
(905) 206-7114 (FAX)