TORONTO, ONTARIO -- (Marketwired) -- 05/10/13 -- InnVest Real Estate Investment Trust ("InnVest") (TSX: INN.UN), today announced financial results for the three months ended March 31, 2013. All dollars are in thousands of Canadian dollars unless otherwise specified.
"We are making progress against our strategic plan to improve our portfolio quality and strengthen our balance sheet. So far this year, we have actively planned and rolled out several capital investment projects including the revitalization program of our Comfort Inns. In addition, we have sold or entered into firm commitments to sell over $80 million in sales of non-core assets," said Anthony Messina, InnVest's President and Chief Executive Officer. "First quarter performance saw a shift in demand to the second quarter owing to the timing of Easter this year. Looking ahead, fundamentals for our portfolio are positive, driven by a favourable industry outlook, upside from capital investments and our ability to accretively redeploy capital from asset sales to higher return alternatives."
First Quarter Highlights
-- Raised $115.0 million of Series G - 5.75% convertible debentures and called $75.0 million of 6.0% Series B convertible debentures for early redemption on April 1, 2013. InnVest has no debt maturity until March 2014;-- Completed the sale of one non-core hotel (gross proceeds of $10.0 million) and entered into firm commitments for the sale of two additional properties (gross proceeds of $71.6 million) which are expected to close in the second quarter;-- Revenue per available room ("RevPAR") on a same-hotel basis decreased 1.0% with demand shifting to the second quarter highlighted by RevPAR growth of approximately 9% in April;-- First quarter results include a one-time restructuring charge of $1.3 million. Excluding this charge, gross operating profit ("GOP") declined $2.4 million to $13.4 million owing to the RevPAR decline and the high fixed cost level in this low occupancy period;-- Realized an adjusted net loss of $4.0 million compared to $2.4 million in the prior year (excludes non-cash items (unrealized losses on liabilities presented at fair value, deferred income taxes, the gain on hotel sale and depreciation and amortization) and the non-recurring restructuring charge). This compares to the presented net loss of $41.7 million compared to a net loss of $30.2 million in the prior year;-- Funds from operations and distributable loss each declined primarily reflecting the RevPAR decline and the impact of the one-time restructuring charge; and-- Invested $5.8 million with additional capital commitments of $12.8 million as at the end of the quarter.
The first quarter is historically 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.
InnVest's Condensed Interim Consolidated Financial Statements and Management's Discussion and Analysis for the three months ended March 31, 2013 and 2012 are available on InnVest's website at www.innvestreit.com.
SELECTED FINANCIAL INFORMATION
-------------------------------- Three Months Three Months Ended Ended March 31, 2013 March 31, 2012($000s except per unit amounts) (unaudited) (unaudited)Revenue Hotel properties $ 123,018 $ 128,978 Other real estate properties 804 832 -------------------------------- $ 123,822 $ 129,810Gross operating profit (1) Hotel properties $ 13,219 $ 16,913 Other real estate properties 202 252 -------------------------------- $ 13,421 $ 17,165Net loss and comprehensive loss $ (41,666) $ (30,171) --------------------------------Reconciliation to funds from operations (FFO)Add / (deduct) Depreciation and amortization 20,712 23,969 Deferred income tax recovery (282) (10,334) Unrealized changes in the fair value of financial liabilities 17,228 14,150 Distributions included in corporate and administrative expense 36 36 Gain on sale of assets (1,259) - SIFT transition expenses - 220 --------------------------------Funds from operations (2) $ (5,231) $ (2,130) --------------------------------Reconciliation to distributable lossAdd / (deduct) Non-cash portion of mortgage interest expense 524 684 Non-cash portion of convertible debentures interest and accretion 1,238 992 FF&E reserve (5,175) (5,421) --------------------------------Distributable loss (2) $ (8,644) $ (5,875) --------------------------------Per unit data Net loss and comprehensive loss - diluted $ (0.445) $ (0.323) FFO - diluted $ (0.056) $ (0.023) Distributable loss - diluted $ (0.092) $ (0.063) Distributions declared $ 0.0999 $ 0.0999 --------------------------------(1) Gross operating income ("GOP") is defined as revenues less hotel and other real estate properties expenses.(2) Funds from operations and distributable loss 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 ended March 31, 2013 and 2012 are on a same-hotel basis and exclude hotels sold.
Occupancy ADR RevPAR % Variance $ Variance $ Variance to 2012 to 2012 to 2012 -----------------------------------------------------------------Ontario 53.7% 0.9 pts $ 105.22 (2.5%) $ 56.47 (0.9%)Quebec 52.3% (2.0 pts) $ 107.21 1.7% $ 56.11 (2.0%)Atlantic 45.9% (2.9 pts) $ 106.88 0.3% $ 49.11 (5.7%)Western 61.7% 0.7 pts $ 152.95 0.8% $ 94.36 1.9% -----------------------------------------------------------------Total 53.6% (0.4 pts) $ 115.48 (0.3%) $ 61.87 (1.0%)
Three months ended March 31, 2013
First quarter hotel revenues decreased $6.0 million, or 4.6%, as compared to the prior period. Excluding asset sales, same-hotel revenues declined $3.0 million or 2.4%. The shortfall is attributable to a 1.0% decline in same-hotel RevPAR, coupled with the loss of one day of operating performance as compared to the prior year (2012 was a leap year). An early Easter at the end of March (as opposed to early April in 2012) contributed to softer year-over-year occupancy this quarter with demand shifting to the second quarter highlighted by RevPAR growth of approximately 9% in April. RevPAR was particularly impacted by performance in the Ottawa market this quarter with InnVest's portfolio of seven hotels in the region (6% of its inventory) experiencing RevPAR declines of approximately 20% following the loss of distribution capacity at one hotel as a result of its de-branding in February 2012 and several non-recurring events benefitting the prior year (Junos, NHL All-Star game). Excluding the Ottawa region, InnVest's first quarter RevPAR increased 0.6%. The Atlantic region experienced reduced occupancies with growth in Halifax offset by reduced demand through the balance of the region.
During the first quarter of 2013, InnVest implemented operational enhancements to leverage InnVest's scale by consolidating certain hotel operation functions in select cities where it has multiple hotels. As a result, InnVest recognized a restructuring charge of $1.3 million but expects to fully recover these costs through expense savings by the end of the year.
The hotel industry has a high level of fixed costs with incremental revenue gains requiring marginal increases in costs. Conversely, in periods of declining revenues, such as experienced in the first quarter of 2013, corresponding decreases to expenses are limited, resulting in declining profitability.
The sale of low-yielding assets over the last year contributed to a modest improvement in Hotel GOP during the first quarter. However, the $3.0 million decline in first quarter same-hotel revenues as compared to the $0.5 million reduction in operating expenses (excluding the restructuring fee), resulted in reduced profitability and margins. Excluding the restructuring charge taken during the quarter, InnVest generated gross operating profit from hotel operations ("Hotel GOP") of $14.6 million, down $2.4 million as compared to the prior period.
PORTFOLIO REPOSITIONING PROGRAM
During the first quarter of 2013, InnVest closed the sale of one non-core leasehold hotel (220 rooms) for gross proceeds of $10.0 million and repaid $4.1 million of mortgage debt.
Subsequent to the end of the quarter, InnVest entered into separate binding purchase and sale agreements to sell two Quebec properties for aggregate gross proceeds of $71.6 million. Both transactions are expected to close in the second quarter. InnVest is currently marketing 10 additional hotels.
CAPITAL INVESTMENT PROGRAM
Capital expenditures during the three months ended March 31, 2013 totalled $5.8 million compared to the notional FF&E Reserve of $5.2 million. Over $12 million in additional capital has been committed as at March 31, 2013, largely reflecting the rollout of InnVest's Comfort Inn revitalization program during the quarter as well as the start of renovations at a number of full-service hotels. InnVest expects to renovate 10 Comfort Inn hotels through the first half of 2013 and an additional 20 hotels by the end of the year.
On February 27, 2013, InnVest issued $115.0 million of Series G - 5.75% convertible debentures with proceeds primarily used to redeem InnVest's $75.0 million Series B - 6.00% convertible debentures on April 1, 2013. Incremental proceeds will be used to fund InnVest's capital investment program.
As of March 31, 2013, InnVest had $93.3 million of cash (including restricted cash), $75.0 million of which was applied to redeem the Series B Debentures on April 1, 2013. As at the end of the quarter, InnVest has $36.8 million of capacity on its credit facility.
Pro forma the redemption of its Series B - 6.0% convertible debentures, InnVest's leverage at March 31, 2013 including convertible debentures was 66.5% (46.0% excluding convertible debentures).
InnVest has no debt maturities until March of 2014 and a weighted average interest rate of 5.6%.
INCOME TAX DEFERRAL
For 2013, InnVest estimates that the non-taxable portion of the distributions made to unitholders during the year will approximate 30% (2012 - 40%). This estimate may change materially based on InnVest's asset disposition activity during the year.
Uncertainty in the world economy continues to impact the lodging industry. InnVest's broad, diversified portfolio remains a key advantage in the current environment.
Canadian lodging industry fundamentals remain favourable, with improving demand expectations through the balance of the year.
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.
NOMINEES FOR ELECTION TO BOARD OF TRUSTEES
InnVest will be hosting its annual and special meeting of unitholders (the "Meeting") on June 5, 2013 in Toronto. At the Meeting, it is proposed that five Trustees be elected by the Unitholders so that there are a total of seven Trustees. There are presently four elected Trustees and a total of six Trustees. Two of the current Trustees, Frank Anderson and Morton G. Gross, are seeking re-election at the Meeting. Michael P. Kitt and Minhas N. Mohamed are not seeking re-election. InnVest's Board of Trustees has nominated three new nominees, Edward W. Boomer, Laurence S. Geller and Fernand Perreault. The new nominees have extensive backgrounds in the real estate and hospitality industries and are expected to contribute significantly to InnVest's strategy and corporate governance in the years ahead.
Information about all nominees will be included in InnVest's management information circular for the Meeting which will be mailed to unitholders of record as of April 30, 2013 early next week and will thereafter be made available on the Canadian Securities Administrators' System for Electronic Document Analysis and Retrieval ("SEDAR") located at www.sedar.com and on InnVest's website at www.innvestreit.com.
QUARTERLY CONFERENCE CALL
Management will host a conference call on Friday May 10, 2013 at 11:00 a.m. Eastern time to discuss the performance of InnVest. Investors are invited to access the call by dialing 416-340-8018 or 1-866-223-7781. 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 May 10th, beginning at 1:00 pm through to May 24th, 2013. To access the recording please call 905-694-9451 or 1-800-408-3053 and use the reservation number 8214798#.
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, 2012, 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.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)