Welcome!

News Feed Item

InnVest REIT Reports First Quarter Results

Enhancing Flexibility and Alignment to Grow Unitholder Value

TORONTO, ONTARIO -- (Marketwired) -- 05/09/14 -- InnVest Real Estate Investment Trust ("InnVest") (TSX: INN.UN) today announced financial results for the three months ended March 31, 2014.

"We have announced a number of exciting changes for InnVest in the last few months including expanding our capital partners, initiating a process to build a dedicated management team and amending existing agreements to enhance flexibility and alignment," said Edward Pitoniak, InnVest's Managing Director and Trustee. "These efforts demonstrate our commitment to growing unitholder value and positioning InnVest as the leading growth platform in Canada's hospitality industry."

First Quarter Highlights

--  Revenue per available room ("RevPAR") on a same-hotel basis improved
    0.5% driven by rate gains and stable occupancies. Excluding hotels under
    renovation during the quarter or recovering from renovations recently
    undertaken, RevPAR growth would have exceeded 3.5%;
--  Same-hotel revenues improved 1.2% over the prior year. Overall revenues
    declined $9.4 million reflecting asset sales. Notwithstanding the
    revenue decline, gross operating profit ("GOP") improved 1.7% to $13.5
    million and margins increased 110 basis points;
--  Realized an improved net loss of $34.9 million compared to a loss of
    $41.7 million in the prior period, benefitting from lower non-cash
    charges. InnVest typically incurs a loss in the first quarter given the
    seasonality of the portfolio;
--  Funds from operations ("FFO") and adjusted funds from operations
    ("AFFO") improved 12.5% and 11.8% respectively;
--  Sold four non-core assets for aggregate gross proceeds of $14.3 million
    and have commitments to sell six additional hotels for aggregate gross
    proceeds of $23.9 million;
--  Refinanced one mortgage for $68.0 million with incremental proceeds
    available to repay mortgage maturities in April 2014;
--  Subsequent to the end of the quarter, InnVest entered into subordinated
    loan agreements with KingSett Capital ("KingSett") for $50.0 million
    including InnVest's option to draw an additional $50.0 million.
    Subsequently, InnVest called its $70.0 million Series C convertible
    debentures for early redemption on June 3, 2014; and
--  Management also announced its intention to internalize InnVest's asset
    management function and completed amendments to its hotel management
    agreement with Westmont.

"The accretive nature of our divestiture program continues to positively contribute to our operating performance. Our active capital investment program is expected to further improve long term cash flow and profitability metrics across the portfolio," said Anthony Messina, InnVest's President and Chief Executive Officer.

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, 2014 and 2013 are available on InnVest's website at www.innvestreit.com.

SELECTED FINANCIAL INFORMATION

The operating statistics relating to gross room revenues for the three months ended March 31, 2014 and 2013 are on a same-hotel basis (124 hotels) and exclude hotels sold since the start of the periods presented.

                     Occupancy             ADR                RevPAR
                       %  Variance         $  Variance         $  Variance
                           to 2013             to 2013             to 2013
                 -----------------------------------------------------------
Ontario             56.5%  1.8 pts  $ 105.51      (1.0%) $ 59.60       2.3%
Quebec              53.8% (1.1 pts) $ 109.89       2.8%  $ 59.15       0.7%
Atlantic            45.3% (0.7 pts) $ 108.43       0.8%  $ 49.13      (0.6%)
Western             59.5% (2.8 pts) $ 158.97       3.1%  $ 94.60      (1.5%)
                 -----------------------------------------------------------
Total               54.7%        -  $ 117.88       0.7%  $ 64.42       0.5%

                                            --------------------------------
                                               Three Months    Three Months
                                                      Ended           Ended
                                             March 31, 2014  March 31, 2013
($000s except per unit amounts)                 (unaudited)     (unaudited)
Revenue
  Hotel properties                           $      114,235  $      123,018
  Other real estate properties                          196             804
                                            --------------------------------
                                             $      114,431  $      123,822
Gross operating profit (1)
  Hotel properties                           $       13,607  $       13,061
  Other real estate properties                         (113)            202
                                            --------------------------------
                                             $       13,494  $       13,263
Net loss and comprehensive loss              $      (34,871) $      (41,666)
Reconciliation to funds from operations
 (FFO)
Add / (deduct)
Depreciation and amortization                        20,226          20,712
Deferred income tax recovery                              -            (282)
Unrealized changes in the fair value of
 financial liabilities                                8,071          17,228
Distributions included in corporate and
 administrative expense                                  36              36
Gain on sale of assets, net                          (1,056)         (1,259)
Reversal of previous impairment                        (575)              -
Proxy defense and settlement costs                    3,594               -
                                            --------------------------------
Funds from operations (2)                    $       (4,575) $       (5,231)
                                            --------------------------------
Reconciliation to adjusted funds from
 operations (AFFO)
Add / (deduct)
Non-cash portion of mortgage interest
 expense                                                566             524
Non-cash portion of convertible debentures
 interest and accretion                               1,148           1,238
FF&E reserve                                         (4,762)         (5,175)
                                            --------------------------------
AFFO (2)                                     $       (7,623) $       (8,644)
                                            --------------------------------
Per unit data - Diluted
Net loss and comprehensive loss              $       (0.372) $       (0.445)
FFO                                          $       (0.049) $       (0.056)
AFFO                                         $       (0.081) $       (0.092)
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 adjusted funds from operations are non-IFRS
     financial 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 financial measures
     used by other organizations.

OPERATIONS REVIEW

Three months ended March 31, 2014

Excluding hotels impacted by renovations during the quarter, same-hotel RevPAR growth would have exceeded 3.5% with growth across all regions. Same-hotel RevPAR grew 0.5% during the three months ended March 31, 2014.

Hotel divestitures completed since 2013 contributed to the hotel revenue decline of $8.8 million, or 7.1%. Other real estate revenues also declined $0.6 million owing to an office complex sale in May 2013.

Notwithstanding the revenue declines, overall GOP improved 1.7% to $13.5 million, contributing to GOP margins improvement of 110 basis points and highlighting the low yielding nature of assets sold. Utility expenses were up $1.6 million as compared to the prior year, as a result of unusually cold temperatures and higher utility rates during the quarter.

As part of a proxy contest settlement reached in March 2014, InnVest incurred $3.6 million in non-recurring costs, including the reimbursement of customary transaction costs incurred by the parties involved. These costs contributed to the higher corporate and administrative expenses during the first quarter of 2014.

For the three months ended March 31, 2014, InnVest generated an FFO loss of $4.6 million ($0.049 per unit diluted) and an AFFO loss of $7.6 million ($0.081 per unit diluted), improving 12.5% and 11.8%, respectively.

CORPORATE UPDATE

In early 2013, InnVest announced a comprehensive two-year strategic plan based on four key initiatives. This 2013 strategic plan is being reviewed as a consequence of certain changes to InnVest's Board of Trustees (the "Board") following the proxy contest settlement (the "Settlement").

In conjunction with this review, the Board has appointed an interim Managing Director and commenced a search for a permanent full-time Chief Executive Officer to be employed by InnVest and the Chief Financial Officer role will become fully dedicated to the affairs of the REIT during the year.

Following the Settlement, InnVest has completed changes to certain agreements with Westmont Hospitality Canada Limited ("Westmont") as follows:

--  Asset management of InnVest will be internalized effective November 30,
    2014 at no cost to InnVest. As a result, InnVest will no longer pay
    asset management fees to Westmont effective December 1, 2014;
--  Amendment and extension of the hotel management agreement on the
    following terms:
    --  The term of the agreement was extended until April 21, 2024;
    --  Westmont no longer has the exclusive right to manage InnVest's
        acquired hotels. Westmont was released from its non-compete
        arrangements;
    --  InnVest has the ability to terminate Westmont's appointment to
        manage any or all hotels for any reason on 60 days' prior written
        notice with respect to any or all of the hotels managed by Westmont,
        subject to a termination payment;
    --  Effective April 1, 2014, Westmont's base management fee has been
        reduced to 2.95% from 3.375% and a new incentive fee structure has
        been adopted that will allow Westmont to earn up to 3.80% of the
        gross revenue of managed hotels per year.

PORTFOLIO REPOSITIONING PROGRAM

During the first quarter of 2014, four non-core assets were sold for gross proceeds of $14.3 million (net proceeds of $7.4 million). Six hotels are currently under purchase and sale agreements for aggregate gross proceeds of approximately $23.9 million. Since the start of 2013, management has completed or committed transactions of $151.2 million, representing over 80% of its divestiture objectives through the end of 2014.

CAPITAL INVESTMENT PROGRAM

InnVest expects to invest approximately $70 million across its portfolio in 2014, $18.5 million of which was invested in the first quarter of 2014.

Investments underway during the first quarter of 2014 included completing guestroom upgrades at the Delta Prince Edward and Fairmont Palliser, as well as the continuation of phased renovations at the Sheraton Suites Eau Claire.

Through the end of the first quarter of 2014, 35 Comfort Inn hotels have been renovated as part of InnVest's brand revitalization program. Approximately 75% of InnVest's core Comfort Inn portfolio is expected to be renovated by the end of the second quarter, with the balance expected to be renovated following the busier summer travel season.

Additional planned investments in 2014 include the completion of guestroom upgrades at the Delta Winnipeg and the repositioning of one unbranded hotel.

BALANCE SHEET

At March 31, 2014, InnVest has total liquidity of $92.6 million (including cash, restricted cash and availability under InnVest's operating line of credit and capital expenditure loan facility). This amount does not include the $50.0 million subordinated term loan (funded in April 2014), nor InnVest's option to draw an additional $50.0 million subordinated facility, from KingSett.

In January 2014, InnVest completed the refinancing of the Sheraton Eau Claire, Calgary for $68.0 million at a fixed interest rate of 5.33% for a 10-year term. Incremental proceeds of $36.4 million were available to help partially repay a $45.4 million mortgage maturity in April 2014.

In March 2014, KingSett was introduced as a strategic capital partner of InnVest, providing InnVest with incremental capital sources to support debt and growth initiatives. Furthermore, KingSett may purchase assets from InnVest at fair market value, subject to the Board's approval.

On April 24, 2014, InnVest entered into and closed a four-year credit agreement with KingSett for a $50.0 million subordinated term loan facility. KingSett has also provided InnVest with an option to draw an additional $50.0 million subordinated non-revolving stand-by liquidity facility. The loans are supported by a general security agreement. Annual interest payments are expected to include cash payments of 5.75% and InnVest Units equivalent to 3% for the $50 million subordinated loan facility (3.75% for the $50 million subordinated liquidity facility, if drawn).

Proceeds from this financing will be used for the early redemption of InnVest's $70.0 million 5.85% Series C Debentures on June 3, 2014. Following this redemption, InnVest will not have any significant debt maturities until July 2015.

Asset sales over the past year have contributed to overall mortgage debt repayment and interest savings. Proforma transactions announced or completed following the end of the quarter, InnVest's leverage would have approximated 65.5% at March 31, 2014 (47.7% excluding convertible debentures).

OUTLOOK

The hospitality industry is highly correlated to the economy and as such, uncertain global and domestic economic conditions continue to impact the Canadian lodging industry. InnVest's broad, diversified portfolio remains a key advantage in the current environment. Fundamentals for the Canadian lodging industry remain favourable, with improving demand expectations through the balance of the year and a low supply outlook.

Through the end of 2014, InnVest expects to continue its portfolio repositioning strategy of divesting of low-yielding assets and reinvesting proceeds generated to undertake an extensive capital program to enhance its product offering at a number of select hotels. While impacting near-term operating results caused by displacement, these targeted investments are expected to improve the portfolio's competitive positioning and operating performance through increased occupancies and average daily rates over the longer term.

InnVest is committed to enhancing unitholder alignment and growing unitholder value. InnVest's strategy to reduce debt (including reducing InnVest's reliance on dilutive securities), reposition its portfolio and invest in core assets is expected to enhance the stability and growth of the portfolio's long-term cash flows and valuation.

QUARTERLY CONFERENCE CALL

Management will host a conference call on Friday May 9, 2014 at 11:00 a.m. Eastern time to discuss the performance of InnVest. Investors are invited to access the call by dialing 416-340-2219 or 1-866-225-0198. 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 9, 2014 beginning at 1:00 pm through to May 22, 2014. To access the recording please call 905-694-9451 or 1-800-408-3053 and use the reservation number 4381103#.

FORWARD-LOOKING STATEMENTS

Statements contained in this press release that are not historical facts are forward-looking statements. These forward-looking statements are based on current expectations and involve risks 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 InnVest's capital requirements and available sources of funds, changes to InnVest's business strategy (including InnVest's ability to divest of assets, its intent to internalize asset management and return expectations on capital investments completed); real estate investment risks, hotel industry risks, competition and the status of InnVest as a REIT for Canadian federal income tax purposes in any year. These and other factors are discussed in InnVest's annual information form for the year ended December 31, 2013, which is available at www.sedar.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 is an unincorporated open-ended real estate investment trust which owns a portfolio of 124 hotels across Canada representing approximately 15,500 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.

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

More Stories By Marketwired .

Copyright © 2009 Marketwired. All rights reserved. All the news releases provided by Marketwired are copyrighted. Any forms of copying other than an individual user's personal reference without express written permission is prohibited. Further distribution of these materials is strictly forbidden, including but not limited to, posting, emailing, faxing, archiving in a public database, redistributing via a computer network or in a printed form.

Latest Stories
Coca-Cola’s Google powered digital signage system lays the groundwork for a more valuable connection between Coke and its customers. Digital signs pair software with high-resolution displays so that a message can be changed instantly based on what the operator wants to communicate or sell. In their Day 3 Keynote at 21st Cloud Expo, Greg Chambers, Global Group Director, Digital Innovation, Coca-Cola, and Vidya Nagarajan, a Senior Product Manager at Google, discussed how from store operations and ...
Blockchain. A day doesn’t seem to go by without seeing articles and discussions about the technology. According to PwC executive Seamus Cushley, approximately $1.4B has been invested in blockchain just last year. In Gartner’s recent hype cycle for emerging technologies, blockchain is approaching the peak. It is considered by Gartner as one of the ‘Key platform-enabling technologies to track.’ While there is a lot of ‘hype vs reality’ discussions going on, there is no arguing that blockchain is b...
In his keynote at 18th Cloud Expo, Andrew Keys, Co-Founder of ConsenSys Enterprise, provided an overview of the evolution of the Internet and the Database and the future of their combination – the Blockchain. Andrew Keys is Co-Founder of ConsenSys Enterprise. He comes to ConsenSys Enterprise with capital markets, technology and entrepreneurial experience. Previously, he worked for UBS investment bank in equities analysis. Later, he was responsible for the creation and distribution of life settle...
"As we've gone out into the public cloud we've seen that over time we may have lost a few things - we've lost control, we've given up cost to a certain extent, and then security, flexibility," explained Steve Conner, VP of Sales at Cloudistics,in this SYS-CON.tv interview at 20th Cloud Expo, held June 6-8, 2017, at the Javits Center in New York City, NY.
Blockchain is a shared, secure record of exchange that establishes trust, accountability and transparency across business networks. Supported by the Linux Foundation's open source, open-standards based Hyperledger Project, Blockchain has the potential to improve regulatory compliance, reduce cost as well as advance trade. Are you curious about how Blockchain is built for business? In her session at 21st Cloud Expo, René Bostic, Technical VP of the IBM Cloud Unit in North America, discussed the b...
The use of containers by developers -- and now increasingly IT operators -- has grown from infatuation to deep and abiding love. But as with any long-term affair, the honeymoon soon leads to needing to live well together ... and maybe even getting some relationship help along the way. And so it goes with container orchestration and automation solutions, which are rapidly emerging as the means to maintain the bliss between rapid container adoption and broad container use among multiple cloud host...
In his session at 21st Cloud Expo, Michael Burley, a Senior Business Development Executive in IT Services at NetApp, described how NetApp designed a three-year program of work to migrate 25PB of a major telco's enterprise data to a new STaaS platform, and then secured a long-term contract to manage and operate the platform. This significant program blended the best of NetApp’s solutions and services capabilities to enable this telco’s successful adoption of private cloud storage and launching ...
You know you need the cloud, but you’re hesitant to simply dump everything at Amazon since you know that not all workloads are suitable for cloud. You know that you want the kind of ease of use and scalability that you get with public cloud, but your applications are architected in a way that makes the public cloud a non-starter. You’re looking at private cloud solutions based on hyperconverged infrastructure, but you’re concerned with the limits inherent in those technologies.
Imagine if you will, a retail floor so densely packed with sensors that they can pick up the movements of insects scurrying across a store aisle. Or a component of a piece of factory equipment so well-instrumented that its digital twin provides resolution down to the micrometer.
"Since we launched LinuxONE we learned a lot from our customers. More than anything what they responded to were some very unique security capabilities that we have," explained Mark Figley, Director of LinuxONE Offerings at IBM, in this SYS-CON.tv interview at 21st Cloud Expo, held Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA.
Is advanced scheduling in Kubernetes achievable?Yes, however, how do you properly accommodate every real-life scenario that a Kubernetes user might encounter? How do you leverage advanced scheduling techniques to shape and describe each scenario in easy-to-use rules and configurations? In his session at @DevOpsSummit at 21st Cloud Expo, Oleg Chunikhin, CTO at Kublr, answered these questions and demonstrated techniques for implementing advanced scheduling. For example, using spot instances and co...
A strange thing is happening along the way to the Internet of Things, namely far too many devices to work with and manage. It has become clear that we'll need much higher efficiency user experiences that can allow us to more easily and scalably work with the thousands of devices that will soon be in each of our lives. Enter the conversational interface revolution, combining bots we can literally talk with, gesture to, and even direct with our thoughts, with embedded artificial intelligence, whic...
Sanjeev Sharma Joins June 5-7, 2018 @DevOpsSummit at @Cloud Expo New York Faculty. Sanjeev Sharma is an internationally known DevOps and Cloud Transformation thought leader, technology executive, and author. Sanjeev's industry experience includes tenures as CTO, Technical Sales leader, and Cloud Architect leader. As an IBM Distinguished Engineer, Sanjeev is recognized at the highest levels of IBM's core of technical leaders.
The need for greater agility and scalability necessitated the digital transformation in the form of following equation: monolithic to microservices to serverless architecture (FaaS). To keep up with the cut-throat competition, the organisations need to update their technology stack to make software development their differentiating factor. Thus microservices architecture emerged as a potential method to provide development teams with greater flexibility and other advantages, such as the abili...
Product connectivity goes hand and hand these days with increased use of personal data. New IoT devices are becoming more personalized than ever before. In his session at 22nd Cloud Expo | DXWorld Expo, Nicolas Fierro, CEO of MIMIR Blockchain Solutions, will discuss how in order to protect your data and privacy, IoT applications need to embrace Blockchain technology for a new level of product security never before seen - or needed.