InnVest REIT Reports Third Quarter Results

InnVest REIT Reports Third Quarter Results 
TORONTO, ONTARIO -- (Marketwire) -- 11/09/12 -- InnVest Real Estate
Investment Trust ("InnVest") (TSX:INN.UN) today announced financial
results for the three and nine months ended September 30, 2012. All
dollars are in thousands of Canadian dollars unless otherwise
"We continue to see modest improvement in the Canadian lodging
industry's fundamentals with performance varying by market.
Notwithstanding, concern relating to the global economic recovery is
affecting consumer confidence and contributing to a slower recovery
for the industry," commented Kenneth Gibson, InnVest's President and
Chief Executive Officer. "Pricing power continues to improve for our
portfolio led by strength in western Canada." 
Third Quarter Highlights 

--  Revenue per available room ("RevPAR") on a same-hotel basis increased
    1.9% driven by a 1.3% increase in average daily rate ("ADR") and modest
    growth in occupancy; 
--  Same-hotel gross operating profit from hotel operations ("Hotel GOP")
    improved 0.7%. This growth was offset by asset sales and the closure of
    one hotel for a portion of the quarter resulting in an overall Hotel GOP
    decline of 2.0% to $49.8 million; 
--  Third quarter results include an impairment charge of $29.1 million
    primarily reflecting a writedown of the carrying value of one hotel; 
--  Net loss of $221.5 million also includes a non-cash deferred income tax
    charge of $195.9 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, non-recurring other losses or income and depreciation and
    amortization, InnVest realized an adjusted net income of $30.1 million
    compared to $33.0 million in the prior period; 
--  Funds from operations ("FFO") of $0.293 per diluted unit compared to
    $0.314 per diluted unit in the prior period. Distributable income was
    $0.239 per unit diluted as compared with $0.262 in the prior period; and
--  During the quarter, InnVest refinanced its remaining 2012 mortgage
    maturities and completed a one-year extension to its operating line.
    Following over $330.0 million of mortgage refinancings in 2012, InnVest
    does not have any mortgage maturities until April of 2014. 

InnVest's Consolidated Condensed Financial Statements and
Management's Discussion and Analysis for the three and nine months
ended September 30, 2012 and 2011 are available on InnVest's website

                    --------------              --------------              
                     Three Months  Three Months   Nine months   Nine months 
                            Ended         Ended         Ended         Ended 
                    September 30, September 30, September 30, September 30, 
                             2012          2011          2012          2011 
($000s except per                                                           
 unit amounts)        (unaudited)   (unaudited)   (unaudited)   (unaudited) 
  Hotel properties   $    172,578  $    172,348  $    461,859  $    456,725 
  Franchise business $      3,956  $      2,843  $      9,178  $      7,418 
  Other real estate                                                         
   properties        $        793  $        788  $      2,471  $      2,603 
                     $    177,327  $    175,979  $    473,508  $    466,746 
Gross operating                                                             
 profit (1)                                                                 
  Hotel properties   $     49,825  $     50,826  $    107,918  $    107,412 
  Franchise business $      1,395  $      1,248  $      2,879  $      2,542 
  Other real estate                                                         
   properties        $        253  $        300  $        800  $      1,054 
                     $     51,473  $     52,374  $    111,597  $    111,008 
Net (loss) income                                                           
 and comprehensive                                                          
 (loss) income       $   (221,498) $     66,929  $   (249,732) $     48,859 
Reconciliation to                                                           
 funds from                                                                 
 operations (FFO)                                                           
Add / (deduct)                                                              
  Depreciation and                                                          
   amortization            23,796        22,668        71,589        71,134 
  Deferred income                                                           
   tax expense                                                              
   (recovery)             195,864         7,186       186,203        (1,815)
  Unrealized loss                                                           
   (gain) on                                                                
   presented at fair                                                        
   value                    2,364       (71,434)       14,187       (73,677)
  Finance costs -                                                           
   distributions               36            46           109         2,392 
  Loss (gain) on                                                            
   sale of hotel                                                            
   properties                 890             -          (430)            - 
  Reversal of                                                               
   impairment                  65             -          (736)            - 
  Writedown of hotel                                                        
   properties              29,016         7,711        29,703         7,711 
  SIFT transition                                                           
   expenses                   352           589           980           589 
Funds from                                                                  
 operations (2)      $     30,885  $     33,695  $     51,873  $     55,193 
Reconciliation to                                                           
Add / (deduct)                                                              
  Non-cash portion                                                          
   of mortgage                                                              
   interest expense           571           667         1,765         2,009 
  Non-cash portion                                                          
   of convertible                                                           
   interest and                                                             
   accretion                1,032           952         3,043         2,828 
  FF&E reserve             (7,227)       (7,186)      (19,366)      (19,138)
Distributable income                                                        
 (2)                 $     25,261  $     28,128  $     37,315  $     40,892 
Per unit data                                                               
Net (loss) income                                                           
 and comprehensive                                                          
 (loss) income -                                                            
 diluted             $     (2.368) $      0.581  $     (2.670) $      0.508 
FFO - diluted        $      0.293  $      0.314  $      0.530  $      0.565 
Distributable income                                                        
 - diluted           $      0.239  $      0.262  $      0.389  $      0.425 
 declared            $     0.0999  $     0.1251  $     0.2997  $     0.3753 
                    --------------              --------------              
(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 and nine months ended September 30, 2012 are on a same-hotel
basis and exclude five hotels which were sold in 2012 and one hotel
which was closed for a portion of the periods presented. 

                     Three months                  Nine months              
                            ended                        ended              
                    September 30,    Variance    September 30,    Variance  
                             2012     to 2011             2012     to 2011  
  Ontario                    69.8%    2.0 pts             61.4%   (0.5 pts) 
  Quebec                     71.5%   (2.0 pts)            63.9%   (0.1 pts) 
  Atlantic                   77.6%   (1.8 pts)            62.8%   (1.1 pts) 
  Western                    71.6%    1.5 pts             66.7%    2.2 pts  
Total                        71.7%    0.5 pts             63.2%    0.1 pts  
  Ontario          $       107.70         0.5%  $       107.70         1.5% 
  Quebec           $       117.50        (0.9%) $       114.60        (0.5%)
  Atlantic         $       123.01        (0.8%) $       117.22        (0.4%)
  Western          $       153.90         6.7%  $       151.41         6.5% 
Total              $       120.87         1.3%  $       119.16         2.1% 
  Ontario          $        75.13         3.5%  $        66.14         0.8% 
  Quebec           $        84.02        (3.5%) $        73.26        (0.6%)
  Atlantic         $        95.47        (3.0%) $        73.58        (2.1%)
  Western          $       110.21         9.0%  $       101.00        10.1% 
Total              $        86.63         1.9%  $        75.26         2.2% 

Three months ended September 30, 2012 
For the three months ended September 30, 2012, total revenues
increased 0.8% to $177.3 million. 
Revenues generated by hotel operations were relatively unchanged at
$172.6 million. Same-store growth of 1.5% during the third quarter
was offset by reduced revenues following asset sales ($1.9 million)
and the closure of one hotel which was closed for a portion of the
third quarter due to an electrical malfunction. 
Same-hotel RevPAR during the quarter increased 1.9% based on a 1.3%
increase in ADR and modest growth in occupancy. RevPAR growth was
driven by Western Canada which saw RevPAR improve 9.0% led by
strength in Calgary and Edmonton. Growth throughout Ontario was
offset by pockets of softness in Ottawa (soft demand), Montreal (weak
demand in July) and most of the Atlantic markets (reduced group
InnVest generated gross operating profit from hotel operations
("Hotel GOP") of $49.8 million, down 2.0% as compared to the prior
period. Growth of 0.7% in InnVest's same-hotel portfolio during the
third quarter was offset by reduced Hotel GOP following asset sales
($766) and the closure of one hotel through late July. InnVest
expects to recover lost earnings at this hotel through a business
interruption claim. No insurance proceeds have been recognized
to-date in 2012. 
Third quarter hotel GOP margins declined 60 basis points to 28.9%
with a 0.1% growth in hotel revenues offset by inflationary growth in
operating expenses of 1.0%. Same-hotel GOP margins declined 30 basis
points to 29.1%. 
During the third quarter, InnVest completed the sale of one hotel
(107 rooms) for gross proceeds of $3.3 million and entered into a
sale and lease agreement for one additional hotel (194 rooms) for
eventual gross proceeds of $6.4 million. This sale and lease
agreement will result in the ultimate closing of a sale in the second
quarter of 2014 (at the time of the hotel's CMBS mortgage expiry). 
Third quarter results include a non-cash impairment charge of $29.1
million relating to two assets. This includes a $28.0 million
writedown relating to one hotel based on the continued deterioration
of the hotel's revenues, operating profits and forecasted
performance. Management is currently evaluating all available options
for the hotel. 
The third quarter of 2012 generated distributable income of $25.3
million ($0.239 per unit diluted) and FFO of $30.9 million ($0.293
per unit diluted) each showing year-over-year declines owing
primarily to the reduction in Hotel GOP realized as well as the
current tax expense recognized during the period. 
Nine months ended September 30, 2012 
For the nine months ended September 30, 2012, total revenues
increased by 1.4% to $473.5 million. 
Revenues generated by hotel operations increased 1.1% or $5.1 million
to $461.9 million. Same-hotel RevPAR over this period increased 2.2%
based on a 2.1% increase in ADR. The RevPAR growth was driven by
strength in Western Canada. 
InnVest generated Hotel GOP of $107.9 million, up 0.5% as compared to
the prior period. Hotel GOP growth of 2.2% in InnVest's same-hotel
portfolio was offset by reduced Hotel GOP following asset sales and
the closure of one hotel during a portion of the second and third
quarters. For the nine months ended September 30, 2012, Hotel GOP
margins decreased 10 basis points to 23.4%. Same-hotel GOP margins
were flat year-over-year at 23.5%. 
For the nine months ended September 30, 2012, InnVest generated
distributable income of $37.3 million ($0.389 per unit diluted) and
FFO of $51.9 million ($0.530 per unit diluted), $3.6 million and $3.3
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. 
Year-to-date in 2012, InnVest executed a number of transactions to
strengthen its balance sheet including: 

--  During the third quarter, InnVest extended its operating line through
    August 31, 2014 (from August 2013). 
--  During the third quarter, InnVest refinanced two mortgages totaling
    $12.4 million which were scheduled to expire in the fourth quarter of
    2012. The new debt, which included incremental proceeds of $3.0 million,
    has an average interest rate of 5.1% for a five-year term. 
--  Year-to-date, InnVest has completed renewals for over $330.0 million of
    mortgages, significantly extending the term to maturity of its mortgage
    debt and locking in favorable interest rates. 

Following refinancing activities completed in 2012, InnVest does not
have any mortgage maturities until April of 2014. InnVest's Series B
$75.0 million convertible debentures mature in May 2013. Management
expects to replace this debt with a similar instrument in the normal
course of business. 
As of September 30, 2012, InnVest had $18.3 million of cash
(including restricted cash) and $16.6 million drawn on its credit
At September 30, 2012, InnVest's leverage including convertible
debentures was 63.5% (45.7% excluding convertible debentures). 
Capital expenditures during the nine months ended September 30, 2012
totaled $28.8 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. 
For 2012, InnVest estimates that the non-taxable portion of the
distributions made to unitholders during the year will approximate
40% (2011 - 60%). 
On July 3, 2012, InnVest completed an internal reorganization to
unwind the stapled unit structure (the "2012 Reorganization"), which
was approved by InnVest's unitholders at a special meeting on
February 23, 2012. 
InnVest pursued the 2012 Reorganization in response to announced
changes to the federal income tax rules applicable to issuers of
stapled securities, which were expected to apply to InnVest as of
July 20, 2012. The 2012 Reorganization has resulted in, among other
things, the transfer of substantially all of IOT's assets and
liabilities to the REIT and the unwinding of the stapled structure of
InnVest so that IOT became a wholly-owned subsidiary of the REIT. 
Under currently enacted tax law, InnVest does not meet the conditions
required to be a real estate investment trust ("Qualified REIT") as
defined in the Income tax Act. As a result, effective July 3, 2012
InnVest is subject to the Specified investment flow-through ("SIFT")
tax regime in the Income tax Act whereby its income would be subject
to a corporate-like rate of income tax assuming its taxable income is
distributed each year. Because application of the SIFT tax regime
results in an entity-level tax, InnVest is required to pay current
income taxes on its taxable income and is also required to record
deferred taxes in respect of its temporary differences related
primarily to its real estate assets. 
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. We are continuing 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. The ultimate extent and timing of planned capital
investments will be dependent on business levels and capital
Management will host a conference call on Friday November 9, 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 November 9th beginning at 1:00 pm
through to 11:59 p.m. on November 23rd. To access the recording
please call (905) 694-9451 or (800) 408-3053 and use the reservation
number 7573534#. 
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 2012 annual information form which is
available at or 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 Real Estate Investment Trust is an unincorporated open-ended
real estate investment trust which owns a portfolio of 138 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,
InnVest Real Estate Investment Trust
Chantal Nappert
Executive Director, Investor Relations
(905) 624-7806
(905) 206-7114 (FAX)
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