InnVest REIT Reports Fourth Quarter Results

InnVest REIT Reports Fourth Quarter Results 
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  $    617,108 
Gross 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  $    140,007 
                                                                            
Net 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                                                              
 income                                                                     
Add / (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 pts  
ADR                                                                         
  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
 
 
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