InnVest REIT Reports Strong Growth and Solid Performance in Third Quarter 2015
Nov 13, 2015, 07:55 ET
TORONTO, Nov. 13, 2015 /CNW/ - InnVest Real Estate Investment Trust ("InnVest" or the "REIT"); (TSX:INN.UN) today announced strong portfolio growth and solid operating performance for the three and nine months ended September 30, 2015.
2015 HIGHLIGHTS:
- Hotel performance for the third quarter and nine months ended September 30, 2015, up strongly driven by new hotel acquisitions, renovated properties, and sale of non-core properties, all resulting in a higher quality portfolio of assets;
- RevPAR (1) up 12.0% for the quarter and 10.8% for the nine months ended September 30, 2015. Same-hotel(2) RevPAR up 4.0% for the quarter and 3.6% for the nine months ended September 30, 2015 through a combination of room rate and occupancy gains;
- GOP(1) for the third quarter increased $8.3 million or 17.1% and GOP margins improved 140 basis points primarily due the strong performance of the renovated Comfort Inn portfolio and Hyatt Regency Vancouver acquisition. GOP was up 16.9% for the first nine months with 300 basis point margin improvement to 27.7%;
- Same-hotel GOP up 6.5% for the third quarter and 9.3% for the first nine months of the year. Same-hotel GOP margin up 90 basis points to 33.8% for the quarter and up 160 basis points to 27.6% for the nine months of the year;
- The portfolio of 58 Comfort Inns renovated in 2013 and 2014 grew room revenue by 7.1% and Hotel GOP by 12.0% for the third quarter and for the first nine months ended September 30, 2015 room revenue increased 9.6% and Hotel GOP by 23.0%.
- FFO(1) and AFFO(1) experienced strong increases of 24.1% and 30.8% respectively, against prior year's third quarter due to contributions from recent acquisitions and improved same-hotel performance;
- Third quarter FFO per unit of $0.275 relatively flat to the same period in prior year being negatively impacted by debt extinguishment costs of $0.012 and the negative drag of approximately $0.01 resulting from the $48.3 million equity issue closing in advance of the related acquisitions. Diluted FFO per unit up 9.4% to $0.511 for the first nine months of the year;
- Diluted AFFO per unit up 3.3% to $0.247 for the third quarter of 2015 and diluted AFFO up 20.1% to $0.430 for the first nine months of 2015; and
- Per unit amounts in 2015 were impacted by the timing of the July 2015 equity offering, as proceeds were not fully invested until the acquisitions at the end of August and beginning of September. Year over year per units amounts were also impacted by the 21% increase in the weighted average number of units outstanding for the third quarter and 18% for the year to date resulting from the July 2015 and November 2014 equity offerings.
| ____________________________________ |
|
| (1) |
Funds From Operations ("FFO") per diluted share and Adjusted FFO per diluted share are non-IFRS financial measures which do not have a standardized meaning and may not be comparable to similar financial measures used by other organizations. These indicators measure profitability and cash flow after all internal funding requires including debt service. Hotel Gross operating profit ("GOP") measures property level results before debt service and facilitates comparisons between InnVest and its hotel competitors. RevPAR is defined as the product of the average daily rate and the average daily occupancy. RevPAR measures room revenue and is a commonly used measure within the hotel industry to evaluate hotel operations. For further information about the Company's business and financial results, please refer to the "Management's Discussion and Analysis" section of the REIT's filings on SEDAR. |
| (2) |
Same-hotel information includes 107 hotel properties and does not include the results of operations for the 21 properties sold since January 1, 2014. Additional, it excludes hotels that the REIT did not own for the entirety of the periods presented as a result, the recently acquired Hyatt Regency Vancouver and Hotel Saskatchewan Regina and the partial interests acquired in the Fairmont Royal York and Courtyard by Marriott Toronto are excluded from this information. |
"We made solid progress on our key strategic priorities in the quarter. We strengthened and diversified our property portfolio with two well-positioned, high-quality hotel acquisitions, we invested in renovation and upgrade programs within our core properties, and we enhanced our financial position with reduced leverage, lower average interest cost and extended term to maturity for our mortgage portfolio," commented Drew Coles, InnVest's President and Chief Executive Officer. "Most importantly, our emphasis on growing and repositioning our hotel portfolio is generating solid increases in our key performance benchmarks, and we look for continued progress in the quarters ahead."
The following table details RevPAR for the same-hotel portfolio and excludes properties sold or acquired since January 1, 2014.
| Three months |
Variance to |
Nine months |
Variance to |
||
| Occupancy |
|||||
| Ontario |
76.4% |
2.4 pts |
67.8% |
1.1 pts |
|
| Quebec |
78.3% |
4.1 pts |
68.1% |
3.4 pts |
|
| Atlantic |
79.1% |
(0.8) pts |
61.1% |
(1.0) pts |
|
| Western |
71.5% |
0.2 pts |
65.2% |
0.6 pts |
|
| Total |
76.2% |
1.8 pts |
66.3% |
1.2 pts |
|
| ADR |
|||||
| Ontario |
$120.71 |
3.7% |
$116.63 |
3.6% |
|
| Quebec |
$129.77 |
1.3% |
$123.19 |
2.0% |
|
| Atlantic |
$136.19 |
6.7% |
$125.43 |
4.7% |
|
| Western |
$164.93 |
(4.2%) |
$163.12 |
(2.5%) |
|
| Total |
$133.63 |
1.6% |
$128.60 |
1.8% |
|
| RevPAR |
|||||
| Ontario |
$92.20 |
7.0% |
$79.12 |
5.4% |
|
| Quebec |
$101.58 |
6.9% |
$83.92 |
7.4% |
|
| Atlantic |
$107.68 |
5.5% |
$76.68 |
3.0% |
|
| Western |
$117.94 |
(3.8%) |
$106.32 |
(1.6%) |
|
| Total |
$101.87 |
4.0% |
$85.25 |
3.6% |
|
| Note: Gross hotel revenues on a same-hotel basis (107 hotels), excluding hotels |
||||
OPERATIONS REVIEW
Revenues increased 12.2% and 4.1% in the third quarter and first nine months of 2015, respectively, primarily due the addition of the Hyatt Regency Vancouver which was acquired near the end of the prior year, strong performance of the renovated Comfort Inn portfolio and partially offset by revenue related to the hotels sold in 2014 and 2015. Same-hotel revenues rose 3.8% and 3.0% in the third quarter and first nine months of 2015 compared to the same prior-year periods due primarily to higher occupancies and average daily rates. Overall RevPAR for the three and nine months ended September 30, 2015 increased 12.0% and 10.8% compared to the same prior year periods due primarily to the acquisition of the Hyatt Regency Vancouver. RevPAR on a same-hotel basis rose 4.0% and 3.6% in the third quarter and first nine months of 2015 compared to last year due to the higher occupancies and average daily rates.
For the three and nine months ended September 30, 2015, Gross Operating Profit (GOP) improved 17.1% and 16.9%, respectively, due primarily to the acquisition of the Hyatt Regency Vancouver and strong same hotel performance. Same hotel GOP rose 6.5% and 9.3%, respectively, due to higher occupancies and average daily rates. Hotel GOP margin improved by 130 basis points to 34.0% in the third quarter and 300 basis points to 27.8% through the first nine months of 2015. Same-hotel GOP margin increased 90 basis points to 33.8% and 160 basis points to 27.6% through the third quarter and first nine months of 2015, respectively.
Corporate and administrative expenses have increased in 2015 due primarily to the addition of a full-time executive function at the REIT and costs associated with the internalization of the REIT's asset management team.
Higher mortgage interest expense for the three and nine months ended September 30, 2015 reflects debt extinguishment costs of $1.8 million related to early debt repayment. InnVest has benefitted from a reduction in its debt and weighted average cost of debt since the beginning of 2014. Interest expense for 2015 includes the new bridge loan associated with the Hyatt Regency acquisition in December 2014 and the funding of a new 10-year mortgage in April 2014. These increases were partially offset by the net repayment of mortgage debt from asset sales. Convertible debenture interest savings reflect the redemption of InnVest's $70.0 million Series C debentures in early June 2014, the purchase for cancellation of $28.8 million of its Series G debentures on July 31, 2014, and the early redemption of the $36.4 million Series D debentures on March 3, 2015.
For the three months ended September 30, 2015, InnVest generated FFO of $39.4 million ($0.275 per unit diluted) compared to $31.7 million ($0.278 per unit diluted) in the prior year's third quarter. For the nine months ended September 30, 2015 FFO was $65.4 million ($0.511 per unit), up from $48.1 million ($0.467 per unit) in the same prior year period. Per unit amounts have been impacted in the third quarter and first nine months of 2015 by the 21% and 18% increase in the weighted average number of units outstanding, respectively, due to the November 2014 and July 2015 equity offerings, and the fact that the proceeds from the July 2015 equity offering were not fully invested in the period.
AFFO was $35.7 million ($0.247 per unit diluted) and $55.5 million ($0.430 per unit diluted) in the third quarter and first nine months of 2015, respectively, compared to $27.3 million ($0.239 per unit diluted) and $36.1 million ($0.358 per unit diluted), respectively, in the same periods last year. Per unit amounts have also been impacted in the third quarter and first nine months of 2015 by the 21% and 18% increase in the weighted average number of units outstanding, respectively, due to the November 2014 and July 2015 equity offerings.
For the trailing twelve months ended September 30, 2015 the REIT's AFFO payout strengthened to 75.9% compared to 88.4% for the twelve months ended December 31, 2014 and 85.0% for the twelve months ended September 30, 2014.
PORTFOLIO REPOSITIONING PROGRAM
Since the beginning of 2014, the REIT has sold 21 hotels in order to optimize overall performance and ensure that it owns a well-diversified portfolio comprised of high quality and highly competitive assets in its target markets that are positioned to outperform through all economic cycles. Proceeds from asset sales were re-invested to improve the overall quality and further grow and diversify the REIT's Core Portfolio. Core hotels are typically defined as hotels with investment metrics that are accretive to InnVest's cost of capital, located in stable or growing long-term markets, achieve their fair market share or above and show favourable potential growth prospects through capital investment or repositioning.
For the first nine months of 2015 two non-core hotels have been sold for gross proceeds of $15.3 million (net proceeds of $7.0 million). Five remaining non-core properties slated for sale are expected to generate further gross proceeds of approximately $25 million (net proceeds of $20 million after mortgage repayments).
CAPITAL INVESTMENT PROGRAM
Capital investments in the REIT's Core Portfolio help to ensure performance is optimized and assets are competitive within their markets. The REIT has made significant investments in its Core Portfolio over the last two years, including renovations of InnVest's 58 Core Comfort Inn hotels. Capital investments completed to date in 2015 include the completion of room renovations at Calgary's Fairmont Palliser, the Sheraton Suites Eau Claire, the first phase of room renovations at the Delta London Armouries, lobby renovations at Moncton's Delta Beausejour, and over 900 of the 1,363 rooms at the Toronto Fairmont Royal York. The REIT has invested $28.6 million in capital programs through the first nine months of 2015, and expects to invest approximately $60 million in its Core Portfolio in 2015. A substantial amount of the capital program spend is expected to be in the fourth quarter with potential for some projects to extend into the first quarter of 2016.
The following table summarizes operating results for the REIT's Core Portfolio and serves to highlight the profitability impact while renovations are underway, as well as the growth achieved-to-date following the completion of renovations. In aggregate, the renovated Comfort Inn portfolio experienced Hotel GOP growth of 23.0% through the first nine months of 2015 reflecting the significant operating leverage resulting from strong revenue growth and highlights the return opportunities provided by internal investments within the existing portfolio.
| Hotel GOP |
||||||||||
| Three months ended |
Nine months ended |
|||||||||
| September 30, 2015 |
September 30, 2015 |
|||||||||
| Variance to prior year |
Variance to prior |
|||||||||
| Number |
Number |
Hotel GOP |
$ |
% |
Hotel GOP |
$ |
% |
|||
| Core Comfort Inn Portfolio: |
||||||||||
| Renovated in 2013 (1) |
31 |
2,502 |
$9,699 |
$673 |
7.5% |
$20,042 |
$2,736 |
15.8% |
||
| Q1 2014 (1) renovations |
4 |
295 |
1,602 |
89 |
5.9% |
3,069 |
685 |
28.7% |
||
| Q2 2014 (1) renovations |
11 |
686 |
2,669 |
291 |
12.2% |
5,404 |
1,731 |
47.1% |
||
| Q3 2014 (1) renovations |
1 |
146 |
334 |
225 |
206.4% |
581 |
264 |
83.3% |
||
| Q4 2014 (1) renovations |
11 |
842 |
2,794 |
552 |
24.6% |
5,219 |
995 |
23.6% |
||
| Renovated in 2014 |
27 |
1,969 |
7,399 |
1,157 |
18.5% |
14,273 |
3,675 |
34.7% |
||
| Renovated Core Comfort Portfolio |
58 |
4,471 |
17,098 |
1,830 |
12.0% |
34,315 |
6,411 |
23.0% |
||
| Full service Core hotels under renovations: |
||||||||||
| 2014 renovations (1) |
3 |
747 |
3,112 |
1,049 |
50.8% |
6,368 |
2,305 |
56.7% |
||
| 2014 and 2015 renovations (1) |
2 |
728 |
5,913 |
(898) |
(13.2%) |
13,433 |
(1,147) |
(7.9%) |
||
| 2015 renovations (1) |
1 |
220 |
288 |
(97) |
(25.2%) |
301 |
(669) |
(69.0%) |
||
| Other Core hotels |
38 |
6,397 |
22,103 |
873 |
4.1% |
48,130 |
1,277 |
2.7% |
||
| Total Core Portfolio (2) |
102 |
12,563 |
$48,514 |
$2,757 |
6.0% |
$102,547 |
$8,177 |
8.7% |
||
| (1) |
Based on the period in which substantial completion of renovations were completed. |
||||||||
| (2) |
Excludes two hotels acquired during the year and five non-core hotels which have been identified for divestiture. |
||||||||
FINANCIAL POSITION
At September 30, 2015 InnVest had total current liquidity of $69.5 million. Financing initiatives in 2015 and 2014 have diversified InnVest's funding and liquidity sources, lowered weighted average interest costs, extended the average term to maturity while reducing InnVest's overall leverage, including reducing its reliance on dilutive securities. At September 30, 2015 InnVest's leverage ratio was 58.1%, down from 62.0% at December 31, 2014 and 65.8% at September 30, 2014. Management is targeting the maintaining of a near-term leverage ratio below 60% with further reduction contemplated over the longer term. The REIT's weighted average interest rate improved to 5.0% at September 30, 2015 from 5.5% at December 31, 2014, with the weighted average term to maturity extended to 5.0 years from 2.8 years at the prior year end.
During the third quarter of 2015, mortgage loans on 23 hotel properties totalling $216 million bearing a weighted average interest rate of 5.2% were refinanced with new mortgage loans totalling $195.1 with a weighted average interest rate of 3.7%. The new mortgage loans were secured by nine hotel properties. In addition, 12 hotels and $36 million of capacity were added to the $100 million operating, acquisition and capital expenditure credit line.
RECENT DEVELOPMENTS
In July, the REIT completed a successful bought-deal equity offering under a base shelf prospectus of approximately 9.7 million Trust units, including an over-allotment option, raising aggregate gross proceeds of $48.3 million. The proceeds were used to fund a portion of the two hotel acquisitions discussed below.
On September 1, 2015, the Hotel Saskatchewan located in downtown Regina was acquired for a gross purchase price of $38 million and additional $7.0 million in renovation capital. The purchase was satisfied with available cash on hand following the equity raise in July and capacity under InnVest's existing credit facility. InnVest expects to obtain long-term mortgage financing at approximately 50% of the purchase price and anticipated capital expenditures. The hotel is undergoing repositioning and a re-branding to the prestigious Marriott Autograph Collection of properties. The Hotel Saskatchewan is a full-service, 224-room upscale hotel located in downtown Regina. The hotel features a restaurant and lounge, a tea room, 14,000 square feet of meeting space, 3,600 square feet of leased commercial space, and a 92-space adjacent parking lot.
On August 26, 2015, InnVest acquired a one-third interest in the Courtyard by Marriott Hotel in Toronto for $33.0 million, satisfied with available cash and capacity under its existing credit facility. KingSett Real Estate Growth LP No. 5 ("KingSett") acquired the two-thirds interest. The hotel is a select-service, upper midscale property strategically located on Yonge Street one block north of College Street in downtown Toronto. It consists of two towers situated on approximately 1.5 acres of land. Containing 575 rooms, it also offers an indoor pool and fitness facility, business centre, 14,000 square feet of meeting space, two restaurants, 4,600 square feet of retail space and a 101-space underground parking garage.
QUARTERLY CONFERENCE CALL
Management will host a conference call on Friday, November 13, 2015, 2015 at 11.30 a.m. Eastern time to discuss the third quarter 2015 results. Investors are invited to access the call by dialing 416-764-8688 or 1-888-390-0546. 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 to November 27, 2015. To access the recording please call 416-764-8677 or 1-888-390-0541 and use the reservation number 170960#. A live audio webcast of the conference call will be accessible on InnVest's website at www.innvestreit.com. A replay will be available on InnVest's website for 90 days after the conference call.
FINANCIAL AND OPERATING HIGHLIGHTS
InnVest's Condensed Interim Consolidated Financial Statements and Management's Discussion and Analysis for the three and nine months ended September 30, 2015 are available on InnVest's website at www.innvestreit.com.
| Three Months |
Nine Months |
||||
| Period Ended September 30, |
2015 |
2014 |
2015 |
2014 |
|
| Consolidated Performance: |
|||||
| Number of hotel properties - end of the period |
109 |
112 |
109 |
112 |
|
| Number of hotel rooms - end of the period |
14,084 |
13,867 |
14,084 |
13,867 |
|
| Occupancy (%) |
76.7% |
74.2% |
66.8% |
64.8% |
|
| ADR |
$140.21 |
$129.43 |
$133.42 |
$124.22 |
|
| RevPAR |
$107.56 |
$96.05 |
$89.15 |
$80.47 |
|
| Revenues |
$166,557 |
$148,434 |
$426,053 |
$409,096 |
|
| Gross operating profit (GOP) (1) |
56,654 |
48,398 |
118,146 |
101,055 |
|
| Gross operating margin |
34.0% |
32.6% |
27.7% |
24.7% |
|
| Net income (loss) and comprehensive income (loss) |
14,301 |
16,508 |
752 |
(13,545) |
|
| Funds from operations (FFO) (1) |
39,378 |
31,720 |
65,407 |
48,092 |
|
| Adjusted funds from operations (AFFO)(1) |
35,746 |
27,319 |
55,456 |
36,146 |
|
| Distributions declared |
$13,261 |
$9,481 |
$37,412 |
$28,312 |
|
| Same Hotel Performance: |
|||||
| Number of hotel properties |
107 |
107 |
107 |
107 |
|
| Occupancy (%) |
76.2% |
74.4% |
66.3% |
65.1% |
|
| ADR |
$133.63 |
$131.58 |
$128.60 |
$126.34 |
|
| RevPAR |
$101.87 |
$97.93 |
$85.25 |
$82.29 |
|
| Room Revenues |
$121,696 |
$116,946 |
$301,711 |
$291,337 |
|
| GOP |
$49,757 |
$46,722 |
$104,472 |
$95,550 |
|
| GOP margin |
33.8% |
32.9% |
27.6% |
26.0% |
|
| Per Unit: |
|||||
| Net income (loss) per diluted unit |
$0.109 |
$0.161 |
$0.006 |
($0.143) |
|
| FFO per diluted unit |
$0.275 |
$0.278 |
$0.511 |
$0.467 |
|
| AFFO per diluted unit |
$0.247 |
$0.239 |
$0.430 |
$0.358 |
|
| Distributions per unit |
$0.0999 |
$0.0999 |
$0.2997 |
$0.2997 |
|
| FFO and AFFO - Weighted average units outstanding - basic |
130,954,208 |
94,863,069 |
124,000,648 |
94,388,753 |
|
| FFO and AFFO - Weighted average units outstanding - diluted |
157,570,074 |
130,628,458 |
152,011,842 |
128,513,979 |
|
| As at: |
September 30, |
December 31, |
September 30, |
||
| Total assets |
1,333,835 |
1,329,285 |
1,186,098 |
||
| Gross mortgages and other debt |
806,191 |
801,363 |
763,858 |
||
| Convertible debentures |
211,220 |
247,608 |
247,608 |
||
| Weighted average term to maturity (3) |
5.0 yrs |
2.8 yrs |
3.5 yrs |
||
| Weighted average interest rate (3) |
5.0% |
5.5% |
5.7% |
||
| Total debt to gross asset value (leverage ratio) (4) (5) |
58.1% |
62.0% |
65.8% |
||
| Total debt to total capitalization (4) (5) |
60.6% |
60.1% |
66.7% |
||
| Debt service coverage ratio (times) (4) (5) |
1.9 x |
1.6 x |
1.6 x |
||
| Interest coverage ratio (times) (4) |
2.5 x |
2.0 x |
2.1 x |
||
| Floating rate debt as % of total debt (5) |
15.2% |
21.0% |
12.9% |
||
| Total potential liquidity (6) |
72,690 |
121,292 |
126,390 |
||
| Twelve-month trailing AFFO payout ratio |
75.9% |
88.4% |
85.0% |
||
| Twelve-month trailing AFFO payout ratio (including DRIP) |
67.9% |
81.2% |
79.6% |
||
| (1) - Refer to Non-IFRS Financial Measures and Additional IFRS Financial Measures. |
||||||
| (2) - Calculations related to debt exclude InnVest's share of the floating rate mortgage on the Faimont Royal York hotel of $22.1 million. |
||||||
| (3) - Mortgages and other debt |
||||||
| (4) - Calculated on a trailing 12-month basis. |
||||||
| (5) - Total Debt consists of Mortagage and other debt and convertible debentures. |
||||||
| (6) - Total potential liquidity is defined as cash on hand, the availability under credit facilities and restricted cash. |
ABOUT INNVEST REIT
InnVest Real Estate Investment Trust is an unincorporated open-ended real estate investment trust which owns interests in a portfolio of 111 hotels with 15,000 rooms across Canada 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.E, INN.DB.F and INN.DB.G.
CAUTIONARY AND FORWARD LOOKING STATEMENTS
GOP, FFO and AFFO are additional and non-IFRS financial measures of earnings and cash flow commonly used by industry analysts. Additional and non-IFRS financial measures do not have a standardized meaning and are unlikely to be comparable to similar financial measures used by other organizations.
Statements contained in this press release that are not historical facts are forward-looking statements. These forward-looking statements include statements with respect to assumptions and forecasts of future results for InnVest, including recent acquisitions. These forward-looking statements are based on current expectations of management 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 for expected proceeds; achievement of plans to develop an optimal asset portfolio through completion of acquisitions and reinvestments in the portfolio; ability to achieve and maintain lower debt leverage target; and achieve return expectations on acquisitions and capital investments completed); extent of realized benefit from the internalization of senior management and asset management functions; current and future levels of investment in and renovations of the Royal York Hotel; real estate investment risks; the impact of lower oil prices and the decline in the Canadian dollar compared to the U.S. dollar on travel; hotel industry risks; competition; ability to refinance debt on advantageous terms; 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, which is available at www.sedar.com. In making such forward-looking statements, management has relied upon a number of material factors and assumptions, including with respect to: current and future levels of investment in and renovations within its existing portfolio including recently acquired hotels; the existing portfolio, including recently acquired hotels', expected future financial performance; general economic and financial conditions.
Although management of InnVest believes that the expectations with respect to such forward-looking statements are reasonable, such forward-looking statements are subject to known and unknown risks and uncertainties and, accordingly, there can be no assurance that such expectations will prove to be correct. Readers are cautioned that the foregoing list is not exhaustive. The forward-looking statements included herein are made as of the date hereof and 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.
SOURCE InnVest Real Estate Investment Trust
For further information: Denise Achonu, Vice President, Finance, Tel: (416) 607-2333, Fax: (416) 607-2353, Website: www.innvestreit.com