Published:
InnVest REIT Reports Third Quarter Results
InnVest Real Estate Investment Trust ("InnVest" or the "Trust") (TSX: INN.UN) today announced financial results for the three and nine months ended September 30, 2009.
"Recent proactive financial management initiatives have significantly enhanced InnVest's balance sheet and liquidity position," commented Kenneth Gibson, InnVest's President and Chief Executive Officer. "While 2009 continues to be a challenging year operationally, it appears that the pace of demand deterioration has begun to ease. In the current environment, our efforts continue to be focused on maximizing our competitive positioning within our markets and controlling expenses."
Third Quarter Highlights
- Announced an agreement to raise $50.0 million in equity at a price of $3.95 per unit and reduced distributions paid to unitholders to $0.50 per unit annually, significantly strengthening the Trust's balance sheet and financial flexibility.
- Confirmed the refinancing of a $177.0 million mortgage originally scheduled to mature in July 2010. The Trust has no meaningful debt maturities until 2011.
- Revenue per available room ("RevPAR") on a same hotel basis declined 11.2% driven by ongoing weakness in the economic environment and its impact on discretionary travel demand. This highlights a lessening rate of decline as compared to the second quarter;
- Overall, hotel revenues declined 10.4%, or $19.6 million, to $169.1 million;
- Hotel operating margins declined 200 basis points reflecting the RevPAR decline which was partially offset by a 7.7% reduction in hotel expenses. Overall, HOI declined $10.0 million, or 15.6%, to $53.9 million;
- InnVest generated a third quarter net income of $13.3 million compared to $24.5 million in 2008, and
- Distributable income and funds from operations both declined reflecting the impact of lower revenues achieved. The Trust maintained a prudent distributable income payout ratio of 96.1% on a trailing twelve month basis.
FINANCIAL HIGHLIGHTS
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(In thousands of dollars except average daily rate, revenue per available
room and per unit amounts)
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Three months ended Nine months ended
September 30 September 30
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2009 2008 +/- 2009 2008 +/-
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Occupancy 68.3% 72.9% (4.6)% 60.7% 65.7% (5.0)%
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Average daily
rate ("ADR") $119.97 $126.79 ($6.82) $117.66 $121.85 ($4.19)
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Revenue Per
Available Room
("RevPAR") $81.90 $92.39 ($10.49) $71.45 $80.11 ($8.66)
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Hotel revenues $169,134 $188,723 ($19,589) $452,813 $501,704 ($48,891)
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Hotel operating
income $53,921 $63,894 ($9,973) $113,923 $142,644 ($28,721)
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Net income (loss)
and
comprehensive
income (loss) $13,306 $24,534 ($11,228) ($6,121) $24,955 ($31,076)
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Add / (deduct)
Depreciation
and
amortization 22,778 22,338 440 68,229 65,416 2,813
Future income
tax (recovery)
expense (604) 241 (845) (8,385) (4,516) (3,869)
Non-cash
executive and
trustee
compensation 48 165 (117) 220 465 (245)
Net writedown
on and sale
of assets held
for sale 1,250 300 950 7,237 2,664 4,573
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Funds from
operations(1)(2) $36,778 $47,578 ($10,800) $61,180 $88,984 ($27,804)
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Funds from
operations per
unit(2)
- basic $0.493 $0.641 ($0.148) $0.821 $1.208 ($0.387)
- diluted $0.458 $0.583 ($0.125) $0.816 $1.144 ($0.328)
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Amortization
of deferred
financing
costs 6 32 (26) 23 1,373 (1,350)
Non-cash
portion of
mortgage
interest
expense 412 280 132 1,222 1,049 173
Reserve for
replacement
of furniture,
fixtures and
equipment and
capital
improvements (7,113) (7,982) 869 (19,103) (21,322) 2,219
Non-cash
portion of
convertible
debentures
interest and
accretion 736 684 52 2,263 2,094 169
Deferred land
lease expense
and retail
lease income,
net 26 6 20 30 22 8
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Distributable
income(2) $30,845 $40,598 ($9,753) $45,615 $72,200 ($26,585)
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Distributable
income per
unit(3)
- basic $0.414 $0.547 ($0.133) $0.612 $0.980 ($0.368)
- diluted $0.383 $0.497 ($0.114) $0.610 $0.931 ($0.321)
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Distributions
per unit(4) $0.1667 $0.2813 ($0.115) $0.5417 $0.8438 ($0.302)
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(1) For purposes of the calculation of funds from operations, amortization
of deferred financing is excluded from depreciation and amortization.
(2) Hotel operating income, funds from operations and distributable income
are non-GAAP measures of earnings and cash flow commonly used by
industry analysts. Non-GAAP financial measures do not have a
standardized meaning and are unlikely to be comparable to similar
measures used by other organizations.
(3) Distributable income per unit has been calculated on a basis consistent
with that prescribed by GAAP for calculating earnings per unit.
(4) Distributions per unit include cash distributions and distributions
arising from the Distribution Reinvestment Plan.
The operating statistics relating to room revenues are on a same-hotel basis and exclude the hotels that have been classified as discontinued operations and hotels that have not been included in operating results for the full periods presented.
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Three months ended Variance to Nine months ended Variance to
September 30, 2009 2008 September 30, 2009 2008
Occupancy
Ontario 63.7% (5.4 pts) 58.1% (5.5 pts)
Quebec 72.0% (4.3 pts) 61.6% (5.0 pts)
Atlantic 76.5% (1.8 pts) 63.4% (3.8 pts)
Western 68.2% (5.1 pts) 63.6% (4.7 pts)
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Total 68.4% (4.6 pts) 60.8% (5.0 pts)
ADR
Ontario $109.50 (5.2%) $109.92 (2.9%)
Quebec $118.71 (7.6%) $113.93 (5.1%)
Atlantic $125.22 (3.8%) $117.96 (1.8%)
Western $139.40 (4.0%) $137.92 (3.2%)
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Total $120.22 (5.2%) $117.88 (3.3%)
RevPAR
Ontario $69.73 (12.6%) $63.82 (11.4%)
Quebec $85.44 (12.8%) $70.21 (12.2%)
Atlantic $95.79 (6.1%) $74.83 (7.3%)
Western $95.11 (10.7%) $87.73 (9.9%)
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Total $82.21 (11.2%) $71.64 (10.6%)
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FINANCIAL REVIEW (In thousands of dollars, except per unit amounts, unless otherwise stated)
Three months ended September 30, 2009
The third quarter is typically the strongest earnings period for the Trust. In 2009, third quarter results were impacted by ongoing softness in the broader economic environment, albeit at a decreasing rate of decline as compared to the second quarter of 2009. The hospitality industry is highly correlated to the economy given its impact on discretionary travel demand, including corporate and leisure customer groups. For the three months ended September 30, 2009, hotel revenues decreased by $19.6 million, or 10.4%, to $169.1 million.
Third quarter RevPAR decreased 11.2% based on a 5.2% decrease in ADR and a 4.6 point decline in overall occupancy. RevPAR trends were generally consistent across all service categories and brands. This shows some improvement in RevPAR trends compared to the second quarter of 2009 which was down 14.0%.
Consistent with RevPAR declines experienced during the quarter, overall room revenues for the three months ended September 30, 2009 decreased $15.4 million, or 10.1%, to $137.8 million. All regions experienced a combination of occupancy and rate declines. Average daily rate discounting continued in most markets as competitive efforts to attract declining demand persists. We expect this trend to continue until sentiment regarding the economy improves.
For the three months ended September 30, 2009, non-room revenues totalled $31.4 million, down $4.2 million or 11.8% compared to the prior year. Non-room revenues are directly impacted by overall occupancy since lower occupancy results in the reduced use of ancillary services offered at our hotels.
In periods of declining occupancies, the Trust is focused on managing all costs to minimize the overall impact on profitability without impacting the service levels offered to guests. However, many property level expenses, including property taxes, leasehold payments and insurance, are relatively fixed and do not necessarily change in accordance with overall demand levels.
Hotel expenses for the three months ended September 30, 2009 declined $9.6 million or 7.7% when compared to 2008. The decrease primarily reflects reduced occupancies as well as active steps taken by the Trust to manage costs throughout the portfolio in light of the softer economic environment. These initiatives, most of which were implemented in 2008, include hiring freezes and salary freezes throughout most of the portfolio and at the Trust's corporate offices, as well as seeking to maximize value from vendors through pricing concessions. These initiatives should continue to benefit future periods. Hotel expenses during the third quarter of 2009 also reflect a non-recurring $1.7 million lease savings adjustment following the settlement of lease terms with a landlord.
Hotel operating income margins declined 200 basis points to 31.9% in the third quarter reflecting weak RevPAR somewhat offset by continued efficiency improvements across the portfolio and the lease adjustment noted above. For the three months ended September 30, 2009, the Trust generated hotel operating income of $53.9 million, down $10.0 million or 15.6% as compared to the prior period. Typically, declining revenues will result in a decline in profitability given the considerable amount of fixed operating costs.
Other expenses, net of other income, for the three months ended September 30, 2009 totalled 40.0 million, up $785 as compared to 2008. Reduced interest on mortgages and other debt was offset by a $1.1 million increase in non-cash depreciation charge and lower other business income as compared to the prior period.
InnVest realized net income from continuing operations of $14.5 million or $0.195 per unit basic and diluted. These results were lower than the income of $0.329 per unit basic ($0.319 per unit diluted) in the prior year reflecting the lower hotel operating income achieved during the quarter.
For the third quarter of 2009, discontinued operations generated net income of $17 compared to $382 in the prior period. One hotel was sold during the quarter for gross proceeds of $3.3 million. No gain or loss was recorded upon sale since the asset was written down to its net realizable value. At September 30, 2009, four hotels (699 rooms) were classified as held for sale. The Trust recognized a non-cash impairment charge of $1.3 million during the third quarter of 2009 based on updated expectations of sale proceeds.
InnVest generated a third quarter net income of $13.3 million, or $0.178 per unit basic and diluted compared to net income of $24.5 million, or $0.331 per unit basic ($0.320 per unit diluted) in the prior year.
For the three months ended September 30, 2009, InnVest generated FFO of $36.8 million ($0.458 per unit diluted) compared to $47.6 million in the prior period ($0.583 per unit diluted). Distributable income of $30.8 million ($0.383 per unit diluted) compared to $40.6 million in the prior year ($0.497 per unit diluted). The declines are primarily attributable to the $10.0 million reduction in hotel operating income for the third quarter.
Distributions declared during the third quarter of 2009 totalled $12.4 million compared to $20.8 million in the prior period. The Trust reduced its monthly distribution to $0.0625 per unit in November 2008 (from $0.09375 per unit), and announced a further reduction to $0.0417 per unit monthly beginning in September 2009. InnVest's payout ratio for the twelve month period ended September 30, 2009 was 96.1%.
Nine months ended September 30, 2009
For the nine months ended September 30, 2009, hotel revenues decreased by $48.9 million, or 9.7%, to $452.8 million. To date in 2009, operating results have been impacted by the weak economic environment and its impact on discretionary travel demand. Operating performance in the third quarter continued to decline, albeit at a modestly slower rate of decline than experienced in the second quarter of 2009.
Overall, year-to-date RevPAR decreased 10.6% based on a 3.3% decrease in ADR and a 5.0 point decline in overall occupancy.
Hotel expenses for the nine months ended September 30, 2009 declined $20.2 million or 5.6% when compared to 2008. The decrease reflects reduced occupancies as well as active steps taken by the Trust to manage costs throughout the portfolio in light of the softer economic environment. Year-to-date hotel expense savings also reflect a non-recurring $1.7 million lease adjustment in the third quarter.
Year-to-date hotel operating income margins declined 320 basis points to 25.2% reflecting weak RevPAR somewhat offset by continued efficiency improvements across the portfolio and the lease adjustment noted above. The Trust generated hotel operating income of $113.9 million, down $28.7 million or 20.1% compared to the prior period.
For the nine months ended September 30, 2009, InnVest realized net income from continuing operations of $2.1 million or $0.028 per unit basic and diluted. Discontinued operations generated net losses of $1.0 million compared to $724 in the prior period. Two hotels have been sold in 2009 for gross proceeds of $7.4 million. For the nine months ended September 30, 2009, the Trust has recognized a non-cash impairment charge of $7.2 million based on updated expectations of sale proceeds.
InnVest generated a net loss of $6.1 million, or $0.082 per unit basic and diluted compared to a net income of $25.0 million, or $0.339 per unit basic and diluted in the prior year.
For the nine months ended September 30, 2009, InnVest generated FFO of $61.2 million ($0.816 per unit diluted) compared to $89.0 million in the prior period ($1.144 per unit diluted). InnVest generated distributable income of $45.6 million ($0.610 per unit diluted) compared to $72.2 million in the prior year ($0.931 per unit diluted). The reductions primarily reflects lower hotel operating income generated during the period. Distributions declared during the nine months ended September 30, 2009 totalled $40.4 million compared to $62.2 million in the prior period reflecting the reductions in monthly distributions per units.
BALANCE SHEET REVIEW
At September 30, 2009, the Trust has cash on hand totalling $12.4 million, of which $3.5 million is restricted under the Trust's Declaration of Trust for the replacement of furniture, fixtures, and equipment and for capital improvements. At September 30, 2009, no amount was drawn on the Trust's $40.0 million credit facility.
The Trust also has a bridge loan secured by a hotel. This bridge loan was extended to August 31, 2009 during the six months ended June 30, 2009 and included a pay-down of $2.0 million. During the third quarter of 2009, the $7.0 million bridge loan was further extended to February 28, 2010.
Third quarter activities included the refinancing confirmation of a $177 million mortgage for a 3 year term at an interest rate of 7.5%. The mortgage, secured by 40 limited service hotels, was originally scheduled to mature in July 2010. The refinancing is expected to close in the fourth quarter.
At September 30, 2009, the Trust's leverage excluding and including convertible debentures was 46.7% and 56.0%, respectively. InnVest has mortgages payable of $946.5 million (December 31, 2008 - $948.1 million). Including the recent refinancing, the Trust's weighted average term is 3.4 years with a weighted average interest cost of 5.9%. Currently, approximately 7.3% of the Trust's mortgage debt is at floating rate.
In addition, InnVest has access to a loan facility, granted in conjunction with property mortgages, for up to $36.1 million to fund 50% to 100% of capital expenditures incurred at individual hotels. At September 30, 2009, the remaining capacity under this facility approximates $17.0 million.
For the nine months ended September 30, 2009, capital expenditures totalled $18.6 million compared to the Trust's FF&E reserve of $19.1 million. The Trust expects its capital investment to be largely funded through its FF&E reserve for the year 2009.
INCOME TAX DEFERRAL PERCENTAGE
For 2009, the Trust estimates that the non-taxable portion of the distributions made to unitholders during the year will approximate 60%.
RECENT DEVELOPMENTS
On October 14, 2009, the Trust closed its previously announced equity offering of 12,658,500 units of the Trust at a price of $3.95 per unit resulting in gross proceeds to the Trust of $50.0 million. The proceeds from the offering will be used to enhance the Trust's financial strength and flexibility and for general trust purposes.
During the third quarter, the Trust announced a reduction in distributions paid to unitholders to $0.50 per unit annually, as compared to the prior distribution level of $0.75 per unit annually. This equates to a monthly distribution of $0.0417 per unit beginning in September 2009. The board of Trustees unanimously approved the reduction of distributions after careful consideration of the ongoing economic downturn and its impact on operating performance as well as the board's desire to strengthen the Trust's balance sheet and liquidity.
During the third quarter, the Trust closed the sale of a hotel (121 rooms), subject to a land lease, for gross proceeds of $3.3 million less closing costs. The sale was partially financed with a two-year $500 vendor-take-back mortgage bearing interest at 5.0%. In aggregate, four assets (699 rooms) remain classified as discontinued operations as at September 30, 2009.
In November 2008, the Trust implemented a normal course issuer bid ("NCIB") to repurchase up to 5,924,617 trust units. The NCIB expires on November 10, 2009. Since implementing the NCIB, the Trust has acquired 624,472 units at an aggregate cost of $2.1 million.
On October 9, 2008, the Trust adopted a unitholder rights plan, which expired on April 9, 2009. On April 14, 2009, InnVest's unitholders approved the adoption of the second amended and restated unitholder rights plan, which will be in effect for a period of up to three years. InnVest did not adopt either of the plans in response to any specific take-over proposal, nor has it been made aware of any such proposal. The unitholder rights plan is intended to ensure that unitholders receive fair treatment in the event of an unsolicited attempt to gain control of InnVest and, in such event, to ensure unitholders receive full value and that the Board of Trustees has time to consider alternatives to maximize unitholder value. The rights will only become exercisable upon the occurrence of certain triggering events, including the acquisition by a person or group of persons of 20% or more of the outstanding units in a transaction not approved by InnVest's board of Trustees.
OUTLOOK
Historically, the lodging industry performance has been highly correlated with the economy given the discretionary nature of leisure and business travel. Both the Canadian and global economies are showing some early signs of improvement, however, expectations are that any recovery may be more protracted than previously expected. Until there is greater visibility as to an economic recovery, we remain cautious on the Trust's near term operating outlook.
InnVest's recent financial management initiatives have significantly improved its balance sheet and liquidity position. Having developed and implemented contingency plans throughout the portfolio, we continue to manage our portfolio aggressively to maximize the performance of each hotel. In addition, the Trust is continually seeking opportunities to recycle its capital efficiently and is actively pursuing the sale of certain underperforming non-core assets.
With new supply effectively constrained by the credit markets and an enhanced balance sheet, InnVest is well positioned for a recovery when demand trends improve. InnVest's current portfolio is diversified by geography, customer and brand. This diversity, combined with our partnerships with experienced hotel operators, contributes to the resiliency of the portfolio and positions InnVest to effectively manage through the current economic environment.
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 and competition. These and other factors are discussed in InnVest's 2008 annual information form which is available at www.sedar.com or www.innvestreit.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.
TRUST PROFILE
InnVest holds Canada's largest hotel portfolio together with an interest in Choice Hotels Canada Inc. the largest franchisor of hotels in Canada. The hotel portfolio currently comprises 145 hotel properties, with aprpoximately 19,000 guest rooms, operated under internationally recognized franchise brands such as Comfort Inn®, Holiday Inn® Quality Suites/Inn®, Radisson®, Delta®, Travelodge®, Hilton Hotel®, Staybridge Suites®, Fairmont Hotels®, Sheraton Suites® and Best Western®. InnVest's trust units and outstanding convertible debentures trade on the Toronto Stock Exchange under the symbols INN.UN, INN.DB.A, INN.DB.B and INN.DB.C, respectively.
QUARTERLY CONFERENCE CALL
Management will host a conference call on Friday November 6, 2009 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 November 6th beginning at 1:00 pm through to 11:59 p.m. on November 13th. To access the recording please call (416) 695-5800 or 1-800-408-3053 and use the reservation number 5100401#.
InnVest Real Estate Investment Trust
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CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)(unaudited) September 30, 2009 December 31, 2008
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(Restated, Note 21)
ASSETS
Current Assets
Cash $ 8,888 $ 18,143
Accounts receivable 29,308 27,319
Prepaid expenses and other assets 16,579 8,861
Assets held for sale (Note 21) 660 610
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55,435 54,933
Restricted cash 3,521 3,013
Hotel properties (Note 3) 1,753,581 1,792,828
Other real estate properties (Note 4) 15,809 16,078
Licence contracts (Note 5) 16,866 17,853
Intangible and other assets (Note 6) 38,227 42,165
Assets held for sale (Note 21) 35,736 50,234
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$ 1,919,175 $ 1,977,104
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LIABILITIES
Current Liabilities
Bank indebtedness (Note 7) $ 7,000 $ 9,000
Accounts payable and accrued liabilities 74,765 71,876
Acquisition related liabilities 2,552 2,561
Distributions payable 3,114 4,651
Current portion of long-term debt (Note 8) 16,974 10,763
Liabilities related to assets held for
sale (Note 21) 855 1,157
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105,260 100,008
Long-term debt (Note 8) 923,469 930,317
Other long-term obligations (Note 9) 7,015 7,139
Convertible debentures (Note 10) 182,413 180,170
Future income tax liability (Note 12) 202,592 210,977
Long-term liabilities related to assets
held for sale (Note 21) 8,001 12,763
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1,428,750 1,441,374
UNITHOLDERS' EQUITY 490,425 535,730
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$ 1,919,175 $ 1,977,104
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The accompanying notes are an integral part of these consolidated financial
statements.
InnVest Real Estate Investment Trust
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CONSOLIDATED STATEMENTS OF NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(in thousands of Three Three Nine Nine
dollars, except per Months Ended Months Ended Months Ended Months Ended
unit amounts) September September September September
(unaudited) 30, 2009 30, 2008 30, 2009 30, 2008
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(Restated, (Restated,
Note 21) Note 21)
Total revenues
(reference only)
(Note 19) $ 172,506 $ 192,762 $ 461,628 $ 511,472
Hotel revenues $ 169,134 $ 188,723 $ 452,813 $ 501,704
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Hotel expenses
Operating expenses
(Note 17) 98,048 103,990 284,601 299,320
Property taxes, rent
and insurance 10,982 13,074 37,264 39,096
Management fees
(Note 17) 6,183 7,765 17,025 20,644
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115,213 124,829 338,890 359,060
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Hotel operating income 53,921 63,894 113,923 142,644
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Other (income) and
expenses
Interest on mortgages
and other debt 13,886 14,476 41,354 43,314
Convertible debentures
interest and accretion 3,623 3,571 10,831 10,692
Corporate and
administrative (Note 17) 1,400 1,313 4,310 4,182
Capital tax 45 40 148 141
Other business income,
net (Note 20) (1,627) (1,863) (3,830) (4,113)
Other income (125) (20) (346) (141)
Depreciation and
amortization 22,784 21,684 67,722 64,742
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39,986 39,201 120,189 118,817
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Income (loss) before
income tax (recovery)
expense 13,935 24,693 (6,266) 23,827
Future income tax (recovery)
expense (Note 12) (604) 241 (8,385) (4,516)
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Income from continuing
operations 14,539 24,452 2,119 28,343
Income (loss) from
discontinued operations
(Note 21) 17 382 (1,003) (724)
Net writedown on and sale
of assets held for sale
(Note 21) (1,250) (300) (7,237) (2,664)
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(1,233) 82 (8,240) (3,388)
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Net income (loss) and
comprehensive income
(loss) $ 13,306 $ 24,534 $ (6,121) $ 24,955
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Income from continuing
operations, per unit
(Note 15)
Basic $ 0.195 $ 0.329 $ 0.028 $ 0.385
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Diluted $ 0.195 $ 0.319 $ 0.028 $ 0.385
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Net income (loss) per
unit (Note 15)
Basic $ 0.178 $ 0.331 $ (0.082) $ 0.339
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Diluted $ 0.178 $ 0.320 $ (0.082) $ 0.339
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Loss from discontinued
operations, per unit
Basic $ (0.017) $ (0.002) $ (0.110) $ (0.046)
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Diluted $ (0.017) $ (0.002) $ (0.110) $ (0.046)
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The accompanying notes are an integral part of these consolidated financial
statements.
InnVest Real Estate Investment Trust
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CONSOLIDATED STATEMENTS OF UNITHOLDERS' EQUITY
Net Income
(Loss) and
(in thousands of dollars) Comprehensive Distrib-
(unaudited) Income (Loss) utions Deficit Units in $
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Balance December 31, 2007 $ 137,923 $ (299,691) $ (161,768) $ 757,375
CHANGES DURING THE PERIOD
Net income and
comprehensive income 24,955 - 24,955 -
Unit distributions (Note 16) - (62,196) (62,196) -
Distribution reinvestment
plan units issued - - - 11,241
Vested executive
compensation - - - 151
Executive and trustee
compensation - - - 114
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Balance September 30, 2008 $ 162,878 $ (361,887) $ (199,009) $ 768,881
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Balance December 31, 2008 $ 134,546 $ (378,164) $ (243,618) $ 768,034
CHANGES DURING THE PERIOD
Net loss and comprehensive
loss (6,121) - (6,121) -
Unit distributions (Note 16) - (40,357) (40,357) -
Distribution reinvestment
plan units issued - - - 2,099
Units repurchased pursuant to
normal course issuer bid
(Note 14) - - - (3,467)
Conversion of debentures - - - 20
Vested executive compensation - - - 170
Executive and trustee
compensation - - - 76
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Balance September 30, 2009 $ 128,425 $ (418,521) $ (290,096) $ 766,932
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Holders'
(in thousands of dollars) Contributed Executive Conversion
(unaudited) Surplus Compensation Option Total
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Balance December 31, 2007 $ - $ 417 $ 8,642 $ 604,666
CHANGES DURING THE PERIOD
Net income and comprehensive
income - - - 24,955
Unit distributions (Note 16) - - - (62,196)
Distribution reinvestment
plan units issued - - - 11,241
Vested executive compensation - (151) - -
Executive and trustee
compensation - 351 - 465
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Balance September 30, 2008 $ - $ 617 $ 8,642 $ 579,131
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Balance December 31, 2008 $ 1,938 $ 734 $ 8,642 $ 535,730
CHANGES DURING THE PERIOD
Net loss and comprehensive
loss - - - (6,121)
Unit distributions (Note 16) - - - (40,357)
Distribution reinvestment
plan units issued - - - 2,099
Units repurchased pursuant
to normal course issuer
bid (Note 14) 2,301 - - (1,166)
Conversion of debentures - - - 20
Vested executive compensation - (170) - -
Executive and trustee
compensation - 144 - 220
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Balance September 30, 2009 $ 4,239 $ 708 $ 8,642 $ 490,425
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The accompanying notes are an integral part of these consolidated financial
statements.
InnVest Real Estate Investment Trust
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Three Nine Nine
Months Ended Months Ended Months Ended Months Ended
(in thousands of dollars) September September September September
(unaudited) 30, 2009 30, 2008 30, 2009 30, 2008
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(Restated, (Restated,
Note 21) Note 21)
OPERATING ACTIVITIES
Net income from
continuing operations $ 14,539 $ 24,452 $ 2,119 $ 28,343
Add (deduct) items not
affecting operations
Depreciation and
amortization 22,784 21,684 67,722 64,742
Non-cash portion of
mortgage interest
expense 412 280 1,222 1,049
Non-cash portion of
convertible debentures
interest and accretion 736 684 2,263 2,094
Future income tax
recovery (604) 241 (8,385) (4,516)
Non-cash executive and
trustee compensation 48 155 220 465
Discontinued operations 69 32 (844) 165
Changes in non-cash
working capital 3,213 1,973 (6,995) (15,895)
----------------------------------------------------------------------------
41,197 49,501 57,322 76,447
----------------------------------------------------------------------------
FINANCING ACTIVITIES
Repayment of long-term debt (3,274) (2,228) (8,391) (161,689)
Proceeds from long-term debt - 3,878 6,533 393,826
Units repurchased pursuant
to normal course issuer
bid (Note 14) - - (1,166) -
Unit distributions (13,231) (17,193) (39,795) (50,838)
Decrease in operating loan (21,300) (26,082) - (8,200)
Repayment of bridge loan - - (2,000) (215,000)
Proceeds from bridge loan - - - 8,910
Discontinued operations
repayment of debt (1,637) (3,159) (4,576) (3,273)
----------------------------------------------------------------------------
(39,442) (44,784) (49,395) (36,264)
----------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures on
hotel properties (5,304) (9,547) (18,553) (27,746)
Discontinued operations
capital expenditures - (141) (42) (548)
Hotel under development
expenditures, net - (883) (82) (6,135)
Proceeds from sale of
discontinued asset, net
of costs and vendor-
take-back mortgage 2,430 12,900 3,405 12,900
Change in intangible and
other assets (95) (172) (1,402) (449)
Acquisition of hotel property - (4) - (17,306)
Increase in restricted cash (409) (294) (508) (28)
----------------------------------------------------------------------------
(3,378) 1,859 (17,182) (39,312)
----------------------------------------------------------------------------
(Decrease) increase in cash
during the period (1,623) 6,576 (9,255) 871
Cash, beginning of period 10,511 16,566 18,143 22,271
----------------------------------------------------------------------------
Cash, end of period $ 8,888 $ 23,142 $ 8,888 $ 23,142
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Supplemental disclosure
of cash flow information:
Cash paid for interest $ 16,060 $ 17,516 $ 49,133 $ 50,589
Cash paid for income taxes
(including capital tax) $ 46 $ 53 $ 169 $ 162
The accompanying notes are an integral part of these consolidated financial
statements.
----------------------------------------------------------------------------
InnVest Real Estate Investment Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009 (all dollar amounts are in thousands, except unit and per
unit amounts) (unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
1. Basis of Presentation
InnVest Real Estate Investment Trust ("InnVest" or the "REIT") is an unincorporated open-ended real estate investment trust governed by the laws of Ontario. The REIT began operations on July 26, 2002. The units of the REIT are traded on the Toronto Stock Exchange under the symbol of "INN.UN". As at September 30, 2009, the REIT owned 145 Canadian hotels operated under international brands and has a 50% interest in Choice Hotels Canada Inc. ("CHC").
The accompanying unaudited interim consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). The accounting principles used in these financial statements are consistent with those used in the annual consolidated financial statements for the year ended December 31, 2008, except as disclosed in Note 2. These financial statements do not include all the information and disclosure required by GAAP for annual financial statements, and should be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2008.
Revenues earned from hotel operations fluctuate throughout the year, with the third quarter being the highest due to the increased level of leisure travel in the summer months, and the first quarter being the lowest as leisure travel tends to be lower at that time of year.
2. Change in Significant Accounting Policies
Current accounting changes
Goodwill and intangible assets
Effective January 1, 2009, the REIT adopted the Canadian Institute of Chartered Accountants ("CICA") Section 3064 - Goodwill and Intangible Assets. The standard was applied retrospectively. This new standard had no material impact to the REIT.
Future accounting changes
Financial instruments - disclosures
In June 2009, the CICA amended Section 3862 - Financial Instruments-Disclosures to include new disclosure requirements about fair value measurement for financial instruments and liquidity risk disclosures. These amendments apply to annual financial statements for fiscal years ending after September 30, 2009. The amended standard requires use of a three level hierarchy methodology that reflects the significance of the inputs used when determining the fair value measurements. Fair value of financial assets and liabilities is determined as follows:
Level 1 - determined by reference to quoted prices in active markets for identical assets and liabilities;
Level 2 - determined using inputs other than the quoted prices for which all significant inputs are based on observable market data, either directly or indirectly; and
Level 3 - determined using inputs that are not based on observable market data.
The REIT is currently considering the effect on its financial statements resulting from this amendment.
3. Hotel Properties
Accumulated September 30, 2009 December 31, 2008
Cost Depreciation Net Book Value Net Book Value
----------------------------------------------------------------------------
(Restated, Note 21)
Land $ 184,248 $ - $ 184,248 $ 184,248
Buildings 1,698,708 213,268 1,485,440 1,517,708
Furniture,
fixtures
and
equipment 142,484 58,591 83,893 90,872
----------------------------------------------------------------------------
$ 2,025,440 $ 271,859 $ 1,753,581 $ 1,792,828
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As at March 31, 2009, the two hotels accounted for as development properties with a combined net book value of $35,302 (December 31, 2008 - $35,352) became operating properties in accordance with the REIT's accounting policy for newly built hotels acquired or developed and, as such, were subject to depreciation. Capitalized net operating losses during 2009 were $82 (December 31, 2008 - $ 838). These losses include mortgage interest capitalized of $87 (year ended December 31, 2008 - $1,009).
4. Other Real Estate Properties
Other real estate properties include office and retail properties and a retirement residence.
Accumulated September 30, 2009 December 31, 2008
Cost Depreciation Net Book Value Net Book Value
----------------------------------------------------------------------------
Land $ 1,624 $ - $ 1,624 $ 1,624
Buildings 15,444 1,298 14,146 14,412
Furniture,
fixtures
and
equipment 79 40 39 42
----------------------------------------------------------------------------
$ 17,147 $ 1,338 $ 15,809 $ 16,078
----------------------------------------------------------------------------
----------------------------------------------------------------------------
5. Licence Contracts
Accumulated September 30, 2009 December 31, 2008
Cost Amortization Net Book Value Net Book Value
----------------------------------------------------------------------------
(Restated, Note 21)
Licence
contracts $ 26,320 $ 9,454 $ 16,866 $ 17,853
----------------------------------------------------------------------------
----------------------------------------------------------------------------
During the nine months ended September 30, 2009, the licence contracts were
amortized by $987 (September 30, 2008 - $987).
6. Intangible and Other Assets
Accumulated September 30, 2009 December 31, 2008
Cost Amortization Net Book Value Net Book Value
----------------------------------------------------------------------------
(Restated, Note 21)
Customer
relation-
ships $ 48,794 $ 22,308 $ 26,486 $ 33,918
Tenant
relation-
ships 2,565 1,617 948 1,270
Franchise
rights 2,788 1,094 1,694 716
Lease
origin-
ation
costs 6,256 707 5,549 5,741
Other 1,046 696 350 503
----------------------------------------------------------------------------
Total
intangible
assets 61,449 26,422 35,027 42,148
Vendor-take-
back mortgages
(Note 21) 3,200 - 3,200 -
Deferred
financing
costs related
to bridge
loan - - - 17
----------------------------------------------------------------------------
$ 64,649 $ 26,422 $ 38,227 $ 42,165
----------------------------------------------------------------------------
----------------------------------------------------------------------------
During the nine months ended September 30, 2009, the intangible assets were amortized by $8,519 (September 30, 2008 - $8,242) and the deferred financing costs related to the bridge loan were amortized by $17 (September 30, 2008 - $1,373).
On April 1, 2009, as part of the sale of an Ontario hotel property held for sale since 2007, the REIT gave a vendor-take-back mortgage of $2,700 with 4.75% interest payable monthly in arrears, for a two year term. This vendor-take-back mortgage is secured by a mortgage on the property.
On July 29, 2009, as part of the sale of another Ontario hotel property held for sale since March 31, 2009, the REIT gave a vendor-take-back mortgage of $500 with 5.0% interest payable monthly in arrears, for a two year term. This vendor-take-back mortgage is also secured by a mortgage on that property.
7. Bank Indebtedness
Proceeds of $9,000 from a bridge loan were received on March 19, 2008, for 365 days, whereby the REIT provided an unencumbered hotel as security. This loan was extended to August 31, 2009 during the six months ended June 30, 2009 and included a pay-down of $2,000, made on April 7, 2009. During the third quarter of 2009, the bridge loan was further extended to February 28, 2010. As at September 30, 2009, the bridge loan amount was $7,000 (December 31, 2008 - $9,000). The extension bears interest at Canadian Bankers' Acceptance rate plus 3.5% and requires interest payments only.
8. Long-term Debt
September 30, 2009 December 31, 2008
----------------------------------------------------------------------------
(Restated, Note 21)
Mortgages payable $ 946,512 $ 948,064
Less debt issuance costs (6,069) (6,984)
----------------------------------------------------------------------------
Total long-term debt 940,443 941,080
Less current portion (16,974) (10,763)
----------------------------------------------------------------------------
Net long-term debt $ 923,469 $ 930,317
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Substantially all of the REIT's assets have been pledged as security under debt agreements. At September 30, 2009, long-term debt had a weighted average interest rate of 5.5% (December 31, 2008 - 5.7%) and a weighted average effective interest rate of 5.6% (December 31, 2008 - 5.8%). The long-term debt is repayable in average monthly payments of principal and interest totalling $5,326 (December 31, 2008 - $5,483) per month, and matures at various dates from September 20, 2011 to March 21, 2018.
The REIT has a $40,000 operating line that is a term facility which bears interest at either, Canadian bank prime rate plus 2.5% or Canadian Bankers' Acceptance rate plus 3.5%. It is secured by 14 properties and is due August 31, 2011. The amount of the operating line is subject to a mortgageability test which is based on the operating results of the secured properties, calculated quarterly on a trailing-four-quarters basis. Based on the operating results of the secured properties for the four quarters ended September 30, 2009, the REIT qualifies for the maximum amount of $40,000. The operating line as at September 30, 2009 was $ nil (December 31, 2008 - $ nil).
Scheduled repayment of long-term debt is as follows:
Regular
Amortization Due on Maturity Total
----------------------------------------------------------------------------
2009 (remainder of the year) $ 3,436 $ - $ 3,436
2010 18,175 - 18,175
2011 15,450 314,876 330,326
2012 15,883 176,831 192,714
2013 13,921 - 13,921
2014 and thereafter 7,900 380,040 387,940
----------------------------------------------------------------------------
$ 74,765 $ 871,747 $ 946,512
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The current portion of long-term debt on the balance sheet is based on the twelve months ending September 30, 2010, whereas the repayment schedule above reflects the fiscal year.
The estimated fair value of the REIT's long-term debt at September 30, 2009 was approximately $901,901 (December 31, 2008 - $933,784). This estimate was determined by discounting expected cash flows at the interest rates currently being offered to the REIT for debt of the same remaining maturities.
Long-term debt includes $68,724 (December 31, 2008 - $92,129) of mortgages payable, which are subject to floating interest rates. Annual interest expense will increase by $687 for every 1% increase in the base Bankers' Acceptance rate.
Interest expense on mortgages and other debt, interest on operating and bridge loans, as well as convertible debentures interest are considered operating items in the statement of cash flows.
The REIT has access to a loan facility, granted in conjunction with property mortgages, of up to $17,016 available to fund 50% to 100% of capital expenditures incurred at individual hotels. During the nine months ended September 30, 2009, the REIT has drawn $6,888 on this facility (December 31, 2008 - $12,196).
During the quarter, the REIT confirmed the refinancing of $177,034 of long-term debt with one of its main lenders, which was to come due in July 2010. The financing is due to close in November 2009 and has a term of three years from the date of close. The new debt has an average blended rate of 7.5% with an amortization of twenty five years. The weighted average rate will increase to 5.9% when the new financing is completed.
9. Other Long-term Obligations
September 30, 2009 December 31, 2008
----------------------------------------------------------------------------
(Restated, Note 21)
Capital leases $ 1,549 $ 1,662
Other lease obligations 739 658
----------------------------------------------------------------------------
2,288 2,320
Less current portion (236) (195)
----------------------------------------------------------------------------
Total lease obligations 2,052 2,125
Pension liability 3,425 3,522
Asset retirement obligation 1,538 1,492
----------------------------------------------------------------------------
Total other long-term obligations $ 7,015 $ 7,139
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Defined Benefit Pension Plans
The defined benefit pension plans were assumed pursuant to the acquisition of certain hotels in 2006 and 2007. The most recent actuarial valuation with respect to the funding of the REIT's pension plans was prepared on December 31, 2008.
The pension plan liability as at September 30, 2009 consist of the following:
Non-Union
Non- September December
Management Management 30, 2009 31, 2008
Pension Pension Total Total
Benefit Plans Benefit Plans Benefit Plans Benefit Plans
----------------------------------------------------------------------------
Accrued
benefit
obligation $ 4,626 $ 1,083 $ 5,709 $ 5,513
Fair value
of plan
assets 2,421 1,175 3,596 3,263
----------------------------------------------------------------------------
Funded
status -
plan
deficit
(surplus) 2,205 (92) 2,113 2,250
Unamortized
net
actuarial
gain 953 359 1,312 1,272
----------------------------------------------------------------------------
Accrued
employee
future
benefit
liability $ 3,158 $ 267 $ 3,425 $ 3,522
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The pension expense for the three and nine months ended September 30, 2009 is $76 and $238, respectively (September 30, 2008 - $193 and $617, respectively).
10. Convertible Debentures
The details of the three series of convertible debentures are outlined in the tables below:
Effective Original Converted
Interest Interest Face to Trust
Debenture Maturity Date Rate Rate Amount Units
---------------------------------------------------------------------------
Series A April 15, 2011 6.25% 7.73% $ 57,500 $ (11,736)
Series B May 31, 2013 6.00% 7.53% 75,000 (20)
Series C August 1, 2014 5.85% 7.42% 70,000 -
---------------------------------------------------------------------------
$ 202,500 $ (11,756)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Face Holders'
Amount Conversion Transaction September
Debenture Outstanding Option Accretion Costs 30, 2009
---------------------------------------------------------------------------
Series A $ 45,764 $ (2,289) $ 2,189 $ (104) $ 45,560
Series B 74,980 (3,400) 1,600 (1,864) 71,316
Series C 70,000 (2,953) 886 (2,396) 65,537
---------------------------------------------------------------------------
$ 190,744 $ (8,642) $ 4,675 $ (4,364) $ 182,413
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Effective Original Converted
Interest Interest Face to Trust
Debenture Maturity Date Rate Rate Amount Units
---------------------------------------------------------------------------
Series A April 15, 2011 6.25% 7.73% $ 57,500 $ (11,736)
Series B May 31, 2013 6.00% 7.53% 75,000 -
Series C August 1, 2014 5.85% 7.42% 70,000 -
---------------------------------------------------------------------------
$ 202,500 $ (11,736)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Face Holders'
Amount Conversion Transaction December
Debenture Outstanding Option Accretion Costs 31, 2008
---------------------------------------------------------------------------
Series A $ 45,764 $ (2,289) $ 1,398 $ (333) $ 44,540
Series B 75,000 (3,400) 1,241 (2,173) 70,668
Series C 70,000 (2,953) 577 (2,662) 64,962
---------------------------------------------------------------------------
$ 190,764 $ (8,642) $ 3,216 $ (5,168) $ 180,170
---------------------------------------------------------------------------
---------------------------------------------------------------------------
The fair value of the REIT's convertible debentures based on their trading prices on the Toronto Stock Exchange at September 30, 2009 is $162,303 (December 31, 2008 - $102,108).
11. Capital Management
The REIT manages its capital, which is defined as the aggregate of unitholders' equity and debt, under the terms of the Declaration of Trust. The REIT's capital management objectives are (i) to ensure compliance with debt and investment restrictions outlined in its Declaration of Trust as well as external existing debt covenants, (ii) to allow for the implementation of its acquisition strategy and hotel property refurbishment program, and (iii) to build long-term unitholder value. Issuances of equity and debt are approved by the Board of Trustees (the "Board") through their review and approval of the REIT's strategic plan and annual budget plan, along with changes to the approved plans periodically throughout each year.
At September 30, 2009, InnVest's primary contractual obligations consisted of long-term mortgage obligations and convertible debentures. InnVest is not permitted to exceed certain financial leverage amounts under the terms of the Declaration of Trust. The REIT is permitted to hold indebtedness excluding convertible debentures up to a level of 50% of gross asset value. Further, the REIT is permitted to have indebtedness and convertible debentures up to a level of 60% of gross asset value. The Declaration of Trust also governs that individual property mortgages, or mortgages on a pool of properties, cannot exceed 75% of the fair value of the underlying property. InnVest calculates indebtedness in accordance with GAAP excluding non-interest bearing indebtedness, trade accounts payable, and any future income tax liability. InnVest calculates gross asset value as the total book value of assets on the REIT's balance sheet, plus accumulated depreciation and amortization, less future income tax liabilities.
At September 30, 2009, the REIT's leverage excluding and including convertible debentures was 46.7% and 56.0%; respectively, calculated as follows:
September 30, 2009 December 31, 2008
---------------------------------------------------------------------------
Total assets per consolidated
balance sheet $ 1,919,175 $ 1,977,104
Accumulated depreciation and
amortization 323,760 269,331
Future income tax liability (202,592) (210,977)
Future income tax liability not
included in assets 16,240 18,834
---------------------------------------------------------------------------
Gross asset value $ 2,056,583 $ 2,054,292
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Book value of mortgages and
other indebtedness(1) $ 961,513 46.7% $ 970,071 47.2%
Convertible debentures (2) 190,744 9.3% 190,764 9.3%
---------------------------------------------------------------------------
$ 1,152,257 56.0% $ 1,160,835 56.5%
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(1) Adjusted to eliminate financing issuance costs and include long-term
debt related to assets held for sale.
(2) Adjusted to face value.
The REIT's Declaration of Trust also includes guidelines that limit capital expended to, among other items, the following:
(a) Direct and indirect investments in real property on which hotels are situated and the hotel business conducted thereon, primarily in Canada, and in entities whose activities consist primarily of franchising hotels;
(b) Temporary investments held in cash, deposits with a Canadian Chartered bank or trust company, short term government debt securities or in money market instruments of, or guaranteed by, a Schedule 1 Canadian bank, short term commercial paper, notes, bonds of other debt securities of a Canadian entity having a rating of at least R-1 (Mid) by Dominion Bond Rating Service or A-1 (Mid) by Standard & Poor's Corporation maturing prior to one year from the date of issue; and
(c) Investments in mortgages or mortgage bonds, where the related security is a first mortgage on income producing real property which otherwise complies with (a) above and is subject to certain leverage limits and debt service coverage. The aggregate value of such investments shall not exceed 20% of the unitholders' equity.
The REIT is in compliance with these guidelines.
The REIT is also subject to certain restrictions on the issuance of equity as discussed in Note 12. The REIT can issue, on a cumulative basis, a total of approximately $143,000 in equity annually in each of 2009 and 2010 and maintain its relief from taxation to the end of 2010. The REIT issued $2,365 in equity during the nine months ended September 30, 2009 (September 30, 2008 - $11,506). Subsequent to September 30, 2009, the REIT issued $50,001 in equity for net proceeds of $47,601 (see note 22).
As outlined in the Declaration of Trust, the REIT is required to distribute monthly to unitholders not less than one-twelfth of eighty percent (80%) of distributable income of the REIT for the calendar year (see Note 16).
The REIT maintains an operating line of $40,000 with a Canadian Chartered bank with the following covenants in addition to the leverage limits under the Declaration of Trust:
(a) Trailing twelve months consolidated earnings before interest, taxes, depreciation and amortization ("EBITDA") to consolidated interest expense of not less than 2.0 times (actual being 2.3 times at September 30, 2009 and 2.7 times at December 31, 2008);
(b) Trailing twelve months consolidated EBITDA to consolidated debt service of not less than 1.5 times (actual being 2.0 times at September 30, 2009 and 2.3 times at December 31, 2008); and
(c) Unitholders' Equity of not less than $300,000 (actual being $490,425 at September 30, 2009 and $535,730 at December 31, 2008).
12. Income Taxes and Future Income Tax Liability
The REIT currently qualifies as a Mutual Fund Trust for income tax purposes. As required by its Declaration of Trust, the REIT intends to distribute all taxable income to its unitholders and to deduct these distributions for income tax purposes (see Note 16).
In June 2007, a Bill was enacted for the taxation of publicly traded trusts, including income trusts (the "Bill"). The Bill applies to publicly traded trusts which existed prior to November 1, 2006 starting with taxation years ending in 2011, except for those trusts that qualify for the real estate investment trust ("Qualifying REIT") exception included in the legislation. An existing trust may lose its relief from taxation in the interim periods to 2011 where it undergoes "undue expansion". Pursuant to the legislation, a REIT which carries on Canadian hotel operations (including through subsidiaries) will not be a Qualifying REIT. As a result, the REIT will be subject to tax starting January 1, 2011.
The Bill may adversely affect the level of cash distribution to unitholders commencing in 2011 if the REIT does not become a Qualifying REIT by then. Management is reviewing whether it is feasible to reorganize the REIT so that non-qualifying operations and assets are transferred under a plan of arrangement to a taxable entity that is held by the REIT unitholders, and that the REIT hotels, which continue to be owned by the REIT, are leased by it to the taxable entity.
It is not possible at this preliminary juncture to provide any assurances that any such reorganization or a similar reorganization can or will be implemented before 2011, or that any such reorganization, if implemented, would not result in material costs or other adverse consequences to the REIT and its unitholders.
13. Financial Instruments
Risk Management
In the normal course of business, the REIT is exposed to a number of risks that can affect its operating performance. These risks, and the actions taken to manage them, are as follows:
Interest Rate Risk
The time period over which management is spreading debt maturities implies an average term to maturity of approximately five years. This strategy reduces the REIT's exposure to re-pricing risk resulting from short-term interest rate fluctuations in any one year. Management is of the view that such a strategy will provide the most effective interest rate risk management for debt.
The REIT's floating rate debt balance is monitored by management to minimize the REIT's exposure to interest rate fluctuations. As at September 30, 2009, the REIT's floating rate debt balance of $68,724 (December 31, 2008 - $92,129) is approximately 7.3% of total long-term debt.
Credit Risk
Credit risk relates to the possibility that hotel guests, either individual or corporate, do not pay the amounts owed to the REIT. The REIT mitigates this risk by limiting its exposure to customers allowed to pay by invoice after check out ("direct bill"). Accounts receivable as at September 30, 2009 are $29,308 (December 31, 2008 - $27,319). InnVest reviews accounts receivable and the allowance for doubtful accounts is adjusted for any balances which are determined by management to be uncollectable. This provision adjustment is expensed in the hotel operating income. The allowance as at September 30, 2009 is $540 or 1.8% (December 31, 2008 - $805 or 2.9%) of total receivables. The amount credited in the operating income for the nine months ended September 30, 2009 is $114, due to amounts provided for, which were subsequently collected (total included in hotel expense for the nine months ended September 30, 2008 - $42).
Liquidity Risk
Liquidity risk arises from the possibility of not having sufficient debt and equity capital available to the REIT to fund its growth and capital maintenance programs and refinance its obligations as they arise.
There is a risk that lenders will not refinance maturing debt on terms and conditions acceptable to the REIT or on any terms at all. Management's strategy mitigates the REIT's exposure to an excessive amount of debt maturing in any one year. There is also a risk that bank lenders will not refinance the operating and bridge credit facilities on terms and conditions acceptable to the REIT or on any terms at all.
Estimated maturities of the REIT's financial liabilities for the next 24 months are:
Remainder of Nine months ending Contractual
2009 2010 September 30, 2011 Cash flows(2)
----------------------------------------------------------------------------
Mortgage payable
- principal(1) $ 3,436 $ 18,175 $ 326,380 $ 347,991
Mortgage payable
- interest(3) 13,975 55,383 31,829 101,187
Convertible
debentures
- principal - - 45,764 45,764
Convertible
debentures
- interest 3,680 11,455 7,775 22,910
Bridge loan
- principal - 7,000 - 7,000
Bridge loan
- interest 67 44 - 111
----------------------------------------------------------------------------
Total $ 21,158 $ 92,057 $ 411,748 $ 524,963
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Principal includes regular amortization and repayments.
(2) Contractual cash flows include principal and interest payments for the
next 24 months and ignore extensions options available to the REIT.
(3) Interest amounts for floating rate debt is based on interest rates
prevailing at September 30, 2009.
(4) Current liabilities satisfied in the normal course of business are not
included in the table above.
Fair Values
The fair values of the REIT's financial assets and liabilities, representing net working capital, approximate their recorded values at September 30, 2009 and December 31, 2008 due to their short-term nature.
The fair value of the REIT's long-term debt is less than the carrying value by approximately $44,611 at September 30, 2009 (December 31, 2008 - $24,476) due to changes in interest rates since the dates on which the individual mortgages were arranged. The fair value of long-term debt has been estimated based on the current market rates for mortgages with similar terms and conditions.
The fair value of the REIT's convertible debentures is less than the carrying value by approximately $20,110 at September 30, 2009 (December 31, 2008 - $78,062). The fair value of convertible debentures has been estimated based on the market rates for convertible debentures, as at September 30, 2009 and December 31, 2008.
Letters of Credit
As at September 30, 2009, the REIT has letters of credit totalling $3,923 (December 31, 2008 - $3,693) held on behalf of security deposits for various utility companies and liquor licences, and additional security for the pension liabilities.
14. Unitholders' Equity
The REIT is authorized to issue an unlimited number of units, each of which represents an equal undivided beneficial interest in any distributions from the REIT. All units are of the same class with equal rights and privileges. Per the Declaration of Trust, units cannot be issued from treasury unless the trustees consider it not to be dilutive to ensuing annual distributions of distributable income to existing unitholders.
Units Amount
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance at December 31, 2008 74,412,317 $ 768,034
Units issued under distribution reinvestment
plan 575,329 2,099
Units cancelled pursuant to normal course
issuer bid (336,549) (3,467)
Units issued on conversion of debentures 1,342 20
Units issued for vested executive
compensation plan 19,052 170
Units issued under trustee compensation plan 23,293 76
----------------------------------------------------------------------------
Balance at September 30, 2009 74,694,784 $ 766,932
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance at December 31, 2007 73,000,694 $ 757,375
Units issued under distribution reinvestment
plan 1,221,048 11,241
Units issued for vested executive
compensation plan 16,033 151
Units issued under trustee compensation plan 11,464 114
----------------------------------------------------------------------------
Balance at September 30, 2008 74,249,239 $ 768,881
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Pursuant to the REIT's normal course issuance bid (the "Bid"), the REIT purchased 345,972 units of which 336,549 units were cancelled upon purchase (December 31, 2008 - 278,500 units) at an average price of $3.46 per unit (December 31, 2008 - $3.36 per unit) and the remaining 9,423 units were transferred to the trustees of the REIT in satisfaction of a portion of their annual retainer fee. The REIT recognized $2,301 of contributed surplus (December 31, 2008 - $1,938) upon the cancellation of these units. Purchases under the Bid commenced on November 11, 2008 and will terminate on November 10, 2009.
Trustee Compensation Plan
The members of the Board of Trustees receive 50% of their annual retainer in units (based on the then current market price of the units). The REIT had set aside 100,000 units in reserve for this purpose. The balance in this reserve account at September 30, 2009 is 375 units. Under the Trustee Compensation Plan, 32,716 units were awarded during the nine months ended September 30, 2009 (nine months ended September 30, 2008 - 11,464 units), 23,293 units from the reserve and 9,423 units were bought under the Bid, during the quarter.
Executive Compensation Plan
The senior executives participate in the executive compensation plan under which units are granted by the Board of Trustees from time to time. The REIT has reserved a maximum of 1,000,000 units for issuance under the plan. The balance in this reserve account at September 30, 2009 is 780,745 units. A unit granted through the plan entitles the holder to receive, on the vesting date, the then current fair market value of the unit plus the value of the cash distributions that would have been paid on the unit if it had been issued on the date of grant assuming the reinvestment of the distribution into REIT units. The payment will be satisfied through the issuance of units.
The following table summarizes the status of the executive compensation plan at September 30, 2009, excluding granted units which have fully vested:
Unvested Units Accumulated Total
Executive units from Distributions Units
----------------------------------------------------------------------------
----------------------------------------------------------------------------
January 1, 2006 - granted 12,968 6,564 19,532
January 1, 2007 - granted 15,000 7,226 22,226
January 1, 2008 - granted 20,455 7,240 27,695
January 1, 2009 - granted 25,500 4,157 29,657
Units vested 2009 (6,484) (2,546) (9,030)
----------------------------------------------------------------------------
67,439 22,641 90,080
----------------------------------------------------------------------------
In March 2009, the Board of Trustees approved the granting of 25,500 units effective as of January 1, 2009. These units vest equally on the third and fourth anniversaries of the effective date of grant.
Distribution Reinvestment Plan ("DRIP")
The REIT has a DRIP whereby eligible Canadian unitholders may elect to have their distributions of income from the REIT automatically reinvested in additional units.
15. Per Unit Information
Three Months Ended Three Months Ended
September 30, 2009 September 30, 2008
----------------------------------------------------------------------------
Weighted Weighted
Average Units Average Units
----------------------------------------------------------------------------
(Restated, Note 21)
Income from continuing
operations - basic $ 14,539 74,593,620 $ 24,452 74,222,761
All convertible
debentures interest
and accretion - - 3,571 13,456,582
Dilutive effect of
executive compensation
plan - 87,926 - 65,743
----------------------------------------------------------------------------
Income from continuing
operations - diluted $ 14,539 74,681,546 $ 28,023 87,745,086
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine Months Ended Nine Months Ended
September 30, 2009 September 30, 2008
----------------------------------------------------------------------------
Weighted Weighted
Average Units Average Units
----------------------------------------------------------------------------
(Restated, Note 21)
Income from continuing
operations - basic $ 2,119 74,495,453 $ 28,343 73,644,529
Dilutive effect of
executive compensation
plan - 83,878 - 63,846
----------------------------------------------------------------------------
Income from continuing
operations - diluted $ 2,119 74,579,331 $ 28,343 73,708,375
----------------------------------------------------------------------------
Three Months Ended Three Months Ended
September 30, 2009 September 30, 2008
----------------------------------------------------------------------------
Weighted Weighted
Average Units Average Units
----------------------------------------------------------------------------
Net income $ 13,306 74,593,620 $ 24,534 74,222,761
All convertible
debentures interest
and accretion - - 3,571 13,456,582
Dilutive effect of
executive compensation
plan - 87,926 - 65,743
----------------------------------------------------------------------------
Net income $ 13,306 74,681,546 $ 28,105 87,745,086
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine Months Ended Nine Months Ended
September 30, 2009 September 30, 2008
----------------------------------------------------------------------------
Weighted Weighted
Average Units Average Units
----------------------------------------------------------------------------
Net (loss) income $ (6,121) 74,495,453 $ 24,955 73,644,529
Dilutive effect of
executive
compensation plan - 83,878 - 63,846
----------------------------------------------------------------------------
Net (loss) income $ (6,121) 74,579,331 $ 24,955 73,708,375
----------------------------------------------------------------------------
----------------------------------------------------------------------------
All of the convertible debentures have been included in the three months ended September 30, 2008 per unit calculations above, but have been excluded in the three and nine months ended September 30, 2009 and the nine months ended September 30, 2008 calculations because the impact of the conversions would not be dilutive.
16. Distributions to Unitholders
Distributions to unitholders are computed based on distributable income as defined by the Declaration of Trust.
Distributable income is a measure of cash flow that is not defined under Canadian GAAP and, accordingly, may not be comparable to similar measures used by other issuers.
Distributable income is defined as net income in accordance with Canadian GAAP, subject to certain adjustments as set out in the Declaration of Trust, including adding back depreciation and amortization, amortization of fair value debt adjustment and future income tax (recovery) expense, excluding any gains or losses on the disposition of real property and future income taxes, deducting the amount calculated, at 3% to 5% of hotel revenues, for the reserve for the replacement of furniture, fixtures and equipment and capital improvements, the accretion on convertible debentures that is included in the computation of net income, and making any other adjustments determined by the trustees of the REIT in their discretion. As outlined in the Declaration of Trust, the REIT is required to distribute monthly to unitholders not less than one-twelfth of eighty percent (80%) of distributable income of the REIT for the calendar year.
Three Three Nine Nine
Months Ended Months Ended Months Ended Months Ended
September 30 September 30 September 30 September 30
2009 2008 2009 2008
----------------------------------------------------------------------------
Net income (loss) $ 13,306 $ 24,534 $ (6,121) $ 24,955
----------------------------------------------------------------------------
Add (deduct)
Depreciation and
amortization 22,784 22,370 68,252 66,789
Future income tax
(recovery) expense (604) 241 (8,385) (4,516)
Non-cash portion
of mortgage
interest expense 412 280 1,222 1,049
Non-cash portion
of convertible
debebtures
interest and
accretion 736 684 2,263 2,094
Reserve for
replacement of
furniture,
fixtures,
equipment,
capital
improvements (7,113) (7,982) (19,103) (21,322)
Net writedown of
and gain on
sale of assets
held for sale 1,250 300 7,237 2,664
Non-cash executive
and trustee
compensation 48 165 220 465
Deferred land
lease expense
and retail
lease income, net 26 6 30 22
----------------------------------------------------------------------------
17,539 16,064 51,736 47,245
----------------------------------------------------------------------------
Distributable income 30,845 40,598 45,615 72,200
----------------------------------------------------------------------------
Distributions
Required under the
Declaration of Trust 24,676 32,478 36,492 57,760
Discretionary (12,237) (11,633) 3,865 4,436
----------------------------------------------------------------------------
Distributions paid
or payable 12,439 20,845 40,357 62,196
----------------------------------------------------------------------------
Distributions less
than distributable
income $ (18,406) $ (19,753) $ (5,258) $ (10,004)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
17. Management Agreements
Westmont Hospitality Canada Limited
On July 26, 2002, the REIT entered into a Management Agreement for hotel management and accounting services and an Administrative Services Agreement (the "Agreements") with Westmont Hospitality Canada Limited ("Westmont"). Westmont is considered a related party to the REIT as a result of its ability to exercise significant influence through the Agreements. Westmont manages all but fifteen of the REIT's hotels.
The Agreements have an initial term of ten years with two successive five-year renewal terms, subject to the consent of Westmont and approval of the REIT. On September 15, 2008, the REIT exercised the first five-year extension term on the Agreements, extending the expiration to July 25, 2017. The REIT's independent trustees approved the extension following a review by third party hospitality consulting firms based in Canada. The Agreements provide for the payment of an annual management fee to Westmont in an amount equal to 3.375% of gross revenues during the term of the Agreements, including renewal periods. In addition, Westmont may receive an annual incentive fee if the REIT achieves distributable income in excess of $1.25 per unit. No management incentive fees were paid during the periods presented.
Accounting fees are calculated based on a fixed charge per room which increases by the Consumer Price Index change annually. For assets sold which are managed by Westmont, the REIT pays a termination fee equal to the fees paid based on trailing twelve months revenues.
In addition to the base management fee and incentive fee, Westmont is entitled to fees based on a percentage of the cost of purchasing certain goods and supplies and certain construction costs and capital expenditures, fees for accounting services, reasonable out-of-pocket costs and expenses (other than general and administrative expenses or overhead costs except as otherwise provided in the Administrative Services Agreement) and project management and general contractor service fees related to hotel renovations managed by Westmont.
Also, for certain hotels owned by InnVest and not managed by Westmont, Westmont is entitled to an asset management fee based on a fixed percentage of the purchase price of the hotel or a fixed percentage of hotel operating income, after the reserve for replacement of furniture, fixtures and equipment and capital improvements, subject to an annual minimum fee.
During the three and nine months ended September 30, 2009 and 2008, the fees charged to the REIT pursuant to the Agreements were as follows:
Three Three Nine Nine
Months Ended Months Ended Months Ended Months Ended
September 30 September 30 September 30 September 30
2009 2008 2009 2008
----------------------------------------------------------------------------
(Restated, (Restated,
Note 21) Note 21)
Fees from
continuing
operations:
Management fees $ 3,259 $ 3,563 $ 8,512 $ 9,433
Asset management
fees (included
in management
fee expense) 506 504 1,518 1,737
Accounting
services
(included in
hotel operating
expenses) 557 552 1,672 1,653
Administrative
services
(included in
corporate and
administrative
expenses) 112 130 341 336
Project
management and
general
contractor
services
(capitalized to
hotel properties) 126 151 507 483
Fees from
discontinued
operations 167 497 589 1,019
----------------------------------------------------------------------------
$ 4,727 $ 5,397 $ 13,139 $ 14,661
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In addition, salaries of REIT employees paid by Westmont and reimbursed by the REIT were $238 (September 30, 2008 - $132). Included in accounts payable and accrued liabilities are amounts owed to Westmont at September 30, 2009 totalling $1,537 (December 31, 2008 - $1,484).
Other Management Agreements
The REIT entered into management agreements with Hilton Canada Co. ("Hilton") to manage the two Hilton hotels acquired in 2006. The agreements provide for the payment of an annual management fee to Hilton in an amount equal to 2.5% until December 31, 2008 and then 3.0% of gross revenues during the balance of the term of the agreements. The agreements mature on December 31, 2026. For the three and nine months ended September 30, 2009, total management fees paid to Hilton were $335 and $855, respectively (September 30, 2008 - $374 and $858, respectively).
The REIT assumed the hotel management agreements with Delta Hotels Limited ("Delta"), dated January 1, 2003 when two Delta hotels were purchased in 2006. The agreements provide for the payment of an annual management fee to Delta in an amount equal to 3% of total revenues from the hotel, plus 0.5% of total revenues from the hotel if the hotel's annual gross operating profit is greater than the budgeted gross operating profit. The agreements mature on December 31, 2015, with two ten-year extension options. For the three and nine months ended September 30, 2009, total management fees paid to Delta were $116 and $389, respectively (September 30, 2008 - $116 and $382, respectively).
With the acquisition of the Legacy Portfolio in September 2007, InnVest assumed the existing hotel management agreements with Fairmont Hotels and Resorts ("Fairmont") or Delta for each of the Legacy Portfolio hotels. The agreements provide for the payment of a base management fee and an incentive management fee to either Fairmont or Delta. The REIT also assumed a portfolio incentive fee in which 11 of the 25 hotels of Legacy Hotels Real Estate Investment Trust participated, of which six are now owned or leased by InnVest. The base management fee is equal to 3% of total hotel revenues for nine of the hotels and 2% of total hotel revenues for the remaining two hotels. The agreements mature from December 31, 2010 to December 31, 2047. The incentive management fees and portfolio incentive fees are calculated based on net operating income from hotel operations plus amortization less the capital replacement reserve, in excess of a threshold. For the three and nine months ended September 30, 2009, total management fees paid for the Legacy Portfolio were $1,967 and $5,765, respectively (September 30, 2008 - $3,203 and $8,338, respectively).
18. Segmented Financial Information
The REIT operates hotel properties throughout Canada. Information related to these properties by geographic segment is presented below. The REIT primarily evaluates operating performance based on hotel operating income. All key financing, investing and capital allocation decisions are centrally managed. The comparatives have been restated to exclude discontinued operations and assets held for sale at September 30, 2009.
Western Ontario Quebec Atlantic Total
----------------------------------------------------------------------------
Three months ended
September 30, 2009
Hotel revenues $ 41,545 $ 59,021 $ 37,999 $ 30,569 $ 169,134
Hotel expenses 26,202 42,677 26,224 20,110 115,213
----------------------------------------------------------------------------
Hotel operating
income $ 15,343 $ 16,344 $ 11,775 $ 10,459 $ 53,921
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended
September 30, 2008
(Restated, Note 21)
Hotel revenues $ 47,006 $ 65,859 $ 43,826 $ 32,032 $ 188,723
Hotel expenses 31,259 44,840 28,089 20,641 124,829
----------------------------------------------------------------------------
Hotel operating
income $ 15,747 $ 21,019 $ 15,737 $ 11,391 $ 63,894
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine months ended
September 30, 2009
Hotel revenues $ 118,020 $ 164,019 $ 98,053 $ 72,721 $ 452,813
Hotel expenses 82,460 125,402 76,263 54,765 338,890
----------------------------------------------------------------------------
Hotel operating
income $ 35,560 $ 38,617 $ 21,790 $ 17,956 $ 113,923
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine months ended
September 30, 2008
(Restated, Note 21)
Hotel revenues $ 132,596 $ 180,559 $ 111,368 $ 77,181 $ 501,704
Hotel expenses 91,975 130,156 80,314 56,615 359,060
----------------------------------------------------------------------------
Hotel operating
income $ 40,621 $ 50,403 $ 31,054 $ 20,566 $ 142,644
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Western Ontario Quebec Atlantic Total
----------------------------------------------------------------------------
Capital expenditures
on hotel properties,
Three months ended
September 30, 2009 $ 1,630 $ 2,317 $ 471 $ 886 $ 5,304
Three months ended
September 30, 2008
(Restated, Note 21) $ 2,207 $ 3,527 $ 2,325 $ 1,488 $ 9,547
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital expenditures
on hotel properties,
Nine months ended
September 30, 2009 $ 6,997 $ 6,508 $ 2,824 $ 2,224 $ 18,553
Nine months ended
September 30, 2008
(Restated, Note 21) $ 5,370 $ 8,445 $ 8,246 $ 5,685 $ 27,746
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Hotel properties
September 30, 2009 $ 501,101 $ 624,097 $ 391,121 $ 237,262 $1,753,581
December 31, 2008
(Restated, Note 21) $ 512,032 $ 637,791 $ 406,931 $ 236,074 $1,792,828
----------------------------------------------------------------------------
----------------------------------------------------------------------------
19. Total Revenues
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2009 2008 2009 2008
----------------------------------------------------------------------------
(Restated, (Restated,
Note 21) Note 21)
Hotel revenues $ 169,134 $ 188,723 $ 452,813 $ 501,704
Other business
income
(Note 20) 3,372 4,039 8,815 9,768
----------------------------------------------------------------------------
$ 172,506 $ 192,762 $ 461,628 $ 511,472
----------------------------------------------------------------------------
----------------------------------------------------------------------------
20. Other Business Income
Three Three
Franchise Retail/ Retirement Months Ended Months Ended
Business Office Residence September 30, 2009 September 30, 2008
----------------------------------------------------------------------------
Revenues $ 2,433 $ 676 $ 263 $ 3,372 $ 4,039
Expenses 1,271 296 178 1,745 2,176
----------------------------------------------------------------------------
Other
business
income,
net $ 1,162 $ 380 $ 85 $ 1,627 $ 1,863
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine Nine
Franchise Retail/ Retirement Months Ended Months Ended
Business Office Residence September 30, 2009 September 30, 2008
----------------------------------------------------------------------------
Revenues $ 5,963 $ 2,042 $ 810 $ 8,815 $ 9,768
Expenses 3,550 912 523 4,985 5,655
----------------------------------------------------------------------------
Other
business
income,
net $ 2,413 $ 1,130 $ 287 $ 3,830 $ 4,113
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Other business income includes franchise business income, which is InnVest's 50% share of CHC's operations, and the income from the other real estate properties.
21. Assets Held for Sale and Discontinued Operations
Five hotel properties, four in Ontario and one in Quebec, were reclassified as assets held for sale in the first quarter of 2009. The operating results of these five hotels are presented as discontinued operations for the three and nine months ended September 30, 2009 and 2008. The prior year comparative balances have been restated to reflect these operations as discontinued operations. During the nine months ended September 30, 2009, the REIT took a write-down of $7,237 on these assets.
On July 29, 2009, the REIT sold one Ontario hotel that was held for sale for $3,300 less closing costs. No gain or loss was recorded upon sale as the asset was written down to its realizable value. Debt owing of $2,046 was paid out of the proceeds. As part of this transaction, the REIT gave a vendor-take-back mortgage of $500 (see Note 6).
Three Ontario hotel properties and one Quebec hotel property were reclassified as assets held for sale on December 18, 2007 and are included in the discontinued operations for the three and nine months ended September 30, 2008. All but one Ontario hotel were sold during the year ended December 31, 2008. On April 1, 2009, the REIT sold the remaining Ontario hotel property held for sale since 2007, for $4,100 less closing costs. No gain or loss was recorded upon sale as the asset was written down to its realizable value. As part of this transaction, the REIT gave a vendor-take-back mortgage of $2,700 (see Note 6).
Discontinued operations for the three and nine months ended September 30, 2009 and 2008 are as follows:
Three Three Nine Nine
Months Ended Months Ended Months Ended Months Ended
September 30 September 30 September 30 September 30
2009 2008 2009 2008
----------------------------------------------------------------------------
Hotel revenues $ 3,866 $ 6,926 $ 12,071 $ 20,342
----------------------------------------------------------------------------
Hotel expenses
Operating expenses 2,845 4,580 8,976 13,794
Property taxes,
rent and insurance 751 1,120 2,725 3,599
Management fees 132 234 409 686
----------------------------------------------------------------------------
3,728 5,934 12,110 18,079
----------------------------------------------------------------------------
Hotel operating
income (loss) 138 992 (39) 2,263
----------------------------------------------------------------------------
Interest on mortgages 121 (76) 434 940
Depreciation and
amortization - 686 530 2,047
----------------------------------------------------------------------------
121 610 964 2,987
----------------------------------------------------------------------------
Income (loss)
from discontinued
operations 17 382 (1,003) (724)
----------------------------------------------------------------------------
Gain on sale of
assets held for
sale - 1,260 - 1,260
Writedown of
assets held for
sale 1,250 (1,560) 7,237 (3,924)
----------------------------------------------------------------------------
1,250 (300) 7,237 (2,664)
----------------------------------------------------------------------------
Net (loss) income
from discontinued
operations $ (1,233) $ 82 $ (8,240) $ (3,388)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
22. Subsequent Event
On October 14, 2009, the REIT closed its announced public offering of $50,001, on a bought deal basis, of 12,658,500 units at a price of $3.95 per unit, for net proceeds of $47,601.
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