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INNVEST REIT
November 2013
1
INVESTOR PRESENTATION
FO
RW
AR
D-LO
OK
ING
STA
TEMEN
TS
Statements contained in this presentation that are not historical facts may include forward-looking statements which involve risk and uncertainties, which could cause actual results to differ materially. These factors are discussed in InnVest REIT’s Annual Information Form for the year ended December 31, 2012, which is available on SEDAR.
2
LEA
DER
SHIP
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Experienced Senior Executive Team
Anthony Messina, President and CEO
•More than 20 years experience in the real estate industry including financial management, hotel development/ownership, asset management and acquisitions.
•Previously served as VP for a global real estate division of the Caisse de dépot et placement du Québec, leading its world-wide real estate acquisitions
George Kosziwka, CFO
•Over 20 years experience in the lodging real estate industry
•Served as VP Finance since the REIT’s inception and held senior finance executive positions for its predecessors
STA
TE OF P
LAY
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Where Are We Going?
• InnVest has owned most of its assets for 10 years; in late 2012 the REIT undertook a comprehensive review of its portfolio to position it for the long-term
• Re-evaluated every individual hotel to assess its long-term potential
• Objective is to improve the overall quality and geographic diversification of the portfolio to maximize our cash flow potential and stability
• Focus resources on assets with the highest return potential
• Fortify InnVest’s position in key assets through focused capital investments
Investm
ent H
ighligh
ts
5
Investment Rational
Distribution Security • Since inception, InnVest has distributed over $575M to its unitholders • $0.40 annual distribution; 83% LTM payout ratio
Favorable Industry Fundamentals
• Hotel demand growth expected to increase and exceed supply growth, resulting in occupancy and ADR growth
• Industry has significant operating leverage in a growing economy
Scale & Diversification • Diversified portfolio across geography, segment and brand • Canada’s largest publicly-traded hotel real estate owners • Ability to leverage the portfolio’s size to achieve operating efficiencies
Significant Operational Upside
• Significant margin opportunity • Compelling upside from strategic renovation plan and repositionings • Continuing industry growth and recovery
Compelling Valuation • Implied value per key of $87k; significant discount to replacement cost • Trading at historical AFFO discount on recovering cash flow • Presently yielding ~8.9% on sustainable distributions
Management Experience
• Leading hotel management teams (Westmont, Fairmont, Delta, Hilton) with global industry experience
• Aligned ownership interests with 9% insider ownership
STR
ATEG
IC OB
JECTIV
ES
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• Sale of 24 assets over 24 months (single asset & portfolio sales)
• Generate gross proceeds of $185M; net proceeds of $60M
I – Portfolio Repositioning
• Invest $130M over 24 months
• Renovate and reposition Core portfolio
II - Implement Focused Capital
Plan
• Reduce leverage
• Build liquidity
III - Strengthen our Balance Sheet
• Canadian lodging industry recovering • Leverage renovated product to grow
RevPAR and gain market share
IV – Improve Operations
Improve concentration in high-quality, stable assets
Majority of Core
portfolio will be renovated
Complete re-launch
of the Comfort Inn product
Target below 60%
debt to GBV
Build liquidity for future market cycles
Gain market share and improve margins
INN
VES
T K
EY IN
ITIA
TIV
ES
2012... …2015 Strategic Plan to Create Value Through Improving HOI
2015
I – Po
rtfolio
Rep
ositio
nin
g Portfolio Repositioning Improves Operating Performance
Core asset characteristics:
•Accretive to cost of capital
•Located in stable markets
with favorable
supply/demand dynamics
•Ability to achieve fair
market share within
designated comp set
•Favorable growth prospects
through capital investment
or repositioning
Core assets consistently have stronger key operating metrics vs Non-Core Assets
CORE vs NON-CORE PORTFOLIO METRICS
RevPAR ($) Revenue/ Room (‘000s)
GOP/Room (‘000s)
Annual 2012
7
33% premium
>2x
8
On Track to Achieve Divestiture Target Objectives
• Closed on the sale of 6 properties in 2013
• Generated gross sales of over $93M
• Repaid $62M of mortgage debt
• Generated net proceeds of $18M
• Achieved cap rates of 3%
• Assets have traded on real estate
values
• Continued progress expected with 6 assets
under contract and 11 others being actively
marketed
I – Po
rtfolio
Rep
ositio
nin
g
Have completed over 50% of our targeted gross sales program
II –CA
PITA
L INV
ESTMEN
T PR
OG
RA
M
9
TOTAL CAPITAL INVESTED
$43
$25
$39
$56
$37
$65 $65
$ millions
‘08 ‘09 ‘10 ‘11 ’12 ‘13P ‘14P
$130M capital program
over the next two years
Funded through:
• $50M FF&E reserve
• $60M asset sales
• $20M incremental
convertible
debenture financing
in Feb 2013
Renovating Core Portfolio
Renovated product will position InnVest to gain market share during industry upcycle and shift business mix to higher rated segments
II – CA
PITA
L INV
ESTMEN
T PR
OG
RA
M
10
Capital Projects in the Pipeline
Delta Winnipeg
Improving market conditions
• Room renovation
• Public space renovation
Delta PEI
Capitalize on $27M
investment in adjacent
convention space
• Room renovation
• Upgrade lobby and F&B
offering
Comfort Inn Portfolio
Revitalize portfolio
• Breakfast room expansion
• Room renovations
• Lobby and exterior
enhancements
Fairmont Palliser
Capitalize on market opportunity
• Public space upgrades
• Room renovation
• Lobby and F&B
enhancements
Sheraton Suites Eau Claire
Capitalize on market opportunity
• Room renovation
• Public space renovation
• Meeting space upgrades
London Hotel & Suites
Maximize real estate value
• Conversion to Holiday Inn
II – CA
PITA
L INV
ESTMEN
T PR
OG
RA
M
11
Comfort Inn Repositioning
Expect to complete 30 Comfort Inn renovations in 2013; balance in 2014
III – STR
ENG
THEN
OU
R BA
LAN
CE S
HEET
12
Proactive Management of our Balance Sheet
Proforma Debt Maturity Schedule
$70 $36
$75
$165
$66$46
$284
$251
Mortgages Debentures
$ millions
‘13 ‘14 ‘15 ‘16 ’17 ‘18
Recently announced over
$250 million of 2014
refinancings, significantly
improving rate and term
Targeting debt reduction
through 2015 to ensure
sufficient liquidity to
withstand market cycles
Leverage: 64.0%
WA Interest: 5.4%
WA term: 4.5 years
Over $250 million of 2014 mortgage refinancings announced
IV – IM
PR
OV
E OP
ERA
TION
S
13
Industry Profitability Well Below Peak Levels
Recoveries Have Historically Exceeded Prior Peaks
• Lodging industry is
recovering
• Profitability
improving but well
below peak levels
• Repositioned
portfolio will position
InnVest to further
capitalize on
industry growth
$0
$2
$4
$6
$8
$10
$12
$14
$40
$45
$50
$55
$60
$65
$70
$75
$80
$85
$90
Industry Net Income Per Room ($000)* RevPAR
RevPAR
Recovery
Recession
9/11
SARS
Recession
Source: PKF Consulting
* Net income per room expressed after 4% management fee and 4% reserve
Canadian Lodging Industry
IV – IM
PR
OV
E OP
ERA
TION
S
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Considerable Operating Leverage in a Recovery
HOI margin increase of 1% = $6M RevPAR increase of 1% = $3M Revenue
RevPAR Growth Potential
$73.65
$77.71
2012 2008 Peak
HOI Margin Opportunity
18.1%
22.9%
2012 2008 Peak
HOI = hotel operating income after 4% capital reserve
IV – IM
PR
OV
E OP
ERA
TION
S
15
Q3 2013 2012 Change
Occupancy 71.5% 72.2% (0.7pts)
ADR $123.23 $122.28 0.8%
RevPAR $88.16 $88.32 (0.2%)
Revenues $161.1M $173.4M ($12.2M)
Gross operating profit $47.5M $50.1M ($2.6M)
GOP margin 29.5% 28.9% 0.6%
FFO $31.5M $30.9M $0.6M
Distributable income $26.5M $25.3M $1.2M
FFO per unit $0.270 $0.293 ($0.023)
Distributable income per unit $0.226 $0.239 ($0.013)
Q3 2013 Operating Results Review
• Q3 RevPAR growth
of 2% excluding
assets undergoing
renovations
• Asset sales
resulting in YOY
top-line declines
• Aggressively
managing costs to
increase efficiencies
and improve
margins
Occupancy, ADR and RevPAR are based on same-store portfolio
IV – IM
PR
OV
E OP
ERA
TION
S
16
YTD Q3 2013 2012 Change
Occupancy 63.6% 63.8% (0.2pts)
ADR $120.78 $120.15 0.5%
RevPAR $76.81 $76.72 0.1%
Revenues $446.2M $464.3M ($18.1M)
Gross operating profit $104.4M $108.8M ($4.4M)
GOP margin 23.4% 23.4% -
FFO $51.4M $51.9M ($0.6M)
Distributable income $38.0M $37.4M $0.6M
FFO per unit $0.499 $0.531 ($0.032)
Distributable income per unit $0.377 $0.390 ($0.013)
YTD 2013 Operating Results Review
• Asset sales
resulting in YOY
top-line declines
• Aggressively
managing costs to
increase efficiencies
and improve
margins
Occupancy, ADR and RevPAR are based on same-store portfolio
INNVEST REAL ESTATE INVESTMENT TRUST
Co
mp
any O
verview
18
ONTARIO
7,991 Rooms
67 Hotels
QUEBEC
4,145 Rooms
31 Hotels
ATLANTIC
2,687 Rooms
22 Hotels
WESTERN
3,280 Rooms
19 Hotels
139 hotels distributed and diversified across Canada
ONTARIO 62 hotels
7,481 rooms
QUEBEC 30 hotels
3,434 rooms
ATLANTIC 22 hotels
2,687 rooms
WESTERN 17 hotels
2,977 rooms
131 hotels distributed and diversified across Canada
Largest Publicly-Traded Canadian Hotel Real Estate Portfolio
CO
MP
AN
Y OV
ERV
IEW
19
35%
22%
28%
15% Ontario
Atlantic
Western Quebec
Portfolio Diversification
InnVest’s portfolio has strong geographic, segment and brand diversification
Geographic Diversification (% of 2012 Revenues)
34%
66%
Segment Diversification (% of 2012 Revenues)
Full Service
Limited Service
CO
MP
AN
Y OV
ERV
IEW
20
58%
20%
15%
7%
Portfolio Diversification
Affiliated with leading operators and strong global brands
Operator Diversification (% of Total Hotel Revenues) Brand Diversification
For the 2012 annual period
CO
MP
AN
Y OV
ERV
IEW
21
Choice Hotels Canada
• 50% ownership of Choice Hotels Canada – Master Franchisor for Canada
• Over 300 locations nationwide
• InnVest is the largest owner of Choice-branded hotels in Canada (85 hotels)
• Investment benefits as both owner and franchisor:
• Strategic partnership with Choice Canada
• Influence over brand standards & future development
INNVEST REAL ESTATE INVESTMENT TRUST
Valu
ation
Metrics
23
Leading Hotel Investment Opportunity in Canada
Portfolio Overview
Total Assets $1.3B
# of Hotels 131
# of Rooms 16,579
# of Brands 14
# of Property Managers 4
Q3 YTD Occupancy 63.6%
Q3 YTD ADR $120.78
Q3 YTD RevPAR $76.81
Q3 YTD RevPAR Growth +0.1%
Based on results at November 18, 2013 where applicable
Financial Overview
Recent Unit Price $4.48 (18/11/2013)
Number of Units 93.8M
Total Enterprise Value $1.4B
Debt / Gross Asset Value 64.0%
Mortg Wtd. Avg. Maturity 4.5 years
Mortg Wtd. Avg. Interest 5.4%
Annual Distribution $0.40
Distribution yield 8.9%
Q3 TTM Payout Ratio 83%
Valu
ation
Metrics
24
Compelling Valuation
Legend: INN.UN – InnVest REIT SHO – Sunstone Hotel Investors HST – Host Hotels and Resorts LHO – LaSalle Hotel Properties DRH – Diamond Rock Hospitality AHT – Ashford Hospitality Trust CHSP – Chesapeake Lodging Trust HT – Hersha Hospitality Trust INN – Summit Hotel Properties HPT – Hospitality Properties Trust
DIVIDEND YIELD 2014 AFFO MULTIPLE
ENTERPRISE VALUE PER KEY ($000s)
A $10,000 change in per key
value results in a value per unit
increase of almost $2
Priced as of November 18, 2013
Source:SNL Financial
Priced as of November 18, 2013
Source:SNL Financial
Priced as of November 18, 2013
Source: SNL Financial for comparable companies, internal sources for INN.UN
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