INNVEST REIT INVESTOR PRESENTATION. January 2013

Transcription

1 INNVEST REIT INVESTOR PRESENTATION January

2 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, 2011, which is available on SEDAR. FORWARD-LOOKING STATEMENTS 2

3 New, Energized 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 world-wide real estate acquisitions LEADERSHIP 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 3

4 Where Are We Going? InnVest has owned most of its assets for 10 years; we have undertaken a comprehensive review of our portfolio to position it for the long-term We have re-evaluated every individual hotel to assess its long-term potential Our objective is to improve the overall quality and geographic diversification of the portfolio to maximize our cash flow potential and stability Focus our resources on assets with the highest return potential Fortify our position in key assets through focused capital investments STATE OF PLAY 4

5 Investment Rational Compelling Valuation Favorable Industry Fundamentals Significant Operational Upside Implied value per key of $84k; significant discount to replacement cost Trading at historical AFFO discount on recovering cash flow Presently yielding 9+% on sustainable distributions 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 Significant margin opportunity Compelling upside from strategic renovation plan and repositionings Continuing industry growth and recovery Investment Highlights Scale & Diversification Management Experience Distribution Security 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 Leading hotel management team with global industry experience Aligned ownership interests with 9% insider ownership Since inception, InnVest has distributed in excess of $550M to its unitholders $0.40 annual distribution; 89% LTM payout ratio 5

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7 INNVEST KEY INITIATIVES Strategic Plan to Create Value Through Improving HOI 2012 I - Disposition of Non-Core Assets Sale of 24 assets over 24 months (single asset & portfolio sales) Generate net proceeds of $60M Improve concentration in high-quality, stable assets STRATEGIC OBJECTIVES Comprehensive Asset Review Process Asset-by-asset review Market Dynamics Capital Needs Core/Non-Core Designation Complete II - Implement Focused Capital Plan III - Strengthen our Balance Sheet IV - Operational Leverage & Industry Recovery Invest $130M over 24 months Renovate and reposition Core portfolio Reduce leverage Build liquidity Canadian lodging industry recovering Leverage renovated product to grow RevPAR and gain market share Majority of Core portfolio will be renovated Complete relaunch of the Comfort Inn product Target below 60% debt to GBV Build liquidity for future market cycles Gain market share and improve margins 7

8 Portfolio Repositioning Improves Operating Performance Core assets consistently have stronger key operating metrics vs Non-Core Assets CORE vs NON-CORE PORTFOLIO METRICS LTM Q ADR($) Occ(%) RevPAR($) Revenue/ Room ( 000s) Core Non-Core 7 3 HOI/Room ( 000s) Core asset characteristics: 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 I - Disposition of Non-Core Assets HOI = hotel operating income after 4% capital reserve 8

9 Portfolio Repositioning Improves Overall Quality Non-core assets represent 18% of rooms inventory but only 7% of LTM HOI Hotels Keys LTM HOI ($ millions) Region (By Key) (2) West Atlantic Current Portfolio ,769 $112 (1) Ontario Non-Core 23 3,131 $8 Atlantic 10% Ontario West 10% 28% West INN Pro Forma Atlantic ,638 $104 Ontario I - Disposition of Non-Core Assets Quebec 52% Quebec Quebec 1 As at January 29, LTM as at September 30,

10 Renovating Core Portfolio TOTAL CAPITAL INVESTED $ millions Renovated product will position InnVest to gain market share during industry upcycle and shift business mix to higher rated segments $130M capital program over the next two years Funded through: $50M FF&E reserve $60M asset sales $20M incremental financing II FOCUSED CAPITAL INVESTMENT PROGRAM F 13P 14P 10

11 Capital Projects in the Pipeline 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 Delta Winnipeg Improving market conditions Room renovation Public space renovation Delta PEI Capitalize on $24M investment in adjacent convention space Room renovation Upgrade lobby and F&B offering Delta Barrington Capitalize on growing market with expanding shipbuilding activity Room renovation II FOCUSED CAPITAL INVESTMENT PROGRAM London Hotel & Suites Maximize real estate value Conversion to branded product Quality Hotel Ottawa Reposition product offering in an improving market area Room renovation Public space upgrades 11

12 Strengthening our Balance Sheet Debt Leverage 65% 60% 55% Target leverage reduction through asset sales and regular principal amortization Reduce leverage below 60% III STRENGTHEN OUR BALANCE SHEET 50% Q3 12 (1) Net Debt Repayment Pro Forma 1 Includes debt repayment from asset sales and principal repayment, net of incremental financing for capital program 12

13 Proactive Management of our Balance Sheet Debt Maturity Schedule $ millions $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 $75 $70 $302 $348 $36 $75 $78 $50 $ Mortgage Debentures Refinanced over $380M of mortgage maturities in 2012 Leverage: 63.5% WA Interest: 5.6% WA Term: 3.2 yrs III STRENGTHEN OUR BALANCE SHEET 13

14 Industry Profitability Well Below Peak Levels Recoveries Have Historically Exceeded Prior Peaks Canadian Lodging Industry $90 $85 $80 $75 $70 $65 $60 $55 $50 $45 Recession 9/11 SARS RevPAR Recovery Recession $14 $12 $10 $8 $6 $4 $2 Lodging industry is recovering Profitability improving but well below peak levels Repositioned portfolio will position InnVest to further capitalize on industry growth IV OPERATIONAL UPSIDE $40 $0 Industry Net Income Per Room ($000)* RevPAR Source: PKF Consulting * Net income per room expressed after 4% management fee and 4% reserve 14

15 Considerable Operating Leverage in a Recovery RevPAR Growth Potential HOI Margin Opportunity $80 $70 $77.71 $ % 20% 22.9% IV OPERATIONAL UPSIDE 18.3% $60 15% $50 LTM Q Peak 10% LTM Q Peak RevPAR increase of 1% = $3M Revenue HOI margin increase of 1% = $6M HOI = hotel operating income after 4% capital reserve 15

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17 Largest Publicly-Traded Canadian Hotel Real Estate Portfolio WESTERN 3,280 Rooms WESTERN 19 Hotels 3,280 Rooms 19 Hotels 139 hotels distributed and diversified across Canada ONTARIO 7,657 Rooms 64 ONTARIO Hotels 7,991 Rooms 67 Hotels 136 hotels distributed and diversified across Canada QUEBEC 4,145 Rooms 31 QUEBEC Hotels 4,145 Rooms 31 Hotels ATLANTIC 2,687 Rooms ATLANTIC 22 Hotels 2,687 Rooms 22 Hotels Company Overview 17

18 Portfolio Diversification InnVest s portfolio has strong geographic, segment and brand diversification Geographic Diversification (% of Revenues) Segment Diversification (% of Revenues) COMPANY OVERVIEW Atlantic 15% Ontario Limited Service 36% 34% 27% 66% Western 22% Quebec Full Service For the nine months ended September 31,

19 Portfolio Diversification Affiliated with leading operators and strong global brands Operator Diversification (% of Total Hotel Revenues) Brand Diversification COMPANY OVERVIEW Fairmont Hilton 15% 6% Westmont Hospitality Group 20% 59% Delta Hotels For the nine months ended September 31,

20 Choice Hotels Canada COMPANY OVERVIEW 50% ownership of Choice Hotels Canada Master Franchisor for Canada Approximately 300 locations nationwide InnVest is the largest owner of Choice-branded hotels in Canada (88 hotels) Investment benefits as both owner and franchisor: Strategic partnership with Choice Canada Influence over brand standards & future development 20

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22 Leading Hotel Investment Opportunity in Canada Financial Overview Recent Unit Price $4.23 (24/01/2013) Number of Units 93.6M Total Enterprise Value $1.5B Debt / Gross Asset Value 63.5% Debt Wtd. Avg. Maturity 3.2 years Debt Wtd. Avg. Interest 5.6% Annual Distribution $0.40 Distribution yield 9.5% LTM Payout Ratio 89% Portfolio Overview Total Gross Asset Value $1.7B # of Hotels 136 # of Rooms 17,769 # of Brands 14 # of Property Managers 4 YTD Occupancy 63.2% YTD ADR $ YTD RevPAR $75.26 YTD RevPAR Growth +2.2% Valuation Metrics Based on results at September 30, 2012 where applicable 22

23 LHO CHSP HST SHO HT DRH AHT HPT INN INN.UN Compelling Valuation DIVIDEND YIELD 10% 5% 4.6% 4.8% 3.8% 4.1% 3.4% 3.0% 2.1% 7.3% 9.5% 2014 AFFO MULTIPLE Valuation Metrics 0% 0 Priced as of Jan 24, 2013 Source:SNL Financial ENTERPRISE VALUE PER KEY ($000s) Priced as of Jan 24, 2013 Source:SNL Financial 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 A $10,000 change in per key value results in a value per unit increase of almost $2 0 Priced as of Jan 24, 2013 Source: SNL Financial for comparable companies, internal sources for INN.UN 23

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25 Case Study Fairmont Palliser, Calgary Value-Creation Strategy Leverage robust market growth Invested $4.2M in 2011 to renovate and expand Gold Floor room offerings (executive floor) Capture high end customers to further increase ADR Results Hotel RevPAR penetration improved over 6pts to 111% since 2010 Gold floor product RevPAR has increased over 20% since 2010 led by ADR gains Hotel has exceeded prior peak 2008 RevPAR and HOI APPENDICES CASE STUDY 25

26 Case Study Holiday Inn Laval Value-Creation Strategy Reposition hotel to maximize real estate value Results Invested $2.9M to rebrand the hotel from Radisson to Holiday Inn in November % RevPAR growth achieved since 2009 Market share increased from 88% (2009) to 100% (2012) HOI increased almost 90% since 2009 APPENDICES CASE STUDY 100% RevPAR Index 100% 100% 95% 90% 91% 88% 85% 84% 80% 75% Source: Smith Travel Research 26