FIRST QUARTER REPORT 2009 1 Letter to unitholders The lodging industry continues to experience a slowdown in demand, reflecting broader economic trends and their impact on discretionary spending for travel. Diligent cost controls coupled with efforts to drive room rates throughout the portfolio helped mitigate the impact of reduced occupancies across the portfolio. Looking ahead, we continue to expect 2009 to be a difficult year for the hospitality sector. Our objectives through this period are to solidify our balance sheet liquidity and effectively manage our assets. First quarter earnings are not reflective of anticipated results for the annual period given the seasonality of operations. The first quarter is typically the weakest earnings period for the Trust. First quarter operating highlights p Average daily rate growth of 0.8% was offset by a 3.6 point decline in occupancy driven by the deteriorating economic environment and its impact on discretionary travel demand. As a result, revenue per available room (“RevPAR”) on a same-hotel basis declined 5.5%; p Overall, hotel revenues declined 6.1%, or $8.2 million, to $127.7 million. The revenue shortfall was somewhat offset by a 3.1% reduction in hotel expenses. Hotel operating income declined $4.8 million to $18.4 million; p The REIT generated a first quarter net loss of $15.4 million, relatively unchanged from the prior period; p The Trust maintained a prudent payout ratio of 87.5% on a trailing twelve month basis. Distributable loss and funds from operations both declined in the first quarter of 2009 as compared to 2008 reflecting the impact of lower revenues; and p Following the end of the first quarter of 2009, the Trust divested one hotel, previously classified as held for sale, for gross proceeds of $4.1 million. While credit markets appear to be stabilizing, significant uncertainty remains which leads us to maintain a cautious outlook in the near term. Building on our efforts in 2008, we have adapted our strategy to position the REIT to address the current environment with particular attention to our balance sheet and liquidity. Our priority in 2009 will be to continue to be proactive in our capital management initiatives including efforts to address debt maturities. We are continually seeking opportunities to recycle our capital efficiently and have actively expanded our sales efforts with respect to certain underperforming assets. Having developed and implemented contingency plans throughout the portfolio, we continue to manage our portfolio aggressively to maximize the performance of each hotel. Historically, the lodging industry performance has been highly correlated with the economy given the largely discretionary nature of leisure and business travel. While Canada cannot escape the impact of the volatile global trends, it remains fundamentally stronger than many other countries, including the U.S., as evidenced by national RevPAR performance over the last several months. Despite the near term operating environment, with new supply effectively constrained by the credit markets, InnVest is positioned for a stronger recovery when demand trends improve. InnVest’s current portfolio is diversified by geography, customer and brand. This diversity, combined with our partnership with experienced hotel operators, contributes to the resiliency of the portfolio and positions the REIT to effectively manage through the current economic environment. Kenneth Gibson President and Chief Executive Officer May 6, 2009 Q1 2009 First Quarter Report to Unitholders For the three months ended March 31, 2009.
44
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first quarter report 2009 1
Letter to unitholdersThe lodging industry continues to experience a slowdown in demand, reflecting broader economic trends and their impact on discretionary spending for travel. Diligent cost controls coupled with efforts to drive room rates throughout the portfolio helped mitigate the impact of reduced occupancies across the portfolio. Looking ahead, we continue to expect 2009 to be a difficult year for the hospitality sector. Our objectives through this period are to solidify our balance sheet liquidity and effectively manage our assets.
First quarter earnings are not reflective of anticipated results for the annual period given the seasonality of operations. The first quarter is typically the weakest earnings period for the Trust.
First quarter operating highlights p Average daily rate growth of 0.8% was offset by a 3.6 point
decline in occupancy driven by the deteriorating economic environment and its impact on discretionary travel demand. As a result, revenue per available room (“RevPAR”) on a same-hotel basis declined 5.5%;
p Overall, hotel revenues declined 6.1%, or $8.2 million, to $127.7 million. The revenue shortfall was somewhat offset by a 3.1% reduction in hotel expenses. Hotel operating income declined $4.8 million to $18.4 million;
p The REIT generated a first quarter net loss of $15.4 million, relatively unchanged from the prior period;
p The Trust maintained a prudent payout ratio of 87.5% on a trailing twelve month basis. Distributable loss and funds from operations both declined in the first quarter of 2009 as compared to 2008 reflecting the impact of lower revenues; and
p Following the end of the first quarter of 2009, the Trust divested one hotel, previously classified as held for sale, for gross proceeds of $4.1 million.
While credit markets appear to be stabilizing, significant uncertainty remains which leads us to maintain a cautious outlook in the near term.
Building on our efforts in 2008, we have adapted our strategy to position the REIT to address the current environment with particular attention to our balance sheet and liquidity. Our priority in 2009 will be to continue to be proactive in our capital management initiatives including efforts to address debt maturities. We are continually seeking opportunities to recycle our capital efficiently and have actively expanded our sales efforts with respect to certain underperforming assets. Having developed and implemented contingency plans throughout the portfolio, we continue to manage our portfolio aggressively to maximize the performance of each hotel.
Historically, the lodging industry performance has been highly correlated with the economy given the largely discretionary nature of leisure and business travel. While Canada cannot escape the impact of the volatile global trends, it remains fundamentally stronger than many other countries, including the U.S., as evidenced by national RevPAR performance over the last several months.
Despite the near term operating environment, with new supply effectively constrained by the credit markets, InnVest is positioned for a stronger recovery when demand trends improve. InnVest’s current portfolio is diversified by geography, customer and brand. This diversity, combined with our partnership with experienced hotel operators, contributes to the resiliency of the portfolio and positions the REIT to effectively manage through the current economic environment.
Kenneth Gibson President and Chief Executive Officer
May 6, 2009
Q12009 First Quarter Report to Unitholders For the three months ended March 31, 2009.
2 innVest real estate inVestment trust
management’s discussion and analysis
IntroductionInnVest Real Estate Investment Trust (“InnVest”, the “Trust”
or the “REIT”) is an unincorporated open-ended real estate
investment trust governed by the laws of Ontario and a
Declaration of Trust. It is publicly traded and listed on the
Toronto Stock Exchange under the symbol INN.UN. The
following is a discussion of the results of operations and
financial condition of InnVest for the three months ended
March 31, 2009.
The following management’s discussion and analysis (“MD&A”)
should be read in conjunction with the interim unaudited
financial statements and notes contained herein as at and
for the three months ended March 31, 2009. This MD&A
should also be read in conjunction with the REIT’s audited
consolidated financial statements for the year ended
December 31, 2008 and the MD&A for the year ended
December 31, 2008. The financial statements of InnVest are
prepared in accordance with Canadian generally accepted
accounting principles (“GAAP”) and are presented in Canadian
dollars. Monetary data in tabular form and in the text, unless
otherwise indicated, are in thousands of dollars, except for per
unit, average daily rate (“ADR”), and revenue per available
room (“RevPAR”) amounts. This MD&A is dated May 6, 2009.
Certain measures in this MD&A, such as hotel operating
income (“HOI”), funds from operations (“FFO”) and distributable
income, do not have any standardized meaning as prescribed
by GAAP, and therefore are considered non-GAAP measures.
InnVest uses non-GAAP financial measures to assess its
operating performance. Securities regulators require that
entities caution readers that earnings and other measures
adjusted to a basis other than GAAP do not have standardized
meanings and are unlikely to be comparable to similar
measures used by other companies. Please see Non-GAAP
Financial Measures for a discussion of certain non-GAAP
financial measures used by the Trust, including a reconciliation
to GAAP financial measures.
Additional information relating to InnVest, including its Annual
Information Form, can be accessed on the Canadian Securities
Administrators’ System for Electronic Document Analysis and
Retrieval (“SEDAR”) located at www.sedar.com and on the
Trust’s website at www.innvestreit.com.
Forward-looking statementsIn the interest of providing InnVest unitholders and potential
investors with information regarding the Trust, certain
statements contained in this M&DA constitute forward-looking
statements within the meaning of applicable securities laws.
These statements include, but are not limited to, statements
made concerning InnVest’s objectives, its strategies to achieve
those objectives, as well as other statements with respect to
management’s beliefs, plans, estimates and intentions, and
similar statements concerning anticipated future events,
results, circumstances and performance or expectations that
are not historical facts. Forward-looking information typically
contains statements with words such as “outlook”, “objective”,
Western 59.2% (2.3 pts) $ 137.03 1.0% $ 81.08 (2.9%)
Total 52.6% (3.6 pts) $ 114.19 0.8% $ 60.11 (5.5%)
Note: On a same-hotel basis, excluding the hotels that have been classified as discontinued operations, and the hotels which have not been included in the full
periods presented.
8 innVest real estate inVestment trust
management’s discussion and analysis
Room revenuesConsistent with RevPAR performance achieved during
the quarter, overall room revenues for the three months
ended March 31, 2009 decreased $5.8 million, or 5.6%, to
$98.1 million. Each region experienced modest ADR growth
which offset declines in occupancies. The overall declines in
occupancy are more broadly related to economic conditions
beyond the control of the Trust. As was noted in 2008,
Ontario continues to show the weakest performance given
its particular reliance on the manufacturing industry.
Three months ended March 31, 2009
Number of Variance
Room revenue variance hotel rooms $ Variance to 2008
Base Portfolio
Ontario 7,634 $ (3,527) (8.4)%
Quebec 4,080 (1,157) (5.4)%
Atlantic 2,696 (1,090) (8.0)%
West 3,535 (1,078) (4.0)%
Sub-total 17,945 (6,852) (6.6)%
Acquisitions 342 1,047 100.0%
Total 18,287 $ (5,805) (5.6)%
Consistent with broader economic activity and trends noted
through the end of 2008, demand was notably softer in the
first quarter of 2009 for the Ontario region. Ontario, particularly
southern Ontario, is impacted by the challenges experienced
in the manufacturing sector with declining production and job
losses resulting in slowing demand for accommodations.
Overall, first quarter room revenues for the region declined
$3.5 million or 8.4% based on occupancy declines. Almost
all of this decrease was realized in the Greater Toronto Area
and southern Ontario markets such as Burlington, Kitchener
and London.
InnVest’s Base Portfolio of Quebec hotels saw room revenues
decline $1.2 million or 5.4%. Modest rate growth achieved in
the region was offset by occupancy declines. As anticipated,
lower demand was experienced in Quebec City, which
benefitted from year-long festivities associated with the city’s
400th anniversary celebrations in 2008. We expect similar
trends for this city through the balance of 2009. The Montreal
area also experienced declining demand resulting from new
supply coupled with reduced group activity.
First quarter room revenues at InnVest’s Base Portfolio of
Atlantic hotels declined $1.1 million or 8.0%. Occupancies
were impacted by new supply in certain markets as the hotels
focused on maintaining room rate integrity. ADR increased
1.3% for the Atlantic region.
InnVest’s Base Portfolio of Western hotels realized a room
revenue decline of 4.0% or $1.1 million. This decline was
attributable to softness in Edmonton following a strong group
base in the comparative period. Results for the balance of the
region were in line with the prior year.
Non-room revenuesFor the three months ended March 31, 2009, non-room
revenues totalled $29.6 million, down $2.4 million or 7.6%
compared to the prior year. Non-room revenues are directly
impacted by overall occupancy. Lower occupancy results
in the reduced use of ancillary services offered at the hotel.
Hotel expensesIn periods of declining occupancies, the Trust is focused
on managing all costs to minimize the overall impact on
profitability. It should be noted that savings opportunities are
restricted during lower occupancy periods such as the first
quarter, particularly in smaller limited service hotels, given the
minimal infrastructure in place. 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 March 31, 2009
declined $3.5 million or 3.1% 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. Some of these
initiatives, 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 operating incomeFor the three months ended March 31, 2009, the Trust
generated HOI of $18.4 million, down $4.8 million as
compared to the prior period. Typically, declining revenues,
or revenue growth below inflation, will result in a decline in
profitability given the considerable amount of operating fixed
costs, particularly at lower occupancy levels.
first quarter report 2009 9
management’s discussion and analysis
Net lossInnVest realized a net loss from continuing operations of
$14.6 million or a loss of $0.196 per unit basic and diluted.
These results were modestly lower then the loss of
$0.187 per unit basic and diluted in the prior year. The lower
HOI was offset by a higher future income tax recovery and
lower interest costs.
During the first quarter of 2009, InnVest reclassified five hotels
as discontinued operations. As at March 31, 2009, six assets
were held for sale. For the first quarter of 2009, discontinued
operations generated net losses of $799 compared to $876 in
the prior period. The prior year also includes a $500 writedown
of the book value of assets held for sale.
InnVest’s net loss for the first quarter totaled $15.4 million,
or a loss of $0.207 per unit basic and diluted, relatively
unchanged from the prior year.
Funds from operationsFor the three months ended March 31, 2009, InnVest
generated FFO of $447 ($0.006 per unit) compared to
$3.4 million in the prior period ($0.047 per unit). The decline
is primarily attributable to the $4.8 million reduction in HOI
for the first quarter. See Non-GAAP Financial Measures for
a reconciliation of GAAP net loss to FFO.
Distributable lossFor the three months ended March 31, 2009, InnVest
generated a distributable loss of $3.8 million (loss of
$0.050 per unit) compared to a distributable loss of $272 in
the prior year (loss of $0.004 per unit). The reduction reflects
lower HOI generated during the quarter. See Non-GAAP
Financial Measures for a reconciliation of GAAP net loss to
distributable loss.
Distributions declared during the first quarter of 2009 totalled
$14.0 million compared to $20.6 million in the prior period.
This reflected distributions of $0.1875 per unit (2008 –
$0.28125), reflecting the reduced level of monthly distributions
to $0.0625 per unit beginning in November 2008.
Three months ended March 31, 2009
Number of Variance
HOI variance hotel rooms $ Variance to 2008
Base Portfolio
Ontario 7,634 $ (2,653) (26.8)%
Quebec 4,080 (385) (14.9)%
Atlantic 2,696 (822) (59.1)%
West 3,535 (991) (10.7)%
Sub-total 17,945 (4,851) (20.9)%
Acquisitions 342 98 100.0%
Total 18,287 $ (4,753) (20.5)%
Hotel operating income margin analysisGiven the overall decline in revenues, hotel operating income
margins for the three months ended March 31, 2009, declined
to 14.4% as compared to 17.0% in 2008. First quarter margins
are not representative of annual margins achieved for the
portfolio given the seasonality of earnings. The first quarter
is historically the weakest earnings period for the Trust.
Other income and expensesOther income and expenses for the three months ended
March 31, 2009 totalled $40.0 million, down $418 as
compared to 2008. The decline is attributable to lower
overall interest incurred following the refinancing of the Trust’s
$215.0 million bridge loan in March 2008 with mortgage debt.
The REIT has benefitted from declines in overall floating
debt lending rates as compared to the prior year. At
March 31, 2009, approximately 9.7% of the REIT’s
outstanding debt is at floating rates.
Income taxesFor the three months ended March 31, 2009, the REIT
generated a future income tax recovery of $6.9 million,
as compared to $3.5 million in 2008. In addition to ongoing
operations and capital expenditures, the future income tax
recovery realized in the first quarter of 2009 reflects the
provincial SIFT tax rate change which was enacted in
March 2009 along with the impact of the reclassification
of certain assets as held for sale.
For 2009, the REIT estimates that the non-taxable portion of
the distributions made to unitholders during the year will be
approximately 40% (2008 – 44%).
10 innVest real estate inVestment trust
management’s discussion and analysis
Changes in financial conditionOperating activitiesFor the three months ended March 31, 2009, operating
activities used cash of $2.2 million, up $1.7 million from the
prior year. Lower cash earnings were somewhat offset by a
modest decline in working capital usage during the period
given tight cash management initiatives implemented to
conserve liquidity.
Financing activitiesFinancing activities reflect first quarter cash distributions
of $13.3 million (2008 – $16.7 million), which excludes the
distributions which were satisfied through the Trust’s dividend
reinvestment program (“DRIP”). Distributions declared for the
three months ended March 31, 2009 were $0.1875 per unit
compared to $0.28125 in 2008. In November 2008, the REIT
announced a reduction to its monthly distributions from
$0.09375 per unit to $0.0625 per unit. The Trust purchased
and cancelled 211,500 units for total proceeds of $689 during
the first quarter of 2009 in accordance with its normal course
issuer bid.
At March 31, 2009, the REIT had drawn $20.2 million from
its operating loan to finance the distribution and other capital
needs during the quarter. Given the seasonality of operations,
first quarter distributions are typically financed by drawing on
the Trust’s operating loan.
During the first quarter of 2008, InnVest completed
$390 million in aggregate mortgage financings, at a weighted
average blended interest rate of 5.6%, including new mortgage
debt and early refinancing of existing debt. Net proceeds were
used to repay the $215 million bridge loan incurred as part
of the acquisition of the Legacy Portfolio and to repay
$154.8 million in existing mortgages. InnVest fixed the
interest rates on $370 million of this debt.
During the prior period, the REIT also obtained
$17.3 million in financing to partially fund the acquisition
of one new hotel and the development of a second hotel.
Investing activitiesEach year, InnVest sets aside between 3% and 5% of total
hotel revenues at each hotel and certain amounts required for
hotel acquisitions for replacing furniture, fixtures and
equipment and capital improvements (the “FF&E reserve”).
Capital expenditures for the three months ended March 31,
2009 totalled $6.0 million (2008 – $5.9 million). This compares
to the Trust’s FF&E reserve of $5.4 million for the first quarter
of 2009 (2008 – $5.8 million).
Investing activities for the prior period reflect the acquisition
of a newly built hotel for $17.2 million and the completion
of a hotel under development.
SeasonalityInnVest’s operations are seasonal and as such its results are
not consistent throughout the year. Revenue earned from hotel
operations fluctuates 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 because leisure travel tends to be lower. The results
from operations vary materially from quarter to quarter
because of the seasonal nature of the revenue stream and the
fact that certain costs such as property taxes, insurance,
interest, depreciation and amortization, and corporate and
administrative expenses are fixed, or virtually fixed. Given their
lower relative contribution to results, weakness in the first and
fourth quarters will have a lesser impact on annual earnings.
Quarterly results
first quarter report 2009 11
management’s discussion and analysis
For each quarter ended (unaudited) (as reported)
March 31 Dec 31 Sept 30 June 30 March 31 Dec 31 Sept 30 June 30
The accompanying notes are an integral part of these consolidated financial statements.
first quarter report 2009 27
consolidated financial statements
Consolidated statements of cash flows Three months ended Three months ended
(in thousands of dollars) (unaudited) March 31, 2009 March 31, 2008
(Restated, Note 21)
OPERATING ACTIVITIES
Loss from continuing operations $ (14,621) $ (13,697)
Add (deduct) items not affecting operations
Depreciation and amortization 22,199 21,990
Non-cash portion of interest expense 914 549
Future income tax recovery (6,931) (3,520)
Non-cash executive and trustee compensation 86 155
Convertible debentures accretion 290 287
Discontinued operations (560) (73)
Changes in non-cash working capital (3,562) (6,152)
(2,185) (461)
FINANCING ACTIVITIES
Repayment of long-term debt (2,653) (157,228)
Proceeds from long-term debt – 387,486
Units repurchased pursuant to normal course issuer bid (Note 14) (689) –
Unit distributions (13,295) (16,703)
Increase in operating loan 20,200 15,600
Proceeds from bridge loan – 8,907
Repayment of bridge loan – (215,000)
Discontinued operations repayment of debt (2,886) (101)
677 22,961
INVESTING ACTIVITIES
Capital expenditures on hotel properties (5,937) (5,843)
Discontinued operations capital expenditures (31) (76)
Hotel under development expenditures (82) (3,818)
Change in intangible and deferred assets (656) (431)
Acquisition of hotel property – (17,175)
Decrease in restricted cash 541 71
(6,165) (27,272)
Decrease in cash during the period (7,673) (4,772)
Cash, beginning of period 18,143 22,271
Cash, end of period $ 10,470 $ 17,499
Supplemental disclosure of cash flow information:
Cash paid for interest $ 15,686 $ 14,823
Cash paid for income taxes (including capital tax) $ 76 $ 68
The accompanying notes are an integral part of these consolidated financial statements.
28 innVest real estate inVestment trust
notes to consolidated financial statements
Notes to consolidated financial statementsMarch 31, 2009 (all dollar amounts are in thousands, except unit and per unit amounts) (unaudited)
Note 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 March 31, 2009, the REIT owned 147 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.
Note 2 Change in significant accounting policies
Goodwill and intangible assetsEffective 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 has no material impact to the REIT.
Note 3 Hotel properties
Accumulated March 31, 2009 December 31, 2008
Cost depreciation net book value net book value
(Restated, Note 21)
Land $ 184,248 $ – $ 184,248 $ 184,248
Buildings 1,691,837 185,741 1,506,096 1,517,708
Furniture, fixtures and equipment 145,979 56,415 89,564 90,872
$ 2,022,064 $ 242,156 $ 1,779,908 $ 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) no longer meet the criteria under the REIT’s accounting policy for newly built hotels acquired or
developed and as such are now considered operating hotel properties subject to depreciation. Capitalized net operating losses
for the three months ended March 31, 2009 were $82 (December 31, 2008 – $ 838). These losses include mortgage interest
capitalized of $87 (year ended December 31, 2008 – $1,009).
first quarter report 2009 29
notes to consolidated financial statements
Note 4 Other real estate properties
Other real estate properties include office and retail properties and a retirement residence.
Total intangible assets 61,066 21,078 39,988 42,148
Deferred financing costs related
to bridge loan – – – 17
$ 61,066 $ 21,078 $ 39,988 $ 42,165
During the three months ended March 31, 2009, the intangible assets were amortized by $2,810 (March 31, 2008 – $2,470) and
the deferred financing costs related to the bridge loans were amortized by $17 (March 31, 2008 – $1,314).
30 innVest real estate inVestment trust
notes to consolidated financial statements
Note 7 Bank indebtedness
The REIT has a $40,000 operating line that bears interest at the Canadian bank prime rate plus 0.5%. It is secured by 14 properties
and is due August 1, 2009.
Proceeds of $9,000 from a bridge loan were received on March 19, 2008, for 365 days, whereby the REIT provided an additional
unencumbered hotel as security. This loan was extended to August 1, 2009 during the quarter, which included a pay-down of
$2,000, made on April 7, 2009. The extension bears interest at Canadian Bankers’ Acceptance rate plus 3.5% and requires
interest payments only.
There is a risk that bank lenders will not refinance the bank credit facility on terms and conditions acceptable to the REIT or on
any terms at all.
March 31, 2009 December 31, 2008
Operating line $ 20,200 $ –
Bridge loan 9,000 9,000
$ 29,200 $ 9,000
Note 8 Long-term debt
March 31, 2009 December 31, 2008
(Restated, Note 21)
Mortgages payable $ 945,395 $ 948,064
Less debt issuance costs (6,621) (6,984)
Total long-term debt 938,774 941,080
Less current portion (11,215) (10,763)
Net long-term debt $ 927,559 $ 930,317
Substantially all of the REIT’s assets have been pledged as security under debt agreements. At March 31, 2009, long-term debt
had a weighted average interest rate of 5.6% (December 31, 2008 – 5.7%) and a weighted average effective interest rate of 5.7%
(December 31, 2008 – 5.8%). The long-term debt is repayable in average monthly payments of principal and interest totalling
$5,235 (December 31, 2008 – $5,483) per month, and matures at various dates from July 25, 2010 to March 21, 2018.
Scheduled repayment of long-term debt is as follows:
Scheduled repayments Due on maturity Total
2009 (remainder of the year) $ 8,449 $ – $ 8,449
2010 9,492 169,748 179,240
2011 9,593 318,858 328,451
2012 11,012 12,387 23,399
2013 11,355 – 11,355
2014 and thereafter 10,613 383,888 394,501
$ 60,514 $ 884,881 $ 945,395
The current portion of long-term debt on the balance sheet is based on the twelve months ending March 31, 2010, whereas the
repayment schedule above reflects the fiscal year.
The estimated fair value of the REIT’s long-term debt at March 31, 2009 was approximately $913,219 (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.
first quarter report 2009 31
notes to consolidated financial statements
Long-term debt includes $91,937 (December 31, 2008 – $92,129) of mortgages payable, which are subject to floating interest
rates. Annual interest expense will increase by $919 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 $23,904 available to fund 50%
to 100% of capital expenditures incurred at individual hotels. During the quarter ended March 31, 2009, the REIT has drawn
$nil on this facility (December 31, 2008 – $12,196). Subsequent to March 31, 2009, the REIT drew an additional $6,888 from
this facility, in the ordinary course of business.
Note 9 Other long-term obligations
March 31, 2009 December 31, 2008
(Restated, Note 21)
Capital leases $ 1,662 $ 1,662
Other lease obligations 685 658
2,347 2,320
Less current portion (195) (195)
Total lease obligations 2,152 2,125
Pension liability 3,539 3,522
Asset retirement obligation 1,508 1,492
Total other long-term obligations $ 7,199 $ 7,139
Defined benefit pension plansThe 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 March 31, 2009.
The pension plan assets as at March 31, 2009 consist of the following:
Non-union
Management non-management
pension pension March 31, 2009 December 31, 2008
benefit plans benefit plans total benefit plans total benefit plans
Unamortized net actuarial gain 786 262 1,048 1,272
Accrued employee future
benefit liability $ 3,187 $ 352 $ 3,539 $ 3,522
The pension expense for the three months ended March 31, 2009 is $98 (March 31, 2008 – $337).
32 innVest real estate inVestment trust
notes to consolidated financial statements
Note 10 Convertible debentures
The details of the three series of convertible debentures are outlined in the tables below:
Effective Original Converted Face Holders’ Interest interest face to trust amount conversion Transaction March 31, Debenture Maturity date rate rate amount units outstanding option Accretion costs 2009
Series A April 15, 2011 6.25% 7.73% $ 57,500 $ (11,736) $ 45,764 $ (2,289) $ 1,467 $ (56) $ 44,886
Series B May 31, 2013 6.00% 7.53% 75,000 (20) 74,980 (3,400) 1,361 (2,058) 70,883
Series C August 1, 2014 5.85% 7.42% 70,000 – 70,000 (2,953) 678 (2,565) 65,160
Effective Original Converted Face Holders’ Interest interest face to trust amount conversion Transaction December 31, Debenture Maturity date rate rate amount units outstanding option Accretion costs 2008
Series A April 15, 2011 6.25% 7.73% $ 57,500 $ (11,736) $ 45,764 $ (2,289) $ 1,398 $ (333) $ 44,540
Series B May 31, 2013 6.00% 7.53% 75,000 – 75,000 (3,400) 1,241 (2,173) 70,668
Series C August 1, 2014 5.85% 7.42% 70,000 – 70,000 (2,953) 577 (2,662) 64,962
1. Contractual cash flows include principal and interest payments for the next 24 months and ignore extensions options available to the REIT.
2. Interest amounts for floating rate debt is based on interest rates prevailing at March 31, 2009.
Fair valuesThe fair values of the REIT’s financial assets and liabilities, representing net working capital, approximate their recorded values
at March 31, 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 $32,176 at March 31, 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 $78,184 at March 31, 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 March 31, 2009 and December 31, 2008.
Letters of creditAs at March 31, 2009, the REIT has letters of credit totalling $3,693 (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.
36 innVest real estate inVestment trust
notes to consolidated financial statements
Note 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, 2007 73,000,694 $ 757,375
Units issued under distribution reinvestment plan 427,230 3,873
Units issued for vested executive compensation plan 16,033 151
Units issued under trustee compensation plan 3,711 38
Balance at March 31, 2008 73,447,668 $ 761,437
Balance at December 31, 2008 74,412,317 $ 768,034
Units issued under distribution reinvestment plan 202,067 660
Units repurchased pursuant to normal course issuer bid (211,500) (2,180)
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 11,060 38
Balance at March 31, 2009 74,434,338 $ 766,742
Pursuant to the REIT’s normal course issuance bid (the “Bid”), the REIT purchased and cancelled 211,500 units
(December 31, 2008 – 278,500 units) at an average price of $3.26 per unit (December 31, 2008 – $3.36 per unit). The REIT
recognized $1,491 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 planThe 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 has set aside 100,000 units in reserve for this purpose. The balance in this reserve account at March 31, 2009
is 12,608 units. Under the Trustee Compensation Plan, 11,060 units were issued during the three months ended March 31, 2009
(three months ended March 31, 2008 – 3,711 units).
Executive compensation planThe 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 March 31, 2009 is 788,902 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.
first quarter report 2009 37
notes to consolidated financial statements
The following table summarizes the status of the executive compensation plan at March 31, 2009, excluding granted units which
have fully vested:
Unvested Units accumulated
executive units from distributions Total units
January 1, 2006 – granted 12,968 5,613 18,581
January 1, 2007 – granted 15,000 5,213 20,213
January 1, 2008 – granted 20,455 4,731 25,186
January 1, 2009 – granted 25,500 1,472 26,972
Units vested 2009 (6,484) (2,546) (9,030)
67,439 14,483 81,922
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