final transcript
Transcription
final transcript
FINAL TRANSCRIPT InnVest Real Estate Investment Trust Second Quarter 2015 Results Conference Call Event Date/Time: August 10, 2015 — 10:00 a.m. E.T. Length: 31 minutes "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein." « Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 1 FINAL TRANSCRIPT August 10, 2015 — 10:00 a.m. E.T. InnVest Real Estate Investment Trust Second Quarter 2015 Results Conference Call CORPORATE PARTICIPANTS Drew Coles InnVest Real Estate Investment Trust — President and Chief Executive Officer George Kosziwka InnVest Real Estate Investment Trust — Chief Financial Officer CONFERENCE CALL PARTICIPANTS Brad Sturges Industrial Alliance — Analyst Troy Maclean BMO Capital Markets — Analyst "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein." « Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 2 FINAL TRANSCRIPT August 10, 2015 — 10:00 a.m. E.T. InnVest Real Estate Investment Trust Second Quarter 2015 Results Conference Call PRESENTATION Operator Good morning, ladies and gentlemen, and welcome to the InnVest Real Estate Investment Trust Second Quarter 2015 Results Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press *, 0 for the Operator. This call is being recorded on Monday, August 10, 2015. I would now like to turn the conference over to your host, Drew Coles, President and CEO. Please go ahead. Drew Coles — President and Chief Executive Officer, InnVest Real Estate Investment Trust Thank you, Chris. (phon) Good morning, and thank you for joining us today. With me is George Kosziwka, our Chief Financial Officer. Before we begin, let me remind everyone that during this conference call we will make statements that contain forward-looking information. This forward-looking information is based on a number of assumptions and is subject to a number of known and unknown risks and uncertainties that could cause actual results to differ materially from those disclosed or implied. I direct you to our earnings release, Management Discussion and Analysis, and other security filings on our website for additional information about these assumptions, risks, and uncertainties. "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein." « Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 3 FINAL TRANSCRIPT August 10, 2015 — 10:00 a.m. E.T. InnVest Real Estate Investment Trust Second Quarter 2015 Results Conference Call The second quarter produced strong results for InnVest REIT. Quite honestly, it turned out better than we expected, given the somewhat uncertainty in the Canadian economy. InnVest achieved great progress in all key performance benchmarks, demonstrating that ownership of a welldiversified portfolio is working. Despite the current economic uncertainty, it appears to be a good time in the hospitality business in Canada. We are confident that with the improved quality of our portfolio, internalization progress, and continued balance sheet focus, InnVest is well positioned now and for the future. Before I turn things over to George, who will provide greater detail on our results, let me first touch on a few highlights. AFFO produced a Q2 result of $0.189 per diluted unit, representing a 25.2 percent increase over the previous period in 2014. This result should be noted that the average number of outstanding units has also increased. Our focus on owning high-quality hotels in our markets is translating into solid gains in average daily rates and occupancy. Same hotel RevPAR was up a healthy gain of 4 percent in the second quarter compared to last year. Same hotel operating profit climbed almost 13 percent, with same hotel GOP margin up a solid 250 basis points to 30.5 percent. Our portfolio growth over the last year has also made a major contribution to our results with the Hyatt Vancouver acquisition in December. Overall GOP for the portfolio in the second quarter rose 18.3 percent over Q2 2014, equating to a 430 basis point improvement in margins. "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein." « Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 4 FINAL TRANSCRIPT August 10, 2015 — 10:00 a.m. E.T. InnVest Real Estate Investment Trust Second Quarter 2015 Results Conference Call Recently completed renovation programs continue to boost results. The 58 Comfort Inns renovated since 2013 saw room revenue grow by 8.8 percent over last year's second quarter and their hotel GOP rise by 23.5 percent. Great progress continues in our other key focus area, which is to strengthen our balance sheet and financial position. Our aggregated debt to gross book value leverage, as of June 30th, improved to 60 percent. This level has come down from 62 percent at December 31, 2014 and 66.4 percent as of June 30, 2014. As George will outline shortly, we continue to reduce our long-term interest costs through refinancing activities and other initiatives to capitalize on today's low interest rate environment. In addition, this activity will extend and smooth out our average term to maturity. In summary, it was a strong quarter for InnVest REIT. Diversification of our portfolio is working. Renovation activity and a day-to-day focus on driving results is working. Thoughtful acquisition activity is working. And internalization of our asset management team is working. I'll now turn things over to George to provide more colour on our solid performance in the second quarter and also the first six months of 2015. George Kosziwka — Chief Financial Officer, InnVest Real Estate Investment Trust Thanks, Drew. As Drew outlined, our progress and strengthening and repositioning our property portfolio, and the steps taken to enhance our financial position, has had a positive impact on the results in the second quarter and for the first six months of 2015. "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein." « Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 5 FINAL TRANSCRIPT August 10, 2015 — 10:00 a.m. E.T. InnVest Real Estate Investment Trust Second Quarter 2015 Results Conference Call Overall revenues rose 1.7 percent to $148.7 million in the second quarter compared to last year, despite owning 19 few hotels relative to the same period last year. The revenue increase was due to strong, same hotel performance and a contribution from the Hyatt Regency, Vancouver, which was acquired in December of 2014. For the six months ended June 30th, overall revenues declined slightly by 0.4 percent, due to the reduced number of hotels owned. Same hotel revenues continued to benefit from our renovation and repositioning initiatives, rising 3.6 percent in the quarter compared to last year. Same hotel occupancies improved to 67.4 percent, while average daily rates increased a solid 2.4 percent, together driving a 4 percent increase in same hotel RevPAR. For the first six months of 2015, same hotel revenues rose 2.5 percent with same hotel RevPAR up 3.3 percent compared to last year. With the contribution from the Hyatt Vancouver and strong same hotel performance, overall gross operating profit rose 18.3 percent in the second quarter, with GOP margins rising 430 basis points to 31.0 percent, up from 26.7 percent in last year's second quarter. For the six months ended June 30th, GOP rose 16.8 percent, with GOP margins at 23.7 percent, up from 20.2 percent in the prior-year period. Same hotel GOP rose 12.7 percent and 12.1 percent in the second quarter and first six months, respectively, compared to the prior year periods. "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein." « Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 6 FINAL TRANSCRIPT August 10, 2015 — 10:00 a.m. E.T. InnVest Real Estate Investment Trust Second Quarter 2015 Results Conference Call Turning to the expense side. Corporate and admin costs have increased this year on a relative basis due to the addition of a full time executive function, costs associated with the internalization of our asset management team, and they continue to tract to previous guidance given. Higher interest costs on mortgages and other debt reflect a bridge mortgage for the Hyatt Vancouver acquisition in December and the further funding of a new 10-year mortgage in April of this year. These increases were partially offset by mortgages repaid from hotel sales. Convertible debenture interest savings are the result of the significant redemptions in conversions that have taken place over the last 12 months. Further ongoing refinancing activities include a new 10-year, 4 percent, $82.5 million mortgage on the Fairmont Palliser, which closed in late July, and further 96 million of refinancing activity currently underway that is expected to be completed by the end of Q3. Adjusted funds from operations in the second quarter rose to $24.9 million, up from $16.5 million last year. For the first six months of 2015, AFFO more than doubled, increasing to $19.7 million, up from $8.8 million last year. The increases reflect the improved operating performance and the reduction in overall interest expense. As Drew stated, on a per unit basis, our growth was very accretive to unitholders, as AFFO per diluted unit rose 25.2 percent in the second quarter and almost 75 percent through the first six months of 2015 compared to the same periods last year. And this growth is despite the increase in the weighted average number of units outstanding in the periods. "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein." « Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 7 FINAL TRANSCRIPT August 10, 2015 — 10:00 a.m. E.T. InnVest Real Estate Investment Trust Second Quarter 2015 Results Conference Call Importantly, our AFFO payout ratio for the trailing 12 months ended June 30th strengthened to 80.6 percent compared to 88.4 percent and 86.4 percent for the year ended December 31, 2014 and the trailing 12 months ended June 30, 2014. Turning to our balance sheet. Leverage continued to strengthen with our debt to gross book value ratio improving to 60.0 percent, down from 62.0 percent at the end of 2014 and 66.4 percent at the same time last year. Interest coverage on a trailing 12-month basis also improved to 2.4 times, up from 2.0 times at December and 2.1 times at the same time last year. Our total liquidity position stood at approximately $86.5 million at June 30th. To further enhance our liquidity, we still have five non-core hotels currently slated for disposition, and after refinancing activity, expected to be completed by the end of Q3, these hotels will be, for the most part, unencumbered. Post refinancing of the Fairmont Palliser, we have approximately $96 million in mortgages on seven hotels remaining to refinance this year, with a weighted average interest rate of 5.3 percent. We expect to refinance this debt at lower rates and to further extend our term to maturity, enhancing cash flows moving forward. After these refinancing activities are completed, there are no further mortgages maturing until December 2016, when a total of $45 million is due. At quarter-end, the weighted average interest rate for our mortgage portfolio, pro forma the completion of the Palliser financing, was 5.3 percent, and the weighted average term to maturity improved to 4.2 years. "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein." « Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 8 FINAL TRANSCRIPT August 10, 2015 — 10:00 a.m. E.T. InnVest Real Estate Investment Trust Second Quarter 2015 Results Conference Call In June, we closed a $100 million operating acquisition in capital expenditure line that will ultimately be secured by 24 hotels by the end of August. At the end of July, as I mentioned, we closed the $82.5 million mortgage loan to refinance the Fairmont Palliser, a 10-year term and interest rate of 4 percent. We continue to invest in our hotel portfolio to optimize performance and ensure our properties are well positioned and competitive in their respective markets. Approximately 17.6 million has been invested through the first six months of this year, including the completion of room renovations at Calgary's Fairmont Palliser and the Sheraton's Suites Eau Claire. And we continue to work also at the Delta London Armouries and Moncton's Delta Beausejour. We now expect to invest the total of approximately $60 million in our portfolio this year, including capital improvements in the two pending acquisitions announced in July. Details on the positive impact these investments are having on our results is outlined in our Q2 Press Release and MD&A. Thanks for your time today, and I'll now turn things back to Drew. Drew Coles Thanks, George. Looking ahead, we remain highly confident in our focus on improving performance. We have a strong handle on the fundamentals of our business, and we are well positioned to benefit from strong economic tailwinds, but also feel an ability to withstand weaker economic times. "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein." « Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 9 FINAL TRANSCRIPT August 10, 2015 — 10:00 a.m. E.T. InnVest Real Estate Investment Trust Second Quarter 2015 Results Conference Call As I mentioned at the outset, our improved results in the second quarter and year to date were better than we expected, even given the fragmentation of the Canadian economy. We remain focused on driving results from our diversified portfolio in the quarters ahead. Our confidence is also based on strengthening of fundamentals in the Canadian hotel business. Independent expert forecasts for 2015 show the industry continuing to grow, with an expected 3.8 percent increase in overall hotel RevPAR in Canada, with occupancy rising to 65.4 percent for 2015, up from 64.9 percent in 2014. Those are year-end predictions. The reduction in retail gasoline prices and the low relative Canadian dollar are also drivers that may help benefit our industry. More Canadians appear to choose domestic travel. Travel to Canada from the US has been predicted to climb 3.5 percent in 2015, which is the highest growth rate we've seen in the past five years. In fact, through the first five months of 2015, overnight trips to Canada from the US are already up 6.5 percent over the same period last year, according to Destination Canada, further illustrating the good work that Destination Canada, the industry, and the federal government are all doing together. We continue to remain cautious on near-term trends in the Alberta market. I spent some worthwhile time on the ground visiting the Calgary and Edmonton markets in July and realized even more fully that our properties in those markets are really in the hotel business and not the oil and gas business. "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein." « Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 10 FINAL TRANSCRIPT August 10, 2015 — 10:00 a.m. E.T. InnVest Real Estate Investment Trust Second Quarter 2015 Results Conference Call We own the best quality of assets in these urban markets. The larger InnVest assets are renovated product and produce the highest room rates in these two of our markets compared to the competitive peers. We firmly believe this competitive position will help mitigate declines and demand over the near term and keep our assets well positioned for any potential future recovery. It is also important to note that in the aggregate, our Alberta hotels, which are only located in Calgary and Edmonton, account for 11.3 percent of hotel rooms in our total portfolio. Subsequent to quarter end June 30th, we took a number of important steps to further grow our portfolio and enhance our financial position. On July 6th, we announced agreements to add two high-quality, highly visible hotels to our portfolio, both situated in high barrier-to-entry markets in central downtown locations. First is the purchase of a 100 percent interest in the Hotel Saskatchewan, a full-service, 224room upscale hotel in downtown Regina. The hotel features a restaurant lounge, 14,000 square feet of meeting space, 3,600 square feet of leased commercial space, and ample parking. The hotel's currently undergoing a repositioning to the Marriott Autograph Collection, which is very exciting, and will be completed later this year. It is being acquired for a net cost of 37 million and is expected to be completed in the third quarter. The second acquisition is the purchase of a 33 percent interest in the Courtyard by Marriott, a select service, 575-room hotel in downtown Toronto. The hotel consists of two towers situated on 1.5 acres of land on Yonge Street, just north of College Street. It features 14,000 square feet of "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein." « Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 11 FINAL TRANSCRIPT August 10, 2015 — 10:00 a.m. E.T. InnVest Real Estate Investment Trust Second Quarter 2015 Results Conference Call meeting space, two restaurants, 4,600 square feet of leasable retail area, and again, ample underground parking. InnVest's 33 percent interest in the hotel will be acquired for a net price of $33 million along with KingSett, as our strategic partner, acquiring the remainder 67 percent interest. The acquisition is expected to be completed also in the third quarter. In aggregate, the two properties are being acquired at a forward 12-month, expected 8.3 weighted average capitalization rate. To fund this growth, on July 20th, we completed a bought deal equity offering, raising aggregate proceeds of $48.3 million, including the over-allotment option. We were pleased that KingSett Capital and Orange Capital, two of InnVest's largest unitholders, together with certain trustees and officers of InnVest, purchased an aggregate of approximately $13 million of the offering. Looking ahead, we will continue to focus on these key strategic imperatives. First, growing our organic cash flow by further optimizing the operational performance of our properties. Second, continuing to invest in our assets to accelerate performance. Third, growing a portfolio through disciplined and selective acquisitions. And finally, focus on the balance sheet progress of reducing leverage, interest costs, and smoothing out our average term to maturity. We've already seen, in the second quarter and year to date, these benefits and focus points are generating for our unitholders, and we believe we will use this momentum going forward. Thank you for your time today, and we would now be pleased to take your questions. "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein." « Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 12 FINAL TRANSCRIPT August 10, 2015 — 10:00 a.m. E.T. InnVest Real Estate Investment Trust Second Quarter 2015 Results Conference Call Q&A Operator Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press *, followed by 1 on your touch-tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be polled in the order they are received. If you are using a speakerphone, please lift the handset before pressing any keys. Again, if you do have a question, please press *, followed by 1 on your touch-tone phone. Your first question comes from Brad Sturges, Industrial Alliance. Brad, please go ahead. Brad Sturges — Industrial Alliance Hi. Good morning. George Kosziwka Morning. Drew Coles Good morning, Brad. Brad Sturges I'm wondering if you could give a little more colour just given the different dynamics happening in the hotel industry today, just a little bit more colour on the revenue contribution split, I guess, between business group and transient leisure travel for your hotels? "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein." « Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 13 FINAL TRANSCRIPT August 10, 2015 — 10:00 a.m. E.T. InnVest Real Estate Investment Trust Second Quarter 2015 Results Conference Call Drew Coles Well, across the country, I think, in your words, is the changing dynamic is probably a great word. If I go west to east, I would say as we look at BC, we're seeing an increase in the business transient and the group segment and also leisure, quite honestly, as we head into this part of the season. So Vancouver's been very strong, and we're seeing increases in all segments, Brad. As we get across to Alberta, we're seeing a shift from the corporate transient segment into group and leisure focus. So we see a decline in the business transient and an awaiting increase in the group side and the leisure side. And then as we move into Manitoba and Ontario, we see a slight increase in the business transient, and we see group activity, which looks like, by the booking paces in the hotels anyways, will continue into 2016. And then as we move east, we see the business transient is a bit flat and leisure down slightly. So overall, I think, as you say, it's been kind been fragmented. When you add it all up together, we're really seeing kind of flat to slightly increased production on the business transient side. Group activity has been stronger than last year. And leisure, particularly from US inbound, has been stronger than last year. Brad Sturges "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein." « Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 14 FINAL TRANSCRIPT August 10, 2015 — 10:00 a.m. E.T. InnVest Real Estate Investment Trust Second Quarter 2015 Results Conference Call An in terms of your results in Alberta, would there be—I guess, with renovations still being completed at your two full-service hotels there in Calgary, was there any room displacement there? Or how should we be looking at the results there? Was there a difference, I guess, looking at Calgary versus Edmonton? Drew Coles Yeah. We did the renovations so we really would minimize displacement. So I don't think there was a huge factor in displacement. And moreover, I would say that the market dynamics there are really a shift from that highest-paying business transient customer to a different category of business transient and the group customer. But we think now that the renovations are completed, we'll continue to be competitively positioned, relative to the market. Brad Sturges And in terms of your renovations that have been completed, specifically looking at 2013, obviously, you've been experiencing quite strong growth since the renovations have been completed, I wondered if—or maybe you can provide some colour in terms of whether you believe those assets renovated in 2013 have reached stabilization? Or do you believe there's more growth beyond generally improving fundamentals right now? Drew Coles Well, I think we're looking at really a hybrid drive of, I would say, this year. Yeah. The renovation activity has helped steal business from competitors. As we look forward, I think there is, "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein." « Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 15 FINAL TRANSCRIPT August 10, 2015 — 10:00 a.m. E.T. InnVest Real Estate Investment Trust Second Quarter 2015 Results Conference Call in the markets that they're in and that we believe in, we believe there's some market stability there. So I think that there's still a little bit of, I would say, combination both from market strength and improving strength as well as the renovation activity. So I’d call it a balance between both renovation activity and market strength for those assets to continue going forward. George Kosziwka Yeah. Maybe I would just add to that too that we initially were experiencing, what we thought was, up to a year ramp-up period for the hotels to continue improving at above-market rates. We're actually seeing that continue past a year. So as we look forward, we'll see how long abovemarket rate increases continue that are a result, as Drew said, both the renovation activity and just strength in the market. Drew Coles And maybe, Brad, to finalize that is the help of having focused internalized asset management on the ground and having day-to-day conversations with those hotel management teams to really help them understand their position in the market place and continue on an ADR program. In fact, since June 1 of this year, the asset management team has been out to over 80 of the properties and had direct dialogue with the management teams at those properties. Brad Sturges I guess in terms of targeted returns on invested capital, have you been exceeding expectation? Meeting expectation? How has that been trending? "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein." « Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 16 FINAL TRANSCRIPT August 10, 2015 — 10:00 a.m. E.T. InnVest Real Estate Investment Trust Second Quarter 2015 Results Conference Call George Kosziwka I would say that we are meeting to potentially exceeding expectations. If you remember that we were underwriting about a 12 percent return on invested capital in the Comfort Inn portfolio, it will really be, by the end of this year, that we'll really be able to truly judge whether we achieve that or not. So far so good. We're tracking to those expectations, but we need to see Q3 this year and Q4 this year before we make a final assessment. Brad Sturges Okay. Great. Thank you. Drew Coles Thanks, Brad. Operator Ladies and gentlemen, as a reminder, should you have a question, please press *, followed by 1 on your touch-tone phone. Again, as a final reminder, if you do have a question, please press *, followed by 1 on your touch-tone phone. Your next question comes from Troy Maclean, BMO Capital Markets. Troy, please go ahead. Troy Maclean — BMO Capital Markets Good morning. Drew Coles Hey, Troy. "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein." « Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 17 FINAL TRANSCRIPT August 10, 2015 — 10:00 a.m. E.T. InnVest Real Estate Investment Trust Second Quarter 2015 Results Conference Call Troy Maclean Did you see a big impact on your GTA portfolio from the Pan Am Games? Drew Coles It's a good question. The downtown sector for our hotels was really—we didn't see, to be honest, we didn't see a significant impact from Pan Am. And partially that was the hotel, months out was looking—at the Royal York and Bloor Street—months out were looking at their booking pace; didn't seem to have a lot of pickup. So a couple of things from that. One is the nature of the event itself turned out to be a very short-term booking window type of pattern. And so the Royal York and even Bloor Street kind of got on with business in regular segments, which there was enough there. So we had some group business and still some business transient and some individual leisure business. Now some of the individual leisure business, which didn't come through some of the Pan Am packages, may have been Pan Am related. So it was a little more difficult to track. When you get into some of the suburban markets, such as Hamilton, and so on, they saw—and Scarborough and so on—they saw some impact from Pan Am. But overall, I would say that certainly in the GTA experience from where you're asking, we didn't see a tonne, and we didn't expect a tonne. Troy Maclean Occupancy in your Atlantic Canadian portfolio was down from last year. Can you give us some colour on what caused that? Which markets caused that? George Kosziwka "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein." « Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 18 FINAL TRANSCRIPT August 10, 2015 — 10:00 a.m. E.T. InnVest Real Estate Investment Trust Second Quarter 2015 Results Conference Call One of the markets that was impacted by oil and gas is Saint John, New Brunswick. It was off and probably pulled down the portfolio in the east a bit. Other than that, it was a pretty sort of usual quarter for the Atlantic Provinces. So I would say two markets; Saint John, New Brunswick and St. John's, Newfoundland were sort of the two areas that were a little bit negatively impacted by oil and gas. Troy Maclean So if you were to exclude that, ADR was up pretty strongly in the Atlantic portfolio? Would you say that they're getting a benefit from US tourists more so than maybe central Canada? Or how should I look at that? Drew Coles Yeah. I think that would be a fair assumption, that US business and the marketing effort, I think, are not just impacting Atlantic Canada, but almost right across the country. But, yeah, I think we're seeing some of that increase driven in Atlantic Canada. And as well as, I think, a little bit of increased domestic travel, staying home. Troy Maclean For your Alberta portfolio, are you starting to see any of your competitors get more aggressive on rate? Drew Coles "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein." « Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 19 FINAL TRANSCRIPT August 10, 2015 — 10:00 a.m. E.T. InnVest Real Estate Investment Trust Second Quarter 2015 Results Conference Call Yeah. What's interesting is we've got seven hotels in Alberta, and on a RevPAR penetration basis, five out of the seven are up over last year and then one is flat and one had 170 percent RevPAR penetration. So I think it was inevitable that we'd see that one fall off a little bit. But by and large, the market has become a more rate-sensitive market. There's no question about it. And so I'd split the answer in two. One would be for the urban hotels, there still seems to be a positioning to maintain rate until we really have a better look at the forward-booking progress. They seem to be doing that. And then on the kind of the tertiary portions of Edmonton and Calgary, so Edmonton South and Calgary South, that does become a more rate-sensitive argument. And so you see the whole market getting a little bit more aggressive on rate to try to capture the existing business. Troy Maclean And then just finally; can you give us some examples of what you've done to achieve the RevPAR index gains at the Hyatt Regency Vancouver? Drew Coles Yeah. I think it's really been a focus of some—I mean, when we acquired the hotel, we did get asset management in there right away to have a good look at the market. So there's a point in time in this market where it's firing on all cylinders quite honestly. And so the idea was to really understand the customer and understand, at least in the first half of this year, that there's a good group customer and a good business transient customer, and what are our opportunities for rate compression in that market. "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein." « Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 20 FINAL TRANSCRIPT August 10, 2015 — 10:00 a.m. E.T. InnVest Real Estate Investment Trust Second Quarter 2015 Results Conference Call And the hotel, to the GM's credit, has been intensely focused. You saw the nodes in the market improve, and they've really been intensely focused on revenue management and rate production. So it's a combination of both understanding our customer type, but also realizing that the market has some strength right now. Troy Maclean Thank you. I'll turn it back. Drew Coles Thanks, Troy. Operator Thank you. There are no further questions at this time. Please proceed. Drew Coles Okay. Thank you for your time this morning and your continued interest in InnVest REIT. We believe the growth and solid operating performance demonstrated in the second quarter and year to date of 2015 is evidence that a focused approach is working. We look forward to updating you on our progress in the quarters ahead. Again, thank you for your support, and if you ever have further questions, don't hesitate to contact me or George and myself at any time. Thank you and good bye. Operator "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein." « Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 21 FINAL TRANSCRIPT August 10, 2015 — 10:00 a.m. E.T. InnVest Real Estate Investment Trust Second Quarter 2015 Results Conference Call Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. ***** "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein." « Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 22