Analyzing Canadian REITs, Part VI: Hospitality, Hotel And Leisure

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 |  Includes: CPXGF, WSBHF
by: Monty Spivak

Let's start this article with a pertinent comment about Canadian real estate. Among the most widely-read stories on BNN's website on 2012-01-11 was the warning from Canadian bank CEOs that Canada's housing market is showing signs of peaking. Residential housing is not the same category as REITs, but they share the same sector and characteristics. That said, the goal of this series is to identify and categorize potential Canadian real estate investments, and then rank them for return/yield and risk. The Hospitality and Leisure real estate securities are probably more dependent upon overall business and economic activities than house prices, but I would assume that the entire sector would be negatively impacted by a correction in residential real estate prices.

Hyatt (NYSE:H), Marriott (NASDAQ:MAR), Starwood (NYSE:HOT), and the other major hotel chains are represented in Canadian cities, but their securities are not locally traded. Therefore, many of the Hospitality security names and brands in this section will be unfamiliar to non-Canadian investors. The Leisure category has more recognizable names, as these are Canadian companies that have US operations and/or marketing. These include Cineplex (OTC:CPXGF) for movie-goers, ClubLink (OTC:CLKXF) for golfers, and for the readers who are skiers, Whistler Blackcomb (OTC:WSBHF).

1. The name, tickers, and US stock exchange prices. This will help non-Canadians find these securities on US exchanges, when possible.

Name

CDN Ticker

US Ticker

US RECENT

US 52-WK HIGH

US 52-WK LOW

Sector

All in West! Capital Corporation

ALW

N/A

N/A

N/A

N/A

Hospitality

Allied Hotel Properties Inc.

AHP

N/A

N/A

N/A

N/A

Hospitality

Holloway Lodging REIT

HLR.UN

OTC:HLREF

0.2295

0.2295

0.226

Hospitality

Lakeview Hotel REIT

LHR.UN

OTC:LVWHF

N/A

N/A

N/A

Hospitality

Lanesborough REIT

LRT.UN

OTC:LRTEF

0.386

0.6345

0.2535

Hospitality

Northampton Group Inc.

NHG

N/A

N/A

N/A

N/A

Hospitality

Royal Host Inc

RYL

OTC:ROYHF

1.3102

2.238

0.98

Hospitality

Temple REIT

TR.UN

OTC:TRLSF

4.2876

4.971

3.6401

Hospitality

InnVest REIT

INN.UN

OTC:IVRVF

3.9698

7.54

3.25

Hospitality

Cineplex Inc.

CGX

25.45

38.85

21.2581

Leisure

ClubLink Enterprises Limited

CLK

N/A

6.015

N/A

N/A

Leisure

Whistler Blackcomb Holdings Inc.

WB

OTC:WSBHF

9.9215

12.9007

9.156

Leisure

Click to enlarge

2. A table of statistics based on the Canadian stock exchange activities. The US sources do not typically carry this data, which may be important to your investment decision.

Name

Payout Ratio %

CDN Recent Price

CDN 52-wk High

CDN 52-wk Low

Yield

60-mo Beta

P/E

1-yr Return

3-yr Return

5-yr Return

Market Cap $k

All in West! Capital Corporation

N/A

$0.02

$0.10

$0.01

n.a.

-0.91

n.a.

-62.50%

-52.50%

-49.46%

$259

Allied Hotel Properties Inc.

N/A

$0.06

$0.08

$0.05

n.a.

1.25

1.1

-27.27%

-26.32%

-7.79%

$6,380

Holloway Lodging REIT

N/A

$0.06

$0.43

$0.04

n.a.

0.45

n.a.

-78.57%

-54.39%

-55.37%

$2,348

Lakeview Hotel REIT

0

$37.50

$0.56

$0.18

n.a.

1.14

n.a.

24.59%

-23.21%

-34.75%

$7,432

Lanesborough REIT

0

$0.40

$0.63

$0.20

n.a.

0.76

n.a.

5.26%

-39.86%

-38.23%

$7,195

Northampton Group Inc.

N/A

$0.68

$0.75

$0.55

2.90%

0.44

17

12.90%

7.68%

-5.45%

$17,735

Royal Host Inc

N/A

$1.35

$2.22

$0.96

n.a.

0.64

n.a.

-31.15%

-5.22%

-11.51%

$23,912

Temple REIT

19916

$4.87

$4.96

$3.60

10.00%

0.75

n.a.

32.77%

16.59%

13.74%

$87,670

InnVest REIT

20

$4.40

$7.29

$3.30

9.10%

n.a.

n.a.

n.a.

n.a.

n.a.

$411,567

Cineplex Inc.

172

$25.94

$27.73

$20.95

5.00%

0.33

27

22.46%

32.94%

22.16%

$1,516,349

ClubLink Enterprises Limited

60

$6.46

$7.26

$5.66

4.60%

0.34

11.5

0.06%

18.10%

-2.33%

$179,665

Whistler Blackcomb Holdings Inc.

502

$10.11

$12.80

$9.16

8.60%

n.a.

n.a.

-10.58%

n.a.

n.a.

$382,638

Click to enlarge

3. The following (name, website, Description, 2011 Financial and other info) provides a description and financial results. This will help you identify and understand the company activities and results.

All in West! Capital Corporation

The company owns and operates mid-market hotel properties in Alberta. All in West! Capital Corporation is a Canada-based company. It focuses on acquiring, developing and maintaining a portfolio of income-producing properties. During the year ended December 31, 2009, the Company owned four hotel properties: Phase I of the Best Western Grande Mountain Getaway & Hotel located in Grande Cache, Alberta (the Phase I Grande Cache Property), Phase II of the Best Western Grande Mountain Getaway & Hotel located in Grande Cache, Alberta (the Phase II Grande Cache Property), the Black Bear Inn located in Hinton, Alberta and the Days Inn located in Hinton, Alberta.

Certain lenders unwilling to provide further formal mortgage relief. Loans are cross-collateralized. Debentures-Payments on all series (A, B, C) have been deferred. If payment of the full amount of any or all of these obligations were demanded, AiW! would not be able to satisfy these obligations. Management and the Board have engaged a third party to explore all possible value creating opportunities.

Allied Hotel Properties Inc.

The Company has three segments: two hotel operations and real estate development. Allied owns 100% of the Crowne Paza Toronto Don Valley Hotel, a 353 room full service hotel. Allied also owns 100% of the Crowne Plaza Chateau Lacombe Hotel, a 307 room hotel centrally located in the heart of downtown Edmonton.

Author's note: 2009 is the most recent financial report on their website.

Holloway Lodging REIT (OTC:HLREF)

The REIT is focused on acquiring, owning and operating select and limited service lodging properties and a small complement of full service hotels, primarily in secondary, tertiary and suburban markets in Canada. As at March 24, 2011, its Hotel Portfolio consisted of 21 properties located across Canada and one property located in South Carolina, the United States, with a total of 2,386 guest rooms or suites. Each of the Hotel Properties in Canada is owned by a separate holding company as nominee and bare trustee for Holloway Lodging LP, the operating entity that is the beneficial owner of the Hotel Properties. The Hotel Property in South Carolina, United States is owned by HL (1290 Paradise Circle) US LP, a wholly-owned subsidiary of the REIT. As of December 31, 2010, the REIT owned beneficial equity ownership interests ranging from 2.52% to 19.06% in six other hotels in Canada.

Q3/2011 financial information N/A

Lakeview Hotel REIT (OTC:LVWHF)

The Company earns revenue from hotel operations. Lakeview Hotel REIT also earns income from the licensing fees charged to Lakeview Inn & Suites hotels, which are owned by Lakeview Management Inc. and include hotels in Bathurust, New Brunswick; Brandon, Manitoba; Grand Forks, North Dakota; Halifax, Nova Scotia, and Miramichi, New Brunswick. Through December 31, 2009, Lakeview Hotel REIT had acquired 18 hotels including the Fredericton property.

During the third quarter of 2011 Lakeview REIT enjoyed exceptional year-over-year revenue growth. Hotel occupancies increased from 61.36% in the third quarter of 2010 to 72.39% in the third quarter of 2011. Year-over-year the RevPar increased by 12.8%. Overall revenues increased by 16% or $1.6 million. RevPar for the quarter was the highest quarterly RevPar achieved by the REIT in five years. Positive net income was generated for the first time since the third quarter of 2008.

Lanesborough REIT

As of December 31, 2009, there were 31 properties in the real estate portfolio of LREIT, including three commercial properties and 28 residential properties, comprising 2,854 rental units. Fifteen of the residential properties, comprising a total of 1,167 suites were located in Fort McMurray. Shelter Canadian Properties Limited acts as the advisor and property manager of LREIT.

Q3/2011 financial information N/A

Northampton Group Inc.

The Company is engaged in the ownership and management interests in 2,002 rooms in 16 hotels, is engaged in the business of ownership of hotels, management of hotels and construction and development of hotel properties. The Company's hotels are located throughout Southern Ontario, Quebec and the United States. Its subsidiaries include Shihasi Investment Corporation (SIC), Northampton Inns (Oakville) Inc., Northampton Inns (Oakville East) Inc., Newbramco Inc. and Newcamco Inc. In April 2009, the Company sold the Four Points Montreal Centre-Ville. Its hotel properties include Quality Hotels & Suites, Oakville; Country Inn by Carlson, Oakville; Best Western Cambridge; Holiday Inn Express, Hamilton; Strathcona Hotel; Radisson Admiral Hotel-Toronto Harbourfront; Comfort Hotel Downtown Toronto; Park Inn & Suites Montreal Airport, and Aloft hotels

With a decline of 2.3% in revenues in the quarter ended June 30, 2011 and an increase of 5% in cost of sales for the same period, the resulting gross profit was down 8.6% to $3,638,528 compared to a gross profit of $3,982,158 in the prior year, while the Company's gross profit margin declined to 50.2% from 53.7% in the previous year.

Royal Host Inc (OTC:ROYHF)

Royal Host Inc. has 27 hotels with over 3,400 rooms, in mid-market and budget categories. It also owns a portfolio of hospitality securities. Royal Host owns limited and full service properties in the mid-scale market. Limited service hotels are generally buildings with limited food and beverage facilities located in suburban markets while full service properties have convention space and full food and beverage facilities. The trust has also invested in publicly-traded securities focused on the hospitality and service sectors. The Company is engaged in the ownership, investment and franchising of hotels. As of December 31, 2010, it owned one hotel in Manitoba, the Winnipeg Country Inn. Its portfolio of Canadian hotels operated under a range of brands. As of December 31, 2010, it had portfolio of 31 properties. During the year ended December 31, 2010, it had entered into a management agreement with Crescent Hotels and Resorts to manage Royal Host's ten full-services hotels. With this agreement all of the Company's 31 properties are managed by third party management companies. Effective on January 1, 2011, it was converted from a real estate investment trust into a corporation.

Q2/11 FD FFO was $0.04/unit (including a $0.03/unit charge for remediation of vacant land costs) versus $0.02/unit a year earlier (excluding $0.18/unit in realized and unrealized gains on available for sale securities and a $0.01/unit impairment charge). Excluding the remediation charge, Q2/11 FD FFO was $0.07/unit, in line with expectation. RevPAR in Q2/11 declined 0.9% year over year as a 0.2 percentage point increase in occupancy was more than offset by a 1.2% reduction in average daily rate. Hotel operating expenses fell 3.6% year over year, reflecting reductions in corporate payroll and administrative costs partly offset by higher third-party management fees. Hospitality gross margin rose to 22.8% from 20.6% a year earlier. In October 2011, it announced that it had completed the sale of Western Village Park Inn, located in Calgary, Alberta. In October 2011, it sold the Thriftlodge hotel, located in Lethbridge, Alberta.

Temple REIT

The primary business activity of Temple REIT is the acquisition and development of income-producing hotel properties and the active management of the acquired/developed properties. As of December 31, 2010, the real estate portfolio of Temple REIT consisted of 10 hotel properties, comprising 1,241 rooms, including six hotel properties located in Fort McMurray, Alberta. The four other hotels are located in Moose Jaw, Saskatchewan; Yellowknife, Northwest Territories; Lloydminster, Alberta and Red Deer, Alberta. The six Fort McMurray hotels encompass a total of 634 rooms, or 51% of the total rooms in the hotel portfolio. In December 2011, the Company acquired Wingate Inn.

2011-12: Operating income: decreased by $0.25 million or 4%, compared to Q3-2010 and increased by $2.46 million or 16%, compared to Q3-2010 YTD. Income, before change in fair value of financial instruments and income taxes: increased by $0.48 million or 104%, compared to Q3-2010 and increased by $3.97 million or 425%, compared to Q3-2010 YTD. Net Income increased by $1.80 million or 262% compared to Q3-2010. Net income of $3.59 million for Q3-2011 YTD, compared to net loss of $1.27 million in Q3-2010 YTD. Cash provided by operating activities: increased by $3.19 million or 162%, compared to Q3-2010 and increased by $5.89 million or 145% compared to Q3-2010 YTD Distributable income: increased by $0.42 million or 18%, compared to Q3-2010 and increased by $3.83 million or 100%, compared to Q3-2010 YTD. Funds from Operations (FFO): increased by $0.56 million or 27%, compared to Q3-2010 and increased by $4.18 million or 100%, compared to Q3-2010 YTD.

InnVest REIT (OTC:IVRVF)

As of December 31, 2010, InnVest's portfolio consisted of 144 hotels across Canada representing approximately 19,000 guest rooms operated under franchise brands. The Company leases its hotels to InnVest Operations Trust IOT. IOT also indirectly holds a 50% interest in Choice Hotels Canada Inc. The Company's the portfolio is evenly split between full-service and limited service hotels based on number of rooms. During the year ended December 31, 2010, approximately 78% of InnVest's hotel revenues were generated from room revenues and 22% from food and beverage services and other services, including meeting space rental, parking, retail operations and telephone use. The hotels have a diverse customer base, including business travelers, leisure travelers, tours, associations and corporate groups.

InnVest's Q3/11 FD FFO was $0.31/unit, down from $0.32/unit a year earlier and below our $0.33/unit estimate. The decline in FD FFO/unit was due to an ~9% increase in the fully diluted units outstanding resulting from convertible debenture offerings completed in Q1/11 and in Q3/10. Hotel revenues in Q3/11 increased by 1.0% to $174.8 million as InnVest's RevPAR year-over-year (Y/Y) rose 1.2% (+0.2-percentage-points improvement Y/Y in occupancy and 0.9% increase Y/Y in average daily rate). Hotel operating income (HOI) margin declined 40 basis points BPS to 29.0% as growth in hotel revenues was more than offset by a 1.5% increase in hotel expenses stemming from inflationary wage increases and higher energy costs. Total interest expense (mortgage, other, and convertible debt) incurred in Q3/11 was $17.7 million, down from $19.6 million due to the extension of InnVest's 2011 debt maturities at lower interest rates.

Cineplex Inc.

Cineplex is the largest exhibitor in Canada, with a commanding 67% share of national box office revenues, and its size and scope constitute a material barrier to entry while providing strategic importance with film distributors, concession suppliers, and advertisers. Cineplex also operates a national in-theater advertising network with 94% market share. Cineplex Inc. (Cineplex), formerly Cineplex Galaxy Income Fund, is a motion picture exhibitor in Canada. Cineplex owns, leases or has a joint-venture interest in 130 theatres with 1,352 screens serving approximately 70 million guests annually. It operates theatres from British Columbia to Quebec and is the provider of UltraAVX and the exhibitor of digital, three dimensional (3D) and Image MAXimum IMAX projection technologies in the country. It operates eight brands: Cineplex Odeon, Galaxy, Famous Players, Colossus, Coliseum, SilverCity, Cinema City and Scotiabank Theatres. On May 20, 2011, it acquired New Way Sales Games Ltd., which is a distributors and suppliers of arcade games to the amusement industry in Canada. During the year ended December 31, 2010, it opened two new theatres: SilverCity CrossIron Mills Cinemas and XSCAPE Entertainment Centre in Calgary, Alberta, featuring seven screens, and Galaxy Cinemas Chilliwack in Chilliwack, British Columbia, featuring eight screens.

Q3 takeaways: 1) box office and concession operating metrics tracking ahead; 2) attendance down 1.6% Y/Y due to a weaker Quebec vs. the national average; 3) media sees slowdown in growth, down 5.6% Y/Y; and 4) 2012 movie slate looks strong with ~40 3D movies scheduled for release. n Consolidated revenue of $276.7MM was just shy of our $280.0MM estimate, given weaker-than-expected attendance and lighter media segment results. Adjusted EBITDA of $57.4MM was just light of our $60.9MM estimate. Adjusted FCF per share came in at $0.71 vs. our $0.76 estimate.

ClubLink Enterprises Limited

ClubLink Enterprises Limited., is engaged in golf club and resort operations under the trade name ClubLink One Membership More Golf. It is an owner and operator of golf clubs with 48.5, 18-hole championship and six 18-hole equivalent academy courses at 41 locations, primarily in Ontario, Quebec and Florida. Its golf clubs are organized in clusters that are located in metropolitan areas and resort destinations frequented by those who live and work in these areas. It offers golfers a range of unique membership, corporate event and resort opportunities. It is also engaged in rail, tourism and port operations based in Skagway, Alaska which operate under the trade name White Pass & Yukon Route. The railway stretches approximately 177 kilometers (110 miles) from Skagway, Alaska through British Columbia to Whitehorse, Yukon. On September 3, 2010, it acquired eight 18-hole golf courses in Sun City Center, Florida. In November 2011, it acquired the 54-hole Palm-Aire Country Club in Florida.

Consolidated operating revenue increased 2.8% to $89,151,000 for the three month period ending September 30, 2011 from $86,727,000 in 2010, primarily due to operating revenue from the Florida golf clubs and Glendale which have all been acquired since September 3, 2010. Operating costs increased 4.4% to $44,462,000 for the three month period ending September 30, 2011 from $42,598,000 in 2010, primarily due to operating costs from the Florida golf clubs and Glendale which have all been acquired since September 3, 2010. Net operating income decreased 0.6% to $32,864,000 for the three month period ending September 30, 2011 from $33,077,000 in 2010 primarily due to the third quarter being the off-season for the Florida golf clubs, resulting in an operating loss for these operations. A stronger Canadian dollar in 2011 as compared to 2010 has also resulted in a decline in the Canadian dollar equivalent of the rail, tourism and port net operating income.

Whistler Blackcomb Holdings Inc. (OTC:WSBHF)

Holds 75% interest in partnerships that own Whistler Blackcomb ski resort, located in the coast mountains of British Columbia and 125 km north of Vancouver.

FQ4/11 resort revenue was $25.6 million, up from $22.8 million last year, due to higher summer product lift ticket pricing and the inclusion of revenues from nonmaterial subsidiaries (there were no corresponding revenues from employee housing, heli-skiing or rental management last year). Summer visits decreased by 1.4% to approximately 347,000 compared the fourth quarter last year. Local and regional visits accounted for 66% of total skier visits for the 2010/2011 ski season (the highest level ever), up from 63% last year, while destination skier visits accounted for the remaining 34% (down from 37% last year). Destination skiers tend to provide higher effective ticket price and account for a significantly higher proportion of non-lift-ticket revenues relative to local and regional visitors, and have historically accounted for closer to 50% of total visits. While regional visits drive less non-lift-ticket revenues, they provide stability and are less impacted by global economic volatility compared to destination visits. Total visits for the year increased to 2.5 million vs. 2.2 million last year. Total skier visits increased to 2.0 million for F2011, up from 1.7 million last year (which was impacted by the Olympics).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.