Revenues from continuing operations have declined 17.4% as a result of the sale of one of our three hotel properties during 2005. For the two hotel properties that the Company continues to own and operate, revenues in 2006 were up 6.1% over 2005, from $29.4 million to $31.2 million. The Company’s hotel property in Edmonton had the strongest year in recent history, with an increase in the number of room nights sold of almost 10,000, or almost 8.9 percentage points of occupancy. While this was partially due to an overall increase in Edmonton business, our property captured considerably more than its fair share of this incremental business. Early indications are that this increased level of activity will continue, at least through the first quarter of 2007. The Company’s Crowne Plaza property in Toronto also performed well, although it fell short of the record levels set in 2005 by 4,645 room nights, or 3.6 percentage points of occupancy.

Average daily rate ("ADR") for the Company increased marginally, from $108.57 in 2005 to $109.25 in 2006. For the two properties held in both 2005 and 2006, ADR increased by $1.88 from the 2005 level of $107.37.

The increased occupancy combined with the increase in ADR resulted in revenue per available room ("RevPAR"), a key industry statistic, increasing by $0.78, from $73.68 in 2005 to $74.46 in 2006. This increase was achieved despite the sale of one hotel which had recorded a RevPAR of $82.75 in 2005. Increasing RevPAR while controlling costs will drive increases in net income at the hotel level and, ultimately, the corporate level.

In 2001 the Company’s hotel portfolio was running at an occupancy rate of 4.4 percentage points below the Canadian national average. In 2003, the spread increased to 4.8 percentage points, as the effects of SARS hit our Toronto property particularly hard. With an industry-wide recovery under way, the rate of the Company’s increase in occupancy far exceeded the general recovery in the national market, with the result that by the end of 2004 the occupancy rate of the Company’s portfolio led the national average by 5.3 percentage points, at 66.6%. This gap between the Company’s portfolio and the national average declined to 4.6 percentage points in 2005 and has further declined to 3.6 percentage points for the year ended December 31, 2006. The sale of two hotel properties situated in the Greater Vancouver area in 2005 has contributed to this situation, as both properties historically had very strong occupancies over the summer months.

As discussed above, occupancy and ADR are both important measures of performance in the hotel industry, but it is the multiple of the two, RevPAR, which management of the Company monitors daily to gauge the overall performance of its properties. The following chart shows RevPAR for Allied’s portfolio compared to the Canadian market average RevPAR2 for the years ended December 31, 2001 through 2006. 

There was a sharp decline in RevPAR in 2002 for the Company’s hotels as compared to 2001. In 2002 the hospitality industry was still feeling the effects of 9/11, with substantial reductions in business and leisure travel. All of the Company’s hotels were located in major urban centres, where the effects were more acute than in small rural markets. Occupancy declined further in 2003, and coupled with continuing reductions in ADR resulted in further declines in RevPAR, with the result that the gap between the Company’s portfolio and the market in general had widened from $6.23 in 2001 to $12.58 in 2003. Positive occupancy growth in 2004 and 2005 saw this gap narrow to $10.31 and then $.1.57. For the year ended December 31, 2006 the Company’s portfolio of hotels inceased their ADR by only $0.78 over the previous year, compared to a Canada wide increase of $4.56, as a result of which our RevPAR, at $74.46, now trails the Canadian market average by $5.35. As noted above in the discussion about occupancy, the Company sold two hotels situated in the Greater Vancouver area during the third quarter of 2005. One of these properties, located in the heart of downtown Vancouver, had recorded RevPAR in the period up to its sale in 2005 of $82.75, whilst the two remaining properties in the Company’s portfolio had RevPAR of only $70.81 over the same period. RevPAR at these two remaining properties increased by $3.65 from 2005 to 2006.

Gross profit for the twelve month period decreased from $20.9 million in 2005 to $17.1 million, with gross profit margins also declining, from 55.2% to 54.8%. Our gross margins on rooms remained unchanged from 2005 to 2006, at 70.7%. Of our two properties, one has a particularly strong food and beverage ("F&B") department, and gross profit from F&B from the two hotels, at $2.4 million, was less than $0.1 million short of the 2005 figure from three hotels. Gross profit margins on F&B improved from 20.8% in 2005 to 22.2% in 2006 as the higher margins at the Chateau Lacombe had a greater effect on the overall average.

Selling, general and administrative expenses ("SG&A") decreased by 25% to $9.5 million, primarily as a result of the sale of one hotel property in 2005. At the head office level, there were significant savings in administrative salaries and professional fees for the year ended December 31, 2006. For the three months ended December 31, 2006 professional fees increased significantly over the same period of 2005 as the Company sought third-party assistance to ensure compliance with the new MI 52-109 regulations pertaining to disclosure controls and procedures and internal control over financial reporting. . An analysis of SG&A is as follows:

Three months ended December 31			Twelve months ended December 31
2 0 0 6 $ (‘000)		2 0 0 5 $ (‘000)	2 0 0 6 $ (‘000)	2 0 0 5 $ (‘000)
Administrative salaries	145	141	620	979
Professional fees	452	240	817	1,074
Directors’ fees	50	75	86	201
Bank loan fees	-	84	80	323
Travel and entertainment	25	15	87	66
General	40	69	232	258
Capital tax	17	26	69	83
Hotel administration	514	615	2,266	3,123
Maintenance	495	632	2,054	2,397
Sales and advertising	442	423	1,770	2,390
Utilities	378	397	1,460	1,835
$ 2,558		$ 2,717	$ 9,541	$ 12,729

At December 31, 2005 the Company had approximately 16% of its third-party debt financed at floating rates, with the remainder at fixed rates. Following the refinancing during the year of a $12.3 million fixed rate mortgage with a floating rate demand loan, the Company now has approximately 42% of its third-party debt financed at fixed rates and 58% at floating rates. These figures remain unchanged when related party debt is included, as debt to one party is at a fixed rate while the other is floating rate.

In early 2006 there were several increases in the prime lending rate, which now stands at 6.0%. Total interest expense, at $3.4 million for the year, was $1.2 million less than the 2005 expense as a result of the repayment of certain long-term demand loans upon the sale of income-producing properties during the third quarter of 2005. Other interest expense increased marginally from 2005 to 2006 as the Company increased its borrowings from related parties towards the end of 2005. Management continues to monitor interest rates, and the Company has the ability to fix the rate on all of its third-party floating rate debt should it decide to do so.

Income taxes showed a recovery of $3.5 million, as management determined that it was now "more likely than not" that certain tax losses would be utilized, and the future value of such losses was added to the Company’s balance sheet as future income tax assets.

The Company recorded income from continuing operations of $3.9 million, or 3.7 cents per share, for the year ended December 31, 2006, compared to income of $1.5 million or 1.5 cents per share for the year ended December 31, 2005. In the second and third quarters of 2005 the Company’s investee sold properties for a significant gain on sale. The Company’s share of that gain was $2.5 million for the twelve months ended December 31, 2005. In 2006 the Company did not record any equity earnings or losses of investee.

For the year ended December 31, 2006, the Company generated cash from operations of $2.1 million, compared to an absorption of $0.8 million in 2005. Net repayments of third-party debt amounted to $0.6 million, with a reduction in related party debt of $1.4 million, for a total debt reduction of $2.0 million. This compares to a net reduction of less than $0.1 million in 2005.