Room revenues in the first quarter of 2007 were up 7.2% over 2006, from $3.8 million to $4.0 million. 2006 saw the Company’s hotel property in Edmonton having the strongest year in recent history, with an increase in the number of room nights sold of almost 10,000, or 8.9 percentage points of occupancy over 2005. This strong demand has carried over into 2007, with occupancy in the first quarter 4.2 percentage points above the first quarter of 2006, at 68.8%. The Company’s Crowne Plaza property in Toronto also performed well, although occupancy in the first quarter fell short of 2006 by 377 room nights, or 1.2 percentage points of occupancy.
Average daily rate ("ADR") for the Company also increased, from $105.50 in 2006 to $110.64 in 2007. The increased occupancy combined with the increase in ADR resulted in revenue per available room ("RevPAR"), a key industry statistic, increasing by $4.53, from $63.34 in 2006 to $67.87 in 2007.
In 2001 the Company’s hotel portfolio was running at an occupancy rate of 2.9 percentage points below the Canadian national average. By 2003, the spread had increased to 8.3 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 2005 the occupancy rate of the Company’s portfolio led the national average by 1.1 percentage points, at 55.0%. This gap between the Company’s portfolio and the national average further increased to 3.7 percentage points in 2006 and has fallen back marginally to 3.9 percentage points for the three months ended March 31, 2007.
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.
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 $6.48 in 2001 to $15.54 in 2003. Positive occupancy growth in 2004 and 2005 saw this gap narrow to $11.09 and then $9.65. The recent significant increase in business in Edmonton has seen this gap narrow rapidly, down to $0.88 in 2006 and $0.63 in 2007.
Total revenues increased 6.4%, from $6.5 million for the three months ended March 31, 2006 to $6.9 million for the comparable period of 2007.
Gross profit for the three month period increased from $3.3 million in 2006 to $3.6 million, with gross profit margins improving from 51.8% to 52.2%. Our gross margins on rooms also increased, from 67.9% in 2006 to 69.6% in 2007. 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 $0.4 million, represented a gross profit margin on F&B of 17.4%, up from 15.9% in 2006.
Selling, general and administrative expenses ("SG&A") decreased by 13.9% to $2.1 million, primarily as a result of a reduction in bank loan fees. In 2006 the Company refinanced a mortgage payable with a new demand loan, and the old mortgage had payout fees which were expensed in the first quarter of 2006. An analysis of SG&A is as follows:
|
|
|
|
|
|
2 0 0 7
$ (‘000) |
2 0 0 6
$ (‘000) |
| Administrative salaries |
|
|
155 |
167 |
|
Professional fees |
|
|
136 |
53 |
|
Directors’ fees |
|
|
- |
- |
|
Bank loan fees |
|
|
10 |
226 |
| Travel and entertainment |
|
|
27 |
19 |
|
General |
|
|
35 |
106 |
|
Capital tax |
|
|
17 |
19 |
|
Hotel administration |
|
|
599 |
537 |
|
Maintenance |
|
|
373 |
575 |
|
Sales and advertising |
|
|
377 |
402 |
|
Utilities |
|
|
417 |
388 |
|
|
|
$ 2,146 |
$ 2,492 |
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 2006 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 increase marginally 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 has since remained at 6.0% for over twelve months. Total interest expense, at $0.8 million for the quarter, was $0.1 million less than the 2006 expense as a result of significant repayments of a shareholder loan during the last year, which loan bears interest at a fixed rate of 9.0% per annum. 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 $0.1 million, as management determined in 2006 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. With 2007 projected to be profitable for the Company, this recovery of income tax in the first quarter is expected to reverse in subsequent periods.
The Company recorded a loss from continuing operations of $0.2 million, or 0.2 cents per share, for the three months ended March 31, 2007, compared to a loss from continuing operations of $1.0 million or 0.9 cents per share for the three months ended March 31, 2006.
For the three months ended March 31, 2007, the Company generated cash from operations of $0.2 million, compared to an absorption of $0.4 million in 2006. Net repayments of third-party debt amounted to $0.3 million, with a reduction in related party debt of $0.6 million, for a total debt reduction of $0.9 million. This compares to a net reduction of $0.7 million in 2006. |
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