Room revenues in the first half of 2007 were up 3.0% over 2006, from $8.6 million to $8.8 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, and while occupancy has grown only marginally, by 1.1 percentage points to 69.0%, the sustained strong demand has enabled management to increase the average daily rate ("ADR") by 9.4% to $108.32 for the six months ended June 30, 2007 compared to the first six months of 2006. The Company’s Crowne Plaza property in Toronto also performed well, although occupancy in the first half of 2007 fell short of 2006 by 692 room nights, or 1.1 percentage points of occupancy.
ADR for the Company increased, from $108.55 in the six months ended June 30, 2006 to $111.90 in 2007. With occupancy holding steady combined with the increase in ADR, revenue per available room ("RevPAR"), a key industry statistic, increased by $2.14, from $71.94 in 2006 to $74.08 in 2007. For the three months ended June 30, 2007 RevPAR decreased marginally, from $80.44 in 2006 to $80.22 in 2007 as both the Edmonton and Toronto properties recorded
marginally lower occupancy levels compared to the same period of 2006.
In 2001 the Company’s hotel portfolio was running at an occupancy rate 3.1 percentage points below the Canadian national average. By 2003, the spread had increased to 6.7 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 3.1 percentage points, at 63.1%. This gap between the Company’s portfolio and the national average further increased to 4.0 percentage points in 2006 and has fallen back marginally to 3.5 percentage points for the six months ended June 30, 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. The following chart shows RevPAR for Allied’s portfolio compared to the Canadian market average RevPAR
2 for 2001 through 2007.
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 $2.09 in 2001 to $12.98 in 2003. Positive occupancy growth in 2004 and 2005 saw this gap narrow to $8.97 and then $1.22. However, in the past two years the rate of RevPAR increase Canada wide has exceeded that for our portfolio, such that the gap had increased to $3.69 for the six months ended June 30, 2007.
Total revenues increased 3.4%, from $14.8 million for the six months ended June 30, 2006 to $15.3 million for the comparable period of 2007. For the three month periods ended June 30, 2006 and 2007 total revenues increased marginally, from $8.3 million to $8.4 million.
Gross profit increased by less than $0.1 million, to $8.1 million for the six months ended June 30, 2007, with gross profit margins declining from 54.7% to 53.2%. Our gross margins on rooms remained unchanged from the prior year, at 70.5%. 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 $1.1 million, represented a gross profit margin on F&B of 21.5%, up from 20.7% in 2006.
Selling, general and administrative expenses ("SG&A") decreased by 8.1% to $4.4 million. Significant reductions in bank loan fees and maintenance expense were partially offset by increases in professional fees and hotel administration expenses. An analysis of SG&A is as follows:
|
Three months ended
June 30 |
Six months ended
June 30
|
|
2 0 0 7
$ (‘000) |
2 006
$ (‘000) |
2 0 0 7
$ (‘000) |
2 0 0 6
$ (‘000) |
| Administrative salaries |
150 |
163 |
305 |
330 |
|
Professional fees |
460 |
101 |
296 |
154 |
|
Directors’ fees |
19 |
17 |
19 |
17 |
|
Bank loan fees |
- |
7 |
10 |
233 |
| Travel and entertainment |
22 |
13 |
49 |
32 |
|
General |
48 |
56 |
83 |
162 |
|
Capital tax |
16 |
16 |
33 |
35 |
|
Hotel administration |
668 |
597 |
1,267 |
1,134 |
|
Maintenance |
413 |
518 |
786 |
1,093 |
|
Sales and advertising |
436 |
470 |
813 |
872 |
|
Utilities |
331 |
345 |
748 |
733 |
|
$ 2,263 |
$ 2,303 |
$ 4,409 |
$ 4,795 |
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 remain almost 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 then remained at 6.0% for well over twelve months until increasing to 6.25% in early July 2007. Total interest expense, at $1.5 million for the six months ended June 30, 2007, 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 an expense of $0.1 million for the six months ended June 30, 2007, and $0.2 million for the three months then ended. In 2006 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. As the Company has been profitable in the first half of 2007 the value of these future tax assets on the Company’s balance sheet is being reduced.
The Company recorded income from continuing operations of $0.3 million, or 0.2 cents per share, for the six months ended June 30, 2007, compared to a loss from continuing operations of $0.2 million or 0.2 cents per share for the six months ended June 30, 2006.
For the six months ended June 30, 2007, the Company generated cash from operations of $0.9 million, compared to $0.6 million in 2006. Net repayments of third-party debt amounted to $0.6 million, with a reduction in related party debt of $0.4 million, for a total debt reduction of $1.0 million. This compares to a net debt reduction of $1.3 million in 2006.
