Temple Hotels Inc. Reports 2013 Financial Results - Another Year of Growth

WINNIPEG, March 13, 2014 /CNW/ - Temple Hotels Inc. ("Temple") (TSX: TPH) today reported its financial results for the year ended December 31, 2013.  The following comments in regard to the financial position and operating results of Temple should be read in conjunction with Management's Discussion & Analysis and the financial statements for the year ended December 31, 2013, which may be obtained from the Temple website at www.templehotels.ca or the SEDAR website at www.sedar.com.

Monetary data in the tables of this press release, unless otherwise indicated, are in thousands of Canadian dollars, except for per share, average daily rate ("ADR"), and revenue per available room ("RevPAR") amounts. 

HIGHLIGHTS

During 2013, Temple Hotels Inc. successfully addressed its primary business objectives for the year in terms of asset and revenue growth. Key achievements for 2013 include:

Operating results and statistics

       
  Year Ended December 31
     2013    2012      2011
Total Revenue $156,412 $99,774 $71,185
Operating income 53,939 37,436 23,989
Net income (loss) 2,313   2,452   (3,032)
Cash flow from operating activities 21,729 10,805 14,371
Funds from operations (FFO) 23,259 11,666   9,047
FFO per share/unit 0.79 0.47 0.50
Adjusted funds from operations (AFFO) 20,651 12,710   8,045
AFFO per share/unit 0.70 0.51 0.44
Dividends/distributions 15,841 12,320   7,858
Dividends/distributions per share/unit 0.54 0.50 0.42
       
FFO payout ratio 68%   106%    87%
AFFO payout ratio 76%   97%    98%
       
Occupancy 71%      70%      65%
ADR $156.61 $157.52 $145.84
RevPar $110.50 $109.89   $94.62
       
       

2013 Growth of Hotel Portfolio

Temple completed the acquisition of eight hotels at a combined gross purchase price of $197 million. The new hotels encompass a total of 1,254 rooms. Q4-2013 acquisitions were Holiday Inn Express Hotel & Suites, Ottawa West (115 rooms); Acclaim Hotel, Calgary Airport North (225 rooms); and Nova Court extended-stay project in Yellowknife, NWT (106 rooms).

Enhanced Geographic Diversification

Temple acquired three hotels in Nova Scotia and one hotel in each of Ottawa (Holiday Inn Express - Nepean) and Winnipeg (Holiday Inn South) as well as a 50% equity interest in the Residence Inn in London, Ontario. Temple also acquired a second hotel in each of Yellowknife and Edmonton. Overall, Temple remains well positioned to benefit from economic growth in Western Canada and, particularly in Fort McMurray, while opening up new opportunities for growth in three new cities.

Accretive Capital Expenditure Programs

Capital expenditures amounted to $10.3 million, including $2.4 million of upgrades to the Radisson Hotel and Suites in Fort McMurray Alberta and $2.2 million to the Hilton Garden Inn in Edmonton. The Radisson Hotel and Suites received the distinctive "2013 Radisson Hotel Renovations" award in recognition of the quality of the hotel upgrades.

Growth in Revenue and Operating Income

Total revenue increased by $56.6 million or 57% and operating income increased by $16.5 million or 44%. The growth in revenue is comprised of a $4.6 million (18%) increase in revenue from the "same property" portfolio (properties owned since January 1, 2012) and a $52.0 million increase in revenue from properties acquired in 2012 and 2013. The growth in operating income was comprised of $2.5 million (8%) growth from the same property portfolio and $14.0 million from newly acquired properties. A number of the new properties do not reflect their full revenue and income potential as the properties were either acquired part-way through 2013 or revenues were temporarily reduced during the guest room renovation process or the properties will be subject to a major renovation program in 2014 and subsequent years.

Net Income

Net income decreased by $0.1 million or 6% in 2013 compared to 2012. The 2013 results reflects an accelerated  depreciation charge of $3.2 million in regard to furniture and fixtures to reflect the major capital replacement program at some properties and a one-time charge of $2.1 million in regard to hotel acquisition costs.

Improvement in FFO and AFFO

Funds from Operation (FFO) and Adjusted Funds from Operation (AFFO) increased by $11.6 million and $7.9 million, respectively. On a basic per share basis, FFO increased by $0.31 per share and AFFO increased by $0.19 per share.

Sale of Marketable Securities

Temple sold its entire holdings of Holloway Lodging Corporation (3,910,045 shares) and other debenture securities for gross proceeds of $21.0 million. The shares and debentures were acquired in 2011 and 2012 at an aggregate cost of $15.7 million, resulting in a cash gain of $5.3 million.

Financings and Debt Management

Temple has continued to effectively manage its overall debt levels, while successfully raising additional capital to fund its ongoing asset and income growth objectives.

During 2013, Temple raised total gross proceeds of $65.3 million from common share offerings, including gross proceeds of $57.5 million from a public offering of common shares which was completed on December 18, 2013. The proceeds from the December 2013 offering were used to fund the $13.6 million equity component of the Nova Court property acquisition, pay-down debt and increase working capital.

After accounting for the lump-sum pay down of $35.2 million of mortgage loan debt in 2013, Temple completed the year ended December 31, 2013 with a cash balance of $35.3 million.

During 2013, Temple also completed a $38 million offering of 5-year, 7.0% Series F convertible debentures and retired $19.9 million of 8.5% Series B convertible debentures.

Mortgage loan debt, including convertible mortgage loans and swap mortgage loans, increased by $88.5 million during 2013, representing 44% of the acquisition cost of new hotel properties. As of December 31, 2013, total long-term debt is equal to 77% of the acquisition cost of the total property portfolio and 67% of the appraised value. Other improvements to the debt terms are highlighted in the following table

           
  December 31   December 31   December 31
        2013          2012          2011 
Weighted average interest rate of total debt 5.64%   6.07%   6.49%
Weighted average interest rate of mortgage loan debt 4.96%   5.26%   5.84%
Weighted average term to maturity of mortgage loan debt (in years) 3.19   2.51   2.39
   

2014 Hotel Acquisition

In February 2014, Temple announced that it has agreed to acquire the Hotel Saskatchewan in Regina. The Hotel Saskatchewan is a ten-storey hotel that opened in 1927 and is one of the iconic hotel properties originally built and operated by the Canadian Pacific Railway. The hotel features 224 guestrooms, a restaurant, meeting facilities and several other amenities.  The acquisition price of $32.8 million is expected to be financed with a $21.25 million, 5.25%, first mortgage loan and the balance in cash.

In March 2014, Temple also agreed to acquire Cortona Residence in Fort McMurray, an extended-stay project consisting of 57 suites.  The acquisition price of $26 million is to be financed with a $19 million, 4.25%, first mortgage loan and the balance in cash.

Outlook

The primary investment objective of Temple is to maximize long-term share value. To this end, Temple will continue with its accretive acquisition strategy during 2014, with a focus on further enhancing the geographic diversification of its hotel portfolio.

After considering the income potential of the hotel properties acquired during 2013 and the ability to complete additional acquisitions, Temple is well positioned to achieve earnings growth in 2014.

2013 COMPARED TO 2012

 
Analysis of Net income
        Year Ended     
        December 31     
          Increase/ 
        2013          2012    (Decrease) 
Revenue                
      Room revenue $  112,707   $  69,496   $  43,211
      Other hotel revenue   43,705     30,278       13,427
      Total revenue   156,412     99,774     56,638
Hotel operating costs   102,473     62,338     40,135
Operating income   53,939     37,436     16,503
Interest expense, net   28,764     22,953     5,811
Share based/unit based compensation   157     112      45
General and administrative expenses   3,636     2,153      1,483
Depreciation and amortization    19,904     10,298      9,606
    1,478     1,920     (442)
Equity income on investment in hotel properties    504     (26)       530
Gain on expropriation    1,630     -            1,630
Change in fair value of financial instruments: gain (loss)   (830)     1,661     (2,491)
Income tax recovery (expense)   (469)     (1,103)       634
Net income $  2,313   $  2,452   $  (139)
Per Share Results:                
      Basic $  0.08   $  0.10      
      Diluted $  0.08   $  0.10      

Revenue

 
Analysis of Total Hotel Revenues
  Year Ended December 31   
          Increase/ 
  2013    2012    (Decrease) 
Total - Same Properties              
      Room revenue $  59,629    $  55,285    $  4,344 
      Other hotel revenue   27,656      27,418      238 
      Total Hotel Revenue   87,285      82,703      4,582 
Total - Newly Acquired Properties                
      Room revenue $  53,078    $ 14,211    $  38,867 
      Other hotel revenue   16,049      2,860      13,189 
      Total Hotel Revenue $  69,127    $ 17,071    $ 52,056 
Total                
      Room revenue $ 112,707    $ 69,496    $ 43,211 
      Other hotel revenue   43,705      30,278      13,427 
      Total hotel revenue $  156,412    $  99,774     $ 56,638 

During 2013, total room revenue increased by $43.21 million or 62%, compared to 2012, comprised of an increase of $4.34 million or 8% in "same property" revenue and incremental revenue of $38.87 million from new hotel acquisitions.  The increase in room revenue for the "same property" portfolio is comprised of an increase in room revenue of $2.84 million or 10% for the Fort McMurray same property portfolio, and an increase in room revenue of $1.51 or 6% million for the "Other" hotels in the same property portfolio.

As disclosed in the following chart, RevPar for the same property portfolio was $119.66 during 2013, compared to $109.90 during 2012.  Revenue for the Fort McMurray "same property" portfolio continued to improve during 2013, with the portfolio achieving RevPar of $137.94, an increase of 9.8% compared to $125.65 during 2012.

RevPar for the portfolio of newly acquired properties was $102.86 in 2013, compared to $109.86 in 2012. The decrease in RevPar is due to the loss of room nights in the first quarter and fourth quarter of 2013 due to hotel renovations at the Radisson Hotel & Suites and Hilton Garden Inn, Edmonton; respectively as well as lower RevPar metrics.

 
Room Revenue Statistics
  Year Ended December 31 
  2013    2012 
  Occ    ADR    RevPar    Occ    ADR    RevPar 
Same Properties                      
Fort McMurray 74%   $ 186.24   $ 137.94   71%   $ 177.29   $ 125.65
Other 69%   $ 146.92   $ 101.38   67%   $ 140.61   $   94.15
Total - Same Properties 72%   $ 167.28   $ 119.66   69%   $ 159.47   $ 109.90
Newly Acquired Properties 70%   $ 147.50   $ 102.86   71%   153.75   109.86
      Overall Portfolio 71%   $ 156.61   $ 110.50   70%   $ 157.52   $ 109.89

Other Hotel Revenue

Other hotel revenue includes food and beverage revenue, spa revenue, video lottery terminal revenue, rental revenue, parking and gift shop revenue. There are five hotels in the portfolio which generate proportionately higher levels of other hotel revenue, namely the Sheraton Red Deer, Saskatoon Inn, Temple Gardens, Days Inn Lloydminster and Prince George Hotel.

During 2013, other hotel revenue increased by $13.43 million or 44%, compared to 2012, comprised primarily of incremental revenue of $13.19 million from new hotel acquisitions. Saskatoon Inn and the Prince George Hotel were the most significant contributors to other hotel revenue for new hotel acquisitions accounting for $5.06 million and $4.05 million respectively, representing a combined contribution of $9.11 million or 57% of the total increase.

 
Operating Income and Profit Margin
  Year Ended 
  Operating Income Amount    Operating Profit Margin 
  Year Ended December 31    Year Ended December 31
          Increase/         
  2013          2012    (Decrease)    2013    2012 
Same Properties                        
Fort McMurray $ 19,459    $  17,384    $  2,075    57%    55% 
Other   13,918      13,498      420    26%    26% 
Total - Same Properties $ 33,377    $  30,882    $  2,495    38%    37% 
Newly Acquired Properties $ 20,562    $  6,554    $  14,008    30%    38% 
Total portfolio $ 53,939    $  37,436    $  16,503    34%    38% 

Total operating income increased by $16.50 million or 44% during 2013, compared to 2012, comprised of an increase of $2.50 million or 8% for the "same property" portfolio and $14.01 million which is attributable to new hotel acquisitions.  The increase in "same property" operating income mainly reflects a $2.08 million or 12% increase in operating income for the Fort McMurray "same property" portfolio.

As disclosed in the preceding chart, the overall profit margin of the entire hotel portfolio decreased from 38% during 2012 to 34% during 2013. The decline in overall profit margin is mainly attributable to a decrease in the proportionate contribution from hotels in Fort McMurray as the hotels in Fort McMurray have a substantially higher profit margin.  As disclosed in the above chart, the Fort McMurray profit margin increased from 55% in 2012 to 57% in 2013.

COMPARISON TO PRIOR QUARTERS

                               
Analysis of Net Income                              
                        Increase/                  Increase/ 
            Q4-2013            Q3-2013            (Decrease)            Q4-2012            (Decrease) 
Revenue                              
      Room   $  29,034   $  32,304   $  (3,270)   $  19,658   $  9,376
      Other           13,178           9,701           3,477           10,131           3,047
      Total revenue           42,212           42,005           207           29,789           12,423
Hotel operating costs           29,620           26,212           3,408           19,263           10,357
Operating income           12,592           15,793           (3,201)           10,526           2,066
Interest expense, net           8,181           6,868           1,313           5,335           2,846
Share based/unit based compensation           52           41           11           46           6
General and administrative expenses           1,332           262           1,070           437           895
Depreciation and amortization           7,939           4,293           3,646           3,088           4,851
            (4,912)           4,329           (9,241)           1,620           (6,532)
Equity income on investment in hotel properties           (13)           215           (228)           (26)           13
Gain on expropriation of property           1,630           -           1,630           -           1,630
Change in fair value of financial instruments:  gain (loss)           266           104           162           (349)           615
Income taxes recovery (expense)           1,050           (1,262)           2,312           (926)           1,976
Net income   $  (1,979)   $  3,386   $  (5,365)   $  319   $  (2,298)
                               

Net income for Q4-2013 compared to Q3-2013 was impacted primarily by three factors: 1) Operating income decreased by $3.20 million mainly reflecting quarterly/seasonal variations; 2) General and administrative expense increased by $1.07 million mainly due to costs related to acquisition of new properties; 3) Depreciation charges included a $3.15 million charge in Q4-2013 as a result of a change in the "useful life" estimates that are used in the calculation of depreciation charges for furniture and equipment for hotels which are undergoing a major refurbishment program.

ABOUT TEMPLE

Temple is a growth oriented hotel investment company with hotel properties located across Canada. Temple is listed on the Toronto Stock Exchange under the symbols TPH (common shares), TPH.DB.C, TPH.DB.D, TPH.DB.E and TPH.DB.F (convertible debentures). The objective of Temple is to provide shareholders with stable dividends from investment in a diversified portfolio of hotel properties and related assets. For further information on Temple, please visit our website at www.templehotels.ca.

This press release contains certain statements that could be considered as forward-looking information.  The forward-looking information is subject to certain risks and uncertainties, which could result in actual results differing materially from the forward-looking statements.

The Toronto Stock Exchange has not reviewed or approved the contents of this press release and does not accept responsibility for the adequacy or accuracy of this press release.

 

SOURCE Temple Hotels Inc.

For further information:

Arni Thorsteinson, Chief Executive Officer, or Gino Romagnoli, Executive Vice President
Tel: (204) 475-9090, Fax: (204) 452-5505, Email: info@templehotels.ca