Temple REIT reports continued income growth in 2011 third quarter results

WINNIPEG, Nov. 22, 2011 /CNW/ - Temple Real Estate Investment Trust ("Temple REIT") (TSX Venture: TR.UN) today reported its financial results for the quarter ended September 30, 2011.  The following comments in regard to the financial position and operating results of Temple REIT should be read in conjunction with the Management Discussion & Analysis and the financial statements for the quarter ended September 30, 2011, which may be obtained from the Temple REIT website at www.treit.ca or the SEDAR website at www.sedar.com.

Operating Results

The third quarter and nine month results for cash flow from operating activities reflects continued growth in 2011, mainly due to a reduction in interest expense and higher operating income for the Fort McMurray hotel portfolio and, except for Q3-2011, the Capri Centre. A summary of the third quarter and nine month comparatives is provided below:

  • 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.

During Q3-2011, the Capri Centre experienced a marked decrease in its occupancy level and a corresponding decrease in operating income due to the temporary removal of guest rooms from the market during the process of completing guest room upgrades.  For Q3-2011, operating income from the Capri Centre was down by $0.72 million or 80%, compared to Q3-2010. The decrease in operating income at the Capri Centre was partially offset by a net increase in operating income of $0.46 million or 9% from the other hotels, most of which is attributable to the Fort McMurray hotel portfolio.

Comparison of Operating Statistics

      YTD-2011     YTD-2010     Change
2011 Over
2010
    2011
Payout
Ratio
    2010
Payout
Ratio
Occupancy     69%     56%     13%            
ADR     $146.69     $155.54     $(8.85)            
RevPar     $100.81     $86.78     $14.03            
Distributable Income (1)     $0.42     $0.27     $0.15     71.43%     100.11%
Funds From Operations (1)     $0.47     $0.32     $0.15     63.83%     93.75%
Operating Profit Margin     35%     34%     1%            

(1) Amounts based on weighted average number of units outstanding for the quarter.

Sheraton Red Deer Hotel and Convention Centre

During Q3-2011, approximately $5.7 million was expended on guest room renovations and building upgrades to the Capri Centre in Red Deer, Alberta, resulting in cumulative expenditures of approximately $8.6 million.  Mortgage loan advances for the improvement program have amounted to $5.7 million.

The substantial completion of the project is expected to occur in December 2011 after which time the hotel will be renamed the "Sheraton Red Deer Hotel and Convention Centre". This property will be the premier meeting hotel location in Central Alberta and is expected to contribute to significant growth in operating income in 2012.

FINANCIAL AND OPERATING STATISTICS

             
      September 30     December 31
      2011      2010 

BALANCE SHEET

           
      Total Assets     $266,218,252     $260,481,436
      Total Debt     $184,400,842     $204,494,094

        Three Months Ended     Nine Months Ended
        September 30     September 30
        2011     2010     2011     2010
                           

DISTRIBUTIONS

                                     
      Amount - total    
$1,891,513     $1,282,535     $5,544,379     $3,847,605
       - per unit       $0.10     $0.10     $0.30     $0.30
                           

KEY PERFORMANCE INDICATORS

                         
Operations:                          
      Occupancy       69%     61%     69%     56%
      ADR       $146.18     $152.97     $146.69     $155.54
      RevPar       $101.40     $92.83     $100.81     $86.78
      Operating profit margin       33%     36%     35%     34%
                           
Operating results:                          
      Total revenue       $16,929,914     $16,311,657     $52,300,000     $46,875,035
      Operating income       $5,628,520     $5,881,421     $18,201,086     $15,741,076
      Net income (loss)       $2,484,648     $686,081     $2,322,037     $(1,271,016)
                           
Cash flows:                          
      Cash flow from operating activities       $5,160,509     $1,971,837     $9,927,126     $4,040,538
      Distributable income       $2,756,621     $2,332,391     $7,347,844     $3,511,327
      Funds from operations       $2,626,536     $2,070,964     $8,346,398     $4,170,628
                           
Financing:                          
      Weighted average interest rate of debt       6.41%     6.61%     6.41%     6.61%
                           
PER UNIT AMOUNTS       Basic     Basic     Basic     Basic
                           
      Net income (loss)       $0.13     $0.05     $0.13     $(0.10)
      Cash from operating activities       $0.27     $0.15     $0.56     $0.31
      Distributable income       $0.15     $0.18     $0.42     $0.27
      Funds from operations       $0.14     $0.16     $0.47     $0.32
 

Q3-2011 COMPARED TO Q3-2010

Analysis of Net Income (loss)
        Three Months Ended           Nine Months Ended      
        September 30           September 30      
                    Increase/                 Increase/
        2011     2010     (Decrease)     2011     2010     (Decrease)
Revenue                                      
      Room revenue       $11,278,617     $10,595,160     $683,457     $33,630,733     $29,359,141     $4,271,592
      Other hotel revenue       5,651,297     5,716,497     (65,200)     18,669,267     17,515,894     1,153,373
      Total revenue       16,929,914     16,311,657     618,257     52,300,000     46,875,035     5,424,965
                                       
Hotel operating costs       11,301,394     10,430,236     871,158     34,098,914     31,133,959     2,964,955
Operating income       5,628,520     5,881,421     (252,901)     18,201,086     15,741,076     2,460,010
                                       
Interest expense, net       2,783,519     3,622,063     (838,544)     9,217,007     10,806,351     (1,589,344)
Trust expense       118,991     48,952     70,039     639,040     632,342     6,698
Depreciation       1,778,011     1,745,342     32,669     5,310,038     5,234,968     75,070
        947,999     465,064     482,935     3,035,001     (932,585)     3,967,586
Change in fair value of financial
instruments: gain (loss)
      2,040,855     425,862     1,614,993     56,755     (584,624)     641,379
Income taxes recovery (expense)       (504,206)     (204,845)     (299,361)     (769,719)     246,193     (1,015,912)
Net income (loss)       $2,484,648     $686,081     $1,798,567     $2,322,037     $(1,271,016)     $ 3,593,053

Comparison of Third Quarter Results

Income, before change in fair value of financial instruments and income taxes, increased by $0.48 million during Q3-2011, compared to Q3-2010. The increase is mainly due to a decrease in interest expense (net) of $0.84 million, partially offset by a decrease in operating income of $0.25 million. After providing for the change in fair value of financial instruments and income taxes, Temple REIT completed the Q3-2011 with net income of $2.48 million, compared to net income of $0.69 million during Q3-2010, representing an increase of $1.80 million.

Room revenue increased by $0.68 million or 6% during Q3-2011, compared to Q3-2010.  The increase in room revenue mainly reflects an increase in room revenue from the Fort McMuray hotel portfolio and the Best Western Wayside Inn, partially offset by a decrease in room revenue from the Capri Centre.  The decrease in room revenue for the Capri Centre of $0.36 million is due to the hotel renovations and the temporary removal of a number of guest rooms from the market during the process of completing guest room upgrades.

Comparison of Nine Month Results

In comparison to the first nine months of 2010, income, before change in fair value of financial instruments and income taxes, increased by $3.97 million in 2011 to $3.04 million. After providing for the change in fair value of financial instruments and income taxes, Temple REIT completed the first nine months of 2011 with net income of $2.32 million, compared to a net loss of $1.27 million during the first nine months of 2010, representing an increase in net income of $3.59 million.

During the first nine months of 2011, room revenue increased by $4.27 million or 15%, compared to the first nine months of 2010.  The improvement in room revenue results for the nine month period is mainly due to an increase in room revenue from the Fort McMurray hotel portfolio and, to a lesser extent, from the Best Western Wayside Inn and the Capri Centre.  The hotel renovations at the Capri Centre resulted in a decrease in room revenue during the third quarter of 2011 and served to reduce the extent of the improvement in revenue results for the hotel for the first nine months of 2011 following the revenue increases which were achieved by the hotel during the first and second quarter of 2011.

Analysis of Total Hotel Revenues
        Three Months Ended Sept. 30           Nine Months Ended Sept. 30      
                    Increase/                 Increase/
        2011     2010     (Decrease)     2011     2010     (Decrease)
Fort McMurray                                      
      Room revenue       $6,553,243     $5,540,452     $1,012,791     $19,275,810     $15,752,577     $3,523,233
      Other hotel revenue       437,624     380,571     57,053     1,333,632     1,191,128     142,504
                           $6,990,867     $5,921,023     $1,069,844     $20,609,442     $16,943,705     $3,665,737
Temple Gardens                                      
      Room revenue       2,223,107     $2,235,819     (12,712)     6,068,204     $6,178,782     (110,578)
      Other hotel revenue       1,200,326     1,204,548     (4,222)     3,495,882     3,577,803     (81,921)
                           $3,423,433     $3,440,367     $(16,934)     $9,564,086     $9,756,585     $(192,499)
                                       
Chateau Nova                                      
      Room revenue       576,133     $603,004     (26,871)     1,697,476     $1,621,798     75,678
      Other hotel revenue       24,032     21,501     2,531     83,951     58,515     25,436
                           $600,165     $624,505     $(24,340)     $1,781,427     $1,680,313     $101,114
Best Western Wayside                                                                                                      
      Room revenue       1,212,603     $1,137,647     74,956     3,196,529     $2,515,378     681,151
      Other hotel revenue       1,054,206     967,953     86,253     3,052,995     2,310,108     742,887
                           $2,266,809     $2,105,600     $161,209     $6,249,524     $4,825,486     $1,424,038
Capri Centre                                                                                                                    
      Room revenue       713,531     $1,078,238     (364,707)     3,392,714     $3,290,606     102,108
      Other hotel revenue       2,935,109     3,141,924     (206,815)     10,702,807     10,378,340     324,467
                           $3,648,640     $4,220,162     $(571,522)     $14,095,521     $13,668,946     $426,575
                                       
Total                                                                                                               
      Room revenue       $11,278,617     $10,595,160     $683,457     $33,630,733     $29,359,141     $4,271,592
      Other hotel revenue       5,651,297     5,716,497     (65,200)     18,669,267     17,515,894     1,153,373
      Total hotel revenue       $16,929,914     $16,311,657     618,257     $52,300,000     $46,875,035     $5,424,965

As disclosed in the table below, RevPar for the Fort McMurray hotel portfolio increased by $19.05 during Q3-2011, compared to Q3-2010, mainly due to an increase in the occupancy level, partially offset by a decrease in the average daily room rate (ADR).  RevPar for the Best Western Wayside Inn increased by $6.06 during Q3-2011, compared to Q3-2010, mainly due to an increase in the occupancy level.  For the Capri Centre, RevPar decreased by $19.94, mainly due to a decrease in the occupancy level as a result of the hotel renovations.

Room Revenue Statistics
        Three Months Ended September 30
        2011       2010
        Occ       ADR     RevPar       Occ       ADR     RevPar
Fort McMurray       73%       $153.90     $112.55       56%       $167.86     $93.50
Temple Gardens       85%       $159.26     $135.00       84%       $161.72     $135.68
Chateau Nova       60%       $130.97     $78.32       64%       $127.59     $82.00
Best Western Wayside Inn       82%       $124.66     $102.18       74%       $129.60     $96.12
Capri Centre       32%       $106.94     $34.29       45%       $119.53     $54.23
Overall portfolio       69%       $146.18     $101.40       61%       $152.97     $92.83

Room Revenue Statistics
        Nine Months Ended September 30
        2011       2010
        Occ       ADR     RevPar       Occ       ADR     RevPar
Fort McMurray       73%       $152.69     $111.17       53%       $170.06     $90.65
Temple Gardens       76%       $164.61     $125.87       79%       $160.73     $126.60
Chateau Nova       58%       $133.61     $77.98       55%       $135.38     $74.28
Best Western Wayside Inn       72%       $125.82     $90.81       56%       $126.68     $71.28
Capri Centre       48%       $119.60     $56.81       46%       $121.65     $55.59
      Overall Portfolio       69%       $146.69     $100.81       56%       $155.54     $86.78

COMPARISON TO PRIOR QUARTER

Analysis of Net Income - Q3 2011 vs. Q2-2011
                        Increase/
        Q3 2011       Q2 2011       (Decrease)
Revenue                        
      Room       $11,278,617       $11,891,411       $(612,794)
      Other       5,651,297       6,812,224       (1,160,927)
      Total revenue       16,929,914       18,703,635       (1,773,721)
                         
Hotel operating costs       11,301,394       11,750,656       (449,262)
Operating income       5,628,520       6,952,979       (1,324,459)
                         
Interest expense, net       2,783,519       3,097,536       (314,017)
Trust expense       118,991       394,217       (275,226)
Depreciation       1,778,011       1,774,689       3,322
        947,999       1,686,537       (738,538)
Change in fair value of financial instruments: gain (loss)       2,040,855       1,029,912       1,010,943
Income taxes recovery (expense)       (504,206)       (548,025)       43,819
Net income       $2,484,648       $2,168,424       $316,224

Income before change in fair value of financial instruments and income taxes decreased by $0.74 million during Q3-2011, compared to Q2-2011. The decrease in income mainly reflects a decrease in operating income, partially offset by a decrease in interest expense and trust expenses. During Q3-2011, operating income decreased by $1.32 million or 19%.  The decrease is mainly due to a decrease in operating income at the Capri Centre and, to a much lesser extent, at the Fort McMurray hotel portfolio, partially offset by an increase in operating income at the Temple Gardens Hotel and Best Western Wayside Inn.

As disclosed in the following chart, the occupancy level of the Capri Centre decreased from 58% in the second quarter of 2011 to 32% in the third quarter of 2011, while the average daily room rate decreased by 12.3%.  For the Fort McMurray hotel portfolio, the occupancy level decreased from 78% to 73%, while the average daily room rate increased by a marginal amount.  The remainder of the hotel portfolio, experienced an increase in the occupancy level and a decrease in the average daily room rate.  After considering the overall decrease in occupancy levels and the overall decrease in the average daily room rates, the RevPar of the hotel portfolio was $101.40 per room during the third quarter of 2011, compared to $106.37 per room during the second quarter of 2011.

Room Revenue Statistics
        Three Months Ended
        Sept. 30, 2011       June 30, 2011
        Occ       ADR     RevPar       Occ       ADR     RevPar
Fort McMurray       73%       $153.90     $112.55       78%       $153.25     $119.68
Temple Gardens       85%       $159.26     $135.00       73%       $169.78     $123.09
Chateau Nova       60%       $130.97     $78.32       57%       $137.06     $78.26
Best Western Wayside Inn       82%       $124.66     $102.18       68%       $127.57     $86.96
Capri Centre       32%       $106.94     $34.29       58%       $121.91     $70.67
                                             
Overall portfolio       69%       $146.18     $101.40       72%       $148.15     $106.37

During Q3-2011, interest expense (net) decreased by $0.31 million, compared to Q2-2011, while trust expense decreased by $0.28 million. The decrease in interest expense mainly reflects the capitalization of $0.22 million of interest in relation to the renovations at the Capri Centre and, to a lesser extent, a decrease in interest on convertible debentures.  The decrease in trust expense is mainly due to the issuance of 400,000 unit options in the second quarter of 2011 as well as a decrease in professional and legal fees.  After reflecting income tax expense and the increased gain associated with the change in fair value financial instruments, net income increased by $0.32 million during Q3-2011, compared to Q2-2011.  The fair value gain of $2.04 million during Q3-2011, compared to the fair value gain of $1.03 million during Q2-2011, served to increase income for Q3-2011 by $1.01 million.  The variance in fair value mainly reflects a higher decrease in the quarter-ended trading price of the convertible debentures in Q3-2011, compared to Q2-2011.

CONVERTIBLE DEBENTURE OFFERING

On November 16, 2011, Temple REIT completed a prospectus offering of 5 Year 8.00% Convertible Redeemable Unsecured Subordinated Debentures for gross proceeds of $23 million and net proceeds of $21.4 million after deducting agents fees and other costs. The net proceeds from the offering will be used to fund future property acquisitions and for general trust purposes.

OUTLOOK

For the fourth quarter of 2011, improvement in operating results is expected to be relatively modest due to normal December reduction in the demand for hotel rooms. As well, the hotel renovations at the Capri Centre will also have an impact on the fourth quarter results.

The acquisitions afforded by the proceeds of the debenture offering, the improved hotel market in Fort McMurray, rebranding of the Sheraton Red Deer Hotel & Convention Centre and reduced mortgage interest rates will allow Temple REIT to achieve earnings growth in 2012.

ABOUT TREIT

TREIT is a real estate investment trust, which is listed on the TSX Venture Exchange under the symbols TR.UN (trust units), TR.DB.A, TR.DB.B, TR.DB.C and TR.DB.S (convertible debentures).  The objective of TREIT is to provide Unitholders with stable cash distributions from investment in a geographically diversified Canadian portfolio of hotel properties and related assets.  For further information on TREIT, please visit our website at www.treit.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 TSX Venture 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 REIT

For further information:

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

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Temple REIT

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