Temple Hotels Inc. Reports 2012 Financial Results - Earnings Growth Highlights 2012 Performance

WINNIPEG, March 14, 2013 /CNW/ - Temple Hotels Inc. ("Temple") (TSX: TPH) today reported its financial results for the year ended December 31, 2012.  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, 2012, which may be obtained from the Temple website at www.treit.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 unit, average daily rate ("ADR"), and revenue per available room ("RevPAR") amounts. 

During 2012, Temple acquired five hotels and a 50% limited partnership interest in two additional hotels, resulting in a property portfolio consisting of eighteen hotels as of December 31, 2012. After pro-rating for the 50% limited partnership interest, the acquisitions added 913 hotel rooms resulting in 2,295 revenue-generating rooms in the Temple property portfolio as of December 31, 2012. The 2012 hotel acquisitions and acquisitions in the first quarter of 2013 addressed strategic objectives of Temple:

  • Greater Penetration in Western Canada: Temple entered into four new hotel markets in Western Canada, acquiring the Inn at the Quay in New Westminster, BC, the Saskatoon Inn & Conference Centre in Saskatoon, SK, the Hilton Garden Inn in Edmonton, AB and the Holiday Inn South in Winnipeg, MB (50% in November 2012 and the remaining 50% in January 2013). During 2012, Temple also entered into an agreement to acquire the Acclaim Hotel Calgary Airport, with the closing to occur in Q4-2013, subsequent to the completion of a 102 guestroom expansion. Following the acquisition of the Acclaim Hotel, Temple will have a presence in all major centres across Western Canada, including Winnipeg, Saskatoon, Moose Jaw, Regina, Edmonton, Calgary, Red Deer, Lloydminster and the greater Vancouver metropolitan area.

  • Expansion into Central Canada: On December 31, 2012, Temple completed its first hotel acquisition in Central Canada, acquiring a 50% limited partnership interest in the Marriott Courtyard in downtown Ottawa, ON. The acquisition is the beginning of an expansion of Temple's hotel portfolio into major centres in Central Canada. In January 2013, Temple acquired a 50% limited partnership interest in the Residence Inn in downtown London, ON.

  • Expansion into Atlantic Canada: On March 1, 2013, Temple completed its first hotel acquisition in Atlantic Canada, acquiring a portfolio of three hotel properties (549 rooms) in Nova Scotia. The Prince George Hotel and the Cambridge Suites Hotel are both located in downtown Halifax, while the Cambridge Suites Hotel is located in downtown, Nova Scotia.

  • Continued Market Presence in Fort McMurray: Temple acquired two additional hotels in Fort McMurray, Alberta - the Radisson Hotel & Suites and the Clearwater Residence Hotel, Timberlea.  Temple is the largest hotel owner in one of the highest occupancy hotel markets in Canada.

The total combined purchase price of the 2012 and 2013 property acquisitions was $255 million. In total, the acquisitions encompassed $157 million of mortgage loan financing and a cash outlay of $85 million.

Conversion to a Corporation

Effective December 31, 2012, Temple Real Estate Investment Trust was converted to a corporation and re-named, Temple Hotels Inc. The new ownership structure is expected to maintain access to capital and attract new investors. Temple's monthly dividend continues at $0.045 per share. The dividend is designated as an "eligible" dividend under the Income Tax Act (Canada) and any corresponding provincial legislation.  Under this legislation, individuals resident in Canada may be entitled to enhanced dividend tax credits which reduce income tax otherwise payable.

DRIP

Effective January 1, 2013, Temple commenced a dividend reinvestment and share purchase plan ("DRIP"). Under the terms of the DRIP, eligible shareholders may elect to automatically reinvest all or a portion of their regular monthly dividends into additional common shares without incurring any commissions, service charges or brokerage fees under the DRIP.

Other Investments in Hotel Real Estate

During 2012, Temple's net investment in the marketable equity and debenture securities of Canadian publicly traded hotel real estate entities amounted to $15.3 million, including an $8.0 million investment in approximately 20.9% of the issued and outstanding shares of Holloway Lodging Corporation. As of December 31, 2012, the fair value of Temple's investment in marketable equity and debenture securities is $21.37 million.

Operating Results

  Year Ended December 31
    2012    2011
Total Revenue $99,774 $71,185
Operating income $37,012 $23,989
Net income before equity loss, loss on disposal, change in fair value of financial instruments and income tax expense (recovery)   $1,920   $2,343
Net income (loss)   $2,452   $(3,032)
Cash flow from operating activities $10,805 $14,372
Funds from operations (FFO) $11,665   $9,046
Adjusted funds from operations (AFFO) $12,298   $8,045
Distributable income (DI) $12,980   $8,607
Distributions $12,320   $7,858
FFO payout ratio   105.6%    86.9%
AFFO payout ratio   100.2%    97.7%
DI payout ratio     94.9%    91.3%
     
Occupancy      70%      65%
ADR $157.52 $145.84
RevPar $109.89   $94.62

KEY POINTS

Hotel operating Income - The increase in hotel operating income consists of an increase of $5.1 million from the "same property" portfolio and an increase of $7.9 million from the six new hotels. The "same property portfolio is comprised of the ten hotels which were owned for the entire year in 2011 and 2012.

Change in Fair Value of Financial Instruments - During 2012, net income includes a gain of $1.7 million in regard to the change in the fair value of the financial instruments. The change in fair value mainly reflects a gain related to an increase in the fair value of marketable securities, largely offset by a loss related to an increase in the fair value Temple's outstanding convertible debentures. The increase in the fair value of the convertible debentures reflects an increase in the closing price of the debentures between December 31, 2011 and December 31, 2012. In 2011, Temple recorded a non-cash loss of $5 million in regard to the change in value of financial instruments.

Interest expense, net  - During 2012, "interest expense, net", increased by $9.2 million, mainly due to a $2.7 million increase in mortgage loan interest, a $4.3 million increase in convertible debenture interest and a $2.9 million increase in transaction costs for convertible debenture offerings.

Cash flow from operating activities - Cash flow from operating activities in 2012 includes a reduction of $6.2 million for working capital adjustments. Excluding working capital adjustments, cash flow from operations increased by $5.5 million in 2012, compared to 2011.

Shares and Convertible Debentures

During 2012, Temple raised a total of $101 million from a combined public offering of trust units and convertible debentures in March 2012 and a public offering of convertible debentures in August 2012. The convertible debenture offerings consist of the 7.75% Series D debentures (conversion price if $7.04 per share) and the 7.25% Series E debentures (conversion price of $8.00 per share)

Temple also retired/redeemed two series of convertible debentures in 2012, comprised of approximately $1.8 million of the remaining 7.5% Series A debentures and $82,000 of the remaining 8.75% Series S debentures.

Temple issued 2 million common shares at $6.25 per share relating to the acquisition of the three Nova Scotia hotels in March 2013. As of the date of this report, the total shares outstanding are 28.41 million.

Outlook for 2013

One of Temple's primary objectives for 2013 is to continue to expand its portfolio of hotel properties. Temple will focus on properties with proven earnings in strong and/or growing markets with particular attention to properties where capital expenditures will offer the potential for higher income. More geographic diversification will also continue to be a primary objective in 2013.

After considering its year-end working capital position and the $38 million of gross proceeds, which were raised from the recent 7% Series F convertible debenture offering, Temple has financial resources to expand its asset base in 2013.

Given the recent investment in new properties as well as the improved performance from the hotel portfolio, management projects strong earnings growth in 2013.

     
FINANCIAL AND OPERATING STATISTICS    
  December 31   December 31   December 31
        2012          2011          2010 
Total Assets $ 493,789  $  282,553 260,481
Total Debt $ 371,782  205,401 204,494
             
        Year Ended December 31 
        2012         2011         2010 
DISTRIBUTIONS               `       `
 Amount - total $ 12,320 7,858 5,133
               - per unit $ 0.500 0.420 0.400
KEY PERFORMANCE INDICATORS          
Operations:          
      Occupancy   70%   65%     56%
      ADR $ 157.52 $ 145.84    $ 153.92
      RevPar $ 109.89 $ 94.62    $ 85.55
      Operating profit margin   37%   34%     33%
Operating results:      
      Total revenue $ 99,774  71,185  63,551 
      Operating income $ 37,012  23,989  21,050 
      Net income (loss) $ 2,452  (3,032)  (3,559) 
Cash flows:      
      Cash flow from operating activities $ 10,805  14,372  5,474 
      Funds from operations $ 11,665  9,046  5,580 
      Adjusted funds from operations $ 12,298  8,045         N/A 
      Distributable income $ 12,980  8,607  3,577 
Financing:      
      Weighted average interest rate of total debt   6.07%   6.49% 6.81%
      Weighted average interest rate of mortgages   5.26%   5.84%   6.47%

PER UNIT AMOUNTS Basic Basic Basic
  Net income (loss) $0.10 $(0.17) $(0.28)
  Cash from operating activities $0.44 $0.79 $0.43
  Funds from operations $0.48 $0.50 $0.43
  Adjusted funds from operations $0.50 $0.44 N/A
  Distributable income $0.53 $0.48 $0.28
         

2012 COMPARED TO 2011

Analysis of Net Income (Loss)
        Year Ended December 31   
                 Increase/ 
        2012          2011         (Decrease) 
Revenue      
      Room revenue $ 69,496   $ 44,321   $ 25,175
      Other hotel revenue        30,278         26,864         3,414
      Total revenue        99,774         71,185         28,589
Hotel operating costs        62,762         47,196         15,566
Operating income        37,012         23,989         13,023
Interest expense, net        22,953         13,707         9,246
General and administrative expense        1,841         804         1,037
Depreciation and amortization        10,298          7,135          3,163
         1,920         2,343          (423)
Equity loss on investment in hotel properties        (26)          -          (26)
Loss on disposal of property and equipment        -         (561)         561
Change in fair value of financial instruments: gain (loss)        1,661         (4,985)         6,646
Income taxes (expense) recovery        (1,103)         171          (1,274)
Net income (loss) $ 2,452   $ (3,032)   $ 5,484

Income before the equity loss, loss on disposal of property and equipment, change in fair value of financial instruments and income taxes decreased by $0.42 million during 2012 compared to 2011. The decrease reflects an increase in interest expense (net), general & administrative expense and depreciation and amortization of $9.25 million, $1.04 million and $3.16 million, respectively, largely offset by an increase in operating income of $13.02 million. After providing for the equity loss, loss on disposal of property and equipment, change in fair value of financial instruments and income taxes, Temple completed 2012 with a net income of $2.45 million, compared to net loss of $3.03 million during 2011, representing an increase in net income of $5.48 million.

Revenue

Analysis of Total Hotel Revenues
  Year Ended December 31       Increase/ 
        2012        2011        (Decrease) 
Total - Same Properties                                             
      Room revenue $ 51,197   $ 44,103   $ 7,094
      Other hotel revenue        26,869          26,836          33
        Total        78,066          70,939          7,127
Total - Newly Acquired Properties                                                   
      Room revenue $ 18,299   $ 218   $  18,081
      Other hotel revenue        3,409          28         3,381
        Total $ 21,708   $  246   $ 21,462
Total - All Properties                                                   
      Room revenue $ 69,496   $ 44,321   $  25,175
      Other hotel revenue        30,278          26,864         3,414
        Total $ 99,774   $ 71,185   $ 28,589
                 

Room Revenue

During 2012, total room revenue increased by $25.18 million or 57%, compared to 2011, comprised of an increase of $7.09 million or 16% in "same property" revenue and incremental revenue of $18.08 million from new hotel acquisitions.  With the exception of the Days Inn Yellowknife, the room revenue for all of the hotels in the "same property" portfolio increased during 2012, compared to 2011.  The Sheraton Red Deer was one of the largest contributors to the increase in room revenue, achieving an increase in room revenue of $1.65 million or 36%. The Fort McMurray hotel portfolio achieved an increase in room revenue of 20%. The increase in room revenue for Sheraton Red Deer is largely attributable to the fact that a number of guest rooms were temporarily unoccupied during 2011 due to room renovations.

As disclosed in the following chart, RevPar for the same property portfolio was $111.59 per room in 2012, compared to $98.52 per room in 2011. RevPar for the Sheraton Red Deer increased by $14.69 during 2012, compared to 2011, resulting from an increase in average daily room rate (ADR) and an improvement in occupancy level.  All of the other hotels with the exception of Days Inn Yellowknife experienced an improvement in RevPar.

Room Revenue Statistics
        Year Ended December 31 
        2012         2011 
        Occ           ADR           RevPar          Occ           ADR           RevPar 
Same Properties                              
  Fort McMurray       71%    $  177.29    $  125.65          69%    $  153.57    $  106.69 
  Other       65%    144.41    $  94.02          64%    $  136.68    $  88.32 
                               
Total - Same Properties       68%    $  163.36    111.59          67%    $  147.37    $  98.52 
                               
Newly Acquired Properties       72%    149.20    $  107.33         47%    $  126.39    $  59.53 
                               
Total Portfolio       70%    $  157.52    $  109.89          65%    $  145.84    $  94.62 
                 

Hotel Operating Costs

Analysis of Hotel Operating Costs
        Year Ended December 31 
                Increase/ 
        2012         2011          (Decrease) 
Total - Same properties                                                 
      Operating expenses $ 43,800    $ 41,470    $ 2,330 
      Property taxes and insurance        2,275          2,716          (441) 
      Asset & Property Management Fees        2,930          2,841           89 
        Total   $ 49,005    $ 47,027    $ 1,978 
             
Total - Newly Acquired Properties                                                 
      Operating expenses $ 12,211    $ 154    $ 12,057 
      Property taxes and insurance        794          7          787 
      Asset & Property Management Fees        752                  744 
        Total   $ 13,757    $ 169    $ 13,588 
           
         
Total - All Properties                                                 
      Operating expenses $ 56,011    $ 41,624    $ 14,387 
      Property taxes and insurance        3,069          2,723          346 
      Asset & Property Management Fees        3,682          2,849          833 
        Total $ 62,762    $ 47,196    $ 15,566 
                 

During 2012, hotel operating costs increased by $15.57 million, compared to 2011, comprised of an increase of $1.98 million or 4% for the "same property" portfolio and $13.59 million which is attributable to new hotel acquisitions.  The Sheraton Red Deer and the Fort McMurray hotel portfolio accounted for 67% and 35% of the total increase in "same property" operating costs, respectively.  In general terms, the increase in operating costs for the Fort McMurray hotel portfolio reflects an increase in variable costs related to the increase in room revenue of the hotel portfolio, including an increase in labour costs.  The increase in operating costs at the Sheraton Red Deer is mainly due to an increase in variable costs related to the increase in other hotel revenue at the hotel.

 
Operating Income and Profit Margin
  Year Ended    Year Ended 
                             Increase/             
        2012          2011          (Decrease)         2012         2011 
Same Properties                
  Fort McMurray $ 17,384   $ 13,103   $ 4,281        55%        49%
  Other        11,677         10,809         868        25%        24%
   Total - Same Properties $ 29,061   $ 23,912   $ 5,149    37%        34%
                 
Newly Acquired Properties $ 7,951   $ 77   $  7,874        37%        31%
Total portfolio $ 37,012   $ 23,989   $ 13,023        37%        34%
                       

Total operating income increased by $13.02 million or 54% during 2012, compared to 2011, comprised of an increase of $5.15 million or 22% for the "same property" portfolio and $7.87 million which is attributable to new hotel acquisitions.  The increase in "same property" operating income is mainly attributable to an increase in operating income for the Fort McMurray "same property" portfolio, Sheraton Red Deer and Temple Gardens hotels.

As disclosed in the preceding chart, the overall profit margin of the entire hotel portfolio increased from 34% during 2011, to 37% during 2012. A significant factor in the improvement in the overall profit margin is the revenue mix of the new hotels.  The majority of the hotel properties which were acquired in 2012 derive a large proportion of revenue from room sales as opposed to "Other hotel revenue" which is mainly derived from food & beverage sales. Incremental room revenue carries a much higher profit margin in percentage terms in comparison to incremental other hotel revenue.

COMPARISON TO PRIOR QUARTERS

Analysis of Net Income (Loss) - Q4-2012 vs. Q3-2012 and Q4-2011
                  Increase/              Increase/ 
        Q4-2012          Q3-2012          (Decrease)          Q4-2011         (Decrease) 
Revenue                  
      Room $ 19,657    18,954    $ 703    $ 10,690    $ 8,967 
      Other        10,132           6,300          3,832          8,195           1,937 
      Total revenue        29,789          25,254          4,535          18,885           10,904 
Hotel operating costs        19,353          15,338           4,015          13,097          6,256 
Operating income        10,436          9,916           520          5,788          4,648 
Interest expense, net        5,334          7,399          (2,065)          4,490           844 
Trust expense        394          775           (381)          165           229 
Depreciation and amortization        3,089           2,726          363          1,826          1,263 
         1,619          (984)          2,603          (693)           2,312 
Equity Loss on investment in hotel   properties        (26)           -           (26)           -          (26) 
Loss on disposal of property and equipment        -                   -           (561)           561 
Change in fair value of financial    instruments: gain (loss)        (348)          (1,621)          1,273          (5,042)           4,694 
Income taxes recovery (expense)        (926)          442          (1,368)          942           (1,868) 
Net income (loss) $  319    $  (2,163)    $ 2,482    $ (5,354)    $ 5,673 

Comparison to Q3-2012

Income, before the equity loss, loss on disposal of property and equipment, change in fair value of financial instruments and income taxes, increased by $2.60 million during the fourth quarter of 2012, compared to the third quarter of 2012.  The increase in income mainly reflects a decrease in interest expense, net, and an increase in operating income.

"Interest expense, net" decreased by $2.07 million during Q4-2012 compared to Q3-2012.  The decrease in interest expense mainly reflects a decrease in convertible debenture transaction costs, partially offset by an increase in mortgage loan interest from third and fourth quarter hotel acquisitions and an increase in convertible debenture interest as a result of the Series E convertible debenture offering in August 2012.  Convertible debenture transaction costs were comparatively high in Q3-2012 as the transaction costs for the Series E convertible debentures of $2.44 million were expensed in the third quarter.

Operating income increased by $0.52 million or 5%, comprised primarily of the increase in the operating income which is attributable to new hotels.

 
Room Revenue Statistics
         Q4 2012        Q3 2012 
        Occ         ADR          RevPar         Occ         ADR         RevPar 
Same Properties                  
  Fort McMurray       64%    182.42    116.28         72%    182.44    131.65 
  Other       64%    147.85    94.57          66%    142.44    94.68 
    Total - Same Properties       64%    167.03    106.63          70%    165.47    115.22 
Total - Newly Acquired Properties       70%    152.53    107.35          77%    $  156.01    119.65 
Total Portfolio       66%    160.88    106.92          72%    161.88    116.80 

As disclosed in the preceding chart, the occupancy level for the Fort McMurray hotel portfolio decreased from 72% in Q3-2012 to 64% in Q4-2012 and the average daily room rate stayed constant, resulting in a decrease in RevPar of $15.37 to $116.28 per room.  The occupancy level for the other hotels in the same property portfolio decreased from 66% in Q3-2012 to 64% in Q4-2012 and the average daily room rate increased by 4%, while RevPar stayed constant.

RevPar for the six new hotels was $107.35 per room for Q4-2012 and RevPar for the total portfolio decreased to $106.92 during Q4-2012, compared to $116.80 during Q3-2012.

After reflecting income tax expense, the equity loss, the loss on disposal and the loss associated with the change in fair value financial instruments, the net income increased by $2.48 million, during Q4-2012 compared to   Q3-2012.

Comparison to Q4-2011

During Q4-2012, income, before the equity loss, loss on disposal of property and equipment, change in fair value of financial instruments and income taxes, increased by $2.31 million compared to Q4-2011.  The increase in income mainly reflects an increase in operating income, partially offset by an increase in interest expense, net and depreciation and amortization.

The increase in interest expense, net of $0.84 million is mainly attributable to an increase in mortgage loan interest related to the financing of the additional hotel acquisitions in 2012 and an increase in convertible debenture interest.

The increase in operating income of $4.65 million is mainly attributable to an increase of $1.53 million in "same property" operating income and an increase of $3.12 million of operating income which is attributable to new hotels.  The increase in "same property" operating income is mainly attributable to an increase in operating income for the Fort McMurray "same property" hotel portfolio, partially offset by a decrease in operating income at Temple Gardens and the Days Inn Lloydminster.

The occupancy level for the Fort McMurray hotel portfolio increased from 59% in Q4-2011 to 64% in Q4-2012 and the average daily room rate increased by 16%, resulting in an increase in RevPar of $23.02 to $116.28 in Q4-2012. The occupancy level for the other hotels in the same property portfolio increased from 63% in        Q4-2011 to 64% in Q4-2012 and the average daily room rate increased by 6%, resulting in a $4.92 increase in RevPar to $94.57 in Q4-2012. RevPar of the total portfolio increased to $106.92 Q4-2012, compared to $88.44 Q4-2011.

After reflecting income tax expense, the equity loss, loss on disposal of property and equipment and the loss associated with the change in fair value financial instruments, the net income increased by $5.67 million during Q4-2012 compared to Q4-2011.

ABOUT TEMPLE

Temple is a real estate investment company listed on the Toronto Stock Exchange under the symbols TPH (common shares), TPH.DB.B, 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, Investor Relations
Tel: (204) 475-9090, Fax: (204) 452-5505, Email: info@templehotels.ca


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