Temple Hotels Inc. Reports 2014 Financial Results

WINNIPEG, March 11, 2015 /CNW/ - Temple Hotels Inc. ("Temple") (TSX: TPH) today reported its financial results for the year ended December 31, 2014.  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, 2014, 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. 

ACHIEVEMENT OF KEY GROWTH OBJECTIVES

For 2014, the operations of Temple Hotels Inc. were highlighted by asset growth, geographic diversification, accretive capital expenditures and debt re-financing initiatives. Although lower occupancy market conditions in Fort McMurray affected the overall income results in 2014, the Fort McMurray hotel portfolio continues to represent a foundation for future growth potential in earnings.

Highlights for 2014 include:

Growth of Hotel Portfolio

Temple continued with its strategic growth plans during 2014, acquiring six properties at a combined gross purchase price of $127.5 million. The six new properties encompass a total of 722 rooms. Overall, the total number of rooms in Temple's wholly owned hotel portfolio increased during 2014 by 21% to 4,094 rooms. Including the two 50% owned properties, Temple currently owns 32 properties, comprising 4,393 rooms.

Geographic Diversification Across Canada

One of Temple's primary investment objectives is to create a portfolio of hotel properties and assets, which is geographically diversified. To this end, Temple focused its acquisition activities during 2014 in Eastern Canada, acquiring two Days Inn hotels in Thunder Bay, Ontario, the TownPlace Suites by Marriott in Sudbury, Ontario and the Hilton Garden Inn in Mississauga, Ontario. Temple also increased its holdings in Regina, Saskatchewan acquiring the historic Hotel Saskatchewan in April 2014. The remaining acquisition consisted of a 100% leased investment property in Fort McMurray, Alberta.

Over the past three years, Temple has diversified from a predominantly Alberta operation to a company which now has a presence in Atlantic Canada, Ontario and across Western Canada. During 2014, the operating income from hotels outside of the Fort McMurray market accounted for 66% of Temple's total operating income, compared to 45% in 2011.

Continued Investment in Major Renovation Programs

In 2014, Temple continued its investment in major hotel renovation and upgrade programs to enhance the quality and competitive position of its hotel properties and thereby increasing market share. Overall, capital expenditures on hotel properties amounted to $28.5 million in 2014, including $13.4 million of expenditures at one of Temple's high profile properties, the Saskatoon Inn and Conference Centre. The capital expenditures at the Saskatoon Inn encompassed extensive renovations to guest rooms, hotel lobby, meeting facilities and the pool and fitness centre. In 2014, capital expenditures were also focused on the Prince George Hotel in Halifax, Nova Scotia, ($2.3 million) the Sheraton Red Deer Hotel in Red Deer, Alberta ($2.7 million) and the Holiday Inn South in Winnipeg, Manitoba ($2.3 million).

OPERATING RESULTS AND STATISTICS


Year Ended December 31


2014

2013




Total Revenue

$188,418

$156,412

Operating income

$57,995

$53,939

Net income (loss)

$(7,835)

$2,313




Cash flow from operating activities

$25,225

$21,729

Funds from operations (FFO)

$19,772

$23,259

Adjusted funds from operations (AFFO)

$18,262

$20,651




Per share



‑ FFO

$0.49

$0.79

‑ AFFO

$0.45

$0.70




Payout ratio



‑ FFO

111%

68%

‑ AFFO

121%

76%


67%

71%

Occupancy



ADR

$149.05

$156.61

RevPar

$99.62

$110.50

 

KEY POINTS

  • In comparison to 2013, operating income increased by $4.1 million or 8% during the 2014, comprised of an $11.5 million increase in operating income from new hotel properties (eight hotels acquired during 2013 and six hotels acquired in 2014) and a $7.4 million decrease in operating income from the "same property" portfolio (the 16 properties acquired prior to January 1, 2013).
  • The decrease in operating income from the same property portfolio is mainly due to a decrease in the occupancy level of same property hotel properties in Fort McMurray. During 2014, the occupancy level of the same hotel properties in Fort McMurray was 64%, compared to 74% in 2013. The decrease in occupancy reflects competitive hotel market conditions in 2014, compared to the very favourable hotel market conditions, which existed in 2013. Due to the high profit margin of the hotels in Fort McMurray, quarterly variations in occupancy levels also have a greater impact on operating income in comparison to other hotels.
  • The same property results for 2014 were also impacted by the major renovation program at the Saskatoon Inn. The renovation program at the Saskatoon Inn resulted in the loss of available room nights and a $1.3 million reduction in 2014 operating income compared to the previous year. The interior building phase of the renovation program was substantially completed at September 30, 2014.
  • Temple completed 2014 with a net loss of $7.84 million, compared to net income of $2.31 million in 2013. The decrease in 2014 is mainly due to an increase in depreciation and amortization charges of $10.6 million, an increase in net interest expense of $5.1 million and an increase in general and administration expenses of $1.3 million, partially offset by the increase in operating income of $4.1 million. On a per share basis, the net loss was $0.19 per share during 2014, compared to net income of $0.08 per share during 2013.
  • During 2014, "Funds from Operation" (FFO) decreased by $3.5 million (15%) and "Adjusted Funds from Operation" (AFFO) decreased by $2.4 million (12%), compared to 2013. On a basic per share basis, compared to 2013, FFO decreased by $0.30 (38%) and AFFO decreased by $0.25 (35%). The decrease in FFO and AFFO on a per share basis reflects lower year‑over‑year operating income and a 37% increase in the weighted average number of shares outstanding, as well as a lag in the full returns on the investment in the additional share capital.
  • In 2014, Temple achieved an FFO and AFFO payout ratio of 111% and 121% respectively, in comparison to an FFO and AFFO payout ratio of 68% and 76% in 2013. The higher payout ratios in 2014 are directly related to the decrease in FFO and AFFO results and the increase in the total of dividends declared and paid due to the increase in the weighted average number of shares outstanding.
  • Cash flow from operating activities increased by $3.5 million during 2014, compared to 2013. After excluding working capital adjustments, cash flow from operating activities decreased by $1.7 million during 2014, compared to 2013.

Financing Activities

During 2014, the main debt financing activities of Temple were as follows:

  • Financing for new acquisitions - New mortgage loan debt of $79.2 million was arranged/assumed on the acquisition of six properties at a combined average interest rate of 4.57%.
  • Upward refinancing - First mortgage loan debt for five properties was upward refinanced, resulting in net proceeds of $41.4 million, after repayment of the previous mortgage loan debt, a prepayment penalty of $0.5 million and transaction costs. The average interest rate of the upward refinanced debt is 4.9%. The upward refinanced debt includes a new first mortgage loan of $25 million for the Merit Hotel. The previous mortgage loan on the Merit property had been prepaid in 2013 from the proceeds of a share offering.
  • Line of Credit - Temple arranged a prime plus 2.25% line of credit, secured by a first mortgage charge against the Nomad Hotel. The maximum funding limit of the line of credit is recalculated quarterly based on the trailing twelve-month net operating income of the Nomad Hotel. As at December 31, 2014, the amount drawn on the line of credit exceeded the funding limit ($19.3 million) by $0.24 million. The difference was repaid in March 2015. The previous mortgage loan on the Nomad property had been prepaid in 2013 from the proceeds of the share offering.
  • Renewal of Mortgage Debt - Mortgage loan debt in the total amount of $35.2 million for three properties was renewed at maturity at an average interest rate of 4.62%.
  • As of December 31, 2014, Temple's total debt is equal to 69% of the appraised value of the total property portfolio, compared to 67% as of December 31, 2013. The weighted average interest rate of the total long‑term debt, including the line of credit, is 5.45% as of December 31, 2014, compared to 5.64% as of December 31, 2013.

Investing Activities

Temple invested $28.5 million in capital expenditures in 2014 and is expected to invest a further $19.1 million in 2015. The 2015 expenditures will generally complete the capital expenditure programs at ten properties and will position the hotel portfolio to take full advantage of the positive demand in the hotel industry in non‑resource hotel markets.

Liquidity

As of December 31, 2014, the total cash holding is approximately $14 million and the working capital is approximately $7.6 million. Cash balances primarily consist of reserves for operations and capital expenditures, which are held at individual hotel properties.

Temple has undertaken a number of initiatives in regard to improving its liquidity position, as follows:

  • In January 2015, Temple announced a reduction in its monthly dividend from $0.045 per share ($0.54 annualized) to $0.025 per share ($0.30 annualized).
  • The development proposal for the Marriott Courtyard at the Fort McMurray Airport has been discontinued by Temple.
  • Effective January 2015, Temple obtained a $5.0 million revolving loan commitment

Internalization of Management

In 2014, Temple announced its intention to internalize the asset and property management functions of the Company. The goal of the internalization process is to achieve greater management cost efficiencies and a more streamlined and effective management structure. The intention is to complete the process of internalizing the management of the Company by 2017. The transition to "in house" management may encompass the purchase of an existing hotel management company or the development of Temple's own management platform, or a combination of both.

Outlook

Given the enhanced geographic diversification of the hotel portfolio, and as a result of a lower Canadian dollar and lower gasoline prices, Temple is expected to experience revenue growth in most regional sectors of the country during 2015. A full year of operations for the six hotel properties acquired during 2014 will also assist revenue growth in 2015. The overall earnings growth expectations in 2015 may be limited due to the competitive hotel market conditions in Alberta and the temporary impact of 2015 renovation programs on occupancy levels at four hotels. 


2014 COMPARED TO 2013

Analysis of Net income (loss)


Year Ended



December 31




Increase
(Decrease)



2014


2013


in Income

Revenue








Room revenue

$

137,468

$

112,707

$

24,761


Other hotel revenue


50,950


43,705


7,245


Total revenue


188,418


156,412


32,006

Hotel operating costs


130,423


102,473


(27,950)

Operating income


57,995


53,939


4,056








Interest expense, net


33,828


28,764


(5,064)

Share based compensation


405


157


(248)

General and administrative expenses


4,959


3,636


(1,323)

Depreciation and amortization


30,478


19,904


(10,574)



(11,675)


1,478


(13,153)

Equity income on investment in hotel properties


946


504


442

Gain on expropriation


-


1,630


(1,630)

Change in fair value of financial instruments: gain (loss)


241


(830)


1,071

Income tax recovery (expense)


2,653


(469)


3,122

Net income (loss)

$

(7,835)

$

2,313

$

(10,148)

Per Share Results:








Basic

$

(0.19)

$

0.08




Diluted

$

(0.19)

$

0.08



 

Revenue

Analysis of Total Hotel Revenues




Year Ended December 31








Increase/





2014

2013

(Decrease)

Total ‑ Same Properties











Room revenue




$

81,259

$

88,363

$

(7,104)


Other hotel revenue





35,479


35,922


(443)


Total Hotel Revenue





116,738


124,285


(7,547)











Total ‑ Acquisitions











Room revenue




$

56,209

$

24,344

$

31,865


Other hotel revenue





15,471


7,783


7,688


Total Hotel Revenue




$

71,680

$

32,127

$

39,553











Total











Room revenue




$

137,468

$

112,707

$

24,761


Other hotel revenue





50,950


43,705


7,245


Total hotel revenue




$

188,418

$

156,412

$

32,006

 

During 2014, room revenue increased by $24.8 million or 22%, compared to 2013, comprised of a decrease of $7.1 million or 8% in "same property" revenue and incremental revenue of $31.9 million from new hotel acquisitions. The Fort McMurray same property portfolio accounted for approximately 81% of the decrease in same property room revenue.

As disclosed in the following chart, the RevPar for the same property portfolio was $105.16 during 2014, compared to $114.45 during 2013. The RevPar for new hotel acquisitions was $92.38 during 2014, compared to $91.72 during 2013.

Room Revenue Statistics


 Year Ended December 31


2014

2013


Occ

ADR 

RevPar

Occ 

ADR

RevPar

Same Properties








Fort McMurray

64%

$

190.24

$

120.73

73%

$

190.34

$

139.75


Other

65%

$

146.29

$

95.08

69%

$

142.99

$

98.05

Total ‑ Same Properties

64%

$

163.31

$

105.16

71%

$

162.40

$

114.45

Acquisitions

70%

$

131.91

$

92.38

68%


135.04


91.72

Overall Portfolio

67%

$

149.05

$

99.62

71%

$

156.61

$

110.50

 

The decrease in RevPar for the same property portfolio is mainly due to the Fort McMurray same property portfolio and mainly reflects a reduction in occupancy levels. Prior to Q4-2014, the reduction in occupancy levels for the Fort McMurray portfolio mainly reflected a more competitive hotel market due to delays in major oil sand projects and increased competition from new work camps. In Q4-2014 there was a further weakening of occupancy levels in Fort McMurray due to a decline in the price of oil.

The revenue results for the other same property portfolio reflect a more moderate decrease in RevPar resulting from a decrease in the occupancy level, partially offset by an increase in the average daily room rate. The decrease in the occupancy level mainly reflects the loss of available rooms at the Saskatoon Inn due to the hotel renovations. During 2014 room revenue for the Saskatoon Inn decreased by $1.5 million compared to 2013 and other hotel revenue decreased by $0.5 million. The interior hotel renovation program was substantially completed at December 31, 2014.

Other Hotel Revenue

During 2014, other hotel revenue increased by $7.2 million or 17%, compared to 2013, comprised of incremental revenue of $7.7 million from new hotel acquisitions and a decrease of $0.4 million from the same property portfolio. The decrease in other revenue for the same property portfolio is almost entirely the result of reduced revenue at the Saskatoon Inn, which experienced a $0.5 million reduction in other revenue in 2014 compared to 2013 due to hotel renovations.

Operating Income and Profit Margin


Operating Income

Operating Profit Margin


Amount



Year Ended December 31

Year Ended December 31




Increase/




2014

2013

(Decrease)

2014

2013

Same Properties











Fort McMurray


$

19,498

$

24,547

$

(5,049)

50%

55%


Other Canada



19,223


21,570


(2,347)

25%

27%

Total ‑ Same Properties


$

38,721

$

46,117

$

(7,396)

33%

37%











Acquisitions


$

19,274

$

7,822

$

11,452

27%

25%

Total portfolio


$

57,995

$

53,939

$

4,056

31%

34%

 

Total operating income increased by $4.1 million or 8% during 2014, compared to 2013, comprised of a decrease of $7.4 million or 16% for the same property portfolio and an increase of $11.4 million from new hotel acquisitions.  The decrease in same property operating income reflects a $5.0 million or 21% decrease in operating income for the Fort McMurray same property portfolio and a 2.3 million or 11% decrease in operating income for the Other Canada same property category. As disclosed in the preceding chart, the overall profit margin of the entire hotel portfolio decreased from 34% 2013 to 31% during 2014.

COMPARISON TO PRIOR QUARTERS

Analysis of Net Income (loss)







Increase /
(Decrease) 




Increase /
(Decrease)



  Q4-2014 


   Q3-2014  


  in Income


   Q4-2013  


in Income

Revenue












Room

$

34,392

$

39,409

$

(5,017)

$

29,034

$

5,358


Other


15,785


11,424


4,361


13,178


2,607


Total revenue


50,177


50,833


(656)


42,212


7,965

Hotel operating costs


36,507


33,709


(2,798)


29,620


(6,887)

Operating income


13,670


17,124


(3,454)


12,592


1,078

Interest expense, net


8,904


9,263


359


8,181


(723)

Share based compensation


94


88


(6)


52


(42)

General and administrative expenses


2,558


1,428


(1,130)


1,332


(1,226)

Depreciation and amortization


8,561


7,586


(975)


7,939


(622)



(6,447)


(1,241)


(5,206)


(4,912)


(1,535)

Equity income on investment in hotel properties


80


282


(202)


(13)


93

Gain on expropriation of property


-


-


-


1,630


(1,630)

Change in fair value of financial instruments:












gain (loss)


58


55


3


266


(208)

Income taxes recovery (expense)


1,500


209


1,291


1,050


450

Net loss

$

(4,809)

$

(695)

$

(4,114)

$

(1,979)

$

(2,830)

 

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

RELATED LINKS
http://templehotels.ca/

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