Temple Hotels Inc. Reports 2015 Second Quarter Results

WINNIPEG, Aug. 14, 2015 /CNW/ - Temple Hotels Inc. ("Temple") (TSX: TPH) today reported its financial results for the quarter ended June 30, 2015.  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 quarter ended June 30, 2015, 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

  • Net operating income decreased by $1.3 million or 9% in Q2-2015 compared to Q2-2014, comprised of a $2.8 million decrease in operating income in the same property portfolio partially offset by $1.5 million attributable to new acquisitions.
  • Net operating income for non-Alberta same properties increased by $0.7 million or 14% in Q2-2015 compared to Q2-2014, reflecting an increase in occupancy levels by 3 percentage points, a $1.48 increase in ADR (1.1%)  and $5.19 increase in RevPAR (5.5%).
  • The sale of Hotel Saskatchewan will close on September 1, 2015 and is expected to provide approximately $24.5 million of net cash proceeds that will be directed to the repayment of debt.
  • The change in the dividend policy to a quarterly annual dividend will permit operating cash flows to be directed to additional debt repayment.
  • The Board of Directors has strengthened Board governance by separating the role of the C.E.O. and Chairman. Mr. Chris Cahill assumes the role of Chairman and Mr. Arni Thorsteinson as C.E.O.

OPERATING RESULTS


Three Months Ended June 30

Six Months Ended June 30


2015

2014

2015

2014

Total revenue

$47,896

$47,495

$91,453

$87,408

Operating income

$14,149

$15,482

$24,942

$27,201

Net loss

$(2,284)

$(34)

$(6,900)

$(2,331)






Cash flow from operating activities

$6,787

$7,127

$9,963

$9,692

Funds from operations

$5,350

$6,669

$6,861

$10,928

Adjusted funds from operations

$4,213

$5,642

$4,664

$8,861

Per share





‑ FFO

$0.13

$0.16

$0.17

$0.27

‑ AFFO

$0.10

$0.14

$0.11

$0.22






Occupancy

66%

68%

62%

66%

ADR

$144.34

$152.74

$143.91

$151.10

RevPAR

$94.67

$103.74

$89.80

$100.28

Key Points

  • In comparison to Q2-2014, operating income decreased by $1.3 million or 9% during Q2-2015, comprised of a $2.8 million decrease in operating income from the same property portfolio (properties acquired prior to January 1, 2014) partially offset by a $1.5 million increase in operating income from the six hotel properties acquired in 2014.
  • The decrease in operating income from the same property portfolio continues to reflect the impact of lower oil prices on oil-dependent lodging markets in Fort McMurray and, to a lesser extent, properties located in other parts of Alberta. During Q2-2015, operating income from the Fort McMurray segment decreased by $1.9 million and operating income from the other Canada segment decreased by $0.9 million, compared to the same period in 2014.
  • The decline in operating income from the Fort McMurray segment reflects a decrease in occupancy from 66% during Q2-2014 to 53% during Q2-2015. The decrease in occupancy reflects lower business activity in 2015 compared to more favourable hotel market conditions in the Q2-2014.
  • The decrease in operating income from the other Canada segment mainly reflects a decrease in other hotel revenue of $0.8 million, which is mainly attributable to lower food and beverage revenues at the Sheraton Red Deer and, to a lesser extent, the Days Inn Lloydminster. The decrease in other hotel revenue is mainly the result of weakening economic conditions in Alberta.
  • During Q2-2015, "Funds from Operations" (FFO) decreased by $1.3 million and "Adjusted Funds from Operations" (AFFO) decreased by $1.4 million, compared to Q2-2014. On a basic per share basis, FFO and AFFO decreased by $0.03 per share and $0.04 per share, respectively, compared to Q2-2014.
  • Cash flow from operating activities decreased by $0.3 million during Q2-2015, compared to Q2-2014. After excluding working capital adjustments, cash flow from operating activities decreased by $1.5 million during Q2-2015, compared to Q2-2014.

Non-Alberta Properties

Net operating income for non-Alberta same properties increased by $0.7 million or 14% in Q2-2015 compared to Q2-2014, reflecting an increase in occupancy levels by 3 percentage points, a $1.48 increase in ADR (1.1%)  and $5.19 increase in RevPAR (5.5%).

Sale of the Hotel Saskatchewan

On July 6, 2015, Temple announced the $38 million sale of the Hotel Saskatchewan.  A gain on sale in the approximate amount of $5 million will be recorded in Q3-2015. The sale results from an unsolicited offer and is expected to provide net proceeds on closing of $17.0 million after the repayment of the existing first mortgage loan. The agreement also provides for the repayment to Temple by the purchaser of all capital expenditures incurred to the closing date. The aggregate net cash proceeds of approximately $24.5 million, including capital expenditure reimbursement, will be used to retire the revolving loan in full, to reduce debt and to improve working capital.

Dividends

In May 2015, Temple discontinued its monthly dividend in favour of a quarterly dividend policy of $0.025 per share ($0.10 annualized) and declared a dividend of $0.025 per share for the quarter ending September 30, 2015 to be paid on October 15, 2015. The change to the dividend was implemented to address the anticipated reduction in Temple's 2015 operating results as a result of a decline in oil prices.

In comparison to the per share AFFO of $0.35 for the trailing twelve month period ended June 30, 2015, the annualized dividend of $0.10 per share represents a payout ratio of 29% and, as a result; the reduced dividend will permit Temple to retain operating cash flow in order to improve working capital and reduce debt.

Capital Expenditures

With the sale of the Hotel Saskatchewan and the completion of major capital expenditure programs at three properties in 2015, capital expenditures during 2015 are expected to be substantially reduced compared to the prior year. It is anticipated that total capital expenditures for the remainder of 2015 will be approximately $7.0 million, comprised of $3.5 million of capital expenditures at the Hotel Saskatchewan which will be reimbursed at closing, $0.7 million of ongoing major capital expenditure at the Saskatoon Inn and $2.8 million of recurring capital expenditures.

Changes to the Board of Directors

At the June 30, 2015 annual and special meeting of the shareholders, three new directors were elected to the Board. The new directors include Mr. Chris Cahill, a corporate director with over 40 years of experience in the hotel industry; Mr. Rai Sahi, the chairman and CEO of Morguard Corporation; and Mr. Peter Aghar, the founder and president of Crux Capital Corporation. The Board of Directors has strengthened Board governance by separating the role of the C.E.O. and Chairman. Mr. Chris Cahill assumes the role of Chairman and Mr. Arni Thorsteinson as C.E.O.

Outlook

The sale of the Hotel Saskatchewan will permit Temple to repay debt and improve working capital. In addition, the reduction of the dividend and the completion of most major capital expenditure programs will permit Temple to further reduce debt and improve working capital.

Although weaker conditions are expected to persist in Alberta, the balance of the geographical markets in which Temple operates are generating growth in revenues and earnings this year. Lower gas prices and the declining value of the Canadian dollar are already attracting higher volumes of domestic and foreign guests at other hotels.

 

Analysis of Net Income (Loss)


Three Months Ended  
June 30



Six Months Ended 
June 30







Increase /
(Decrease)






Increase /
(Decrease)


2015


2014


in Income


2015


2014


in Income

Revenue













Room revenue

$    35,307


$      34,422


$        885


$      66,681


$      63,667


$ 3,014


Other hotel revenue

12,589


13,073


(484)


24,772


23,741


1,031


Total revenue

47,896


47,495


401


91,453


87,408


4,045

Hotel operating costs

33,747


32,013


(1,734)


66,511


60,207


(6,304)

Operating income

14,149


15,482


(1,333)


24,942


27,201


(2,259)













Interest expense, net

9,030


8,341


(689)


17,996


15,661


(2,335)

Share based compensation

91


75


(16)


175


223


48

General and administrative expenses

111


765


654


448


973


525

Depreciation and amortization

8,500


6,767


(1,733)


16,289


14,331


(1,958)


(3,583)


(466)


(3,117)


(9,966)


(3,987)


(5,979)

Equity income on investment in hotel properties

433


368


65


538


584


(46)

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

68


89


(21)


66


128


(62)

Income tax recovery (expense)

798


(25)


823


2,462


944


1,518

Net loss

$     (2,284)


$            (34)


$   (2,250)


$      (6,900)


$      (2,331)


$ (4,569)

Per Share Results:













Basic and diluted

$       (0.05)


$        (0.00)




$        (0.17)


$        (0.06)




Hotel Revenue

Analysis of Total Hotel Revenues







Three Months Ended June 30




Six Months Ended June 30







Increase/





  Increase/


2015


2014


(Decrease)


2015


2014


(Decrease)

Total ‑ Same Properties













Room revenue

$         28,692


$         31,636


$   (2,944)


$       54,138


$          60,881


$    (6,743)


Other hotel revenue

10,675


11,470


(795)


21,207


22,138


(931)


Total hotel revenue

$         39,367


$         43,106


$   (3,739)


$       75,345


$          83,019


$    (7,674)

Total ‑ Acquisitions













Room revenue

$           6,615


$           2,786


$     3,829


$       12,543


$           2,786


$       9,757


Other hotel revenue

1,914


1,603


311


3,565


1,603


1,962


Total hotel revenue

$           8,529


$           4,389


$     4,140


$       16,108


$           4,389


$     11,719

Total













Room revenue

$         35,307


$         34,422


$        885


$       66,681


$          63,667


$       3,014


Other hotel revenue

12,589


13,073


(484)


24,772


23,741


1,031


Total hotel revenue

$         47,896


$         47,495


$        401


$       91,453


$          87,408


$       4,045

Over the past three years, Temple has reduced its exposure to oil‑dependent lodging markets by acquiring properties that enhance the geographic diversification of its portfolio. Nevertheless, Temple has retained a significant concentration of properties in the Fort McMurray, Alberta market which is dependent upon primary demand from companies and tradespeople that serve the oil sands industry. Over the past year, the decline in oil prices has reduced the extent of construction and other economic activity throughout the oil sands, resulting in weaker hotel market conditions in Fort McMurray and, to a lesser degree, other oil dependent markets in which Temple operates, including Lloydminster and Red Deer, Alberta. As a result, occupancy levels for hotels in this region have decreased. Management expects that the weaker hotel market conditions will limit RevPAR growth for these markets in 2015; however, ADR and operating margins are expected to remain above the national average.

During Q2-2015, room revenue increased by $0.89 million, or 3%, compared to Q2-2014, comprised of incremental revenue of $3.83 million from new hotel acquisitions partially offset by decreases of $2.7 million or 28% in the Fort McMurray portfolio and $0.24 million or 1% in the other Canada portfolio. The Fort McMurray same property portfolio accounted for approximately 92% of the decrease in "same property" room revenue.

During the first six months of 2015, room revenue increased by $3.01 million or 5%, compared to the first six months of 2014. The increase reflects incremental revenue of $9.76 million from new hotel acquisitions partially offset by a decrease of $5.30 million or 27% in the Fort McMurray portfolio and a decrease of $1.45 million or 3% in the other Canada portfolio. The Fort McMurray portfolio accounted for approximately 79% of the decrease in same property room revenue.

The decrease in room revenue in the Other Canada portfolio is comprised of a $1.93 million (13%) decrease in room revenue from hotels in Alberta and a $0.49 million (2%) increase in room revenue from Other Canada hotels which are located outside of Alberta.

Four properties account for the year to date decline in room revenue in the other Canada portfolio with declines in room revenue at the Days Inn Lloydminster ($0.88 million), the Holiday Inn Express Sherwood Park ($0.38 million), the Acclaim Calgary ($0.33 million) and the Sheraton Red Deer ($0.29 million). The decline at the Days Inn Lloydminster, Acclaim Calgary and Sheraton Red Deer is related to the decline in oil prices. The decrease at the Holiday Inn Express Sherwood Park reflects the unavailability of guest rooms during hotel renovations which were completed in Q1-2015.

As disclosed in the following chart, RevPAR for the same property portfolio was $93.50 during Q2-2015, compared to $96.47 during Q2-2014. RevPAR for new hotel acquisitions was $100.56 during Q2-2015 compared to $110.69 during the first six months of 2014.

For the six months ended June 30, 2015, RevPAR for the Same Property portfolio was $88.70, compared to $90.75 for the six months ended June 30, 2014. RevPAR for the portfolio of newly acquired properties was $95.40 during the first six months of 2015, compared to $110.69 during the first six months of 2014.

The decrease in RevPAR for the same property portfolio mainly reflects a decrease in occupancy levels at the Fort McMurray portfolio due to declining economic activity in the oil sands.

Room Revenue Statistics






Three Months Ended June 30


2015


2014


Occ


  ADR 


RevPAR


   Occ 


ADR


RevPAR

Same Property












Fort McMurray

53%


$ 173.48


$ 92.20


66%


$ 194.18


$ 127.86


Other Canada

68%


$ 137.87


$ 93.93


69%


$ 138.67


$ 100.74

Total ‑ Same Property

64%


$ 145.12


$ 93.50


68%


$ 151.97


$ 96.47

Acquisitions

71%


$ 140.75


$ 100.56


66%


$ 166.82


$ 110.69

Overall Portfolio

66%


$ 144.34


$ 94.67


68%


$ 152.74


$ 103.74

Room Revenue Statistics






Six Months Ended June 30


2015


2014


Occ


  ADR 


RevPAR


   Occ 


  ADR 


RevPAR

Same Property













Fort McMurray

54%


$ 176.68


$ 95.41


68%


$ 192.35


$ 130.59


Other Canada

63%


$ 136.42


$ 86.50


66%


$ 136.44


$ 89.86

Total ‑ Same Property

61%


$ 145.20


$ 88.70


66%


$ 137.67


$ 90.75

Acquisitions

69%


$ 138.09


$ 95.40


66%


$ 166.82


$ 110.69

Overall Portfolio

62%


$ 143.91


$ 89.80


66%


$ 151.10


$ 100.28

The above chart does not reflect the operating results for the Cortona Residence, which is 100% leased at an annual net rent of $2.12 million.

The Other Canada portfolio reflects the following:

Room Revenue Statistics






 Three Months Ended June 30


2015


2014


Occ


  ADR 


RevPar


   Occ 


  ADR     


RevPar

Other Canada












Other Alberta

63%


$ 134.03


$ 84.33


70%


$ 139.78


$ 97.82

Hotel outside of Alberta

71%


$ 139.58


$ 98.71


68%


$ 138.10


$ 93.52

Total ‑ Other Canada

68%


$ 137.87


$ 93.93


69%


$ 138.67


$ 100.74

Room Revenue Statistics






Six Months Ended June 30


2015


2014


Occ


  ADR 


RevPar


   Occ 


  ADR     


RevPar

Other Canada












Other Alberta

62%


$ 133.49


$ 83.33


69%


$ 138.93


$ 95.88

Hotel outside of Alberta

64%


$ 137.85


$ 88.07


64%


$ 135.10


$ 86.49

Total ‑ Other Canada

63%


$ 136.42


$ 86.50


66%


$ 136.44


$ 89.86

Other Hotel Revenue

During Q2-2015, other hotel revenue decreased by $0.48 million or 4%, compared to Q2-2014, comprised of incremental revenue of $0.31 million from new hotel acquisitions and a decrease of $0.79 million from the same property portfolio. The decrease in other revenue for the same property portfolio reflects a $0.73 million decrease in other revenue at the Sheraton Red Deer and a $0.23 million decrease at the Days Inn Lloydminster and reflects decreased occupancy in hotel markets that are directly or indirectly related to the oil industry. Sheraton Red Deer and Days Inn Lloydminster have also experienced lower banquet, restaurant and liquor revenues as a result of the downturn in the economy.

During the first six months of 2015, other hotel revenue increased by $1.03 million or 4%, compared to the first six months of 2014, comprised of incremental revenue of $1.96 million from new hotel acquisitions and a decrease of $0.93 million from the same property portfolio.

Operating Income and Profit Margin


Operating Income


Operating Profit Margin 


Three Months Ended 


Six Months Ended  


Three Months Ended


Six Months Ended


2015


2014


2015


2014


2015


2014


2015


2014

Same Property

















Fort McMurray

$       3,523


$       5,423


$      7,103


$    10,753


46%


53%


46%


52%


Other Canada

7,957


8,900


13,342


15,289


25%


27%


22%


25%


Total ‑ Same Property

$     11,480


$      14,323


$    20,445


$    26,042


29%


33%


27%


46%

Acquisitions

$       2,669


$       1,159


$      4,497


$      1,159


31%


26%


28%


36%

Total portfolio

$     14,149


$      15,482


$    24,942


$    27,201


30%


33%


27%


31%

The Other Canada portfolio is comprised of the followings:

Operating Income and Profit Margin


Operating Income


Operating Profit Margin


Three Months Ended 


   Six Months Ended 


Three Months Ended   


Six Months Ended


2015


2014


2015


2014


2015


2014


2015


2014

Other Canada

















Other Alberta

$       2,081


$       3,706


$      4,690


$      7,054


19%


28%


21%


27%


Hotel outside of Alberta

5,876


5,194


8,652


8,235


29%


26%


23%


23%

Total ‑ Other Canada

$       7,957


$       8,900


$    13,342


$    15,289


25%


27%


22%


25%

Total operating income decreased by $1.33 million or 9% during Q2-2015, compared to Q2-2014, comprised of a decrease of $2.84 million or 20% for the same property portfolio and an increase of $1.51 million from new hotel acquisitions. The decrease in same property operating income reflects a $1.90 million or 35% decrease in operating income for the Fort McMurray same property portfolio and a $0.94 million or 11% decrease in operating income for the other Canada same property category.

For the first six months of 2015, total operating income decreased by $2.26 million or 8%, compared to the first six months of 2014, comprised of a decrease of $5.60 million or 22% for the same property portfolio partially offset by incremental income of $3.34 million which is attributable to new hotel acquisitions.

As disclosed in the preceding chart, the overall profit margin of the entire hotel portfolio decreased from 33% during Q2-2014 to 30% during Q2-2015. For the six months ended June 30, 2015, the overall profit margin was 27%, compared to 31% for the six months ended June 30, 2014.


COMPARISON TO PRIOR QUARTER

Analysis of Net Income (loss)






Increase /
(Decrease)


   Q2-2015  


    Q1-2015   


in Income

Revenue







Room

$       35,307


$         31,374


$          3,933


Other

12,589


12,183


406


Total revenue

47,896


43,557


4,339

Hotel operating costs

33,747


32,764


(983)

Operating income

14,149


10,793


3,356

Interest expense, net

9,030


8,966


(64)

Share based compensation

91


84


(7)

General and administrative expenses

111


337


226

Depreciation and amortization

8,500


7,789


(711)


(3,583)


(6,383)


2,800

Equity income on investment in hotel properties

433


105


328

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

68


(2)


70

Income taxes recovery

798


1,664


(866)

Net loss

$      (2,284)


$        (4,616)


$          2,332

The loss before equity income, change in fair value of financial instruments and income taxes, decreased by $2.80 million during Q2-2015, compared to Q1-2015. The decrease in the loss mainly reflects an increase in operating income and a decrease in general and administrative expenses, partially offset by an increase in depreciation and amortization charges.

During Q2-2015, operating income increased by $3.36 million or 31%. The increase consists of an increase of $2.57 million in operating income from the other Canada portfolio and an increase of $0.84 million in the operating income of new hotels. The increase in operating income from the other Canada portfolio and new hotels is primarily due to seasonal increases in occupancy.

The decrease in general and administrative expenses is mainly due to the recovery of a deposit pertaining to the development the Fort McMurray Marriott airport hotel during the second quarter of 2015

After providing for equity income, the income associated with the change in fair value financial instruments and income taxes, the Q2-2015 net loss decreased by $2.33 million, compared to Q1-2015.

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

RELATED LINKS
http://templehotels.ca/

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