Temple Hotels Inc. Reports 2015 Third Quarter Results

WINNIPEG, Nov. 12, 2015 /CNW/ - Temple Hotels Inc. ("Temple") (TSX: TPH) today reported its financial results for the quarter ended September 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 September 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. 

Q3-2015 KEY POINTS/Highlights

  • Net operating income decreased by $3.8 million or 22% in Q3-2015 compared to Q3-2014, comprised of a $2.9 million and $1.1 million decrease, respectively, in the operating income of the same property portfolio and the sold property, partially offset by $0.2 million increase attributable to new acquisitions.
  • Net operating income for non-Alberta same properties increased by $0.5 million or 7.6% in Q3-2015 compared to Q3-2014, reflecting an increase in occupancy levels by 2 percentage points, a $3.29 increase in ADR (2.3%) and $4.59 increase in RevPAR (4.4%).
  • The sale of Hotel Saskatchewan closed on September 1, 2015 and provided approximately $24 million of net cash proceeds, after repayment of the first mortgage loan, that were primarily used to repay debt.
  • The rights offering was successfully completed on October 29, 2015 and resulted in the issuance of 36,363,636 common shares and net proceeds of $39.3 million that were used to primarily repay debt.
  • An accounting adjustment for impairment of $50.9 million was recognized in Q3-2015 to reflect the impact of the economic downturn on the accounting value of eight Alberta hotel properties.

OPERATING RESULTS


Three Months Ended Sept 30

Nine Months Ended Sept 30


2015

2014

2015

2014

Total revenue

$46,355

$50,833

$137,808

$138,241

Operating income

$13,307

$17,124

$38,246

$44,325

Net loss

$(33,097)

$(695)

$(39,997)

$(3,027)






Cash flow from operating activities

$4,976

$8,242

$14,939

$17,934

Funds from operations

$4,174

$6,650

$11,035

$17,578

Adjusted funds from operations

$2,953

$6,254

$7,617

$15,114

Per share





‑ FFO

$0.10

$0.16

$0.27

$0.43

‑ AFFO

$0.07

$0.15

$0.18

$0.37






Occupancy

68%

72%

64%

69%

ADR

$143.72

$148.26

$143.84

$150.01

RevPAR

$97.02

$107.16

$92.20

$102.79

Operating Activities

  • Operating income: During Q3-2015, operating income decreased by $3.8 million or 22%, compared to Q3-2014. The decrease is comprised of a $3.4 million decrease for same properties located in Alberta and a $1.1 million decrease in "Sold Property" operating income, partially offset by a $0.5 million increase in operating income in the Other Canada portfolio and a $0.2 million increase in operating income from the six hotels acquired in 2014 (the "Acquisition" segment).
  • Occupancy: During Q3-2015, the occupancy level of the Fort McMurray and Other Alberta hotels was 52% and 60% respectively, compared to 62% and 72% during Q3-2014. The decrease in the occupancy level mainly reflects the sustained impact of lower oil prices on energy dependent lodging markets in Fort McMurray and other parts of Alberta.
  • FFO and AFFO: During Q3-2015, FFO decreased by $2.5 million (37%) and AFFO decreased by $3.3 million (53%), compared to Q3-2014. On a basic per share basis, FFO and AFFO decreased by $0.06 per share and $0.08 per share, respectively, compared to Q3-2014. The decrease in FFO and AFFO mainly reflects a decrease in operating income, due to the factors noted above. During the nine months ended September 30, 2015, the FFO and AFFO payout ratios were 47% and 68%, respectively, compared 94% and 109% during the same period in 2014. The change in the payout ratio reflects the reduction of dividends in 2015.
  • Cash provided by operating activities: Cash provided by operating activities decreased by $3.3 million during Q3-2015, compared to Q3-2014. After excluding working capital adjustments, cash provided by operating activities decreased by $2.5 million, compared to Q3-2014.
  • Net Loss: Temple completed Q3-2015 with a net loss of $33 million, compared to a net loss of $0.7 million during Q3-2014. The substantial increase in the net loss is mainly due to the provision for asset impairment of $50.9 million, as well as a decrease in operating income of $3.8 million, partially offset by an increase in income tax recoveries of $13.1 million and a gain on sale of property of $9.1 million. On a per share basis, the net loss was $0.80 for Q3-2015, compared to a net loss per share of $0.02 during Q3-2014.
  • Asset impairment: The economic downturn in Alberta has resulted in decreases in occupancy levels and room rates for certain hotel properties. Evidence that the occupancy and room rate declines may be prolonged, current appraisals at reduced appraised values for certain properties in comparison to previous appraisals and the current share trading price mandated the completion of an impairment review and recoverability analysis in accordance with IFRS. As a result of the analysis, an accounting adjustment for asset impairment of $50.9 million for eight hotels in Alberta was recognized at September 30, 2015

Liquidity and Financing Activities

As of September 30, 2015, the unrestricted cash balance of Temple was $11.5 million and working capital was approximately $5.2 million, excluding the current portion of long‑term debt.

The main financing activities of Temple during 2015 were as follows:

  • Subsequent to September 30, 2015, the rights offering was completed and resulted in the issuance of 36,363,636 common shares for aggregate proceeds of $40 million and net proceeds of $39.3 million. The completion of the rights offering has enabled Temple to further reduce indebtedness and improve the working capital position.
  • Temple completed the sale of Hotel Saskatchewan on September 1, 2015 for gross proceeds of $38 million and net proceeds of $24 million, after the repayment of the first mortgage loan and including capital expenditure reimbursements of $7 million. The net proceeds were used to retire the revolving loan in full, reduce other debt and improve working capital.
  • In response to the economic downturn in Alberta, Temple reduced the annualized dividend payments from $0.54 to $0.30 in January 2015 and to $0.10 in May 2015. The reduction in annualized dividend payments has improved the FFO and AFFO payout ratios.
  • Temple has negotiated a reduction in the hotel management fees for Fort McMurray and Red Deer hotels.

Investing Activities

Temple has continued to invest in major hotel renovation programs with the objective of enhancing the quality and competitive position of its hotel properties.  During Q3-2015, capital expenditures on hotel properties amounted to $5.6 million, including $4 million of capital expenditures at the Hotel Saskatchewan and $1.2 million as part of other major refurbishment programs at four hotels.  During the first nine months of 2015, capital expenditures on hotel properties amounted to $17 million, of which $15.6 million related to major renovation and upgrade programs, including major expenditures of $7 million at the Hotel Saskatchewan which were reimbursed upon closing of the sale.

With the closing of the sale of the Hotel Saskatchewan and other major capital expenditures programs reaching completion, capital expenditures are expected to substantially decrease during the fourth quarter of 2015.  Management believes that the major capital expenditures programs, undertaken over the past several quarters, will serve to enhance the competitive position of Temple's renovated hotel properties.

Outlook

In view of the economic challenges in Alberta, Temple is focused on strengthening its balance sheet and undertaking strategic capital expenditures. Management is confident that the completion of the rights offering, the sale of Hotel Saskatchewan, the completion of capital expenditure programs and the geographic diversification of Temple's hotel portfolio will provide the foundation for 2016 earnings growth and mitigate the impact of the economic downturn in Alberta.

 

Analysis of Net income (loss)









Three Months Ended  



Nine Months Ended 








  September 30  



September 30  









Increase /
(Decrease)






Increase /
(Decrease)



2015


2014


in Income


2015


2014


in Income

Revenue














Room revenue

$

35,911


$

39,409


$

(3,498)


$

102,592


$

103,076


$

(484)


Other hotel revenue

10,444


11,424


(980)


35,216


35,165


51


Total revenue

46,355


50,833


(4,478)


137,808


138,241


(433)

Hotel operating costs


33,048


33,709


661


99,559


93,916


(5,643)

Operating income       


13,307


17,124


(3,817)


38,249


44,325


(6,076)

Interest expense, net


8,988


9,263


275


26,984


24,924


(2,060)

Share based compensation


110


88


(22)


285


311


26

General and administrative expenses


304


1,428


1,124


752


2,401


1,649

Depreciation and amortization


8,799


7,586


(1,213)


25,088


21,917


(3,171)



(4,894)


(1,241)


(3,653)


(14,860)


(5,228)


(9,632)

Equity income on investment in
hotel properties


269


282


(13)


807


866


(59)

Gain on sale of property


9,071


-


9,071


9,071


-


9,071

Provision for impairment


(50,857)


-


(50,857)


(50,857)


-


(50,857)

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


61


55


6


127


183


(56)

Income tax recovery (expense)


13,253


209


13,044


15,715


1,152


14,563

Net loss

$

(33,097)


$

(695)


$

(32,402)


$

(39,997)


$

(3,027)


$

(36,970)

Per Share Results:














Basic and diluted

$

(0.80)


$

(0.02)




$

(0.97)


$

(0.07)



Hotel Revenue

Analysis of Total Hotel Revenues





Three Months Ended Sept 30




Nine Months Ended Sept 30








Increase/




Increase/



2015

2014


(Decrease)  


2015


2014


(Decrease) 

Same Property














Fort McMurray















Room revenue

$

6,758


$

9,174


$

(2,416)


$

21,126


$

28,840


$

(7,714)


Other hotel revenue


457



427



30



1,588



1,576



12


$

7,215


$

9,601


$

(2,386)


$

22,714


$

30,416


$

(7,702)

Other Alberta



















Room revenue

$

5,983


$

7,535


$

(1,552)


$

18,716


$

22,200


$

(3,484)


Other hotel revenue


3,675



4,396



(721)



13,785



15,484



(1,699)


$

9,658


$

11,931


$

(2,273)


$

32,501


$

37,684


$

(5,183)



















Other Canada



















Room revenue

$

17,026


$

16,258


$

768


$

44,063


$

42,807


$

1,256


Other hotel revenue


5,198



4,810



388



15,165



14,710



455


$

22,224


$

21,068


$

1,156


$

59,228


$

57,517


$

1,711

Total ‑ Same Property



















Room revenue

$

29,767


$

32,967


$

(3,200)


$

83,905


$

93,847


$

(9,942)


Other hotel revenue


9,330



9,633



(303)



30,538



31,770



(1,232)


Total hotel revenue

$

39,097


$

42,600


$

(3,503)


$

114,443


$

125,617


$

(11,174)



















Total ‑ Acquisition



















Room Revenue

$

5,105


$

4,083


$

1,022


$

14,077


$

4,614


$

9,463


Other hotel revenue


430



331



99



1,323



358



965


Total hotel revenue

$

5,535


$

4,414


$

1,121


$

15,400


$

4,972


$

10,428



















Total ‑ Sold Property



















Room revenue

$

1,039


$

2,359


$

(1,320)


$

4,610


$

4,615


$

(5)


Other hotel revenue


684



1,460



(776)



3,355



3,037



318


Total hotel revenue

$

1,723


$

3,819


$

(2,096)


$

7,965


$

7,652


$

313



















Total



















Room revenue

$

35,911


$

39,409


$

(3,498)


$

102,592


$

103,076


$

(484)


Other hotel revenue


10,444



11,424



(980)



35,216



35,165



51


Total hotel revenue

$

46,355


$

50,833


$

(4,478)


$

137,808


$

138,241


$

(433)

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 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 the remainder of 2015 and into 2016; however, ADR and operating margins are expected to remain above the national average.

During Q3-2015, room revenue decreased by $3.50 million or 9%, compared to Q3-2014. The decrease mainly reflects a decrease of $3.20 million or 10%  in same property room revenue and is comprised of a $2.42 million (26%) decrease in the Fort McMurray portfolio and a $1.55 million (21%) decrease in the other Alberta portfolio, offset by a $0.77 million (5%) increase in the other Canada portfolio.

During the first nine months of 2015, room revenue decreased by $0.48 million or 0.5%, compared to the first nine months of 2014. The decrease mainly reflects a decrease of $9.94 million or 11% in the same property portfolio mostly offset by incremental revenue of $9.46 million from new hotel acquisitions. The Fort McMurray portfolio accounted for approximately 78% of the decrease in same property room revenue.

For both the three and nine month comparatives, the decrease in same property room revenue is largely due to unfavourable market conditions affecting the Fort McMurray segment and, to a lesser degree, oil‑dependent markets in the other Alberta segment. Overall, the impact of these two segments on the same property portfolio was partially offset by favourable market conditions for the other Canada segment which experienced 5% and 3% increases over 2014 for the three and nine months periods ending September 30, 2015, respectively.

As disclosed in the following chart, RevPAR for the same property portfolio was $95.95 during Q3-2015, compared to $106.42 during Q3-2014. RevPAR for new hotel acquisitions was $112.75 during Q3-2015 compared to $109.61 during Q3-2014.

For the nine months ended September 30, 2015, RevPAR for the same property portfolio was $91.14, compared to $102.12 for the nine months ended September 30, 2014. RevPAR for the portfolio of newly acquired properties was $103.71 during the first nine months of 2015, compared to $109.91 during the first nine months of 2014.

For both the three and nine month comparatives, same property portfolio RevPAR results generally reflect reduced ADR and occupancy levels in the Fort McMurray and other Alberta segments, partially offset by increased ADR and occupancy levels in the other Canada segment.

Room Revenue Statistics






Three Months Ended September 30              


2015


2014


 Occ 


  ADR 


 RevPar 


   Occ  


  ADR  


 RevPar 

Same Property













Fort McMurray

52%


$

169.59


$

88.29


62%


$

193.07


$

119.86


Other Alberta

60%


$

128.11


$

77.04


72%


$

134.66


$

96.92


Other Canada

76%


$

144.04


$

109.15


74%


$

140.75


$

104.56

Total ‑ Same Property

66%


$

145.37


$

95.95


71%


$

150.53


$

106.42

Acquisition

86%


$

130.74


$

112.75


87%


$

126.32


$

109.61

Sold Property

46%


$

163.24


$

75.69


73%


$

73.30


$

114.51

Overall Portfolio

68%


$

143.72


$

97.02


72%


$

148.26


$

107.16






















Room Revenue Statistics






Nine Months Ended September 30 


2015


2014


Occ


ADR


RevPar


Occ


ADR


RevPar

Same Property













Fort McMurray

53%


$

174.35


$

93.01


66%


$

192.58


$

126.97


Other Alberta

62%


$

131.72


$

81.22


70%


$

137.45


$

96.23


Other Canada

68%


$

140.17


$

95.17


68%


$

137.18


$

92.82

Total ‑ Same Property

63%


$

145.26


$

91.14


68%


$

150.56


$

102.12

Acquisition

80%


$

130.44


$

103.71


87%


$

126.32


$

109.91

Sold Property

53%


$

160.55


$

85.03


70%


$

69.83


$

112.59

Overall Portfolio

64%


$

143.84


$

92.20


69%


$

150.01


$

102.79

 

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

Other Hotel Revenue

During Q3-2015, other hotel revenue decreased by $0.98 million or 9%, compared to Q3-2014, comprised of a decrease of $0.72 million from the other Alberta properties and a decrease of $0.78 million from the sold property partially offset by incremental revenue of $0.10 million from new hotel acquisitions and a $0.39 million increase in the other Canada portfolio. The decrease in other revenue for the other Alberta property portfolio mainly reflects decreased economic activity in hotel markets that are directly or indirectly related to the oil industry

Notwithstanding the above, the Sheraton Red Deer was the most significant contributor to other hotel revenue in the same property portfolio during Q3-2015, accounting for $2.50 million or 27% of the other hotel revenue from the same property portfolio and 24% of other hotel revenue from all properties.

During the first nine months of 2015, other hotel revenue increased by $0.05 million or 0.1%, compared to the first nine months of 2014, comprised of incremental revenue of $0.97 million from new hotel acquisitions, increased revenue of $0.46 million from the other Canada portfolio and increased revenue of $0.32 million from the sold property, mostly offset by a decrease of $1.70 million from the other Alberta portfolio.

Operating Income and Profit Margin


Operating Income

Operating Profit Margin


Three Months Ended


Nine Months Ended


Three Months Ended

Nine Months Ended


2015


2014


2015


2014


2015


2014


2015


2014

Same Property

















Fort McMurray

$

3,025


$

4,928


$

10,129


$

15,681


42%


51%


45%


52%


Other Alberta

1,512


3,054


6,201


10,108


16%


26%


19%


27%


Other Canada

6,728


6,251


15,381


14,483


30%


30%


26%


25%

Total ‑ Same Property

$

11,265


$

14,233


$

31,711


$

40,272


29%


33%


28%


32%

















Acquisition

$

2,225


$

1,986


$

6,173


$

2,536


40%


45%


40%


51%

Sold Property

(183)


905


365


1,517


(11)%


24%


5%


20%

Total portfolio

$

13,307


$

17,124


$

38,249


$

44,325


29%


34%


28%


32%

Total operating income decreased by $3.82 million or 22% during Q3-2015, compared to Q3-2014, comprised of a decrease of $2.97 million or 21% for the same property portfolio and a decrease of $1.09 million from the sold property partially offset by an increase of $0.02 million from new hotel acquisitions.

The decrease in same property operating income reflects a $1.90 million or 38% decrease in operating income for the Fort McMurray segment and a $1.54 million or 50% decrease in operating income for the other Alberta segment, partially offset by a $0.48 million or 8% increase in operating income for the other Canada segment.

For the first nine months of 2015, total operating income decreased by $6.08 million or 14%, compared to the first nine months of 2014, comprised of a decrease of $8.56 million or 21% for the same property portfolio and a decrease of $1.15 million attributable to the sold property, partially offset by incremental income of $3.64 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 34% during Q3-2014 to 29% during Q3-2015. For the nine months ended September 30, 2015, the overall profit margin was 28%, compared to 32% for the nine months ended September 30, 2014.


COMPARISON TO PRIOR QUARTER

Analysis of Net Income (loss)






Increase /
(Decrease)


   Q3-2015  


    Q2-2015   


in Income

Revenue







Room

$

35,911


$

35,307


$

604



Other

10,444


12,589


(2,145)



Total revenue

46,355


47,896


(1,541)


Hotel operating costs

33,048


33,747


699


Operating income

13,307


14,149


(842)


Interest expense, net

8,988


9,030


42


Share based compensation

110


91


(19)


General and administrative expenses

304


111


(193)


Depreciation and amortization

8,799


8,500


(299)



(4,894)


(3,583)


(1,311)


Equity income on investment in hotel properties

269


433


(164)


Gain on sale of property

9,071


-


9,071


Provision for impairment

(50,857)


-


(50,857)


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

61


68


(7)


Income taxes recovery

13,253


798


12,455


Net loss

$

(33,097)


$

(2,284)


$

(30,813)


The loss before equity income, gain on sale, provision for impairment, change in fair value and income taxes, increased by $1.31 million during Q3-2015, compared to Q2-2015. The increase in the loss mainly reflects a $0.84 million decrease in operating income, a $0.30 million increase in depreciation and amortization and a $0.19 million increase in general and administrative expenses.

The decrease in operating income mainly reflects the sale of the Hotel Saskatchewan. Net operating income from the sold property portfolio decreased $0.59 million from Q2-2015 to Q3-2015. Other hotel revenue decreased by $2.15 million, comprised of a decrease of $0.90 million at the Sheraton Red Deer which also experienced a decrease in operating costs of $0.97 million.

The increase in general and administrative expenses is mainly due to a $0.18 million recovery of a deposit pertaining to the development of the Fort McMurray Marriott airport hotel during Q2-2015.

The increase in depreciation and amortization charges mainly reflects depreciation of furniture, fixture and equipment improvements resulting from major capital expenditure programs.

After providing for equity income, gain on sale of property, provision for impairment, the income associated with the change in fair value of financial instruments, gain on sale and income tax recoveries, net loss amounted to $33.10 million during Q3-2015, compared to a net loss of $2.28 million during Q2-2015.

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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