Temple Hotels Inc. Reports 2016 Second Quarter Results

MISSISSAUGA, ON, Aug. 9, 2016 /CNW/ - Temple Hotels Inc. ("Temple" or the "Company") (TSX: TPH) today reported its financial results for the three months ended June 30, 2016 ("second quarter"). 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 three and six months ended June 30, 2016, 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 common share, average daily rate ("ADR"), and revenue per available room ("RevPar") amounts.

Q2 2016 KEY POINTS/HIGHLIGHTS

  • On June 30, 2016, the Board of Directors (the "Board") announced that it is conducting a comprehensive review of strategic alternatives available to best enhance the long-term interests of Temple and all of its stakeholders. The review process is continuing and there can be no assurance that the Board's process will result in any specific action. Temple does not intend to disclose further developments unless and until the Board approves a specific action or otherwise concludes the review of strategic alternatives.

  • During the second quarter of 2016, Temple's properties located in Fort McMurray were evacuated and were placed under mandatory evacuation due to the wildfires that impacted the region. Temple's Fort McMurray portfolio consists of 891 rooms in nine properties. As at June 30, 2016, eight of the nine Fort McMurray properties had been reopened. One property, Radisson Hotel & Suites, sustained greater fire, smoke and water damage, remains closed, and a full assessment and action plan for repair and remediation is being implemented.

  • The events in Fort McMurray will result in an insurance claim under the Company's business interruption policy. Recoveries under this policy are only recognized at the earlier of when proceeds have been received or confirmation has been given by the insurer of the amount of any settlement. Because of the complex and uncertain nature of the settlement negotiations process, the Company has not recognized any provision in the financial statements for the three months ended June 30, 2016.

  • Net operating income decreased by $1.9 million or 13% during the three months ended June 30, 2016 compared to 2015, primarily due to decreases of net operating income within the Fort McMurray portfolio of $1.5 million, and by $0.5 million, attributable to the sale of Hotel Saskatchewan in the third quarter of 2015.

  • Other Canada Same Property segment net operating income increased by $0.3 million, or 4%, during the three months ended June 30, 2016 compared to 2015.

  • FFO decreased by $0.7 million and AFFO decreased by $0.6 million during the three months ended June 30, 2016, compared to the three months ended June 30, 2015. On a basic per common share basis, FFO and AFFO decreased by $0.07 per common share and $0.05 per common share, respectively, compared to the second quarter of 2015.

OPERATING RESULTS


Three Months Ended June 30


Six Months Ended June 30


2016


2015


2016


2015









Total revenue

$41,955


$47,896


$77,721


$91,453

Hotel operating income

$12,996


$14,882


$20,081


$26,329

Recovery of (provision for) impairment

$303


-


($43,574)


-

Net loss

($980)


($2,284)


($69,358)


($6,900)









Cash flow provided by operating activities

$4,975


$6,787


$4,570


$9,963

Funds from operations

$4,648


$5,350


$3,392


$6,861

Adjusted funds from operations

$3,616


$4,213


$1,601


$4,664









Per common share








‑ Funds from operations

$0.06


$0.13


$0.04


$0.17

‑ Adjusted funds from operations

$0.05


$0.10


$0.02


$0.11









Weighted average number of shares outstanding

77,995,220


41,198,983


77,944,116


41,132,182









Occupancy

61%


66%


56%


62%

ADR

$141.51


$144.34


$139.14


$143.91

RevPar

$86.33


$94.67


$78.52


$89.80

 

Operating Activities

  • Occupancy and ADR ‑ The decrease in Same Property operating income reflects the reduced ADR and occupancy levels within the Fort McMurray and Other Alberta segments, as a result of the unfavourable market conditions continuing to affect oil‑dependent markets in Alberta as well as a result of wildfires and mandatory evacuation, which led to a period of hotel closures due to the repair and remediation of properties in Fort McMurray. In the second quarter of 2016, the occupancy level of the Fort McMurray and Other Alberta segments decreased by 21 and 5 percentage points, respectively, in comparison to the second quarter of 2015. In addition, the ADR of the Fort McMurray and Other Alberta segments have decreased by $2.28 and $6.57, respectively, in comparison to the second quarter of 2015.

  • Cash Provided by Operating Activities ‑ Cash provided by operating activities decreased by $1.8 million during the second quarter of 2016, compared to the second quarter of 2015. After excluding working capital adjustments, cash provided by operating activities decreased by $0.9 million, compared to 2015.

  • Funds from Operations ("FFO") and Adjusted Funds from Operations ("AFFO") ‑ During the second quarter of 2016, FFO decreased by $0.7 million and AFFO decreased by $0.6 million, compared to the second quarter of 2015. On a basic per common share basis, FFO and AFFO decreased by $0.07 per common share and $0.05 per common share, respectively, compared to the second quarter of 2015. The decrease in FFO and AFFO mainly reflects a decrease in operating income, due to the factors noted above.

  • Net Loss ‑ Temple completed the second quarter of 2016 with a net loss of $1.0 million, compared to a net loss of $2.3 million during the same period in 2015. The decrease in the net loss is mainly due to a decrease in depreciation of $2.4 million, and a decrease in net interest expense of $1.1 million, partially offset by a decrease in operating income of $1.9 million. On a per common share basis, the net loss was $0.01 for the second quarter of 2016, compared to a net loss per common share of $0.06 during the second quarter of 2015.

  • Asset Impairment ‑ The economic downturn in Alberta has resulted in decreased occupancy levels and room rates for certain hotel properties. Evidence that the occupancy and room rate declines may be prolonged, as well as the lower common share trading price, mandated the completion of an impairment review and recoverability analysis in accordance with IFRS. As a result of the analysis, a non‑cash accounting adjustment for asset impairment in the aggregate amount of $43.6 million on nine hotels in Alberta and three in Other Canada was recorded in the first six months of 2016.

  • Deferred Income Tax Asset – Temple has $30.9 million relating to temporary tax differences that have not been recognized, as it is not probable that the deferred income tax asset will be realized.

Liquidity and Financing Activities

As of June 30, 2016, the unrestricted cash balance of Temple was $11.5 million and working capital was $4.4 million.

  • On June 30, 2016, Temple entered into a revolving loan agreement with Morguard Corporation ("Morguard") for $6.0 million, secured by a first mortgage charge against Nomad Hotel, and bearing interest at prime plus 2.00%

  • Dividend Policy ‑ In response to the economic downturn in Alberta, in January 2016, the Company suspended the payment of dividends in order to preserve liquidity and reduce debt.

  • At June 30, 2016, the Company was not in compliance with debt service covenants affecting 14 mortgage loans in the aggregate amount of $201.4 million. The loan covenant breaches are expected to be resolved by debt refinancings, loan modification agreements and/or a waiver of the covenant requirements.

Investing Activities

Temple invested in hotel renovation programs with the objective of enhancing the quality and competitive position of its hotel properties through the second quarter of 2016. During the first six months of 2016, capital expenditures on hotel properties amounted to $4.2 million, of which $3.1 million related to renovation and upgrade programs at two properties. With major capital expenditures programs substantially complete, capital expenditures are expected to be lower than prior year during the remainder of 2016. 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.

ANALYSIS OF OPERATING RESULTS

Analysis of Net income (loss)













Three Months Ended


Six Months Ended


June 30


June 30


2016


2015


Increase/
(Decrease)
in Income


2016


2015


Increase/
(Decrease)
in Income

Revenue













Room revenue

$30,517


$35,307


($4,790)


$55,579


$66,681


($11,102)


Other hotel revenue

11,438


12,589


(1,151)


22,142


24,772


(2,630)


Total revenue

41,955


47,896


(5,941)


77,721


91,453


(13,732)













Hotel operating costs

28,959


33,014


4,055


57,640


65,124


7,484

Hotel operating income

12,996


14,882


(1,886)


20,081


26,329


(6,248)













Interest expense, net

7,943


9,045


1,102


15,715


18,011


2,296

Share based compensation

85


91


6


173


175


2

General and administrative

expenses












865


829


(36)


1,673


1,820


147

Depreciation and amortization

6,109


8,500


2,391


12,503


16,289


3,786


(2,006)


(3,583)


1,577


(9,983)


(9,966)


(17)

Equity income on investment in

hotel properties












317


433


(116)


478


538


(60)

Recovery of (provision for)

impairment












303


-


303


(43,574)


-


(43,574)

Change in fair value of financial

instruments: gain (loss)












23


68


(45)


90


66


24

Income tax recovery (expense)

383


798


(415)


(16,369)


2,462


(18,831)













Net loss

($980)


($2,284)


$1,304


($69,358)


($6,900)


($62,458)













Per Common Share Results:













Basic and diluted

($0.01)


($0.06)




($0.89)


($0.17)



 

Hotel Revenue

Analysis of Total Hotel Revenues


Three Months Ended June 30


Six Months Ended June 30





Increase/





Increase/


2016


2015


(Decrease)


2016


2015


(Decrease)

Same Property


















Fort McMurray



















Room revenue

$

4,748


$

7,511


$

(2,763)


$

8,890


$

15,428


$

(6,538)


Other hotel revenue


634



628



6



1,226



1,183



43


$

5,382


$

8,139


$

(2,757)


$

10,116


$

16,611


$

(6,495)

Other Alberta



















Room revenue

$

5,679


$

6,477


$

(798)


$

10,500


$

12,733


$

(2,233)


Other hotel revenue


4,699



4,759



(60)



9,512



10,110



(598)


$

10,378


$

11,236


$

(858)


$

20,012


$

22,843


$

(2,831)

Other Canada



















Room revenue

$

20,090


$

19,489


$

601


$

36,189


$

34,949


$

1,240


Other hotel revenue


6,105



5,773



332



11,404



10,808



596


$

26,195


$

25,262


$

933


$

47,593


$

45,757


$

1,836

Total ‑ Same Property



















Room revenue

$

30,517


$

33,477


$

(2,960)


$

55,579


$

63,110


$

(7,531)


Other hotel revenue


11,438



11,160



278



22,142



22,101



41


Total hotel revenue

$

41,955


$

44,637


$

(2,682)


$

77,721


$

85,211


$

(7,490)

Total ‑ Sold Property



















Room revenue

$

-


$

1,830


$

(1,830)


$

-


$

3,571


$

(3,571)


Other hotel revenue


-



1,429



(1,429)



-



2,671



(2,671)


Total hotel revenue

$

-


$

3,259


$

(3,259)


$

-


$

6,242


$

(6,242)

Total



















Room revenue

$

30,517


$

35,307


$

(4,790)


$

55,579


$

66,681


$

(11,102)


Other hotel revenue


11,438



12,589



(1,151)



22,142



24,772



(2,630)


Total hotel revenue

$

41,955


$

47,896


$

(5,941)


$

77,721


$

91,453


$

(13,732)

 

During the second quarter of 2016, room revenue decreased by $4.8 million or 14%, compared to the second quarter of 2015. The decrease reflects a decrease of $3.0 million or 9% in Same Property room revenue, and a decrease of $1.8 million due to the disposition of a property in 2015. The decrease in Same Property room revenue is comprised of a $2.8 million (37%) decrease in the Fort McMurray portfolio and a $0.8 million (12%) decrease in the Other Alberta portfolio, partially offset by a $0.6 million (3%) increase in the Other Canada portfolio.

The decrease in Same Property room revenue during the second quarter of 2016, compared to the second quarter of 2015, is largely due to the mandatory evacuation and subsequent repair and remediation of properties as a result of the wildfire affecting the Fort McMurray segment as well as unfavourable market conditions affecting oil‑dependent markets in the Other Alberta segment. 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 a 3% increase over the second quarter of 2015.

Insurance Recoveries

Temple maintains insurance coverage based on industry best practices and insurance standards, and include Liability, Property, Boiler and Machinery insurance programs that extend for Building, Contents and Loss of Revenue.

On May 3, 2016, Fort McMurray and the surrounding areas were placed under a mandatory evacuation due to uncontrolled wildfires that extensively damaged the city. The evacuation order, which ended on June 4, 2016, prompted the closure, repair and environmental remediation of all the Company's properties in Fort McMurray. The Company's hotels sustained limited damage at eight of its nine hotels. Certain hotels began receiving guests for emergency and restoration services on May 5, 2016, and eight hotels were reopened at various dates between May 5, 2016 and June 10, 2016. The Radisson Hotel & Suites sustained greater fire, smoke and water damage, and a full assessment and action plan for repair and remediation is being implemented. The Cortona lease revenues were not impacted by the business interruption.

The events in Fort McMurray will result in an insurance claim under the Company's business interruption policy. Recoveries under this policy are only recognized at the earlier of when proceeds have been received or when confirmation has been given by the insurer of the amount of any settlement. Because of the complex and uncertain nature of the settlement negotiations process, the Company has not recognized any provision in the financial statements for the three months ended June 30, 2016.

Room Revenue Statistics

As disclosed in the following chart, RevPar for the Same Property portfolio was $86.33 during the second quarter ended 2016, compared to $94.95 during the second quarter ended 2015. For the six months ended June 30, 2016, RevPar for the Same Property portfolio was $78.52, compared to $89.90 for the six months ended June 30, 2015.

The decrease in RevPar for Same Property portfolio results generally reflect reduced ADR and occupancy levels in the Fort McMurray and Other Alberta segments, partially offset by increased ADR in the Other Canada segment.

Room Revenue Statistics



Three Months Ended June 30



2016


2015



Occ



ADR


RevPar


Occ



ADR


RevPar

Same Property

















Fort McMurray


32%


$

171.20


$

55.24


53%


$

173.48


$

92.20

Other Alberta


58%


$

127.46


$

73.97


63%


$

134.03


$

84.33

Other Canada


73%


$

140.25


$

103.34


73%


$

138.33


$

100.22

Total – Same Property


61%


$

141.51


$

86.33


66%


$

143.14


$

94.95


















Sold Property


-


$

-


$

-


53%


$

169.85


$

89.85


















Overall Portfolio


61%


$

141.51


$

86.33


66%


$

144.34


$

94.67


















Room Revenue Statistics



Six Months Ended June 30



2016


2015



Occ



ADR


RevPar


Occ



ADR


RevPar

Same Property

















Fort McMurray


32%


$

161.29


$

51.47


54%


$

176.68


$

95.41

Other Alberta


53%


$

128.73


$

68.38


62%


$

133.49


$

83.33

Other Canada


67%


$

137.20


$

93.12


66%


$

135.82


$

90.36

Total – Same Property


56%


$

139.14


$

78.52


63%


$

143.11


$

89.90


















Sold Property


-


$

-


$

-


55%


$

159.65


$

88.15


















Overall Portfolio


56%


$

139.14


$

78.52


62%


$

143.91


$

89.80


The above chart does not reflect the operating results for the Cortona Residence, which is 100% leased at an annual net rent of
$2.1 million.

 

Other Hotel Revenue

During the second quarter of 2016, other hotel revenue decreased by $1.2 million or 9%, compared to the second quarter of 2015, comprised of a decrease of $1.4 million from the Sold Property and a decrease of $0.1 million from the Other Alberta properties, partially offset by a $0.3 million increase in the Other Canada portfolio. The decrease in other revenue for the Other Alberta 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 the second quarter of 2016, accounting for $3.5 million or 31% of other hotel revenue.

During the first six months of 2016, other hotel revenue decreased by $2.6 million or 11%, compared to the first six months of 2015, comprised of a decrease of $2.7 million from the Sold Property and a decrease of $0.6 million from the Other Alberta properties, partially offset by a $0.6 million increase in the Other Canada portfolio.

Operating Income and Profit Margin

Operating Income and Profit Margin







Three Months Ended June 30


Six Months Ended June 30


Operating Income


Operating Profit Margin


Operating Income


Operating Profit Margin


2016


2015


2016


2015


2016


2015


2016


2015

Same Property















Fort McMurray

$2,650


$4,192


49%


52%


$3,966


$8,446


39%


51%

Other Alberta

$2,092


$2,255


20%


20%


$3,622


$5,037


18%


22%

Other Canada

$8,254


$7,972


32%


32%


$12,493


$12,204


26%


27%

Total ‑ Same Property

$12,996


$14,419


31%


32%


$20,081


$25,687


26%


30%

















Sold Property

$ -


$463


-


14%


$ -


$642


-


10%

















Total portfolio

$12,996


$14,882


31%


31%


$20,081


$26,329


26%


29%

 

After accounting for the decrease in total revenues and the decrease in hotel operating costs, total operating income decreased by $1.9 million or 13% during the second quarter of 2016, compared to the second quarter of 2015, comprised of a decrease of $1.4 million or 10% for the Same Property portfolio and a decrease of $0.5 million from Sold Property. The decrease in Same Property operating income mostly reflects a $1.5 million, or 37%, decrease in operating income for the Fort McMurray segment. The operating profit margin within the Fort McMurray segment declined to 49% during the second quarter of 2016, compared to 52% during the second quarter of 2015, due to certain fixed costs, such as property taxes and full time salary employees, that continued to be expensed during the evacuation period, when certain hotels were closed to the general public, until the mandatory evacuation period was lifted on June 4, 2016.

For the first six months of 2016, total operating income decreased by $6.2 million, or 24%, compared to the first six months of 2015, comprised of a decrease of $5.6 million or 22% for the Same Property portfolio and a decrease of $0.6 million from Sold Property. The decrease in Same Property operating income reflects a $4.5 million, or 53%, decrease in operating income for the Fort McMurray segment and a $1.4 million, or 28%, decrease in operating income for the Other Alberta segment.

As disclosed in the preceding chart, the overall profit margin of the entire hotel portfolio was 31% for both the second quarters of 2016 and 2015. For the six months ended June 30, 2016, the overall profit margin was 26%, compared to 29% for the six months ended June 30, 2015.

Transfer of Asset Management Agreement

Effective April 1, 2016, Morguard Corporation provides asset management services to the Company, replacing Shelter Canadian Properties Limited. Morguard has a highly qualified management team with years of experience in real estate investment and development activities and in the asset management and property management industry. The Chairman and Chief Executive Officer of Morguard, Mr. K. Rai Sahi, serves as Chief Executive Officer of the Company. Mr. Paul Miatello, the Chief Financial Officer of Morguard, serves as the Chief Financial Officer of the Company. Morguard's total assets owned and under management in North America are valued at $19.4 billion.

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 primary long‑term investment objectives of the Company are to yield stable and growing cash flows and to maximize the long‑term share value of the Company through the active management of its assets, accretive acquisitions, and the performance of value‑added capital improvement programs on selected properties, as deemed appropriate. 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.

SOURCE Temple Hotels Inc.

For further information: K. Rai Sahi, FCA, FCGA, Chief Executive Officer, or Paul Miatello, CA, CPA, Chief Financial Officer, Tel: (905) 281-3800, Fax: (905) 281-5890, Email: info@morguard.com

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