Temple Hotels Inc. Reports 2014 Third Quarter Results
WINNIPEG, Nov. 10, 2014 /CNW/ - Temple Hotels Inc. ("Temple") (TSX: TPH) today reported its financial results for the quarter ended September 30, 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 quarter ended September 30, 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.
OPERATING RESULTS AND STATISTICS
| Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||
| 2014 |
2013 |
2014 |
2013 |
|||||
| Total revenue |
$50,833 |
$42,005 |
$138,241 |
$114,200 |
||||
| Operating income |
$17,124 |
$15,793 |
$44,325 |
$41,347 |
||||
| Net income (loss) |
$(695) |
$3,386 |
$(3,027) |
$4,292 |
||||
| Cash flow from operating activities |
$8,242 |
$4,297 |
$17,934 |
$10,951 |
||||
| Funds from operations (FFO) |
$6,650 |
$8,792 |
$17,578 |
$18,615 |
||||
| Adjusted funds from operations (AFFO) |
$6,254 |
$7,433 |
$15,114 |
$16,279 |
||||
| Dividends |
||||||||
| Per share |
||||||||
| ‑ FFO |
$0.16 |
$0.29 |
$0.43 |
$0.64 |
||||
| ‑ AFFO |
$0.15 |
$0.25 |
$0.37 |
$0.56 |
||||
| - Dividends |
$0.135 |
$0.135 |
$0.405 |
$0.405 |
||||
| FFO payout ratio |
83% |
47% |
94% |
63% |
||||
| AFFO payout ratio |
88% |
55% |
109% |
72% |
||||
| Occupancy |
72% |
79% |
69% |
73% |
||||
| ADR |
$147.83 |
$158.28 |
$149.70 |
$158.20 |
||||
| RevPAR |
$107.03 |
$125.15 |
$102.73 |
$116.15 |
||||
KEY POINTS
- Operating income increased by $1.33 million or 8% during Q3-2014, compared to Q3-2013, comprised of a $4.6 million increase in operating from "new hotel properties" (eight hotels acquired during 2013 and six hotels acquired year-to-date in 2014) offset by a $3.3 million decrease in operating income from the "same property" portfolio.
- The decrease in operating income from the "same property" portfolio is mainly due to a decrease in the occupancy level of "same property" portfolio in Fort McMurray. During Q3-2014, the occupancy level of the "same" hotel properties in Fort McMurray was 62%, compared to 83% in Q3-2013. The decrease in occupancy reflects the continuation of competitive market conditions in 2014, compared to the very favourable 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 in other regions.
- The "same property" results for Q3-2014 were also impacted by the major renovation program at the Saskatoon Inn. The renovation program, which encompasses guest room, lobby and meeting room refurbishments, resulted in the loss of available room nights and a reduction in operating income below previous quarterly norms. The interior building phase of the renovation program was substantially completed at September 30, 2014.
- Net income decreased by $4.1 million mainly due to an increase in depreciation and amortization charges of $3.3 million and an increase in interest expense (net) of $2.4 million, partially offset by the $1.3 million increase in operating income.
- FFO and AFFO decreased by $2.1 million and $1.2 million, respectively, during Q3-2014, compared to Q2-2013. On a basic per share basis, FFO decreased by $0.13 per share and AFFO decreased by $0.10 per share. The decline in per share FFO and AFFO reflect that the incremental operating income from new hotel acquisitions was offset by lower than anticipated operating income results for the "same property" portfolio as well as a 40% increase in the weighted average number of shares outstanding.
- The FFO and AFFO payout ratios were 83% and 88%, respectively, in Q3-2014 compared to payout ratios of 83% and 97%, respectively, in Q2-2014 and 128% and 170%, respectively, in Q1-2014. The trend in the payout ratios reflects the acquisitions of a total of six new hotel properties during the second and third quarters of 2014.
- Cash flow from operating activities increased by $3.9 million during Q3-2014, compared to Q3-2013.
New Property Acquisitions and Capital Expenditures
During Q3-2014, Temple further enhanced the geographic diversification of its property portfolio by acquiring four hotels in three different locations in Ontario.
Effective July 1, 2014, Temple acquired two "Days Inn" hotels in Thunder Bay, Ontario (The Days Inn Sibley and the Days Inn North). Subsequently, on August 1, 2014, Temple acquired the TownPlace Suites by Marriott in Sudbury, Ontario and the Hilton Garden Inn ‑ Toronto Airport West.
The total combined acquisition cost of the four hotels of $69.6 million was financed by first mortgage loans totaling approximately $38.9 million and the balance in cash.
During Q3-2014, Temple's investment in capital expenditures amounted to $8 million, including $3.4 million of renovations at the Saskatoon Inn & Conference Centre, $0.4 million of renovations at the Holiday Inn Winnipeg South and $1.2 million of renovations at the Sheraton Red Deer. For the nine months ended September 30, 2014, Temple's investment in capital expenditures has exceeded $19 million.
Financing and Liquidity
As of September 30, 2014, 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 debt is 5.40% as of September 30, 2014, compared to 5.64% as of December 31, 2013 and 5.65% as of September 30, 2013.
As of September 30, 2014, Temple's total cash balance is $14.5 million and the working capital is $13.5 million. The cash primarily consists of working capital reserves and funds designated for capital expenditures.
Internalization of Management
Given the growth in the property portfolio and the extent of projected future growth, Temple previously announced that it is initiating a plan to internalize the asset and property management functions. The goal of the internalization process is to achieve greater management cost efficiencies and a more streamlined and effective management structure. The objective is to complete the process of internalizing the management of the Company within a two year period, commencing in 2015. 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
With six new hotel acquisitions completed in the second and third quarters of this year, Temple has established a strong base for 2015 earnings growth from a high quality and geographically diversified hotel portfolio. The newly acquired hotels are performing in accordance with expectations and will contribute a full year of earnings in 2015. The completion of the value-added capital expenditure program in 2014 will further contribute to 2015 earnings growth. On November 1, 2014 our long term restaurant tenant, The Keg Steakhouse & Bar, commenced rental payments on 4,870 square feet of expanded restaurant space in the Nomad Hotel. The base building cost for completing the expanded space was less than $1 million. The restaurant now totals 11,929 square feet and is one of the largest restaurants in Fort McMurray, with seating for 350 guests. Net annual rent under the new 15 year lease is $482,000 through 2018, with 11% rent escalations each 5 years thereafter until 2028. The continuing reduction in the average interest rate on first mortgage debt and the plan to internalize the management structure also represent key initiatives for Temple in terms of obtaining greater cost efficiencies in the future.
Notwithstanding the 2014 decrease in occupancy levels in the eight Fort McMurray hotels, the 2014 nine month ADR, RevPar and profit margin remain favourable ($192, $127 and 52%, respectively) and the Fort McMurray market continues to be one of the most profitable hotel markets in Canada. The medium term prospects for higher earnings from Temple's investment in Fort McMurray is favourable as oil production from facilities under construction continues to expand during the next three years.
Q3-2014 COMPARED TO Q3-2013
| Analysis of Net income (loss) |
||||||||||||||||||||
| Three Months Ended |
Nine Months Ended |
|||||||||||||||||||
| September 30 |
September 30 |
|||||||||||||||||||
| Increase / |
Increase / |
|||||||||||||||||||
| 2014 |
2013 |
in Income |
2014 |
2013 |
in Income |
|||||||||||||||
| Revenue |
||||||||||||||||||||
| Room revenue |
$ |
39,409 |
$ |
32,304 |
$ |
7,105 |
$ |
103,076 |
$ |
83,673 |
$ |
19,403 |
||||||||
| Other hotel revenue |
11,424 |
9,701 |
1,723 |
35,165 |
30,527 |
4,638 |
||||||||||||||
| Total revenue |
50,833 |
42,005 |
8,828 |
138,241 |
114,200 |
24,041 |
||||||||||||||
| Hotel operating costs |
33,709 |
26,212 |
(7,497) |
93,916 |
72,853 |
(21,063) |
||||||||||||||
| Operating income |
17,124 |
15,793 |
1,331 |
44,325 |
41,347 |
2,978 |
||||||||||||||
| Interest expense, net |
9,263 |
6,868 |
(2,395) |
24,924 |
20,583 |
(4,341) |
||||||||||||||
| Share based compensation |
88 |
41 |
(47) |
311 |
105 |
(206) |
||||||||||||||
| General & administrative |
1,428 |
262 |
(1,166) |
2,401 |
2,304 |
(97) |
||||||||||||||
| Depreciation and amortization |
7,586 |
4,293 |
(3,293) |
21,917 |
11,965 |
(9,652) |
||||||||||||||
| (1,241) |
4,329 |
(5,570) |
(5,228) |
6,390 |
(11,618) |
|||||||||||||||
| Equity income on investment in hotel |
282 |
215 |
67 |
866 |
517 |
349 |
||||||||||||||
| Change in fair value of financial |
55 |
104 |
(49) |
183 |
(1,096) |
1,279 |
||||||||||||||
| Income tax recovery (expense) |
209 |
(1,262) |
1,471 |
1,152 |
(1,519) |
2,671 |
||||||||||||||
| Net income (loss) |
$ |
(695) |
$ |
3,386 |
$ |
(4,081) |
(3,027) |
$ |
4,292 |
$ |
(7,319) |
|||||||||
| Per Share Results: |
||||||||||||||||||||
| Basic |
$ |
(0.02) |
$ |
0.11 |
$ |
(0.07) |
$ |
0.15 |
||||||||||||
| Diluted |
$ |
(0.02) |
$ |
0.11 |
$ |
(0.07) |
$ |
0.15 |
||||||||||||
Revenue
| Analysis of Total Hotel Revenues |
|||||||||||||||||||
| Three Months Ended Sept 30 |
Nine Months Ended Sept 30 |
||||||||||||||||||
| Increase/ |
Increase/ |
||||||||||||||||||
| 2014 |
2013 |
(Decrease) |
2014 |
2013 |
(Decrease) |
||||||||||||||
| Total ‑ Same Properties |
|||||||||||||||||||
| Room revenue |
$ |
20,295 |
$ |
23,900 |
$ |
(3,605) |
$ |
62,387 |
$ |
67,515 |
$ |
(5,128) |
|||||||
| Other hotel revenue |
7,126 |
7,426 |
(300) |
24,787 |
25,341 |
(554) |
|||||||||||||
| Total Hotel Revenue |
$ |
27,421 |
$ |
31,326 |
$ |
(3,905) |
87,174 |
92,856 |
(5,682) |
||||||||||
| Total ‑ Acquisitions |
|||||||||||||||||||
| Room revenue |
$ |
19,114 |
$ |
8,404 |
$ |
10,710 |
$ |
40,689 |
$ |
16,158 |
$ |
24,531 |
|||||||
| Other hotel revenue |
4,298 |
2,275 |
2,023 |
10,378 |
5,186 |
5,192 |
|||||||||||||
| Total Hotel Revenue |
$ |
23,412 |
$ |
10,679 |
$ |
12,733 |
$ |
51,067 |
$ |
21,344 |
$ |
29,723 |
|||||||
| Total |
|||||||||||||||||||
| Room revenue |
$ |
39,409 |
$ |
32,304 |
$ |
7,105 |
$ |
103,076 |
$ |
83,673 |
$ |
19,403 |
|||||||
| Other hotel revenue |
11,424 |
9,701 |
1,723 |
35,165 |
30,527 |
4,638 |
|||||||||||||
| Total hotel revenue |
$ |
50,833 |
$ |
42,005 |
8,828 |
$ |
138,241 |
$ |
114,200 |
$ |
24,041 |
||||||||
As of September 30, 2014, the "Acquisitions" portfolio comprises 48% of the total rooms. Overall, the hotels in the "acquisitions" portfolio have lower ADR, RevPar and operating margin metrics in comparison to the "same property" portfolio, given that the "same property" portfolio has a high weighting of rooms in Fort McMurray. The average acquisition cost per room for the "acquisitions" portfolio is approximately 21% lower than the average acquisition cost per room for "same property" portfolio. As a result, the operating metrics for the "same property" portfolio and the "acquisitions" portfolio are not directly comparable
During Q3-2014, total room revenue increased by $7.11 million or 22%, compared to Q3-2013, comprised of incremental revenue of $10.71 million from new hotel acquisitions, offset by a decrease of $3.61 million or 15% in "same property" revenue. The Fort McMurray same property portfolio accounted for approximately 81% of the decrease in "same property" room revenue.
For the nine months ended September 30, 2014, room revenue increased by $19.40 million or 23%, compared to the nine months ended September 30, 2013. The increase was comprised of a decrease of $5.13 million or 8% in "same property" revenue and incremental revenue of $24.53 million from new hotel acquisitions. The Fort McMurray "same property" portfolio accounted for approximately 84% of the decrease in "same property" room revenue.
As disclosed in the following chart, RevPAR for the "same property" portfolio was $103.96 during Q3-2014, compared to $122.78 during Q3-2013. RevPAR for new acquisitions was $110.54 in Q3-2014, compared to $113.47 in Q3-2013.
For the nine months ended September 30, 2014, RevPAR for the "same property" portfolio was $107.92, compared to $116.91 for the nine months ended September 30, 2013. RevPAR for the portfolio of newly acquired properties was $95.51 during the first nine months of 2014, compared to $96.73 during the first nine months of 2013.
For both the three month and nine month comparatives, 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. The reduction in occupancy levels for the Fort McMurray portfolio mainly reflects a more competitive hotel market due to delays in major oil sand projects and increased competition from new work camps. For both the three month and nine month comparatives, the RevPar results for the "other same property" reflect a more moderate decrease, due to a decrease in the occupancy level partially offset by an increase in the average daily room rate. The decrease in the occupancy level reflects the loss of available rooms at the Saskatoon Inn due to the room and other renovations. During the first nine months of 2014 room revenue for the Saskatoon Inn decreased by $1.27 million and other hotel revenue decreased by $0.53 million, compared to the first nine months of 2013. The hotel renovation program was substantially completed at September 30, 2014.
| Room Revenue Statistics |
|||||||||||||||||||||
| Three Months Ended September 30 |
|||||||||||||||||||||
| 2014 |
2013 |
||||||||||||||||||||
| Occ |
ADR |
RevPAR |
Occ |
ADR |
RevPAR |
||||||||||||||||
| Same Properties |
|||||||||||||||||||||
| Fort McMurray |
62% |
$ |
191.96 |
$ |
119.86 |
83% |
$ |
191.39 |
$ |
158.10 |
|||||||||||
| Other |
65% |
$ |
144.03 |
$ |
93.70 |
72% |
$ |
138.33 |
$ |
99.89 |
|||||||||||
| Total ‑ Same Properties |
64% |
$ |
162.36 |
$ |
103.96 |
76% |
$ |
160.92 |
$ |
122.78 |
|||||||||||
| Newly Acquired Properties |
82% |
$ |
134.67 |
$ |
110.54 |
81% |
$ |
139.73 |
$ |
113.47 |
|||||||||||
| Overall Portfolio |
72% |
$ |
147.83 |
$ |
107.00 |
78% |
$ |
154.81 |
$ |
120.22 |
|||||||||||
| Room Revenue Statistics |
|||||||||||||||||||||
| Nine Months Ended September 30 |
|||||||||||||||||||||
| 2014 |
2013 |
||||||||||||||||||||
| Occ |
ADR |
RevPAR |
Occ |
ADR |
RevPAR |
||||||||||||||||
| Same Properties |
|||||||||||||||||||||
| Fort McMurray |
66% |
$ |
191.77 |
$ |
126.97 |
77% |
$ |
189.95 |
$ |
145.93 |
|||||||||||
| Other |
66% |
$ |
145.14 |
$ |
95.59 |
69% |
$ |
141.74 |
$ |
98.10 |
|||||||||||
| Total ‑ Same Properties |
66% |
$ |
163.52 |
$ |
107.92 |
72% |
$ |
161.92 |
$ |
116.91 |
|||||||||||
| Acquisitions |
72% |
$ |
132.13 |
$ |
95.51 |
71% |
$ |
136.51 |
$ |
96.73 |
|||||||||||
| Overall Portfolio |
69% |
$ |
149.70 |
$ |
102.73 |
71% |
$ |
156.30 |
$ |
112.39 |
|||||||||||
Other Hotel Revenue
During Q3-2014, other hotel revenue increased by $1.72 million or 18%, compared to Q3-2013, comprised primarily of incremental revenue of $2.98 million from new hotel acquisitions, offset by a decrease of $0.3 million from the same property portfolio.
| Operating Income and Profit Margin |
|||||||||||||||||||||||||||
| Operating Income Amount |
Operating Profit Margin |
||||||||||||||||||||||||||
| Three Months Ended |
Nine Months Ended |
Three Months Ended |
Nine Months Ended |
||||||||||||||||||||||||
| Sept. 30 |
Sept. 30 |
Sept. 30 |
Sept. 30 |
Sept. 30 |
Sept. 30 |
Sept. 30 |
Sept. 30 |
||||||||||||||||||||
| 2014 |
2013 |
2014 |
2013 |
2014 |
2013 |
2014 |
2013 |
||||||||||||||||||||
| Same Properties |
|||||||||||||||||||||||||||
| Fort McMurray |
$ |
4,928 |
$ |
7,470 |
$ |
15,681 |
$ |
19,787 |
51% |
60% |
52% |
57% |
|||||||||||||||
| Other |
4,045 |
4,816 |
13,929 |
15,684 |
23% |
26% |
25% |
27% |
|||||||||||||||||||
| Total ‑ Same Properties |
$ |
8,973 |
$ |
12,286 |
$ |
29,610 |
$ |
35.471 |
33% |
41% |
34% |
38% |
|||||||||||||||
| Acquisitions |
$ |
8,151 |
$ |
3,507 |
$ |
14,715 |
$ |
5,876 |
35% |
33% |
29% |
28% |
|||||||||||||||
| Total portfolio |
$ |
17,124 |
$ |
15,793 |
$ |
44,325 |
$ |
41.347 |
34% |
38% |
32% |
36% |
|||||||||||||||
Total operating income increased by $1.33 million or 8% during Q3-2014, compared to Q3-2013, comprised of a decrease of $3.31 million or 27% for the "same property" portfolio and an increase of $4.64 million from new hotel acquisitions. The decrease in "same property" operating income reflects a $2.54 million or 34% decrease in operating income for the Fort McMurray "same property" portfolio and a $0.77 million or 16% decrease in operating income for the Other "same property" portfolio. In summary, the decrease in same property operating income reflects a $3.91 million decrease in "same property" revenue, partially offset by a $0.59 million decrease in "same property" operating costs.
For the first nine months of 2014, total operating income increased by $2.98 million or 7%, compared to the first nine months of 2013, comprised of a decrease of $5.86 million or 17% for the "same property" portfolio and incremental income of $8.84 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 38% during Q3-2013, to 34% during Q3-2014. For the nine months ended September 30, 2014, the overall profit margin was 32%, compared to 36% for the nine months ended September 30, 2013.
COMPARISON TO PRIOR QUARTER
| Analysis of Net Income (loss) |
|||||||||||
| Increase / |
|||||||||||
| Q3-2014 |
Q2-2014 |
in Income |
|||||||||
| Revenue |
|||||||||||
| Room |
$ |
39,409 |
$ |
34,422 |
$ |
4,987 |
|||||
| Other |
11,424 |
13,073 |
(1,649) |
||||||||
| Total revenue |
50,833 |
47,495 |
3,338 |
||||||||
| Hotel operating costs |
33,709 |
32,013 |
(1,696) |
||||||||
| Operating income |
17,124 |
15,482 |
1,642 |
||||||||
| Interest expense, net |
9,293 |
8,341 |
(922) |
||||||||
| Share based compensation |
88 |
75 |
(13) |
||||||||
| General and administrative expenses |
1,428 |
765 |
(663) |
||||||||
| Depreciation and amortization |
7,586 |
6,767 |
(819) |
||||||||
| (1,241) |
(466) |
(775) |
|||||||||
| Equity income on investment in hotel properties |
282 |
368 |
(86) |
||||||||
| Change in fair value of financial instruments: Gain (loss) |
55 |
89 |
(34) |
||||||||
| Income taxes recovery (expense) |
209 |
(25) |
234 |
||||||||
| Net loss |
$ |
(695) |
$ |
(34) |
$ |
(661) |
|||||
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.
Arni Thorsteinson, Chief Executive Officer, or Gino Romagnoli, Executive Vice President, Tel: (204) 475-9090, Fax: (204) 452-5505, Email: [email protected]
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