Temple Hotels Inc. Reports 2016 Financial Results
MISSISSAUGA, ON, Feb. 22, 2017 /CNW/ - Temple Hotels Inc. ("Temple" or the "Company") (TSX: TPH) today reported its financial results for the year ended December 31, 2016. 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, 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.
2016 KEY POINTS/HIGHLIGHTS
- Net operating income decreased by $3.9 million or 8% during the year ended December 31, 2016 compared to 2015, primarily due to decreases of net operating income within the Fort McMurray, Other Alberta and Sold Property portfolios of $3.4 million, $2.4 million and $0.4 million respectively, offset by an increase in net operating income within the Other Canada portfolio of $2.3 million.
- FFO increased by $0.7 million and AFFO increased by $1.3 million during the year ended December 31, 2016, compared to the year ended December 31, 2015. On a basic per common share basis, FFO and AFFO decreased by $0.09 and $0.04 per common share, respectively, compared to 2015.
- During 2016, a non-cash provision for impairment of $104.9 million was recorded to reflect the impact of the economic downturn on the carrying value of properties primarily located in Alberta.
- On December 14, 2016, the Company completed a rights offering at $0.6769 per common share resulting in the issuance of 73,866,155 common shares for net proceeds of $49.6 million (the "Rights Offering"). Temple used the proceeds of the Rights Offering to repay the Series C convertible debentures, and will use the remaining funds to repay certain other debt and for general corporate purposes and working capital.
- As a result of its participation in the Rights Offering, Morguard Corporation's ownership of Temple increased from 38.9% to 55.9%.
- Subsequent to December 31, 2016, the Company repaid the Series C convertible debentures in the amount of $22.8 million.
- All nine Fort McMurray properties reopened following the mandatory evacuation, repair and remediation due to the wildfires that impacted the region during the second quarter of 2016. Temple's Fort McMurray portfolio consists of 889 rooms in nine properties. Eight of the nine Fort McMurray properties had been reopened at various dates during the second quarter. The Radisson Hotel & Suites, which sustained greater fire, smoke and water damage, reopened on September 12, 2016.
OPERATING RESULTS
| Year Ended December 31 |
|||||
| 2016 |
2015 |
||||
| Total revenue |
$162,236 |
$177,753 |
|||
| Operating income |
$44,548 |
$48,451 |
|||
| Provision for impairment |
($104,850) |
($64,750) |
|||
| Net loss |
($133,177) |
($55,456) |
|||
| Net loss per common share - basic and diluted |
($1.64) |
($1.17) |
|||
| Cash flow provided by operating activities |
$17,382 |
$16,085 |
|||
| Funds from operations |
$11,616 |
$10,881 |
|||
| Adjusted funds from operations |
$7,694 |
$6,349 |
|||
| Per common share |
|||||
| ‑ Funds from operations |
$0.14 |
$0.23 |
|||
| ‑ Adjusted funds from operations |
$0.09 |
$0.13 |
|||
| Weighted average number of common shares |
81,440,753 |
47,598,591 |
|||
| Occupancy |
59% |
62% |
|||
| ADR |
$139.81 |
$142.89 |
|||
| RevPar |
$82.71 |
$88.40 |
|||
Operating Activities
- Occupancy and ADR – The decrease in Same Property operating income reflects the lower ADR and occupancy levels within the Fort McMurray and Other Alberta segments, in 2016 compared to 2015, 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 in Fort McMurray. The decrease in Same Property operating income was partially offset by higher ADR and occupancy levels in the Other Canada segment. In 2016, the occupancy levels of the Other Canada segment increased by two percentage points, to 70%, in comparison to 2015. In addition, ADR in the Other Canada segment increased by $1.26, to $139.94, in comparison to 2015.
- Cash Provided by Operating Activities ‑ Cash provided by operating activities increased by $1.3 million in 2016, compared to 2015. After excluding working capital adjustments, cash provided by operating activities increased by $0.4 million, compared to 2015.
- Funds from Operations ("FFO") and Adjusted Funds from Operations ("AFFO") ‑ During 2016, FFO increased by $0.7 million and AFFO increased by $1.3 million, compared to 2015. On a basic per common share basis, FFO and AFFO decreased by $0.09 and $0.04 per common share, respectively, compared to 2015. The increase in FFO and AFFO mainly reflects a decrease in interest expense and general and administrative expenses as well as higher interest and other income, partially offset by a decrease in operating income due to the factors noted above.
- Net Loss ‑ Temple completed 2016 with a net loss of $133.2 million or $1.64 per common share, compared to a net loss of $55.5 million or $1.17 per common share during 2015. The increase in net loss is mainly due to an increase in deferred income tax expense of $36.9 million from the reversal of the deferred tax asset, an increase in provision for impairment of $40.1 million, a decrease in gain on sale of property and equipment of $9.1 million, and a decrease in net operating income of $3.9 million, partially offset by a decrease in depreciation of $7.7 million and a decrease in interest expense of $3.4 million.
- 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 adjustment for asset impairment in the aggregate amount of $104.9 million, on twelve hotels in Alberta and three in Other Canada, was recorded in 2016.
- Deferred Income Tax Asset – Temple has $170.0 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 December 31, 2016, the unrestricted cash balance of Temple was $67.9 million and working capital was $57.4 million.
- During the fourth quarter of 2016, Temple completed a Rights Offering resulting in net proceeds of $49.6 million and the issuance of 73,866,155 common shares. The completion of the Rights Offering enables Temple to further reduce indebtedness and improve its working capital position.
- During the second quarter of 2016, Temple entered into a revolving loan agreement with Morguard Corporation for $6.0 million, secured by a first mortgage charge against Nomad Hotel, and bearing interest at prime plus 2.00%.
- 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 December 31, 2016, the Company was not in compliance with debt service covenants affecting nine mortgage loans in the aggregate amount of $139.2 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 in 2016. During the year ended December 31, 2016, capital expenditures on hotel properties amounted to $6.5 million, of which $3.5 million related to renovation and upgrade programs at two properties. With major capital expenditures programs substantially complete, capital expenditures in 2016 were lower than 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.
ANALYSIS OF OPERATING RESULTS
| Analysis of Net Loss |
|||||||
| Year Ended |
|||||||
| December 31 |
|||||||
| 2016 |
2015 |
Increase/ |
|||||
| Revenue |
|||||||
| Room revenue |
$117,692 |
$129,963 |
($12,271) |
||||
| Other hotel revenue |
44,544 |
47,790 |
(3,246) |
||||
| Total revenue |
162,236 |
177,753 |
(15,517) |
||||
| Hotel operating costs |
117,688 |
129,302 |
11,614 |
||||
| Hotel operating income |
44,548 |
48,451 |
(3,903) |
||||
| Interest expense |
32,121 |
35,567 |
3,446 |
||||
| Interest and other income |
(914) |
(373) |
541 |
||||
| Share based compensation |
311 |
389 |
78 |
||||
| General and administrative expenses |
3,235 |
3,792 |
557 |
||||
| Depreciation and amortization |
24,233 |
31,978 |
7,745 |
||||
| (14,438) |
(22,902) |
8,464 |
|||||
| Equity income on investment in hotel properties |
1,031 |
1,032 |
(1) |
||||
| Gain on sale of property and equipment |
- |
9,071 |
(9,071) |
||||
| Provision for impairment |
(104,850) |
(64,750) |
(40,100) |
||||
| Change in fair value of financial instruments: gain (loss) |
90 |
201 |
(111) |
||||
| Deferred income tax recovery (expense) |
(15,010) |
21,892 |
(36,902) |
||||
| Net loss |
($133,177) |
($55,456) |
($77,721) |
||||
| Per Common Share Results: |
|||||||
| Basic and diluted |
($1.64) |
($1.17) |
|||||
Hotel Revenue
| Analysis of Total Hotel Revenues |
|||||||||||
| Year Ended December 31 |
|||||||||||
| Increase/ |
|||||||||||
| 2016 |
2015 |
(Decrease) |
|||||||||
| Same Property |
|||||||||||
| Fort McMurray |
|||||||||||
| Room revenue |
$ |
20,610 |
$ |
27,563 |
$ |
(6,953) |
|||||
| Other hotel revenue |
2,139 |
2,127 |
12 |
||||||||
| $ |
22,749 |
$ |
29,690 |
$ |
(6,941) |
||||||
| Other Alberta |
|||||||||||
| Room revenue |
$ |
20,241 |
$ |
23,970 |
$ |
(3,729) |
|||||
| Other hotel revenue |
18,154 |
19,355 |
(1,201) |
||||||||
| $ |
38,395 |
$ |
43,325 |
$ |
(4,930) |
||||||
| Other Canada |
|||||||||||
| Room revenue |
$ |
76,841 |
$ |
73,820 |
$ |
3,021 |
|||||
| Other hotel revenue |
24,251 |
22,953 |
1,298 |
||||||||
| $ |
101,092 |
$ |
96,773 |
$ |
4,319 |
||||||
| Total ‑ Same Property |
|||||||||||
| Room revenue |
$ |
117,692 |
$ |
125,353 |
$ |
(7,661) |
|||||
| Other hotel revenue |
44,544 |
44,435 |
109 |
||||||||
| Total hotel revenue |
$ |
162,236 |
$ |
169,788 |
$ |
(7,552) |
|||||
| Total ‑ Sold Property |
|||||||||||
| Room revenue |
$ |
- |
$ |
4,610 |
$ |
(4,610) |
|||||
| Other hotel revenue |
- |
3,355 |
(3,355) |
||||||||
| Total hotel revenue |
$ |
- |
$ |
7,965 |
$ |
(7,965) |
|||||
| Total |
|||||||||||
| Room revenue |
$ |
117,692 |
$ |
129,963 |
$ |
(12,271) |
|||||
| Other hotel revenue |
44,544 |
47,790 |
(3,246) |
||||||||
| Total hotel revenue |
$ |
162,236 |
$ |
177,753 |
$ |
(15,517) |
|||||
During 2016, room revenue decreased by $12.3 million or 9%, compared 2015. The decrease reflects a $7.7 million decrease in Same Property room revenue and a decrease of $4.6 million due to the disposition of a property in 2015. The decrease in Same Property room revenue is comprised of a $7.0 million (25%) decrease in the Fort McMurray portfolio and a $3.7 million (16%) decrease in the Other Alberta portfolio, offset by a $3.0 million (4%) increase in the Other Canada portfolio.
The decrease in Same Property room revenue during 2016, compared to 2015, is largely due to closure 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, offset by favourable market conditions for the Other Canada segment.
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 during the second quarter of 2016. The Radisson Hotel & Suites, which sustained greater fire, smoke and water damage, reopened on September 12, 2016. The Cortona lease revenues were not impacted by the business interruption.
The events in Fort McMurray resulted 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. As at December 31, 2016, $0.6 million has been received and/or confirmed by the insurers and recognized in interest and other income. Due to the complex and uncertain nature of the settlement negotiations process, the Company has not recognized any additional provision in the financial statements for the year ended December 31, 2016.
Room Revenue Statistics
As disclosed in the following chart, for the year ended December 31, 2016, RevPar for the Same Property portfolio was $82.71, compared to $88.61 for the year ended December 31, 2015.
RevPar for Same Property portfolio results generally reflect reduced ADR and occupancy levels in the Fort McMurray and Other Alberta segments, offset by increased ADR in the Other Canada segment. RevPar for the Fort McMurray segment reflects the closure of eight properties due to the wildfires discussed above and summarized in the preceding table.
Occupancy at the Fort McMurray properties has been adversely affected by delayed rebuilding efforts in the region, due to the time required to complete the clean-up and insurance claim processes. Over time, it is expected that those involved in the rebuilding will create demand for accommodation, putting upward pressure on occupancy rates.
| Room Revenue Statistics |
||||||||||||||||
| Year Ended December 31 |
||||||||||||||||
| 2016 |
2015 |
|||||||||||||||
| Occ |
ADR |
RevPar |
Occ |
ADR |
RevPar |
|||||||||||
| Same Property |
||||||||||||||||
| Fort McMurray |
39% |
$ |
152.99 |
$ |
60.29 |
49% |
$ |
169.92 |
$ |
83.93 |
||||||
| Other Alberta |
52% |
$ |
126.22 |
$ |
65.60 |
59% |
$ |
131.42 |
$ |
77.90 |
||||||
| Other Canada |
70% |
$ |
139.94 |
$ |
98.27 |
68% |
$ |
138.68 |
$ |
94.09 |
||||||
| Total – Same Property |
59% |
$ |
139.81 |
$ |
82.71 |
62% |
$ |
142.05 |
$ |
88.61 |
||||||
| Sold Property |
- |
$ |
- |
$ |
- |
53% |
$ |
160.55 |
$ |
85.03 |
||||||
| Overall Portfolio |
59% |
$ |
139.81 |
$ |
82.71 |
62% |
$ |
142.89 |
$ |
88.40 |
||||||
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
In 2016, other hotel revenue decreased by $3.2 million or 7%, compared to 2015, mainly comprised of a decrease of $3.3 million from the Sold Property and a decrease of $1.2 million from the Other Alberta properties, partially offset by a $1.3 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 2016, accounting for $13.7 million or 31% of other hotel revenue.
Operating Income and Profit Margin
| Operating Income and Profit Margin |
||||||||||
| Year Ended December 31 |
||||||||||
| Operating Income |
Operating Profit Margin |
|||||||||
| 2016 |
2015 |
2016 |
2015 |
|||||||
| Same Property |
||||||||||
| Fort McMurray |
$ |
10,010 |
$ |
13,398 |
44% |
45% |
||||
| Other Alberta |
6,389 |
8,759 |
17% |
20% |
||||||
| Other Canada |
28,149 |
25,834 |
28% |
27% |
||||||
| Total ‑ Same Property |
$ |
44,548 |
$ |
47,991 |
27% |
28% |
||||
| Sold Property |
$ |
- |
$ |
460 |
- |
6% |
||||
| Total portfolio |
$ |
44,548 |
$ |
48,451 |
27% |
27% |
||||
After accounting for the decrease in total revenues and the decrease in hotel operating costs, total operating income decreased by $3.9 million or 8% in 2016, compared to 2015, comprised of decrease of $3.5 million or 7% for the Same Property portfolio and a decrease of $0.4 million due to the Sold Property. The decrease in Same Property operating income reflects a $3.4 million, or 25%, decrease in operating income for the Fort McMurray segment and a $2.4 million, or 27%, decrease in operating income for the Other Alberta segment, offset by a $2.3 million, or 9%, increase in operating income for the Other Canada segment.
As disclosed in the preceding chart, the overall profit margin of the entire hotel portfolio was 27% for 2016 and 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.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.
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: [email protected]
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