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.

K. Rai Sahi, FCA, FCGA, Chief Executive Officer, or Paul Miatello, CA, CPA, Chief Financial Officer, Tel: [phone], Fax: [phone], Email: [email protected]