Temple REIT reports 2012 second quarter results and potential for further hotel acquisitions

WINNIPEG, Aug. 21, 2012 /CNW/ - Temple Real Estate Investment Trust ("Temple REIT") (TSX: TR.UN) today reported its financial results for the quarter ended June 30, 2012.  The following comments in regard to the financial position and operating results of Temple REIT should be read in conjunction with the Management Discussion & Analysis and the financial statements for the quarter ended June 30, 2012, which may be obtained from the Temple REIT website at www.treit.ca or the SEDAR website at www.sedar.com.

Monetary data in tabular form, unless otherwise indicated, are in thousands of Canadian dollars, except for per unit, average daily rate ("ADR"), and revenue per available room ("RevPAR") amounts.

Operating Results

As summarized in the following chart, Temple REIT has continued to achieve growth in the majority of key revenue, income and cash flow measurements during the second quarter of 2012.

		Three Months Ended June 30		Six Months Ended June 30
		2012	2011	2012	2011
Total Revenue *		$23,189	$18,703	$44,731	$35,370
Operating income *		$8,764	$6,952	$16,660	$12,572
Net income before change in fair value of financial
	instruments and income tax expense	$1,476	$1,686	$1,285	$2,087
Net income (loss)		$3,977	$2,168	$4,296	$(163)
Cash flow from operating activities		$244	$2,713	$943	$4,768
Distributable income		$1,754	$2,482	$6,305	$4,591
Funds from operations		$3,784	$3,583	$5,585	$5,720
Distributions		$2,988	$1,836	$5,572	$3,653
DI payout ratio		170.2%	73.9%	88.4%	79.6%
FFO payout ratio		78.9%	51.2%	99.8%	63.9%
Occupancy **		70%	72%	70%	68%
ADR **		$156.11	$148.15	$155.17	$146.94
RevPar **		$108.83	$106.37	$108.98	$100.52

* The "same property portfolio" for Q2-2012 accounted for 19% of the increase in total revenue and 20% of the total increase in operating income.

** For the "same property" portfolio, the occupancy rate for Q2-2012 was 68% (72% in Q2-2011), the ADR was $162.41 ($148.15 in Q2-2011) and the RevPar was $111.07 ($106.37 in Q2-2011).

Net Income

Net income increased by $1.81 million during Q2-2012, compared to Q2-2011.  Net income for Q2-2012 includes income of $3.28 million in regard to the change in fair value of financial instruments.

Excluding income taxes and the income related to the change in fair value of financial instruments, net income decreased by $0.21 million during Q2-2012, compared to Q2-2011. The decrease mainly reflects a $1.30 million increase in interest expense and a $0.63 million increase in amortization and depreciation, partially offset by an increase in operating income of $1.81 million.

The increase in operating income includes $1.41 million from the four new hotels acquired by Temple REIT between December 2011 and June 30, 2012, including two hotels which were acquired during Q2-2012. Operating income from the "same property" portfolio increased by $0.37 million or 5% during the second quarter of 2012, compared to the second quarter of 2011.

The increase in interest expense mainly reflects incremental interest on the mortgage loan debt of the new hotels as well as interest on new convertible debenture debt issued this year.

Cash Flow

Excluding working capital adjustments, cash from operating activities decreased by $0.57 million during Q2-2012, compared to Q2-2011, mainly due to an increase in interest paid, partially offset by an increase in the cash component of operating income. Cash from operating activities, including working capital adjustments, decreased by $2.47 million in Q2-2012 compared to Q1-2011.

Distributable Income

During Q2-2012, distributable income decreased by $0.73 million or 29%, compared to Q2-2011. The decrease in cash from operating activities and, as a result, distributable income in Q2-2012 is partially attributable to the fact that the return on new capital is gradually being realized as new hotel properties are acquired whereas the cost of new capital has an immediate impact on income and cash flow results.

For the six month period ended June 30, 2012, distributable income increased by $1.71 million compared to the six-month period ended June 30, 2011. Distributions represented 88.4% of distributable income during the six-month period ended June 30, 2012, compared to 79.6% during the six-month period ended June 30, 2011.

Hotel Portfolio

On August 1, 2012, Temple REIT acquired the 160-room Hilton Garden Inn in Edmonton, Alberta. The $31 million acquisition was funded by a first mortgage loan of $20 million, with the balance in cash.

Since December 1, 2011, Temple REIT has acquired 5 new hotels at a total combined purchase price of $120 million.  The new hotels include the Hilton Garden Inn, the Regina Wingate Inn in December 2011, the Radisson Inn and Suites in February 2012, the Clearwater Suites Timberlea in May 2012 and the Inn at the Quay in June 2012.  The property portfolio of Temple REIT currently consists of 15 hotels with a total of 1,868 guest rooms.  The $12 million upgrade program at the Sheraton Red Deer also resulted in the addition of 23 guest rooms in December 2012.

In comparison to the property portfolio at June 30, 2011, the expanded portfolio of Temple REIT represents an increase of 349 guest rooms and an increase in annualized operating income potential in the estimated amount of $9 million.

Subsequent to June 30, 2012, Temple REIT announced that it has agreed to acquire the Acclaim Hotel Calgary Airport for $42 million. The existing hotel opened in 2009 and consists of 123 guestrooms. An expansion is underway which will add an additional 102 guestrooms. The expansion is expected to be completed in the summer of 2013 and the acquisition is scheduled to close on the later of October 1, 2013 or 60 days after completion.

Financing Activities subsequent to June 30, 2012

On August 8, 2012 Temple REIT completed a $46 million public offering of 7.25% Series E convertible debentures. After deducting transaction and issue costs the net proceeds were approximately $43.6 million. The net proceeds will used to fund additional acquisitions of income producing hotel properties, to repay existing debt, for general trust purposes, and for working capital.

12.5% Distribution Increase

As previously reported, the Trustees have approved an increase in the monthly distribution from $0.04 to $0.045, effective with the September 2012 distribution, payable on October 15, 2012.

FINANCIAL AND OPERATING STATISTICS
		June 30, 2012		Dec. 31, 2012
BALANCE SHEET
	Total Assets	$	389,618	$	282,553
	Total Long-Term Debt and Convertible Debentures (at face value)	$	289,325	$	205,401

		Three Months Ended				Six Months Ended
		June 30				June 30
		2012		2011		2012		2011
DISTRIBUTIONS
	Amount - total	$	2,988	$	1,836	$	5,572	$	3,653
	- per unit	$	0.12	$	0.10	$	0.24	$	0.20
KEY PERFORMANCE INDICATORS
Operations:
	Occupancy	70%		72%		70%		68%
	ADR	$	156.11	$	148.15	$	155.17	$	146.94
	RevPar	$	108.83	$	106.37	$	108.98	$	100.52
	Operating profit margin	38%		37%		37%		36%
Operating results:
	Total revenue	$	23,189	$	18,703	$	44,731	$	35,370
	Operating income	$	8,764	$	6,952	$	16,660	$	12,572
	Net income (loss)	$	3,977	$	2,168	$	4,296	$	(163)
Cash flows:
	Cash flow from operating activities	$	244	$	2,713	$	943	$	4,768
	Distributable income	$	1,754	$	2,482	$	6,305	$	4,591
	Funds from operations	$	3,784	$	3,583	$	5,585	$	5,720
Financing:
	Weighted average interest rate of long-term debt	6.34%		6.63%		6.34%		6.63%
PER UNIT AMOUNTS		Basic		Basic		Basic		Basic
	Net income	$0.16		$0.12		$0.19		$(0.01)
	Cash flow from operating activities	$0.01		$0.15		$0.04		$0.28
	Distributable income	$0.07		$0.14		$0.27		$0.27
	Funds from operations	$0.15		$0.20		$0.24		$0.34

Q2-2012 COMPARED TO Q2-2011
Analysis of Net income (loss)
		Three Months Ended						Six Months Ended
		June 30						June 30
						Increase/						Increase/
		2012		2011		(Decrease)		2012		2011		(Decrease)
Revenue
	Room revenue	$	16,091	$	11,891	$	4,200	$	30,884	$	22,352	$	8,532
	Other hotel revenue	7,098		6,812		286		13,847		13,018		829
	Total revenue	23,189		18,703		4,486		44,731		35,370		9,361
Hotel operating costs		14,425		11,751		2,674		28,071		22,798		5,273
Operating income		8,764		6,952		1,812		16,660		12,572		4,088
Interest expense, net		4,393		3,097		1,296		10,219		6,433		3,786
Trust expense		489		394		95		672		520		152
Depreciation and amortization		2,406		1,775		631		4,484		3,532		952
		1,476		1,686		(210)		1,285		2,087		(802)
Change in fair value of financial
	instruments: gain (loss)	3,283		1,030		2,253		3,630		(1,984)		5,614
Income taxes expense		(782)		(548)		(234)		(619)		(266)		(353)
Net income (loss)		$	3,977	$	2,168	$	1,809	$	4,296	$	(163)	$	4,459

Income before the change in fair value of financial instruments and income taxes decreased by $0.21 million during Q2-2012 compared to Q2-2011. The decrease reflects an increase in interest expense (net), trust expense and depreciation and amortization of $1.30 million, $0.09 million and $0.63 million, respectively, largely offset by an increase in operating income of $1.81 million. After providing for the change in fair value of financial instruments and income taxes, Temple REIT completed Q2-2012 with a net income of $3.98 million, compared to net income of $2.17 million during Q2-2011, representing an increase in income of $1.81 million.

For the first six months of 2012, income before the change in fair value of financial instruments and income taxes decreased by $0.80 million, compared to the first six months of 2011. The decrease reflects an increase in interest expense (net), trust expense and depreciation and amortization of $3.79 million, $0.15 million and $0.95 million, respectively, partially offset by an increase in operating income of $4.09 million. After providing for the change in fair value of financial instruments and income taxes, Temple REIT completed the first six months of 2012 with a net income of $4.30 million, compared to a net loss of $0.16 million during the first six months of 2011, representing an increase in income of $4.46 million.

Revenue

Analysis of Total Hotel Revenues
		Three Months Ended June 30						Six Months Ended June 30
						Increase/						Increase/
		2012		2011		(Decrease)		2012		2011		(Decrease)
Total - Same Properties
	Room revenue	$	12,760	$	11,891	$	869	$	25,672	$	22,352	$	3,320
	Other hotel revenue	6,774		6,812		(38)		13,350		13,018		332
	Total Hotel Revenue	$	19,534	$	18,703	$	831	$	39,022	$	35,370	$	3,652
Total - Newly Acquired Properties
	Room revenue	$	3,331	$	N/A	$	3,331	$	5,212	$	N/A	$	5,212
	Other hotel revenue	324		N/A		324		497		N/A		497
	Total Hotel Revenue	$	3,655	$	N/A	$	3,655	$	5,709	$	N/A	$	5,709
Total
	Room revenue	$	16,091	$	11,891	$	4,200	$	30,884	$	22,352	$	8,532
	Other hotel revenue	7,098		6,812		286		13,847		13,018		829
	Total hotel revenue	$	23,189	$	18,703	$	4,486	$	44,731	$	35,370	$	9,361

Room Revenue

During Q2-2012, total room revenue increased by $4.20 million or 35%, compared to Q2-2011, comprised of an increase of $0.87 million or 7% in "same property" revenue and incremental revenue of $3.33 million from new hotel acquisitions.  With the exception of Chateau Nova, the room revenue for all of the hotels in the "same property" portfolio increased during Q2-2012.

During the first six months of 2012, room revenue increased by $8.53 million or 38%, compared to the first six months of 2011, comprised of an increase of $3.32 million or 15% in "same property" revenue and incremental revenue of $5.21 million from new hotel acquisitions.

All of the "same property" hotels, with the exception of Chateau Nova experienced an improvement in RevPar in Q2-2012 compared to Q2-2011. RevPar for the total "same properties" portfolio increased by $4.70, largely on the strength of a $14.26 increase in the average daily room rate (ADR). Sheraton Red Deer had the largest increase in RevPar of $8.81 in Q2-2012, compared to Q2-2011, as a result of an increase in both ADR and occupancy level.

Room Revenue Statistics
	Three Months Ended June 30
	2012			2011
	Occ	ADR	RevPar	Occ	ADR	RevPar
Total - Same Properties	68%	$ 162.41	$ 111.07	72%	$ 148.15	$ 106.37
Total - Newly Acquired Properties	73%	$ 142.78	$ 103.80	N/A	N/A	N/A
Overall Portfolio	70%	$ 156.11	$ 108.83	72%	$ 148.15	$ 106.37
Room Revenue Statistics
	Six Months Ended June 30
	2012			2011
	Occ	ADR	RevPar	Occ	ADR	RevPar
Total - Same Properties	70%	$ 160.63	$ 112.26	68%	$ 146.94	$ 100.52
Total - Newly Acquired Properties	71%	$ 143.06	$ 101.60	N/A	N/A	N/A
Overall Portfolio	70%	$ 155.17	$ 108.98	68%	$ 146.94	$ 100.52

Hotel Operating Costs

During Q2-2012, hotel operating costs increased by $2.67 million, compared to Q2-2011, comprised of an increase of $0.46 million or 4% for the "same property" portfolio and $2.21 million attributable to new hotel acquisitions.  All of the hotels in the "same property" portfolio experienced an increase in operating costs during the Q2-2012 with the exception of the Wayside Inn and Suites. The Fort McMurray hotel portfolio accounted for 47% of the gross increase in "same property" operating costs.

During Q2-2012, operating costs for the Fort McMurray "same property" hotel portfolio increased by $0.22 million or 7%, while hotel revenues increased by $0.27 million or 4%. The increase in the Fort McMurray operating costs generally reflects an increase in variable costs related to the increase in room revenue of the hotel portfolio, including an increase in labour costs. Operating costs for the Sheraton Red Deer increased by $0.20 million or 5% during Q2-2012, while hotel revenues increased by $0.26 million or 5%.  For the first six months of 2012, the increase in operating costs for the Sheraton Red Deer exceeded the increase in revenue by $0.17 million mainly due to increased labour and training costs following the completion of the hotel renovations in December 2011 and the commencement of operations under the "Sheraton" hotel banner.

During the first six months of 2012, hotel operating costs increased by $5.27 million, compared to the first six months of 2011, comprised of an increase of $1.63 million or 7% for the "same property" portfolio and $3.64 million attributable to new hotel acquisitions.  The Sheraton Red Deer and the Fort McMurray hotel portfolio accounted for 49% and 40% of the total increase in "same property" operating costs, respectively.

Hotel operating costs for the six months ended June 30, 2012, include $0.23 million of non-recurring costs related directly to the acquisition of the new hotels, compared to nil for the first six months of 2011.

Operating Income and Profit Margin
	Operating  Income Amount            .								Operating Profit Margin
	Three Months Ended				Six Months Ended				Three Months Ended		Six Months Ended
	Q2		Q2		Q2		Q2		Q2	Q2	Q2	Q2
	2012		2011		2012		2011		2012	2011	2012	2011
Total - Same Properties	$	7,323	$	6,952	$	14,593	$	12,572	37%	37%	37%	36%
Total - Newly Acquired Properties	$	1,441	$	N/A	$	2,067	$	N/A	39%	N/A	N/A	N/A
Total portfolio	$	8,764	$	6,952	$	16,660	$	12,572	38%	37%	37%	36%

Operating income increased by $1.81 million or 26% during Q2-2012, compared to Q2-2011, comprised of an increase of $0.37 million or 5% for the "same property" portfolio and $1.44 million attributable to new hotel acquisitions. The increase in "same property" operating income is mainly attributable to an increase in operating income for Temple Gardens and the Wayside Inn and Suites.  All of the other "same property" hotels also experienced an increase in operating income, with the exception of the Chateau Nova.

For the first six months of 2012, operating income increased by $4.09 million or 33% compared to the first six months of 2011, comprised of an increase of $2.02 million or 16% for the "same property" portfolio and $2.07 million attributable to new hotel acquisitions. The increase in "same property" operating income is mainly attributable to an increase in operating income for the Fort McMurray "same property" portfolio and to a lesser extent, at Temple Gardens and the Wayside Inn and Suites, partially offset by a decrease in operating income at the Sheraton Red Deer and Chateau Nova.

The overall profit margin of the entire hotel portfolio increased from 37% during Q2-2011, to 38% during Q2-2012.  For the six months ended June 30, 2012, the overall profit margin increased to 37%, compared to 36% for the six months ended June 30, 2011.

COMPARISON TO PRIOR QUARTER

Analysis of Net Income(loss) - Q2-2012 vs. Q1-2012
						Increase/
		Q2-2012		Q1-2012		(Decrease)
Revenue
	Room	$	16,091	$	14,793	$	1,298
	Other	7,098		6,749		349
	Total revenue	23,189		21,542		1,647
Hotel operating costs		14,425		13,646		779
Operating income		8,764		7,896		868
Interest expense, net		4,393		5,825		(1,432)
Trust expense		489		183		306
Depreciation and amortization		2,406		2,078		328
		1,476		(190)		1,666
Change in fair value of financial instruments: gain		3,283		347		2,936
Income taxes recovery (expense)		(782)		163		(945)
Net income		$	3,977	$	320	$	3,657

Income before the change in fair value of financial instruments and income taxes increased by $1.67 million during Q2-2012, compared to Q1-2012. The increase in income mainly reflects a $0.87 million or 11% increase in operating income, and a $1.43 million or 24.6% decrease in interest expense (net). The increase in operating income is almost entirely attributable to new hotels. The decrease in interest expense (net) reflects a decrease in convertible debenture transaction costs partially offset by an increase in mortgage loan and convertible debenture interest.  Convertible debenture transaction costs were comparatively high in Q1-2012 as the transaction costs for the Series D convertible debentures were fully expensed in the first quarter.

After reflecting income tax expense, and the loss associated with the change in fair value financial instruments, net income increased by $3.66 million, during Q2-2012 compared to Q1-2012.  The variance in the fair value gain of $3.28 million during Q2-2012, compared to the fair value gain of $0.35 million during Q1-2012, served to increase income for the second quarter of 2012 by $2.94 million compared to Q1-2012.  The variance in fair value reflects variations in the net change in the quarter-ended trading price of the "fair-valued" financial instruments.

Room Revenue Statistics
	Q2-2012			Q1-2012
	Occ	ADR	RevPar	Occ	ADR	RevPar
Total - Same Properties	68%	$ 162.41	$ 111.07	71%	$ 158.93	$ 113.46
Total - Newly Acquired Properties	73%	$ 142.78	$ 103.80	65%	$ 159.75	$ 103.08
Overall Portfolio	70%	$ 156.11	$ 108.83	70%	$ 159.07	$ 111.57

OUTLOOK

The proceeds from the convertible debenture offering that closed on August 8, 2012 combined with the existing cash reserves have provided Temple REIT with the capacity to further expand the portfolio of income-producing hotel properties by $250 million. Temple REIT will continue to pursue the acquisition of quality hotel properties in prime locations, with the objective of increasing distributable income and maximizing unit value over the long-term.

The operating income from new hotels to be acquired this year and lower interest rates on maturing higher cost mortgage debt are also expected to contribute to growth in quarterly earnings.

ABOUT TREIT
Temple REIT is a real estate investment trust, which is listed on the Toronto Stock Exchange under the symbols TR.UN (trust units), TR.DB.B, TR.DB.C, TR.DB.D, TR.DB.E and TR.DB.S (convertible debentures).  The objective of Temple REIT is to provide Unitholders with stable cash distributions from investment in a geographically diversified Canadian portfolio of hotel properties and related assets.  For further information on Temple REIT, please visit our website at www.treit.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 REIT

Arni Thorsteinson, Chief Executive Officer, or Gino Romagnoli, Investor Relations
Tel: [phone], Fax: [phone], Email: [email protected]