Company Results

Temple Hotels Inc. 2014 Q2 Operating Income Increased by 9%

Net income decreased by $0.8 million mainly due to an increase in depreciation and amortization charges of $2.62 million and an increase in interest expense (net) of $1.07 million, partially offset by a positive variance in the fair value gain/loss associated with financial instruments of $1.11 million.

Temple Hotels

Temple Hotels Inc. ("Temple") (TSX: TPH) last week reported its financial results for the quarter ended June 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 June 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 June 30     Six Months Ended June 30
          2014         2013           2014         2013  
                                             
Total revenue         $47,495         $40,016           $87,408         $72,195  
Operating income         $15,482         $14,216           $27,201         $25,555  
Net income (loss)         $(34)         $770           $(2,331)         $906  
Cash flow from operating activities         $10,040         $7,911           $12,608         $6,655  
Funds from operations (FFO)         $6,669         $6,358           $10,928         $9,823  
Adjusted funds from operations (AFFO)         $5,642         $5,118           $8,861         $8,845  
Dividends                                            
Per share                                            
- FFO         $0.16         $0.22           $0.27         $0.35  
- AFFO         $0.14         $0.17           $0.22         $0.31  
                                             
- Dividends         $0.135         $0.135           $0.27         $0.27  
FFO payout ratio         83%         63%           100%         78%  
AFFO payout ratio         97%         78%           124%         86%  
Occupancy         68%         72%           67%         70%  
ADR         $152.46         $159.82           $150.88         $158.23  
RevPAR         $103.73         $114.48           $100.27         $110.59

KEY POINTS

  • Operating income increased by $1.27 million or 9% during Q2-2014, compared to Q2-2013, comprised of a $2.81 million increase in operating from "new hotel properties" (eight hotels acquired during 2013 and two hotels acquired in Q2-2014) and a $1.54 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 occupancy levels and reflects the continuation of a lower demand hotel market in Fort McMurray as a result of what is expected to be a temporary slowdown in oil sands developments. Operating income increased by $3.76 million in Q2-2014, compared to Q1-2014.
  • Net income decreased by $0.8 million mainly due to an increase in depreciation and amortization charges of $2.62 million and an increase in interest expense (net) of $1.07 million, partially offset by a positive variance in the fair value gain/loss associated with financial instruments of $1.11 million.
  • FFO increased by $0.31 million and AFFO increased by $0.52 million during Q2-2014, compared to Q2-2013. On a basic per share basis, however, FFO decreased by $0.06 per share and AFFO decreased by $0.03 per share. The decline in per share FFO and AFFO was due, in part, to the time lag from Temple's equity issuance in December 2013 to the time the funds were fully invested in the acquisition of additional hotel properties. The equity issuance in December 2013 increased the outstanding shares by 9.9 million.
  • Cash flow from operating activities increased by $2.13 million during Q2-2014, compared to Q2-2013.

New Property Acquisitions and Capital Expenditures

During Q2-2014, Temple continued with its progressive growth strategy, acquiring two additional properties in western Canada. The Hotel Saskatchewan in Regina (224 guestrooms) and the Cortona Residence in Fort McMurray (57 suites) were both acquired effective April 1, 2014. The total combined acquisition cost of $58.8 million was financed with $40.3 million of first mortgage loan financing with the balance in cash. The Cortona Residence will be converted to an "extended stay" property at the expiry of the existing lease agreement in April 2018. In the interim, the investment in the property will provide a stable revenue source.

During Q2-2014, Temple's investment in capital expenditures amounted to $11 million, including $7.7 million of renovations at the Saskatoon Inn & Conference Centre, $0.8 million of renovations at the Prince George Hotel, Nova Scotia, $0.6 million of renovations at the Sheraton, Red Deer, and $0.6 million for the expansion of the Keg Restaurant at the Nomad Hotel & Suites, Fort McMurray.

Subsequent to June 30, 2014, Temple acquired four additional hotel properties comprised of two "Days Inn" properties in Thunder Bay, the TownPlace Suites by Marriott in Sudbury, Ontario and the Hilton Garden Inn Toronto Airport West.

The Days Inn Suites and the Days Inn North in Thunder Bay were acquired effective July 1, 2014. The hotels are approximately 3.4 kilometers apart and in close proximity to the Trans-Canada highway, Lakehead University and Confederation College. The total combined acquisition cost of $26.5 million was financed with $16 million of first mortgage loan financing and the balance in cash.

The TownPlace Suites by Marriott and the Hilton Garden Inn Toronto Airport West were acquired effective August 1, 2014. The total combined acquisition cost of the two hotels of $43.07 million was financed by the assumption of first mortgage loan debt of approximately $23 million and the balance in cash.

Financing and Liquidity

During Q2-2014, Temple obtained a new first mortgage loan of $25 million for the Merit Hotel and Suites and arranged a line of credit of $25 million, secured by a first mortgage charge against the Nomad Hotel. There were no draws on the line of credit during Q2-2014, however, $20 million was advanced in Q3 to fund the August 1, 2014 acquisitions.

As of June 30, 2014, Temple's total cash balance was $25.3 million and the working capital was $26.8 million. The cash balance primarily consists of working capital reserves and funds designated for capital expenditures.

As of June 30, 2014, total long-term debt was equal to 67% of the appraised value of the total property portfolio. The weighted average interest rate of the total long-term debt was 5.52% as of June 30, 2014, compared to 5.64% as of December 31, 2013 and 5.61% as of June 30, 2013. During Q3-2014, Temple will refinance or renew first mortgage debt in the total amount of $55 million. All of the maturing mortgage debt was renewed at interest rates below 5% and will serve to reduce the average cost of mortgage debt.

Outlook

Demand for hotel rooms is historically at peak levels during the summer months and the expectation is that Temple will achieve a marked improvement in RevPAR results during the third quarter of 2014, including a more substantial improvement in the RevPAR results for the same property portfolio. Incremental income will also be derived from the four new hotel acquisitions.

The four recently acquired hotels is a continuation of the strategy to increase Temple's asset base and further enhanced the geographic diversification of the total hotel portfolio.

For the next two years, Temple will continue to focus on the accretive capital expenditure programs with the objective of enhancing the overall quality and revenue-generating capacity of the hotel portfolio. Management is confident that Temple is creating a high quality, diversified hotel portfolio.

Q2-2014 COMPARED TO Q2-2013

Analysis of Net income (loss)                                                
        Three Months Ended         Six Months Ended      
        June 30         June 30      
                        Increase /

(Decrease)

                  Increase /

(Decrease)

        2014   2013   in Income   2014   2013   in Income
Revenue                                                
  Room revenue       $   34,422   $   28,722   $ 5,700   $   63,667   $   51,369   $ 12,298
  Other hotel revenue           13,073       11,294     1,779       23,741       20,826     2,915
                                                 
  Total revenue           47,495       40,016     7,479       87,408       72,195     15,213
                                                 
Hotel operating costs           32,013       25,800     6,213       60,207       46,640     (13,567)
                                                 
Operating income           15,482       14,216     1,266       27,201       25,555     1,646
                                                 
Interest expense, net           8,341       7,267     (1,074)       15,661       13,715     (1,946)
Share based compensation           75       38     (37)       223       64     (159)
General and administrative expenses           765       622     (143)       973       2,043     1,070
Depreciation and amortization           6,767       4,147     (2,620)       14,331       7,672     (6,659)
            (466)       2,142     (2,608)       (3,987)       2,061     (6,048)
Equity income on investment in hotel

properties

          368       178     190       584       302     282
Change in fair value of financial

instruments: gain (loss)

          89       (1,021)     1,110       128       (1,200)     1,328
Income tax recovery (expense)           (25)       (529)     504       944       (257)     1,201
                                                 
Net income (loss)       $   (34)   $   770   $ (804)   $   (2,331)   $   906   $ (3,237)
Per Share Results:                                                
  Basic       $   -   $   0.03         $   (0.06)   $   0.03      
  Diluted       $   -   $   0.03         $   (0.06)   $   0.03

 

Revenue

Analysis of Total Hotel Revenues                                    
            Three Months Ended June 30         Six Months Ended June 30      
                            Increase/                   Increase/
            2014   2013   (Decrease)   2014   2013   (Decrease)
Total - Same Properties                                                    
  Room revenue           $   21,172   $   22,892   $ (1,720)   $   42,092   $   43,615   $ (1,523)
  Other hotel revenue               8,995       9,138     (143)       17,661       17,915     (254)
  Total Hotel Revenue           $   30,167   $   32,030   $ (1,863)       59,753       61,530     (1,777)
                                                       
Total - Acquisitions                                                    
  Room revenue           $   13,250   $   5,830   $ 7,420   $   21,575   $   7,754   $ 13,821
  Other hotel revenue               4,078       2,156     1,922       6,080       2,911     3,169
  Total Hotel Revenue           $   17,328   $   7,986   $ 9,342   $   27,655   $   10,665   $ 16,990
                                                     
Total                                                    
  Room revenue           $   34,422   $   28,722   $ 5,700   $   63,667   $   51,369   $ 12,298
  Other hotel revenue               13,073       11,294     1,779       23,741       20,826     2,915
  Total hotel revenue           $   47,495   $   40,016     7,479   $   87,408   $   72,195   $ 15,213

 

As of March 31, 2014, the "Acquisitions" portfolio comprises 42% of the total rooms. With the exception of the Acclaim Hotel, Calgary Airport North, the Holiday Inn Express, Sherwood Park and Cortona Residence in Fort McMurray, all of the hotels in the "Acquisitions" portfolio are located outside of Alberta.

During Q2-2014, total room revenue increased by $5.7 million or 20%, compared to Q2-2013, comprised of incremental revenue of$7.42 million from new hotel acquisitions, offset by a decrease of $1.72 million or 7.5% in "same property" revenue.  The Fort McMurray same property portfolio accounted for approximately 82% of the decrease in same property room revenue.

For the six months ended June 30, 2014, room revenue increased by $12.3 million or 24%, compared to the six months ended June 30, 2013. The increase was comprised of a decrease of $1.52 million or 3% in "same property" revenue and incremental revenue of$13.82 million from new hotel acquisitions. The Fort McMurray same property portfolio accounted for approximately 90% of the decrease in same property room revenue.

As disclosed in the following chart, RevPAR for the same property portfolio was $109.98 during Q2-2014, compared to $118.94 during Q2-2013. RevPAR for new acquisitions was $94.76 in Q2-2014, compared to $88.27 in Q2-2013.

For the six months ended June 30, 2014, RevPAR for the same property portfolio was $109.94, compared to $113.93 for the six months ended June 30, 2013. RevPAR for the portfolio of newly acquired properties was $85.26 during the first six months of 2014, compared to $83.40 during the first six months of 2013.

The decrease in RevPAR for the same property portfolio is mainly attributable to lower occupancy in the Fort McMurray same property portfolio

RevPAR results for the Fort McMurray same property portfolio for Q1-2014 were impacted by delays in major oil sand projects and increased competition from new work camps which served to reduce occupancy and limit rate increases for the Fort McMurrayportfolio. The competitive market conditions continued into Q2-2014 and served to limit the extent of any improvement in RevPAR results.

Room Revenue Statistics                                                        
            Three Months Ended June 30
            2014   2013
            Occ   ADR   RevPAR   Occ   ADR   RevPAR
Same Properties        <



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