Company Results

Temple Hotels Inc. 2014 Third Quarter Operating Income Up 8%

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.

Temple Hotels

Temple Hotels Inc. (TSX: TPH) yesterday 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 $482,000through 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 /

(Decrease)

Increase /

(Decrease)

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

properties

282

215

67

866

517

349

Change in fair value of financial

instruments: gain (loss)

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 $122.78during 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 milliondecrease 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 /

(Decrease)

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.



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