Temple Hotels Inc. Reports 2016 Financial Results

MISSISSAUGA, ON, Feb. 22, 2017

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 ARIVA.DE Börsen-Geflüster Kurse TEMPLE HOTELS INC 7.25 PCT DEBS -   0,00% TEMPLE HOTELS INC 7.75 PCT DEBS -   0,00% TEMPLE HOTELS INC 8.0 PCT DEBS -   0,00%
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/ (Decrease) in Income
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
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