Temple Hotels Inc. reports 2015 financial results

WINNIPEG, Feb. 25, 2016

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. 

2015 KEY POINTS/HIGHLIGHTS

• Net operating income decreased by $12.2 million or 21% in 2015, compared to 2014, comprised of a $14 million and $1.9 million decreases, respectively, in the operating income of the same property portfolio and the sold property portfolio, partially offset by $3.7 million increase attributable to new acquisitions.
• Net operating income for non-Alberta same properties increased by $0.4 million or 2% in 2015, compared to 2014, reflecting a $1.89 increase in ADR (1%) and $1.99 increase in RevPAR (2).
• The sale of Hotel Saskatchewan on September 1, 2015 provided approximately $24 million of net cash proceeds, after repayment of the first mortgage loan, that were primarily used to repay debt.
• A rights offering was successfully completed on October 29, 2015 and resulted in the issuance of 36,363,636 common shares, at $1.10 per share, and net proceeds of $39.3 million that were primarily used to repay debt.
• A non-cash accounting adjustment for impairment of $64.8 million was recognized in 2015 to reflect the impact of the economic downturn on the carrying value of twelve Alberta hotel properties as at December 31, 2015.

OPERATING RESULTS

	Year Ended December 31
	2015	2014 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	$177,753	$188,418
Operating income	$45,769	$57,995
Provision for impairment	$(64,750)	Nil
Net loss	$(55,456)	$(7,835)
Cash flow from operating activities	$16,085	$25,225
Funds from operations	$10,881	$20,534
Adjusted funds from operations	$6,349	$19,024
Per share
‑ FFO	$0.23	$0.51
‑ AFFO	$0.13	$0.47
Occupancy	62%	67%
ADR	$142.89	$149.05
RevPar	$88.40	$99.62

Operating Activities

• Operating Income: During 2015, operating income decreased by $12 million or 21%, compared to 2014. The decrease mainly reflects a $14 million decrease in same property operating income and a $1.9 million decrease in the sold property segment, partially offset by a $3.7 million increase in operating income from the six hotels acquired in 2014.
• Occupancy: 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 Fort McMurray and other oil‑dependent markets in Alberta. In 2015, the occupancy level of the Fort McMurray and Other Alberta segments decreased by 14 and 10 percentage points, respectively, in comparison to the 2014 occupancy results. In addition, the ADR of the Fort McMurray and Other Alberta segments decreased by $21.01 and $6.14, respectively, in comparison to 2014.
• FFO and AFFO: During 2015, FFO decreased by $9.7 million (47%) and AFFO decreased by $12.8 million (67%), compared to 2014. On a basic per share basis, FFO and AFFO decreased by $0.28 per share and $0.34 per share, respectively, compared to 2014. The decrease in FFO and AFFO mainly reflects a decrease in operating income, due to the factors noted above. During 2015, the FFO and AFFO payout ratios were 65% and 112%, respectively, compared 107% and 116% during 2014. The lower payout ratio reflects, among other things, the reduction of dividends in 2015.
• Cash Provided by Operating Activities: Cash provided by operating activities decreased by $9.1 million during 2015, compared to 2014. After excluding working capital adjustments, cash provided by operating activities decreased by $9.5 million, compared to 2014.
• Net Loss: Temple completed 2015 with a net loss of $55.5 million, compared to a net loss of $7.8 million during 2014. The substantial increase in the net loss is mainly due to the non-cash accounting provision for asset impairment of $64.8 million, as well as a decrease in operating income of $12.2 million, partially offset by an increase in income tax recoveries of $19.2 million and a gain on sale of property of $9.1 million. On a per share basis, the net loss was $1.17 for 2015, compared to a net loss per share of $0.19 during 2014.
• 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, current appraisals at reduced appraised values for certain properties in comparison to previous appraisals and the current 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 $64.8 million for twelve hotels in Alberta was recorded in 2015.

Liquidity and Financing Activities

As of December 31, 2015, the unrestricted cash balance of Temple was $23 million and working capital was approximately $14.7 million, excluding the current portion of long‑term debt.

The main financing activities of Temple during 2015 were as follows:

• During Q4-2015, the rights offering was completed and resulted in the issuance of 36,363,636 common shares for aggregate proceeds of $40 million and net proceeds of $39.3 million. The completion of the rights offering has enabled Temple to further reduce indebtedness and improve the working capital position.
• Temple completed the sale of Hotel Saskatchewan on September 1, 2015 for gross proceeds of $45 million, including $7 million of capital expenditure reimbursements, and net proceeds of $24 million, after the repayment of the first mortgage loan. The net proceeds were used to retire the revolving loan in full, reduce other debt and improve working capital.
• In response to the economic downturn in Alberta, Temple reduced the annualized dividend payments from $0.54 to $0.30 in January 2015 and to $0.10 in May 2015. In January 2016 Temple suspended the payment of dividends in order to preserve liquidity and reduce debt.
• Temple has negotiated a reduction in the hotel management fees for Fort McMurray and Red Deer hotels.

Investing Activities

Temple has continued to invest in major hotel renovation programs with the objective of enhancing the quality and competitive position of its hotel properties.  During 2015, capital expenditures on hotel properties amounted to $18.7 million of which $14.7 million related to major renovations and upgrade programs at five properties, including major expenditures of $7 million at the Hotel Saskatchewan which were reimbursed upon closing of the sale.

With the closing of the sale of the Hotel Saskatchewan and other major capital expenditures programs nearing completion, capital expenditures are expected to substantially decrease during 2016. 

Board Governance and Management

During 2015, two nominees of Morguard Corporation and one independent director were elected to the Board.  The new board of directors strengthened Board governance by separating the role of CEO and Chairman.

Effective April 1, 2016, asset management responsibilities previously provided by Shelter Canadian Properties Limited will be assumed by Morguard Corporation.

Outlook

In view of the economic contraction in Alberta, Temple will continue to focus on debt reduction; improving its balance sheet; as well as the completion of the strategic capital expenditures which commenced last year. Management is confident that the recent capital expenditure programs and improvement in income from our hotels located outside Alberta will mitigate the impact on Temple of the severe economic downturn in Alberta.

Analysis of Net Loss
				Year Ended
				December 31
									Increase / (Decrease)
			2015			2014			in Income
Revenue
	Room revenue	$	129,963		$	137,468		$	(7,505)
	Other hotel revenue		47,790			50,950			(3,160)
	Total revenue		177,753			188,418			(10,665)
Hotel operating costs			131,984			130,423			(1,561)
Operating income			45,769			57,995			(12,226)
Interest expense, net			35,181			33,828			(1,353)
Share based compensation			389			405			16
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