Temple Hotels Inc. Reports 2015 First Quarter Results and Announces Quarterly Dividend Policy

WINNIPEG, May 12, 2015 /CNW/ – Temple Hotels Inc. (“Temple”) (TSX: TPH) today reported its financial results for the quarter ended March 31, 2015.  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 March 31, 2015, 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. 

Key Points

• In comparison to Q1-2014, operating income decreased by $0.9 million or 8% during Q1-2015, comprised of a $2.8 million decrease in operating income from the “same property” portfolio (the 24 properties acquired prior to January 1, 2014 and partially offset by a $1.8 million increase in operating income from “new hotel properties” (six hotels acquired in 2014).
• The decrease in operating income from the “same property” portfolio reflects a decrease in the occupancy level of “same property” portfolio in Fort McMurray. During Q1-2015, the occupancy level of the “same property” portfolio in Fort McMurray was 55%, compared to 70% in Q1-2014. The decrease in occupancy reflects lower business volumes in 2015 compared to more favourable hotel market conditions that existed in Q1-2014. Given the high profit margin of the hotels in Fort McMurray, quarterly variations in occupancy levels have a greater impact on operating income in comparison to other hotels. The lower hotel market occupancies reflect reduced hotel demand in Fort McMurray.
• The same property results for Q1-2015 were also impacted by reduced occupancy at the Days Inn Lloydminster, the Holiday Inn Express Sherwood Park and the Holiday Inn Winnipeg South. The reduced occupancy at the Days Inn Lloydminster also reflects the decline in oil industry activity whereas the decline in occupancy at the Holiday Inn Express Sherwood Park and the Holiday Inn Winnipeg South reflect the effect of guest room closures due to major renovation programs. The renovation program, which encompassed guest room, lobby and meeting room refurbishments, was substantially complete at March 31, 2015.
• In comparison to Q1-2014, net loss increased by $2.3 million mainly due to the $0.9 million decrease in operating income and an increase in interest expense (net) of $1.6 million. On a per share basis, the net loss was $0.11 per share during Q1-2015 compared to a net loss of $0.06 per share during Q1-2014.
• During Q1-2015, “Funds from Operations” (FFO) decreased by $2.7 million and “Adjusted Funds from Operations” (AFFO) decreased by $2.8 million, compared to Q1-2014. On a basic per share basis, FFO and AFFO both decreased by $0.07 per share compared to Q1-2014.
• Cash flow from operating activities increased by $0.6 million during Q1-2015, compared to Q1-2014. After excluding working capital adjustments, cash flow from operating activities decreased by $2.6 million during Q1-2015, compared to Q1-2014

Continued Investment in Major Renovation Programs

In Q1-2015, Temple continued with major hotel renovation and upgrade programs in order to enhance the quality and competitive position of its hotel properties with the objective of increasing market share. Overall, capital expenditures on hotel properties amounted to $5.6 million, of which $5.1 million was directed to major refurbishment programs at five properties. For the remainder of 2015, major refurbishment expenditures will be focused on completing the lobby and meeting room refurbishments at the Holiday Inn Winnipeg South and to complete the guest room, lobby and meeting room improvements associated with the rebranding of the Hotel Saskatchewan under the Marriott Autograph Collection banner.

Financing Activities

During Q1-2015, the main debt financing activities included:

• the renewal of approximately $36 million of first mortgage loan debt at an average interest rate of 4.74%, compared to a previous average interest rate of 5.47%.
• upward first mortgage refinancing proceeds of $1.1 million at the Holiday Inn Winnipeg South to fund a portion of the guest room refurbishment program
• advances on the revolving loan commitment of $3.8 million. The advances on the revolving loan served as the primary source of working capital.

As of March 31, 2015, total long‑term debt is equal to 69% of the appraised value of the total property portfolio which was the same ratio as at December 31, 2014. The weighted average interest rate of total long‑term debt, including the line of credit and revolving loan is 5.42% as of March 31, 2015, compared to 5.45% as of December 31, 2014.

Liquidity

As of March 31, 2015, Temple’s total cash holding is approximately $8.0 million and the working capital is approximately $1.9 million. The cash holding primarily consists of working capital reserves for individual hotel properties.

As noted above, the reduced economic activity resulting from declining oil prices has reduced the projected operating results of properties in Fort McMurray and other oil dependent markets. Temple has undertaken a number of initiatives in 2015 in regard to its liquidity position, as follows:

• Dividend Reduction: In January 2015, Temple reduced its monthly dividend from $0.045 per share ($0.54 annualized) to $0.025 per share ($0.30 annualized) in order to address the anticipated reduction in Temple’s 2015 operating results as a result of decline in oil prices.
• Increase in Revolving Loan Commitment: Effective January 2015, Temple obtained a $5 million revolving loan commitment from 2668921 Manitoba Ltd. (the parent company of Shelter) bearing interest at prime plus 3%. Effective May 11, 2015, the revolving loan commitment was increased to $10 million and the interest rate on the $5 million incremental loan amount was fixed at 8%. The revolving loan commitment is intended to serve as a temporary funding source for capital expenditures, pending the completion of longer‑term financing.
• Reduction of Hotel Management Fee: A reduction in the management fees for the Fort McMurray hotels has been negotiated with Atlific Hotels. The reduced fee of 1% of revenues will be effective from April 1, 2015 to March 31, 2016.

Quarterly Dividend Policy

As a result of expected lower hotel occupancies during 2015 in Temple’s important Alberta market, Temple is now anticipating lower earnings in 2015 compared to 2014. Given the magnitude of the 2015 earnings decline Temple has announced that the Board of Directors has decided to further reduce the 2015 dividend payment in order to enhance corporate liquidity and reduce overall debt levels. The Board of Directors has also decided to change the dividend payment policy from monthly to quarterly payments.  

Effective immediately the dividend has been reduced to $0.025 per share per quarter ($0.10 annualized). The next dividend has been declared by the Board for the quarter ended September 30, 2015 in the amount of $0.025 per share and will be paid on October 15, 2015 to shareholders of record on September 30, 2015.

Based on per share AFFO of $0.38 for the trailing twelve month period ended March 31, 2015, the annualized dividend of $0.10 per share represents a payout ratio of 26%.

The dividend reduction will assist Temple to execute the 2015 capital expenditures program, reduce debt and increase working capital.

Outlook

The earnings expectation of Temple for 2015 is muted by the difficult hotel market conditions in Fort McMurray. A full year of operations for the six hotel properties acquired during 2014 and other factors, such as a lower Canadian dollar and lower gasoline prices, are all expected to result in revenue and earnings growth in other regions. The overall 2015 earnings expectations are largely dependent on the timing of a recovery in the oil sands industry and the related improvement in hotel occupancies in the Alberta portfolio.

Management will continue to focus on improving the liquidity position of Temple and on maximizing revenue growth from recently renovated hotel properties. A strategic initiative which may be considered includes the potential sale of select properties to capture gains in value and further reduce debt levels.

 

During Q1-2015, room revenue increased by $2.13 million or 7%, compared to Q1-2014, comprised of incremental revenue of $5.93 million from new hotel acquisitions partially offset by decreases of $2.6 million or 26% in the Fort McMurray portfolio and $1.2 million or 6% in the other Canada portfolio. The “Fort McMurray same property” portfolio accounted for approximately 68% of the decrease in “same property” room revenue.

Three properties account for the decline in room revenue in the Other Canada portfolio which includes the Days Inn Lloydminster ($0.52 million), the Holiday Inn Express Sherwood Park ($0.34 million) and the Holiday Inn Winnipeg South ($0.15 million). The decline at the Days Inn Lloydminster is related to the decline in oil industry activity. The decrease at the Holiday Inn Express Sherwood Park and Holiday Inn Winnipeg South reflects the unavailability of guest rooms during hotel renovations.

As disclosed in the following chart, RevPar for the “same property” portfolio was $83.82 during Q1-2015, compared to $96.54 during Q1-2014. RevPar for new hotel acquisitions was $90.18 during Q1-2015. The decrease in RevPar for the “same property” portfolio is mainly due to the “Fort McMurray same property” portfolio and mainly reflects a weakening of occupancy levels due to the decline in the price of oil.

Other Hotel Revenue

During Q1-2015, other hotel revenue increased by $1.52 million or 14%, compared to Q1-2014, comprised of incremental revenue of $1.65 million from new hotel acquisitions and a decrease of $0.14 million from the “same property” portfolio. The decrease in other revenue for the “same property” portfolio reflects a $0.15 million decrease in other revenue at the Days Inn Lloydminster reflecting decreased occupancy.

Total operating income decreased by $0.93 million or 8% during Q1-2015, compared to Q1-2014, comprised of a decrease of $2.75 million or 24% for the “same property” portfolio and an increase of $1.83 million from new hotel acquisitions. The decrease in “same property” operating income reflects a $1.75 million or 33% decrease in operating income for the “Fort McMurray same property” portfolio and a $1.0 million or 16% decrease in operating income for the “Other Canada same property” category. As disclosed in the preceding chart, the overall profit margin of the entire hotel portfolio decreased from 29% during Q1-2014 to 25% during Q1-2015.

The loss before equity income, change in fair value of financial instruments and income taxes, decreased by $0.06 million during Q1-2015, compared to Q4-2014. The decrease mainly reflects a decrease in general and administrative expenses and a decrease in depreciation and amortization charges, partially offset by an increase in net interest expense and a decrease in operating income.

During Q1-2015, operating income decreased by $2.88 million or 21%. The decrease consists of a decrease of $0.51 million in operating income from new hotels, a decrease in operating income of $0.24 million from the Fort McMurray same property portfolio and a decrease of $2.14 million in operating income from other same property portfolio. The decrease in operating income from new hotels is mainly due to a decrease in occupancy.

The decrease in general and administrative expenses is due to a one-time charge of $2.35 million in Q4-2014 following Temple’s decision to allow its option to develop the Fort McMurray Marriott Airport Hotel to expire.

The decrease in depreciation charges for the “same property” portfolio reflects longer amortization periods for furniture and fixtures at properties that have completed property renovation programs in 2014.

After providing for equity income, the income associated with the change in fair value financial instruments and income taxes, the net loss decreased by $0.19 million, during Q1-2015 compared to Q4-2014.

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. For further information on Temple, please visit our website at www.templehotels.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 Hotels Inc.