CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2018 (UNAUDITED)

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1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

2 CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands of Canadian dollars) June 30, December 31, Assets Current assets Cash $ 12,195 $ 11,370 Marketable securities Trade and other receivables 7,478 6,086 Deposits and prepaids 3,321 2,537 Inventories 1,233 1,306 Net investment in lease ,885 21,948 Non-current assets Property and equipment (Note 4) 431, ,337 Investment property (Note 5) - 9,850 Investment in hotel properties 11,010 10,498 Net investment in lease 2,934 3,063 Other assets 1,955 1,618 Intangible assets (Note 6) 997 1,282 Goodwill 1,608 1, , ,256 Liabilities and Shareholders' Equity (Deficit) $ 475,339 $ 482,204 Current liabilities Accounts payable and other liabilities $ 18,566 $ 18,173 Debt (Note 8) 249, , , ,244 Non-current liabilities Debt (Note 8) 210, ,780 Deferred income tax (Note 7) - 2, , ,091 Total liabilities 478, ,335 Shareholders equity (deficit) (3,346) 5,869 Approved by the Directors "Chris Cahill" "Brent McLean" $ 475,339 $ 482,204 (unaudited) 1

3 CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) (In thousands of Canadian dollars, except per common share amounts) Three Months Ended Six Months Ended June 30 June Revenue Room revenue $ 31,492 $ 32,113 $ 57,532 $ 57,495 Other hotel revenue (Note 9) 11,602 11,276 22,773 22,133 43,094 43,389 80,305 79,628 Expenses Hotel operating costs 30,952 30,672 60,616 59,512 Hotel operating income 12,142 12,717 19,689 20,116 Interest expense (Note 10) 6,831 7,393 13,986 14,678 Other expense (income) (Note 11) (64) (1,658) (7) (1,776) Share based compensation General and administrative expenses ,673 1,606 Depreciation (Note 4 and 5) 4,136 3,573 8,294 8,587 Amortization of intangible assets (Note 6) Net income (loss) before equity income, provision for impairment and income taxes 134 2,308 (4,616) (3,426) Equity income on investment in hotel properties Provision for impairment (Note 4) (6,785) - (6,785) - Net income (loss) before income taxes (6,301) 2,719 (10,889) (2,884) Deferred income tax recovery (expense) (Note 7) 2,431 (11) 2, Net income (loss) and comprehensive income (loss) $ (3,870) $ 2,708 $ (8,578) $ (2,860) Net income (loss) per common share (Note 12) Basic and diluted $ (0.15) $ 0.11 $ (0.34) $ (0.11) (unaudited) 2

4 CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT) (In thousands of Canadian dollars) Six Months Ended June Share capital (Note 13) Balance, beginning of period $ 295,412 $ 295,412 Repurchase of common shares under normal course issuer bid (2,896) - Balance, end of period 292, ,412 Equity component of convertible financial instruments Balance, beginning of period 4,498 7,862 Convertible debentures retired (2,528) (2,529) Balance, end of period 1,970 5,333 Contributed surplus Balance, beginning of period 1,182 1,049 Value of deferred shares granted Balance, end of period 1,256 1,115 Cumulative loss Balance, beginning of period (199,942) (182,393) Net loss (8,578) (2,860) Repurchase of common shares under normal course issuer bid 2,185 - Convertible debentures retired 2,528 2,529 Balance, end of period (203,807) (182,724) Cumulative dividends to shareholders Balance, beginning and end of period (95,281) (95,281) Shareholders' equity (deficit) $ (3,346) $ 23,855 (unaudited) 3

5 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of Canadian dollars) Three Months Ended Six Months Ended June 30 June Operating activities Net income (loss) $ (3,870) $ 2,708 $ (8,578) $ (2,860) Items not affecting cash Depreciation 4,136 3,573 8,294 8,587 Amortization of intangible assets Amortization of tenant inducements Amortization of transaction costs Accretion - convertible debentures ,033 Deferred income taxes (2,431) 11 (2,311) (24) Share based compensation Provision for impairment 6,785-6,785 - Equity income on investment in hotel properties (350) (411) (512) (542) 4,742 6,933 4,984 7,231 Working capital adjustments (Note 15) (3,095) (644) (1,710) (4,883) Cash provided by operating activities 1,647 6,289 3,274 2,348 Investing activities Capital expenditures (1,660) (1,075) (4,842) (2,046) Receipt of net investment in lease Change in other assets (197) (195) (358) (300) Cash used in investing activities (1,796) (1,214) (5,080) (2,234) Financing activities Proceeds of mortgage debt ,588 2,500 15,588 Lump sum principal payments on mortgage loans (16,000) - (16,276) (10,713) Regular repayment of principal on mortgage loans (3,459) (3,638) (6,953) (7,543) Expenditures on transaction costs (10) (296) (10) (409) Revolving loan advances 18,000 6,000 58,500 6,000 Common share repurchases (451) - (711) - Convertible debenture redemption (34,419) (34,282) (34,419) (57,055) Cash provided by (used in) financing activities (35,899) (16,628) 2,631 (54,132) Net increase (decrease) in cash during the period (36,048) (11,553) 825 (54,018) Cash, beginning of period 48,243 25,457 11,370 67,922 Cash, end of period $ 12,195 $ 13,904 $ 12,195 $ 13,904 (unaudited) 4

6 1 Nature and description of Company Temple Hotels Inc. ("Temple" or the "Company") owns and operates hotel property investments in Canada. The head office for the Company is located at 55 City Centre Drive, Suite 1000, Mississauga, Ontario, L5B 1M3. Temple is listed on the Toronto Stock Exchange ("TSX"). The following schedule reflects securities of Temple, which trade on the TSX and the related trading symbol: Common shares Series E Convertible Debentures TPH TPH.DB.E 2 Statement of compliance and significant accounting policies These condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") IAS 34, "Interim Financial Reporting", as issued by the International Accounting Standards Board ("IASB") and thus do not contain all the disclosures applicable to the annual audited consolidated financial statements. These condensed consolidated financial statements use the same accounting policies and methods of their application as the most recent annual audited consolidated financial statements, except for the adoption of current accounting policies noted below, and should be read in conjunction with the most recent annual audited consolidated financial statements. The condensed consolidated financial statements were approved and authorized for issue by the Board of Directors on August 7, Seasonality Temple's financial results for any individual quarter are not necessarily indicative of results to be expected for the full year. Revenues from hotel operations tend to fluctuate throughout the year, based on changes in seasonal demands. Current changes to significant accounting policies (i) IFRS 15 - Revenue from Contracts with Customers ("IFRS 15") In May 2014, the IASB issued IFRS 15, a single comprehensive model to account for revenue arising from contracts with customers. The objective of IFRS 15 is to establish the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer. The core principle of the standard is that an entity will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects consideration to which the entity expects to be entitled in exchange for those goods and services. The standard has a mandatory effective date for annual periods beginning on or after January 1, The Company adopted the standard on January 1, 2018 and applied the requirements of the standard retrospectively. The Company assessed the impact of IFRS 15 and upon a review of the Company s revenue streams determined the pattern of revenue recognition will remain unchanged upon adoption of the standard. The impact was limited to additional note disclosure on the disaggregation of some the Company s revenue streams (Note 9). (unaudited) 5

7 (ii) IFRS 9 - Financial Instruments ("IFRS 9") The final version of IFRS 9 was issued by the IASB in July 2014 and will replace IAS 39, "Financial Instruments: Recognition and Measurement" ("IAS 39"). IFRS 9 addresses the classification and measurement of all financial assets and liabilities within the scope of the current IAS 39 and a new expected loss impairment model that will require more timely recognition of expected credit losses and a substantially reformed model for hedge accounting. Also included are the requirements to measure debt-based financial assets at either amortized cost or fair value through profit or loss ("FVTPL") and to measure equity-based financial assets either as held-for-trading or as fair value through other comprehensive income ("FVTOCI"). No amounts are reclassified out of other comprehensive income if the FVTOCI option is elected. Additionally, embedded derivatives in financial assets would no longer be bifurcated and accounted for separately under IFRS 9. The standard has a mandatory effective date for annual periods beginning on or after January 1, The Company adopted the standard on January 1, 2018 and applied the requirements of the standard retrospectively with no restatement of comparative periods. Classification and Measurement IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which assets are managed and their cash flow characteristics. Financial assets must be classified and measured based on three categories: amortized cost, FVTOCI and FVTPL. Financial liabilities are classified and measured based on two categories: amortized cost and FVTPL. The adoption of the new classification requirements under IFRS 9 did not result in changes in the measurement or the carrying amount of financial assets and liabilities. The following table summarizes the impact of the adoption of IFRS 9 on the classification of the Company s financial assets and liabilities: Financial Statement Item Classification under IAS 39 Classification under IFRS 9 Cash Loans and receivables Amortized cost Marketable securities FVTPL FVTPL Trade and other receivables Loans and receivables Amortized cost Deposits Loans and receivables Amortized cost Other assets Loans and receivables Amortized cost Accounts payable and other liabilities Other financial liabilities Amortized cost Mortgage loans Other financial liabilities Amortized cost Line of credit Other financial liabilities Amortized cost Revolving loan Other financial liabilities Amortized cost Convertible debentures Other financial liabilities Amortized cost Impairment - Expected Credit Loss Model IFRS 9 replaced the incurred loss model in IAS 39 with a forward-looking expected credit loss ("ECL") model. The ECL model requires a more timely recognition of expected credit losses using judgment determined on a probability-weighting basis. The new impairment model is applied, at each balance sheet date, to financial assets measured at amortized cost or those measured at FVTOCI, except for investment in equity instruments. The adoption of the ECL model did not have a material impact on the Company s consolidated financial statements. (unaudited) 6

8 General Hedge Accounting Model IFRS 9 requires the Company to ensure that hedge accounting relationships are aligned with the Company s risk management objectives and strategy and to apply a more qualitative and forward-looking approach to assessing hedge effectiveness. The Company does not currently have any hedging activities and the adoption did not have an impact on the Company s consolidated financial statements. (ii) IAS 40 Investment Property ("IAS 40") During December 2016, the IASB issued an amendment to IAS 40, clarifying certain existing IAS 40 requirements. The amendment requires that an asset be transferred to or from investment property when, and only when, there is a change in use. A change in use occurs when the property meets or ceases to meet the definition of investment property and there is evidence of the change in use. In isolation, a change in management s intentions for the use of a property does not provide evidence of a change in use. This amendment is effective for annual periods beginning on or after January 1, The amendment did not have a material impact on the Company s consolidated financial statements. Future changes to significant accounting policies IFRS 16 Leases ("IFRS 16") IFRS 16 replaces IAS 17 - Leases and requires lessees to account for leases on balance sheet by recognizing a right of use asset and a lease liability. The standard is effective for annual periods beginning on or after January 1, 2019, with earlier adoption permitted so long as IFRS 15 has been adopted. The Company is currently assessing the impact of IFRS 16 on its consolidated financial statements. 3 Significant accounting judgments, estimates and assumptions The preparation of Temple's financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected. Management bases their judgments, estimates and assumptions on factors they believe to be reasonable in the circumstances, but which may be inherently uncertain and unpredictable. In the process of applying Temple's accounting policies, management has applied the same methodologies in making significant accounting judgments, estimates and assumptions as disclosed in the Company's annual audited consolidated financial statements for the year ended December 31, (unaudited) 7

9 4 Property and equipment June 30, 2018 Cost Accumulated Impairment Provision Accumulated Depreciation Net Book Value Land $ 79,547 $ (23,844) $ - $ 55,703 Buildings 583,380 (152,217) (96,455) 334,708 Furniture and equipment 82,578 (8,212) (45,163) 29,203 Paving 30,686 (5,012) (14,902) 10,772 Signage 1,487 (209) (686) 592 Computer equipment 3,537 (265) (2,300) 972 Vehicles 278 (15) (263) - $ 781,493 $ (189,774) $ (159,769) $ 431,950 December 31, 2017 Cost Accumulated Impairment Provision Accumulated Depreciation Net Book Value Land $ 77,246 $ (22,569) $ - $ 54,677 Buildings 561,819 (135,578) (89,911) 336,330 Furniture and equipment 79,254 (7,811) (43,068) 28,375 Paving 28,104 (3,491) (13,261) 11,352 Signage 1,487 (209) (618) 660 Computer equipment 3,274 (265) (2,089) 920 Vehicles 278 (15) (240) 23 $ 751,462 $ (169,938) $ (149,187) $ 432,337 Transactions in property and equipment for the six months ended June 30, 2018 are summarized as follows: June 30, 2018 Opening Net Book Value Impairment Provision Transfer from Investment Property Additions Depreciation for the Period Closing Net Book Value Land $ 54,677 $ - $ 1,026 $ - $ - $ 55,703 Buildings 336,330 (6,202) 7,936 1,721 (5,077) 334,708 Furniture and equipment 28,375 (194) 121 2,853 (1,952) 29,203 Paving 11,352 (389) (859) 10,772 Signage (68) 592 Computer equipment (211) 972 Vehicles (23) - $ 432,337 $ (6,785) $ 9,746 $ 4,842 $ (8,190) $ 431,950 During the three months ended June 30, 2018, the Cortona Residence was transferred from an investment property to property and equipment following the expiry of its long term lease (Note 5). The Cortona Residence is ready to operate as a hotel and will commence hotel operations during the third quarter of (unaudited) 8

10 In accordance with IFRS, management completes an assessment of all hotel properties at the end of each reporting period to determine if there is any indication that an asset may be impaired. The Company identifies each hotel property as a cash-generating unit for impairment purposes. The recoverable amounts of the hotel properties have been estimated using the value-in-use method. Value-in-use is established using a discounted cash flow calculation method. Under this calculation, discount rates are applied to the forecasted cash flows reflecting the assumptions for hotel activity. The key assumptions are the normalized first year net operating income and the discount rate applied over the useful life of the hotel property. The table below provides details of normalized first year net operating income and the discount rates used for valuing the hotel properties. The key assumption measurements comprise Level 3 of the fair value hierarchy. IFRS permits an impairment provision to be reversed in subsequent accounting periods if recoverability analysis at that time supports the reversal. In the second quarter of 2018, impairment indicators were identified including decreases in occupancy. A recoverability analysis was completed in accordance with the procedures specified by IFRS which indicated that an impairment provision of $6,785 should be recorded. Fort McMurray Other Alberta Six months ended June 30, 2018 Cortona Residence Hilton Garden Inn Net book value $ 9,694 $ 19,027 Recoverable amount $ 5,650 $ 16,286 Provision for impairment $ 4,044 $ 2,741 Cumulative impairment provision $ 17,095 $ 9,618 Projected first year net operating income $ 14 $ 744 Discount rate 10.50% 9.00% The Hilton Garden Inn recently has experienced lower occupancy due to the continued impact of reduced economic activity in Alberta as well as an increased supply in the Edmonton market. An impairment was recorded based on the updated market projections as the declines are not expected to reverse in the foreseeable future. Impairment was recorded at the Cortona Residence based on updated market projections including increased supply and the stabilization of hotel operations. (unaudited) 9

11 5 Investment property Investment property comprised the Cortona Residence located in Fort McMurray, Alberta, and was held to earn rental income and capital appreciation. A key characteristic of an investment property is that it generates cash flows which are largely independent of the active business process of the Company s hotel operations. The investment property no longer met the key characteristic and was reclassified as property and equipment on May 1, 2018, as follows: Cost Accumulated Impairment Provision Accumulated Depreciation Net Book Value Land $ 2,301 $ (1,275) $ - $ 1,026 Buildings 19,840 (10,437) (1,467) 7,936 Furniture and equipment 471 (207) (143) 121 Paving 2,577 (1,132) (782) 663 $ 25,189 $ (13,051) $ (2,392) $ 9,746 December 31, 2017 Cost Accumulated Impairment Provision Accumulated Depreciation Net Book Value Land $ 2,301 $ (1,275) $ - $ 1,026 Buildings 19,840 (10,437) (1,393) 8,010 Furniture and equipment 471 (207) (138) 126 Paving 2,577 (1,132) (757) 688 $ 25,189 $ (13,051) $ (2,288) $ 9,850 June 30, 2018 Opening Net Book Value Depreciation for the Period Transfer to Property and Equipment Closing Net Book Value Land $ 1,026 $ - $ (1,026) $ - Buildings 8,010 (74) (7,936) - Furniture and equipment 126 (5) (121) - Paving 688 (25) (663) - $ 9,850 $ (104) $ (9,746) $ - The following chart reflects the revenue, expenses and net income (loss) and comprehensive income (loss) of the investment property. For the period from For the period from April 1, 2018 to April 1, 2017 to January 1, 2018 to January 1, 2017 to May 1, 2018 June 30, 2017 May 1, 2018 June 30, 2017 Revenue $ 185 $ 556 $ 741 $ 1,112 Operating costs Operating income ,104 Interest expense Depreciation Amortization of intangible assets Net income (loss) and comprehensive income (loss) $ (20) $ 218 $ 47 $ 412 (unaudited) 10

12 6 Intangible assets Transactions in intangible assets for the six months ended June 30, 2018 are summarized as follows: June 30, 2018 Opening Net Amortization Closing Net Book Value for the Period Book Value Franchise fees $ 407 $ (29) $ 378 Lease intangibles 875 (256) 619 $ 1,282 $ (285) $ Income tax 8 Debt On June 15, 2018, the Company amalgamated with its wholly owned subsidiary, Canada Ltd. As a result of the amalgamation, a deferred income tax recovery of $2,431 and $2,311 for the three and six months ended June 30, 2018, respectively, was recorded. Discretionary capital cost allowance claims can be reduced in future periods to increase future taxable income and utilize unused tax losses. As at June 30, 2018, the Company has deductible temporary differences of $193,696 (December 31, $193,265) for which no deferred tax asset has been recognized, as it is not probable that the deferred tax asset will be realized, of which $8,091 (December 31, $13,888) have no expiration and $185,605 (December 31, $179,377) relates to unused tax losses that expire beginning in June 30, December 31, Secured debt Mortgage loans (a) $ 347,842 $ 368,571 Revolving loan (c) 37,000 13,500 Total secured debt 384, ,071 Unsecured debt Convertible debentures (b) 41,279 75,142 Revolving loan (c) 35,000 - Total unsecured debt 76,279 75,142 Unamortized transaction costs Mortgage loans (755) (957) Convertible debentures (b) (247) (405) Total unamortized transaction costs (1,002) (1,362) Total debt 460, ,851 Less current portion Mortgage loans 210, ,914 Revolving loan 37,000 13,500 Convertible debentures 2,134 36,321 Transaction costs (511) (664) Total current debt 249, ,071 Total non-current debt $ 210,924 $ 193,780 (unaudited) 11

13 Mortgage loans are secured by charges registered against specific hotel properties and an assignment of the net investment in a lease. Principal payments and principal maturities at face value as at June 30, 2018, are as follows: Mortgage Loans Convertible Principal Principal Debentures Payments Maturities (at face value) Total 2018 (remainder of year) $ 5,108 $ 192,017 $ 2,145 $ 199, ,328 55,243 2,038 62, ,611 7,996 38,722 50, , , ,563 45,050-47,613 Thereafter 14,987 12,703-27,690 $ 34,833 $ 313,009 $ 42,905 $ 390,747 (a) Mortgage loans June 30, December 31, First mortgage loans $ 347,842 $ 352,571 Second mortgage loans - 16,000 Total $ 347,842 $ 368,571 Weighted average interest rate fixed rate First mortgage loans of $246,681 (2017 $252,380) 4.84% 5.02% Second mortgage loans of $nil (2017 $16,000) -% 5.00% Weighted average interest rate fixed rate 4.84% 5.02% Weighted average interest rate variable rate First mortgage loans of $101,161 (2017 $100,191) 6.44% 6.16% As a condition of certain mortgage loans, the Company is required to maintain annual debt service coverage ratios and/or debt to equity ratios and/or debt to appraised value ratios; arrange for capital expenditures in accordance with predetermined limits; and maintain ongoing liquidity ratios. At June 30, 2018, the Company is not in compliance with covenants affecting the four mortgage loans as follows: As of June 30, 2018, the Company was not in compliance with a 1.2 to 1.0 debt service coverage requirement in regard to three mortgage loans with an aggregate principal balance of $35,900 on the three properties. The lender has been notified of the breach and management is in discussion with the lender to resolve the matter. As of June 30, 2018, the Company was not in compliance with a 1.05 to 1.0 corporate debt service coverage ratio and a minimum net asset requirement in regard to one mortgage loan with an aggregate principal balance of $14,497, secured against two properties. The lender has been notified of the breach and management is in discussion with the lender to resolve the matter. As of June 30, 2018, the Company was not in compliance with a corporate working capital ratio requirement affecting three mortgage loans with an aggregate principal balance of $36,737. The Company received a waiver from the lender subsequent to June 30, (unaudited) 12

14 None of the lenders have demanded payment of the mortgage loans. However, IFRS requires that the loan balance of mortgage loans in breach of debt covenants be included in the current portion of debt. All mortgage loans in breach of debt covenants have contractual maturities due within twelve months of June 30, At December 31, 2017, the Company was not in compliance with seven debt service covenants affecting seven mortgage loans, amounting to $109,339. All mortgage loans in breach of debt covenants had contractual maturities due within twelve months of December 31, As of December 31, 2017, the Company was not in compliance with a corporate 1.1 to 1.0 working capital ratio requirement affecting three mortgage loans with an aggregate principal balance of $37,106. The Company received a waiver from the lender subsequent to December 31, (b) Convertible debentures June 30, 2018 Due Date Debt Equity Series E Sept. 30, 2020 $ 41,279 $ 2,137 Transaction costs (247) (167) $ 41,032 $ 1,970 December 31, 2017 Due Date Debt Equity Series E Sept. 30, 2020 $ 40,935 $ 2,137 Series F Mar. 31, 2018 (1) 34,207 2,528 75,142 4,665 Transaction costs (405) (167) $ 74,737 $ 4,498 (1) The Series F convertible debentures had a March 31, 2018 due date. Since March 31, 2018 fell on a weekend, the Company repaid the Series F convertible debentures on April 2, 2018, the first business day after March 31, The following chart reflects the face amount, interest rate (payable semi-annually) and conversion price that the debentures are converted to common shares at any time at the option of the holder of the debentures: June 30, 2018 Rate Conversion Price Face Amount Series E 7.25% $ 9.75 $ 42,905 On March 15, 2017, Temple initiated a normal course issuer bid ("NCIB") for the purchase of debentures. This NCIB represents 10% of the public float of each of the Series E and Series F debentures as at February 28, 2017 and expired on March 14, On March 15, 2018, Temple renewed its NCIB for the purchase of debentures. This NCIB represents 10% of the public float for the Series E debentures and expires on March 14, As of August 7, 2018, no debentures have been purchased under the NCIB. (unaudited) 13

15 On September 28, 2017, holders of the Series E convertible redeemable unsecured debentures approved the following amendments to the Series E debentures, effective October 2, 2017: i) Decreasing the conversion price from $40.08 to $9.75 per common share of Temple; ii) Extending the maturity date from September 30, 2017 to September 30, 2020; iii) Permitting Temple to redeem the Series E debentures, in whole or in part, at any time up to September 30, 2020, at a price equal to the principal amount thereof plus accrued and unpaid interest to, but excluding the date of the redemption; and iv) Permitting Temple to complete the Initial Partial Redemption (as defined below) without further notice or communication to holders of Series E debentures and to complete the Additional Partial Redemptions (as defined below). On October 2, 2017, Temple redeemed $2,259 of the principal amount of the Series E debentures outstanding, which represents approximately 5% of the issued and outstanding Series E debentures (the "Initial Partial Redemption"). Temple has also committed to redeem an additional 5% of the currently issued and outstanding principal amount of Series E debentures on each of September 30, 2018 and September 30, 2019 (the "Additional Partial Redemptions"). Each of the Initial Partial Redemption and the Additional Partial Redemptions will be for a cash payment equal to the principal amount of such redemption plus accrued and unpaid interest to, but excluding the date of redemption. The convertible debentures were allocated to debt and equity components based on the net present value of future principal and interest payments with an estimated cost of borrowing of 9.25%. (c) Revolving loan commitment Credit Facility A On June 30, 2016, Temple entered into a revolving loan agreement with Morguard Corporation ("Morguard"), a related party, secured by a first mortgage charge against a specific hotel property and bears interest at prime plus 2.0%. The credit facility allows for a maximum of $6,000 to be borrowed. On November 9, 2017, the credit facility was increased to $13,500 for a period of one year. Subsequently, the credit facility was increased to $50,000. As at June 30, 2018, the maximum allowable amount to be borrowed under the credit facility is $50,000 (December 31, 2017 $13,500). As of June 30, 2018, the amount drawn on the credit facility was $37,000 (December 31, 2017 $13,500). For the three and six months ended June 30, 2018, Temple incurred interest on the credit facility of $476 (2017 $3) and $667 (2017 $3), respectively. Credit Facility B On February 23, 2018, Temple entered into a credit facility with Morguard in the amount of $35,000. The credit facility has a term of three years, is unsecured, and bears interest at the rate of 6.5% per annum. As of June 30, 2018, the amount drawn on the credit facility was $35,000. For the three and six months ended June 30, 2018, Temple incurred interest on the credit facility of $567 (2017 $nil) and $586 (2017 $nil), respectively. 9 Other hotel revenue Other hotel revenue includes food and beverage revenue and ancillary revenue (such as spa revenue, video lottery terminal revenue, rental revenue, gift shop revenue and other miscellaneous revenue). For the three months ended June 30, 2018, other hotel revenue comprises food and beverage of $8,323 ( $7,799) and ancillary revenue of $3,279 ( $3,477). For the six months ended June 30, 2018, other hotel revenue comprises food and beverage of $16,178 ( $15,169) and ancillary revenue of $6,595 ( $6,964). (unaudited) 14

16 10 Interest expense Interest expense is comprised of the following: Three Months Ended Six Months Ended June 30 June Mortgage loans interest $ 4,688 $ 4,469 $ 9,640 $ 8,888 Amortization of transaction costs - mortgages Revolving loan and other interest 1, , Amortization of deferred finance costs - line of credit and revolving loan Interest on convertible debentures 776 2,089 2,144 4,157 Accretion - convertible debentures ,033 Amortization of transaction costs - convertible debentures $ 6,831 $ 7,393 $ 13,986 $ 14, Other expense (income) Other expense (income) is comprised of the following: Three Months Ended Six Months Ended June 30 June Interest and other revenue $ (26) $ (33) $ (97) $ (87) Finance lease interest revenue (58) (63) (118) (127) Insurance proceeds, net - property damage (Note 18) 20 (2,085) 208 (2,085) Other expense $ (64) $ (1,658) $ (7) $ (1,776) 12 Per common share calculations Net income (loss) per common share calculations are based on the following: Three Months Ended Six Months Ended June 30 June Net income (loss) basic and diluted $ (3,870) $ 2,708 $ (8,578) $ (2,860) Weighted average number of shares basic and diluted 25,156,767 25,344,413 25,250,940 25,341,273 (unaudited) 15

17 The Series E and F convertible debentures were not included in the diluted net income (loss) per common share calculation for the three and six months ended June 30, 2018, as the effect would have been anti-dilutive. Conversion Number of Price Common Shares Convertible debentures Series E $ ,400, Common shares On June 22, 2017, the common shares were consolidated on the basis of one (1) post-consolidation common share for six (6) pre-consolidation common shares. The number of common shares issued, exercised and converted, are as follows: Six Months Ended June 30, 2018 Share Capital Amount Year Ended December 31, 2017 Share Capital Amount Outstanding, beginning of period 25,269,913 $ 295,412 25,269,913 $ 295,412 Common share repurchases (247,584) (2,896) - - Outstanding, end of period 25,022,329 $ 292,516 25,269,913 $ 295,412 On March 15, 2017, the Company initiated a normal course issuer bid for the purchase of up to 1,263,497 common shares for a twelve month period, representing 5% of the issued and outstanding common shares, expiring on March 14, On March 15, 2018, the Company renewed its normal course issuer bid for the purchase of up to 1,263,495 common shares for a twelve month period, representing 5% of the issued and outstanding common shares, expiring on March 14, During the six months ended June 30, 2018, 247,584 common shares were purchased for cash consideration of $711 at a weighted average price of $2.87 per common share. 14 Deferred common share plan Three Months Ended June 30 Six Months Ended June Outstanding and vested, beginning of period 110,101 73,883 98,105 66,840 Granted during period 12,867 6,501 24,863 13,544 Outstanding and vested, end of period 122,968 80, ,968 80,384 Share based compensation expense of $39 for the three months ended June 30, 2018 (2017 $31) and $74 for the six months ended June 30, 2018 (2017 $66) relating to deferred common shares granted was recorded to expense the fair value of share based compensation. (unaudited) 16

18 15 Supplementary cash flow information Three Months Ended June 30 Six Months Ended June Change in: Trade and other receivables $ (58) $ (964) $ (1,392) $ (3,293) Deposits and prepaids (1,065) (1,398) (784) (1,020) Inventories 23 (6) Accounts payable and other liabilities (1,995) 1, (597) $ (3,095) $ (644) $ (1,710) $ (4,883) Interest received operating activities $ 84 $ 96 $ 170 $ 214 Interest paid operating activities $ 8,717 $ 5,834 $ 13,871 $ 15, Related party transactions In addition to the related party transactions disclosed in Note 8(c), related party transactions also include the following: As at June 30, 2018, Morguard owns a 58.7% interest (December 31, %) in the Company through its ownership of 14,685,907 common shares (December 31, ,136,012) and has convertible debentures that are convertible to 109,435 common shares (December 31, ,772 common shares). Morguard is a related party of the Company by virtue of its ownership of common shares and the asset management agreement with the Company. Asset management agreement Pursuant to the terms of the amended and restated Asset Management Agreement dated December 31, 2012, expiring December 31, 2019, Morguard is entitled to receive an asset management fee of 1.5% of the gross revenues of the Company and its subsidiaries on a consolidated basis. The asset management agreement requires Morguard to act as administrator of the Company by providing asset management services, accounting, human resource services, office space and equipment and the necessary clerical and secretarial personnel for the administration of the day-to-day activities of the Company. Key management personnel are provided by Morguard. The Company incurred service fees to Morguard of $646 for the three months ended June 30, 2018 (2017 $651) and $1,204 for the six months ended June 30, 2018 (2017 $1,194). Construction management agreement The Company has entered into a construction management agreement with the asset manager. The agreement provides for the asset manager to receive a fee equal to 5% of construction costs and requires the asset manager to approve all plans and specifications, manage the tender process, arrange financing and perform construction management services related to the guest room renovations and building upgrades as reflected in approved budgets or acquisition plans. For the six months ended June 30, 2018 and 2017, no service fees were charged for such services. (unaudited) 17

19 Management compensation Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly and indirectly, and include directors. The executive officers of the Company are employed by Morguard, and the Company does not directly or indirectly pay any compensation to them. Any variability in compensation paid by Morguard to the executive officers of the Company has no impact on the Company s financial obligations, including its obligations under the various Agreements with Morguard and Morguard s affiliates. Three Months Ended June 30 Six Months Ended June Director fees $ 61 $ 24 $ 88 $ 52 Deferred shares granted to directors $ 100 $ 55 $ 162 $ 118 Other Included in accounts payable and other accrued liabilities is $571 (December 31, $503) due to Morguard relating to the service fees and revolving loan interest. (unaudited) 18

20 17 Segmented financial information The Company owns and operates hotel properties in Canada. Operating segments have been aggregated regionally to segregate properties in Fort McMurray, Alberta (the "Fort McMurray" operating segment); properties in other Alberta locations (the "Other Alberta" operating segment); and other properties (the "Other Canada" operating segment) to reflect the unique revenue and income patterns of each segment. Investments in hotel properties are included in "Corporate". The Company has applied judgment by aggregating its operating segments according to the nature of property operations Three Months Ended June 30, 2018: Fort Other Other McMurray Alberta Canada Corporate Total Room revenue $ 5,348 $ 4,638 $ 21,506 $ - $ 31,492 Other hotel revenue 320 4,920 6,362-11,602 Hotel operating costs (3,714) (8,050) (19,188) - (30,952) Hotel operating income 1,954 1,508 8,680-12,142 Interest expense (1,513) (952) (2,328) (2,038) (6,831) Other income (expense) (16) Share based compensation (39) (39) General and administrative expenses (955) (955) Depreciation (699) (756) (2,681) - (4,136) Amortization of intangible assets (42) (12) (57) - (111) Equity income on investment in hotel properties Provision for impairment (4,044) (2,741) - - (6,785) Income tax recovery ,431 2,431 Net income (loss) $ (4,360) $ (2,949) $ 3,686 $ (247) $ (3,870) Three Months Ended June 30, 2017: Fort Other Other McMurray Alberta Canada Corporate Total Room revenue $ 6,532 $ 5,318 $ 20,263 $ - $ 32,113 Other hotel revenue 324 4,661 6,291-11,276 Hotel operating costs (3,925) (8,318) (18,429) - (30,672) Hotel operating income 2,931 1,661 8,125-12,717 Interest expense (1,251) (1,154) (2,066) (2,922) (7,393) Other income (expense) 2,086 2 (457) 27 1,658 Share based compensation (31) (31) General and administrative expenses (879) (879) Depreciation (403) (586) (2,584) - (3,573) Amortization of intangible assets (90) (14) (87) - (191) Equity income on investment in hotel properties Income tax expense (11) (11) Net income (loss) $ 3,273 $ (91) $ 2,931 $ (3,405) $ 2,708 (unaudited) 19

21 Six Months Ended June 30, 2018: Fort Other Other McMurray Alberta Canada Corporate Total Room revenue $ 10,329 $ 8,815 $ 38,388 $ - $ 57,532 Other hotel revenue 597 9,804 12,372-22,773 Hotel operating costs (7,577) (15,752) (37,287) - (60,616) Hotel operating income 3,349 2,867 13,473-19,689 Interest expense (2,969) (1,914) (4,776) (4,327) (13,986) Other income (expense) (244) Share based compensation (74) (74) General and administrative expense (1,673) (1,673) Depreciation (1,425) (1,523) (5,346) - (8,294) Amortization of intangible assets (132) (24) (129) - (285) Equity income on investment in hotel properties Provision for impairment (4,044) (2,741) - - (6,785) Income tax recovery ,311 2,311 Net income (loss) $ (5,465) $ (3,329) $ 3,457 $ (3,241) $ (8,578) Total assets June 30, 2018 $ 90,928 $ 85,121 $ 286,932 $ 12,358 $ 475,339 Total liabilities June 30, 2018 $ 87,637 $ 89,810 $ 186,780 $ 114,458 $ 478,685 Six Months Ended June 30, 2017: Fort Other Other McMurray Alberta Canada Corporate Total Room revenue $ 11,051 $ 9,748 $ 36,696 $ - $ 57,495 Other hotel revenue 685 9,333 12,115-22,133 Hotel operating costs (7,359) (16,105) (36,048) - (59,512) Hotel operating income 4,377 2,976 12,763-20,116 Interest expense (2,442) (2,287) (4,145) (5,804) (14,678) Other income (expense) 2,088 3 (386) 71 1,776 Share based compensation (66) (66) General and administrative expense (1,606) (1,606) Depreciation (1,386) (1,711) (5,490) - (8,587) Amortization of intangible assets (180) (27) (174) - (381) Equity income on investment in hotel properties Income tax recovery Net income (loss) $ 2,457 $ (1,046) $ 2,568 $ (6,839) $ (2,860) Total assets December 31, 2017 $ 95,373 $ 88,715 $ 286,610 $ 11,506 $ 482,204 Total liabilities December 31, 2017 $ 87,511 $ 89,917 $ 192,473 $ 106,434 $ 476,335 (unaudited) 20

22 18 Contingencies Legal and other claims In the normal course of operations, the Company may become subject to a variety of legal and other claims. Management and legal counsel evaluate all claims on their apparent merits, and accrue management's best estimate of the estimated costs to satisfy such claims. Although the outcome of existing legal and other claims are not reasonably determinable, management believes that any such outcome will not be material. Insurance recoveries Events in Fort McMurray resulted in an insurance claim under the Company s business interruption policy. Recoveries under this policy are only recognized at the earlier of when proceeds have been received or confirmation has been given by the insurer of the amount of any settlement. During the six months ended June 30, 2018, $208 (2017 net proceeds of $2,085) of recoverable outlays net of insurance proceeds received and/or confirmed by the insurers was recognized in other expense (income) (Note 11). The amount recognized in other expenses (income) during the six months ended June 30, 2018 is comprised of insurance proceeds of $91 ( $2,085) net of related recoverable outlays of $299 ( $nil). The Company expects that all amounts required to repair and remediate the hotels will be covered by insurance proceeds. 19 Subsequent events Subsequent to June 30, 2018, the Company borrowed $3,000 under Credit Facility A. On July 11, 2018, the Company paid down an aggregate balance of $3,000 on three mortgage loans. (unaudited) 21