MANAGEMENT'S DISCUSSION AND ANALYSIS

Transcription

1 MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2017

2 TABLE OF CONTENTS Management's Discussion and Analysis Financial Summary 4 Overview of Operations and Investment Strategy 7 Property Portfolio 9 Analysis of Operating Results 11 Analysis of Cash Flows 20 Liquidity and Capital Resources 22 Capital Structure 24 Hotel Management 27 Related Party Transactions 27 Summary of Quarterly Results 28 Operating Risks and Uncertainties 30 Critical Accounting Estimates 30 Financial Instruments 30 Changes to Significant Accounting Policies 30 Internal Controls and Procedures 30 Additional Information 31 Approval by Directors 31 1

3 MANAGEMENT'S DISCUSSION AND ANALYSIS Temple Hotels Inc. ("Temple" or the "Company") has been operating as a corporate entity since December 31, 2012, pursuant to a statutory plan of arrangement under the Canada Business Corporations Act. Prior to December 31, 2012, Temple operated as Temple Real Estate Investment Trust, an open-ended real estate investment trust which was formed under the laws of the Province of Manitoba on July 12, The financial statements of Temple reflect the financial position of the Company as of September 30, Management's Discussion and Analysis ("MD&A") contains references to Temple Hotels Inc. or the "Company" or simply to "Temple", depending on the context of the discussion. The MD&A of the Company should be read in conjunction with the financial statements of Temple Hotels Inc. for the three and nine months ended September 30, 2017 with reference to the Annual Report for This MD&A is based on financial information prepared in accordance with International Financial Reporting Standards ("IFRS") IAS 34, "Interim Financial Reporting" as issued by the International Accounting Standards Board ("IASB") and is dated November 9, Disclosure contained in this document is current to that date unless otherwise noted. Additional information relating to Temple Hotels Inc., including the Company s Annual Information Form, can be found at and Forward-Looking Statements Certain statements contained in this MD&A and in certain documents incorporated by reference herein are "forward-looking statements" that reflect the expectations of management regarding the future growth, results of operations, performance, prospects and opportunities of the Company. Readers are cautioned not to place undue reliance on forward-looking information. All statements other than statements of historical fact contained or incorporated by reference herein are forward-looking statements including, without limitation, statements regarding the timing and amount of distributions and the future financial position, business strategy, potential acquisitions, plans and objectives of the Company. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions. Such forward-looking statements reflect management's current beliefs and are based on information currently available to management. Forward-looking statements involve significant risks and uncertainties. A number of factors, including those discussed herein, could cause actual results to differ materially from the results discussed in forward-looking statements. Although the forward-looking statements contained or incorporated by reference herein are based upon what management believes to be reasonable assumptions, the Company cannot assure investors that actual results will be consistent with these forward-looking statements. The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. Forward-looking statements are made as of the date hereof, or such other date specified in such statements, and neither Temple nor any other person assumes any obligation to update or revise such forward-looking statements to reflect new information, events or circumstances, except as expressly required by applicable securities law. Monetary Data Monetary data in tabular form and in the text, unless otherwise indicated or required by context, are in thousands of Canadian dollars, except for per common share, average daily rate ("ADR") and revenue per available room ("RevPar") amounts which are provided in Canadian dollars. Purchase Price/Acquisition Cost Unless otherwise noted, all references to "purchase price(s)" or "acquisition cost(s)", as disclosed in this report, exclude closing costs and other adjustments on closing. Hotel Properties The reference to "hotel properties" which is contained throughout this MD&A includes the Cortona Residence, a rental property which is 100% leased until

4 Hotel Property Segments To facilitate more meaningful comparisons in certain sections of this report, the hotel properties are categorized into distinct segments referred to as the "Same Property" segment and the "Sold Property" segment. In addition, the Same Property segment is further categorized into the "Fort McMurray" segment, "Other Alberta" segment and the "Other Canada" segment. Same Property measures the operating performance for properties owned by the Company continuously for a selected reporting period and does not take into account the impact of the operating performance of property acquisitions and dispositions during the selected reporting period. The Same Property segment consists of the 28 hotel properties which were continuously owned by Temple since January 1, The Fort McMurray, Other Alberta and Other Canada segments consist of the nine hotel properties located in Fort McMurray, four hotel properties located in Alberta outside of Fort McMurray and the remaining 15 hotels are located outside of Alberta. The Sold Property segment consists of one property in Alberta which was sold on September 15, In reference to the segments defined in the preceding paragraphs, the word "segment" is used interchangeably with the word "portfolio" throughout this report. Financial Statements Throughout this report, the condensed consolidated financial statements as of September 30, 2017 will be referred to as the "Financial Statements"; the condensed consolidated balance sheets as of September 30, 2017 will be referred to as the "Balance Sheet"; the condensed consolidated statements of net income (loss) and comprehensive income (loss) for the three and nine months ended September 30, 2017 will be referred to as the "Income Statement"; and the condensed consolidated statements of cash flows for the three and nine months ended September 30, 2017 will be referred to as the "Statement of Cash Flows". 3

5 FINANCIAL SUMMARY September 30 December 31 September BALANCE SHEET Total assets $513,639 $577,428 $594,856 Total debt $463,513 $529,016 $531,740 Weighted average interest rate of total debt including line of credit and revolving loan debt * 5.24% 5.37% 5.35% Weighted average interest of mortgage loan debt * 4.85% 4.66% 4.64% Weighted average term to maturity of mortgage loan debt (years) * Three Months Ended Nine Months Ended September 30 September KEY PERFORMANCE INDICATORS Operations: Occupancy * 70% 69% 63% 61% ADR * $ $ $ $ RevPar * $ $99.32 $88.33 $85.50 Operating profit margin * 33% 35% 28% 29% Operating results: Total revenue $46,106 $45,280 $125,734 $123,001 Hotel operating income ** $15,190 $16,052 $35,306 $36,133 Provision for impairment ($235) - ($235) ($43,574) Net income (loss) $3,355 $1,390 $495 ($67,968) Cash flows: Cash flow provided by operating activities $8,585 $6,572 $10,933 $11,142 Cash flow provided by operating activities, excluding working capital adjustments * $8,157 $8,054 $15,388 $12,102 Funds from operations * $8,170 $7,863 $14,628 $11,268 PER COMMON SHARE AMOUNTS Basic Basic Basic Basic Net income (loss) $0.13 $0.11 $0.02 ($5.23) Funds from operations * $0.32 $0.61 $0.57 $0.87 Weighted average number of common shares 25,351,516 13,007,808 25,344,724 12,996,435 * Non-IFRS Measures Items marked with an asterisk represent measures which are not calculated or presented in accordance with IFRS or which do not have a standardized meaning as prescribed by IFRS. The non-ifrs measures may not be comparable to measures which are provided by other entities and should not be used as an alternative to the measures which are determined in accordance with IFRS for purposes of assessing the performance of Temple. Temple Hotels Inc. believes, however, that the non-ifrs measures are useful in supplementing the reader's understanding of the performance of the Company. ** The terms "hotel operating income"; "net operating income" and "NOI" are used interchangeability throughout this report. Details regarding the calculation of the non-ifrs measures and a reconciliation from IFRS measures, where applicable, are provided in the report. 4

6 Q Key Points Revenue increased by $826 or 2% during the three months ended September 30, 2017 compared to 2016, primarily due to an increase in revenue within the Other Canada portfolio of $1,775, partially offset by a decrease in revenue within the Fort McMurray and Other Alberta portfolios of $750 and $199, respectively. Hotel operating income decreased by $862 or 5% during the three months ended September 30, 2017 compared to 2016, primarily due to a decrease in hotel operating income within the Fort McMurray and Other Alberta portfolios of $1,633 and $83, respectively, partially offset by an increase in hotel operating income within the Other Canada portfolio of $854. FFO increased by $307 during the three months ended September 30, 2017, compared to On a basic per common share basis, FFO decreased by $0.29 per common share, compared to the third quarter of 2016, primarily as a result of an increase in the weighted average number of common shares outstanding. Temple completed the sale of Holiday Inn Express, Sherwood Park, Alberta, on September 15, 2017 for gross proceeds of $9,690 and net proceeds of approximately $278, after repayment of the first mortgage loan and sale costs. Subsequent to September 30, 2017, holders of the Series E convertible debentures agreed to extend the maturity date from September 30, 2017 to September 30, 2020, while decreasing the conversion price from $40.08 to $9.75 per common share of Temple. On October 2, 2017, Temple redeemed $2,258 of the principal amount of the Series E debentures outstanding, which represents approximately 5% of the issued and outstanding Series E debentures. Operating Activities Net Income Temple completed the third quarter of 2017 with net income of $3,355, compared to net income of $1,390 during the same period in The increase in net income is mainly due to a decrease in depreciation and amortization of $1,721 and a decrease in interest expense of $1,264, partially offset by a decrease in hotel operating income of $862. On a per common share basis, net income was $0.13 for the third quarter of 2017, compared to a net income of $0.11 during the third quarter of Occupancy and ADR The increase in revenue primarily reflects higher occupancy and ADR levels within the Other Canada segment. In the third quarter of 2017, the ADR and occupancy levels of the Other Canada segment increased by $6.88 and 1%, respectively, to $ and 81%, in comparison to the third quarter of In addition, reduced ADR levels within the Other Alberta and Fort McMurray segments, resulted in a lower operating margin as unfavourable market conditions continue to affect oil-dependent markets in Alberta. Cash Provided by Operating Activities Cash provided by operating activities increased by $2,013 during the third quarter of 2017, compared to the third quarter of Excluding working capital adjustments, cash provided by operating activities increased by $103, compared to Funds from Operations ("FFO") During the third quarter of 2017, FFO increased by $307, compared to the third quarter of On a basic per common share basis, FFO decreased by $0.29 per common share, compared to the third quarter of Liquidity and Financing Activities As of September 30, 2017, the unrestricted cash balance of Temple was $18,220 and working capital was $12,066. On August 14, 2017, the Company refinanced a five-loan mortgage portfolio with the incumbent lender. The five loans are cross collateralized and three of the loans were refinanced for a five year term at an interest rate of 5.20% and are not subject to any financial covenants during the first 12 months of the term. As a condition of refinancing, the Company paid down the maturing, aggregate balance by $7,500. The fourth mortgage loan of five in the portfolio does not mature until November 2019, and the fifth was subsequently discharged on the disposal of Holiday Inn Express, Sherwood Park, Alberta. Temple completed the sale of Holiday Inn Express, Sherwood Park, Alberta, on September 15, 2017 for gross proceeds of $9,690 and net proceeds of approximately $278, after repayment of the first mortgage loan and sale costs. Subsequent to September 30, 2017, holders of the Series E convertible debentures agreed to extend the maturity date from September 30, 2017 to September 30, 2020, while decreasing the conversion price from $40.08 to $9.75 per common share of Temple. 5

7 Investing Activities As disclosed in the Statement of Cash Flows in the financial statements, the investing activities of Temple resulted in a net cash inflow of $9,263 during the third quarter of Investing activities primarily reflect the proceeds from the sale of property and equipment and the cash distribution on equity investments, partially offset by cash outflows related to capital expenditures on hotel properties. Board Governance and Management Effective April 1, 2016, asset management responsibilities previously undertaken by Shelter Canadian Properties Limited ("Shelter") was assumed by Morguard Corporation ("Morguard"). Morguard is a real estate company, which owns a diversified portfolio of multi-suite residential, retail, office, industrial and hotel properties. Morguard also provides advisory and management services to institutional and other investors. Morguard s total assets owned and under management in North America are valued at $22.0 billion. Debt Covenants At September 30, 2017, the Company was not in compliance with debt service covenants affecting six mortgage loans (December 31, 2016 nine) in the aggregate amount of $93,941 (December 31, 2016 $139,178). During the third quarter the Company refinanced a five-loan mortgage portfolio which included a $7,500 pay down and a condition that the properties are not subject to any financial covenants during the first 12 months of the five year term. Management has been working with lenders throughout the year and the remaining loan covenant breaches are expected to be resolved by debt refinancings, loan modification agreements and/or a waiver of the covenant requirements. Risks and Uncertainties Details of the key risks of Temple are provided in the section of this MD&A titled "Operating Risks and Uncertainties". 6

8 OVERVIEW OF OPERATIONS AND INVESTMENT STRATEGY Temple Hotels Inc. Temple Hotels Inc. is a corporation governed by the Canada Business Corporations Act and the constating documents of the Company. The head office of the Company is located at 55 City Centre Drive, Suite 1000 in Mississauga, Ontario. Temple invests, directly and indirectly, in hotel properties and assets. The primary business activity of the Company is the acquisition and development of income-producing hotel properties and the active management of the acquired/developed properties. Prior to December 31, 2012, Temple operated as Temple Real Estate Investment Trust, an open-ended real estate investment trust which was formed under the laws of the Province of Manitoba on July 12, Stock Exchange Listing The common shares of Temple are listed on the Toronto Stock Exchange ("TSX") under the trading symbol "TPH" and the Series E convertible debentures and Series F convertible debentures are listed on the TSX under the trading symbols "TPH.DB.E" and "TPH.DB.F", respectively. Overall Investment Objectives and Strategy Core Business and Strategy Temple owns a portfolio of income-producing hotel properties. The core business activities of the Company consist of investment, development and management activities which are focused on maximizing the return on the hotel portfolio. As of September 30, 2017, the hotel portfolio of the Company consists of 28 hotel properties comprising 3,785 rooms, of which nine hotel properties are located in Fort McMurray, Alberta. Temple also has two 50% equity investment hotel properties located in Ontario, comprising 299 rooms. On June 30, 2016, the Board of Directors (the "Board") announced that it is conducting a comprehensive review of strategic alternatives available to best enhance the long-term interests of Temple and all of its stakeholders (the "Strategic Review"). The review process is continuing and there can be no assurance that the Board s process will result in any specific action. Temple does not intend to disclose further developments unless and until the Board approves a specific action or otherwise concludes its Strategic Review. Primary Objectives The primary long-term investment objectives of the Company are to yield stable and growing cash flows and to maximize the long-term share value of the Company through the active management of its assets, accretive acquisitions, and the performance of value-added capital improvement programs on selected properties, as deemed appropriate. Growth The general strategy of the Company for external growth is to pursue the acquisition of hotel properties and other assets in markets across Canada, and possibly in the United States, based on an investment criteria which focuses on return of equity, security of cash flow and potential for capital appreciation. The overall investment strategy of the Company also encompasses the acquisition of hotels in regional clusters and of similar asset sizes in order to create economies of scale. The assessment of the capital appreciation potential of targeted properties includes an evaluation of market conditions, an analysis of the available opportunities for increasing cash flows through the implementation of more efficient operating systems and/or marketing strategies, and an examination of the potential redevelopment or expansion opportunities for the property. Financing The overall financing strategy of the Company is to raise investment capital through the issuance of common shares and/or convertible debentures. In general, new property acquisitions will be funded by arranging new mortgage financing or by assuming existing mortgage financing, with the remaining equity portion to be funded from the reserves of investment capital. The equity portion of new property acquisitions may also be partially funded by the exchange of common shares. 7

9 Temple intends to efficiently utilize and manage leverage, targeting mortgage debt in the range of 50% to 60% of appraised value in order to maximize return on equity while maintaining cash flow stability. In addition, Temple will pursue the upward refinancing of under-leveraged properties or the subsequent arrangement of mortgage financing for properties which are initially acquired without mortgage debt in place. The trust indenture for the Series F debentures restricts the total mortgage loan indebtedness permitted on the Temple hotel portfolio to a maximum of 75% of the appraised value of all properties. As of September 30, 2017, the Company was in compliance with this restriction. Temple may also utilize acquisition lines of credit, bridge financing and other short-term financing facilities as a source of interim investment capital, as investment opportunities arise, pending the replenishment of capital reserves from additional common share and/or convertible debenture offerings. Management Transfer of Asset Management Agreement On December 23, 2015, Shelter and Morguard entered into an assignment agreement under which Shelter agreed to assign to Morguard the asset management agreement, effective April 1, As at September 30, 2017, Morguard owns 14,136,012 common shares and convertible debentures that are convertible to 43,380 common shares. Existing Management Structure Effective April 1, 2016, Morguard provides asset management services to the Company, pursuant to the asset management agreement. Morguard has a highly qualified management team with years of experience in real estate investment and development activities and in the asset management and property management industry. The Chairman and Chief Executive Officer of Morguard, Mr. K. Rai Sahi, serves as Chief Executive Officer of the Company. Mr. Paul Miatello, the Chief Financial Officer of Morguard, serves as the Chief Financial Officer of the Company. Additional information regarding the terms of the asset management agreement and remuneration of Shelter and Morguard is provided in the section of this report titled, "Related Party Transactions". The hotel properties of Temple are currently operated and managed by Atlific Hotels (''Atlific''), with the exception of the Cortona Residence located in Fort McMurray, Alberta. Atlific currently manages a portfolio of properties across Canada, including hotels with the Marriott, Hilton, Days Inn, Comfort Inn, Sheraton, Wyndham, Radisson and Holiday Inn brands. Atlific is an affiliate of Ocean Properties Ltd., one of the largest privately-owned hotel management companies in North America. Combined, Atlific and Ocean Properties Ltd. have over 80 years of experience in hotel management and manage a portfolio of over 100 properties. Details of the terms of the Atlific management agreements for the hotels in the Temple portfolio are provided in the section of this report entitled "Hotel Management". 8

10 PROPERTY PORTFOLIO Property Portfolio September 30, 2017 As disclosed in the following chart, the hotel portfolio of Temple consists of 28 hotel and investment properties which are 100% owned by the Company as at September 30, 2017, comprising 3,785 rooms. The geographic location of the hotels is as follows: Fort McMurray, Alberta 9 properties 889 rooms Other Alberta 4 properties 754 rooms Other Western Canada 7 properties 1,038 rooms Eastern Canada 8 properties 1,104 rooms The hotel portfolio includes two "extended-stay" properties (Stanton Suites Hotel, Yellowknife and Clearwater Timberlea, Fort McMurray) and one investment property (Cortona Residence). The Cortona Residence may be converted to an extended stay property at the expiry of a long term lease in Temple also has two 50% equity interests in limited partnerships which own hotels in London and Ottawa, Ontario. Available Guest Rooms As of September 30, 2017, the hotel portfolio encompassed a total of 3,785 guest rooms, compared to 3,875 guest rooms as of September 30, 2016, representing a decrease of 90 rooms. The decrease in guest rooms is attributable to the sale of the Holiday Inn Express, Sherwood Park, Alberta, on September 15, Temple also participates in 50% of the earnings from the two hotels in which it has a 50% limited partnership interest. The two hotels encompass a total of 299 guest rooms. Change in Hotel Portfolio 2017 vs 2016 On September 15, 2017, Temple sold one hotel property, Holiday Inn Express, Sherwood Park, Alberta, which was acquired in June Financial Statement Presentation All of the 100% owned hotel properties are classified as "Property and equipment" on the Balance Sheet, with the exception of the Cortona Residence which is leased under a long term lease and is therefore classified under the line title, "Investment property". The two hotels in which Temple has a 50% equity interest are classified as "Investment in hotel properties" on the Balance Sheet. Equity Investments in Hotel Properties September 30, 2017 Property Location Acquisition Date Rooms/Suites Ontario Courtyard Marriott Ottawa December Residence Inn London January Subtotal 299 9

11 The property portfolio of Temple consisted of an average of 3,860 available rooms in the third quarter of 2017, compared to an average of 3,875 available rooms in the third quarter of Property Portfolio September 30, 2017 Property Location Acquisition Date Rooms/Suites Direct Investments in Hotel Properties British Columbia Inn at the Quay New Westminster June Alberta Fort McMurray Clearwater Suite Hotel Fort McMurray March Merit Hotel and Suites Fort McMurray April Franklin Suites Fort McMurray April Nomad Hotel Fort McMurray April Nomad Suites Fort McMurray April Vantage Inn & Suites Fort McMurray February Radisson Hotel & Suites Fort McMurray February Clearwater Timberlea Fort McMurray May Cortona Residence (1) Fort McMurray April Other Days Inn Hotel and Suites Lloydminster June Sheraton Red Deer Red Deer December Hilton Garden Inn Edmonton August Acclaim Hotel Calgary November Northwest Territories Days Inn Yellowknife March Stanton Suites Hotel Yellowknife December Saskatchewan Temple Gardens Hotel and Spa (2) Moose Jaw October Regina Wingate Inn Regina December Saskatoon Inn Saskatoon November Manitoba Holiday Inn South Winnipeg January Ontario Holiday Inn Express Ottawa October Days Inn North Thunder Bay July Days Inn Sibley Thunder Bay July Hilton Garden Inn Airport North Mississauga August Towne Place Suites by Marriott Sudbury August Nova Scotia Prince George Hotel Halifax March Cambridge Suites Halifax Halifax March Cambridge Suites Sydney (3) Sydney March Total 3,785 (1) Cortona Residence is an investment property under lease until (2) The Temple Gardens Hotel and Spa includes a 50% co-ownership agreement in regard to a 23,400 square foot casino complex ("the Casino Moose Jaw") which is located adjacent to the Temple Gardens Hotel and Spa. (3) Canada Ltd., a 100% owned operating subsidiary of Temple, owns and operates the Cambridge Suites Sydney. 10

12 ANALYSIS OF OPERATING RESULTS Analysis of Net Income (Loss) and Comprehensive Net Income (Loss) * Three Months Ended Nine Months Ended September 30 September 30 Increase/ (Decrease) in Income Increase/ (Decrease) in Income Revenue Room revenue $36,119 $35,426 $693 $93,614 $91,005 $2,609 Other hotel revenue 9,987 9, ,120 31, Total revenue 46,106 45, , ,001 2,733 Hotel operating costs 30,916 29,228 (1,688) 90,428 86,868 (3,560) Hotel operating income 15,190 16,052 (862) 35,306 36,133 (827) Interest expense 6,753 8,017 1,264 21,431 23,915 2,484 Other expense (income) (71) (73) (2) (1,847) (256) 1,591 Share based compensation General and administrative expenses (93) 2,511 2,485 (26) Depreciation and amortization 4,415 6,136 1,721 13,383 18,639 5,256 3,151 1,090 2,061 (275) (8,893) 8,618 Equity income on investment in hotel properties Provision for impairment (235) - (235) (235) (43,574) 43,339 Change in fair value of financial instruments: gain (90) Income tax recovery (expense) - (135) (16,504) 16,528 Net income (loss) and comprehensive income (loss) $3,355 $1,390 $1,965 $495 ($67,968) $68,463 Per Common Share Results: Basic and diluted $0.13 $0.11 $0.02 ($5.23) * The analysis of net income (loss) represents the reformatting of balances from the condensed consolidated statements of net income (loss) and comprehensive income (loss), per the financial statements of Temple, in order to provide amounts which correspond to the analysis in this report. All of the amounts in the analysis agree to the financial statements with the following exceptions: (i) Depreciation and amortization amounts have been combined. (ii) The analysis does not provide a subtotal for "net income (loss) before income taxes". Per Common Share Results For the third quarter of 2017, net income was $0.13 per common share, compared to net income per common share of $0.11 for the third quarter of For the first nine months of 2017, net income on a per common share basis was $0.02 per common share, compared to a net loss per common share of $5.23 for the first nine months of Overall Results Third Quarter Comparatives Temple completed the third quarter of 2017 with net income before equity income, impairment and income taxes of $3,151, compared to net income before equity income and income taxes of $1,090 during the third quarter of 2016, representing an increase in income of $2,061. As explained in greater detail in the following sections of this report, the increase in net income before equity income, impairment and income taxes mainly reflects a decrease in depreciation and amortization of $1,721 and a decrease in interest expense of $1,264, partially offset by a decrease in hotel operating income of $862. After providing for equity income, impairment and income taxes, Temple completed the third quarter of 2017 with net income of $3,355, compared to net income of $1,390 during the third quarter of 2016, representing an increase in net income of $1,

13 Nine Month Comparatives Temple completed the first nine months of 2017 with a net loss before equity income, impairment and income taxes of $275 compared to a net loss before equity income, impairment, change in fair value of financial instruments and income taxes of $8,893 during the first nine months of 2016, representing a decrease in loss of $8,618. As explained in greater detail in the following sections of this report, the decrease in net loss before equity income, impairment, change in fair value of financial instruments and income taxes mainly reflects a decrease in depreciation and amortization of $5,256, a decrease in interest expense of $2,484 and an increase in other income of 1,591, partially offset by a decrease in hotel operating income of $827. After providing for equity income, impairment, change in fair value of financial instruments and income taxes, Temple completed the first nine months of 2017 with net income of $495, compared to a net loss of $67,968 during the first nine months of 2016, representing an increase in net income of $68,463. Revenue Total Revenue Analysis of Total Revenues Nine Months Ended September Increase/ Amount % of Total Amount % of Total (Decrease) Revenue Room revenue $ 93,614 74% $ 91,005 74% $ 2,609 Other hotel revenue 32,120 26% 31,996 26% 124 Total $ 125, % $ 123, % $ 2,733 The revenue of Temple is comprised of "room revenue" and "other hotel revenue". Room revenue is generated from the rental of rooms. Other hotel revenue includes food and beverage, spa, video lottery terminal, parking, and gift shop revenues. Revenue from the Cortona Residence is also included in room revenue. Revenue from the "equity interest" hotels is disclosed separately in the financial statements under the line title "equity income on investment in hotel properties". As disclosed in the preceding chart, total revenue increased by $2,733 or 2% during the first nine months of 2017, compared to the first nine months of 2016, comprised of a $2,609 increase in room revenue and a $124 increase in other hotel revenue. During the first nine months of 2017 and 2016, room revenue and other hotel revenue accounted for 74% and 26% of total revenue. As discussed in the following sections of this MD&A, the relative significance of other hotel revenue varies considerably between hotels and is a major factor affecting hotel profit margins. 12

14 Hotel Revenue Analysis of Total Hotel Revenues Three Months Ended September 30 Nine Months Ended September 30 Increase/ Increase/ (Decrease) (Decrease) Same Property Fort McMurray Room revenue $ 6,239 $ 6,811 $ (572) $ 17,290 $ 15,701 $ 1,589 Other hotel revenue (178) 962 1,681 (719) $ 6,516 $ 7,266 $ (750) $ 18,252 $ 17,382 $ 870 Other Alberta Room revenue $ 4,702 $ 4,780 $ (78) $ 13,109 $ 13,922 $ (813) Other hotel revenue 3,503 3, ,812 12,991 (179) $ 8,205 $ 8,281 $ (76) $ 25,921 $ 26,913 $ (992) Other Canada Room revenue $ 24,691 $ 23,228 $ 1,463 $ 61,387 $ 59,417 $ 1,970 Other hotel revenue 6,202 5, ,317 17,294 1,023 $ 30,893 $ 29,118 $ 1,775 $ 79,704 $ 76,711 $ 2,993 Total - Same Property Room revenue $ 35,632 $ 34,819 $ 813 $ 91,786 $ 89,040 $ 2,746 Other hotel revenue 9,982 9, ,091 31, Total hotel revenue $ 45,614 $ 44,665 $ 949 $ 123,877 $ 121,006 $ 2,871 Total - Sold Property Room revenue $ 487 $ 607 $ (120) $ 1,828 $ 1,965 $ (137) Other hotel revenue 5 8 (3) (1) Total hotel revenue $ 492 $ 615 $ (123) $ 1,857 $ 1,995 $ (138) Total Room revenue $ 36,119 $ 35,426 $ 693 $ 93,614 $ 91,005 $ 2,609 Other hotel revenue 9,987 9, ,120 31, Total hotel revenue $ 46,106 $ 45,280 $ 826 $ 125,734 $ 123,001 $ 2,733 Room Revenue Factors Affecting Revenue Room revenue for all hotels may be periodically affected by the completion of major hotel renovation programs which involve the temporary removal of rooms from the revenue pool, particularly if the renovations are being completed at a hotel with comparatively high room rates. The quarterly room revenue results for the Sold Property portfolio are affected by the timing of dispositions. Comparative Results During the third quarter of 2017, Same Property room revenue increased by $813 or 2%, compared to the third quarter of The increase is comprised of a $1,463 (6%) increase in the Other Canada portfolio, partially offset by a $572 (8%) decrease in the Fort McMurray portfolio and a $78 (2%) decrease in the Other Alberta portfolio. The increase in Same Property room revenue during the third quarter of 2017, compared to the third quarter of 2016, is largely due to an increase in occupancy and RevPar for the Other Canada segment, partially offset by the continued unfavourable market conditions affecting oil-dependent markets in the Fort McMurray and Other Alberta segments. Room Revenue Statistics As disclosed in the following chart, for the third quarter ended September 30, 2017, RevPar for the Same Property portfolio was $102.26, compared to $99.95 for the third quarter ended September 30, For the nine months ended September 30, 2017, RevPar for the Same Property portfolio was $88.54, compared to $85.64 for the nine months ended RevPar for the Same Property portfolio generally reflects increased occupancy levels in the Fort McMurray and Other Canada segments, offset by reduced ADR levels in the Fort McMurray and Other Alberta segments. 13

15 Occupancy at the Fort McMurray properties increased during the third quarter of 2017 compared to the third quarter of 2016, but is still impacted by the unfavourable market conditions in Alberta. Room Revenue Statistics Three Months Ended September Occ ADR RevPar Occ ADR RevPar Same Property Fort McMurray 54% $ $ % $ $ Other Alberta 57% $ $ % $ $ Other Canada 81% $ $ % $ $ Total Same Property 70% $ $ % $ $ Sold Property 55% $ $ % $ $ Overall Portfolio 70% $ $ % $ $ Room Revenue Statistics Nine Months Ended September Occ ADR RevPar Occ ADR RevPar Same Property Fort McMurray 49% $ $ % $ $ Other Alberta 53% $ $ % $ $ Other Canada 72% $ $ % $ $ Total Same Property 63% $ $ % $ $ Sold Property 60% $ $ % $ $ Overall Portfolio 63% $ $ % $ $ The above chart does not reflect the operating results for the Cortona Residence, which is 100% leased at an annual net rent of $2,120. The occupancy level (Occ) is calculated by dividing the number of rooms available during the reporting period into the number of rooms actually rented. The average daily rate (ADR) is a non-ifrs measure commonly used in the hotel industry to evaluate hotel operations and is calculated by dividing total room revenue by the number of rooms rented. RevPar is a non-ifrs measure which is commonly used within the hotel industry to evaluate hotel operations and is generally considered to be the leading indicator of operating performance. RevPar is calculated by multiplying ADR by the occupancy level. RevPar does not include revenues from food and beverage operations or from other hotel services. Other Hotel Revenue Other hotel revenue includes food and beverage revenue, spa revenue, video lottery terminal revenue, rental revenue, parking and gift shop revenue. Hotels which encompass more extensive amenities, such as lounges, restaurants, liquor stores or banquet and conference facilities, generate a higher amount of other hotel revenue in comparison to the other hotels. At September 30, 2017, there are five hotels in the portfolio which generate proportionately higher levels of other hotel revenue, namely the Sheraton Red Deer, Temple Gardens Hotel and Spa, Saskatoon Inn, Prince George Hotel and Days Inn Lloydminster. The Sheraton Red Deer and Days Inn Lloydminster are included in the Other Alberta segment and the remaining three hotels are included in the Other Canada segment. During the third quarter of 2017, the five hotels contributed $7,131 to other hotel revenue, representing 71% of total other hotel revenue. All of the other hotel properties contribute to other hotel revenue to some extent. Hotels with a higher proportion of other hotel revenue, such as the Sheraton Red Deer, also tend to have a lower overall profit margin due to the comparatively high level of operating costs which are directly related to the food and beverage facilities of the hotel. Increases or decreases in other hotel revenue also typically result in proportionately higher increases or decreases in hotel operating costs, due to the revenue/cost relationship. During the third quarter of 2017, other hotel revenue in the Same Property portfolio increased by $136 or 1%, compared to the third quarter of 2016, comprised of an increase of $312 from the Other Canada portfolio, partially offset by a $178 decrease from the Fort McMurray portfolio. Notwithstanding the above, the Sheraton Red Deer was the most significant contributor to other hotel revenue in the overall portfolio during the third quarter of 2017, accounting for $2,576 or 26% of other hotel revenue. 14

16 During the first nine months of 2017, other hotel revenue for the Same Property portfolio increased by $125 compared to the first nine months of 2016, comprised of an increase of $1,023 in the Other Canada portfolio, partially offset by decrease of $719 from the Fort McMurray properties and a decrease of $179 from the Other Alberta properties. Hotel Operating Costs Hotel operating costs include all costs related to the operation of the hotel properties, including hotel property management fees. As the Other Alberta segment derives a greater proportion of its total revenue from other hotel revenue, which has lower profit margins, hotel operating costs for the Other Alberta segment are proportionally high relative to other segments. Analysis of Hotel Operating Costs Three Months Ended September 30 Nine Months Ended September 30 Increase/ Increase/ (Decrease) (Decrease) Same Property Fort McMurray Operating expenses (1) $ 3,619 $ 2,608 $ 1,011 $ 10,302 $ 8,055 $ 2,247 Property taxes and insurance (128) 968 1,123 (155) $ 3,911 $ 3,028 $ 883 $ 11,270 $ 9,178 $ 2,092 Other Alberta Operating expenses (1) $ 6,593 $ 6,594 $ (1) $ 20,799 $ 21,135 $ (336) Property taxes and insurance (23) 1,355 1, $ 7,014 $ 7,038 $ (24) $ 22,154 $ 22,467 $ (313) Other Canada Operating expenses (1) $ 17,799 $ 16,980 $ 819 $ 50,416 $ 48,851 $ 1,565 Property taxes and insurance 1,796 1, ,227 4, $ 19,595 $ 18,674 $ 921 $ 55,643 $ 53,774 $ 1,869 Total - Same Property Operating expenses (1) $ 28,011 $ 26,182 $ 1,829 $ 81,517 $ 78,041 $ 3,476 Property taxes and insurance 2,509 2,558 (49) 7,550 7, Total hotel operating costs $ 30,520 $ 28,740 $ 1,780 $ 89,067 $ 85,419 $ 3,648 Total - Sold Property Operating expenses (1) $ 365 $ 442 $ (77) $ 1,241 $ 1,310 $ (69) Property taxes and insurance (15) (19) Total hotel operating costs $ 396 $ 488 $ (92) $ 1,361 $ 1,449 $ (88) Total Operating expenses (1) $ 28,376 $ 26,624 $ 1,752 $ 82,758 $ 79,351 $ 3,407 Property taxes and insurance 2,540 2,604 (64) 7,670 7, Total hotel operating costs $ 30,916 $ 29,228 $ 1,688 $ 90,428 $ 86,868 $ 3,560 Note: (1) Included in operating expenses are hotel management fees, which comprise of hotel property management fees. Hotel property management fees exclude asset management fees, which are classified within general and administrative expense. During the third quarter of 2017, hotel operating costs for the Same Property portfolio increased by $1,780, compared to the third quarter of 2016, mainly comprised of an increase of $921 (5%) and $883 (29%) for the Other Canada and Fort McMurray portfolios, respectively, partially offset by a $24 decrease for the Other Alberta portfolio. For the three and nine months ended, hotel operating expenses increased $1,011 and $2,247, respectively, in the Fort McMurray segment due to increased activity from higher occupancy in 2017 compared to In addition, the fire and disruption of hotel operations in 2016 reduced variable operating expenses during that year. 15

17 Operating Income and Profit Margin Operating Income and Profit Margin Three Months Ended September 30 Nine Months Ended September 30 Operating Profit Operating Profit Operating Income Margin Operating Income Margin Same Property Fort McMurray $2,605 $4,238 40% 58% $6,982 $8,204 38% 47% Other Alberta 1,191 1,243 15% 15% 3,767 4,446 15% 17% Other Canada 11,298 10,444 37% 36% 24,061 22,937 30% 30% Total - Same Property $15,094 $15,925 33% 36% $34,810 $35,587 28% 29% Sold Property $96 $127 20% 21% $496 $546 27% 27% Total portfolio $15,190 $16,052 33% 35% $35,306 $36,133 28% 29% After accounting for the increase in total revenues and the increase in hotel operating costs, operating income decreased by $862 or 5% during the third quarter of 2017, compared to the third quarter of The decrease is comprised of a decrease of $1,633 or 39% for the Fort McMurray segment, a decrease of $52 or 4% for the Other Alberta segment and a decrease of $31 for the Sold Property segment, partially offset by an increase of $854 or 8% in operating income for the Fort McMurray segment. For the first nine months of 2017, operating income decreased by $827 or 2% compared to the first nine months of 2016, which was comprised of a decrease of $1,222 or 15% for the Fort McMurray segment, a decrease of $679 or 15% for the Other Alberta segment and a decrease of $50 for the Sold Property segment, partially offset by an increase of $1,124 or 5% in operating income for the Fort McMurray segment. As disclosed in the preceding chart, the overall profit margin of the entire hotel portfolio was at 33% for the third quarter of 2017 compared to 35% for the third quarter of For the nine months ended September 30, 2017, the overall profit margin was 28%, compared to 29% for the nine months ended September 30, Interest Expense Total Interest Expense Interest expense encompasses interest from mortgage loan debt, the line of credit, the revolving loan and convertible debentures, as well as accretion on the debt component of convertible debentures, amortization charges for transaction costs on mortgage loans and convertible debenture offerings, amortization of deferred finance costs on the line of credit and revolving loan and the gain on the repurchase of debentures under the Company's normal course issuer bid ("NCIB"). During the first nine months of 2017, interest expense in regard to mortgage loan debt accounted for 65% ( %) of total interest expense, and interest expense in regard to debenture debt accounted for 34% ( %). The change in percentages mainly reflects a decrease in the amount of interest expense related to the debentures and mortgage loans, due to the repayment of the Series C and Series D convertible debentures and the repayment of two mortgage loans in January 2017 which were subsequently refinanced in June Analysis of Interest Expense Three Months Ended September 30 Nine Months Ended September 30 Increase Increase (Decrease) (Decrease) Mortgage loans Interest on mortgage loans $4,642 $4,703 ($61) $13,530 $14,187 ($657) Amortization of transaction costs (95) (66) Subtotal - mortgage loans 4,691 4,847 (156) 13,950 14,673 (723) Line of Credit, Revolving Loan and Other Interest Amortization of transaction costs - 5 (5) (20) Subtotal - line of credit and revolving loan Debentures Interest on convertible debentures 1,431 2,554 (1,123) 5,588 7,600 (2,012) Accretion (111) 1,437 1,527 (90) Amortization of transaction costs Gain on debenture repurchases (226) 226 Subtotal - debentures 1,931 3,158 (1,227) 7,307 9,167 (1,860) Interest expense $6,753 $8,017 ($1,264) $21,431 $23,915 ($2,484) 16

18 Comparative Results for Interest Expense As disclosed in the preceding chart, total interest expense decreased by $1,264 or 16% during the third quarter of 2017, compared to the third quarter of The decrease is mainly comprised of a decrease of $1,227 related to convertible debentures interest and a decrease of $156 related to mortgage loan interest. The $1,227 decrease in total debenture interest expense reflects the repayment of the Series C and Series D convertible debentures. The decrease in total mortgage loan interest expense primarily reflects a $61 decrease in mortgage interest due to scheduled payments and the lump sum principal payments of mortgages in During the first nine months of 2017, total interest expense decreased by $2,484 or 10%, compared to the first nine months of The decrease is comprised of a decrease of $1,860 related to convertible debentures interest and a decrease of $723 related to mortgage loan interest. The weighted average interest rate of mortgage loan debt increased from 4.64% at September 30, 2016 to 4.85% at September 30, The weighted average interest rate of the debenture debt decreased from 7.44% at September 30, 2016 to 7.14% at September 30, 2017, due to the redemption of the Series C and Series D convertible debentures. Amortization of Transaction Costs Transaction costs related to mortgage loan debt, the line of credit, and convertible debenture offerings are capitalized and expensed through amortization charges. Amortization charges represent a "non-cash" expense and are excluded from the determination of cash flow from operating activities. Transaction costs on common shares issued are charged to equity. The actual cash outlay in regard to transaction costs is included in the determination of cash flow from financing activities. During the first nine months of 2017, total amortization charges in regard to transaction costs amounted to $724 compared to $794 during the first nine months of Accretion on Convertible Debentures In accordance with IFRS, the total amount of convertible debentures, as disclosed in the financial statements, is divided into debt and equity components based on the present value of future interest and principal payments and is carried in the account, net of transaction costs. The amount by which the total present value exceeds the face value of the convertible debentures is referred to as "accretion". The accretion of the debt component, which serves to increase the carrying value of the debt component, is included in interest expense. During the first nine months of 2017, interest expense includes accretion charges of $1,437, compared to $1,527 during the first nine months of Other Expense (Income) Analysis of Other Expense (Income) Three Months Ended September 30 Nine Months Ended September 30 Increase/ Increase/ (Decrease) (Decrease) Interest revenue $ (18) $ (7) $ (11) $ (105) $ (56) $ (49) Finance lease interest revenue (62) (66) 4 (189) (200) 11 Insurance proceeds - property damage (2,085) - (2,085) Other expenses Other expense (income) $ (71) $ (73) $ 2 $ (1,847) $ (256) $ (1,591) During the third quarter of 2017, other income (expense) increased by $2 compared to the third quarter of During the first nine months of 2017, other income (expense) increased by $1,591, compared to the first nine months of The increase is mainly attributable to insurance proceeds relating to a property loss claim of $2,085, partially offset by an increase in other expenses of $

19 General and Administrative Expense Analysis of General and Administrative Expense Three Months Ended September 30 Nine Months Ended September 30 Increase/ Increase/ (Decrease) (Decrease) Professional and legal fees $ 128 $ 89 $ 39 $ 362 $ 358 $ 4 TSX and other reporting/filing fees Other administrative costs (1) (39) Asset management fees ,885 1, Total - general and administrative expense $ 905 $ 812 $ 93 $ 2,511 $ 2,485 $ 26 General General and administrative expense consists of professional and legal fees, regulatory and filing fees, general administrative costs, acquisition expenses and the asset management fees (i.e. asset management fees related to the gross revenue from the general Company operations). During the third quarter of 2017, general and administrative expenses increased by $93 compared to the third quarter of The increase is mainly attributable to higher TSX and other reporting/filing fees, higher professional and legal fees, as well as higher asset management fees resulting from an increase in revenue. During the first nine months of 2017, general and administrative expenses increased by $26 compared to the first nine months of The increase is mainly attributable to higher asset management fees resulting from an increase in revenue and higher TSX and other reporting/filing fees, partially offset by lower other administrative costs. Director Compensation The Directors of Temple receive annual compensation, based on a pre-established fee schedule, for serving on the Board, acting as a Committee Chair, and attending Board and Committee meetings. The total fees for the first nine months of 2017 amounted to $186, compared to $219 for the first nine months of Of this amount, $83 ( $38) is included in general and administrative expense and $103 ( $181) is reflected in share based compensation. Share Based Compensation Deferred Share Plan Under the Deferred Share Plan of Temple, Directors, officers, employees and consultants can elect to have their annual compensation paid in the form of deferred shares. In general terms, the number of deferred shares granted is determined by dividing the amount of the compensation by the market price of the common shares, as of the date on which the compensation is payable. During the first nine months of 2017, 23,080 deferred shares were issued to Directors under the Deferred Share Plan, at a weighted average market value of $4.46 per common share, representing a total value of $103 or 55% of the total Directors fees. Director fees received in deferred shares are reflected in share based compensation and Director fees paid in cash are reflected in "other administrative expenses". Stock Options Stock options granted under the Stock Option Plan of Temple are also treated as equity. During the nine months of 2017 and 2016, there were no stock options granted. Additional information regarding the Stock Option Plan and Deferred Share Plan are disclosed in the Annual Information Form. The Annual Information Form is available on SEDAR at Depreciation and Amortization During the first nine months of 2017, depreciation and amortization charges decreased by $5,256 compared to the first nine months of The decrease in depreciation and amortization charges reflects a lower carrying value resulting from impairment provisions on property and equipment as well as investment property. 18

20 Equity Income As previously discussed, Temple owns a 50% interest in limited partnerships that own the Courtyard Marriott, Ottawa, Ontario, and the Residence Inn, London, Ontario. The income statement reflects the income from these properties under the caption "Equity income on investment in hotel properties". Provision for Impairment During the first nine months of 2017, a provision for impairment of $235 was recorded on the disposition of the Holiday Inn Express, Sherwood Park, Alberta. On disposition, the carrying value of the property exceeded the recoverable amount, which was the sale price less costs to sell. The property had a net book value of $9,524, related intangible assets with a net book value of $30 and sale costs of $291 resulting in an impairment provision of $235. During the first nine months of 2016, the Company recorded a provision for impairment of $43,574 as an assessment concluded certain hotel properties had indicators of impairment. IFRS permits an impairment provision to be reversed in subsequent accounting periods if recoverability analysis at that time supports the reversal. Change in Fair Value of Financial Instruments The Company had entered into an interest rate swap arrangement whereby the interest rate on a variable rate mortgage loan in the amount of $10,300 had a fixed rate of 7.44% and matured in April Settlement on both the fixed and variable portion of the interest rate swap occurred on a monthly basis. Change in fair value of financial instruments recovery of $nil for the three months ended September 30, 2017 (2016 $nil) and $nil for the nine months ended September 30, 2017 (2016 $90) was recorded to reflect the fair value of the interest swap. 19

21 ANALYSIS OF CASH FLOWS Operating Activities Three Months Ended September 30 Nine Months Ended September Increase/ (Decrease) in Cash Flow Increase/ (Decrease) in Cash Flow Total revenue $ 46,106 $ 45,280 $ 826 $ 125,734 $ 123,001 $ 2,733 Hotel operating costs 30,916 29,228 (1,688) 90,428 86,868 (3,560) Hotel operating income 15,190 16,052 (862) 35,306 36,133 (827) Amortization of tenant inducements (2) Interest expense (6,753) (8,017) 1,264 (21,431) (23,915) 2,484 Amortization of transaction costs (93) (70) Accretion of convertible debentures (111) 1,437 1,527 (90) Gain on debenture repurchases (226) 226 Cash component of interest expense (6,204) (7,264) 1,060 (19,270) (21,820) 2,550 Other income (expense) (2) 1, ,591 General and administrative expense (905) (812) (93) (2,511) (2,485) (26) Cash provided by operating activities, before working capital adjustments 8,157 8, ,388 12,102 3,286 Working capital adjustments 428 (1,482) 1,910 (4,455) (960) (3,495) Cash provided by operating activities $ 8,585 $ 6,572 $ 2,013 $ 10,933 $ 11,142 $ (209) The main components of cash provided by operating activities are hotel operating income, interest payments, working capital adjustments, and other income (expense). Temple completed the third quarter of 2017 with cash provided by operating activities of $8,585, compared to $6,572 during the third quarter of Excluding working capital adjustments, cash provided by operating activities amounted to $8,157 for the third quarter of 2017, representing an increase of $103. The increase in cash provided by operating activities, before working capital adjustments mainly reflects a decrease in the cash component of interest expense of $1,060, partially offset by a decrease of hotel operating income of $862 and an increase in general and administrative expense of $93. During the first nine months of 2017, Temple generated cash flows from operating activities of $10,933, compared to $11,142 during the first nine months of After excluding working capital adjustments, cash from operating activities during the first nine months of 2017 amounted to $15,388, representing an increase of $3,286 compared to the first nine months of The increase is mainly due to an increase in other income (expense) of $1,591 and a decrease in the cash component of interest expense $2,550, partially offset by a decrease in hotel operating income of $827. Investing Activities As disclosed in the Statement of Cash Flows in the financial statements, the investing activities of Temple resulted in a net cash inflow of $7,029 during the first nine months of Investing activities primarily reflect cash inflows from proceeds from the sale of property and equipment of $9,399 and cash distribution on equity investments of $550, partially offset by outflows related to capital expenditures on hotel properties in the amount of $3,132. Financing Activities As disclosed in the Statements of Cash Flows in the financial statements, the financing activities of Temple resulted in a net cash outflow of $67,664 during the first nine months of The net cash outflow is comprised of lump sum principal payments on mortgage loans of $63,366, cash outflows of $57,055 related to convertible debenture redemptions, $10,991 related to regular repayment of principal of mortgage loans and $677 in expenditures on transaction costs, partially offset by proceeds from mortgage debt of $51,925 and net revolving loan advances of $12,500. Cash Flow Summary The net cash outflow from operating, investing and financing activities during the first nine months of 2017 was $49,702. After providing for the opening cash balance of $67,922, Temple completed the first nine months of 2017 with a cash balance of $18,

22 Funds From Operations ("FFO") FFO is a non-ifrs measure that is widely used by the real estate industry to assess the operating performance of an entity. Temple's calculation of FFO is materially in accordance with the recommendations of the Real Property Association of Canada ("REALPAC"). Readers are cautioned that the method used by Temple for calculating FFO may differ from methods used by other issuers. Accordingly, measures of FFO may not be directly comparable across issuers. Funds from Operations Three Months Ended September 30 Nine Months Ended September Net income (loss) $ 3,355 $ 1,390 $ 495 $ (67,968) Add/(deduct): Deferred income tax expense (recovery) (24) 16,504 Change in fair value of financial instruments (90) Provision for impairment ,574 Depreciation and amortization 4,415 6,136 13,383 18,639 Amortization of tenant inducements Equity investments - depreciation and deferred taxes Funds from operations $ 8,170 $ 7,863 $ 14,628 $ 11,268 Weighted average number of common shares 25,351,516 13,007,808 25,344,724 12,996,435 FFO - per common share - basic and diluted $ 0.32 $ 0.61 $ 0.57 $ 0.87 During the third quarter of 2017, the FFO of the Company increased by $307 compared to the third quarter of On a basic per common share basis, FFO decreased by $0.29 per common share. The increase in FFO mainly reflects lower interest expense partially offset by lower net operating income. During the first nine months of 2017, the FFO of the Company increased by $3,360 compared to the first nine months of On a basic per common share basis, FFO decreased by $0.30 per common share. The increase in FFO mainly reflects insurance proceeds relating to a property loss claim and lower interest expense, partially offset by lower net operating income. Dividends Dividends are established by the Directors. On January 29, 2016, the Company suspended the payment of dividend. The suspension of dividends will permit the Company to retain operating cash flow in order to improve working capital and reduce debt. 21

23 LIQUIDITY AND CAPITAL RESOURCES Liquidity and Working Capital Temple requires working capital for day-to-day operations and certain "on-going" funding obligations, including capital expenditures and regular mortgage loan principal payments. Prior to the suspension of payments of dividends, working capital was also directed to the payment of dividends. The primary sources of capital for Temple include cash from operating activities, debt and/or equity offerings and mortgage loan financing. Temple also has a revolving loan from Morguard. The long-term expectation of Temple is that annual cash flow from operating activities (which is determined after deducting interest payments on debt) will be sufficient to fund on-going capital expenditures and a portion of regular mortgage loan principal payments. A portion of regular mortgage loan principal payments is expected to be funded by the upward refinancing of mortgage loan debt, supplemented from working capital as necessary during certain quarters, depending on the timing of the upward refinancing. The timing of upward refinancing is typically staggered throughout the year. The repayment of convertible debenture debt may be funded from new share or debenture offerings or other sources. Capital expenditures related to major renovation or upgrade programs of newly acquired properties are expected to be funded primarily from funds raised from financing activities or working capital to the extent that working capital includes funds raised from financing activities in prior years. Working capital is a commonly used financial measurement of an entity's liquidity and is generally derived by deducting current liabilities from current assets, excluding short-term debt. Working capital is a non-ifrs measure and the method which is used by Temple for calculating working capital may differ from the method which is used by other issuers. Accordingly, working capital as calculated by Temple may not be comparable to working capital measurements which are provided by other issuers. September 30 December Unrestricted cash $ 18,220 $ 67,922 Working capital $ 12,066 $ 57,380 As of September 30, 2017, the unrestricted cash balance of Temple was $18,220 and the working capital was $12,066. The cash balance consists primarily of working capital reserves for hotel operations and cash designated for capital expenditures. Working capital consists of cash, marketable securities, trade and other receivables, deposits and prepaids, inventories, and the current portion of net investment in lease, less accounts payable and other liabilities. Mortgage principal payments and convertible debenture payments due within the twelve month period ending September 30, 2018, are not included in the calculation of working capital. Contractual Obligations A summary of the payments due in regard to the mortgage loan debt, operating leases and hotel purchase commitments, is provided in the following chart. Payments due are classified by maturity date and are not consistent with IFRS reporting requirements which require loans in breach of covenants to be disclosed as current obligations. Summary of Contractual Obligations Payments Due By Period (1) Total 1 year 2-3 years 4-5 years > 5 years Mortgage loan debt $ 372,976 $ 210,206 $ 96,467 $ 38,207 $ 28,096 Interest on mortgage loan debt 31,245 12,376 10,243 6,429 2,197 Convertible debt (2) 79,583 79, Interest on convertible debt 1,205 1, Revolving loan 12,500 12, Operating leases 11,297 2,421 1,562 1,039 6,275 Accounts payable and accrued liabilities 20,545 20, Total $ 529,351 $ 338,836 $ 108,272 $ 45,675 $ 36,568 (1) The year of maturity for mortgage loan debt in the above schedule reflects the term of contractual obligation and does not reflect the IFRS requirement to disclose loans with covenant breaches as current obligations. (2) Includes convertible debenture debt reflected at face value. 22

24 Mortgage Loan Debt The total amount of contractual mortgage loan debt due for the one year period ending September 30, 2018 of $210,206, is comprised of the following: Regular repayments of principal in the estimated amount of $8,383. Principal due of $148,787 in regard to mortgage loans which mature during the twelve month period ending September 30, 2018 on 12 hotel properties. It is expected that all 12 mortgage loans will be renewed on similar terms and conditions at maturity. Aggregate principal balance of $37,036 relating to three mortgage loans which are technically payable on demand but are expected to be amortized and repaid over 15 to 20 year terms. Principal due of $16,000 in regard to a second mortgage loan which matures in the first quarter of Debt Covenants 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. As at September 30, 2017, the Company was not in compliance with debt service covenants affecting six mortgage loans. 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. The status of the mortgage loans that are in breach of covenant requirements as of September 30, 2017 is provided below. Property Location Note Mortgage Balance September 30, 2017 Maturity Date Acclaim Hotel Calgary, AB (1) 23,868 November 2018 Days Inn Hotel & Suites Lloydminster, AB (1) 11,802 November 2017 Sheraton Red Deer Red Deer, AB (1) 30,038 May 2018 Vantage Inn & Suites Fort McMurray, AB (1) 7,938 December ,646 Merit Hotel & Suites Fort McMurray, AB (2) 13,399 Due on demand Clearwater Timberlea Fort McMurray, AB (2) 6,896 Due on demand 20,295 $ 93,941 (1) The mortgage loan is in breach of a debt service coverage ratio of 1.4 to 1.0. Discussion with the lender is ongoing. (2) The mortgage loan is in breach of a debt service coverage ratio of 1.2 to 1.0. Management is in discussion with the lender. Mortgage loans are secured by charges registered against specific hotel properties and an assignment of the net investment in a lease. Convertible Debentures The repayment of the outstanding balance of convertible debenture debt at maturity represents a funding requirement for Temple. The Series E debentures had a September 30, 2017 due date, but since September 30, 2017 fell on a weekend, the convertible debentures had a maturity date of October 2, 2017, the first business day after September 30, Effective October 2, 2017, the terms of the Series E debentures were amended, which included extending the maturity date to September 30, On October 2, 2017, Temple redeemed $2,258 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. 23

25 On January 3, 2017, Temple repaid the Series C convertible debentures in the amount of $22,773 on maturity. On June 30, 2017, Temple repaid the Series D convertible debentures in the amount of $34,282 on maturity. As of September 30, 2017, the convertible debenture debt of Temple consisted of two series of convertible debentures. The Series E and Series F debentures mature on September 30, 2017 and March 31, 2018, respectively. Capital Resources Existing Cash As of September 30, 2017, the unrestricted cash balance of Temple was $18,220 and the working capital was $12,066. Revolving Line of Credit with Morguard During 2016, Temple entered into a revolving loan agreement with Morguard for $6,000, secured by a first mortgage charge against Nomad Hotel, and bearing interest at prime plus 2.00%. The revolving loan agreement allows for a maximum of $6,000 to be borrowed. During and subsequent to the three months ended September 30, 2017, the maximum allowable amount to be borrowed under the revolving loan was temporarily increased to $13,500. As at September 30, 2017, the amount payable under the revolving loan was $12,500 (December 31, $nil). During the three and nine months ended September 30, 2017, interest expense relating to the revolving line of credit amounted to $123 ( $nil) and $126 ( $nil), respectively. Debt and/or Equity Offerings Temple may pursue additional offerings of debt and/or equity as a source of capital. Temple may also issue common shares or securities convertible or exchangeable into common shares to vendors as consideration for real property acquisitions. Summary As of September 30, 2017, Temple management believes that it has sufficient sources of capital to meet all current funding requirements in regard to capital expenditures and scheduled debt repayments. CAPITAL STRUCTURE Capital Structure September 30 December Mortgage loan debt - principal amount $ 372,976 $ 395,408 Convertible debentures - face value 79, ,638 Revolving line of credit 12,500 - Share capital (net of issue costs) 295, ,412 Total capitalization $ 760,471 $ 827,458 Shares: Authorized - unlimited Issued: September 30, ,269,913 November 9, ,269,913 24

26 Debt The carrying value of the total debt of Temple as disclosed in the financial statements is $463,513 as of September 30, 2017, compared to $529,016 as of December 31, The total debt includes mortgage loans, convertible debentures and any utilized amounts under the revolving line of credit. The carrying value of mortgage loan debt and convertible debenture debt is net of unamortized transaction costs. The carrying value of convertible debenture debt excludes the equity component. The allocation of the debt and equity component, for each convertible debenture issue, is provided in the notes to the financial statements. Mortgage Loans Overall Change in Mortgage Loan Debt As of September 30, 2017, the mortgage loan debt of Temple amounted to $372,976. All of the mortgage loan debt requires monthly payments of principal and interest, aside from the $16,000 of "interest-only" second mortgage loan debt and certain mortgage loans in process of being renegotiated and are on month-to-month interest only terms. In total, mortgage loan debt represents 80% of the total debt (at face value) as of September 30, The balance of mortgage loan debt, as of September 30, 2017, excluding unamortized transaction costs, decreased by $22,432, compared to the balance as of December 31, The decrease consists of lump sum principal payments on mortgage loans of $63,366 and regular monthly mortgage loan principal payments of $10,991, partially offset by proceeds from mortgage debt of $51,925 during the first nine months of Expenditures on transaction costs for mortgage loan debt amounted to $677 during the first nine months of Debt Maturities and Renewal/Refinancings For the twelve month period ending September 30, 2018, contractual mortgage debt comprised of 12 mortgage loans with a principal balance of $148,787 is scheduled to mature. The maturing loans are all expected to be renewed or refinanced. In addition, three of the mortgage loans, having a principal balance of $37,036, are technically payable on demand but are expected to be repaid over 15 to 20 year terms. Debt Summary As of September 30, 2017, the weighted average interest rate of the total mortgage loan debt is 4.85%, compared to 4.66% as of December 31, Mortgage Loan Debt of Equity Interest Hotels As of September 30, 2017, the mortgage loan debt of the two equity interest hotels is equal to $8,356 and has a weighted average interest rate of 4.02%. 25

27 Convertible Debentures The following chart summarizes the outstanding convertible debentures as of September 30, 2017 at the face value of the debt. Analysis of Debenture Conversions Share Issue Date - Maturity Date Series Interest Rate Amount Issued Conversions and NCIB Repurchases to Q Debentures Purchased under NCIB to Q Debentures Redeemed to Q Amount Outstanding Q (face value) (face value) (face value) (face value) (face value) Nov. 16/11 Jan. 3/17 (1) C 8.00% $ 23,000 $ (227) $ - $ (22,773) $ - Mar. 1/12 - June. 30/17 (2) D 7.75% 34,500 (218) - (34,282) - Aug. 8/12 - Sept. 30/17 (3) E 7.25% 46,000 (836) ,164 Feb. 12/13 - Mar. 31/18 (4) F 7.00% 38,000 (3,581) ,419 Face value $ 141,500 $ (4,862) $ - $ (57,055) $ 79,583 (1) The Series C convertible debentures were redeemed on January 3, 2017 on maturity. (2) The Series D convertible debentures were redeemed on June 30, 2017 on maturity. (3) The Series E convertible debentures are convertible into common shares at the option of the holder at anytime until the September 30, 2017 maturity at a price of $40.08 per common share. The Series E convertible debentures had a September 30, 2017, but since September 30, 2017 fell on a weekend, the convertible debentures had a maturity date of October 2, 2017, the first business day after September 30, On October 2, 2017, the terms of the Series E debentures were amended, which included extending the maturity date to September 30, (4) The Series F convertible debentures are convertible into common shares at the option of the holder at anytime until the March 31, 2018 maturity at a price of $39.12 per common share. On September 28, 2017, holders of the Series E convertible redeemable unsecured debentures approved the following proposed 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 without further notice or communication to holders of Series E debentures and to complete the Additional Partial Redemptions. On October 2, 2017, Temple redeemed $2,258 of the principal amount of the Series E debentures outstanding, which represents approximately 5% of the issued and outstanding Series E debentures. 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, 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. On March 15, 2017, Temple renewed its NCIB for the purchase of debentures up to the following amounts: Series E $4,404 aggregate principal amount; and Series F $3,382 aggregate principal amount. The normal course issuer bid represents 10% of the public float of each series of convertible debentures outstanding as at February 28, As of November 9, 2017, no debentures have been purchased under this bid. Share Capital The following is a summary of the share transactions to September 30, Description Common Shares Issued Equity Raised Balance, beginning and end of period 25,269,913 $ 295,412 Additional information regarding the Stock Option Plan, Deferred Share Plan and Dividend Reinvestment Plan ("DRIP") is disclosed in the Annual Information Form. The Annual Information Form is available on SEDAR at 26

28 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. As of November 9, 2017, no shares have been purchased under this bid. 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. HOTEL MANAGEMENT With the exception of Cortona Residence, Temple has retained Atlific to manage all of the hotels in its existing property portfolio. The management agreement for each hotel is for a five year term at a base property management fee of 2% of gross revenue or, in limited cases, 2.5% or 4% of gross revenue. In addition to the base property management fee, the management agreement for each hotel also provides for an incentive management fee. The incentive management fee is equal to 10% of the amount by which the net operating income of the hotel exceeds the budgeted net operating income commencing in the second year after acquisition of the hotels. Atlific received $2,522 in base property management fees during the first nine months of 2017, compared to $2,233 during the first nine months of RELATED PARTY TRANSACTIONS Morguard Corporation Transfer of Asset Management On December 23, 2015, Shelter and Morguard entered into an assignment agreement under which Shelter agreed to assign to Morguard the asset management agreement. The assignment was effective on April 1, 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 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 Shelter for the three and nine months ended September 30, 2017 of $nil ( $nil) and $nil (2016 $535), respectively. The Company incurred services fees to Morguard for the three and nine months ended September 30, 2017 of $691 (2016 $680) and $1,885 ( $1,309), respectively. Prior to April 1, 2016, Shelter was a related party of the Company by virtue of the asset management agreement with the Company Manitoba Ltd., the parent company to Shelter, was a related party of the Company as Manitoba Ltd. is owned by a family member of a former officer and Director of the Company. Property Management Temple has entered into a property management agreement with Shelter for the management of the Cortona Residence at a nominal annual fee of $0.1 for a term which expires April 30, 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 three and nine months ended September 30, 2017, a service fee of $nil ( $nil) and $nil ( $38 to Shelter), respectively, has been charged for such services. Effective April 1, 2016, Morguard assumed all asset management responsibilities and Shelter will no longer provide such services. 27

29 SUMMARY OF QUARTERLY RESULTS The summary of quarterly results provides an overview of the key trends and factors affecting variations in the quarterly results of Temple. Quarterly Analysis Q3 Q2 Q1 Q4 Total revenue $46,106 $43,389 $36,239 $39,235 Net operating income $15,190 $12,717 $7,399 $8,415 Provision for impairment ($235) - - ($61,276) Net income (loss) $3,355 $2,708 ($5,568) ($65,209) PER COMMON SHARE Net operating income - Basic * $0.60 $0.50 $0.29 $0.50 Net income (loss) - Basic $0.13 $0.11 ($0.22) ($4.58) Key performance indicators - Occupancy * 70% 65% 54% 55% - ADR * $ $ $ $ RevPar * $ $90.81 $72.26 $74.39 FFO * $0.32 $0.26 ($0.01) $ - Quarterly Analysis Q3 Q2 Q1 Q4 Total revenue $45,280 $41,955 $35,766 $39,945 Net operating income $16,052 $12,996 $7,085 $8,119 Recovery of (provision for) impairment - $303 ($43,877) ($13,893) Net income (loss) $1,390 ($980) ($68,378) ($15,459) PER COMMON SHARE Net operating income - Basic * $1.23 $1.00 $0.55 $0.73 Net income (loss) - Basic $0.11 ($0.08) ($5.26) ($1.39) Key performance indicators - Occupancy * 69% 61% 52% 55% - ADR * $ $ $ $ RevPar * $99.32 $86.33 $70.71 $76.60 FFO * $0.60 $0.36 ($0.10) ($0.01) * Non-IFRS measures 28

30 Revenue and Operating Income The sale of the Holiday Inn Express, Sherwood Park, Alberta, served to reduce revenue and operating income for periods during the third quarter of 2017, as the sale occurred September 15, During the second quarter of 2016, a mandatory evacuation due to wildfires along with the subsequent repair and remediation of properties, served to reduce revenue and operating income of Fort McMurray properties. The quarterly operating results are affected by seasonal fluctuations in demand for the hotel rooms and will vary by hotel based on geographical location. Net Income (Loss) After accounting for operating income, the main factors which affect quarterly net income or loss are variances in interest expense, depreciation and amortization, general and administrative expenses, and other expense (income). Interest expense on upward refinanced mortgage loans, fluctuations in the balance of the revolving loan and the line of credit, as well as interest expense related to convertible debenture debt are the main variables affecting interest expense. The repayment or paydown of mortgage loan debt and convertible debentures, as a result of refinancing or the sale of property, has contributed to quarterly variances in interest expense, particularly when prepayment penalties are incurred. The most significant transactions related to lump-sum mortgage paydowns or upward refinancings occurred during the first and third quarter of During the first quarter of 2017, two mortgages were repaid, resulting in the lump sum principal payments of $10,713 on first mortgage loans, and the Series C convertible debentures amounting to $22,773 were repaid upon maturity. During the third quarter of 2017, the Holiday Inn Express, Sherwood Park, Alberta, was sold, resulting in the repayment of the $9,102 first mortgage loan, and the refinancing of a five-loan mortgage portfolio which included the pay down of the maturing, aggregate balance by $7,500. Depreciation and amortization charges are mainly affected by acquisitions and dispositions as well as provisions for impairment. Quarterly variances in depreciation and amortization are also affected by major refurbishment programs that can affect the "useful life" estimates used in the calculation of depreciation charges for furniture and equipment. The provisions for impairment which were recognized in the first, second and fourth quarters of 2016 and in the fourth quarter of 2015 had a significant non-recurring impact on quarterly results. During the second quarter of 2017, other expense (income) includes insurance proceeds of $2,085 relating to a property loss claim. Per Common Share Results The quarterly variance in per common share results reflects the quarterly variance in income as well as changes in the amount of shares issued and outstanding. The number of shares issued and outstanding has increased over the past eight quarters due to common share offerings, the dividend reinvestment program, the conversion of convertible debentures into common shares and rights offering. Overall, the weighted average number of common shares has increased by 95% from October 1, 2016 to September 30,

31 OPERATING RISKS AND UNCERTAINTIES There are certain risks inherent in an investment in the common shares and activities of Temple that investors should carefully consider before investing in securities of Temple. Risks and uncertainties are disclosed in Temple s MD&A for the year ended December 31, 2016, and the Operating Risks and Uncertainties section of the Company s latest Annual Information Form, dated February 22, CRITICAL ACCOUNTING ESTIMATES The application of the significant accounting policies for purposes of preparing the condensed consolidated financial statements, in accordance with IFRS, requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The estimates are based on historical experience and on other assumptions that are believed to be reasonable under the circumstances. Under different assumptions or conditions, the actual results may differ, potentially materially, from the estimated amounts. Many of the conditions impacting the assumptions and estimates are beyond the control of management. The estimates and assumptions are evaluated on a periodic basis. Temple s condensed consolidated financial statements for the three and nine months ended September 30, 2017 and 2016 have been prepared in accordance with IAS 34, Interim Financial Reporting as issued by the IASB. The condensed consolidated financial statements use the same accounting policies and methods of their application as the most recent annual audited consolidated financial statements and should be read in conjunction with the most recent annual audited consolidated financial statements. Management determined that as at September 30, 2017, there is no change to the assessment of the significant accounting policies most affected by estimates and judgments as detailed in the MD&A for the year ended December 31, FINANCIAL INSTRUMENTS The financial instruments of Temple consist of basic financial instruments which are typically used in the operation and ownership of hotel properties and in the operation of a real estate investment company, including cash, marketable securities, trade and other receivables, deposits, mortgage receivables, accounts payable and other liabilities, mortgage loans and other debt secured by the revenues or assets of hotel properties. For the current assets and liabilities, the main risk is the credit risk associated with accounts receivable. The credit risk is reduced due to a diversified customer base. The risks associated with mortgage loans and other debt are discussed in the preceding sections of this report. CHANGES TO SIGNIFICANT ACCOUNTING POLICIES The Financial Statements are based on IFRS standards issued and effective as at November 9, Future Changes in Accounting Policies The future accounting policy changes are discussed in Temple s audited consolidated financial statements for the year ended December 31, 2016, and the notes contained therein. INTERNAL CONTROLS AND PROCEDURES Transfer of Asset Management Effective April 1, 2016, Morguard provides asset management services to the Company, pursuant to the asset management agreement. Morguard has a highly qualified management team with years of experience in real estate investment and development activities and in the asset management and property management industry. The Chairman and Chief Executive Officer of Morguard, Mr. K. Rai Sahi, serves as Chief Executive Officer of the Company. Mr. Paul Miatello, the Chief Financial Officer of Morguard, serves as the Chief Financial Officer of the Company. Disclosure Controls and Procedures Disclosure controls and procedures ("DC&P") are designed to provide reasonable assurance that information required to be disclosed by the Company is recorded, processed, summarized and reported within the time periods specified under Canadian securities law, and include controls and procedures designed to ensure that information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as to allow timely decisions regarding required disclosure. 30

32 In accordance with National Instrument Certification of Disclosure in Issuers' Annual and Interim Filings, the CEO and CFO of Temple have evaluated, or caused to be evaluated under their supervision, the effectiveness of DC&P as at September 30, Based on the evaluation performed, the CEO and CFO have concluded that the DC&P of Temple are appropriately designed and were operating effectively. Internal Control over Financial Reporting Temple's internal control over financial reporting ("ICFR") is designed provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Readers are cautioned, however, that a control system can only provide reasonable, not absolute, assurance that the objectives of the control system are achieved. Due to the inherent limitations in all control systems, an evaluation of controls cannot provide absolute assurance that all control issues, including instances of fraud, if any, have been detected. Inherent limitations include the possibility that the assumptions and judgments of management could ultimately prove to be incorrect under varying conditions and circumstances, or that isolated errors could prove to have a significant impact on the reliability of information. In addition, controls may be circumvented by the unauthorized acts of individuals, by collusion of two or more people, or by management override. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and it is not possible to provide complete assurance that a control system will succeed in achieving its stated goals under all potential future conditions. In accordance with National Instrument Certification of Disclosure in Issuers' Annual and Interim Filings, the CEO and CFO of Temple have evaluated, or caused to be evaluated under their supervision, the effectiveness of ICFR as at September 30, Based on the evaluation performed, the CEO and CFO have concluded that the ICFR of Temple are appropriately designed and were operating effectively. The evaluation was performed in accordance with the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control Integrated Framework (2013). During the third quarter of 2017, Morguard completed the conversion to a new enterprise resource planning (ERP) system, and financial reporting application. The ERP and financial reporting system conversion has not resulted in any significant changes in internal controls during the three months ended September 30, Management employed appropriate procedures to ensure internal controls over financial reporting were in place during and after the conversion. ADDITIONAL INFORMATION Additional information relating to Temple is available on the SEDAR website at SEDAR acts as a facilitator for the electronic filing of securities information, as required by the securities regulatory authorities in Canada. APPROVAL BY DIRECTORS The content of the 2017 Third Quarter Report of Temple and the delivery of the report to the shareholders have been approved by the Directors. TEMPLE HOTELS INC. November 9,

33 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (UNAUDITED)