2017 ANNUAL REPORT DECEMBER 31, 2017

Transcription

1 2017 ANNUAL REPORT DECEMBER 31, 2017

2 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 TABLE OF CONTENTS Management's Discussion and Analysis Financial Summary 4 Overview of Operations and Investment Strategy 8 Property Portfolio 10 Analysis of Operating Results 12 Analysis of Cash Flows 21 Liquidity and Capital Resources 22 Capital Structure 25 Hotel Management 28 Related Party Transactions 28 Summary of Quarterly Results 29 Operating Risks and Uncertainties 32 Critical Accounting Estimates 36 Financial Instruments 36 Changes to Significant Accounting Policies 36 Internal Controls and Procedures 37 Additional Information 38 Approval by Directors 38 Management s Responsibility 39 Financial Statements 40 Shareholder Information 82

3 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 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 December 31, 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 audited consolidated financial statements of Temple Hotels Inc. for the year ended December 31, This MD&A is based on financial information prepared in accordance with International Financial Reporting Standards ("IFRS") and is dated February 21, 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 April 30,

4 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 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 that were 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 consolidated financial statements as of December 31, 2017 will be referred to as the "Financial Statements"; the consolidated balance sheets as of December 31, 2017 will be referred to as the "Balance Sheet"; the consolidated statement of net loss and comprehensive loss for the year ended December 31, 2017 will be referred to as the "Income Statement"; and the consolidated statement of cash flows for the year ended December 31, 2017 will be referred to as the "Statement of Cash Flows". 3

5 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 FINANCIAL SUMMARY December 31 December 31 December BALANCE SHEET Total assets $482,204 $577,428 $674,763 Total debt $455,851 $529,016 $541,828 Weighted average interest rate of total debt including line of credit and revolving loan debt * 5.62% 5.37% 5.38% Weighted average interest of mortgage loan debt * 5.33% 4.66% 4.71% Weighted average term to maturity of mortgage loan debt (years) * Year Ended December KEY PERFORMANCE INDICATORS Operations: Occupancy * 62% 59% 62% ADR * $ $ $ RevPar * $85.70 $82.71 $88.40 Operating profit margin * 26% 27% 27% Operating results: Total revenue $165,612 $162,236 $177,753 Hotel operating income ** $42,885 $44,548 $48,451 Provision for impairment ($18,607) ($104,850) ($64,750) Net loss ($23,033) ($133,177) ($55,456) Cash flows: Cash flow provided by operating activities $11,873 $17,382 $16,085 Cash flow provided by operating activities, excluding working capital adjustments * $14,882 $13,365 $12,949 Funds from operations * $14,051 $11,640 $10,881 PER COMMON SHARE AMOUNTS Basic Basic Basic Net loss ($0.91) ($9.81) ($6.99) Cash provided by operating activities * $0.47 $1.28 $2.03 Cash flow provided by operating activities, excluding working capital adjustments * $0.59 $0.98 $1.63 Funds from operations * $0.55 $0.86 $1.37 Weighted average number of common shares 25,348,718 13,573,459 7,933,098 DIVIDENDS Amount - total $ - $ - $7,094 - per common share $ - $ - $0.89 * 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 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, Key Points Revenue increased by $3,376 or 2% during the year ended December 31, 2017 compared to 2016, primarily due to an increase in revenue within the Other Canada and Fort McMurray portfolios of $3,787 and $919, respectively, partially offset by decreases in revenue within the Sold Property and Other Alberta portfolios of $673 and $657, respectively. Hotel operating income decreased by $1,663 or 4% during the year ended December 31, 2017 compared to 2016, primarily due to a decrease in hotel operating income within the Fort McMurray, Other Alberta and Sold Property portfolios of $1,712, $796 and $124, respectively, offset by an increase in hotel operating income within the Other Canada portfolio of $969. FFO increased by $2,411 during the year ended December 31, 2017, compared On a basic per common share basis, FFO decreased by $0.31 per common share, compared to 2016, primarily as a result of an increase in the weighted number of common shares outstanding. On September 15, 2017, Temple completed the sale of Holiday Inn Express, Sherwood Park, Alberta, for gross proceeds of $9,690 and net proceeds of approximately $278, after repayment of the first mortgage loan and sale costs. On October 2, 2017, the Series E convertible debentures were extended from its maturity date of September 30, 2017 to September 30, In addition, as part of the extension, Temple redeemed $2,259 of the principal amount of the Series E debentures outstanding, and the conversion price decreased from $40.08 to $9.75 per common share of Temple. On January 3, 2017, the Company repaid the 8.00% Series C convertible debentures in the amount of $22,773. On June 30, 2017, the Company repaid the 7.75% Series D convertible debentures in the amount of $34,282. On June 22, 2017, the Company s common shares were consolidated on the basis of one (1) post-consolidation common share for six (6) pre-consolidation common shares (the "Share Consolidation"). The number of common shares and deferred common shares, the conversion price and the number of common shares issuable upon conversion of the outstanding convertible debentures, the exercise price and the number of common shares issuable upon exercise of the outstanding options of the Company, and per common share amounts, were also proportionally adjusted to reflect the Share Consolidation for all periods presented in this MD&A. Operating Activities Net Loss - Temple completed 2017 with a net loss of $23,033 or $0.91 per common share, compared to a net loss of $133,177 or $9.81 per common share during The decrease in net loss is mainly due to a decrease in provision for impairment of $86,243, an increase in deferred income tax recovery of $15,057, a decrease in depreciation of $6,453 and a decrease in interest expense of $3,512, partially offset by a decrease in hotel operating income of $1,663. Occupancy and ADR The increase in revenue primarily reflects the higher occupancy and ADR levels within the Other Canada segment. During 2017, the ADR and occupancy levels of the Other Canada segment increased by $4.10 and 1%, respectively to $ and 71%, in comparison to Improved occupancy levels in the Fort McMurray portfolio by 9% to 48%, in comparison to 2016, also contributed to the increase in revenue. The increase in revenue was partially offset by lower ADR within the Other Alberta segment and the Fort McMurray portfolio in 2017 compared to 2016, as a result of the unfavourable market conditions continuing to affect oil-dependent markets in Alberta. Cash Provided by Operating Activities Cash provided by operating activities decreased by $5,509 in 2017, compared to After excluding working capital adjustments, cash provided by operating activities increased by $1,517, compared to Funds from Operations ("FFO") During 2017, FFO increased by $2,411, compared to The increase in FFO mainly reflects a decrease in interest expense as well as higher other income, partially offset by a decrease in hotel operating income due to the factors noted above. On a basic per common share basis, FFO decreased by $0.31 per common share compared to Asset Impairment During 2017, a non-cash provision for impairment of $17,485 (net of a recovery of $1,956) was recorded to reflect the impact of the economic condition on the carrying value primarily at three of Temple s hotel properties and a recovery of impairment at one hotel. 5

7 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 Liquidity and Financing Activities As of December 31, 2017, the unrestricted cash balance of Temple was $11,370 and working capital was $3,775. On January 3, 2017, the Company fully repaid upon maturity the 8.00% Series C convertible debentures in the amount of $22,773. On June 30, 2017, the Company fully repaid upon maturity the 7.75% Series D convertible debentures in the amount of $34,282. On October 2, 2017, the Series E convertible debentures were extended from its maturity date of September 30, 2017 to September 30, In addition, as part of the extension, 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, and the conversion price decreased from $40.08 to $9.75 per common share of Temple. During January 2017, the Company repaid two mortgage loans at two properties in the amount of $10,713. During June 2017, the Company completed the financing of two properties in the amount of $15,588. The loan bears interest at either prime plus 2.50% or bankers acceptance plus 3.50% for a term of two years. During June 2017, the Company extended a mortgage portfolio comprising three loans at their maturing amount of $37,549, at prime plus 4.00% for a term of one year. During June 2017, the Company refinanced a hotel property located in Sudbury, Ontario, at its maturing amount of $8,438, at an interest rate of 4.69% for a term of seven years. 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. During November 2017, the Company refinanced a hotel property located in Saskatoon, Saskatchewan, at its maturing amount of $22,668, at an interest rate of 6.99% for a term of one year. During December 2017, the Company refinanced a hotel property located in Mississauga, Ontario, at its maturing amount of $11,656, at an interest rate of prime plus 1.25%, maturing in June In addition, the Company entered into a credit facility with the incumbent lender for $2,500, secured by the hotel property, which, as at December 31, 2017, has not been drawn upon. During December 2017, the Company refinanced a hotel property located in Regina, Saskatchewan, at its maturing amount of $9,554, at an interest rate of 4.72% for a term of three years. On September 15, 2017, Temple completed the sale of Holiday Inn Express, Sherwood Park, Alberta, for gross proceeds of $9,690 and net proceeds of approximately $278, after repayment of the first mortgage loan and sale costs. 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 $5,426 during 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. 6

8 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 Board Governance and Management Effective April 1, 2016, asset management responsibilities previously undertaken by Shelter Canadian Properties Limited ("Shelter") was assumed by 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 $21.2 billion. Debt Covenants At December 31, 2017, the Company was not in compliance with debt service covenants affecting seven mortgage loans in the aggregate amount of $109,339. The loan covenant breaches are expected to be resolved by debt refinancings, loan modification agreements and/or a waiver of the covenant requirements. 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. At 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 scheduled to mature in June 2018, with an aggregate principal balance of $37,106. The Company has received a waiver from the lender subsequent to December 31, Risks and Uncertainties Details of the key risks of Temple are provided in the section of this MD&A titled "Operating Risks and Uncertainties". 7

9 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 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 the 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 December 31, 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 interests in limited partnerships which own 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. 8

10 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 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 December 31, 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 December 31, 2017, Morguard owns 14,136,012 common shares and has convertible debentures that are convertible to 124,772 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". 9

11 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 PROPERTY PORTFOLIO Property Portfolio December 31, 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 December 31, 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) and one investment property (Cortona Residence). The Company intends to convert the Cortona Residence to a hotel 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. Change in Hotel Portfolio vs 2016 On September 15, 2017, Temple sold one hotel property, Holiday Inn Express, Sherwood Park, Alberta, which was acquired in June Available Guest Rooms As of December 31, 2017, the hotel portfolio encompassed a total of 3,785 guest rooms, compared to 3,875 guest rooms as of December 31, 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. 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 December 31, 2017 Property Location Acquisition Date Rooms/Suites Ontario Courtyard Marriott Ottawa December Residence Inn Marriott London January Subtotal

12 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 The property portfolio of Temple consisted of an average of 3,848 available rooms during 2017, compared to an average of 3,873 available rooms during Property Portfolio December 31, 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 & Suites Fort McMurray April Franklin Suites Fort McMurray April Nomad Hotel Fort McMurray April Nomad Suites Fort McMurray April Vantage Inn and Suites Fort McMurray February Radisson Hotel & Suites Fort McMurray February Clearwater Timberlea Fort McMurray May Cortona Residence (1) Fort McMurray April Other Days Hotel and Suites Lloydminster June Sheraton Red Deer Hotel Red Deer December Hilton Garden Inn Edmonton August Acclaim Hotel Calgary Airport Calgary November Northwest Territories Days Inn and Suites (2) Yellowknife March Stanton Suites Hotel (2) Yellowknife December Saskatchewan Temple Gardens Mineral Spa Resort Hotel (3) Moose Jaw October Wingate by Wyndham Regina Regina December Saskatoon Inn & Conference Centre Saskatoon November Manitoba Holiday Inn Winnipeg South Winnipeg January Ontario Holiday Inn Express Ottawa October Days Inn North Thunder Bay July Days Inn & Suites Thunder Bay July Hilton Garden Inn Toronto Airport West Mississauga August Towne Place Suites by Marriott Sudbury August Nova Scotia The Prince George Hotel Halifax March Cambridge Suites Hotel Halifax Halifax March Cambridge Suites Hotel Sydney (4) Sydney March Total 3,785 (1) Cortona Residence is an investment property under lease until April 30, (2) Temple Yellowknife Limited Partnership, a 100% owned operating subsidiary owns and operates the Days Inn and Suites and Stanton Suites Hotel. (3) The Temple Gardens Mineral Spa Resort Hotel 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. (4) Canada Ltd., a 100% owned operating subsidiary of Temple, owns and operates the Cambridge Suites Sydney. 11

13 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 ANALYSIS OF OPERATING RESULTS Analysis of Net Loss and Comprehensive Loss* Year Ended December Increase/ (Decrease) in Income Revenue Room revenue $120,831 $117,692 $3,139 Other hotel revenue 44,781 44, Total revenue 165, ,236 3,376 Hotel operating costs 122, ,688 (5,039) Hotel operating income 42,885 44,548 (1,663) Interest expense 28,609 32,121 3,512 Other expense (income) (1,236) (914) 322 Share based compensation General and administrative expenses 3,277 3,235 (42) Depreciation and amortization 17,745 24,233 6,488 (5,643) (14,438) 8,795 Equity income on investment in hotel properties 1,170 1, Provision for impairment (18,607) (104,850) 86,243 Change in fair value of financial instruments: gain - 90 (90) Deferred income tax recovery (expense) 47 (15,010) 15,057 Net loss and comprehensive loss ($23,033) ($133,177) $110,144 Per Common Share Results: Basic and diluted ($0.91) ($9.81) * The analysis of net loss and comprehensive loss represents the reformatting of balances from the consolidated statements of net loss and comprehensive 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 loss before income taxes". Per Common Share Results For 2017, net loss was $0.91 per common share, compared to a net loss per common share of $9.81 in Overall Results Temple completed 2017 with a net loss before equity income, provision for impairment, change in fair value of financial instruments and deferred income taxes of $5,643, compared to a net loss before equity income, provision for impairment, change in fair value of financial instruments and deferred income taxes of $14,438 in 2016, representing a decrease in loss of $8,795. As explained in greater detail in the following sections of this report, the decrease in net loss before equity income, provision for impairment, change in fair value of financial instruments and deferred income taxes mainly reflects a decrease in depreciation and amortization of $6,488 and a decrease in interest expense of $3,512 partially offset by a decrease in net operating income of $1,663. After providing for equity income, provision for impairment, change in fair value of financial instruments and deferred income taxes, Temple completed 2017 with a net loss of $23,033, compared to a net loss of $133,177 during 2016, representing a decrease in net loss of $110,

14 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 Revenue Total Revenue Analysis of Total Revenues Year Ended December Increase/ Amount % of Total Amount % of Total (Decrease) Revenue Room revenue $ 120,831 73% $ 117,692 73% $ 3,139 Other hotel revenue 44,781 27% 44,544 27% 237 Total $ 165, % $ 162, % $ 3,376 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 $3,376 or 2% during the year ended December 31, 2017, compared to the year ended December 31, 2016, comprised of a $3,139 increase in room revenue and a $237 increase in other hotel revenue. During the years ended December 31, 2017 and 2016, room revenue and other hotel revenue accounted for 73% and 27% of total revenue, respectively. 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. Hotel Revenue Analysis of Total Hotel Revenues Year Ended December 31 Increase/ (Decrease) Same Property Fort McMurray Room revenue $ 22,326 $ 20,610 $ 1,716 Other hotel revenue 1,342 2,139 (797) $ 23,668 $ 22,749 $ 919 Other Alberta Room revenue $ 17,058 $ 17,749 $ (691) Other hotel revenue 18,150 18, $ 35,208 $ 35,865 $ (657) Other Canada Room revenue $ 79,619 $ 76,841 $ 2,778 Other hotel revenue 25,260 24,251 1,009 $ 104,879 $ 101,092 $ 3,787 Total - Same Property Room revenue $ 119,003 $ 115,200 $ 3,803 Other hotel revenue 44,752 44, Total hotel revenue $ 163,755 $ 159,706 $ 4,049 Total - Sold Property Room revenue $ 1,828 $ 2,492 $ (664) Other hotel revenue (9) Total hotel revenue $ 1,857 $ 2,530 $ (673) Total Room revenue $ 120,831 $ 117,692 $ 3,139 Other hotel revenue 44,781 44, Total hotel revenue $ 165,612 $ 162,236 $ 3,376 13

15 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 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 room revenue results for the "Sold Property" portfolio are affected by the timing of dispositions. Comparative Results During 2017, Same Property room revenue increased by $3,803 or 3%, compared to The increase is comprised of a $2,778 (4%) increase in the Other Canada portfolio and a $1,716 (8%) increase in the Fort McMurray portfolio, offset by a $691 (4%) decrease in the Other Alberta portfolio. The increase in Same Property room revenue during 2017, compared to 2016, is largely due to an increase in occupancy and RevPar for the Other Canada segment and an increase in occupancy and RevPar for the Fort McMurray segment, as 2016 was negatively impacted by wildfires and mandatory evacuation, which led to a period of hotel closures due to the repair and remediation of properties in Fort McMurray, offset by unfavourable market conditions affecting oil-dependent markets in the Other Alberta segment. Room Revenue Statistics As disclosed in the following chart, for the year ended December 31, 2017, RevPar for the Same Property portfolio was $85.81, compared to $82.93 for the year ended December 31, RevPar for Same Property portfolio results generally reflect increased occupancy levels across all regions as well as an increase in ADR within the Other Canada segment, partially offset by reduced ADR levels in the Fort McMurray and Other Alberta segments. Room Revenue Statistics Year Ended December Occ ADR RevPar Occ ADR RevPar Same Property Fort McMurray 48% $ $ % $ $ Other Alberta 52% $ $ % $ $ Other Canada 71% $ $ % $ $ Total Same Property 62% $ $ % $ $ Sold Property 60% $ $ % $ $ Overall Portfolio 62% $ $ % $ $ 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, banquet and conference facilities, generate a higher amount of other hotel revenue in comparison to the other hotels. At December 31, 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 2017, the five hotels contributed $32,835 to other hotel revenue, representing 73% of total other hotel revenue. All of the other hotel properties contribute to other hotel revenue to some extent. 14

16 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 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. In 2017, other hotel revenue in the Same Property portfolio increased by $246 or 1%, compared to 2016, mainly comprised of an increase of $1,009 from the Other Canada portfolio, partially offset by a decrease of $797 from the Fort McMurray portfolio. Notwithstanding the above, the Sheraton Red Deer was the most significant contributor to other hotel revenue in the Same Property portfolio during 2017, accounting for $13,949 or 31% of other hotel revenue. 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 Year Ended December 31 Increase/ (Decrease) Same Property Fort McMurray Operating expenses (1) $ 14,039 $ 11,190 $ 2,849 Property taxes and insurance 1,331 1,549 (218) $ 15,370 $ 12,739 $ 2,631 Other Alberta Operating expenses (1) $ 28,405 $ 28,323 $ 82 Property taxes and insurance 1,817 1, $ 30,222 $ 30,083 $ 139 Other Canada Operating expenses (1) $ 68,723 $ 66,413 $ 2,310 Property taxes and insurance 7,038 6, $ 75,761 $ 72,943 $ 2,818 Total - Same Property Operating expenses (1) $ 111,167 $ 105,926 $ 5,241 Property taxes and insurance 10,186 9, $ 121,353 $ 115,765 $ 5,588 Total - Sold Property Operating expenses (1) $ 1,254 $ 1,738 $ (484) Property taxes and insurance (65) $ 1,374 $ 1,923 $ (549) Total Operating expenses (1) $ 112,421 $ 107,664 $ 4,757 Property taxes and insurance 10,306 10, Total hotel operating costs $ 122,727 $ 117,688 $ 5,039 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. 15

17 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 During 2017, hotel operating costs for the Same Property portfolio increased by $5,588, compared to 2016, mainly comprised of a $2,631 (21%) increase at Fort McMurray and a $2,818 (4%) increase in hotel operating costs at the Other Canada properties. The increase at the Fort McMurray and Other Canada portfolios reflects increases in variable costs due to increased occupancy. In addition, the fire and disruption of hotel operations in 2016 reduced variable operating expenses during that year. Operating Income and Profit Margin Operating Income and Profit Margin Year Ended December 31 Operating Income Operating Profit Margin Same Property Fort McMurray $ 8,298 $ 10,010 35% 44% Other Alberta 4,986 5,782 14% 16% Other Canada 29,118 28,149 28% 28% Total - Same Property $ 42,402 $ 43,941 26% 28% Sold Property % 24% Total portfolio $ 42,885 $ 44,548 26% 27% After accounting for the increase in total revenues and the increase in hotel operating costs, total operating income decreased by $1,663 or 4% in 2017, compared to 2016, comprised of decrease of $1,539 or 4% for the Same Property portfolio and a decrease of $124 due to the Sold Property. The decrease in Same Property operating income reflects a $1,712, or 17%, decrease in operating income for the Fort McMurray segment and a $796, or 14%, decrease in operating income for the Other Alberta segment, offset by a $969, or 3%, increase in operating income for the Other Canada segment. As disclosed in the preceding chart, the overall profit margin of the entire hotel portfolio decreased 1% from 27% to 26% for 2017 as compared to 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 2017, interest expense in regard to mortgage loan debt accounted for 67% ( %) of total interest expense, and interest expense in regard to debenture debt accounted for 32% ( %). The change in percentages mainly reflects a decrease in the amount of interest expense related to the debentures, due to the repayment of the Series C and D convertible debentures, lower mortgage interest resulting from lump sum repayments and the sale of Holiday Inn Express, Sherwood Park, Alberta on September 15, 2017, as well as a decrease in amortization of transaction costs relating to mortgage loans. The decrease was partially offset by higher revolving loan interest. 16

18 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 Analysis of Interest Expense Year Ended December 31 Increase (Decrease) Mortgage loans Interest on mortgage loans $18,494 $18,705 ($211) Amortization of transaction costs (419) Subtotal - mortgage loans 19,059 19,689 (630) Line of Credit, Revolving Loan and Other Interest Amortization of transaction costs (37) Subtotal - line of credit, revolving loan and other Debentures Interest on convertible debentures 6,975 10,142 (3,167) Accretion 1,811 2,061 (250) Amortization of transaction costs Gain on debenture repurchases - (226) 226 Subtotal - debentures 9,194 12,334 (3,140) Interest expense $28,609 $32,121 ($3,512) Comparative Results for Interest Expense As disclosed in the preceding chart, total interest expense decreased by $3,512 or 11% during 2017, compared to The decrease is comprised of a decrease of $3,140 related to debentures interest and a decrease of $630 related to mortgage loan interest, offset by an increase of $258 related to line of credit/revolving loan interest. The change in interest expense mainly reflects a decrease in the amount of interest expense related to the debentures, due to the repayment of the Series C and D convertible debentures, lower mortgage interest resulting from lump sum repayments and the sale of Holiday Inn Express, Sherwood Park, Alberta on September 15, 2017, as well as a decrease in amortization of transaction costs relating to mortgage loans. The decrease was partially offset by higher revolving loan interest. The weighted average interest rate of mortgage loan debt increased from 4.66% at December 31, 2016 to 5.33% at December 31, The weighted average interest rate of the debenture debt decreased from 7.44% at December 31, 2016 to 7.14% at December 31, 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. In 2017, total amortization charges in regard to transaction costs amounted to $995 compared to $1,400 in 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. In 2017, interest expense includes "accretion" charges of $1,811, compared to $2,061 in

19 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 Other Expense (Income) Analysis of Other Expense (Income) Year Ended December 31 Increase (Decrease) Interest revenue ($130) ($84) ($46) Finance lease interest revenue (250) (265) 15 Insurance proceeds, net - property damage and business interruption (1,388) (565) (823) Other expenses Total - other expense (income) ($1,236) ($914) ($322) During 2017, other expense (income) increased by $322, compared to The increase is mainly attributable to an increase of $823 in insurance proceeds, net primarily relating to a property loss claim received in 2017, partially offset by an increase of other expenses of $532. General and Administrative Expense Analysis of General and Administrative Expense Year Ended December 31 Increase/ (Decrease) Professional and legal fees $443 $461 ($18) TSX and other reporting/filing fees Other administrative costs (34) Asset management fees 2,484 2, Total - general and administrative expense $3,277 $3,235 $42 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). In 2017, general and administrative expenses increased by $42 compared to The increase is mainly attributable to the increase in TSX and other reporting/filing fees and an increase in asset management fees resulting from higher gross revenues, partially offset by lower other administrative costs and lower professional and legal expenses. 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 2017 amounted to $241, compared to $282 for Of this amount, $108 ( $53) is included in general and administrative expense and $133 ( $229) 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 2017, 31,265 deferred shares were issued to Directors under the Deferred Share Plan, at a weighted average market value of $4.26 per common share, representing a total value of $133 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 costs". 18

20 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 Stock Options Stock options granted under the Stock Option Plan of Temple are also treated as equity. In 2017 and 2016, there were no stock options granted. During the year ended December 31, 2016, pursuant to the terms of the common share option plan, as a result of the assignment of the Company s asset management agreement from Shelter to Morguard, all outstanding options held by Directors, senior officers and employees of the Company, any subsidiary, and management company, in connection with the asset management agreement with Shelter and Temple, were cancelled. 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 In 2017, depreciation charges on property and equipment, as well as investment property, decreased by $6,453 compared to The decrease in depreciation charges reflects a lower carrying value resulting from impairment provisions on property and equipment and investment property, as well as due to the sale of Holiday Inn Express, Sherwood Park, Alberta, on September 15, Equity Income As previously discussed, Temple owns a 50% interest in limited partnerships that own the Courtyard Marriott, Ottawa, Ontario, and the Residence Inn Marriott, London, Ontario. The income statement reflects the income from these properties under the caption "Equity income on investment in hotel properties". Equity income increased by $139 from $1,031 in 2016 to $1,170 in 2017, as a result of an increase in hotel operating income of 1% and 8% at the Residence Inn Marriott and Courtyard Marriott, respectively. The increase in operating income at the Courtyard Marriott was due to an increase in RevPar of $1.28, higher food and beverage revenue and a decrease in operating costs compared to Overall profit margin at the Residence Inn Marriott and Courtyard Marriott increased by 1% from 29% to 30% for 2017 as compared to Provision for Impairment In accordance with IFRS, management assesses all hotel and investment properties at the end of each reporting period to determine if there is any indication that an asset may be impaired. In 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. At December 31, 2017, the following indicators of impairment were noted: The Hilton Garden Inn, Edmonton, 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 Saskatoon Inn based on updated market projections and the impact of capital requirements expected over the next couple of years. Impairment of the Cortona Residence reflects the intended change in the use of the asset at the expiry of its long term lease in April In addition, a recovery was recorded at the Stanton Suites Hotel based on updated market projections due to an increase in occupancy and the average daily room rate at the hotel which is not expected to reverse in the foreseeable future. 19

21 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 As a result, IFRS requires the completion of a recoverability analysis on the assets in order to determine if an impairment provision should be recorded. For the purpose of the recoverability analysis, IFRS provides that the recoverable amount of an asset is the higher of its fair value less cost of disposal and its value in use and that it is not necessary to determine both as asset's fair value less costs of disposal and its value in use. If either of these amounts exceeds the asset's carrying amount, the asset is not impaired. The recoverability analysis included all hotel properties. While some properties had fair values that exceeded carrying amounts, IFRS does not permit the write up of hotel properties in excess of its net book value. The following schedule reflects the results of the recoverability analysis for properties for which a provision for impairment was recognized for the year ended December 31, For the year ended December 31, 2017 Hotel property Location Net book value Recoverable value Provision for (Recovery of) impairment Cumulative provision for impairment Hilton Garden Inn Edmonton $ 21,279 $ 19,300 $ 1,979 $ 6,877 Stanton Suites Hotel Yellowknife 17,483 19,439 (1,956) 125 Saskatoon Inn Saskatoon 39,762 22,300 17,462 20,160 Investment property Cortona Residence Fort McMurray $ 10,737 $ 9,850 $ 887 $ 13,051 As a result of the above process, a provision for impairment in the amount of $18,372 (net of a recovery of $1,956) along with an impairment of $235 recorded on the disposition of Holiday Inn Express, Sherwood Park, Alberta, totaling $18,607 was recorded during In 2016, the Company recorded a provision for impairment of $104,850 (net of a recovery of $8,462) as an assessment concluded certain hotel properties had indicators of impairment. The recoverable value of the hotel properties was determined based on the same valuation techniques that are used by independent valuation professionals and the discounted cash flow method was used to determine value in use. External appraisals and market reports serve to substantiate and guide the internal valuation process of Temple, particularly with respect to key assumptions, including normalized net operating income, inflation rates and discount rates. Recoverable value estimates are sensitive to changes in forecasted net operating income and temporary fluctuations have the potential to skew recoverable value estimates. As a result, actual operating results are normalized to reflect stabilized future expectations regarding capital expenditures, vacancy rates, inflation, operating costs and rental market conditions. Normalization adjustments are based on appraisals, market reports, historic performance and management projections. IFRS permits an impairment provision to be reversed in subsequent accounting periods if recoverability analysis at that time supports the reversal. As at December 31, 2017, the Company s accumulated impairment provision was $182,989. 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 year ended December 31, 2017 (2016 $90) was recorded to reflect the fair value of the interest swap. 20

22 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 ANALYSIS OF CASH FLOWS Operating Activities Year Ended December Increase/ (Decrease) in cash flow Total revenue $ 165,612 $ 162,236 $ 3,376 Hotel operating costs 122, ,688 (5,039) Hotel operating income 42,885 44,548 (1,663) Additions to tenant inducements (198) - (198) Amortization of tenant inducements (159) 24 (183) Interest expense (28,609) (32,121) 3,512 Amortization of transaction costs 995 1,400 (405) Accretion of convertible debentures 1,811 2,061 (250) Gain on debenture repurchases - (226) 226 Cash component of interest expense (25,803) (28,886) 3,083 Other income (expense) 1, General and administrative expense (3,277) (3,235) (42) Cash provided by operating activities, before working capital adjustments 14,882 13,365 1,517 Working capital adjustments (3,009) 4,017 (7,026) Cash provided by operating activities $ 11,873 $ 17,382 $ (5,509) The main components of cash flow provided by operating activities are hotel operating income, interest payments and working capital adjustments. Temple completed 2017 with cash flow provided by operating activities of $11,873 compared to $17,382 in After excluding working capital adjustments, cash provided by operating activities amounted to $14,882 for 2017, representing an increase of $1,517. The increase mainly reflects a decrease in cash component of interest expense of $3,083 and an increase in interest and other income of $322, partially offset by a decrease in hotel operating income of $1,663. 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 $5,426 in Investing activities primarily reflect cash inflows related to proceeds from the sale of property and equipment of $9,399, a cash distribution on equity investments of $1,100 and a decrease in other assets of $322, offset by cash outflows related to capital expenditures on completed hotel properties in the amount of $5,622. 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 $73,851 in The net cash outflow is comprised of lump sum principal payments on mortgage loans of $64,181, cash outflows of $57,055 related to convertible debenture redemptions, $14,581 related to regular repayment of principal of mortgage loans, $2,259 related to convertible debenture repurchases, and $1,200 in expenditures on transaction costs, partially offset by proceeds from mortgage debt of $51,925 and net revolving loan advances of $13,500. Cash Flow Summary The net cash outflow from operating, investing and financing activities during 2017 was $56,552. After providing for the opening cash balance of $67,922, Temple completed 2017 with a cash balance of $11,

23 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 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 Year Ended December Net loss $ (23,033) $ (133,177) Add/(deduct): Deferred income tax expense (recovery) (47) 15,010 Change in fair value of financial instruments - (90) Provision for impairment 18, ,850 Depreciation and amortization 17,745 24,233 Amortization of tenant inducements Equity investments - depreciation and deferred taxes Funds from operations $ 14,051 $ 11,640 Weighted average number of common shares 25,348,718 13,573,459 FFO - per common share - basic and diluted $ 0.55 $ 0.86 For 2017, the FFO of the Company increased by $2,411 compared to On a basic per common share basis, FFO decreased by $0.31 per common share. The increase in FFO mainly reflects a decrease in interest expense as well as higher other income, partially offset by a decrease in hotel 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. 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. 22

24 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 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. December 31 December Unrestricted cash $ 11,370 $ 67,922 Working capital $ 3,775 $ 57,380 As of December 31, 2017, the unrestricted cash balance of Temple was approximately $11,370 and the working capital was approximately $3,775. 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 and declared dividend payable. Mortgage principal payments and convertible debenture payments due within the twelve month period ending December 31, 2018, are not included in the calculation of working capital. Contractual Obligations A summary of the payments due in regard to the Company s contractual obligations, 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 $ 368,571 $ 212,914 $ 79,774 $ 48,195 $ 27,688 Interest on mortgage loan debt 31,903 12,742 10,870 6,454 1,837 Convertible debt (2) 77,324 36,564 40, Interest on convertible debt 8,698 3,674 5, Operating leases 10,575 2,234 2, ,166 Accounts payable and accrued liabilities 18,173 18, Total $ 515,244 $ 286,301 $ 138,726 $ 55,526 $ 34,691 (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. Mortgage Loan Debt The total amount of contractual mortgage loan debt due for the one year period ending December 31, 2018, of $212,914, is comprised of the following: Regular repayments of principal in the estimated amount of $8,988. Principal due of $131,915 in regard to mortgage loans which mature during the twelve month period ending December 31, 2017 on nine hotel properties. It is expected that all nine mortgage loans will be renewed on similar terms and conditions at maturity. Aggregate principal balance of $56,011 relating to five mortgages 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

25 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 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 December 31, 2017, the Company was not in compliance with debt service covenants affecting seven 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 December 31, 2017 is provided below. Mortgage Balance Property Location Note December 31, 2017 Maturity Date Acclaim Hotel Calgary, AB (1) 23,620 November 2018 Days Inn Hotel & Suites Lloydminster, AB (1) 11,569 Month-to-month Sheraton Red Deer Red Deer, AB (1) 29,708 May 2018 Vantage Inn & Suites Fort McMurray, AB (1) 7,786 Month-to-month 72,683 Merit Hotel & Suites Fort McMurray, AB (2) 13,227 Month-to-month Clearwater Timberlea Fort McMurray, AB (2) 6,803 Month-to-month Cortona Residence Fort McMurray, AB (3) 16,626 Month-to-month 36,656 $ 109,339 (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. (3) The mortgage is in breach due to a cross-collateralization provision. 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 scheduled to mature in June 2018, with an aggregate principal balance of $37,106. The Company has received a waiver from the lender subsequent to December 31, 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. 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 $2,259 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. 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 December 31, 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, 2020 and March 31, 2018, respectively. 24

26 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 Capital Resources Existing Cash As of December 31, 2017, the unrestricted cash balance of Temple was approximately $11,370 and the working capital was approximately $3,775. 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 the Nomad Hotel, and bearing interest at prime plus 2.00%. The revolving loan agreement 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. As at December 31, 2017, the amount payable under the revolving loan was $13,500 (December 31, $nil). Temple previously had a revolving loan commitment from Manitoba Ltd. (the parent company of Shelter). The revolving loan commitment served as a temporary funding source for capital expenditures. Under the terms of the asset management assignment agreement the revolving loan commitment expired on April 1, In 2017, interest expense relating to the revolving line of credit amounted to $331 ( $nil). Line of Credit (Nomad Hotel) During 2014, Temple obtained a line of credit from a Canadian chartered bank, secured by a first mortgage charge against the Nomad Hotel and bore interest at prime plus 3.00%. The line of credit was cancelled prior to its scheduled maturity on May 26, Sale of Properties During 2017, Temple sold the Holiday Inn Express, Sherwood Park, Alberta, and used the proceeds for debt repayment. Temple may pursue the sale of other hotel properties as a source of capital. 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 December 31, 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 December 31 December Mortgage loan debt - principal amount* $ 368,571 $ 395,408 Convertible debentures - face value 77, ,638 Revolving line of credit 13,500 - Share capital (net of issue costs) 295, ,412 Total capitalization $ 754,807 $ 827,458 Shares: Authorized - unlimited Issued: December 31, ,269,913 February 21, ,269,913 25

27 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 Debt The carrying value of the total debt of Temple as disclosed in the financial statements is $455,851 as of December 31, 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 December 31, 2017, the mortgage loan debt of Temple amounted to $368,571. 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. In total, mortgage loan debt represents 80% of the total debt (at face value) as of December 31, The balance of mortgage loan debt, as of December 31, 2017, excluding unamortized transaction costs, decreased by $26,837, compared to the balance as of December 31, The decrease consists of lump sum principal payments on mortgage loans of $64,181 and regular monthly mortgage loan principal payments of $14,581, partially offset by proceeds from mortgage debt of $51,925 during Expenditures on transaction costs for mortgage loan debt amounted to $848 during Debt Maturities and Renewal/Refinancings For the twelve month period ending December 31, 2018, contractual mortgage loan debt comprised of nine mortgage loans with a principal balance of $131,915 is scheduled to mature. The maturing loans are all expected to be renewed or refinanced. In addition, five of the mortgage loans, having a principal balance of $56,011, are technically payable on demand but are expected to be repaid over 15 to 20 year terms. Debt Summary As of December 31, 2017, the weighted average interest rate of the total mortgage loan debt is 5.33%, compared to 4.66% as of December 31, Mortgage Loan Debt of Equity Interest Hotels As of December 31, 2017, the mortgage loan debt of the two equity interest hotels is equal to $8,294 and has a weighted average interest rate of 4.07%. 26

28 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 Convertible Debentures The following chart summarizes the outstanding convertible debentures as of December 31, 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. 30/20 (3) E 7.25% 46,000 (836) - (2,259) 42,905 Feb. 12/13 - Mar. 31/18 (4) F 7.00% 38,000 (3,581) ,419 Face value $ 141,500 $ (4,862) $ - $ (59,314) $ 77,324 (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 had a September 30, 2017 maturity, 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 any time 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 $2,259 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 February 21, 2018, no debentures have been purchased under this bid. Share Capital The following is a summary of the common share transactions to December 31, 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 27

29 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 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 February 21, 2018, 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 $3,617 in property management fees during 2017, compared to $3,118 during 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. For the year ended December 31, 2017, the Company incurred services fees to Morguard of $2,484 ( $1,904). For the year ended December 31, 2017, the Company incurred service fees to Shelter of $nil ( $535). 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 year ended December 31, 2017, a service fee of $nil ( $38 to Shelter) has been charged for such services. Effective April 1, 2016, Morguard assumed all asset management responsibilities and Shelter will no longer provide such services. 28

30 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 Other For the year ended December 31, 2016, hotel operating costs include $18 for rental premises. Shelter, as agent for the beneficial owner, is the manager of the rental premises. For the year ended December 31, 2017, interest on convertible debentures to Morguard amounted to $166 ( $311). 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 2017 Q4 Q3 Q2 Q1 Total revenue $39,878 $46,106 $43,389 $36,239 Net operating income $7,579 $15,190 $12,717 $7,399 Provision for impairment ($18,372) ($235) - - Net income (loss) ($23,528) $3,355 $2,708 ($5,568) PER COMMON SHARE Net operating income - Basic * $0.30 $0.60 $0.50 $0.29 Net income (loss) - Basic ($0.93) $0.13 $0.11 ($0.22) Key performance indicators - Occupancy * 57% 70% 65% 54% - ADR * $ $ $ $ RevPar * $77.72 $ $90.81 $72.26 FFO * ($0.02) $0.32 $0.26 ($0.01) Quarterly Analysis 2016 Q4 Q3 Q2 Q1 Total revenue $39,235 $45,280 $41,955 $35,766 Net operating income $8,415 $16,052 $12,996 $7,085 Recovery of (provision for) impairment ($61,276) - $303 ($43,877) Net income (loss) ($65,209) $1,390 ($980) ($68,378) PER COMMON SHARE Net operating income - Basic * $0.50 $1.23 $1.00 $0.55 Net income (loss) - Basic ($4.58) $0.11 ($0.08) ($5.26) Key performance indicators - Occupancy * 55% 69% 61% 52% - ADR * $ $ $ $ RevPar * $74.39 $99.32 $86.33 $70.71 FFO * $ - $0.60 $0.36 ($0.10) * Non-IFRS measures 29

31 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 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 and fourth quarters 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, provision for impairment, 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 second quarter of 2017 the Series D convertible debentures amounting to $34,282 were repaid upon maturity and the Company completed financing on two properties in the amount of $15,588. 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. During the fourth quarter, Temple redeemed $2,259 of the principal amount of the Series E debentures outstanding, and extended the maturity to September 30, 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 fourth quarter of 2017 and in the first, second and fourth quarters of 2016 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 the issuance of common share from rights offerings, the dividend reinvestment program, and the conversion of deferred shares into common shares. Overall, the weighted average number of common shares has increased by 87% from January 1, 2017 to December 31,

32 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 Fourth Quarter Highlights Analysis of Net loss and comprehensive loss Three Months Ended December 31 Increase/ (Decrease) in Income Revenue Room $ 27,217 $ 26,687 $ 530 Other 12,661 12, Total revenue 39,878 39, Operating costs 32,299 30,820 (1,479) Hotel operating income 7,579 8,415 (836) Interest expense 7,178 8,206 1,028 Other expense (income) 611 (658) (1,269) Share based compensation General and administrative expenses (16) Depreciation and amortization 4,362 5,594 1,232 (5,368) (5,545) 177 Equity income on investment in hotel properties Provision for impairment (18,372) (61,276) 42,904 Deferred income tax recovery 23 1,494 (1,471) Net loss and comprehensive loss $ (23,528) $ (65,209) $ 41,681 Temple completed the fourth quarter of 2017 with a loss before equity income, provision for impairment and deferred income taxes of $5,368, compared to a loss before equity income, provision for impairment and deferred income taxes of $5,545 during the fourth quarter of 2016, representing a decrease in loss of $177. The decrease mainly reflects lower depreciation and amortization of $1,232 and a decrease in interest expense of $1,028, partially offset by an increase in other expense (income) of $1,269 and a decrease in hotel operating income of $836. After providing for equity income, provision for impairment and deferred income taxes, Temple completed the fourth quarter of 2017 with a net loss of $23,528, compared to a net loss of $65,209 for the fourth quarter of 2016, representing a decrease in net loss of $41,

33 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 OPERATING RISKS AND UNCERTAINTIES An investment in securities of Temple encompasses the risks which are inherent in the ownership and operation of a portfolio of hotel properties, as well as the normal risks which are associated with an investment in a corporation which invests in hotel properties. An investment in Temple encompasses a number of risks. The Annual Information Form ("AIF") of the Company for the year ended December 31, 2017, dated February 21, 2018, which is available at details the risk factors applicable to the Company. The key risks include the following: Hotel Industry Specific risks associated with hotel ownership and operations include: Cyclical downturns arising from changes in general and local economic conditions; Changes in the level of business and commercial travel and tourism; Increases in the supply of accommodations in local markets which may adversely affect the results of operations; Competition from other hotels; The recurring need for renovation, refurbishment and improvement of hotel properties; Changes in wages, prices, energy costs and construction and maintenance costs that may result from inflation, government regulations, changes in interest rates fluctuations; Availability of financing for operating or capital requirements; Seasonal fluctuations in hotel operating income produced throughout the year; Increases in operating costs due to inflation or other factors which may not necessarily be offset by increases in room rates; Increases in costs of travel, particularly automotive travel; and Other factors, including acts of terrorism, natural disasters, extreme weather conditions and labour shortages, work stoppages or disputes. Economic Conditions Canadian real estate companies are subject to risks generally incidental to the Canadian real estate, credit, capital and financial markets. Sensitivity to global economic conditions, and their impact in Canada, may negatively affect the income received from Temple's properties. Inherent illiquidity may limit Temple's ability to vary its portfolio in response to changes in the global, national and/or local economic conditions. Increased vacancy rates may occur and may adversely affect the income received from Temple's properties. The extent to which Temple relies on debt financing for properties located in secondary regional markets increases the risk that Temple will either be unable to refinance existing indebtedness or result in Temple receiving less favourable terms than that of existing financing arrangements. The revenue from Temple's hotel properties is subject to the risk of changes in hotel market conditions. While management of Temple believes that the overall hotel market conditions in Canada will remain favourable, there can be no assurance as to the relative strength of future hotel market conditions and the financial results for future periods are uncertain. Hotel market conditions are also subject to normal or unexpected quarterly variances in demand. The continued and unexpected decline in oil prices has increased the level of uncertainty in resource-dependent communities such as Fort McMurray and, to a lesser extent, the Canadian economy as a whole. Debt Financing Risk Temple and its subsidiaries have incurred, and will continue to incur, indebtedness in connection with acquisitions, including indebtedness arising from additional mortgage loans, vendor take-back financing and the issuance of debentures and a line of credit. A portion of the cash flow generated by hotel properties owned by Temple and its subsidiaries will be devoted to servicing the long-term debt of Temple and there can be no assurance that the cash flow from the operation of Temple's hotel properties will be sufficient to meet the required interest and principal payments on debt. During 2017, cash flow from operating activities amounted to $11,873, while principal payments on mortgage loan debt amounted to $14,581. Cash flow from operating activities is net of interest payments on mortgage and other long-term debt of $25,803. Cash flow from operating activities excludes dividends. During 2017, Temple did not declare any dividends. 32

34 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 Temple is subject to the risks associated with debt financing including the risk that cash flow from operations may not increase to a level which will be sufficient to fully meet required payments of principal and interest, the risk that existing debt will not be able to be refinanced or that terms of such refinancings will not be as favourable to Temple as existing debt, the risk that new debenture financing may not be attainable to the extent necessary to retire the outstanding balance of existing debenture debt at maturity, the risk that financing may not be available for any hotel acquisitions that Temple has committed to in the future and the risk that necessary capital expenditures for such purposes as renovations and other improvements will not be able to be financed on favourable terms or at all. In such circumstances, if Temple were in need of capital to repay indebtedness in accordance with its terms or otherwise, it could be required to liquidate one or more investments in hotel properties at times which may not permit realization of the maximum return on such investments or could be required to agree to additional financing(s) on unfavourable terms. In addition, Temple will be subject to the risk that its interest expense may increase on the refinancing of existing indebtedness or on any portion of its indebtedness that bears interest at floating rates if interest rates increase, which could have a material adverse effect on the results of operations of Temple and its ability to pay dividends. In order to minimize this risk, Temple will attempt to appropriately structure the timing of the renewal of significant indebtedness on each respective hotel property in relation to the time at which mortgage indebtedness on such property becomes due for refinancing. Until such time as the cash flow from operations is sufficient to fully meet the required payments of interest and principal, Temple expects that, over the long-term, the shortfall will be fully funded from the upward refinancing of mortgage loan debt. The relative decline in oil prices that began during the third quarter of 2014 has created a tightening of mortgage lending conditions for properties in Fort McMurray that affect Temple's ability to renew or refinance mortgage loan debt. To a certain extent, the upward refinancing potential of Temple's mortgage loan portfolio will be constrained until economic conditions improve in Fort McMurray and other oil-dependent lodging markets. Temple expects that its financing arrangements will contain covenants that will restrict its ability to operate its business in certain ways. If Temple fails to comply with the restrictions in its financing arrangements, its lenders may be able to accelerate related debt as well as any other debt to which a cross default or cross acceleration provision applies. A default could also allow creditors to foreclose, sell or realize on the property securing such debt or exercise other remedies against Temple. Credit facilities also typically require repayment of funds or cash flow sweeps when certain coverage ratios are not met. In connection with its financing arrangements, Temple expects that it will grant security interests over substantially all of its assets. If Temple is not able to meet its debt service obligations, it risks the loss of some or all of its assets to foreclosure or sale. As previously disclosed, 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; complete capital expenditures in accordance with predetermined limits; and maintain ongoing liquidity ratios. As of December 31, 2017, the Company was not in compliance with debt service covenants affecting seven mortgage loans in the aggregate amount of $109,339. The loan covenant breaches are expected to be resolved by debt refinancings, loan modification agreements and/or a waiver of the covenant requirements. 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 scheduled to mature in June 2018, with an aggregate principal balance of $37,106. The Company has received a waiver from the lender subsequent to December 31, Mortgage loans are secured by charges registered against specific hotel properties and an assignment of the net investment in a lease. Interest Rate Fluctuations and Financing Risk Financing by Temple and its subsidiaries may include indebtedness with interest rates based on variable interest rates that result in fluctuations in the cost of borrowing. Temple and/or its subsidiaries will be required to refinance its debt from time to time and, if new debt has less favourable terms than existing indebtedness, or if such refinancing cannot be obtained, there is a potential negative impact on the financial conditions of Temple and on cash available to pay dividends. The Canadian economy is experiencing historically low interest rates, which is having a positive impact on Temple's overall debt costs. An increase in interest rates could significantly affect Temple's ability to meet its financial obligations. In order to minimize this risk, Temple seeks to negotiate fixed-rate term debt with staggered maturities for the majority of debt on its property portfolio. As of December 31, 2017, approximately 73% of the mortgage loan debt of Temple is fixed rate debt. Derivative financial instruments may be utilized by Temple in the management of its interest rate exposure. Temple's policy is not to utilize derivative financial instruments for trading or speculative purposes. 33

35 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 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. Capital Expenditures Related to Franchise Agreements Certain of the capital expenditures that are undertaken by Temple are required in order to meet the requirements for quality standards as set out in existing franchise agreements or represent expenditures which are necessary to attain new franchise rights. In the event that the required expenditures are not completed within prescribed time limits, the existing franchise rights of Temple, or the ability of Temple to attain new franchise rights, could be impaired. Temple expects that it will continue completing all required expenditures related to franchise agreements. During 2017, approximately 34% of Temple's planned capital expenditures represent expenditures which are associated with property improvement requirements under franchise agreements. Fluctuations in Dividends A return on an investment in common shares is not comparable to the return on an investment in a fixed-income security. The recovery of the initial investment in common shares is at risk, and the return on an investment in common shares is based on many performance assumptions. The dividends of Temple are established at the discretion of the Directors. The actual amount of dividends depends on numerous factors, including the actual and projected financial performance of the hotels in Temple's portfolio, its cash reserves, its debt covenants and obligations, working capital requirements, principal and interest payments on its indebtedness, tenant allowances, leasing commissions, capital expenditures and other factors that may be beyond the control of Temple. Dividends may be reduced or suspended at any time. In addition, the market value of the common shares may decline if Temple is unable to provide a satisfactory return to shareholders and that decline may be significant. In January 2016, Temple suspended the payment of dividends. Public Market Risk It is not possible to predict the price at which common shares will trade in the future and there can be no assurance that an active trading market for the common shares will be sustained. The common shares will not necessarily trade at values determined solely by reference to the value of the properties of Temple. Accordingly, the common shares may trade at a premium or a discount to the value implied by the value of the properties of Temple. In addition, the market price for common shares may be affected by changes in general market conditions, fluctuations in the market for equity securities and numerous other factors which are beyond the control of Temple. Recent volatility in the financial markets, in part due to declining oil prices, has adversely affected the trading price of Temple shares and has created some additional uncertainty in the market price, at least for the short-term. Percentage of Temple's Portfolio in Fort McMurray, Alberta The property portfolio of Temple has significant exposure to the Fort McMurray, Alberta market. Although Temple will continue to consider hotel acquisition and development opportunities in Fort McMurray, the overall level of exposure to the Fort McMurray market has decreased over the past four years due to the acquisition of a number of hotel properties in other cities. Temple has 28 hotel properties in its real estate portfolio as of December 31, 2017, of which nine are located in Fort McMurray, Alberta. Based on Same Property hotel operating income of $42,402 for the 28 hotels in 2017, the nine properties in Fort McMurray represent approximately 20%. The nine hotel properties in Fort McMurray, Alberta, encompass 889 guest rooms, representing 23% of the total Same Property guest rooms of the hotel portfolio as of December 31, 2017 and During 2017, the nine hotel properties in Fort McMurray accounted for 14% of the total revenue of the Company, while achieving an average occupancy of 48%. During 2017, the Sheraton Red Deer was the largest contributor to revenue. During 2017, the Sheraton Red Deer in Red Deer, Alberta, accounted for 12% of revenue, while achieving an average occupancy level of 52%. In total, the Fort McMurray hotel portfolio and the Sheraton Red Deer accounted for 26% of total revenue and 26% of operating income during 2017, compared to 26% and 30%, respectively, during The nine hotel properties in Fort McMurray include the 57 room Cortona Residence which is classified as an investment property and is 100% occupied. 34

36 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 Conversion of Apartment Properties to Extended Stay Hotels In the normal course of business, Temple has acquired, and may continue to acquire, rental apartment or condominium buildings for the purpose of converting them to extended-stay hotel properties. In addition to the completion of "hotel amenity" upgrades, the conversion process may encompass property re-zoning, property re-branding and other matters. The timing of the completion of all matters related to the conversion process may encompass a longer time frame than is envisioned in the Company's business plan. The risk related to the finalization of the conversion process is considered by management to be minimal, as the current value and revenue-generating capacity of properties slated for conversion are unlikely to be adversely affected by delays in the conversion process. Oil Sands Industry As disclosed above, Temple has a high concentration of properties in the Fort McMurray, Alberta market. Companies and tradespeople that provide services to the oil sands industry represent the primary market for the Fort McMurray hotels. The Cortona Residence is also fully leased to a major oil sands company until April 30, The level of development activity in the oil sands industry is one of the main factors affecting hotel market conditions in Fort McMurray. Temple financial results for future periods are subject to numerous uncertainties arising from a slowdown in the oil sands industry, the impact of oil prices on future development in Fort McMurray and the general economy. The decline in oil prices over the past year has created a higher level of uncertainty in regard to the timing and/or extent of future oil sands development activity and, by association, uncertainty regarding the financial results of Temple's hotels in Fort McMurray. Land Leases As of December 31, 2017, Temple has one property, the Acclaim Hotel, located on land leased from the Calgary Airport Authority. Land leases may be subject to periodic rate resets, which may result in significant rental rate adjustments. In addition, there can be no assurance that the landlord of leased lands will renew the land leases on reasonable terms or at all. Dependence on and Relationships with Asset Manager and Atlific Until such time as Temple internalizes its asset management functions, the financial performance of Temple will depend in part on the performance of the asset manager pursuant to the asset management agreement. Morguard is currently the administrator pursuant to the asset management agreement. The success of Temple is highly dependent on the services of the management personnel who are provided to Temple pursuant to the terms of the asset management agreement. The financial performance of Temple will also depend in part on the performance of hotel management, currently being provided by Atlific pursuant to the hotel management agreements entered into between Temple and Atlific with respect to the management of hotel properties owned by Temple. Temple depends on Atlific for all aspects of the day-to-day management of all of its hotel properties owned at the date hereof other than Cortona Residence. There can be no assurance that a suitable replacement would be found in a timely manner or at all if Atlific ceased providing its services to Temple. Conflicts of Interest There are potential conflicts of interest to which Directors and officers of Temple are, or may become, subject to in connection with the operations of Temple. K. Rai Sahi is a director and officer of Morguard, which provides asset management services to Temple, is engaged in a wide range of real estate and other business activities, including the development and management of real estate. Mr. Sahi is also a trustee of Morguard Real Estate Investment Trust and Morguard North American Real Estate Investment Trust, which are real estate investment trusts whose investment strategies are primarily focused on investing in high-quality real estate assets and owning multi-suite residential rental properties across Canada and the United States, respectively. Morguard and its affiliates and associates and its directors and officers, including Mr. Sahi, may become involved in transactions in which their interests actually, or are perceived to, conflict with the interests of Temple. Such conflicts will be subject to the procedures and remedies set out in the Canada Business Corporations Act. 35

37 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 Reliance on Key Personnel The success of Temple is dependent on the services of management personnel. Other Risks Other risks are more fully discussed in the other regulatory filings of Temple, including the AIF, a copy of which is available at CRITICAL ACCOUNTING ESTIMATES The application of the significant accounting policies for purposes of preparing the audited 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. Financial statement items which encompass estimates include the following: Carrying amount of property and equipment and goodwill - if indications of impairment are present, the carrying amount of property and equipment and goodwill is compared at the end of each accounting period to its recoverable amount in order to determine if there has been any impairment in value. The determination of recoverable amount requires an estimate of normalized first year net operating income, inflation rates and discount rates; Depreciation of property and equipment and investment property - depreciation expense is based on the estimated useful life of "property and equipment" and "investment property"; Amortization of intangible assets; The expected tax rates of 27.57% and 27.56% for 2016 and 2017, respectively, have been applied in the periods that temporary tax differences of the Company are expected to reverse; Determination of "fair value" of investment property: the determination of the fair value of investment property requires the use of estimates of future cash flows from assets (considering the implication of lease terms, tenant profiles, upcoming capital expenditures, property conditions and similar variables) and discount rates applicable to those assets. These estimates are based on local market conditions existing at the Statement of Financial Position date; The fair value of financial instruments estimated based on observed inputs; The allowance for doubtful accounts; and Share based compensation expense. The estimates which were used for financial statement reporting purposes are not expected to change from period to period and do not encompass a high degree of uncertainty. 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 February 21,

38 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 Future Changes in Accounting Policies The following standards will be effective for subsequent annual periods. The Company is currently evaluating the impact of these standards on its financial statements. (i) IFRS 9 - Financial Instruments ("IFRS 9") IFRS 9 replaces IAS 39 - Financial Instruments: Recognition and Measurement ( IAS 39 ). IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple classification options in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of its financial assets. The standard is effective for years beginning on or after January 1, The adoption of IFRS 9 is not expected to have a material impact on the Company s consolidated financial statements. (ii) IFRS 15 - Revenue from Contracts with Customers ("IFRS 15") IFRS 15 replaces IAS 11 - Construction Contracts and IAS 18 - Revenue, as well as various IFRIC and SIC interpretations, specifies the steps and timing for entities to recognize revenue and enhance disclosure requirements effective for annual periods beginning on or after January 1, The Company has assessed the impact of IFRS 15 and has determined the pattern of revenue recognition will remain unchanged upon adoption of the standard. The assessment included a review of the Company s revenue streams. The impact will be limited to additional note disclosure on the disaggregation of some the Company s revenue streams and the Company will adopt the new standard on the required effective date. (iii) 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. These amendments are effective for annual periods beginning on or after January 1, The amendment is not expected to have a material impact on the Company s consolidated financial statements. (iv) 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. 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. 37

39 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 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 December 31, 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 December 31, 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, Temple 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 year ended December 31, 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 Report of Temple and the delivery of the report to the shareholders have been approved by the Directors. TEMPLE HOTELS INC. February 21,

40 TEMPLE HOTELS INC. YEAR ENDED DECEMBER 31, 2017 MANAGEMENT S RESPONSIBILITY The consolidated financial statements and management's discussion and analysis contained in the annual report are the responsibility of the management of Temple Hotels Inc. To fulfil this responsibility, management maintains systems of internal control which are designed to give reasonable assurance that transactions are authorized and properly recorded, assets are safeguarded and financial records are properly maintained to provide reliable financial information for the preparation of the consolidated financial statements and other financial information. The consolidated financial statements have been prepared in conformity with International Financial Reporting Standards and, where appropriate, reflect estimates based on management's best judgment in the circumstances. The consolidated financial statements have been reviewed and approved by the Board of Directors and by the Audit Committee, which is comprised of independent Directors. The Audit Committee meets regularly with management and the auditors. The auditors have full and free access to the Audit Committee. Scarrow & Donald LLP, the independent auditors, appointed by the shareholders, have examined the consolidated financial statements in accordance with Canadian generally accepted auditing standards to enable them to express to the shareholders their opinion on the consolidated financial statements. "K. Rai Sahi" "Paul Miatello" K. Rai Sahi Paul Miatello Chief Executive Officer Chief Financial Officer February 21,

41 CHARTERED PROFESSIONAL ACCOUNTANTS February 21, 2018 INDEPENDENT AUDITOR S REPORT To the Shareholders of Temple Hotels Inc.: We have audited the accompanying consolidated financial statements of Temple Hotels Inc., which comprise the consolidated balance sheets as at December 31, 2017 and 2016 and the consolidated statements of net loss and comprehensive loss, changes in equity and cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Temple Hotels Inc. as at December 31, 2017 and 2016 and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards. Scarrow & Donald LLP Chartered Professional Accountants Winnipeg, Canada SCARROW & DONALD, CHARTERED PROFESSIONAL ACCOUNTANTS, LLP Five Donald Street Winnipeg, Manitoba R3L 2T4 Business: (204) Fax: (204) Scarrow & Donald, Chartered Professional Accountants, LLP is a Canadian owned Limited Liability Partnership established under the laws of Manitoba.