TEMPLE HOTELS INC. Press Release TEMPLE HOTELS INC. REPORTS 2016 FIRST QUARTER RESULTS Mississauga, Ontario, May 9, 2016 Temple Hotels Inc. ( Temple or the Company ) (TSX: TPH) today reported its financial results for the three months ended March 31, 2016 ( first quarter ). The following comments in regard to the financial position and operating results of Temple should be read in conjunction with Management s Discussion & Analysis and the financial statements for the three months ended March 31, 2016, which may be obtained from the Temple website at www.templehotels.ca or the SEDAR website at www.sedar.com. Monetary data in the tables of this press release, unless otherwise indicated, are in thousands of Canadian dollars, except for per share, average daily rate ( ADR ), and revenue per available room ( RevPar ) amounts. Q1 2016 KEY POINTS/HIGHLIGHTS Net operating income decreased by $4.4 million or 38.1% during the three months ended March 31, 2016 compared to 2015, predominantly due to a $2.9 million and $1.3 million decrease of net operating income within the Fort McMurray and Other Alberta property portfolios, respectively. Other Canada Same Property segment net operating income increased by 0.2% during the three months ended March 31, 2016 compared to 2015. A non-cash accounting adjustment for impairment of $43.9 million was recorded in the first quarter of 2016 to reflect the impact of the economic downturn on the carrying value of ten hotel properties as of March 31, 2016. As a result of the additional provision for impairment, a valuation allowance on the deferred tax asset of $16.8 million has been recorded to deferred income tax in the first quarter of 2016. FFO decreased by $2.8 million and AFFO decreased by $2.5 million during the first quarter of 2016, compared to the quarter months of 2015. On a basic per common share basis, FFO and AFFO decreased by $0.06 per common share and $0.04 per common share, respectively, compared to the first quarter of 2015. OPERATING RESULTS Three months ended March 31 2016 2015 Total revenue $35,766 $43,557 Operating income $7,085 $11,447 Provision for impairment $43,877 $- Net loss ($63,378) ($4,616) Cash flow from operating activities ($405) $3,176 Funds from operations ($1,256) $1,511 Adjusted funds from operations ($2,015) $450 Per common share - FFO ($0.02) $0.04 - AFFO ($0.03) $0.01 Occupancy 52% 59% ADR $136.36 $143.42 RevPar $70.71 $84.86 1
Operating Activities Operating Income - During the first quarter of 2016, net operating income decreased by $4.4 million or 38.1%, compared to the first quarter of 2015. The decrease mainly reflects $2.9 million and $1.3 million decrease in net operating income within the Fort McMurray and Other Alberta property portfolios, respectively. Occupancy and ADR - The decrease in Same Property operating income reflects the reduced ADR and occupancy levels within the Fort McMurray and Other Alberta segments, as a result of the unfavourable market conditions continuing to affect Fort McMurray and other oil-dependent markets in Alberta. In the first quarter of 2016, the occupancy level of the Fort McMurray and Other Alberta segments decreased by 23 and 14 percentage points, respectively, in comparison to the first quarter of 2015. In addition, the ADR of the Fort McMurray and Other Alberta segments have decreased by $28.65 and $2.65, respectively, in comparison to the first quarter of 2015. Cash Provided by (Used in) Operating Activities - Cash used in operating activities increased by $3.6 million during the first quarter of 2016, compared to the first quarter of 2015. After excluding working capital adjustments, cash used in operating activities increased by $3.2 million, compared to 2015. Funds from Operations ("FFO") and Adjusted Funds from Operations ("AFFO") - During the first quarter of 2016, FFO decreased by $2.8 million and AFFO decreased by $2.5 million, compared to the first quarter of 2015. On a basic per common share basis, FFO and AFFO decreased by $0.06 per common share and $0.04 per common share, respectively, compared to the first quarter of 2015. The decrease in FFO and AFFO mainly reflects a decrease in operating income, due to the factors noted above. Net Loss The Company completed the first quarter of 2016 with a net loss of $68.4 million, compared to a net loss of $4.6 million during the same period in 2015. The increase in the net loss is mainly due to a non-cash accounting provision for asset impairment of $43.9 million during the first quarter of 2016, an increase in deferred tax expense of $18.4 million, and a decrease in operating income of $4.4 million, partially offset by a decrease in net interest expense of $1.2 million, and a decrease in depreciation of $1.3 million. On a per common share basis, the net loss was $0.88 for the first quarter of 2016, compared to a net loss per common share of $0.11 during the first quarter of 2015. Asset Impairment - The economic downturn in Alberta has resulted in decreased occupancy levels and room rates for certain hotel properties. Evidence that the occupancy and room rate declines may be prolonged as well as the lower common share trading price mandated the completion of an impairment review and recoverability analysis in accordance with IFRS. As a result of the analysis, a non-cash accounting adjustment for asset impairment in the aggregate amount of $43.9 million on eight hotels in Alberta and two in Other Canada was recorded in the first quarter of 2016. In addition, a valuation allowance against the $16.8 million deferred tax asset has been recorded in the first quarter resulting from further impairment of certain hotel properties. Liquidity and Financing Activities As of March 31, 2016, the unrestricted cash balance of Temple was $11.5 million and working capital was $4.5 million. Mortgage Renewal - The Company has entered into a binding agreement with a financial institution on three mortgages due to mature in Q2 2016 for gross proceeds of $45.0 million which will provide upward net refinance proceeds, excluding closing costs, of approximately $7.5 million. Dividend Policy - In response to the economic downturn in Alberta, in January 2016, the Company suspended the payment of dividends in order to preserve liquidity and reduce debt. Rights Offering - During the fourth quarter of 2015, the rights offering was completed and resulted in the issuance of 36,363,636 common shares for aggregate proceeds of $40.0 million and net proceeds of $39.3 million. The completion of the rights offering enabled Temple to further reduce indebtedness and improve its working capital position. Management Costs - During 2015, Temple negotiated hotel management fee reductions for the Fort McMurray and Red Deer hotel properties, which remained in effect for the first quarter of 2016. 2
Investing Activities Temple has continued to invest in hotel renovation programs with the objective of enhancing the quality and competitive position of its hotel properties. During the first quarter of 2016, capital expenditures on hotel properties amounted to $2.4 million, of which $1.7 million related to renovation and upgrade programs at two properties. With major capital expenditures programs substantially complete, capital expenditures are expected to decrease during the remainder of 2016. Management believes that the major capital expenditures programs, undertaken over the past several quarters, will serve to enhance the competitive position of Temple s renovated hotel properties. Analysis of Operating Results Analysis of Net loss Increase/ (Decrease) 2016 2015 in Income Revenue Room revenue $ 25,062 $ 31,374 $ (6,312) Other hotel revenue 10,704 12,183 (1,479) Total revenue 35,766 43,557 (7,791) Hotel operating costs 28,681 32,110 3,429 Hotel operating income 7,085 11,447 (4,362) Interest expense, net 7,772 8,966 1,194 Share based compensation 88 84 (4) General and administrative expenses 808 991 183 Depreciation and amortization 6,394 7,789 1,395 (7,977) (6,383) (1,594) Equity income on investment in hotel properties 161 105 56 Provision for impairment (43,877) - (43,877) Change in fair value of financial instruments: gain/(loss) 67 (2) 69 Income tax recovery (expense) (16,752) 1,664 (18,416) Net loss $ (68,378) $ (4,616) $ (63,762) Per common share Results: Basic and diluted $ (0.88) $ (0.11) 3
Hotel Revenue Analysis of Total Hotel Revenues Same Property 2016 2015 Increase/ (Decrease) Fort McMurray Room revenue $ 4,141 $ 7,917 $ (3,776) Other hotel revenue 593 555 38 $ 4,734 $ 8,472 $ (3,738) Other Alberta Room revenue $ 4,822 $ 6,256 $ (1,434) Other hotel revenue 4,813 5,351 (538) $ 9,635 $ 11,607 $ (1,972) Other Canada Room revenue $ 16,099 $ 15,460 $ 639 Other hotel revenue 5,298 5,034 264 $ 21,397 $ 20,494 $ 903 Total - Same Property Room revenue $ 25,062 $ 29,633 $ (4,571) Other hotel revenue 10,704 10,940 (236) Total hotel revenue $ 35,766 $ 40,573 $ (4,807) Total - Sold Property Room revenue $ - $ 1,741 $ (1,741) Other hotel revenue - 1,243 (1,243) Total hotel revenue $ - $ 2,984 $ (2,984) Total Room revenue $ 25,062 $ 31,374 $ (6,312) Other hotel revenue 10,704 12,183 (1,479) Total hotel revenue $ 35,766 $ 43,557 $ (7,791) During the first quarter of 2016, room revenue decreased by $6.3 million or 20%, compared to the first quarter of 2015. The decrease reflects a decrease of $4.6 million or 15% in Same Property room revenue, and a decrease of $1.7 million due to the disposition of a property in 2015. The decrease in Same Property room revenue is comprised of a $3.8 million (48%) decrease in the Fort McMurray portfolio and a $1.4 million (23%) decrease in the Other Alberta portfolio offset by a $0.6 million (4%) increase in the Other Canada portfolio. The decrease in Same Property room revenue is largely due to unfavourable market conditions affecting the Fort McMurray segment and oil-dependent markets in the Other Alberta segment. The impact of these two segments on the Same Property portfolio was partially offset by favourable market conditions for the Other Canada segment which experienced a 4% increase over the first quarter of 2015. 4
As disclosed in the following chart, the RevPar for the Same Property portfolio was $70.71 during the first quarter ended 2016, compared to $84.80 during the first quarter ended 2015. The decrease in RevPar for Same Property portfolio results generally reflect reduced ADR and occupancy levels in the Fort McMurray and Other Alberta segments, partially offset by increased ADR and occupancy levels in the Other Canada segment. Room Revenue Statistics 2016 2015 Occ ADR RevPar Occ ADR RevPar Same Property Fort McMurray 32% $ 151.15 $ 47.70 55% $ 179.80 $ 98.65 Other Alberta 48% $ 130.26 $ 62.80 62% $ 132.91 $ 82.34 Other Canada 61% $ 134.16 $ 82.90 60% $ 133.29 $ 80.39 Total Same Property 52% $ 136.36 $ 70.71 59% $ 143.30 $ 84.80 Sold Property - $ - $ - 58% $ 149.50 $ 86.33 Overall Portfolio 52% $ 136.36 $ 70.71 59% $ 143.42 $ 84.86 The above chart does not reflect the operating results for the Cortona Residence, which is 100% leased at an annual net rent of $2.1 million. Other Hotel Revenue During the first quarter of 2016, other hotel revenue decreased by $1.5 million or 12%, compared to the first quarter of 2015, comprised of a decrease of $0.5 million from the Other Alberta properties and a decrease of $1.3 million from Sold Property partially offset by a $0.3 million increase in the Other Canada portfolio. The decrease in other revenue for the Other Alberta Property portfolio mainly reflects decreased economic activity in hotel markets that are directly or indirectly related to the oil industry. Notwithstanding the above, the Sheraton Red Deer was the most significant contributor to other hotel revenue in the Same Property portfolio during the first quarter of 2016, accounting for $3.7 million or 34% of other hotel revenue. Operating Income and Profit Margin Operating Income and Profit Margin Operating Income Operating Profit Margin 2016 2015 2016 2015 Same Property Fort McMurray $ 1,315 $ 4,254 28% 50% Other Alberta 1,531 2,782 16% 24% Other Canada 4,239 4,231 20% 21% Total - Same Property $ 7,085 $ 11,267 20% 28% Sold Property - 180-6% Total portfolio $ 7,085 $ 11,447 20% 26% After accounting for the decrease in total revenues and the decrease in hotel operating costs, total operating income decreased by $4.4 million or 38% during the first quarter of 2016, compared to the first quarter of 2015, comprised of a decrease of $4.2 million or 37% for the Same Property portfolio and a decrease of $0.2 million from Sold Property. The decrease in Same Property operating income reflects a $2.9 million, or 69%, decrease in operating income for the Fort McMurray segment and a $1.3 million, or 45%, decrease in operating income for the Other Alberta segment. As disclosed in the preceding chart, the overall profit margin of the entire hotel portfolio decreased from 26% for the first quarter of 2015 to 20% for the first quarter of 2016. 5
Transfer of Asset Management Effective April 1, 2016, Morguard Corporation ( Morguard ) provides asset management services to the Company, replacing Shelter Canadian Properties Limited. 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. Morguard s total assets owned and under management in North America are valued at $19.3 billion. Subsequent Event On May 3, 2016, Fort McMurray and the surrounding areas were placed, and continue to remain, under mandatory evacuation due to uncontrolled wildfires that have damaged the city. The Company is watching the situation closely, however, due to the uncertainty and unpredictability of this natural disaster, management is unable to provide further details at this time. Temple's Fort McMurray portfolio comprises 891 rooms in 9 properties. Temple maintains insurance coverage based on industry best practices and insurance standards, and include Liability, Property, Boiler and Machinery insurance programs that extend for Building, Contents and loss of Revenue. As of May 9, 2016, the Company is uncertain as to the status of all of the nine properties, and an estimate of the financial effect of the fires cannot be made. ABOUT TEMPLE Temple is a growth oriented hotel investment company with hotel properties located across Canada. Temple is listed on the Toronto Stock Exchange under the symbols TPH (common shares), TPH.DB.C, TPH.DB.D, TPH.DB.E and TPH.DB.F (convertible debentures). The 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. For further information on Temple, please visit our website at www.templehotels.ca. FOR FURTHER INFORMATION PLEASE CONTACT: K. Rai Sahi, FCA, FCGA, Chief Executive Officer, or Paul Miatello, CA, CPA, Chief Financial Officer Tel: (905) 281-3800, Fax: (905) 281-5890, Email: info@morguard.com This press release contains certain statements that could be considered as forward-looking information. The forwardlooking information is subject to certain risks and uncertainties, which could result in actual results differing materially from the forward-looking statements. 6