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Press release from CNW Group

Temple REIT reports 2012 second quarter results and potential for further hotel acquisitions

Tuesday, August 21, 2012

Temple REIT reports 2012 second quarter results and potential for further hotel acquisitions17:00 EDT Tuesday, August 21, 2012WINNIPEG, Aug. 21, 2012 /CNW/ - Temple Real Estate Investment Trust ("Temple REIT") (TSX: TR.UN) today reported its financial results for the quarter ended June 30, 2012.  The following comments in regard to the financial position and operating results of Temple REIT should be read in conjunction with the Management Discussion & Analysis and the financial statements for the quarter ended June 30, 2012, which may be obtained from the Temple REIT website at www.treit.ca or the SEDAR website at www.sedar.com.Monetary data in tabular form, unless otherwise indicated, are in thousands of Canadian dollars, except for per unit, average daily rate ("ADR"), and revenue per available room ("RevPAR") amounts.Operating ResultsAs summarized in the following chart, Temple REIT has continued to achieve growth in the majority of key revenue, income and cash flow measurements during the second quarter of 2012. Three Months Ended June 30Six Months Ended June 30 2012201120122011     Total Revenue *$23,189$18,703$44,731$35,370Operating income *$8,764$6,952$16,660$12,572Net income before change in fair value of financial     instruments and income tax expense$1,476$1,686$1,285$2,087Net income (loss)$3,977$2,168$4,296$(163)Cash flow from operating activities$244$2,713$943$4,768Distributable income$1,754$2,482$6,305$4,591Funds from operations$3,784$3,583$5,585$5,720Distributions$2,988$1,836$5,572$3,653DI payout ratio170.2%73.9%88.4%79.6%FFO payout ratio78.9%51.2%99.8%63.9%     Occupancy **70%72%70%68%ADR **$156.11$148.15$155.17$146.94RevPar **$108.83$106.37$108.98$100.52* The "same property portfolio" for Q2-2012 accounted for 19% of the increase in total revenue and 20% of the total increase in operating income.** For the "same property" portfolio, the occupancy rate for Q2-2012 was 68% (72% in Q2-2011), the ADR was $162.41 ($148.15 in Q2-2011) and the RevPar was $111.07 ($106.37 in Q2-2011).Net IncomeNet income increased by $1.81 million during Q2-2012, compared to Q2-2011.  Net income for Q2-2012 includes income of $3.28 million in regard to the change in fair value of financial instruments.Excluding income taxes and the income related to the change in fair value of financial instruments, net income decreased by $0.21 million during Q2-2012, compared to Q2-2011. The decrease mainly reflects a $1.30 million increase in interest expense and a $0.63 million increase in amortization and depreciation, partially offset by an increase in operating income of $1.81 million.The increase in operating income includes $1.41 million from the four new hotels acquired by Temple REIT between December 2011 and June 30, 2012, including two hotels which were acquired during Q2-2012. Operating income from the "same property" portfolio increased by $0.37 million or 5% during the second quarter of 2012, compared to the second quarter of 2011.The increase in interest expense mainly reflects incremental interest on the mortgage loan debt of the new hotels as well as interest on new convertible debenture debt issued this year.Cash FlowExcluding working capital adjustments, cash from operating activities decreased by $0.57 million during Q2-2012, compared to Q2-2011, mainly due to an increase in interest paid, partially offset by an increase in the cash component of operating income. Cash from operating activities, including working capital adjustments, decreased by $2.47 million in Q2-2012 compared to Q1-2011.Distributable IncomeDuring Q2-2012, distributable income decreased by $0.73 million or 29%, compared to Q2-2011. The decrease in cash from operating activities and, as a result, distributable income in Q2-2012 is partially attributable to the fact that the return on new capital is gradually being realized as new hotel properties are acquired whereas the cost of new capital has an immediate impact on income and cash flow results.For the six month period ended June 30, 2012, distributable income increased by $1.71 million compared to the six-month period ended June 30, 2011. Distributions represented 88.4% of distributable income during the six-month period ended June 30, 2012, compared to 79.6% during the six-month period ended June 30, 2011.Hotel PortfolioOn August 1, 2012, Temple REIT acquired the 160-room Hilton Garden Inn in Edmonton, Alberta. The $31 million acquisition was funded by a first mortgage loan of $20 million, with the balance in cash.Since December 1, 2011, Temple REIT has acquired 5 new hotels at a total combined purchase price of $120 million.  The new hotels include the Hilton Garden Inn, the Regina Wingate Inn in December 2011, the Radisson Inn and Suites in February 2012, the Clearwater Suites Timberlea in May 2012 and the Inn at the Quay in June 2012.  The property portfolio of Temple REIT currently consists of 15 hotels with a total of 1,868 guest rooms.  The $12 million upgrade program at the Sheraton Red Deer also resulted in the addition of 23 guest rooms in December 2012.In comparison to the property portfolio at June 30, 2011, the expanded portfolio of Temple REIT represents an increase of 349 guest rooms and an increase in annualized operating income potential in the estimated amount of $9 million.Subsequent to June 30, 2012, Temple REIT announced that it has agreed to acquire the Acclaim Hotel Calgary Airport for $42 million. The existing hotel opened in 2009 and consists of 123 guestrooms. An expansion is underway which will add an additional 102 guestrooms. The expansion is expected to be completed in the summer of 2013 and the acquisition is scheduled to close on the later of October 1, 2013 or 60 days after completion.Financing Activities subsequent to June 30, 2012On August 8, 2012 Temple REIT completed a $46 million public offering of 7.25% Series E convertible debentures. After deducting transaction and issue costs the net proceeds were approximately $43.6 million. The net proceeds will used to fund additional acquisitions of income producing hotel properties, to repay existing debt, for general trust purposes, and for working capital.12.5% Distribution IncreaseAs previously reported, the Trustees have approved an increase in the monthly distribution from $0.04 to $0.045, effective with the September 2012 distribution, payable on October 15, 2012.FINANCIAL AND OPERATING STATISTICS   June 30, 2012Dec. 31, 2012BALANCE SHEET   Total Assets$ 389,618 $ 282,553  Total Long-Term Debt and Convertible Debentures (at face value)$ 289,325 $ 205,401  Three Months Ended Six Months Ended  June 30 June 30  2012201120122011DISTRIBUTIONS     Amount - total$ 2,988 $ 1,836 $ 5,572 $ 3,653  - per unit$ 0.12 $ 0.10 $ 0.24 $ 0.20 KEY PERFORMANCE INDICATORS    Operations:     Occupancy70%72%70%68% ADR$156.11$148.15$155.17$146.94 RevPar$108.83$106.37$108.98$100.52 Operating profit margin38%37%37%36%Operating results:     Total revenue$ 23,189 $ 18,703 $ 44,731 $ 35,370  Operating income$ 8,764 $ 6,952 $ 16,660 $ 12,572  Net income (loss)$ 3,977 $ 2,168 $ 4,296 $ (163) Cash flows:     Cash flow from operating activities$ 244 $ 2,713 $ 943 $ 4,768  Distributable income$ 1,754 $ 2,482 $ 6,305 $ 4,591  Funds from operations$ 3,784 $ 3,583 $ 5,585 $ 5,720 Financing:     Weighted average interest rate of long-term debt6.34%6.63%6.34%6.63%     PER UNIT AMOUNTSBasicBasicBasicBasic Net income$0.16$0.12$0.19$(0.01) Cash flow from operating activities$0.01$0.15$0.04$0.28 Distributable income$0.07$0.14$0.27$0.27 Funds from operations$0.15$0.20$0.24$0.34Q2-2012 COMPARED TO Q2-2011Analysis of Net income (loss)  Three Months Ended  Six Months Ended   June 30  June 30     Increase/   Increase/  2012 2011(Decrease)2012 2011 (Decrease)Revenue       Room revenue$ 16,091$ 11,891$ 4,200$ 30,884$ 22,352 $ 8,532 Other hotel revenue7,0986,81228613,84713,018829 Total revenue23,18918,7034,48644,73135,3709,361Hotel operating costs14,42511,7512,67428,07122,7985,273Operating income8,7646,9521,81216,66012,5724,088Interest expense, net4,3933,0971,29610,2196,4333,786Trust expense48939495672520152Depreciation and amortization2,4061,7756314,4843,532952 1,4761,686(210)1,2852,087(802)Change in fair value of financial       instruments: gain (loss)3,2831,0302,2533,630(1,984)5,614Income taxes expense(782)(548)(234)(619)(266)(353)Net income (loss)$3,977$ 2,168$ 1,809$ 4,296$ (163)$ 4,459Income before the change in fair value of financial instruments and income taxes decreased by $0.21 million during Q2-2012 compared to Q2-2011. The decrease reflects an increase in interest expense (net), trust expense and depreciation and amortization of $1.30 million, $0.09 million and $0.63 million, respectively, largely offset by an increase in operating income of $1.81 million. After providing for the change in fair value of financial instruments and income taxes, Temple REIT completed Q2-2012 with a net income of $3.98 million, compared to net income of $2.17 million during Q2-2011, representing an increase in income of $1.81 million.For the first six months of 2012, income before the change in fair value of financial instruments and income taxes decreased by $0.80 million, compared to the first six months of 2011. The decrease reflects an increase in interest expense (net), trust expense and depreciation and amortization of $3.79 million, $0.15 million and $0.95 million, respectively, partially offset by an increase in operating income of $4.09 million. After providing for the change in fair value of financial instruments and income taxes, Temple REIT completed the first six months of 2012 with a net income of $4.30 million, compared to a net loss of $0.16 million during the first six months of 2011, representing an increase in income of $4.46 million.RevenueAnalysis of Total Hotel Revenues Three Months Ended June 30  Six Months Ended June 30    Increase/  Increase/        2012       2011 (Decrease) 2012 2011 (Decrease) Total - Same Properties                                                                                     Room revenue$ 12,760 $ 11,891 $ 869 $ 25,672 $ 22,352 $ 3,320  Other hotel revenue6,774 6,812 (38) 13,350 13,018 332  Total Hotel Revenue$ 19,534 $ 18,703 $ 831 $39,022 $35,370 $3,652 Total - Newly AcquiredProperties                                                                                     Room revenue$ 3,331 $ N/A $ 3,331 $ 5,212 $ N/A $5,212  Other hotel revenue324 N/A 324 497 N/A 497  Total Hotel Revenue$ 3,655 $ N/A $ 3,655 $ 5,709 $ N/A $ 5,709        Total                                                                                     Room revenue$ 16,091 $ 11,891 $ 4,200 $ 30,884 $ 22,352 $ 8,532  Other hotel revenue7,098 6,812 286 13,847 13,018 829  Total hotel revenue$ 23,189 $ 18,703 $4,486 $ 44,731 $ 35,370 $ 9,361 Room RevenueDuring Q2-2012, total room revenue increased by $4.20 million or 35%, compared to Q2-2011, comprised of an increase of $0.87 million or 7% in "same property" revenue and incremental revenue of $3.33 million from new hotel acquisitions.  With the exception of Chateau Nova, the room revenue for all of the hotels in the "same property" portfolio increased during Q2-2012.During the first six months of 2012, room revenue increased by $8.53 million or 38%, compared to the first six months of 2011, comprised of an increase of $3.32 million or 15% in "same property" revenue and incremental revenue of $5.21 million from new hotel acquisitions.All of the "same property" hotels, with the exception of Chateau Nova experienced an improvement in RevPar in Q2-2012 compared to Q2-2011. RevPar for the total "same properties" portfolio increased by $4.70, largely on the strength of a $14.26 increase in the average daily room rate (ADR). Sheraton Red Deer had the largest increase in RevPar of $8.81 in Q2-2012, compared to Q2-2011, as a result of an increase in both ADR and occupancy level.Room Revenue Statistics Three Months Ended June 30  2012 2011  OccADRRevParOccADRRevPar       Total - Same Properties68%$ 162.41$ 111.0772% $ 148.15$ 106.37       Total - Newly Acquired Properties73% $ 142.78$ 103.80N/AN/AN/A       Overall Portfolio70%$ 156.11$ 108.8372%$ 148.15$ 106.37 Room Revenue Statistics Six Months Ended June 30  2012 2011  OccADRRevParOccADRRevPar       Total - Same Properties70%$ 160.63$ 112.2668%$ 146.94$ 100.52       Total - Newly Acquired Properties71%$ 143.06$ 101.60N/AN/AN/A       Overall Portfolio70%$ 155.17$ 108.9868%$ 146.94$ 100.52Hotel Operating CostsDuring Q2-2012, hotel operating costs increased by $2.67 million, compared to Q2-2011, comprised of an increase of $0.46 million or 4% for the "same property" portfolio and $2.21 million attributable to new hotel acquisitions.  All of the hotels in the "same property" portfolio experienced an increase in operating costs during the Q2-2012 with the exception of the Wayside Inn and Suites. The Fort McMurray hotel portfolio accounted for 47% of the gross increase in "same property" operating costs.During Q2-2012, operating costs for the Fort McMurray "same property" hotel portfolio increased by $0.22 million or 7%, while hotel revenues increased by $0.27 million or 4%. The increase in the Fort McMurray operating costs generally reflects an increase in variable costs related to the increase in room revenue of the hotel portfolio, including an increase in labour costs. Operating costs for the Sheraton Red Deer increased by $0.20 million or 5% during Q2-2012, while hotel revenues increased by $0.26 million or 5%.  For the first six months of 2012, the increase in operating costs for the Sheraton Red Deer exceeded the increase in revenue by $0.17 million mainly due to increased labour and training costs following the completion of the hotel renovations in December 2011 and the commencement of operations under the "Sheraton" hotel banner.During the first six months of 2012, hotel operating costs increased by $5.27 million, compared to the first six months of 2011, comprised of an increase of $1.63 million or 7% for the "same property" portfolio and $3.64 million attributable to new hotel acquisitions.  The Sheraton Red Deer and the Fort McMurray hotel portfolio accounted for 49% and 40% of the total increase in "same property" operating costs, respectively.Hotel operating costs for the six months ended June 30, 2012, include $0.23 million of non-recurring costs related directly to the acquisition of the new hotels, compared to nil for the first six months of 2011.Operating Income and Profit Margin Operating  Income Amount            .Operating Profit Margin  Three Months EndedSix Months Ended Three Months Ended Six Months Ended  Q2 Q2 Q2 Q2 Q2 Q2 Q2 Q2  2012 2011 2012 2011 2012 2011 2012 2011 Total - Same Properties$ 7,323 $ 6,952 $ 14,593 $ 12,572 37% 37% 37% 36% Total - Newly AcquiredProperties$ 1,441 $ N/A $ 2,067 $ N/A 39% N/A N/A N/A          Total portfolio$ 8,764 $ 6,952 $ 16,660 $ 12,572 38% 37% 37% 36% Operating income increased by $1.81 million or 26% during Q2-2012, compared to Q2-2011, comprised of an increase of $0.37 million or 5% for the "same property" portfolio and $1.44 million attributable to new hotel acquisitions. The increase in "same property" operating income is mainly attributable to an increase in operating income for Temple Gardens and the Wayside Inn and Suites.  All of the other "same property" hotels also experienced an increase in operating income, with the exception of the Chateau Nova.For the first six months of 2012, operating income increased by $4.09 million or 33% compared to the first six months of 2011, comprised of an increase of $2.02 million or 16% for the "same property" portfolio and $2.07 million attributable to new hotel acquisitions. The increase in "same property" operating income is mainly attributable to an increase in operating income for the Fort McMurray "same property" portfolio and to a lesser extent, at Temple Gardens and the Wayside Inn and Suites, partially offset by a decrease in operating income at the Sheraton Red Deer and Chateau Nova.The overall profit margin of the entire hotel portfolio increased from 37% during Q2-2011, to 38% during Q2-2012.  For the six months ended June 30, 2012, the overall profit margin increased to 37%, compared to 36% for the six months ended June 30, 2011.COMPARISON TO PRIOR QUARTERAnalysis of Net Income(loss) - Q2-2012 vs. Q1-2012   Increase/  Q2-2012 Q1-2012 (Decrease) Revenue    Room$ 16,091 $ 14,793 $1,298  Other7,098 6,749 349  Total revenue23,189 21,542 1,647 Hotel operating costs      14,425 13,646 779 Operating income8,764 7,896 868 Interest expense, net4,393 5,825 (1,432) Trust expense489 183 306 Depreciation and amortization2,406 2,078 328  1,476 (190) 1,666 Change in fair value of financial instruments: gain3,283 347 2,936 Income taxes recovery (expense)(782) 163 (945) Net income$ 3,977 $ 320 $3,657 Income before the change in fair value of financial instruments and income taxes increased by $1.67 million during Q2-2012, compared to Q1-2012. The increase in income mainly reflects a $0.87 million or 11% increase in operating income, and a $1.43 million or 24.6% decrease in interest expense (net). The increase in operating income is almost entirely attributable to new hotels. The decrease in interest expense (net) reflects a decrease in convertible debenture transaction costs partially offset by an increase in mortgage loan and convertible debenture interest.  Convertible debenture transaction costs were comparatively high in Q1-2012 as the transaction costs for the Series D convertible debentures were fully expensed in the first quarter.After reflecting income tax expense, and the loss associated with the change in fair value financial instruments, net income increased by $3.66 million, during Q2-2012 compared to Q1-2012.  The variance in the fair value gain of $3.28 million during Q2-2012, compared to the fair value gain of $0.35 million during Q1-2012, served to increase income for the second quarter of 2012 by $2.94 million compared to Q1-2012.  The variance in fair value reflects variations in the net change in the quarter-ended trading price of the "fair-valued" financial instruments.Room Revenue Statistics Q2-2012 Q1-2012  Occ ADR RevPar Occ ADR RevPar Total - Same Properties68% $ 162.41 $ 111.07 71% $ 158.93 $ 113.46        Total - Newly Acquired Properties73% $ 142.78 $ 103.80 65% $ 159.75 $ 103.08        Overall Portfolio70% $ 156.11 $ 108.83 70% $ 159.07 $ 111.57 OUTLOOKThe proceeds from the convertible debenture offering that closed on August 8, 2012 combined with the existing cash reserves have provided Temple REIT with the capacity to further expand the portfolio of income-producing hotel properties by $250 million. Temple REIT will continue to pursue the acquisition of quality hotel properties in prime locations, with the objective of increasing distributable income and maximizing unit value over the long-term.The operating income from new hotels to be acquired this year and lower interest rates on maturing higher cost mortgage debt are also expected to contribute to growth in quarterly earnings.ABOUT TREITTemple REIT is a real estate investment trust, which is listed on the Toronto Stock Exchange under the symbols TR.UN (trust units), TR.DB.B, TR.DB.C, TR.DB.D, TR.DB.E and TR.DB.S (convertible debentures).  The objective of Temple REIT is to provide Unitholders with stable cash distributions from investment in a geographically diversified Canadian portfolio of hotel properties and related assets.  For further information on Temple REIT, please visit our website at www.treit.ca.This press release contains certain statements that could be considered as forward-looking information.  The forward-looking information is subject to certain risks and uncertainties, which could result in actual results differing materially from the forward-looking statements.The Toronto Stock Exchange has not reviewed or approved the contents of this press release and does not accept responsibility for the adequacy or accuracy of this press release.     SOURCE: Temple REITFor further information: Arni Thorsteinson, Chief Executive Officer, or Gino Romagnoli, Investor Relations Tel: (204) 475-9090, Fax: (204) 452-5505, Email: info@treit.ca