Temple REIT reports 2011 operating results

WINNIPEG, April 24, 2012 /CNW/ - Temple Real Estate Investment Trust ("Temple REIT") (TSX Venture: TR.UN) today reported its financial results for the year ended December 31, 2011.  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 year ended December 31, 2011, which may be obtained from the Temple REIT website at www.treit.ca or the SEDAR website at www.sedar.com.

HIGHLIGHTS FOR 2011

Operating Results

Temple REIT achieved substantial growth in key revenue, income and cash flow measurements during 2011. A summary of the 2011 and 2010 comparatives is provided below:

• Total revenue: Increased by $7.63 million or 12%;
• Operating income: Increased by $2.94 million or 14%;
• Net income, before loss on disposal of property and equipment, change in fair value of financial instrumentsand income tax expense (recovery): Increased by $3.48 million or 305%;
• Cash flow from operating activities: Increased by $9.40 million or 172%;
• Distributable Income: Increased by $5.23 million or 134%; and
• Funds From Operations (FFO): Increased by $3.49 million or 60%.

Comparison of Operating Statistics

⁽¹⁾ Amounts based on weighted average number of units outstanding for the year.

Sheraton Red Deer Hotel

After undergoing $12 million of renovations, Temple REIT's largest hotel, the Sheraton Red Deer in Red Deer, Alberta, officially reopened under the "Sheraton" hotel banner in December 2011. The newly renovated Sheraton Red Deer Hotel features 241 remodelled guest rooms and suites, including the addition of 24 new rooms, as well as a renovated conference centre encompassing 14 meeting rooms, a ballroom and an exhibit hall. As the only four star hotel and conference centre in central Alberta, the Sheraton Red Deer Hotel is expected to be a significant contributor to "same property" income growth in 2012 and beyond.

Regina Wingate Inn

On December 1, 2011, Temple REIT acquired the Regina Wingate Inn at a purchase price of $16.15 million, funded by $12 million of 5.04% mortgage loan debt with the balance in cash. The seven-storey hotel, which opened in 2008, contains 118 guestrooms and is located in downtown Regina directly across from the Casino Regina and two blocks from the proposed site of the new football stadium.

Best Western Wayside Inn

During 2012, Temple REIT completed $0.41 million of capital expenditures at the Best Western Wayside Inn in Lloydminster, Alberta, consisting primarily of guest room upgrades. The improvements contributed to a 25% increase in the RevPar of the hotel during 2011.

Unit and Convertible Debenture Offerings 

During 2011, Temple REIT raised $43 million of new capital, comprised of $20 million from a public offering of trust units in February 2011 and $23 million from a public offering of 8% Series C convertible debentures in November 2011. After deducting transaction and issue costs the net proceeds were approximately $40 million.

The net proceeds were primarily used to retire higher cost interest-only interim debt, reduce the balance of the 6.83% first mortgage loan of the Clearwater Hotel by $23 million, fund the equity component of the Regina Wingate Inn acquisition and for working capital. The reduction of the mortgage loan debt for the Clearwater Hotel included a "temporary" pay down of $14 million in November 2011. The $14 million payment was effectively returned to Temple REIT in January 2012 upon the refinancing of the Clearwater Hotel first mortgage loan.

Cash Distributions

Effective April 1, 2011, Temple REIT changed from a quarterly distribution policy to a monthly distribution policy. Effective October 1, 2011, the monthly distribution was increased from $0.03334 per unit to $0.04 per unit, representing an increase from $0.40 per unit to $0.48 per unit on an annual basis. Total distributions in 2011 were $0.42 per unit, compared to $0.40 per unit in 2010.

2011 COMPARED TO 2010

Income, before loss on disposal of property and equipment, change in fair value of financial instruments and income taxes, increased by $3.48 million during 2011 compared to 2010. The increase is mainly due to an increase in operating income of $2.94 million and a decrease in interest expense, net of $0.73 million.

After providing for the loss on disposal of property and equipment, change in fair value of financial instruments and income taxes, Temple REIT completed 2011 with a net loss of $3.03 million, compared to a net loss of $3.56 million, representing a decrease in net loss of $0.53 million.

During 2011, Temple REIT recorded an expense of approximately $5 million as a result of a change in the fair value of financial instruments, compared to an expense of approximately $3 million in 2010. The change in fair value mainly reflects an increase in the trading price of the Series B and Series S convertible debentures during 2011. The expense related to the change in fair value represents a non-cash transaction which does not impact operating cash flow.

As disclosed in the following chart, room revenue increased during 2011 by $5.52 million or 14%, compared to 2010 with $4.17 million or 76% of the increase attributable to the Fort McMurray hotel portfolio.  All of the hotels, with the exception of the Sheraton Red Deer contributed to the room revenue increase, including the Best Western Wayside Inn which achieved a room revenue increase of $0.86 million (16% of the total room revenue increase) and newly acquired Regina Wingate Inn which generated room revenue of $0.22 million (4% of the total room revenue increase) during the month of December 2011.

Other hotel revenue increased by $2.12 million or 9% during 2011, compared to 2010.  The increase in other hotel revenue is mainly attributable to the Best Western Wayside Inn, Temple Gardens Mineral Spa and the Sheraton Red Deer.

As disclosed in the table below, RevPar for the Fort McMurray hotel portfolio increased by $18.26 during 2011, compared to 2010, mainly due to an increase in the occupancy level, partially offset by a decrease in the average daily room rate (ADR).  RevPar for the Best Western Wayside Inn increased by $18.52 during 2011, compared to 2010, mainly due to an increase in the occupancy level. The renovations at the Sheraton Red Deer and the temporary removal of a number of guest rooms from the market during the process of completing guest room upgrades resulted in a decrease in room revenue during the second half of 2011 and served to offset the revenue increases which were achieved by the hotel during the first half of 2011.

COMPARISON TO PRIOR QUARTER

Income before loss on disposal of property and equipment, change in fair value of financial instruments and income taxes decreased by $1.64 million during Q4-2011, compared to Q3-2011.  The decrease in income mainly reflects a $1.71 million increase in interest expense, net. The increase in interest expense mainly comprised of transaction costs of $1.62 million relating to the November 2011 convertible debenture issuance.  In accordance with IFRS, convertible debentures are carried at fair value and transaction costs are charged to interest expense as incurred.

During Q4-2011, operating income increased by $0.16 million or 3%, compared to Q3-2011.  The increase in operating income is mainly due to an increase in operating income at the Sheraton Red Deer reflecting an increase in room and other revenue upon completion of the guest room upgrades.

As disclosed in the following chart, the occupancy level of the Sheraton Red Deer increased from 32% in Q3-2011 to 41% in Q4-2011, while the average daily room rate increased by 18.0%.  For the Fort McMurray hotel portfolio, the occupancy level decreased from 73% to 59%, while the average daily room rate increased by a marginal amount.  The remainder of the hotel portfolio experienced a decrease in the occupancy level and an increase in the average daily room rate.  After considering the overall decrease in occupancy levels and the overall increase in the average daily room rates, the RevPar of the hotel portfolio was $88.44 during Q4-2011, compared to $101.40 during Q3-2011.

After reflecting income tax expense, the loss on disposal of property and equipment and the loss associated with the change in fair value financial instruments, net income decreased by $7.84 million, during Q4-2011 compared to Q3-2011.  The variance in the fair value loss of $5.04 million during Q4-2011, compared to the fair value gain of $2.04 million during Q3-2011, served to decrease income for the fourth quarter of 2011 by $7.08 million, compared to Q3-2011.  The variance in fair value mainly reflects an increase in the quarter-ended trading price of the convertible debentures in Q4-2011, compared to Q3-2011.

OUTLOOK

During 2012, Temple REIT will remain focused on achieving earnings growth through new hotel acquisitions, accretive hotel improvements and efficient use of capital resources. Improving market conditions in Fort McMurray, the re-opening of the Sheraton Red Deer Hotel and reduced mortgage interest costs are expected to result in further growth in operating income for the "same property" portfolio.

The growth expectations for 2012 are bolstered by a number of positive events which have occurred subsequent to December 31, 2011, as follows:

Financing Activities

• In January 2012, a new 5.4% first mortgage loan of $26 million was obtained for the Clearwater Hotel, resulting in net proceeds of approximately $19.6 million.
• On March 1, 2012 Temple REIT raised $54.63 million of new capital through a public offering, comprised of $34.5 million of 7.75% convertible debentures and $20.13 million of trust units. After deducting transaction and issue costs the net proceeds were approximately $51.6 million.

Investment Activities

On January 25, 2012 Temple REIT acquired approximately 17% of the issued and outstanding trust units of Holloway Lodging REIT at a purchase price of $7,040,000. ($0.055 per trust unit). Holloway Lodging REIT is also a "hotel REIT" and its portfolio includes a number of hotel properties primarily located in northern Alberta.

After including the units which Temple REIT acquired in 2008, Temple REIT ownership interest in Holloway Lodging REIT increased to approximately 21% of the total issued and outstanding units. The trust unit acquisition represents an indirect investment in a large portfolio of hotel properties with the potential for capital gains or other growth opportunities.

On February 1, 2012, Temple REIT acquired the Radisson Hotel and Suites in Fort McMurray, Alberta at a purchase price of $25.1 million, funded by $15 million of first mortgage loan debt with the balance in cash. The five-storey hotel contains 134 guest rooms, including 28 suites, as well as meeting facilities, heated indoor pool, full-service restaurant and other amenities. Temple REIT will be undertaking a $2.7 million capital expenditure program at the hotel over a period of approximately 18 months.

In summary, Temple REIT is well positioned to expand its asset base and achieve earnings growth in 2012 with the primary investment objective of increasing distributable income and maximizing long-term unit value

ABOUT TREIT

TREIT is a real estate investment trust, which is listed on the TSX Venture Exchange under the symbols TR.UN (trust units), TR.DB.A, TR.DB.B, TR.DB.C and TR.DB.S (convertible debentures).  The objective of TREIT 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 TREIT, 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 TSX Venture 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.