December 10, 2018

Temple Real Estate Investment Trust (TR)

The Temple Real Estate Investment Trust (TR) is a REIT that is focused exclusively on buying hotel properties across Canada.  Temple REIT has three main objectives: to generate stable and growing cash distributions on a tax-efficient basis (like all REITs), to enhance the value of assets and maximize long-term unit value through the active management of its assets, and to expand the asset base and increase distributable income through the acquisition of additional properties.  Temple REIT (TR) is still a fairly young trust.  It began publically trading on the Toronto Stock Exchange on October 3, 2006.  The first property the trust purchased was the Temple Gardens Mineral Spa in Moose Jaw, Saskatchewan (connected to Casino Moose Jaw).  It is a full-service hotel and spa. As of December 31, 2008 the REIT had nine hotel properties (1,170 total rooms) and currently has a fairly small market capitalization of just under $59 million.  The total assets under management of the trust stand at over $200 million.

 

What investing in Temple REIT (TR) really amounts to right now, is an interesting bet on the Fort McMurray oil fields.  The REIT has basically cornered the market on this oil boom town in Northern Alberta.  In the relatively small city, Temple owns five hotel properties that offer a total of 500 rooms.  While this is a potentially lucrative market to corner (the city had the highest household income in Canada last year – by far), it is also a somewhat risky investment because of the all the extraneous threats beyond what Temple REIT (TR) can control.  For example, if the price of oil goes way down (which it has been thanks to new fracking technology and a worldwide economic slump), then Fort McMurray would be hugely affected thanks to its one-industry reliance on oil and natural gas.  On the other hand, the amount of money that passes through “Fort Mac” as it is affectionately known, make those properties worth a substantial amount of money at the moment.

 

Temple REIT does have some high-scale holdings outside of Fort McMurray, including their most recent acquisition of a 218-room hotel and conference centre in Red Deer, Alberta.  Management has labelled this venture as an excellent opportunity to invest money in the property and substantially increase its earning potential.  The trust also owns the Chateau Nova in Yellowknife, Northwest Territories.  This is a unique property, with a true Northern flavour, as it includes Papa Jim’s Roadhouse restaurant, a full service lounge, spa services, conference rooms, and a fitness centre.  Temple REIT (TR) also owns the Best Western in Lloydminster, Alberta.

 

This REIT is a very interesting niche real estate play.  Their heavy focus in Fort McMurray literally means the trust could boom or bust.  I like their strategy of targeting small cities in secondary markets where there is much less competition.  The small market capitalization scares me a little though from a stability perspective.  Temple REIT (TR) closed at $4.55, and that is very close to its 52-week high.  It currently has a dividend ratio of 9%.  There is definitely a part of me that wonders if this trust wouldn’t make a great acquisition target for some of the larger Canadian REITs out there.  If that were to happen, it might leave unitholders in an enviable position.