Temple REIT Plans Distribution Increase in 2012

Arni Thorsteinson has reason to smile.

The CEO of Temple REIT (TREIT) TR.UN-X has just bought more properties, posted positive numbers for 2011, and expects to reward unitholders with a healthy raise in distribution in 2012.

“We are budgeting for another substantial increase this year,” says Thorsteinson from his Winnipeg office, “and over the first four months we are ahead of that budget.”

TREIT is a real estate investment trust focused on hotel properties – a rarity in the Canadian REIT market.

With 14 hotels across western Canada, TREIT is uniquely positioned to capitalize on the energy boom gripping oil-producing provinces.

“Fort McMurray and Lloydminster are probably the two strongest markets in the country,” says Thorsteinson, “and we dominate those markets with the largest hotels.”

2011 Year End

Last week, TREIT released financial results for 2011 citing “substantial growth in key revenue, income and cash flow measurements”. Among the highlights:

• Total revenue increased 12% or $7.63-million;
• Operating income increased 14 % or $2.94-million; and
• Distributable income increased 134%.

Thorsteinson says the growth is based on three factors – acquisitions, booming hotel markets in the west and the low cost of borrowing money.

“A lot of our debt that has matured this year has been refinanced at lower rates, so the interest rate on our debt is going to decline by about 150-basis points in 2012. That reduced interest expense adds to the bottom line.”

Mortgages aside, the bottom line for any hotel REIT is filling rooms and Thorsteinson says Temple’s occupancy increased last year to 65% compared to 56% in 2010. The increase came despite a $13-million renovation to TREIT’s largest hotel, the Red Deer Sheraton, which took many of the rooms off-line for most of last year.

“Results from Red Deer were depressed in 2011 because of the construction,” he admits. “But we have 242 spanking new rooms now available for occupancy and will see a big increase in 2012 there.”

The tens of thousands of construction workers, engineers, and technologists seeking accommodations in energy markets across the west helped push TREIT’s Revenue per Available Room higher in 2011, from $85.55 to $94.62.

“The hotel business has generally increased dramatically in Alberta,” notes Thorsteinson, “but our occupancies have increased even better than the average,” which he attributes to location.

Strategic Buys

This week TREIT announced two new property acquisitions, with closings expected in May.

Inn at the Quay is a 126-room waterfront hotel overlooking the Fraser River in downtown New Westminster. The purchase price is $17.3-million with an estimated cap rate of 11%. Financing comes from a $12.1-million dollar mortgage at 5% for the first five of a 20-year term.

Clearwater Suites Timberlea is a 66-suite extended-stay building in Fort McMurray. TREIT paid $30.5-million, representing a cap rate of 11%, and will assume the existing $18.7-million mortgage at 5.375%.

Earlier this year, TREIT also purchased the 134-room Radisson Hotel in Fort McMurray.

Thorsteinson says TREIT now controls 40% of all hotel rooms in the northern Alberta boomtown, where the price of an average house is 70% higher than Calgary and 100% more than Edmonton.

“If you need a hotel room in Fort McMurray, you come to Temple,” he says.

Thorsteinson is still looking to buy more rooms in Alberta and Manitoba, using acquisition money raised from equity offerings in March and last November, which totalled $75-million and increased unitholders four-fold.

Keep Your Eye on the Oil

With the release of TREIT’s 2011 Operating Results, the Globe and Mail reported that Temple stock hit a year high and recommended the REIT as a small-cap stock to watch.

“We’re pretty optimistic for 2012,” says Thorsteinson.

TREIT is planning to increase distribution in mid-2012 from the current annual level of $0.48/unit.

“Our unitholders are focussed on distribution. We expect a 25% increase in distribution from 48-cents to 60-cents. That requires us to increase our distributable income from 50-cents to 80-cents, and we are on-track to achieve that this year.”

The increase is significant, but pales in comparison to TREIT’s banner year of 2008 when Thorsteinson says distribution was $1.00/unit. But he adds, “That’s where we hope to be in 2013 and 2014.”

Oil will play a pivotal role. TREIT rode soaring oil prices in 2007 and 2008 to occupancy and room rates which have yet to be matched. Crude prices have recovered to near-2008 levels, causing a “mini-boom” in the oil patch which is again boosting TREIT’s numbers.

“We are ahead of budget,” says Thorsteinson. “Bookings are very strong for the year in Fort McMurray. Same in the other energy markets like Lloydminster and Red Deer. We are very confident we will be able to achi

Paul is a writer, editor and media trainer based in Toronto with over 25 years of experience as a business reporter. He has written for Canada’s major news services on…

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Paul is a writer, editor and media trainer based in Toronto with over 25 years of experience as a business reporter. He has written for Canada’s major news services on…

Read more

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