Above is a picture of my room at the Oasis in Wasaga Beach.I stayed here for Christmas and it was a nice break from my present environment.It was a new option for Christmas.Morguard Reit is looking at new options and this blog intends to point out other new optionsThis kind of strategic analysis is better done on Workathon than on Blogdaleupsome. Morguard is looking seriously at Temple Hotels.It is an attractive investment that has been covered by this blog before.In my November 21,2014 blog (on Blogdaleupsome) I mentioned that Temple Hotels had acquired six new properties in the last six months and four in the the third quarter.It also spent a lot of money on one of it's new acquisitions called the Saskatoon Inn.This put pressure on it's operating income and Temple responded by cutting it's dividend.This put pressure on the stock price and it fell more than this blog had predicted.The problem was exacerbated by the fall in the price of oil which increased the vacancy rate in their Fort Macmurray properties.This blog misunderstood the amount of distress caused by the reduction in oil prices and the length of the price drop.The blog on Blogdaleupsome predicted that Temple (TPH) would return to the $4to $5 level.Many investors thought that this would happen also because Temple has some good properties.In fact, their operating income has remained steady at $4 to $5 million level for the last four quarters.But revenue has stopped growing as their vacancy rate rises,especially in western Canada.
A likely Takeover
Morguard has been quietly accumulating common share and convertible debentures that can be converted into common shares.Their last purchase of 7 million common shares was bought at a premium;the price was at $1.07 when the stock traded at around $.90.Almost a 20% premium and they gave an early warning take over bid.So it is clear that they intend to purchase another 12% (at least) which will give them more than 50% and a controlling position.The price of the new common shares will likely have to be more than $1.07 as they will bring considerable impact.All that Temple Hotels(TPH) can do is sell some of it's properties that are causing a drag on EBITDA.It still has some good properties but too many in the Fort Macmurray area which has been hit hard.If TPH is going to allow a takeover then it has picked a pretty good partner.Morguard is diversified so that it can withstand the drop in oil prices.In fact, Morguard's operating income has increased over the last four quarters;it went from $83 million to $115 million.Temple would make a nice acquisition and would likely be accretive as it has operating income of $4 to $5 million over the last four quarters.
A Possible second Takeover
An option that was covered in my blog on Workathon of November 29,2015 is the possibility of Temple Hotels combining with Lanesborough Reit.Both have western Canadian properties and in the Fort Macmurray area.However there are synergies from combining the two.Temple Hotels has only hotels while Lanesborough has extended stay and senior residences.This makes a nice combination.Lanesborough's big project was Parson's Landing in the Yellowknife area and they had just taken it back from their financier.They were renovating it and improving cash flow but it is not yet complete.It has a positive capitalization rate now and it will be bigger when complete.In fact, Lanesborough has a very low price to book value.It's market capitalization is only $1 million while it's book value of assets is close to $440 million.This would certainly be a nice bonus for Morguard to couple with Temple once the takeover goes through at the right price.In this blog's opinion this would be an excellent sweetener for the Temple Hotels acquisition. As Lanesborough has had an operating income of about $4 million over each of the last four quarters.
Summary
Temple Hotels has little time left to mount a counter take over strategy.Any strategy would involve selling one or more assets with rising vacancy rates.This would reduce shareholder equity but produce badly needed cash.It would be easier to try and gain a good acquisition price from Morguard.In this blog's opinion a price of $1,25 to $1.40 a share would be the best that could be pulled down.On the other hand, Lanesborough which would make an excellent fit with Temple Hotels could be acquired for $1.5 to $2million and would bring with it at least $400 million in the book value of assets.This would make an excellent new division for Morguard in western Canada.
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