Temple Hotels (TPH-T)

(A Top Pick February 15, 2017. Down 49%). This was a bad pick on his part. They own hotels in Alberta and he expected to see the company benefit when Alberta’s economy improved. It didn’t. Also, Morguard owns half the company. He expected that they might take the company private, and still expects this possibility, but it hasn’t happened yet.

He thinks there is a lot of value there. The issue is the balance sheet, but they did a recent rights issue that helped to shore it up. There will be some volatility, however. It is weak because of their Western Canadian exposure.

Largely in Western Canada and a lot in Fort McMurray. The fire may create some scarcity and the oil patch is picking up. He would hold on and maybe buy some.

The largest publicly traded hotel company in Canada, and operate under names such as Hilton, Marriott, Days Inn, etc. They own over 4000 hotel rooms in Canada. 50% of those are in Alberta, and half of those are in Fort Mac. That has caused the share price to underperform over the last couple of years. Thinks this is a bit of a restructuring turnaround story. Also, Morguard (MRG.UN-T) has taken a very large, over 50% equity stake in it. (Analysts’ price target is $0.90.)

Has been a disappointment to investors. It shows what can happen in the hotel industry when you use too much debt. The hotel industry is very cyclical, especially when you start buying hotels up in Canada’s northern region. He feels there is very little equity left in the company, and he is not a fan of it.

This was a bad call on his part. Had been invested in this for a long time, but finally threw up his hands and gave up in December for tax loss selling. Has a lot of exposure to Fort Murray. He probably would have ridden out the storm, but one of the things working against them, even before oil prices started to correct, was that they just kept coming back to the market and tapping capital markets for either convertible debentures or for equity. Sometimes management just gets too capital happy.

Has not done very well over the last a while. Have a lot of exposure to the oil patches. It does not trade at a high multiple. Dividend yield of 13.5%, which he does not expect them to cut. The CEO has recently bought back a lot of stock personally. They are trying to buy more hotels outside of the Fort McMurray area, to diversify their overall brand. Story is pretty good; it’s just that they have had a slip up in the last quarter.

The stock really got creamed. He is short this one. Once projects start to slow in the oil sands, the need for the accommodations declines.

For a while they had the corner on the hotel space in Fort McMurray and that has been their strength. They are still the dominant provider of accommodation and hotels there. Occupancy rates have been going down a little bit lately. There have been some concerns because some worker camps are starting to be built which is taking away some of their capacity. On the positive side, they just got the approval of owning the hotel next to the airport. Recently bought some hotels in Thunder Bay. There has been a lot of insider buying, so he thinks the dividend is pretty safe.

You have a base in 2010, then a run up and then flat to now. He does not want the recent low to be violated. He would run away.

9.5% dividend is not a red flag. He knows the company well. They have the potential to up the dividend, but realize it would be a red flag over 10%. They keep acquiring hotels. Adjusted funds from operations suggest it is very cheap. He wishes they would slow down their rate of acquisitions.

Hotels are a nightly lease so you don’t know the occupancy or what the rent is. They just bought a hotel in Saskatchewan. He is not in hotels in Canada.

Likes it. Dividend is safe. Dividend is very high. Leaves it below red flag level.

Not a big fan of lodging REITs. Operating margins tend to be much lower than the typical REIT. An operating business that tends to own their own real estate. Also it is dramatically over levered.

(A Top Pick April 13/12. Up 7.83%.) Big exposure to Western Canada, particularly Fort McMurray but they are diversifying quickly. Has taken some profits but continues to hold a little bit.