Morguard is already the majority shareholder in Temple Hotels, which owns and operates a portfolio across Canada. Its offer is for $2.10 per common share for all shares it does not own (Temple has about 75 million shares outstanding, with Morguard owning almost 54.4 million or 72.6 per cent).
Morguard says in the release the offer is an 18 per cent premium on the Nov. 14 closing share price on the TSX and a 16.9 per cent premium on the 20-day volume weighted average trading price.
According to Temple’s website, its portfolio includes 29 properties in seven provinces and territories: Alberta (12 hotels), British Columbia (one property), Saskatchewan (three), Manitoba (one), Ontario (seven), Nova Scotia (three) and two hotels in the Northwest Territories.
Temple history, portfolio
Formed in 2006 as Temple REIT, the trust was converted to a corporation in 2012.
Temple is heavily invested in secondary markets, including its largest concentration of eight hotels in Fort McMurray, Alta., which has suffered drastically both from an oil price collapse and a devastating 2016 wildfire which destroyed a portion of the city.
Temple shares traded above $35 during the company’s heyday in 2014, but slid dramatically during the collapse of oil and other natural resources prices from late 2014 through 2016. They’ve never recovered, with a current 52-week high and low of $2.56 and $1.52.
Morguard invested in the company during 2015 and 2016, taking effective control of Temple when its own executives replaced Temple’s existing management in early 2016. That followed months of shareholder activism and controversy amid the declining share prices and reductions in dividends.
Morguard’s chairman and CEO Rai Sahi became Temple’s CEO at that time.
Alberta holdings underperform
In its Q3 2019 financial report, the ongoing drain being caused by the Fort McMurray properties and its other Alberta holdings, was evident. Temple’s hotels outside the province had 79 per cent occupancy and revenues comparable to 2018 numbers.
In the Fort McMurray holdings, occupancy slid six per cent to 42 per cent and revenue per available room (REVPAR) tumbled from $67.48 to $52.11. Its other four Alberta hotels, which the company accounts as a distinct portfolio, suffered similar declines.
One bright spot for Temple was in a reduction of its heavy debt load. Temple paid down $5 million and refinanced two mortgage loans at significantly lower interest rates, and repaid a third as the quarter ended.
In recent weeks, it also refinanced and paid down $14 million on another load involving one of its Fort McMurray properties.
As of Sept. 30, Temple’s total debt was $381.8 million, down $75.6 million (from $457.5 million) during the first nine months of the year.
However, Temple’s operating profit margin through Q3 2019 declined to 22 per cent from 27 per cent a year earlier.
Minority shareholder approval
Due to the nature of the transaction, it must be approved by a “majority of the minority” shareholders, which Morguard expects to receive. G2S2 Capital Inc. and Simé Armoyan, which own 12,714,834 Temple shares or 16.9 per cent, have entered into agreements to support and vote in favour of the transaction.
Morguard said it believes this support would be enough to obtain all necessary shareholder approvals.
The release also states Morguard has informed Temple, “it is not prepared to entertain alternative transactions and has no intention of disposing of its holding in Temple.”
Morguard’s total assets owned and under management are valued at $21.3 billion. The company owns a diversified portfolio of 208 multi-suite residential, retail, office, industrial and hotel properties comprised of 17,638 residential suites, approximately 17.0 million square feet of commercial leasable space and 5,903 hotel rooms.
Morguard also owns a 58.1 per cent interest in Morguard REIT, a 44.8 per cent effective interest in Morguard North American Residential REIT in addition to its interest in Temple Hotels. It also provides advisory and management services to institutional and other investors.