Temple, Lanesborough: The Oil Sands REITS

There are two Real Estate Investment Trusts that have large chunks of their business in Fort McMurray, Alberta. Temple REIT (TRLSF.PK) and Lanesborough REIT (LRTEF.PK). They are sister REITs and are run by CEO Arni Thorsteinson,

First let's take a look at Fort McMurray.

Fort Mac is the epicenter of the oil sands development.

From The Fort McMurray website:

"Experience the Energy"

Thank you to the over 5,000 people who participated in our tour program in 2007 and "Experienced the Energy" of Canada's massive economic giant (The Oil Sands). Watch this site for info regarding the 2008 season that will commence May 17.

Aerial Oil Sand Tours

Wood Buffalo Helicopters invites you to join them for a Heli-Tour of Fort McMurray and the oil sands. Lasting approximately one hour, tours can accommodate 4 or more passengers and is certainly a great way to grasp the true size of the oil sands operations. Custom tours can also be arranged.

Fort McMurray officials recently indicated that growth is now at 10% a year up from the previous 8% a year. The city is planning for a population of 250,000 from today's 80,000ish. That is an amazing growth rate.

The REITs

I last wrote about Temple REIT [TR.UN] on Feb 20th. Temple is a lodging (hotels) REIT with properties primarily located in Fort Mac. The trust is up 40% since February 20th, not to mention the monthly coupon of 1.3%.

Temple currently yields 10.7%. However, they just announced a distribution increase of 25% and the forward yield is roughly 13.2% or 1.1% a month. Temple pays monthly.

For more information on Temple please look at my previous article.

Temple's sister REIT Lanesborough REIT [LRT.UN] is a residential real estate (apartments) investment trust with 25% of their properties and units in Fort McMurruay AB.

Here is the breakdown:

They own 40 buildings

• 25% of their buildings are in Ft Mac (10)
• 28 are in Alberta and Saskatchewan
• 37 are in the west of Canada
• 3 are in Ontario

This does not include 3 new buildings in Fort Mac that are leased up and will be occupied during the 2nd quarter. By the 3rd quarter, 30% of their properties will be in Fort Mac.

Here are some of the Lanesborough rent increases in their Fort Mac properties:

I looked at a few buildings:

Building one

• Suites are going up from 2000/mo
• to 2400/mo

Building two

• I bedrooms are going up from
• 2200/mo to 2700/mo

Building three

• 2 bedrooms are going up from 2800/mo
• to 3100/mo

A conservative bulk price increase for the Fort Mac properties would be 10%, which is huge for a residential REIT.

The value of the properties they own in Fort Mac are increasing rapidly. The first building they bought in Fort Mac is Nelson Ridge. They paid 42 million for it n 2005 and it just appraised for 92 million.

The CEO has bought a million units in the open market this year. Here is a sample of the buys. The float is around 17 million units.

Lanesborough Real Estate Investment Trust (As of May 29th, 2008): 

• Jun 04/08 Jun 02/08 Thorsteinson, Arni Clayton Indirect Ownership Trust Units 10 - Acquisition in the public market 5,000 $4.850
• Jun 04/08 Jun 02/08 Thorsteinson, Arni Clayton Indirect Ownership Trust Units 10 - Acquisition in the public market 12,300 $4.830
• Jun 04/08 Jun 02/08 Thorsteinson, Arni Clayton Indirect Ownership Trust Units 10 - Acquisition in the public market 200 $4.820
• Jun 04/08 Jun 02/08 Thorsteinson, Arni Clayton Indirect Ownership Trust Units 10 - Acquisition in the public market 9,000 $4.810
• Jun 02/08 May 26/08 Thorsteinson, Arni Clayton Indirect Ownership Trust Units 10 - Acquisition in the public market 6,300 $4.850
• Jun 02/08 May 26/08 Thorsteinson, Arni Clayton Indirect Ownership Trust Units 10 - Acquisition in the public market 100 $4.840
• May 30/08 May 23/08 Thorsteinson, Arni Clayton Indirect Ownership Trust Units 10 - Acquisition in the public market 1,300 $4.750
• May 30/08 May 23/08 Thorsteinson, Arni Clayton Indirect Ownership Trust Units 10 - Acquisition in the public market 100 $4.730
• May 30/08 May 22/08 Thorsteinson, Arni Clayton Indirect Ownership Trust Units 10 - Acquisition in the public market 100 $4.790
• May 29/08 May 21/08 Thorsteinson, Arni Clayton Indirect Ownership Trust Units 10 - Acquisition in the public market 10,000 $4.800
• May 26/08 May 20/08 Thorsteinson, Arni Clayton Indirect Ownership Trust Units 10 - Acquisition in the public market 3,000 $4.710
• May 26/08 May 20/08 Thorsteinson, Arni Clayton Indirect Ownership Trust Units 10 - Acquisition in the public market 5,100 $4.730
• May 26/08 May 16/08 Thorsteinson, Arni Clayton Indirect Ownership Trust Units 10 - Acquisition in the public market 2,500 $4.740
• May 22/08 May 14/08 Thorsteinson, Arni Clayton Indirect Ownership Trust Units 10 - Acquisition in the public market 2,500 $4.740
• May 06/08 Apr 30/08 Thorsteinson, Arni Clayton Indirect Ownership Trust Units 10 - Acquisition in the public market 3,200 $4.730
• May 06/08 Apr 30/08 Thorsteinson, Arni Clayton Indirect Ownership Trust Units 10 - Acquisition in the public market 2,800 $4.720
• May 06/08 Apr 30/08 Thorsteinson, Arni Clayton Indirect Ownership Trust Units 10 - Acquisition in the public market 10,000 $4.750
• May 06/08 Apr 30/08 Thorsteinson, Arni Clayton Indirect Ownership Trust Units 10 - Acquisition in the public market 10,000 $4.760
• May 06/08 Apr 29/08 Thorsteinson, Arni Clayton Indirect Ownership Trust Units 10 - Acquisition in the public market 5,000 $4

He is turning out to be an astute investor as this relentless buying mirrors his buying in the sister REIT Temple.

After a long ramp up phase, the REIT just rounded the corner to profitability last quarter. Lanesborough is currently trading at 5.20 and is yielding 10.73% and pays out monthly. Free cash flow should increase substantially with the rent increases and the new buildings coming online. Management has shown that if it makes money, they are not bashful about sharing it with unitholders.

Disclosure: Author holds positions in both of the above-mentioned securities.

Comments

[Steve Ward:]

I love it. More millionaires were made selling goods and services to gold rush miners than miners who struck it rich. Oh to own a good hot dog stand in Ft. Mac Murray.

2008 Jun 20 12:41 AM