Freehold Sees Fewer Acquisitions in Bid to Keep Debt Low

Freehold Royalties Ltd. expects to make fewer acquisitions in the second half to keep debt low after spending the most ever on assets over the past year.

Freehold may spend C$50 million ($39 million) to C$60 million for the rest of 2015, following about C$400 million in deals in the past year, Chief Executive Officer Thomas Mullane said in an interview at the company’s Calgary offices. More deals are possible under the right circumstances, he said.

“We’re a conservative company,” Mullane said.

The company’s board of directors prefers a debt-to-cash flow ratio of 1.5 or less, he added. The ratio is 1 now.

Freehold and other so-called royalty-land companies, which generate revenue by charging drilling levies to other producers on their property, have drawn interest from institutional investors including pension funds. Freehold has delivered average annual returns of 17 percent since 1996, yields that have attracted large investors, Mullane said.

Last month Cenovus Energy Inc. agreed to sell its royalty land business to Ontario Teachers’ Pension Plan. Encana Corp. sold its PrairieSky Royalty Ltd. unit in an initial public offering last year. Canadian Natural Resources Ltd. is also considering selling or spinning off its royalty lands.

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