Trying to get REIT investors to think like a property investor — and not a stock market investor

Posted by on Mar 23, 2017 in CI Financial Inc., FP Street, Hudson's Bay Co., Press Releases, real estate investment trusts, Real Estate Sector, Vision Capital Corp. |

Joshua Varghese, a real estate portfolio manager at CI Investments, has taken a more than passing interest in the going-private transaction at Milestone Apartments REIT. For starters, funds that he manages used to own the units before turning seller because of concerns about the REIT’s on-going needs for capital expenditure to raise equity and because of the conflicts, perceived or otherwise, by the presence of an external management contract. “In my opinion, Milestone’s management, which received more than $100 million when the management contract was internalized last year, needs to take more out and give that to unit holders,” he said. Varghese, who oversees real estate investing for the Signature High Income Fund and the Signature Diversified Yield Fund, is a believer in value investing. That’s the ability to buy stocks at a discount to their net asset value and hold them until they reach that level — a process that takes time to unfold. It may not be the classic 50-cent dollars (more like 80-cent dollars) but owning an asset that pays a regular distribution and provides the opportunity for increased revenue, in line with inflation, is attractive. “It requires a strong management team which has good capital allocation skills to grow NAV,” he said. In other words, to generate a return in REITS, investors need to think like a property investor — and not a stock market investor. All of which means that perceived wisdoms — including that REITs are an interest play, higher-dividend-paying REITs are more attractive investments, and REIT returns are macro-driven — need to be expunged. “In a market driven (largely) by private markets, you have a very transparent view of the real estate’s true value,” he said. As for that ‘true value,’ Varghese sees a “disconnect” currently, between the private and public view of real estate. All of which leads to a discussion of Hudson’s Bay Co. which is either a retail department chain with substantial real estate assets or a real estate company on which retail stores, some of which are struggling, sit. “Analysts are saying that we are not giving credit to a lot of the real estate now because the retail operations are not good enough to justify it. But some of the smartest real estate investors in the world have put their own capital into the real estate joint venture (with HBC.) They are saying this is the real value of the real estate,” said Varghese, noting that HBC’s share price is below the estimated value of the real estate. Of the $2 billion of publicly listed real estate assets that Varghese oversees, about 30 per cent is invested in Canada, 60 per cent in the U.S and the...

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Morneau not finished addressing hot housing markets: ‘There are clearly supply issues in … Vancouver and Toronto’

Posted by on Mar 23, 2017 in Bill Morneau, breaking, Federal Budget 2017, land transfer tax, News, Press Releases, Royal Bank of Canada, Toronto Real Estate Board |

Finance Minister Bill Morneau says he recognizes supply issues are at least partly responsible for fast-rising housing prices in booming cities such as Toronto and Vancouver, and is not ruling out further targeted reforms to cool Canada’s real estate market. However, in an interview with the Financial Post on Thursday, he said the federal government must be mindful that whatever it does affects the entire country and may have negative consequences in markets that don’t share the demographic characteristics of metropolitan cities in British Columbia and Ontario. “We’ll always consider whether we should be looking at new (federal tools), but we’ll do that recognizing that our approaches are national and when we look at what happens to the Toronto and Vancouver markets, we also need to remember what happens to the Moncton and Winnipeg markets,” Morneau said Thursday. RelatedJust the facts: Ottawa beefs up spending in federal budget for data collection on the housing markeGovernment policies creating ‘unprecedented’ uncertainty in high-end real estate market: reportCanadian home prices climb another 1% in biggest February increase on record as Toronto stays strong “We don’t want to do something that’s going to cause … challenges somewhere else.” In Wednesday’s budget, the federal government committed $39.9 million over the next five years to “address gaps in current nationwide housing data” and create a comprehensive database including up-to-date information on purchases and sales, including the degree of foreign ownership and information on homeowner demographics and financing characteristics. Morneau said the comprehensive database will be a welcome tool, the first of its kind. But he noted that federal officials who deal with housing are in “continuing discussions” with their counterparts in Ontario, British Columbia, Toronto, and Vancouver about the characteristics of the real estate market in those provinces and cities. “There are clearly supply issues in places like Vancouver and Toronto around housing,” Morneau said, noting that healthy economies, low unemployment and immigration in those markets are contributing to demand for scarce detached and semi-detached single-family homes. “What we can do is we can work together with the provinces and the cities to identify tools that various levels of government have to ensure the market is healthy, and … co-ordinate a way to make sure we’re being as effective as we can to manage the market.” Morneau declined to discuss what potential intervention is under discussion, such as whether an additional 15 per cent land transfer tax B.C. imposed late last year on foreign homebuyers in Vancouver would be adopted by Ontario. “The specific measures, I’m not going to comment on, but we continue to be in discussions,” he said. “I’m in regular contact with (Toronto) Mayor (John) Tory, as an example. That’s part of what...

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Morneau not finished addressing hot housing markets: ‘There are clearly supply issues in … Vancouver and Toronto’

Posted by on Mar 23, 2017 in Bill Morneau, breaking, Federal Budget 2017, land transfer tax, News, Press Releases, Royal Bank of Canada, Toronto Real Estate Board |

Finance Minister Bill Morneau says he recognizes supply issues are at least partly responsible for fast-rising housing prices in booming cities such as Toronto and Vancouver, and is not ruling out further targeted reforms to cool Canada’s real estate market. However, in an interview with the Financial Post on Thursday, he said the federal government must be mindful that whatever it does affects the entire country and may have negative consequences in markets that don’t share the demographic characteristics of metropolitan cities in British Columbia and Ontario. “We’ll always consider whether we should be looking at new (federal tools), but we’ll do that recognizing that our approaches are national and when we look at what happens to the Toronto and Vancouver markets, we also need to remember what happens to the Moncton and Winnipeg markets,” Morneau said Thursday. RelatedJust the facts: Ottawa beefs up spending in federal budget for data collection on the housing markeGovernment policies creating ‘unprecedented’ uncertainty in high-end real estate market: reportCanadian home prices climb another 1% in biggest February increase on record as Toronto stays strong “We don’t want to do something that’s going to cause … challenges somewhere else.” In Wednesday’s budget, the federal government committed $39.9 million over the next five years to “address gaps in current nationwide housing data” and create a comprehensive database including up-to-date information on purchases and sales, including the degree of foreign ownership and information on homeowner demographics and financing characteristics. Morneau said the comprehensive database will be a welcome tool, the first of its kind. But he noted that federal officials who deal with housing are in “continuing discussions” with their counterparts in Ontario, British Columbia, Toronto, and Vancouver about the characteristics of the real estate market in those provinces and cities. “There are clearly supply issues in places like Vancouver and Toronto around housing,” Morneau said, noting that healthy economies, low unemployment and immigration in those markets are contributing to demand for scarce detached and semi-detached single-family homes. “What we can do is we can work together with the provinces and the cities to identify tools that various levels of government have to ensure the market is healthy, and … co-ordinate a way to make sure we’re being as effective as we can to manage the market.” Morneau declined to discuss what potential intervention is under discussion, such as whether an additional 15 per cent land transfer tax B.C. imposed late last year on foreign homebuyers in Vancouver would be adopted by Ontario. “The specific measures, I’m not going to comment on, but we continue to be in discussions,” he said. “I’m in regular contact with (Toronto) Mayor (John) Tory, as an example. That’s part of what...

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Budget 2017’s economic forecasts are timid and that spells good news for protecting your wallet

Posted by on Mar 23, 2017 in Budget 2017, Canadian Economy, Economic Policy, Economy, income taxes, News, Personal Finance, Press Releases |

Economists say Budget 2017 is based on some cautious assumptions about the pace of Canada’s economic growth. Ottawa’s timidity is important because it just might keep your taxes from going up. According to the 278-page budget document delivered on Wednesday, the federal government believes Canada’s gross domestic product will grow by 1.9 per cent this year. That forecast is based on the economic data that was available last December. Since then, fresh statistics suggest Canada is on track to perform much better. According to a survey of 26 private sector analysts by Bloomberg News, Canada’s economy will actually grow 2.1 per cent in 2017. And that’s just a median. Some banks, such as TD and BMO, see Canada’s GDP growing 2.3 per cent this year. “Ottawa’s economic assumptions are based on a somewhat outdated private-sector forecast, taken before the economy began to flash real signs of improvement,” write Douglas Porter, chief economist, and Robert Kavcic, senior economist, with BMO Capital Markets. “Since that consensus forecast was locked in late last year, we’ve seen a near-relentless run of positive economic data, with particular strength in employment.” Here’s how this reaches right into your wallet. Stronger economic growth brightens the government’s revenue prospects, and that puts less pressure on the government to narrow the deficit by hiking taxes. The government is forecasting a deficit of $28.5 billion for the fiscal year ending March 31, 2018. That includes a $3 billion “allowance for risk” or contingency that captures any forecasting errors on the revenue side or unforeseen needs on the spending side. According to CIBC, every half-per cent overshoot in GDP is worth $2.4 billion to the fiscal balance. In other words, an economy that outperforms the government’s expectations would boost revenue and leave the $3 billion contingency account untouched, writes Avery Shenfeld, chief economist of CIBC Capital Markets. “As long as the economy grows in line with its forecast, there’s no pressing need to tax some Canadians more, unless it’s being used to either have a more aggressive spending program, or offer tax cuts to other Canadians,” Shenfeld writes. In the lead-up to the release of Budget 2017, there was a lot of concern that the Liberal federal government would boost taxes on capital gains or introduce other tax measures that target higher income individuals. None of those fears materialized. The government will likely be content to live with a revenue stream that keeps Canada’s debt-to-GDP ratio steady. The government forecasts the debt-to-GDP ratio to be 31.6 of nominal GDP for fiscal 2018 and 2019. “Hot-button issues, such as changes to the capital gains tax and the potential sale of airports, were not acted upon,” write Beata Caranci, chief economist and...

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Jean Machine, struggling with liquidity issues, acquired by owner of Bootlegger, Ricki’s

Posted by on Mar 23, 2017 in Mergers and Acquisitions, Press Releases, Retail & Marketing, Stern Partners Inc. |

Jean Machine has been acquired by the owner of retail chains including Bootlegger and Urban Barn. The denim retailer, which has 30 stores in Ontario, filed a notice of intention to make a proposal to creditors in January, owing secured lenders $6.3 million. It has been bought by Pacific West Commercial Corp., an affiliate of Vancouver-based Stern Partners Inc., for an undisclosed amount. Stern Partners has controlling interest in chains including Bootlegger, Cleo, Ricki’s, Warehouse One and Urban Barn, with more than 500 retail stores. Jean Machine, which closed three locations during the restructuring, will continue to operate as an independent entity, the company said. “We are excited about the long-term potential of Jean Machine and the denim and casual apparel market in Canada,” said Ronald Stern, president of Stern Partners. “We are confident in the underlying business and believe that, with Jean Machine’s liquidity issues behind it, the business is well-positioned for success. We are excited about growing the business with the company’s valued employees, customers and...

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Clean tech companies happy with Ottawa’s funding boost, but impact is unclear

Posted by on Mar 23, 2017 in Alternative Energy, Energy, Energy Technology, Federal Budget 2017, News, Press Releases |

CALGARY – The government of Canada will play the role of venture capitalist and booster to clean technology companies with billions of dollars in funding and outright share purchases budgeted over the next several years. Finance Minister Bill Morneau tabled the Liberal government’s budget Wednesday and listed “clean technology” and “clean resources” as two of six “economic sectors where Canada will lead the way,” aided by money from Ottawa. “By investing in clean technology and responsible resource development, we will preserve our environment for future generations, create great jobs and re-stake our claim as a leading supplier of energy to the world for the next 150 years,” Morneau said. RelatedWhat Canada’s tech gurus want from Trudeau’s $800 million ‘innovation’ budgetCanada cleans up on the Global CleanTech 100 list, with 11 winners For example, Ottawa will channel $1.4 billion through the Business Development Bank of Canada and Export Development Canada to make $380 million in equity investments in clean tech companies, boost the sector by making $570 million in working capital available and fund $450 million in new projects. The government has also allocated $5 billion from its still-under-development Canada Infrastructure Bank for green energy infrastructure projects but did not specify what would qualify. Canadian Electricity Association president and CEO Sergio Marchi said in a release that his group is looking for more details on how the bank “will help our members” deliver reliable energy. Edmonton-based electricity economist David Gray, of Gray’s Energy Economics, said the best way to use that infrastructure money to boost renewable power generation in Canada is to build interconnections between provinces with hydro-electric dams, like B.C., Quebec and Newfoundland, and provinces with windmills like Alberta, Ontario and Nova Scotia. He said hydro and wind energy are complementary sources of renewable energy and those electricity sources in different provinces could be paired together. “To my mind, that’s probably the biggest nation building exercise that they could go to and the one that would have the most long-term benefit,” Gray said. “I look to the government to undertake those projects that are either too uncertain or too long-term for the private market.” He said it’s unclear at this point whether Ottawa’s other clean technology funding would have a real impact on green energy generation or if it would be “just window dressing.” Executives at various clean-tech and electricity industry groups expressed their support for the funding announced in the budget and suggested it would have a real impact in developing a clean tech industry. Canadian Solar Industries Association president and CEO John Gorman said in a release Thursday that the budget “is another early milestone in Canada’s transition to our cleaner energy future.” He said the government’s...

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