Boardwalk REIT Target $61

BEI.UN : TSX : C$59.88
HOLD 
Target: C$61.00

COMPANY DESCRIPTION:
With a portfolio of 35,277 units, Boardwalk REIT is the
largest owner of rental apartments in Canada, with
dominant market positions in Edmonton, Calgary, Regina,
and Saskatoon. Some of Boardwalk’s other markets
include Montreal, Quebec City, London, and Windsor.
All amounts in C$ unless otherwise noted.

Real Estate — Real Estate Investment Trusts
INTERNAL GROWTH SHOULD CONTINUE
TO DRIVE FFO PER UNIT HIGHER IN 2014
Boardwalk reported FFO per unit of $0.79, up 8% from the $0.73 earned in
Q4/12, and above our estimate of $0.76. AFFO per unit for Q4/13 was $0.68, well
above the $0.62 earned in the year-ago period. For the full-year 2013, Boardwalk
reported FFO per unit of $3.21, up 12% from the $2.87 earned in 2012, and
above management’s most recently updated guidance range of $3.10-3.20.
The strong year-over-year growth in cash flow was driven primarily by solid
same-property NOI growth as well as interest expense savings from refinancing
maturing debt at lower rates. These were offset in part by an increase in G&A.
While Boardwalk has often been overly conservative in its guidance, we had
believed that the most recent range was realistic considering the cold winter and
recent cooling of fundamentals in Saskatchewan.
February monthly rental rate survey – rental rates modestly increase while use of
incentives shifts markets. For properties included in our survey, asking rental
rates generally increased month-over-month. The overall use of incentives
remained fairly stable compared to the prior month; however, the markets in
which incentives were used differed month-over-month. The use of incentives is
not surprising for the slower winter months, and the incentives being offered are
not overly material.
2014 guidance confirmed; distribution increased. Along with Q4/13 results,
management confirmed its 2014 guidance of FFO per diluted unit ranging from
$3.25-3.45, which implies growth of 4.4% at the mid-point. Our estimate of $3.44
equates to growth of 6.9% and sits at the high end of guidance. In addition, the
Board of Trustees approved a 3.0% increase in the monthly distribution to $0.17
per unit ($2.04 annualized) which equates to 68% of our 2014 estimate of AFFO.
We believe another distribution increase is possible later in the year.
Maintain HOLD rating and C$61.00 target price. We continue to utilize a 5.4%
cap rate to value Boardwalk’s portfolio, and our updated net asset value (NAV)
per unit estimate is $58.04, up from $57.80. Our target price of C$61.00 is based
on a modest premium to NAV, which combined with an annual distribution of
$2.04 per unit, implies a 12-month forecast total return of 5%. We continue to
rate Boardwalk REIT a HOLD.

 

Trusts for Tax Planning, Tax Avoidance, Estate Planning

It is not enough to earn gains in your portfolio – you have to retain that money by tax planning.

This article is reprinted from the February 8th  edition of The Tax Guru

Mitt Romney received a lot of negative attention when he revealed he had $200 Million dollars in trust funds in the Cayman Islands. Had he been elected his critics said he would have been the first American President to have a Swiss Bank account.

Trusts are widely used and available for a variety of purposes.

Common objectives for trusts are to place assets that are growing into the hands of trusts that will be taxed at a lesser rate than the settlor of the trust  thus such transfers reduce the estate tax liability,  protect property from creditors, and  avoid probate ( a trust as a legal entity cannot die). Many international clients are seeking to avoid the income tax or creditor scrutiny that attaches to public ownership.

The trusts are often set up as agreements to hold and control property without disclosing that the original owner is still in control.From the taxation viewpoint of the U.S. Revenue Service such control would mean the trust is not effective .

Placing property, money , shares in a trust can give immunity from estate taxes, resistance to probate, creditors and so on. Your goal is the transfer so that you do not own the property legally or beneficially and therefore creditors pursuing you cannot touch the trust – if they even learn of its existence.

Suppose that you want to set up a trust.You have assets that you want to protect – assets that may not be as large as the hedge funds of Mitt Romney but can maintain their growth and provide your family a greater future if left to grow.

Setting up the trust. The person  creating the trust is commonly known as the trustor, though you may sometimes see the terms settlor or grantor.

  • Objective of the trust. You use different types of trusts to achieve a variety of specific income tax and / or  estate-planning objectives. You can establish a single estate-planning objective,-others help you achieve more than one goal.
  • Property. After you place property into a trust, that property is formally known as trust property and is then removed from your use as an asset .If you – in the simplest case – give property to another person you will be unable to have it returned to you. In the divorce work I did this was a point brought  home to many an older, sadder  but wiser man.
    • Beneficiary. In your estate planning (your will, for example), a trust’s beneficiary (or, if more than one, beneficiaries) benefits from the trust in some way, usually because the person or institution will eventually receive some or all of the property that was placed into trust.
    • Trustee. (The person in charge of the trust is the trustee). You cannot have direction over a trust if you are arguing that the property of the trust is no longer in your control. The trustee needs to understand the rules for the type of trust he or she is  managing to make sure everything in the trust stays in working order. Use of a nominee shows control in another person and removes your name from the trust document
    • Rules. Finally, some of the rules that must be followed are inherently part of the type of trust used, while other rules depend on what is specified in the trust agreement. Your concern should be on the taxation of the trust – seeking to avoid the income being attributed to you and thus of no tax benefit .This is the dreaded attribution section of the tax codes you seek to avoid.

    To set up a trust you will require professional assistance. The legal language is a safeguard tested in courts over centuries but it is the arcane legalese unfamiliar to most. The scope and complexity will vary with the assets, how they are to be accumulated, management of the trust  and your objectives.The simplest document may only be a dozen pages long and a complex trust of stock market assets and cash may be several hundred pages because of the necessity of setting out nominee management and control. Thus setting up the trust will be several thousand dollars in consultant fees on a one time basis -then ongoing annual registration is about $ 1000 in most jurisdictions.

    For a no cost / no obligation consultation please email info@jackbassteam.com or call Jack direct at 604-858-3202 ( same time zone as Los Angeles).

Only Buy Real Estate Projects You Can See, Touch and Feel

I wrote the book on Real Estate – literally – ( How To Make Real Profits In Real Estate) . It makes me ill that investors buy on the basis of a billboard that says ” Donald Trump Will Build Here”. The Donald lends his name in return for your deposit money to a developer. I have listings in Canada that are proven profitable investments – sitting because investors want to tell their friends they are investing with Donald Trump or some new beach front in Panama. Common sense is highly valued because it is so uncommon.

Taken literally, “Buy what you see” leads you to conclude that you should invest only in real estate that is 100% complete, totally built-out, with all infrastructure and amenities in place.

If you’re an ultra-conservative investor or a retiree not interested in taking any chances, this safe-bet strategy can make sense.

However, the point of the advice is to help the would-be real estate investor get back to basics. To remind you of the fundamentals of real estate markets, cycles, and pricing.

If what you see at the time of your purchase is a plot of land with no improvements or infrastructure, then that’s what you’re buying…and that’s what you should pay for.

That’s the crux of the thing. Make sure that, whatever you’re buying, you’re paying a price that reflects the reality of the product at the time of your purchase.

“Buy what you see” does not translate to mean never buy pre-construction or raw land. It means to understand what you’re buying…so you can assess and accommodate for the risks…and so that you pay the price you should pay given what you’re paying for.

The trouble starts when investors forget this fundamental and are tempted into paying “something-there” prices…when there’s nothing there.

In Panama, for example, during the heyday of the pre-construction boom, people began paying prices that reflected potential values, not current, pre-built values. That’s not buying and paying for what you see. That’s buying and paying for what some developer is promising you. When you buy early, you should pay a price that reflects a discount compared with comparable completed projects.

Unfortunately, in Panama, as elsewhere through various boom and bust cycles, the developers got greedy…and the buyers, greedy, too, were led astray by promises of profit supported by claims from earlier buyers who had, in fact, bought at discounts to completed construction prices.

If your risk tolerance is low, then you want to follow the advice literally. Buy only what you see.

Tricon Capital Group Inc A Canadian Player In U.S. Housing

TCN : TSX : C$7.80
BUY 
Target: C$8.50

Source: Interactive Data Corporation
COMPANY DESCRIPTION:
Tricon is a leading asset manager focused on investing in North American residential real estate development and single family homes. The company has over $1.6 billion of assets under management and investments. Tricon’s investments are focused on four markets in Canada (Toronto, Vancouver, Calgary, and Edmonton) and a number of markets in the US including California, Phoenix, Atlanta, Houston, Charlotte, and South Florida.
All amounts in C$ unless otherwise noted.

Real Estate — Real Estate
PRELIMINARY CASH FLOWS FROM TRICON IX LOOK PROMISING
Tricon reported Q3/13 adjusted diluted EPS of $0.12, up from $0.05 earned in the year-ago quarter, driven by cash flow earned from Tricon American Homes (the company’s single family home rental division), a fair value gain and performance fees associated with its Tricon IX investment, and one-time acquisition fees earned on its two new separate accounts. Of note, advisory fees paid of $4.6 million ($0.04 per share) were excluded in reported adjusted diluted EPS. Tricon’s Q3/13 adjusted EPS was also ahead of our estimate of $0.03. The significant positive variance to our estimate was due to several items, mostly arising from the Tricon IX transaction.
Acquisition of Tricon IX gives glimpse into principal investing strategy. During Q3/13, Tricon acquired a 68.4% interest in one of its funds, Tricon IX, for US$261 million. The remaining 31.6% ownership interest in Tricon IX continues to be held by the State Board of Administration of Florida. Notwithstanding that the acquisition of the 68.4% interest in Tricon IX impacted just half of Q3/13, this quarter’s results gave investors an up close view of Tricon IX’s cash flow generation potential, and also of Tricon’s opportunities in principal investing, in addition to its core asset management business.
Increasing target price to C$8.50, maintain BUY rating. We continue to value Tricon on a sum-of-the parts basis. Following Q3/13 results that gave us additional clarity on the potential investment income arising from the Tricon IX acquisition, we have greater confidence in ascribing value to this cash flow. We believe that Tricon remains well positioned to benefit from a U.S. housing recovery, which appears to be currently underway. We expect to see meaningful cash flow growth over the next few years as projects currently under development held within Tricon IX are completed and sold. Tricon is currently trading at an 8.1% discount to our updated NAV estimate. We are increasing our target price to C$8.50 (from C$7.15), in line with our updated estimate of NAV per share. Combined with an annual dividend of $0.24 per share (3.1% yield), our target price implies a 12-month total return of 12%. We continue to rate Tricon Capital Group Inc. a BUY.

Altus Group Limited

Toronto Stock Exchange, Toronto

Toronto Stock Exchange, Toronto (Photo credit: Wikipedia)

AIF : TSX : C$8.21
BUY 
Target: C$11.00

COMPANY DESCRIPTION:
Altus Group is a national provider of real estate consulting and advisory services in Canada. Services include property tax appeals, property valuation for acquisitions and public reporting purposes, provision of cost estimates for major development projects, and land surveying.
All amounts in C$

Investment recommendation


We reiterate our BUY rating and C$11.00 target price on Altus shares after GE Capital Real Estate announced that it is now using ARGUS Enterprise (AE). In our view, Altus is well positioned to benefit from the secular trend towards desired independent real estate advice and improved transparency on behalf of asset managers. By leveraging its dominant market position in Canadian RVA and Tax, we believe Altus can post impressive organic growth in the US. The company has solid momentum following major contract signings with CalPERS, PRIM, and now GE in the last ten months.
Investment highlights 
We view the deployment of AE by GE Capital Real Estate as a massive endorsement of the software’s value proposition to institutional asset
managers. With over $40 billion in global commercial real estate assets, we believe there could be further opportunities for Altus and ARGUS to
cross-sell consulting services and/or additional software packages to this major client.
Valuation
Altus shares trade at 6.3x 2014E EBITDA, in line with the professional services group despite Altus’ attractive growth profile. Our one-year target price is based on 7.0x 2014E EBITDA plus $0.75 per share for Altus’ 26% equity stake Real Matters.
We see room for Altus’ valuation multiple to expand over time as the recurring revenue nature of the ARGUS business is recognised by the market. For example, ARGUS comps trade at 15x 2014E EBITDA. While we wait for a potential multiple re-rating, investors enjoy a 7.3% yield.

Dundee Industrial REIT

One Spadina Cres

One Spadina Cres (Photo credit: Wikipedia)

DIR.UN : TSX : 10.29
BUY 
Target: C$11.25 

COMPANY DESCRIPTION:
Dundee Industrial REIT owns a geographically diversified portfolio of industrial properties throughout Canada. The properties are predominantly multi-tenanted and include a mix of flex space, light manufacturing and warehouse & distribution space. The REIT’s portfolio is largely in major
Canadian industrial markets, including Calgary, the Greater Toronto Area, the Greater Montreal Area and the Greater Halifax Area.
All amounts in C$ unless otherwise noted.

 INITIATING COVERAGE WITH A BUY RATING AND C$11.25 TARGET
With the creation of Dundee Industrial REIT, the Dundee real estate organization has now established a number of pure-play real estate investment trusts, including an international REIT and an office-focused REIT.
We believe that Dundee Industrial was created for two main reasons: 1) by selling its industrial assets, Dundee REIT became a pure play on the
Canadian office market, and 2) the creation of Dundee Industrial also provides a vehicle whereby Dundee can grow its industrial business.
Opportunity to consolidate Canadian industrial assets. Since its IPO in October 2012, Dundee Industrial has completed nearly $900 million of
acquisitions, highlighting the ability of the Dundee organization to rapidly source and complete both large and small transactions. We note that the
Canadian industrial real estate market is characterized by a lack of significant institutional ownership, and we expect Dundee Industrial to remain acquisitive in an effort to consolidate industrial properties.
Steady fundamentals and accretive acquisitions should lead to continued cash flow growth. We expect the REIT to remain acquisitive going  forward as it continues to consolidate industrial real estate across Canada. Further supporting cash flow growth, we expect same-property NOI to rise as rental rates are marked to market upon expiry. We are forecasting AFFO per diluted unit of $0.74 in 2013 and $0.82 in 2014. The REIT currently pays an annualized distribution of $0.70 per unit. This equates to a 2014E AFFO payout ratio of 85%.
Initiating coverage with a C$11.25 target price and BUY rating. Our target price of C$11.25 equates to a 3.0% premium to our NAV per unit estimate of $10.92. The modest premium reflects management’s ability to source substantial acquisitions, and manage a geographically diverse portfolio of multi-tenant properties.
Combined with an annual distribution of $0.70 per unit, our target price of C$11.25 equates to a 12-month forecast total return of 16%. We are
initiating coverage of Dundee Industrial REIT with a BUY rating.

Amica Mature Lifestyles Inc.

 

Poesy with her cake, Poesy's fifth birthday pa...

Poesy with her cake, Poesy’s fifth birthday party, Amica, Toronto, Ontario, Canada (Photo credit: gruntzooki)

ACC : TSX : C$8.90
BUY 
Target: C$11.25

COMPANY STATISTICS:
52-week price range: $8.50 – 10.01
Current dividend $ 0.42
Current yield: 4.7%
Shares o/s (M): 30.7
Float o/s (M): 25.6
Market capitalization ($M): $ 274
Float capitalization ($M): $ 228
Debt/GBV 53%
Volume (000s): 38
Major shareholders: Manji brothers ~ 17%
EARNINGS SUMMARY:
FYE May 31 F2011A F2012A F2013E F2014E
FFO: $ 0.41 $ 0.34 $ 0.46 $ 0.66
P / FFO: 21.5x 26.4x 19.2x 13.6x
AFFO:
$ 0.53 $ 0.59
P / AFFO:
16.7x 15.0x

COMPANY DESCRIPTION:
Amica Mature Lifestyles Inc. (ACC: TSX) is a premier brand manager and owner of luxury independent living retirement communities in major urban centres across Canada.

Amica reported FFO per diluted share of $0.12 in Q3/F13, up 15% from $0.10 in Q3/F12. The year-over-year growth reflects the impact of internal
consolidations completed over the past year as well as strong growth in MARPAS. AFFO per diluted share for Q3/F13 was $0.129, slightly below
$0.133 in the year-ago period, and below our estimate of $0.14. The variance to our forecast was due to higher than forecast interest expense as
well as the slower than expected pace of lease-up at Amica at Quinte Gardens.
Occupancy increased year-over-year. Occupancy for Amica’s mature portfolio improved materially year-over-year from 90.8% at the end of
Q3/F12 to 94.5% at the end of Q3/F13. Excluding Amica at Thornhill, which was newly classified as a mature property despite still being in the lease-up phase, occupancy for Amica’s mature properties was 95.9%, a level not seen since 2008.
Occupancy at lease-up properties continues to improve. At the end of Q3/F13, Amica had five properties in lease-up, with an average occupancy of
68.4%, up 670 bps from 61.7% at the end of F2012. Including 34 net pending move-ins, management expects occupancy at lease-up communities
to increase to nearly 73% over the next few months.
Highest MARPAS growth since 2004. In Q3/F13, same-property MARPAS increased by 6.8%, as compared to Q3/F12, as occupancy improved and
rental rates increased. We note that this is the strongest quarterly growth in MARPAS since 2004, and we expect the growth to continue as occupancy remains tight and Amica’s pricing power improves.
Maintaining BUY rating, and C$11.25 target. Despite slower than expected occupancy gains at Amica’s lease-up communities, we expect the company to post strong cash flow growth as its stabilized communities continue to post strong MARPAS growth. We remain of the view that Amica’s focus on best-in-class luxury seniors housing assets will continue to deliver exceptional value to shareholders.

We maintain our BUY rating and C$11.25 target price based on our sum-of-the-parts valuation ($10.74/share for ownership operations + $0.52/share for management operations).

H&R REIT ACQUISITION OF PRIMARIS RETAIL REIT

H&R REIT 
HR.UN : TSX : C$23.35

Pirate investing

Pirate investing (Photo credit: RambergMediaImages)


BUY 
Target: C$27.00 

COMPANY DESCRIPTION:


H&R REIT is a diversified commercial real estate investment trust with a high quality portfolio of office properties, singletenant industrial properties, retail properties and development projects. Its strategy focuses on long-term leases with creditworthy tenants, matched with long-term fixed rate financing to provide stable and predictable income to unitholders.

H&R REIT completed the acquisition of Primaris Retail REIT on April 4, 2013, acquiring a portfolio of 27 properties (primarily enclosed shopping centres) located across Canada for $3.1 billion, equating to a going-in cap rate of 5.6%. Of note, one property acquired from Primaris is slated to be  sold to RioCan REIT for $35 million. To fund the acquisition, H&R REIT issued ~62.1 million units to Primaris unitholders, assumed ~$1.4 billion of debt, and utilized cash on hand of ~$100 million. This transaction culminates several months of competing for control of Primaris.
We believe that the acquisition of a portfolio of high quality Canadian enclosed shopping mall assets is a positive development for H&R REIT,
particularly over the long term. Through the Primaris transaction, H&R has acquired a large portfolio of properties within an asset class that is highly sought after and almost impossible to duplicate; we note that Primaris owned the only sizable publicly traded portfolio of urban enclosed shopping malls in Canada.

While the integration of major acquisitions takes a significant investment of effort and time, we note that H&R is also acquiring Primaris’ operating platform, which should smooth the transition.
Maintaining BUY rating, but reducing target price to C$27.00 from C$28.00.
We are reducing the cap rate utilized to calculate our estimate of NAV for H&R REIT to account for the lower cap rate attributed to the newly acquired retail assets from Primaris; our utilized cap rate is now 6.00% (from 6.25%). Our estimate of NAV per unit declines slightly from $25.33 to $24.55, reflecting the increased unit count following the equity issued concurrent with the Primaris acquisition, as well as an increase in our adjustment for the mark-to-market of debt, as interest rates have declined since NAV was last calculated. Following the completion of the Primaris acquisition, we are reducing our target price for H&R REIT to C$27.00 (from C$28.00) to reflect the slight decline in our NAV per unit estimate.

Our target price is based on a 10% premium to our revised NAV estimate of $24.55 per unit. Combined with an annualized distribution of $1.35 per unit, our C$27.00 target price equates to a 12-month forecast total return of 21%. We continue to rate H&R REIT a BUY.

Altus Group Limited

Property Taxes Icon

Property Taxes Icon (Photo credit: danielmoyle)

AIF : TSX : C$8.50
BUY 
Target: C$11.00

COMPANY DESCRIPTION:
Altus Group is a national provider of real estate consulting and advisory services in Canada. Services include property tax appeals, property valuation for acquisitions and public reporting purposes, provision of cost estimates for major development projects, and land surveying.

Investment recommendation


We are reiterating our BUY rating on Altus shares but lowering our target price to C$11.00 from C$11.25 following the Q4/12 print. In our view, Altus provides investors with not only an attractive 7.1% dividend yield, but also the opportunity for significant capital appreciation. We
believe Altus’ 27% equity stake in Real Matters (RM) contains potential hidden value, while ARGUS represents upside risk potential to our
financial forecast. Last, the recovering US economy and desire for independent real estate advice should provide Altus with numerous
growth opportunities.
Net revenue was $73.9 million, a 2% decrease y/y and slightly below our $74.7 million estimate. Gross margin was 58 bps lower than expected
while SG&A was in line, bringing EBITDA to $11.4 million (15.4% margin), slightly below our $12.1million (16.3% margin) estimate. EPS was ($0.94) and included a $22.5 million or $0.98 per share impairment charge against the carrying value of ARGUS Software. Notwithstanding
this, we remain confident about the future prospects of ARGUS.
Management expects restructuring charges totaling $1.1 million in Q1/13 mostly related to employee severance costs.
We expect 10% EBITDA growth in 2013. RVA should build on the 19% EBITDA growth posted in 2012 thanks to a full year of the CalPERS and
PRIM contracts. Tax should benefit from the opening of tax assessment cycles in ON and QC. Management sounded confident in ARGUS’ prospects. Geomatics should be flat, but pipeline work represents upside risk potential, while we see flat Cost results. We have adjusted our estimates for the quarter, leading to a 25 cent target price decrease to C$11.00.

Brookfield Office Properties I LOVE NY

Brookfield Place, as viewed from the east, Tor...

Brookfield Place, as viewed from the east, Toronto, Canada. (Photo credit: Wikipedia)

Brookfield Office Properties

(BPO : TSX : $17.11)


Brookfield Office Properties*

(BPO : NYSE : US$17.13)
I’m In A New York State of Mind.

Brookfield Office Properties rallied to its highest level since last July after posting strong Q4/12 growth and more importantly a promising lease update for its World Financial Center in New York. For the quarter, FFO per diluted share was $0.30, up 15% from $0.26 in the year-ago period.

The strong YoY growth in FFO per diluted share was  driven primarily by healthy internal growth of 5.3%, the positive contribution from acquisitions and development completed over the past 12 months, and higher interest and other income, partly offset by asset dispositions.

Same-property NOI increased by a robust 5.3% on a YoY basis in the fourth quarter. The increase was largely a result of renewing expiring leases and executing new leases at materially higher market rates over the past year, a slight uptick in same-property occupancy. While this was all good, the key highlight of BPO’s Q4/12 earnings release was that there are two Letters of Intent currently being negotiated for 1.5 million sf of the 3.0 million sf BoA/ML (BAC) lease at Brookfield Place New York (the former ‘World Financial Center’) set to expire in September 2013.

While the Letters of Intent do not necessarily translate into signed leases, Canaccord understands that this is quite far in the leasing process with financial and other leasing terms being discussed, and there should be a decent probability that one or both should result in a signed lease.

However, management was reticent to comment on the timing of occupancy should these leases get signed, although it would likely not occur until sometime in 2014. Ma is bullish on the stock, noting that within the North American REIT space, very few REITs boast a portfolio of assets of similar quality to that of BPO, yet BPO trades at only 15.2x 2013E FFO per share, the lowest multiple among its peers.

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