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Feather in Our CAP REIT

On May 17-2022, Canadian Apartment REITs published their first quarter business results. They are the last of our property portfolio “partners” to report.

In addition to being the largest residential REIT and one of the largest holdings in our real estate portfolio, CAP REIT is also the largest landlord in Canada. Their operations are a fairly telling bell weather of the residential real estate business in Canada.

As of March 31, 2022, they reported the following results:

Following another strong and accretive year in 2021, we continued to generate solid growth and strong operating performance in the first quarter of 2022. Occupancies rose to 98.0% at March 31, 2022, up from 97.3% at the same time last year while average monthly rents increased 3.9%. Importantly, our balance sheet and financial position remained strong and resilient with a significant liquidity position.”

“Total operating revenues increased 8.4%, driven by the contribution from acquisitions completed over the last twelve months, increased stable occupancies and higher average monthly rents. Total property Net Operating Income (“NOI”) rose 4.4% compared to the same period last year. Stabilized property NOI decreased slightly in the quarter due increased weather-related maintenance costs, higher utilities costs resulting from the colder winter this year and a significant increase in the cost of natural gas, and higher property taxes. Importantly, to date we have collected over 99% of our rents, a testament to our successful initiatives to work with our residents and understand their issues through the pandemic.

During 2021, we acquired 3,744 apartment suites, townhomes and manufactured housing community sites in Canada and the Netherlands for total costs of approximately $1.05 billion. In the first three months of 2022, we further expanded our property portfolio with the purchase of 1,015 suites and sites for total costs of $439million[1]. These new properties will make a strong, accretive and growing contribution in the months and years ahead. Looking ahead, while our acquisition pipeline remains strong and robust, we will also be examining our total portfolio to determine opportunities to generate value for our Unitholders and additional capital to fund more accretive growth opportunities.”

Further information about CAP REITs financials can be found by clicking here: https://s25.q4cdn.com/722916301/files/doc_financials/2022/q1/Q1-22-Full-Report.pdf

Their most recent presentation to investors can be viewed here: https://s25.q4cdn.com/722916301/files/doc_financials/2022/q1/Q1-2022-CC-Slides-(FINAL).pdf


[1] Average cost per (apartment) units purchased in Q1-2022 was approx. $432,512.31. Average cost per units  purchased in 2021 was $280,448.71. That amount includes the purchase of “townhomes and MHCs,” which would explain the lower average suite cost.


This Post is published on or around May 17th, 2022, and it includes timely information that can be quickly rendered obsolete. It is FOR INFORMATION PURPOSES and simply meant to keep partners informed about some of the holdings in our portfolios.  This is NOT an OFFER to purchase securities or products & NO representation is being made. Items presented may NOT be suitable for everyone. Rates change. Values will fluctuate. Please consult an experienced, qualified, licensed professional prior to investing and ensure that your investments are a part of a comprehensive plan designed to help you & your family meet your long-term financial goals & objectives.

Gordon Wiebe is registered as a “Life, Accident & Sickness” insurance underwriter with the Insurance Council of B.C, the Alberta Insurance Council & the Saskatchewan.

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REIT on the Money

Nearly all the REITs held in our Real Estate investment contracts have reported their first quarter earnings. Canadian Apartment REIT reports tomorrow.

Normally, one shouldn’t attach too much significance to quarterly earnings as it can take years for the value of great properties and enterprises to be realized. Nevertheless, operating results for the first quarter are presented here as an indicator of how business operations are unfolding as the REITs and economy emerge from pandemic restrictions.

Overall, revenues, income, funds from operations (FFO), occupancies have improved significantly. CAP REIT reports tomorrow. Rio-Can figures reported in an earlier blog and can be viewed here: https://think-income.com/2022/05/11/getting-it-reit/

Allied Properties

On April 27, Allied Properties REIT reported the following:

“Allied’s first-quarter results for 2022 met or exceeded expectations, with AFFO per unit and average in-place net rent per occupied square foot rising to record levels,” said Michael Emory, President & CEO. “FFO per unit was 61 cents and AFFO per unit 56 cents, up from the comparable quarter last year by 4% and 7%, respectively. NAV per unit at quarter-end was $50.92, up from the end of the first quarter last year by 5% and up from the end of 2021 by 1%. Leasing activity continued to accelerate through the quarter, with average in-place net rent per occupied square foot rising to $25.13, up from the comparable quarter last year by 4% and up from the end of 2021 by 2%.”

For more information, see: https://alliedreit.com/wp-content/uploads/2022/04/Q1PressRelease_AP_04272022.pdf

Boardwalk REIT

On May 9th, Boardwalk posted their quarterly results. Chairman & CEO Sam Kolias reported:

“We are pleased to report on another solid quarter to begin 2022, with growth in NOI, FFO, and Profit through the Omicron wave of the pandemic and non-controllable cost inflation primarily in our utilities expense through the winter months. As we look forward to our busy spring and summer leasing season, we have seen significant leasing gains with our May occupancy increasing to 96.6%. Leasing spreads on both renewals and new leases have seen strong improvement, and in our largest market of Alberta, have seen renewal spreads increase to 4.7% in the month of April. New lease spreads have also turned positive with housing fundamentals improving in each of our markets allowing for incentive reductions and positive rental rate growth.”

For more information: https://www.bwalk.com/media/34695/pr-05-09-2022-q1-results-final.pdf

CAP REIT

Reporting on May 17 (tomorrow)

Dream Industrial REIT

On May 3rd, Dream Industrial reported net income of $442.9 million in Q1 2022, a 364.9% increase when compared to $95.3 million in Q1 2021. The increase was primarily due to increases in fair value adjustments to investment properties (NOTE: companies are required to include unrealized gains in the value of assets as a part of earnings).

Net rental income was $65.3 million in Q1 2022, a 40.0% increase when compared to $46.7 million in Q1 2021. Year-over-year net rental income growth was primarily driven by 38.8%, 46.5% and 264.9% increases in Ontario, Québec and Europe, respectively.

Diluted funds from operations (“FFO”) per Unit were $0.22 in Q1 2022, a 16.0% increase when compared to Q1 2021, where the diluted FFO per Unit were $0.19.

• Total assets were $6.7 billion in Q1 2022, a 10.8% increase when compared to $6.1 billion in Q4 2021;

• Net asset value (“NAV”) per Unit was $16.48 in Q1 2022.

For more information, see: https://dream.ca/wp-content/uploads/2022/05/Q1-2022-DIR-Press-Release-FINAL-1.pdf

First Capital REIT

On May 3rd, First Capital REIT reported:

  • For the three months ended March 31, 2022, First Capital recognized net income attributable to Unitholders of $44.5 million or $0.20 per diluted unit compared to $38.0 million or $0.17 per unit for the same prior year period. The increase was primarily due to an increase in the fair value of investment property of $8.8 million.
  • FFO per unit remained unchanged primarily due to a $3.1 million increase in interest and other income, and interest expense savings of $2.8 million, which were offset by other losses primarily related to unrealized losses on marketable securities, totaling $6.8 million, or $0.03 per unit.
  • SPNOI – Same Property NOI Growth increased 1.9%, despite a 20 basis point decline in occupancy. The growth was primarily due to a $2.2 million decrease in bad debt expense as well as rent escalations, partially offset by lower occupancy and a $0.6 million decrease in lease termination fees over the prior year period.
  • Portfolio Occupancy: March 31, 2022 portfolio occupancy of 95.5% decreased 0.6% on a quarter-over-quarter basis from 96.1% at December 31, 2021 primarily due to net closures (which primarily related to closures for redevelopment). On a year-over-year basis, total portfolio occupancy declined 0.3% from 95.8% at March 31, 2021 to 95.5% at March 31, 2022.

For further information, see: https://fcr.ca/wp-content/uploads/2022/05/2022-Q1-Press-Release-v28-FINAL.pdf

Granite REIT

Granite’s net operating income (“NOI”) was $91.2 million in the first quarter of 2022 compared to $81.5 million in the prior year period, an increase of $9.7 million primarily as a result of net acquisition activity beginning in the first quarter of 2021;

• Same property NOI (Net Operating Income) or SPNOI – cash basis increased by 4.6% for the three-month period ended March 31, 2022.

• Funds from operations (“FFO”)(1) were $69.4 million ($1.05 per unit) in the first quarter of 2022 compared to $57.1 million ($0.93 per unit) in the first quarter of 2021.

• Granite recognized $490.6 million in net fair value gains on investment properties in the first quarter of 2022 which were attributable to various factors including fair market rent 1 increases as well as compression in discount and terminal capitalization rates for properties located in the GTA, the United States and Europe. The value of investment properties was partially offset by unrealized foreign exchange losses of $146.1 million resulting from the relative strengthening of the Canadian dollar against the US dollar and

• Granite’s net income attributable to stapled unitholders increased to $497.7 million in the first quarter of 2022 from $230.1 million in the prior year period primarily due to a $281.1  million increase in net fair value gains on investment properties and a $9.7 million increase in net operating income as noted above, partially offset by a $30.6 million increase in deferred tax expense

For further information, see:  https://granitereit.com/prmay11-2/

H&R REIT

On May 12, 2022, H&R Real Estate Investment Trust (“H&R” or “the REIT”) (TSX: HR.UN) reported the following operating results:

“Our strong first quarter financial results mark a pivotal moment in the continuation of our transformation and the surfacing of the embedded value within our portfolio,” said Tom Hofstedter, CEO. “Following the successful spin out of our enclosed shopping centre division (i.e. Primaris) and the sale of the Bow and Bell office campus, our portfolio today is significantly more concentrated on higher growth asset classes within strong urban markets. Today’s results are a testament to the quality of our properties, platform and strategic plan.”   

Highlights

  • 30.9% decrease in net operating income as compared to Q1-2021 primarily due to the spin‐off of Primaris REIT and property dispositions throughout 2021;
  • $19.88 unitholders’ equity per Unit, an increase of $3.33 from December 31, 2021;
  • $21.06 Net Asset Value (“NAV”) per Unit(2), an increase of $3.36 from December 31, 2021;
  • 96.0% Occupancy representing H&R’s high‐quality property portfolio;
  • Sold 33.3% non‐managing interest in The Pearl, in Austin, Texas for approximately U.S. $45.8 million, generating a gain of $20.7 million over construction cost, and a return on equity invested of approximately 221.5%;
  • 13,715,500 Units repurchased year to date, at a weighted average price of $12.97 per Unit, for a total cost of $177.8 million as at May 10, 2022;
  • 19.1% Same‐Property net operating income (SPNOI) (cash basis)(1) growth driven by strong residential and office rental growth together with industrial and retail property lease‐ups

For further information, see: https://www.hr-reit.com/wp-content/uploads/2022/05/Final-Q1-2022-PR-.pdf

Killam Apt REIT

“Killam’s first quarter earnings growth and operating performance were strong,” noted Philip Fraser, President and CEO.The same property revenue growth of 5.1% in Q1-2022 reflects the strong demand for housing across all our markets. Despite a colder winter season and higher heating costs this quarter, Killam achieved 3.1% same property net operating income growth to start the year.”

  • Killam earned net income of $60.0 million in Q1-2022, compared to $27.4 million in Q1-2021. The increase in net income is primarily attributable to fair value gains on investment properties, growth through acquisitions, completed developments, and increased earnings from the existing portfolio.
  • Killam generated FFO per unit of $0.24 in Q1-2022, a 4.3% increase from $0.23 per unit in Q1-2021. AFFO per unit increased 5.3% to $0.20, compared to $0.19 in Q1-2021. The growth in FFO and AFFO was primarily attributable to increased NOI from Killam’s same property portfolio and incremental contributions from over $400 million in recent acquisitions. This growth was partially offset by a 9.4% increase in the weighted average number of units outstanding.
  • Despite inflationary pressures, Killam achieved 3.1% growth in same property consolidated NOI during the quarter. This improvement was driven by 5.1% growth in revenue, partially offset by an 8.2% increase in operating expenses.

SmartCentres REIT

On May 11, SmartCentres REIT reported, “substantive improvement in retail leasing momentum across the portfolio with growth from both existing and new tenants;”

Highlights:

  • Progress in zoning approvals on strategic projects, together with improved market conditions, contributed to $237.7 million in incremental property values, leading to net income and comprehensive income for Q1 2022 increasing to $370.1 million compared to $60.6 million for the same period in 2021; from an increase of $1.71 per Unit;
  • FFO per Unit(1) for Q1 2022 increased by $0.02 or 4.1% as compared to the same period in 2021;
  • Total unencumbered assets(1) increased from $5.9 billion at March 31, 2021 to $8.4 billion at quarter end; and
  • Continued advancement of non-retail pipeline of 283 projects representing approximately 59 million square feet across the network (41 million square feet at the Trust’s share)
Featured

RIO-Can Getting it REIT

The Well in Toronto is Canada’s Largest Development ever. It’s Being Managed by RioCan & Allied REITs.

If anyone needed further evidence showing how uncorrelated a company’s share price (or a REIT’s unit price) can be from its underlying value, RioCan (REI.UN) provided a good example yesterday.

In the morning, RioCan announced First Quarter Results for 2022. Their operations resulted in:

  • Net income of $160.1 million, exceeding the comparable period last year by $53.3 million
  • FFO (Funds from Operations) of $0.42 /unit, up 27% year of year (YoY)
  • A 4.1% increase in SPNOI – Same Property Net Operating Income
  • 1.1 million sq. ft. of new and renewed leases
  • Occupancy was 97% – up to pre-pandemic levels
  • 42.6 million ft2 in the “development pipeline”
  • 16.8 million ft2 of zoning approved
  • 2.2 million ft2 under construction
  • 2.5 million ft2 “shovel ready”
  • 3.2 million ft2 actively being “redeveloped”
  • 1.7 million ft2 expected to be delivered in the next 24 months
  • 27.4 million of new funds expected in 2022
  • Weighted interest costs are at 2.98%
  • Book Value /unit $25.96 as of March 31, 2022.

Most landlords would be satisfied with those quarterly results. So, how did the market respond to their business operations? The unit price dropped $1.15 or 5% to $20.65 from $21.80 and then closed at $20.99. It was one of the most traded issues on the Toronto Stock Exchange.

RioCan owns and operates 204 premier retail properties in Canada. They lease over 36 million square feet of space and their enterprise value is roughly $15 billion.

At $21 /unit, an investor can purchase a pro-rata interest at a discount of 19%.

Further Reading, See:

Further Reading:

RioCan’s First Quarter 2022 Delivers Growth Across Key Metrics Driven by its Quality Portfolio

RioCan REIT Posts Strong Q1 Earnings: Is the Stock Now Worth a Buy?

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It’s Déjà Vu All Over Again

Tom Gayner once commented that the secret to investing successfully is surviving the first thirty years. He was half joking and half serious, but his reasoning was sound. He suggested, after that length of time an investor would have experienced several market trends and cycles and he ought to be able to recognize their recurrence.

Since the new year, market participants have seen the following:

  • a hike in interest rates
  • a 13.5% decline in the S&P 500
  • a 9.5% decline in the Dow Jones Industrial Average (DJIA)
  • a 25% decline in the NASDAQ

None of these should come as a surprise to anyone. As Yogi Berra might say, “IT’s déjà vu all over again.”

In January 1966, the Dow Jones Industrial Average hovered around 8,891. But, by June 1982 – after years of decline, the DJIA had surrendered 72% of its value closing around 2,406. “The Nifty Fifty” – a group of cutting-edge, high-tech companies including Xerox, Polaroid, Kodak, etc. had vaulted the DJIA to lofty levels. It seems speculators were willing to pay 50-100 times earnings – not unlike some of the valuations we’ve seen in the recent market environment.

The late 1990’s also saw similar valuations placed upon countless dot.com/high tech companies as the world prepared for Y2K.

When speculation ramps up, it can drive equities to levels that simply aren’t sustainable or justifiable. Is it any wonder the NASDAQ has lost 25 percent so far this year?

Investors and speculators seeking refuge in fixed income won’t find much comfort either. If interest rates continue to rise – as they’re likely to do, bond valuations will also decline.

As a reminder of this, I keep a de-commissioned “50-year bond” certificate on my wall. The bond was issued in 1945 by the Reading Railroad Co. (yes, the same one from Monopoly). The bond was set to mature in 1995 and the attached coupons paid an annual rate of 3.25%.

In 1972, the bond was surrendered. The owner would have likely seen a 40% drop in the value of the bond as interest rates climbed from 5.45% in March 1972 to 6.66% in July.

It’s impossible to know what interest rates or markets will do over the short term. There are advantages to be had by studying market history and those of us over 55, have been to this rodeo before.

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the BiGGEST Retirement Risk

This past week, I viewed a webinar presentation by Tom Hegna . Mr Hegna is an economist, a “retirement expert” and author of Pay Cheques and Play Cheques and other retirement books.

During his presentation, Mr. Hegna highlighted 10 different risks unique to “retiremenThis past week, I viewed a webinar presentation by Tom Hegna . Mr Hegna is an economist, a “retirement expert” and author of Pay Cheques and Play Chequesand other retirement books.

During his presentation, Mr. Hegna highlighted 10 different risks unique to “retirement.” They included:

  1. Longevity Risk – the risk of outliving your money
  2. Deflation – the risk that goods and services might decline (like during the Depression)
  3. Market Risk – the chance of a sustained bear market
  4. Withdraw Rate Risk – the risk of drawing down too much from your nest egg
  5. Sequence of Returns – risk of a permanent capital loss by drawing funds in a down market
  6. Regulatory Risk – a change or failure in regulatory framework (governance, Madoff)
  7. Taxation Risk – a hike in current rates or the imposition of new unforeseen taxes
  8. Inflation – an across the board increase in the cost of needed goods and services
  9. Long Term Care – the risk that a senior will require years of costly palliative care
  10. Mortality – the risk of a premature death

Of all the risks he highlighted, “longevity risk” was the most critical. It’s what he called the “Retirement Risk Multiplier.” IF that risk was not addressed first, the other risks could easily become more acute.

Life expectancy is a bit of a moving target and a tough concept for most. Most people see that life expectancy is around 84 for males and around 87 for females. What people miss is that notion that these numbers represent “averages.” They shouldn’t necessarily be used for planning purposes.

There’s a 50/50 chance (i.e. 1 in 2) that one member of a 65 year old couple will live to age 92 and a 25% (i.e. 1 in 4) that one member will live to age 97.

Hegna also noted, of all the risks retirees are exposed to, longevity risk is the easiest to take “off the table.” He advises retirees to calculate their basic human needs (food, clothing, shelter, utilities, etc.), see how much is covered by CCP and OAS and to top up income with an annuity – which guarantees retirees will never run out of income nor ever take a cut in pay (recent rates can be viewed here: https://think-income.com/annuity-info/ ).

Finally, Hegna noted how most brokers and financial planners run “Monte Carlo” analysis as a means of measuring and managing “risk.” Yet, their proposals always have a  disclaimer on the bottom of the page their retirement illustrations that reads, “63% of plans fail to provide income at or after age 90.”

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4% Retirement Rule Now Obsolete

For years, financial professionals have suggested retirees draw 4% from their nest egg as a means of drawing sustainable income. That plan – designed by Financial Planner Bill Bengen in 1994, typically included allocating 60% into equities for long term growth and 40% into cash and fixed income as a means of dampening market volatility.

In theory, a senior with $250,000 of retirement savings would allocate $150,000 into equities for long term growth and $100,000 into cash and bonds. Then, they would draw $10,000 /year (or $833 /month) from the cash portion and re-balance the portfolio annually.

That plan is now being challenged by… the individual who first advocated the 4% rule.

In a recent Wall Street Journal article, Bill Bengen suggests retirees cut spending and exercise caution with the latest surge in inflation. He suggests adherents to the 4% rule take a pay cut and roll back their drawdown rate to 3%.  (See: https://www.wsj.com/articles/cut-your-retirement-spending-now-says-creator-of-the-4-rule-11650327097?st=gmubxx8uvq6aakz&reflink=desktopwebshare_permalink )

The problem is that there’s no precedent for today’s conditions,” he said.

A recent Morningstar report recommended a 3.3% initial withdrawal rate for those retiring today. It suggested that was an optimal rate for those who want spending to keep pace with inflation over three decades and want a high degree of certainty their money will last.

As of March 1st, Canadians had $2 trillion invested in mutual funds. Roughly 1/2 of those funds were invested in balanced funds, 1/3 were invested in equities and 1/8 were invested in fixed income/bond funds. Old ways of thinking still permeate retirement income strategies and expose Canadians to

Any retirement income strategy ought to include the use of annuities. Retirees receive higher, tax favoured income and retirees can rest assured they will never have to take a pay cut. Recent rates were posted here: https://think-income.com/annuity-info/