Analyzing Canadian REITs, Part III: Commercial, Industrial, And Office

by: Monty Spivak

<< Return to Part II

The Canadian commercial, industrial, and office segment has some of the largest companies (by capitalization) of the real estate sector. MI Developments (MIM), with a market cap of $1.5B, and Brookfield Office Properties (NYSE:BPO), with over $8B capitalization, are the “elephants” in this section, and in the real estate sector.

Names, tickers, and US stock exchange prices follow, to help non-Canadians find these securities on US exchanges when possible (click tables to enlarge):

The following is a table of statistics based on the Canadian stock exchange activities. The US sources do not typically carry this data, which may be important to your investment decision.

The following provides a description and financial results. This will help you identify and understand the company activities and results.

Halmont Properties Corporation

Owns commercial and undeveloped real estate interests. Halmont Properties Corporation is a Canada-based company. The company invests directly in real estate and securities of companies holding real estate interests. The company has a 75% interest in a commercial real estate joint venture property in downtown Toronto, Ontario. The company, through a subsidiary, holds investments in other corporations with real estate and related interests. The company has two segments: commercial real estate and forest properties.

Nov. 25, 2011 - HALMONT PROPERTIES announced today that the net income to common shareholders for the nine months ended September 30, 2011 was $0.75 million as compared to income of $0.73 million for the nine months ended September 30, 2010.

NorRock Realty Finance Corporation

Provides exposure to the performance of an actively managed portfolio of secured loans and investments in the Canadian commercial real estate sector on a tax-efficient basis.

As at June 30, 2011, the Corporation continued to hold approximately $6.725 million of excess cash in publicly traded securities including debentures and convertible debentures in real estate corporations and REITs and other preferred securities with an aggregate yield of 5.07% (calculated as yield divided by fair value) in accordance with the Corporation’s investment objectives and within the Corporation’s investment restrictions. The Corporation also maintained a cash position of approximately $28.1 million. at June 30, 2011, principal outstanding (less unamortized fees) in the Mortgage Portfolio was approximately $26.4 million (December 31, 2010 – $37.5 million). During the first six months of 2011, the Manager extended four loans in the aggregate amount of $8,236,888 with a current average effective yield of 11.46%, of which one loan matured during the same period and is now in an overhold position. During the same period, ten loans in the aggregate amount of $11,135,572 were repaid. The repaid loans had an average effective yield of 11.49%.

Regent Pacific Properties Inc. (OTC:RPGLF)

Holds 55% interest in Cassel Centre Ltd. which is developing a commercial office building in Edmonton, Alta. Regent Pacific Properties Inc. is a Canada-based company. The company completed its qualifying transaction on October 15, 2010. On October 15, 2010, the company acquired a 55% interest in Cassel Centre Ltd. This transaction was accounted for as a reverse takeover with the acquiring entity being Cassel Centre Ltd. and the acquired entity being the Regent Pacific Properties Inc. As of June 30, 2011, the company leased one bay to a tenant and received rental income.

TitanStar Properties Inc.

TitanStar Properties Inc., formerly DPVC Inc., is a real estate holding company. The company's business is the ownership of real property interests. On October 18, 2010, the company and Sahara Crossing Development company, LLC, a related party of Juliet Companies LLC formed a joint venture and completed its acquisition of a commercial retail property located in Las Vegas, Nevada (the Sahara Property). On April 16, 2010, it completed its Qualifying Transaction and acquired a 50% interest in Deer Springs Crossing, LP, through a wholly owned subsidiary, TitanStar DSC Holdings Inc. and a 50% interest in LV Loan Holdings LP (LVLH LP) (49.5% limited partnership interest in LVLH LP and 0.5% interest in LVLH LP through a 50% interest in the general partner of LVLH LP, LV Loan Holding GP Inc.). The company, through its wholly owned subsidiary, TitanStar DSC Holding Inc., has a 50% interest in each of the Deer Springs Property, a 22.8-acre parcel of land in Las Vegas, Nevada, and the Sahara Crossing Property.

The company has engaged a syndicate of investment dealers led by Sora Group Wealth Advisors Inc. (the “Lead Agent”) to act as Agents for a brokered private placement financing (the “Offering”) on a commercially-reasonable best efforts basis, via offering memorandum and other exemptions from the prospectus requirements, to offer a minimum of 8,108,109 and a maximum of 16,216,217 Units at a price of $0.37 per Unit, for a minimum of CAD $3 million and a maximum of CAD $6 million in proceeds. Each Unit is comprised of one common share of the company (a “Common Share”) and one non-transferable share purchase warrant (a “Warrant”), with each warrant exercisable by the holder to acquire one additional common share of the company for a period of 24 months from issuance at an exercise price of CAD $0.40 per share in the first year and an exercise price of CAD $0.45 per share in the second year.

Revenues earned during the three and twelve months ended April 30, 2011 relate to leasing revenues from the Sahara Property acquired in October 2010. Expenses incurred during the three and twelve months ended April 30, 2011 consisted primarily of share based compensation, professional fees, interest and loan fees and expenses directly related to the Sahara and Deer Springs properties. The increase in expenses for the three and twelve months ended April 30, 2011, as compared to the four months ended April 30, 2010 and twelve months ended December 31, 2009, results primarily from increased share based compensation, increased professional fees resulting from increased activity in the period, the acquisition of DSC LP and LVLH LP in April 2010 and the acquisition of the Sahara Property in October 2010. Total assets as at April 30, 2011 included $8,469,323 of income properties, $795,097 of advance to joint venture, $200,540 of intangible assets, $34,975 of prepaid expenses, $53,040 of accounts receivable and $622,095 in cash, which were financed primarily by the issuance of 7,046,573 common shares related to the Offering and short terms loans related to the Sahara Property acquisition.


The Trust has acquired and owns 43 commercial and industrial properties in primary and secondary markets. The Trust's operations pertain to four categories of real estate, located in Quebec and in Ontario, which are office buildings, commercial buildings, Industrial buildings, and Mixed buildings. In June 2010, the company acquired remaining 3% interest in Cagim Real Estate Corp. Purchased an industrial property in Montreal in 2011-12.

C2C Industrial Properties Inc.

Acquires light industrial properties across Canada. C2C Industrial Properties Inc., formerly Sargasso Capital Corporation, focuses to become a real estate corporation specializing in acquiring, owning and operating industrial properties across Canada. The company was a capital pool company. On May 18, 2011, the company completed its qualifying transaction by acquiring C2C Industrial Properties Ltd. (C2C). Prior to completion of the qualifying transaction, C2C acquired the lands and premises known as 1300 Fewster Drive, Mississauga, Ontario from Blue Water Property Investment Inc.

C2C is a real property company that recently completed its Qualifying Transaction on the TSX Venture Exchange. C2C's principal objective is to become a real estate corporation specializing in acquiring, owning and operating industrial properties across Canada. More information about C2C (CCH: TSX-V) is available on Sedar.

Huntingdon REIT (OTC:HURSF)

Owns a portfolio of 87 income-producing office, industrial, retail and stand-alone parking lot properties including aviation-related facilities on ground leased land at five Canadian airports. The Trust has a 50% ownership interest in Airport Place, a 667,648 square foot multi-tenant retail/office/warehouse property. The Trust has a 25% ownership interest in the property, which is a 328,196 square foot property, comprised of four separate industrial buildings, located on a 16.52-acre site in the northwest section of Winnipeg, Manitoba. The Trust has a 25% ownership interest in the property, which is a 106,952 square foot property, comprised of two separate industrial buildings. The property is located on a 5.56-acre site in the east end of Winnipeg, Manitoba. The Trust has a 50% ownership interest in 220 Portage Av (The Royal Bank Building), a 169,844 square foot office building located in downtown Winnipeg, Manitoba. 365 Hargrave Street is a 71,784 square foot office building, with 64,428 square feet leased to the Government of Canada being a key tenant.

2012-12: Completed the early redemption of $38.0 million plus accrued interest of its 7.50% Series C Convertible Debentures.

Madison Pacific Properties (OTC:MDPCF)

Madison Pacific Properties Inc. (Madison) is a Canada-based real estate company. The company is engaged in investment in and development of income producing real estate properties. All its properties are located in British Columbia with approximately 99.3% of the rentable area located in Metro Vancouver. As at December 31, 2010, Madison's Property Portfolio is comprised of interests in 1,152,358 square feet of net rentable area of industrial properties, 190,383 square feet of net rentable area of retail/highway commercial properties, and 59,080 square feet of net rentable area of office property for a combined total of 1,401,821 square feet. As at December 31, 2010, the company owned 94.1% of the equity Metro Vancouver Properties Corp. (MVP), formerly Migenix Inc. I have not found an appropriate summary of Q3/2011 financials.

MI Developments (MIM)

MI Developments Inc. (MID) is engaged in the acquisition, development, construction, leasing, management and ownership of an industrial rental portfolio leased to Magna International Inc. (‘Magna') and its automotive operating units. MID also acquires land, which it intends to develop for mixed-use and residential projects. In additional, MID is engaged in racing and gaming operations and owns Santa Anita Park, Golden Gate Fields, Gulfstream Park, Portland Meadows, AmTote International Inc. (AmTote) and XpressBet, LLC (XpressBet), and through some of these assets, is a supplier, through simulcasting, of live horseracing content to the inter-track, off-track and account wagering markets. Effective July 1, 2010, the company owns a 51% interest in a joint venture with real estate and racing operations in Maryland. The company operates in two segments: Real Estate Business and the Racing and Gaming Business.

For the three-month period ended September 30, 2011, rental revenues increased by $3.8 million from $42.6 million in the third quarter of 2010 to $46.4 million in the third quarter of 2011 primarily due to the favourable effect of changes in foreign currency exchange rates, additional rent earned from contractual rent increases, completed projects on-stream and the re-leasing of income producing properties. The company’s income from continuing operations was $15.5 million in the third quarter of 2011 compared to $13.9 million in the prior year period.

The increase in income from continuing operations of $1.6 million is primarily due to the increase in rental revenue of $3.8 million, the increase in foreign exchange gains of $0.4 million, the reduction in interest expense and other financing costs of $0.8 million and the decrease in income tax expense of $1.7 million, partially offset with the increase in general and administrative expenses of $4.1 million and the increase in depreciation and amortization expense of $0.7 million. The increase in general and administrative expenses of $4.1 million is predominately due to $5.6 million in employee termination expenses relating to former officers, a director and other staff. FFO for the third quarter of 2011 increased $2.3 million from $24.1 million in the prior year period to $26.4 million primarily due to the increased income from continuing operations of $1.6 million for the reasons noted above and the add back of increased depreciation and amortization expense of $0.7 million.

Pure Industrial REIT (OTC:PDTRF)

The Trust has been formed to acquire, own and operate a diversified portfolio of income-producing industrial properties in both primary and secondary industrial markets across Canada. The company holds properties in five provinces: British Columbia, Alberta, Ontario, Quebec and Manitoba.

On January 1, 2009, PIRET sold its interest in a small property, located at 509-44th Street East, Saskatoon, Saskatchewan. On June 1, 2009, PIRET sold its interest in a small property, located at 225 Quebec Street, Regina, Saskatchewan.

Allied Properties REIT (OTC:APYRF)

The company is the owner, manager and developer of urban office environments that enrich experience and enhance profitability for business tenants operating from Toronto, Montreal, Winnipeg, Quebec City and Kitchener-Waterloo. Its objectives are to provide stable and growing cash distributions to unit holders and to maximize unit holder value through effective management and accretive portfolio growth. As of December 31, 2009, it had Four Toronto properties (47 & 47A Fraser Avenue, 134 Peter Street, 544 King Street West and 905 King Street West) and one Montreal property (4450 Saint-Laurent Boulevard) under development (Properties Under Development or PUDs). Its wholly owned subsidiary, Allied Properties Management Limited Partnership, provides property management and related services to the company and third-party property owners on a fee-for-service basis.

Q3/11 fully diluted funds from operations were $0.36/unit compared to $0.40/unit last year and below our $0.42/unit estimate, constrained by the timing of new lease commencements on the REIT’s substantial transitional vacancy. Compared to last year, Q3/11 FFO was impacted by a 3.8% decline in same-property NOI, a 23.7% increase in the weighted average units outstanding, and slightly lower leverage. Notably, while overall same-property NOI was down 3.8% from Q3/10, it was up a sharp 5.7% from Q2/11, mainly reflecting the first wave of tenancies commencing as part of the re-leasing activity at Cité Multimédia in Montreal, as well as other leasing activity.

Brookfield Office Properties (BPO)

Brookfield Office Properties Inc., formerly Brookfield Properties Corporation, owns, develops and operates commercial office properties in select cities in North America and Australia and develops residential land. It is a subsidiary of Brookfield Asset Management Inc. (NYSE:BAM). It has two segments: the ownership, development and management of commercial office properties in select cities in North America and Australia, and the development of residential land. It established and invested two core office funds: the United States Office Fund and the Canadian Office Fund. The U.S. Office Fund is a single-purpose fund that was established to acquire the Trizec portfolio. The Canadian Office Fund is a single-purpose fund that was established to acquire the O&Y portfolio. In September 2010, it acquired an interest in an Australian portfolio of office properties from Brookfield Asset Management Inc. In December 2011, it acquired 1801 California Street Office Tower in Denver.

BPO posts Q3 operating EPS of $0.33, vs. $0.34 last year, ahead of our $0.28 estimate. Recent acquisitions, including a portfolio of Australian properties, added to earnings. An expected decline in U.S. occupancy levels was offset by a 2.0% increase in average rental rates. In view of Q3 results, we raise our '11 EPS estimate by $0.06, to $1.22, and '12's by $0.03, to $1.30. Our unchanged target price of $20 is based on 16.0X our estimate of 2012 funds from operations of $1.25 a share, a moderate premium to office peers.

Brookfield Office Properties Canada

Holds a commercial property portfolio consisting of interests in 19 premier office properties totalling 14,402,000 sq. ft. in the downtown cores of Toronto, Calgary and Vancouver, including 2,738,000 sq. ft. of parking. Landmark assets include Brookfield Place in Toronto, Bankers Hall in Calgary and Royal Centre in Vancouver.

BOX’s Q3/11 FFO was $0.32/unit, down from $0.38/unit a year earlier, and below our $0.34/unit estimate. The year-over-year decline in FFO is due mainly to $5 million (~$0.054/unit) lower lease termination income. Higher interest expense of $1.4 million (~$0.015/unit), related to higher rates on construction facility take-out financing at Bankers Court in Q3/10 and up-financings at Queens Quay Terminal in Q1/11 and Fifth Avenue Place in Q3/11, largely offset the positive impact of +2.9% SP-NOI growth. Q3/11 same-property NOI rose +2.9% on an IFRS/accounting basis and +6.8% on a cash basis, both excluding lease termination and other income.

In Q3/11, lease termination and other income was $0.4 million, down from $5.4 million last year. However, excluding the positive impact of the lease-up of the Bay Adelaide Centre, same property NOI fell 2.1% on an IFRS/accounting basis. The Bay Adelaide Centre was 89.3% leased at Q3/11, up from 84.9% at Q3/10, and the free rent periods are set to run out by the end of this year. Same-property occupancy in Q3/11 was 97.8% versus 96.6% a year ago. Straight-line rent was $0.018/unit, down from $0.039/unit a year earlier, largely declining free rent periods incurred at the Bay-Adelaide Centre.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.