Mark Kowalski

Long only, value, growth, reits
Mark Kowalski
Long only, value, growth, REITs
Contributor since: 2012
I do not have US REITs directly in my portfolio, most of my US holdings are in ETFs and I don't often buy US companies outright. My Canadian REIT holdings are generally in the same sort of circumstance with the exception of Riocan. Second question - not sure what time frame you're talking about.
The carry forward is around $2B according to the Q2 earnings release, at the current rate, the net income of $57M for the quarter is hardly a drop in the bucket. We may have to wait a long time before this amount is used up.
Thanks for the comment
Thanks PD
Thanks for the comment and the read,
Thanks Siwanoy, my pleasure. Margins and understanding a business are generally the cornerstone of my analysis of a company. Let me know if there are any others that you are interested in that lack coverage, I am looking for some new companies to write about.
Hey all, it has been about 7 months since this piece came out, just wanted to share how the picture currently looks.
I hope the link works, it compares Dundee's performance to the two funds XRE and ZRE and my three recomended REITS. Please simply select YTD on the chart.
As you can see, Dundee has appreciated 1.75% in price while the funds have moved between 6.9 and 7.4%. The top three have appreciated between 6.4 and 12.7%.
I'm highlighting this as the difference if far more than I was expecting, I do intend to publish another piece in the near future time permitting, but please do be carefull with your REIT investing and I do recommend staying away from Dundee for the time being.
Excellent, thanks Kevin,
Look forward to your next articles
Awesome, thanks alot Whatsup!
Excellent Piece Kevin, very informative,
Out of curiosity how did you come up with the per unit revenues of $40 per title, is this a broad estimate or did you try to calculate this for some previous titles or quarters?
I definitely agree that TTWO is in an excellent position and I like managements committment to making each coming year profitable, but I am not sure there will be much upward momentum in the shares in the near future. GTA V was absolutely huge, so it will be a tough act for the company to follow, and I think this is what concerns investors.
Thanks Boom, I will certainly keep it in mind
Thats an excellent point, thanks rdbach.
Predicting the flow of exchange rates is well beyond my scope but it will certainly influence future returns significantly.
On the other hand, there are something like 130 US traded REITs for US investors to choose from, so perhaps that would be a better option.
Interesting, do you have any info/sources to support this, IE that the rate of issues is higher than in US public companies or other countries?
ZRE is the Canadian equal weights REIT, it owns 18 Reits in relatively equal weights (they were equal when the fund started, now have changed due to price fluctuations). MER is 0.55%
XRE owns 2 REITs in disproportionate holdings, Riocan and H&R at 19 and 15% respectively and the balance is a variety of others with weights from 7% downwards. MER is 0.55%
Also no personal bias, I haven't owned it in the past, nor do I own/plan to own it now
Matthew - For my purpose here, I would consider Dundee to be more risky, a 25% drop vs. the reit markets 12% is a red flag to me. Sorry if I was not very clear, and I would love to do a more detailed analysis of it at another time, but in this market with the uncertainty regarding interest rates (and more explicitly the uncertainty regarding the REIT markets reaction to interest rates) I would not recommend a stock that is underperforming to such a degree in a bear market.
Not really choosing winners and loosers, I am not trying to find the REIT that will jump 20% in the next quarter.
As stated above, I am not banking on a unit price recovery in the near future. Instead I am looking for a high yield investment that will provide good quality returns and hold its value as we pass through these interest rate increases.
In a bear market, shares that perform worse than their peer group are a red flag to me, they signal that the company is facing more problems than just the deteriorating industry conditions, and that creates very difficult operating conditions. As a result, I picked the bottom three under this thesis.
I would love to put out a more detailed analysis of each REITs operations and results, perhaps in the New Year time permitting. I have already covered Riocan in depth, and touched a bit on Calloway and HR in a previous piece if you are interested
Thanks for pointing out the typo, it should have been 94.6 %. I have sent it for revision.
From what I have heard, I don't think the Target stores are doing exceptionally well but they seem to be here to stay. Riocan does have a high quality of tenants, as does Calloway based on their highly desirable locations
I haven't done much analysis on Artis, but will keep it in mind for future pieces, thanks
Awesome write-up, very interesting, and particularly for Kona. I will have to add it to my watchlist
Well put Momintn, and I absolutely agree, for a company with a history of hit and miss profitability to be able to make this announcement should be pretty huge news to the markets.
Thanks for the comment
Absolutely, and the stock is back up higher than it was pre-earnings time, this was a very confusing and volatile market reaction and it seems to have fully settled.
Problem is 2k sports isn't really enough to make the company profitable, without GTA V the quarter results were a loss of $140 M. I am hoping the lineup of 10 games for the next 1.5 years contains at least 2-3 big rockstar titles that will benefit from the current momentum and bring home big sales figures.
Thanks for the comment,
Mentioned directly above your comment under PC sales, have a look
Historically PC sales of GTA games are minimal due to the delay
Thanks Bruce,
Very interesting point, I haven't followed this company for long enough, but it does seem management is contending with the shareholders and highly emphasizing the product quality over all else.
Thankfully at this point, the higher quality product seems to be in line with the shareholder's best interest as TTWO is setting itself apart from the pack, but what will happen in the coming quarters is a big mystery. Particularly if they start making games that cost more than they return, which is a big problem for other developers out there.
Thanks Whatsup, very interesting that this is still the case more than a month after release.
Thanks Manfred, and it certainly seems the market corrected today
Very interesting points Sermer, thanks. I will address most of them below not to argue with you but to add some colour and support why I still am skeptical:
1) - PC Sales - sales info for GTA IV:
360 - 10.43M units
PS3 - 9.87M units
PC - 0.77M units
Rockstar delays the release onto PC largely due to piracy concerns (have a look at this AMA with a Rockstar employee, very interesting
This info might be a bit outdated as I know many people have been shifting away from consoles in the past couple years as the PC technology is far superior, so lets use a newer example:
Bioshock Infinite:
360 - 1.37M Units
PS3 - 0.97M units
PC - 0.34M units - 13% of the total
Assuming this would apply (note its optimistic since bioshock released all three at the same time, GTA has not yet given a date for PC) this would add 4.3M units sold and a broad estimate $225M in sales.
Next Gen consoles - this is a very good point, however, I honestly cannot possible imagine the number of people willing to wait this long to play the game to be *significant* in comparison to the total sold so far. I hope instead that TTWO offers an upgrade package, say $10 for existing owners to get the nextgen copy. Even then, not many would pay to be able to play the same game they have, having just shelled out for a new system. I think next gen sales will be even less than PC, depending on how TTWO addresses the transition.
DLC - Again, looking at VGchartz - GTA IV DLC - none of them even broke 0.01 M units sold. Assuming they have better luck with the DLC, lets look at an example of a well received Rockstar DLC: Red Dead Redemption: Undead Nightmare:
360 - 0.98M units compared to total game 5.67M
PS3 - 0.93M units compared to total game 5.60M
Altogether about 17% of the games purchased resulted in a DLC purchase. Using this figure on GTA, and assuming a per-DLC price of $10, we have (29M * 0.17 * $10) =~ $50M per DLC, an excellent addition to sales, but very small in comparison to the initial release of the game.
Sure GTA may do better in all of these estimates than previous games, but at this point I think its clear that the bulk of the sales has already been made.
Where I think TTWO stands to benefit the most is from the upcoming games. For example, a new Red Dead in 2014 has the potential to hit 10-15 M based on the original's sales of ~11M. at GTA like rates, this would result in $500 - $750M in sales (very rough estimate). Coupled with the success of the predecessor and gamer's fondness for Rockstar products, I think they will be able to do very well with subsequent releases.
Let me know what you think, I have very much enjoyed your comments,
Thanks alot for your comment sermer, very interesting opinion
I largely agree with your analysis that TTWO is superior in quality, it certainly does drive the ratings on its releases incredibly high (as mentionned above) and it does create a loyal following for its games (myself included). This in turn does result in higher pricing for the games, not initially as most games start at the same price tag, but later on after a couple weeks when mediocre games are slashed to 50%, Take Two games are still relatively well priced. I don't think it has anywhere near the pricing power of Apple, but I like the comparison and think it is very valid
A couple additional comments I wanted to raise since I see alot of the comments are going in the same direction:
1) I do think the vast majority of the revenues from GTA V have already been earned in the current 29 million copies sold - my estimated $1.5 B in revenues.
Sure people will buy the game for Christmas and people will buy DLC in the future, but based on the fact that the number of copies sold is already at an all time high, I can't possibly see a significant amount of additional sales coming soon. I also am skeptical of DLC and vehicle/weapon pack sales, I do believe there will be an impact from sales of these however I don't think these additional revenues will be significant, and nowhere near enough to bring the total to the $3b some of you expect.
Perhaps I am overly conservative, but my experience watching game sales shows that the vast majority of revenues is in the first couple weeks after release.
2) Another reader has raised a very interesting point about dilution in the company. There is a significant deal of new shares issued through compensation arrangements and convertible debt that serve to reduce the value of shares indirectly. These will have a negative effect on the individual shareholder.
I want to make sure you all understand the risks,
Overall, I am still bullish on the company, but I don't think this is a sure-fire "apple at $399" sort of deal. I believe the value from here on out is the flow of upcoming titles in the next year and a half, not just the continued earnings from GTA V
As always, I welcome any comments to this
29 m copies covers October as well, so its $1.1B from Sept 17th to 30th and around $450M for the current quarter based on management estimates
Wow, very interesting point, I honestly hadn't considered that. If he was looking to get out, probably would have been a great time for him to leave as any other day that sort of volume could be devastating.
Total for the day >10.7 M volume of shares traded vs average 3.5M
Look also at the huge volume at the start. To be expected with an earnings release, but could also be out of proportion.
Thanks for this comment, very interesting idea
Very interesting, thanks for the link.
Honestly I can't possibly see that much revenue from the game, at 29 million copies the game has generated about $1.1B in the past quarter, plus management expects another $450 M in the current from Rockstar. Perhaps the figure is on a gross revenue (as compared to net used above) basis.
Nevertheless, its easy to see in the GAAP and non-GAAP analysis:
GAAP net loss ($140M)
non-GAAP net income $325M
This would suggest in this quarter alone GTA V contributed approx $465 M in net income
Very interesting points Cambridge and Inside Man, thanks