Canada Going Strong

q2-17 canada gdp

In the last few weeks, Canada has shown economic strength. The GDP in the second quarter of the year 2017 has risen by an annual rate of 4.5 percent. Another piece of good news is that the unemployment rate in August decreased to 6.2 percent, the lowest since 2008.

This led to the announcement of increased interest rates by the Bank of Canada early September. The new Canadian rates of 1.0 percent pairs with the recent increase in the U.S interest rates to 1.25 percent. This way, Canada retains the toonie in competing position with the U.S dollar.

The foreign view of Canada continues relatively strong, vis-a-vis the ones of the U.S and UK. Expat community Internations announced a significant drop of the U.S and U.K in their annual ranking. The U.S ranking fell from position 26 to 43 while U.K dropped from the previous position of 33 to 54. Conversely, Canada ranked 16 among 65 studied nations.

Source: Trading Economics, Bank of Canada, Federal Reserve, InterNations

Written on 18 Sep 2016

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Dividend Yields To Rule a Little Longer

chart01After preparing the financial markets for a potential interest rate hike in the middle of this month, Federal Reserve’s head Janet Yellen, elected by Forbes the third most powerful woman, decided to be on hold until the economic outlook clears. This Monday’s surprise announcement ignited a new wave of celebrations among dividend and emerging markets investors.

Yellen’s announcement came following the news that employers added a mere 38 thousand jobs in May. The figure was so low that she remained cautious and preferred to wait for more data. Remember that a couple of weeks ago she said an increase would be appropriate. As a result, some financial outlets say that this announcement effectively postpone a potential hike to September, opening a window of opportunity for speculative capital chasing certain types of stocks.

Until yesterday I was 100% confident that it was not worth considering emerging markets investments, such as the one I bumped into, Tierra XP Latin America Real Estate ETF, a new real estate ETF focused on Latin America (click here). Although their real estate investment trusts and real estate operating companies, especially in Brazil, have been underestimated, currency trend has been in favor of U.S. dollars. Currency exchange fluctuations caused by higher interest rates would likely trump any gains in the local currency. The announcement might interrupt the trend for now and favors gains in the short term, but it should resume in the long term.

Dividend stocks, including REITs, should also benefit from the announcement. Rather than interest rates, dividend yields will rule for a little longer, especially when equity REIT yields are on average 4.1%, as opposed to a 10-year treasury bond rate under 2%. This reminds me of what William Koldus said in a recent article. Back in 2009, he couldn’t imagine the current scenario of low interest rates (click here). This is what he said:

“In 2009, it was hard for me to imagine a robust recovery in the financial markets that extended for seven years, while economic growth struggled. It was hard to imagine seven years of zero interest rates, which would entice investors to keep reaching for income. After going through this low interest rate period, today, it is hard for investors to imagine a future that looks different from the current environment, as I could not do in 2009.”

Well, it appears that we’ll have more of the same. With this degree of uncertainty about the future, the status quo seems more likely.

Source: Tierra XP Latin America Real Estate ETF (NYSEArca:LARE), Seeking Alpha, Bloomberg

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

S&P Planning to Add REITs As 11th Sector

chart01This September, S&P and MSCI will be adding Real Estate as an 11th sector, accompanying changes to the Global Industry Classification Standard (GICS), which is used to sort public companies into sensible categories. Basically, the new sector will have 27 equity REITs as well as a real estate operating company with a combined market value of $535 billion, thus making it the ninth largest sector out of the eleven.

REIT investors should know this because it is expected to make REITs more popular than ever. In part, this is because there will be more products catering to those interested in the new sector once its constituent companies have been sorted out of their current home in Financials.

In addition, the change should also encourage investment analysts to take REITs and other real estate-related companies more seriously, which in turn, should raise said companies’ profiles and prospects in the eyes of the investors who listen to them. This is important because there are a number of misconceptions about REITs and other real estate-related companies at the moment, ranging from an excessive focus on Realty Income to a false belief that REITs are limited to a small number of stocks.

Of course, this change will not be wholly beneficial. For example, overvalued stocks are likely to become even more overvalued. However, its overall impact for REIT investors should be positive, so much so that they should consider preparing their portfolios in order to maximize their benefit from the incoming wave of new REIT investors.

Source: Barron’s, WSJ, REIT.com, MSCI, S&P

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

Would Donald Trump Have Been Better Off Investing In REITs?

new-york-508814_1280.jpgSome supporters of Donald Trump claim that his business skills would serve the country well if he became the 45th President of the United States. The standard rebuttal to this claim is that the man would have been better off if he had invested his own wealth and the inheritance from his father, real estate developer Fred Trump, in stock indices. There is some truth to this counter-claim, but there is some exaggeration as well.

Read our article on Benzinga: http://www.benzinga.com/trading-ideas/long-ideas/16/02/6675157/would-donald-trump-have-been-better-off-investing-in-reits#ixzz41ElsaSsA

Commercial Real Estate Investing Guide: Don’t Limit Yourself to Residences

church-631078_1280First of all, there’s absolutely nothing wrong with investing in residences; however, don’t let any past residential experience limit you to just that segment. Although you may be comfortable in the residential sector, there are many other types of commercial real estate to consider. Additional options include office buildings, industrial properties, parking lots, and land to name a few.

It is always a great idea to weigh the pros and cons of purchasing, owning, and managing these various property types, and then choose your niche based on what suits you best. Will an apartment building, office complex, tract of land, or parking lot help you reach your goal? At this stage, it is crucial to think outside your comfort zone. Make your decision based on financial numbers.

You’re going to need to be prepared to spend a great amount of time when you start investing in commercial real estate. If it’s taking longer to get your first deal done, don’t get discouraged. It just means the right situation hasn’t come your way yet. The best deals come to investors that simply stick with it no matter what. It takes time to screen for deals and make offers. Much like anything else there is a learning curve that will get far easier over time. Good things come to those who wait.

It’s very important to build relationships with other investors when you’re getting started as a commercial real estate investor. Many commercial properties cost millions of dollars, and you may simply not be able to afford it on your own. Your best choice may be to partner with other like-minded individuals. Join your local real estate investor clubs and go to all meetings and events that you can. Network with as many people as possible and keep mind and eyes open. You never know who your next business partners will be.

Always, always, always have your financing lined up in advance. Commercial loans are structured differently than residential mortgages. Downpayment percentages are typically higher so you need to be prepared well in advance to submit an offer. There are many positive aspects to a commercial loan as opposed to a residential mortgage. Oftentimes commercial loans do not require personal liability. If the deal ends up going south, it won’t negatively impact your personal credit. In addition, commercial lenders don’t care if you borrow the downpayment from someone else. The money doesn’t need to come directly from you, or doesn’t need to sit in your personal bank account for ninety days.

Lastly, be prepared to lose your due diligence money. Once your offer is accepted, you will have a certain amount of time to perform an appraisal, property inspection, and any other inspection or test that is required by law. Although this is the same process that takes place with any residential property, these tasks cost a lot more money when it comes to commercial real estate. You may end up spending $5,000 plus only to discover that the property is not worth purchasing. Don’t be discouraged. The money you spend in due diligence could save you hundreds of thousands of dollars of problems.

If you stick to this guideline, this is certainly not a guarantee of success. There’s no magic formula to investing in commercial real estate. It takes a lot of hard work, plenty of persistence, and little bit of luck. Having said that, the more knowledge you have will greatly increase your chances of making it work.

Written by GilverBook Team

 

Commercial Real Estate Investing Guide: Learn the Language

open-house-1163358_1280Real estate is the most intriguing and time tested investment concept known to humankind. In fact, most people have been exposed to it since childhood when they first started playing the mega-popular board game Monopoly. Investing in real estate oftentimes leads people on the path of wealth accumulation; however, they need to realize that it’s a slow ride, and not an autobahn. Building a solid real estate portfolio takes time and patience. There is certainly a plethora of opportunities out there from which to choose, and it certainly does make financial sense to specialize in one particular area and then branch out from there. Once you become a solid real estate investor in one area, then diversify; otherwise you may end up spreading your time, and finances too short.

Many people begin their real estate investing career by purchasing single-family homes either for quick flips or a long-term rental strategy. Although this an excellent way to get your feet wet, moving on to larger, and more profitable commercial deals simply makes the most sense. You’ll find that a larger commercial deal requires almost the same amount of effort and due diligence as one single-family investment, which makes it even more attractive. For example, if an investor is planning to purchase ten rental units, it makes far more sense to buy a ten-unit commercial apartment building than ten separate single-family purchases. Not only will the purchase price per unit be significantly lower, the operational costs per unit will be reduced as well. That being said, there are a number of things to learn, consider, and decide upon when it comes to purchasing commercial real estate. This guide is a good resource to get you started thinking like a commercial real estate investor.

The very first item to cross off of your checklist is to learn the language of commercial real estate. As they say, if you want to walk the walk, you need to talk the talk. There is a tremendous amount of words and acronyms in commercial real estate that you may not be familiar with, and it is extremely important to learn them. The industry people that you will be working with, such as bankers, real estate brokers, and strategists, will assume that you know the commercial real estate vocabulary. You need to be taken seriously, and a lack of understanding their language will not accomplish that. Here are a few examples.

  • Ad Valorem: A tax based on the assessed value of a piece of property
  • Cash on Cash: Annual property income over how much you actually invested. The amount invested could be just the amount your down payment was.
  • Capitalization Rate (Cap Rate): Property income divided by the total value of the property.
  • Loan-To-Value (LTV): A ratio of how much money you’re asking from a lender to the total value of what you want to purchase.
  • Vacancy Rate: Percentage of properties that are vacant in a time period in a given area.

Written by GilverBook Team

Simon Spoiled Taubman’s Mall Project

Last Friday, some investors in the financial markets were disappointed at the Q4-2015 results of Simon Property Group, a huge regional mall REIT ($58 billion market cap), but in the world of brick and mortar, that may not be the case. Simon looks to have beaten Taubman Centers’ ($4 billion market cap regional mall REIT) plan to open an enclosed shopping mall in downtown Miami. Taubman is instead settling for a high end retail street.

chart03.pngAlong with Miami Worldcenter Associates and Forbes Company, Taubman intended to construct a 765,000 square foot mall which was fully enclosed. While retail, dining and entertainment were to be key, over 40% of the mall was set to be dedicated to Bloomingdale’s and Macy’s. Included in the plan was a pedestrian-only street which featured multiple restaurants and shops on 7th street, which led directly to the American Airlines Arena. A press release on Jan 11 stated that the mall project had been discarded, and in its place would be a high end retail street, positioned south to north between 7th and 10th streets.

chart04.pngSimon planned to construct an open-air shopping center simultaneously in downtown Miami. The luxury mall is to be 500,000 square feet, and complete with high-end retailers along with plenty of dining and entertainment facilities in the Brickell neighborhood. Part of the project has already been finished and is to open this year. Local developers have been developing the project with Simon. Both projects are mixed-use and also include offices, hotels and residences.

chart05.pngTaubman’s decision strikes many as yet another signal that the idea of a mall no longer works in America. Cities have become increasingly urbanized and, along with the growth of online shopping and the boost to high street shopping, malls have become marginalized. But while Taubman is looking to expand overseas, and in particular to Asia, it’s unlikely that they will scrap future mall projects in the U.S. This scenario appears to be just a downtown Miami battle between two competitors.

chart02Due to recent selloffs, some regional malls REIT stocks have returned poorly, whereas others have been holding better. Simon has been the latter. Following the release of its results on Friday, Simon stocks dropped, but they quickly rebounded. Simon’s Q4-15 funds from operations have fallen in comparison with Q4-14. Also, occupancy dropped by 100 basis points. Despite this result, vacancy levels for malls in general have trended downwards.

The regional malls REITS that have higher sales per square foot have been doing better. Macerich, Taubman, Simon and General Growth average an AFFO multiple of 24x. In contrast, Rouse Properties, Pennsylvania Real Estate, WP Glimcher and CBL & Associates are languishing badly with an AFFO multiple of just 11x.

chart01

As a result of the project change, Taubman’s share price fell for days after the announcement was made. Taubman trades at 27x yield at 3.2%, which is the highest AFFO multiple among its peers.

chart06Source: Taubman Centers, Inc.(NYSE:TCO), Simon Property Group Inc.(NYSE:SPG), General Growth Properties, Inc(NYSE:GGP), WP GLIMCHER Inc.(NYSE:WPG), Pennsylvania Real Estate Inves(NYSE:PEI),The Macerich Company(NYSE:MAC), CBL & Associates Properties In(NYSE:CBL), Rouse Properties, Inc.(NYSE:RSE), Yahoo!Finance, Fast Graphs, Brickell City Centre, Miami Worldcenter, Reis

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.