August 10, 2016

Wednesday saw the S&P 500 down 0.3% while Toronto was down 0.2%.

Boston Pizza Royalties Income Fund was out with Q2 earnings this morning. Distributable cash per unit was up 1%. I thought distributable cash per unit might fall this particular quarter due to the business interruption in Fort McMurray. This 1% growth is decent. The units now yield 6.4%. I view this cash yield as low risk. The unit price can certainly move around but the cash yield seems very safe. And I expect that cash distribution to continue to rise albeit quite slowly over the years. To my mind, a 6.4% cash yield that is low risk and is expected to grow remains attractive. Although the lows early this year were a better time to buy, I think BP remains a Buy today. The units basically did not react to the earnings news today.

Melcor released earnings after the close. Their earnings have some confusing and frankly nonsensical non-cash items. When the REIT units of which they own 56% go UP in price, Melcor has to report a loss in earnings and book value on that due the higher liability to the 44% minority interest. This is a nonsensical artifact of consolidation accounting. If they owned 49% and did not consolidate they would book a gain in book value and in comprehensive income when the unit prices rise.

Melcor suggests we focus on Funds from operations per share as a better profit measure. That figure was 25 cents per unit down a penny from last year and comfortably higher than the 12 cent dividend.

These earnings look decent to me given the Alberta recession. We shall see how the market reacts over the next few days.