March 4, 2018

On Friday, the S&P 500 was up 0.5% (although the DOW was down 0.3%) and Toronto as down 0.1%.

AutoCanada was down 2.0%. They will not release Q4 results until March 15. I am expecting improved results in Q4 and and an improved outlook for 2018.

Canadian Tire was down 1.8%.

The Melcor REIT rose 2.1% after releasing earnings. They noted continued pressure to lower rents upon renewal of office leases in Edmonton. And there is some risk of increased vacancies. Overall they saw signs of improvement in the market but their cash flows from operations per unit do not seem likely to grow in 2018 even with the addition of new properties acquired from Melcor in January. Still, with a cash yield of 8.3%  these units seem attractive. They booked a modest fair value gain of $3.8 million on investment properties in the fourth quarter versus losses of $16.6 million in the first nine months of 2017. Fair value losses are to be expected as interest rates rise.

When Melcor Developments reports on Wednesday, I expect their lot sale numbers to be good. However lot sales from their busy new Jensen Lakes subdivision could be at lower gross profits since that land may have been purchased at time of peak land values. Melcor will presumably not report any fair value losses on properties in Q4 but rather would report gains due to progress in developing new buildings. I am under the impression that Melcor may book a small loss on properties transferred to the REIT in January 2018. The reason for that would be that such properties were earlier marked up to market value and the transfer may have been at a price slightly lower than the Q3 estimate of market value. Melcor Development shares are trading at half of book value. That would seem to provide a substantial margin of safety. It’s hard to imagine that there shares are not under-valued.

I am currently working on an update for Stantec Inc. Stantec stumbled somewhat in Q4 with some cost-overruns and there were also some unusual income tax expenses. I remain positive on Stantec. I notice that the company resumed buying back shares on February 27 and 28 as the price declined with the earnings release. Stantec also happened to mention its work on housing developments in southern Alberta had increased in Q4.