May 30, 2017

Tuesday’s action saw the S&P 500 down 0.1% and Toronto down 0.3%.

Bombardier was up 4.7% to $2.44 as it delivered the first CS 300 jet. This is good but the problem is that all of the early production run has apparently been priced below cost. It will be even tougher now to sell at profitable prices when airlines know that planes to date were sold at huge discounts below the cash cost pf production.

I was made aware today of some office buildings in Edmonton that have recently been sold at huge (staggering) discounts to the price paid for the buildings several years ago. In part this was due to dumb purchase prices of a few years ago. It was not clear what the vacancy levels were.

For many years it has been the mantra of pension funds and other institutional investors to buy “infrastructure” assets. It seemed that no price was too high. And it seems to have been accepted by REIT investors that buildings no longer depreciate but instead always appreciate in value even as they get older. Well, not always it seems.

These value declines are scary and could have implications for other REITs and for lenders as well.