April 25, 2019

On Thursday, the S&P 500 was about unchanged while Toronto was down 0.1%

American Express was up 1.6%.

FedEx was down 4.5%.

Toll Brothers was down 2.1%. It had been doing quite well despite mostly weaker results on U.S. home building so the drop today seems like a sort of delayed reaction. And the latest new home sales report was unexpectedly strong. As always, stocks can sometimes move in the opposite direction that might be expected based on news.

The Melcor REIT announced that it has purchased a $12.45 million retail / warehouse building in Calgary that is leased to a national tenant for 15 years with scheduled rent increases. To put this in context, the REIT has total assets of $684 million so this is a modest addition of less than 2% to its properties. The purchase was funded with debt (a credit line). The purchase is accretive to Adjusted Funds From Operations per unit. The use of debt for this purchase means that no new shares (units) have to be issued and that is good. Issuing new units (which is effectively selling off a small portion of all the existing buildings to new owners) at a 30% discount to book value (which is based on the market value of the buildings) in order to buy property that is presumably at 100% of market value would not make sense to me.

Despite already having too much exposure to Melcor Developments I added to my position in the Melcor REIT today. In theory, I am buying a tiny share of their buildings at a discount to the price that buildings trade for in the market.

Scroll to Top