Analyzing Canadian REITs, Part IX: Real Estate Development ...

This is the last grouping of securities, and is really a "miscellaneous" category. Unlike some other categories, these are generally lesser-known (even in Canada), micro-cap stocks. As a reminder, Part I provides the information sources. Let's get started with some brief definitions.

A Real Estate Development Company (or Property Development), is a multifaceted business, encompassing activities that range from the renovation and re-lease of existing buildings to the purchase of raw land and the sale of improved land or parcels to others, according to Wikipedia. In Canada, most of these companies are privately held, and Brookfield Residential Properties Inc. (BRP) is the "goliath" of the publicly-traded companies, with a $755M market cap. If you want to invest in this space, this is the most likely candidate. Most of these companies have Canadian and U.S. operations, which may be good or bad, depending upon your investment objectives.

Mortgage Corporations are somewhat like U.S. mREITs. As you will see in the 2nd table, the equivalent of a Canadian Mortgage REIT (mREIT) provides a yield of around 7% - not the generous double-digit yields of the U.S. mREITs. These are also organized into corporations, rather than REITs (Real Estate Investment Trusts), which have taxation implications to the investors.

Real Estate Brokers are well-known to anyone who has bought or sold a property. An extract of the Wikipedia definition: is a party who acts as an intermediary between sellers and buyers of real estate/real property and attempts to find sellers who wish to sell and buyers who wish to buy. I could only find one broker with a traded security in Canada; Brookfield Real Estate Services Inc. (BREUF.PK).

1. In the following table, I have provided the names, tickers, and U.S. stock exchange prices. The securities which are traded on U.S. markets have grey-filled cells.

Name	CDN Ticker	US Ticker	US RECENT	US 52-WK HIGH	US 52-WK LOW	Sector
Brookfield Residential Properties Inc.	BRP	BRP	7.81	14.32	6.08	Development
Consolidated HCI Holdings Corporation	CXA.B	N/A	N/A	N/A	N/A	Development
Genesis Land Development	GDC	GNLAF.PK	2.9632	N/A	N/A	Development
Landstar Properties Inc.	LPI.H	N/A	N/A	N/A	N/A	Development
Tricon Capital Group	TCN	N/A	N/A	N/A	N/A	Development
Winzen Properties Inc	WZI	N/A	N/A	N/A	N/A	Development
Firm Capital Mortgage Investment Corporation	FC	FCMGF.PK	12.89	N/A	N/A	Mortgage
First National Financial Corporation	FN	N/A	N/A	N/A	N/A	Mortgage
HOMEQ Corporation	HEQ	N/A	N/A	N/A	N/A	Mortgage
MCAN Mortgage Corporation	MKP	MAMTF.PK	14.059	N/A	N/A	Mortgage
Timbercreek Mortgage Investment Corp	TMC	N/A	N/A	N/A	N/A	Mortgage
Brookfield Real Estate Services Inc	BRE	BREUF.PK	12.1946	16.161	10.9195	RE Broker

2. The following table's statistics are based on the Canadian stock exchange activities:

Name	Payout Ratio %	CDN Recent Price	CDN 52-wk High2	CDN 52-wk Low3	Yield	60-mo Beta	P/E	1-yr Return	3-yr Return	5-yr Return	Market Cap $k
Brookfield Residential Properties Inc.	N/A	$7.60	$13.75	$6.34	n.a.	2.06 (36 month beta)	0	-27.63%	-27.63%	-27.63%	$755,005
Consolidated HCI Holdings Corporation	506	$1.95	$3.00	$1.51	n.a.	0.33	13	35.27%	40.48%	-3.37%	$40,123
Genesis Land Development	N/A	$3.01	$5.07	$2.30	n.a.	1.33	6	-6.23%	40.73%	-7.14%	$133,875
Landstar Properties Inc.	N/A
Tricon Capital Group	550	$4.20	$5.50	$3.28	5.70%	n.a.	32.3	-5.13%	n.a.	n.a.	$76,612
Winzen Properties Inc	N/A	$0.65	$0.70	$0.59	n.a.	-0.1	n.a.	n.a.	n.a.	n.a.	$6,269
Firm Capital Mortgage Investment Corporation	101	$13.00	$13.27	$11.71	7.20%	0.3	n.a.	17.56%	27.83%	15.35%	$190,240
First National Financial Corporation	104	$17.53	$19.25	$13.77	7.10%	0.57	13.7	3.35%	40.58%	15.93%	$1,051,229
HOMEQ Corporation	181	$6.10	$7.92	$5.87	4.60%	0.79	29	-3.69%	34.94%	-5.78%	$88,224
MCAN Mortgage Corporation	115	$13.10	$16.64	$12.86	8.20%	0.23	9.2	6.17%	29.02%	15.66%	$220,887
Timbercreek Mortgage Investment Corp	N/A	$10.35	$11.00	$9.75	7.90%	n.a.	15.2	5.40%	12.86%	n.a.	$342,777
Brookfield Real Estate Services Inc	129	$12.65	$16.49	$11.40	8.70%	0.51	n.a.	-10.10%	35.53%	12.54%	$119,971

Please note that the numbers in Table 2 (above) are as at the end of December, 2011. The impact of this can be substantial - for example, the Brookfield Properties market cap at today's prices is around $900M. The U.S. information sources do not typically carry this data on Canadian companies, and these statistics may be important to your investment decision. Please note that the Brookfield Residential Properties Inc. (BRP) information is from a U.S. source, but the others are Canadian.

3. In order to provide you with a description and summary, I have assembled the following information from various publicly available sources. I am aware that most of these are obscure securities, and warrant a description. Please note that none of this is original material, but I have assembled information from disparate sources to provide non-Canadian investors a more comprehensive background than what is generally available outside of Canada. Again, Part I of this series describes the information sources, however here is a brief recap: Edmonton Journal: for most of the Canadian ratios, volumes, etc.; CIBC Investor's Edge: provided brief descriptions and Q3/2011 financial synopsis, and in a few cases, company websites, newspaper articles, and press releases also provided certain information (when there were gaps from the two other sources). You can also look at the news releases and financial information at The Globe and Mail Investor.

Brookfield Residential Properties Inc. (BRP)

Owns and develops residential land, builds and sells homes in master-planned communities and sells lots to third-party builders in Canada and the U.S. This company operates as a land developer and homebuilder, active in ten principal markets in North America with over 100,000 lots controlled.

Our pre-tax income of $81 million for the nine months ended September 30, 2011 compared with $130 million for the same period in 2010 reflects similar performance to last year from our Canadian operations, lower performance from our U.S. operations and the introduction of the transactional debt interest resulting from the merger. As of September 30, 2011, we controlled 109,365 lots. Controlled lots include those we directly own and our share of those owned by unconsolidated entities. Operational Results: The net loss of $19 million for the nine months ended September 30, 2011 was primarily due to lower gross margins of $14 million, the increase in interest expense of $25 million and the income tax valuation allowance of $71 million recorded in the first quarter of 2011. On the completion of the merger, we reviewed the ability of the Company on a combined entity basis to realize the U.S. deferred tax asset.

Consolidated HCI Holdings Corporation

Builds, develops and leases industrial and commercial properties and develops and markets residential lots and homes in Ontario.

Q4/2011 results at their website.

Genesis Land Development (GNLAF.PK)

Genesis Land Development Corp. is a real estate development company engaged in land development and home building. The Company has four divisions: land development, single-family home building, multifamily home building and commercial development. The Company through the activities of its operating subsidiaries, entitles and develops land for its own communities and sells lots to third parties. It also designs, constructs and markets single-family and multi-family homes primarily to move-up homebuyers. The Land division develops residential lots in the cities of Calgary and Airdrie, Alberta. The Single-Family Home Building division under Genesis Builders Group Inc. (CBG) constructs single-family homes. The Multi-Family Home Building under Generations constructs multi-family units, and Commercial Division develops and constructs retail, office and industrial properties. Genesis Land Development Corp. is a Calgary based land development company with an inventory of over 7,200 acres with a potential for 17,500 residential units and a 535-acre commercial and industrial land reserve. The vast majority of this inventory is within the Calgary metropolitan area.

Q3/2011: The decrease in FFO is mainly due to the sale of a large development land parcel in 2010, and a drop in the number of homes sold due to seasonal factors, offset by an increase in the sale of residential lots.

Landstar Properties Inc.

Holds developed and undeveloped residential land in central Florida. Landstar Properties Inc. (Landstar) is a Canada-based company that is engaged in residential land development and home building in British Columbia, Canada, and in the State of Florida, in the United States. In Vancouver, two joint ventures, 60%-owned by Landstar and 40% by Springer Land Corp., have built out and sold two single family developments aggregating 70 homes. Florida activities are conducted through Landstar Lakeland Inc., a wholly owned United States subsidiary of Landstar Properties Inc. In May 2008, the Company entered into a joint venture for the development of 13 single family residential properties adjacent to Elgin Wood. In May 2008, the Company entered into new a 50-50 based joint venture again with Springer Land Corp and had planned on building a further 13 homes.

Author's note: they seem to have trouble maintaining their stock exchange listing.

Tricon Capital Group

Tricon Capital Group Inc. (Tricon) is an asset manager of funds that participate in the development of real estate in North America by providing financing to developers. The Company focuses specifically on residential land development, single-family homebuilding and multi-family construction, as well as retail development done in conjunction with residential projects. As of December 31, 2010, the Company had invested in over 140 transactions for development projects. As of December 31, 2010, Tricon's funds are active in four markets in Canada (Toronto, Calgary, Edmonton and Vancouver) and five markets or regions in the United States (Northern California, Southern California, Phoenix, Atlanta and South Florida).

Winzen Properties Inc.

Winzen Properties Inc. is a diversified real estate company. The Company focuses on the development and construction of new homes and the ownership and value enhancement of residential and commercial rental properties. The Company's objective is to realize financial returns for its shareholders by enhancing the value of its real estate and by making investment in rental and development properties. During the fiscal year ended March 31, 2010 (fiscal 2010), the Company had 95 acre Colgan property, allowing for 256 residential lots, seven townhouse blocks, a 170 unit senior's residence and a commercial plaza site. The Company has a 50% interest in a 95-acre farm in the town of Colgan a small town north of Toronto. The Company has a 40% interest in 53 agricultural acres near Ellicottville, New York, a ski resort community.

Winzen's revenue increased in the second quarter of 2011 up significantly due to higher sales. For the three months ended September 30, 2011, cash flow from operations decreased to $610,578 compared with $923,746 in 2010. The gain from operations for the three months ended September 30, 2011 was $490,690 compared to $166,691 in the prior year. This higher result in 2011 was due to the sale of six homes and two lots in the second quarter compared to one house and two lot sales in 2010.

Firm Capital Mortgage Investment Corporation (FCMGF.PK)

Provides residential and commercial real estate finance through its mortgage banker, Firm Capital Corporation. FC is a non-bank lender providing residential and commercial short-term bridge and conventional real estate financing, including construction, mezzanine and equity investments.

Dec. 16, 2011 /CNW/ - Firm Capital Mortgage Investment Corporation announced its monthly cash dividend for December in the amount of $0.078 per share. The Corporation also announced an estimated special year-end cash dividend (the "Special Dividend") of $0.054 per share. These cash dividends, totaling an estimated $0.132 per share are payable on January 16, 2012, to Shareholders of record on December 31, 2011.

First National Financial Corporation

Originates and underwrites mortgages for both single-family residential clients and multi-unit residential and commercial clients sourced from independent mortgage brokers and in-house underwriters. First National Financial Corporation (TSX: FN is the parent company of First National Financial LP, a Canadian-based originator, underwriter and servicer of predominantly prime residential (single family and multi-unit) and commercial mortgages. With over $58 billion in mortgages under administration, First National is Canada's largest non-bank originator and underwriter of mortgages and is among the top three in market share in the mortgage broker distribution channel.

Third quarter of 2011 showed improvement from the IFRS restated 2010 results as First National continued to build its portfolio of mortgages under securitization. However, higher origination volumes associated with a resilient real estate market, growing net interest margin and mortgage servicing were offset by adverse conditions in the capital markets. Mortgages under administration continued to grow and the Company financed more mortgages directly with the Canada Mortgage Bonds program. Mortgages under administration grew to $58.0 billion at September 30, 2011 from $52.0 billion at September 30, 2010, an annualized increase of 11.5%; the growth from June 30, 2011, when mortgages under administration were $56.0 billion was 3.6%, an annualized increase of 14.3%.

HOMEQ Corporation

HOMEQ Corporation (HOMEQ), formerly Home Equity Income Trust, through its subsidiary, HomEquity Bank (HomEquity), provides reverse mortgages to homeowners aged 60 and over. HomEquity originates reverse mortgages under the CHIP Home Income Plan brand. The Company's subsidiary, HomEquity originates and finances reverse mortgages and provide mortgage administration services on the reverse mortgage portfolio. HomEquity issues Guaranteed Investment Certificate deposits to fund its mortgage portfolio. CHIP Mortgage Trust (CMT), a wholly owned subsidiary of HomEquity, finances a segment of the reverse mortgages originated by HomEquity by issuing short-term and medium-term debt. HOMEQ is a provider of reverse mortgages in Canada, through its distribution and referral network.

Adjusted net income per share increased by 36% over the same period in 2010, the portfolio grew by 16%, spreads remained firm, origination and administrative expenditure remained well controlled and the volume of inquiries and applications continued at a heightened pace. Subsequent to the end of the quarter, HOMEQ concluded the sale of $11.0 million unsecured subordinated debt (the "Notes") due October 31, 2021 with a coupon of 8.55%.

MCAN Mortgage Corporation (MAMTF.PK)

Operates as a loan company under the Trust and Loan Companies Act (Canada) and as a mortgage investment company under the Income Tax Act (Canada). Generates income by investing its equity and borrowed funds in a portfolio of mortgages (including single-family residential, residential construction, non-residential construction and commercial loans), as well as other types of loans and investments, real estate and securitization investments.

Net income for the third quarter was $7.6 million ($0.45 per share), down from $10.7 million ($0.74 per share) in the prior year. Prior year income was exceptionally high, as it included substantially higher mortgage fee income and equity income from MCLP, and the full reversal of a significant individual residential construction loan allowance. The return on average shareholders' equity was 19.46% for the third quarter compared to 34.28% in the prior year. Total consolidated assets were $3.8 billion at September 30, 2011, an increase of $9 million from June 30, 2011. The change included an increase of $19 million in our corporate mortgage portfolio (which included an increase of $31 million in single family mortgages), partially offset by a decrease of $9 million in securitized assets. Impaired mortgages as a percentage of total mortgages decreased to 0.65% at September 30, 2011 from 0.67% at June 30, 2011. Impaired corporate mortgages as a percentage of the corporate portfolio remained low but increased slightly to 2.51% at September 30, 2011 from 2.46% at June 30, 2011. Estimated taxable income for the quarter was $4.5 million, or $0.27 on a per share basis. The prior year was exceptionally high at $9.4 million, or $0.66 per share.

Timbercreek Mortgage Investment Corp

The Fund provides investors with an opportunity to receive attractive yields by investing indirectly, through holding shares of the Fund, in mortgage loan investments selected and determined to be high quality by its manager, Timbercreek Asset Management Ltd. The investment objective of the Fund is, with a primary focus on capital preservation, to acquire and maintain a diversified portfolio of mortgage loan investments that generates attractive, stable returns in order to permit the Fund to pay monthly distributions to its shareholders.

Brookfield Real Estate Services Inc. (BREUF.PK)

One of Canada's largest residential real estate franchisors with 15,295 agents and sales reps, and a ~23% share of the Canadian market, with strong, long-established brand names and a market focus that is primarily on the middle and upper end of the residential brokerage market.

Brookfield Real Estate Services' Q3/11 cash flow per share (CFPS) was ahead of expectation at $0.45, down from $0.54 a year ago due mainly to the commencement of corporate taxes paid by company. Total royalty revenues grew by 6.4% year-over-year (Y/Y) to $10.3 million as fixed franchise fees rose to $4.7 million (+0.8% Y/Y), variable fees increased to $2.5 million (+14.9% Y/Y), and premium fees improved to $1.9 million (+12.9% Y/Y). This was partly offset by a 3.2% decline Y/Y in other fee revenue to $1.1 million. Brookfield Real Estate Services' shares are trading at 8.9x 2011E CFPS, 7.9x 2011E EV/EBITDA, and yield 8.1% on a fully covered dividend of $1.10. Our 12- to 18-month price target is ~9.5x 2012E CFPS, ~8.5x 2012E EV/EBITDA or $14.75.

This wraps it up for the survey of Canadian real estate companies. Yield-oriented investors will need to be patient - buy low and yield high - so timing will determine your yield on investment. Certain groups believe that this market is fully, if not over-valued, and that a correction is coming with increased interest rates. Despite this, the Canadian banks introduced a 4-year, 2.99% residential mortgage rate on 2012-01-13, so perhaps the real estate market still may have room to run higher.

The next step is to rank the securities by yield, and assess their relative risk, which I will cover in the next (and final) article of this series.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: http://seekingalpha.com/article/350171-analyzing-canadian-reits-part-ix-real-estate-development-companies-mortgage-corporations-and-brokers?source=feed

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