Thursday, May 3, 2018

PSP, AIMCo Buying Canadian Real Estate?

Benefits Canada reports, PSP Investments to buy Bombardier’s Downsview property:
The Public Sector Pension Investment Board has entered an agreement to purchase the Downsview industrial property owned by Bombardier Inc. in Toronto.

“This investment is a perfect fit for PSP as it supports our long-term real estate investment strategy,” said Neil Cunningham, president and chief executive officer of PSP Investments.

“We have a stellar track-record in working with large, complex projects across our entire investment portfolio, and we are proud of our continued commitment to investing in Canada.”

Bombardier has owned and operated the site since the early 1990s, using it to manufacture and test its Global series and Q400 aircraft.

“As part of Bombardier’s five-year turnaround plan, we have been reviewing our facilities worldwide to ensure we have the most efficient and cost effective operations necessary to support our growth objectives,” said Alain Bellemare, president and chief executive officer of Bombardier, in a press release.

The deal will net Bombardier about $635 million in gross proceeds. Besides the Downsview deal, the Greater Toronto Airports Authority has entered a long-term agreement to lease about 15 hectares of property associated with Toronto Pearson International Airport to Bombardier. The company intends to use the property for a new centre of excellence and final assembly plant for its Global business jets.

“Today, we only use about 10 percent of a 370-acre site at Downsview and bear the entire cost of operating a 7,000-foot runway. So, we are very pleased to have reached agreements with PSP Investments and the GTAA. Together, they allow us to monetize an underutilized asset, further streamline and optimize our business aircraft operations, and will support further economic development and job growth in the greater Toronto area.”

Bombardier will continue to operate the Downsview site for a period of up to three years following the closing of the deal, which the parties expect to close in the second quarter of 2018.

The transaction comes as several pension plans are looking to use their voting rights to push governance changes at Bombardier’s annual shareholders meeting today. The Canada Pension Plan Investment Board, the California Teachers’ Pension Fund and the Florida State Board of Administration have said they intend to support a proposal from OceanRock Investments Inc. that asks the company’s board to file an annual report on its lobbying activities, The Canadian Press reported.

However, while the motion is unlikely to pass given the Bombardier family’s controlling voting rights, the company still encouraged shareholders to vote against it, emphasizing that it reports monthly on its federal lobbying activities to the federal lobbying commissioner.
Don Wilcox of Real Estate News Exchange also reports, Bombardier to sell Toronto Downsview site to PSP Investments:
Bombardier Inc. will sell its Downsview airport and manufacturing property in Toronto to Public Sector Pension Investments (PSP Investments) for US$635 million. The move is the latest in what the company calls its five-year turnaround plan.

The announcement, made in the company’s Q1 financial report, also says Bombardier has a letter of agreement with the Greater Toronto Airports Authority (GTAA) for a long-term lease of approximately 38 acres of property at Pearson International Airport where it will open a new centre of excellence and assembly plant for its Global business jets.

Bombardier says the Downsview transaction is expected to close in the second quarter of 2018, and will increase its liquidity by more than $550 million (all figures in US dollars) net of transaction and other associated costs.

“As part of Bombardier’s five-year turnaround plan, we have been reviewing our facilities worldwide to ensure we have the most efficient and cost effective operations necessary to support our growth objectives,” said Alain Bellemare, president and CEO of Bombardier, in a release announcing the moves. “Today, we only use about 10 per cent of a 370-acre site at Downsview and bear the entire cost of operating a 7,000-foot runway.

“So, we are very pleased to have reached agreements with PSP Investments and the GTAA. Together, they allow us to monetize an underutilized asset, further streamline and optimize our business aircraft operations, and will support further economic development and job growth in the Greater Toronto area.”

Bombardier to stay at Downsview three years

Bombardier will continue to operate from Downsview for a period of up to three years following closing, with two optional one-year extension periods. On a conference call Thursday morning, Bombardier executives said they hope to have the new site and plant operational within the three-year period.

The company currently operates a manufacturing plant at Downsview, and the site also includes an airport with the 2.1-kilometre runway. The manufacturing plant builds and tests the Q400 turboprop aircraft as well as its Global 5000, 6000 and the new 7000 line of business jets.

Bombardier said it intends to continue assembly of the business jets at the new plant. There was no indication of its plans for the Q400 aircraft, though it is entering into a joint venture agreement for those aircraft with European-based aircraft company Airbus.

Bombardier had acknowledged it was considering selling the Downsview site in January. At the time, the company noted its redevelopment value, saying: “We understand that the property’s unique location, proximity to public transit, major highways, universities and shopping make it an ideal location for employment and other uses…”

Portions of the sprawling Downsview property are short distances from subway stations and a GO Transit (commuter train) stop. York University is also nearby.

“This investment is a perfect fit for PSP as it supports our long-term real estate investment strategy,” said Neil Cunningham, president and CEO, PSP Investments, in a separate release. “We have a stellar track record in working with large, complex projects across our entire investment portfolio, and we are proud of our continued commitment to investing in Canada.”

Currently zoned for “employment” uses, it is nevertheless considered a prime location for major live-work-play types of projects, which could include residential, office / commercial, and retail building in addition to parks and public spaces.

However, PSP Investments will have to apply for rezoning once it determines its plans for the property. In numerous previous published reports, politicians and other groups have indicated there could be opposition to such an attempt, depending on the impact on jobs.

Bombardier purchased the Downsview facility from Boeing about 25 years ago. The site had formerly been owned by the Canadian military.
As shown below, Bombardier's B shares have doubled over the last year and took off in October after announcing the CSeries deal with Airbus (click on image):


I still think it's a dog and wouldn't touch its shares but Fred Lecoq, my trusted trading buddy and mentor, told me he likes the action on the shares and thinks there could be more upside. The weekly 5-year chart is definitely bullish (click on image):


However, another friend of mine who has no opinion on where the shares are headed told me he would never invest in this company: "The problem with Bombardier is corporate arrogance unlike anything you've ever seen before, it permeates the entire organization."

Anyway, this deal makes sense for Bombardier and it certainly makes long-term sense for PSP which will develop this land with its trusted partners and reap nice income from it for a very long time (I foresee a mixture of office buildings, condos and other residential properties).

PSP put out a brief press release on this deal:
The Public Sector Pension Investment Board (PSP Investments) today announced that it has entered into a definitive agreement with Bombardier Inc. to acquire its Downsview Airport property in Toronto.

"This investment is a perfect fit for PSP as it supports our long-term real estate investment strategy," said Neil Cunningham, President and CEO, PSP Investments. "We have a stellar track-record in working with large, complex projects across our entire investment portfolio, and we are proud of our continued commitment to investing in Canada."

Located in the North York district of Toronto, Downsview spans approximately 370 acres. It is surrounded by world-class research and innovation centers and benefits from proximity and connectivity to public transportation and highways. A global leader in the transportation industry, Bombardier has owned and operated the site since the early 1990s, using it to manufacture and test its Global series and Q400 aircrafts. Under the terms of the agreement, Bombardier will operate from Downsview for a period of up to three years following closing, with two optional one-year extension periods.

"We are excited to be given the opportunity to invest in this community and we look forward to listening to and collaborating with all stakeholders in Toronto, Ontario and Canada," added Kristopher Wojtecki, Managing Director, Real Estate, PSP Investments. "This investment is important for PSP as it allows us to expand our real estate footprint in a global city which is in our backyard."
In another major real estate deal this week, AIMCo has made a bid for Edmonton Tower, which is mostly occupied by the government employees. It is not known what AIMCo has offered, but according to the Globe and Mail, if the fund pays anywhere close to the asking price, it will be the most expensive commercial real estate deal in Edmonton's history.

Go back to read my recent coverage of AIMCo's 2017 results where its CIO shared this with me on Real Estate:
Dale told me the Real Estate portfolio returned 9% in 2017 relative to 7% benchmark which is the MSCI/ IPD Canadian All Property Index – Large Institutional Subset. AIMCo's Real Estate portfolio is diversifying more globally but relative to its large peers (except for bcIMC), it has more exposure to Canadian real estate and obviously has more exposure to Alberta real estate which dragged returns over the last few years but boosted them for a long time when the province was booming. Dale told me they focus on A buildings and the high vacancy rates in Calgary and Edmonton are mostly in B and C buildings.  "It benefits us because people are getting out of those rents and signing long-term leases with our A buildings (many are LEED certified) which is great income and added protection for inflation." He added: "Things have stabilized over the last year."
So, even it's paying top dollar, buying the Edmonton Tower, which is mostly occupied by the government employees, makes perfect sense for AIMCo which is looking for stability in real estate by acquiring AAA properties with solid tenants where they can lock them in for long-term leases. It also makes sense that Alberta's pension fund owns this prized asset.

Below, BNN Bloomberg’s Jameson Berkow joins CTV Your Morning host Ben Mulroney to discuss trends in the GTA's housing market. You can also watch another report from Breakfast Television here which says listings are down 25%, detached home prices down 10% but condo prices are up 10% year over year. They also discuss Bombardier's sale of Downsview Airport property to PSP.

In my opinion, Toronto and Vancouver have a serious supply problem where zoning laws make it hard to develop land and build new detached homes and new condos.

Also, I was talking to a blog reader out in Vancouver last night, and he blew me away saying how housing prices have soared but "quality of life is going down" because there's too much traffic in the city as workers, teachers and first responders have to live far away in the suburbs and drive in and out of the city every day.

He also told me something I didn't know, in the province of British Columbia, after the age of 55, you can defer property taxes till you die (Ontario has a similar program but it targets low-income seniors and people with disabilities). "You have cash flow poor seniors on a fixed income living in the most expensive real estate where they can live till they die and then the estate pays real estate taxes owed over the years but it's a pittance compared to the asset value of the homes."

He also shared this with me:
I can see a rationale for it – don’t want property rich/cash poor seniors have to sell the family home just to pay the property taxes – but if you’re going to ask young people who are dying in this market to subsidize the boomers who are sitting on these lottery gains, don’t pour salt in the wound with seniors discounts on many services.

Plus, 55 is far too young for deferral rights. If you’re going to allow deferrals, surely it should be for “pensioners”. And there should be a means test. I’ve got no problem deferring taxes for those who truly need it. But I’m 56 and have the means to easily pay my property taxes, yet I have a right to stick to the young people who are fleeing my community because they cannot afford to live here; and soon I’ll be able to stick to them again when I go to the recreational center and get a reduced seniors rate. As I said, it’s a moral outrage. 
Lastly, I also embedded a clip where Cushman & Wakefield Edmonton's Associate Kyle Barton talks about Edmonton's capital markets and investment sales for the first quarter of 2018.listen to what he says about pensions buying and selling assets in this city.


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