They must think we're pretty stupid....or that nobody reads the financial statements.
$20 million outstanding loan to Morguard, paying 2.68% interest.
"These facilities bear interest on a basis which is consistent with the entity's borrowing cost."
There are at three problems with this reasoning.
1. Firstly, that's not true. MRC's borrowing cost is higher. MRC has mortgages with rates ranging from 2.03-7.08% with a weighted average of 3.50%, as of June 2021.
2. These mortgages are secured by real estate. The TWC facility provided to Morguard is an unsecured intercompany loan, with no security. MRC's debentures bear interest at rates from 4.085-4.715%.
3. Most importantly, Morguard's cost of borrowing is irrelevant to TWC's capital allocation policy in the proper course of business. TWC has no econonomic reason to lend to Morguard, for the following reasons:
3A. TWC has a weighted average borrowing cost of 6.74%, with some mortgages at over 8% interest. These should be retired and/or refinanced.
3B. TWC trades at 10-12x cash flow, not including all the surplus properties on which there is very little disclosure. So I'd estimate cost of equity is between 15-20%.
Morguard can cough up the cash. They have $140 million in the bank. If they want to delever, that's their business. Sell properties, or go to someone in the lending business. It's called a bank. MRC has a billion dollars in unencumbered assets! Banks can afford to lend at 3.5% because they are levered 10:1.
TWC has no legitimate business lending Morguard money. They should call the loan and retire their high cost debt, or better yet, buy back stock! 4.6% of the float could be retired for $20 million.
The only reason TWC is lending Morguard money is that the chairman controls both companies, and he runs them like private companies. Like it's his money. Well, it might be 80% his, but 20% of the common is held by the minority. And that minority deserves fair dealing and timely, complete, and accurate disclosure.