RE: Conference Call Results Two small surprises:
The 310 Henderson deal. At first it seems crazy that the REIT could not withstand incurring the financial risks associated with leasing up a warehouse, particularly since the REIT could afford to internalize management and then absorb the millions in costs related to the failed sale attempt only a few months after, and even more so the fact that the REIT already manages a good chunk of its $400-million portfolio, but then you realize that it is, as usual, the all too familiar and irritating risk that the incompetence and greed of management will once again drain cash out of the REIT through yet another debacle. Hence it IS less risky for the REIT to own a second mortgage on a half empty warehouse in Regina at 105% loan to value than to entrust Underwood et al with leasing it up.
The ridiculous manufacturer's suggested retail cap rates used in the supplementals have come closer to reality. From 6.7- 7% to 7-7.75%. Management claims this doesn't reflect any real movements in cap rates, just gives unitholders an idea of the units' leverage to cap rates. Sadly, it sure does. The new range is entirely below the old one, $10.99-14.25 from $14.40-15.77.
The real surprise was this:
Shant Poladian from Canaccord
Q. My next question deals with an article I saw in “real estate alert” a couple of weeks ago. An entity called Whiterock Advisors has been formed? Is management or the trustees principal investors in that vehicle? Potentially vending in 80% of 655 Bay? Could you comment on that as well?
A. Underwood: That's classic misreporting. Ummm, none of that's true. What we've said, and continue to say, is that, ah, now that we're a fully integrated platform, we are looking to, um, attract international capital that would like to invest alongside the REIT to acquire , um, assets in primary markets like 655 Bay. The reason that makes sense for the REIT to do that is because with a 20% investment and 80% from an institutional partner we can receive management fees for 100% of the asset and produce very attractive returns in lower quality, in lower cap rate assets in primary markets. That's certainly our desire to move in that direction. But doing something like that is a 12 month prospect. We're headed that way.
Q. But has there been this Whiterock Advisor entity formed? Do you know, er...?
A. Underwood: No, there's no entity formed; however, we're marketing, out talking, to institutional investors.
Q. Okay. And that wouldn't be something that you as management or the board would be equity investors in?
A. Underwood: That's a premature discussion.
Poladian: Okay, thanks.
A premature discussion? Unitholders spent millions to "internalize" the management, and now this? After absorbing the millions more wasted on the failed sale process (that would have given management a quick gain on the units they received in exchange for internalization), Underwood is considering using WRK assets to generate income for a personal investment? Yuck. He should have preemptively ruled out any personal investment.
Real Estate Alert exists, and a search on the site using “Whiterock” lists two articles available to subscribers only.