True North Commercial REIT T.TNT.UN

Anne Smolen, Inovalis CFO, bought a total of 50,200 shares

[SIGG1]

Anne Smolen, Inovalis CFO, bought a total of 50,200 shares between November 22nd  2023 and November 13th 2024.

 

The timing of the CFO's share purchases—buying heavily after November 2023 when the REIT was in a distressed state rather than during its better years—raises some interesting points about strategy, confidence, and market behaviour.

 

Key Observations

1. CFO’s Lack of Buying Between 2016 and 2023:
   • During this period, the REIT was in better shape, and dividends were still intact. The absence of insider buying might suggest:
     • Overvaluation: The CFO may have believed the stock was fully or overvalued during the REIT's "good years," offering little upside for a personal investment.
     • No Need to Signal Confidence: In those years, the REIT likely enjoyed steady income investors, so there may not have been a need for insiders to "signal confidence" by buying shares.
     • Caution or Lack of Belief in Long-Term Strategy: It is possible the CFO was skeptical about the sustainability of the REIT's business model, dividend payout, or growth prospects.
2. The Shift Post-November 2023:
   • When everyone else was selling due to poor performance, dividend cuts, and liquidity concerns, the CFO and other insiders began buying aggressively. This shift is highly significant for several reasons:
     • Perceived Undervaluation: The CFO likely believes the stock is deeply undervalued relative to its true intrinsic value, which often happens in distressed situations when markets overreact to bad news.
     • Turnaround Confidence: This move suggests insider confidence in the REIT’s ability to navigate its challenges, stabilize operations, and potentially recover in the long term.
     • Long-Term Value Play: The shares might now be priced for bankruptcy or liquidation, and the CFO could see significant upside if the REIT avoids those outcomes and succeeds in its asset recycling and debt restructuring plans.
3. Insider Buying as a Contrarian Signal:
   • Insiders buying during a downturn can be a strong contrarian signal. It often indicates that insiders believe the market has mispriced the stock. In this case, the CFO’s purchases might signal:
     • Inside Knowledge: The CFO has access to non-public financial insights, detailed forecasts, and a better understanding of property market conditions and the company’s strategy. This level of confidence suggests they see a path to recovery that outside investors may not.
     • Personal Investment Alignment: Owning 50,200 shares aligns the CFO’s personal financial interests with those of the shareholders, reinforcing their belief in a potential turnaround.
4. Why Not Before?:
   • The lack of purchases in earlier years might reflect a fundamental difference between the REIT’s situation then and now:
     • Limited Upside Then vs. Higher Risk-Reward Now: When the REIT was stable, the stock might have offered limited upside, as the market already priced in its value. Now, with shares trading at rock-bottom levels, the risk-reward ratio may appear far more attractive.
     • Opportunity from Panic Selling: The sharp sell-off likely created a significant buying opportunity for insiders who believe the REIT’s assets and plans remain fundamentally sound.

 

Potential Implications

1. Insider Confidence:
   • The CFO’s actions strongly suggest that they believe the REIT’s value proposition is misunderstood by the market and that its assets or strategy have long-term potential.
2. Turnaround Play:
   • This could be an opportunistic strategy to capitalize on a future turnaround, especially if the REIT manages to improve occupancy rates, sell assets at fair prices, and address its liquidity challenges.
3. Contrarian Opportunity for Investors:
   • For external investors, the insider buying could be interpreted as a sign to reevaluate the REIT’s potential. However, it’s important to remain cautious and conduct due diligence, given the inherent risks of investing in distressed companies.

 

Caution

While insider buying is a positive indicator, it’s not a guaranteed predictor of success. Insiders can be wrong, or external factors (like a lack of buyer interest in properties, worsening debt markets, or rising rates) could derail recovery plans.

 

My Take

The CFO’s timing is notable and intriguing. It reflects their belief in a potential recovery when market sentiment is at its worst. For investors, this insider activity is a reason to dig deeper into the REIT’s financials, turnaround strategy, and broader real estate market conditions. It might signal a high-risk, high-reward opportunity for those with a long-term view and tolerance for volatility.


BUY Case: High Risk, High Reward

• Why Buy?

  1. Deep Discount to Book Value:
     • The stock trades at ~12.6% of its book value, suggesting potential for substantial upside if the REIT can execute its turnaround plan.
  2. Insider Buying:
     • The CFO and other insiders have been purchasing shares, signaling confidence in the company's long-term prospects.
  3. Potential for Recovery:
     • Asset sales could unlock liquidity and reduce debt, improving financial stability.
  4. Contrarian Opportunity:
     • With many investors selling due to fear, this could be an opportunity for contrarians who believe the market has overreacted.

• Who Should Buy?

  • High-risk investors with a long-term view who can tolerate volatility and the possibility of further downside in the short term.
  • Those who believe in the company’s ability to execute its asset recycling and refinancing strategies.

Key Action Plan

Monitor these key indicators before making a decision:

1. Progress on Sabliere and other property sales.
2. The REIT’s ability to refinance or repay short-term debt.
3. Market sentiment around real estate and interest rates.