BRIGHTPATH EARLY LEARNING INC V.BPE

Purpose-Built Real Estate

[DanielDarden123]

Is a different animal, particularly in a demand industry. Investors love stable leaseback arrangements so monetizing the Calgary assets should not be a problem unless you believe that the need for day cares is diminishing. These are all viable centres with decent cashflow and no covenant breaches. With no balance sheet stress, there is no hurry to monetize but that option is available. Cap rates are declining for this kind of real estate, even in Calgary.

[Method]

Great point Daniel. Most people don't think about the cap rates and weakness in prices are more related to declining rents while cap rates are likely flat to declining and BPE can effectively choose the rent level in a sales leaseback transaction.

[pierrelebel]

"BPE can effectively choose the rent level in a sales leaseback transaction."   There is an important element missing here.  To have a purchase and lease back transaction at a fair cap rate, you need someone with money to buy the place.  That is NOT happening in Calgary, regardless of the great business you have. Check with local commercial realtors.  The

[Method]

The reason why commercial real estate slows down is because of uncertainty of the tenant. In this case the tenant is BPE and they will sign a long term lease which reduces the risk for the buyer. That's why it happens for BPE but not for the office building that has 40 different E&P head offices. Don't forget that BPe's largest shareholder is a real estate focused investment fund.

[pierrelebel]

"BPe's largest shareholder is a real estate focused investment fund. "  That is why the real estate in Calgary will NOT be sold anytime soon.  Think about it.  These guys are in for the long term.

[Method]

But you are discounting that despite a sale leaseback transaction they will have to take a big discount to fair value. They are trying to take advantage of the gap between where the business trades on a P/CF and where real estate trades on a P/CF and even in Calgary that gap is huge because interest rates are the same in all of Canada.