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A Sound Investment Strategy into Great Vancouver's Booming Real Estate and Student Housing Market

Dave Jackson Dave Jackson, Stockhouse
1 Comment| May 5, 2022

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CIBT Education Group Inc. (MBA) (TSX.MBA, OTCQX: MBAIF, Forum) is one of the largest education and student housing investment companies in Canada focused on the domestic and the global education market since 1994. The company owns Global Education City Holdings, which is focused on education-related real estate…like student-centric housing. Global Holdings provides accommodation services to 72 schools in Metro Vancouver. The total portfolio and development budget under the GEC brand exceeds $1.5 billion dollars.

Stockhouse Media's Dave Jackson was joined, once again, by company CEO Toby Chu to update our investor audience on the latest news and happenings from CIBT.



SH1: To start off with, can you provide your shareholders and investors with a snapshot of your Q2 2022 financial results?

TC: Sure. During the first six months of fiscal 2022, we faced the Omicron variant's full force in December, January, and February. Fortunately, we continue to achieve the following milestones. Number one, gross revenue increased 19% from 28.3 million to 33.8 million, international revenue increased 208% from 1.2 million to 4 million, which is a significant rebound from last year. Our rental revenue for our properties increased by 90%, from 4 million to 7.6 million. A significant rebound shows that many students from abroad and locals are coming back to Vancouver for their studies. Our adjusted EBITDA increased 39%, from 7.2 million to 10.1 million, and our total assets also increased to 529 million. These are the significant highlights, which reflect a steady and strong recovery from the COVID seasons of the last two years.

SH2: Can you provide an overview of Metro Vancouver's real estate market, rental vacancy rates, interest rate hikes, and potential impacts of inflation and construction costs?

TC: I believe the tax rate hikes, inflation, construction costs and the global economic worries will certainly cool down the market despite the last one and a half years of rapid growth. I do not think this is a bad thing for the long-term health of any real estate market. Let's not forget the interest rate was at its lowest point in history. Like the last 30 or 40 years, I have never seen it as low as the last couple of years. We cannot unrealistically think the rate can remain below 1% forever. So I think the recent rate hike is merely moving back to a reasonable level, and indeed, no one is predicting a 20% interest rate as in the 1980s. So the rate hike is not overly concerning, even though it does make an impact, but I think it's just going back to its normalcy compared to the last two years. Inflation drives the construction cost up. A higher cost to build translates to a higher selling price, its reality.

It will cool down the market sentiment. Again we do not want to see an ongoing, rapid, quick growth of real state value every day. Somewhere along the way, it has to take a breather and slow down and then catch reality. Furthermore, a typical developer pre-sells their products at a contracted price, and rising construction cost could eliminate their profit margin because you already set your selling price to the presale condo buyers. Your selling price is set with a margin. If your cost keeps going up, up, and up. That could be dangerous. However, higher cost means higher rent for us. GEC is not a typical rental property developer. We are a rental property operator. We adjust our rental rate according to the cost of our properties. Higher cost means higher rent. It is the unfortunate reality of running a business, and we are responsible to our investors, and we do not pre-Sell our property.

We exit our project only when the market is strong. If the market is weak, we happily collect rent. So whether the cost is here or here, we can develop and finish our product, we rent it out and wait for the market to correct itself, whether it is good or bad. Supported by reports published by the Canada housing mortgage corporation CHMC, the vacancy rate for rentals fluctuated from 1.3% pre-COVID in 2019 to 2.3% due to more supplies coming to the market in 2020, then nose-dived back to 0.8% by the end of December 2021 a few months ago. The vacancy rate was less severe during the COVID years because people were not working. People were moving homes; they didn't have a job, but during the last quarter of 2021 and early 2002, people are returning to work, students are coming back, look at our international revenue.

Over 45,000 new immigrants arrived in BC, most to Metro Vancouver. Canada's immigration minister recently released statistics on Apr 22. He said over 101,000 new immigrants arrived in Canada, and over 113,000 international students already live in BC. These activities are consuming a limited supply of rental properties in Metro Vancouver. A new wave of economic energy will boost the post COVID recovery. Finally, questions about rising construction costs and interest rates. Our business model is not pre-selling condos. The selling price for the presale condo is fixed by contract, and rising construction costs will erode the margins. As I mentioned before, we will adjust our rental rate according to our cost; that is business. So to us, the interest rate and rising interest costs will have some impact, but it's not going to be disastrous and will reflect business reality.

SH3: Toby, can you tell us about some of the recent international and domestic education sector trends…pre and post-COVID?

TC: Recent policies from the Fed are beneficial to the education sector in Canada. The new federal policies encourage talented and educated international students to stay in Canada after graduation. Their objective is to fuel our labour shortage while providing a much-needed younger generation to our economy. According to government reports, more than 157,000 former students will become permanent residents in 2021 across Canada, and 88,000 more are transitioning from a post-graduation world permit into permanent resting status. My estimate is at least 20 to 25% will be living in BC or Metro Vancouver. So this amounts to about 50,000 to 60,000 units of rental demands for BC. The international student population will undoubtedly create more demands for rental housing, which is our market. It boosts our real estate portfolio and boosts our economy at large.

SH4: What about any significant developments or strategic changes relating to CIBT's various GEC projects?

Click to enlargeTC: We have to adopt new strategies and plans because of the economy, global situations, and all other good or bad factors. So a few things are for sure, we need to focus on our projects on hand. I tell my staff, such as the GEC King Edward procession, by October 2022. We'll be open for occupancy by December of this year. That adds to our rental inventory of about 180 beds, about 3 million in revenue. We will start the construction of GEC Oakridge and GEC education mega center in Surrey by Fall 2022. We continue working with developers on our Richmond project by assisting their financial restructuring. Unfortunately, we could face a write-down of our investment there or a potential acquisition and opportunity for us and expand our portfolio. So this is still a work in progress. We should wrap up within the next one or two quarters.

Compared to before, our major corporate strategy shift is retaining and expanding our GEC portfolio instead of aggressively selling selected properties. So some investors or shareholders asked me why the shift to retaining versus selling. We think the continued shortage of supplies and increasing rental demands are evident to everyone. There is no argument that the demand will go up and continue to grow because of the market share of international students and immigrants. So selling out our cash flowing and 99% occupy inventory, I feel, this is underselling ourselves for a short-term gain in exchange for a long-term pain. So instead, we are deriving strategy to raise public equity into GEC. We use those new equities to buy out LP holders, providing them with liquidity and increasing CIBT ownership across our portfolio.

We spoke with many investment bankers, and they also agree that an ever-growing portfolio adds higher long-term value than buying and selling inventory for a short-term profit. So that's the significant change of our strategies by retaining and expanding our portfolio compared to trading them. We were building it up, filling them up, selling them, and repeating it. So now, we are building them up, filling them, keeping them, and raising new public equity to replace some of the LP holders and then repeating that model. That's the significant change in our corporate strategy.

SH5: And finally, Toby, if there's anything I've overlooked please feel free to elaborate.

TC: It's been a challenging two years since COVID 19 impacted the global economy. The company has undergone many changes, and we also adopted many new norms for doing business. Last year, Our revenue was down 17% between pre-COVID 2019 and post-COVID of 2021. So for 2022 of six months, it is looking strong. We are cautiously optimistic and we projected that our gross revenue for fiscal 2022 would return to a pre COVID level. So far, we see our properties reaching 99 to a hundred percent across the entire portfolio, except for the GEC Grantville hotel but the Grantville hotel. We are seeing strong bookings throughout this summer. We successfully control any significant loss of revenue and recapture a lot of our market shares in the international and education sectors. Our market share in the student housing sector remains relatively strong with minimal competition. This accomplishment allows us to improve our earnings in the coming quarters and return to true normalcy in the coming years, and that's a summary of our projections. We are cautiously optimistic and feel strongly about what we are doing, and we will continue to be successful.

For more information, visit

FULL DISCLOSURE: This is a paid article produced by Stockhouse Publishing.

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