# TransGlobe REIT -- Would you invest in a slumlord?



## andrewf (Mar 1, 2010)

CBC has a Marketplace piece on TransGlobe REIT and its management practices of deferring maintenance, lying to tenants, etc.

http://www.cbc.ca/news/canada/ottawa/story/2012/01/19/canada-transglobe-apartments.html

Transglobe responds to the criticism:

http://www.newswire.ca/en/story/909...comments-on-cbc-television-marketplace-report

Would you be willing to invest in a company that does business this way?


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## ddkay (Nov 20, 2010)

No way


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## Spidey (May 11, 2009)

Me neither, especially after those reports. I had looked at it before then because it had been recommended by Dennis Mitchel and at least one other REIT analysis on BNN. However, I found the debt levels too high and other ratios not overly appealing. It seemed there was better value in better known names such as CAP REIT.


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## Helianthus (Oct 19, 2010)

We have a ton of these around. Absolutely disgusting places to live...


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## leoc2 (Dec 28, 2010)

Saw them on marketplace last Friday.

http://www.cbc.ca/marketplace/2012/troubleforrent/


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## Causalien (Apr 4, 2009)

The extremely low vacancy rates is probably because of the housing price. We need to charge foreign ownership tax soon. I don't see that happening for another year or two, when the 0 down 40 years amortization crowd have successfully rolled over and will not present a huge loss to the market.

Centralized planning at its best... until the bond market wakes up and demand blood of course. This is why, the mirage of a pristine Canadian banking sector is absolutely necessary for the future of Canada.


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## HaroldCrump (Jun 10, 2009)

I am slightly surprised at the market/investor reaction to the CBC show - stock is down nearly 7% since the show aired on Fri (and a preview was actually posted on CBC's website on Thu.)
The quality of the properties acquired by TransGlobe is well known - these were all run down properties.

I don't know about the properties out west, but the ones in and around the GTA are all old properties, falling apart, badly in need of repair, not in the best of neighborhoods.

Did anyone believe TGA is going to undertake the capex required to refresh the properties?

The premise of an investment in TGA was/is clear - cut costs, minimize renovation and capex, live off the rents from those that must rent for a variety of reasons, distribute entire cash flow as dividends, issue debt/units to finance further acquisitions of the same type.

You get what you pay for.

The stock has run up quite a lot in the last 12 months or so because of a couple of main reasons - yield chasing by investors (same reason why all other REITs, telcos, utilities and other high yield payers have run up), and secondly because it got added into some indices and ETFs.


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## slacker (Mar 8, 2010)

They're providing a needed service for a segment of the population. Not everyone can afford to buy a $700k residence.


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## Sherlock (Apr 18, 2010)

I lived in a Transglobe apartment building in Kitchener for a year. The building was fairly nice, nothing spectacular but nothing that would make them a slumlord. I think if you analyze any large corporate landlord closely enough you will find some cases of neglect. There are simply too many tenants and units to manage and no matter how hard the landlord tries they will make a mistake and someone somewhere will suffer as a result.


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## Sherlock (Apr 18, 2010)

HaroldCrump said:


> I don't know about the properties out west, but the ones in and around the GTA are all old properties, falling apart, badly in need of repair, not in the best of neighborhoods.


Isn't that the case with just about all apartment buildings in Toronto? Correct me if I'm wrong, but the vast majority of apartment buildings in Toronto were built in the 60s and 70s, so they're all fairly run down. If you want to rent in a newer building in Toronto you have to rent a condo from someone.


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## Mall Guy (Sep 14, 2011)

So I had a high level look at some of the numbers and although I couldn't get to the $40M TGA claims to have spent since they IPO's in May 2010, I also didn't try all that hard. Mr. Hanczyk makes a very good point (whether he worked there in a senior capacity or not), old management was absolutely control by Mr Dimmer (now running under Star Light, who is now gone). Management now needs to stand up and show what they are made of. 

They need to drive occupancy, and operational efficiencies, in a game where they need to offer a cost competitive product, which means they need to find energy and other cost saving. Tenant's don't pay for heat when the window is open in the winter, and don't pay for water when the tap is dripping (in 20,000 units!). This type of thing only comes through capital improvements - windows, siding, insulation, and better heating systems. 

Every 1% drop in the vacancy level adds IMO $2.15M (plus the cost associated with carrying a vacant unit) to the bottom line. I'd guess at around $3.0M gross, once you reverse the vacancy shortfall (vacant units still attract property tax, and need to be heated). That means to get a return on investment equal to or better than an acquisition they can invest $40 M (7.5% cap rate) in capital improvements, or as they categorize them "productive capacity enhancements" (which doesn't affect their AFFO payout ratio) for every 1% improvement in occupancy.

They had 668 vacant units (Sept 2010 - 3.3% vacancy rate) at an average rent of $895/mo = $597,680/mo = $7,175,000/yr to the bottom line . . . better than any acquisition!

In my opinion, their big mistake . . . thinking the Trans Globe name had brand equity . . .wait, same mistake Homburg REIT made. . . and who bought 550 units from Homburg, you got it, Trans Globe REIT (including 60 Primrose St. in Dartmouth, Nova Scotia, featured in the CBC report).

Still not sure I am a buyer, but I bet the Toronto Housing Authority is really happy with the CBC report!


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## Berubeland (Sep 6, 2009)

To be fair it's not like the landlord gets a break during these documentaries. It's not always the landlord's fault. 

Let me give you an example, right now I have a tenant who is full of bedbugs, we've arrived and paid for pest control twice and the tenant didn't prepare at all and the unit is a mess. 

What would happen is Marketplace knocked on their door? They'd scream to high heaven about how awful we are. 

Having said that, I too saw the report and they did have some problems. Again what percentage of the units have problems? 

Another building I worked in had one unit that leaked when it rained from a certain direction. Building cladding would completely fix the problem. But it was 3 million bucks... I'll just go out back to my money tree farm to go pick it. 

Certain work may take quite a while to get done. 

So many issues and there's no way you can cover them all in an hour segment. 

I would love an hour on national tv to show everybody some tenants we have...that cost us hundreds of thousands of $$$.


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## Berubeland (Sep 6, 2009)

FYI I wouldn't buy transglobe or cap reit. If anything from what I know Cap Reit is just awful and they manage tons of low income housing. 

If you want to know what a REIT's like go to their building and speak to their tenants and look around the building.


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## HaroldCrump (Jun 10, 2009)

Update on this:
It seems that the TGA promoters (Daniel Drimmer, etc.) are now spinning off many of the properties they took private under TGA under a new apartment REIT established mid last year (around the same time they were wrapping up TGA), called True North (TN).
It is a tiny, low cap, low volume trust traded on the V exchange (TN.UN-V).

Old wine, new bottle.

To be fair, they do have many other properties that the old TGA did not have, such as in Quebec, Nova Scotia, New Brunswick, etc.

Daniel D. seems to be re-cycling properties between private ownership and public ownership.
I wonder if his MO is to take lower quality, lower cap rate properties public, and if/when they become more profitable, privatize it.
Rinse and repeat.


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## Berubeland (Sep 6, 2009)

It's a little flakey what's going on in the REIT space. I'm thinking this is some kind of shell game that's being played here. Profitable, well managed buildings don't change hands multiple times.


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## Jay (May 9, 2012)

Sherlock said:


> Isn't that the case with just about all apartment buildings in Toronto? Correct me if I'm wrong, but the vast majority of apartment buildings in Toronto were built in the 60s and 70s, so they're all fairly run down. If you want to rent in a newer building in Toronto you have to rent a condo from someone.


I disagree that because a building was built in the 1960s or 70s that it will be run down or a slum. There are a lot of apartment buildings built in that era that are well run and likely in better condition than some of the newer condos will be in 10 years or so (thinking of a few "new" condos in particular). It all depends on how the landlord has decided to maintain and promote the building. Nice apartments in good locations attract good tenants who pay good rents - the age of the building is almost irrelevant.


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## mrcheap (Apr 4, 2009)

I live in a TransGlobe building (it's been rebranded as "Starlight", but I'm pretty sure it's the same company owning / managing it). I haven't had any big problems, and certainly wouldn't consider them a slumlord (or if they are, I'm ok living in a slum).

I talked to a reporter from Marketplace and told her I hadn't had any problems...


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## Rusty O'Toole (Feb 1, 2012)

Why would you buy into any business with bad management, run down obsolete plant and equipment and low profit margins?


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## My Own Advisor (Sep 24, 2012)

TransGlobe REIT are horrible owners in Ottawa anyhow.


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## sharbit (Apr 26, 2012)

Berubeland said:


> FYI I wouldn't buy transglobe or cap reit. If anything from what I know Cap Reit is just awful and they manage tons of low income housing.
> 
> If you want to know what a REIT's like go to their building and speak to their tenants and look around the building.


Since you're in that inustry, what REITs would you buy if they were actually fairly valued?


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## Berubeland (Sep 6, 2009)

sharbit said:


> Since you're in that inustry, what REITs would you buy if they were actually fairly valued?


I've actually warned many times that people should stay away from REIT's altogether. The kind of shell games where properties are passed from one entity to another is suspicious in my eyes. Money making companies wouldn't do that kind of thing. 

Property value is intrinsically linked with interest rates and more specifically the spread between the mortgage rates and the cap rates. Once interest rates go up the value of the property will go down. It's that simple. In an environment of rising interest rates, the value of your property goes down, regardless of your income or ability to service your debt. 

If you buy into a REIT now, you're buying in at the top of their value into a situation that can only go down. Since income trusts were stopped I think a lot of yield chasers have gotten into REIT's especially seniors. 

If interest rates were high...then I'd say you should buy in.


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