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Stock Opinions by Dennis Mitchell, CFA

DON'T BUY

(Market Call Minute.) Had a bit of a weak quarter. Rent growth offset by cost increases and occupancy is erosion. Trading below NAV but he would want to see what they can do in cash flow growth this year.

property mngmnt / investment
COMMENT

(Market Call Minute.) Have diversified a little bit out of Germany through acquisitions. He owns a little but this is not a core name for him.

REAL ESTATE
DON'T BUY

(Market Call Minute.) Even after the 65% cut of dividend, there is a possibility that the payout ratio could be over 100% at the end of this year, based on their contract expiring.

electrical utilities
DON'T BUY

(Market Call Minute.) Exposed to gas volumes and fractionation spreads and both have been weak for them. Quarter was in line but not particularly robust.

pipelines
TOP PICK

Trading below NAV with leverage to a recovering US economy. High-quality, AAA office buildings in Boston, Manhattan, DC and San Francisco. Yield of 2.5%.

Developers (Real Estate)
TOP PICK

Basically Cells towers across the US, into Africa and Europe. 10%-11% cash flow growth year-over-year in the domestic US portfolio. You are looking at 25%-35% cash flow growth per year in the emerging markets that they have exposure to. You can bank on them growing earnings at 10%-15% year-over-year. Yield of 1.25%.

Telecommunications
TOP PICK

Worth about $31 giving you a 15%-16% total return. Expansion into the US has been very, very successful. Great management team. Yield of 5.17%.

property mngmnt / investment
COMMENT

This and similar ones are getting hit because of what the Fed is doing. QE3 buying MBF portfolios mean that the assets they own are going up in value so BV’s are rising. Yields, of course, are going in the opposite direction so there have been some dividend cuts. This company has done very well. Dividend is sustainable for now but the sector as a whole will probably see dividends cut beginning this year and further through the rest of next year. If you are looking for a 10%-12% total yield, you can continue to Hold or add to your position. If you are expecting 15%-20%, right now with QE 3, that’s not in the cards.

Financial Services
BUY

Have a fund that goes to the US to buy single-family homes which would participate in the US housing recovery. Also, have several funds outstanding that own commercial real estate in both Canada and the US. Just by closing some of these funds and getting the fee streams on, he expects their EBITDA to double over the next couple of years.

REAL ESTATE
COMMENT

A recent IPO that owns apartment buildings in Canada and the US. He didn’t buy this on the issue. Had some issues with the structure and wasn’t comfortable with their plan for growth in the US.

REAL ESTATE
COMMENT

This is very, very cheap but not very liquid. NAV is conservatively around $160-$170. Has always traded at a discount because it is essentially a holding company. There is a bit of a management discount as well as the team hasn’t done an effective job of marketing this name in the last few years. Very low yield. Good quality real estate and have added value.

property mngmnt / investment
DON'T BUY

Cheap so you are going to get a low to mid-teen total return. However, looking at some of the comparative alternatives, you can get better than that with other names such as Calloway (CWT.UN-T) where on a risk adjusted basis, you get higher quality real estate in core markets with a lower payout ratio and a better balance sheet and a better total return.

investment companies / funds
BUY

This is a tremendous REIT. Probably worth $31-$32 and he can see almost a 20% total return from here. Just recently got its credit rating so will be able to refinance its debt even lower and for a longer duration.

investment companies / funds
BUY

Had a tremendous Q3. 20% FFO (Funds from operations) per unit growth year-over-year. Bought a huge portfolio of assets from a Québec developer in partnership with Healthcare REIT out of the US and looks like it was done very accretively. Occupancy is ticking up in all 3 markets. Finally firing on all cylinders. Will continue to deleverage. Trades at a bit of a premium to NAV, which is about $9.50-$9.75 but he thinks it’s worth about $10.50-$11.

property mngmnt / investment
COMMENT

A pure yield vehicle. Throws off about 8.5% on his costs. Very akin to a mortgage REIT where you have to underwrite the portfolio every quarter, so it is a portfolio of loans. They do not own commercial real estate. Unless you got the time and the expertise to underwrite the loans, he would not recommend it.

Financial Services
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