The Canadian Investor - TSX top 15 performers and short reports

Episode Date: September 6, 2021

In this episode of the Canadian Investor Podcast, we start by going over the top 15 performers on the TSX over the last 5 years. We discuss how to handle short reports on a company you own. Braden then goes over credit agencies and why they have performed well over the years. Simon explains how retail investors can store their crypto. We finish the episode by going over funds from operations(FFO), adjusted funds from operations (AFFO) and why they matter when looking at a REIT. Tickets of stocks discussed: MCO, SPGI, TSU.TO, WELL.TO, SHOP.TO, CRON.TO, SCR.TO, GSY.TO, BLDP.TO, WEED.TO, TFII.TO, CJT.TO, TLRY.TO, DOO.TO, ATA.TO, CSU.TO, WSP.TO https://thecanadianinvestorpodcast.com/ Canadian Investor Podcast Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital See omnystudio.com/listener for privacy information.

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Today we have all kinds of topics. We're talking about some of the best 15 Canadian stocks over the last five years. We're talking about short reports. We got credit rating agencies, and then Simon's going to talk about keeping your cryptocurrency safe at the end there. So we got a jam-packed episode. Simon, I say we get right into the 15 performers on the TSX. So before we kick this off, how many of these stocks would you say you own? I don't own many. I think I don't even own one. Not even one? Wow.

No, no, I don't even own one. That's because you keep forgetting to pull the trigger on Shopify. That's what it is, isn't it? Yeah, that would be it. Yeah. Okay. Fair enough. I'm surprised to hear that, but I know you own mostly US security, so I guess it's not that surprising. All right. So this screen that I pulled up is over 1 billion in market cap. That removes some penny stocks, something that went from zero to 100 million in market cap. They still might be tiny, but they have huge returns. So let's screen that out. And then I also screened out materials and commodities because the entire list moves to materials and commodities with that boom bust nature.

So there's bankrupt oil and gas companies up a bajillion percent after being rescued five years ago. They're maybe bankrupt and here they are. So it just ruins the screen. So I got rid of those. All right, here they are. Number one, Tricera Group, TSU on the TSX. So these are all trading on the TSX. Tricera was actually an insurance company spun off by Brookfield in 2017. This stock is up an absurd amount. Now it is approaching 2 billion in market cap here. You got to hang on to those spinoffs. This has been a tremendous performer. Next up is Well Health Technologies. We've talked about this one a lot. I've been pretty bearish. I've given my sentiment on why I think it's extremely overpriced and it continues to go higher. So it just shows that you can't be right on everything. And Shopify is up 3,440% since IPO, 240 billion in market cap on

the TSX. It is the behemoth on the TSX. It has driven a large percentage of returns. We also on this list have Kronos Group, Canopy Growth Corp, and Tilray. So there's three cannabis producers here. What a wild ride it has been. They went up to prices that made no sense, nosebleed valuations back before we legalized cannabis here in Canada. They've come back down to life, but they're still up a ton from IPO. So that's something to consider. Score Media and Gaming, ticker SCR. This was actually just purchased for over $2 billion by Penn National, which is a gambling roll-up strategy. They own parts of Barstool Sports, if you're familiar with that brand as well. They made that acquisition for $2 billion. The score made a bunch of cash on that for shareholders. Go Easy, the lending company, is up 859% in the

past five years. Who would have thought? Ballard Power Systems, the fuel cell producer. TFI International is up 432%. It's up like 150% in the last 16 months alone. What a performer that's been. Cargojet, another great performer, transportation stock. BRP, they as Bombardier REC products, they make Seadoo, Skidoo, the Can-Am brand and more. ATS Automation Tooling System, ticker ATA. My beloved Constellation Software is up 301.5% in the last five years. Stock is now $45 billion in market cap on the TSX. And lastly, WSP Global. I'm wondering if you see any themes here. For me, what I'm seeing, I know you don't know these names particularly well, but there are a lot of roll-up strategies here. So I find that an interesting takeaway. Yeah, there's quite a few roll up

strategies. Obviously, it's with the screening criteria you use. It's also like it removes certain industries as well. So we have to keep that in mind. So it may have looked a little bit different with including like energy, like you said, you'd move remove from their tech is obviously in there, but just some high growth stuff and some roll up strategies is the two main things I see. Yeah, it's interesting too, because even though you'd think like super growthy names, BRP trades at like 10 times earnings. TFI trades at like 12 times earnings.

GoEasy trades at like 14 times earnings. So it's not all super crazy stuff. WSP trades at like one time sales, at 4.5% free cash flow yield. So it's actually not all super nosebleed valuation type businesses that I was expecting from running this screen. I don't have any other major insights to draw from here other than five of them have been owned in the Canadian equity portfolio over the last 30 years. So that's been nice for the performance of that for sure. Yeah.

And just a reminder, there's some really good businesses in there, but it's also not an indicator of future performance, right? So just for people to keep that in mind too. Well put. I just think it's important to, or at least interesting for the podcast to look at what has done well on our markets in Canada so far over the last five years. And you can pull up a screener and see what the kind of performance on this stuff. And maybe you can draw some trends on it. Maybe it's just interesting.

I think more than anything, it's just kind of fun to see what's performed well. Switching gears a little bit on stuff that you think might go down and the whole essence of shorting, we're going to talk about how to handle a short report if you own a company and a large firm, research firm has issued a short report and how to act. Simon, do you want to take that? Yeah. So it does happen. It's happened to some of the companies I've owned before that a short report is released. And it's always a bit frightening at first but it doesn't have to be so there's there's a bit of a process i recommend people they do when there is a short report and just to give a brief overview of what a shorting a company is essentially betting against the company so for the most part

we talk about companies that we're bullish on that we think will continue to grow over time and the stock price or the value of the company will keep going up over time. But there is a way by shorting that you can actually bet against the company if you think that it's going the other way around. Some short reports will come out when there's instances of rampant frauds, for example. There's a bunch of different reasons for shorting a company. It's something I haven't done myself personally, but it is possible to short companies. If you want a bit more information on that, you can look some past episodes. We have talked about it before with some example, concrete example of how shorting works. So the first thing you should do is to actually not panic. Short reports happen all the

time. It's really important to understand that when the short report comes out, the entity or the investment firm behind it has a vested interest in the stock going down because they've already shorted the company. So that's the one thing that you need to remember. Second, I would recommend reading the short report. So read the report, make up your own mind if the thesis makes sense or not. A lot of time could just be smoke and mirrors. You can look at what other analysts are saying about the short report. I would also recommend listening to the quarterly call for the earnings calls for the company as well. They may talk about the short report as well, especially if it's kind of released pretty close to the earnings calls for the company as well. They may talk about the short report as well,

especially if it's kind of released pretty close to the earnings call. Sometimes they won't. It really depends, but that's something to note if they do address it. Get a sense of who came out with the short report. Some short sellers have a better reputation and track record than others. Some are very infamous for going public, blasting the company that they're shorting. They're clearly obviously trying to put the company on. Sometimes they'll have bogus accusation, while others might have a much better track record, like I said. For example, short sellers can expose fraud. They can expose creative accounting, misleading statement guidance from senior leaderships. They can expose bubbles and

more. Last thing I would recommend doing is what is the total amount of shares that are shorted? So that's also called a short interest for the company. So that can be a good indicator if investors as a whole believe there is a merit or not to the short report, especially when there's been a bit of time to digest the report. The higher the short interest, the more the investors are bearish on the company. Those are important to bring out. And the first thing you mentioned, which I really want to harp on is we have to understand the incentive structures here. If a company is short, if an investment research firm is short a specific company and put on this blockbuster report, they want everyone to read it because

that is going to create a lot of negative sentiment around the stock and then will make the share price probably fall. That is in their best interest if they are short the stock. So they might have a good report. They might be poking holes into something and there might be some real substance to the report that I think is perhaps worth reading. But again, we do have to understand the incentive structures here. And these guys really want you to be instilling fear in the market about that particular stock. Yeah, I mean, I agree with that. Obviously, their incentive is towards making the company's share price go down. Again, though, it doesn't mean that they're wrong. And I think that's really important for people to understand as well,

understand their incentive, but also understand that company management are the ones that produce financial statements, are the ones that give that guidance. Yes, there are auditors hired, but sometimes auditors are just validating what's given by the company. So the company obviously is on the other end of the spectrum and wants to make itself look as good as possible. So it's definitely balancing both of those out. That's probably the most important thing I would say.

I agree wholeheartedly. I believe back in March when GameStop and AMC, which are still trucking along, but back when that was all the hype, people had this negative sentiment or demonized short sellers. Short sellers can provide a lot of insights into poking things in like fraudulent activity that does exist out there. So I believe that a lot of short sellers are doing the job of being that body in there that regulates and exposes stuff because we've seen that regulators who are the government body who's supposed to look at this stuff don't always see everything and don't always do a particularly great job. So let's not demonize short sellers, but we do need to understand

the incentives. Yeah. And sometimes regulations are just not fit for whatever industry, right? We've seen that with the US housing market when it crashed in 2008. So that's always something to consider. And I see, you know, you just see it with a critical lens. I think that's the best tip we can give people. Yeah, that's probably the best tip I can give. There's a couple of examples I wanted to give of some famous instances. The first one is Valiant Pharmaceutical. This one is actually listed on the Toronto Stock Exchange now under BAUSH,

B-A-U-S-C-H. What they did instead of investing in research and development like all pharmaceutical companies do to create new drugs and patents. Valiant instead started buying small companies that had niche for specific, oftentimes life threatening conditions. And they were jacking up the prices. They were saying that they were essentially making it more efficient, rolling up these small companies. They had a new way of doing things. And then some short sellers started

coming out with reports amongst them was andrew left from citron capital who was a character in himself from me kadir and john hampton all shorted the company and you can view it on one of the netflix series called dirty money it's called the drug shorts it's really interesting if you want to see a bit how it went and the last example we've talked about this one before, the China Hustle movie. I definitely recommend that movie to anyone wanting to invest in China and understanding the dangers of investing in China. Essentially what they did, an investment research firm went to China and monitored these businesses that were saying basically lying on their financial statement,

but there was no way really for anyone to validate that because as we know, the Chinese government keeps everything really tied to the vest. And so this investment firm went to China, monitored these facilities that were supposed to be pumping out millions and millions of dollars, should have had so much truck traffic and so on. And they noticed that it was a whole lot of smoke in the mirrors. Those are two examples. Braden, you have some example with the other way around where short reports came out and they were completely bogus or completely blown out of the water. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one

rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com.

Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting

on Airbnb, but can still focus on enjoying your time away. Find a co-host at Airbnb.ca forward slash host. That is Airbnb.ca forward slash host. Yeah, there's been all kinds of interesting examples. I think one that hits close to home for me is when GFL came public, Spruce Point Capital had this big short report on it. And if you still to this day, like just Google information about GFL, their stock, there is still so much about this now old short report. And this just ties back a lot to it's easier to sell fear when it comes to financial markets, both on TV and online, it's easier to sell fear. So this short report by Spruce Point got a lot of buzz. They were basically connecting. They were saying there was ties to the mafia. They were saying that the balance sheet is complete garbage. And let's not kid ourselves. Every investor of GFL, if they knew what they were doing, they knew the balance sheet is very levered. That's not a secret. sheet is very levered. That's not a secret. It's basically why they went public to try to de-lever their balance sheet. And you know what? I looked through it. I thought this is oversold and GFL is going to be some pretty solid returns from here on out. So that goes just for thinking on your own. And GFL has been an exceptional stock since then and since their IPO. So I'm happy to own it here. And it's a company that

got a lot of buzz for professional investors tying to all kinds of sketchy stuff. Whether it's smoke, there's fire, some of the lower management may be true, but I truly believe that Patrick Dovigia, the CEO and the founder of GFL means well, and that he's building a very big business right now. Yeah. And I think just to close this off, the most important thing for me is just don't make any rash reaction when you hear a short report. Don't automatically think it's not correct and just dismiss it completely. And don't panic sell your stock. Just do your due diligence. I think that's the most important thing. I think we've said enough about short reports.

Now, do you want to talk to us a bit about something you really like, the credit rating agency? I love the credit rating agency businesses. Like when we write about them on Stratosphere, we call them the CRAs. Not to be confused with the Canadian Revenue Agency, but credit rating agencies are exceptional businesses. So I'm going to be talking about Moody's and S&P. The tickers on those on Moody's is MCO, and S&P is SPGI. So what do they do? Now they rate long and short-term debt primarily for corporate businesses, and that is a huge part of their business. So they look when a company wishes to issue debt via corporate bonds, they must receive a rating from Moody's or S&P on the quality of their ability to meet their obligations.

Basically, they're saying, how risky is this debt? And it goes all the way from AAA, high quality to junk bonds down in the B, C, and just not rated basically in default debt you wouldn't touch with a 10-foot pole. They have an absolute duopoly on this business and you must rate the debt. So if you want to get access to funding, investor transparency, overall planning and budget requirements for your business, you basically need to go through Moody's or S&P. The reason why I like them so much, especially in this environment, is global bond issuances are going bananas right now. There's two things happening. There's the COVID thing. They're strengthening their balance sheet, but there are record low interest rates

worldwide and very loose monetary policy. This flushes the markets with very cheap money. Who can rate all this debt? Well, it's Moody's and S&P. So the reason that I think these businesses are so solid is they have such a long runway for growth. They have incredible margins. They compound year over year. They pay a dividend and grow it every year. They buy back stock. And they also have these other wings of their businesses that I think provide additional growth levers. So when it comes to Moody's and they have the Moody's analytics, and then S&P has a market intelligence, super wide moat consistent compounders. Now, if you're familiar with the S&P 500, which most people are, the group that administers that is called S&P Global.

Now, I always find it interesting when the S&P is up 253% over the last 10 years, and S&P Global, who administers that index, this is this credit rating agency business, is up 1,051% in the same timeframe. I own both of them here. I think of these financial super wide, ultra wide moat businesses like Visa, like MasterCard, like Moody's and S&P Global, some of the best places to play financials, something I'd be very comfortable owning for a long time. I know Warren Buffett has owned Moody's for several decades now, I believe. Yeah. And I think it is, they're the two main ones, but there's Fitch also that does rate debt, right? There is. I didn't mention them here. I got this graphic up. There's Moody's, S&P, and Fitch. There is that third player, but when we're talking about who is actually rating all

the debt, getting all these deals, Moody's and S&P are the name in town. If you are a large corporation and you don't have your debt rated by one of those two, it just doesn't seem to have the same badge, the same stamp of approval when it comes to corporate bonds. That's what I've seen play out in the market from my perspective. Yeah, Yeah. Fair enough. I mean, I can only think of them. The reason I have trouble investing in them is how they miscalculated the housing market in the US and the debt. They were rating stuff AAA when it really shouldn't have been rated. And I've always had a bit of sour note for them, but yeah, don't get me wrong. They are great businesses. It's just that's always left a little bit of a sour taste in my mouth.

Yeah. I mean, fair enough. If it's rated AAA and then defaults, you're like, how am I supposed to trust this moving forward? I'm glad you brought that up because if there is a company that can mess up that bad, or in this case, a duopoly that can mess up so bad, and the market just doesn't have any other solution for it, and there's no real pain point for investors that someone else is going to go innovate the incumbent like this duopoly,

it just speaks to how high quality the company is and how hard to disrupt the business really is. Oh, yeah. I mean, it's been what, like 14 years now? So 13 years. So I'm pretty sure they'll be okay following the US housing crisis. Yeah, good point. Since that time frame, they've matched the returns of some of these really great fang type big tech companies. And it's crazy to see them perform just as good as these mega tech companies.

Great breakdown for the credit rating agency. So now we'll move on to some of the recent news that happened the past month. You might have seen Coinbase accounts being hacked. And I just want to talk a bit about what happened and some of the ways you can keep your crypto safe as a retail investor. Obviously, there's different types of offerings if you're an institutional investor. But as a retail investor, I think it's good to know what's out there. So what happened for Coinbase?

For the most part, what's been happening is people are doing or hackers are doing what's called the SIM card hack. So what they do is they figure out what your password is for your exchange and then when someone has a dual factor or two-factor authentication with their smartphone with their phone they actually try to log in they put in their password and then you get that code that's texted to you and then you log in so what the hackers do they figure out what your password is, then they call your mobile carrier and they pretend to be you and switch over your number to their own SIM card. Then when they log in to your account, your Coinbase account, for example, they will get that text code, log in and then send over the funds to one of their own address and drain it.

So that's essentially what's been happening. There's ways to mitigate that. What can you do to prevent that? Well, if you're fine with having your money on an exchange, I would recommend getting something like a Google Authenticator app because then the person actually has to get your physical phone and log into it to be able to access your funds but there are some other methods available so the first one would be a cold storage hardware wallet so cold storage hardware wall essentially a way to store your Bitcoin or other cryptocurrencies where you have a device that lets you access your private keys so to be able to send money out this means you can only send

Bitcoin to another address by using this physical USB, which requires a password when you enter it, but it's manual, so you cannot do it remotely. There are some risks for that as well. You can lose your device, you can lose your seed phrase, which is essentially a backup for your device. And if you do that, you've lost your Bitcoin and you'll never be able to get them back. There is a couple of different companies out there. You can look them up. Some of the better knowns are Ledger and Trezor. But whatever you do, if you want to go that way, just make sure you buy it directly from the manufacturer, not from a third party like Amazon,

because people can hack the actual device. So you want to make sure you get it there. I really need to do this. You're speaking to me right now. So I'm just going to sit here and listen because I'm one of those people who have it just sitting in my brokerage, in my crypto brokerage. It doesn't bother me that much because I really don't have that much money in it to be quite frank. But this is something I've been thinking about and I'm a student right now. The next option with brings security probably to a bit another level is called multi-signature wallets. So you can basically they're called multi-sig and they're cryptocurrency wallet that require two or more private keys to be able to do a transaction. So

an easy example of that is I could have a two of three requirements. I could tell Brayden, you know, you have one of my keys, I have the other one, and then another friend has the other one. So whenever I want to access my Bitcoin and be able to send them, I need my key and either Braden's key or my other friend to be able to access it. Another way to easily understand that is you're going to bank vault and you need two keys to access the bank vault or the famous, you know, nuclear launch codes in the US where there's multiple people that need the key at the same time to be able to launch it. So that's how, in a nutshell, multi-signature wallets work. Which one should you use? That's a personal decision. I would say exchanges are fine if you have smaller amounts of money. And by small amounts, I mean, this will vary from people to

people. Personally, if you have more than $5,000, you'll probably want to look into at the very least cold storage, like I mentioned before with the USB device. If you have some larger amounts of money, some pretty significant amounts, then the multi-signature option probably makes a lot of sense. But as long as you're aware of the risk of each, obviously the exchange, you know, it's easy to use, but there's always that risk of potentially getting hacked on an exchange, which you don't's easy to use, but there's always that risk of potentially getting hacked on an exchange, which you don't have with the other two options. So for someone like me, and I'm looking into doing this, are there fees associated with it? For the exchange, obviously, the exchange has some transaction fees, but you can leave that on there. For the actual cold

storage, you'll have to buy the device that'll be probably 100 bucks 150 bucks whichever one you you decide to use there's some videos that'll help you walk you through how to set it up it's it may look a little bit intimidating at first but you can just look at a youtube video of someone that that gives the how-to multi-signature can be quite expensive there's different providers there's different packages some of them will require two of three keys some will be three of five some will be even like five of seven so you'll have different packages the higher the package the more multi-signatures there are the more services they add on as well. These companies, the more expensive

it will be, but the cheapest multi-signature packages will be a few hundred dollars. The more expensive ones will go to like something like up to like five grand I've seen. Okay. Yeah. Good to know because I guess there is some sort of threshold of money where you should probably start thinking about it. And like I said, I'm crypto poor, so maybe I'll just wait a little bit and refer back to this episode in the future. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense, and with them, you can buy all North American ETFs, not just a few select ones, all commission free, so that you

can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questtrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income.

But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. Simon, let's wrap up with one more topic here. When we're talking about real estate investment trusts, if you are new to investing or you're an experienced investor, you need to look at something called funds from operation. Funds from operation, or usually referred to as FFO, is the figure used by real estate investment trusts, aka REITs,

to define the cash flow from their actual operations. A useful cash flow metric for managers is FFO. Because if you're new to the game and you're looking at price to earnings ratios and something like that, you may wrongly think that some of these real asset businesses, like a real estate investment trust, look super, super cheap because you're not actually using the right metric. So the main difference, and there's six things that go into the calculation, but the main takeaway is here, is you take profits, but you need to add back

depreciation and amortization, just as we always do if we're trying to get a more cash-based metric. But the big thing here is you're subtracting gains of property sales. If I own a fleet of real estate and I sell a property, that is not funds from my operations, but you'll see it in my total profits for the year because I made all this gains on this house or this commercial real estate property. It's not useful if we're trying to figure out how much cashflow is this real estate business actually generating? Because if they're selling properties, they're probably going to generate less funds from operations in the future. So it is net income plus depreciation. So we're adding that back in plus amortization minus the gains of sales on

property, and then also minus interest income. Now, this is important. If you are a Brookfield shareholder, you'll realize that they use this metric across all their subsidiaries because they operate real assets. Now, a few smart accounting folks came up and said, hey, it's all not perfect. There's something better. We can use adjusted funds from operation, AFFO. And now what this is doing is it subtracts recurring expenditures. And this is important because these recurring capital expenditures, they may include maintenance like painting or roof

replacements. So I think it's important that we, you know, track that out. The adjusted funds from operation measure was developed to provide a better idea of what the REITs cash flow situation is in a typical quarter, whenever their reporting structure is, and their ability to continue to pay distributions in the future. So that dividend safety. So if you are a REIT or real asset investor, we want to look at cash flow and adjusted funds from operation and funds from operation are the real truth. They're the real truth when it comes to valuing how effective these businesses are at generating cash. If you're using net income, everything's going to be all out of whack. So you don't have to be a accountant or CPA to understand this stuff. You just have to recognize

that if I sell property and have net income, that should not be part of the cash flow for the business. And that's really important to understand. Yeah, exactly. And I think an easy way to wrap your head around if you're not looking to look into these metrics all that much is you just take the company's profit and you just remove any expenses that are non-cash items. And then you kind of adjust for one-time expenses or losses so it's that's an easy way to to do it you can find most of this information so you don't have to calculate it all yourself so in the supplemental financial information that most REITs at least very like all US REITs will have that I I've noticed Canadians, it's a bit hit or miss, I find,

with the supplemental financial information. But in those, they'll actually give a thorough discussion or a thorough breakdown of AFFO and FFO. They'll give the payout ratio relating to those. So those are really useful. If you invest in a REIT, look at those statements, not just the main annual report, for example, you want to look to add the supplemental financial information. There's a few businesses like REITs like this, where you really have to kind of strip away some of the accounting to find out how much cash the business is actually generating. This is the same reason why we have seen the big shift. It's not a new shift, but now we've seen investors get a little bit smarter and they go, net income may not necessarily be a good metric in the future for all businesses.

And that's why free cashflow is so useful because we are stripping out a lot of the things that are not cash related and getting a very clear picture of what the actual cash flow is from the business. And a lot of it has to do with capital expenditures having such an impact on the income statement. So I think that's important. We discussed this. I know that counting jargon is somewhat hard to grasp, but just like anything, if you keep working at it, keep listening to the podcast, these things start to make some sense in your brain. So I actually will put you on the spot a little bit, but it's an easy one. So worry not. Okay. See if I pass the test. So a year and a half after the

pandemic started, what do you think about REITs that are focused on office space and retail REITs as your view changed a bit? Because we've seen some of the other type of REITs rebounded pretty well, but those two have still been lagging behind a bit. Yeah, it's a great question, right? And I was thinking about this recently because right when the pandemic started, I told you guys on the podcast that I'm not a huge fan of owning pure play office space right now. Maybe from a global perspective, but not here in Canada, especially the one I owned was Allied REIT, which owns pure play office space. They own, by the way, they own some of

the best office space in Toronto. Their new project is going to house the new two towers for Shopify. So they own great assets. Let's just get that out of the way. But I didn't really want to be owning real estate that's PurePlay office in Toronto when we are seen to be the most hesitant to go back to the office compared to major city centers in North America. So I'm glad you brought this up because I look back and that was a good sell. These things have not come back. They've still had some really negative price sentiment. So it was a good thing that I sold some of these things. Another thing that I think is useful to bring up from this perspective is Brookfield saw their real estate portfolio, which is primarily office and retail. They said, Hey, this stuff is so cheap. We think long-term

we own some of the best property in these global city centers. You know, it's all over the world. These city centers, you know, over the world, these city centers. From London to Toronto to New York, they own some of the best real estate. And they said, hey, we're taking all of Brookfield Property Partners, we're taking the entire REIT, we're taking it private. Brookfield Asset Management is going to own 100% now. They bought all the shares. There's a very differing opinion on the sentiment around these types of properties, but I think location and quality is everything. move more to a hybrid type of workforce where there's a mix of working remotely and then yes, going to the office maybe one day a week or once every two weeks or whatever the frequency is.

But it also means that if you're doing that, you require a lot less office space in the long run. So that's my first thing where office REITs are, I don't know, I feel like they'll have a hard time. Either that or they'll probably be forced to convert part of it to apartment REITs are, I don't know, I feel like they'll have a hard time. Either that or they'll probably be forced to convert part of it to apartment REITs. I read an article where they were talking about that, where more and more office REITs are starting to convert to apartment REITs because they're just not leasing the office space. So they're converting them to apartments. So it'll be interesting. Yeah, if that's a trend that continues. Retail REITs, personally, I think those will rebound a bit more than office REIT per se.

It really does come down to quality. If you own good quality locations and good quality assets, like in those big city centers that are not going anywhere, they're in prime location, they're nice, those are going to be proving useful. And from the retail perspective and then from the office side, my takeaway is that, look, the landscape of how we work has changed. That's a guarantee. It has changed. But from my perspective, the value of the office has also shown through. And so that's why people are probably going to be going towards some hybrid scenario because the value of the office is important from a variety of different ways whether it's employee satisfaction or getting things done but do you need to be in an office five days a week i think that people are thinking

no you know what? We don't. Yeah. No, I think you're right. Quality is important. And yeah, my point was more that we're not going back to what was pre-COVID. I think that's the biggest takeaway from- The base case.

The base case has changed for sure. Yeah, that's it. Absolutely. Yeah. I mean, there's different types of REITs too. So that's important. Absolutely. Yeah. I mean, there's different types of REITs too. So that's important for people to remember. If you want exposure to real estate, you can stay away from these specific types of REITs. You know, there's all these different kinds.

There's data REITs like we've mentioned before. There's healthcare REITs that own properties that have healthcare providers in them. You can think of other ones. Those are just two that come off. Industrial REIT rates have been on fire yeah or my yeah or my uh favorite marijuana play that yeah industrial innovative properties yeah yeah yeah and hey look we i've talked about american tower and equinix you also own digital realty trust there you own it with equinix right right? Like a 50-50 type. Yeah, that's it. You play both. I think that's a good way to go. Those are structured as REITs,

like Equinix, American Tower. Those are REITs that are fairly high growth compounders. There are lots of different ways to play this, but I think it's important we have a segment on this because we do get lots of questions about REITs, especially from income investors who look at the yields on REITs and think, wow, this is pretty awesome. My parents and my family, they've always invested in income properties here in Ontario, and I want absolutely nothing to do with that. The headaches and the work required seems like it's not worth it when you can buy a high quality real estate investment trust and get very similar yields. But people like real assets, so I can understand the appetite for it. But for me, I'm thinking REITs would definitely be the way to go if I wanted to play the real estate game.

Yeah, definitely. It's an easy way to play it. For people like income properties, obviously, if you're really good in construction and renovation, you can get a whole lot of value out of that. Sweat equity. Exactly. But I'm not the best when it comes to that. You look like you're not necessarily the best either. Wow, Simon. Come on. Are you?

Just because I'm all handsome in a suit. No, I'm wearing a t-shirt right now. But you're right. I'm not the best, but that's okay. Yeah, that's all right. That's why. I'm going to just pay other people to do it. Thank you guys so much for listening. We appreciate you guys a lot.

And like we said, the new website is live. I'm a big fan of it. We will see you guys in a few days. We will have an interview for you on the next episode, I believe. Is that right, Simon? Yeah, I have an interview we'll be posting for the next episode. It'll be all about crypto. So if you guys are interested in learning a bit more about not only Bitcoin, NFTs, DeFi,

so decentralized finance. We're going to be talking all about that with my guests. It's me and the guests. So stay tuned. It'll be very interesting, especially if you're wanting to learn more about that. Yeah, well put. I'm excited to listen to the conversation personally, mostly because I'm just like very intermediate with crypto. I do think it's worth paying attention to something like that. But if

it's not for you, we'll be back with the regular chatter about financial markets of public securities and stocks. So thank you guys so much for listening. Take care. The Canadian investor is not to be taken as investment advice. Braden or Simone may own securities mentioned on this podcast. Always make sure to do your own research and due diligence before making investment decisions.