Sorry for the late reply, I'm not sure why I didn't see your comment before.
I don't have a position in Melcor. You are correct that all the factors I discuss regarding Dream, particularly out west, will benefit Melcor as well. And the takeout of the REIT seems to be timed very well and should be a big boon for shareholders.
I have looked at Melcor before, and I thought it was managed sub optimally. Given the nicely timed REIT acquisition, and the recent dividend cut, maybe management is doing a bit more and I should relook. When I looked at it, I also didn't think their land was worth as much as Dream's - I liked Dream's Alberta locations more. And the land was overvalued on the balance sheet, vs Dream's which was undervalued. I thought Melcor's net asset value was under book value, whereas I thought Dream's was over book value.
That said, I think it is almost certainly undervalued.I think I thought at one time it was probably worth $20 or more. That value has probably gone up because of the tailwinds you've stated and the REIT acquisition.
Tyler, curious about your home purchase: how much it was as a percentage of your net worth and how you justified it from an asset allocation perspective (concentration risk, potentially flat returns going forward)?
Sorry for the super late reply Cat, not sure why but I didn't see this until now. As a percentage of my assets, the purchase price represented about 30%. After factoring the mortgage, the equity of the house at the time of purchase was probably a bit less than 20%. I'll say that these percentages have gone down, partly because my portfolio is up a fair bit since then, and also because the house has certainly gone down in value.
I was lucky in the sense that I already owned a condo which had gone up significantly in value, which was able to fund all of my equity in the new house, and actually let me pull a bunch of equity out to be invested elsewhere. So my real estate exposure actually went down technically, though it definitely fells different to see your home drop in value from a high purchase price than from a high value gotten from value gains.
How did I justify it from an allocation perspective? First, I didn't have much choice in the matter. I was moving in with my significant other, who was open to finding a decent rental but really wanted to buy a home together. So I was a bit stuck. The concentration risk wasn't too bad... if you've continued reading my posts, you may have read this piece: https://canadianvaluestocks.substack.com/p/my-story-of-too-much-concentration
I am clearly fine with the risk of a big position.
You're right that the biggest risk was that I was spending a lot of money on an asset that I believed had a good chance of going down in value, or at least not increasing in value. That was tougher to swallow. I managed to mitigate this risk a bit by setting a fairly hard budget on how much we would spend on the house - this was both a budgeting consideration as well as a hypothesis that the more expensive the house, the larger the risk of poor returns going forward (particularly true for the area we bought in).
In the end, three factors influenced my decision.
1) That I really wanted to live with the woman I was moving in with, and the house would make her happy.
2) We were able to move our very low rate mortgages from our old houses to the new house, making it much more affordable.
3) Most of my purchase was being made with the equity I already had invested in real estate, and the purchase actually represented a small down size, as well as allowing me to move some equity out of real estate into stocks.
I'm happy to continue discussing if you have any other questions. I promise I'll see your comment sooner this time!
Tyler, thanks for the writeups on Dream. I’ve done very well with them. Up 50-60% in different accounts!
In your past tweets, tou have mentioned Melcor development, mrd.to.
Do you have a position in them. The tailwinds helping drm.to should also be great for mrd.to.
Their REIT takeout seems to be a positive as well.
Any insights you have on mrd.to would be appreciated as its hard to find much analysis on them.
Cheers
Sorry for the late reply, I'm not sure why I didn't see your comment before.
I don't have a position in Melcor. You are correct that all the factors I discuss regarding Dream, particularly out west, will benefit Melcor as well. And the takeout of the REIT seems to be timed very well and should be a big boon for shareholders.
I have looked at Melcor before, and I thought it was managed sub optimally. Given the nicely timed REIT acquisition, and the recent dividend cut, maybe management is doing a bit more and I should relook. When I looked at it, I also didn't think their land was worth as much as Dream's - I liked Dream's Alberta locations more. And the land was overvalued on the balance sheet, vs Dream's which was undervalued. I thought Melcor's net asset value was under book value, whereas I thought Dream's was over book value.
That said, I think it is almost certainly undervalued.I think I thought at one time it was probably worth $20 or more. That value has probably gone up because of the tailwinds you've stated and the REIT acquisition.
Tyler, curious about your home purchase: how much it was as a percentage of your net worth and how you justified it from an asset allocation perspective (concentration risk, potentially flat returns going forward)?
Sorry for the super late reply Cat, not sure why but I didn't see this until now. As a percentage of my assets, the purchase price represented about 30%. After factoring the mortgage, the equity of the house at the time of purchase was probably a bit less than 20%. I'll say that these percentages have gone down, partly because my portfolio is up a fair bit since then, and also because the house has certainly gone down in value.
I was lucky in the sense that I already owned a condo which had gone up significantly in value, which was able to fund all of my equity in the new house, and actually let me pull a bunch of equity out to be invested elsewhere. So my real estate exposure actually went down technically, though it definitely fells different to see your home drop in value from a high purchase price than from a high value gotten from value gains.
How did I justify it from an allocation perspective? First, I didn't have much choice in the matter. I was moving in with my significant other, who was open to finding a decent rental but really wanted to buy a home together. So I was a bit stuck. The concentration risk wasn't too bad... if you've continued reading my posts, you may have read this piece: https://canadianvaluestocks.substack.com/p/my-story-of-too-much-concentration
I am clearly fine with the risk of a big position.
You're right that the biggest risk was that I was spending a lot of money on an asset that I believed had a good chance of going down in value, or at least not increasing in value. That was tougher to swallow. I managed to mitigate this risk a bit by setting a fairly hard budget on how much we would spend on the house - this was both a budgeting consideration as well as a hypothesis that the more expensive the house, the larger the risk of poor returns going forward (particularly true for the area we bought in).
In the end, three factors influenced my decision.
1) That I really wanted to live with the woman I was moving in with, and the house would make her happy.
2) We were able to move our very low rate mortgages from our old houses to the new house, making it much more affordable.
3) Most of my purchase was being made with the equity I already had invested in real estate, and the purchase actually represented a small down size, as well as allowing me to move some equity out of real estate into stocks.
I'm happy to continue discussing if you have any other questions. I promise I'll see your comment sooner this time!