Some Real Estate (and Companies) Still Worth Investing In

Where housing is still booming: As they say in real estate, it's all about location. That's why some U.S. investors have gone north of the border, to western Canada, where housing and land prices remain hot.

"It's not an interest rate driven market," says Todd Voigt, senior vice president of Cliffwood Partners, an $800 million real estate management fund in Los Angeles. "It's an employment driven, income-growth driven market."

Thanks in large part to a black-gold rush among Alberta's tar sands, land and home values have zoomed as much as 40 percent in recent years, according to some accounts. Apartment rents have jumped even more amid virtually zero vacancy rates. And while these gains are from low bases in what had been a grossly oversupplied housing region, as earlier booms had gone bust, there's no getting around the fact that Alberta remains a tight real estate market.

What's an investor to do? Some public companies are too small and speculative to mention here. An exception, according to Mr. Voigt, is Melcor Developments Ltd, based in Edmonton, Alberta, which trades on the Toronto Stock Exchange. He's particularly impressed that Melcor (MRD) , whose founding family owns 60 percent of the shares, holds 6,000 acres in Alberta and gets most of its profits from the sale of land. "They actually have a good business model," he says. "They recognize land is a finite asset and that once you sell it, it's not yours anymore. So they take a lot of their profit and invest in income-producing properties, such as office buildings and shopping centers," which are also doing well.

Mr. Voigt says the land is on Melcor's books at C$6,000 per buildable unit; fully developed, it's worth C$125,000. He believes the stock is worth C$30. His firm has owned it since C$8. And this tidbit: Mr. Voigt stumbled on the Canadian land story when researching Toronto-based Brookfield Properties Corp. (BPO) , which through its Carma Developers LP subsidiary is one of the largest land developers in Alberta. "It's the most misunderstood part of Brookfield," says Mr. Voigt, whose firm no longer owns Brookfield because of valuation. "Most people own Brookfield because of great office properties; they don't understand they have a land and home business in Alberta." Now they do.

Of discrepancies and inconsistencies

Just because a company put a bunch of numbers in a press release doesn't mean they won't change them in the next press release or when they're formally filed with the Securities and Exchange Commission.

Take housewares maker Jarden Corp (JAH) ., no stranger to readers of this column. On its third-quarter conference call in October it said its 2006 operating cash flow — a number it emphasized — would "trend well ahead" of the $241 million in 2005. Then, in a Jan. 29 news release announcing "record preliminary" year-end financial results, the company said "cash flow from operations is expected to exceed $250 million."

Four days later the maker of such brands as Sunbeam, Mr. Coffee and Coleman, issued another release that contained "additional and clarifying" year-end results. Buried in the release, which included numbers that weren't in the original, was the matter-of-fact mention that "estimated" operating cash flow "was approximately $235 million" — not the $250 million mentioned days earlier and, as a result, below expectations.

Why the difference? A spokesman explains the numbers were unaudited and therefore subject to change. The stock, meanwhile, edges toward a 52-week high, closing Friday at $37.60 on the New York Stock Exchange.

Then there's InPhonic Inc. (INPC) , which sells wireless services. Investors in the company, which was profitless in the quarter and has a history of significant losses, had been focused on languishing cash flow until the third quarter was reported on Nov. 6, when "$13.8 million in quarterly positive operating cash flow" was cited in the sub-headline of its earnings release. Enter its 10-Q three days later and operating cash flow suddenly fell to $7.5 million.

Why the discrepancy? Treasurer Greg Cole says the change reflects a reclassification of an item resulting from a debt deal the day after earnings. He also stresses operating cash flow in the quarter was positive. Indeed it was, but free cash flow, which arguably is more important, was a meager $840,000 post-reclassification versus $7.1 million just days earlier. Not that investors care about such details. InPhonic's stock, which closed Friday at $14.16 on Nasdaq, is hovering just below a 52-week high.

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