April 28, 2008

FirstService: Commercial Real Estate Value Idea

Real Estate companies have been under stress due to the burst of the housing bubble and deleveraging occurring in the economic system. All types of real estate firms from REITS, services companies and financiers have declined significantly from mid last year into this year.

I have been wading through the sector to find good buys and have review some in previous postings. Today I made the purchase of FirstService Corp; I bought an entry position in the company that I am hoping to add more in the future as i think it will come down in price somewhat in the short term.

FirstService Corp. is:

.... a leader in the rapidly growing property services sector, providing services in the following four areas: commercial real estate; residential property management; integrated security and property improvement services. Industry-leading service platforms include: Colliers International, the third largest global player in commercial real estate; FirstManagement Partners, the largest manager of residential properties in North America; FirstService Security, the fifth largest integrated security company in North America; and The Franchise Company, the second largest franchisor of residential and commercial property services in North America.

Investment Rationale:
  • Premier real estate company with international exposure.
  • leading market share in residential property management.
  • full service platform for commercial real estate
  • Asset light operating firm
  • variable cost: about 60-70 of its cost is variable, they will do well when real estate boom and costs will come down in bust times.
  • recurring revenue stream from property management
  • Strong management team
  • Strong ownership structure

Valuation
I beg the value to be in the range of $31 on low end and $50 for the high end. The company is asset light and most of the valuation is based on the brand name they have and future earning prospect. I will have a more detailed writeup soon.

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