Public Pension Funds Hedge Fund Rip Off

Here is another case of a publicly funded Canadian public sector pension fund being used to take over a U.S. company forced into bankruptcy by private hedge funds. The teachers in Ontario who are shareholders in the Ontario Teachers Pension Fund have no say in their pension investments.

In fact none of us have any say in our pension funds and how they are invested. I wonder if the shareholders in the Ontario Teachers Pension fund will sleep easy knowing that their money is being used to payout a corporate hedge fund shark that led this company into bankruptcy in order to satiate their greedy need for profits.

The irony of all this of course is that the use of the vast pool of pension capital that these private hedge funds need to use to back up their deals is of course social capital as I have pointed out here before. In fact you could call this socialism by any other name if you worked for the Fox network.

The Ontario Teachers’ Pension Plan has gotten in bed with Simmons Co., agreeing to buy the struggling company’s bedding unit in a $760-million cash-and-share deal.

Two of the world's largest mattress makers are jumping into bed together, with Simmons Co. and its iconic Beautyrest products joining Serta Mattresses in the Ontario Teachers' Pension Plan portfolio.

By taking the mattress maker out of bankruptcy protection, Teachers and its partner Ares Management LLC will become the largest player in a traditionally recession-proof industry, which has been ravaged by the credit crunch.In Simmons, the pension fund is buying a 139-year-old company that has now seen six private equity owners since being taken private 20 years ago.

The mattress maker began seeking a way to restructure its $1-billion (U.S.) debt earlier this year, as sales skidded 19 per cent. The prepackaged bankruptcy restructuring plan announced yesterday will cut debt to $450-million, with Teachers and its partner paying $760-million for Simmons Bedding Co., its U.S. subsidiaries and parent company Bedding Holdco Inc. Simmons Co.

Teachers' in bed with L.A. fund to buy Simmons unit

Deal worth $760M U.S. part of restructuring to create world's largest mattress company

By Caroline Humer, Reuters

Mattress makers Simmons and Serta are planning to dethrone competitor Sealy as the world's largest mattress company in a $760-million U.S. deal that includes Simmons filing for bankruptcy.

Simmons Co. said Friday that it has put together a restructuring plan to be sold to private-equity firm Ares Management LLC and a unit of the Ontario Teachers' Pension Plan, which owns competitor Serta.

Together, Serta and Simmons, which will continue to operate as separate companies and brands, will have a bigger share of the market than world leader Sealy Corp.

Simmons, which is owned by private equity firm Thomas H. Lee, has been negotiating with lenders and creditors since late 2008 as a heavy debt load and a decline in demand squeezed its profits and caused it to miss financial targets required by a loan associated with its 2003 buyout.

The company said the pre-packaged restructuring plan has more than the two-thirds support from its noteholders and lenders needed and will reduce its debt to about $450 million from $1 billion.

The deal includes about $310 million in new equity from Serta's owners.

The company will put the plan out to a vote soon and expects to file for bankruptcy in 30 to 60 days, a Simmons spokesman said. The bankruptcy could then take up to an additional two months, he said.

Under the plan, senior bank lenders, trade vendors, suppliers and employees will be repaid in full.

Holders of senior subordinated notes will receive 95 per cent on the principal amount due or $190 million and holders of discount notes in the holding company will receive a payout of $15 million on the $269 million in principal, a company spokesman said.

Investors in a $300-million loan that was taken out in 2007 will not be repaid as part of the financial restructuring plan.

The loan, like the discount notes, paid dividends to its owner.

The mattress industry has been attractive to private equity buyers because of the steady cash flow the businesses had provided before the recent broad decline in consumer spending.

Sealy is owned by buyout firm Kohlberg Kravis Roberts & Co. It also restructured its debt earlier this year. The downturn has reached out across the mattress sector.

Foamex International Inc., a maker of polyurethane foam used in mattresses; Consolidated Bedding Inc, which makes the Spring Air mattress brand; and retailers including 1-800-Mattress and Mattress Discounters Corp have all filed for bankruptcy.

As of June 27, the Simmons said it had $896 million in assets and $1.26 billion in liabilities, according to regulatory filings.

It said it had $67 million in cash.

© Copyright (c) The Ottawa Citizen

Profits for Buyout Firms as Company Debt Soared

Simmons says it will soon file for bankruptcy protection, as part of an agreement by its current owners to sell the company — the seventh time it has been sold in a little more than two decades — all after being owned for short periods by a parade of different investment groups, known as private equity firms, which try to buy undervalued companies, mostly with borrowed money.

For many of the company’s investors, the sale will be a disaster. Its bondholders alone stand to lose more than $575 million. The company’s downfall has also devastated employees like Noble Rogers, who worked for 22 years at Simmons, most of that time at a factory outside Atlanta. He is one of 1,000 employees — more than one-quarter of the work force — laid off last year.

But Thomas H. Lee Partners of Boston has not only escaped unscathed, it has made a profit. The investment firm, which bought Simmons in 2003, has pocketed around $77 million in profit, even as the company’s fortunes have declined. THL collected hundreds of millions of dollars from the company in the form of special dividends. It also paid itself millions more in fees, first for buying the company, then for helping run it. Last year, the firm even gave itself a small raise.

Wall Street investment banks also cashed in. They collected millions for helping to arrange the takeovers and for selling the bonds that made those deals possible. All told, the various private equity owners have made around $750 million in profits from Simmons over the years.

How so many people could make so much money on a company that has been driven into bankruptcy is a tale of these financial times and an example of a growing phenomenon in corporate America.

Every step along the way, the buyers put Simmons deeper into debt. The financiers borrowed more and more money to pay ever higher prices for the company, enabling each previous owner to cash out profitably.

But the load weighed down an otherwise healthy company. Today, Simmons owes $1.3 billion, compared with just $164 million in 1991, when it began to become a Wall Street version of “Flip This House.”

In many ways, what private equity firms did at Simmons, and scores of other companies like it, mimicked the subprime mortgage boom. Fueled by easy money, not only from banks but also endowments and pension funds, buyout kings like THL upended the old order on Wall Street. It was, they said, the Golden Age of private equity — nothing less than a new era of capitalism.

These private investors were able to buy companies like Simmons with borrowed money and put down relatively little of their own cash. Then, not long after, they often borrowed even more money, using the company’s assets as collateral — just like home buyers who took out home equity loans on top of their first mortgages. For the financiers, the rewards were enormous.

Twice after buying Simmons, THL borrowed more. It used $375 million of that money to pay itself a dividend, thus recouping all of the cash it put down, and then some.

A result: THL was guaranteed a profit regardless of how Simmons performed. It did not matter that the company was left owing far more than it was worth, just as many people profited from the mortgage business while many homeowners found themselves underwater.

Investors who bought that debt are getting virtually nothing in the new deal.

“From my experience, none of the private equity firms were building a brand for the future,” said Robert Hellyer, Simmons’s former president, who worked for several of the private equity buyers before being asked to leave the company in 2005. “Plus, the mind-set was, since the money was practically free, why not leverage the company to the maximum?”

Just as with the housing market, the good times ended when the economy fell into recession and the credit markets froze. Simmons is now groaning under a huge amount of debt at a time when its sales are slowing. And this time there is no escaping by finding yet another buyer willing to shoulder its entire burden.

Simmons is one of hundreds of companies swept up by private equity firms in the early part of this decade, during the greatest burst of corporate takeovers the world has ever seen. Many of these deals, cut in good times, left little or no margin for error — let alone for the Great Recession.

A disproportionate number of the companies that were acquired during that frenzy are now struggling with the enormous debts. More than half the roughly 220 companies that have defaulted on their debt in some form this year were either owned at one time or are still controlled by private equity firms, according to analysts at Standard & Poor’s. Among them are household names like Harrah’s Entertainment and Six Flags, the theme park operator.

From its humble beginnings on the banks of Lake Michigan, Simmons grew to become one of the country’s largest manufacturers of mattresses. Along the way, it even sprinkled a little Hollywood pixie dust on the ho-hum mattress business, hiring Dorothy Lamour and Maureen O’Hara to plug its products.

Until the 1970s, Simmons largely prospered. Then the troubles started, and the company was soon buried deep inside two enormous conglomerates, Gulf & Western and the Wickes Corporation, for a number of years.

But in the mid-1980s, Simmons caught the attention of a new type of investor. The businesses that stormed corporate America in recent years under the banner of private equity were not always called private equity firms. In the 1980s, they were known as leveraged buyout shops. Their strategy is essentially unchanged, however: they try to buy undervalued companies, using mostly borrowed money, fix them up and sell them for a fast profit.

Because they pile debt onto the companies they buy, the firms free up their own cash, allowing them to make additional investments and increase their potential profits.

Simmons’s first trip through the revolving door of private equity came in 1986. Like the latest trip, it was not a pleasant one for employees, but the buyers did just fine.

William E. Simon, a private equity pioneer and a Treasury secretary under President Richard M. Nixon, was the man with the golden touch. In 1986, his investment firm, Wesray Capital, and a handful of Simmons’s top managers acquired the company for $120 million, the bulk of which was borrowed. After selling several businesses to pay back some of the money it had borrowed, Wesray cashed out in 1989. It sold Simmons to the company’s employee stock ownership plan for $241 million — twice what it paid just three years earlier.

The deal was a fiasco for the employees. As part of the buyout, Simmons stopped contributing to its pension plan, since the stock ownership plan shares were meant to pay for the employees’ retirements. But then the bottom fell out of the housing market and Simmons, with its large debt, stumbled. Its pensions crumbled as the value of the stock plan shares plunged.

A succession of private equity buyers came and went. Merrill Lynch Capital Partners bought Simmons in 1991 for $32 million for a 60 percent stake in the company and the assumption of its debt. Merrill sold it to Investcorp, an investment group based in Bahrain, for $265 million in 1996. Two years later, Investcorp sold the company to Fenway Partners for $513 million.

The fall of 2003 was little more than a blur of meetings and presentations for Robert Hellyer, the former Simmons president who is among the fourth generation of his family involved in the mattress industry. In eight weeks, the company was shown to 20 private equity suitors in the corporate version of speed dating.

The list of potential buyers was quickly whittled to three and finally to THL, whose $1.1 billion bid for the company consisted of $327 million in new equity from the firm and more than $745 million in bonds and bank loans that had to be raised from investors.

What THL wanted from the deal was a return of two to three times its initial investment.

From the get-go, the lofty price the firm paid for Simmons and the amount of debt raised red flags on Wall Street.

The “higher debt burden will limit the company’s ability to respond to unexpected negative business developments, including economic or competitive threats or internal missteps,” analysts at Moody’s Investors Service warned at the time.

But nobody, it seems, was listening. Six months after acquiring Simmons, THL set in motion plans to take the company public. And by December 2004, THL found a way to get part of its initial investment back. Simmons issued debt that required the company to pay a hefty 10 percent annual interest rate. The proceeds were used to pay THL a dividend of $137 million. With the company’s debt climbing, Simmons executives had to aim high with new products — and pray they were right.

By early 2007, at the very top of the credit market bubble, THL took a bit more out of Simmons. It created a holding company that it used to issue $300 million more in debt, which paid an additional $238 million dividend to the private equity firm. With that, THL had recouped its entire $327 million equity investment in Simmons and booked a profit of around $48 million. (It made an additional $28.5 million in various fees over the years.)

THL was hardly alone in undertaking this sort of financial engineering, known as a dividend recapitalization. From 2003 to 2007, 188 companies controlled by private equity firms issued more than $75 billion in debt that was used to pay dividends to the buyout firms.

The Impact on Employees

From the start, Noble Rogers loved working at Simmons.

“There were picnics, March of Dimes walks, Christmas parties, and we always had Halloween parties. It was a really family-oriented company,” Mr. Rogers, 50, recalled. “I told my wife that this was a great place for me to work. A great place for me to retire, to make a living at.”

For a long time, it was. For 22 years, Mr. Rogers worked at Simmons, the bulk of those years at a factory in Mableton, outside Atlanta. After operating the coiler machine for the company’s Beautyrest mattress, he moved into maintenance and kept all of the plant’s machinery humming.

Over the years, as Simmons passed from one private equity firm to another, and as Mr. Rogers became president of the local union at the plant, he saw little difference on the plant floor. Then, in the spring of 2008, when the slowing economy had begun to hurt sales, Simmons laid off the night shift at the Mableton plant. And on Sept. 18 that year, it gathered employees in the cafeteria to say that the plant was closing.

“So many people were hurt because they thought this was a great company to work for and they planned on spending the rest of their lives here. Their families were here. They bought houses and cars here,” Mr. Rogers recalled. “After this happened, people were really struggling.”

Between the closings and other cuts, Simmons let go of more than a quarter of its work force last year, said its chief financial officer, William S. Creekmuir.

Mr. Rogers, who received his union-negotiated severance package of two months’ pay, said he and other union representatives had tried to get a little more for workers, particularly those who would have been eligible for retirement. Simmons had a long history of giving retiring employees a bonus of $20 for each year worked and a free mattress set, Mr. Rogers said.

“They wouldn’t give us anything,” he said.

In the months after he lost his job, Mr. Rogers nearly lost his home to foreclosure and struggled to pay his family’s bills. Mr. Rogers, who eventually landed a job at an air filter company and picked up part-time work doing maintenance at an apartment complex, said Simmons bore little resemblance to the company he once loved.

“They stopped the picnics. They stopped the Christmas parties. They stopped the retirement parties,” he recalled. “That showed you the type of people I was working for. I just didn’t realize it until the hard times came like they did.”

For now, the Golden Age of private equity is over, the financiers say. In a speech to an industry gathering last spring. Mr. Schoen said that bankers and bondholders were reluctant to lend more money to the buyout kings.

“We’re in a brave new world,” he said. “We can’t go back to where we were, at least not in this investment cycle, and probably not in my career.”

But some private equity investors are searching for profits in the detritus of the buyout bust. Simmons hopes to emerge from bankruptcy in the hands of two new private equity firms. One is Ares Management, which owns the mattress giant Serta. Under the plan, Simmons’s debt would be more than halved, to $450 million, in part reflecting the losses suffered by its existing bondholders.

Simmons and its remaining employees face an uncertain future. Some in the industry predict Ares will eventually merge at least part of Simmons with Serta, jeopardizing more jobs.

“Simmons has been a cash cow. It’s made a lot of people a lot of money,” said David Perry, executive editor of Furniture/Today. “But there’s a growing question in the industry of how many more times can this be repeated. How much more juice can be squeezed out of the orange?”

Businesses as Commodities: The Nightmare at Beautyrest

By Kenneth Eisold
Fri, 09 Oct 2009 12:57:18 GMT

In our world almost anything can become a commodity. Still it came as something of a shock to read in last Sunday's New York Times how Simmons Bedding Co., a producer of some of our most comfortable commodities, was turned into a commodity itself and sliced, diced and mangled in the process.

The story in brief: Simmons, the manufacturer of Beautyrest mattresses, announced it will file for bankruptcy protection, "as part of an agreement by its current owners to sell the company -- the seventh time it has been sold in a little more than two decades." The Times goes on:

"But Thomas H. Lee Partners of Boston has not only escaped unscathed, it has made a profit. The investment firm, which bought Simmons in 2003, has pocketed around $77 million in profit, even as the company's fortunes have declined. THL collected hundreds of millions of dollars from the company in the form of special dividends. It also paid itself millions more in fees, first for buying the company, then for helping run it. Last year, the firm even gave itself a small raise.

Wall Street investment banks also cashed in. They collected millions for helping to arrange the takeovers and for selling the bonds that made those deals possible. All told, the various private equity owners have made around $750 million in profits from Simmons over the years."

On the other hand, the Times points out, this is devastating news for Simmons' employees, bondholders and other investors ("Profits for Buyout Firms as Company Debt Soared").

As citizens of our society, we tend to think that companies are primarily in business to produce goods and services that are useful and fairly priced. At the same time, we are dimly aware that, for the financial industry, businesses are commodities themselves -- to be exploited as much as possible for the financial gains they offer to those who buy and sell them, break them up, recapitalize them, and sell off their assets.

Private equity firms can determine if the business is overpriced or underpriced, has disposable assets, significant liabilities, is a good candidate for a takeover, and so forth. And, indeed, huge sums of money can be made by leveraging the assets of such companies, as the Simmons case illustrates. Usually the rest of us do not grasp what is going on behind the scenes, though we read about the acquisitions and sales, the name changes and mergers. The owners reap windfall profits, often ending up placing the companies in extremely exposed and vulnerable positions.

It would be like a homeowner who uses his home to back an equity loan to buy another home, strips it, and then sells it to someone else. Or a tenant who renovates extensively and manages to charge the home itself for the cost. Homeowners, alas, can't do that -- as we have learned again and again. They are stuck with the expense and the loss.

In considering reforms to our financial industry, we might want to consider such forms of abuse, costly to employees, communities that accommodate businesses, as well as other investors who find themselves empty handed at the end of the process. But first we have to wake up to the fact that the producers of commodities become commodities themselves for an industry that often has little regard for their intrinsic value.

About Ares Management
Ares Management LLC (“Ares”) is an independent Los Angeles based investment firm with over 90 employees and over US$7 billion of committed capital under management. Founded in 1997, Ares specializes in originating and managing assets in both the private equity and leveraged finance markets. Ares’ private equity activities are conducted through the Ares Corporate Opportunities Fund, L.P. (“ACOF”). ACOF focuses on injecting flexible, long-term junior capital into undercapitalized middle market companies to position them for growth. Ares’ leveraged finance activities include the acquisition and management of bank loans, high yield bonds, mezzanine and special situation investments, which are held in a variety of investment vehicles.

About Teachers’ Private Capital
Teachers' Private Capital is the private investment arm of the C$85 billion Ontario Teachers' Pension Plan, which invests on behalf of 255,000 active and retired teachers in Ontario, Canada. With more than C$7 billion in assets, Teachers' Private Capital is one of Canada's largest private investors and is currently working with more than 100 companies and funds worldwide by providing long-term flexible financing.

Significant investments include Samsonite, Worldspan and the recently purchased Alliance Laundry Systems in the U.S., and Maple Leaf Sports and Entertainment, Parmalat Canada, Yellow Pages, and Shoppers Drug Mart in Canada. Teachers' Private Capital specializes in providing private equity and mezzanine debt capital for large and mid-cap companies, venture capital for developing industries, and financing for a growing portfolio of infrastructure and timberland assets.

Five reasons pension funds deserve top rating

Steve Ladurantaye

Canadian pension funds are in good shape to benefit from a recovery in the markets, according to rating agency DBRS, provided they don’t try to overcompensate for a brutal year by taking excessive risks under improving conditions.

“The downturn has reduced the financial flexibility of these [funds] and it will likely take several years to make up for the poor performance of 2008,” managing director of public finance Eric Beauchemin and senior financial analyst Ryan Domsy wrote in a report. “However, these [funds] do remain underpinned by several factors that provide considerable resilience and keep them solidly at the AAA level.”

Here’s a quick reminder of how some of the funds fared in their last fiscal year – Caisse de dépôt et placement du Québec was down 25 per cent, Canada Pension Plan Investment Board was down 18.6 per cent, Ontario Teachers’ Pension Plan Board was down 18 per cent, OMERS Administration Corp. was down 15.3 per cent and the Public Sector Pension Investment Board was down 22.7 per cent.

“The poor investment performance had the effect of significantly shrinking their asset base and eroding their funding position, suggesting that the risk level in certain portfolios may have been higher than originally measured,” they wrote.

They say there are five reasons the funds deserve their top ratings and are likely to prosper in the coming years.

Hugeness: The funds “continue to benefit from very large asset bases,” ranging from $33.8-billion to $120.1-billion. Meanwhile, “recourse debt remains very low... as such, these credits enjoy, at all times, access to unencumbered assets several times in excess of recourse debt, providing considerable flexibility in the face of adverse financial developments."

Mandatory members: Most funds are funded by employees and their employers, which means any shortfalls are likely to be backfilled by the government in the case of public funds. These workers also tend to keep their jobs, which keeps the coffers full as they keep contributing through economic downturns.

Liquidity: Most of the funds have large pools of liquid assets, which can be flipped if needed to cover losses. “Under DBRS’s liquidity policy, public pension funds and asset managers issuing commercial paper are required to maintain high-quality liquid assets (defined by DBRS as cash, debt securities of AAA-rated sovereigns, provincial governments and government-guaranteed entities, as well as R-1 (high) short-term Canadian bank notes) in an amount equivalent to at least 1.5 times the limit of the commercial paper program."

Long run: Cash flows are predictable because the funds carry liabilities that are long-term. This provides “ considerable time for sponsors and plans to initiate corrective measures in response to any potential funding challenges.”

Legislation: Public pension funds must increase member contributions or reduce benefits to address funding shortfalls. “In contrast to pension plans, asset managers have no direct responsibility for the liabilities of their plan depositors, or for the ensuing funding shortfalls.”

SEE:

There Is An Alternative To Capitalism

Business Unionism Offers No Solution To Capitalist Crisis

Auto Solution II

Super Bubble Burst

Your Pension Plan At Work

Gambling On Your Future

The End Of The Leisure Society

P3

Your Pension Dollars At Work

P3= Public Pension Partnerships

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Alberta, Heritage Trust Fund, LAPP, Alberta Investment Management Corporation, Canada, Pensions, P3, public-private-partnerships, OMERS, CPP, Ontario-Teachers-Fund, OTF, Canada, investment, infrastructure, VenCap, shareholders, economics,

Your Pension Plan At Work

We may end up owning an airport in New Zealand. I can't wait to retire and visit.

WELLINGTON (Reuters) - The Canadian state pension fund said on Wednesday it would make a partial all-cash offer for NZ's Auckland International Airport Ltd (AIA.NZ: Quote), a week after the company rejected a previous offer.

The Canada Pension Plan Investment Board said it would offer NZ$3.6555 a share for up to 40 percent of Auckland Airport shares valuing the company at around NZ$4.5 billion ($3.5 billion). CPPIB said Auckland Airport shareholders encouraged it to bid again, after the board rejected the previous proposal as too risky.

Shares in Auckland Airport, 23 percent owned by two local authorities, closed on Tuesday at NZ$2.91, having traded between NZ$2.06 and NZ$3.50 over the past 12 months.

($1=$1.29)

In response to a stinging snub from the board of New Zealand's largest airport, the Canada Pension Plan Investment Board (CPPIB) has fired back with a plan to take its partial takeover offer directly to shareholders.

After a months-long friendly process in which the Canadian pension fund manager was given ample access to Auckland International Airport Ltd.'s books, its board put out a surprising and sharply worded release last week quashing the CPPIB's bid.

Four of its five members voted against the offer for up to 49 per cent of the company. The revised all-cash offer is valued at $1.8-billion New Zealand ($1.3-billion Canadian) for 40 per cent.

Alongside its concern about the level of debt involved in the partial privatization, Auckland International's board also took an unusual poke at the expertise level of the $120.5-billion (Canadian) pension fund manager, which is considered by many to be one of the world's most sophisticated investors in infrastructure.

The CPPIB's second wind, however, has come from institutional investors including the airport's largest, the Auckland City Council.

The council owns a 12.75-per-cent stake and has encouraged the pension fund to continue on with its plan.

"We are really going down this route because shareholders have lobbied us to find a way to opine on the proposal," Mark Wiseman, CPPIB senior vice-president, private investments, said in an interview.

The airport's other large shareholders include the Manakau City Council, the city just south of Auckland in which the airport is located, along with infrastructure investors Macquarie Bank of Australia and New Zealand's Infratil Ltd.

Actually this is another case of public sector funds being used as a P3 Public-Public-Partnership. Privatization by another name,except all the investors are publicly owned institutions or pension funds. Ironic that.

Privatization of infrastructure is now being paid for by public funds. No capitalist is willing to invest in long term infrastructure. Not private equity companies or Hedge Funds. So while neo-cons promote the myth that private capital is willing to invest in public infrastructure the reality is that it is workers pension funds, public funds that are used to rescue the public sector and the commercial private sector investments in infrastructure.

Canadian pension plans, Australian bank to acquire Puget Energy

A multinational consortium lead by an arm of Australia's Macquarie Bank and including three Canadian public-sector pension plans is acquiring Puget Energy (NYSE:PSD) amid continued infrastructure investments by major Canadian pension funds seeking more lucrative returns to pay pensions.

The deal values the U.S. utility company at US$7.4 billion, including $3.2 billion in shareholder capital provided by the consortium, $2.6 billion in existing debt that will be assumed and $1.6 billion of newly issued debt.

In addition to Macquarie, the consortium includes the Toronto-based CPP Investment Board, British Columbia Investment Management Corp. and Alberta Investment Management.

"PSE is Washington's oldest and largest energy utility - it is a strong, stable company with a growing customer base in a market that has displayed consistent demand over time," Christopher Leslie, chief executive of Macquarie Infrastructure Partners, stated Friday.

TORONTO, ONTARIO--(Marketwire - Nov. 1, 2007) - RioCan Real Estate Investment Trust ("RioCan") (TSX:REI.UN) today announced its financial results for the three and nine months ended September 30, 2007.

Financial Highlights

RioCan reported net earnings for the quarter ended September 30, 2007 of $35,917,000 ($0.17 earnings per unit basic and diluted) as compared to net earnings of $41,763,000 ($0.21 per unit basic and diluted) for the three months ended September 30, 2006. For the nine months ended September 30, 2007, RioCan reported a net loss of $32,790,000 ($0.16 loss per unit basic and diluted) as compared to net earnings of $120,377,000 ($0.61 per unit basic and diluted) for the comparable period in 2006.

For the quarter ended September 30, 2007, rental revenue was $160,559,000 as compared to $145,339,000 for the three months ended September 30, 2006. Rental revenue for the nine months ended September 30, 2007 was $483,824,000 versus $429,291,000 for the comparable period in 2006.

FFO for the quarter ended September 30, 2007 was $76,029,000 ($0.36 per unit) as compared to $72,533,000 ($0.36 per unit) for the three months ended September 30, 2006. For the nine months ended September 30, 2007, FFO was $227,120,000 ($1.09 per unit) as compared to $209,440,000 ($1.06 per unit) for the nine months ended September 30, 2006.

RioCan's Consolidated Financial Statements, Management's Discussion and Analysis and a Supplemental Information Package for the three and nine months ended September 30, 2007 are available on RioCan's website at www.riocan.com.

FFO is a widely accepted supplemental measure of a Canadian real estate investment trust's performance and should not be construed as an alternative to net earnings or cash flow from operating activities determined in accordance with Canadian generally accepted accounting principles. RioCan's method of calculating FFO may differ from certain other issuers' methods and accordingly may not be comparable to measures reported by other issuers.

Portfolio Stability

At September 30, 2007:

- Portfolio occupancy was 97.6%;

- 65.1% of rental revenue was derived from properties located in Canada's six high growth markets (including and surrounding Calgary, Edmonton, Montreal, Ottawa, Toronto and Vancouver);

- 82.6% of annualized rental revenue was derived from, and 83.1% of space was leased to, national and anchor tenants;

- Approximately 49.7% of annualized rental revenue was derived from its 25 largest tenants; and

- No individual tenant comprised more than 5.7% of annualized rental revenue.

Development Activity

With over a billion dollars at cost of ongoing developments, project activities remained strong throughout the third quarter as RioCan continues to focus on its development program. At the end of the third quarter, approximately 8 million square feet was under development, of which RioCan's ownership interest was approximately 3.4 million square feet. Third quarter highlights include:

- Oakville, Ontario - RioCan Centre Burloak, located at the intersection of Burloak Drive and Queen Elizabeth Way, is a 552,000 square foot new format retail centre anchored by Home Depot (retailer owned), SilverCity Oakville Cinemas, Longo's and Home Outfitters. This joint venture with the Canada Pension Plan ("CPP") Investment Board is 100% leased with approximately 92% to be occupied by national and regional retailers.

Construction is well underway and store openings are now being phased-in. A number of retailers have recently opened for business including Home Depot, Nike, Sony and Tommy Hilfiger. Additional retailers opening by the end of 2007 include SilverCity Oakville Cinemas, Suzy Shier, Guess, La Vie En Rose, Reitmans, Le Chateau, Urban Barn, Benix & Co., Bowring and many more. Other retailers such as Longo's, Home Outfitters, Urban Planet, Kitchen Stuff Plus, Structube, Solutions, Kelsey's, Montana's and Swiss Chalet will be opening in 2008.



- Edmonton, Alberta - Construction is ongoing at RioCan Meadows, another development joint venture with CPP Investment Board. Upon completion, this 502,000 square foot new format retail centre will be anchored by a Real Canadian Superstore (retailer owned) and Home Depot. Some retailers that recently opened for business include Winners, Dollarama, TD Canada Trust and Wok Box. Additional retailers opening later this year and in 2008 include Petsmart, Reitmans, Laura, Scotia Bank and Swiss Chalet.

- Calgary, Alberta - Also moving towards completion is the construction of RioCan Beacon Hill, a 788,000 square foot new format retail centre featuring shadow anchors Costco and Home Depot, both of whom are open for business, as well as Canadian Tire and Shoppers Drug Mart, both of which are expected to open in spring 2008. This joint venture with Trinity Development Group Inc. and CPP Investment Board boasts a number of national retailers, many of which are already open for business, including Winners, HomeSense, Royal Bank, Linens 'N Things, Golf Town, Michaels, The Shoe Company, Mark's Work Wearhouse, LaSenza, Thyme Maternity and Sport Chek. Additional retailers such as EB Games, Telus and Bell Mobility are anticipated to open later this year.

However what remains lacking is shareholder control of our pension funds. Without that we have no checks and balances on how our funds are being used, for instance if jobs are cut at the airport which are not in our interests or those of the workers affected.

Or in the case of affordable housing our pension funds are being used for commercial real estate investments instead of creating affordable housing in overheated markets.

While institutional funds, as our public pension funds are called in the investment industry, cry for more control over the boardrooms of the companies they invest in, we the owners/shareholders of these funds have no say in their boardrooms.

This is an issue the labour movement and civil society needs to address soon.

Canada says G7 to discuss state investment funds

Group of Seven finance ministers will discuss the need for more transparency by state-backed investment funds in a meeting on Friday and will likely mention the issue in their final statement, a Canadian government official said on Tuesday.

Ministers from the world's richest nations will gather in Washington on Friday to discuss the global economic outlook following this summer's credit crunch as well as possible regulatory changes for financial market players.

But sovereign wealth funds are also high on the agenda and will be the subject of an "outreach session" with non-G7 members Friday evening, said the official, who declined to be named.

Although they are not new, these funds have grown in number and size in recent years as the central banks of oil-rich Middle Eastern countries and countries such as China, which have huge reserves, invest in riskier assets in search of higher returns.

The main concern in Canada and other countries is that not enough is known about the huge capital flows from these funds, which can create imbalances in the global financial system. The funds need to be guided by clearly stated market-based principles to assure the countries hosting their investments that they are not motivated by anything other than economics, the official said.

At a special meeting that will also include China, Korea, Kuwait, Norway, Russia, Saudi Arabia, Singapore and the United Arab Emirates, Canada will hold up its Canada Pension Plan Investment Board as a model of accountability that could be adopted by state-owned investment funds. Norway's state fund is another model.

The CPP Investment Board is responsible for investing pooled pension assets worth C$120.5 billion and operates at arm's length from the government, with an independent board of directors. It undergoes external audits every year and tri-annual reviews by government authorities.

It is required also to hold public meetings periodically and to disclose its investment performance on its Web site.

Charge higher CPP premiums to firms without pension plans

The National Union of Public and General Employees (NUPGE) is launching a campaign to change Canada Pension Plan rules, requiring employers without workplace pension plans to pay higher Canada Pension Plan (CPP) premiums.

The extra money would be used to pay higher CPP benefits at retirement to workers who do not have a workplace pension plan.

NUPGE outlined the proposal at a recent conference attended by more than 300 union representatives and leading pension policy experts. The event was arranged by the Canadian Labour Congress (CLC), which brings together affiliated unions with a combined membership of more than three million members.

NUPGE is one of Canada's largest unions, representing 340,000 public and private sector workers across the country. Collectively, the NUPGE members participate in pension funds with combined assets of more than $100 billion.

The union recently released a research report identifying an alarming decline in pension coverage in Canada. The report revealed that the percentage of the Canadian workers covered by a pension plan declined from 46% in 1991 to 38.5% in 2005.

Employers lack incentives to provide pensions

Larry Brown, NUPGE's national secretary-treasurer, says Canada now provides few incentives for employers to create pension plans, despite the obvious social and economic benefits of doing so for workers and for society in general. In fact, disincentives exist to discourage employers from setting up their own plans, he said.

Brown says employers with pension plans now pay exactly the same CPP premiums as those without plans. At the same time, they assume legitimate administrative costs and requirements set out in pension legislation, including funding obligations and reporting and actuarial evaluations, he said.

“Employers have a moral obligation to their employees to provide decent pensions, but our system does very little to encourage this behavior. Instead, it subjects employers who provide pensions to necessary but often complex legislative requirements,” Brown notes.

"Why should an employer assuming the burdens and obligations of providing a pension plan pay the same CPP premiums as employers who do not?" he asks.

“We don’t think that makes sense and we’re launching a campaign that calls for an extra payment to the CPP from those employers that don’t offer a workplace pension plan,” he says.

"We are saying that employees should receive improved CPP benefit coverage during any years they work for employers without a workplace plan, and those benefits should be financed by additional CPP premiums collected from employers who do not offer pension plans.”

Brown says this would create an incentive for employers to provide pension plans. "They would pay for a workplace pension plan, or pay higher CPP premiums. Either way, they would be required to meet their moral obligations to their employees”, he said.

SEE:

Vencap

AIM High

P3 Myth Busting

Infrastructure Collapse

Fire Sale

Dumb and Dumber

Public Pensions Fund Private Partnerships

Golden Parachutes

Your Pension Dollars At Work

P3= Public Pension Partnerships

Find blog posts, photos, events and more off-site about:
Alberta, Heritage Trust Fund, LAPP, Alberta Investment Management Corporation, Canada, Pensions, P3, public-private-partnerships, OMERS, CPP, Ontario-Teachers-Fund, OTF, Canada, investment, infrastructure, VenCap, shareholders, economics,

Blackstone Hi-jinx

Having appointed former PM the RH Brian Mulroney to the board, Blackstone the private equity hedge fund went public with an IPO. In the two weeks it has made no money on its posting in the stock market, but had paid off its CEO handsomely. This week it offered to buy out Hilton Hotels, with a bid that led to cries of insider trading. If any fallout occurs then Blackstone can always call on Mulroney to bail them out as he did with ADM.

Since the close on its first full day of trading on June 22nd, Blackstone Group (BX) has not finished a single session in positive territory.

Blackstone, whose founder Stephen Schwarzman pocketed $677 million from his IPO's proceeds.

Shares of Hilton Hotels Corp. rose 6.44% to close at $36.05 Tuesday -- ahead of the announcement of the company's sale to the Blackstone Group for approximately $20 billion in cash. After the close, Blackstone said it would pay $47.50 per share for Hilton, a 32% premium. The pre-news rise -- the shares' strongest surge since 2005 -- has prompted calls of insider trading.

Although much of the attention on Blackstone has centered on CEO and co-founder Stephen Schwarzman, it is Hamilton "Tony" James who runs the firm, his hand on everything from private equity deals to real estate transactions to advisory work.

As Blackstone's No. 2, the pressure is on James to lead the firm through its new chapter as a public company and steer the massive money machine through the rough waters facing private equity firms.

With the private equity industry booming, James earned more than the CEOs of Goldman Sachs (GS.N: Quote, Profile, Research) and JPMorgan (JPM.N: Quote, Profile, Research) combined last year and his stake in the firm is currently worth $1.55 billion after its June IPO -- a huge amount considering his riches have come neither as a chief executive nor a company founder.

The billions Blackstone's top executives raked in through the $4 billion IPO however, attracted the scrutiny of lawmakers, who proposed legislation to jack up the firm's tax bill.

"I'm worried about the fact that private equity has grown so quickly and so fast that it's made itself a natural target for speculation and resentment," James said at the Reuters Investment Banking Summit in November. "It has made a lot of money."

Also worrying are investor doubts about Blackstone's high valuation and a pullback in the credit markets, factors that have sent shares of the company lower since their debut.

See:

The Ethanol Scam: ADM and Brian Mulroney

Criminal Capitalism Business As Usual

Gambling On Your Future

Criminal Capitalism Redux

Golden Parachutes

Rich Getting Richer

CEO Cream Sour Milk for Workers

Criminal Capitalism The Story of 2006

White Collar Crime Reporter 1

Find blog posts, photos, events and more off-site about:
criminology, corporate-crime, white-collar-crime, sociology, fraud, ADM, Blackstone, Mulroney, scandal, criminal-capitalism, workers, employees, theft, crime,
Hilton, IPO, Canada,
CEO, pay, goldenparachutes, Corporations, fatcats, rich, superrich,

Gambling On Your Future

Here is another reason we need to democratize defined benefit pension plans, whether run by the government or through our employers. While these institutional funds talk about the need for shareholder democracy; they deny the same to us.

They are using their vast reserves of captial now to play the market place investing in risky enterprises like hedge funds and private equity funds.

Canada's three-largest pension fund managers, unable to meet the long-term needs of retirees with returns from stocks and bonds, plan to increase private-equity investments after spending about C$50 billion ($47 billion) buying companies, toll roads and gas pipelines.

The pension funds added C$31.7 billion to private equity holdings in their most recent fiscal year, almost double the amount of the previous 12 months. The retirement plans are buying riskier assets because they don't expect publicly traded securities to provide high enough returns to pay the more than C$1.56 trillion of benefits owed to retirees over the next 50 years, according to annual reports from the pension funds.

The ability of workers to control, or even to influence, the investment of their deferred wages in pension funds — which are now by far the nation’s largest source of capital — is an old but recurring debate. Unions played a leading role in the creation and expansion of private pension trusts, particularly the traditional defined-benefit plans that are funded almost entirely by employer contributions.4 Yet because control over how pension assets would be invested was
never made a bargaining priority, today at least 90 percent of private sector pension fund assets are controlled exclusively by management.

Since the Second World War a number of factors have led to increased investment by institutional investors in public corporations. There has been the use of superannuation and pension schemes. There has been an increase in insurance linked investment products and other forms of indirect investment. Trustee investment rules have been relaxed, enabling trustees to invest in equities

The result is that in Australia, New Zealand, the USA and the UK more than 50% of all equities are held by institutional investors and the tendency is to increase. Add to this the traditional domination by institutions of the bond market and we have the beginning of the growth of a significant counterveiling power if the economic strength is harnessed to a common cause. Listed corporations are becoming the servants of global financial activity rather than its masters.

Peter Drucker argued that this led to a quiet revolution – ‘The Unseen Revolution...The US is the first truly Socialist country."This was simply reflecting what Berle in his later workings had identified and his research student Paul Harbrecht had called ‘The Paraproprietal Society’ – the evolution of a new form of property.

Until the late 1980s the tendency of the institutions was to be a sleeping giant. There were instances of discrete intervention but by and large the institutions voted with their feet and followed the Wall Street Walk – if in doubt, sell.

Institutions themselves came under attack and we see two developments. First, the involvement by them in promotion of improved corporate governance and secondly the use of specialist funds managers. The latter makes it more unlikely for institutions to become activists in particular companies although there have been exceptional cases where a group of funds managers have taken action.

Institutions are primarily focussed on profit and liquidity and have been attacked for short termism in their approach to companies. There is also a problem of lack of coincidence between the interests of institutions and other smaller shareholders in takeover situations. Often institutions collectively have strategically significant holdings.

Institutions sometimes encounter legal problems in increased shareholder activism.

It is sometimes argued that public sector pension funds are more likely to take a long term strategic view and certainly the US and the UK public sector funds have had a tendency at least to mouth the appropriate rhetoric.

See:

Public Pensions Fund Private Partnerships

AIM High

Golden Parachutes

Your Pension Dollars At Work

P3= Public Pension Partnerships

Find blog posts, photos, events and more off-site about:
Alberta, Heritage Trust Fund, LAPP, Alberta Investment Management Corporation, Canada, Pensions, P3, public-private-partnerships, OMERS, CPP, Ontario-Teachers-Fund, OTF, Canada, investment, infrastructure, VenCap, shareholders, economics,