CPP Investments earned 1.9 per cent net return for third quarter

The Canadian Press

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The Canada Pension Plan Investment Board says it earned a net return of 1.9 per cent for its third quarter.

Chief executive John Graham says the gains came due to a rebound in public equity markets, while the fund's private asset values remained relatively flat. 

The county's largest pension fund manager says its net assets at Dec. 31 totalled $536 billion, up from $529 billion at the end of the previous quarter.

CPP Investments says the increase included $10 billion in net income, less $3 billion in net Canada Pension Plan outflows.

The fund noted that it typically receives more CPP contributions than required to pay benefits during the first part of the calendar year, partially offset by benefit payments topping contributions in the final part of the year.

For the nine months ended Dec. 31, CPP Investments says the fund posted a net return of negative 2.2 per cent.

This report by The Canadian Press was first published Feb. 9, 2023.

Canopy Growth restructures Canadian operations, to lay off 800 in latest cost-cutting move

David George-Cosh, BNN Bloomberg

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Canopy Growth Corp. is planning to restructure its Canadian cannabis operations, which will see the departure of more than one-third of its workforce while shrinking its cultivation and production businesses in its latest attempt to cut costs and seek profitability.
 
Canopy said Thursday that it will now grow its cannabis in two facilities in Kelowna, B.C. and Kincardine, Ont., while ending its cultivation at its Smiths Falls, Ont. headquarters as well as through its joint venture in Mirabel, Que. It will also exit production and seek third parties to make its vape, beverage, edible, and extract products, while focusing its internal efforts on higher-margin categories like flower, pre-rolls, soft gels, and oils.
 
In addition to restructuring its production and operations footprint, Canopy said it will reorganize some of its departments such as sales and marketing into smaller working groups. To help save on research and development costs, Canopy will partner with Quebec-based EXKA Inc. to manage its cannabis genetics program rather than develop future strains in-house. And Canopy said it will also reduce the number of in-market brand and SKU products it sells in Canada by approximately 25 per cent and 50 per cent, respectively, in order to focus on more profitable items.
 
As a result of the changes, Canopy said it will lay off about 800 employees over the coming months, a figure which represents approximately 35 per cent of its total workforce. The company expects to take a pre-tax charge of between $425 million to $525 million due to the cuts announced Thursday.
 
“Canopy must reach profitability to achieve our ambition of long-term North American cannabis market leadership,” said David Klein, Canopy's chief executive officer, in a statement. “We are transforming our Canadian business to an asset-light model and significantly reducing the overall size of our organization. These changes are difficult but necessary to drive our business to profitability and growth."
 
Canopy’s announcement marks yet another round of closures and layoffs the company has undergone since cannabis was legalized in October 2018 when the company was poised to lead the nascent recreational marijuana market. Flush with $5 billion in cash from an investment made by alcohol-giant Constellation Brands Inc., Canopy embarked on a nationwide blitz with production facilities and offices across Canada in an effort to lead the country’s cannabis space.
 
However, due to a confluence of factors including an exponential rise in competing producers, differing provincial retail regulations, restrictive excise tax charges, and fickle recreational cannabis consumers who complained about the quality of some of Canopy’s products, the company has scaled back its presence in Canada in dramatic fashion.
 
In March 2020, Canopy announced it would shut down two major cannabis production facilities in British Columbia, resulting in the loss of about 500 workers. Nine months later, Canopy closed five more production facilities in St. John's, Fredericton, Edmonton, Bowmanville, Ont. and at an outdoor grow facility in Saskatchewan, which led to 200 people being laid off. Canopy later shut down a greenhouse located in Niagara-on-the-Lake, Ont., and sold off its Danish cannabis operations to a local firm while divesting its Tokyo Smoke retail division amid ongoing efforts to break a steady stream of quarterly losses.
 
Canopy – which reports its fiscal third quarter results on Thursday – has reported a cumulative $2.2 billion loss in the first half of its current fiscal year, while also booking sizable losses across its operations since 2019. Canopy reported a 28 per cent decline in third quarter revenue to $101.2 million while booking a net loss of $266 million on Thursday.
 
In an effort to stem further losses, Canopy is planning to formalize its U.S. operations, which includes three major cannabis firms that it previously announced plans to acquire once the drug is federally legalized in the U.S.
 
Canopy is still awaiting shareholder approval to create its “Canopy USA” stand-alone division that will control U.S. multi-state operator Acreage Holdings Inc., edibles maker Wana Brands and Jetty Extracts, while converting the equity controlled by Constellation Brands into a new share class.
 
The company said it has already received tacit approval from the Toronto Stock Exchange, but it is unknown whether the plans will be onside with the Nasdaq exchange.

Cameco stock climbs as CEO boasts 'best fundamentals we have ever seen'

Gitzel continues to see Russia's invasion of Ukraine last year as a powerful catalyst for nuclear energy.

Jeff Lagerquist
Thu, February 9, 2023 

Sask.-based Cameco reported that revenue rose nearly 13 per cent on a year-over-year basis, topping $524 million in the final three months of 2022. REUTERS/David Stobbe

Cameco (CCO.TO)(CCJ) shares climbed more than seven per cent on Thursday as chief executive officer Tim Gitzel touted "the best fundamentals we have ever seen for the nuclear fuel market."

Canada's largest uranium producer reported fourth-quarter and full-year 2022 financial results before the start of Thursday's trading session, booking a $15 million loss compared to an $11 million profit in the same quarter last year.

The Sask.-based company reported that revenue rose nearly 13 per cent on a year-over-year basis, topping $524 million in the final three months of 2022.

Cameco says improving prices for nuclear fuel benefited the company as it added 80 million pounds of uranium to its portfolio of long-term contracts last year. It claims to have signed a record number of contracts in 2022, reflecting a "large and growing" pipeline of potential customers.

Gitzel continues to see Russia's invasion of Ukraine last year as a powerful catalyst for nuclear energy.

"That was the most transformative event for our industry," he wrote in a news release on Thursday. "We believe it has set in motion a geopolitical realignment in energy markets that is highlighting the crucial role for nuclear power not just in providing clean energy, but also in providing secure and affordable energy."

Beyond Putin's war, Cameco and its peers have benefited from a wave of policy "U-turns" on nuclear power in Europe, Asia, and North America. Public opinion on the issue has improved significantly since the deadly 2011 disaster at Japan's Fukushima Daiichi Nuclear Power Plant.

Toronto-listed Cameco shares added 5.14 per cent to $38.65 as at 11:30 a.m. ET on Thursday. The stock has climbed more than 45 per cent over the past 12 months.

'Nuclear is back on,' bolstered by Russian supply gap: Cameco CEO

Holly McKenzie-Sutter, BNN Bloomberg

The CEO of uranium miner Cameco Corp. said the winds have shifted on nuclear fuel, particularly as the war in Ukraine has created demand in countries that had previously relied on Russian supplies. 

Tim Gitzel, president and CEO of Cameco, told BNN Bloomberg on Thursday that interest in nuclear power had already been picking up as the world sought to decarbonize and reduce emissions, and the Russian supply gap has sped things up.

“Nuclear is back on with a vengeance (and) the Russia situation has just really pushed it forward,” Gitzel said in a television interview. “Things are looking really good for us.”

He made the comments as the company reported its earnings for the latest quarter, reporting a loss in the last quarter and revenue 10 per cent higher than a year earlier.

The growing appetite for nuclear represents a shift from much of the previous decade, Gitzel said, when his company had to scale back after the 2011 Fukishima nuclear accident in Japan gave rise to wariness around the power source.

Now, the conflict in Ukraine has created new concerns about power supply, particularly as Russia was once a major supplier of nuclear power to much of the world.

Gitzel said eastern European countries like Ukraine, the Czech Republic and Poland are “looking for help” on power sources, and this week, Cameco announced a supply agreement with Ukraine’s state-owned nuclear energy utility to provide uranium power until 2035.

“It's more than a commercial transaction,” Gitzel said. “Those are our friends over there and we see what they're going through and we wanted to step up and help.”

As for ramping up operations, Gitzel said his company has a competitive edge over some other companies because it does not have to build new infrastructure, and can make use of formerly shuttered facilities.

“We have the facilities already built. We just have to turn them on and that's what we're doing now,” he said.

With files from The Canadian Press.

Cameco nears deal to supply nuclear fuel to

Ukraine’s Energoatom

Reuters | February 8, 2023 |

Khmelnytskyi nuclear power plant. Credit: Wikimedia Commons

Cameco Corp said on Wednesday that it has agreed on the commercial terms to supply nuclear fuel to Ukraine’s state-owned nuclear energy utility Energoatom.


Under the contract, expected to be finalized in the first quarter of 2023, Cameco would supply natural uranium hexafluoride to the Ukrainian company between 2024 and 2035.

The deal would see Cameco supply the total fuel required at nine nuclear reactors at Energoatom’s Rivne, Khmelnytskyy and South Ukraine nuclear power plants, the company said.

The contract will also contain an option for Cameco to supply up to 100% of the fuel for six reactors at the Zaporizhzhya nuclear power plant, currently under Russian control, should it return to Energoatom.

Russian forces seized the Zaporizhzhya plant in early March last year, soon after invading Ukraine. Russia and Ukraine had accused each other of firing around it near the front lines, prompting the International Atomic Energy Agency to place experts at all of Ukraine’s five nuclear stations.

(By Sourasis Bose; Editing by Shailesh Kuber)

Rental markets tightened across Canada in 2022: CMHC

Holly McKenzie-Sutter, BNN Bloomberg

Canada’s rental housing market tightened last year amid surging demand that outpaced supply, even as many large cities added units, a new report from the Canada Mortgage and Housing Corporation (CMHC) has found.

The national vacancy rate for purpose-built rental apartments dropped to 1.9 per cent in 2022 from 3.1 per cent a year earlier, according to the CMHC’s Rental Market Report – the lowest level recorded since 2001.

The report said higher migration and rising home ownership costs drove up demand, while higher mortgage rates made it more challenging for renters to consider home ownership.

Affordability has been a challenge for renters, said CMHC chief economist Bob Dugan, particularly for people with lower incomes who have few options available within their price range.

“Lower vacancy rates and rising rents were a common theme across Canada in 2022,” Dugan said in the report.

“The current conditions reinforce the urgent need to accelerate housing supply and address supply gaps to improve housing affordability for Canadians.”

RECORD HIGH FOR RENT

Rent growth hit a new record high, the report said, with the annual rent for a two-bedroom apartment growing 5.6 per cent between 2021 and 2022.

Rents rose significantly more for two-bedroom units that turned over to new tenants, at 18.3 per cent compared with 2.9 per cent for apartments with no tenant turnover.

In Toronto, turnover units saw 29.1 per cent rent growth compared with 2.3 per cent for non-turnover units. This phenomenon created affordability challenges for renters trying to find new housing, the report said.

RENTAL SQUEEZE ACROSS CANADA

Students returning to campuses after years of pandemic remote learning contributed to the squeeze in several cities, the report noted, as well as more migration that picked up speed as pandemic restrictions eased.

New immigrants have a “high tendency to rent,” the report said, with most new immigrants landing in Ontario, B.C. and Québec and the Prairies seeing more interprovincial migration.

In Toronto, the primary rental apartment vacancy rate fell to 1.7 per cent in 2022 from 4.4 per cent the year before, as the economy and immigration trends saw fewer disruptions.

Montreal’s vacancy rate fell to 2.3 per cent from 3.7 per cent, and rent increases were particularly high, while in Vancouver, demand for rental housing increased faster than supply, bringing the vacancy rate to 0.9 per cent from 1.2 per cent in 2021.

Calgary’s vacancy rate dropped to 2.7 per cent from 5.1 per cent a year earlier, its lowest level since 2014 amid economic growth.

Condominiums, which “play a significant role in the supply of rental housing,” saw an average vacancy rate of 1.6 per cent across the country, representing essentially no change from 2021, and rents for two-bedrooms increased to $1,930 from $1,771.

“The tightness of both the rental condominium and purpose-built rental markets therefore had a common driver: the outpacing of strong supply growth by even stronger demand growth,” the report said.

Rapidly cooling housing market helps to quell Canadian inflation

Randy Thanthong-Knight, Bloomberg News

Housing costs, and Canada’s unique way of capturing them in inflation, suggest that consumer price gains may slow rapidly in coming months.

As the largest expense for most households, shelter makes up 30 per cent of Canada’s consumer price index — a similar proportion to the U.S. But unlike its southern neighbor, Canada’s inflation metrics capture these costs in a way that’s more sensitive to changes in interest rates and home prices. 

That means Canadian inflation measures are influenced by both the rise in mortgage costs as the Bank of Canada aggressively raises rates and by the resulting slowdown in the housing market. 

While inflation was still 6.3 per cent in December, price pressures in Canada are expected to lose momentum thanks to base effects and continued cooling in the Canadian real estate market, which features shorter-duration mortgages than the U.S. and a higher share of variable-rate home loans. 

Those differences are one reason economists say the Bank of Canada — which said this week it intends to pause its tightening campaign — won’t have to raise borrowing costs as high as the Federal Reserve.

“One way Canada actually stands out from a lot of other countries is that when the Bank of Canada raises interest rates, there’s a temporary boost to inflation because of this mortgage interest rate effect,” Stephen Brown, an economist at Capital Economics, said by phone. 

CROSS-BORDER DIFFERENCES

The U.S. calculates housing inflation using owners’ equivalent rent, or the price a property owner would have to pay to rent to live there. Canada calculates it through a formula that includes mortgage interest, replacement cost, property taxes and maintenance.

Shelter has been a major driver of Canadian inflation in recent months, and was up 7 per cent in December. The mortgage interest and rent sub-indexes saw year-over-year jumps of 18 per cent and 5.8 per cent, respectively. 

But with rates now on hold, Brown expects mortgage interest costs to peak before dropping sharply in the second half of this year. Other inflation inputs, such as commissions on home sales, are already easing. 

His forecast is for increases in the shelter component of CPI to fall to 3.5 per cent by June and to 1.5 per cent by December. With energy, food and goods prices also expected to fall sharply, Brown said the Bank of Canada may be “underestimating how quickly overall inflation will decline.”

Macklem’s rapid interest-rate hikes, to 4.5 per cent from an emergency pandemic low of 0.25 per cent in March, have dramatically cooled the real estate market. Prices have fallen more than 13 per cent since their peak last year. Higher mortgage costs are also squeezing some of the world’s most indebted households, forcing them to tighten their purse strings.

“The bank might be feeling like they’ve done enough on housing, and that the effect is going to unravel over the coming months,” said Rishi Mishra, an analyst at Futures First Canada Inc. “They don’t want to press down too hard, just because how large the exposure is to housing market in Canada.”

RENTIER CAPITALI$M

Investors made up 20 to 30% of homeowners in some provinces: Statistics Canada

The Canadian Press

New Statistics Canada data shows investors made up almost one third of homeowners in some provinces in 2020.

The data agency says investors made up 31.5 per cent of Nova Scotia's homeowners that year and 29 per cent of New Brunswick's property holders.

Investors in British Columbia came in at 23.3 per cent followed by 20.4 per cent in Manitoba and 20.2 per cent in Ontario.

When grouped together, the data agency's calculations show under one in five homes in British Columbia, Manitoba, Ontario, New Brunswick and Nova Scotia was considered an investment property in 2020.

Houses used as an investment were mainly owned by individuals living in the same province as the property.

However, condo apartments were used as an investment more often than houses, with Ontario alone seeing the highest rate of condo apartments used as investments at 41.9 per cent.

REITs provide safer alternative for wannabe 

landlords: Dale Jackson

By Dale Jackson 

The hordes of homeowners who leveraged their principal residences to purchase rental properties during the real estate boom are getting squeezed between a massive hike in borrowing rates, and declining home values.

Wannabe landlords were the fastest growing segment of the red-hot residential real estate market a year ago, according to Equifax Canada. Now, they are among the most vulnerable.

Earlier this month, the CEOs of Canada’s largest banks warned many of their clients could default on their mortgages as they struggle to keep pace with higher monthly payments.

There’s a lesson for anyone wanting expand their investments beyond a home to the wide world of real estate; real estate investment trusts (REITs) are the safer way to make money.

REITs are publicly traded companies that own or finance income-producing real estate. They have not been immune from the global real estate slump brought on by higher borrowing rates, but the sector is already showing signs of recovery as the end of the central bank hiking bonanza winds down.

The benchmark iShares S&P/TSX Capped REIT ETF has advanced nearly 7 per cent so far this year, stemming the decline to 15 per cent since the rate increases began last winter.

SAFETY THROUGH DIVERSIFICATION

The risk from investing in individual real estate holdings like secondary properties are concentrated in one sector (residential real estate) in one geographic region (that location).     

In contrast, REITs have many real estate holdings diversified by sub-sectors, including residential, commercial and industrial. 

There’s no limit to how diversified a REIT can be. InterRent REIT and Killam Apartment REIT, as examples, hold multi-unit residential properties across Canada. BTB REIT holds commercial, office and industrial properties concentrated in Quebec. RioCan and Smart REITs hold traditional bricks and mortar retail businesses.

REITs can further hedge risk by offsetting sub-sectors against each other as the real estate landscape changes. Bricks and mortar retail REITs hit hard by the pandemic and accelerating online shopping trend, for example, can be offset with retail REITs that hold industrial properties specializing in warehousing, logistics and distribution.      

Other REITs capitalize on shifting demographics by investing in seniors housing as the influx of baby boomers ages.

In addition to being diversified, REITs are a natural fit with other sectors and asset classes in a broader retirement portfolio. Equity in an individual property can also compliment a broader retirement portfolio but determining how it interacts from a diversification and tax perspective can be difficult.

TAX ADVANTAGES

While capital gains on the sale of a principal residence are not taxed, half of capital gains on secondary properties are taxed; just like most other equity investments. 

One tax advantage a REIT has over a secondary property is its ability to avoid taxation all together if it is held in a tax-free savings account (TFSA). 

Contributions to a REIT in a registered retirement savings plan (RRSP) can also be deducted from taxable income and grow tax-free over several years until it is withdrawn.

Those tax advantages can be multiplied by homeowners who leverage the equity in their principal residences to make large investments in REITs instead of secondary properties. 

HASSLE FREE

Most smaller landlords know the burden of having to deal with faulty plumbing in the middle of the night, but it’s just the tip of the iceberg when it comes to legal liabilities and endless government regulation; not to mention the need to retain paying tenants or the nightmare of having to evict deadbeat ones.

All that becomes the REIT manager’s problem. Administration and maintenance are part of the operating budget. 

Annual fees on most REITs are far below one per cent, but investors are more than compensated by annual yields from rental payments that often top five per cent.

Canadian employers face 'resistance' as they seek to increase office days

Holly McKenzie-Sutter, BNN Bloomberg

Hybrid and remote arrangements that became commonplace during the COVID-19 pandemic may not be going away any time soon, but some big Canadian employers want people to clock in from their office desks more frequently.

Nearly three years after the global pandemic set in, sending office workers home with their laptops in hand, public health restrictions have largely lifted, and companies are starting to ramp up their number of mandatory office days. Starbucks, Disney and Twitter are among the global names that recently announced plans to order workers back to corporate offices more frequently in 2023.

Canadian employers are tentatively following suit, but leaders acknowledge they are walking a tricky tightrope as survey data suggests many Canadians would consider changing jobs if forced back to their offices full time.

In an interview with BNN Bloomberg last month, Royal Bank of Canada CEO Dave McKay said his organization is “on a journey to make sure that we're in half or more than half the time in the office,” but also spoke to the challenges of getting hybrid staff back at their office desks for his ideal two-to-three days per week.

“There is resistance, honestly. It's a difficult needle to move,” McKay said.

Some junior and senior employees want to be in the office, he said, while many employees want to “balance their lives” and family obligations. McKay said meeting with employees and hearing their perspectives has been important to the ongoing transition.

“It's really about connecting your organization and making sure we're on the same page at the same time,” he said.

Other Canadian banks said they intend to keep hybrid workweeks, with some adjustments to accommodate people wary of long commutes.

David Noel, senior vice-president of Global HR Services at Scotiabank, said the organization is taking a “purpose-driven” approach to its return-to-office plan, with in-office requirements depending on the type of role and tasks on a given day.

Employee feedback is playing a role in the plans. Noel said Scotiabank is opening two new “community working spaces” in Mississauga and Scarborough this month to accommodate workers who moved further west or east of Toronto during the pandemic, after hybrid employees cited long commutes as a main factor keeping them at home. The new workspaces include “areas for focused work, a flexible area for team meetings or training session, day lockers, printing and a bistro.”

“As the response from employees has been positive, we will continue to take this activity-based approach to work. We also remain committed to testing new and different work options based on feedback from leaders and employees,” Noel said in a statement.

Bank of Montreal said its work models are also “driven by client, job and business needs,” with some workers based in office, others hybrid and some remote.

As corporate Canada tries to accommodate more in-office days, public sector workers are also under pressure to return.

Federal public service workers were mandated to return to the office in January after nearly three years, despite vocal pushback from their union. And next month, City of Toronto employees are being asked to return to their offices for two to three days per week.

In a statement to BNNBloomberg.ca, the City of Toronto said it updated its hybrid work policy as other companies moved to do the same in light of loosening pandemic measures.

The first year of the City’s hybrid work plan, which began in 2022, took a “less prescriptive approach,” the statement said, “which was more reflective of the place the City was at in the pandemic, allowing for physical distancing.”

The union representing city workers, meanwhile, said it’s unhappy with the city’s plan as COVID-19 continues to spread, and workers feel they have been productive enough working at home.

“We are perplexed that the City of Toronto is initiating a mandatory return-to-work scheme for employees who have capably been executing their work tasks remotely,” Casey Barnett, president of CUPE Local 79, said in a written statement to BNNBloomberg.ca

Barnett also noted that COVID-19 continues to pose a public health threat but measures aimed at reducing viral spread have been reduced.

“We are urging the City to reconsider this ill-advised return-to-work plan,” Barnett said.