MICROSOFT G SEARCHES FOR A ONE-SIZE- FITS-ALL SOLUTION

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WEDNESDAY, MAY 8, 2013 SECTION B ......

DISCIPLINED INVESTING, DEPENDABLE RESULTS Report on Business kjharrison.com

EDITOR: DEREK DeCLOET

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S&P/TSX DOW S&P 500 DOLLAR GOLD OIL GCAN 10-YR 12,464.11 (+10.19) 15,056.20 (+87.31) 1,625.96 (+8.46) 99.56 (+0.24) 1,448.80 (-19.20) 95.62 (-0.54) 1.817% (+0.022)

COMPETITION INVESTING In ’s Fears of fare war hit airlines crowded WestJet’s plans to add capacity send shiver through sector – even as record results roll in skyline,

...... GUY DIXON TORONTO The Calgary-based carrier will gins, if airlines are unable to fill Despite those results, the share BRENT JANG VANCOUVER launch its regional subsidiary the extra seats or have to slash price of WestJet declined more sees gold ...... WestJet Encore in late June, just ticket prices to do so. than 7 per cent, down $1.85 to WestJet Airlines Ltd. is heading as Air Canada introduces its new Analysts pushed the company $22.87 Tuesday on the Toronto to the runway with an expanded low-cost leisure carrier Rouge on the capacity question during a Stock Exchange. Air Canada’s ...... fleet, raising concerns that the this summer. first-quarter conference call, in stock price also fell sharply, off TARA PERKINS surge in capacity will lead to a Such extra capacity has the which WestJet unveiled record 7.6 per cent. REAL ESTATE REPORTER renewed industry price war. potential to corrode profit mar- earnings. WestJet, Page 12 ...... Peter Munk says he’s largely out of the real estate game, but he is GLOBAL ECONOMY putting his money in one surpris- ing spot – Toronto condos. The 85-year-old founder and DOWN UNDER’S DOWNTURN chairman of Barrick Gold Corp. – and former head of real estate gi- ant Trizec Properties, which was sold to Corp. in 2006 for more than $5-billion – is now spending some of his personal wealth on financ- ing condo projects in Canada’s most populous city. It’s a contrarian move. Policy makers in Ottawa, including Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney, have suggested that they think too many condos are being built in Toronto’s core. Research firm Urbanation Inc. said Monday that 2,728 new con- dos were sold in the city during the first three months of this year, down 29 per cent from the prior quarter and 55 per cent from the first quarter of 2012. Some devel- opers have shelved project plans amid the sales downturn, and the number of new buildings that opened in the first quarter of this year was the lowest since the third quarter of 2009. The num- ber of unsold units in projects that are going ahead has climbed to 18,845, up 21 per cent from a year ago. But Mr. Munk, who believes in Toronto’s long-term future, is unfazed. “That’s the wonderful thing about the markets; if all of us had A strong currency, triple-A credit rating and a commodities-heavy economy – the same view, we couldn’t afford to buy anything,” Mr. Munk said Australia looks a lot like us. But as Tavia Grant reports, the country’s cooling growth in an interview. “It’s wonderful to and Tuesday’s surprise interest-rate cut doesn’t mean Canada will follow suit. PAGE 13 have opposing views.” Condos, Page 12

BROADCASTING MARKET WATCH Cable’s channel changer: The fight to be Netflix North The Dow at 15,000 Despite another record for ...... the index, investor confidence STEVE LADURANTAYE as Netflix Inc. flix’s success by offering popular Communications Inc. is develop- remains lukewarm. MEDIA REPORTER The streaming video service – titles over the Internet for a low ing a service that would give sub- Page 14 ...... which now has close to two mil- cost. scribers access to movies and Canadian television providers are lion Canadian subscribers paying But that competition has been television shows and is also con- ...... planning to cut their own cords, $7.99 a month for access – is fac- slow to materialize in Canada, sidering developing television Investing Q&A with several of the country’s larg- ing intensifying competition in which has helped Netflix almost series solely for digital distrib- est media companies developing the United States by well-funded double its number of subscribers ution to enhance the product’s John Heinzl takes your questions subscription-based services to cable and technology companies here in the last year. appeal. in a live chat today at noon (ET). compete with online rivals such that are trying to replicate Net- That’s about to change: Rogers Rogers, Page 12 tgam.ca/DqLX

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Better together. B12 • REPORT ON BUSINESS G THE GLOBE AND MAIL • WEDNESDAY, MAY 8, 2013

CD CAPITAL’S PROJECTS ...... TORONTO BUCHAREST HUNGARY & ROMANIA

155 Redpath Sixty Colborne Ma Condos Victoria City Centre EuroMiniStorage

A 470-unit residential condomin- A 300-unit residential condomin- A 150-unit residential condomini- A 350,000-square-foot shopping 2,000-unit, self-storage facilities ium project located in the Yonge- ium project, with retail space on um project located between two centre in northwest Bucharest that CD Capital says have “set the Eglinton neighbourhood. the ground level, located in the green spaces 10 minutes from with direct subway access; it also standard for self-storage in Hun- historic St. Lawrence Market area downtown Montreal and served has 1,900 parking spaces. gary and Romania.” adjacent to the downtown busi- by two Métro stations...... ness core. Source: CD Capital

...... FROM PAGE 1 Condos: ‘For me, it’s a significant amount of money for real estate’

...... “I’m not particularly invest- perial Bank of Commerce econ- 9 ing in condo projects, I’m omist Benjamin Tal. investing with a man who I He estimates that about 31,000 think is absolutely tops,” he households will form annually added. in the Greater Toronto Area The developer that Mr. Munk over the next few years; if that’s is backing is CD Capital, headed the case, then the projected in- by Todd Cowan and Jordan crease in homes in the region Dermer. CD Capital’s projects in- would suggest overbuilding, he clude the 300-unit Sixty Col- said. borne project near the St. Mr. Tal expects that the mar- Lawrence Market, which is yet ket will face its real test in 2014, to be built but launched last when as many as 35,000 units year, and 155 Redpath, near the could be completed, up from intersection of Yonge Street and the average over the past dec- Eglinton Avenue, which is just ade of about 15,000. That would launching. CD Capital has be uncharted territory, he said. teamed up with Freed Develop- However, he expects that ments and more projects are on many projects in the city will the way. Mr. Munk is one of a wind up being delayed. That’s in number of wealthy individuals part because “financing is providing financing for the becoming an issue with the rap- buildings. id pace of development causing Mr. Cowan and Mr. Dermer many lenders to think twice were both previously executives before extending credit.” at Trizec Properties and went on He estimates that condo devel- to be top executives at a joint opers are currently facing a venture it created, TriGranit De- $2-billion to $3-billion financing velopment, whose major share- gap, one that’s mainly having holders included Mr. Munk and an impact on second-tier players British financier Nathaniel Roth- and luxury condo developers. schild. Mr. Cowan became CEO Barrick Gold founder Peter Munk says he believes in Toronto’s future. FERNANDO MORALES/THE GLOBE AND MAIL “The biggest risk that we are of TriGranit, which developed facing is that those investors more than 10 million square PETER MUNK’S REAL ESTATE ADVENTURES their experience to use – along that have been buying condo- feet of properties in Central and with the relationships they had miniums, given the fact they Eastern Europe from 1997 to For someone who says he’s Exotic locales developed with people such as won’t be able to see the same 2006, when he and Mr. Dermer not a real estate guy, Peter Mr. Munk and the Rothschilds – increase in rent, maybe they left the company and returned Munk has built an extensive Mr. Munk is no stranger to to work at home. will bail out,” Mr. Tal said. to Canada to start CD Capital. career in the property market. ventures in far-flung locations. “The vision is to turn CD Cap- For his part, Mr. Munk, a jet- Mr. Munk declined to say how Here are some of his ventures: He and business partner David ital into one of Canada’s great- setter who is behind the devel- much he has invested in CD ...... Gilmour built a hotel empire est developers over the next 10 opment of the world’s largest Capital buildings. “For me, it’s a Big return in the South Pacific. In 1981, to 20 years,” Mr. Cowan said. superyacht marina at Porto significant amount of money for Mr. Munk and his partners While Toronto condo buildings Montenegro, said he also be- real estate,” he said. “I’m not Mr. Munk’s holding company sold Southern Pacific Hotel are no longer selling out over- lieves in Toronto’s future. really a real estate investor.” acquired real estate firm Tri- Corp. for $130-million (U.S.). night, the market’s long-term “Look at Beijing, look at all “I can’t recall having met a zec Corp. for $750-million in ...... prospects are strong, he and Mr. the money. I’ve got friends who young executive with the poten- 1994, followed by an aggres- The next Monaco Dermer said. “We think the city have got kids there, tremendous tial and track record, at his age, sive buying spree that in- is backed by a very strong rental job opportunities, and the kids of Todd Cowan,” Mr. Munk cluded the purchase of Mr. Munk has a vision for Tiv- market and continued inward will come back because they added. “When he says condo, I ’s Sears Tower. In 2002, at, a coastal town in Montene- migration,” Mr. Dermer said. He can’t breathe the air,” he said. invest in condo.” the company renamed itself gro: He wants to make it the added that the Yonge and Eglin- “You go to London – one of my Mr. Cowan was 28 when he Trizec Properties and became next Monaco. He and a group ton area, which will be served daughters lives there, and it’s so moved from Canada to Budap- a real estate income trust. of investors are transforming by a new light-rail transit line, is overpriced that it’s sick-making. est in 1996 to help get TriGranit Four years later, it was pur- the industrial port into a luxu- ripe for development. New York has got tremendous off the ground. The company chased for $4.8-billion (U.S.) ry marina/playground for the But other investors are in- attractions, but it’s also got a continues to be one of the larg- by Brookfield Properties Corp. superrich known as Porto creasingly reluctant to make the hell of a lot of problems. Look est fully integrated real estate and buyout firm Blackstone Montenegro, where weekly bet that Mr. Munk is making. at the traffic – I have an office firms in Europe. Mr. Cowan, Group. At the time, Trizec’s rates for apartments range be- Toronto has more high-rise real there and you can’t go across. who took a year off when he portfolio included 61 U.S. tween €850 and €10,000 estate buildings on the go than “Toronto is absolutely unique. moved back to Canada, said he office towers. Mr. Munk netted ($1,100 to $13,000). any other city in North America It’s not flawless, but it’s so and Mr. Dermer wanted to raise more than $320-million (Ca- ...... and with nearly 60,000 units much better than the possible their families in this country, nadian) from the sale. Matt Lundy under construction, activity is at alternatives … and felt that they could put a record high, said Canadian Im- “I will die here.”

FROM PAGE 1 FROM PAGE 1 Rogers: Traditional TV a key driver of profit WestJet: Fare wars are feared

...... The product could compete content online. WestJet is stoutly defending gears up to attract leisure travel- 9 with similar offerings from Mr. Purdy spoke about the pro- 9 its expansion, with chief ex- lers, notably through starting companies such as Bell Media ject in the midst of hearings into ecutive officer Gregg Saretsky say- Rouge, the extra capacity is and Videotron, which has already It’s my belief that all major BCE’s $3-billion purchase of ing the economy will be strong expected to put downward pres- developed and marketed a [broadcasters] will roll out a Astral Media Inc. Executives enough to support the additional sure on ticket prices. A familiar French-language Netflix alterna- from both BCE and Astral argued capacity. “So we’re putting a little pattern has emerged in the air- tive available in Quebec and On- Netflix competitor. to the CRTC that the deal was bit of our foot to the accelerator line industry – just as carriers tario. necessary for the companies to because of the continued strong find a measure of financial health The companies don’t intend to David Purdy compete with so called “over-the- macroeconomic environment through higher ticket prices, they get out of traditional television, Rogers’ vice-president of digital top” providers such as Netflix. and the results that we’re enjoy- then aim to increase market which is a key driver of profits television products Cord cutting – in which custom- ing,” Mr. Saretsky said during a share by adding seat capacity, with 12 million Canadian house- ers cancel their subscription in conference call on its better-than- effectively driving down airfares holds paying for some level of favour of online alternatives – is expected first-quarter results. and squeezing already thin mar- service. But they want to sign up “Our underlying fundamental increasing in Canada, but is still He said the airline ran its planes gins for operations. former subscribers who have opt- thesis is there will be more than in its infancy compared to coun- too full last year, giving up poten- WestJet’s first-quarter profit was ed out of traditional subscription one Internet TV competitor,” tries such as the United States. tial customers it could have won $91.1-million or 68 cents a share, packages while at the same time Evercore analyst Alan Gould said. But the cable and satellite com- had there been more capacity. compared with $68.3-million or reinventing themselves for a “Internet TV is growing rapidly panies are increasingly concerned “We’re going to do whatever we 49 cents in the same period a year more digital future. and Netflix is the clear leader in that customers will find content can to bring the right amount of ago, better than most analysts “It’s my belief that all major the market; however, we are elsewhere, and they want to de- capacity to the marketplace, and had expected. [broadcasters] will roll out a Net- highly skeptical of Netflix reach- velop their own alternatives be a fierce competitor ourselves.” WestJet executives said they be- flix competitor,” said David Pur- ing even the low end of the 60-90 before customers can walk away Mr. Saretsky said the capacity lieve that the current second dy, vice-president of digital million subscribers that manage- and spend their money with a WestJet is bringing to the market quarter will also be strong, des- television products at Rogers. ment has projected [worldwide].” competitor. should enable the airline to still pite the added cost of more seats “It’s a common strategy to try Netflix had no comment. The companies argue that Ca- generate a sustainable 12-per-cent flown with the new WestJet and figure out how to roll out Rogers already offers its cable nadian companies must be able return on invested capital. Encore. But the added capacity products that allow viewers to subscribers online access to to compete, because a portion of Air Canada and WestJet are in has some observers worried binge watch and to offer all-you- much of its programming. But it the money they generate from growth mode. WestJet’s seat ca- about the prospects for further can-eat movie services.” wants to develop a separate prod- subscribers goes back to Cana- pacity climbed to two billion strong results. In the United States, a handful uct that would allow those who dian productions. BCE has pre- available seat miles (ASMs) last “So investors are thinking, of companies are looking to steal don’t subscribe to its cable pack- viously said it intended to month, up 7.4 per cent from a ‘Well, your load factor is falling, business from Netflix with their age to pay for vast collections of develop a Canadian Netflix, but year earlier. Air Canada’s year- but you’ve got this huge amount own offerings. Amazon.com has movies and archived seasons of needs to buy Astral to make it over-year capacity for April rose 1 of capacity growth. Are you going launched a video-streaming serv- popular television shows. It could happen. per cent to 5.3 billion ASMs across to be able to fill that capacity ice, joining television and tele- compete with Netflix to buy Ca- “Netflix is just one prominent its system worldwide, with do- profitably?’ ” said Robert Koko- communications powerhouses nadian rights in some cases, or example of the kind of scale mestic ASMs up 3 per cent. nis, president of aviation consult- such as Comcast and Verizon. share rights when Netflix isn’t the being brought to bear on Cana- Both airlines have been posting ing firm AirTrav Inc., who also There is speculation that as more exclusive carrier. da’s industry, challenges to our impressive traffic numbers. West- said the selloff in WestJet stock competitors fight to secure rights Companies such as BCE Inc., business that we believe we must Jet’s April load factor, or the pro- was an overreaction. to online programming, the price Rogers and Videotron are partic- meet head-on by expanding our portion of seats filled by paying ...... of such services will increase ularly well suited to launch serv- own scope and scale,” said Astral customers, was 82.7 per cent, With files from The Canadian Press exponentially and make it more ices because they also own chief executive officer Ian Green- while Air Canada enjoyed an ...... difficult for low-cost offerings television stations, making it eas- berg. “That’s what this transac- April load factor of 82.1 per cent. WestJet (WJA) such as Netflix to compete. ier for them to access exclusive tion enables.” As Montreal-based Air Canada Close: $22.87, down $1.85