10 December 2012

TD Bank Makes Big Money Off Real Estate Banking

The Globe and Mail, Tim Kiladze, 10 December 2012

The hot real estate market is boosting the fortunes of Toronto-Dominion Bank.

More than any other Canadian bank, TD has tied itself to the real estate market, ramping up corporate lending to the sector and cashing in on a flurry of equity offerings for real estate investment trusts.

As of early December, the bank’s capital markets arm ranks third in the overall equity league tables, according to Bloomberg, but has the highest share of real estate equity deals, topping even league table leader RBC Dominion Securities. In calendar 2012, TD’s share of equity offerings – after splitting co-lead status amongst all bookrunners – is about $1.6-billion. RBC’s share, which is the second highest, is just north of $1.4-billion.

The same story played out last year, as real estate underwriting helped drive TD to the top of the equity league tables.

TD can thank the Dundee family of REITs for its success. Nearly two-thirds of TD’s $1.6-billion share of real estate deals came out of Dundee REIT, Dundee International REIT and Dundee Industrial REIT.

But the bank is also heavily weighted to real estate in its corporate lending book. As of fiscal year end, TD had about $33-billion in loans outstanding to real estate companies, comprising 31 per cent of its total corporate and government loan book. That’s the highest total and percentage in the Big Five. Bank of Nova Scotia’s loans are more heavily skewed to financial services and retail, while Bank of Montreal’s are more heavily weighted toward service industries and manufacturing.

RBC – TD’s biggest rival – currently has about $21-billion of loans outstanding to real estate companies, comprising about 23 per cent of its corporate lending book.

The question now is how much longer the strength will last. While the real estate sector in Canada has been incredibly hot and retail investors still can’t get enough of their REITs, every sector has its ebbs and flows. Nothing stays hot forever. Just look at the dearth of mining deals for proof.

However, on the corporate lending side, about 30 per cent of TD’s real estate loans are to U.S. companies. Expanding that business could pay off if the U.S. real estate recovery takes shape the way so many people expect it to.