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For the past few weeks, Boardwalk Real Estate Investment Trust, one of the country’s largest rental apartment landlords, has been a rare bright spot on the Prairies.

Kevin Van Paassen/The Globe and Mail

Canada's largest residential landlord is the most-shorted company in North America as investors bet it will bear the brunt of a slow economic recovery in the oil-dependent region.

Short interest in Boardwalk Real Estate Investment Trust is at 37 per cent of its free float, or outstanding shares not held by insiders, the most shorted stock on Canada's S&P/TSX Composite Index, Markit data compiled by Bloomberg Wednesday show. That's higher than Marriott International Inc., the most-shorted company on the S&P 500 with 35 per cent of its stock shorted. Short sellers profit from price declines by selling borrowed securities and replacing them with shares bought at cheaper levels, pocketing the difference.

Investors are speculating that the Calgary-based apartment owner will face sliding rents and rising vacancies as energy companies cut jobs and employees leave the province of Alberta, which according to Toronto-Dominion Bank is going through one of its worst economic downturns on record. Boardwalk is just the latest Canadian real estate company in the cross-hairs of short sellers, who in the past three years have been wagering on a cooldown in the country's fractured housing market.

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Roberto Geremia, Boardwalk's president, said the short sellers are likely U.S. hedge funds with a call based on their macroeconomic view rather than anything specific to the company's operations. Boardwalk has been talking to investors for at least a year about the rise in short positions, and telling them the same thing.

"The view in the world is that Canadian housing prices are in a bubble, the Canadian dollar is under pressure, and oil is too -- we're maybe one of three companies that fit all the above," Mr. Geremia said by phone on July 21. "Even in the current environment, renting is the most affordable housing option, and people will keep renting." Mr. Geremia said his understanding is that the hedge funds are preparing for Boardwalk shares to fall to about $45, or 19 per cent lower than the July 26 closing price of $55.31.

Short bets climbed along with the deepening of Alberta's recession, prompted by the fall of crude oil to about $45 a barrel from more than $100 two years ago. The province's real gross domestic product is set to contract three percentage points this year, bringing the decline for 2015 and 2016 to 6.5 per cent, more than any of the prior four recessions, according to the July 18 report from Toronto-Dominion Bank.

Alberta is Boardwalk's largest region, home to 60 per cent of the company's apartment units generating 70 per cent of its net operating income. Boardwalk's rental revenue in the province fell 3.3 percent in the first quarter from a year earlier, the company said in a report. Monthly rents slid 3.7 per cent to $1,257 in the period and the company gave out more incentives than planned to keep tenants, such as free renovations. Meanwhile, the average rent in Alberta's general market rose 1.4 per cent to $1,149 a month as of October, according to the most recent Canada Mortgage & Housing Corp data.

The freebies helped keep Boardwalk's towers more full than others, with only 1.8-per-cent vacancy in Calgary and 2.8 per cent in Edmonton, compared to 5.3 per cent and 4.2 per cent for the rest of the market respectively, according to the latest annual CMHC figures.

As Alberta's market cools, Canada's two largest cities are so hot it's prompted cautionary calls from regulators, the government, international organizations and even lenders. Home prices have been on a tear, up 50 per cent in Vancouver and Toronto in the last five years, according to the Canadian Real Estate Association.

The disparity and risks, such as overleveraged consumers and influence of foreign buyers, caught the eye of U.S. short-sellers even three years ago, such as Steve Eisman, now managing director at Neuberger Berman Group LLC. Until the start of 2016, Home Capital Group Inc., one of Canada's biggest non-bank lenders, and Genworth MI Canada Inc., it's largest private mortgage insurer, were the top two shorted stocks in the country.

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"If you want to short the housing market there aren't a lot of ways to do it," said Jimmy Shan, an analyst at GMP Securities. "If you've gone through what you've gone through in the 2008 U.S. recession, it makes sense that you would think that way." He has a hold rating on Boardwalk.

Boardwalk's biggest external shareholder is sticking behind the company.

"It's the largest real estate company with the greatest exposure to Alberta -- you put those two things together and that's where people might be wagering it's a good way to play the downside in Alberta," said Michael Missaghie, who helps oversee C$18 billion as vice president and senior portfolio manager at Sentry Investments Inc., owner of about 9.3 percent of Boardwalk shares, according to data compiled by Bloomberg. "To us it doesn't make sense. The occupancy and rent has not been as negative as its stock would imply."

While Alberta's output slump will be deep, Toronto-Dominion forecasts employment to decline by just 3 per cent from its quarterly peak in 2015, with the unemployment rate holding at about 7 per cent to 8 per cent. Net job reductions during the 1982-83 slump were double that.

Boardwalk has rallied 17 per cent this year and was up 0.4 per cent to $55.36 at 9:41 a.m. in Toronto for a market value of $2.88-billion. It's still trading about 23 per cent below it's high of C$71.40 in 2014, before the price of oil dropped.

"Operationally, we're not being affected by the short interest," said Geremia, Boardwalk's president. "I'm not sitting here worried about short interest on the stock. The underlying fundamentals are what's important."

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