How e-commerce upswing is disrupting REITs

How e-commerce upswing is disrupting REITs


For nearly 20 years, strong demand for office properties in major city centres around the world has driven a lot of the total returns in the REIT space, “at least for the period up until the Great Recession,” says portfolio manager Chip McKinley.

Listen to the full podcast on AdvisorToGo.

Structural changes related to regulation, technology and demographics are now leading to a shift, says McKinley, who’s senior vice-president and portfolio manager with Cohen & Steers in New York.

“The ability to work remotely [is] having a big impact on demand for office space,” he says, noting that such changes “are forming longer-term headwinds [for] office properties, especially in big financial markets like New York and London.”

The real estate investment community has a lot of questions about how these changes will affect the performance of REITs, says McKinley, who manages the Renaissance Global Real Estate Fund, among other real estate funds.

One thing he does know is that even though history often repeats itself–especially in cyclical sectors—“even solid past returns don’t have any bearing on future returns because […] where those returns are generated from may or may not persist.”

Read: Why real estate investing beyond Canada can pay off

Demand for traditional office space properties is likely to continue to fall, meaning returns in the REIT space will come from another source, McKinley says. Banks and other financial services firms are trying to rationalize costs, he says, and that includes “rental costs on their offices. They’re trying to cram more people into the same space, and this basically diminishes total demand for office space in some of the [big] city centres.”

Read: Own a mall REIT? Don’t count on nice stores to boost value

He’s all right with that. The main reason is “there are other property types that are experiencing cyclical upswings, or even structural or secular upswings that can actually lead returns for the next 10, 20 years,” says McKinley. “Property types that come to mind are things like data centres and cell towers, and even logistics warehouse space.”

The common thread that ties all of these properties together is the rise of e-commerce.

As McKinley explains, the shift from brick-and-mortar business models and retail properties is largely driven, in the U.S., by “the disruptive force of Amazon” and other similar players.

On the upside, “A lot of those gains are being handed over to the e-commerce retailers, which all depend on the different property types that are suited to their businesses.” In other words, e-commerce retailers have different needs than traditional retailers, and the warehouses and properties they use reflect that.

McKinley is monitoring demand for cell towers. “To a lesser but still very significant extent, cell towers are becoming more prominent. A lot of people are doing banking and everything else on cellphones and, as new and faster networks are being rolled out, we will conduct more and more of our lives on mobile devices.”

The impact is likely to be increased demand for cell towers as well as the need for more spaces that store and process data. Says McKinley: “We’ll continue to see demand accelerate for the indefinite future.”

He’s also watching “the massive global shift from on-site servers for data storage and processing to the cloud, which is really nothing more than a massive number of servers that are owned by the likes of Amazon, Google and other companies.” Those servers require physical data centers, so demand for those “is absolutely massive, and there are REITs that own, operate and capture the economics for all of the new, different property types.”

For more on real estate, read:

China pullback could hurt Canadian housing

Commercial real estate in Toronto to heat up

Hard assets have become the best assets: Avison Young CEO

Published at Thu, 16 Nov 2017 00:00:55 -0500 Australia Says TPP11 Deal 90 Percent Complete Australia Says TPP11 Deal 90 Percent Complete

by Mary Swire,, Hong Kong

14 November 2017

Australian Trade Minister Steven Ciobo has said that there are “the very strong core elements of a deal” on a new Trans-Pacific Partnership (TPP) that does not involve the US.

In an interview with ABC, Ciobo described the agreement as “90 percent completed.” Ciobo noted that there remain a number of outstanding issues, in particular ones that Canada has raised, and that ministers will “work diligently through those.” Ciobo added that he was “confident that we will be able to reach an agreement in the not too distant future.”

Ciobo noted that the Canadians had decided not to attend a leaders’ meeting on the proposed TPP-11 at the recent APEC ministerial meeting. Ciobo had at the time described this as a “disappointing development.”

He said that at one stage an agreement had been reached between the 11 trade ministers, which was then recommended to the countries’ respective leaders. Canada’s objections led to the cancellation of the planned leaders’ meeting.

Ciobo explained that the “main issue” raised by Canada is one relating to “a cultural exception.” He said that Canada would like to “carve out elements of their broadcast policy, for example, to allow for French-speaking language.”

When pressed as to whether the concerns were reasonable ones for Canada to raise, Ciobo replied that “we can accommodate the various positions that are put forward by people.” He stressed that he and his counterparts “all feel that we can accommodate the various little crests that are still outstanding.”

Published at Mon, 13 Nov 2017 19:00:00 -0500

Travel like a pro in your client’s private plane

Travel like a pro in your client’s private plane


Travelling by private jet is—literally—the height of luxury. A private aircraft lets flyers control their own time (and take full-sized toothpaste tubes in their carry-ons). “You can leave when you want. You have access to more remote locations. You can fit in multiple stops in a single day. There’s no parking, no waiting in line, generally no security checks,” says Mike Zaporzan, a private pilot who owns and operates Winnipeg-based Jetz Aviation Ltd., which acquires, sells and manages aircraft for high-net-worth people and companies. “You just can’t do that on a commercial airline.”

So if your client invites you to a little haven in the sky, consider it an honour. Whether it’s a short pleasure jaunt in a four-seat Cessna Skylane, a business meeting on board a luxuriously equipped Bombardier Challenger 350 or the offer of an extra seat on a ski trip to Boulder in a Beechcraft King Air 200, here’s what you need to know for a successful trip.


Generally, the same business etiquette applies whether you’re on the ground or in the air: dress appropriately, show up on time, take your host’s lead, go light on the alcohol. Airplane owners also have their own preferences for what’s appropriate, says Zaporzan, who pilots a corporate aircraft in Winnipeg. So follow your host’s lead: what’s completely acceptable on one airplane may not fly on a different one.

Ask your host (or host’s assistant) about dress codes and other preferences. Some owners won’t allow dark denim (it can stain light-coloured leather seats). When in doubt, go for business casual.

And this isn’t the time to overpack. The more passengers and bags there are, the less fuel a plane can take on, leading to more refueling stops. Pilots weigh these factors as they create flight plans, says Zaporzan. Ask your host how much you can bring, and use a soft-sided bag rather than a hard suitcase, which makes it easier for the crew to stow your bags.

Baggage compartments on some smaller aircraft often aren’t pressurized, so don’t pack that bottle of wine in your suitcase, where it could explode. Instead, bring it on board to share on a pleasure flight or at the end of your business meeting. Stick to whites, though: a Merlot or Pinot Noir spilled during a patch of turbulence could stain the interior.

Once on board, ask your host before taking a seat. Often, the owner of an aircraft will have a preferred seat—usually near the on-board entertainment and temperature controls.

On smaller planes, like Jim Wilson’s Cessna Skylane, leave the food on the ground. “Turbulence can make it messy,” says Wilson, who’s a CFP and partner at North West Capital Partners in Winnipeg. On flights longer than a few hours, he’ll bring snacks.

On longer flights in larger private jets, it’s perfectly acceptable to bring food to share (maybe a box of good chocolate or a fruit platter), but steer clear of aromatic or highly seasoned foods: in a small space, the scent may be overpowering. For the same reason, avoid heavy perfumes or colognes.

It’s always a courtesy to be on time to any client meeting, but it’s especially important for international flights, says Wilson. These flights must cross the border within 15 minutes of the time estimated in the flight plan, he explains, or there could be trouble: “We don’t want to be chased by F-16s.” For international flights, your host will ask for your passport information, date of birth and other details at least a day or two in advance.

On the way home from a cross-border trip, declare everything, including foodstuffs, souvenirs and the spoils of your shopping spree. Even private aircraft must go through customs, and pilots check in with the CanPass program in advance to make declarations. Let the pilot know exactly what you’re bringing on board and provide a credit card number to pay for duties.

“Customs is great with private airplanes,” says Zaporzan. “But when you don’t make a declaration and try to get away with it, somehow they tend to show up and you get busted.” Cheating customs won’t only make you look like a jerk—it could also result in fines for the aircraft owner and a record for the company.

One of the biggest perks of private travel is the privacy and security it provides. When you own the plane, you know everyone on board, and the public (including competitors or potential security threats) can’t easily track your comings and goings. That’s why it’s important to ask before taking photos of the plane—and especially before posting those photos to social media. Your host may not appreciate you disclosing his vacation in Key West, or the fact that her home is currently empty. If you do have the go-ahead, don’t photograph the plane’s registration number, and save shots for private use only.


What about payment? If you’ve been invited on a private pilot’s personal plane, don’t offer to pay for a flight. By law, private pilots aren’t allowed to accept payment for taking people in their own aircraft. If your client is doing you a favour—say, transporting you to and from a business meeting in a remote location—you’re permitted to cover the cost of fuel, but be prepared to have your offer refused. Better to show your appreciation by arranging for dinner out or tickets to sporting or cultural events. Wilson has occasionally shuttled clients to hearings and meetings in northern Manitoba, saving them hours of driving time and overnight stays. He sees these flights as a chance to develop relationships and provide a valuable service, and doesn’t accept offers of reimbursement.

If, like Wilson, you happen to be a private pilot, you probably already know some of the business advantages of flying your own plane. Wilson flies regularly to his growing base of clients in Calgary, and can visit his clients in remote locations. He often takes clients up in the air as a way of marking milestones like birthdays or graduations. Flying, he says, has absolutely made him a better financial advisor.

“Aviation is absolutely ruled by checklists and risk planning,” Wilson says. “My practice [uses checklists], because they’re so beneficial to make sure I don’t miss anything. In terms of risk planning, you do absolutely everything you can on the ground to minimize the chance of anything going wrong once you’re in the air. And you plan for things going wrong as well. That’s certainly transferred over to how I handle clients’ affairs.”

Published at Tue, 14 Nov 2017 14:04:57 -0500 Canada Announces Cannabis Tax Plans Canada Announces Cannabis Tax Plans

by Mike Godfrey,, Washington

13 November 2017

The Canadian Government has launched a consultation on a proposed excise duty framework for cannabis products.

In April, the Government introduced legislation to legalize, regulate, and restrict access to cannabis. The accompanying federal excise duty framework is intended to be in place once legal cannabis for non-medical purposes becomes accessible for retail sale, no later than July 2018.

According to the Finance Department, “The proposed level of taxation is intended to keep prices low to eliminate the black market.”

The proposed framework will impose an excise duty that is the higher of a flat rate – for example, an amount per gram – applied on the quantity of cannabis contained in a final product for sale, or a percentage – i.e., an ad valorem rate – of the federal licensee’s sale price of the product it has packaged.

The Government intends that the combined rate of federal and provincial-territorial taxes for cannabis flowering material contained in a final packaged product should not exceed CAD1 per gram, or 10 percent of the producer’s sale price of that product, whichever is higher. The proposed federal excise duty rate would therefore be 50 cents per gram of cannabis, or five percent of the producer’s sale price.

The duty would apply to all cannabis products available for legal sale. This would include fresh and dried cannabis, cannabis oils, and seeds and seedlings for home cultivation.

Products would also be taxable under the goods and services tax/harmonized sales tax, as is currently the case for medical cannabis.

The consultation will close on December 7.

Published at Sun, 12 Nov 2017 19:00:00 -0500

How to increase returns by 1.5%

How to increase returns by 1.5%


At the end of 2015, the S&P 500 had a 20-year annualized return of 8.2%. In contrast, actual investor return was 4.7%, reveals research from Dalbar Inc.

Why the 3.5% difference?

Some can be attributed to a lack of cash or a need to remove capital from the market (1.2%); some, to fund expenses (0.8%). The rest — 1.5% — can be blamed on investor behaviour.

“Based on this study, investor behavior was a bigger drag on performance than fees,” notes a Richardson GMP report.

To better understand behaviour, consider that sub-optimal decision-making is affected by both cognitive and emotional biases. The former impact perceptions, while the latter are due to distorted reasoning.

Read: Save clients from emotional mistakes

“Depending on what type of investor you are, some [biases] may be more applicable to you than others,” says the report.

For example, if you outsource investments, you might be more likely to suffer from loss aversion, status quo bias or framing.

Read: What happens when advisors use robos

“The good news is nobody suffers from all of them,” says the report. “The bad news is it is hard to know when each bias may impact your investment process.”

Read: OSC report aims to put investors on their best behaviour

Learning more about potential biases can help you identify and defend against them.

How to control loss aversion

For example, loss aversion can lead investors to sell winners and hold on to losers.

That’s because the pain of loss is acute. Contrary to rational economic theory, such pain is about twice the pleasure experienced from an equal-sized gain.

To overcome this problem, remove the original investment cost from your decision process, says the report, and consider current market values and portfolio weights.

“For poorly performing investments, consider if the future prospects of the investment have changed or does the original thesis for owning still hold. Sometimes it’s just the cycle of the markets.”

For tips on defending against confirmation bias, read the full report.

For more insight on investor psychology and the consequences for investing, read the Dalbar research.

Published at Mon, 13 Nov 2017 16:19:39 -0500

What to look for in the week ahead

What to look for in the week ahead


Get ready for a U.S. tax policy showdown, as well as a Canadian inflation report card, says Scotiabank’s Derek Holt in his latest week ahead report.

Holt, who’s vice-president and head of capital markets economics for Scotiabank, offers the following tips and commentary in his global recap of what’s to come in the near term. 

Inflation, housing data and more earnings for Canada. Next Friday will see the release of another inflation report and, as Holt writes, “[…] most of the week’s focus in terms of the Canadian currency and rates markets will be upon whether continued progress on inflation is achieved.” He expects inflation to ease to 1.3% year over year, compared to 1.6% in October, reinforcing “near-term dovishness at least from a headline perspective, with the usual uncertainty regarding core inflation.” 

Housing data “will be of more interest to housing observers than to markets,” he says, “given markets never trade off of existing home sales […] or the Teranet repeat-sales house price yardstick for the same month, also released on Wednesday.” 

Other events of note for the Canadian markets: bond markets are closed on Monday in honour of Remembrance Day, and Bank of Canada senior deputy governor Carolyn Wilkins will give a speech on Wednesday about monetary policy uncertainty. 

Tax kerfuffle will overshadow data releases in U.S. Confrontation over what Holt calls “duelling tax proposals” is in the cards for next week, alongside “some key data releases that are expected to be on the softer side, Fed-speak and retail-focused earnings.” Holt forecasts elevated market risk. 

Avery Shenfeld, managing director and chief economist for CIBC Capital Markets, recommends in his weekly report that investors and economists wait to assess the tax proposals. He writes, “There will be a point at which investors and economists need to get into the weeds of the reforms, but we’re going to have to wait to see plan C, or plan D, before it’s worth the bother.” 

He expects U.S. tax reform to be more of a 2019 story, meaning there should be “no need, then, to rush to bring in major changes to our existing U.S. growth forecast, or Fed projections, for the coming year.”

Read: U.S. Senate Republicans would delay major corporate tax cut

Central bank action in Latin America, and U.S. spillover. Says Holt: “Chile’s central bank and Colombia’s economy may be the key focus in terms of local [Latin American] market developments, but the risk of spillover effects from U.S. political developments is probably going to be the more dominant consideration over the coming week.”

Inflation, jobs and economic data from Europe and Asia. Two things to watch in Europe are U.K. inflation and the German economy, says Holt, along with Japanese growth, Australian jobs and “a wave of macro data” from China.

For more, read the full Scotiabank report. Also, read the CIBC report.

For more news, read:

 Markets hitting highs? Don’t panic

Poloz explains temporary drag on inflation

Slower growth for Canada in 2018

Published at Fri, 10 Nov 2017 13:00:33 -0500

Why BMO Life Assurance’s credit ratings are stable

Why BMO Life Assurance’s credit ratings are stable


A.M. Best says its credit ratings for BMO Life Assurance Company (BMOLAC) are stable. In a release, the insurance rating agency says BMOLAC has an excellent financial strength rating and a long-term issuer credit rating of “a.”

BMOLAC underwrites a full suite of individual life insurance products, including term life, whole life, universal life, critical illness, structured settlements and annuities. The company also has a pension risk transfer business.

A.M. Best attributes the company’s ratings to its “positive operating performance, more-than-adequate risk-adjusted capitalization, diversified product offerings and its commitment to enterprise risk management.” It also benefits from “a solid market position in certain niche product lines,” the agency says.

Still, A.M. Best notes BMOLAC will likely face difficulties as it tries to “increase its market share and achieve meaningful scale in Canada’s highly concentrated life insurance marketplace,” among other challenges.

For more on insurance, read:

Why mortgage life insurance may not be the best bet

How life insurance dispositions are taxed

Published at Fri, 10 Nov 2017 13:02:37 -0500

After breach and profit slump, Equifax execs losing bonuses

After breach and profit slump, Equifax execs losing bonuses


A day after posting sizeable profit declines due to a massive data breach, Equifax says it expects to incur related costs of between $60 million to $75 billion in the current quarter.

The Atlanta-based company reported a 27% slump in third-quarter profit, largely due to a hack that exposed the personal information of 145 million Americans.

Opening a conference call Friday, interim CEO Paulino do Rego Barros Jr. apologized again for the data breach, and said executives will not be receiving bonuses.

Equifax Inc. is trying to keep clients from fleeing and also outlined ways in which it is strengthening security. It revealed Thursday that it received subpoenas from the U.S. Securities and Exchange Commission related to trading in company shares by executives around the time of the breach.

Published at Fri, 10 Nov 2017 13:06:01 -0500

Marijuana tax proposal out for comment

Marijuana tax proposal out for comment


Those who plan to purchase legal marijuana next year will also be paying the taxman — to the tune of at least $1 for every gram, plus GST.

The proposed federal tax scheme, announced Friday, will be available for public comment until Dec. 7, 2017, as Canada prepares to legalize the drug by next summer.

To check out Finance’s proposal in full, click here (section three provides an overview of the proposed cannabis duty base and design, and section 10 and 11 discuss implementation of the framework). Finance’s official press release is here.

The plan would add an excise tax of $1 per gram or 10% of the final retail price, whichever is higher, with the revenues to be divided equally between Ottawa and the provinces.

Read: As marijuana rules become clearer, risks remain

“I’m very comfortable that the level of taxation that has been determined as appropriate in this case achieves our goals of keeping the price sufficiently low to be competitive with an illicit market, while at the same time not creating an incentive for the consumption and purchase of this drug,” said Liberal MP Bill Blair, the government’s point man on legalizing marijuana.

“It’s a matter of finding the right level of taxation and price in order to achieve both of those very important public purpose aims. I believe that the work that we have done sets a very appropriate level.”

GST will be also be applied, so if the retail price of a single gram of pot is $8, consumers would pay a $1 excise tax and $1.17 in GST for a total of $10.17.

Read: New Brunswick unveils plan for sale of marijuana

The taxes would be levied on both on fresh and dried marijuana, pot-infused oils and seeds and seedlings used for home cultivation.

The 50-50 tax revenue split idea has already rankled at least one premier who complained that the provinces won’t be getting a fair share, considering they will be doing the bulk of the heavy lifting on legalization, including policing, distributing and regulating the sale of marijuana. That was B.C.’s John Horgan.

The discussions are still ongoing, said Blair, noting that the consultation period will end just before the provincial and territorial finance ministers gather Dec. 10 and 11 in Ottawa to sit down with federal counterpart Bill Morneau.

“It is part of an ongoing discussion that our finance minister is having with his counterparts, provincially and territorially,” Blair said. “It would be inappropriate of me to presume the results of the discussions that are currently taking place […] there is still work to be done in the consultations.”

Municipalities, too, have recently indicated they deserve a share of the revenues.

“We have recognized right from the outset that municipalities are an important stakeholder, and that they have a significant role to play in ensuring that the regulatory regime that is put in place is effective in achieving our public purpose aims, of protecting kids and keeping communities safe,” Blair said.

“As I’ve travelled across the country, I’ve always made a point in virtually every town I’ve gone into to go and meet with the mayor and the local chief of police to hear that perspective, and we’ve carried their concerns back, and we’ve responded to that already in a quite significant way.”

The government has already committed resources to municipalities, including $81 million for municipal and Indigenous police services to help offset the cost of additional training and resources, he added.

Read: Ontario to sell marijuana in LCBO stores after legalization

Early responses

Patient advocate groups and a licensed producer are fuming over the government’s proposals.

Canadians for Fair Access to Medical Marijuana and the Arthritis Society say medical pot should be treated the same way as all other prescription medications, meaning it should be exempt from taxation.

The executive vice-president of licensed producer Aurora Cannabis Inc. said Ottawa’s proposal unveiled today unfairly penalizes patients, calling it outrageous and wrong.

Cam Battley says sick people do not need the additional cost burden, and patient advocates have long been calling for the removal of existing sales tax on the drug as well.

Liberal MP Bill Blair says the federal government plans to tax both medical and recreational cannabis equally because it does not want to create an incentive for people to misuse the system to seek out cheaper product.

Published at Fri, 10 Nov 2017 13:49:10 -0500

More women on boards is ‘high priority’ for CPPIB

More women on boards is ‘high priority’ for CPPIB


Canada’s largest retirement fund manager is pushing to have more women on corporate boards because diversity makes for better business decisions, CPPIB chief executive Mark Machin said Friday.

“This is a high priority for us,” Machin said in an interview after Canada Pension Plan Investment Board released its second-quarter financial report. “We think that diversity leads to better decision-making and I think there’s a growing body of academic and practical evidence that leads to that [conclusion].”

As a result, CPPIB — which manages more than $325 billion for the Canada Pension Plan — voted 34 times this year against specific directors who chaired board’s nomination committees that failed to include women as candidates.

Although none of the 34 targeted directors were defeated, Machin said that CPPIB believes it has a responsibility to take a leadership role and “would encourage other people to do the same.”

The CPPIB, itself, has an equal number of male and female directors on its 12-member board, which is chaired by Heather Munroe-Blum, a former president of McGill University.

Machin said he thinks there’s broad support in Canada for gender-parity but acknowledged that it can take a long time to change a board’s makeup for various reasons, including the desire for stability and the right set of skills among directors.

“But when you actually push on it, I find that some of those can melt away,” Machin said.

Earlier Friday, the CPPIB announced a slight increase in its net asset value of its CPP Fund, as positive international stock performances were moderated by negative Canadian bond and foreign currency returns.

The fund’s assets were $328.2 billion at the end of the second quarter compared to $326.5 billion at the end of the first quarter of its fiscal 2018.

CPPIB took in $2.3 billion in net income after all costs, less $600 million in net pension plan outflows to the Canada Pension Plan — a national program funded by contributions from employers and employees.

On an annual basis, the Canada Pension Plan puts more into the CPPIB’s funds than it takes out but the flow routinely goes the other way during the second half of the calendar year.

The portfolio garnered net nominal 10-year returns of 6.9 per cent and five-year returns of 11.8%. Those results are above the 3.9% average return required to sustain benefits for 75 years.

Still, the CPPIB acknowledged that its second-quarter returns were eroded by a strengthening Canadian dollar.

The loonie rose 6.6% against the U.S. dollar over the past six months, as it does not hedge foreign currencies back to the Canadian dollar.

Published at Fri, 10 Nov 2017 15:58:20 -0500