CIBC real estate analyst moving on
Alex Avery leaving ‘ high-intensity job’ after a dozen years
Friday will be an unusual day for Alex Avery, a real estate analyst at CIBC World Markets: for the first time in the past 12 years Avery will not be reporting for duty.
Avery, who heads a five-person-strong analyst’s team, has resigned: In fact he resigned May 1 but because of his managing director rank was required to take a three-month gardening leave, meaning he couldn’t surface at a rival firm until August. But instead of leaving immediately an arrangement was worked out where he would work until June 15.
“There is a natural lifespan to an analyst. It’s a high- demanding, high- intensity job,” said Avery, who notes that he has already spent more time as an analyst than is the average. “And the REIT market is going to get a lot more interesting and with change comes opportunity,” he said.
Avery and his team have explored some of those big picture themes through focused research pieces. Two of those industry- focused themes have been corporate governance/ succession planning at REITs and potential growth limitations. Both projects took about 18 months to complete.
As for corporate governance, the analysis showed that founding chief executives still run about two-thirds of the REITs; on average, the CEOs are older than the bank chiefs; they are difficult to replace and that the average tenure of REIT directors is about 11 years — the classic pale, male and stale.
As for the growth challenges, the team concluded after 25 years of robust growth, REITs faced two material constraints: competition in the form of highly competitive non-taxable pension funds and capital gains recognition. In such a difficult acquisition environment and with interest rates on the rise, the team postulated “internal growth opportunities” and expansion into the U.S. would take centre stage.”
As for his plans, Avery was a bit circumspect. But there is a fair chance he will set up a fund, try to attract capital and use the proceeds to invest in North American real estate issuers. “To be an investor is a logical next move for a real estate analyst,” he said.
And after spending years looking into issuers, Avery will soon get the chance to be on the inside. He has been nominated as a trustee for H& R REIT at its June 19 annual meeting. Avery, who is being nominated at the same time as Juli Morrow ( a real estate lawyer), is the third trustee added in the past two years. Earlier Stephen Sender (an investment banker) was added. H&R has 8 trustees.
What’s special about REITs? Avery said they are “steady” businesses; they produce high yields and great income; they tend to “grow” over time and operate with a corporate structure that enforces “discipline on management teams” in terms of capital allocation and payment of distributions.
Avery is also leaving at a time of worsening economics for much of the investment business. The glory days — where institutions would pay 3 to 4 cents a share in return for a bundled package of services including research — are over, replaced by reduced commission rates and multiple trading options. Doing more with less is the new operating maxim as disruption and more acceptable professional practices take over. The changes will be painful for the sell side: less fun, more work and less reward.
Locally, CRM2 — a means for retail investors to know more accurately the costs and performance of their investments — is part of that overall push while in Europe, the full impact of The Markets in Financial Instruments Directive (MiFiD2) kicks in next year with changes that will affect mostly institutional investors.