1. Real estate Without the bricks and mortar
In the process of building personal wealth, many Canadians contemplate whether they should invest in real estate beyond their personal residence. After all, from a historical perspective, real estate has proven to be one of the most reliable asset classes when it comes to building wealth over time. For those who are already invested in other assets, such as stocks and bonds, real estate can provide an excellent source of diversification.

2. Comes with its own risks
Bricks & mortar
Comes with its own risks
Many people associate real estate primarily with owning a rental property of some sort. Yet owning the “bricks and mortar” directly comes with its own risks as well.

3. High levels of taxation Changing environmental laws
Issues to be addressed
High cost of purchase
Ongoing upkeep
High levels of taxation
Changing environmental laws
Issues that property owners must address include the high cost of purchase, the ongoing upkeep of a property, potentially high levels of taxation and changing environmental laws that could add to the cost of ownership.

4. Problems owning rental properties
Tenant conflicts
Vacancies
Not a liquid investment
Time and effort to sell
Investors holding rental properties experience their own set of problems in the form of tenant conflicts and vacancies that have the potential to undermine cash flow and the overall return on the investment. In addition, real estate is not a very liquid investment and can sometimes take considerable time and effort to sell.
Seen from this perspective, real estate can be considered “high maintenance,” which is why many forgo investing in property beyond their own home.

5. Introducing REITs

6. Two ways to invest in real estate
Publicly traded real estate companies
Real Estate Investment Trusts (REITs)
There are two ways to invest in real estate and avoid many of the downfalls associated with this asset class – publicly traded real estate companies and Real Estate Investment Trusts (REITs).

7. Growing class of securities Trade like stocks
REITs
Growing class of securities
Trade like stocks
Include underlying investments in income-producing real estate
Apartments, shopping centres, offices and warehouses
REITs are a growing class of securities that trade like stocks within the global marketplace and can include underlying investments in income-producing real estate, such as apartments, shopping centres, offices and warehouses.

8. Highly liquid investments
Bought and sold with relative ease
Similar investment potential as owning property
Provide steady income
Tax-advantaged income
Because REITs trade like stocks, they are highly liquid investments that can be bought and sold with relative ease. They have much of the same investment potential as owning property directly, without the ongoing maintenance or associated costs, and they can provide a steady stream of tax-advantaged income that can help you fund your retirement years.

9. Income & capital growth
Can pay a regular stream of income
85% - 100% earnings to unitholders
Potential for tax-advantaged income
Long-term growth potential
Low volatility
INCOME AND POTENTIAL LONG-TERM CAPITAL GROWTH
Perhaps one of the most attractive features of REITs is that they pay a regular stream of income. Due to their unique structure, a REIT must distribute 85 to 100 per cent of its earnings to unitholders annually, making it an attractive source of income. This income is tax-advantaged when compared to the cash flow generated from rental income, bonds, GICs and dividend-paying stock investments. In fact, a REIT was the only type of income trust that maintained its tax-advantaged status in Canada after the federal government revised the taxation of income trusts in October 2006.
From a capital gains perspective, REITs have also proven to be excellent investments over recent time periods. Their distinctive combination of longterm growth potential and regular income has led to strong returns and relatively low volatility when compared to growth-oriented asset classes, such as equities, in a low interest rate environment.
While past performance is not indicative of future returns, REITs have experienced healthy returns over the past decade. What’s more, with much of the Western world aging from a demographic perspective, the demand for securities that produce regular income and the potential for long-term capital growth are likely to grow.

10. After-tax income comparison
Rental income
Interest income (Bonds & GICs)
Dividend income
Income from REITs
Income amount
$1,000
Taxes owed
$464
$246
$46
After-tax income
$536
$754
$954
Assumes a hypothetical marginal tax rate of 46.4 per cent. REIT taxation rate based on a hypothetical REIT distribution that includes 90 per cent return of capital. Return of capital levels will fluctuate based on the level of income earned and distributed by the REIT, as well as availability of the original capital. For illustrative purposes only.

11. Portfolio diversification
Economic sectors
Office buildings, hotels, apartment buildings, shopping centres and warehouses
Low correlation to other asset classes
Global REITs rise and fall in value at different times from stocks & bonds
Factors that affect the price of real estate in Toronto are often quite different from factors that influence other markets, such as London, Tokyo or NewYork City. Beyond geographic diversification, REITs are also broadly diversified by economic sectors that include office buildings, hotels, apartment buildings, shopping centres and warehouses.
An additional reason for including REITs in your portfolio is their low correlation to other asset classes. In other words, global REITs tend to rise and fall in value at times that are different from stocks and bonds. So, incorporating REITs into your portfolio not only provides the potential to increase your returns, but may also reduce volatility over time.

12. Global real estate – A history of robust returns

13. A growing investment opportunity
First appeared in U.S. during the 1960s
Only 11% of world’s real estate market made available
Rest held by private investors
REITs first made their appearance in the United States during the 1960s, and since that time they have become a global phenomenon.Yet UBS
Investment Research estimates that only 11 per cent of the world’s real estate market has been made available for investment by retail investors, with the rest held by private investors.
Nevertheless, the growing trend of countries adopting REIT-like structures and the tendency of certain types of privately held companies to convert to the REIT model suggest there may be many new, high-quality opportunities for investors in the future.
UBS Investment Research, June 2005

14. The global real estate company marketplace is expanding
Source: Citigroup, September 2006

15. Income stream is not guaranteed Performance can be highly cyclical
Are REITs right for you?
Income stream is not guaranteed
Performance can be highly cyclical
Can underperform and be volatile
Rely on fortunes of a single company
It is important to note that REITs may not be appropriate for every type of investor. First of all, the income stream from a REIT is not guaranteed. Secondly, the performance of REITs can be highly cyclical in nature. For example, during times of low interest rates, REITs can perform very well. In economic environments where interest rates are rising, REITs can underperform and may prove to be quite volatile. Furthermore, selecting the right type of REIT for your investment portfolio may be risky since you’ll be relying on the fortunes of a single company to generate a consistent and reliable income stream.

16. Avoid potential pitfalls
Consider investing in a mutual fund
Take time to do research
Professional asset manager
To help you avoid some of the potential pitfalls of investing in REITs, it would be prudent to consider investing in a mutual fund that specializes in selecting a portfolio of global REITs. A professional asset manager has the insight and research tools that are necessary to choose the companies with the best long-term prospects for success. Keep in mind that a REIT’s performance is highly influenced by local market conditions. Your investment may be subject to risks if you do not have the time or ability to research the various factors that affect individual real estate markets around the world. By relying on a professional asset manager to allocate and monitor a portfolio of REITs on your behalf, you can achieve instant diversification – and that can help smooth out your investment performance over time.

17. Fast fact
The global real estate market has grown internationally and is expected to reach a total market capitalization of US $1 trillion by 2010.
FTSE, December 31, 2005

18. Speak to your advisor
If you would like to take a closer look at the benefits of adding a mutual fund that specializes in global REITs to your investment portfolio, speak with your advisor. He or she will discuss the benefits and risks of REIT investing and help you determine which mutual fund might be the right choice for your personal situation. Only by examining your current portfolio in detail will your advisor be able to tell you if global REITs should play a role in your long-term financial plan.

19. Important notes
The commentary in this presentation is for general information only and should not be considered investment or tax service to any party. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation.
Manulife Investments is the brand name identifying the personal wealth management lines of business offered by Manulife Financial and its subsidiaries in Canada. As one of Canada’s largest integrated financial services providers, Manulife Investments offers a variety of products and services including: segregated funds, mutual funds, principal protected notes, annuities and guaranteed interest contracts.
Manulife and the block design are registered service marks and trademarks of The Manufacturers Life Insurance Company and are used by it and its affiliates including Manulife Financial Corporation.
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