Sprott Global Real Estate Fund

August 2017 Commentary

Since the start of 2017 through to the end of August, the FTSE EPRA/NAREIT Developed Index was essentially flat on a total return basis in Canadian Dollar terms. Europe was the place to be over the first eight months of the year, after underperforming in 2016, with the FTSE EPRA/NAREIT Developed Europe Index generating a total return of 10.85% in Canadian Dollar terms (see Exhibit 1).

Exhibit 1: 2017 Total Return of the FTSE EPRA/NAREIT Developed Index and Developed Europe Index

Within the broad FTSE EPRA/NAREIT Developed Index, real estate developers, operating companies and industrial REITs were the clear winners, generating solid double digit gains. Certain specialty REITs, including wireless communication towers and data centers also outperformed year to date. On the flip side, retail REITs, hotel & resort REITs and office REITs were at the bottom of the performance rankings, generating mid to high single digit losses.

One of the key themes of 2017 has been the “Amazon-effect” on the retail sector. The US Census Bureau of the Department of Commerce recently reported that ecommerce sales accounted for 8.9% of total retail sales in the second quarter of 2017 and grew at a pace of 16.2% compared to the second quarter of 2016. High profile retail bankruptcies and approximately 6,000 store closures in 2017 drove investors to seek the other side of the trade, including industrials with warehousing or logistics capabilities tied to ecommerce sales and deliveries.

The interest rate cycle also impacted the psychology of investors, particularly for those who live in hot housing markets, although we would point out that residential and commercial real estate are distinct assets classes. Without a doubt the housing market is sensitive to interest rates but the shape of the yield curve is generally a more important performance driver for the REIT sector.

Even though the US Federal Reserve appears committed to tightening monetary policy gradually over time, after hiking rates four times since December 2015, the yield curve has flattened (see Exhibit 2). History suggests that this is a positive environment for equities and income-producing securities.

Exhibit 2: US Government 2-year bond and 10-year bond yield curve and US Government 10-year bond yield

Exhibit 2: US Government 2-year bond and 10-year bond yield curve and US Government 10-year bond yield


The Sprott Global Real Estate Fund has generated a total return of 6.26% year to date. The Fund’s underweight exposure to the United States, Japan and Australia and overweight exposure to Canada and Europe (relative to the benchmark) had a positive contribution to performance. The Fund’s underweight exposure to the retail, residential and hotel & resort sectors and overweight exposure to real estate operating companies and the specialized REIT sector (data centers and wireless communication tower REITs) also had a positive contribution to returns.

Since our last update, new positions include Cellnex Telecom, Interxion Holding, Outfront Media, Ashtead Group and Nexus Real Estate Investment Trust. Positions which were exited include ADO Properties, American Campus Communities, CBL & Associates, Crown Castle International, Global Logistics Properties, Inovalis REIT, Morguard North American REIT and Unibail-Rodamco.

Top contributors to the Fund year-to-date include Aroundtown Property Holdings (+128 bps), American Tower Corp. (+92bps) and ADO Properties (+74 bps). Both Aroundtown Property Holdings and ADO Properties benefited from continued tightness in European commercial and residential markets. American Tower benefited from double digit growth in revenue and cash flow as consumer demand for better mobile coverage and access speeds led to organic and new site billings growth.

Top detractors year-to-date include GGP (-65 bps), SL Green Realty (-51 bps) and Gazit-Globe (-42 bps). GGP has been weak due to the retail narrative but owns some of the highest quality malls in the United States. SL Green is also out of favour, with exposure to primarily Manhattan office buildings, but trades at a significant discount to its net asset value, which should narrow as key properties are leased up. Gazit-Globe, a thinly-traded multinational supermarket-anchored shopping center play, also trades at a wide discount to its net asset value but could theoretically monetize any one of its publicly traded holdings at market and narrow some of the valuation disconnect.


The disparity of returns across the various geographic regions and sub-industries within the FTSE EPRA/NAREIT Developed Index demonstrate the importance of identifying both country and sector specific factors that will produce returns, including a supportive macroeconomic environment, outsized growth potential and attractive valuation levels. It also validates the rationale of having a global real estate fund, with the freedom to invest anywhere in the world, in both REITs and real estate-related equities.

Given the disappointing performance of certain real estate sectors in the United States but a yield curve that suggests a benign investment environment, we are looking for opportunities. At some point, retail and office weakness may become a buyable, especially for the highest quality properties and best locations given the current discount to net asset value, which on average has reached double digits. For now, the industrial and specialty REIT sectors continue to look intriguing given above average growth metrics, although valuation levels have admittedly become elevated through the year.

Fundamentals remain positive in Western Europe and the International Monetary Fund recently suggested that “the cyclical rebound could be stronger and more sustained in Europe, where political risk has diminished”. With the IMF currently calling for growth in the Eurozone to reach 1.9% in 2017 and 1.7% in 2018 and the ECB expected to remain relatively dovish, macroeconomic conditions bode well for commercial and residential real estate in the region.

Jeffrey Sayer
Portfolio Manager
Sprott Global Real Estate Fund


Effective February 7, 2017 the Sprott Global REIT & Property Equity Fund’s name was changed to Sprott Global Real Estate Fund, subsequently on August 1, 2017 becoming Ninepoint Global Real Estate Fund.

1All returns and fund details are a) based on Series F units; b) net of fees; c) annualized if period is greater than one year; d) as at August 31, 2017; e) 2015 annual returns are from 08/04/15 to 12/31/15. The index is 100% MSCI World IMI Core Real Estate NR (CAD) and is computed by Ninepoint Partners LP based on publicly available index information.

The Fund is generally exposed to the following risks. See the Simplified Prospectus of the Fund for a description of these risks: capital depletion risk, concentration risk, credit risk, currency risk, cybersecurity risk; derivatives risk, emerging markets risk, equity real estate investment trust (REIT) risk, exchange traded funds risk, foreign investment risk, income trust risk, inflation risk, interest rate risk, liquidity risk, market risk, real estate risk, regulatory risk, series risk, short selling risk, specific issuer risk, tax risk.

Ninepoint Partners LP is the investment manager to the Ninepoint Funds (collectively, the “Funds”). Commissions, trailing commissions, management fees, performance fees (if any), and other expenses all may be associated with investing in the Funds. Please read the prospectus carefully before investing. The indicated rate of return for series F units of the Fund for the period ended August 31, 2017 is based on the historical annual compounded total return including changes in unit value and reinvestment of all distributions and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The information contained herein does not constitute an offer or solicitation by anyone in the United States or in any other jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Prospective investors who are not resident in Canada should contact their financial advisor to determine whether securities of the Fund may be lawfully sold in their jurisdiction.

The opinions, estimates and projections (“information”) contained within this report are solely those of Ninepoint Partners LP and are subject to change without notice. Ninepoint Partners makes every effort to ensure that the information has been derived from sources believed to be reliable and accurate. However, Ninepoint Partners assumes no responsibility for any losses or damages, whether direct or indirect, which arise out of the use of this information. Ninepoint Partners is not under any obligation to update or keep current the information contained herein. The information should not be regarded by recipients as a substitute for the exercise of their own judgment. Please contact your own personal advisor on your particular circumstances. Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any investment funds managed by Ninepoint Partners. Any reference to a particular company is for illustrative purposes only and should not to be considered as investment advice or a recommendation to buy or sell nor should it be considered as an indication of how the portfolio of any investment fund managed by Ninepoint Partners is or will be invested. Ninepoint Partners and/or its affiliates may collectively beneficially own/control 1% or more of any class of the equity securities of the issuers mentioned in this report. Ninepoint Partners and/or its affiliates may hold short position in any class of the equity securities of the issuers mentioned in this report. During the preceding 12 months, Ninepoint Partners and/or its affiliates may have received remuneration other than normal course investment advisory or trade execution services from the issuers mentioned in this report.

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Historical Commentary