Ninepoint Global Real Estate Fund

July 2018 Commentary

Year-to-date to July 31, the Ninepoint Global Real Estate Fund generated a total return of 2.39% compared to the FTSE EPRA/NAREIT Index, which generated a total return of 5.28%.

Returns in the month of July were good on both an absolute and relative basis, with the Fund generating a total return of 0.51% while the benchmark generated a total return of -0.18%. Because the US 10-year bond yield rose modestly through the month of July, ending at 2.96%, most REITs were weaker during the month. Real Estate Operating Companies, Retail REITs and Residential REITs continued to rally from oversold levels but gains were much more moderate than in the month of June, allowing us to recover some ground relative to the benchmark.

Our modelling indicates that the Canadian dollar should continue to weaken in 2018. Because a resolution to the ongoing NAFTA negotiations is looking less likely in the near term, we have closed out our currency hedging, returning to a neutral positioning relative to our benchmark.

Top contributors to the year-to-date performance of the Ninepoint Global Real Estate Fund included Aroundtown (+80 bps), Colliers (+73 bps) and Pure Industrial REIT (+60 bps). Top detractors year-to-date included Immobiliare Grande Distribuzione (-64 bps), Gazit-Globe (-40 bps) and Citycon Oyj (-30 bps).

After a weak start to the year, tied to the broad selloff in the real estate sector, our position in CyrusOne Incorporated (CONE US) recovered nicely, rallying approximately 42% from the lows. CONE is the owner and operator of data centers across the United States, Europe and Asia specializing in enterprise data center colocation. Importantly, CyrusOne’s roughly 1,000 customers include 200 of the Fortune 1000. The Company’s strategy is focused on attracting new customers that have not traditionally outsourced their data needs but are looking for improved flexibility, reliability and security, which CONE can offer.

On August 1, the Company reported solid second quarter results, with year over year revenue growth of 18% to $196.9 million, adjusted EBITDA growth of 22% to $110.6 million and normalized FFO per share growth of 5% to $0.81. CONE also announced record bookings in the quarter, leasing 52 megawatts and 305,000 colocation square feet, totaling $65 million in future annualized revenue. The leasing activity included more than 10 megawatts signed with two hyperscale customers based in China who are looking to expand their presence in the United States. The Company also just completed construction on 18 megawatts and 27,000 colocation square feet across three projects in San Antonio, Northern Virginia and Phoenix. Given the solid bookings, management boosted FFO per diluted share from a range of $3.18 to $3.28 to a new range of $3.25 to $3.30, which bodes well for future performance.

The Ninepoint Global Real Estate Fund was concentrated in 31 positions as at July 31, 2018 with the top 10 holdings accounting for approximately 41.4% of the fund. Over the past year, 21 out of our 31 holdings have announced a dividend increase, with an average hike of 16.9%. Using a total real estate approach, we will continue to apply a disciplined investment process, balancing valuation, growth and yield in an effort to generate solid risk-adjusted returns.

Jeffrey Sayer, CFA

 

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 July 31, 2018; e) 2015 annual returns are from 08/04/15 to 12/31/15. 

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 July 31, 2018 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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