Ninepoint Global Real Estate Fund

August 2018 Commentary

Year-to-date to August 31, the Ninepoint Global Real Estate Fund generated a total return of 4.31% compared to the FTSE EPRA/NAREIT Index (CAD), which generated a total return of 6.71%.

Returns in the month of August were good on both an absolute and relative basis, with the Fund generating a total return of 1.87% while the benchmark generated a total return of 1.35%. Although the US 10-year bond yield was essentially unchanged through the month of August, ending at 2.94%, REITs continued to rally. We outperformed on the back of solid performance from our Real Estate Operating Companies, Residential REITS, Specialized REITS and Industrial REITs in the month.

Admittedly, we are later in the economic and investment cycle, but we believe that it is too early to position for an outright downturn. The economic data remains robust and, broadly speaking, earnings growth will be exceptional throughout the balance of 2018. Further, current expectations for 2019 are calling for another year of double digit earnings growth.

Our modelling indicates that the Canadian dollar should continue to weaken in 2018. However, with Mexico agreeing to some form of bilateral trade agreement with the United States, currency volatility has picked up. Although Canada reportedly missed a month end deadline, we are hopeful that a more equitable, negotiated trilateral agreement can be reached shortly. We have therefore added some USD/CAD currency hedges to reduce volatility in the Fund.

Top contributors to the year-to-date performance of the Ninepoint Global Real Estate Fund included Aroundtown (+120 bps), Colliers (+74 bps) and Killam Apartment (+65 bps). Top detractors year-to-date included Immobiliare Grande Distribuzione (-65 bps), Gazit-Globe (-41 bps) and Citycon Oyj (-31 bps).

As we’ve discussed previously, the Canadian apartment REITs have been among the top performing sub-sectors year to date. Limited supply and high occupancy levels have translated into solid rent growth across most markets in the country, with Ontario particularly strong. Having built a portfolio of 9,021 apartment suites (7,212 suites in the primary markets of the Greater Toronto Area, Montreal and the National Capital Region), InterRent Real Estate Investment Trust has rallied nicely through the year.

Given the price appreciation and the completion of a secondary public offering of 10.8 million trust units on August 9th at a price of $10.65 per unit for gross proceeds of $115 million, InterRent looks to be eligible for inclusion to the S&P TSX Composite in September. Based on current data, indexers are forecast to generate approximately 6.7 million units of demand, which should be supportive of continued unit price performance, at least in the near term.

The Ninepoint Global Real Estate Fund was concentrated in 30 positions as at August 31, 2018 with the top 10 holdings accounting for approximately 41.8% of the fund. Over the prior fiscal year, 19 out of our 30 holdings have announced a dividend increase, with an average hike of 6.2%. 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 August 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 August 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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