Ninepoint Global Real Estate Fund

January 2019 Commentary

Year-to-date to January 31, the Ninepoint Global Real Estate Fund generated a total return of 6.20% compared to the MSCI World IMI Core Real Estate Index, which generated a total return of 6.47%. After the worst stock market performance in December since 1931, markets rebounded sharply in January with the S&P 500 posting its best performance since 1987.

Essentially, the worst performing stocks and sectors in December reversed course to become the market leaders in January, which speaks to the sentiment/positioning-driven nature of the sell-off to end 2018. Two of the three key investor concerns are already showing signs of improvement in early 2019 with the FED pivoting to a very dovish, “patient” approach to future interest rate hikes and Trump appearing to soften his stance on China. Forward earnings estimates have continued to decline but commentary in the Q4 2018 earnings releases has not been pointing to any significant downward revisions from here. Hopefully, fundamentals will matter again in 2019 and we can get back to stock picking based on company specific analysis.

Top contributors to the year-to-date performance of the Ninepoint Global Real Estate Fund by sub-industry included Retail REITs (+134 bps), Industrial REITs (+97 bps) and Health Care REITs (+91 bps) while top detractors by sub-industry were limited to Leisure Facilities (-46 bps).

Source: Ninepoint Partners

We are overweight Residential REITs, Industrial REITs and Integrated Telecommunication Services while underweight Diversified Real Estate Activities, Diversified REITs and Hotel & Resort REITs. Our overweight sub-industries should demonstrate above average FFO growth over the coming year yet trade at below average valuations. Conversely, we are underweight Diversified Real Estate Activities and Diversified REITs, which happen to be skewed more toward the APAC region of the world, where valuations are more difficult to quantify. We are also underweight Hotel & Resort REITs since they are likely to generate below average FFO growth in 2019.

Source: Ninepoint Partners

At the stock specific level, top contributors to the year-to-date performance included Prologis (+102 bps), Alexandria (+37 bps) and Caretrust (+33 bps). Top detractors year-to-date included Vail Resorts (-46 bps), CyrusOne (-23 bps) and BSR (-10 bps).

In terms of our top performing holdings, there is nothing specific that drove the gains, other than technical rallies from deeply oversold conditions. Prologis did report operating and financial results in January and slightly beat expectations on both revenue ($2,804 million for the full year compared to $2,618 million for the same period in 2017, up 7.1%) and core FFO ($3.03 compared to $2.81 in 2017, up 7.8%). Management also provided conservative guidance for core FFO growth of 7.5% in 2019, which was well received by the market.

Unfortunately, it is difficult to explain the underperformance of CyrusOne and BSR in January. However, Vail disclosed clearly disappointing early ski season metrics and reduced expectations for full year reported EBITDA. As the Company reported, “despite the good conditions, our destination guest visitation was much lower than anticipated in the pre-holiday period” and “this was driven by destination guests’ concerns from two prior years of poor pre-holiday conditions at our US resorts and we did not see the pickup in short-term bookings we had expected”. Given the unpredictability of this season’s results, we liquidated our position in Vail Resorts.

The Ninepoint Global Real Estate Fund was concentrated in 31 positions as at January 31, 2019 with the top 10 holdings accounting for approximately 35.8% of the fund. Over the prior fiscal year, 24 out of our 31 holdings have announced a dividend increase, with an average hike of 5.5%. 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 January 31, 2019; 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 January 31, 2019 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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