Year-to-date to March 31, the Ninepoint Global Real Estate Fund generated a total return of -1.47% compared to the FTSE EPRA/NAREIT Index, which generated a total return of -2.05%.
Returns in the month of March were good on an absolute basis but disappointing on a relative basis, with the Fund generating a total return of 1.80% while the benchmark generated a total return of 2.88%. Unlike the correction in February, characterized by a spike in the US 10-year bond yield, broad equity market weakness in March led to a decline in the 10-year yield, which proved to be supportive for the real estate sector and triggered a bounce in some of the more rate-sensitive REITs.
Our modelling indicates that the Canadian dollar should continue to weaken in 2018. Although the Canadian dollar strengthened throughout January on accelerating global growth expectations, the currency began to decline in February and the trend persisted through the middle of March. With a resolution to the ongoing NAFTA negotiations expected shortly, we have hedged approximately half of our USD exposure in order to reduce currency-related volatility in the Fund.
Following months of investigation and threats, the Trump administration recently announced its intention to place tariffs on approximately $50 billion worth of Chinese goods, heightening the risk of a global trade war. Despite the concerning headlines, we believe that negotiations will prevail before any significant damage can be done to the outlook for global growth and corporate profits. From our perspective, the correction has provided an opportunity to high-grade our portfolios and add exposure to real estate-related sectors and stocks that benefit most in a mid to late-cycle environment.
Top contributors to the year-to-date performance of the Ninepoint Global Real Estate Fund included Pure Industrial REIT (+57 bps), Merlin Properties (+37 bps) and Interxion (+37 bps). Top detractors year-to-date included Immobiliare Grande Distribuzione (-61 bps), GGP (-35 bps) and Cyrusone (-33 bps).
Brookfield Properties and GGP (GGP US) have reached an agreement with the announcement of a “sweetened” takeover offer on March 26, 2018. GGP shareholders can elect to receive either $23.50 in cash, or either one BPY unit or one share of a newly created US REIT that will track the performance of BPY. The cash component is subject to proration, based on an aggregate cash consideration of $9.25 billion and an aggregate cash/equity ratio of approximately 61%/39%. But, to put it bluntly, we agree with the market’s disappointment with the takeover agreement. It fails to account for the 18% slide in BPY’s units from the date of initial reports of a transaction through to the end of March. Without a material rally in BPY, we believe that the current offer undervalues GGP based on our NAV calculations.
The Ninepoint Global Real Estate Fund was concentrated in 31 positions as at March 31, 2018 with the top 10 holdings accounting for approximately 40.9% of the fund. Over the past year, 21 out of our 31 holdings have announced a dividend increase, with an average hike of 23.7%. 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 March 30, 2018; 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 March 30, 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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