REAL ESTATE INVESTMENT POOL

Transcription

1 This annual management report of fund performance contains financial highlights but does not contain the complete annual financial statements of the investment pool. You can get a copy of the annual financial statements at your request, and at no cost, by calling , by writing to us at United Financial, 2 Queen Street East, Twentieth Floor, Toronto, ON, M5C 3G7 or by visiting our website at or SEDAR at Securityholders may also contact us using one of these methods to request a copy of the investment pool s proxy voting policies and procedures, proxy voting disclosure record, or quarterly portfolio disclosure. INVESTMENT OBJECTIVE AND STRATEGIES Real Estate Investment Pool seeks to provide an ongoing flow of current income and long-term capital, appreciation primarily by investing throughout the world in a diversified portfolio of real estate investment trust units, equity securities and equity-related securities of companies or entities in the real estate industry. Equity-related securities include convertible preferred shares, convertible debt obligations and warrants. The portfolio advisor establishes target sector weights following an analysis of national and regional economic trends, capital market conditions and property-type fundamentals. The Pool s investments are allocated in a diversified portfolio of securities with individual weightings based on the outlook for each major property sector. The portfolio advisor selects securities among those companies that are considered to be best positioned, subject to an evaluation that includes understanding the quality of properties owned and the track record of company management. The Pool focuses primarily on real estate investment trust units, as well as equity and equity-related securities of companies or entities in the real estate industry. Such issuers may include corporations, real estate investment trusts and master limited partnerships throughout the world. The Pool will not have any direct ownership or investment in land or buildings. The Pool may use derivatives, but only as permitted by securities regulations. This Pool may also enter into securities lending transactions, repurchase transactions and reverse repurchase transactions, to the extent permitted by securities regulations, to earn additional income. RISK The risks of investing in the Pool remain as discussed in the prospectus. This Pool is suitable for investors who can tolerate high risk, want an investment that is focused on generating capital growth with a reasonable potential for current income and are planning to hold their investment for the medium and/or long term. RESULTS OF OPERATIONS The Pool s net asset value increased by $17.7 million to $242.7 million from December 31, 2011 to December 31, The Pool had net redemptions of $33.9 million for the period, while the portfolio s performance increased assets by $51.6 million. The Pool s one year return for Class A units, Class E units, Class F units, Class I units and Class W units was 22.3%, 23.1%, 23.6%, 26.3% and 26.0%, respectively, compared to the return of the benchmark of 25.4% for the same period. The benchmark is the FTSE EPRA/NAREIT Developed Total Return Index. Cohen & Steers Capital Management, Inc. Global real estate securities had a strong year, significantly outperforming the broad equity markets. Asia-Pacific and Europe saw sharp reversals from 2011 losses, while North America continued to produce strong total returns. In the United States, 2012 marked the fourth consecutive year of solid returns and outperformance versus the S&P 500 Index. This was characterized by sluggish GDP growth, but steady improvement in commercial property fundamentals due to a rebound in the housing market and declining unemployment. The U.S. Federal Reserve s new quantitative-easing measures helped inflate asset prices. REITs financing costs declined as credit spreads continued to shrink, while expanding access to capital for second-tier REITs led to some mild cap-rate compression. Share price gains in Canada reflected a healthy banking system and resilient economy driven by the natural resources boom in the Western region. However, we continue to have an underweight position in Canada, as asset values appear to be peaking and we expect earnings growth to slow in Europe rebounded from declines in 2011, which was marred by worries that Greece would default and be forced out of the Eurozone. This year, markets responded to coordinated efforts by the European Union, European Central Bank, and the International Monetary Fund to prevent a liquidity crisis and provide a fiscal lifeline to Greece and Spain. Asia-Pacific also reversed from even-worse declines in 2011, which was affected by worries about a significant slowdown in China s economy. Officials throughout the region responded by easing monetary policy and pausing efforts to restrict property purchases. As China stabilized and showed signs of a recovery, markets throughout the region surged. Japan rocketed higher amid the hopes, and then the reality, of a return to power by the Liberal Democratic Party, which brought expectations of greater monetary and fiscal stimulus. Many developers in Singapore and China showed flexibility in adapting their business models to changing government policies and consumers demand for lower-cost housing. Further, Hong Kong benefited from investors search for yield and a recovery in Central Hong Kong offices. Australia was late to the global trend of cutting interest rates, but relented towards the end of the year. Overall, the portfolio performed in line with its index during the period. CIG

2 Some of the largest contributors to relative return on a country basis were our out-of-index allocations to China and the Philippines, including several large Chinese residential developers and SM Prime Holdings, an owner/developer of high-quality retail in the Philippines and China. We eliminated from the portfolio China Overseas Land & Investment Ltd., previously a 2% weight, following very strong gains. Also contributing was the United States, where our underweight positions in Boston Properties, Inc. and AvalonBay Communities, Inc., both of which underperformed, were positive. International Financial Reporting Standards As previously confirmed by the Canadian Accounting Standards Board ( AcSB ), most Canadian publicly accountable entities adopted International Financial Reporting Standards ( IFRS ), as published by the International Accounting Standards Board, on January 1, However, the AcSB has allowed most investment funds to defer adoption of IFRS until fiscal years beginning on or after January 1, Accordingly, the Pool will adopt IFRS for its fiscal period beginning January 1, 2014, and will issue its initial financial statements in accordance with IFRS, including comparative information, for the interim period ending June 30, Germany was another contributor, thanks to our overweight in residential property owner Deutsche Wohnen AG, a position we have trimmed substantially after outperformance. Stock selection in Hong Kong was among the largest detractors. Our positions had very strong returns, though certain names that we did not own had gains of over 100%. Our overweight in Sun Hung Kai Properties Ltd. (plagued by bribery charges against the co-chairmen) was also unfavourable, though we remain positive on the company s prospects. RECENT DEVELOPMENTS Cohen & Steers Capital Management, Inc. While our relative exposure varies by country, we continue to find attractive opportunities in nearly every market. We recommend investors maintain a globally diversified approach. In the United States, valuations are trading at premiums to net asset value, but absent a recession, we believe that the combination of very limited new supply, modest demand growth, and continued low financing costs should lead to further growth in cash flows (and dividends) in We have overweight positions in shopping centres, prime office, and industrial space. We remain cautious on health care. Despite the strong returns in Europe, valuations remain at a discount to net asset value, even for some companies with high-quality assets and good management teams. We favour high-quality assets in prime markets such as London, Scandinavia, and prime pan-european retail, which are likely to be the most resilient in the face of sustained economic headwinds. In Asia-Pacific, while valuations are not at the extreme discounts seen at the end of 2011, we believe the region remains very compelling, with little risk of a return to tighter policies due to continued growth concerns and generally modest inflation. We like China-focused companies, Hong Kong, Australia, and Singapore; we are growing more positive on Japan but remain cautious following the recent run-up. RELATED PARTY TRANSACTIONS Manager and Trustee CI Investments Inc. is the Manager and Trustee of the Pool. CI Investments Inc. is a subsidiary of CI Financial Corp. The Manager, in consideration of management fees, provided management services required in the day-to-day operations of the Pool. The Manager bears all of the operating expenses of the Pool (other than taxes, borrowing costs and new governmental fees) in return for a fixed administration fee. Management fee and fixed administration fee rates as at December 31, 2012, for each of the classes are shown below: The Manager received $2.3 million in management fees and $0.4 million in fixed administration fees for the period. Management Fees Approximately 23% of total management fees were used to pay for sales and trailing commissions and other services required. The remaining 77% of management fees were used to pay for investment management and other general administration. Annual management fee rate (%) Annual fixed administration fee rate (%) Class A Class E Class F Class I Class W Paid directly by investors Paid directly by investors 0.22

3 Principal Distributor The Manager has the exclusive right to arrange for the distribution of units of the Pool. Pursuant to a series of agreements, the right to distribute such units has been granted, on a collective basis, to the following dealers, each of which is an affiliate of the Manager. Assante Capital Management Ltd. Assante Financial Management Ltd. Broker Commissions During the period, the Pool did not pay brokerage commissions to The Bank of Nova Scotia or its subsidiaries. The Bank of Nova Scotia has a significant interest in CI Financial Corp., the parent company of CI Investments Inc. Independent Review Committee The Pool received standing instructions from the Board of Governors ( BoG ) in its capacity as the Independent Review Committee ( IRC ) with respect to the following Related Party Transactions: a) trades in securities of CI Financial Corp. and The Bank of Nova Scotia; b) purchases or sales of securities of an issuer from or to another investment fund managed by the Manager (referred to as Inter-Fund Trades ); and c) mergers of funds with another fund that is subject to National Instrument ( Fund Mergers ). The applicable standing instructions require that Related Party Transactions be conducted in accordance with the Manager s policies and procedures. The Manager is required to advise the BoG of any material breach of a condition of the standing instructions. The standing instructions require, among other things, that the investment decision in respect to Related Party Transactions (a) are made by the Manager free from any influence by any entities related to the Manager and without taking into account any consideration to any affiliate of the Manager; (b) represent the business judgment of the Manager uninfluenced by considerations other than the best interests of the Pool; and (c) are made in compliance with the Manager s policies and procedures. Transactions made by the Manager under the standing instructions are subsequently reviewed by the BoG on a quarterly basis to monitor compliance. The Pool relied on the BoG s standing instructions regarding Related Party Transactions during this reporting period.

4 FINANCIAL HIGHLIGHTS The following tables show selected key financial information about the Pool and are intended to help you understand the Pool s financial performance for the past five years, as applicable. The Ratios & Supplemental Data shown below are based on Net Asset Values. The Pool s Net Assets per Unit ($) (1) (2) * Class A (Commencement of operations December 28, 2006) Net assets, beginning of year (1, 7) Increase (decrease) in operations: Total revenue Total expenses Realized gains (losses) for the year Unrealized gains (losses) for the year Total increase (decrease) from operations (2) Year Ended Year Ended Year Ended Year Ended Year Ended December 31, 2012 December 31, 2011 December 31, 2010 December 31, 2009 December 31, 2008 $ $ $ $ $ (0.21) (0.20) (0.19) (0.15) (0.20) (0.97) (1.91) 0.74 (0.88) (0.08) 1.82 (0.27) 1.31 (0.52) (2.16) Distributions: From income (excluding dividends) From dividends From capital gains Return of capital Total annual distributions (2, 3) Net assets at end of year shown (2, 7) Ratios & Supplemental Data Total net asset value ($000 s) (7) Number of units outstanding (000 s) Portfolio turnover rate (%) (5) Trading expense ratio (%) (6) Net asset value per unit ($) (7) 23,612 29,073 54,184 67,789 67,248 3,335 5,019 8,459 11,657 13, Management Expense Ratio Management expense ratio before taxes (%) (4) Goods and services tax (GST)/Harmonized sales tax (HST) (%) (4) Management expense ratio after taxes (%) (4) GST/Effective HST Rate, for the prior calendar year or period (%) (4) *Footnotes for the tables are found at the end of the Financial Highlights section.

5 FINANCIAL HIGHLIGHTS (cont d) The Pool s Net Assets per Unit ($) (1) (2) * Class E (Commencement of operations September 10, 2008) Net assets, beginning of year (1, 7) Increase (decrease) in operations: Total revenue Total expenses Realized gains (losses) for the year Unrealized gains (losses) for the year Total increase (decrease) from operations (2) Period from Year Ended Year Ended Year Ended Year Ended Inception to December 31, 2012 December 31, 2011 December 31, 2010 December 31, 2009 December 31, 2008 $ $ $ $ $ (0.24) (0.23) (0.21) (0.18) (0.05) (0.53) (1.33) 1.04 (1.25) (0.82) Distributions: From income (excluding dividends) From dividends From capital gains Return of capital Total annual distributions (2, 3) Net assets at end of year shown (2, 7) Ratios & Supplemental Data Total net asset value ($000 s) (7) Number of units outstanding (000 s) Portfolio turnover rate (%) (5) Trading expense ratio (%) (6) Net asset value per unit ($) (7) 88,249 62,780 60,108 30,005 7,122 8,500 7,443 6,491 3, Management Expense Ratio Management expense ratio before taxes (%) (4) Goods and services tax (GST)/Harmonized sales tax (HST) (%) (4) Management expense ratio after taxes (%) (4) GST/Effective HST Rate, for the prior calendar year or period (%) (4) *Footnotes for the tables are found at the end of the Financial Highlights section.

6 FINANCIAL HIGHLIGHTS (cont d) The Pool s Net Assets per Unit ($) (1) (2) * Class F (Commencement of operations May 23, 2008) Net assets, beginning of year (1, 7) Increase (decrease) in operations: Total revenue Total expenses Realized gains (losses) for the year Unrealized gains (losses) for the year Total increase (decrease) from operations (2) Period from Year Ended Year Ended Year Ended Year Ended Inception to December 31, 2012 December 31, 2011 December 31, 2010 December 31, 2009 December 31, 2008 $ $ $ $ $ (0.20) (0.19) (0.17) (0.14) (0.10) (1.19) (2.86) 0.98 (1.27) (0.14) 2.45 (2.08) 1.90 (0.62) (4.84) Distributions: From income (excluding dividends) From dividends From capital gains Return of capital Total annual distributions (2, 3) Net assets at end of year shown (2, 7) Ratios & Supplemental Data Total net asset value ($000 s) (7) Number of units outstanding (000 s) Portfolio turnover rate (%) (5) Trading expense ratio (%) (6) Net asset value per unit ($) (7) Management Expense Ratio Management expense ratio before taxes (%) (4) Goods and services tax (GST)/Harmonized sales tax (HST) (%) (4) Management expense ratio after taxes (%) (4) GST/Effective HST Rate, for the prior calendar year or period (%) (4) *Footnotes for the tables are found at the end of the Financial Highlights section.

7 FINANCIAL HIGHLIGHTS (cont d) The Pool s Net Assets per Unit ($) (1) (2) * Class I (Commencement of operations September 18, 2008) Net assets, beginning of year (1, 7) Increase (decrease) in operations: Total revenue Total expenses Realized gains (losses) for the year Unrealized gains (losses) for the year Total increase (decrease) from operations (2) Period from Year Ended Year Ended Year Ended Year Ended Inception to December 31, 2012 December 31, 2011 December 31, 2010 December 31, 2009 December 31, 2008 $ $ $ $ $ (1.17) (1.70) 1.24 (1.45) (0.01) 2.76 (0.72) 2.61 (0.63) (2.30) Distributions: From income (excluding dividends) From dividends From capital gains Return of capital Total annual distributions (2, 3) Net assets at end of year shown (2, 7) Ratios & Supplemental Data Total net asset value ($000 s) (7) Number of units outstanding (000 s) Portfolio turnover rate (%) (5) Trading expense ratio (%) (6) Net asset value per unit ($) (7) 33,022 27,827 32,080 47,442 28,979 2,657 2,828 3,047 5,124 3, Management Expense Ratio Management expense ratio before taxes (%) (4) Goods and services tax (GST)/Harmonized sales tax (HST) (%) (4) Management expense ratio after taxes (%) (4) GST/Effective HST Rate, for the prior calendar year or period (%) (4) *Footnotes for the tables are found at the end of the Financial Highlights section.

8 FINANCIAL HIGHLIGHTS (cont d) The Pool s Net Assets per Unit ($) (1) (2) Class W (Commencement of operations May 8, 1996) Net assets, beginning of year (1, 7) Increase (decrease) in operations: Total revenue Total expenses Realized gains (losses) for the year Unrealized gains (losses) for the year Total increase (decrease) from operations (2) Year Ended Year Ended Year Ended Year Ended Year Ended December 31, 2012 December 31, 2011 December 31, 2010 December 31, 2009 December 31, 2008 $ $ $ $ $ (0.04) (0.04) (0.03) (0.03) (0.04) (2.39) (3.90) 1.83 (2.11) (0.22) 3.98 (0.51) 3.76 (0.85) (3.97) Distributions: From income (excluding dividends) From dividends From capital gains Return of capital Total annual distributions (2, 3) Net assets at end of year shown (2, 7) Ratios & Supplemental Data Total net asset value ($000 s) (7) Number of units outstanding (000 s) Portfolio turnover rate (%) (5) Trading expense ratio (%) (6) Net asset value per unit ($) (7) 97, , , , ,065 5,438 7,378 11,447 16,905 25, Management Expense Ratio Management expense ratio before taxes (%) (4) Goods and services tax (GST)/Harmonized sales tax (HST) (%) (4) Management expense ratio after taxes (%) (4) GST/Effective HST Rate, for the prior calendar year or period (%) (4) (1) This information is derived from the Pool s audited annual financial statements. The net assets per unit presented in the financial statements differs from the net asset value calculated for Pool pricing purposes. An explanation of these differences can be found in the notes to the financial statements or in footnote (7) below. (2) Net assets per unit and distributions per unit are based on the actual number of units outstanding for the relevant class at the relevant time. The increase (decrease) in net assets from operations per unit is based on the weighted average number of units outstanding for the relevant class over the fiscal year. (3) Distributions are automatically reinvested in additional units of the Pool. (4) Management expense ratio is calculated based on expenses charged to the Pool (excluding commissions and other portfolio transaction costs) and is expressed as an annualized percentage of daily average net asset value for the period. As of July 1, 2010, Ontario combined the federal goods and services tax ( GST - 5%) with the provincial retail sales tax ( PST - 8%). The combination resulted in a Harmonized sales tax ( HST ) rate of 13%. The Effective HST tax rate is calculated using the attribution percentage for each province based on unitholder residency and can be different from 13%. For any particular year, the rate shown will be prorated based on the different rates in effect during that year. For the year ended December 31, 2010, the rate applied is 5% for the period January 1, 2010 to June 30, 2010 and the Pool s Effective HST rate for the period from July 1, 2010 to December 31, The rate shown for the year ended December 31, 2010 is the time weighted average of these rates. Beginning January 1, 2011, the HST rate is based on the residency of the unitholder. (5) The Pool s portfolio turnover rate indicates how actively the Pool s portfolio advisor manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Pool buying and selling all of the securities in its portfolio once in the course of the fiscal year. The higher a Pool s portfolio turnover rate in a year, the greater the trading costs payable by the Pool in the year, and the greater the chance of an investor receiving taxable capital gains in the year. There is not necessarily a relationship between a higher turnover rate and the performance of a Pool. Portfolio turnover rate is calculated by dividing the lesser of the cost of purchases and the proceeds of sales of portfolio securities for the year, and excluding cash and short-term investments maturing in less than one year, and before assets acquired from a merger, if applicable, by the average of the monthly fair value of investments during the year. (6) The trading expense ratio represents total commissions and other portfolio transaction costs disclosed in the statements of operations expressed as an annualized percentage of daily average net asset value of the Pool during the year. (7) Section 14.2 of National Instrument requires the net assets of an investment fund to be calculated using the fair value of the fund s assets and liabilities. Canadian GAAP requires a different valuation method for calculating net assets for financial reporting purposes. For the purpose of processing unitholder transactions, net assets are calculated based on the closing market price (referred to as Net Asset Value ), while for financial statement purposes net assets are calculated based on bid/ask price (referred to as Net Assets ).

9 PAST PERFORMANCE This section describes how the Pool has performed in the past. Remember, past returns do not indicate how the Pool will perform in the future. The information shown assumes that distributions made by the Pool in the years shown were reinvested in additional units of the relevant classes of the Pool. In addition, the information does not take into account sales, redemption, distribution or other optional charges that would have reduced returns or performance. Annual Compound Returns The following table shows the Pool s annual compound returns for each period indicated, compared to the FTSE EPRA/NAREIT Developed Total Return Index. The FTSE EPRA/NAREIT Developed Total Return Index is a free float-adjusted capitalization weighted index, which is designed to track the performance of listed real estate companies and REITS worldwide. Year-by-Year Returns The following charts show the Pool s annual performance for each of the years shown and illustrate how the Pool s performance has changed from year to year. In percentage terms, the charts show how much an investment made on the first day of each financial year would have grown or decreased by the last day of each financial year, except where noted Dec. 2006* Dec *For the period from December 28, 2006 to December 31, **For the period from September 10, 2008 to December 31, Dec Dec Dec Dec Dec Dec. 2008* Dec Dec Dec Dec Dec. 2008** Dec Dec. 2008** Dec Dec Dec Dec Dec Dec Dec Class A Class E A discussion of the performance of the Pool as compared to the benchmark is found in the Results of Operations section of this report. Class A One Three Five Ten Since Year Years Years Years Inception Real Estate Investment Pool (%) N/A -5.6 FTSE EPRA/NAREIT Developed Total Return Index (%) N/A -3.4 Class E Real Estate Investment Pool (%) N/A N/A 0.9 FTSE EPRA/NAREIT Developed Total Return Index (%) N/A N/A 5.2 Class F Real Estate Investment Pool (%) N/A N/A 0.4 FTSE EPRA/NAREIT Developed Total Return Index (%) N/A N/A 1.0 Class I Real Estate Investment Pool (%) N/A N/A 5.1 FTSE EPRA/NAREIT Developed Total Return Index (%) N/A N/A 5.2 Class W Real Estate Investment Pool (%) N/A FTSE EPRA/NAREIT Developed Total Return Index (%) N/A *For the period from May 23, 2008 to December 31, **For the period from September 18, 2008 to December 31, Class F Class I Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Class W

10 SUMMARY OF INVESTMENT PORTFOLIO as at December 31, 2012 Portfolio Breakdown Percentage of Category Net Asset Value (%) Portfolio Breakdown (cont d) Percentage of Category Net Asset Value (%) Top 25 Holdings Percentage of Security Name Net Asset Value (%) Country allocation U.S.A Hong Kong 9.7 Australia 9.3 Japan 8.1 Singapore 5.9 U.K. 5.6 Bermuda 4.3 France 3.4 Canada 3.1 Netherlands 2.3 Other Net Assets (Liabilities) 0.6 Mexico 0.6 Cayman Islands 0.6 Norway 0.5 Philippines 0.5 Germany 0.5 Jersey Island 0.4 China 0.3 Sector allocation Financials 88.3 Industrials 6.7 Consumer Discretionary 3.4 Telecommunication Services 1.0 Other Net Assets (Liabilities) 0.6 Simon Property Group Inc. 5.9 Mitsubishi Estate Co., Ltd. 4.0 Hongkong Land Holdings Ltd. 3.0 HCP Inc. 2.9 Sun Hung Kai Properties Ltd. 2.8 Ventas Inc. 2.6 Westfield Group 2.6 Vornado Realty Trust 2.6 Unibail-Rodamco S.E. 2.3 Prologis Inc. 2.2 Brookfield Office Properties Inc. 2.0 DDR Corp. 2.0 Land Securities Group PLC 1.8 Derwent London PLC 1.8 Equity Residential 1.8 Apartment Investment & Management Co. 1.8 CapitaLand Ltd. 1.8 Corio N.V. 1.5 Hammerson PLC 1.5 UDR Inc. 1.5 Forest City Enterprises Inc., Class A 1.5 Hysan Development Co., Ltd. 1.4 Centro Retail Australia 1.4 SL Green Realty Corp. 1.4 Mirvac Group 1.3 Total Net Asset Value (in $000 s) $242,724 The summary of investment portfolio may change due to ongoing portfolio transactions of the Pool and updates are available on a quarterly basis. A NOTE ON FORWARD-LOOKING STATEMENTS This report may contain forward-looking statements about the Pool, its future performance, strategies or prospects, and possible future Pool action. The words may, could, should, would, suspect, outlook, believe, plan, anticipate, estimate, expect, intend, forecast, objective, and similar expressions are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance. Forward-looking statements involve inherent risks and uncertainties, both about the Pool and general economic factors, so it is possible that predictions, forecasts, projections and other forward-looking statements will not be achieved. We caution you not to place undue reliance on these statements as a number of important factors could cause actual events or results to differ materially from those expressed or implied in any forward-looking statement made by the Pool. These factors include, but are not limited to, general economic, political and market factors in Canada, the United States and internationally, interest and foreign exchanges rates, global equity and capital markets, business competition, technological changes, changes in laws and regulations, judicial or regulatory judgments, legal proceedings and catastrophic events. The above list of important factors that may affect future results is not exhaustive. Before making any investment decisions, we encourage you to consider these and other factors carefully. All opinions contained in forward-looking statements are subject to change without notice and are provided in good faith but without legal responsibility.