CIBC Canadian Real Estate Fund. Annual Management Report of Fund Performance

Transcription

1 CIBC Canadian Rea Estate Fund Annua Management Report of Fund Performance for the financia year ended December 31, 2017 A figures are reported in Canadian doars uness otherwise noted This annua management report of fund performance contains financia highights but does not contain the compete annua financia statements of the investment fund If you have not received a copy of the annua financia statements with this annua management report of fund performance, you can get a copy of the annua financia statements at your request, and at no cost, by caing us to-free at , by writing to us at CIBC, 18 York Street, Suite 1300, Toronto, Ontario, M5J 2T8, or by visiting wwwcibccom/mutuafunds or the SEDAR website at wwwsedarcom Unithoders may aso contact us using one of these methods to request a copy of the investment fund s proy voting poicies and procedures, proy voting discosure record, or quartery portfoio discosure Management Discussion of Fund Performance Investment Objective and Strategies Investment Objective: CIBC Canadian Rea Estate Fund (the Fund) seeks to provide ong-term growth through capita appreciation by investing primariy in the Canadian rea estate industry Investment Strategies: The Fund uses a bottom-up security approach for company seection based on an assessment of the quaity of properties owned and an evauation of management s track record The approach identifies securities that are undervaued versus their peers based on estabished parameters The Fund wi invest primariy in rea estate investment trust units and pubicy-traded Canadian rea estate stocks Risk The Fund is a rea estate equity fund that is suitabe for ong-term investors who can toerate medium investment risk For the period ended December 31, 2017, the Fund s overa eve of risk remained as discussed in the simpified prospectus Resuts of Operations The Fund s portfoio sub-advisor is Lincuden Investment Management Limited (an affiiate of Morguard Financia Corp) (the sub-advisor) The commentary that foows provides a summary of the resuts of operations for the period ended December 31, 2017 A doar figures are epressed in thousands, uness otherwise indicated The Fund's net asset vaue decreased by 9% during the period, from $49,000 as at December 31, 2016 to $44,782 as at December 31, 2017 Net redemptions of $5,778 were partiay offset by positive investment performance, resuting in an overa decrease in net asset vaue Cass A units of the Fund posted a return of 35% for the period The Fund s primary benchmark, the S&P/TSX Composite Inde (the benchmark), returned 91% for the same period The Fund s return is after the deduction of fees and epenses, unike the benchmark's See Past Performance for the returns of other casses of units offered by the Fund The Canadian rea estate market weakened in the midde of the period as a resut of the sharp increase in bond yieds, athough it recovered in the fourth quarter The new US administration s promises of ta cuts contributed to the strong performance of growth and arge-capitaization stocks This ed US rea estate investment trusts (REITs) to underperform as investors moved away from income-oriented investments and into growth-oriented investments Continued weakness in the energy markets put pressure on Aberta rea estate vaues, especiay the office markets The growth of Amazoncom Inc and onine shopping put pressure on retai REITs, which traded at arge discounts to their net asset vaues (NAVs) The Fund s moderatey overweight aocation to retai REITs, which were trading at discounted vauations, detracted from performance as the discount did not begin to decrease unti December Individua retai detractors incuded Washington Prime Group Inc, Kimco Reaty Corp and Paza Retai REIT Washington Prime s secondary ocations faced greater pressures than its peers, driving its discount to NAV to very high eves Kimco has been activey repositioning its community strip centre portfoio to focus on the top markets in the US The sub-advisor beieves Paza is one of the strongest operators in its core eastern Canada markets, with an epertise in repositioning properties The Fund s significanty overweight eposure to Canadian apartment REITs contributed to performance Government efforts to coo down the Canadian housing market, combined with a suppy-demand imbaance, are pushing more Canadians into renta apartments for onger, which is putting upward pressure on rents The Fund s eposure to industria REITs aso contributed to performance Industria markets across North America were very strong as warehouse and ogistics rea estate benefited from the growth of e-commerce

2 CIBC Canadian Rea Estate Fund Significant individua contributors to the Fund s performance incuded Kiam Apartment REIT, Canadian Apartment Properties REIT (CAP REIT) and InterRent REIT Among its peers, Kiam has the newest portfoio of properties, which can be run more efficienty than oder apartment buidings Most of CAP REIT s assets are in the Greater Toronto Area, which has particuary arge suppy-demand imbaances InterRent benefited from the repositioning of its oder assets to appea to modern renters, and from growth in the Hamiton, Ontario, area The sub-advisor added a new hoding in Acadia Reaty Trust, which owns street-front retai properties in top US markets such as Brookyn, SoHo and Fifth Avenue The company s share price decined, which presented an opportunity to purchase a high-quaity retai rea estate stock at a significant discount The Fund s eisting hoding in InterRent was increased as the sub-advisor beieved its earnings growth was more sustainabe than the market price impied Kite Reaty Group Trust, a deepy discounted strip centre REIT, was eiminated from the Fund to reduce retai eposure as the sub-sector decined sharpy The sub-advisor beieves that Kimco offers a higher-quaity portfoio in this category The Fund s hoding in CAP REIT was reduced to take profits after a period of strong share price performance, and aso in response to a change in management Recent Deveopments Effective Apri 27, 2017, the composition of the Independent Review Committee (IRC) changed Tim Kennish and Wiiam Thornhi resigned as members of the IRC and Susan Sima and Bryan Houston were appointed as members of the IRC Reated Party Transactions Canadian Imperia Bank of Commerce (CIBC) and its affiiates have the foowing roes and responsibiities with respect to the Fund, and receive the fees described beow in connection with their roes and responsibiities Manager CIBC is the Fund's manager (the Manager) CIBC receives management fees with respect to the Fund's day-to-day business and operations, cacuated based on the net asset vaue of each respective cass of units of the Fund as described in the section entited Management Fees The Manager aso compensates its whoesaers in connection with their marketing activities regarding the Fund From time to time, CIBC may provide seed capita to the Fund Trustee CIBC Trust Corporation, a whoy-owned subsidiary of CIBC, is the Fund's trustee (the Trustee) The Trustee hods tite to the Fund's property (cash and securities) on behaf of its unithoders Portfoio Advisor The portfoio advisor provides, or arranges to provide, investment advice and portfoio management services to the Fund CAMI, a whoy-owned subsidiary of CIBC, is the Fund's portfoio advisor (the Portfoio Advisor) Distributor Deaers and other firms se the units of the Fund to investors These deaers and other firms incude CIBC s reated deaers such as the principa distributor, CIBC Securities Inc (CIBC SI), the CIBC Investor s Edge discount brokerage division of CIBC Investor Services Inc (CIBC ISI), the CIBC Imperia Investor Service division of CIBC ISI, and the CIBC Wood Gundy division of CIBC Word Markets Inc (CIBC WM) CIBC SI, CIBC ISI, and CIBC WM are whoy-owned subsidiaries of CIBC CIBC may pay traiing commissions to these deaers and firms, ecept for CIBC SI, in connection with the sae of units of the Fund These deaers and other firms may pay a portion of these traiing commissions to their advisors who se units of the Fund to investors CIBC does not pay traiing commissions to CIBC SI for seing units of the Fund, athough overa saes of CIBC funds may be considered in assessing the performance of their advisors and may therefore contribute to their annua compensation Brokerage Arrangements and Soft Doars The Portfoio Advisor and any portfoio sub-advisors make decisions, incuding the seection of markets and deaers and the negotiation of commissions, with respect to the purchase and sae of portfoio securities, certain derivative products and the eecution of portfoio transactions Brokerage business may be aocated by the Portfoio Advisor and any portfoio sub-advisors, to CIBC WM and CIBC Word Markets Corp, each a subsidiary of CIBC CIBC WM and CIBC Word Markets Corp may aso earn spreads on the sae of fied income and other securities and certain derivative products to the Fund A spread is the difference between the bid and ask prices for a security in the appicabe marketpace, with respect to the eecution of portfoio transactions The spread wi differ based upon various factors such as the type and iquidity of the security Deaers, incuding CIBC WM and CIBC Word Markets Corp, may furnish goods and services, other than order eecution, to the Portfoio Advisor and any portfoio sub-advisors, in partia echange for processing trades through them (referred to in the industry as soft doar arrangements) These goods and services are paid for with a portion of the brokerage commissions and assist the Portfoio Advisor and any portfoio sub-advisors, with investment decision-making services for the Fund or reate directy to the eecution of portfoio transactions on behaf of the Fund As per the terms of the portfoio sub-advisory agreements, such soft doar arrangements are in compiance with appicabe aws In addition, CIBC may enter into commission recapture arrangements with certain deaers with respect to the Fund Any commission recaptured wi be paid to the Fund During the period, the Fund paid brokerage commissions and other fees of $6,310 to CIBC WM; the Fund did not pay any brokerage commissions or other fees to CIBC Word Markets Corp Spreads associated with fied income and other securities are not ascertainabe and, for that reason, cannot be incuded when determining these amounts 2

3 CIBC Canadian Rea Estate Fund Fund Transactions The Fund may enter into one or more of the foowing transactions (the Reated Party Transactions) in reiance on the standing instructions issued by the IRC: invest in or hod equity securities of CIBC or issuers reated to a portfoio sub-advisor; invest in or hod non-echange-traded debt securities of CIBC or an issuer reated to CIBC in a primary offering and in the secondary market; make an investment in the securities of an issuer for which CIBC WM, CIBC Word Markets Corp, or any affiiate of CIBC (a Reated Deaer) acts as an underwriter during the offering of the securities at any time during the 60-day period foowing the competion of the offering of such securities (in the case of a private pacement offering, in accordance with the eemptive reief order granted by the Canadian securities reguatory authorities and in accordance with the poicies and procedures reating to such investment); purchase equity or debt securities from or se them to a Reated Deaer, where it is acting as principa; undertake currency and currency derivative transactions where a Reated Deaer is the counterparty; and purchase securities from or se securities to another investment fund or a managed account managed by the Manager or an affiiate of the Manager At east annuay, the IRC reviews the Reated Party Transactions for which they have issued standing instructions The IRC is required to advise the Canadian securities reguatory authorities, after a matter has been referred or reported to the IRC by the Manager, if it determines that an investment decision was not made in accordance with a condition imposed by securities egisation or the IRC in any Reated Party Transaction requesting its approva or recommendation, as appicabe Custodian CIBC Meon Trust Company is the custodian of the Fund (the Custodian) The Custodian hods a cash and securities for the Fund and ensures that those assets are kept separate from any other cash or securities that the Custodian might be hoding The Custodian aso provides other services to the Fund incuding record-keeping and processing of foreign echange transactions The fees and spreads for the services of the Custodian directy reated to the eecution of portfoio transactions initiated by CAMI as the Portfoio Advisor are paid by CAMI and/or the deaer(s) directed by CAMI, up to the amount of the credits generated under soft doar arrangements from trading by CAMI on behaf of the Fund during that month A other fees and spreads for the services of the Custodian are paid by the Manager and charged to the Fund on a recoverabe basis CIBC owns a 50% interest in the Custodian Service Provider CIBC Meon Goba Securities Services Company (CIBC GSS) provides certain services to the Fund, incuding securities ending, fund accounting and reporting, and portfoio vauation Such servicing fees are paid by the Manager and charged to the Fund on a recoverabe basis CIBC indirecty owns a 50% interest in CIBC GSS 3

4 CIBC Canadian Rea Estate Fund Financia Highights The foowing tabes show seected key financia information about the Fund and are intended to hep you understand the Fund s financia performance for the period ended December 31 The Fund's Net Assets per Unit¹ - Cass A Units Net Assets, beginning of period $ 3278 $ 2966 $ 2898 $ 2551 $ 2622 Increase (decrease) from operations: Tota revenue $ 150 $ 121 $ (066) $ 028 $ 042 Tota epenses (099) (103) (098) (089) (085) Reaized gains (osses) for the period Unreaized gains (osses) for the period (106) (082) (040) 199 (283) Tota increase (decrease) from operations 2 $ 109 $ 310 $ 077 $ 349 $ (087) Distributions: From income (ecuding dividends) $ 018 $ $ $ $ From dividends From capita gains Return of capita Tota Distributions 3 $ 030 $ 002 $ $ $ Net Assets, end of period $ 3361 $ 3278 $ 2966 $ 2898 $ This information is derived from the Fund's audited annua financia statements The Fund adopted Internationa Financia Reporting Standards (IFRS) on January 1, 2014 Previousy, the Fund prepared its financia statements in accordance with Canadian Generay Accepted Accounting Principes (GAAP) as defined in Part V of the CPA Canada Handbook Under Canadian GAAP, the Fund measured fair vaues of its investments in accordance with CICA Handbook Section 3855 which required the use of bid prices for ong positions and ask prices for short positions As such, the net assets per unit figure presented in the financia statements may differ from the net asset vaue cacuated for fund pricing purposes An epanation of these differences can be found in the notes to the financia statements issued prior to January 1, 2014 Upon adoption of IFRS, the Fund measures the fair vaue of its investments by using the cose market prices, where the cose market price fas within the bid-ask spread As such, the Fund's accounting poicies for measuring the fair vaue of investments in the financia statements are consistent with those used in measuring the net asset vaue for transactions with unithoders Accordingy, the opening net asset figure as at January 1, 2013 was restated to refect accounting poicy adjustments made in accordance with IFRS 2 Net assets and distributions are based on the actua number of units outstanding at the reevant time The tota increase (decrease) from operations is based on the weighted average number of units outstanding during the period 3 Distributions were paid in cash, reinvested in additiona units of the Fund, or both Ratios and Suppementa Data - Cass A Units Tota Net Asset Vaue (000s) 4 $ 44,782 $ 49,000 $ 46,251 $ 52,155 $ 55,341 Number of Units Outstanding 4 1,332,570 1,494,604 1,559,294 1,799,494 2,169,392 Management Epense Ratio 5 265% 287% 297% 297% 298% Management Epense Ratio before waivers or absorptions 6 274% 291% 300% 303% 298% Trading Epense Ratio 7 011% 016% 009% 010% 016% Portfoio Turnover Rate % 5709% 2147% 4107% 5687% Net Asset Vaue per Unit $ 3361 $ 3278 $ 2966 $ 2898 $ This information is presented as at December 31 of the period(s) shown 5 Management epense ratio is based on the tota epenses of the fund (ecuding commissions and other portfoio transaction costs), incurred by or aocated to a cass of units for the period shown, epressed as an annuaized percentage of the daiy average net asset vaue of that cass during the period 6 The decision to waive and/or absorb management fees and operating epenses is at the discretion of the Manager The practice of waiving and/or absorbing management fees and operating epenses may continue indefinitey or may be terminated at any time without notice to unithoders 7 The trading epense ratio represents tota commissions and other portfoio transaction costs before income taes epressed as an annuaized percentage of the daiy average net asset vaue during the period Spreads associated with fied income securities trading are not ascertainabe and, for that reason, are not incuded in the trading epense ratio cacuation 8 The portfoio turnover rate indicates how activey the portfoio advisor and/or portfoio sub-advisor manages the portfoio investments A portfoio turnover rate of 100% is equivaent to a fund buying and seing a of the securities in its portfoio once in the course of the period The higher a portfoio turnover rate in a period, the greater the trading costs payabe by a fund in the period, and the greater the chance of an investor receiving taabe capita gains in the year There is not necessariy a reationship between a high turnover rate and the performance of a fund 4

5 CIBC Canadian Rea Estate Fund The Fund's Net Assets per Unit¹ - Cass O Units a Net Assets, beginning of period $ 1100 $ 991 $ 1012 b Increase (decrease) from operations: Tota revenue $ 056 $ 039 $ Tota epenses (004) (004) Reaized gains (osses) for the period Unreaized gains (osses) for the period (035) (016) Tota increase (decrease) from operations 2 $ 069 $ 142 $ Distributions: From income (ecuding dividends) $ 027 $ $ From dividends From capita gains 042 Return of capita Tota Distributions 3 $ 086 $ 033 $ Net Assets, end of period $ 1084 $ 1100 $ 991 a Information presented is for the period from October 30, 2015 to December 31, 2015 b Represents the price on the first day in the period in which the cass became active 1 This information is derived from the Fund's audited annua financia statements 2 Net assets and distributions are based on the actua number of units outstanding at the reevant time The tota increase (decrease) from operations is based on the weighted average number of units outstanding during the period 3 Distributions were paid in cash, reinvested in additiona units of the Fund, or both Ratios and Suppementa Data - Cass O Units a Tota Net Asset Vaue (000s) 4 $ $ $ Number of Units Outstanding Management Epense Ratio 5 000% 000% 000%* Management Epense Ratio before waivers or absorptions 6 000% 000% 042%* Trading Epense Ratio 7 011% 016% 009% Portfoio Turnover Rate % 5709% 2147% Net Asset Vaue per Unit $ 1084 $ 1100 $ 991 a Information presented is for the period from October 30, 2015 to December 31, 2015 * Ratio has been annuaized 4 This information is presented as at December 31 of the period(s) shown 5 Management epense ratio is based on the tota epenses of the fund (ecuding commissions and other portfoio transaction costs), incurred by or aocated to a cass of units for the period shown, epressed as an annuaized percentage of the daiy average net asset vaue of that cass during the period 6 The decision to waive and/or absorb management fees and operating epenses is at the discretion of the Manager The practice of waiving and/or absorbing management fees and operating epenses may continue indefinitey or may be terminated at any time without notice to unithoders 7 The trading epense ratio represents tota commissions and other portfoio transaction costs before income taes epressed as an annuaized percentage of the daiy average net asset vaue during the period Spreads associated with fied income securities trading are not ascertainabe and, for that reason, are not incuded in the trading epense ratio cacuation 8 The portfoio turnover rate indicates how activey the portfoio advisor and/or portfoio sub-advisor manages the portfoio investments A portfoio turnover rate of 100% is equivaent to a fund buying and seing a of the securities in its portfoio once in the course of the period The higher a portfoio turnover rate in a period, the greater the trading costs payabe by a fund in the period, and the greater the chance of an investor receiving taabe capita gains in the year There is not necessariy a reationship between a high turnover rate and the performance of a fund 5

6 CIBC Canadian Rea Estate Fund Management Fees The Fund, either directy or indirecty, pays CIBC an annua management fee to cover the costs of managing the Fund Management fees are based on the net asset vaue of the Fund and are cacuated daiy and paid monthy Management fees are paid to CIBC in consideration for providing, or arranging for the provision of, management, distribution, and portfoio advisory services Advertising and promotiona epenses, office overhead epenses, traiing commissions, and the fees of the portfoio sub-advisor(s) are paid by CIBC out of the management fees received from the Fund The Fund is required to pay appicabe taes on the management fees paid to CIBC Refer to the Simpified Prospectus for the annua management fee rate for each cass of units For Cass O units, the management fee is negotiated with and paid by, or as directed by, unithoders or deaers and discretionary managers on behaf of unithoders Such Cass O management fee wi not eceed the Cass A unit management fee rate The foowing tabe shows a breakdown of the services received in consideration of the management fees, as a percentage of the management fees coected from the Fund for the period ended December 31, 2017 These amounts do not incude waived fees or absorbed epenses Cass A Units Saes and traiing commissions paid to deaers 2951% Genera administration, investment advice, and profit 7049% Past Performance The performance data provided assumes reinvestment of distributions ony and does not take into account saes, redemption, distribution, or other optiona charges payabe by any unithoder that woud have reduced returns Past performance does not necessariy indicate how a fund wi perform in the future The Fund s returns are after the deduction of fees and epenses, and the difference in returns between casses of units is primariy due to differences in the management epense ratio See the section entited Financia Highights for the management epense ratio Year-by-Year Returns These bar charts show the annua performance of each cass of units of the Fund for each of the periods shown, and iustrate how the performance has changed from period to period These bar charts show, in percentage terms, how an investment made on January 1 woud have increased or decreased by December 31, uness otherwise indicated Cass A Units 600% 300% 00% -300% -600% 386% 235% 190% 136% 106% 60% 23% 35% -27% -395%

7 CIBC Canadian Rea Estate Fund Cass O Units 200% 144% 100% 64% 00% -100% -21% -200% 15 a a 2015 return is for the period from October 30, 2015 to December 31, 2015 Annua Compound Returns This tabe shows the annua compound return of each cass of units of the Fund for each indicated period ended on December 31, 2017 The annua compound tota return is aso compared to the Fund s benchmarks The Fund s primary benchmark is the S&P/TSX Composite Inde The Fund s bended benchmark (Bended Benchmark) is comprised of the foowing: 80% S&P/TSX Capped Rea Estate Inde 20% MSCI US REIT Inde 1 Year 3 Years 5 Years 10 Years* or Since Inception* Inception Date Cass A units 35% 54% 53% 54% September 22, 1997 S&P/TSX Composite Inde 91% 66% 86% 46% Bended Benchmark 85% 91% 110% 94% Cass O units 64% 84% October 30, 2015 S&P/TSX Composite Inde 91% 120% Bended Benchmark 85% 80% * If a cass of units has been outstanding for ess than 10 years, the annua compound return since inception is shown MSCI US REIT Inde is a free foat-adjusted market capitaization-weighted inde that is intended to represent the US rea estate investment trust sector and incudes companies that are engaged in property ownership and management S&P/TSX Capped Rea Estate Inde is intended to represent the Canadian rea estate sector and incudes companies isted on the TSX that are engaged in rea estate management and deveopment Any constituent s reative weight is capped at 25% S&P/TSX Composite Inde is intended to represent the Canadian equity market and incudes the argest companies isted on the TSX A discussion of the Fund's reative performance compared to its primary benchmark can be found in Resuts of Operations 7

8 CIBC Canadian Rea Estate Fund Summary of Investment Portfoio (as at December 31, 2017) The summary of investment portfoio may change due to ongoing portfoio transactions of the investment fund A quartery update is avaiabe by visiting wwwcibccom/mutuafunds The Top Positions tabe shows a fund s 25 argest positions For funds with fewer than 25 positions in tota, a positions are shown % of Net Asset Portfoio Breakdown Vaue Retai REITs 266 Residentia REITs 208 Diversified REITs 124 Office REITs 85 Rea Estate Operating Companies 66 Industria REITs 46 Other Equities 46 Diversified Rea Estate Activities 37 Hote & Resort REITs 37 Heath Care Faciities 34 Cash 26 Heath Care REITs 25 % of Net Asset Vaue Top Positions SmartCentres REIT 69 CREIT 57 RioCan REIT 54 InterRent REIT 50 Pure Muti-Famiy REIT LP, Cass 'A' 44 Aied Properties REIT 41 Kiam Apartment REIT 40 Cominar REIT 38 Tricon Capita Group Inc 37 Brookfied Property Partners LP 35 Chartwe Retirement Residences 34 Pure Industria Rea Estate Trust 33 SL Green Reaty Corp 33 First Capita Reaty Inc 31 Crombie REIT 31 Paza Retai REIT 30 H&R REIT 29 Camden Property Trust 28 Simon Property Group Inc 26 Cash 26 Wetower Inc 25 CubeSmart 25 Acadia Reaty Trust 25 Canadian Apartment Properties REIT 23 Northview Apartment REIT 23 8

9 A note on forward-ooking statements The management report of fund performance may contain forward-ooking statements Forward-ooking statements incude statements that are predictive in nature, that depend upon or refer to future events or conditions, or that incude words such as epects, anticipates, intends, pans, beieves, estimates, or other simiar wording In addition, any statements that may be made concerning future performance, strategies, or prospects and possibe future actions taken by the fund, are aso forward-ooking statements Forward-ooking statements are not guarantees of future performance These statements invove known and unknown risks, uncertainties, and other factors that may cause the actua resuts and achievements of the fund to differ materiay from those epressed or impied by such statements Such factors incude, but are not imited to: genera economic, market, and business conditions; fuctuations in securities prices, interest rates, and foreign currency echange rates; changes in government reguations; and catastrophic events The above ist of important factors that may affect future resuts is not ehaustive Before making any investment decisions, we encourage you to consider these and other factors carefuy CIBC does not undertake, and specificay discaims, any obigation to update or revise any forward-ooking statements, whether as a resut of new information, future deveopments, or otherwise prior to the reease of the net management report of fund performance

10 CIBC Mutua Funds CIBC Famiy of Portfoios CIBC 18 York Street, Suite 1300 Toronto, Ontario M5J 2T8 CIBC Securities Inc Website wwwcibccom/mutuafunds CIBC Securities Inc is a whoy-owned subsidiary of CIBC and is the principa distributor of the CIBC Mutua Funds and the CIBC Famiy of Portfoios CIBC Famiy of Portfoios are mutua funds that primariy invest in other CIBC Mutua Funds To obtain a copy of the simpified prospectus, ca CIBC Securities Inc at or ask your advisor