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RBC Dominion Securities Inc. Neil Downey, CPA, CA, CFA (Analyst) (416) 842‐7835 [email protected]

Michael Smith, CFA (Analyst) (416) 842‐7805 michael.smith‐[email protected]

Click here for full contact information for the RBC Capital Markets Canadian REIT/REOC equity research team.

January 7, 2016

Real Estate Investment Trusts Quarterly Review and Sector Outlook – Q1 2016

Recommendations

From the universe of 42 TSX‐listed REITs, we have 12 “Outperforms”: Allied Properties REIT, Boardwalk REIT, CAPREIT CREIT, InnVest REIT, Killam Apartment REIT, Milestone Apartments REIT, Morguard North American Residential REIT, Plaza Retail REIT, RioCan REIT, SmartREIT, andWPT Industrial REIT. Also included in this report are Brookfield Asset Management, Brookfield Property Partners, First Capital Realty, Melcor Developments Ltd., and Tricon Capital Group Inc. –each rated Outperform.

Highlights

REIT rout – The S&P/TSX Capped REIT Index’s ‐5% total return (‐10% price plus 5% yield) fell well short of our initial 2015 expectation. Despite besting the TSX Index (‐9%), performance was disappointing, as it lagged 10Y GOCs (+6%, on 40 bps of yield compression) and the domestically exposed sectors of the market in general (e.g., Staples +12%; Telecom +4%; Financials ‐2%; Utilities ‐3%). In local currency terms, European property stocks were strong(+19%), yet performance elsewhere was mundane to weak (Global 0%; US +3%; Asia ‐7%).

Eight Themes and Things to watch for in 2016 – We expect lower: 1) investment volumes (at $22–23B versus $23–24B in 2015) with the REIT/REOC share dropping as low as 15%; 2)equity issuance (at ~$1.5B, down from $1.9B in 2015); and, 3) unsecured debt issuance (also at ~$1.5B, down from $3B in 2015). We expect more: 4) fair‐value writedowns, originating largely from Alberta and certain tertiary markets/assets; 5) currency tailwinds, at least in H1/16 for those with US portfolios; 6) “profile”, with an eleventh GICS sector by September and a REIT within the “TSX 60” index; 7) retailer failures, due to rapidly changing and competitive dynamics; and, 8) M&A and corporate actions, which we believe could result inthe loss of one or more “core” names this year. We comment extensively on all herein.

Value, not momentum, is the theme – Trend‐line earnings growth has been “hanging in” at 4% annually. We expect momentum to wane into 2017 to 3% growth. 2015 NAV/unitgrowth was 4%, hitting the upside of our expectations. We are more cautious looking ahead,as the midpoint of our asymmetrical upside (+2%)/downside (‐5%) range points to modest NAV contraction. While the group is, therefore, lacking earnings and NAV growth momentum, valuation metrics (13.6x AFFO; 13% discount to NAV; ~6% cash yield on a low 80’s payout ratio) seemingly offer a decent margin of safety.

“Meet me in the middle” delivers attractive return potential – A modest decline in NAVs, coupled with price gains consistent with earnings growth, maintains a constant P/AFFOmultiple one‐year hence. The resulting P/NAV improves but remains discounted relative to the 3% LTA premium. This “meet me in the middle” convergence of NAVs (modestly down) and unit prices (modestly up) mathematically delivers low double‐digit total returnpotential.

Summary valuation data points

Metric 2010 2011 2012 2013 2014 2015* LTA1

AFFO Yield2 6.4% 5.9% 5.5% 6.7% 6.9% 7.4% 7.5% Premium Vs. 10Y GOC (bps)2 325 398 375 394 509 597 356 Price/AFFO2 15.7x 16.9x 18.0x 14.9x 14.5x 13.6x 13.9x NAV Premium/(Discount)3 8% 4% 3% (8%) (6%) (13%) 3% Notes: 1 Long‐Term Average is derived from approximately 18‐years of historical data. 2 Metric derived via market‐cap weighted basis. 3 Metric derived via simple‐average basis. *As of market close ET on December 31, 2015. Source: Thomson One and RBC Capital Markets

All values in Canadian dollars unless otherwise noted. Priced as of market close on December 31, 2015 ET (unless otherwise stated).

For Required Non‐US Analyst and Conflicts Disclosures, see page 330.

Real Estate Investment Trusts: Quarterly Review and Sector Outlook – Q1 2016

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January 7, 2016 2


RBC Capital Markets Canadian REIT/REOC equity research team

Neil Downey, CPA, CA, CFA (Analyst) (416) 842-7835; [email protected]

Primary sector coverage: Holdcos/asset managers, multi-res, office/industrial, select diversifieds, and lodging

Michael Smith, CFA (Analyst) (416) 842-7805; [email protected]

Primary sector coverage: Retail real estate, seniors housing, and select diversifieds

The key members of the team (in alpha-order): Ben Halm, CPA, CA (Associate) (416) 842-8720; [email protected] Matt Logan, CFA (Associate) (416) 842-3770; [email protected] Jeremy Osmar, CPA, CA, CFA (Associate) (416) 842-7894; [email protected] Alexei Siniakov, CFA (Associate) (416) 842-3803; [email protected]

Diversified financials equity research team Holdcos, asset managers, insurance, mortgage & specialty finance, exchanges, brokers, and private equity

Neil Downey, CPA, CA, CFA (Analyst) (416) 842-7835; [email protected] Research Associate team contact details above

Geoffrey Kwan, CFA (Analyst) (604) 257-7195; [email protected] Charan Sanghera (Associate) (604) 257-7657; [email protected]

January 7, 2016 3

mailto:[email protected]










Table of contents All listings are hyperlinked for the reader's convenience.

Executive summary and recommendations ................................... 6 Themes and Things to watch for in 2016 .......................................... 6 2015 REIT returns disappoint ............................................................ 8 Property fundamentals: Varied performance expected based on

asset class and region ................................................................. 9 The Canadian economy: Energy (to continue) to be an

aggregate “drag”; aiming for a growth recovery into the low-2s ....................................................................................... 10

TSX REIT market cap holds flat; capital activity moderates further ....................................................................................... 11

Real estate debt: A still favourable backdrop, yet less so than a year ago as the credit cycle shows signs of aging ..................... 12

Leverage & liquidity: Tracking consistently, trending well .............. 15 Direct property markets: Many more “meat and potatoes”

trades; activity remains generally robust.................................. 15 NAV growth and outlook: Yield compression and US exposure

buoy 2015 NAV/unit growth to the top end of our expectations ............................................................................. 17

Earnings growth reverting toward long-term average (“LTA”) ....... 18 Corporate actions (Strategic reviews + M&A + stock buybacks) ..... 19 Meet me in the middle: Our total return prospects in context of

interest rates sensitivities and AFFO yield spread requirements ............................................................................ 21

Valuation conclusions: Value, not momentum, is the theme; yet, we see attractive risk-adjusted return potential ............... 24

Investment recommendations ........................................................ 25

The broader economic backdrop: US and global growth set to accelerate in 2016, improved yet still tepid growth north of 49° .............................................................................................. 27 The US economy teeing up for a solid 2016 .................................... 27 Canadian economy to improve from a weak 2015, supported by

household consumption and exports; WTI wildcard ................ 28 The state of the consumer .............................................................. 30 The employment outlook is improving ........................................... 32 Consumer balance sheets continue to improve .............................. 35 Savings and debt remain relatively constant .................................. 37

The office sector: Supply-side imbalances and a weak demand environment on a national basis; significant regional disparities ................................................................................... 40 Expecting tepid 2016 uptake on the heels of 2015’s negative

absorption ................................................................................. 40 2016 supply growth to remain elevated and consistent with

2015 .......................................................................................... 41 National vacancy to (continue to) trend higher for two years ........ 43 For the most part, it’s a tenants’ market ........................................ 44 Canadian office vacancy favourable relative to the US, yet the

trends are in contrast with one another ................................... 48 Major market (“VECTOM”) reviews and outlooks........................... 48 Vancouver (~55MM sf): New supply to push a softening in the

central area, albeit less so than the suburbs ............................ 49

Edmonton (~24MM sf): Fundamentals likely to deteriorate in light of substantial deliveries and the lag effect of low WTI .....50

Toronto (~175MM sf): Vacancy should edge higher in 2016–2017; market size and diversity should provide stability ..........52

Calgary (~66MM sf): The grind is expected to intensify ..................55 Ottawa (~43MM sf): Empty pipeline stabilizes fundamentals.........58 Montreal (~96MM sf): Continued lacklustre fundamentals ............59

The retail real estate sector: Another challenging year ahead .....62 Urbanization and its impact on the retail sector .............................68 A quiet year on the IPO front ..........................................................69

The retail landscape ....................................................................70 Trends in the retail sector ...............................................................70 The impact of FX ..............................................................................72 An overview of select retailers ........................................................75

The OmniChannel and its impact on real estate ...........................80 eCommerce is a headwind that is unlikely to dissipate soon ..........80 The OmniChannel evolution ............................................................82 As retail evolves, well located real estate will still remain key ........88

The industrial sector: Healthy demand and a balanced construction pipeline equate to generally favourable fundamentals ..............................................................................91 e-commerce: a sustainable industrial real estate demand driver ...93 Local market commentaries ............................................................94 Regional market commentary and highlights ..................................95

The multi-unit residential sector: Vacancy to edge higher within the context of balanced overall conditions but notable regional disparities .................................................................... 100 Expecting moderation in total housing starts; volumes still in

line with demographic demand ..............................................101 Housing resale volumes to stay flat with modest price gains

supported by low interest rates and steady employment ......104 Affordability index remains above long-term average ..................108 National inventories reverting toward the mean ..........................109 US housing recovery continues .....................................................111 Decline in net immigration hinders population growth ................112 Toronto condo market: Despite lots of cranes, the data suggests

the market remains within balance ........................................114 2015 national rental vacancy rises; trend likely to continue .........116 A closer look at provincial rent controls ........................................116 Western Canada – Regional and local market insights ..................117 Central Canada – Regional and local market insights ....................119 Atlantic Canada – Regional and local market insights ...................121 Major markets: historical vacancy and rent data ..........................121

The lodging sector: To benefit from foreign exchange tailwinds 125 2015 wraps-up a sixth year of operational gains ...........................125 Further gains in 2016 on favourable supply/demand outlook ......125 Profitability is expected to reach an all-time high in 2016 ............130

Table of Contents continues on the next page. January 7, 2016 4


Regional expectations: all regions should post improvement ...... 131 Development exposé: Hotels within larger mixed-use projects.... 132 Transaction activity continues on a strong pace in 2015 .............. 133

Investor returns and performance trends: 2015 was not much fun, so let’s look forward, not back ........................................... 135

Investment and capital market dynamics .................................. 140 TSX-listed REIT market cap remains effectively flat at $62B ......... 140 Real estate debt: A still favourable backdrop, yet less so than a

year ago as the credit cycle shows signs of aging ................... 144 Liquidity, leverage, and lease maturity profiles ............................ 158 Direct property markets: Generally robust activity, but a second

consecutive year of mostly “meat and potatoes” trades ............ 166 Direct property landscape: Three investment themes .................. 172 Highlighting 2015’s “benchmark” trades ...................................... 174 In the extra-innings phase of the yield-compression cycle; but

significant cap-rate expansion is not a foregone conclusion .. 181 Corporate actions (Strategic reviews + M&A + stock buybacks) ... 183 Earnings growth: In line with long-term average; further

(modest) deceleration likely ................................................... 190

Valuation overview ................................................................... 193 Net asset values (“NAVs”) ............................................................. 193 AFFO yields and analysis ............................................................... 197 2015: Above-average volatility and a persistent discount to NAV

environment ........................................................................... 199 Meet-me-in-the middle: Our total return prospects in context of

interest rates sensitivities and AFFO yield spread requirements .......................................................................... 205

Conclusions: Value not momentum is the theme, yet we see attractive risk-adjusted return potential ................................ 208

Investment risks and uncertainties ............................................ 209 Risks inherent in the ownership of real property .......................... 209 Impediments to achievement of price targets .............................. 209

REITs and REOCs in review ........................................................ 211 Boardwalk Real Estate Investment Trust ...................................... 212 Canadian Apartment Properties REIT ............................................ 214 Killam Apartment REIT .................................................................. 216 Milestone Apartments Real Estate Investment Trust ................... 218 Morguard North American Residential REIT ................................. 220 Northview Apartment Real Estate Investment Trust .................... 221 Chartwell Retirement Residences ................................................. 223 Extendicare Inc. ............................................................................. 225 Sienna Senior Living Inc. ................................................................ 226 Choice Properties Real Estate Investment Trust ........................... 227 Crombie Real Estate Investment Trust .......................................... 228 CT Real Estate Investment Trust ................................................... 229 First Capital Realty Inc. .................................................................. 230

One Real Estate Investment Trust .................................................232 Plaza Retail Real Estate Investment Trust .....................................233 RioCan Real Estate Investment Trust ............................................234 Slate Retail Real Estate Investment Trust ......................................236 Smart Real Estate Investment Trust ..............................................237 Allied Properties Real Estate Investment Trust .............................238 Brookfield Canada Office Properties .............................................240 Brookfield Property Partners .........................................................242 Dream Office Real Estate Investment Trust ..................................244 Granite Real Estate Investment Trust ............................................246 NorthWest Healthcare Properties REIT .........................................247 Pure Industrial Real Estate Trust ...................................................249 WPT Industrial Real Estate Trust ...................................................251 Agellan Commercial Real Estate Investment Trust ........................252 Artis Real Estate Investment Trust ................................................253 Canadian Real Estate Investment Trust .........................................254 Cominar Real Estate Investment Trust ..........................................256 H&R Real Estate Investment Trust ................................................257 Melcor Real Estate Investment Trust ............................................259 Morguard Real Estate Investment Trust ........................................260 InnVest Real Estate Investment Trust ...........................................261 Brookfield Asset Management Inc. ...............................................263 Melcor Developments Ltd. ............................................................265 Morguard Corporation ..................................................................266 Tricon Capital Group Inc. ...............................................................267

Appendices: Appendix I: Summarized financial models .....................................269

BEI.UN | CAR.UN | KMP | MST.UN | MRG.UN | NVU.UN | CSH.UN EXE | SIA | CHP.UN | CRR.UN | CRT.UN | FCR | ONR.UN | PLZ.UN REI.UN | SRT.UN | SRU.UN | AP.UN | BOX.UN | BPY | D.UN GRT.UN | NWH.UN | AAR.UN | WIR.U | ACR.UN | AX.UN REF.UN | CUF.UN | HR.UN | MR.UN | MRT.UN | INN.UN | BAM MRD | MRC | TCN

Appendix II: Listing of office properties under construction .........308 Appendix III: RBC Economics’ interest rate and economic

forecast ...................................................................................311 Appendix IV: REIT returns ..............................................................312 Appendix V: 2015 REIT and REOC equity and equity-related

issuances .................................................................................314 Appendix VI: 2015 property transactions ......................................315 Appendix VII: Canadian REITs and REOCs — NAV summary ..........324 Appendix VIII: Canadian REITs and REOCs — Convertible

debenture comparable valuation table...................................326 Appendix IX: Canadian REITs and REOCs — Valuation table .........328

January 7, 2016 5


Executive summary and recommendations We are pleased to provide you with our Q1 2016 REIT Quarterly Review and Sector Outlook. This represents our 72nd Edition of the REIT Quarterly. Consistent with tradition, the first-quarter publication contains an overview of Canadian property market fundamentals and serves as our annual outlook for the Canadian-listed property sector.

Themes and Things to watch for in 2016 We believe the key performance, investment, and capital market themes to watch for over the course of 2016 (and potentially beyond) include:

1) Modestly lower investment volumes; REITs/REOCs take a further reduced sharePending the final tally, we estimate 2015 Canadian investment property trading volume to be in the $23–24 billion range, down about 7% from 2014’s $26 billion. Last year, REITs and REOCs took an estimated 18% share of total turnover, down from 23% in 2014.

We expect 2016 direct market turnover will be in the $22–23 billion range, equating to a further 4% decline. We believe REITs and REOCs might only represent a 12–15% share of total 2016 turnover.

2) Significantly curtailed equity issuance (again)2015 public-equity issuance totalled $1.9 billion, which was down 17% year over year and in line with our beginning of year point estimate of $2.0 billion. Listed versus private valuations is the single-most influential driver behind our outlook for reduced equity issuance. Other factors include the lack of availability of suitable product for purchase, rising earnings retention in combination with low leverage at some of the more seasoned REITs, and increased capital recycling initiatives.

For 2016, we forecast $1.0–1.5 billion of equity and equity-related capital to be raised by listed REITs and REOCs.

3) Reduced unsecured debt issuance too; increased emphasis on mortgagesThe real estate unsecured debt market was not immune to increasing risk aversion across the corporate credit market in H2/15. Widening spreads ultimately curtailed 2015 unsecured debt origination by REITs and REOCs to $3.0 billion, down 45% from 2014’s $5.5 billion.

We believe 2016 new issuance will be within the $1.0–1.5 billion range, exceeding contractual maturities of $1 billion, but declining by more than 50% from 2015 origination. With a heavy year of CMBS maturities ($3 billion) and reduced unsecured debt issuance, we believe REITs and REOCs will place increased emphasis on mortgage debt from “old fashioned, balance sheet” lenders.

4) More fair-value markdowns, originating largely from Alberta and certain tertiarymarkets; average NAV/unit growth may turn negative On a same-REIT/REOC basis (19 issuers) for the nine-months ended September 2015, aggregate net fair value losses registered $128 million. And, when the full-year 2015 figures are available, we expect additional Q4/15 net markdowns potentially to drive full-year net markdowns to more than $500 million. Every year since 2012, net fair value markups have been diminishing, as has the number of REITs and REOCs posting such gains. We suspect the trend of net markdowns continues in 2016.

Our 2016 outlook for average NAV/unit growth is within a range of -5% to +2%. At its midpoint, this slightly asymmetrical outlook implies a modest decline in average NAV/unit.

January 7, 2016 6


5) US exposure to provide ongoing “tailwind” for H1/16, possibly longer The US dollar appreciated by 19% against the Canadian dollar in 2015. Hence, foreign currency “tailwinds” were present, in the form of currency-driven earnings and NAV growth for enterprises with US property portfolios. When coupled with property market fundamentals, which typically drive higher organic growth rates in US properties than in Canadian properties, the outcome was higher average Canadian dollar total returns from enterprises with US exposure rather than those without.

With the Canadian dollar averaging US$0.81 in H1/15 versus US$0.71 at year end, we expect foreign currency translation effects should continue to be a net benefit for REITs and REOCs owning US property through H1/16, if not beyond.

6) A REIT makes the cut for “the 60” S&P Dow Jones Indices (“S&P”) and MSCI Inc. (“MSCI”) will implement a new eleventh sector code within the S&P/TSX Composite Index after market close on August 31, 2016.

We believe the implementation provides RioCan REIT with a very good “shot” at becoming the first and only REIT constituent within the widely followed, large-cap weighted S&P/TSX 60 Index.

7) El Niño’s warmth may put a major chill on retailers’ performance; expecting a fresh round of store closures through H1/16 Through November and December, a strong El Niño effect continued, as evidenced by well above-average sea-surface temperatures across the central and east-central equatorial Pacific Ocean. Across virtually all of Canada, this caused winter 2015–16 to start slowly. And the outlook suggests that it will be more temperate, potentially with less precipitation (i.e., snow) and potentially shorter in duration. None of these factors stacks up well for a wide swath of Canadian retailers, where seasonal merchandise sales are a big deal.

We expect there could be a fresh round of store closures announced though H1/16.

8) Increasing M&A activity and corporate actions: The REIT & REOC universe could begin shrinking more meaningfully, including the loss of one or more “core” names Over the past year, there has been increasing instances whereby boards have taken action to surface underappreciated intrinsic value, including the commencement of a series of “strategic reviews” (one has reached a formal conclusion), stepped up unit/share repurchases (more than $300 million), and accelerating M&A and privatizations (in 2015, there were four REIT and REOCs M&A transactions, encompassing about $4 billion in gross assets).

In light of overall private market demand for real property investments and more than two years of broadly languishing unit prices, we expect corporate actions to gain momentum in 2016.

We see a see a decent probability (better than even chance) that one or more REITs will initiate a “strategic review” process this year. We see increasing odds that one or more “core names” will disappear this year or next. It is very difficult to predict “who” and “when”, but herein, we include a “corporate actions catalyst matrix” (see Exhibit 6 on page 20).

January 7, 2016 7


Beyond our eight themes and things to watch for in 2016, the key highlights and recommendations in this report include:

2015 REIT returns disappoint The S&P/TSX Capped REIT Index (“the REIT Index”) was subject to a sizable 10.1% price decline in 2015, which was cushioned by income to allow for a total return of negative 4.6%. Canadian REIT returns lagged the 2015 performance of property stocks in most regions; where in local currency terms, Europe was the strongest performer (the FTSE EPRA/NAREIT Europe (Developed) Index was +18.8% in euros) followed by the US (the MSCI US REIT index was 2.5%). Asian REITs were the 2015 laggards (the FTSE EPRA/NAREIT Asian Index (Developed) posted a -6.9% return in yen).

Listed property returns were generally disappointing in 2015, with the EPRA/NAREIT Global (Developed) Index posting a total return of 0.1%. This US dollar-based index was hurt by currencies, whereby the US dollar appreciated 19% versus the Canadian dollar, 11% versus the euro, 6% versus pound sterling, and it was roughly flat relative to yen.

Smaller-cap REITs and selected REOCs generally performed better than their large-cap peers. The simple-average 2015 REIT/REOC total return was 7.8%, materially ahead of the negative 4.6% from the REIT Index.

The Seniors Housing sector was the top-performing sector, posting a 59.4% simple-average total return. Privatization activity was the key catalyst. Returns from other sectors included: Multi res (+6.0%), Commercial property (+1.0%), and Lodging (-2.8%).

Equity market rout and GDP forecast revisions weigh on REIT performance Last year, we believe the overall weakness of the broader equity market and the significant downward revisions to 2015 estimated GDP growth (-160 bps, to 1.2% as of year end) simply overpowered even the benefit of strengthening yield support from the bond market.

The REIT Index’s 2015 return was modestly ahead of the negative 8.3% performance of the S&P/TSX Composite Index. Market internals were decidedly negative in the commodity complex. Energy and Materials represented a 33% collective weight within the Composite at the outset of last year, and they posted total returns of negative 22.9% and negative 21.0%, respectively. Last year’s performance from the “domestically exposed” sectors of the market were modestly to significantly better than the REIT Index, as evidenced by the following total returns: Consumer Staples (+12.4%); Telecom (+3.6%); Financials (-1.7%); and, Utilities (-3.5%).

Benefitting from a ~40 bps decline in yield, the 10-year Government of Canada (“GOC”) bond generated 2015 total return of 6.3%, sizably beating the REIT Index.

We believe the overall weakness of the broader equity market and the significant downward revisions to 2015 estimated GDP growth (-160 bps, to 1.2% as of year end) simply overpowered even the benefit of strengthening yield support from the bond market.

January 7, 2016 8


Property fundamentals: Varied performance expected based on asset class and region As is the usual protocol within the first-quarter edition of the REIT Quarterly, we review recent market trends and the outlook for supply/demand, rents, and occupancies for the major property classes in five separate sections. In contrast to years gone by, we expect an increasing disparity of performance based on geographic region and by asset class.

At its most basic level, demand for space is positively correlated with economic growth. We expect an improvement in aggregate GDP growth this year, albeit to a still tepid 2.2% gain (from a 1.2% expectation for 2015). On a national basis, we expect modest economic growth to support positive absorption across asset classes. Regional disparities were significant last year. They are likely to persist this year, albeit perhaps to a lesser degree.

Along with the GDP growth, there are a host of variables affecting property-level performance, including but not limited to: 1) a substantial supply-side pipeline in the office sector and increasing construction of multi-dwelling residential units, including more purpose-built rentals; 2) a dramatic year-over-year weakening in the Canadian versus US dollar (down 16%); 3) a 65% plunge in the price of West Texas Intermediate crude oil since June 2014; 4) Target Canada’s departure in early 2015, coupled with the disruptive and high rate of growth in on-line sales; and, 5) strong urbanization trends.

Encapsulating the outlook for each major property sector in a sound bite, we note:

1) Office – Supply-side imbalances and a weak demand environment on a national basis;significant regional disparities;

2) Retail – Another challenging year ahead;3) Industrial – Healthy demand and a balance construction pipeline equate to generally

favourable fundamentals;4) Multi-res (Apartments) – Vacancy to edge higher within the context of balanced overall

conditions but notable regional disparities; and,5) Lodging – To benefit from foreign exchange tailwinds.

On the basis of our one-, two-, and three-year expectations, Exhibit 1 below encapsulates our view with respect to the relative strength in property sector fundamentals.

Exhibit 1: Expected relative strength in sector fundamentals

Year 1 (2016) Year 2 (2017) Year 3 (2018)

HigherHotel/lodging 2% - 5%

1% - 3%

1% - 2%

1% - 2%

Retail Retail 0% - 2%

Lower Office Office (-2%) - 1%

Time Horizon

Expe

cted

Rel

ativ

e St

reng

th in

Se

ctor

Fun

dam

enta

ls

Expected NOI Growth Range

Hotel/ lodgingIndustrial

Multi-family Seniors housing Retail

Office Hotel/lodging

Industrial Multi-family

Seniors housing

Industrial Multi-family

Seniors housing

Source: RBC Capital Markets estimates

January 7, 2016 9


Congruent with our 2015 outlook, the only segment in which we see a noteworthy risk of declining same-property income is the office sector. This is a mix of weak demand and too much supply. We expect others to produce varying rates of growth, much of which will be in the 1–2% range in light of tepid aggregate and disparate regional GDP growth. The one- to two-year trend for hotel and lodging looks generally favourable for this notoriously cyclical sector. While modest GDP growth is not great in this regard, we believe the significant decline in the Canadian dollar will provide a good boost for domestic hoteliers. Moreover, as 2017 is Canada’s 150th anniversary, we believe the year could be strong for domestic and international tourism. In five separate sections spanning pages 40–134 of this report, we review the fundamentals behind five of the six property sectors listed above.

The Canadian economy: Energy (to continue) to be an aggregate “drag”; aiming for a growth recovery into the low-2s The highlights of our 2016 and beyond economic outlook and themes are:

GDP growth set to improve, albeit to still tepid growth, following a weak 2015 RBC Economics forecasts Canadian GDP growth of 1.2% in 2015, picking up to 2.2% in 2016 and 2.7% in 2017. Forecasts for 2015–2017 US GDP growth are more robust, at 2.5%, 2.8%, and 2.7%, respectively. GDP growth is expected to be driven by: 1) a modest pick-up in consumer spending; 2) export growth supported by a weaker Canadian dollar; and, 3) government stimulus spending. In addition, headwinds in the energy sector are expected to ease, as rising crude prices in the back-half of 2016 supporting a rebound in GDP growth.

Although higher crude prices are expected to limit the magnitude of capex and job cuts by energy companies, if crude fails to recover (or declines further), then we see downside risk to the current economic growth forecast for Canada as a whole, and Alberta more acutely.

Regional differences are expected to persist, but narrow, in 2016 Diverging conditions between oil-producing and oil-consuming provinces are expected to persist in 2016, although the contrast is unlikely to be as sharp as 2015. RBC Economics believes the benefits from lower oil prices, the weaker value of the Canadian dollar, and solid growth in the US economy will accrue more substantially in 2016, promoting moderately faster rates of expansion in the majority of oil-consuming provinces in 2016. Oil exporting provinces are also expected to return to modest growth this year.

Exhibit 2: RBC Economics’ Canadian GDP growth forecast

2015 estimates

-1.3%-0.6%

-0.2%

1.2% 1.3%1.8%

2.1%

2.9%

-2%

0%

2%

4%

AB SK ATL CAD QC MB ON BC

2016 estimates

0.9% 1.2%1.9%

2.2% 2.4% 2.5% 2.5%3.1%

-2%

0%

2%

4%

AB ATL QC CAD MB ON SK BC

Note: Individual 2015–2016 GDP estimates for Atlantic Provinces (“ATL”) are as follows: NL: -3.5%/0.3%, NS: 0.9%/1.8%, NB: 1.0%/1.2%, PE: 1.7%/1.6%. Source: RBC Economics estimates and RBC Capital Markets

Regional differences are expected to persist, but narrow, in 2016.

January 7, 2016 10


Lower CAD and a strengthening US economy should help; Consumer spending to pick up modestly despite debt levels that are (still) climbing Over the past 12 months, the Canadian dollar declined 16% from US$0.86 to US$0.72, benefitting Canadian exporters. Imports, however, are likely to increase at a slower pace due to the sharp rise in prices of machinery and equipment. In addition, despite debt levels that continue to climb, consumer spending is expected to post a modest 2.3% improvement in 2016, as a healthy labour market (in most parts of the country) and accommodative financial conditions will underpin consumption. Notably, the Canadian consumer debt-to-disposable income ratio rose to a record 153%—a figure that is 15 percentage points higher than the comparable US ratio. Despite elevated debt-to-personal disposable income ratios in Canada, the debt service coverage ratio remains on a steady downward trend at 6.3% in Canada and 10.1% in the US.

The Fed (finally) has lift-off, while the Bank of Canada plays the waiting game In December 2015, the Fed kicked off the cycle hiking cycle with a 25 bps rate increase, following seven years of unchanged target federal funds rates. Looking forward, our US economists, Tom Porcelli and Jacob Oubina, believe that four rate hikes are likely this year, moving the federal funds rate to 1.50% by the end of 2016. Meanwhile, the Bank of Canada continues to maintain the overnight rate at 0.5%. RBC Economics believes the overnight rate will be maintained for most of the year, before two rate hikes in late 2016 push the rate to 1.0%.

If these forecasts prove accurate, we suspect there will be some upward pressure on five- and 10-year Treasury and GOC bond yields. Moving out the curve, RBC Economics forecasts the five-year GOC benchmark yield will increase to 2.10% by the end of 2016. This would represent a sizable 137 bps interest rate increase from Q4/15’s 0.73%. The forecast also suggests that the 10-year GOC yield will round out this year at 3.30% (+191 bps from Q4/15’s 1.39%).

TSX REIT market cap holds flat; capital activity moderates further TSX-listed REITs ended 2015 with a market cap of approximately $62 billion, effectively flat from $62 billion at the beginning of the year. As of December 31, 2015, 17 REITs had equity market capitalizations in excess of $1 billion (unchanged from the beginning of the year), and 12 REITs had market caps greater than $2 billion (down from 13 at the outset of 2015).

Last year, the number of TSX-listed REITs remained unchanged at 41, which was the net product of one new REIT via IPO (Automotive Properties REIT) and one lost due to a REIT-to-REIT merger (True North Apartment REIT). In the first week of January, the sector has gained one new listing (Killam Apartment REIT) via a REOC to REIT conversion, pushing the current roster of TSX-listed REITs to 42. As discussed throughout this report, we expect that over the course of 2016 (and 2017), M&A and privatization activity will be the means whereby the number of listed REITs (and REOCs) is more likely to shrink than to grow.

Capital raising momentum slows for the third consecutive year Last year, an aggregate of $1.9 billion of equity and equity-related capital was raised by REITs and REOCs from the public. The volume of financings was in line with our beginning of the year point estimate of $2.0 billion. Last year’s total financings were 17% below 2014’s $2.3 billion and 72% lower than 2012’s all-time high of $7.0 billion. The long-term average annual equity capital raising activity by REITs and REOCs has been $4.0 billion, as measured on a trailing 10-year basis.

We believe 2015’s modest equity capital raising volume was a direct product of:

1) the overall valuation level of listed real estate;2) a lack of acquisition opportunities for the large REITs and REOCs; and,3) increased capital recycling, predominantly by the larger REITs and REOCs.

January 7, 2016 11


2015’s $1.9 billion in equity and equity-related financings encompassed 23 transactions, including 21 by REITs and two by REOCs. REIT activity totalled $1.8 billion by way of 19 common equity offerings ($1.7 billion) and two convertible debenture offerings ($80 million). REOC capital raising activity totalled $127 million, which was raised through two common share offerings.

We forecast $1.0–1.5 billion of equity and equity-related capital to be raised by listed REITs and REOCs in 2016.

Exhibit 3: Annual REIT/REOC capital raising, 1996 to 2015 ($B, unless noted)

0

20

40

60

80

0

2

4

6

8

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Equity Convertible debentures Other # of deals (RHS)

Source: Company reports and RBC Capital Markets

REITs go GICS this year On November 10, 2014, S&P Dow Jones Indices (“S&P”) and MSCI Inc. (“MSCI”) announced the creation of a new Global Industry Classification Standard (“GICS”) sector for Real Estate. The implementation will be effective after market close on August 31, 2016, with the total number of GICS sectors moving to 11. Not since its creation in 1999 have any new sectors been added to the GICS classification system. We believe the creation of an eleventh GICS sector for real estate appropriately recognizes that the industry is unique and distinctly separate from Financials. We believe the implementation provides RioCan REIT with a very good “shot” at becoming an S&P/TSX 60 Index constituent. Currently, Brookfield Asset Management (“BAM”) is the only “real estate” company in the S&P/TSX 60 Index (we italicize “real estate” as we truly do not see BAM as a real estate company).

Real estate debt: A still favourable backdrop, yet less so than a year ago as the credit cycle shows signs of aging The nominal cost of most forms of real estate debt in Canada remains at or near all-time lows. 10-year GOC bond yields oscillated within a 60 bps band last year, and from the outset of the year to the end, they declined ~40 bps to round-out 2015 at 1.4%. At a high level, action within five-year GOC bonds was of a similar pattern, if not greater in magnitude, rounding out 2015 at 73 bps, down a massive 60 bps on the year.

Credit cycle shows signs of aging and rising risk aversion The broader corporate credit market was subject to spread widening, notably in non-investment-grade paper, through the back half of the year. Initially, it was the debt instruments of non-investment-grade rated energy, mining, and metals companies that took

January 7, 2016 12


the brunt of the selling. In the latter several months of 2015, price weakness spread to other sectors such as media, retail, and even pharma. High-yield debt markets were hit hard in December when one well respected money manager moved to close its ~US$800 million credit mutual fund, and it suspended investor cash redemption rights, while another high-yield credit fund notified investors of its intention to return ~US$900 million to investors in early 2016. At a high level, we believe the spread widening phenomenon and certain “cracks” in the market are signs of the corporate credit cycle shifting into its later innings.

Conventional mortgage market: Spread widening cushioned by lower GOC yields; expecting range bound spreads for 2016 (maybe narrower near term; wider in H2) Mortgage rates through 2015 showed little movement. Our indicative five-year commercial mortgage rate commenced the year at 2.8% and by year-end had decreased ~20 bps to 2.6%, albeit with the tailwind of a ~60 bps decline in the five-year GOC yield. As such, the indicative loan spread at the end of 2015 was 190 bps, some 40 bps wider relative to the outset of the year. The year-end 2015 five-year indicative commercial mortgage spread compared to a long-term average of 180 bps.

Over time, the mortgage market has been particularly reliable for borrowers. Loan spreads oscillate over time, but they tend to exhibit “low and slow” volatility, outside periods of tremendous market optimism (i.e., 2006–2007) or extreme pessimism (i.e., 2008–2009). This year, we see some interesting dynamics to the mortgage market that could affect spreads, including: 1) lender consolidation, with the loss of GE Capital Real Estate and Standard Life’s Canadian operations; 2) the likelihood of higher provisions for credit losses (and higher potential realized losses) across the major Canadian banks; 3) the potential spillover impact of widening corporate credit spreads (and real estate unsecured debenture spreads too—as per below); and, 5) a heavy CMBS maturity pipeline.

In the near term, we note that mortgage lenders typically seem to commence the year with an eagerness to achieve their lending targets, and as such, their desire to put capital out the door may even drive slight spread tightening in early 2016. In contrast, through the back half, we currently see the risk of spread “creep” due to the factors noted above. Overall, and barring any unforeseen and/or severe dislocation within credit markets, we see little reason to believe that mortgage spreads will venture notably outside of the 170–200 bps range this year.

Unsecured debt origination slows from record highs Following 2014’s all-time record volume of $5.5 billion, last year’s unsecured debt issuance sharply decelerated. Specifically, REITs and REOCs collectively issued $3.0 billion of unsecured debentures via 16 transactions, representing a 45% year-over-year decline in volume, to a figure that was also modestly behind the five-year (2010–2014) average of $3.8 billion. Relative to approximately $1 billion in 2015 unsecured debt maturities, issuance was still sizably positive on a net basis. 2015 origination was substantially weighted toward the early part of the year, with $2.3 billion of H1/15 activity. Corporate credit market risk aversion (i.e., spread widening) limited H2/15 activity to $0.8 billion.

While averages can be dangerous (they typically mask underlying highs and lows), we note that 2015’s $3.0 billion of unsecured debt origination carried a seven-year WATM and a 3.42% WAIR (for a weighted-average spread of 215 bps). While 2015’s weighted-average spread was a sizable ~40 bps wider than 2014’s 175 bps (also on a seven-year WATM), it was by no means outside of the normal historical range.

January 7, 2016 13


2016 unsecured debt origination: Forecasting further moderation, to $1.0–1.5B In 2016, there is an estimated $1.0 billion of REIT and REOC unsecured debentures with contractual maturities. We believe it is reasonable to expect 2016 unsecured debt originations between $1.0–1.5 billion. We believe listed REITs and REOCs will apply origination funding for the purposes of repaying and/or refinancing pending maturities and for growth initiatives.

Large loan and CMBS origination volumes decline Our database of large loan financing transactions, while not all encompassing, serves as a good barometer for overall market activity. 2015 volume tallied $0.9 billion, representing a ~40% decrease from 2014’s $1.6 billion. Moreover, the 2014 volume was down 47% from 2013’s $2.3 billion.

2015 large-loan financings carried a WATM of nine years, a weighted-average LTV of 60%, and a weighted-average loan spread of 212 bps. Leverage metrics were 7 percentage points above 2014’s average 53% LTV, and the weighted-average loan spread was 31 bps wider. 2015’s WATM was also one-year shorter.

We do not see 2015’s volume decline as any negative sign. Rather, it was likely a function of: 1) solid, albeit reduced volume of unsecured-debt issuance last year; 2) the maturity profilesof borrowers (which affect the timing of new or renewal term financing; and, 3) the “chunky” nature of large loans.

CMBS origination trends lower in 2015; still way below pre-GFC levels 2015 CMBS issuance totalled $810 million via three financings, marking a 26% decline from 2014’s $1.1 billion. 2015 was the second consecutive year when annual origination activity declined.

$9.6B aggregate Canadian CMBS balance; delinquencies remain very low Delinquencies remain an exceptional story at 0.50% as of October 2015, suggesting there is roughly $48 million of delinquent and/or non-performing loans on a total of ~$9.6 billion in CMBS bonds outstanding. The recent delinquency reading remains in line with the long-term average (dating back to 2008) of 0.50%.

Heavy maturity profile through 2017; negative net issuance expected this year This year, a sizable $3 billion of CMBS will mature followed by a further $2.1 billion in 2017. RBC Capital Market’s Credit Analyst, Vivek Selot, does not expect lenders will fully refinance near-term CMBS maturities. Supporting this view, he cites relatively wider CMBS funding spreads and the challenges in the current capital markets of placing very large CMBS deals. For 2016, Vivek forecasts annual CMBS origination activity within the $1.2–1.6 billion range. If achieved, this would represent a volume increase of 50–100%, but it will not match total maturities.

Back to basics: In the absence of a narrowing unsecured spreads and with a heavy CMBS roll, we expected a shift toward more secured balance-sheet financing While we firmly believe the larger, investment-grade REITs and REOCs will not waver from their stance on sustained and further improving creditworthiness, we also believe they will not hesitate to revert to basics via placing new secured mortgage financing on a selective basis, if there is no 2016 relief to the H2/15’s unsecured debt spread widening.

January 7, 2016 14


Leverage & liquidity: Tracking consistently, trending well We estimate the group’s weighted-average liquidity is ~8.5%, representing $9 billion of immediately available funds. The group’s liquidity typically oscillates within the 8–10% band. Thus, the current reading is modestly below the midpoint of the “normal” range. A handful of factors have contributed toward gradually lower liquidity over the past 18 months, including: 1) curtailed equity issuance; 2) widening unsecured real estate debt spreads through 2015; and, 3) a step-up in equity repurchase activity (normal course issuer bids). We also believe some of the Q3/15 drawdown is timing related and that the liquidity ratio will tick up based on Q4/15 and Q1/16 readings.

Our database pegs aggregate 2016 debt maturities (for REITs and REOCs under coverage) at ~$12 billion (~11% of total debt), which is in line with the 9–11% normal band.

Convertible debentures: Modest 2016 maturities of $107 million The aggregate value of REIT/REOC convertible debentures outstanding as of Q4/15 was $2.7 billion (at par), $0.6 billion less than the $3.3 billion outstanding at the beginning of 2015. Three series with a very modest aggregate principal balance of $107 million mature in 2016. Maturities accelerate to $556 million (10 series) in 2017 and $913 million (16 series) in 2018. Overall, the sector has been gradually reducing its reliance on convertibles. Currently, only one of the 29 series maturing through 2018 is “in the money”, so there remains a moderate volume of refinancing to address within the latter two years of this timeline.

Stable leverage and slightly improving cash flow coverage metrics The average D/EV ratio for our coverage universe was 54% at the end of 2015. This reading is up approximately 1 percentage point year over year. Over the past year, the simple-average LTV estimate for our coverage universe is down ~100 bps to 49%. During this timeframe, our average applied capitalization rate has declined 30 bps to 6.4%.1

Reflecting broad-based improvements in operating fundamentals, as well as the modest interest rate savings on re-financing of near-term debt maturities, we expect 2015 interest coverage to be 3.0x, which would be a nice improvement from 2014’s 2.8x. Continuing the trend, we forecast an improvement to 3.2x this year with stability (3.3x) into 2017.

Direct property markets: Many more “meat and potatoes” trades; activity remains generally robust Final 2015 figures have not yet been reported, but we expect a full-year tally for Canadian investment property trading volume to be in the $23–24 billion range. This implies a decline of about 7% relative to 2014’s $24 billion. Last year, there were very few “trophy” property trades. Hence, for the second consecutive year, we characterize 2015 as a year of principally “meat and potatoes” property trades.

REIT and REOC acquisition activity continues to be hurt by their cost of equity REIT and REOC 2015 acquisition activity continued to be negatively affected by their collective inability to access well-priced equity capital. The environment was in contrast to 2012 and early 2013 when REITs traded at a premium to NAV. To illustrate the point, we estimate that REIT and REOC market share declined to 18% of last year’s turnover, based on all transactions having a value of $10 million or more. In 2012, REITs and REOCs attained a high-water mark, with a 49% of share.

1Excluding companies newly added to our coverage since last year, on a same-company basis, LTV also down 1 pp to 49% from 50% last year. Similarly, the average applied-cap rate declined by ~20 bps to 6.5% from 6.7% in 2014.

January 7, 2016 15


Looking ahead, we expect 2016 direct market turnover will be in the $22–23 billion range. Our forecast represents a decline of approximately 4% from 2015’s estimated $23–24 billion. We see annual turnover of $20 billion or more as a healthy and liquid market. We believe REITs and REOCs might only represent a 12–15% share of total 2016 turnover. If this outlook proves to low, it may be due to REIT and REOCs property sales not acquisitions.

We see three themes inherent in the current direct property investment market climate:

1) A country of three investment markets: Hot, cold, and (mostly) warm We currently see significant divergence across the country with respect to investor appetite for real property. While we are clearly providing a degree of generalization, in some ways, Canada has become a country of three investment markets: 1) Toronto-Vancouver, which are “well-bid” to extremely “well-bid”, in part due to the influence of global capital seeking prime assets; 2) Alberta, which is suffering from a weak to “no-bid”; and, 3) everywhere else, which in generic terms, is somewhere in between Toronto-Vancouver and Alberta.

2) The future has little to no value Tepid economic demand and NOI growth in many markets are such that prospective investors typically place very little and in some cases no value on vacant space. We believe this is perhaps more evident in retail than in other property classes. The failure of Target Canada nearly one-year ago and weakness within a number of fashion retailers has heightened skepticism with respect to “lease-up” assumptions. A corollary to “the future has little to no value” is that very high-quality income is in place (even if it offers little to no growth).

3) The exception: Willing to pay up for future intensification potential in ultra-urban environments on rapid-transit nodes Another observable theme in 2015’s investment activity has been the willingness on the part of investors to assign high valuations (i.e. low cap rates) to sites with up-zoning potential. We have seen this in a handful of residential and potential mixed-use sites surrounding the downtown core. But the willingness to “pay up” for a future density opportunity is not limited to the core—it is also squarely following the lines of urban rapid transit in large cities such as Vancouver, Calgary, and Toronto. We can point to transaction yields of 5% or less on “B” quality, semi-suburban buildings, in instances where they are located in close proximity to urban transit.

Cap rates become “un-stuck”; compress with mortgage yields Through 2015, our five-year benchmark commercial mortgage rate declined by roughly 20 bps to 2.6%. Over the course of last year, the cap rate to mortgage rate yield premium for industrial and mall properties was unchanged, as cap rates declined in tandem with mortgage rates. For CBD office properties and strip shopping centres, the spreads narrowed as cap rates declined more than mortgage rates.

This downward trend in property yields was in contrast to 2013 and 2014, when cap rates were noticeably “sticky”. Through the former 24-month period, cap rates were generally steady despite volatility in five-year GOC yield and mortgage yields, and despite the point-to-point decline in both.

Yet cap rate versus mortgage rate spreads are still wider than average On the heels of last year’s cap-rate compression, the spread between property yields and the five-year mortgage ranges from 180 bps (super regional malls) to 320 bps (industrial). These spreads remain ~50–70 bps above the long-term averages and are in stark contrast to cycle lows (mid-2007) when the delta was often less than 50 bps.

January 7, 2016 16


We believe the current spreads are reflective of today’s ultra-low interest rates and the outlook for very modest income growth across most property classes. Having said this, under a future higher interest rate and presumably somewhat improved growth environment, there seemingly remains the potential for cap rates to prove to be somewhat “sticky” to the upside and absorb a sizable portion of the early stages of an upward yield shift.

Benchmark property trades: 5s become 4s Across our list of “benchmark” trades by major property class, nothing was close to 6%. Across the five asset classes, three were at cap rates within the 4s (4.0% to 4.7%), including a non-managing interest in a very large CBD office complex, a large apartment portfolio and a high-quality unenclosed shopping centre. Two sizable malls located in secondary markets and a prime GTA warehouse transacted at yields just above 5.5%.

On the heels of four consecutive years (i.e., calendar 2011 through 2014) of “benchmark trades”, which were routinely in the 5s (with the odd outlier above 6%), 2015 was the year when the marquee property yields moved squarely in the 4s.

NAV growth and outlook: Yield compression and US exposure buoy 2015 NAV/unit growth to the top end of our expectations Coming off two consecutive years of weak 1% NAV/unit growth, 2015 posted a respectable average gain of 4%. The outcome achieved the upper end of our expectations for the year, whereby our stated range was between -2% and +4%. The sector achieved the high end of our 2015 NAV growth expectations principally due to three factors: 1) modest organic NOI growth, as expected; 2) generally steady cap rates for properties of the calibre and character owned by listed REITs and REOCs; and, 3) US-dollar translation benefits.

Exhibit 4: Average annual net asset value per unit (or share) growth (1996 to 2016E)

3%5%

3%0% 1%

0%

1%6%

14%16%

22%

8%

-34%

9%

18%

9%12%

1% 1%4%

2%

-5%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016E Source: RBC Capital Markets estimates

IFRS fair-value gains/losses; net markdowns a genuine possibility for 2016 On a same-REIT/REOC basis (19 issuers) for the nine months ended September 2015, aggregate net fair value losses registered $128 million. And, when the full-year 2015 figures are available, we expect additional Q4/15 net markdowns potentially to drive full-year net markdowns to more than $500 million.

January 7, 2016 17


Since 2012, net fair value markups have been diminishing, as has the number of REITs and REOCs posting such gains. By way of example, within the 2012 data, all 19 of the entities in our same-REIT/REOC group posted net fair value gains ($4.4 billion). In 2013, 15 recorded gains ($919 million; ~1% of gross asset value), and by 2014, only 11 posted upward marks ($304 million; 0.3% of gross asset value). We suspect the trend of net markdowns continues in 2016.

Our NAV growth outlook: We see a slightly asymmetrical and negatively skewed upside/downside, which may have legs beyond this year Looking ahead, we believe that the cap-rate compression cycle has likely run its course. As such, we believe that organic income growth and value-add activities must take the lead as the prime NAV drivers for 2016 and beyond. Unfortunately for the year ahead, we see continued tepid economic growth as the obstacle to robust NOI growth and demand for new developments.

Our 2016 outlook is for NAV/unit growth within a range of -5% to +2%. Components of the forecast are: 1) same-property NOI growth averaging ~2%; 2) modest earnings retention; 3) modest value creation (typically within the larger and more seasoned REITs and REOCs); and offset by the potential for, 4) disparate trends in capitalization rates, by asset class, and geography based on discounted cash flows.

In light of expected tepid aggregate 2016 GDP growth for Canada and absent a sharp rebound in the price of oil, we believe this trend may run beyond 2016. Specifically, we expect downward marks in: 1) Calgary and Edmonton CBD office properties; 2) suburban office properties somewhat more generally; and, 3) an array of properties across other asset classes, primarily those located in secondary and tertiary markets.

Overall, we believe an asymmetrically skewed upside/downside outlook is already incorporated in the current 13% group-average discount to NAV.

Earnings growth reverting toward long-term average (“LTA”) The final figures will be tallied over the next two months, but we believe 2015 trend-line earnings growth was 4%. On a trend basis, there have been four years of general slowing in earnings growth, from a cyclical high of 8% in 2012 to 5% in 2013 and to 4% annually in 2014 and 2015 (estimated). The sector’s long-term average trend-line earnings growth is in the 3–4% range.

In aggregate, organic top-line revenue and NOI growth figures last year were a tad softer than expected. This was largely a function of very weak economic conditions in energy-centric regions. Having said this, the group has still delivered ~2% organic growth. Unplanned foreign currency translation tailwinds from a number of REITs with US property interests helped trend-line earnings growth, as did the accrual of greater than previously expected interest rate savings on normal course debt refinancings. Contributions from acquisitions, for most REITs and REOCs also proved to be de minimus.

We believe 2016 trend-line earnings growth will register approximately 4%. Thereafter, in 2017, our earnings estimates imply a modest deceleration to ~3%. Given the near-term tepid economic growth prospects and the lagging nature of the property sector, we continue to see a bias toward modest downside to our estimated growth rates.

January 7, 2016 18


Exhibit 5: “Trend-line” earnings growth (1999 to 2014 and 2015E to 2017E)

6%

4%

1%

6%

3%

1%1%

4%

8%

5%

-2%

-1%

2%

8%

5%

4% 4% 4%

3%

-4%

0%

4%

8%

1999 2001 2003 2005 2007 2009 2011 2013 2015E 2017E Note: Excludes lodging REITs. Source: Company reports and RBC Capital Markets estimates

Getting the house in order: AFFO payout ratios continues to move lower The group’s AFFO payout ratio has ground down to ~83% of 2015 AFFO. We believe the sector’s mantra will be to continue to pass along a portion of its earnings growth in the form of higher cash payments, while simultaneously striving to push its payout ratio lower. We see this as a reasonable approach. Yet we note that it also means the sector’s payout ratio can only decline very gradually each year.

We expect the recent trend of modest payout growth to continue into 2016. To date, four entities (Allied Properties REIT, Choice Properties REIT, Milestone Apartments REIT, and Plaza Retail REIT) have announced distribution increases effective this year, representing an average increase of approximately 4%. With respect to the rest of the sector, we expect 2016 distribution and dividend increases from approximately 11 companies in total. We expect increases to average between 3–4%. One-year hence, we forecast the group-average AFFO payout ratio will decline to ~81–82%.

Corporate actions (Strategic reviews + M&A + stock buybacks) In the context of tepid economic growth, eking out revenue and NOI growth is a grind for many companies. This is unlikely to be a “fun” operating environment for corporate real estate managers, but conditions also seem insufficient to induce elements of distress. Coupled with valuations across a wide range of REIT and REOC unit or share prices that we believe inadequately reflect underlying portfolio values, this environment has resulted in what we see as growing signs of board and management fatigue.

More specifically, over the course of last year, there have been increasing instances whereby boards have taken action to surface potentially underappreciated intrinsic value. Examples include: 1) the commencement of a series of “strategic reviews”; 2) stepped up unit/share repurchases; and, 3) accelerating M&A and privatizations.

Strategic reviews Last year, three strategic review processes were commenced by listed REITs: two in H1/15 and one in early H2/15. Only one (RioCan REIT) has reached a formal conclusion to date. We

January 7, 2016 19


see a see a decent probability (better than even chance) that one or more REITs will initiate a “strategic review” process this year.

Stepped up unit/share repurchases As the sector’s P/NAV valuation continued to erode over the course of 2015, normal course issuer bid (“NCIB”) activity generally accelerated. Collectively, TSX-listed REITs and REOCs deployed $315 million toward the repurchase and cancellation of outstanding units/shares last year. Just under two-thirds or $201 million of the total activity occurred in the back half of last year. We believe NCIB activity will continue and that some will continue to cull non-core properties with a portion of the next proceeds directed toward buybacks.

Accelerating M&A and privatizations Last year, there were four Canadian REIT/REOC M&A transactions totalling approximately $4 billion. This annual volume was roughly two times the five-year average. Two of the transactions were REIT-to-REIT mergers while the other two were outright privatizations.

Better than even odds that one or more core names disappear this year or next It is very difficult to predict “who” and “when”. But, in light of overall private-market demand for real property investments and more than two years of broadly languishing unit prices, we believe there are now better than even odds that one or more core names will disappear this year or next.

In a broad sense, Exhibit 6 provides a list of potential M&A or privatization catalysts. It also includes certain REITs, several of which we deem to be “core names” that might fit the criteria.

Notably, all but two of the entities listed in Exhibit 6 (Chartwell Retirement Residences and WPT Industrial REIT) are trading at a discount to their estimated NAV and/or pre-tax IFRS book value, if applicable.

Exhibit 6: Potential corporate actions catalyst matrix, with categorizations of “best fit”

Category of potential fit are denoted with an "X"

Prem / (Disc) to

NAV1

"Platform value" and absent a control block

Synergistic merger

candidate Potentially motivated2

Major discount to NAV3

Agellan Commercial REIT (D) X Allied Properties REIT (D) X Artis REIT (D) X X Boardwalk REIT (D) X (CAR.un; KMP.un) X CAPREIT (D) X X (BEI.un; KMP.un) Chartwell Ret. Residences P X CREIT (D) X Dream Office REIT (D) X Killam Apartment REIT (D) X X (BEI.un; CAR.un) Granite REIT (D) X Morguard REIT (D) X Morguard NA Resi REIT (D) X One REIT (D) X (PLZ.un) X Pure Industrial REIT (D) X WPT Industrial REIT P X

Notes: 1 Refers to a Premium ("P") or Discount ("D") to our current NAV estimates. Our NAVs do not include portfolio or platform premiums. 2 Denotes a REIT or REOC with a potentially motivated and sizable investor and/or Board or management team that we believe would be amenable to M&A. 3 Denotes entities that trade at a discount to current NAV in excess of 25%, albeit with an NAV/unit that is seemingly subject to above-average risk of near-term deterioration. Source: RBC Capital Markets

To the right, we specifically selected the category of potential“best fit”.

In a number of instances, we believe there might be more than one relevant corporate actions catalyst.

January 7, 2016 20


“Platform value” or “portfolio premium” entities – Within the list above, we note there are six names that we see as offering potential “platform value” or a portfolio premium value to a motivated acquirer. The former term is usually defined in the context of people, systems, operating capabilities, and a structure that can handle future growth with scale. The latter usually refers to the cohesiveness of the property portfolio.

Synergistic merger candidates – We see a handful of entities where we believe there could be synergistic and logical business fits with another listed REIT. We believe the most obvious impediment to merger scenarios suggested above is “will” not “way”. While each of the enterprises listed within the “synergistic merger candidate” column is subject to its own unique business opportunities and challenges, each is currently operating autonomously and has been for many years.

Potentially motivated sellers – We see three enterprises where we believe insiders (e.g., major investors or the Board) may be motivated or open to the idea of a corporate merger or sale. Two of the three formally commenced strategic reviews last year, and the third (Agellan Commercial REIT) appears intent on focusing its business on the US, which is a move that might simplify a future transaction.

Shrink to drive value – In the fourth column, we list five entities that are trading at 75% or less than the current NAV estimates. We note that that operating conditions or other circumstances place some of these entities at above-average risk of NAV erosion over the next several years. Assuming leverage or liquidity concerns are not at play, discounts of this magnitude might suggest that these REITs are prime asset-sale candidates, even if asset sales yield values that are somewhat off the current fair-value marks.

Meet me in the middle: Our total return prospects in context of interest rates sensitivities and AFFO yield spread requirements In formulating our total return expectations for the sector, we consider three key variables:

1) Cash yield (distribution or dividend); 2) Expected earnings growth (2016, and beyond); and, 3) Potential multiple expansion/contraction (i.e., the current AFFO multiple versus future

potential multiple and the current P/NAV versus future potential P/NAV). We have generally high visibility with respect to the first two variables. Current distribution rates are already established. Only in dire circumstances have we seen more than a few cuts in any given year. What is more, based on the round of 2015 increases and our outlook for 2016 earnings growth and payout ratios, we expect modest distribution or dividend increases this year from more than a dozen names across our coverage universe.

With respect to the second variable, REITs/REOCs probably have better earnings (i.e., FFO) predictability than most other sectors. This is not to say that there are no material variances between our point estimates and actual results for individual issuers. However, a review of more than 15-years of historical data shows that aggregate earnings data have been highly predictable. Over the past 13 years specifically, Exhibit 5 on page 19 shows that the group’s average annual per unit (or per share) earnings growth has not exceeded 8% or declined by greater than 2%.

In contrast, the degree of valuation change (i.e., AFFO multiple expansion or contraction) in any particular year tends to be much less predictable than yield or earnings growth. By way of evidence, the extreme points of the valuation data show trough AFFO multiples below 9x and greater than 19x at the peak. There have been individual calendar years when the AFFO multiple actually expanded or contracted by 5x.

January 7, 2016 21


The AFFO yield spread matrix As of December 31, 2015, the 10-year GOC yield was 1.4%. The AFFO yield of 7.4% exceeded this by 597 bps, which equated to an AFFO multiple of 13.6x. This is our reference point.

Our 10-year GOC yield versus AFFO yield sensitivity matrix (in which all figures move in 25 bps increments) is shown below in Exhibit 7.

Exhibit 7: AFFO multiples versus changes in 10Y GOC yields & AFFO yield spread (Δ25 bps)

0.40% 0.65% 0.90% 1.15% 1.40% 1.65% 1.90% 2.15% 2.40%

4.70% 19.6x 18.7x 17.9x 17.1x 16.4x 15.7x 15.2x 14.6x 14.1x4.95% 18.7x 17.9x 17.1x 16.4x 15.7x 15.2x 14.6x 14.1x 13.6x5.20% 17.9x 17.1x 16.4x 15.7x 15.2x 14.6x 14.1x 13.6x 13.2x5.45% 17.1x 16.4x 15.7x 15.2x 14.6x 14.1x 13.6x 13.2x 12.7x5.70% 16.4x 15.7x 15.2x 14.6x 14.1x 13.6x 13.2x 12.7x 12.3x5.95% 15.7x 15.2x 14.6x 14.1x 13.6x 13.2x 12.7x 12.3x 12.0x6.20% 15.2x 14.6x 14.1x 13.6x 13.2x 12.7x 12.3x 12.0x 11.6x6.45% 14.6x 14.1x 13.6x 13.2x 12.7x 12.3x 12.0x 11.6x 11.3x6.70% 14.1x 13.6x 13.2x 12.7x 12.3x 12.0x 11.6x 11.3x 11.0x6.95% 13.6x 13.2x 12.7x 12.3x 12.0x 11.6x 11.3x 11.0x 10.7x7.20% 13.2x 12.7x 12.3x 12.0x 11.6x 11.3x 11.0x 10.7x 10.4x

Target AFFO Multiple

Range of 10-Year Government of Canada Bond YieldsRa

nge

of A

FFO

Yie

ld S

prea

ds

Source: RBC Capital Markets estimates

The three concentric shades surrounding the current valuation multiple (13.6x AFFO) reflects the combined effect of changes in 10-year GOC bond yields and changes in AFFO yield spreads in positive or negative combined increments of: 1) 25 bps; 2) up to 50 bps; and, 3) up to 100 bps.

Green-shaded cells denote the narrowing of the AFFO yield spread required to maintain the Q4/15 AFFO multiple in the event of an upward move in 10Y GOC yields.

Red-shaded cells indicate multiple contraction required to generate a 20% price correction, which the commonly referenced price decline that equates to a “bear market”.

Our 2016 total return range of reasonableness: 4% to 18%; a “meet me in the middle” 11% total return is our point forecast Exhibit 8 summarizes our “low” to “high” total return outcomes for what we believe to be a “range of reasonableness” for 2016.

In our base case, we assume no change in the year-end AFFO multiple of 13.6x. This base-case outlook is predicated on modestly higher interest rates one-year hence. It also squares off with our view that current REIT/REOC valuations already incorporate somewhat higher interest rates and the potential for modest NAV erosion. To provide P/NAV context, coupling with the midpoint of our expected average NAV/unit growth -5% to +2% “range of reasonableness” our base-case total return framework equates to a ~7% sector-average discount to NAV one-year hence. This represents a narrowing of the December 2015 reading by a sizable ~600 bps. But it does not equate to an elimination of the discount or the reversion to long-term average (i.e., 3% premium to NAV) in just one year.

In essence, this is the “meet me in the middle” outcome, where REIT/REOC prices rise modestly in aggregate yet NAVs also collectively “leak” lower. This scenario provides a solid total return potential of ~11%, stemming from the benefit of a high and/or stable cash

January 7, 2016 22


group-average cash yield (averaging ~6.5% currently) and 4% forward 12-month expected earnings growth.

Exhibit 8: 2016 total returns – Our range of reasonable possible outcomes

Range of Reasonableness1 "Bear" Case2 Low Base-case High

Forecast 2016 group-average earnings growth 4% 4% 4% 0% Group-average cash yield 7% 7% 7% 7% Contribution from potential AFFO multiple change -6% 0% 7% -19% Range of total return expectations 4% 11% 18% -13%

Dec-31-15 AFFO multiple 13.6x 13.6x 13.6x 13.6x Expected Dec-31-16 AFFO multiple 12.7x 13.6x 14.6x 11.0x Expected Dec-31-16 Prem/(Disc) to NAV3 -13% -7% 1% n.a.

S&P/TSX Capped REIT Index: Dec-31-15 142 142 142 142

Dec-31-16 - expected value 139 148 158 115 Price change (in percent) -2% 4% 11% -19%

Notes: 1 Expected Range of AFFO Multiples based on an AFFO yield range of 6.9% to 7.9% (7.4% at the midpoint). 2 AFFO Yield under the "bear" case increases by 175 bps and earnings growth is nil. 3 Assuming midpoint outcome (-2%) to 2016 outlook for NAV/unit growth range of -5% to +2%. Source: RBC Capital Markets estimates

Our “low” return scenario assumes a 50 bps increase in the AFFO yield spread requirement. Notably, this is from an already elevated (597 bps) AFFO yield spread over the 10-year GOC yield spread. The low-return scenario outcome could occur via a combination of multiple contraction and/or an increase in 10-year GOC yields. If the outcome were produced solely by multiple contraction (i.e., static 10-year GOC yields of 1.4% through 2016), then the result would be a 0.9 multiple point reduction (~7% decline) in the year-end 2016 AFFO multiple to 12.7x. Under this scenario, the group’s mid-6% cash yield and 4% earnings growth overcome the valuation contraction, thus allowing for a modest ~4% total return expectation.

Our “high” return scenario assumes a 50 bps decrease in the AFFO yield spread requirement. In light of the already elevated (597 bps) AFFO yield over 10-year GOC yield spread, we see some AFFO yield spread contraction as a likely outcome. This result could occur via a combination of multiple expansion and/or a decrease in 10-year GOC yields. If the outcome were produced solely by multiple expansion (i.e., static 10-year GOC yields of 1.4% through 2016), then the result would be a 1.0 multiple point (~7% increase) increase in the year-end 2016 AFFO multiple to 14.6x. Under this scenario, the valuation lift, the group’s mid-6% cash yield and 4% earnings growth produce a sizable total potential return of 18%.

The ~20% price correction (i.e., the “bear case”) scenario seems remote Our “bear case” assumes that GOC bond yields and AFFO yield spread requirements rise more dramatically to a combined effect of 175 bps. Under this dire scenario, valuation contraction knocks ~20% from capital values (which is congruent with the common definition of a “bear” market), and the benefits of yield and total return cannot sufficiently compensate. If in this scenario, we also assume that 2016 earnings growth is nil% (over the course of more than 15 years, we do not believe that our aggregate forecast has ever been off by this order of magnitude), then the outcome would be a decidedly negative 13% total return.

To be clear, we are not predicting this “bear case” outcome. Rather, we are attempting to illustrate downside risk to investors in the context of the current environment.

January 7, 2016 23


Valuation conclusions: Value, not momentum, is the theme; yet, we see attractive risk-adjusted return potential We expect 4% group trend-line earnings growth this year, with a deceleration to 3% next.

With the cap-rate compression cycle having likely run its course, it appears that organic income growth and value-add activities will have to be the prime drivers of 2016 NAV growth. Tepid economic growth, regional disparities, unfavourable supply-side dynamics in certain property classes, and other factors are such that organic growth and value-creation endeavours are likely to be more, not less, challenging this year. Reflecting these factors, our 2016 group-average NAV growth expectation of 2% to -5% is slightly asymmetrical and negatively skewed. We also note that this NAV growth (i.e., erosion) trend may continue beyond just this year. Hence, the group lacks any significant earnings or value-growth momentum.

Yet we believe REIT and REOCs prices have been through a multi-year and gradual adjustment that renders them at attractive valuations. Consider:

Wide earnings yield spreads The Q4/15 forward-12-month AFFO multiple of 13.6x is a modest 0.3x below the LTA of 13.9x. Alternately stated, the year-end 7.4% AFFO yield is 10 bps below the LTA. In the context of risk-free rates (10Y GOC yields), the AFFO yield spread (+597 bps) remains materially above the LTA (+360 bps). Compared to “risky” corporate credits, the AFFO yield spread (+183 bps) is also nearly twice the LTA (+95 bps).

A low sector-average P/NAV The sector rounded out 2015 at a 13% discount to NAV, which is below our “band of fair value” and the group-average LTA premium of approximately 3%. Through 2015, NAV growth averaged 4%. As noted, this is unlikely to be repeated in 2016, with this year’s outlook being slightly asymmetrical and negatively skewed within the +2% to -5% range.

Current unit prices equated to an average implied property yield (i.e., cap rate) of approximately 6.9% (commercial property sector ~6.9%; apartments ~6.4%; seniors housing ~7.1%; and, lodging ~8.0%). Although our coverage list has changed slightly over the course of the past 12 months (thus making the comparisons not entirely “apples-to-apples”), the overall group-average average implied cap rate is identical to where it was one-year ago, yet 10-year Government of Canada bond yields have declined by 39 bps.

Offering attractive risk-adjusted return prospects While lacking earnings and value-growth momentum, valuation is the key. We believe the group is priced to deliver an attractive risk-adjusted return within the high single-digit/low double-digit realm. Our 2016 base-case total return point estimate is 11%.

Exhibit 9 provides a simplified recap of year-end REIT valuations as of December 31, 2009 through to December 31, 2015.

Exhibit 9: Industry valuation recap – year-end 2009 through 2015

Metric 2010 2011 2012 2013 2014 2015 LTA1

AFFO Yield 6.4% 5.9% 5.5% 6.7% 6.9% 7.4% 7.5% Premium Vs. 10Y GOC (bps) 325 398 375 394 509 597 356 Premium Vs. Moody’s BAA (bps) 39 74 97 137 219 183 94 Price/AFFO 15.7x 16.9x 18.0x 14.9x 14.5x 13.6x 13.9x NAV Premium/(Discount) 8% 4% 3% (8%) (6%) (13%) 3%

Note: 1 Long-term average is derived from approximately 18 years of historical data. Source: Thomson One and RBC Capital Markets

January 7, 2016 24


Investment recommendations Exhibit 10 below summarizes our list of 17 Outperform-rated entities and provides a brief investment thesis for each.

Exhibit 10: Investment recommendations and summary

REIT Rating Price Yield Target Target Valuation Investment Thesis and Comments

Allied Properties REIT (AP.un)

O $31.57 4.8% $41.00 ~15% prem/NAV Pound for pound, the best “play” on the urban intensification theme. We expect a strong organic earnings growth profile this year and next, along with maintaining industry-leading low financial leverage.

Boardwalk REIT (BEI.un)

O $47.45 4.3% $63.00 NAV-parity The price of oil has fallen, but the sky has not. Overall, we see better supply/demand in AB housing fundamentals this cycle versus last cycle (2005–2010). Low leverage (38% LTV) and well covered distributions (65% 2016E AFFO payout ratio) should offer NAV resiliency, within the context of a valuation discount to NAV that now includes a wide margin of safety.

Brookfield Asset Management (BAM) (all in US$)

O $31.53 1.5% $40.00 NAV-parity Global owner and manager of long-duration cash-flowing, “real return” assets, including property, power, and infrastructure investments. An increasingly profitable asset management business (fee income) is becoming more apparent, and we believe investors should be increasingly willing to “pay” for this.

Brookfield Property Partners (BPY) (all in US$)

O $23.24 4.6% $26.00 ~15% disc/NAV Separate and distinct from BPY’s ability to arbitrage values and capital flows globally, we see three key “internal” drivers of value growth: 1) lease rate mark-to-market via contractual steps and spread capture on rolls; 2) office occupancy normalization (+200 bps to 95%); and 3) developments and redevelopments, which could collectively allow for 8–10% annualized NAV/unit growth over five years. The units have traded to an attractively wide discount to NAV over the past number of months.

Canadian Apartment Properties REIT (CAR.un)

O $26.84 4.5% $31.00 5% prem/NAV Has become an increasingly sophisticated operator over the last half-dozen years. Solid track record of driving organic NOI growth with high occupancy levels. Continues to operate at the lower-end of historical leverage range. Expected entry into new developments could provide an adjunct to growth and tax shelter and a means to continue to improve portfolio quality.

Canadian REIT (CREIT) (REF.un)

O $42.06 4.3% $52.00 ~10% prem/NAV The REIT has a low AFFO payout ratio, low financial leverage, and a good-quality, diversified portfolio. One of the longer track records of any REIT, the diversified nature of the portfolio is such that office exposure is very likely to be a drag on earnings growth through 2016. The development pipeline has grown nicely and should contribute to earnings this year and next.

First Capital Realty (FCR)

O $18.35 4.7% $21.00 ~10% prem/NAV Focused and well positioned to capitalize on Canadian urbanization trends via its portfolio footprint of high-quality retail and mixed-use properties. Offers an interesting income and value-added business model (over $1 billion pipeline), which should allow for higher earnings and NAV growth versus the average REIT over time.

InnVest REIT (INN.un)

O $5.13 7.7% $6.25 NAV-parity Changes to management, management structure, board composition coupled with improved capital allocation (acquisitions, dispositions, and targeted capex) and renewed operational focus should prove the recipe for sizable HOI gains this year and next.

Killam Apartment REIT (KMP.un)

O $10.51 5.7% $12.00 ~5% disc/NAV Improved economic growth this year and next in Greater Halifax, lower operating costs, and the stabilization of new developments should allow for solid FFO/share growth. KingSett and AIMCo’s ~10% stake is a validation of KMP’s value and potential, and provides more pressure to perform.

Melcor Developments Ltd. (MRD)

(Continued…)

O $14.56 4.1% $18.00 0.60x P/BV for community

development + 40% disc/NAV for

commercial

We believe that MRD represents an attractive way to play Alberta’s land and commercial development market while investing shoulder to shoulder with a local family that has significant investment and a long history of success. MRD manages its AB exposure with prudent financial leverage, stable income from its commercial property portfolio, and some Southwest US exposure.

January 7, 2016 25


REIT Rating Price Yield Target Target Valuation Investment Thesis and Comments

Milestone Apartments REIT (MST.un)

O $15.05 5.1% $18.00 ~10% disc/NAV The only pure-play US multi-res REIT traded on the TSX with principal property and geographic exposure being garden-style apartments throughout the Sun Belt. Benefitting from an integrated platform and a well aligned management team with a strong track record, we believe the units are attractively valued, in part due to USD/CAD appreciation over the last year.

Morguard NA Residential REIT (MRG.un)

O $10.67 5.6% $12.00 ~35% disc/NAV MRG units offer income diversification and stability, with long-term growth potential by virtue of: 1) regional/economic diversification; 2) currency diversification (~60% of NOI in USD); 3) properties of varied product types, price-points, and tenant profiles; and, 4) a steady occupancy track record (95–97%) occupied for seven years).

Plaza Retail REIT (PLZ.un)

O $4.70 5.5% $5.00 5% prem/NAV Plaza has a value-add business model centered on secondary and tertiary markets, where it has strong local knowledge. With only one exception (the acquisition of KEYreit), Plaza Retail REIT makes acquisitions where there is an opportunity for management to use its competitive strengths to create value.

RioCan REIT (REI.un)

O $23.69 6.0% $28.00 15% prem/NAV One of Canada’s premier REITs based on its size, scale, and overall franchise value. REI focuses on Canada’s six-largest cities and its active value-added development pipeline for growth. With the sale of its US portfolio in December of 2015, the REIT is now a Canadian pure-play. We continue to view the units as a core holding.

SmartREIT (SRU.UN)

O $30.19 5.5% $34.00 10% prem/NAV Newer assets and long leases provide efficient flow through of NOI to AFFO. Focus on “value-oriented” retail should prove defensive in a tentative consumer and/or economic recovery. SmartREIT benefits from a stable cash flow profile, and from this base, management is intent on driving additional growth. Strategies aimed at achieving growth targets include: 1) focusing on improving SP-NOI via leasing; 2) development, intensification, and earnouts; 3) accelerating development with joint venture partner Simon Property Group; 4) acquisitions; and, 5) long-term development at Vaughan Metropolitan Centre.

Tricon Capital Group Inc. (TCN)

O $9.06 2.6% $13.00 NAV buildup We believe Tricon is an attractive way to play a US housing recovery, offering diversified exposure through homebuilding and land development investments, single-family rental (~6,800 home portfolio), manufactured housing communities, multi-unit rental developments, and potential upside from the growth of its asset management business and related performance fees.

WPT Industrial REIT (WIR.u) (all in US$)

O $11.95 6.4% $13.25 ~15% prem/NAV WPT is a conveniently packaged investment opportunity whereby Canadians can gain exposure to several favourable industrial real estate sector trends including: 1) an improving US economy; 2) strengthening property-sector fundamentals; 3)e-commerce driven demand; and, 4) the re-emergence of US manufacturing. Offers the potential for external growth by acquisitions within the ~14 billion sf US industrial market.

Note: O = Outperform Source: RBC Capital Markets estimates

January 7, 2016 26


January 7, 2016 27

The broader economic backdrop: US and global growth set to accelerate in 2016, improved yet still tepid growth north of 49°

According to RBC Economics, growth in advanced economies is expected to accelerate in 2016, supported by a sustained strengthening in the US and steady gains in the UK and euro area. From a notably weak 2015, Canadian economic growth should improve too. Meanwhile, a less pronounced decline in Russia and Brazil is expected to be sufficient to offset further slowing in Chinese growth and result in a mildly firmer gain for emerging market economies, in aggregate. All told, RBC Economics expects the global economy will produce real GDP growth 3.6% in 2016, which would be down from prior estimates but in line with the long‐term average. This follows mediocre growth in 2015, with forecasts downgraded to a 3.1% increase in GDP.

The US economy teeing up for a solid 2016 Our US economists, Tom Porcelli and Jacob Oubina, believe that six years into the US expansion, domestic demand remains strong enough that another year of 2.5% to 3.0% growth is achievable. Should global headwinds abate, there could be some upside to this outlook. Indeed, RBC Economics expects household spending will account for almost three‐quarters of the forecasted 2.8% rise in GDP in 2016. In addition, the recent Institute of Supply Management (“ISM”) manufacturing report shows new orders and production rising to the best readings since summer 2015, with a decidedly positive shift in tone from respondent comments.

Exhibit 11: Consumer spending is expected to drive US GDP growth in 2016 in combination with higher levels of private domestic investment

2009 2010 2011 2012 2013 2014 2015E 2016E 2017EQ3/15share

GDP growth ‐2.8 2.5 1.6 2.2 1.5 2.4 2.5 2.8 2.7 100%

Contribution from:

Consumer expenditures ‐1.1 1.3 1.6 1.0 1.2 1.8 2.1 1.9 1.6 68% Govt. consumption expenditures1 0.6 0.0 ‐0.7 ‐0.4 ‐0.6 ‐0.1 0.2 0.3 0.3 18% Gross private domestic investment ‐3.5 1.7 0.7 1.5 0.7 0.9 0.7 0.8 0.9 16%

Residential ‐0.7 ‐0.1 0.0 0.3 0.3 0.1 0.3 0.3 0.2 3% Nonresidential ‐2.0 0.3 0.9 1.1 0.4 0.8 0.4 0.6 0.7 13%

Structures ‐0.7 ‐0.5 0.1 0.3 0.0 0.2 0.0 0.1 0.1 3% Equipment ‐1.3 0.7 0.7 0.6 0.2 0.3 0.2 0.4 0.4 6% Intellectual property ‐0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2 4%

Change in inventories ‐0.8 1.5 ‐0.1 0.1 0.1 0.1 0.2 ‐0.1 ‐0.1 0% Exports ‐1.1 1.3 0.9 0.5 0.4 0.5 0.2 0.5 0.7 13% Imports 2.3 ‐1.8 ‐0.9 ‐0.4 ‐0.2 ‐0.6 ‐0.8 ‐0.7 ‐0.7 ‐15%

Note: 1) Includes gross investment. Source: Bureau of Economic Analysis, RBC Economics estimates, and RBC Capital Markets

Underpinning the positive narrative is the improved state of US consumers

RBC Economics believes a key factor supporting the improved state of the consumer is a steady rise in employment. Overall, the US unemployment rate continues to fall and is now within the Fed’s range for full employment. While wage gains have been modest, the pace accelerated during 2015. Looking forward, RBC Economics expects that additional tightening in labour market conditions will underpin stronger wage increases in 2016.

We (finally) have lift‐off; Fed begins rate hiking cycle with a modest increase

In December 2015, the Fed kicked off the current hiking cycle with a 25 bps rate increase, following seven years of unchanged target federal funds rates. Looking forward, our US

Click image to view Global Market Trajectories 2016.

https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_3AA9F5098E885E6BE78EE4ED565552A9


economists, Tom Porcelli and Jacob Oubina, believe that four rate hikes are likely this year. In addition, they believe that even with relatively low inflation and a moderate job growth, the Fed feels comfortable with a federal funds rate of 1.50% by the end of 2016.

What the market pricing for federal funds at a mere 80 bps (by year-end 2016) tells you is that a much weaker than 100,000 payroll growth and 1.6% inflation profile are effectively being priced. This translates into roughly two rate hikes next year, compared to four rate hikes predicted by RBC Economics.

Canadian economy to improve from a weak 2015, supported by household consumption and exports; WTI wildcard According to RBC Economics, Canada’s economy improved in mid-2015, following a rough start to the year. Specifically, a surge in exports, firm consumer spending, and housing market activity supported a healthy 2.3% annualized gain in the third quarter. Growth in these sectors more than compensated for (another) decline in business fixed investment, largely by energy companies. Looking forward, our economics team expects the rebound will be sustained in 2016 with GDP growth of 2.2%. In 2017, GDP growth is expected to ratchet up another notch to 2.7%, as an expected recovery in oil prices is set to eliminate any further drag from falling energy sector investment.

Exhibit 12: Household consumption and export growth is expected to drive 2016 GDP growth

2009 2010 2011 2012 2013 2014 2015E 2016E 2017E Q3/15 share

GDP growth -3.0 3.1 3.1 1.7 2.2 2.5 1.2 2.2 2.7 100% Contribution from: Household consumption 0.0 2.1 1.2 1.1 1.3 1.4 1.1 1.3 1.2 56% Nonprofit institutions consumption -0.1 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 1% Government consumption 0.5 0.5 0.3 0.2 0.1 0.1 0.2 0.3 0.4 21% Government fixed investment 0.4 0.5 -0.4 -0.1 -0.3 0.1 0.1 0.1 0.1 4% Business fixed Investment -3.1 2.0 1.5 1.3 0.1 0.1 -0.7 -0.1 0.4 19%

Residential -0.4 0.6 0.1 0.4 0.0 0.2 0.3 0.0 -0.3 7% Nonresidential -2.2 1.3 1.2 0.9 0.3 0.0 -0.7 0.0 0.5 10% Intellectual property -0.4 0.2 0.1 0.0 -0.1 -0.1 -0.2 0.0 0.1 2%

Nonprofit institution fixed investment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0% Change in inventories -0.7 0.1 0.7 -0.3 0.5 -0.4 -0.2 0.0 0.1 0% Exports -4.2 1.9 1.4 0.8 0.9 1.6 1.1 1.8 1.9 32% Imports 4.3 -4.0 -1.8 -1.2 -0.5 -0.5 -0.4 -1.3 -1.3 34%

Source: Statistics Canada, RBC Economics estimates, and RBC Capital Markets

Regional differences are expected to persist, but narrow, in 2016 RBC Economics expects that diverging conditions between oil-producing and oil-consuming provinces will persist for the most part in 2016. The contrast is unlikely to be as sharp as it was in 2015, as oil prices are expected to trend modestly higher. The drastic cuts in capital spending in the energy sector are likely to ease in 2016, thereby lessening a major source of weakness in oil-producing provinces. RBC Economics believes that the benefits from lower oil prices, the weaker value of the Canadian dollar, and solid growth in the US economy will accrue more substantially in 2016, thereby promoting moderately faster rates of expansion in the majority of oil-consuming provinces in 2016. Oil exporting provinces are also expected to return to modest growth this year.

Click image to view RBC Economics’ Provincial Outlook.

January 7, 2016 28

https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_4882D5240A7D9304E810EDA3013591E6



2015 estimates

-1.3%-0.6%

-0.2%

1.2% 1.3%1.8%

2.1%

2.9%

-2%

0%

2%

4%


2016 estimates

0.9% 1.2%1.9%

2.2% 2.4% 2.5% 2.5%3.1%

-2%

0%

2%

4%



Export recovery supported by a strengthening US economy and weaker CAD A strengthening US economy and weaker Canadian dollar are expected to support healthy export growth in 2016. Imports, however, are likely to increase at a slower pace due to the sharp rise in prices of imported machinery and equipment. According to RBC Economics, net trade is expected to provide a 0.5 percentage point (“pp”) lift to GDP in 2016, driven by growth in the energy, industrial machinery, automotive, and consumer goods sectors.

More cuts by oil companies expected in 2016 RBC Economics highlights that a large part of the economy’s subpar performance in 2015 was due to an estimated 30% drop in spending by energy companies and support services. This shaved more than a percentage point from 2015’s aggregate growth. Looking forward, energy companies are likely to continue to pare back investment in 2016. At the same time, rising demand for Canada’s exports and solid consumer demand should exert pressure on capacity, leading to a rise in investment in other industries. On balance, business investment is unlikely to have a material net effect on the pace of growth in 2016.

The “base case” forecast from our oil and gas research team calls for a moderate recovery in WTI, from ~US$37/barrel currently to US$52/barrel by year-end 2016. Higher crude prices should limit the magnitude of capital expenditure and job cuts by energy companies. If crude fails to recover (or declines further), then there will likely be downside risk to the current economic growth forecast for Canada as a whole and Alberta more acutely.


2015 estimates

0%

1%

2%

3%

Jan-14 Jul-14 Jan-15 Jul-15

+1.2%

+2.8%

+1.0%

?

2016 estimates

0%

1%

2%

3%

Jan-14 Jul-14 Jan-15 Jul-15

+2.2%

+2.6%

?

Source: RBC Economics estimates and RBC Capital Markets


If crude prices remain “lower for longer,” we see downward risk to estimates.

January 7, 2016 29


January 7, 2016 30

Government stimulus set to boost growth in 2016

The newly elected Liberal federal government’s platform contained a plethora of initiatives including a proposed $150 billion in ‘new investment’ during the 2016–17 to 2019–20 period, reflecting tax cuts and infrastructure spending. Looking to 2016, there is scope for the government to provide a dose of fiscal stimulus to the economy; however, the details of the plan and the timing of any initiatives will not likely be unveiled until sometime in the first quarter of 2016. Based on government expenditures announced to date, GDP growth is likely to be boosted by 0.4 percentage points in 2016, with further upside if the federal government enacts additional stimulus measures in its 2016 Budget.

Bank of Canada to play the waiting game

At its December 2015 meeting the Bank of Canada (“BoC” or the “Bank”) assumed a neutral stance and maintained the overnight rate at 0.5%. Looking forward, RBC Economics expects the BoC to maintain the overnight rate at 0.5% during most of 2016 to ensure the economy grows at a strong enough pace to eliminate excess capacity and reduce any downside risks to inflation in the medium term. RBC Economics expects a rate hike in the latter part of the year, pushing the overnight rate to 1.0%. Further increases are likely in 2017 as the output gap is eliminated, which will require a more neutral policy rate in order to keep inflation from exceeding the Bank’s target. RBC Economics expects the overnight rate will continue to rise to 2.0% by year‐end 2017.

The state of the consumer Consumer confidence strengthens in the US but moderates slightly in Canada

Canadian consumer confidence started strong in 2015, before moderating during the summer and strengthening again toward year end. Meanwhile, US consumer confidence improved overall but moderated slightly toward the end of the year. Looking deeper into the numbers, the consumer confidence index edged higher in Canada averaging 84.4 through November 2015, down 2.0 points from the 2014 average level. This compares with an average of 97.9 year to date in the US, which is a sizeable increase of 11.0 points over the 2014 average. At the end of November 2015, the consumer confidence levels in Canada and the US stood at 88.0 and 90.4, respectively.

Exhibit 15: US consumer confidence improves while Canada edges higher

20

40

60

80

100

120

140

160

Jan‐78 Jan‐81 Jan‐84 Jan‐87 Jan‐90 Jan‐93 Jan‐96 Jan‐99 Jan‐02 Jan‐05 Jan‐08 Jan‐11 Jan‐14

Canadian consumer confidence index US consumer confidence index

US consumer consumer confidence continues to improve

Cdn LT avg: 85

US LT avg: 91

Notes: Data include January 1978 to November 2015. Shaded bars represent US recessions and dashed lines represent long‐term averages. Source: Organization for Economic Co‐Operation and Development, The Conference Board and RBC Capital Markets

Click image to view RBC Economics’ Economic and Financial Market Outlook.

Consumer confidence moderates slightly in Canada. Not surprisingly, consumer attitudes differ widely from province‐to‐province.

https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_4EE1ECB88B27D5E85405D5EBCCD615F2


Not surprisingly, consumer attitudes differ widely from province to province. According to the Conference Board of Canada, consumer confidence levels in Atlantic Canada are up more than 20% year over year, while Ontario and British Columbia each have seen an increase of more than 10%. At the opposite end of the spectrum is Alberta, where consumer confidence has declined by more than 40% year over year. Saskatchewan, Manitoba and Québec have also seen consumer confidence decline by more than 10% (SK/MB) and nearly 5% year over year (QC).

Overall, consumer confidence levels in both Canada and the US remain below their pre-recession highs, with Canada down -19% (vs. 108.3 in January 2007) and -19% in the US (vs. 111.9 in July 2007). While consumers appear to be significantly more optimistic than they were in early 2009, they are still more cautious than before the financial crisis.

Canadian consumer spending is expected to pick up modestly in 2016 Consumer spending in Canada is expected to post a modest 2.3% improvement in 2016, as a healthy labour market (in most parts of the country) and accommodative financial conditions should underpin consumption. This compares to estimated growth of 2.0% in 2015. In 2017, RBC Economics expects consumer spending growth will moderate slightly to 2.1%. These figures compare to forecasted Canadian GDP growth of 2.2% in 2016 and 2.7% in 2017. Since the rebound from economic crisis, growth in consumer spending has averaged about 2.5%, making 2016 look very much like “more of the same,” and compares with year-to-date growth in consumer spending of 2.1% for the nine months ended September 2015.

Exhibit 16: Canadian consumer spending growth is expected to pick-up modestly in 2016

-5%

0%

5%

10%

Q1/82 Q1/86 Q1/90 Q1/94 Q1/98 Q1/02 Q1/06 Q1/10 Q1/14

Canadian real GDP Real Canadian consumer spending

Consumer spending is expected to pick-up modestly in 2016 before moderating

again in 2017

Notes: 1) Shaded bars represent Canadian recessions. 2) Data include Q1/82–Q3/15 and Q4/15E–Q4/17E. Source: Statistics Canada, RBC Economics estimates, and RBC Capital Markets

Wage growth expected to support US consumer spending of 2.7% in 2016 Our US economists, Tom Porcelli and Jacob Oubina, highlight that US consumer spending in the current expansion has been a function of income growth and that aggregate wages are advancing at a +3.1% annualized pace in the fourth quarter through to November 2015. As such, they believe that wage growth should easily support real consumer spending of 2.7% in 2016. Beyond wage growth, US consumer debt ratios remain at multi-year lows, and the decline in gasoline prices should help allocate more consumption to non-energy areas—especially now that consumers seem to have come to terms with the idea that low energy prices are here to stay. Looking out to 2017, RBC Economics expects US consumer spending growth will moderate slightly to 2.4%.

Canadian consumer spending is expected to grow at 2.3% and 2.1% in 2016–17, respectively.

January 7, 2016 31


Exhibit 17: US consumer spending growth is expected to accelerate in 2015

-5%

0%

5%

10%

Q1/82 Q1/86 Q1/90 Q1/94 Q1/98 Q1/02 Q1/06 Q1/10 Q1/14

US real GDP Real US consumer spending

Consumer spending is expected to moderate to 2.7% and 2.4% in 2016 and

2017, down from 3.1% in 2015

Notes: 1) Shaded bars represent US recessions. 2) Data include Q1/82–Q3/15 and Q4/15E–Q4/17E. Source: Bureau of Economic Analysis, RBC Economics estimates, and RBC Capital Markets

The employment outlook is improving The US labour market is approaching full employment According to RBC Economics, US labour market conditions tightened during 2015 as the pool of underutilized labour decreased. Non-farm payrolls are on track to rise by 2.5 million in 2015, building on 2014’s 3.1 million gain. Accordingly, the unemployment rate continues to decline with an 80 bps drop year over year to 5.0% as of November 2015 —sitting within the range that the Fed considers full employment. While wage gains have been modest, the pace accelerated as 2015 progressed, with stronger wage increases expected in 2016 as labour market conditions continue to tighten.

Exhibit 18: Canada’s employment picture is steady; US poised to improve (MM, unless noted)

60

100

140

180

5

10

15

20

Jan-76 Jan-81 Jan-86 Jan-91 Jan-96 Jan-01 Jan-06 Jan-11

Canadian employment (LHS) US employment (RHS)

U.S. employment continues to climb above pre-recession levels

Canadian emplyment continues to improve, albeit modestly

Note: Data include January 1976 to November 2015. Source: Statistics Canada, Bureau of Labor Statistics, and RBC Capital Markets

Consumer spending is expected to moderate to 2.7% and 2.4% in 2016 and 2017, respectively, and down from 3.1% in 2015.

January 7, 2016 32


In Canada, resilient labour markets limit the negative energy-price hit to incomes According to RBC Economics, labour markets have held up in aggregate, despite weak energy-led performance in the broader economy. Lower gas prices continue to provide a modest lift to household incomes, and monetary policy has remained ultra-accommodative. That being said, Canadian employment fell by 35,700 in November 2015, compared with market expectations for a dip of 10,000. Notably, the hourly wage for permanent employees continued to rise with a 3.3% year-over-year increase.

Canadian unemployment ticks up 40 bps year over year to 7.1% Canada’s unemployment rate increased by 40 bps year over year to 7.1% as of November 2015, as solid gains in employment were offset by an increase in the labour force. According to RBC Economics, Canadian unemployment will improve modestly to 6.8% in 2016 with further improvement to 6.4% in 2017—below the 10-year average of 7.1%. In total, the number of people employed stands at 18.0 million, in contrast to a pre-recession peak of 17.1 million in October 2008 and a recession low of 16.7 million in June 2009.

Exhibit 19: Unemployment rates in Canada and the US are moving in opposite directions

3%

6%

9%

12%

15%


Canada US Cdn 10-yr avg. US 10-yr avg.

The US unemployment rate is well below its 10-yr avg. of 7.2% while, the Canadian figure remains largely in line with the 10-yr avg.

Notes: Dashed lines represent 10-year averages. Data include January 1976 to November 2015. Source: Statistics Canada, Bureau of Labor Statistics, and RBC Capital Markets

The US unemployment continues to improve; now well below the 10Y average The US unemployment rate declined 80 bps year over year to 5.0% as of November 2015, sitting well below the 10-year average of 7.2%. Over the past year, the total employment reading improved to 149.4 million as of November 2015, which was up 1.3% from 147.4 million one-year earlier. Going forward, RBC Economics estimates that the US unemployment rate will improve modestly to 4.9% by year-end 2016 and gain further ground in 2017, closing the year at 4.7%.

An unsettling statistic; US labour force participation rate resumes its decline The US labour force participation rate declined 40 bps year over year to 62.5% as of November 2015, following a brief pause in its downward trajectory in 2014. From its peak of 66.4% in January 2007, the US labour force participation rate has declined by 390 bps and is now at a level not seen since October 1977. In Canada, the year-over-year labour force participation rate remains unchanged at 65.8% and is generally in line with its long-term average of 65.7%. Following the financial crisis, we note that the Canadian labour force participation rate has been much more resilient than the comparable US figure, with a decline of just 190 bps to its current level.

The Canadian unemployment rate increased to 7.1%, up 40 bps YoY. RBC Economics forecasts a 2016 unemployment rate of 6.8%.

January 7, 2016 33


Exhibit 20: Labour force participation largely unchanged in Canada; down a touch in the US

58%

60%

62%

64%

66%

68%

70%


Canada US

US LT avg: 65%

Cdn LT avg: 66%

The US labour force participation rate declined modestly in 2015

Note: Data include January 1976 to November 2015. Source: Statistics Canada, Bureau of Labor Statistics, and RBC Capital Markets

The number of discouraged workers continues to decline but still remains high The number of discouraged workers (those who are able to work but have stopped searching for employment) in the US continues to decline. Since peaking at 1.3 million in December 2010, the total number of discouraged workers has fallen to 594,000 as of November 2015—down modestly from 698,000 at the same point in 2014 (Statistics Canada does not report an equivalent number within Canada).

Exhibit 21: The number of discouraged US workers continues to decline (MM, unless noted)

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Jan-94 Jan-98 Jan-02 Jan-06 Jan-10 Jan-14

Discouraged workers: Want a job but not looking Note: Data include January 1994 to November 2015. Source: Bureau of Labor Statistics and RBC Capital Markets

After a brief pause, the US labour force participation rate continues to decline and is now at a level not seen since 1977.

Discouraged workers continue to be coaxed back into the labour force.

January 7, 2016 34


The duration of US unemployment is still high but declining quickly The “discouraged worker” effect can be observed through unemployment duration statistics—as the length of time unemployed increases, the risk of becoming “discouraged” increases as well. Personal savings are drawn down, skills disintegrate, and workers withdraw from the employable pool. This results in greater reliance on social safety nets, such as unemployment insurance and welfare programs. Even in an improving economy, “discouraged workers” have to be coaxed to re-enter the workforce and often need to be retrained.

The average duration of unemployment in Canada is 18 weeks, which is in line with the trailing five-year average and slightly longer than the 10-year average of 17 weeks. In contrast, the duration of US unemployment surged throughout 2010 and 2011 to all-time highs of 41 weeks. While the most recent reading was still elevated at 28 weeks, it represents a sizable five-week decline from 33 weeks at the same point in 2014. We note that this is still 50% higher than the long-term average of 19 weeks but is now below the 10-year average of 29 weeks.

Exhibit 22: US unemployment duration is declining; Canada remains near long-term average

10

15

20

25

30

35

40

45


Canadian duration US duration

The duration of US unemployment continues to decline

Canadian and US long-term averages have converged at roughly 18 weeks

Notes: Duration represents the avg. number of weeks of unemployment. Dashed lines represent long-term averages. Data include Jan-76 to Nov-15. Source: Statistics Canada, Bureau of Labor Statistics, and RBC Capital Markets

Consumer balance sheets continue to improve Household net worth hits new high in Canada; moderates slightly in US but up YoY Canadian and American household net worth continues to increase, growing by 6% and 3% year over year in Q3/15, respectively. We highlight that significant upward revisions to real estate asset valuations, along with changes to how pensions assets are recorded (in Q3/15 and prior quarters), helped boost the asset side of the household balance sheet.

Following upward revisions, Canadian household net worth stands at $9.4 trillion as of Q3/15, up 49% versus the pre-recession peak of $6.3 trillion in Q2/08, and 64% above the recessionary trough of $5.8 trillion in Q1/09. US household net worth stands at US$85.2 trillion, which is up 26% versus the pre-recession peak of US$67.7 trillion in Q2/07.

While the duration of US unemployment still remains high…it is trending in the right direction.

January 7, 2016 35


Exhibit 23: Canadian household net worth continues to grow modestly ($T, unless noted)

0

20

40

60

80

100

0

2

4

6

8

10

Q1/90 Q1/94 Q1/98 Q1/02 Q1/06 Q1/10 Q1/14

Canadian household net worth (LHS) US household net worth (RHS) Notes: Shaded bars represent US recessions. Data include Q1/90 to Q3/15. Source: Statistics Canada, Federal Reserve Board, and RBC Capital Markets

A positive sign: Housing starts and vehicle sales continue to improve Signalling an improving economy, both housing starts and national vehicle sales continue to move higher in the US. November’s seasonally adjusted annualized run rate of 1.2 million housing starts increased 16% or 166,000 units over the same point in 2014. Our US homebuilding analyst, Robert Wetenhall, expects 2016 housing starts will match the current run rate of 1.2 million, driven by an improving job market and low interest rates, which boost affordability. He notes that supply also remains limited in desirable markets where the number of months of inventory, which typically runs at six months, has dwindled to three months in some cases.

In addition, US home prices increased modestly over the course of 2015, increasing 5% year over year as of October 2015 according to the Case-Shiller Index. We note that despite sitting at the highest point since November 2007, the index remains 5% below its July 2006 peak. The National Association of Realtors also reported similar figures with a 6% year-over-year increase as of October 2015.

We see an improvement in housing as a major positive due to the economic “multiplier” effect. More than 30 years of housing data show long-term average annual starts of 1.4 million. Therefore, even without the return to long-term average volumes, we see opportunity for further meaningful percentage gains if mean reversion holds. We also believe an improved housing market will drive increased consumer confidence, given how linked the housing market crash was to the financial crisis in consumers’ minds.

On the durable goods front, vehicle sales continue to trend positively following an upward trajectory since mid-2009. The November data showed US seasonally adjusted annualized vehicle sales of 18.5 million units, up 6% or 1.1 million vehicles over the same period in 2014. Our US auto analyst, Joseph Spak, believes that US sales will run at a mid-17 million unit level for two to three more years. After that, he expects sales to begin to taper off but acknowledges that the pace of the decline is uncertain.

January 7, 2016 36


Exhibit 24: US housing starts and vehicle sales continue to improve (MM, unless noted)

0

5

10

15

20

25

0.0

0.5

1.0

1.5

2.0

2.5


US housing starts (LHS) Total US vehicle sales (RHS)

Housing starts and vehicle sales are up 6% and 16% YoY

respectively

Note: Data include January 1985 to November 2015. Source: NAHB, Bureau of Economic Analysis, and RBC Capital Markets

Savings and debt remain relatively constant Savings rates effectively unchanged; still well below the long-term average The Canadian savings rate remained effectively flat in 2015 at 4.2% in September 2015, up 10 bps year over year, and sitting well below its long-term average of 8.2%. RBC Economics expects the savings rate to remain effectively unchanged in 2016 and 2017, closing both years at 4.0% and 4.1%, respectively. As the Canadian savings rate is expected to remain well below its long-term average, this leaves the door open for a modest uptick consumer spending with expected growth of 2.3% in 2016, up from 2.0% in 2015, according to RBC Economics.

Exhibit 25: Savings rates remain largely steady but below long-term averages

0%

5%

10%

15%

20%

Q1/82 Q1/86 Q1/90 Q1/94 Q1/98 Q1/02 Q1/06 Q1/10 Q1/14

US savings rate Canadian savings rate

Canadian savings rates improved slightly in early 2015 but moderated in the latter part of the year

Notes: Shaded bars represent US recessions. Data include Q1/81 to Q3/15. Source: Statistics Canada, Bureau of Economic Analysis, and RBC Capital Markets

Improving housing starts and vehicle sales are a positive sign.

RBC Economics expects savings rates in Canada and the US will remain effectively unchanged in 2016–17E.

January 7, 2016 37


We note that North American savings rates were subject to a 25-year decline through to 2005. From double-digit peaks in the early 1980s, savings rates trended to sub-2%, reflecting an era of conspicuous consumption and a “buy now, pay later” mentality. In response to the Global Financial Crisis, savings increased rapidly, peaking at 9.2% in the US in Q4/12 and 6.0% in Canada in Q1/13.

While the US savings rate historically has been below Canada’s, that trend has largely reversed since the US credit crisis. In 2010–2015E, the US savings rate averaged 5.7%, modestly higher than the Canadian rate of 4.6%. The US savings rate was 5.2% as of September 2015 and below the long-term average of 6.5%. RBC Economics expects the US savings rate to remain effectively unchanged in 2016 and 2017 at 5.2% and 5.1%, respectively.

Canadian & US consumer balance sheets diverge as Canadian debt ticks up (again) Household debt is often cited when it comes to excesses built up during the recovery and expansion, with the “official” Canadian credit market debt-to-personal disposable income (“PDI”) ratio currently at 164%—a figure that is about 26% higher than the US ratio of 138%. When adjusting for calculation methodologies, the Canadian ratio stands at 153%, which is approximately 15% higher than the comparable US ratio. Over the past year, the “official” Canadian figure ticked up by ~1%, while the adjusted ratio increased by ~2%, compared to with a decline of 1% in the US.

Exhibit 26: Canadian credit market debt-to-personal disposable income crept higher in 2015

75%

100%

125%

150%

175%

Q1/90 Q1/94 Q1/98 Q1/02 Q1/06 Q1/10 Q1/14

US 'Official' Canada Canada adjusted to US definitions

Even taking into account calculation methodologies, Canadian debt-to-PDI is higher... but still lower than the US peak in Q4/07

Notes: Shaded bars represent US recessions. Data include Q1/90 to Q3/15. Source: Statistics Canada, US Federal Reserve Economic Data, and RBC Capital Markets

Since the US peak in the fourth quarter of 2007, these ratios have moved in opposite directions, as US consumers have lowered their debt-to-PDI ratio by approximately 30%, while Canadian consumers have increased their comparable ratio by almost 22%. However, we note that the adjusted Canadian ratio still remains almost 15% below the US peak of 168% in Q4/07. While there is debate over calculation methodologies between the two data sets, even after adjusting for differing methods, the key takeaway remains the same—the average Canadian consumer is more indebted than the average US consumer.

While RBC Economics is not sounding the alarm bells for household debt at this juncture, the debt-to-income ratio continues to rise to new record highs. Moreover, there exist pockets of stress that are not captured in headline ratios and are worth monitoring, including: 1) households with high-debt obligations and lower incomes; 2) an increased exposure to variable borrowing rates; and, 3) elevated interest payments on non-mortgage outstanding balances.

While debt levels remain at all-time highs, debt service ratios remain at their lowest levels in 20-plus years.

January 7, 2016 38


Low interest rates continue to keep the high debt levels manageable Despite elevated debt-to-personal disposable income ratios in Canada, the debt-service coverage ratio remains on a healthy, steady downward trend. At 6.3% in Canada and 10.0% in the US, these ratios are at the lowest levels in over 20 years and currently stand well below the long-term averages of 8.2% and 11.5%, respectively. Given the low level of interest rates, the cost to service the elevated debt balances continues to remain manageable.

Exhibit 27: Canadian debt-service ratios continue to improve; “thank you” low interest rates

4%

6%

8%

10%

12%

14%

Q1/90 Q1/94 Q1/98 Q1/02 Q1/06 Q1/10 Q1/14

US debt service ratio Canadian debt service ratio

Debt service ratios continue to improve, albeit modestly

Note: Data include Q1/90 to Q3/15. Source: Statistics Canada, US Federal Reserve Economic Data, and RBC Capital Markets

As economic conditions eventually prompt the beginning of a monetary policy tightening cycle, RBC Economics highlights that a measured pace of increase in interest rates would keep the interest servicing costs of current debt levels historically low, albeit rising modestly. With that said, in RBC Economics base case scenario, where interest rates rise gradually, upward pressure on household financial obligations is likely inevitable given the current elevated levels of outstanding debt balances.

We also highlight that a new and more complete debt-service metric was released in September 2015 by Statistics Canada, which takes into account both principal and interest payments. According to RBC Economics, the more complete debt-service ratio indicates only a moderate degree of stress on household finances, despite debt levels that are elevated on a historical basis. RBC Economics also notes that the persistence of historically low interest rates, and to a lesser extent, sustained income gains, have kept the relative costs of servicing these debt balances at a record low, thereby, helping to contain the financial stability risks posed by elevated household indebtedness.

Canadian debt-service ratios are at their lowest point in over 20 years.

Click image to view “A new indicator” by RBC Economics.

January 7, 2016 39

https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_7F4FBD6AB558D29FEF289832F59E3E11


The office sector: Supply-side imbalances and a weak demand environment on a national basis; significant regional disparities

Across Canada’s major markets, there is currently a ~15.7 million sf pipeline of new office buildings under construction. Against a national office inventory of more than 500 million sf of GLA, this implies a supply increase of ~3%, of which the vast majority will be delivered over the next two years (2016–2017).

According to RBC Economics, Canada’s 2015 GDP growth is likely to pencil in about 1.2%. Behind the figures will be significant regional disparities. For instance, Alberta could contract by an estimated 1.3% while Ontario and BC are forecasted to grow at 2.1% and 2.1%, respectively. The 2016 outlook is one of improved, albeit still subdued, economic growth, with RBC Economics forecasting a national GDP gain of 2.2%. The aggregate data are expected to continue to bear the weight of weakness in the oil patch and GDP growth of 0.9% in Alberta. In contrast, Ontario (+2.5%) and BC (+3.1%) are expected to maintain their relative strength.

With this as the macro-economic backdrop and with the overlay of the longer-term changes in reduced office GLA per capital trends (due to changes in special configurations, telecommunication, “hoteling”, and the like), we believe that near-term office absorption is likely to remain sub-par relative to long-term averages. As such, we also believe that national office vacancy is likely to (continue to) trend higher over the next two years.

Thematically, most of the new office construction is focused in Toronto and Calgary. Most of this activity is within the central or Central Business District (“CBD”) areas. As such, we believe central vacancy may rise, at least in the near term, by a greater degree than suburban vacancy. We believe these trends may be mirrored in the form of greater softness in central rents versus somewhat more stable suburban rents.

Expecting tepid 2016 uptake on the heels of 2015’s negative absorption Exhibit 28 graphically illustrates annual office absorption from 2003A through 2015A and our five-year base-case forecast.

Exhibit 28: Canadian office absorption (MM sf; 2003A to 2020E)

(2)

0

2

4

6

8

10

12

2003 2005 2007 2009 2011 2013 2015 2017E 2019E

LTA = ~5MM sf

Source: Altus InSite and RBC Capital Markets estimates

Weakness in oil-dependent markets weighed heavily on national demand.

January 7, 2016 40


Data extrapolated from Altus InSite indicate that 2015 national absorption was approximately negative 1.0 million sf. This compares to 1.1 million sf of absorption in 2014. Notably, 2015 was the first year since the 2008–2009 recession in which the total annual absorption was negative.

With tepid and disparate 2016 aggregate GDP growth, we believe sub-par absorption trends are likely to continue this year. More specifically, we forecast national absorption in the 2 million sf range, well below the long-term average of 5.0 million sf. With the continued weakness in the energy sector and other commodities, we expect that absorption within Alberta’s major office markets could again be negative this year. Over the next three to five years, our “base-case” forecast calls for average office absorption of just over 3 million sf annually, representing average annual take-up of ~75 bps per year, based on the existing stock.

2016 supply growth to remain elevated and consistent with 2015 Exhibit 29 graphically depicts historical construction completions and the estimated development delivery schedule until 2020. Last year, there was 7.5 million sf of new space brought to market, making 2015 the second-largest year of office deliveries since 2009, when deliveries peaked at 11.0 million sf. This year, deliveries are expected to uptick to 8.1 million sf, equating to about 1.6% of total inventory. The 2017 completion schedule also appears robust, with an estimated 7.0 million sf to be available for occupancy. By way of reference, the long-term national average annual new office supply figure is roughly 5 million sf.

Exhibit 29: National new office supply (2003 to 2020E)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

0

2

4

6

8

10

12

2003 2005 2007 2009 2011 2013 2015 2017E 2019E

Deliveries (MM sf, LHS) LT Avg % of PY Inventory (RHS)

LTA = 5.1MM sf

Source: Altus InSite and RBC Capital Markets

CBD/central area supply build still the focus The new supply pipeline of ~15.7 million sf consists of approximately 11.3 million sf (72%) located in central regions/CBDs and 4.4 million sf (28%) in the suburbs. The vast majority of the current pipeline is slated be delivered within the next two years. Only one project, the Stantec Tower in Edmonton, is on track for 2018 delivery. The focus on CBD growth continues to reflect: 1) the urbanization trend (access to transportation; the condo boom; and the live, work, play generation) that is now well established in a number of Canada’s larger cities; and, 2) the fact that downtown high-rise Class “A” office space has a much longer development cycle than do suburban buildings, which are typically low- to mid-rise structures with larger site configurations.

Currently supply pipeline is weighted to 2016 and 2017. In 2018, only one project is set to be completed.

January 7, 2016 41


Supply growth higher in the west: Precisely where it is not needed! Our database of active office developments includes more than 65 projects encompassing approximately 15.7 million sf across 10 major markets. In aggregate, this pipeline represents an expected increase of approximately 3% relative to the existing inventory. Deliveries of all construction in progress are scheduled for 2016–2018, with the vast majority within the next two years. The new supply pipeline, by city, is summarized in Exhibit 30.

On a more granular basis, the majority of the office development is concentrated within Toronto and Calgary. These two markets account for ~9.9 million sf or just over 60% of the pipeline. More specifically, Toronto’s 5.0 million sf (32% of total) is the largest share, closely followed by Calgary’s 4.9 million sf (31%).

The largest increases in supply, relative to current stock, will be in Calgary (+7%) and Edmonton (+7%). Halifax (+5%) and Toronto (+3%) will also be subject to sizable increases in the existing stock, with the former being only 498,000 sf, but on a small base. Modest inventory growth is in store for Montreal (+2%) and Vancouver (+2%) over the next three years.

Exhibit 30: Active construction pipeline, by city (2016E–2020E)

Summary of New Supply Analysis (2016 to 2020) Buildings

Existing Inventory

(Q3/15) Central (000 sf)

Suburbs (000 sf)

Total (000 sf)

Supply Increase

Calgary 524 65,740 4,170 739 4,909 7% Edmonton 267 24,159 1,793 0 1,793 7% Halifax 122 10,660 300 198 498 5% Montreal 822 95,590 822 1,157 1,979 2% Ottawa 448 43,057 65 0 0 0% Quebec City 216 18,607 0 145 145 1% St. John’s 44 2,718 0 0 0 0% Toronto 1,434 175,091 3,592 1,411 5,003 3% Vancouver 695 55,339 549 791 1,340 2% Winnipeg 111 11,191 0 0 0 0% Total Under Construction 4,683 502,152 11,292 4,441 15,733 3%

Source: Altus InSite and RBC Capital Markets.

The four western cities (Vancouver, Edmonton, Calgary, and Winnipeg) collectively have a new supply pipeline of 8.0 million sf (51% of the total construction pipeline). This pending new supply is on an existing inventory of 156 million sf. Hence, the pending inventory add equates to ~5% of existing stock. In Canada’s central and eastern cities, the pending supply pipeline totals roughly 7.7 million sf (49% of total) and equates to a modest 2% of the existing stock.

For readers’ reference, Appendix II provides a detailed listing of office properties under development, including the project name, developer, expected delivery year, location (i.e., CBD or suburbs), and estimated pre-leasing status.

The national active supply pipeline should grow existing inventory by ~3% over the next two years. Collectively, Toronto and Calgary account for over 60% of the inventory under construction. As a percentage of current stock, Calgary and Edmonton have the largest new delivery schedules.

January 7, 2016 42


National vacancy to (continue to) trend higher for two years Overall, we expect that the national office vacancy rate could rise by ~100 bps in 2016. This would place the year-end 2016 figure at 11.2% versus 10.2% as of Q3/15. Our 2016 forecast is based on expected new supply of ~8.1 million sf and our “base-case” absorption forecast of ~2 million sf.

National vacancy should peak in 2017: Our high/low vacancy forecast framework We have prepared “base-case”, “upside”, and “downside” scenarios for national office absorption and vacancy over the next five years (out to 2020). These incorporate the following ranges of average annual absorption assumptions:

Base-case demand scenario – Approximately 3 million sf of average annual demand, commencing with 2 million sf of demand in 2016, rising gradually to 5 million sf of take-up by 2020 and equating to ~75 bps of average annual absorption;

Upside demand scenario – Straight-line demand averaging 5 million sf annually through to 2020, equating to ~100 bps of average annual absorption; and,

Downside demand scenario – Straight-line demand averaging 1 million sf annually through to 2020, equating to ~25 bps of average annual absorption.

By way of reference, long-term average annual national absorption has been approximately 5.0 million sf over the last decade.

Under our base-case scenario, we expect 2016 national vacancy to reach 11.2%. Thereafter, we expect vacancy to achieve a cyclical peak at 11.8% in 2017. Our base-case vacancy estimates assume lacklustre absorption of 2 million sf in 2016 and 3 million sf in 2017–2018. Thereafter, we assume an increase to 4 million sf of annual absorption in 2019 and 5 million sf in 2020. This base-case forecast produces a ~50 bps decline in vacancy in 2018 (to 11.3%) and then more significant drawdowns of 70 bps in 2019 and 100 bps in 2020, 10.6% and 9.6%, respectively.

Under our upside scenario, national vacancy rises in 2016 by 60 bps to 10.7%. Thereafter in 2017, the increase is a modest 30 bps to 11.1%. In the years 2018 to 2020, national vacancy posts drop annually to 10.3%, 9.4%, and 8.5%, for a cumulative and sizable 260 bps decline.

Under our downside scenario, we estimate that vacancy will rise to 11.4% in 2016, followed by an additional 100 bps increase in 2017 to 12.4% in 2017. From this cycle peak, we forecast modest declines of 10 bps in 2017 (to 12.3%) and 20 bps annually thereafter to 12.0% and 11.8% in 2019 and 2020, respectively.

January 7, 2016 43


Exhibit 31: Canadian office vacancy rate scenario analysis (1985–2020E)

0%

4%

8%

12%

16%

20%

1985 1990 1995 2000 2005 2010 2015 2020E

National Office Vacancy Bull-case Bear-case

Forecasts

LT Average = ~10%Tenant's market

Landlord's market

Source: Cushman & Wakefield and RBC Capital Markets estimates

Available-for-lease pipeline not captured; 2017 peak vacancy seems highly plausible, out-year (2019–2020) risk is that vacancy decline is less pronounced What our scenario analysis does not capture is the potential for additional supply, which may still be added to the out-years (2019–2020) of our forecast. This potential supply could originate from the large number of buildings that are in pre-leasing mode or available for pre-leasing status. Appendix II lists properties that we describe as being “available for pre-lease”. Many of these projects could be added to the construction-in-progress pipeline on reasonably short notice (approximately six months), in an instance whereby lease commitments are secured. Hence, we believe that our base-case estimate, which calls for a cyclical peak in 2017, is reasonable. We highlight the possibility that vacancy in 2019 to 2020 does not decline quite as rapidly as the outlook suggests.

To follow on to the comments above, we believe the existence of the available-for-lease pipeline is such that the realization of our “upside” scenario is somewhat of a low-probability outcome for the out-years (2018–2020) of this scenario analysis.

For the most part, it’s a tenants’ market Cushman & Wakefield (“C&W”) cites a national average Q3/15 asking net rent of $18.46/sf, representing a 3% decline from Q4/14’s $19.00/sf. Broadly speaking, from the end of 2010 through to the end of 2014, the trend in national average asking rents was upward. Thus, 2015 marked the first year in five that national rents failed to post gains.

Under our base-case scenario national vacancy estimates are: 2016E – 11.2% 2017E – 11.8% 2018E – 11.3% 2019E – 10.6% 2020E – 9.6%

January 7, 2016 44


Exhibit 32: Canadian office vacancy rates versus net rents (1985–2020E)

0%

5%

10%

15%

20%

$0

$5

$10

$15

$20

1985 1990 1995 2000 2005 2010 2015 2020E

Net rents (LHS) Vacancy (RHS)

Forecasts


Nationally, we believe that net rents are on course to continue to give back some of the gains made in recent years. We do not believe the decline will be steep, especially in the context of the rent gains achieved over the last few years. Yet, with the high cost of carrying vacant office space (due to non-recoverable operating cost and property taxes) and a potential bias for listed REITs and REOCs to favour NOI stability (relative to, for example, the outright highest NPV lease), we expect that leasing commissions and tenant allowances will continue their escalation, thus placing much greater pressure on net effective rents, relative to net (face) rents.

Our 2016 forecast calls for a ~3% decline in the national average net rent to $17.91/sf under our “base-case” demand/supply outlook. Thereafter in 2017, we expect an additional rent decrease of ~2% to $17.57. Overall, we believe 2017 should mark the cyclical bottom in net rents. Longer-term, we foresee a return to gradual rent growth in 2018 to 2020 (1–2% annually).

New supply to hurt central vacancy more so than suburban in the medium term; longer-term central area demand drivers should be stronger Data from C&W show that central area absorption was a weak negative 1.3 million sf (equating to the turn back of ~50 bps of total area) during the first nine months of 2015. Suburban demand was also sub-par, with the 2015 nine-month cumulative absorption at negative 26,000 sf. Notably, the 2015 figures were on the heels of generally sub-par 2014 absorption, which included 2 million sf of take-up in central areas and 0.9 million sf of suburban demand.

The 2016 new delivery pipeline of 8.1 million sf is approximately 55% (4.5 million sf) weighted toward central area completions and approximately 45% (3.6 million sf) toward suburban completions.

In 2016, we forecast that the national central area vacancy will rise by 100 basis points to 9.6% from 8.6% as of Q3/15. We see a further 130 basis points increase to 10.9% in 2017. At that point, we believe vacancy should reach its cycle peak, ultimately retracing to 8.9% by 2020. While soft and even negative absorption have occurred on multiple quarters over the last three years, the prospects for a peak-of-cycle central area vacancy of sub-9% compares to the 30-year average central area vacancy of 9.3%.

We believe national net rents should reach a cyclical bottom in 2017. Thereafter, we see the potential for modest annual rent growth of ~1%.

January 7, 2016 45


The central area versus suburban supply-side equation is expected to drive an uptick in 2016 suburban vacancy, which is similar in magnitude relative to the central region. This year, we see the national suburban vacancy rate increasing by 110 bps to 13.3% from 12.2% as of Q3/15. Yet we believe suburban vacancy may also peak this year, followed by a gradual drawdown to 10.9% by 2020. The jeopardy in this forecast relates to the potential for new suburban office development starts and deliveries within this five-year time horizon. Notably, our base-case outlook equates to an average suburban vacancy of 12.9% over the next three years, which is well above the 30-year average of 11.7%. The forecasts suggest that the suburbs collectively are likely to remain much more of a tenants’ market for several years and that average rents will be stagnant on a five-year basis.

Longer-term, we believe central demand drivers will prove stronger than those behind suburban office demand.

Suburban-central vacancy spread is poised to narrow (for the wrong reasons) Over the last half-dozen years, the spread between the national suburban office vacancy rate and the national central area vacancy rate has typically been within 350 to 450 bps. By way of illustration, C&W’s Q3/15 national central vacancy rate of 8.6% was 360 bps lower than the national suburban vacancy rate of 12.2%. In the short term, we believe the suburban-to-central area vacancy spread is likely to demonstrate a modest 10 bps increase to 370 bps in 2016. Thereafter, substantial new deliveries in 2017 in particular are expected to push central area vacancy higher. When coupled with limited supply and modest absorption expectations, we believe there could be material narrowing of the suburban versus central vacancy to a spread of 210 bps in 2017.

We have graphically depicted the suburban-central vacancy spread in Exhibit 33.

Exhibit 33: Canadian office vacancy (central versus suburban; 1985–2020E)

(8%)

(4%)

0%

4%

8%

12%

16%

20%

1985 1990 1995 2000 2005 2010 2015 2020E

Central Suburban Spread

Forecasts


Averages can be misleading: New builds are performing strongly The newest generation of Class “AAA” properties continues to lease up well, very much at the expense of the older Class “AA” stock. Thematically, across the major markets, we expect that the older stock of Class “A” and “AA” buildings will continue to struggle relative to the new-generation LEED-certified product. This is a primarily a downtown-focused dynamic, but it is also a factor for suburban markets. In short, the new buildings offer superior office ergonomics and more efficient floor plates and are very eco-friendly (built to varying LEED

We see supply-side dynamics driving a tightening in the vacancy spread between the suburbs and the central region.

January 7, 2016 46


standards), and as a result, they offer tenants improved occupancy efficiencies and lower operating costs per sf. All of these factors allow the landlord to command a premium net rent per sf. To compete, the well-located older “A” and “AA” stock (i.e., Toronto’s five CBD bank towers and other assets of this character in other cities) typically offer sizable tenant inducement packages and somewhat discounted net rents. These properties have also been subject to significant capital programs related to energy efficiency, common areas, elevators, and overall modernization and improvement. And a number of these “A” and “AA” properties still have future multi-year investment periods ahead. We note this phenomenon is not isolated to the CBD, as suburban new builds are also outperforming the existing stock.

Anticipating net rent declines in central and suburban markets this year During the 2010–2013 timeframe, tighter central area conditions provided CBD and central area landlords with greater pricing power relative to their suburban counterparts. Over an even longer period, C&W data (graphically depicted in Exhibit 34) show that central area rents have increased 46% over the last 10 years (3.9% CAGR). In comparison, suburban rental growth has been 24% over the comparable timeframe, for a comparable CAGR of 2.1%. As shown in Exhibit 34, there is currently a ~$7/sf differential between central and suburban office rents. While down from a peak of $8.50/sf in 2013, this spread is above the 20-year average of ~$4.50/sf and is near the upper end of the long-term range. We expect the net rent spread to decline by 2017 to ~$6, before beginning to rise again thereafter, due to higher growth in central area rents.

Given the composition of expected 2016 development deliveries (45% suburban; 55% CBD), we expect suburban net rents to decline by ~1% to $14.77/sf, while we anticipate a 2% decline in central area net rents to $21.42/sf. Looking further out to 2017, we expect central area net rents to decline by ~4% to ~$20.65/sf versus flattish suburban net rents, averaging $14.80/sf.

Exhibit 34: Canadian office net asking rents (central versus suburban; 1985–2020E)

$0

$5

$10

$15

$20

$25

1985 1990 1995 2000 2005 2010 2015 2020E

Central Suburban Spread

Forecasts


The national construction pipeline only includes one 0.6 million sf project slated for delivery in 2018. As such, in 2018, we believe both central and suburban rents will be flat to up slightly (we have penciled in growth of ~1%). In the tail years of our five-year forecast, we expect rent growth to be still moderate yet slightly better in central areas (~2–3%) versus still tepid annual growth (~1%) in the suburbs.

Given the composition of supply deliveries, we see more volatility in central net rents compared to suburban rents.

January 7, 2016 47


Canadian office vacancy favourable relative to the US, yet the trends are in contrast with one another Canada’s national vacancy rate remains materially lower than the national US vacancy rate. In Q3/15, REIS reported a US national office vacancy of 16.5%, which is a significant 630 bps above Canada’s 10.2%. However, the two markets, in our view, are likely to post opposing trends in the near term. Canada’s national office vacancy is likely headed higher, while the US national office vacancy rate is in recovery mode. For example, in Canada, Q3/15’s 10.2% was up 20 bps sequentially and 140 bps year over year. In comparison, the US national office vacancy rate was down 10 bps sequentially and 30 bps year over year. In general, it appears that Canadian office occupancy peaked this cycle as far back as 2012, while the US markets still remain in recovery mode, and they seem poised to continue along this path for several more years.

Major market (“VECTOM”) reviews and outlooks Highlights and commentary relating to Canada’s primary office markets include:

Exhibit 35: Canadian office vacancy rates (2000A–2016E)

0%

3%

6%

9%

12%

15%

Toronto Montreal Ottawa Calgary Edmonton Vancouver Note: Edmonton data begins in 2008. Source: Cushman & Wakefield and RBC Capital Markets estimates

Exhibit 36: Canadian office net asking rents in $/sf (2000A–2016E) ($/sf)

$0

$5

$10

$15

$20

$25

$30

Toronto Montreal Ottawa Calgary Edmonton Vancouver Note: Edmonton data begins in 2008. Source: Cushman & Wakefield and RBC Capital Markets estimates

January 7, 2016 48


Vancouver (~55MM sf): New supply to push a softening in the central area, albeit less so than the suburbs During the first nine months of 2015, Vancouver’s overall market vacancy increased by 60 bps to 9.9%. While 9M/15 absorption was a very strong 960,000 sf (compared to 308,000 sf in the comparable 2014 timeframe), this was in the face of a very sizable 1,434,000 sf of new supply. The new supply bulge, as one might imagine, hurt market rents, which declined by roughly 5% to $22.26/sf from $23.41/sf in Q4/14.

As summarized in Exhibit 37, Vancouver’s development pipeline encompasses 1.3 million sf, representing about 2% of existing stock. This year, 777,000 sf across 10 projects is slated for delivery. The majority (653,000 sf or 84%) of 2016 completions will be in the suburbs versus a modest 124,000 sf in the central area.

Exhibit 37: Scheduled developments deliveries (’000 sf, 2016E–2020E)

Existing Inventory 2016E 2017E 2018E 2019E 2020E Vancouver 55,339 777 563 0 0 0 (% of supply) 1.4% 1.0% 0.0% 0.0% 0.0%


Downtown Vancouver: Working through the last year’s sizable supply deliveries In the central area (which includes the CBD and the Broadway Corridor), vacancy rose 160 bps to 7.6% from 6.0% at Q4/14. 2015’s 1,374,000 million sf of central area supply equated to an inventory addition of approximately 400 bps relative to 33 million sf of existing stock. Were it not for strong absorption totalling 671,000 sf, vacancy would have risen more significantly. Central area net rents were, however, affected, falling approximately 3% to $25.56/sf from Q4/14’s $26.32/sf.

Within a number of “vacated” office towers, last year’s central area new supply resulted in a significant rise in vacancy and an availability of a number of larger blocks of space. Specifically, Cushman and Wakefield recently highlighted that the market included more than 20 available options for space greater than 25,000 sf, and 10 of those options offered spaces larger than 50,000 sf. This is significant in Vancouver, which is not a major head office city and where a 50,000 sf commitment is a large lease.

Looking ahead, a comparatively light new supply pipeline of 124,000 sf this year should allow vacancy to hold steady at 7.6%, while in 2017, 425,000 sf of new is supply is expected to drive a ~60 bps increase in vacancy to 8.1%. We believe central area rents may continue to trend modestly lower.

Wave of new supply likely to push suburban vacancies higher Greater Vancouver’s suburban vacancy of 13.0% is much higher than the central area. Last year, the suburban vacancy declined 60 bps to 13.0%. With this double-digit average, a number of the suburban nodes are “tenants’ markets”. Last year’s new supply deliveries of 60,000 sf were offset by 198,000 sf of absorption. The high vacancy rate adversely affected net asking rents, which declined by a significant 12% to $18.69/sf from $21.23/sf as of Q4/14.

Data provided by Altus indicate that six projects totalling approximately 653,000 sf are likely to be completed this year. This will boost the existing inventory by about 3%. We expect overall vacancy to climb significantly in 2016. Our base-case scenario estimates 190 bps to 14.9% by the end of 2016, and we believe rents could decline by another 5%.

January 7, 2016 49


Profiling Renfrew Centre One project of note in this year’s suburban pipeline is the Renfrew Centre. The seven-storey, 170,000 sf office building will feature nine-foot ceilings, fitness offerings, and easy access to highways and public transportation. The office building, which is targeting LEED Gold certification, is being constructed by locally based Pacific Capital Real Estate Corporation. Renfrew Centre is owned by Alberta Investment Management Corporation (“AIMCo”), and Blackwood Partners has been retained by AIMCo to provide investment advisory, asset management, and transaction management services.

Exhibit 38: Renfrew Tower (artist’s rendering)

Source: www.blackwoodpartners.com and RBC Capital Markets

In short, we believe total Vancouver office vacancy rates will rise in 2016. While the CBD should remain relatively stable, we believe the ~3% increase in suburban inventory is beyond what the area is likely to absorb over a 12-month time horizon. Accordingly, we estimate that overall market vacancy will increase by 80 bps to 10.7% from 9.9% in Q3/15, while net rents are anticipated to decline by ~3% to $21.53/sf from $22.26/sf in Q3/15.

Edmonton (~24MM sf): Fundamentals likely to deteriorate in light of substantial deliveries and the lag effect of low WTI Edmonton’s office construction pipeline totals 1.8 million sf, which will represent additional GLA equal to slightly more than 7% of the existing stock. Across Canada’s major markets, this makes Edmonton’s pending inventory build one of larger percentage gains. Two-thirds (1.2 million sf) of the pipeline is set for delivery this year, while the remainder (one project) should be completed in 2018.

During the first nine months of 2015, C&W data showed that overall market vacancy in Edmonton decreased by 80 bps to 10.2%. Over that time period, absorption of 122,000 sf outpaced 102,000 sf of new supply. The decrease in vacancy seemed to have been supportive for net asking rents, which rose by about 3% to $19.69 from $19.18 in Q4/14. Given that CBD net rents were relatively unchanged, it appears that the overall rental growth was driven primarily by the suburban market.

In the central area, vacancy decreased by 130 bps to 7.4% from 8.7% in Q4/14. The key drivers were no supply deliveries and positive absorption of 182,000 sf. Net asking rents of $21.32 in Q3/15 were flattish compared to $21.38 in Q4/14.

The suburban vacancy rate of 14.2% decreased by a modest 10 bps relative to the 14.3% posted in Q4/14. We note that Edmonton’s suburban vacancy rates have remained fairly range-bound over the last 17 quarters between 13% and 15%. Net asking rents of $18.29 in Q3/15 grew roughly 4% from $17.66 in Q4/14.

January 7, 2016 50

http://www.blackwoodpartners.com/



Existing Inventory 2016E 2017E 2018E 2019E 2020E Edmonton 24,159 1,193 0 600 0 0 (% of supply) 4.9% 0.0% 2.5% 0.0% 0.0%


Substantial CBD deliveries in store for 2016 We believe that Edmonton’s 2015 rent and occupancy trends are trailing indicators. We think that the market is headed for a potentially much more difficult environment in 2016 and possibly through to 2018.

Edmonton’s CBD office market encompasses ~16 million sf of inventory. According to Altus, this year, there are four projects totalling 1.2 million sf in the construction pipeline, all of which are CBD-focused. Overall, the pipeline will add a sizable 5% to the existing inventory, which accounts for the largest pending inventory build (as share of existing stock) of the six major markets in 2016.

While government uses typically provide a stabilizing impact in Edmonton, we are concerned that the low WTI oil price and the lag effect could manifest in the form of negative absorption this year. As such, we believe 2016 market vacancy could increase by as much as 340 bps to 13.7% by the end of the year, while net rents could see a 10% decline to the $17.70 range.

Profiling Edmonton Tower and Ice District The Edmonton Tower (formerly known as the EAD Tower) is one of the four projects slated to be delivered to the market this year. The Class AA, 27-storey office tower will include approximately 573,000 sf of GLA. The office building is seeking LEED Gold certification and is 77% preleased. The tower’s largest tenant will be the City of Edmonton, which will move 65% of its downtown staff and occupy 350,000 sf of the tower.

The Edmonton Tower is part of a larger revitalization project dubbed the Ice District (formerly known as the Edmonton Arena District “EAD”) aimed at modernizing and densifying more than 25 acres of Edmonton’s downtown core. Collectively, the joint venture between Katz Group and WAM Development Group will include 1.3 million sf office, 215,000 sf of retail, and more than 1,000 residential units in the project’s first phase. The district will be anchored by Rogers Place arena, which is set to become the new home of the National Hockey League’s Edmonton Oilers.

Exhibit 40: Edmonton Tower (LHS) and Ice District aerial (artist’s rendering)

Source: www.wamdevelopmentgroup.com, www.icedistrict.com and RBC Capital Markets

January 7, 2016 51

http://www.wamdevelopmentgroup.com/

http://www.icedistrict.com/


New supply deliveries likely to challenge older stock Accelerating development deliveries this year and next are likely to push a number of building owners into upgrade mode whereby they invest potentially meaningful amounts of capital into existing Class “A” towers over the next two to three years.

As the core of the city gains density, including more high-rise multi-res, we also believe that several years into the future, there may be a shift (or an attempt) to convert office to multi-res use.

Toronto (~175MM sf): Vacancy should edge higher in 2016–2017; market size and diversity should provide stability Canada’s largest office market is the Greater Toronto Area (“GTA”), which encompasses approximately 175 million sf of total inventory and accounts for 35% of national inventory. Within the GTA, overall vacancy rates rose modestly to 7.7%, up 10 bps versus Q4/14’s 7.6%.

We see the 2015 story as one in which demand was surprisingly robust. Overall absorption of 1,554,000 sf offset supply additions of 1,270,000 sf in the first nine months of 2015. Average net rents increased by 2% to $18.94/sf from $18.65/sf in Q4/14.

As illustrated in Exhibit 41, Toronto’s development pipeline encompasses ~5.0 million sf, representing ~3% of existing stock. Two-thirds or 3.3 million sf of total deliveries are slated for this year. The balance of the current pipeline, representing 1.7 million sf, is expected to be delivered next year. The total pipeline is primarily (72%) concentrated in the central area/CBD, versus 28% for the various suburban nodes.

Exhibit 41: Scheduled development deliveries (’000 sf, 2016E–2019E)

Existing Inventory 2016E 2017E 2018E 2019E 2020E Toronto 175,091 3,309 1,694 0 0 0 (% of supply) 1.9% 1.0% 0.0% 0.0% 0.0%

Source: Altus and RBC Capital Markets

Central area (~88MM sf): Vacancy rate expected to grind higher Toronto’s downtown and central market primarily serves the financial and professional services industries. During the first nine months of 2015, central market vacancy decreased 30 bps to 4.8%. Tenant demand in the central markets surpassed our expectations. In Q3/15, year-to-date absorption totalled 965,000 sf, far exceeding supply deliveries of 285,000 sf. Driving factors have been relocations and migrations, expansion, and new tenants such as Entertainment One, Sapient Canada, and Amazon. Q3/15 net asking rents of $22.90/sf increased by approximately 2% from $22.54/sf in Q4/14.

A host of significant office projects to open their doors this year and next A number of notable office projects in the downtown Toronto pipeline are under construction with varying degrees of pre-leasing, including:

1) The Globe and Mail Centre (First Gulf Corporation; 450,000 sf); 2) Ernst & Young Tower (Oxford Properties; 899,000 sf); 3) Bay-Adelaide Center – East Tower (Brookfield Properties, 1,002,000 sf); and, 4) One York Street (Menkes Developments, 800,000 sf). We also believe there are several sites in South Core, Front and Spadina, and King-West that could further accommodate major urban intensification projects, each of which would likely be in the form of mixed-use residential (condominium), office, and retail space. In addition to

January 7, 2016 52


these, at the south end of the financial core, Brookfield has the capacity to add a third tower at its flagship Brookfield Place complex. On Bay Street, south of Front Street, Ivanhoé Cambridge’s Bay Park Centre development site, with municipal addresses of 81 and 141 Bay Street (twin-towers, 48–49 floors each, with total areas of 1.3 million sf to 1.5 million sf each), is a mixed-use complex that could ultimately encompass more than 3 million sf of total area.

Profiling The Globe and Mail Centre Currently in advanced stages of construction is The Globe and Mail Centre (351 King Street East). This 500,000 sf, 17-storey, Class “A” office tower is being developed by First Gulf Corporation on downtown Toronto’s east side. The property, which should be completed during the second quarter, is currently 94% preleased. Featuring ~25,000 sf floor plates, the building’s lead tenant will be The Globe and Mail, which will occupy floors 13 to 17, encompassing approximately 130,000 sf. The building’s other major tenants include LoyaltyOne (floors two to six; ~170,000 sf) and Yellow Pages (floors nine to 12; ~110,000 sf). The Globe and Mail Centre is adjacent to another First Gulf Corporation development, 333 King Street East (~360,000 sf), which is home to Coca-Cola Canada.

Exhibit 42: The Global and Mail Centre (artist’s rendering)

Source: www.urbantoronto.ca and RBC Capital Markets

CBD vacancy to rise; older Class “A” owners investing heavily to maintain competiveness We believe Toronto’s central area vacancy rate could rise by about 220–270 bps to the 7.0% to 7.5% range (from 4.8% currently) by the end of 2017. Given this backdrop, rental growth is likely to stall. For many years now, many owners of older Class “A” towers have been investing heavily in their properties to drive energy efficiency, renovate common areas, upgrade elevators, and for overall modernization and improvement purposes. We expect this trend to continue in order to enhance the competiveness of these properties, many of which are (or will be) in “back-fill” mode vis-à-vis new buildings.

January 7, 2016 53

http://www.urbantoronto.ca/


Suburban pipeline expected to inch vacancy upward For the nine months ended Q3/15, suburban office absorption measured ~589,000 sf, which was markedly stronger than the negative ~337,000 sf for the comparable 9M/2014 timeframe. Year-to-date 2015 new supply totalled 986,000 sf, and hence, Q3/15 vacancy of 10.6% inched upward by 20 bps from Q4/14. With only a marginal change in vacancy, net rents rose roughly 2% to $14.86/sf in Q3/15 from $14.62/sf in Q4/14.

Looking ahead, we note that one-third (1.1 million sf) of this year’s 3.3 million sf of total GTA new supply deliveries will be in suburban markets. This will increase Toronto’s existing suburban office market by roughly 1% to ~88 million sf of inventory. We believe this quantum of new supply could push vacancy higher by a further 20–50 bps and that rents will be flat to up marginally.

Profiling The KPMG Tower at The VMC A notable suburban development slated for completion this year is SmartREIT’s KPMG Tower. The project is located in the Vaughan Metropolitan Centre (“VMC”), 25 kilometres north of Toronto’s downtown core. KPMG Tower will span 15 storeys and encompass 365,000 sf of total GLA. Featuring ~23,000 sf floor plates, the building will offer easy access to both public transit and major highways. The property, which is targeting a LEED Gold certification, is currently 51% preleased, with the global professional services firm KPMG as the lead tenant set to occupy about 137,000 sf.

In aggregate, the VMC encompasses over 400 acres of planned development, centered on a new transit hub that includes a new Toronto Transit Commission (“TTC”) subway station and two rapid bus terminals. For interested readers, we provided additional details regarding this development and SmartREIT’s involvement in Appendix I of our November 6, 2014 research note “Solid Q3 – Increasing PT by $1 but downgrading to SP because of recent unit price gains”.

Exhibit 43: KPMG Tower (rendering)


Urbanization trend is likely secular not cyclical The young “urban” adult generation (a.k.a., the “millennials”) have a clear preference to co-locate living, working, social, and entertainment environments. This generational attitude has served as a catalyst for several companies to consolidate and/or re-locate existing

January 7, 2016 54

https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_1A0F23B26C32CF2214DFFA1634296D04

https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_1A0F23B26C32CF2214DFFA1634296D04


suburban locations into a central downtown headquarters. We believe there will continue to be, on balance, a trend of corporates migrating toward CBDs in the near term.

Furthermore, the well-established urban intensification theme is likely to have staying power as a long-term, secular-demand driver for office, retail, and ancillary space in Toronto and indeed across most of Canada. Yet by no means would we declare the suburbs “dead”. Nor would we expect to see persistent negative absorption outside of the city’s central areas. Not every prospective employee has easy access to downtown. Some want larger back yards and a more family-oriented style of living. However, at the end of the day, suburban office properties still offer employers a lower-cost alternative and proximal attributes that are still important within the Toronto office market.

Calgary (~66MM sf): The grind is expected to intensify During the first nine months of 2015, C&W data show that the overall market vacancy in Calgary increased by a substantial 530 bps to 12.0%. The spike in vacancy was driven by a massive 2,900,000 sf of negative absorption and 471,000 of new supply deliveries. As one might expect, the extremely weak demand environment adversely affected net rents, which fell by about 6% to $24.44/sf from $26.04/sf in Q4/14.

WTI rout For many years, Albertans were significant beneficiaries of rising energy prices. This in turn fuelled robust local economic growth, including population and job growth, which translated into rising rents (and occupancies) in the office and most other property sectors.

For the office sector, the weakening trend became firmly evident in early 2015. The significant decline in WTI oil prices, which began in H2/14, continued through all of 2015, and this in turn resulted in significant reductions to oil and gas exploration budgets, leading to multiple rounds of layoffs. Reduced corporate headcounts and expense-saving initiatives caused an influx of sublease space into the market. Based on data from C&W, as of Q3/15, sublease space totalled roughly 2,926,000 sf and accounted for 36% of overall vacant space. The vast majority (86% or 2,500,000 sf) of Calgary’s total sublease space is in the city’s central region.

The plunge in hydro carbon prices pushed Alberta into recession last year. RBC Economics forecasts a 2015 provincial GDP contraction of 1.3%. Looking ahead, RBC Economics forecasts Alberta’s 2016 growth at a tepid 0.9%, which would be well below the national real GDP forecast of 2.2%. The prospects for job growth in the province also appear weak. RBC Economics forecasts employment growth to register a 1% decline, which would be below the 0.8% national average. The forecasts are predicated on WTI averaging US$57/barrel in 2016. The energy market can be highly volatile. Yet, at sub-US$40/barrel currently, we highlight that the price of oil is well below the assumed 2016 averages.

On the supply side of the equation, Calgary’s development pipeline encompasses 4.9 million sf. This represents a very sizable ~7.5% of existing stock, and it is the highest percentage of new supply pipeline of any major market. A sizable majority (~85% or ~4.2 million sf) of the deliveries are CBD properties. This year, we expect that new deliveries will total 1.5 million sf, thus driving an increase of 2% in the market inventory.


Existing Inventory 2016E 2017E 2018E 2019E 2020E Calgary 65,740 1,477 3,433 0 0 0 (% of supply) 2.2% 5.2% 0.0% 0.0% 0.0%


January 7, 2016 55


Notable development projects in Calgary’s multi-year supply pipeline include:

1) Calgary City Centre, an 811,000 sf Class “AAA” office tower (Cadillac Fairview Corporation);

2) Place 10 Towers (Centron Group/Strategic Group; 323,000 sf); 3) 707 5th Street SW (Manulife Real Estate; 523,000 sf); 4) Eau Claire Tower (Oxford Properties; 588,000 sf); and, 5) Brookfield Place Calgary East (Brookfield Properties; 1,400,000 sf).

Substantial CBD deliveries into a very weak demand environment As of Q3/15, the vacancy rate in Calgary’s central area was 12.2%, marking a 610 bps expansion from the outset of the year. The rise in vacancies was attributed to negative 2,560,000 sf of absorption and 69,500 sf of new supply. The severe supply-demand mismatch exerted downward pressure on rents, which fell by 10% to $25.57/sf from Q4/14’s $28.30/sf.

Over the next two years, downtown Calgary should see the expected completion of a large number of office properties encompassing 4.2 million sf, which will add ~9% to central existing inventory. In our view, the fundamentals for Calgary’s central region will likely remain soft in 2016 and one of the weaker performers among the big-six cities/VETCOM regions.

Profiling the Eau Claire Tower One project within the pipeline is the Oxford Properties Group’s Eau Claire Tower. The 25-storey, 588,000 sf office tower development is located within the Eau Claire district of downtown Calgary. Featuring average floor plates of 27,000 sf, the property is seeking to achieve LEED Gold certification and will have connectivity to Calgary’s Plus 15 pedestrian walkway system. Eau Claire Tower is currently 77% preleased, with MEG Energy Corporation set to be the building’s anchor tenant occupying 11 floors (~297,000 sf).

Exhibit 45: Eau Claire Tower (artist’s rendering)

Source: www.oxfordproperties.com and RBC Capital Markets

January 7, 2016 56

http://www.oxfordproperties.com/


Suburban pipeline poised to push vacancies higher Calgary’s suburban office market encompasses ~19 million sf of inventory. For the nine months ended Q3/15, suburban office absorption measured negative 336,000 sf, which was in stark contrast to the 374,000 sf of positive demand during the same timeframe in 2014. Magnifying the challenging market conditions was the delivery of 402,000 sf of new inventory. These demand-supply dynamics drove a 350 bps increase in the suburban vacancy rate to 11.3% from 7.8% in Q4/14.

Over the next two years, Altus InSite anticipates that ~0.7 million sf will be delivered to the suburban office market, increasing existing inventory by about 4%. Accordingly, we believe that market vacancy will climb further under our base-case scenario.

Overall, given the anticipated increase in central area and suburban deliveries this year, we believe that Calgary vacancy should climb by ~150 bps to 13.5%. In 2017, we see the vacancy rate increasing further to the 17% range, a level not seen since the late 1980s. We expect net rents to decrease by a significant 21% in 2016 to $19.26/sf from $24.44/sf as of Q4/15.

Profiling The Windsor One of the notable suburban developments is The Windsor, which is being developed by Calgary-based Arlington Street Investments. Located in Calgary’s Southwest submarket, the five-storey development is set to include about 100,000 sf (~70% office; ~25% sf retail) of total GLA. Building features include high ceilings (13 feet on main floor; 9 feet on other floors), abundant natural light, and close proximity to public transit and highways. The net rentable floor area of the building for floors one and two will total 43,506 sf, comprising main floor retail space and office space. Floors three to five will consist of 59,757 sf of medical and office space for either lease or sale. The upper floors offer profile potential via building naming rights, which may be available. The Windsor will also include approximately 234 parking stalls.

Exhibit 46: The Windsor (artist’s rendering)

Source: www.thewindsorblock.ca and RBC Capital Markets

January 7, 2016 57


Ottawa (~43MM sf): Empty pipeline stabilizes fundamentals During the first nine months of 2015, Ottawa’s overall market vacancy increased 100 bps to 10.4%, hitting its highest level since 1997. Over that same timeframe, absorption was negative 259,000 sf. Reflecting the uptick in market vacancy, net asking rates fell by ~3% to $18.45/sf in Q3/15 versus $18.98/sf in Q4/14.

Market vacancy increases seen in both central and suburban regions In Ottawa’s central region, market vacancy was 9.0% in Q3/15. Similar to the overall vacancy, the Q3/15 reading was the highest posted since 1997’s 12.5%. Central area vacancy demonstrated 90 bps deterioration from 8.1% in Q4/14. Contributing to the increased vacancy was 54,000 sf of negative absorption during the first nine months of the year. Net asking rents have managed to hold firm, registering $21.52/sf, which is up 1% from $21.35/sf in Q4/14.

Q3/15’s suburban market vacancy of 11.6% expanded 110 bps from Q4/14 and reached its highest level since 2004’s 13.2%. A combination of negative absorption of 205,000 sf and 103,000 of supply deliveries over that timeframe was the driver. On this basis, net asking rents of $14.22/sf as of Q3/15 decreased 3% from $14.66/sf in Q4/14.


Existing Inventory 2016E 2017E 2018E 2019E 2020E Ottawa 43,057 0 65 0 0 0 (% of supply) 0.0% 0.2% 0.0% 0.0% 0.0%


New supply pipeline is essentially empty Ottawa’s supply delivery pipeline is virtually empty. According to data provided by Altus, the city-wide development pipeline consists of only one 65,000 sf project (0.2% of existing stock) with an expected 2017 completion.

Impact of newly minted government on public-sector office occupancy remains to be seen According to the Conference Board of Canada, public administration employment accounts for nearly one-quarter of all positions within the Ottawa-Gatineau CMA. With the recent shift in leadership to a Liberal majority government, policy changes are anticipated. However, in our view, new policies materially affecting the demand for public-sector office space this year (2016) are not likely. Looking ahead, RBC Economics forecasts imply that government spending will increase by 1.6% this year, representing a 100 bps increase from last year’s estimated 0.6% growth.

PWGSC’s “Workplace 2.0” might materially curb public-sector demand, if fully implemented As the nation’s capital, Ottawa has historically benefitted from the stabilizing influence of the federal government, which owns or leases an estimated 50% of Ottawa’s office GLA. This real estate is managed by Public Works and Government Services Canada (“PWGSC”) Real Property Branch.

An initiative previously introduced by PWGSC aimed at modernizing federal workplaces stands potentially to reduce the government’s office footprint significantly. Recent updates on the initiative, coined “Workplace 2.0”, indicate that it has reached 10% completion and, if fully implemented, could decrease government office space by approximately 1.8 million sf (~5% of existing total market inventory).

January 7, 2016 58


An example of a rationalization under Workplace 2.0 is the Department of National Defence’s (“DND”) consolidation into the former Nortel Networks at 3500 Carling Avenue (“Carling Avenue”). In three phases, the DND expects to move 8,500 employees to modernized workspaces at Carling Avenue. The initial timeline called for the first phase of occupancy (~3,400 employees) to commence sometime in 2015. However, according to media outlets, structural issues have pushed the initial wave of occupancy to the fall of 2016. When completed, media outlets indicate that the consolidation would reduce the number of leased locations by the DND in the Ottawa-Gatineau region from 47 currently to seven.

Montreal (~96MM sf): Continued lacklustre fundamentals In 2015, office fundamentals in Greater Montreal Area (“GMA”) softened. According to C&W, overall market vacancy increased by 110 bps during the first nine months of 2015, ending the third quarter at 12.4%, up 110 bps from Q4/14’s 11.3%. Over that comparable timeframe, vacancy rates in the central area rose by 110 bps to 10.7%, while suburban vacancy rates rose by 100 bps to 14.7%. The upward move in vacancy hit net asking rents, in both the central area and suburbs, as net rents decreased by 5% and 3%, to $14.51/sf and $10.77/sf, respectively. Moreover, the weakness in Montreal had a notable effect on the national statistics, as it accounts for ~20% of national GLA.

As summarized in Exhibit 48, Montreal’s development pipeline encompasses ~2.0 million sf, representing ~2% of existing stock. 2016’s scheduled development deliveries collectively encompass roughly one million sf of across six suburban projects. In 2017, a further approximately 1 million sf is slated to be added, of which 822,000 sf (83%) will be added to the city’s central area stock. The remainder, a 169,000 sf development scheduled for Q1/17 delivery, is a suburban project.


Existing Inventory 2016E 2017E 2018E 2019E 2020E Montreal 95,590 988 992 0 0 0 (% of supply) 1.0% 1.0% 0.0% 0.0% 0.0%


Overall, we expect Montreal’s vacancy rate to increase to ~60 bps to 13.1% by the end of 2016. Net rents are slated to show a 1% decline to $12.45 from $12.16 in Q3/15.

Downtown core inching toward tenants’ market territory Q3/15 CBD market vacancy of 10.7% reached its highest level since 2005’s 10.8%. Net asking rents of $14.51/sf have not been lower since 2007. We believe the combination of these two factors makes the current rental environment favourable for tenants.

Profiling Maison Manuvie The third quarter of last year saw the delivery of the 26-storey, 495,000 sf Deloitte Tower. Prior to its completion, for roughly a decade, development activity in downtown had been virtually non-existent. While the tap is dry for this year, in the third quarter of next year (2017), the 27-storey Maison Manuvie is expected to be completed. The 487,000 sf, Class “AAA” office tower is jointly owned by Ivanhoé Cambridge and The Manufacturers Life Insurance Company (“Manulife”) and will include 9,000 sf of retail GLA. Manulife will be the property’s lead tenant, as it will occupy approximately 260,000 sf across 11 floors. At this juncture, the project is 58% preleased.

January 7, 2016 59


Exhibit 49: Maison Manuvie (900 de Maisonneuve West) (two artists’ renderings)

Source: www.ivanhoecambridge.com and RBC Capital Markets

Looking ahead, we note that the absence of any central region supply deliveries this year should provide only modest relief from vacancy deterioration, as we do not see strong demand drivers. The combination of completed developments (822,000 sf in 2017) and reduced demand for older product will likely weigh on fundamentals next year. More specifically, we believe that the landlords of existing, older Class “A” inventory will have to continue to be competitive in their net rent, incentive packages, and their property reinvestment programs in order to retain existing or attract new tenants.

Suburban Montreal may be subject to further deterioration in fundamentals According to Altus, roughly 988,000 sf of suburban deliveries are expected in 2016 via six projects. This will increase the suburban inventory by about 3% to ~38 million sf. In 2017, one project will add 169,000 sf to the existing stock. In our view, Montreal suburban markets are now firmly in “tenants’ market” territory, as vacancy rates are at their highest levels since 2000 and net rents have not been lower since 2008. The increase in the supply build is likely to put additional pressure on vacancy, and it is untimely, as regional vacancy is elevated and rents are trending lower.

Profiling 3500 Saint-Jacques Street One of the notable suburban properties with a 2016 completion date is 3500 Saint-Jacques Street. The seven-storey office building, which will be a redevelopment and intensification of an existing 1950s warehouse structure, will encompass 228,000 sf. The Class “A” development is 48% preleased, with is largest tenant being Capital One, which is set to occupy 70,000 sf of GLA. The redevelopment and intensification of 3500 Saint-Jacques Street is being carried out by privately owned local Montreal property owner and developer Groupe Mach.

January 7, 2016 60


Exhibit 50: 3500 Saint-Jacques Street (artist’s rendering)

Source: www.asgaard.ca and RBC Capital Markets

January 7, 2016 61


The retail real estate sector: Another challenging year ahead The retail market continues to recalibrate following Target Canada’s departure We expect retail leasing activity will become more polarized in 2016 as retailers concentrate on urban locations and high-end malls, increasingly passing over secondary and tertiary properties, where we think vacancy is likely to linger. We believe that many retailers are in “a wait and see mode” as they make sense of the space that returned to the market from Target, Future Shop, Staples and others. Indeed, CB Richard Ellis (“CBRE”) contends in its 2016 Commercial Real Estate Market Outlook that “the Canadian retail market will continue to recalibrate following the demise of Target and a challenging year for mid-market retailers.” With this backdrop, the leasing market has slowed considerably. Fortunately both market rents and rental increases on renewals appear to be holding in. In our view, Target Canada’s failure was not a reflection of the broader Canadian retail market, but rather a story of poor execution.

Retail sector occupancy declines by 1.6% to 95.3% Following the closing of 133 Target stores, the impact on retail occupancy was clearly visible with a 1.6% decline since Q4/14 to 95.3%. This marks the lowest sector occupancy since 2002. We would highlight, however, that while the quantity of vacant space remains high, the amount of the lost rent is far lower because typical Target Canada rents were just $6–7/sf. For example, RioCan REIT, H&R REIT and Morguard REIT each reported ‘lost’ Target rents of $6.62/sf, $5.58/sf and $6.49/sf, respectively. This compares to more typical mix-box (i.e., Winners, Best Buy, etc.) rents in the range of $10–20/sf and “in-line” or commercial retail unit (“CRU”) rents of $30/sf plus.

Not surprisingly, the largest occupancy declines within our coverage universe were from Target Canada’s biggest landlords – Morguard REIT, Cominar REIT and RioCan REIT – where retail occupancy declined by 8.0 percentage points (“pp”), 4.9pp and 3.8pp, respectively, since Q4/14 to 88.0%, 89.8% and 93.2%.

Exhibit 51: Driven by Target’s departure, retail occupancy dips to the lowest point since 2002

90%

92%

94%

96%

98%

100%

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Q3

Year-end occupancy Average

Largely due to Target store closures

Note: Wtd .avg includes Canadian retail GLA for AX.un, CUF.un, CHP,un, CRT.un, CRR.un, REF.un, FCR, MRT.un, ONR.un, HR.un, PLZ.un, REI.un and SRU.un. Source: RBC Capital Markets and Company reports

As illustrated in Exhibit 51, occupancy for 13 major publicly listed retail portfolios has remained largely stable for more than a decade, with a variance of approximately 200 bps even including the 2008–2009 downturn. Over the past 19 years, retail-focused REITs and REOCs have maintained a weighted average occupancy of 96.4%, ranging from a low of just

While the quantity of vacant space remains high, we highlight that the amount of the lost rent is far lower because typical Target Canada rents were just $6-$7 psf.

January 7, 2016 62


over 95% today (as well as in 2002/03) to a high of just over 97% in 2008. We highlight that our data set spans 224 million sf of Canadian retail GLA under our coverage and therefore excludes super regional malls and contains only a minimal amount of streetfront retail.

Same-property NOI growth shows clear signs of weakening Retail same-property NOI growth rates have shown a weakening trend over the past 18 months. Indeed, the rate of change has decelerated in the past nine months with a 1.7pp decline from 2.1% in Q4/14 to just 0.4% in Q3/15. Similarly, trend-line same-property NOI growth for the retail real estate sector has followed the downward trajectory with the four-quarter moving average now at 1.2% vs. an average of 1.8% since 2004. Looking deeper into the most recent quarterly results (Q3/15), several landlords have removed the effects of Target by shifting the stores to properties under development or excluding former Target-anchored properties from same-property results. If we were to adjust same-property results to reflect the full impact of Target’s departure, retail SP-NOI growth would have been flat during the third quarter, as compared to a modest gain of 0.4%.

Exhibit 52: Simple average same-property NOI growth for the retail sector

-1%

0%

1%

2%

3%

4%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Same-property NOI growth Four-quarter moving average

Same-property NOI growth has weakened considerably following Target's departure

Note: Simple avg. includes Canadian retail SP-NOI for: AX.un, CHP.un, CRR.un, CRT.un, CUF.un, FCR, MRT.un, PLZ.un, REF.un, REI.un, RMM.un and SRU.un. Source: RBC Capital Markets and Company reports

Landlords bearing the brunt of Target exposure include Morguard REIT, RioCan REIT and Cominar REIT, which reported negative retail same-property NOI growth of 7.9%, 2.4% (~4% including the impact of Target) and 2.9%, respectively. Providing a positive offset to Target vacancies are landlords with little or no exposure such as CT REIT, Artis REIT and Choice Properties REIT, where retail same-property NOI growth registered a healthy 4.1%, 4.0% and 3.0%, respectively.

Year-to-date renewal spreads remain healthy at approximately 7% Despite a moderate softening in same-property NOI growth, renewal spreads remain healthy at ~7% for the nine months ended September 30, 2015, not far off the long-term weighted average of ~9%. Weighing on our renewal spreads within our retail coverage has been weaker than usual leasing activity at OneREIT and Cominar REIT where retail rents were effectively flat and down 2.7%, respectively. The operating environment continues to remain challenging in secondary markets and in Québec; however, landlords with urban portfolios continue to see healthy increases, as demonstrated with 9M/15 renewal spreads of 9.4% and 8.8% for RioCan REIT and First Capital Realty, respectively.

SP-NOI growth is noticeably weaker following Target’s departure.

January 7, 2016 63


Exhibit 53: Weighted average renewal spreads

0%

2%

4%

6%

8%

10%

12%

07 08 09 10 11 12 13 14 YTD

Renewal spread Average Note: Weighted average includes Canadian retail portfolios of: CHP.un, CRR.un, CUF.un, FCR, ONR.un, REI.un and SRU.un. Source: RBC Capital Markets and Company reports

Luxury retailers drive the demand for new retail space According to data from CBRE, approximately 10.7 million sf of retail space is currently under construction, representing 3.1% of existing inventory, down from 6.2% in mid-2014. Driving much of the demand are expansions at super regional malls to accommodate luxury retailers such as Saks Fifth Avenue and Nordstrom. New construction in low-to-mid sized malls is expected to moderate because of the slow absorption of competing vacant space. CBRE estimates that 5.8 million sf of new retail space was delivered to the Canadian market in 2015, including the McArthurGlen Designer Outlet at Vancouver Airport and RioCan REIT’s Sage Hill Crossing in Calgary. This compares to 6.2 million sf delivered in 2014 and deliveries of roughly 6 million sf expected in 2016.

Exhibit 54: New supply appears reasonable at ~3% of existing inventory

Under construction by CMA Under construction by retail type

3.6

0.6

1.2

3.2

0.6 0.6 0.9

0.0

1.0

2.0

3.0

4.0

VAN EDM CAL TOR OTT MTL Other

Regional mall28%

Power centre25%

Mixed-use24%

Community centre11%

Lifestyle10%

Other2%

Source: CBRE and RBC Capital Markets

Vancouver and Toronto account for roughly two-thirds of new construction Roughly two-thirds of the development pipeline is concentrated in Vancouver and Toronto with 3.6 million sf and 3.2 million sf under construction, respectively. We note that these figures do include recently completed expansions at CF Sherway Gardens in Toronto and CF Pacific Centre in Vancouver. Most of the new supply coming online will be concentrated in Toronto, with 1.2 million sf set to come online over the next six months.

The operating environment continues to remain challenging; however, we are encouraged to see rental increases on renewals are largely holding in.

The expansion of existing super regional malls is driving new retail construction.

January 7, 2016 64


Outlet mall construction continues The construction of new outlet centres is set to continue in 2016 with Tsawwassen Mills scheduled to open in the second half the year. The 1.2 million sf mall is located south of Vancouver and will resemble Vaughan Mills in the Greater Toronto Area. The centre will feature a mix of premium fashion brands, factory outlets and restaurants. Construction is also underway for Ivanhoé Cambridge’s Outlet Collection in Winnipeg and at the Edmonton International Airport; the centres total 400,000 sf and 415,000 sf, respectively, and are both set to open in 2017.

The magnitude of retail failures increased in 2015 The scale of retail failures ticked up in 2015 as Target, Future Shop and Blacks all closed numerous mid- and large-format stores during the year. Because of the quantity of space currently on the market, there is a lot of uncertainty surrounding the empty stores as replacement tenants try to make sense of a multitude of new leasing options, as well as the ever-growing influence the OmniChannel is having on store formats. To be sure, the retrofitting/re-tenanting of the empty Target stores is causing disruption, but we believe the financial impact to REITs under our coverage will be manageable because the vast majority have decidedly below-market rents and most are situated in well located properties.

Exhibit 55: Stores closings declined in 2015; however, the size and magnitude increased

CCAA filings (unless otherwise noted) Number of stores (at filing date) Date Operator

2008 Bentley Leathers, Cotton Ginny, Linens 'n Things, The Source by Circuit City (Intertan), A&B Sound

1,494

2009 Giant Carpet, Buck or Two (Extreme Properties Inc.), Petcetera, Cotton Ginny, Dack's Shoes, Syd Silver, McNally Robinson

326

2010 Boutique Jacob Inc. 152 2011 Tabi International, Blockbuster Canada, Hart Stores Inc., Sterling Shoes Inc.,

Please Mum, Clothing for Modern Times Ltd. 1,014

2012 Boutique Le Pentagone Inc., Everything for a Dollar Store (voluntary wind-up) 70 2013 Extreme Fitness, La Capsule Sportive (voluntary wind-up), The Bargain! Shop, Big

Lots/Liquidation World - Canadian Operations (voluntary wind-up) 324

2014 The Cash Store, OfficeMax Grand & Toy (closing physical stores), Bombay, Bowring, Benix & Co., XS Cargo Co. (voluntary wind-up), Boutique Jacob Inc., Smart Set (voluntary wind-up), Mexx Canada Co.

774

Jan-2015 Target Canada Co - Granted CCAA protection 133 Jan-2015 Sony Corp - Voluntary wind-up 14 Jan-2015 Jones New York - Voluntary wind-up 36 Feb-2015 Parasuco Retail Inc. - Filed for bankruptcy 7 Feb-2015 Bikini Village - Filed for bankruptcy 52 Mar-2015 Comark Inc (Ricki’s, Bootlegger & Cleo) - Granted CCAA protection 50 Mar-2015 Future Shop - Consolidation with Best Buy (a further 65 stores re-branded) 66 Jun-2015 Blacks - Voluntary wind-up 59 Jul-2015 Sherson Group (Nine West) - Filed for bankruptcy 47 2015 464

Note: We use the term “failure” to encompass both formal legal failures (i.e., CCAA protection) and informal concept failure (e.g., a US parent company winding down its Canadian operations). Source: RBC Capital Markets from various public sources

Tsawwassen Mills

Source: Ivanhoe-Cambridge and RBC CM

The impact of retail failures was clearly felt in 2015.

January 7, 2016 65


A growing number of online retailers are now opening physical stores …unfortunately, most retail landlords under our coverage are unlikely to benefit During the year, online retailers such as Montréal-based Frank & Oak and Vancouver-based Indochino continued to open bricks-and-mortar stores to complement their online operations with new locations in Toronto, Montréal and Boston. Similarly, eyewear retailer Warby Parker and fashion rental boutique Rent the Runway continued to open new stores in the US. Unfortunately, our coverage universe is unlikely to benefit as most online retailers are setting up shop in super regional malls and high street retail locations. On the other hand, retail landlords within our coverage universe have come away largely unscathed following the avalanche of fashion retail bankruptcies over the past 12 months.

Exhibit 56: A sample of online retailers moving from clicks to bricks

Company (hyperlinked) Description

First store

Total stores

Canadian stores Notes

Apple Consumer electronics 2001 450+ 29 First Canadian store opened in 2005 BaubleBar Fashion jewelry 2012 215 9 Incl. shops in Nordstroms & Anthropologie Tesla Motors Electric vehicles 2008 75+ 7 First Canadian store opened in 2012 Frank & Oak Menswear 2013 11 8 Plans to open six stores in the US Indochino Custom suits 2014 7 2 May open two more stores in Canada Shoes.com Footwear 2015 1 1 Plan to open stores in all major Cdn markets Etsy Handcrafted items 2014 n.a. Pop-up Annual cross-country pop-up tour Canada 759 56 Athleta Athleticwear 2011 118 n.a. Acquired by Gap Inc. in 2008 Warby Parker Prescription eyeglasses 2013 26 n.a. Incl. co-located stores & stand-alone stores Boston Proper Womens clothing 2013 20 n.a. Acquired by Chico's FAS in 2011 Bonobos Menswear 2011 20 n.a. Addional locations opening soon JustFab Inc. Footware and apparel 2013 6 n.a. Incl. JustFab, ShoeDazzle, Fabkids & Fabletics Trunk Club Mens personal shopping 2014 5 n.a. Acquired by Nordstrom in 2014 Rent the Runway Designer clothes rental 2013 4 n.a.

Nasty Gal Womens clothing 2014 2 n.a.

Proper Cloth Custom dress shirts 2013 1 n.a. Store located in Soho, New York Birchbox Monthly sample delivery 2014 1 n.a.

Amazon General retail & books 2015 1 n.a. One bookstore and two AWS pop-up stores Zappos Footwear and apparel 2014 Pop-up n.a. Acquired by Amazon in 2009 Piperlime Footwear and apparel 2012 defunct n.a. Owned by Gap Inc. Closed in 2015 US 204 Farfetch Fashion retail 2008 300+ n.a. Virtual mall for fashion boutiques Alibaba General retail 2013 45 n.a. Stores in partnership with Intime Retail Shoes of Prey Custom designed shoes 2013 7 n.a. Incl. store-in-store locations Global 352

Source: RBC Capital Markets from various public sources

Retail landlords under our coverage have modest exposure to energy markets When taken as a whole, retail landlords under our coverage have modest exposure to energy-focused economies, with an average 18% NOI exposure. We note that Slate Retail REIT has the least exposure to energy-centric markets at approximately 2% of NOI, while, Crombie REIT has the most at approximately 32%. Should demand from retailers in energy markets moderate, we believe retail landlords are well positioned given generally strong balance sheets and a lengthy weighted average remaining lease term of 9.1 years.

Amazon opens a physical bookstore in Seattle

Source: Globe & Mail and RBC CM

Unfortunately, most locations are in major malls or high street retail locations that do not benefit Canadian retail REITs.

January 7, 2016 66

http://www.apple.com/

http://www.baublebar.com/

http://www.teslamotors.com/modelx

https://ca.frankandoak.com/

http://www.indochino.com/

http://www.shoeme.ca/?r=Shoes.com

https://www.etsy.com/

http://www.athleta.com/

https://ca.warbyparker.com/

http://www.bostonproper.com/store/

https://bonobos.com/

http://www.justfab.com/

https://www.trunkclub.com/

https://www.renttherunway.com/

http://www.nastygal.com/

http://propercloth.com/

https://www.birchbox.com/

https://www.amazon.com/

http://www.zappos.com/

http://www.farfetch.com/

http://www.alibaba.com/

https://www.shoesofprey.com/


Exhibit 57: Estimated energy market exposure by sector – Retail REITs and REOCs

2%10% 11%

18% 18% 19% 21% 23% 23%

32%

0%

20%

40%

60%

80%

100%

SRT'u SRU.un PLZ.un CRT.un Avg. CHP.un REI.un FCR ONR.un CRR.un

Alberta Saskatchewan Newfoundland Texas Source: Company reports and RBC Capital Markets

Canada has less retail GLA per capita than the US but higher productivity Based on data from the International Council of Shopping Centers (“ICSC”), we estimate Canadian shopping centre GLA per capita at approximately 15.6 square feet, a figure largely unchanged from 15.5 square feet last year. This compares to a modest decline in GLA per capita south of the border to 23.4 square feet, from 23.6 square feet last year and a peak of 24.1 square feet in 2009. According to CBRE, foreign retailers are still likely to view Canada as a worthy destination given higher store productivity and less competition for new entrants; however, store rollouts are likely to be slow as retailers test various geographies and product mixes.

Exhibit 58: Canada has a lower shopping centre GLA per capita

5

10

15

20

25

1987 1992 1997 2002 2007 2012

Canadian Shopping centre GLA per capita US Shopping centre GLA per capita

Canada has significantly less shopping centre GLA per capita

Source: ICSC, Statistics Canada, US Census Bureau and RBC Capital Markets estimates

Retail landlords have below-average exposure to energy-centric markets at 18% of estimated NOI vs. roughly 25% for our coverage universe as a whole.

Canada has significantly less retail GLA per capita… but higher productivity per square feet.

January 7, 2016 67


A noticeable slowdown in US retail expansions Less retail GLA per capita, all else equal, allows retailers to drive higher sales productivity, as illustrated in Exhibit 59 below. Canadian retailers have historically produced retail sales per square foot that are more than 50% higher than in the US. According the ICSC, Canadian mall productivity per square foot stands at C$721 or approximately US$525, compared with average productivity of US$465 in the US. Interestingly, high street retailers continue to gravitate toward super regional malls such as Yorkdale Mall in Toronto and the CF Pacific Centre in Vancouver.

Exhibit 59: Canada also has higher shopping centre productivity (retail sales per square foot)

$200

$400

$600

$800

1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Canadian (US$) Canadian (C$) US (US$)

Source: ICSC, Bloomberg and RBC Capital Markets

Urbanization and its impact on the retail sector The urbanization trend continues and remains stronger in Canada than in the US Despite Canada’s vast size, the urbanization trend continues to remain stronger in Canada than in the US. Indeed, multi-unit housing starts – an important indicator of urbanization – are running at a much smaller share of total housing starts in the US (25–35%) as compared to Canada (~60%). Between 2002 and 2012, the percentage of multi-unit housing starts in Canada grew by an average of 2% per year, from 39% in 2002 to 61% in 2012 and has remained at or close to that level since then. This compares to projected 2016 multi-family starts of 30% in the US, down from 36% in 2015, according to the National Association of Home Builders.

A modest decline in multi-unit starts from a historically high level CMHC is forecasting total 2016 housing starts of 178,000 units, with a multiples-to-total ratio of 61%, down from 64% in 2015. Multi-unit starts are expected to moderate slightly from the historically high level of 119,000 starts in 2015 down to 109,000 starts in both 2016 and 2017 (~61% and ~63% of total housing starts).

We are seeing a clear slowdown in US retailers expanding to Canada following Target's departure and the pick-up in economic activity in the US.

January 7, 2016 68


Exhibit 60: A greater proportion of multi-unit starts in Canada indicates a stronger urbanization trend relative to the US

10%

20%

30%

40%

50%

60%

70%

80%

1990 1995 2000 2005 2010 2015E

Canada US

Proportion of multi-unit starts appears to be leveling off at just over 60% of new starts

Stronger urbanization trend in Canada

Source: CMHC, US Census, NAHB and RBC Capital Markets

Retail landlords to capitalize on residential intensification Owing to the ongoing urbanization trend, many Canadian retail landlords are now beginning to capitalize on intensification opportunities within their portfolios. During the year, several retail landlords announced additional details on their residential development pipeline including RioCan REIT, First Capital Realty and Crombie REIT with development pipelines that total approximately 18,000 suites, 15,000 suites and 4,700 suites, respectively. We expect this development program will take up to 15 years to complete with most landlords expressing a preference for residential rental over condos.

We note that SmartREIT is in the process of exploring residential development at certain sites, particularly at its Vaughan Metropolitan Centre property and at its Laurentian Power Centre property in Kitchener, ON, while Choice Properties REIT unveiled its urban, mixed-use West Block redevelopment in 2015, which will feature 245,000 sf of retail and office space and 876 condo suites build by developer Concord Adex who purchased the air rights. In addition, Choice Properties also has several additional mixed-use development opportunities that are currently undergoing feasibility studies.

A quiet year on the IPO front The only debut was Automotive Properties REIT with an $81 million offering Automotive Properties REIT (TSX: APR.un), which falls into the retail category, completed its IPO in July 2015, with an initial offering of 8.1 million units at $10.00 per unit, raising gross proceeds of $81 million including the 620,000 unit over-allotment option. In conjunction with the IPO, the REIT completed the acquisition of 26 car dealerships with approximately 958,000 square feet of GLA for $356 million. The REIT’s IPO sponsor, The Dilawri Group, holds a ~55% economic interest in the REIT via 9.9 million Class B LP units and intends to retain a significant interest in the REIT for the foreseeable future.

The urbanization trend remains stronger in Canada than in the US.

January 7, 2016 69


The retail landscape Trends in the retail sector Retail sales growth slows but still outperforms the US over the past 12 months Canadian retail sales growth has slowed over the past 12 months but continues to outperform growth in the US despite the sharp decline in crude prices. Over the past 12 months, Canadian retail sales increased 2.4% through October 2015, compared with growth of 1.8% in the US. On an absolute basis, Canadian retail sales totaled $514 billion compared with $4,683 billion in the US. Growth in Canada was driven by higher auto and food & beverage sales which, increased 6.9% and 3.2%, respectively, and supplemented by growth in general merchandise and building materials, which increased 3.6% and 6.7%, respectively. Somewhat surprisingly, the Conference Board of Canada expects retail sales growth to pick up in 2016 with growth of approximately 3.8%.

Exhibit 61: The pace of Canadian retail sales moderated in 2015 ($B, unless noted)

10

15

20

25

30

35

40

45

50

100

150

200

250

300

350

400

450

500


US retail sales (left) Canadian retail sales (right)

Canadian 2-year CAGR: 3.5%US 2-year CAGR: 2.6%

-15%

-5%

5%

15%


US retail sales growth (YoY) Canadian retail sales growth (YoY) Source: Statistics Canada, US Federal Reserve Economic Data and RBC Capital Markets

Canadian consumer attitudes vary widely by province Consumer confidence levels in 2015 remain largely unchanged from 2014 across the country, according to the Conference Board of Canada. Not surprisingly, however, consumer attitudes differ widely from province-to-province. For instance, in Atlantic Canada, consumer confidence levels are up more than 20% year over year, while Ontario and British Columbia have each seen an increase of more than 10%. At the opposite end of the spectrum is Alberta, where consumer confidence has declined by more than 40% year over year. Saskatchewan, Manitoba and Québec have also seen consumer confidence decline by more than 10% (SK/MB) and ~5% year-over-year (QC).

Canadian retail sales growth has outperformed the US over the past 12 months.

January 7, 2016 70


Exhibit 62: Year-over-year percentage change in consumer confidence levels

-50%

-25%

0%

25%

50%

AB SK/MB QC Canada ON BC Atlantic Source: Conference Board of Canada and RBC Capital Markets

US consumers plan to spend more during the holiday season South of the border, consumers appear more optimistic as Deloitte’s 2015 Holiday Survey shows that consumers plan to spend 11% more on holiday items. In total, 75% of participants in the survey plan on spending more than they did last year – that is the highest percentage increase since 2000. That being said, Deloitte takes a more conservative stance on its forecast for US holiday spending with a growth forecast of 3.5% to 4.0%, down from growth of 5.2% last year. Deloitte economists attribute the growth in sales to an improving labour market, increasing home values and lower gas prices – even as personal income growth remains flat for many. Similarly, we note that the National Retail Federation forecasts a 3.7% increase in holiday sales, representing total spending of $630 billion.

According to the NRF, early indications show that retail spending in November rose 3% YoY. That being said, only 10% of consumers had finished their holiday shopping by December 15, 2015, as unseasonably warm weather kept many shoppers away from the mall.

Exhibit 63: How will your holiday spending compare with that of last year's holiday season?

82%

66%71%

41%

75%

18%

34%29%

59%

25%

0%

25%

50%

75%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Spend the same or more Spend less Source: Deloitte and RBC Capital Markets

Consumer attitudes vary widely by province.

US consumer optimism during the holiday season is it at its highest point since 2000.

January 7, 2016 71


Black Friday is starting to become Black November Our US consumer discretionary analyst, Scot Ciccarelli, highlighted in a recent note that the recent “Black November” trend continues to gain momentum as traditional Black Friday promotions are extended throughout the month of November. He notes that this is leading more consumers to defer third quarter purchases into the fourth quarter. Unfortunately, many US retailers released disappointing fourth quarter guidance because of expectations for additional markdowns amidst an already promotional holiday shopping season. Still, Mr. Ciccarelli notes that he is encouraged by the continued improvement in traffic and comps from mass-market retailers such as Walmart. Similarly, based on a sample of 15 retail banners, we note that same-store sales (“SSS”) in Canada have also been improving with the year-to-date average up 3.8% through Q3, compared with full year-growth of 2.5% in 2014 (please see Exhibit 72 on page 79).

More US consumers shopped online than in stores on Black Friday In a sign of quickly evolving shopping habits, the National Retail Federation reports that more US consumers shopped online on Black Friday than in stores, with 103 million people going online compared with 102 million who visited malls. Digital analytics company, comScore, forecasts that a strong holiday season will help drive double-digit eCommerce growth of 14% in 2015, decelerating slightly from 16% in 2014. Our US technology analyst, Mark Mahaney, notes that, “for the first time, all five days from Thanksgiving to Cyber Monday exceeded $1.0 billion in online desktop spend. Further, Cyber Monday was the largest spending day on record, with sales of $2.3 billion (vs. $2.0 billion in 2014).”

The impact of FX The Canadian dollar continues to tumble along with the price of oil In 2015, the Canadian dollar has been the fourth worst-performing G10 currency, falling 12.5% versus the US dollar through November 12, 2015. Only the New Zealand dollar (-16.0%), the Norwegian krone (-14.0%), and the Australian dollar (-12.8%) have fared worse. One thing these currencies have in common is significant exposure to commodities. At a high level, oil extraction accounts for just 3% of Canadian GDP but crude represents 14% of exports and energy capex accounts for approximately one-third of overall business investment.

Exhibit 64: The CAD/USD exchange rate has continued to slide over the past year

0.50

0.60

0.70

0.80

0.90

1.00

1.10

1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012

The rising CAD significantly benefited certain retailers

The correction will hurt retailers that depend on USD imports

Source: Bloomberg, Thomson One and RBC Capital Markets

Black November ad

Source: www.NewEgg.com and RBC CM

The depreciating Canadian dollar will hurt retailers who depend on USD-denominated imports.

January 7, 2016 72


The Canadian dollar’s historical link to commodities is strong, according to Mark Chandler, Head of Canadian FIC strategy at RBC Capital Markets. In his view, interest rate dynamics are expected to lend support to USD/CAD in the first half of 2016, as unchanged monetary policy in Canada plays against the prospect of another Fed rate hike. Our FX strategy team expects the USD/CAD will reach a peak of 1.45 in the first quarter of 2016 before gradually settling at 1.33 by the end of the year.

Negative implications of falling CAD overshadow positive impact of lower oil prices According to our Canadian retail analysts, Irene Nattel and Sabahat Khan, the collateral damage of a lower Canadian dollar related to lower oil prices is likely to have a greater impact than the lower oil prices themselves. They cite four primary ways that the lower CAD/USD exchange rate has an impact: 1) reduced purchasing power for retailers that do extensive overseas buying (e.g., Dollarama Inc., Canadian Tire Corporation, and food retailers that source fresh produce); 2) beneficial translation of earnings for retailers with sizable US operations (e.g., Saputo Inc., George Weston Limited, Hudson’s Bay Company, and The North West Company Inc.); 3) beneficial share price translation for companies that report in USD but whose shares trade in CAD (e.g., Alimentation Couche-Tard, High Liner Foods Inc., and Dorel Industries Inc.); and 4) travel demand tailwinds whereby the lower Canadian dollar drives demand for inbound travel to Canada (e.g., Whistler Blackcomb Holdings Inc.).

Discretionary retailers face the most downside risk from a falling Canadian dollar The lower Canadian dollar is negatively impacting sourcing costs and purchasing power for retailers that do extensive overseas buying for merchandise that is typically priced in USD or in currencies closely tied to it. This includes categories such as apparel, accessories, footwear, furniture, electronics and toys, which are heavily sourced from overseas markets. Retailers in the consumer staples sector also face similar pressures in certain categories, such as fresh produce, which typically accounts for 10-15% of annual sales for food retailers.

Exhibit 65: Year-to-date percentage change in consumer prices (August 2015)

-6% -4% -2% 0% 2% 4% 6% 8%

Home entertainment equipment

Recreational equipment & services

All items

Clothing and footwear

Appliances

Seafood

Furniture

Alcoholic beverages

Fruit, fruit preparations and nuts

Vegetables and preparations

Source: Conference Board of Canada and RBC Capital Markets

Our retail analysts highlight that for most of the year (late summer being the exception), produce is sourced largely from the US, and if sourced from other regions (Latin America, Europe), then produce is typically priced in USD. Produce is then sold in Canada at the CAD equivalent, which is why fruit and vegetable inflation tracks so closely to exchange rate fluctuations. They further note that food retailers have largely been able to pass FX-driven

The Conference Board notes retailers are passing FX-driven inflation along to consumers in certain categories. It also notes that clothing and footwear typically experiences deflationary pressure.

January 7, 2016 73


inflation (and then some) along to consumers; however, it remains uncertain if this trend will continue.

As the Canadian dollar declines, it will put downward pressure on margins The lower currency takes some time to work its way into margins given retailers’ hedging strategies and inventory purchase lead times, but eventually a sustained drop in the CAD will negatively affect margins. Taking this into account, the marginal outlook for discretionary retailers looks weaker with a competitive environment and modest growth in consumer spending. Needless to say, margin pressure on certain retail tenants is negative for landlords.

Fuel savings should have a modestly positive impact on consumers Modest savings at the pump is likely to improve consumer sentiment and fuel small indulgences in the near term. Based on prior spending patterns, the most tangible and direct positive implication for the consumer at large is the modest savings at the pump, which we believe will be used in large part toward incremental transactions.

There is a (potentially big) silver lining: Significantly less cross-border shopping The lower Canadian dollar does provide one specific gift to retailers – less cross-border shopping. Cross-border shopping trips are closely tied to the level of the Canadian dollar. Not surprisingly, as the CAD falls so do the number of trips. This, combined with domestic retailers adopting US promotional events (e.g., Black Friday, Cyber Monday, etc.) and a larger supply of outlet shopping centres, should help to keep more retail spending on the Canadian side of the border. In our view, the decline in cross-border shopping will primarily benefit fashion and other retailers focused on items that people prefer to try on or touch.

Exhibit 66: SmartREIT’s Toronto Premium Outlets™ - March 2015

Source: RBC Capital Markets

According to Queen’s University, less cross-border shopping offsets a lower CAD We note that a recent study by Queen’s University, entitled “Firm Dynamics in Retail Trade: The Response of Canadian Retailers to Exchange Rate Shocks”, finds that real Canadian currency depreciation significantly improves a retailer's sales, employment, and profits. Not surprisingly, the study finds that the strength of this effect decreases the further a retailer is from the Canada-US border. The authors note that “the strongest effect is on profits, suggesting that firms may absorb a considerable portion of an exchange rate shock in their markups, which is a particularly interesting result when considering models of firms' dynamic responses to shocks.” Overall, the authors believe that the findings are consistent with the view that a lower Canadian dollar reduces cross-border shopping by Canadians, resulting in a positive demand shock for Canadian retailers.

Needless to say, margin pressure on certain retail tenants is negative for landlords.

Canadian outlet centres give consumers less need to visit the US for a bargain.

January 7, 2016 74

http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1349.pdf

http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1349.pdf


Exhibit 67: Canadian vehicles returning home after same-day trip to US (TTM, in MMs)

0.50

0.60

0.70

0.80

0.90

1.00

1.10

1.20

1.30

0

5

10

15

20

25

30

35

1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014

Same-day trips to US (TTM) 12-month moving avg. CAD/USD FX rate

Source: Statistics Canada, Bloomberg and Capital Markets

An overview of select retailers Certain formats still struggling; restructuring efforts have been mixed Certain merchandise categories are struggling to maintain consumer relevance in their product offering and/or business model. Intense price competition, the use of the Internet for price comparisons, growth in eCommerce and insufficiently differentiated assortments continue to weigh heavily on retailers such as Sears Canada, Staples, Indigo Books & Music Inc. (Indigo) and Best Buy.

Exhibit 68: Sears Canada has posted negative same-store sales for more than a decade

1.6%

-3.6%

-0.1%-1.1%

-1.6%

-6.8%

-4.4%

-7.5%

-5.6%

-2.7%

-8.3%

-2.5%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD

On top negative same-store sales, the declining Canadian dollar will put serious pressure on margins


Sears’ same-store sales are still declining; real estate monetization continues Sears Canada (TSX: SCC) remains focused on re-establishing business fundamentals as the company takes steps to: 1) increase revenue by enhancing product assortment and opening store-in-stores; 2) operating profitably via its $100–125 million cost-cutting initiative; and

As the Canadian dollar declines, so have cross-border shopping trips.

Following more than a decade of negative SSS, we would be surprised to see a major turnaround at Sears Canada.

January 7, 2016 75


3) maintain a strong balance sheet. So far, progress remains challenging as SSS declined 2.5% though FQ3/15, following more than a decade of negative SSS growth, including declines of 8.3% in fiscal 2014 and 2.7% in 2013. We would be surprised to see a major turnaround at Sears Canada.

Staples store closures are almost finished; restructuring efforts remain ongoing Restructuring efforts at Staples (NASDAQ: SPLS) appear mixed as same store sales declined 2% in North America for the 39-week period ended October 31, 2015, following decreases of 2% in 2014. We remind readers that the company embarked on a multi-year plan in 2014 to reduce cost and expand its online footprint. As part of its plan, the company closed 230 retail stores in North America since the beginning of 2014 out of a planned 240 stores. Of these locations, roughly 20 stores were in Canada – with an estimated seven locations affecting landlords within our coverage universe. For context, Staples operates ~315 stores in Canada and ~1,300 in the US.

Exhibit 69: In 2015, Best Buy closed 66 Future Shop stores & converted a further 65 locations

Source: Shutterstock and RBC Capital Markets

Taking a more cautious stance on Best Buy as category trends deteriorate Despite Best Buy’s (NYSE: BBY) positive attributes such as its improving market share, modest valuation and strong balance sheet, our US consumer discretionary analyst, Scot Ciccarelli (RBC Capital Markets, LLC), has become increasingly concerned over deteriorating category trends. This, combined with the company’s historical volatility around the holidays (4Q accounts for 50–60% of earnings) and his view that the company needs to post sustained comp improvement for the stock to re-rate higher, leads to a more cautious stance and a downgrade in November 2015 (link). For additional details, please see his latest note entitled “Results/guidance highlight weak industry trends; Remain cautious looking ahead”.

In Best Buy’s international segment, management tapered the pace of its investments and noted that customer retention remains ahead of expectations, helping to partially offset a weaker Canadian market. This follows a series of significant changes to its Canadian operations announced in March 2015 that included: 1) the closure of 66 Future Shop stores (~50% of Future Shop locations); 2) the elimination of 1,500 positions (500 full time, 1,000 part time); and 3) the conversion of the remaining 65 Future Shop stores into the Best Buy format.

We estimate that the 66 closed Future Shop stores resulted in 1.7 million sf of vacant space.

January 7, 2016 76

https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_9CB21F92F7A47A12D374BCDA4908CC88

https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_EDBCDFB7639AEBDE74F257DB181B4842


Positive same-store sales momentum continues at Indigo Indigo (TSX: IDG) has been forced to navigate a retail segment amongst the hardest hit by the growth of eCommerce. Following several years of comparable store declines, comparable store sales have turned positive in 2014 with an increase of 6.2% in its Superstore category. Positive momentum continues with an increase of 7.9% for the nine months ended September 26, 2015, as the retailer continues to execute on its strategy of converting from a bookseller to a “lifestyle” retailer. In the company’s Q1/15F press release, CEO Heather Reisman commented, “this is the 7th consecutive quarter of revenue growth and the 5th quarter of profitability improvement, which confirms our strategy is taking us in the right direction.”

HBC’s investment in "all-channel" platform driving sales According to our retail analyst, Sabahat Khan, Hudson’s Bay (TSX: HBC) is already benefiting from the investment made to date in its digital platform, with a 26% increase for the 39-week period ended November 1, 2015. Notable initiatives that he expects could drive future growth include transferring hbc.com and lordandtaylor.com to the saks.com platform (HBC's most well developed platform), and the opportunity to expand the assortment offered online by leveraging vendor drop ship programs. HBC plans to open its first two Canadian Saks Fifth Avenue stores in the spring of 2016 at the CF Toronto Eaton Centre and CF Sherway Gardens. In addition, the company has also announced ten Canadian Saks OFF 5TH locations, including the conversion of two existing Hudson’s Bay Outlets at Toronto Premium Outlets™ in Halton Hills, ON and Montréal Premium Outlets® in Mirabel, QC. For additional details, please see his latest note entitled “Revising estimates to reflect Q3 results and guidance.”

Exhibit 70: Galeria Kaufhof shopping centre in Frankfurt, Germany

Source: Shutterstock and RBC Capital Markets

As part of HBC’s C$3.8B GALERIA Kaufhof transaction, the HBC-Simon joint-venture acquired 41 Kaufhof properties for C$3.9B (link).

January 7, 2016 77

https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_D38C7100BFBB2E6B48F1CC7B83F5F8B0

https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_4B2483A7322DA65986C134A38EEB0F37


Dollar stores continue to shine brightly, taking up slack from struggling retailers For many Canadian retail landlords, including RioCan REIT, SmartREIT and First Capital Realty, growth in the dollar store category is taking up much of the slack from struggling retailers within their portfolios. Our retail analyst, Irene Nattel, contends that Dollarama (TSX: DOL) continues to drive strong SSS growth of 6.4% vs. its US peers which average +2.2%. The company is targeting a total store count of 1,400, up from 1,005 today. Looking out over the next two years, this translates into the planned opening of 70-80 stores in 2016 and 60-70 stores in 2017. Interestingly, she notes that because of the company’s unique economics and ability to drive traffic to new stores, DOL has an unusual level of flexibility with regard to the type of location that can be considered, making the process of finding new square footage easier, while simultaneously increasing DOL’s relevance to landlords.

Growth in quick and full service restaurants is also helping to taking up the slack In Canada, growth in quick service restaurants continues to outperform full service restaurants despite moderating slightly over past 12 months. Quick service sales increased 6.1% to $26.6 billion on a trailing 12-month basis as at October 2015. This compares with growth of 3.9% for full service restaurants with sales of $25.8 billion and growth in overall retail spending at 2.4%. We note that the specialty food category also continues to post respectable growth of 4.9%, which comes off of a relatively small base totalling $5.1 billion in sales over the trailing 12 months.

Growth in the food service category is helping to take up the vacated space left behind by struggling retailers. Interestingly, McDonald’s recently announced that it will introduce its first stand-alone McCafé located at Union Station in Toronto, ON. The new concept seeks to capitalize on shifting consumer preferences toward healthier options with offerings such as sriracha pulled beef sandwiches, and a lentil and sweet potato hummus wrap with kale – one thing that will not be found on the new menu is a Big Mac!

Exhibit 71: Monthly food services sales growth

Indexed to January 1998

50

100

150

200

250

1998 2000 2002 2004 2006 2008 2010 2012 2014

Full service restaurants Quick service restaurants Year-over-year growth

-5%

0%

5%

10%

15%

1999 2001 2003 2005 2007 2009 2011 2013 2015

Full service restaurants Quick service restaurants Source: Statistics Canada and RBC Capital Markets

On a trailing twelve-month basis, quick service restaurants have grown at a 6.1% vs. 3.9% for full service restaurants.

Please click image to view the latest DOL note.

January 7, 2016 78

https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_4E7599F17CFF064822A7E1FC166B4E1F


Canadian same-store sales trends remain largely positive Based on a sample of 15 retail banners, Canadian SSS continue to accelerate in 2015 with an average increase of 3.8% though Q3/15, up from growth of 2.5% in 2014 and 1.7% in 2013. Dollarama and FGL Sports, which includes Sport Chek, Sports Experts and Atmosphere, continue to post industry-leading SSS growth with an increase in SSS of 7.1% and 6.8% for the nine months ended September 30, 2015, respectively, which compares with growth of 5.5% and 7.0% in 2014. According to our retail analyst, Irene Nattel, “Walmart is benefitting most from normalization of industry square footage and as anticipated, is picking up the lion's share of Target Canada's meagre sales base. Walmart Canada comps continue to accelerate sequentially and outperformed Canadian Tire and RONA in the [most recent] period.”

Exhibit 72: Selected Canadian same-store sales growth data

9M/15 – Average SSS growth of 3.8%

DOL7%

CTC: FGL7%

HBC5% NWC

4%MRU4%

SC4%

RON4%

L4%

CTC: CT4%

WMT3%

ATD3%

PJC3%

CTC: MK3% LIQ

2% EMP0%

0%

2%

4%

6%

8%

10%

2014 – Average SSS growth of 2.5%

CTC: FGL7% DOL

5%CTC: MK

4% ATD3%

SC3%

LIQ3%

MRU2%

L2%

CTC: CT2%

NWC2%

HBC2%

PJC1%

EMP1%

RON1% WMT

0%0%

2%

4%

6%

8%

10%

2013 – Average SSS growth of 1.7%

CTC: FGL9%

CTC: MK4%

DOL4%

HBC4% ATD

2%SC2%

NWC2%

CTC: CT1%

L1%

LIQ0%

EMP0%

PJC0%

MRU-1%

WMT-1% RON

-3%-10%

-5%

0%

5%

10%

15%

Notes: 1) Canadian Tire Corporation (“CTC”) banners include Canadian Tire (“CT”), FGL Sports (“FGL” which includes Sport Chek, Sports Experts and Atmosphere) and Mark’s (“MK”); 2) Hudson’s Bay Company (“HBC”) reflects the department store group; 3) The North West Company (“NWH”) reflects Canadian food sales; 4) Shoppers Drug Mart (“SC”); 5) Metro Inc. (“MRU”); 6) Rona Inc. (“RON”); 7) Loblaw Companies Ltd. (“L”) reflects food retail; 8) Liquor Stores N.A. Ltd. (“LIQ”) reflects Canadian operations; 9) Alimentation Couche-Tard Inc. (“ATD”) reflects general merchandise; 2) Empire Company Ltd. (“EMP”) reflects Sobeys. Source: Company reports and RBC Capital Markets

Dollarama and Sport Check continue to post industry-leading SSS growth. Unlike 2013, no retailers posted negative SSS growth.

January 7, 2016 79


The OmniChannel and its impact on real estate eCommerce is a headwind that is unlikely to dissipate soon Online spending is expected to grow at a 13% CAGR between 2014 and 2019 Research firm eMarketer estimates that online retail sales will grow in Canada from $25.4 billion in 2014 to $49.7 billion in 2019, implying a five-year CAGR of 14%. Similarly, research firm Forrester expects that online retail sales will grow at a rate of 12% annually over the same period, driven by an increasing percentage of Canadian Internet users who buy online, improving conversion rates and higher average order values.

Exhibit 73: Online sales are expected to grow to 9% of total retail ($B, unless noted)

$25 $30 $34 $39$44

$50

5%6%

6%

7%

8%

9%

0%

2%

4%

6%

8%

10%

$0

$10

$20

$30

$40

$50

$60

$70

$80

2014 2015E 2016E 2017E 2018E 2019E

Canadian online sales Online as a percent of total retail

Online retail sales are expected to grow at a 12%-14% CAGR between 2014 and 2019

+17%+15%

+14%+13%

+13%

Source: Forrester and RBC Capital Markets

On a per capita basis this equates to ~$1,360, growing to ~$2,100 in 2019 According to eMarketer, online sales currently represents approximately 5.7% of total Canadian retail spending and is forecast to grow to 8.8% by 2019. Additionally, online shopping is forecast to achieve higher penetration, increasing to 63.6% of Canadian Internet users in 2019, up from 59.7% in 2014, according to Forrester. On a per capita basis, we estimate that this equates to online spending of roughly $1,360 in 2015, growing to nearly $2,100 in 2019, implying a four-year CAGR of approximately 11%.

Online sales growth is the equivalent of building one Yorkdale Mall per year! Annual online sales in Canada represent the equivalent of 9.8 Yorkdale Malls, according to CBRE (based on $22.0 billion of eCommerce sales). With online sales growing at a ~13% compound annual growth rate this is, more or less, the equivalent of building one Yorkdale Mall per year, and Yorkdale is one of the most successful malls in North America. Bricks-and-mortar retailers including Hudson’s Bay, Walmart Canada and Canadian Tire are not standing still and continue to fight for their fair share (and more in some cases). Given this trend, we believe physical formats will continue to evolve as retailers require less space and improve their distribution networks. Interestingly, Gerald Storch, CEO of Hudson’s Bay recently commented in a BNN interview that “it’s a false dichotomy people build sometimes between Internet-only companies and sort-of old fashioned bricks-and-mortar companies. Much of the growth on the Internet categories is coming from the Internet arms of bricks-and-mortar companies like Hudson’s Bay.”

Online sales are set to grow to ~$2,100 per capita in 2019, up from ~$1,360 today.

January 7, 2016 80


Exhibit 74: Annual online sales productivity is the equivalent of almost ten Yorkdale Malls!

vs.

Source: Apple, Oxford Properties and RBC Capital Markets

On average, eCommerce represents 16% of sales for Canadian retailers For Canadian retailers, eCommerce represents an average 16% of sales, according to a survey of 169 Canadian retailers by Forrester. For most retailers online sales are growing quickly, albeit off of a small base. We note that growth is not equal across merchants, as 31% of those surveyed indicated that their online sales were growing by more than 25% annually, while 7% experienced a decline in online sales over the past year. Still, online conversion rates remain low at 2.6%; Forrester notes that almost half of respondents saw an increase in conversion rates and a basket size that continues to increase as merchants improve their ability to cross-sell and up-sell goods.

Exhibit 75: Canadian eCommerce metrics continue to improve1

Web metric Average

Site conversion rate 3%Shopping cart abandonment rate 55%Repeat customer rate 39%% of sales from repeat customers 40%% of revenue spent on IT expenses 7%

Average order value

All customers $197Repeat customers $183

Cost per orderNew customer acquisition cost $23Marketing cost $18Customer service cost $8Fulfi l lment cost $15Total cost per order $64

49%9%

42%37%

47%

43%70%

54%56%

41%

7%21%

7%12%

Increased Remained flat Decreased

49%39%

43%57%

8%

33%35%

17%22%

29%

59%54%

68%61%

59%

8%11%

14%17%

12%

Notes: Percentages may not total 100% due to rounding. Change in eCommerce metrics over the past 12 months based on March/April 2015 survey data. Source: Forrester and RBC Capital Markets

Online customer acquisition remains a key eCommerce goal Customer acquisition remains the top eCommerce goal for Canadian retailers as they look to grow their online platforms. Second on the priority list for retailers, according to Forrester, is growing their OmniChannel efforts through initiates such as fulfilment programs or in-store pick-up. Rounding out the top three objectives for retailers was improving site merchandising through an array of tactics such as personalization, videos, ratings and zoom functionality for photos. Interestingly, despite significant growth in mobile, only a handful of Canadian retailers listed it as a top priority for the year, unlike American retailers who listed mobile as their top priority.

Growth in online sales is the equivalent of building one Yorkdale Mall per year!

According to a survey of 169 Canadian retailers, the average consumer spends $197 per order online.

January 7, 2016 81


The OmniChannel evolution Adaptability is the key for retailers to stay ahead of the competition As OmniChannel retailing gains traction, consumer needs and wants inform corporate decision-making more than ever, according to our Canadian retail analyst, Irene Nattel. She writes that the emerging challenge for OmniChannel retailers is to find novel ways to reach customers, track and understand their evolving needs and desires, and deliver the goods accordingly. But because the field is evolving so rapidly, the OmniChannel proposition has to operate within a framework that is adaptable in order to be successful and economically viable. As online retail moves from strictly eCommerce to the digitization-of-all-things-commerce, retailers at the leading edge of digitization and software development should have a clear competitive advantage.

Exhibit 76: The OmniChannel experience

Research/Buy from Deliver from Receive from Store Store Store

Website Supplier Home delivery Social media Manufacturer Parcel pick-up Mobile app Distribution centre Post office

Fulfilment centre

Source: GWL Realty Advisors and RBC Capital Markets

Data and loyalty will be key to differentiating the OmniChannel from eCommerce Extracting actionable information from data will likely become key to differentiating OmniChannel retailing from pure eCommerce. Another element that is quickly becoming a key part of the new loyalty paradigm is the collection and analysis of the data generated through the sales process and customer interactions. Analyzing data generated by in-store point-of-sale (“POS”) and online shopping systems is the Holy Grail in the quest to deliver a customized experience and build loyalty. As retailers set up the digital infrastructure, data is accumulating at an overwhelming pace. In time, the extraction of actionable information from this data should become a key competitive advantage of OmniChannel retailers.

Online customers have higher (and more varied) expectations With these trends, OmniChannel retailers are challenged to meet individual customer expectations as one-size fits all approach to fulfillment is not viable. Some customers still prize the in-store experience and the interaction with staff and the merchandise, while others thrive on the convenience of home delivery. But the latter adds layers of complexity for large, multi-category retailers like Canadian Tire and Loblaw. To retain customer loyalty, some retailers are adapting traditional business models and mining data for actionable information, capitalizing on existing relationships and the potential distribution advantage inherent in a strong national retail network. We contend that retail tenants will be increasingly having a “network” discussion vs. a “store” discussion as the real estate conversation is becoming increasingly strategic.

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Exhibit 77: 16131 Blundell Road, Richmond, BC – Pure Industrial REIT

Source: Pure Industrial REIT Company Reports, RBC Capital Markets

OmniChannel driving transformational changes to the supply chain The OmniChannel is transforming retail transportation’s supply chain and logistics processes, according to our transportation analyst Walter Spracklin. He contends that when it comes to how to procure and manage transportation in an OmniChannel world, one model does not serve all purposes. In fact, the geographic fragmentation in Canada is setting up a two-tier system, one serving the ten or so densely populated urban economies, and a second serving the remaining sparsely populated rural regions. And while both the Canadian consumer and OmniChannel environment is more hesitant to a commitment to change (as opposed to the US where the OmniChannel transformation has occurred much more rapidly), he notes that change is indeed occurring in Canada.

The last mile is chronically underserved in Canada Last mile logistics and fulfillment are severely lacking in Canada compared to the US, owing to the country’s geography and relative population density. As such, the last mile accounts for approximately 75-80% of total distribution costs with consumers expecting flexibility, personalized service, and a seamless user experience across the various channels. Some Canadian retailers are currently bridging the gap between bricks-and-mortar and eCommerce with a click-and-collect model.

Interestingly, same-day delivery not always a “must have” Even though Amazon continues to be at the forefront of “same-day” delivery, industry executives at our 2015 OmniChannel Conference noted that the retail channel must realize that “same-day” is not always a “must have.” Our OmniChannel panelists contend that the customer should pay for it and bear the costs. Furthermore, same-day delivery in Canada is a much more onerous proposition due to the geographical fragmentation across the country. The panel also noted that when customers are offered the choice between paying for “same-day” delivery and free two-day shipping, nearly 100% of the customers choose the latter. The key is offering the customer a shipping/delivery choice suitable for the particular requirements and ensuring that the costs are reflective of the particular delivery choice. Similarly, digital analytics company, comScore, also believes that consumers care more about reliable delivery (date of delivery) over speed in all categories, except for food & beverage.

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US apartment landlords are struggling with the surge in online shopping

During 2015, US apartment landlord Camden Property Trust (NYSE: CPT) stopped accepting packages at most of its 169 apartment properties as online shopping turned management offices into de facto receiving centres. According to an October 21, 2015 Wall Street Journal article, Camden executives noted that each package results in about 10 minutes of lost productivity, which translates into a cost of roughly $3.3 million per year. Similarly, other apartment landlords such as AvalonBay Communities (NYSE: AVB) and Equity Residential (NYSE: EQY) are also weighing package restrictions. In an attempt to solve the problem, US landlords are testing solutions that include adding parcel pick‐up boxes at certain properties or allowing tenants access to package rooms that are protected by keypads and security cameras.

Retailers are attempting to solve the last mile challenge

Retailers are attempting to solve the last mile challenge with various last mile solutions, including free shipping, in‐store pick‐up and community lockers. With click and collect as a hybrid solution, both Loblaw and Canadian Tire benefit from a substantially higher basket compared to in‐store transactions, while addressing a need for convenience without the requisite and substantial investments in areas such as customer relationship management (“CRM”) and warehouse management software (“WMS”). Canadian Tire management is also testing different distribution channels based on product mix, with the Sport Chek banner driving the last mile with same‐day home delivery in certain markets. The same is more complex at traditional Canadian Tire stores given the mix of products, but over time, we expect the click‐and‐collect model to evolve to a true home delivery service for a growing subset of categories as retailers develop internal capabilities.

Exhibit 78: Canadian Tire and Loblaw have both developed last mile solutions

Canadian Tire’s Pay & Pick up Loblaw’s Click & Collect

Source: www.CanadianTire.ca and RBC Capital Markets

eCommerce is both a headwind and opportunity for retail landlords

Innovative retail landlords are also attempting to devise solutions to the last mile challenge. Notably, SmartREIT in conjunction with Mitch Goldhar (via the Penguin Group of Companies) is building on the initial success of the Penguin Pick‐up depots. The idea is to drive traffic and eventually charge rent to make a profit. SmartREIT CEO Huw Thomas highlighted that the pick‐up service takes about 90 seconds to complete and that customers are using the locations 2‐3x per week. In addition, the service has received satisfaction levels in the “high 90s” from customers and has not received any friction from tenants. Interestingly, Mr. Thomas notes that after less than a year of operations, almost 50% of Penguin Pick‐up customers are staying to shop in its malls.


Exhibit 79: Almost 50% of Penguin Pick-up customers stay to shop in the adjacent centre

Source: www.tom2tall.com and RBC Capital Markets

Depots and lockers are picking up steam with the launch of several new formats Building on its initial success, SmartREIT and its partner are testing Penguin Fresh at seven locations in the Greater Toronto Area. The service offers a variety of vegetables, fruits, meats and poultry, sourced from local farms wherever possible. We also note that a number of other companies are expanding their parcel pick-up operations in Canada including Walmart’s “Grab & Go” with more than 50 locations and global pick-up locker operator, InPost, which offers 24/7 parcel pick-up lockers located at a growing number of sites in the Greater Toronto Area, ranging from gas stations to Loblaw’s supermarkets.

Exhibit 80: InPost locker outside of a Real Canadian Superstore

Source: www.InPost.ca and RBC Capital Markets

80% of Penguin Pick-up customers have not visited the retail centre previously.

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Parcel pick-up lockers benefit landlords by boosting consumer traffic In our view, parcel pick-up lockers solve a number of common problems with online package delivery, including: 1) the need to be home during delivery; 2) apartment landlords refusing to accept parcels; and 3) packages left at the front door that are stolen by “porch pirates.” On the latter, we would note that police departments in a number of US cities are reminding consumers that package theft is increasingly common around the holiday season as thieves follow delivery trucks around a neighbourhood stealing packages that are left unattended.

Exhibit 81: Thieves are increasingly following delivery trucks & stealing unattended packages

Source: www.theLandport.com Shutterstock and RBC Capital Markets

Benefiting from the OmniChannel and becoming a critical part of the supply chain The industrial real estate sector continues to benefit from the growth of the OmniChannel and is increasingly becoming a critical element in the supply chain equation. eCommerce is unquestionably driving demand for new state-of-the-art distribution and fulfillment centres. These facilities have highly specific building requirements, such as high clear ceiling heights (+30 feet), abundant truck turning radius, parking (especially at fulfillment centres), enhanced security and power. In addition, the facilities need to be close to major highways and other transportation infrastructure and have predictable travel times to major markets, so traffic congestion also comes into play.

Realizing the importance of distribution and fulfillment centres to the successful execution of OmniChannel strategies, industrial landlords are seeing tenants investing heavily to customize their real estate. On a July 2015 panel, WPT Industrial REIT CEO Scott Frederiksen highlighted that within his portfolio some tenants are investing more in property improvements that, when completed, will exceed the amount that will be paid in rent over the course of the lease term.

Logistics will be as important to retailers as the physical shopping experience In its 2016 outlook report, CBRE contends that “logistics will be as important to retailers as the bricks-and-mortar shopping experience” this year. In addition, CBRE expects retailers will increase the number of locations where consumers can receive and return goods that were purchased online over the next year, as they seek to differentiate themselves with supply chain enhancements and shrink the physical distance with the consumer. What this means for real estate investors is that industrial construction is being polarized, with two distinct trends that include 1) a desire to consolidate logistics operations; and 2) eCommerce and same-day delivery requirements that are driving demand for smaller ~50,000 sf buildings in close proximity to major markets.

Elaborating on points one and two above, we highlight that while the consolidation of logistics operations in Calgary and the Greater Toronto area isn’t a new trend; a combination of pent-up

Porch pirates... it’s a real thing and on December 11, 2015 was a feature story on NBC Nightly News.

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and new demand is spurring more frequent construction of large-bay industrial buildings, sometimes nearing the 1.0 million sf mark. According to CBRE, at the opposite end of the scale, the trend toward smaller buildings “has the potential to reinvigorate industrial properties in the inner suburbs that were formerly considered obsolete for modern users; however, these same locations will face pressure to be put to higher and better use in 2016 as the general urban intensification process continues,” according to the firm’s 2016 outlook report.

Exhibit 82: 1105 Northfield Drive, Brownsburg, IN – WPT Industrial REIT

Source: WPT Industrial REIT Company Reports, RBC Capital Markets

The right place at the right time for industrial real estate eCommerce continues to provide significant tailwinds to the industrial real estate sector, particularly for companies with a focus on new generation distribution centres. As such, we believe that WPT Industrial REIT has a unique ability to gain insight into the OmniChannel. With a portfolio of 48 properties encompassing more than 15 million sf, the REIT’s properties are home to some of the leading online retailers, logistics and consumer products companies such as Amazon, e-Bay and Zulily. CEO Scott Frederiksen stated on our 2015 OmniChannel panel that WPT Industrial REIT is seeing the most growth in eCommerce and logistics related tenants, which accounted for roughly 40% of all new leasing activity. In our view, distribution-focused industrial REITs are in the right place at the right time to benefit from the significant tailwinds of the eCommerce wave.

Flexibility is key as retailers’ OmniChannel strategies continue to evolve In light of the changing landscape, retail landlords must remain flexible as OmniChannel strategies continue to evolve. Indeed, many retailers are re-evaluating the role of the physical stores and how they fit into the overall customer experience. For certain retailers, stores are becoming more than just a place to do business – they are also becoming fulfilment centres, points of return for online purchases or showrooms for product offerings. As such, tenants may need to rationalize or expand their store footprint over the course of their retail lease, which typically runs for 5-10 years (or longer including renewal options).

In our view, the challenge for retailers is to repurpose and reformat store networks to make the physical locations an integral part of the fulfillment and after-sales process. For online retailers, physical presence is also becoming a key competitive advantage and differentiator, with certain stores serving as mini-warehouses for same-day local delivery, returns and exchanges, and pick-up of online orders during seasonal peaks.

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A number of expanding tenants lack significant OmniChannel strategies Interestingly, we note that a number of retail tenants currently in expansion mode do not have significant OmniChannel strategies. These tenants include names such as TJX Companies (including Winners, Marshalls and HomeSense), Dollarama, Dollar Tree and service-oriented retailers such as gyms, medical tenants and restaurants.

Exhibit 83: TJX Companies sees potential Canadian stores growing from 387 to 500 stores

2,150 3,000

522

1,000

387

500

493

975

0

1,000

2,000

3,000

4,000

5,000

6,000

FQ1/16 Future stores

Marmaxx HomeGoods TJX Canada TJX Europe

~3,600 stores1

~5,500 stores2

+29% inCanada

Notes: 1) Includes 35 Trade Secret stores in Australia and 7 Sierra Trading Post stores in the US. 2) Does not include store growth potential for Australia. Source: TJX Companies, Inc. Investor Presentation and RBC Capital Markets

As retail evolves, well located real estate will still remain key Landlords with an abundance of service-oriented tenants and daily necessities are better positioned against the eCommerce trend In our view, retail real estate has always been subject to changing trends and tenant requirements. We believe that the best positioned landlords are those that are well capitalized, farsighted, flexible and above all, in possession of well-located real estate. In our view, the best positioned landlords within our retail coverage universe are First Capital Realty, Choice Properties REIT and Crombie REIT because of their focus on service-oriented tenants, and daily necessities such as grocery and drug stores. These categories have minimal exposure to eCommerce with an online channel share that is typically less than 5% of market share. FCR in particular has a distinct focus on urban locations, which provides the added benefit of above-average growth in both population and income, as well as some protection against new retail supply. We also highlight that a number of the large Canadian REITs/ REOCs, including RioCan REIT and SmartREIT, are being proactive and adjusting their tenant mix to include a larger proportion of service-oriented and necessity-driven tenants.

In our view, the future of retail lies in “bricks and clicks,” not “bricks vs. clicks” As the OmniChannel continues to evolve, we believe savvy bricks-and-mortar retailers will continue to get their fair share of sales growth. We also believe physical stores will continue to remain a core part of their retail strategy as their businesses evolve. Indeed, even eCommerce behemoth Amazon has come to realize the value of a physical presence with the opening of its first Amazon Books location this year in Seattle, WA. In our view, one thing seems clear, retailers who are able to bridge the physical/digital divide have a far better chance of winning the day.

TJX Companies sees potential Canadian stores growing by up-to 33% over time.

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Exhibit 84: Amazon opens its first physical store with Amazon Books in Seattle, WA

Source: www.Amazon.com and RBC Capital Markets

Our coverage universe is different than the retail property sector as a whole Exhibit 85 below illustrates the macro forces affecting the operating environment for the retail REITs and REOCs under our coverage. Our coverage universe is not representative of the wider retail property sector in general because super regional malls and high street retail are not represented, and there is much less representation from enclosed malls. High-end fashion and luxury goods, as a consequence, are underrepresented. Properties owned by REITs and REOCs under our coverage universe are typically dominated by food retailers, drug stores, Walmart, Canadian Tire banners, service retailers (gyms, etc.) and banks. There is also more major market representation and, most importantly, more intensification and repositioning potential than the retail market as a whole.

Exhibit 85: Macro forces affecting retail REITs and REOCs within our coverage universe

Source: RBC Capital Markets

“Print! Now on paper…in an actual building! What will they think of next?” – Brian Gable, Globe & Mail November 2015

We believe landlords with urban portfolios are well positioned against current headwinds, while secondary markets will likely remain challenging.

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In the near term, we believe other factors could have a larger impact on the sector In our view, there are a number of other drivers that can have a significant near-term impact on the retail real estate sector and the trading prices of their securities. These include: 1) growth in real GDP, disposable income, and consumer spending; 2) growth in retail supply offset by demand for prime/urban real retail real estate; and 3) increased retailer competition & tenant bankruptcies. Finally, we note that the flow of funds into the listed real estate sector and low interest rates also have a significant impact on the sector has a whole.

Over the long term, we see a number of positive factors From the narrow lens of our coverage universe, we see a number of long-term trends that serve as positive or offsetting factors to eCommerce headwinds, including: 1) urbanization and the opportunity to add density; 2) growth in service-oriented retail; and 3) lengthy weighted average lease terms. In short, we believe the ongoing urbanization trend will continue to result in the “cross-pollination” of retail, residential, and office sectors, and can be seen in mixed-use developments such as the Vaughan Metropolitan Centre (“VMC”) by SmartREIT or Sunnybrook Plaza by RioCan REIT. Overall, we believe landlords best positioned against eCommerce headwinds are those that are well capitalized, farsighted, flexible and above all, in possession of well-located real estate.

Exhibit 86: VMC area owned by SmartREIT & Penguin Group overlaid on downtown Toronto


Exhibit 87: RioCan REIT’s Sunnybrook Plaza – Bayview Ave. & Eglinton Ave. in Toronto, ON

Ariel view of Sunnybrook Plaza Rendering of proposed development


SmartREIT owns a 50% interest in 52 acres (at right). In addition, Mitch Goldhar and partners own the adjacent 48-acre parcel. Together, these parcels represent the largest control block within the VMC’s total 442 acres.

Sunnybrook Plaza is located along the future Eglinton Crosstown LRT line set to open in 2021.

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http://www.smartreit.com/Opportunity/


The industrial sector: Healthy demand and a balanced construction pipeline equate to generally favourable fundamentals

Canada’s industrial inventory encompasses approximately 1.7 billion sf of GLA, according to CBRE. While last year’s results varied by region, industrial real estate fundamentals remain balanced at the national level. During the first nine months of 2015 (9M/15), national absorption was 8.7 million sf, well behind the 14.4 million sf taken up within the same time period in 2015. 9M/15 absorption also lagged the 12.9 million sf of new deliveries and drove a slight (10 bps) uptick in availability to 5.6% (5.5% Q4/14). Despite the slight uptick in availability, national average net asking rents increased ~5% to $6.38/sf from $6.06/sf as of Q4/14.

Exhibit 88: Canada’s major industrial markets at a glance – as of Q3/15

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

0

200

400

600

800

1,000

Vancouver Edmonton Calgary Winnipeg Toronto Ottawa Montreal

Inventory (MM sf) Under Construction Pipeline (% Market Inventory)

Source: CBRE and RBC Capital Markets

Due to the solid demand and scarcity of new Class “A” industrial product, developers have ramped up new construction to what now appears to be an all-time high. As of Q3/15, there was ~23 million sf under development nationally. Data from CBRE suggest that slightly more than 50% of the development pipeline is being constructed on a speculative or “spec” basis, which refers to the absence of any pre-leasing commitments. This renders a still healthy near-50% of the total pipeline as projects that are in direct response to a specific tenant-driven demand.

Overall, we believe that industrial market fundamentals will remain generally favourable in 2016. Demand drivers and key dynamics affecting the sector this year are likely to include:

• National GDP growth, albeit with regional risks to those growth prospects primarily across the Western provinces due to the ongoing cyclical depression of energy and resource prices;

• Solid demand generators within the e-commerce and distribution channel (with some offset due to slowing growth from US/foreign retailers in Canada); and,

• The benefits of weaker CAD/USD exchange rate (for exporters) and the “pull” of stronger US growth.

Cyclical recovery continues; new supply modestly outpacing demand Commencing in 2010, the cyclical recovery in the Canadian industrial market is now entering its seventh year post-Global Financial Crisis (“GFC”). National industrial absorption registered 8.7 million sf during the first nine months of 2015. We estimate that the full-year 2015

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absorption data will be approximately 12 million sf, down from 17.8 million sf in 2014 and 21.2 million sf in 2013. For context, the long-term average annual national absorption has been approximately 14 million sf. Excluding 2009’s anomalous negative absorption of 18.8 million sf, the long-term average take-up is approximately 15 million sf per year.

On the supply side of the equation, national industrial deliveries totalled 12.9 million sf through 9M/15, significantly more than the 9M/14 figure of 8.0 million sf. We estimate that 2015 full-year supply will register approximately 20 million sf, up from 14.9 million sf during calendar 2014. By comparison, the long-term average national new supply has been 17 million sf.

Last year’s estimated supply deliveries of 20 million sf outpaced 12 million sf of absorption by 8 million sf. Thus, 2015 will be the first year since 2009 in which supply has exceeded absorption. With such a large inventory of space, last year’s 8 million sf of excess supply resulted in only ~50 bps of increased availability on a national basis (refer to Exhibit 89).

Exhibit 89: New supply and absorption (MM sf, LHS) and demand/supply balance (bps, RHS)

-150 bps

-100 bps

-50 bps

0 bps

50 bps

100 bps

150 bps

200 bps

-20

-15

-10

-5

0

5

10

15

20

25

30

2000 2002 2004 2006 2008 2010 2012 2014 2016E

New supply Absorption Demand/Supply Balance (RHS)

Excess demand

Excess supply

GFC - 2009 supply/demandimbalance of 35MM sf or 212 bps

Source: CBRE and RBC Capital Markets estimates

Expecting an uptick in availability2 accompanied by modest rent growth Peaking in 2009 at 8.1%, the national industrial availability rate posted five years of improvement to 2014. As of Q3/15, availability of 5.6% represented a modest 10 bps deterioration from Q4/14’s 5.5%.

As of Q3/15, the new construction pipeline was running at an all-time high of 23.3 million sf (1.3% of national inventory), according to CBRE. We believe that Q4/15 deliveries were sizable and that the year-end 2015 work in progress pipeline was approximately 15 million sf. As noted above, we believe that construction in progress is close to 50/50 spec versus build-to-suit or early pre-let. Accordingly, despite the heightened level of construction currently, we still see a relatively balanced supply/demand environment. We expect 2016 new supply of approximately 14 million sf versus absorption of 11 million sf, resulting in availability ticking up 20 bps to 5.8% versus Q3/15.

2 CBRE defines availability as “space that is being actively marketed and is available for tenant build-out within 12 months. Includes space available for sublease as well as space in buildings under construction.”

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Net asking rents grew by a healthy 5% during the nine months ended Q3/15 to $6.38 per sf from $6.06 as of Q4/14. This was comfortably above our forecasted growth rate of 1–2% ($6.18 per sf). We believe that 2016 asking rent growth will slow this year, posting overall growth of ~3%, to round out the 2016 national figure at $6.59/sf.

Exhibit 90: Canadian industrial availability rates versus net rents (2000–2016E)

3%

4%

5%

6%

7%

8%

9%

$3

$4

$5

$6

$7

2000 2002 2004 2006 2008 2010 2012 2014 2016E

Net Rent ($/sf; LHS) Availability (RHS) Source: CBRE and RBC Capital Markets estimates

e-commerce: a sustainable industrial real estate demand driver Forrester Research estimates that Canadian e-commerce sales will grow from $22 billion in 2014 to $40 billion in 2019, a CAGR of more than ~12%. This is materially in excess of the expected annualized growth rate of 2.6% for total retail sales over the same period. The value of online Canadian sales in total dollar terms is expected to be $29 billion this year, representing 8% of total retail sales.

Logistics and distribution (the e-commerce back-end) In light of relative growth rates, retailers are in no way letting up on their efforts to capture e-commerce sales. While there is a move afoot to leverage overall Omni-channel strategies, e-commerce strategies and supply-chain network optimization remain key. From this, we believe that industrial real estate should continue to benefit from the potential investment and development opportunities. For several years, the need to reinvent, modernize, consolidate, and drive efficiency in the supply chain has been a key driver behind larger warehouse and logistics facility construction (700,000 sf+ buildings) in the GTA and Calgary specifically. At the margin, we believe the growth in the back-end (i.e., the distribution end) may be slowing.

Meeting consumers’ expectations: The “last mile” means smaller and more urban Speed of product delivery and flexibility in return policies have become hugely important to the consumer. While we continue to believe the effect of e-commerce will drive demand for large, specialized distribution facilities, we also believe that many retailers have (and continue to) found that refining the “last mile” in the sales-to-consumer cycle has been a key challenge. Thus, property location is extremely important for “fulfillment centres”. These facilities ideally need to be located close to a highway, yet within close proximity of urban populations, and they need to have the capacity to handle a high volume of smaller transactions. We believe the quest to conquer the “last mile” will drive strong demand for smaller (30,000–60,000 sf) facilities close to or within major population centres. The future

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for existing older, low-clearance properties remains in question. In some instances, these properties offer more urban locations, yet the potential redevelopment or repurposing of these properties is often a challenge, in light of potential land values and existing high site coverage. It will be interesting to see whether certain desirably located older properties can be purchased and demolished or retrofitted on a rent and cost/sf basis that will work for certain e-commerce distribution/fulfillment centre businesses.

Overall, we believe the “industrial” property sector will benefit from demand drivers for new warehouse and distribution space from a combination of bricks-and-mortar retail sales channels and e-commerce/Omni-channel strategies.

Canadian geography poses unique challenges to growth We have often cited that Canada is a country that is 3,000 miles wide and 100 miles high—at least as it relates to the dispersion of a large percentage of its population. Thus, growth in the physical components of Canada’s e-commerce backbone is subject to some unique challenges. Compared with the US, Canada’s higher shipping costs and logistical challenges create an environment where it is harder for retailers to reach economies of scale. This may lead to a higher use of third-party logistics companies rather than retailers implementing a standalone localized distribution network.

Canadian dollar depreciation should be a positive The Canadian dollar ended 2015 at US$0.72. The currency has been depreciating against the US dollar since the end of 2012. Cumulatively, the Canadian dollar has taken a 28% slide over the last three years, from USD parity to US$0.93 24 months ago, to US$0.86 just 12 months ago. RBC Economics expects the CAD/USD exchange rate to stabilize at the US$0.75 level by the end of this year, modestly above the US$0.72 rate at the beginning of 2016.

The three-year drubbing of the Canadian dollar has notably curtailed the Canadian consumer’s propensity to cross-border shop.

We note that last year’s lacklustre industrial demand (8.8 million sf of absorption during the nine months to Q3/15 versus 14.4 million sf in the prior period) did not appear to benefit from the weak Canadian dollar as much as we had expected. This could be a lag-effect, and/or it could also be the product of sub-par (~1.3% annual GDP growth). Yet we fully believe the depreciated currency should be supportive of industrial demand in 2016. The decline should be beneficial for a number of industrial users including auto parts manufacturers, exporters, and natural resource producers that have significant sales to US and international customers. While the property portfolios of the listed industrial REITs are predominantly distribution and warehouse space, they clearly also include a minority proportion of light manufacturing and flex-space. Overall, we believe a weakening trend in the loonie is more influential for industrial demand versus other property sectors such as office or multi-res.

Local market commentaries Exhibit 91 graphically depicts industrial availability trends in several major markets. As shown, Western markets continue to have, on balance, lower availability than their Eastern counterparts. Having said this, we note that the trend over the last four years has been that of a broadly narrowing differential between availability rates in the west versus the east. Exhibit 92 graphically depicts industrial net asking rent trends across several major markets. As shown, the largest industrial markets of Toronto, Montreal, and Vancouver have generally shown less variability in rents over time.

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Exhibit 91: Canadian industrial availability rates (1998A to 2014A and 2015E to 2016E)

0%

2%

4%

6%

8%

10%

12%

Vancouver Calgary Edmonton Toronto Ottawa Montreal Source: CBRE and RBC Capital Markets estimates

Exhibit 92: Canadian industrial net asking rents (1998A to 2014A and 2015E to 2016E) ($/sf)

$0

$2

$4

$6

$8

$10

$12

Vancouver Calgary Edmonton Toronto Ottawa Montreal Source: CBRE and RBC Capital Markets estimates

Regional market commentary and highlights Market-specific commentary and highlights for Canada’s primary industrial markets follow.

Vancouver (~182 million sf) Through the first nine months of 2015, Vancouver posted absorption of 3.8 million sf, well above 9M/14’s 1.1 million sf. The result placed the market on track for record net absorption. New GLA delivered during the 9M/15 timeframe was 2.0 million sf, and by Q3/15, the under-construction pipeline was 5.8 million sf. Through 9M/15, demand outpaced supply, taking the market availability down by 110 bps, to 5.9% from 7.0% at year-end 2014. Rents, meanwhile, posted a 2% increase, to $8.26/sf from $8.08/sf as of Q4/14.

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We believe the market will continue to remain healthy in 2016. Import- and export-related businesses surrounding the Port of Vancouver should continue to be a driver of market activity, assisted in part by the weaker Canadian dollar. Moreover, several submarkets (Vancouver and Richmond) continue to demonstrate low availability, well below the national average (5.6%). Logistics users in particular are absorbing large blocks of space across the region. Demand is strong, and new supply seems to be quickly absorbed. However, we believe the sizable 5.8 million sf under construction (~3% of total market inventory) is such that availability should remain relatively flat in 2016. Overall, we believe that Vancouver continues to have one of the stronger medium- to long-term market backdrops within the country. As such, we forecast 3% rent growth in 2016 to $8.51 from $8.26.

Calgary (~127 million sf) Calgary posted 9M/15 negative absorption of 400,000 sf, significantly below the 10-year average annual absorption of 2.3 million sf. With absorption of negative 1.8 million sf to 9M/15, Southeast Calgary was clearly the weakest sub-market (predominantly energy services and fabrication facilities).

On the supply side, completions delivered through 9M/15 were 1.7 million sf, already equalling the total delivered in calendar 2014. The high volume of completions, coupled with negative absorption (cited above), added 160 bps of availability (to 6.3% from 4.7% at the beginning of the year). Likewise, asking net rents of $7.35 were down 12.5% from $8.40 as of Q4/14.

Sub-US$40 WTI and pending spec deliveries: Industrial landlords feeling the pinch A large segment of industrial landlords are feeling the pinch of sub-US$40 WTI oil. According to CBRE, the Calgary industrial market consists of approximately 20% energy-related manufacturing and oil service facilities (25 million sf). Within this subset, about 5.8 million sf of area was vacant as of Q3/15; therefore, this subset comprised ~77% of Calgary’s entire vacant space (7.5 million sf).

Two other challenges are weighing on total vacancy rates. First, a number of aging industrial fabrication facilities is becoming available, via both sub-lease and head-lease. Second, small-bay users have not been as active in new or renewal leasing. Overall, we believe these are simply a function of the tougher Alberta business climate. As tenants are adapting to the current realities, they are taking longer to make leasing decisions, seeking ways to reduce expenses, delaying expansion plans, and, in increasing numbers, may be shrinking their businesses to match their customers’ needs.

Demand for new, highly functional distribution space has generally been strong. This, however, is the segment that has seen a lot of spec construction.

Exhibit 93: Calgary industrial – Selected new supply under construction

Property Developer Occupancy GLA (000 sf) 10450 50th Street SE - Eastview Industrial Beedie Development Group Q1/16 224 Hopewell Great Plains Business Park - Building B Hopewell Development Corp Q1/16 157 Hopewell Great Plains Business Park - Building D Hopewell Development Corp Q1/16 121 Nose Creek Business Park - Building A Bentall Kennedy Q2/16 185 Nose Creek Business Park - Building C Bentall Kennedy Q2/16 217 Total 903

Source: CBRE, and RBC Capital Markets

As of Q3/15, the construction pipeline was 4.1 million sf. We believe that approximately 3.2 million sf may have been completed in 2015, rendering about 0.9 million sf (all spec) due for completion this year. In light of the spec inventory available or coming to market in the near

January 7, 2016 96


term, we expect a further increase in availability and pressure on rents. This is particularly true for Southeast Calgary, where some 500,000 sf (spec) under construction is expected to come on line this quarter.

Our current expectation is that slowing absorption coupled with the impact of new deliveries results in net asking rents falling by 5% in 2016 to $7.00/sf, while availability increases by 70 bps to 7.0%. The potential for a step-up in tenant failures and negative absorption is a clear “wild card” within the context of weak oil and gas prices and their knock-on effect on the overall economy.

Exhibit 94: Beedie Development Group’s Eastview Industrial project (artist’s rendering)

Source: www.beediegroup.ca and RBC Capital Markets

Edmonton (~111 million sf) According to CBRE, the Greater Edmonton Area (which includes the Northwest, Northeast, Southeast, Central, and the surrounding submarkets) contains an industrial inventory exceeding 111 million sf. In the first nine months of 2015, overall negative absorption of 900,000 sf was significantly below new supply of 1.6 million sf. As of Q3/15, the under-construction pipeline was approximately 3.1 million sf.

Contracting net demand drove the city’s availability rate up by 320 bps to 7.0%. This is now one of the higher rates in the nation after beginning the year near the bottom of the pack. Interestingly, average net asking rents actually increased by 2.6%, to $11.37/sf from $11.08/sf as of Q4/14. Edmonton continues to have the highest net rents in the country. Land availability in “Edmonton proper” has been a factor behind the high rents.

Edmonton industrial market fundamentals have been landlord-favourable for several years, characterized by strong absorption and pent-up demand caused by lack of suitable product. As with Calgary, the duration of the current oil downturn continues to be the wild card, thus rendering 2016 forecasts for market absorption what we might refer to as “crude estimates”! Our current expectation is that absorption slows, as tenants downsize and put sublease space to market. Our year-end 2016 forecast call for a 6% decline in average rents to $10.67/sf and expansion in market availability to 7.8%, which would be up 80 bps year-over-year.

Toronto (~755 million sf) With an inventory encompassing 755 million sf, the GTA ranks among the larger industrial markets in North America. With respect to size, Cushman & Wakefield data indicate that the Toronto market trails only Chicago (1.2 billion sf) and Los Angeles (1.1 million sf). During the first nine months of 2015, GTA absorption was 5.2 million sf, on par with the 5.1 million sf in calendar 2014. On the supply side, 9M/15 new deliveries were subdued at 3.0 million sf, yet

January 7, 2016 97

http://www.beediegroup.ca/


the late-year under-construction pipeline had ballooned to 8.7 million sf. This marks the highest level since Q3/07. With demand in excess of supply on a 9M/15 basis, Q3/15 total market availability decreased to 4.1% from 4.5% at the end of 2014. Average asking rents up-ticked to $5.33/sf from 2014’s $5.11 (+4%).

Toronto West submarket continues to be the hub for warehousing and distribution Toronto West continues to be the primary submarket in Toronto. To Q3/15, the West accounted for 2.9 million sf of Toronto’s 5.2 million sf absorption. The proximity to intermodal transportation continues to attract industrial investors and tenants. We expect that the West end will (continue to) be the location of choice as retailers and third-party logistics providers expand. The market is currently subject to more than 6 million sf of space under construction, nearly 70% of the entire GTA’s pipeline.

Exhibit 95: Toronto industrial – Selected new supply under construction

Property Developer / Tenant Occupancy GLA (000 sf) 11400 Steeles Avenue East I.G. Investment Management Ltd. Q2/16 640 10 Mobis Drive 11160 Woodbine Avenue Ltd. Q1/16 549 Hwy 27 & Rutherford Road Pure Industrial REIT / FedEx Q2/16 422 1380 Creditstone Road Metrus Properties Ltd. Q2/16 187 1446 Goreway Drive Metrus Properties Ltd. Q3/16 84 Total 1,882 Source: Cushman & Wakefield, CBRE, and RBC Capital Markets

We continue to see solid demand for small- to mid-size requirements (i.e., less than 200,000 sf), as supply-chain users incorporate smaller distribution centres and local service centres closer to the end user. This type of space has become important to retailers addressing the logistical challenges of the “last mile”. CBRE notes that demand for sub-50,000 sf assets in particular has been robust, with availability in that size range dropping by 3.3 million sf over the past 24 months.

With strengthening economic growth and market fundamentals, we believe the GTA industrial market will continue to improve in 2016. Deliveries should be in line with the long-term average of ~5.5 million sf. We expect that about 6 million sf could be delivered this year (~80 bps on existing stock) due to the shift toward larger facilities. In spite of the pending deliveries, we believe demand will remain solid, with availability little changed at year-end 2016 at 4.1%. With newer product coming on line, we expect growth in average asking rents to $5.55/sf, which would be an increase of ~4% from $5.33 in 2014.

Exhibit 96: Pure Industrial REIT’s Vaughan FedEx Ground facility (under construction for April 2016 delivery, located at Highway 27 and Rutherford Road)

Source: Pure Industrial REIT and RBC Capital Markets

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Ottawa (~30 million sf) Ottawa has the smallest industrial inventory of Canada’s major markets. In addition, with only 30 million sf of inventory, individual new builds or new leases may have a more noticeable effect on the overall market statistics.

During the first nine months of 2015, there were 192,000 sf of new deliveries and approximately 129,000 sf of absorption. As such, overall market availability ticked up by 10 bps to 6.5%. We note that this level is slightly higher than the trailing five-year average rate of 6.2%. Ottawa’s average net asking rent of $8.75/sf rounded out the year essentially flat (-1%) from $8.83/sf as of Q4/14.

Looking ahead, we note that only 62,000 sf of new construction is slated for delivery in early 2016 (some may have been available in very late 2015). In September 2015, Giant Tiger announced plans to relocate its 397,000 sf distribution facility at 2480 Walkley Road (South submarket) to Prescott, Ontario. With a stated deadline of 2017, this space is likely to become available over the next two years as Giant Tiger phases out its Ottawa operations. As such, we expect an uptick in availability in 2016 to 7.0% (+50 bps) although admittedly it is possible that Giant Tiger’s departure only hits the 2017 statistics. We expect essentially no change in 2016 average net asking rents ($8.75/sf).

Montreal (~300 million sf) Montreal is Canada’s second-largest industrial market, with more than 300 million sf of industrial real estate. It contains the oldest inventory of the major cities. Over the last decade, a continued erosion of the local manufacturing base has served to push market availability from being generally in line with the national average to 100–200 bps above the national average (5.6%).

Over the first nine months of 2015, Montreal’s net absorption totalled a weak 330,000 sf. With 9M/15 new supply of 2.2 million sf being well above demand, Q3/15 market availability increased by 50 bps to 7.5% from 7.0% as of Q4/14. Despite the increase in availability, net rents posted a modest 2% increase, to $5.29/sf from $5.19/sf in 2014. As of Q3/15, there was just over 700,000 sf in the supply pipeline, although most should have been delivered by the end of 2015.

Improving market fundamentals including GDP growth, US employment growth, favourable exchange rates, and a rebound in manufacturing should act as tailwinds for future positive absorption. Our year-end 2016 forecast calls for overall market availability of approximately 7.4% and 2.0% rent growth to $5.40/sf.

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The multi-unit residential sector: Vacancy to edge higher within the context of balanced overall conditions but notable regional disparities

This section of the REIT Quarterly provides a comprehensive review of Canada’s housing markets, including multi-family rental fundamentals. In summarizing this rather lengthy section, we note:

National apartment vacancy of plus or minus 4% could be the new norm Over the last year, the national residential rental vacancy rate3 increased by 50 bps to 3.5%. This reading is now slightly above the long-term average of 3.3%. The last time national vacancy exceeded 3.0% was in 1999. For the past 15 years, the national vacancy rate has fluctuated within a band spanning from 1.7% at the low end (in 2001) to 3.0% at the upper threshold (in 2009, and again in 2014).

2015 national vacancy of 3.5% therefore represented the first reading in sixteen years in which national vacancy exceeded 3.0%. We expect a continued rise in 2016, albeit by a more modest 20 bps, to 3.7%. Going forward, we believe that a national residential vacancy rate of +/-4% could be the “new norm”, in light of the increasing construction of purpose-built rental apartments and shifting mix toward a greater proportion of multi-residential construction relative to single family dwellings.

Larger markets carry slightly lower vacancy Canada’s 35 Census Metropolitan Areas (“CMAs”) posted lower average vacancy, at 2.6% in 2015. CMHC’s forecast for Canada’s 35 CMAs calls for a 10 bps increase in their aggregate vacancy, to 2.7% this year.

Home ownership heights but headwinds On a national basis, the Canadian Real Estate Association (“CREA”) reported that residential resale prices continue to push to all-time highs, posting price growth of 8% in 2015. National home ownership affordability eroded slightly in 2015 compared to 2014. Toronto and Vancouver were the main drivers, while affordability readings across the rest of Canada remained generally neutral. That said, the measure continued to be unfavourable versus the long-term average across the major property categories (i.e., standard two-storey, detached bungalow, standard condo).

We continue to see high levels of consumer debt and a high home ownership rate, combined with the potential for future increases in interest rates as being headwinds for the housing market in 2016 and beyond.

The impact of cyclically depressed oil prices will likely negatively affect housing and rental demand in resource-dependent regions such as Alberta, Saskatchewan, and Newfoundland. For other parts of the country the lower commodity price could provide modest relief to the consumer (i.e., home owners and prospective home owners).

Balanced demand/supply dynamics should allow rent and profit growth for apartment landlords At the national level, housing demand drivers, including immigration, employment, confidence, and household formation remain broadly favourable. The quantum of new supply, including rising purpose-built rental product appears set to push vacancy slightly higher (again) in this year. As noted, we forecast a 2016 national vacancy rate of 3.7%, up 20

3 CMHC data for markets with populations in excess of 10,000.

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bps and this should be accompanied by modestly higher rents. We still expect landlord profit growth on the back of modest top-line revenue growth, continuing benign operating cost inflation, and the benefit of efficiencies (particularly stemming from energy management investments and initiatives). In short, we see stable fundamentals allowing for modest, consistent profit growth for residential rental portfolio owners.

Expecting moderation in total housing starts; volumes still in line with demographic demand Since the early 2000s, annual Canadian housing starts have, more often than not, been at elevated levels. Between 2002 and 2008, housing starts routinely exceeded the 200,000 mark, a significant increase from the ~149,000 average during the 1990s. In 2009, the effect of the Global Financial Crisis (“GFC”) resulted in housing starts declining 29% year-over-year, to 149,100 units. The economic recovery during the three subsequent years resulted in a 13% CAGR to reach 2012’s 215,000 level. In 2013 and 2014 the market reverted to lower yet stable volumes of 188,000 and 189,000, respectively, roughly in line with the long-term average of 184,000. RBC Economics pegs 2015 to round out with 195,200 starts, a modest 3% increase from 2014. CMHC’s 2015 (now seemingly stale-dated) forecast, which officially calls for only 186,900 starts, equates to a 1% year-over-year decline.

To place the figures into context, we believe that demographic demand (household formation, inclusive of net immigration) supports annualized starts of approximately 180,000 to 190,000 units. Hence, we view any level of housing starts in excess of 200,000 as being a “strong” year. Consistent with the theme cited in our Q1 2015 REIT Quarterly, it appears that housing activity continues to move back in line with demographic demand. We believe this mean reversion is attributable to elevated levels of household debt, record home ownership rates, the satisfaction of (former) pent-up demand, and, more recently, regional economic challenges precipitated by the sizable decline in oil, natural gas and other commodity prices.

Looking ahead, RBC Economics forecasts 2016 starts of 186,500, representing a decline of ~5% from the 2015 forecast. CMHC’s 2016 estimate calls for 178,150, equating to a similar ~5% pullback from its 2015 estimate. Each forecast supports the conclusion that housing activity has moderated from the cyclical peak. Yet, both also suggest that starts will remain broadly in line with demographic demand (180,000 – 190,000 units).

As graphically depicted in Exhibit 97 below, single family housing starts have been on a reasonably steady downward trend from 2010 through to 2015 (forecast). Over the longer term, greater volatility had been demonstrated by the multi-unit segment. Over the past five years, however, multi-res starts have become more consistent from year-to-year.

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Exhibit 97: Canada housing starts (1987–2014A and 2015–2016E)

30%

40%

50%

60%

70%

0

50,000

100,000

150,000

200,000

250,000

300,000

1987 1991 1995 1999 2003 2007 2011 2015E

Single-detached Multi-unit Multi-units as a % of total

2015-16Forecasts

Note: No data by property-type prior to 1990. Source: RBC Capital Markets and CMHC historical data and forecasts

Multi-unit starts expected to plateau in 2015 CMHC expects 2015 multi-unit starts to be 119,200, a 5% increase from 2014. At this level, multi-unit starts account for 64% of national activity, well above the long-term average of 46%. The longer-term trend toward a higher percentage of multi-unit starts is the product of a number of intertwined factors, including urbanization trends, demographics, changing social preferences, infrastructure deficits and the resulting congestion/extended commute times, and deteriorating single-family home affordability.

CMHC recently cited rising, yet modest, supply and demand imbalances in some local markets, with the national number of completed and unabsorbed units in Q2/15 reaching 3.6 units per 10,000 population, above the 2.7 historical average. Builders are therefore expected to delay some new construction in order to allow natural absorption to draw down inventories. As such, CMHC is expecting the national multi-unit housing starts to slip by 9% this year, to 108,850.

Single family starts: Trending lower in the context of a nationally balanced market CMHC is forecasting single-detached home starts to decline by 10% in 2015 to 67,700. This 2015 single family starts forecast represents 36% of the national activity, well below the 53% long-term average. The recent trend of lower starts can be partially attributed to the shift toward cheaper alternatives, including multi-unit residences, existing units in the resale market and the factors cited above. CMHC notes that housing market conditions, at the national level, are broadly in balance with the key indicators (employment, personal disposable income, mortgage rates, population growth, etc.) and should reflect gradual but modest improvement in housing demand over the near term. As such, CMHC is forecasting single-family home starts of 69,300 in 2016, representing a 2% increase from 2015.

Behind the averages: 2016 to show increasing regional disparities CMHC expects total housing starts to decline in 5 of 10 provinces in 2016. The largest markets, Alberta, British Columbia and Ontario, are expected to post declines of 20% (to 29,800 units), 2% (to 30,800 units) and 1% (to 65,000 units), respectively. Saskatchewan, Manitoba and Newfoundland are expected to post flat growth while Quebec and New

January 7, 2016 102


Brunswick are forecast to see a modest increase in starts by 1% (to 34,400 units) and 2% (to 1,675 units), respectively.

The 2016 outlook calls for a year-over-year decline in housing starts for all three major regions (Western, Central and Eastern). Most notably, the Western region (consisting of British Columbia, Alberta, Saskatchewan and Manitoba) are expected to decline by 10%. Forecasts are for Central Canada (Ontario and Quebec) to post a modest decline of ~0.5% and Eastern Canada to post a decline of 5%.

Dedicated rental apartment development continues to accelerate Rental apartment landlords over the past few years have been making an increasingly convincing investment case for the development of new rental apartments versus the acquisition of buildings, which are typically 30- to 40-, even 50-year-old stock.

Exhibit 98: Canada rental apartment starts (1989 to 2015E)

0%

10%

20%

30%

40%

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Rental unit starts % of total multi-unit starts (RHS) Source: RBC Capital Markets estimates and CMHC

The changing views are the product of: 1) a multi-year increase in the values (i.e., higher price/suite; lower acquisition cap rates) of older, existing apartment properties; 2) ongoing solid demand for rental properties; 3) the movement of condos into the rental markets; and 4) expected development yields (in light of market rents and low interest rates) on total development costs (which include the cost of land, hard costs, soft costs and still low financing costs). Long-term return on investment economics are affected by maintenance capital expenditures Due to the character of Canada’s rental stock (and the predominance of 30- to 50-year-old acquisition properties), there are often major expenditures/building lifecycle costs that must be incurred in order to meaningfully extend their useful lives.

The increased focus on development is apparent in the data. Since hitting a cyclical trough in 2009 (15,155 starts), there has been a consistent increase in construction starts of dedicated rental apartments. CMHC’s most recent data pegs the national nine-month 2015 total at just below 24,000 starts. This figure alone is on par with 2014’s total. We estimate that the 2015 annual total will be approximately 30,000, representing significant (+26%) growth from 2014. However, we believe the market fundamentals discussed above will persist through 2016, continuing the upward trend in dedicated rental construction volumes.

January 7, 2016 103


Urban intensification trend driving more mixed-use development A by-product of the increasing prices in single-family houses and the higher demand for multi-residential residences has been the movement toward very urban living. This is particularly true for the population between the ages 25–34, who tend to look for more affordable housing. As a result, urban intensification is a pervasive theme for developers who are seeking means to capitalize on the scarce land in downtown and urban centres. On a more frequent basis this intensification is through the creation of significant density that combines retail, office, and residential space within a single project.

Exhibit 99: The King High Line Project1 mixed-use development (artist’s rendering) (Toronto)

Notes: 1 In July 2015, CAPREIT agreed to acquire a 1/3 interest in the residential portion of the King High Line Project from vendors First Capital Realty and Urbancorp. Source: Urbancorp company website

A number of the larger REITs and REOCs, including Choice Properties REIT, First Capital Realty, RioCan REIT, and Allied Properties REIT, have completed, or have mixed-use projects under construction. Other REITs, including Artis REIT, Crombie REIT, Canadian Apartment Properties REIT, and CREIT, have announced projects or their intention to acquire or explore mixed-use development.

Housing resale volumes to stay flat with modest price gains supported by low interest rates and steady employment CREA’s most recent forecast (December 2015) calls for 2015 sales volume of 504,000 units, representing a 5% increase from 2014’s 479,800. CREA has forecast an average 2015 selling price of $442,600, representing a gain of 8% over 2014’s $408,300.

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Exhibit 100: Canadian residential resale activity in ‘000 (annual, 1984–2014A and 2015–2016E)

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

0

100

200

300

400

500

600

1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014

Unit Sales (LHS) Avg Price (RHS) Avg Price (5Y Moving Avg) (RHS)

Source: RBC Capital Markets, RBC Economics and CREA estimates

CREA attributes much of the volume growth in its 2015 forecast to strong activity in British Columbia (+21%) and Ontario (+9%). Collectively, these provinces make up 60% of Canada’s housing activity and thus have an outsized impact on national averages. In 2016, CREA expects a slight moderation in national resale activity as the impact of oil and commodity price deterioration continues to be felt across energy-centric markets. Low interest rates and supportive demographics should provide an offset, particularly in the manufacturing and export-based economies (e.g., Ontario and Quebec).

Policy changes: A step back to recent history and a look to the future In mid-2012, certain policy initiatives designed to curtail access to mortgage credit had a temporary cooling impact on the market. Yet, by the back half of 2013, the data was showing that values and volumes were once again rising. This momentum steadily built through 2014 and indeed 2015, where year-over-year unit sales growth peaked in June at 11%. Subsequently, unit sales growth has backed off but has remained positive.

Very recently, in December 2015, Canada’s newly elected Liberal federal government announced its first moves designed to address the risks of overheated pockets within Canada’s housing market. The Finance Minister announced that starting February 15, 2016, the minimum down payment for new government-backed insured mortgages will rise from 5% to 10% for that portion of the value of a home being purchased that is between $500,000 and $999,999. The down payment minimum on the amount below $500,000 will continue to be 5% and any portion above $999,999 will still require no less than 20% down.

The rule change is applicable nationally. But clearly it is targeted at Vancouver and Toronto where home prices are elevated (averaging $940,000 in Vancouver and $625,000 in Toronto) and rising rapidly (+10-15%). In Toronto, 43% of existing home sales (year-to-date to November) were in the $500,000 to $1 million range while in Vancouver the share was about one-third.

January 7, 2016 105


Exhibit 101: Canadian Residential Resale activity Y/Y change (monthly, Jan. 1987 to Nov. 2015)

-80%

-40%

0%

40%

80%

-40%

-20%

0%

20%

40%


Average Price (LHS) Unit Sales (RHS)

Source: RBC Capital Markets and the Canadian Real Estate Association (CREA)

Looking ahead to 2016, CREA expects a slight 1% downtick in volume, to 498,600 unit sales. For 2016, CREA expects average resale price to increase by 1%, to $448,700. We see steady employment (refer to Exhibit 18 on page 32 of “The broader economic backdrop” section of the Quarterly) and low interest rates as supportive of CREA’s forecast. As discussed more below, we also see some headwinds to the outlook.

Low mortgage rates maintaining the upward momentum in average prices Mortgage rates (i.e., the cost of borrowing money to finance a home purchase) are a primary input into a housing affordability model. The average chartered bank five-year posted mortgage rate4 was 4.8% at the outset of 2015. The rate declined by ~20 bps to 4.6% by the end of 2015. Taking a wide range of financial institutions into account (including credit unions and trust companies), the average five-year mortgage rate ended 2015 at 3.7%, declining by ~25 bps from the beginning of the year.

We note the spread between five-year posted mortgage rates and five-year Government of Canada bond (“GoC”) yield ended 2015 at approximately 390 bps, about 45 bps wider than 2014’s spread and still well above the long-term average of ~238 bps. Similarly, the spread between the average five-year mortgage rate and the five-year GoC yield was 300 bps, also above the long-term average spread of 209 bps. We continue to believe that the exceptionally low nominal yields mean that lenders require spreads that are wider than long-term averages in order to generate an economic profit over their costs of funds and administrative expenses.

4 Posted rates are nearly always negotiable. Our December 2015 review of chartered banks’ best available five-year fixed-rate mortgages revealed a 2.9% interest rate.

January 7, 2016 106


Exhibit 102: Residential mortgage rates (fixed) and GoC yields (monthly, Jan. 1987–Nov. 2015)

0%

3%

6%

9%

12%

15%

Jan-87 Jan-90 Jan-93 Jan-96 Jan-99 Jan-02 Jan-05 Jan-08 Jan-11 Jan-14

5-Yr Posted Rate (Chartered Bank) 5 Yr GoC Yield 5-Yr Average Rate

-200

0

200

400

600


Spread Vs. Posted Rate (bps) Spread Vs. Average (bps) Source: Bank of Canada, Department of Monetary and Financial Analysis and RBC Capital Markets

Rate bias is upward, despite unanticipated interest rate declines in 2015 We have little doubt that generationally low rates have fuelled rising house prices and total sales activity. In 2015, the target for the overnight rate declined by a cumulative 50bps to 0.5% via two separate rate cuts by the Bank of Canada, which included a 25 bps “surprise” cut in January. Five-year GoC yields also declined by a sizable 60 bps to 0.7% at the end of 2015 down from 1.3% at the end of 2014.

Looking ahead, it seems difficult to envision further rate reductions given that Core CPI has been running north of 2% for the entirety of 2015. And yet, five- and ten-year GOC yields are a mere 0.7% and 1.4%, respectively. Supported by the low GOC yields, five-year residential mortgage rates are continuing to experience all-time lows. As such, we (cautiously) believe that interest rates will not offer the same boost for housing prices over the coming years as they have during the past many years.

Exhibit 103 plots the Canadian yield curve as at December 31, 2015. Along with this are RBC Economics’ forecasts for Canadian rates one year hence and the fixed income market’s collective view on rates one year hence, as derived from forward rates from Bloomberg. As graphically depicted in the exhibit, both the RBC forecast and the Bloomberg data project an upward shift in the Canada yield curve for 2016. However, forward rates call for a far less pronounced upward shift.

With the five-year fixed-rate mortgage being at the heart of the Canadian residential mortgage market, we specifically note that RBC Economics expects a rise of ~140 bps in five-year Canada bonds, to 2.1% by year-end 2016. The interest rate forwards data from

January 7, 2016 107


Bloomberg indicates market expectations of 0.95%, up only 23 bps from the 2015 actual rate of 0.72%.

Exhibit 103: Canadian yield curve (2015A and 2016E)

0.72%

2.1%

0.95%

0%

1%

2%

3%

4%

Overnight 3-M 2-YR 5-YR 10-YR 30-YR

2015A RBC 2016E Bloomberg 1-YR Forward Rates Source: RBC Capital Markets, RBC Economics estimates and Bloomberg

Affordability index remains above long-term average RBC Economics’ Housing Affordability Index tracks the percentage of median pre-tax income required to cover mortgage payments5, property taxes, utilities, and other expenses associated with home ownership. Thus, a higher reading on the Index is representative of a lower level of affordability.

Exhibit 104 depicts RBC Economics’ National Housing Affordability Index.6 The Index has hovered within a narrow band since mid-2009, with readings ranging from 40.7 to 43.9. The Q2/15 measure was 43.3, a modest 0.8 percentage point (2%) increase from Q2/14’s 42.5 reading and still holding above the long-term average of 39.4. As a point of reference, the greatest improvement in affordability in recent years (660bps) occurred (perhaps not surprisingly) between Q1/08 (45.8) and Q2/09 (39.2). This was on the heels of the decline in real estate values in early 2009 and substantial interest rate cuts during the GFC.

5 The measure is based on a 25% down payment and a 25-year mortgage at a five-year fixed (posted) rate. 6 We cite the statistic for a “detached bungalow” as our National Affordability benchmark.

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Exhibit 104: RBC National Housing Affordability Index – quarterly Q1/85 to Q2/15

20

30

40

50

60

Jan-85 Jan-88 Jan-91 Jan-94 Jan-97 Jan-00 Jan-03 Jan-06 Jan-09 Jan-12 Jan-15

Detached Bungalow Long-Term Average

Source: RBC Capital Markets and RBC Economics

On a more granular level, we note that Vancouver’s Q2/15 reading of 88.6 is the only major market in which the Affordability Index is significantly above its long-term average of 61.1.

Although the reading is not as extreme, Toronto (59.4) is also considerably less affordable than its long-term average reading of 49.3.

Q2/15 measures for Montreal (36.0), Ottawa (35.4), and Edmonton (32.5) are close to their long-term averages of 36.7, 36.6, and 33.1, respectively. In contrast, affordability in Regina (22.3), Calgary (32.4), and Halifax (23.8) are notably favourable relative to their long-term averages of 35.9, 38.1, and 33.2, respectively.

Similar to the national data illustrated in Exhibit 104, historical data series for major markets are available on request.

National inventories reverting toward the mean One means of gauging the residential listings inventory is to track the rate of turnover (i.e., the time it takes for a property to transact, on average). This can be numerically depicted by comparing the total listings to sales and deriving a month of inventory (MOI) ratio.

As shown below in Exhibit 105, the November 2015 MOI reading was 5.4, which was 1.1 months lower than December 2014’s 6.5. Over the course of 2015, MOI readings have slowly declined toward the long-term average of 5.3.

The recent MOI reading was also well below the +1 standard deviation mark of 6.5. During the GFC, MOI peaked at 9.4 in November 2008, yet within only 6 months (by May 2009) it had compressed back down to a level below the 5.3 long-term average. The November 2008 MOI spike did cause a temporary decline in housing prices. From a May 2008 interim peak, values posted a decline of ~14% through their January 2009 bottom. The temporary price decline barely registered in the annual data, as prices quickly climbed back up 23% by the end of 2009.

January 7, 2016 109


Exhibit 105: Months of inventory (January 2003 to November 2015)

2

4

6

8

10

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Average

+1 std. dev.

-1 std. dev.

Source: RBC Capital Markets, RBC Economics and CREA

In addition to pending (February 2016) changes in down payment requirements, we also view Canada’s high level of home ownership as a potential headwind to CREA’s 2016 growth outlook. Nationally, we estimate ownership is ~70% (versus ~64% in the US), a reading that continues to track all-time highs. The high ownership rate suggests to us there is likely little pent-up demand for home purchases, and there may also be a dwindling roster of financially qualified buyers for Canadian houses.

Exhibit 106: Canadian and US home ownership rates (1971–2006/2011A and 2015E)

60%

63%

66%

69%

72%

1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015

Canada United States Source: US Census Bureau (annual), Statistics Canada (every five years, last occurring in 2011) and RBC Capital Markets estimates

January 7, 2016 110


US housing recovery continues US housing starts peaked at slightly over 2 million units a decade ago, in 2005. By 2008, total starts had plunged 73%, to 554,000, the lowest levels in over 20 years. Since then, the number of starts has gradually increased up to 2015’s estimate of 1.1 million, nearly 50% below the 2005 peak and still below the long-term average of 1.3 million.

Exhibit 107: US housing starts in ‘000 (1987–2014A and 2015–2016E)

0

500

1,000

1,500

2,000

2,500

1987 1990 1993 1996 1999 2002 2005 2008 2011 2014

Single-Detached (000s) Multi-unit (000s) Source: RBC Capital Markets, US Census Bureau, and RBC Economics estimates

Looking ahead, the prospects appear to be favourable for US housing. While the 2015 estimated volume of 1.1 million is materially below the former highs, it still represents a healthy 12% growth over 2014’s 999,000 and 100% growth from 2009’s cyclical low of 554,000. Moreover, the market appears to have momentum as RBC Economics forecasts an additional 8% growth in 2016, to 1.2 million starts.

On the pricing side, residential resale values in Canada and the United States have shown strikingly divergent trends over the past seven years. As shown in Exhibit 108, house prices in the United States peaked during mid-2006. In the 20 years prior, they had modestly outperformed the appreciation in Canadian home prices, based on CREA and the National Association of Realtors (NAR) data.

In July 2006, NAR data pegged the average US home price at $230,900. In January 2012, US housing prices appeared to hit a cyclical bottom, with a reading of $154,600, representing a cyclical peak-to-trough price decline of 33%. The most recent data point (October 2015) of $221,200 has now posted a 43% improvement from the post-GFC low.

January 7, 2016 111


Exhibit 108: Canadian and US residential resale prices1 (Jan. 1987 to Nov. 2015)

0

100

200

300

400

500


Canada United States Case-Shiller C-10 Index

Note: 1 Monthly data series, indexed to 100. Source: CREA, National Association of Realtors, Standard and Poors and RBC Capital Markets

Canadian home affordability continues to remain unfavourable versus long-term averages. Prices have been rising at an above-trend rate for about a decade, as previously illustrated in Exhibit 104. Looking ahead, despite the recent momentum the data indicates, we see a number of headwinds to house price appreciation over the next few years, including indebted consumers and a high home ownership rate. The prospects for even modestly higher interest rates could also be a barrier to higher home values.

We reiterate a number of factors that would suggest that Canada is not destined for a “US-style” house price correction, including:

1) Employment (strong, despite clear regional disparities); 2) Bankruptcy laws/mortgage rules (mortgage loans in Canada provide the lender with full

recourse against the borrower); and 3) Inventory (Canadian for-sale inventory is only slightly above the long-term average). Thus, we expect broadly flat house prices this year. In the near term, with low interest rates, we expect that growth in income coupled with little change in house prices, affordability metrics will improve slightly. It also appears that the US market fundamentals are in place for a multi-year period of convergence in US and Canadian housing prices, as market trends point toward appreciation in US property values.

Decline in net immigration hinders population growth Population growth is a key driver of residential demand. The two components of population growth include: 1) the natural increase (i.e., total births minus total deaths); and 2) net immigration.7 Over the past 20 years, Canada’s population has increased at an average rate of 1.1% annually. During this time period, the contribution from net immigration has increased from the 0.4% to 0.6% range experienced throughout much of the 1990s to the 0.7% to 0.8% range of the past decade. Hence, the contribution from net immigration has become broadly more important. Specifically, net immigration accounted for 61% (0.5% of 0.9%) of the population growth during the 12 months ended June 30, 2015.

7 Net Immigration = Immigrants – Emigrants + Returning Emigrants – Net Temporary Emigrants + Net Non-Permanent Residents.

January 7, 2016 112


As shown in Exhibit 109, 2015 estimated net immigration of 187,000 fell by 27% from 2014 levels of 257,000, but were still above the long-term average of 170,000. The decline in net immigration was driven by: 1) a 43,000-person (132%) decline in the flow of net non-permanent residents, from a 33,000 inflow in 2014 to a 10,000 outflow in 2015. (interestingly, 70% of the decline related to Alberta); and 2) a 28,000-person (10%) decline in the level of international immigration to 240,000 people. Meanwhile, the level of emigration remained roughly constant.

Over the last decade, natural population growth has been steady, contributing on average ~40 bps of population growth. Hence, with lower immigration figures during the year, 2015’s total population growth of 0.9% fell short of 2014’s 1.1%.

Exhibit 109: Annual1 population growth in Canada (1991 to 2015)

0.0%

0.5%

1.0%

1.5%

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Natural Increase Net Immigration

`

Note: 1 Annual data represents the 12-month period from July 1 of the prior year to June 30. Source: RBC Capital Markets and Statistics Canada

International immigration levels should see increase in 2016 New Canadians have a high propensity to rent during their first few years in the country. Therefore, strong immigration figures are particularly important within the context of rental vacancies. The long-term trends appear favourable for the rental markets as immigration levels have generally trended upwards. Over the past five years, on average, approximately 258,000 new immigrants were welcomed to Canada each year, which is about 20,000 or 8% above the 20-year average of 238,000.

In 2014, Citizenship and Immigration Canada announced its plan for 2015 to admit between 260,000 and 285,000 immigrants. We believe the target range is still applicable this year since the prior plan (which set a target of between 240,000 and 265,000 admissions) had been in place since 2007. This suggests that immigration is expected to contribute a higher percentage of population growth in the near term and that it will continue to act as a positive demand driver for residential rental accommodation.

In late November 2015, the Government of Canada pledged its support in sponsoring 25,000 Syrian refugees. And according to media reports at the time, private sponsors are helping with at least another 10,000. With enough sponsorships the count could reach as high as 50,000, a significant amount in the context of the 260,000 to 285,000 target immigration level. Thus, we foresee international immigration reaching the high end of the target range this year.

January 7, 2016 113


Toronto condo market: Despite lots of cranes, the data suggests the market remains within balance The sales volume of new and resale condominium units was 30,660 for the nine months ended September 30, 2015. We estimate full-year 2015 turnover will register approximately 40,000 units. Data from Urbanation suggests our 2015 forecast equates to growth of ~3% over the 38,710 units sold in 2014.

The 9M/15 data includes 14,578 new unit sales, a year-over-year decline of 7% from the 15,597 units sold in the 9M/14 period. In contrast, the 9M/15 resale units turnover of 16,082 was up 19% over the 2014 comparable period’s volume of 13,570 units.

On a trailing 12-month basis to Q4/15, we estimate the average price/sf of a new condo unit increased by ~1%, to $570/sf from $562/sf. During the same period, estimated resale unit price gains were ~6%, to $459/sf from $431/sf.

Exhibit 110 graphically depicts new and resale units in the Toronto area from 1991 to 2015E.

Exhibit 110: Toronto condo sales (1991 to 2015E)

0

10,000

20,000

30,000

40,000

50,000

1991 1994 1997 2000 2003 2006 2009 2012 2015E

New Unit Sales Resale Units RBCCM Q4 Estimate Source: RBC Capital Markets estimates and Urbanation

Unsold condo inventory flat, despite build-up in pre-construction units Q3/15 unsold condo inventory was 16,472 units, flat from the Q3/14 level of 16,435 units. Inventory levels have varied however, based on project status. Pre-construction projects launched in the prior 12 months posted a large 1,998 increase in unsold units and declining absorption (from 68% in the prior period to 59% currently). Yet, pre-construction projects launched more than 12 months prior, posted a 1,314-unit decline in unsold inventory, accompanied by a modest increase in absorption (from 73% to 77%). Similarly, projects under construction with completion dates that are expected to be more than one year hence showed a 952-unit decline in unsold inventories. Urbanation’s data shows that based on the average unit sales volume from the four quarters ended Q3/15, the new condo market has become balanced at about ten months of supply. This level has been quite stable over the past year. We view a “balanced” market as one with 7-10 months of supply.

January 7, 2016 114


Exhibit 111: Toronto condo new construction inventory (Q1/1991 to Q3/2015)

0

20,000

40,000

60,000

80,000

100,000

120,000

0

4,000

8,000

12,000

16,000

20,000

24,000

Q1/96 Q1/99 Q1/02 Q1/05 Q1/08 Q1/11 Q1/14

Unsold Condo Units (LHS) Total Active Units (RHS)

Source: RBC Capital Markets and Urbanation

Going into Q3, Urbanation expected as many as ~4,300 units to be launched during the quarter. The actual Q3/15 units launched tallied a mere 2,407. And, only 34% of new units launched were sold by quarter-end, representing the lowest absorption rate since 2009. Urbanation suggests that the new low may reflect lack of “large-scale, investor-oriented” project launches rather than underlying demand. Q3/15 saw the introduction of 14 new project launches, higher than Q3/14’s 12 new project launches and the lowest figure of the year (there were 15 new launches in Q1 and 23 in Q2). The number of units under construction is also on a downward trend, with 49,549 units in 189 projects currently. This marks the third consecutive quarter of declines in units under construction. We note the market has 406 projects encompassing ~107,000 potential suites on the drawing board or in active marketing. Urbanation’s preliminary data points to an increase in new launches in Q4/15, potentially up to 8,810 units (35 projects).

Exhibit 112: Toronto condo prices per square foot (1991–2015E)

$0

$200

$400

$600

1991 1994 1997 2000 2003 2006 2009 2012 2015E

New unit price/sf Resale unit price/sf

Source: RBC Capital Markets estimates and Urbanation

January 7, 2016 115


2015 national rental vacancy rises; trend likely to continue CMHC’s fall 2015 rental market survey reported that the 3.5% average residential apartment vacancy rate (in buildings of three-plus units) in Canada’s largest metropolitan areas8 had increased 50bps over 2014’s 3.0%. This was the fourth consecutive year with an increase and the first reading since 1998 that has exceeded the 3.3% long-term historical average vacancy rate. Despite the increase in national vacancy, there was a 2.1% increase in the average two-bedroom rent to $934/month (from $915/month). We also note that regardless of the movement in vacancy rates, national average rents have increased every year since 1990 by an average of 2.3%.

We believe national rental market fundamentals will remain constructive in 2016. Solid net migration should contribute to population growth in most major Canadian markets. Moreover, as the sustained increases in home ownership costs have put pressure on housing affordability, it is likely to deter potential home purchasers and keep them renters for a longer period of time. However, these demand drivers will be met with high levels of new supply being delivered and shifting demographics as the growth rate of the population of 25- to 34-year-olds is decelerating. In certain markets, the declining growth in this cohort could be back-filled by an increasing number of seniors who are planning to rent.

With the aforementioned backdrop, our outlook calls for the national average vacancy rate to uptick 20 bps to 3.7%. With respect to rent growth, CMHC expects 2016 growth of 1.4% in average monthly two-bedroom rents across the 35 CMAs. Our estimates are broadly in line with CMHC as we expect 2016 two-bedroom rent growth across all markets to average 1.5%.

A closer look at provincial rent controls Rent control exists in five of 10 Canadian provinces, including: 1) British Columbia; 2) Manitoba; 3) Ontario; 4) Quebec; and 5) Prince Edward Island. In the majority of these provinces, the provincial government establishes a maximum allowable annual rent increase that a landlord can levy on a sitting tenant, with certain exceptions in some provinces. The allowable increase is typically derived from a CPI-based formula.

We note that while rent control exists in the Province of Quebec, the government does not provide a guideline that broadly applies to the entire province. Rather, a calculation grid is published to help landlords and tenants determine an exact and fair increase that factors in operating costs, property taxes, management costs, and renovations or major repairs that are specific to a particular building.

Historical maximum allowable provincial rent control guidelines are shown in Exhibit 113. In general, allowable rent increases provided for 2016 were mixed. Guideline increases in British Columbia and Ontario are higher than the guideline increases established in 2015 but those in Manitoba are not. Prince Edward Island is an exception in that the Island Regulatory and Appeals Commission provided for a 2016 guideline increase of 0% compared to a 1.75% increase in 2015. The decrease was due to the low level of inflation being experienced in PEI currently (PEI’s CPI was -0.1% in 2015) and the expectation of minimal growth in key operating costs for rental units.

8Centres with a population of 10,000 or more.

January 7, 2016 116


Exhibit 113: Historical allowable rent increases, by province (2004 to 2016)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 British Columbia 4.6% 3.8% 4.0% 4.0% 3.7% 3.7% 3.2% 2.3% 4.3% 3.8% 2.2% 2.5% 2.9% Manitoba1 1.5% 1.5% 2.5% 2.5% 2.0% 2.5% 1.0% 1.5% 1.0% 1.0% 2.0% 2.4% 1.1% Ontario 2.6% 1.4% 1.8% 2.6% 1.4% 1.8% 2.1% 0.7% 3.1% 2.5% 0.8% 1.6% 2.0% Prince Edward Island2 2.0% 2.0% 7.5% 3.0% 1.0% 5.0% 2.0% 2.0% 3.2% 5.0% 2.0% 1.75% 0.0%

Notes: 1 The Manitoba guideline applies only to apartments/houses renting for <$1,435/month as of December 31, 2015. 2 PEI allowable rent increase shown is for premises whereby the landlord covers the cost of heat. The provincial government also stipulates a separate allowable rent increase for those units where tenants pay heat directly (also 0% in 2016). Source: RBC Capital Markets and provincial government websites

Western Canada – Regional and local market insights Vancouver market tightens further with lower vacancy; higher rents Rental market conditions in Vancouver have been historically tight, averaging only 1.5% vacancy since 1990 (compared to the national average of 3.3%). In 2015, growing demand outpaced the increase in supply of both purpose-built and secondary rental units. As a result, rental vacancy declined 20 bps to 0.8% from an already low 1.0% in 2014. This marks the first time since 2008 in which market vacancy has been below 1.0%. Average two-bedroom rents posted a 4% improvement, to $1,368 from $1,311.

Over the past several years, the purpose-built rental apartment universe has remained relatively stable, growing cumulatively by only 4% since 2008, to ~106,900 units. However, over the same time period, the number of condominium residences in the secondary rental pool has increased by ~73%, to ~56,600 units. Overall, the proportion of condo units in the secondary rental market relative to total rental inventory has increased to 27% in 2015 versus 22% in 2008.

Vancouver has traditionally been Canada’s most expensive rental housing market. After a brief pause in 2014 when Calgary surpassed Vancouver, the CMA has once again posted the highest average 2-bedroom rental rates in the nation. With rising house prices and positive net migration, current market conditions still strongly favour the “rent-versus-buy” equation. Vancouver has experienced vacancy below 3% for 30 years, and we expect the trend to continue in 2016. Given strong demand, we believe new supply will be absorbed into the market quickly. As a result, we expect rental vacancy will be up only marginally in 2016, to 1.0%, accompanied by rent growth of 3% to $1,409.

Exhibit 114: CAPREIT’s Harbourview Terrace (Vancouver) and Yorkson Grove Apartments (Langley)

Source: CAPREIT company website

January 7, 2016 117


Calgary and Edmonton: The tide has turned Both Calgary and Edmonton experienced rising vacancy in 2015. Specifically, Calgary’s 2015 vacancy rate increased by 390 bps to 5.3%, while Edmonton’s vacancy increased by 250 bps to 4.2%. In Calgary, the result marks one of the highest readings since 1993. Rental demand has deteriorated significantly over the past year on the back of mounting job losses and declining net migration. On the supply side, 864 units were started (or re-introduced to supply post major renovations) representing 3% of apartment supply. Despite the rise in vacancy, average 2-bedroom rental rates eked out ~1% growth to $1,332 in Calgary and ~3% growth to $1,259 in Edmonton.

Prior to 2015, the rental apartment market in Calgary and Edmonton were benefiting from strong employment growth and record migration. In 2014, vacancy in both CMAs was sub 2%, and average rents had grown more than 4% annually for three consecutive years. In 2015 however, the sharp rise in vacancy indicates a reversal of the tide. CMHC notes significant declines in interprovincial and international migration, as well as a strong outflow of non-permanent residents (which we make note of in a section above). For the 12 months ended June 2015, net migration to Alberta was about 42,000 people, a decline of approximately 50% year-over-year.

Further moderation in rental demand is likely while energy-related weakness permeates the economy. RBC Economics expects negative 1.1% employment growth in Alberta this year. With diminished job prospects, we do not expect that net migration will support rental demand to the same extent it did in previous years. There also appear to be headwinds from construction-in-progress, whereby CMHC notes that there were 1,216 apartment rental units under construction in Calgary as at Q3/15 and 2,556 units under construction in Edmonton as at October 2015. In each market, units under construction represented between ~2% and ~3% of total existing rental units (including purpose built and condos for rent). Accordingly, we estimate the vacancy rate will increase by 70 bps to 6.0% in Calgary and by 80 bps to 5.0% in Edmonton. Rents should decline -2% in each market to $1,305 in Calgary and to $1,234 in Edmonton.

Exhibit 115: Spruce Ridge Gardens artist’s rendering (Calgary) and Imperial Tower (Edmonton)

Source: Boardwalk REIT company website

January 7, 2016 118


Central Canada – Regional and local market insights Toronto shows rental growth, flat vacancy with more dedicated rental apartments on the horizon Last year’s average two-bedroom rents in the GTA increased 3.0% from $1,251 to $1,288, a significant change given the provincial rental allowable guideline increase of 1.6% (discussed above). The increase points toward high tenant turnover, with renters moving closer to the downtown core into newer condo rentals that demand higher rents. The supply and demand balance remained intact as the average apartment vacancy remained flat at 1.6%, marking the third consecutive year of flat vacancy levels.

For many years, only modest volumes of purpose-built rental properties have been constructed across the GTA. As evidence, the purpose-built rental universe of 308,700 units is only ~2,300 units more than in 2007. In comparison, the number of total condominiums within the city has grown by 56%, to 338,800 units over the same time. The increase in total condos has resulted in a corresponding increase of condos put into the rental market. In 2007, condo units for rent comprised 19% (~40,700 units) of the secondary rental pool, whereas they currently represent nearly 31% (~103,400 units). Last year, 472 purpose-built rental units were started, representing a mere 15 bps on the CMA’s total apartment inventory. Yet 29,479 units entered the condo universe (10% of total condo inventory).

CMHC expects Toronto apartment vacancy rate to increase slightly by 30bps, to 1.9% in 2016. Toronto’s rental market has historically been a large beneficiary of immigration into Canada. Newly landed immigrants have a high propensity to rent as they seek full time employment and build a credit history prior to homeownership. CMHC notes that the rising cost of home ownership in Toronto is pushing new Canadians in ever greater numbers to more affordable Ontario markets. In addition, there is a sizable pipeline of new multiple dwelling units under construction, including 4,168 purpose-built rental apartment units (as at Q3/15, a 22-year high according to CMHC) and nearly 50,000 condominium units on a GTA-wide basis. Yet the forecast vacancy is still in line with long-term averages, and we expect there to still be demand for rental units as first-time buyers remain more price sensitive to home ownership. Thus we believe that the 2016 average two-bedroom rent growth in the GTA will be 2.5%. This will push the expected average two-bedroom rent to $1,320 per month this year.

Exhibit 116: Killam Apartment REIT’s Saginaw Gardens property (Cambridge)

Source: Killam Apartment REIT company website

January 7, 2016 119


Ottawa vacancies rise in 2015 Ottawa’s residential rental vacancy rate increased by 80 bps in 2015, to 3.4%. The reading was modestly above the long-term average of 2.2%. The completion of a large number of new purpose-built rental units and condo offerings added 792 units of supply last year. This brings the total apartment universe to 60,878 units. Despite the increase in vacancy, average rents grew by ~4% to $1,174 (versus $1,132 in 2014). Last year’s rise in rents comes off the back of three consecutive years of below Ontario guideline increases.

On the demand side, employment growth and in-migration to the CMA were weak last year. CMHC suggests that declining full time employment among the 15 to 24 age group is keeping them at home with “mom and dad” for longer. CMHC also suggests that increasing full time employment and lower mortgage rates may be driving the 25 to 44 age group directly toward home ownership. Migration to Ottawa, historically an important demand driver, has been steadily decreasing since 2013. Looking forward, we expect continued modest demand growth this year, but a lower level of new supply. Accordingly, we expect market vacancy to decrease by 20 bps, to 3.2% in 2016 and average rents to increase by 2%, to $1,197.

Montreal posts another year of increased vacancy In Montreal, vacancy increased by 60bps to 4.0% in 2015, the second consecutive year of rising vacancy. CMHC attributes the increase in vacancy to weakening rental demand, partly due to a slowdown in net migration (20,000 people in 2015 versus 34,000 in 2010). Other potential factors include declining employment among people in the 15 to 24 age cohort (high propensity to rent) and a likely shift in demand toward rental condominiums, which exhibited a strong increase in supply (3,200 units in 2015) yet stable vacancy. Despite the vacancy increase among conventional rental apartments, the market’s average two-bedroom rent still increased, by nearly 3% to $760.

RBC Economics forecasts the Quebec economy to accelerate its pace of growth in 2016 to 1.9%, up from an estimated 1.3% in 2015. Manufacturing and merchandise exports, primarily to the US, are key to the outlook. Moreover, employment was up 1.0% year over year in the first eleven months of 2015, largely driven by full-time positions. RBC Economics believes that employment growth will continue to grow by 0.8% this year. While all of these factors are good for the economy, we expect the negative demand trends discussed above to continue. As a result, we expect vacancy to uptick 20 bps to 4.2% with two-bedroom rents growing by 2%, to $775.

Exhibit 117: Riocan’s Yonge Street & Eglinton Avenue NE corner (LHS) and GWL Realty Advisors’ Bay & Gerrard Apartments (RHS), Toronto developments (artists’ renderings)

Source: GWL company website, Company Reports

January 7, 2016 120


Atlantic Canada – Regional and local market insights Halifax vacancy decreases, despite new deliveries; positive net migration trends Despite adding 1,250 rental units (nearly 3% of total stock) to the apartment universe, 2015 market vacancy decreased 40 bps to 3.4%. The new additions represented the second largest annual supply increase in the last twenty years, with only 2014 posting a stronger result. However, migratory gains (~1,400 intra-provincial migrants per year) resulted in new supply being absorbed quicker than expected. Average 2-bedroom rents posted solid 4% growth to $1,048 last year.

With over 45,000 units, Halifax is the largest apartment market in Atlantic Canada. For 2016, we are expecting higher demand for rental units as the economy is expected to perform well, led by natural gas and growth in exports, as well as the continued activity driven by the multibillion-dollar shipbuilding contract. Halifax should maintain a solid level of net migration due to local economic/job growth and due to weakness in Alberta. Empty-nesters and baby boomers looking to the rental market to downsize should also support demand. With a more balanced supply level expected this year, we believe vacancies will decrease by 20 bps to 3.2%. This should result in a corresponding 2% uptick in rents to $1,069.

Exhibit 118: Killam Apartment REIT’s The Plaza (artist’s rendering) (Fredericton)

Source: Killam Apartment REIT company website

Major markets: historical vacancy and rent data Exhibits 119-126 provide readers with a graphical representation of historical market vacancy and average two-bedroom rents nationally for seven of Canada’s largest apartment rental markets, as reported by CMHC in its October 2015 rental market surveys.

January 7, 2016 121


Exhibit 119: Canada (10,000+) average vacancy and rent (1990A to 2015A and 2016E)

0%

1%

2%

3%

4%

5%

$0

$200

$400

$600

$800

$1,000

1990 1993 1996 1999 2002 2005 2008 2011 2014

Average 2-Bedroom Rent Rental Vacancy Rate

Note: Light blue bars represent most recent actual and forecast (2015A and 2016E). Source: RBC Capital Markets estimates and CMHC

Exhibit 120: Vancouver average vacancy and rent (1990A to 2015A and 2016E)

0%

1%

2%

3%

$0

$300

$600

$900

$1,200

$1,500

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014



Exhibit 121: Edmonton average vacancy and rent (1990A to 2015A and 2016E)

0%

4%

8%

12%

$0

$400

$800

$1,200

$1,600

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014



January 7, 2016 122


Exhibit 122: Calgary average vacancy and rent (1990A to 2015A and 2016E)

0%

2%

4%

6%

8%

$0

$400

$800

$1,200

$1,600

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014



Exhibit 123: Toronto average vacancy and rent (1990A to 2015A and 2016E)

0%

1%

2%

3%

4%

5%

$0

$300

$600

$900

$1,200

$1,500

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Average 2-bedroom rent Rental vacancy rate


Exhibit 124: Ottawa average vacancy and rent (1990A to 2015A and 2016E)

0%

1%

2%

3%

4%

5%

$0

$300

$600

$900

$1,200

$1,500

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014



January 7, 2016 123


Exhibit 125: Montreal average vacancy and rent (1990A to 2015A and 2016E)

0%

2%

4%

6%

8%

$0

$200

$400

$600

$800

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Average 2-Bedroom Rent Rental Vacancy Rate Note: Light blue bars represent most recent actual and forecast (2015A and 2016E). Source: RBC Capital Markets estimates and CMHC

Exhibit 126: Halifax average vacancy and rent (1990A to 2015A and 2016E)

0%

2%

4%

6%

8%

10%

$0

$250

$500

$750

$1,000

$1,250

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014



January 7, 2016 124


The lodging sector: To benefit from foreign exchange tailwinds A niche sector within Canada’s capital markets, the lodging industry encompasses an estimated 384,000 guest rooms. There are currently four TSX-listed hotel REIT/REOCs (American Hotel Income Properties REIT LP, Holloway Lodging Corp., InnVest REIT, and Temple Hotels Inc.). These entities have a combined equity market capitalization of $1.2 billion, which represents approximately 1% of the equity invested in listed property companies. The four publicly traded lodging entities own properties that are primarily in the limited-service and mid-market/full-service segments of the lodging market, but they also include a modest exposure to the upscale segment. Notably absent within the listed company portfolios are extended-stay and resort properties. The hotel properties within the listed company portfolios operate under both national and international brands.

2015 wraps-up a sixth year of operational gains The performance of the Canadian (and global) lodging industry has demonstrated significant volatility through the cycle. Taking the past decade as an example, on the downside, Revenue per Available Room (“RevPAR”) growth was substantially negative in 2009 (-12.3%), on the tail of the Global Financial Crisis. A 510bps decline in occupancy was the primary driver, alongside a 4.7% decline in Average Daily Rate (“ADR”). Outside of the 5.6% RevPAR improvement in 2010 (off the low base), growth in each of the subsequent three years averaged 2.7%. In 2014, RevPAR growth was an impressive 6.3%, the highest in the past 15 years.

While the final 2015 industry statistics have yet to be tallied, PKF Consulting (“PKF”), Canada’s leading advisor to the lodging industry, suggests Canadian lodging demand (as measured by total annual number of occupied rooms) grew 1.0% to 90 million room-nights. Demand growth appears to have slowed, compared to the 2.4% annual average from the three years prior. 2015 industry occupancy is expected to be flat, relative to 2014’s 64%, while ADR is expected to grow by 3.9%, to $143/night. PKF notes that the combination of flat occupancy and higher ADR should push 2015 RevPAR to $91, equating to 3.4% growth, well short of 2014’s gain of more than 6%. Interestingly, PKF’s industry data through to the nine months ended September 2015 shows that year-to-date industry RevPAR growth has registered 4.5%. On this basis, we believe that PKF’s “official” 2015 3.4% RevPAR growth forecast may prove too conservative (i.e., low).

Further gains in 2016 on favourable supply/demand outlook The Canadian lodging industry will be entering its seventh year of recovery in 2016. While RevPAR growth trends in the earlier part of the recovery cycle (i.e., 2011-2013) were tepid, those from the last two years (i.e., 6.3% in 2014 and 4.5% for the nine months to September 2015) have posted stronger momentum. At this juncture, we believe the cycle has two more years to run.

Exhibit 127: Canadian lodging industry statistical highlights 2011 to 2016E

2011A 2012A 2013A 2014A 2015E 2016E RevPAR $78 +1.0% $80 +3.1% $83 +3.9% $88 +6.3% $91 +3.4% $96 +4.7% Occupied Rooms (MM) 83 +2.7% 84 +1.8% 86 +2.3% 89 +3.2% 90 +1.0% 92 +2.4% Income Per Room ($000s) $8.4 -7.2% $9.0 +7.5% $9.6 +5.6% $10.8 +13.5% $11.6 +6.9% $12.5 +8.1%

Source: PKF Consulting and RBC Capital Markets

PKF’s 2016 outlook generally reflects the expected modest improvement in national GDP. RBC Economics expects Canada’s GDP growth to reach 2.2% in 2016, up from a tepid 1.2% in 2015. The Bank of Canada, in its October 2015 Monetary Policy Report also cites a 2016 GDP growth expectation of ~2.0%. Perhaps unsurprisingly, there tends to be a strong correlation between RevPAR growth and GDP growth, as graphically depicted in Exhibit 128.

January 7, 2016 125


Exhibit 128: RevPAR and real GDP growth (2002 to 2016E)

-15%

-10%

-5%

0%

5%

10%

2002 2004 2006 2008 2010 2012 2014 2016E

RevPAR Growth GDP Growth Source: PKF Consulting, RBC Economics and RBC Capital Markets

PKF’s 2016 national RevPAR growth forecast of 4.7% (to $96) is the product of an expected 3.5% increase in ADR (to $148) and a one percentage point improvement in occupancy (to 65%). If achieved, this will mark a return to the industry’s former cycle-peak capacity utilization of 65%, achieved in 2007. A 2016 national RevPAR level of $96 would also register a new peak in the cycle that started with the 2009 “re-set” to the $73 level. Exhibit 129 graphically depicts national ADR, occupancy and RevPAR statistics from 1991 to 2016E.

Exhibit 129: Canadian lodging industry – national operating statistics (1991 to 2016E)

50%

60%

70%

80%

$0

$50

$100

$150

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015E

ADR RevPAR Occupancy (RHS)

Source: PKF Consulting and RBC Capital Markets

January 7, 2016 126


2016 supply growth projected to rebound slightly from depressed levels Exhibit 130 graphically depicts total guest-room inventory and its annual growth rate since 1996. The supply-side of the equation has generally been muted for five years, with annual inventory growth of less than 1% in each of 2012 through 2014. Last year’s room supply growth up-ticked, to 1.5%, to a total room inventory of approximately 384,000. PKF’s 2016 projections call for continued growth at a slightly lower level of 1.3% (the addition of approximately 5,000 rooms) to create a total inventory of 389,000 rooms.

Exhibit 130: Canadian lodging industry – room inventory and growth (1996 to 2016E)

0%

1%

2%

3%

4%

5%

0

100,000

200,000

300,000

400,000

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016E

Room Inventory Supply Growth (RHS) Source: PKF Consulting and RBC Capital Markets

Demand growth should exceed new supply Since its cyclical trough in 2009 when 77 million room-nights were occupied, room demand has grown every year, at a five-year average of 2.2%, with an annual high of 3.2% and a low of 1.0% (estimated in 2015). PKF’s 2016 outlook calls for an improvement in room demand, with growth of 2.4%, to 92 million room-nights. On this basis, demand growth should exceed supply growth by a spread of 1.1 percentage points. With the exception of 2015, the spread has been consistently positive through the current recovery cycle. Exhibit 131 graphically depicts occupied room nights and the percentage change in lodging demand since 1996.

Confidence and currency drive US and international travel to Canada We believe that two factors: 1) consumer confidence (particularly in the United States); and 2) currency (i.e., a stronger US$ and to a lesser extent, the British pound) have recently been, and will continue to be, two key drivers of Canadian lodging demand and profitability.

As graphically illustrated in Exhibit 15 (on page 30), the (US Conference Board) Consumer Confidence Index has more than doubled from a two-year low reading of 40.9 in October 2011 to 90.4 by November 2015. Better employment and income prospects, a recovery in housing and US equity markets have all been factors. We believe the improved US consumer confidence has been a key factor behind increasing US overnight visitors through 2015. We believe the favourable trend will continue into 2016, and hopefully beyond.

January 7, 2016 127


Exhibit 131: Canadian lodging industry – occupied room nights and growth (1996 to 2016E)

-8%

-4%

0%

4%

8%

0

20

40

60

80

100

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016E

Occupied Rooms (MM) Demand Growth (RHS) Source: PKF Consulting and RBC Capital Markets

We believe there is a lag between currency moves and travel flow. But we have little doubt the correlations exist. The Canadian dollar has now been in a weakening trend since 2012. In 2015 the pace of weakening accelerated with the $CAD/$US exchange rate declining by 16%, from US$0.86 at December 31, 2014 to $0.72 at December 31, 2015. Canada’s weaker currency makes travel to Canada more affordable and the currency trends of the past two years are in stark contrast to much of the prior 10 to 12 years.

Exhibit 132 graphically depicts trends in the Canadian dollar exchange rate since 1996.

Exhibit 132: Canadian dollar relative to CERI1 and US dollar (Monthly, Jan-1996 to Dec-2015)

50

75

100

125

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Canadian-dollar effective exchange rate index USD/CAD Exchange Rate (x100) Note: 1 The Canadian-dollar effective exchange rate index represents a weighted average of bilateral exchange rates for the Canadian dollar against Canada’s major trading partners. Source: Bank of Canada, Thomson One and RBC Capital Markets

January 7, 2016 128


Travel trends (already) turning favourably; the lag should give legs to the cycle Year to date to August 2015, overall international travel to Canada was up 6.6% year over year. This growth rate was well ahead of 2014’s 3.2% growth rate and it was the highest growth rate experienced in the past 11 years. The 2015 year-to-date growth was predominantly attributed to strong growth in in-bound travel from our neighbours south of the border. US overnight arrivals grew by an impressive 7.0%, while other international arrivals grew at 5.8%. Americans continue to account for approximately three-quarters of visitors to Canada.

The annual volume of overnight trips from US to Canada was in a long-term declining trend, from a peak of 16.2 million in 2002 to an 11.6 million trough in 2011. Since the trough, US travel appears to have rebounded modestly as it improved to 12.1 million in 2014 and is expected to continue an upward trend and register at 13.0 million (+7% year to date through August). Inbound overseas travel has also trended more positively, rising from 3.8 million in 2002 to an estimated 5.3 million for 2015, which is the highest volume achieved for overseas travellers in the past 25 years.

Canadian outbound overnight trips, meanwhile, have grown by ~80% since 2002, from 17.7 million to an estimated 32.5 million in 2015. When the final figures are tallied, we expect 2015 to post a modest 3% decline in outbound overnight travel, comprised of a sharp 9% decline in Canadians traveling to the US, offset by a 10% increase in Canadians traveling overseas.

Exhibits 133 and 134 below graphically depict trends in US and overseas inbound travel to Canada and Canadian outbound travel.

Exhibit 133: Overnight trips by US and overseas travellers (inbound) and Canadian travellers (outbound) (MM, 2001 to 2015E)

0

5

10

15

20

25

30

35

2001 2003 2005 2007 2009 2011 2013 2015E

US Travellers International Travellers Canadian Travellers (Outbound) Source: RBC Capital Markets and Statistics Canada International Travel Survey

January 7, 2016 129


Exhibit 134: 2001-2015E inbound / outbound travel trends (2001 = indexed to 100)

60

80

100

120

140

160

180

200

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E

US Travellers International Travellers Canadian Travellers (Outbound)

Source: RBC Capital Markets and Statistics Canada International Travel Survey

Profitability is expected to reach an all-time high in 2016 In our view, the lodging sector generally requires 4–6% (or better) RevPAR growth to truly drive meaningful improvements in profitability. Year-in, year-out the persistent effects of cost inflation (property taxes, repairs/maintenance/FF&E and labour) are such that RevPAR gains of 1% to 3% more often than not only allow owners to maintain, but not improve profitability.

By way of supporting data, PKF data notes that per-room profitability peaked in 2007 at $11,600 per room. National RevPAR that year was $83. At the 2009 cycle trough, RevPAR and per room profitability had declined to $73 and $8,000. Subject to final tally, 2015 estimated RevPAR ($91) is likely to surpass the 2007 figure by 11%. Yet, due to the long-term expense “grind”, annual income per room appears to be on track to reach its 2007 high of $11,600. Looking to 2016, national RevPAR is expected to reach an all-time high of $96 and profitability is expected to reach ~$12,500, exceeding 2007 peak levels for the first time.

Looking farther afield, to 2020, PKF forecasts that income per room will be ~$15,175, implying five-year annualized growth of ~5.5%, relative to 2015’s expectations. Exhibit 135 graphically depicts profitability per room and trend growth since 2002.

January 7, 2016 130


Exhibit 135: Profitability per room (2002 to 2016E and 2020E)

-40%

-30%

-20%

-10%

0%

10%

20%

30%

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

2002 2004 2006 2008 2010 2012 2014 2016E 2018E 2020E

Net Income Per Room Net Income Growth (RHS) Source: PKF Consulting and RBC Capital Markets

Regional expectations: all regions should post improvement PKF’s regional 2016 forecast calls for RevPAR growth in Central and Atlantic Canada of 5.3% and 4.4%, respectively. Growth in Western Canada of 4.1% is expected to fall short of the other major regions this year. In absolute dollar terms, RevPAR should remain highest in Western Canada ($98) and lowest in Atlantic Canada ($77). Central Canada comes in between with $96. All three regions should post new highs in 2015 and, at the forecasted 2016 rates, will displace former peaks once again.

All regions are expected to see modest growth in income per room in 2016. Bottom-line growth in Western Canada is expected to grow by 6.0% to $15,400 income per room, posting the smallest gain but the highest profitability amongst the major regions in Canada. Income per room in Central Canada is expected to be second highest, at $11,100, which represents growth of 10.8%. Atlantic Canada should also experience modest growth of 8.1%; however, profitability per room remains the lowest at $8,100.

Exhibit 136 summarizes regional ADR, Occupancy and RevPAR statistics from 2000 to 2015E.

January 7, 2016 131


Exhibit 136: Canadian lodging industry – regional operating statistics (2000 to 2016E)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E

Atlantic: ADR $92 $96 $100 $103 $105 $108 $112 $115 $118 $117 $117 $118 $119 $120 $124 $127 $131 Occupancy 64% 62% 63% 62% 61% 60% 60% 62% 60% 57% 59% 59% 58% 59% 58% 58% 59% RevPAR $59 $60 $63 $64 $64 $65 $67 $71 $71 $67 $69 $69 $69 $70 $72 $73 $77 RevPAR Growth

1% 6% 2% -1% 2% 4% 5% 0% -5% 3% 0% 0% 1% 3% 2% 4%

RevPAR Index 100 101 106 108 107 109 113 119 119 113 116 116 116 118 121 123 129 Central:

ADR $116 $120 $123 $119 $123 $124 $127 $129 $130 $122 $125 $126 $127 $130 $134 $141 $146 Occupancy 67% 63% 63% 58% 62% 63% 63% 63% 61% 57% 61% 61% 62% 63% 64% 65% 66% RevPAR $78 $76 $77 $69 $76 $78 $81 $80 $80 $70 $76 $77 $78 $81 $86 $91 $96 RevPAR Growth

-2% 1% -9% 10% 2% 3% 0% -1% -12% 8% 2% 1% 4% 6% 6% 5%

RevPAR Index 100 98 99 89 98 100 104 104 103 90 97 99 100 104 111 118 124 Western:


-1% 0% -3% 7% 5% 10% 7% 2% -13% 4% -1% 5% 6% 6% 1% 4%

RevPAR Index 100 99 98 96 103 108 119 128 131 114 118 116 122 129 137 138 144 Canada:


-2% 1% -6% 6% 6% 5% 4% 1% -12% 6% 1% 3% 4% 6% 3% 5%

RevPAR Index 100 98 99 93 99 104 110 114 115 101 107 108 111 115 123 127 133 Source: PKF Consulting and RBC Capital Markets

Development exposé: Hotels within larger mixed-use projects Vancouver will see an introduction of two Marriot-branded hotels: JW Marriot Vancouver, British Columbia’s first; and The Douglas, part of Marriott’s International’s Autograph Collection. The hotels, which are being developed by a joint venture between Paragon Development Ltd., Dundee Corporation and PBC VUR Limited Partnership, will be part of a grand $600 million, 775,000 square feet, multi-faceted entertainment and leisure resort called Parq Vancouver, adjacent to BC Place Stadium. Parq will be a new home for the Edgewater Casino and will also have ample parking for visitors, offering almost 1,100 spots.

JW Marriot Vancouver will offer a luxury guest experience in its 288 rooms and 41 suites, whereas the Douglas will feature 178 rooms and 10 suites. In aggregate, the hotel convention facility will boast 62,000 square feet of meetings, conference and special event space, including Vancouver’s largest ballroom.

Parq Vancouver is expected to open its doors in January 2017.

Exhibit 137: Parq Vancouver (left) and Primus Hotel (right)

Source: parqvancouver.com, kingbluecondos.com

January 7, 2016 132


The Primus Hotel, a first in Canada, will be part of a larger mixed-use development initiative in Toronto by the Greenland Group. The seven-storey boutique hotel, designed by Toronto’s B+H Chil Architects, will be owned and operated by Greenland and will feature 122 guest rooms in the north podium, on-site conference facilities and a rooftop terrace with a pool and lounge. Located in Toronto's entertainment district, at the corner of King Street West and Blue Jay Way, the development, known as King Blue, will also feature two condominium towers, 44 and 48 storeys high, as well as Theatre Museum Canada. The project broke ground in the summer of 2015.

Shanghai-based Greenland Group currently owns a portfolio of over 70 luxury hotels around the world.

Transaction activity continues on a strong pace in 2015 According to Colliers International, the nine-month lodging transaction volume to September 2015 was $1.4 billion (84 transactions). This is significantly higher than 2014’s nine-month figure of $826 million (91 transactions).

Over 12,100 rooms were transacted in the nine-month period at an average price per room of $108,800, up 48% from the same period in 2014, but still down 18% from the high of $133,000 in 2013, which included the $765 million, five-hotel Westin portfolio transaction (2,925 rooms). Geographically, Eastern Canada accounted for 63% of total transaction activity through to Q3/15 while activity in Western Canada equated to 37% of total dollar value transacted.

Q4/15 large hotel transactions included: 1) the sale of Fortis Properties Hotel Portfolio of 22 assets for $365 million to a private investor group; 2) the sale of Holiday Inn Halifax Harbourfront by InnVest REIT to Manga Hotels, a private hotel investment company, for an undisclosed amount; and 3) the acquisition of the remaining interest in The Omni King Edward Hotel in Toronto by Omni Hotels & Resorts for an undisclosed amount.

We estimate 2015’s total transaction value (still to be tallied) will be approximately $2.2 billion. This compares to $1.5 billion in 2014. Based on Q4/15 transactions, we believe 2015’s average price per room will be ~$105,000, up 13% year over year, yet down some 20% from 2013’s cycle peak of $133,000.

Exhibit 138: Total investment and average price per room, annually

$25,000

$50,000

$75,000

$100,000

$125,000

$150,000

$175,000

$0B

$1B

$2B

$3B

$4B

$5B

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Total Investment ($B) Price Per Room (RHS) Source: Colliers and RBC Capital Markets

January 7, 2016 133


Exhibit 139: Two of 2015’s major hotel trades: Courtyard by Marriott Toronto (left) and The Westin Prince Toronto (right)

Source: marriott.com, westinprincetoronto.com

January 7, 2016 134


Investor returns and performance trends: 2015 was not much fun, so let’s look forward, not back

The S&P/TSX Capped REIT Index (“the REIT Index”) was subject to a 2015 price decline of 10.1%, when combined with income, resulted in a total return of -4.6% for the year. The REIT Index outpaced the broader market, as measured by the -8.3% total return from the S&P/TSX Composite Index. REIT returns sizably underperformed fixed income, as evidenced by the 6.3% total return from 10-year Government of Canada bonds (“10 year GOCs”).

Exhibit 141 on page 137 graphically depicts the 2015 total return performance of 54 Canadian REITs and REOCs, and several relevant local and global performance benchmarks. Appendix IV provides longer-term historical returns.

Canadian REITs lag most global property indices Canadian REIT returns lagged the 2015 performance of property stocks in most other major regions. By major region, the FTSE EPRA/NAREIT Europe (Developed) index was the strongest performer, with a total return of 18.8% (in Euro-denominated terms). Canadian REITs also lagged the MSCI US REIT index, which generated a total return of 2.5%. Asian REITs were the weakest performers last year, with the FTSE EPRA/NAREIT Asian Index (Developed) posting a -6.9% return (on a Yen-denominated basis).

Listed property returns were generally disappointing in 2015, with the EPRA/NAREIT Global (Developed) Index posting a total return of 0.1% (in US dollar terms). The strength of the US dollar relative to other major currencies weighed on Global Index performance (as measured in U.S dollars) By way of example, the US dollar-denominated total return from the FTSE/EPRA NAREIT European (Developed) Index (not shown) was 6.7%, or 1,210 bps below the 18.8% primary local currency (i.e., Euro) return.

“Middle of the pack” performance relative to other domestic equity sectors As shown in Exhibit 140, REIT performance was very much “middle of the pack” relative to the other industry sectors comprising the S&P/TSX Composite Index (“the TSX Index”).

Exhibit 140: Canadian REITs versus the TSX Index and other domestic equity sectors

Index weighting as at Dec-31 Index or GICS sector 2015 Total Return 2014 2015 Change Information Technology 15.6% 2.3% 3.2% 0.9% Consumer Staples 12.4% 3.7% 4.5% 0.8% Telecommunication Services 3.6% 4.9% 5.4% 0.5% Consumer Discretionary -1.5% 6.4% 6.9% 0.5% Financials -1.7% 35.7% 38.3% 2.6% Utilities -3.5% 2.2% 2.3% 0.1% S&P/TSX Capped REIT Index -4.6% n.a. n.a. n.a. S&P/TSX Composite Index -8.3% n.a. n.a. n.a. Industrials -11.1% 8.7% 8.3% -0.4% Healthcare -15.6% 3.5% 3.2% -0.3% Materials -21.0% 10.6% 9.5% -1.1% Energy -22.9% 22.0% 18.5% -3.5%

Source: Thomson One, Bloomberg and RBC Capital Markets Quantitative Research

Across the TSX GICs sectors there was a significant dispersion in 2015 total returns. Energy (-22.9%), Materials (-21.0%) and Healthcare (-15.6%) posted the weakest results. This is notable as the former two represented an aggregate ~33% weight in the TSX Index at the start of the year (only ~28% at year-end). These sizably negative returns by two large sector weights clearly hurt aggregate index performance. Information Technology (15.6%),

January 7, 2016 135


Consumer Staples (12.4%) and Telecoms (3.6%) recorded the highest total returns in 2015. In aggregate, these sectors represented only ~11% of the TSX Index at the outset of 2015, rising to ~13% by year end.

Global listed property relative performance was a mixed bag The TSX REIT Index’s 2015 total return of -4.6% exceeded the broader TSX Index’s -8.3% total return by 370 bps. Around the globe, listed property performance relative to the key domestic equity benchmarks was mixed.

In the US, 2015’S 2.5% total return from the MSCI US REIT Index was broadly in line with the key US equity benchmarks, such as the S&P 500 (1.4%) and the Dow Jones Industrial Average (0.2%) yet lagged the tech-heavy NASDAQ (7.0%).

In Europe, the 18.8% total return from the FTSE/EPRA NAREIT European Index significantly outpaced the key regional broad market indices, including France’s CAC 40 (+13.5%), Germany’s DAX (10.0%) and the U.K’s FTSE 100 (-0.6%). In Asia, the FTSE EPRA/NAREIT Asian Index’s -6.9% total return underperformed Japan’s Nikkei 225 (+11.0%) by 1,790 bps.

Canada’s strongest and weakest 2015 total returns Across the roster of 54 Canadian-listed REITs and REOCs included in our performance tracker, 40 outperformed the REIT Index in 2015. The top three performers were Amica Mature Lifestyles (+171.2%), Extendicare (+55.4%), and Regal Lifestyle Communities (+37.6%).

During 2015, the lowest total returns were recorded by: Melcor Developments (-22.8%), Dream Office REIT (-20.9%) and Morguard REIT (-19.7%), and.

Small cap (<$1 billion) REITs and REOCS outperform in 2015 Performance during 2015 was skewed by the smaller-cap REITs and selected REOCs, as evidenced by the -4.6% total return from the S&P/TSX Capped REIT Index versus the simple-average REIT/REOC total return of 7.8%. More specifically, the top five total returns last year were all from REITs and REOCs with market caps of less than $1 billion.

Privatization activity thrusts Seniors Housing sector to strong outperformance The Seniors Housing sector was the top performing sector, posting a 59.4% simple-average total return. Four of the five top performing REITs and REOCs last year were seniors housing owner/operators (Amica Mature Lifestyles Inc., Extendicare, Regal Lifestyle Communities, Sienna Senior Living). The performance of the Seniors Housing sector was buoyed by corporate actions, including the privatization of Regal Lifestyle Communities (+37.6%) in October and Amica Mature Lifestyles Inc. (171.2%) in December. Notably, Amica’s massive total return outperformance skewed the simple average return from all REITs and REOCs upward by 340 bps from 4.4% (ex-Amica) to 7.8% overall. While Chartwell Retirement Residences was the laggard within seniors housing, its 2015 total return of 11.2% handily exceeded both the REIT Index (-4.6%) and the average REIT/REOC return (7.8%).

Based on simple average returns, the Multi-Family Residential sector posted a 6.0% return and Commercial Property recorded a 1.0% return. The Lodging sector was the weakest 2015 performer with a total return of -2.8%.

January 7, 2016 136


Exhibit 141: 2015 total returns (change in unit or share price plus cash distributions)

-22.8%-22.0%

-19.7%-19.3%-18.0%-16.6%-15.9%

-13.1%-11.8%-10.9%

-7.5%-6.4%-5.7%-5.0%

-4.63%-4.3%-4.3%

-2.4%-2.1%-1.5%

1.3%1.4%2.1%2.9%2.9%

4.8%5.5%6.0%6.3%6.4%6.7%7.8%8.3%

10.4%10.9%11.0%11.2%11.6%12.5%13.2%13.7%14.8%15.2%15.7%15.9%16.5%

18.8%20.1%21.3%21.8%

28.5%37.6%

55.4%

-8.3%-4.6%

1.4%2.5%

-6.9%0.1%

1.8%18.8%

Melcor DevelopmentsDream Office REITMorguard REITNorthview Apartment REITBoardwalk REITMelcor REITHolloway LodgingCominar REITAllied Properties REITMorguard CorporationInnVest REITDream Industrial REIT OneREITRioCan REITPartners REIT Brookfield Asset Management (US$)CREITGranite REITArtis REITH&R REIT

Brookfield Canada Office Prop.True North Apartment REIT

BTB REITSlate Office REIT

First Capital RealtyNorthWest Healthcare REIT

Pure Industrial REITCrombie REIT

Brookfield Property Partners (US$)Slate Retail REIT (US$)

Tricon Capital GroupAverage REIT/REOC Return

Killam PropertiesDream Global REIT

Agellan Commercial REITCT REIT

Chartwell Retirement ResidencesCAP REIT

Morguard NA Residential REITInterRent REITSummit II REIT

Inovalis REITAmer. Hotel Income Prop. REIT

WPT Industrial REIT (US$)Pure Multi-Family REIT (US$)

SmartREITChoice Properties REIT

Lanesborough REITPlaza Retail REIT

Sienna Senior LivingMilestone Apartments REIT

Regal Lifestyle CommunitiesExtendicare

Amica Mature LifestylesS&P/TSX Composite IndexS&P/TSX Capped REIT Index

S&P 500 Composite IndexMSCI US REIT Index

EPRA/NAREIT Asia (Developed)EPRA/NAREIT Global (Developed)

EPRA/NAREIT North AmericaEPRA/NAREIT Europe (Developed)

-75% -50% -25% 0% 25% 50% 75%

171.2%

Notes: Total returns from the FTSE EPRA/NAREIT North America Index, and the FTSE EPRA/NAREIT Global (Developed) Index are shown in US dollar terms. The FTSE EPRA/NAREIT Europe (Developed) Index return is shown in Euro terms while the FTSE EPRA/NAREIT Asia (Developed) Index return is shown in Yen terms. 2015 Canadian dollar denominated total returns for BAM, BPY, SRT, WIR and RUF were 13.9%, 26.8%, 27.4%, 38.6% and 39.9%, respectively. Entities included above and privatized or merged during 2015 include: Regal Lifestyle Communities Inc. (October): 37.6%; True North Apartment REIT (October): 1.4%; and Amica Mature Lifestyles Inc. (December): 171.2%. Source: RBC Capital Markets, Thomson One, Trend & Cycle, Bloomberg and FTSE EPRA/NAREIT

January 7, 2016 137


Solid longer-term track records for Canadian REITs and REOCs As illustrated in Exhibit 142, the longer-term track performance of the Canadian REIT and REOCs remains solid. On a five year trailing basis a $100 investment in S&P/TSX Canadian REIT Index (with all distributions reinvested) is worth $141 (IRR = 7.2%). Comparatively, Canadian REIT and REOCs outperformed the broader Canadian equity market and 10-year GOCs as this same $100 investment in the TSX Index and 10-year GOCs is worth $112 (IRR = 2.3%) and $135 (IRR = 6.1%), respectively.

Relative to REITs around the world, Canada has underperformed US, Europe, Asia and indeed, the FTSE/EPRA NAREIT Global Index on both a three-year and five-year basis.

Exhibit 142 below summarizes the cumulative value of a $100 investment and the related IRR over three- and five-year hold periods for the S&P/TSX Capped REIT Index, the TSX Composite, 10-Year GOCs and various global REIT benchmarks.

The US REIT market represents roughly a 50% weighing in the FTSE/EPRA NAREIT Global Index. Interestingly, currency shifts, including three- to five year depreciation of $CAD, Euro and Yen relative to the US$ of 18% to 33% have played a major factor in total returns. This can been seen below in the three-year (6.6%) and five-year (8.0%) IRR’s of the FTSE/EPRA NAREIT Global Index, both of which are below all of the regional index returns, as expressed in local currency terms.

Exhibit 142: Trailing 3-year and 5-year values (of a $100 investment) and IRRs

Value of $100 Invested

and Compounded IRR 3-Years 5-Years 3-Year 5-Year S&P/TSX Capped REIT Index 99 141 -0.2% 7.2% S&P/TSX Composite Index 115 112 4.6% 2.3% 10-Year GOCs 135 135 10.5% 6.1% FTSE EPRA/NAREIT Global (US$) 121 147 6.6% 8.0% MSCI US REIT Index (US$) 137 175 11.1% 11.8% FTSE EPRA/NAREIT Europe (€) 166 194 18.4% 14.1% FTSE EPRA/NAREIT Asia (¥) 135 168 10.5% 11.0%

Cumulative foreign currency

exchange rate shifts relative to US$ 3-Years 5-Years $ Canadian dollar -28% -28% € Euro -18% -19% ¥ Japanese Yen -28% -33%

Notes: Total returns, compounded annually. 3-year: December 31, 2012 to December 31, 2015 and 5-year December 31, 2010 to December 31, 2015. Source: Thomson One and RBC Capital Markets

January 7, 2016 138


Exhibit 143: 5-Year indexed investment returns – Canadian REITs vs the TSX and 10Y GOCs

141

112

135

50

75

100

125

150

175

200

Dec-2010 Dec-2011 Dec-2012 Dec-2013 Dec-2014 Dec-2015

S&P/TSX Capped REIT Index S&P/TSX Composite Index 10YR GOC Notes: Total returns, compounded annually. 5-YR: December 31, 2010 to December 31, 2015. Source: Thomson One and RBC Capital Markets

Exhibit 144: 5-Year indexed investment returns – global REITs

141

175

147

194

168

60

80

100

120

140

160

180

200

220

240

Dec-2010 Dec-2011 Dec-2012 Dec-2013 Dec-2014 Dec-2015

Canada U.S. Global Europe Asia Notes: Total returns, compounded annually. 5-YR: December 31, 2010 to December 31, 2015. Canada = S&P/TSX Capped REIT Index. US = MSCI US REIT Index. Global = FTSE EPRA/NAREIT Global (Developed) Index (US$). Europe & Asia = FTSE EPRA/NAREIT Indices (in local currency). Source: Bloomberg, Thomson One and RBC Capital Markets

We have great confidence in the future for listed property stocks. And, we believe that from current price levels, the group is poised to deliver risk-adjusted total returns that are very competitive with the broader equity market.

January 7, 2016 139


Investment and capital market dynamics This section covers a lot of ground and is one of the “meatier” components within the REIT Quarterly. Topics addressed include: 1) equity capital markets; 2) debt capital markets; 3) REIT/REOC leverage, liquidity, and lease maturity profiles; 4) direct property transaction markets, including volumes, pricing, and benchmark trades; 5) corporate actions; and, 6) earnings growth.

TSX-listed REIT market cap remains effectively flat at $62B TSX-listed REITs ended 2015 with a market cap of approximately $62 billion, effectively flat from $62 billion at the beginning of the year. As of December 31, 2015, 17 REITs had equity market capitalizations in excess of $1 billion (unchanged from the beginning of the year), and 12 REITs had market caps greater than $2 billion (down from 13 at the outset of 2015).

Net-net, the number of TSX-listed REITs remains unchanged Last year, the number of TSX-listed REITs remained unchanged at 41. During 2015, the pool of TSX-listed REITs grew by one with the July IPO of Automotive Properties REIT (TSX: APR). This increase was offset by the October acquisition of True North Apartment REIT by Northview Apartment REIT (TSX: NVU) (formerly Northern Property REIT).

Exhibit 145: Market capitalization of TSX-listed REITs – Q4/96 to Q4/15 ($B)

0

10

20

30

40

50

60

70

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Source: Company reports and RBC Capital Markets

Plus-one heading into 2016; expecting fewer names by year end It is still very early days, but already, the sector is “plus-one” on the year, with 42 TSX-listed REITs after the January 1, 2016 conversion of Killam Properties Inc., to Killam Apartment REIT. The conversion was by way of plan of arrangement, which had been supported by 99.5% of the votes cast at a special meeting, which was held on December 8, 2015.

As discussed throughout this report, we expect that over the course of 2016 (and 2017) that M&A and privatization activity will be the means whereby the number of listed REITs (and REOCs) is more likely to shrink than to grow.

TSX-listed REITs ended 2015 with a collective market capitalization of ~$62 billion.

January 7, 2016 140


REITs go GICS this year On November 10, 2014, S&P Dow Jones Indices (“S&P”) and MSCI Inc. (“MSCI”) announced the creation of a new Global Industry Classification Standard (“GICS”) sector for Real Estate. The announcement followed the completion of the yearly review of GICS sectors, which involved obtaining feedback from members within the global investment community. Previously, GICS categorization was such that REITs were a subset within the Financials sector. With the creation of a new GICS sector, which will be implemented (i.e., effective) after market close on August 31, 2016, the total number of GICS sectors will be 11. Highlighting the significance of this announcement, we note that since its creation in 1999, no sectors have been added to the GICS classification system.

We believe the creation of an eleventh GICS sector for real estate appropriately recognizes that the industry is unique and distinctly separate from Financials. We believe the implementation provides RioCan REIT with a very good “shot” at becoming an S&P/TSX 60 Index constituent. Currently, Brookfield Asset Management (“BAM”) is the only “real estate” company in the S&P/TSX 60 Index (we italicize “real estate” as we truly do not see BAM as a real estate company).

There are sizable amounts of capital linked to this Index, and hence, this may have a short-term flow-of-funds benefit to RioCan if it is included in “the 60”, as we expect. Excluding RioCan, we suspect the practical implementation of shifting to 11 GICS sectors will have little to no lasting valuation impact on the listed property sector.

Equity capital raising continued to trend lower in 2015 Equity capital raising activity has now been muted for three consecutive years. 2015’s aggregate equity and equity-related capital raisings by REITs and REOCs was $1.9 billion from the public ($2.3 billion total). Financing volume achieved the upper end of our revised 2015 prediction range of $1.7–2.0 billion and was in line with our beginning of year point estimate of $2 billion. Last year’s total financings were 17% below 2014’s $2.3 billion and 72% lower than 2012’s all-time high of $7 billion.

2015’s $1.9 billion of equity financing activity was the lowest since 2008, when $1.3 billion was raised. The 10-year average annual equity capital raising by REITs and REOCs measures $4.0 billion. The 15-year average annual activity reading is $3.4 billion. Exhibit 146 graphically depicts annual REIT and REOC capital raising activity (from the public) over the past 20 years.

We believe that 2015’s modest equity capital raising volume was a direct product of:

1) The overall valuation level of listed real estate; 2) A lack of acquisition opportunities for the large REITs and REOCs; and, 3) Increased capital recycling, predominantly by the larger REITs and REOCs. On the subject of building portfolio size and scale, roughly three-quarters of 2015’s equity financings (i.e., 15 of 23 deals) were completed by REITs with market caps of less than $1 billion. Many of these entities remain in the “company-building” phase of their lifecycle. Hence, they tend to be “asset aggregators” that are dependent on raising equity in order to grow the size and scale of their operations. By comparison, only five large-cap REIT/REOCs (i.e., those with market caps in excess of $2 billion) raised equity last year.

January 7, 2016 141


Exhibit 146: Annual REIT/REOC capital raising, 1996 to 2015 ($B, unless noted)

0

20

40

60

80

0

2

4

6

8

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Equity Convertible debentures Other # of deals (RHS) Source: Company reports and RBC Capital Markets

Characterizing 2015’s activity: REITs vs. REOCs; common equity vs. other 2015’s $1.9 billion in equity and equity-related financings encompassed 23 transactions, including 21 by REITs and two by REOCs. REIT activity totalled $1.8 billion by way of 19 common equity offerings ($1.7 billion) and two convertible debenture offerings ($80 million). REOC capital raising activity totalled $127 million, which was raised through two common share offerings.

Overall, 2015 activity included 21 trust unit or common share offerings totalling $1.9 billion and two convertible debenture offerings for $80 million. Hence, common equity represented 96% of total volume, while convertible debentures accounted for 4%.

Exhibit 147: REIT and REOC capital raising by quarter, Q1/13 to Q4/15 ($B, unless noted)

Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15

Activity 2.0 1.4 0.9 0.8 0.1 0.8 0.7 0.8 0.7 0.5 0.2 0.6 Annual run-rate 7.9 5.4 3.4 3.0 0.4 3.2 2.8 3.0 2.7 2.1 0.6 2.3


Specific transaction highlights SmartREIT’s $404 million offering (14.1 million units priced at $28.70) in April was 2015’s largest common equity financing. The financing included 8.0 million units ($230 million) issued to the public and 6.1 million ($174 million) Class B LP units issued to Mitchell Goldhar. The well-subscribed offering was inclusive of the exercise of the underwriters’ full 15% over-allotment option on public offering. Net proceeds were used to fund the $1.2 billion acquisition of the SmartCentres operating platform in addition to ownership interests in 24 properties. For more details regarding this transformative transaction, we refer readers to our April 27 note, entitled SmartREIT, smart move; Moving to Outperform.

CAPREIT’s $250 million secondary offering (8.7 million units priced at $28.70) in October was 2015’s second-largest common equity financing to the public. Net proceeds were used to fund the equity component of the purchase of two apartment portfolios in Vancouver and Montreal, which totalled 4,580 suites and had a combined purchase price of $660 million.

2015’s capital raising total of $1.9 billion marked a 17% year-over-year decrease and lowest annual total since 2008.

January 7, 2016 142

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We refer interested readers to our October 19 note entitled, Rounding out 2015 with $660MM of new apartment investments; Outperform reiterated, for additional details.

Three entities, CAPREIT, American Hotel Income Properties REIT, and Pure Multi-Family REIT were tied as the most-frequent issuers in 2015, as they each tapped the equity markets on two separate occasions. Individually, gross proceeds of $405 million, $109 million, and $95 million, respectively were raised.

Appendix V summarizes 2015 equity and equity-related capital offerings.

Relatively higher volatility in a discount to NAV environment The sector commenced 2015 at a 5% discount to NAV. The ratio improved in the very early parts of the year, reaching NAV-parity on an intra-period basis in February and rounding out the month at a 1% discount to NAV. From March onward, generally weakening global equity markets appeared to be a major influence in languishing REIT valuations, with the sector rounding out 2015 at a 13% discount to NAV.

Placing these data points into a price-only context, the S&P/TSX Capped REIT Index opened the year at a reading of 158. It touched its intra-year high of 174 on February 5. More recently, it bottomed out with its December 14 low of 139 and settled at 142 by year end. Point-to-point, the index thus posted a negative 10% price return. Interestingly, it also marked a relatively volatile year, with the differential between the annual price low and high being 36 points or 26%. The index’s 2015 high/low range of 26% is well above the 19% average from the prior five years (2010–2014).

We refer readers to the Valuation overview section of this edition of the REIT Quarterly for further discussion on the recent high-volatility, discount-to-NAV environment and what this means for REIT and REOC valuations relative to bonds, corporate debt, and other sectors of the equity market.

The 2016 equity issuance outlook: More of the same subdued volumes This year, we expect equity capital raisings will remain at levels that are, by historical standards, subdued. Valuations for many listed entities are such that raising equity capital is, at best, neutral to NAV/unit. Stated alternately, private-market pricing remains generally above the value of listed real estate, thus providing an obstacle for those dependent on growth-by-acquisition business models.

Notably, even some of the well-seasoned, larger-cap REITs are trading below NAV, thus limiting their opportunity to tap the equity markets on an effective cost of capital basis. Many of these larger enterprises have reduced their capital markets dependence. This has been achieved through gradually reduced leverage ratios (and improved interest coverage) over time, and they have lowered AFFO payout ratios too (typically 80% or lower). Moreover, many of these entities also have substantial (25%-plus) DRIP participation rates. As the unit prices of the larger-cap REITs have collectively slumped closer to, or even below NAV, DRIP programs have been maintained, even in instances where the companies generally believe they do not need the capital. In order to improve the economics to the issuing enterprise, at the margin, several (Allied Properties REIT and CREIT) have recently narrowed and/or eliminated their 3% to 5% bonus-unit allocations to participants.

The larger, more-seasoned REITs are also finding that there is not a sizable quantity of product on offer each year that strategically fits with their businesses or that meets the quality standards that they seek.

We forecast 2016 REIT and REOC equity and equity-related capital issuance will be within a range of $1.0–1.5 billion.

January 7, 2016 143

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Real estate debt: A still favourable backdrop, yet less so than a year ago as the credit cycle shows signs of aging Real estate ownership is capital intensive. Despite several outliers, listed REITs and REOCs generally employ 40% to 60% leverage within their capital structures and have debt-to-EBITDA multiples of 6x to 10x. Thus, continued access to reasonably priced debt capital is essential to the viability of the industry.

Listed entities in Canada have historically relied on four sources of debt financing: 1) bank lines; 2) property-specific mortgages (and similar secured term financings such as mortgage bonds); 3) unsecured debentures; and, 4) convertible debentures. At roughly 75% of the debt capital stack, mortgages are by far the most important source of debt capital. The mortgage market can be segregated into two key funding groups: 1) balance sheet lenders (i.e., pension funds, banks and life insurance companies, credit unions, etc.); and, 2) conduit lenders (i.e., that originate and then package secured mortgages into commercial mortgage-backed securities or “CMBS”). We review each in more detail in this section of the report.

Rates hover near all-time lows; spreads and LTVs suggest underwriting discipline Broadly speaking, the nominal cost of real estate debt in Canada remains near all-time record lows. This is largely a function of base rates9 that are near historical lows, perhaps artificially so, due to the lingering effect of “QE” programs. Yet credit spreads and underwriting standards are a big piece of the equation too. And, in this regard, we see loan spreads, loan-to-value ratios, and debt-service criteria that are generally in accordance with long-term historical norms. These factors suggest to us that lender and borrower behaviours are rational and disciplined.

In our view, lenders continue to demonstrate prudence in their loan underwriting. Borrower behaviour also appears rational and disciplined. Loan-to-value ratios and debt-service criteria remain within the long-term normal ranges, in contrast to the lapsing discipline at the prior cycle peak (2006–2007), which we characterize as a period of credit excesses. To illustrate the contrasts, in Q4/06, interest rates were higher than today (with a 10-year GOC yield of 4.1% versus the 1.4% yield as of Q4/15), and spreads had compressed dramatically. We can cite examples of 2006 commercial mortgage originations carrying spreads of less than 100 basis points. LTV ratios were also in excess of their long-term 60–65% norms. Notably in the United States, LTVs moved into the 80s%, while other terms, including interest-only lending, gained prominence.

Corporate credit: Spreads widen, toward the top end of the “normal” band Prior to examining the various sources of real estate debt financing, it is useful to take the temperature of the overall corporate credit conditions. The spread at which corporate bonds (risky assets) trade over sovereign-debt instruments (risk-free assets) serves as a useful barometer in this regard.

9 Base rates – i.e., Government of Canada (“GOC”) bond yields

January 7, 2016 144


Exhibit 148: Moody’s BAA corporate bond index yield versus US 10-year treasury yields

4.5%

6.7%

3.3%

5.0%

2.2% 1.7%

2.3%

9.0%

6.0%

9.5%

8.5%

5.5%

4.5%

5.5%

0%

4%

8%

12%

Dec-97 Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Dec-15

US 10-year government bond yield Moody's corporate BAA bond yield

149bps

382bps

153bps

349bps

620bps

294bps 327bps

100

300

500

700


Average Spread (basis points)

LTA = 262 bps

Source: RBC Capital Markets Trend & Cycle and RBC Capital Markets

Exhibit 148 plots the historical relationship between the Moody’s BAA Corporate Bond Index yield and the 10-year US treasury yield. The Index’s long-term average spread over treasuries (derived from more than 15 years of data) is 262 bps. As illustrated, the spread has been reasonably stable since mid-2009, oscillating with the 230–340 bps range. Through 2015, the index spread moved from the lower half of the band (commencing 2015 at 252 bps) to the upper half of the band (rounding out the year at 327 bps).

Credit cycle shows signs of aging and rising risk aversion At a high level, we believe the 2015 corporate credit spread widening phenomenon was a function of the maturation of the corporate credit cycle into its later innings.

It started with commodity producers… In the US, non-investment-grade debt markets were also very weak in the back half of 2015, with spreads widening and bond prices falling. Initially, it was the debt instruments of non-investment-grade rated energy, mining, and metals companies that took the brunt of the selling. This is understandable given that oil and gas companies, including a number of “shale plays” grew rapidly during the fracking boom and were major issuers of non-investment-grade debt. In 2015, West Texas Intermediate (“WTI”) declined by ~US$16/barrel, or ~30%, to US$37/barrel while natural gas prices (NYMEX) declined by a sizable 19% to US$2.33/MM BTU. Other commodity prices also fell as demand from China slowed last year.

…But moved beyond, late in the year In the latter several months of 2015, price weakness spread to other sectors such as media, retail, and even pharma. High-yield debt markets were hit hard in December when one well respected money manager moved to close its ~US$800 million credit mutual fund, and it suspended investor cash redemption rights, while another high-yield credit fund notified investors of its intention to return ~US$900 million to investors in early 2016.

The corporate bond spread over US 10-year treasury yields has remained within a narrow band since 2009. Through 2015, spreads moved from the lower half into the upper half of the multi-year “normal” band.

January 7, 2016 145


The Fed has begun to tighten (even if gradually); higher commodity complex losses are in store as hedges roll off and liquidity is consumed Also driving the greater sense of risk aversion among fixed-income investors is the fact that the Federal Reserve has seemingly moved officially toward a cycle of interest rate increases. With one under its belt, the view to the future is more rate hikes, albeit on a very gradual basis. Until December 2015, the Federal Reserve had not increased interest rates since 2006.

Many oil and gas producers were cushioned in the early part of the price downturn by hedging programs, fixed-price contracts, and/or cash balances. The ongoing low price environment and curtailed access to capital are likely to drive defaults and mounting losses on commodity company debt also seem probable.

Over the last number of years, Canadian financial institutions have been subject to minimal loan losses. Challenges across most of the commodity complex and overall sluggish economic growth on a national basis are such that going forward, provisions for credit losses (“PCLs”) and actual losses are far more likely to rise than to fall. As such, even the large balance sheet lenders are likely to exhibit greater risk aversion this year versus much of the prior five years.

Conventional 5Y commercial mortgage yield remains at historical lows Exhibit 149 plots the conventional five-year commercial mortgage rate against the equivalent GOC benchmark yield. Throughout 2015, the nominal cost of a five-year mortgage remained near historical lows, oscillating within a range between 2.5% and 2.8% on five-year GOC yields that generally hovered between 0.6% and 1.3%. At the outset of 2015, the nominal cost of a conventional five-year mortgage commercial mortgage was 2.8%, equating to a spread of 150 bps over the 1.3% GOC yield.

Exhibit 149: 5-year commercial mortgage rates vs. 5-year GOC bond yields

14.3%

10.3%

8.3%

6.2%

2.6%

5.9%

1.7% 0.7%0%

4%

8%

12%

16%

Q1/87 Q1/90 Q1/93 Q1/96 Q1/99 Q1/02 Q1/05 Q1/08 Q1/11 Q1/145-year mortgage rate 5-year GoC yield

302bps

93bps

415bps

190bps

0

250

500

Q1/87 Q1/90 Q1/93 Q1/96 Q1/99 Q1/02 Q1/05 Q1/08 Q1/11 Q1/14

Average Spread (basis points)

LT avg = 180 bps

Source: RBC Capital Markets Trend & Cycle and RBC Capital Markets

Commercial mortgage rates remain effectively at all-time lows. Loan spreads (over equivalent-term GOC bonds) widened in 2015 by approximately 40 bps.

January 7, 2016 146


A slipping WTI crude oil price in conjunction with the Bank of Canada’s surprise rate cut in January sent bond yields lower through much of the early part of 2015, settling in at 0.8% at the end of the first quarter. Throughout the rest of the year, monthly yield changes were modest (typically +/- no more than 10 bps) and the five-year GOC yield rounded out the year at 0.73%.

Upward spread movement into year-end 2015; but not out of the normal range Mortgage rates through 2015 also showed little movement. Our indicative five-year commercial mortgage rate commenced the year at 2.8% and by year end had decreased ~20 bps to 2.6%. As such, the indicative loan spread at the end of 2015 was 190 bps, some 40 bps wider relative to the outset of the year. The year-end 2015 five-year indicative commercial mortgage spread of 190 bps compared to a long-term average loan spread of 180 bps.

Barring any unforeseen and/or severe dislocation within credit markets, we see little reason to believe that mortgage spreads will venture notably outside of the 170–200 bps range this year.

Looking ahead, RBC Economics forecasts the five-year GOC benchmark yield will increase to 2.10% by the end of 2016. This represents a sizable 137 bps interest rate increase. The forecast also suggests that the 10-year GOC yield will round out this year at 2.60% (+120 bps from Q4/15). Based on RBC Economics’ forecast and our expectations for generally range-bound loan spreads, the nominal cost of a five-year mortgage appears likely to rise over the course of 2016.

Large loans: Reduced 2015 volume not necessarily a negative credit indicator Within the context of the Canadian property market, we categorize a “large loan” as any property-specific financing with a principal amount of $100 million or more. Large loans are nearly always provided on a low-LTV basis (less than 60%) against high-quality assets (those with tenant rosters and lease-maturity profiles that can be reasonably underwritten) that are owned by financially strong entities. Key determinants of loan spread include: 1) market timing; 2) LTV and debt service coverage metrics; 3) duration; 4) asset quality and sponsor strength; and, 5) loan credit rating, if applicable.

Our database of large loan financing transactions, while not all encompassing, serves as a good barometer for overall market activity. As shown in Exhibit 150, 2015 volume tallied $0.9 billion, representing a ~40% decrease from 2014’s $1.5 billion.

In our view, the year-over-year decrease in large loan volumes should not be viewed negatively. Our opinion is based on the fact that overall credit conditions still appear to be generally favourable for borrowers. We believe factors that contributed to the decline in loan activity include: 1) lower year over year but still robust unsecured debt issuance last year; 2) the maturity profiles of borrowers (which affect the timing of new or renewal-term financings); and, 3) the “chunky” nature of large loans.

The majority (60% or three loans) of 2015’s transactions carried 10-year terms. One loan carried a seven-year term while another financing was completed with a 12-year term. Thus, last year’s activity carried an overall WATM of nine years. Within this list of transactions, LTVs ranged from 50% to 75%, with loan spreads ranging between ~180 bps and ~240 bps.

By comparison, transactions completed in 2014 had a WATM of 10 years, a weighted-average LTV of 53%, and a weighted-average loan spread of 180 bps. While 2015’s total transaction volume was down from the prior year, overall, it appears that credit conditions generally remained stable year over year. The key exception to the statement would seem to relate to lending conditions for Calgary office properties.

January 7, 2016 147


Exhibit 150: Selected 2015 large loan transactions ($MM, unless noted)

Date Property Borrower Amount Term

(Years) Coupon Spread LTV Jun-15 Atria Dorsay Dev’t Corp /

AIMCo 110 10 3.79% 205bps 55%

Jul-15 Telus Garden Westbank Corp. / Telus

225 10 3.40% n.a. 58%

Sep-15 Eighth Avenue Place1 Private 302 7 3.51% n.a. 60% Oct-15 RBC Meadowvale Campus TrioVest /Northam

Realty Advisors 140 10 3.64% 210bps 50%

Oct-15 Place du Royaume Mall H&R REIT 167 12 3.80% 212bps 75% Total / Weighted Average 944 9 3.59% 212bps 60%

Notes: 1) The financing amount denoted above is for a 1/3 interest in Eight Avenue Place held by two privately held entities. The remaining ownership interest is held by Ivanhoe Cambridge (1/3) and AIMCo (1/3). Source: Company reports, industry filings, RBC Capital Markets estimates

The $302 million financing against one-third of Eighth Avenue Place in Calgary was the largest transaction within our data set. The seven-year deal carried a 3.51% coupon, an LTV of 60%, and a spread that we believe was in the 230–240 bps range. Acknowledging our small sample size last year, we still note that the spread on the Eighth Avenue Place financing appears to be the highest on the list. We believe the unbalanced supply/demand dynamics across the Calgary office market (see page 55 for further discussion) was a driving force. We suspect that lender views with respect to Calgary office properties are more binary today than at any point in the past decade. Hence, with a narrower potential lender pool, there are likely to be spread implications. Nonetheless, Eighth Avenue Place is a well leased trophy property with financially strong owners. Taking into account the loan size, term, asset quality, LTV, loan spread, and other factors, we see the financing as a favourable outcome for borrowers and lenders alike.

As noted earlier, large loans tend to be “chunky” by their very definition. This makes it notoriously difficult to make predictions with respect to future activity (number of loans or aggregate originations) in any given year.

REIT and REOC unsecured debt issuers: Squarely in the “BBB” bucket The entire listed property sector is BBB-rated (from BBB- to BBB+), and in light of rating agencies’ frameworks, the move into the “A-bucket” for even the most-senior listed issuers appears to be in no way on the near-term horizon. We believe that listed REITs and REOCs have sought to differentiate their credit profiles versus other sectors, by stating their strong commitments to their current ratings and through generally continuing along a multi-year path whereby they have:

1) grown their unencumbered asset pools; 2) improved the size and scale of their businesses; 3) lowered their debt/EBITDA ratios; 4) increased their EBITDA/interest and debt service coverage ratios; and, 5) lowered their payout ratios.

Unsecured debt origination slows from record highs Following 2014’s all-time record volume of $5.5 billion, last year’s unsecured debt issuance sharply decelerated. Specifically, REITs and REOCs collectively issued $3.0 billion of unsecured debentures via 16 transactions, representing a 45% year-over-year decline in volume, to a figure that was also modestly behind the five-year (2010–2014) average of $3.8 billion. Relative to approximately $1 billion in 2015 unsecured debt maturities, issuance was still sizably positive, on a net basis. 2015 origination was substantially weighted toward the

January 7, 2016 148


early part of the year, with $2.3 billion of H1/15 activity contrasting with $0.8 billion of H2/15 activity.

As shown in Exhibit 151, 2015 REIT and REOC unsecured debenture financing spreads ranged from a low of 151 bps, for RioCan REIT’s four-year BBB-rated deal completed in March, to a high of 295 bps, for Allied REIT’s BBB (low)-rated five-year deal completed in August.

Exhibit 151: 2015 Canadian real estate unsecured debt financings ($MM, unless noted)4

Date Issuer Rating (DBRS) Principal Term

(Years) Spread

(bps) Coupon 8-Jan Ventas Canada Finance Limited1 n.a. 250 7 182 3.30% 20-Jan First Capital Realty BBB (High) 90 11 213 4.32% 20-Jan CREIT BBB 100 5 186 2.57% 20-Jan SmartREIT BBB 160 10 239 3.56% 1-Feb Choice Properties REIT BBB 250 5 160 2.30% 3-Feb RioCan REIT BBB (High) 300 9 222 3.29% 1-Mar Crombie REIT BBB (Low) 125 5 215 2.78% 25-Mar RioCan REIT (re-opening)2 BBB (High) 175 4 151 3.85% 8-May Allied Properties REIT BBB (low) 150 5 275 3.75% 27-May Cominar REIT BBB (low) 300 7 280 4.16% 1-Jun CT REIT BBB (High) 150 7 155 2.85% 1-Jun CT REIT BBB (High) 200 10 187 3.53% 21-Jul H&R REIT BBB 200 4 CDOR

+ 143 FR

18-Aug Allied Properties REIT BBB (low) 75 5 295 3.75% 24-Nov Choice Properties REIT BBB 200 10 235 4.06% 25-Nov Welltower Inc. n.a. 300 5 240 3.35% 2015 Total or weighted average3

3,025 7 215 3.42%

Notes: 1) Ventas Canada Finance Limited issued via private placement $250 million of 3.3% Senior Notes, Series “C” due 2022. Ventas Canada Finance Limited is a wholly owned subsidiary of Ventas, Inc. The Series “C” notes are unconditionally guaranteed by Ventas Inc. and rank pari passu with all existing and future senior unsecured indebtedness of the issuer and Ventas, Inc. Ventas, Inc. carries credit ratings of BBB+ (Fitch); Baa2 (stable outlook) (Moody’s); and BBB+/Stable/-- (Standard & Poor’s). 2) RioCan’s March 25, 2015 issuance was a re-opening of the company’s Series “Q” senior unsecured debentures originally issued in June 2012. The March 2015 re-opening was sold at a price of $107.312 with an effective yield of 2.04% if held to maturity. Following the completion of the offering, $350 million was outstanding under this series. 3) Term, spread and coupon are all weighted averages and exclude floating-rate notes (e.g., H&R REIT’s $200MM of CDOR+143 bonds). 4) Excluded from the exhibit are issuances from Canadian pension funds. In Q2/15, bcIMC Realty Corporation through two separate issuances raised an aggregate of $850 million in unsecured debt with a WATM of 7.9 years and a WAIR of 2.54% (weighted-average spread of 116 bps). Source: Company reports and RBC Capital Markets

While averages can be dangerous (as, by their nature, they tend to mask underlying highs and lows), we note that 2015’s $3.0 billion of unsecured debt origination carried a seven-year WATM and a 3.42% WAIR (for a weighted-average spread of 215 bps). We believe that almost any commercial real estate veteran would view these terms as being attractive debt capital from which to lever equity returns.

Statistically, annual unsecured debt origination by REITs and REOCs tends to carry a WATM of nearly seven years. While 2015’s weighted-average spread of 215 bps was wider by a sizable ~40 bps over 2014’s 175 bps, as illustrated in Exhibit 152, the 2015 average spread should in no way be considered outside the normal range.

2015’s $3.0 billion of real estate unsecured debt financings fell ~45% from 2014’s all-time high of $5.5 billion.

January 7, 2016 149


Exhibit 152: Post-GFC Canadian aggregate real estate unsecured debt financings ($B)1,2

5 yrs 7 yrs 7 yrs

7 yrs

7 yrs7 yrs

7 yrs

0bps

100bps

200bps

300bps

400bps

500bps

600bps

700bps

0

1

2

3

4

5

6

2009 2010 2011 2012 2013 2014 2015

Origination volume Weighted-average spread Notes: 1) Figures exclude origination activity from pension fund sponsored entities and REIT/REOC floating rate note issuance. 2) The values denoted with “yrs” represent the weighted-average term to maturity for each year’s origination activity. Source: Company reports and RBC Capital Markets

“BBB crowding” and reduced risk appetite across the corporate debt spectrum drive real estate unsecured spreads wider As previously noted, unsecured spreads widened by approximately 40 bps to 215 bps relative to 2014 activity. In our view, crowding within the BBB segment was a significant contributor to this trend. Playing a less significant role, we believe, was the preference on the part of credit investors for higher-rated debt (i.e., above BBB). We provide more details below.

Through mid-2015, corporate credit market “internals” seemed at least partially responsible for the general widening in real estate unsecured debt spreads. More specifically, last year, several large Canadian companies (outside of the property sector) allowed their credit ratings to slip. In each case, these issuers were A credits, or at minimum, “split-rated” A and BBB credits. The lowered ratings resulted in a much larger pool of BBB credits, which is the segment in which all listed REITs and REOCs are rated. Many investment policy statements (which govern allocations) have not been updated in a number of years (post-Global Financial Crisis). As such, we believe that many credit investors are now close to (or at) their investment policy statement limits on BBB-rated debt. Hence, the sizable uptick in the BBB bucket last year (along with shrinkage in the A bucket) created a phenomenon that we describe as “BBB-crowding”.

As discussed earlier in this report (on page 145), we believe the theme of broader and rising risk aversion through H2/15 exacerbated the “BBB-crowding” phenomenon.

Back to basics: In the absence of a narrowing unsecured spreads, we expect a shift toward more secured financing this year While we firmly believe the listed property sector will not waver from its path of improved creditworthiness, we also believe that no real estate unsecured debt investor should be surprised or cry “foul” if a senior REIT or REOC chooses to place a modest amount of incremental senior (mortgage) debt. With H2/15’s widening of real estate unsecured spreads, the appropriateness of the circumstances is, in our mind, rising. And this is despite our expectation that mortgage spreads may also “inch” wider this year too.

January 7, 2016 150


Clearly, there is a range of factors behind such a decision. And issuer-specific circumstances may result in varying weights being applied to the factors. Overall, we believe the spread “breakpoint” between secured mortgages and unsecured debenture financing is dependent on the financing term and issuer-specific credit rating. For shorter-term financings, “breakpoint” spreads between unsecureds and mortgages are narrower than for longer-term financings. The same statement holds true for higher-rated issuers versus lower-rated issuers.

Exhibit 153 graphically depicts the total volume of issuance and contractual maturities for real estate unsecured debt, by issuer category.

Exhibit 153: Investment-grade unsecured debt issuance/maturity schedule ($B) (1996-2020E+)

(8)

(6)

(4)

(2)

0

2

4

6

8

1996 1999 2002 2005 2008 2011 2014 2017E 2020E+

Public Pension REIT/REOC floating rate notes

(11B)

Note: Includes private placements. Source: Company reports and RBC Capital Markets estimates

2016 unsecured debt origination: Forecasting further moderation to $1.0–1.5B In 2016, there is an estimated $1.0 billion of REIT and REOC unsecured debentures with contractual maturities. We believe it is reasonable to expect 2016 unsecured debt originations between $1.0–1.5 billion. We believe listed REITs and REOCs will apply origination funding for the purposes of repaying and/or refinancing pending maturities and for growth initiatives.

Despite short-term spread volatility, increasing size and a spotless record should increase the unsecured real estate debt market’s reliability With a growing roster of publicly listed unsecured issuers and a growing aggregate outstanding principal balance, the unsecured debt market continues to develop in its depth, track record, and sophistication. Over the past 20 years, the market has provided average funding of $1.3 billion annually for REITs and REOCs. Including pension-fund sponsored entity issuance, average annual funding has been $1.6 billion.

Listed real estate enterprises see clear benefits in unsecured debt financing, including:

1) quick access to large loan amounts (i.e., $100–200 million typically per tranche); 2) asset-level flexibility from the unsecured nature of the debt; 3) semi-annual interest payments (as opposed to monthly payments for mortgages); and, 4) interest-only servicing requirements.

In 2016, we estimate unsecured debt maturities will total ~$1 billion.

January 7, 2016 151


Offsetting the benefits are several factors that we believe issuers recognize, including:

1) the need for liability diversification; and, 2) relative spread. With respect to liability diversification, most listed issuers will maintain unsecured debt at no more than one-third of their total debt capital. To exceed this ratio is viewed by many as taking an imprudent degree of refinancing risk, in light of the unsecured market’s propensity to be inaccessible from time to time (calendar years 1999 and 2003 were periods when there was no REIT or REOC unsecured debt origination, as market conditions were very unfavourable to potential issuers). With respect to the cost of capital factor, we believe issuer appetite for unsecured debt is generally decent when, as a rule of thumb, spreads are within 25 bps to as much as 75 bps of what could be achieved on mortgages of comparable terms.

Canadian CMBS: 2015 origination trends lower; remains way below pre-GFC levels Prior to the late 1990s, the Canadian real estate market was predominantly private where lending was dominated by banks, life insurance companies, and pension funds. 1998 saw Canada’s inaugural CMBS transaction. However, it was not until the early 2000s that CMBS origination activity began to accelerate meaningfully.

The CMBS market peaked in 2006 with $4.8 billion of issuance, as lenders started originating loans for the sole purpose of securitization (conduits). By the end of 2007, the CMBS market had provided the real estate industry with more than $23 billion of debt capital. The Global Financial Crisis (“GFC”) essentially vapourized investor appetite, and there were no originations in the three years thereafter.

Exhibit 154 graphically depicts annual Canadian CMBS originations from 1998 to 2015.

Exhibit 154: Canadian CMBS – Historical origination activity (1997 to 2015) ($B)

0

1

2

3

4

5

6

1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: Bloomberg and RBC Capital Markets

Although CMBS originations have re-emerged over the last five years, volumes pale to pre-GFC levels. Since the GFC, $4 billion of CMBS has been issued across 14 transactions, including 2015’s issuance of $810 million.

January 7, 2016 152


The 2011 Canadian CMBS re-birth; but only to a modest pace of annual issuance In February 2011, the Canadian CMBS market was “reborn” when Institutional Mortgage Capital Canada Inc. (“IMC”) completed a $206 million private placement. The financing included a pool of 16 fixed-rate loans secured by retail properties owned by RioCan REIT (12 properties) and SmartREIT (four properties).

In 2012, two additional CMBS transactions, aggregating to $489 million, were completed. The 2012 vintage securities contained greater asset-class diversity (i.e., office, retail, industrial, and apartment) and a larger number of property owners within the respective mortgage pools, relative to 2011’s transaction.

2013 origination activity nearly tripled to $1.4 billion, via four transactions. Three of the four financings offered reasonable diversification by property type and number of loans, moderate LTVs and debt service metrics, and acceptable borrower diversification. The fourth was in effect the slicing of a single $400 million loan against a portfolio of five full-service Westin-flagged hotels located in Calgary, Toronto, Ottawa, Vancouver, and Edmonton.

In 2014, origination activity totalled approximately $1.1 billion through four financings. The annual total marked a 20% year-over-year decline relative to 2013’s $1.4 billion. With respect to asset composition, loans against retail assets accounted for 36% of the annual total. Mixed-use properties contributed another 15% while office and industrial each accounted for 13%. The balance of the loan pools was backed by a broad mix of apartments, self-storage, hotel, and retirement communities.

Last year, through three financings, CMBS issuance totalled $810 million, marking a 26% decline from 2014’s activity. 2015’s total was the second consecutive year when annual origination activity declined. Geographically, loans against assets located in Ontario constituted just over half of the annual volumes. Accounting for roughly equal portions of the remaining balance was British Colombia (11%), Alberta (12%), and Quebec (13%). By asset class, financings secured against retail assets made up 35% of the overall balance. Office assets accounted for another 13% while multi-family provided 12%. Remaining loans were backed by a wide range of other asset types, such as industrial, lodging, and self-storage.

$9.6B aggregate Canadian CMBS balance with a heavy maturity profile through 2017; negative net issuance expected this year Currently, there is approximately $9.6 billion in CMBS bonds outstanding. AAA-rated securities represent the sizable majority (~80% or $7.7 billion) of the investible universe. According to CMLS, the total size of the commercial mortgage market in Canada is estimated at $195 billion, implying that ~5% of commercial real estate has been securitized. In comparison, roughly 16% of outstanding loans in the US have been securitized. These market-share statistics would suggest that there remains ample room for long-term CMBS growth in Canada.

Exhibit 155 graphically depicts the CMBS maturity profile through to 2019. This year, a sizable $3 billion will mature followed by a further $2.1 billion in 2017.

Please click on the image for The Canadian CMBS Sector: Rising from the rubble.

January 7, 2016 153

https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_8C6D8BD46AAEC8D75543CD1556C991EC


Exhibit 155: Canadian CMBS – Maturity profile (2016–2019) ($B)

0

50

100

150

200

250

300

350

400

450

500

0

1

2

3

4

2016 2017 2018 2019

Maturities ($B) (LHS) Number of Loans (RHS)

Source: Bloomberg and RBC Capital Markets

Expecting $1.2–1.6B of 2016 CMBS origination Looking ahead, RBC Capital Market’s Credit Analyst, Vivek Selot, does not expect lenders will fully refinance near-term CMBS maturities. Supporting this view, Vivek cites relatively wider CMBS funding spreads and the challenges in the current capital markets of placing very large CMBS deals. For 2016, Vivek forecasts annual CMBS origination activity within the $1.2–1.6 billion range. If achieved, this would represent a volume increase of 50–100%, but it will not match total maturities.

The implications for REITs and REOCs surrounding this year’s anticipated net negative funding activity is largely dependent on issuer asset calibre and credit profile. For borrowers with desirable assets and investment-grade credit ratings, lenders are likely to be more willing to use their balance sheets to provide financing. Entities with lower-quality assets that have traditionally sought conduit lenders for funding will potentially have to tap other sources.

For a more detailed discussion on the Canadian CMBS sector, we refer readers to Vivek Selot’s, October 5, 2015 publication entitled The Canadian CMBS Sector – Rising from the rubble.

Canadian CMBS delinquencies in line with LTA; substantial differences versus the US market Historical Canadian CMBS performance (delinquency) data compare very favourably relative to the US experience. According to DBRS, the October 2015 Canadian CMBS delinquency rate was 0.50%, suggesting there is roughly $48 million of delinquent and/or non-performing loans. This percentage remains in line with the long-term average (dating back to 2008) of 0.50%. Since 1998, cumulative losses amount to approximately 9 basis points of the aggregate issuance volume totalling $26 billion. The recent (October 2015) reading on US CMBS delinquencies was 6.4%. This is a modest improvement over the 6.5% reading 12-months prior and the 6.6% reading on December 31, 2014. Prior to the Global Financial Crisis, US CMBS delinquencies were running at ~60 bps, higher, but not substantially dissimilar to the Canadian credit performance.

This year, a sizable $3 billion (448 loans) will mature followed by a further $2.1 billion (299 loans) in 2017.

January 7, 2016 154




Exhibit 156: Canadian and US CMBS delinquencies (monthly) (Oct. 2008–Oct. 2015)

0%

2%

4%

6%

8%

10%

12%

14%

Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15

Canada US Source: DBRS, CMBS.com, and RBC Capital Markets

The Canadian commercial real estate lending environment has several structural features that reduce the risk profile of commercial mortgages. The Canadian mortgage loan structure usually provides the lender with recourse to a guarantor with tangible assets (in addition to the mortgaged assets), providing strong incentive for borrowers to avoid loan defaults. In addition, Canadian foreclosure laws are more “lender friendly” than in the US, resulting in shorter foreclosure periods and thus lower loss severities. Furthermore, the big-six banks have a sizable share of overall commercial mortgage lending in Canada, and this degree of concentration has been part and parcel with the lenders maintaining stability in underwriting standards, in our view.

Tepid Canadian CMBS re-emergence: There is more than one way to look at this As noted, the Canadian CMBS market has been slow to re-establish any appreciable momentum. Taking a different angle that one might expect at first, we see this as a positive outcome. There is no question; we would rather the real estate sector had access to more and not fewer sources of debt capital. However, we also believe that the CMBS market’s tempered revival has been a function of the property sector’s solid access to alternate sources of debt capital, principally mortgages from traditional balance sheet lenders and unsecured debentures. While issuance was tempered in H2/15, it is still notable that since 2010, the real estate unsecured debt market has grown four fold to approximately $16 billion today.

Over time, we believe Canadian CMBS’ foundation will be based on its low delinquency rate and the returns generated for its investors. To date, we believe it is hard to portray the very low delinquencies as anything other than a good news story.

Alternative financiers: Continuing to serve an important role in real estate financing, despite lower capital raisings Alternative real estate financiers (mortgage investment entities or “MIEs”), including mortgage investment corporations (“MICs”), mortgage investment funds (“MIFs”), and other vehicles, grew in prominence in 2011 and 2012. Over these two years, MIEs raised more than $1.2 billion of capital via the public markets, mostly through the investment-fund structure. A listing of annual equity and equity-related issuance by MIEs is included below (Exhibit 157).

Alternative financiers typically invest in areas of the real estate debt market that are underserviced by larger financial institutions. Mezzanine and high-interest rate loans are

January 7, 2016 155


often extended on a shorter-term basis (typically one to three years) to properties that may have existing senior debt or have yet to be “income stabilized”. Even the senior loans tend to be higher coupon and short term in nature than those typically extended by the core group of balance sheet lenders (banks, life insurance companies, pension funds, and the like). Loans may also include origination fees that are charged to the borrower.

Fund managers typically collect a portfolio-management fee based on the net asset value of funds under management. Other fees may be paid such as trailer fees to registered dealers or origination fees to the manager. Each vehicle normally has a set of investment guidelines with respect to the types of loans that it can make. These guidelines may include limits on the lenders ability to include leverage in its capital structure. Typically, the vehicles employ some leverage, although this is usually capped at ~40%.

Exhibit 157: Alternative financiers: 2011–2015 capital raised ($MM, unless noted)

Issuer Name Security Description Launch

Date Issue Yield

Gross Proceeds

First National Financial Corp. 4.65% Cum. 5Y Rate Reset Class A Pref. 05-Jan-11 4.65% 100 Timbercreek MIC Class A Shares 07-Jan-11 8.16% 49 MCAN Mortgage Corporation Common Shares 30-Mar-11 7.45% 33 Home Capital Group Inc. 5.20% Debentures, due May 4-16 21-Apr-11 5.20% 150 Firm Capital MIC 5.40% Conv. Debts., due Feb. 28-19 03-Aug-11 5.40% 26 Timbercreek MIC Class A Shares 29-Aug-11 8.16% 101 Timbercreek Senior MIC Class A Shares 06-Dec-11 6.00% 115 2011 Weighted Average1 / Total 6.56% 574 Firm Capital MIC Common Shares 01-Mar-12 7.36% 21 Firm Capital MIC 5.25% Conv. Debts., due Mar. 31-19 01-Mar-12 5.25% 20 Trez Capital MIC Class A Shares 28-Apr-12 7.00% 115 Timbercreek Senior MIC Class A Shares 29-May-12 6.00% 150 MCAN Mortgage Corporation Common Shares 10-Jul-12 9.11% 20 Trez Capital MIC Class A Shares 03-Aug-12 7.00% 115 First National MIF Units 26-Oct-12 6.00% 55 Atrium MIC Class A Shares 26-Oct-12 7.50% 55 Trez Capital Senior MIC Class A Shares 26-Oct-12 5.00% 85 Timbercreek Senior MIC Class A Shares 20-Nov-12 6.00% 60 2012 Weighted Average1 / Total 6.52% 696 Eclipse Residential MIC Class A Shares 28-Jun-13 6.00% 39 2013 Weighted Average1 / Total 6.00% 39 Firm Capital MIC Common Shares 07-Jan-14 7.63% 24 Timbercreek MIC 6.35% Conv. Debts., due Mar. 31-19 04-Feb-14 6.35% 35 Atrium MIC 6.25% Conv. Debts., due Mar. 31-19 06-Feb-14 6.25% 32 First National Financial Corp. Common Shares 03-Mar-14 6.02% 50 Timbercreek MIC Class A Shares 27-Mar-14 8.60% 35 Atrium MIC Common Shares 01-May-14 7.19% 35 Atrium MIC 5.50% Conv. Debts.,, due Sept. 30-21 02-Sept-14 5.50% 40 2014 Weighted Average1 / Total 6.69% 250 Firm Capital MIC 5.30% Conv. Debts.,, due May. 31-22 26-Mar-15 5.30% 25 MCAN Mortgage Corporation Common Shares 03-Jun-15 10.28% 15 Atrium MIC Common Shares 29-Oct-15 7.18% 25 Firm Capital MIC 5.50% Conv. Debts.,, due May. 31-22 2-Dec-15 5.50% 20

2015 Weighted Average1 / Total 6.79% 85

Weighted Average1 / Total 6.67% 1,644

Notes: MIC = Mortgage Investment Corporation; MIF = Mortgage Investment Fund. 1 Issue yield weighted average excludes preferred equity and debentures. Source: Company reports, RBC Capital Markets

Since 2012, capital raisings by alternative financiers have noticeably decelerated.

January 7, 2016 156


Lower annual capital raising volumes following regulatory changes On March 27, 2013, the Canadian Securities Administrator (“CSA”) issued a notice and request for comment to “modernize” investment-fund rules. This process led to the September 2013 notice from the Ontario Securities Commission that on a go-forward basis, required MICs and MIFs to register their offerings as non-investment fund reporting issuers; whereas formerly, they were allowed to register their offerings under the category of investment funds.

The regulatory changes coincided with what some might have argued (at the time) was a saturated market. Raising $390 million in H2/12, issuance declined to muted levels in 2013. In 2014, volumes rebounded sharply to $250 million but still remained below 2011–2012 levels. Last year, activity totalled approximately $85 million via four transactions. This level marked a 66% decline from 2014’s annual sum and was little more than 10% of the average annual transaction activity (~$630 million) achieved in 2011–2012.

It appears that the regulatory changes have negatively affected capital-raising volumes by MICs. However, we continue to believe that MICs and MIFs can and will serve a valuable, albeit generally niche role, in the real estate financing markets for investors and borrowers alike.

Lender consolidation, widening H2/15 real estate unsecured spreads, and a heavy CBMS maturity profile may ripple into the secured funding market The mortgage market has been particularly reliable for borrowers over the long term. While mortgage loan spreads have oscillated over time, they tend to exhibit “low and slow” volatility, outside periods of tremendous market optimism (i.e., 2006–2007) or extreme pessimism (i.e., 2008–2009).

Interestingly, last year, two transactions reduced the already narrow Canadian lender pool by two:

1) the US$23 billion acquisition of most of the assets of GE Capital Real Estate by Blackstone (NSYE: BX) and Wells Fargo (NYSE: WFC), which closed in June 2015; and,

2) Manulife Financial Corporation’s (TSX: MFC; NYSE: MFC) $4 billion purchase of Standard Life PLC’s (LSE: SL) Canadian assets.

We see: 1) lender consolidation activity; 2) the H2/15 widening of real estate unsecured debt spreads; and, 3) a sizable 2016 maturity schedule for Canadian CMBS, as three factors that may ripple into the mortgage market, in the form of modest spread widening through 2016.

Overall, we see little reason to believe that mortgage spreads will venture notably outside of the 170–200 bps range this year. This range compares to year-end 2015 and year-end 2014 spreads of 190 bps and 150 bps, respectively.

We note that mortgage lenders typically seem to commence the year with an eagerness to achieve their lending targets. As such, if this pattern is repeated, their desire to put capital out the door may even drive slight spread tightening in early 2016. In contrast, through the back half, we currently see the risk of spread “creep”. Nonetheless, for 2016 as a whole, we believe the mortgage market will continue to remain generally favourable and attractive to issuers.

January 7, 2016 157


Liquidity, leverage, and lease maturity profiles As a regular feature within each edition of the REIT Quarterly, we review issuer-specific and aggregate listed property sector liquidity. Our definition of an issuer’s liquidity includes unencumbered cash and available (undrawn) lines of credit. The liquidity position is then compared to total indebtedness and the annual debt-maturity profile, which gives rise to what we refer to as the “liquidity ratio”.

Group average liquidity holding just below the midpoint of the “normal” band The group’s Q3/15 weighted-average liquidity measured 8.5%, which represented a sequential decrease of 20 bps from Q2/15’s 8.7%. As shown in Exhibit 158, the group average’s liquidity typically oscillates within the 8–10% band. Thus, the current reading is modestly below the midpoint of the “normal” range. A handful of factors have contributed toward gradually lower liquidity over the past 18 months, including: 1) curtailed equity issuance; 2) widening unsecured real estate debt spreads through 2015; and, 3) a step-up in equity repurchase activity (normal course issuer bids). We also note that approximately 15 bps (of 20 bps) of “drawdown” in the Q3/15 reading relative to Q2/15 relates to the timing of CAPREIT’s ~$690 million of acquisitions in September, which were partially financed with a $250 million equity raise completed in early October.

Exhibit 158: Historical capital activity and group-average liquidity (Q1/08A to Q4/15E)

0%

5%

10%

15%

$0B

$1B

$2B

$3B

Q1/08 Q4/08 Q3/09 Q2/10 Q1/11 Q4/11 Q3/12 Q2/13 Q1/14 Q4/14 Q3/15

Equity Conv. Debs. W.A. Liquidity Ratio (RHS) Source: Company reports and RBC Capital Markets estimates

Issuer-specific estimates of liquidity and debt-maturity profiles are presented in Exhibit 159 on the next page. Estimates are derived from Q3/15 financial statements.

We believe a ratio of less than 5% is generally indicative of a low level of liquidity. Our estimates show that six entities fall within this group: CAPREIT, Killam Apartment REIT, Northview Apartment REIT, NorthWest Healthcare REIT, Pure Industrial REIT, and OneREIT.

In contrast, we see a liquidity ratio in excess of 10% as being indicative of a high level of liquidity. Our analysis reveals that this category is now occupied by 10 entities: Agellan Commercial REIT, Boardwalk REIT, CREIT, CT REIT, Extendicare, First Capital Realty, Granite REIT, Melcor Developments Limited, Milestone Apartments REIT, and Slate Retail REIT.

Group-average liquidity registered 8.5%, a 220 bps decline from the recent high of 10.7% reached in Q2/14.

January 7, 2016 158


Exhibit 159: Canadian REIT and REOC liquidity / debt maturity summary1 ($MM)

Cash Credit Lines

Liquidity2 Total Debt

Liquidity / Total

Debt

Debt Maturity Profile (% of Total Debt)

WATM (years)

Credit Lines

2015

2016

2017

2018

2019+ Auth'd Available

Agellan Commercial REIT 7 120 33 39 345 11% 25% 0% 2% 1% 37% 33% n.d. Allied Properties REIT 7 200 75 82 1,562 5% 8% 2% 7% 10% 6% 67% 5.6 Artis REIT 71 300 125 195 2,921 7% 6% 6% 16% 20% 11% 42% 3.6 Boardwalk REIT 250 193 193 443 2,325 19% 0% 5% 11% 13% 7% 64% 5.0 Brookfield Cda Office Properties 50 350 208 258 2,730 9% 5% 0% 9% 12% 0% 74% 7.0 Brookfield Property Partners3 1,064 3,500 1,380 2,444 35,220 7% 8% 3% 16% 12% 15% 46% 4.7 CAPREIT 0 790 18 18 3,434 1% 20% 3% 5% 7% 8% 58% 6.2 Chartwell Retirement Residences 13 195 141 154 1,543 10% 3% 3% 10% 7% 17% 60% 8.6 Choice Properties REIT 8 500 367 375 3,862 10% 3% 0% 8% 5% 10% 73% 4.6 Cominar REIT 5 700 360 365 4,484 8% 8% 11% 10% 11% 10% 51% 4.0 CREIT 31 300 221 253 2,113 12% 3% 2% 12% 9% 11% 62% 5.9 Crombie REIT 0 300 135 135 2,121 6% 8% 0% 4% 4% 13% 71% 7.1 CT REIT 44 200 200 243 2,081 12% 0% 0% 10% 3% 1% 86% n.d. Dream Office REIT 13 453 185 198 3,597 6% 7% 6% 13% 13% 12% 49% 3.8 Extendicare 191 47 4 195 470 41% 0% 2% 6% 8% 5% 79% 9.3 First Capital Realty 9 995 780 789 3,820 21% 4% 1% 5% 11% 9% 70% 5.7 Granite REIT 140 250 205 345 587 59% 8% 0% 3% 10% 37% 43% n.d. H&R REIT 100 471 361 461 6,759 7% 2% 5% 11% 11% 14% 57% 6.1 InnVest REIT 10 100 56 66 1,017 6% 4% 0% 6% 25% 12% 54% 5.0 Killam Apartment REIT 16 4 2 18 1,059 2% 0% 0% 13% 19% 15% 53% 4.3 Melcor Developments Limited 38 145 34 72 545 13% 20% 21% 9% 2% 5% 42% n.d. Melcor REIT 1 35 30 30 340 9% 2% 3% 14% 3% 16% 63% 4.7 Milestone Apartments REIT3 48 85 85 133 948 14% 0% 0% 4% 1% 4% 92% 6.8 Morguard Corporation 68 349 139 208 4,096 5% 5% 8% 5% 16% 13% 53% 5.3 Morguard NA Residential REIT 7 100 87 95 1,109 9% 1% 2% 5% 22% 16% 53% 5.1 Morguard REIT 15 120 120 134 1,373 10% 0% 1% 7% 17% 6% 68% 5.5 Northview Apartment REIT 2 63 22 24 892 3% 10% 5% 12% 5% 12% 56% 5.8 NorthWest Healthcare REIT 10 55 10 20 1,171 2% 4% 11% 12% 16% 13% 44% n.d. Plaza Retail REIT 4 67 25 30 579 5% 7% 0% 8% 10% 11% 64% 6.7 Pure Industrial REIT 18 81 21 39 1,014 4% 6% 2% 9% 15% 10% 59% 4.8 OneREIT 3 29 13 16 693 2% 2% 2% 18% 8% 10% 60% 6.0 RioCan REIT 40 731 584 625 6,662 9% 2% 3% 10% 14% 12% 60% 4.2 Sienna Senior Living 20 80 26 46 607 8% 9% 0% 3% 6% 12% 69% 4.8 Slate Retail REIT3 13 225 65 78 539 14% 30% 0% 0% 0% 0% 70% n.d. SmartREIT 74 350 332 406 3,870 10% 0% 3% 6% 12% 13% 66% 5.6 WPT Industrial REIT3 8 75 28 36 361 10% 13% 0% 6% 1% 9% 71% 5.2 Simple Averages 10.7% 6% 3% 8% 10% 11% 61% 5.6 Totals/Wtd Averages 2,397 12,558 6,669 9,066 106,846 8.5% 6% 3% 11% 12% 12% 56%

Notes: 1 Based on Q3/15 financial statements. 2 Liquidity is defined as cash plus availability under credit lines. 3 Brookfield Property Partners data are proportionately consolidated group liquidity, excluding dedicated construction loans. Brookfield Property Partners, Milestone Apartments REIT, WPT Industrial REIT, and Slate Retail REIT figures are each shown above in USD. Source: Company reports and RBC Capital Markets

Recent and notable changes in liquidity positions Liquidity positions shift continuously, as entities lead in and out of transactions and pass through normal-course variability in operations. Highlights of significant changes in liquidity positions subsequent to Q3/15 include:

Allied REIT – On December 14, Allied closed a $150 million unsecured facility with a Canadian chartered bank for a term of three years at a floating interest rate of CDOR + 1.7% per year,

January 7, 2016 159


which was then fixed at 2.66% via an interest rate swap. We see the transaction as a means of synthetically creating a three-year unsecured debenture. Proceeds from the transactions were used to repay fully $125 million drawn on the company’s revolving facility as of Q3/15. As a result, we estimate the liquidity ratio increased to 15% from 5% of total debt.

Artis REIT – Through Q4/15, Artis completed a number of transactions that we believe had the net impact of trimming corporate liquidity by ~$20–30 million to 6% of total debt, including: 1) the repayment of six maturing mortgages with a total principal amount of $48 million; 2) the October and November sale of two office buildings for estimated gross proceeds of $59 million (605 Waterford Park, a 204,417 sf unencumbered office building in suburban Minneapolis and Willingdon Green, a 46,783 sf unencumbered office property in suburban Vancouver); and, 3) the US$69 million November purchase of Canadian Pacific Plaza, a 26-storey, 393,884 sf office building located in downtown Minneapolis (the purchase included the assumption of a mortgage).

CAPREIT – On October 9, CAPREIT closed its equity issue and sale of 8.7 million units for $28.70 per unit for gross proceeds of $250.3 million. The proceeds along with a series of mortgage placements in the month were used to repay fully the $450 million bridge facility that had been used in conjunction with the acquisition of a 3,661-suite, $502 million Greater Montreal portfolio on September 30. Pro forma the October equity financing, we estimate CAPREIT’s liquidity ratio increases to ~5% from 1%.

Choice Properties REIT – On November 17, Choice Properties completed the $46 million acquisition of five retail properties totalling 161,000 sf from subsidiaries of Loblaw Companies Limited. The acquisition was funded by the issuance of $15 million of Class B LP Units of Choice Properties Limited Partnership and the remaining balance in cash. On November 24, the REIT completed the issuance of $200 million of Series “F” senior unsecured debentures. We estimate the net impact of the transaction was to increase pro-forma liquidity to ~$540 million (+$166 million) or 14% of total debt (10% previously).

Cominar REIT – On October 9, Cominar redeemed, at maturity, $250 million of Series “5” floating-rate senior unsecured debentures by drawing on its credit facility. We estimate pro-forma liquidity decreased from 8% to 3% of total debt.

Crombie REIT – On November 3, Crombie added 217,600 sf to its portfolio via the purchase of four retail properties and an additional interest in a fifth for a total investment of $57 million. On the same date, the REIT obtained $110 million of mortgage financing (2.8% WAIR; 4.5 year WATM). As such, we estimate that liquidity increased by $53 million from 6% to 9% of total debt.

Extendicare Inc. – Extendicare continued to deploy proceeds from the recent sale of its US properties via: 1) the October 1 acquisition of Empire Crossing Retirement Community (a newly built 64-suite independent/enhanced living community) for $20 million; 2) the December 1 purchase of three private-pay retirement communities (284 suites) for $79 million; and, 3) an agreement to acquire two properties (158 suites) currently under construction in Saskatchewan for $41 million. Pro forma these three transactions, we estimate liquidity to decline to $55 million (-$140 million) to 12% of total debt.

H&R REIT – Q4/15 was a busy period for H&R, with the following transactions increasing liquidity by an estimated $134 million to 9% of total debt (from 7% as of Q3/15): 1) the acquisition of three apartment properties in Austin and Dallas for US$92 million (US$51 million, net of assumed mortgages); 2) a $167 million mortgage refinancing on Place du Royaume, an enclosed mall located in Chicoutimi, QC, with incremental proceeds of $104 million; 3) the repayment of $235 million of maturing Series “H” senior unsecured debentures; and, 4) renewal of credit facilities with an additional $300 million in capacity.

January 7, 2016 160


Melcor REIT – In mid-November, the REIT purchased the remaining 50% interests in two commercial properties (a 43,116 sf retail property located in Chestemere, AB and a 10,091 sf single-tenant industrial building located in Leduc, AB) from Melcor Developments Ltd. for $15 million. Pro forma, we estimate the REIT’s liquidity decreased to $21 million (-$9 million) to 6% of total debt from 9% formerly.

Milestone Apartments REIT – On October 22, the REIT announced that it had entered into a definitive agreement with Starwood Capital Group to acquire, by way of merger, Landmark Apartment Trust for an equity value of ~US$550 million. Including assumed net debt of US$1.36 billion (as of Q2/15), the deal is valued at US$1.9 billion. As part of the acquisition, the REIT will acquire 15 properties encompassing 4,172 units for a purchase price of US$502 million. On October 30, Milestone issued 9.6 million subscription receipts priced at $15.00 each, for gross proceeds of $144 million (estimated at US$105 million, net of all fees and expenses). The deal will also include estimated debt of US$414 million (US$262 million of assumed mortgages plus the placement of new mortgages debt), and Milestone expects to generate additional proceeds through the sale of four properties comprised of 1,534 suites for estimated gross proceeds of US$107 million. The acquisition of Landmark assets and the planned property sales should all be on track for Q1/16 closing. We expect the net impact on Milestone Apartments REIT is a modest drawdown in liquidity.

Northview Apartment REIT – On October 30, Northern Property REIT (“NPR”) acquired all of the assets and properties of True North Apartment REIT (8,908 apartment suites), and two portfolios (4,650 apartment suites) from entities affiliated with Starlight Investments Ltd. and Public Sector Pension Investment Board. In total, the deals had an aggregate value of $1.4 billion and were satisfied by a combination of cash, assumed debt, and the issuance of NPR Trust Units and NPR Limited Partnership Class B Units. Post-closing, the company was renamed Northview Apartment REIT. We estimate that Northview’s pro-forma D/GBV ratio increased to 59% from 52% formerly and that its pro-forma liquidity ratio is Q3/15 reading of 3%.

RioCan REIT – Subsequent to Q3, RioCan added $200 million of capacity to its existing credit facility and completed the acquisition of 23 properties from the RioKim JV (a joint venture between RioCan and Kimco) for a purchase price of $774 million. Financing was in the form of $264 million of assumed debt with the balance in cash and drawings on the credit facility. Additionally, the REIT announced the sale of its US portfolio, with an expected closing date of April 30, 2016, for net proceeds of approximately $1.2 billion. Pro forma, we expect RioCan’s liquidity to increase by $200 million to $824million, equating to 17% of total debt.

Debt maturities are evenly staggered Our database pegs aggregate 2016 debt maturities (for REITs and REOCs under coverage) at ~$12 billion (~11% of total debt). From 2017 through 2018, aggregate annual debt maturities are ~24% of total debt (~12% in each year). Hence, the debt maturity ladder of our coverage universe is generally well staggered. While many entities have been taking advantage of low interest rates for term-out and roll-down opportunities, we note that the Q3/15 average WATM of 5.6 years increased only slightly relative to the prior quarter’s reading of 5.4 years.

Convertible debentures: Modest 2016 maturities of $107 million By our count, the aggregate value of REIT/REOC convertible debentures outstanding as of Q4/15 was $2.7 billion (at par), $0.6 billion less than the $3.3 billion outstanding at the beginning of 2015.

Three series representing $107 million (4% of the $2.7 billion outstanding) mature in 2016. H&R REIT’s $75 million, 4.50%, series “E” convertible debenture, which matures in December 2016, represents approximately three-quarters of this year’s total maturities.

January 7, 2016 161


Convertible debenture maturities accelerate over the next two years, with $556 million (ten series) maturing in 2017 and $913 million (16 series) maturing in 2018. A comparative valuation table of various REIT/REOC convertible debentures is provided in Appendix VIII.

Aggregate debt-to-EV ratio edges up slightly; +90bps year over year Exhibit 160 provides a comparison of the Debt/Enterprise Value (“D/EV”) ratio for each entity under coverage at the end of Q4/15 compared to the same metric at the end of Q4/14. As illustrated, D/EV ratios varied from OneREIT’s high of 71% to a low of 25% for Granite REIT.

Exhibit 160: Debt/enterprise value ratios1 (ranked as of December 31, 2015)

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Q4/14 Q4/15 Average Note: 1 Convertible debentures treated as debt. Source: Company reports and RBC Capital Markets

The average D/EV ratio for our coverage universe was 54% at the end of Q4/15. This level is up 70 bps sequentially and 90 bps year over year. In assessing issuer-specific D/EV ratios, we note that:

• The largest year-over-year improvement (3,240bps decrease to 36%) was recorded by Extendicare Inc.

• The largest year-over-year leverage increase (1,540bps increase to 66%) was recorded by Northview Apartment REIT.

LTVs decline ~100 bps year over year Complementing the D/EV metric, financial leverage should also be examined in the context of estimated private market or appraised property value. This metric, which is often referred to in the industry as loan-to-value (“LTV”) is our preferred balance sheet leverage ratio.

Over the past year, the simple-average LTV estimate for our coverage universe declined 100 bps to 49%. During this timeframe, our average applied capitalization rate of 6.4% decreased by approximately 30 bps from Q4/14’s 6.7%.10

10Excluding companies newly added to our coverage since last year, on a same-company basis, LTV was 49%, and the average applied cap rate was 6.5%.

The average D/EV ratio for our coverage universe was 54% at the end of Q4/15.

January 7, 2016 162


Exhibit 161 summarizes balance sheet leverage and liquidity ratios for each entity under coverage. Those registering notably above-average LTVs and/or below-average liquidity are underlined.11

Exhibit 161: Financial leverage metrics and liquidity ratios

Debt/

EBITDA1 D/EV3

Q4/15

Q4/152 Q4/14 Chg (pp) LTV4 Cap Rate5 Liq. Ratio6 Agellan Commercial REIT 7.7x 62% 61% 0.7 53% 7.8% 11% Allied Properties REIT 8.2x 41% 34% 6.5 39% 6.0% 5% Artis REIT 9.3x 64% 60% 3.4 56% 6.5% 7% Boardwalk REIT 8.3x 49% 41% 7.3 38% 5.1% 19% Brookfield Cda Office Props. 11.7x 53% 51% 2.2 45% 4.8% 9% Brookfield Property Partners 15.4x 62% 64% (2.3) 56% 4.8% 7% CAPREIT 9.8x 48% 50% (1.8) 46% 5% 1% Chartwell Retirement Res. 8.2x 44% 50% (6.1) 47% 6.7% 10% Choice Properties REIT 7.7x 45% 47% (2.3) 46% 6.3% 10% Cominar REIT 9.2x 63% 60% 3.0 57% 6.6% 8% CREIT 7.6x 41% 38% 2.5 38% 5.9% 12% Crombie REIT 9.0x 56% 54% 1.8 53% 6.3% 6% CT REIT 7.7x 46% 47% (1.6) 48% 6.4% 12% Dream Office REIT 8.4x 65% 57% 8.1 50% 6.1% 6% Extendicare 8.5x 36% 68% (32.4) 26% 8.3% 41% First Capital Realty 10.0x 48% 48% (0.8) 49% 5.6% 21% Granite REIT 2.4x 25% 21% 4.0 17% 8.5% 59% H&R REIT 8.3x 53% 52% 1.0 47% 6.0% 7% InnVest REIT 7.0x 60% 62% (1.8) 58% 7.8% 6% Killam Apartment REIT 11.4x 61% 60% 1.1 57% 5.7% 2% Melcor REIT 9.0x 65% 59% 5.7 56% 6.6% 9% Milestone Apartments REIT 9.5x 61% 57% 4.2 53% 6.3% 14% Morguard NA Res. REIT 11.6x 69% 67% 1.4 56% 5.5% 9% Morguard REIT 8.4x 62% 55% 6.7 50% 6.2% 10% Northview Apartment REIT 9.9x 66% 51% 15.4 59% 6.4% 3% NorthWest Healthcare REIT 11.0x 64% 62% 2.4 63% 7% 2% Plaza Retail REIT 10.9x 57% 57% (0.7) 58% 7.0% 5% Pure Industrial REIT 8.7x 54% 50% 4.1 50% 6.4% 4% OneREIT 9.7x 71% 63% 7.4 64% 7.0% 2% RioCan REIT 8.6x 43% 45% (2.2) 40% 5.8% 9% Sienna Senior Living 9.3x 51% 53% (2.3) 53% 7.9% 8% Slate Retail REIT 8.8x 62% 63% (0.6) 60% 7.4% 14% SmartREIT 8.6x 46% 45% 0.1 45% 6.0% 10% WPT Industrial REIT 7.6x 47% 50% (2.9) 49% 7.0% 10% Simple Averages 9.0x 54% 53% 0.92 49% 6.4% 11%

Notes: 1 Current debt to 12-month forward EBITDA adjusted for non-cash revenue and expenses. 2 Balance sheet component as of Q3/15, equity component at market value as of December 31, 2015. 3 D/EV = Debt as a percentage of Enterprise Value. Convertible debentures are included within debt at their face value. EV is based on the trading prices of units or shares + total debt. 4 LTV = Loan to Value, or debt as a ratio of RBC Capital Markets’ estimate of the private-market value of total assets. 5 The Capitalization Rate that we apply in our determination of private-market value. 6 The Liquidity Ratio measures total available liquidity (cash + undrawn credit) relative to total indebtedness. Source: Company reports and RBC Capital Markets estimates

11Above-average LTVs are those that exceed 55%. Below-average liquidity is a liquidity ratio less than 5%.

January 7, 2016 163


Cash flow coverage ratios should show modest improvement through 2017E Exhibit 162 includes historical and forecasted EBITDA/interest coverage ratios for our companies under coverage. The absolute coverage ratio and the multi-year trends can be employed by readers in their assessment of each REIT or REOC’s earnings and credit profiles. As summarized in Exhibit 162, the average industry coverage ratio gradually declined from 2.8x in 2006 to 2.6x in 2010. Interest coverage remained stable through 2011, improving steadily thereafter to the end of 2013. Reflecting broad-based improvements in operating fundamentals, as well as the prospects for modest interest rate savings on re-financing of near-term debt maturities, interest coverage recovered the formerly lost ground, registering 2.8x in 2014. For 2015, modest organic growth coupled with steady capital structures should allow the group’s interest coverage ratio to uptick to 3.0x. Thereafter, we expect the group to show steady improvement, with a 3.2x average coverage ratio in 2016 and 3.3x in 2017.

Exhibit 162: Historical and forecast EBITDA/interest1 ratios (2006 to 2017E)

2006A

2007A

2008A

2009A

2010A

2011A

2012A

2013A

2014A

2015E

2016E

2017E

Change2

17E vs 14A Agellan Commercial REIT n.a. n.a. n.a. n.a. n.a. n.a. n.a. 3.2x 2.9x 2.6x 3.1x 3.2x 0.3x Allied Properties REIT 3.0x 2.8x 2.9x 3.0x 2.9x 2.5x 3.1x 3.8x 3.4x 3.7x 3.8x 3.9x 0.5x Artis REIT 1.9x 2.3x 2.3x 2.2x 2.3x 2.2x 2.4x 2.8x 2.7x 3.1x 3.1x 3.3x 0.6x Boardwalk REIT 2.1x 2.2x 2.2x 2.1x 2.2x 2.3x 2.6x 2.9x 3.1x 3.4x 3.5x 3.5x 0.4x Brookfield Cda Office Properties n.a. n.a. n.a. n.a. 2.3x 2.4x 2.3x 2.4x 2.7x 2.7x 2.9x 2.9x 0.2x Brookfield Property Partners n.a. n.a. n.a. n.a. n.a. n.a. 1.7x 1.8x 1.7x 1.6x 1.7x 1.8x 0.1x CAPREIT 1.9x 1.9x 2.0x 2.1x 2.1x 2.2x 2.5x 2.6x 2.7x 2.8x 2.8x 2.9x 0.2x Chartwell Retirement Residences 3 2.3x 1.5x 1.5x 1.5x 1.7x 1.9x 2.0x 2.1x 2.2x 2.6x 3.1x 3.2x 1.0x Choice Properties REIT 5 n.a. n.a. n.a. n.a. n.a. n.a. n.a. 3.4x 3.6x 3.7x 3.7x 3.6x 0.0x Cominar REIT 3.5x 3.0x 2.7x 2.7x 2.9x 2.7x 2.8x 2.7x 2.7x 2.7x 2.8x 3.0x 0.3x CREIT 3.0x 3.0x 2.9x 3.1x 3.3x 3.3x 3.3x 3.1x 3.0x 3.2x 3.2x 3.4x 0.4x Crombie REIT n.a. 3.0x 2.8x 2.6x 2.2x 2.1x 2.2x 2.1x 2.3x 2.4x 2.5x 2.6x 0.3x CT REIT n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 3.1x 3.2x 3.4x 3.4x 0.3x Dream Office REIT 2.5x 2.8x 2.3x 2.3x 2.8x 2.6x 2.7x 2.9x 2.9x 3.0x 2.9x 2.9x 0.0x Extendicare 3 2.7x 2.5x 2.1x 2.6x 2.5x 2.2x 2.5x 2.2x 2.6x 2.6x 5.9x 6.1x 3.5x First Capital Realty 4 2.1x 1.9x 2.1x 2.2x 2.1x 2.1x 2.3x 2.3x 2.2x 2.4x 2.5x 2.6x 0.4x Granite REIT 5 9.2x 9.7x 10.3x 9.7x 7.6x 8.3x 9.1x 8.3x 7.5x 9.6x 10.2x 10.5x 3.0x H&R REIT 2.2x 2.3x 2.3x 2.2x 2.3x 2.3x 2.3x 2.5x 2.5x 2.7x 2.7x 2.8x 0.3x InnVest REIT 2.9x 2.6x 2.5x 2.1x 1.8x 1.9x 1.9x 1.9x 1.9x 2.3x 2.5x 2.6x 0.7x Killam Apartment REIT 1.4x 1.7x 1.7x 1.8x 2.0x 2.0x 2.1x 2.1x 2.2x 2.4x 2.4x 2.5x 0.3x Melcor REIT n.a. n.a. n.a. n.a. n.a. n.a. n.a. 2.7x 2.7x 2.6x 2.6x 2.6x -0.1x Milestone Apartments REIT n.a. n.a. n.a. n.a. n.a. n.a. n.a. 3.1x 3.0x 3.1x 3.1x 3.1x 0.1x Morguard NA Residential REIT n.a. n.a. n.a. n.a. n.a. 2.1x 2.1x 2.1x 2.2x 2.2x 2.3x 2.3x 0.1x Morguard REIT 2.1x 2.5x 2.8x 2.5x 2.5x 2.5x 2.7x 2.6x 2.7x 2.7x 2.8x 2.8x 0.1x Northview Apartment REIT 2.8x 3.0x 3.1x 3.1x 3.2x 3.4x 3.8x 3.9x 3.7x 3.3x 3.1x 3.2x -0.5x NorthWest Healthcare REIT n.a. n.a. n.a. n.a. 2.6x 2.6x 2.7x 2.5x 2.4x 2.0x 2.2x 2.3x -0.2x OneREIT n.a. n.a. 1.8x 1.9x 1.8x 1.5x 1.8x 2.0x 1.9x 2.1x 2.2x 2.3x 0.4x Plaza Retail REIT 1.8x 1.9x 1.9x 2.0x 1.8x 1.9x 2.1x 1.7x 2.1x 2.0x 2.1x 2.2x 0.1x Pure Industrial REIT n.a. 1.5x 2.1x 2.2x 2.2x 2.7x 2.9x 2.9x 2.9x 3.0x 3.1x 3.1x 0.2x RioCan REIT 3.0x 3.0x 2.9x 2.4x 2.7x 2.6x 2.9x 3.0x 3.2x 3.3x 3.5x 4.0x 0.8x Sienna Senior Living5 n.a. n.a. n.a. n.a. 2.3x 2.0x 2.2x 2.1x 2.3x 3.2x 3.4x 3.5x 1.2x Slate Retail REIT n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 2.9x 3.6x 3.6x 3.6x 0.7x SmartREIT 2.7x 2.5x 2.3x 2.1x 2.2x 2.4x 2.6x 2.8x 3.0x 3.5x 3.9x 4.1x 1.1x WPT Industrial REIT n.a. n.a. n.a. n.a. n.a. n.a. n.a. 3.3x 3.3x 3.4x 3.6x 3.7x 0.3x Simple Averages 2.8x 2.7x 2.7x 2.7x 2.6x 2.6x 2.7x 2.8x 2.8x 3.0x 3.2x 3.3x 0.5x

Notes: 1 EBITDA includes NOI, mezzanine income, interest & investment income (if disclosed), fee income, trust expenses & other corporate costs. 2 Positive numbers represent improving interest coverage over time; negative numbers indicate deteriorating interest coverage over time. 3 Interest expense includes facility lease expense. 4 EBITDA coverage ratios for First Capital Realty Inc. would be higher if interest expense (actually paid in shares) on the company’s convertible debentures were excluded. 5 Coverage ratios for these entities were normalized to account for one-time interest expenses in 2014A. Source: Company reports and RBC Capital Markets estimates

January 7, 2016 164


We have underlined interest coverage ratios that are notably below the industry average in any given year. Also with regard to Exhibit 162, we draw attention to the following:

• Entities with above-average coverage ratios (2015E to 2017E) include: Allied Properties REIT, Granite REIT, and Smart REIT.

• Entities with coverage ratios that are notably below the industry average (2015E to 2017E) include: Brookfield Property Partners, Crombie REIT, First Capital Realty, InnVest REIT, Killam Apartment REIT, Morguard NA Residential REIT, NorthWest Healthcare REIT, OneREIT, and Plaza Retail REIT.

Interest coverage ratios for the vast majority of the entities in our coverage universe should hold steady or improve over the next few years (2015 to 2017). However, we expect Choice Properties REIT, Dream Office REIT, and Northview Apartments REIT to post marginal declines. By and large, our expectation is that the downtick will be a function of capital deployment and not deteriorating same-property operating performance.

Lease maturity profiles An entity’s capital position should not be assessed in isolation. Other relevant and important factors include the relative stability and potential growth of future cash flows, as well as the level of capital retention in the business (i.e., capex requirements, distribution payout policy, etc.). Generally speaking, in a strong rental market (when absorption is positive and market rates are rising), a short lease-maturity profile presents a cash flow growth opportunity. Conversely, when fundamentals are weak (or weakening), long-duration lease-maturity profiles potentially indicate greater cash flow stability. Above and beyond this, one must also be cognizant of overall tenant credit quality.

Exhibit 163 provides occupancy statistics and lease maturity profiles for commercial property issuers within our universe as of September 30, 2015 (the latest quarterly filing date).

On September 30, the sector average occupancy was 94.1%, unchanged when compared to June 30. Of note, Artis REIT and Dream Office REIT experienced a moderate occupancy deterioration of 1.9 pp and 1.2 pp, respectively.

Companies with a weighted-average lease term of eight years or longer include: Brookfield Canada Office Properties REIT, Brookfield Property Partners LP, Choice Properties REIT, Crombie REIT, CT REIT, and H&R REIT. Conversely, those with a weighted-average lease term of less than five years include Agellan Commercial REIT, Artis REIT, Cominar REIT, CREIT, Dream Office REIT, Granite REIT, and WPT Industrial REIT.

January 7, 2016 165


Exhibit 163: Occupancy statistics and lease maturity profiles, as of September 30, 2015

Occupancy GLA

(000s sf)

Wtd Avg Lease Term

Contractual Lease Expiries

2015 2016 2017 2018 2019 2020 2021 Total To

2019 (5Y) Agellan Commercial REIT 93.8% 4,710 3.5 4% 13% 20% 15% 9% n.d. n.d. 60% Allied Properties REIT 89.8% 10,487 5.8 3% 8% 11% 11% 9% 11% 8% 41% Artis REIT 93.1% 26,207 4.2 5% 15% 13% 10% n.d. n.d. n.d. 43% Brookfield Cda Office Properties 95.5% 11,456 8.1 2% 6% 5% 7% 8% 13% 11% 27% Brookfield Property Partners LP1 91.4% 57,020 8.2 1% 6% 6% 7% 8% 9% n.d. 27% Choice Properties REIT 98.5% 41,400 11.6 0% 1% 1% 1% 1% n.d. n.d. 4% Cominar REIT 92.0% 45,261 4.6 5% 14% 14% 15% 9% 10% n.d. 57% CREIT 94.7% 21,935 4.7 3% 14% 14% 12% 12% n.d. n.d. 55% Crombie REIT 92.6% 17,426 11.3 2% 5% 5% 4% 5% n.d. n.d. 20% CT REIT 99.9% 21,295 13.8 0% 0% 0% 0% 0% 1% 0% 2% Dream Office REIT 89.8% 23,349 4.7 0% 9% 16% 13% 9% n.d. n.d. 47% First Capital Realty 94.7% 24,256 5.5 2% 8% 12% 12% 11% 10% 6% 46% Granite REIT 95.0% 30,546 4.7 2% 4% 16% 17% 10% 6% n.d. 50% H&R REIT 96.0% 46,555 10.1 1% 5% 5% 8% 9% 6% n.d. 29% Melcor REIT 92.5% 2,738 5.4 n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d. Morguard REIT 92.0% 8,826 5.7 3% 12% 8% 7% n.d. n.d. n.d. 30% NorthWest Healthcare Properties REIT 93.2% 6,767 7.9 4% 9% 10% 7% 7% n.d. n.d. 37% Plaza Retail REIT 96.6% 7,049 6.5 2% 8% 6% 7% 5% 10% n.d. 28% Pure Industrial REIT 94.0% 17,402 6.6 2% 14% 10% 10% 9% 6% 6% 45% OneREIT 88.3% 6,954 6.5 3% 10% 9% 8% 6% 10% 5% 35% RioCan REIT 94.0% 53,277 7.9 3% 7% 9% 10% 12% n.d. n.d. 41% Slate Retail REIT 94.7% 7,359 5.2 1% 5% 12% 16% 13% n.d. n.d. 46% SmartREIT 98.7% 30,761 7.1 1% 4% 6% 7% 10% 10% n.d. 28% WPT Industrial REIT 98.1% 15,097 4.0 0% 12% 20% 17% 7% 18% 9% 57% Simple Averages 94.1% 22,422 6.8 2% 8% 10% 10% 8% 9% 6% 37% Total GLA

538,133

Notes: n.d. = not disclosed. 1 Brookfield Property Partners GLA and occupancy data represent Office segment only. Source: Company reports and RBC Capital Markets estimates

Direct property markets: Generally robust activity, but a second consecutive year of mostly “meat and potatoes” trades Data from CBRE Global Research and Consulting show that Canadian investment property trading volume was $16.9 billion through the first nine months of 2015. This total represented a decline of $1.7 billion or 9% compared to the same period in 2014. Final 2015 figures have not yet been reported, but we expect a full-year tally in the $23–24 billion range, representing an approximate 7% decline versus 2014’s annual total of approximately $26 billion. This total ($23–24 billion) would fall in the lower end of our 2015 investment volume forecast of $22 billion to $28 billion.

REIT and REOC share of investment volumes affected by heightened cost of equity Through 2015, REITs and REOCs were negatively affected by their collective inability to access well priced equity capital. This phenomenon has been consistent since Q1/13 (more than two and a half years). The current environment is in contrast to 2012 and early 2013 when listed entities used their ability to source reasonably priced equity capital to advance their growth-by-acquisition strategies.

To illustrate the point, we reference CBRE’s database of property transaction volumes, including purchaser profiles. In 2012, REITs and REOCs accounted for 49% of direct market

January 7, 2016 166


turnover (deals above $10 million). In the two years following, that share declined to 29% in 2013 and 23% in 2014. Nine-month 2015 figures place REIT and REOC market declining further to ~20% of total transaction activity, and when tallying 2015’s final figures, we believe this ratio could drop to ~18%.

Pension funds continue to deploy globally while striving to selectively trim in Canada (in some cases, unsuccessfully) Interestingly, pension funds and advisors saw their collective share of purchases decrease notably from 24% in 2014 to ~9% in 2015. A major contributing factor to this decline has been an increase in pension funds’ international investment activity. According to Real Capital Analytics, Canadian investors (primarily pension funds) were the largest foreign contingent in Manhattan real estate investing last year, with roughly US$3.8 billion in deals, nearly doubling 2014’s ~US$2 billion.

For many years now, the major Canadian pension funds have been adding to their domestic property portfolios primarily through the development of new, CBD class “AAA” office towers and via the expansion and/or redevelopment of certain assets within their marquee mall portfolios. They have also generally continued to allocate capital to growing their smaller property allocations to sectors such as multi-res, industrial, and seniors housing.

The sale of non-core mall properties has been a key capital recycling initiative for many of the larger pension funds over a multi-year period. Interestingly, in 2015, we are aware of four large single-asset and portfolio listings of enclosed malls and unenclosed shopping centres (potential transaction values within the $100–350 million range), which were either brought to market formally or on an expression of interest basis, where there ultimately was no trade. Three of the four were pension-fund owned properties. We believe prospective buyer pricing did not match vendor expectation. As discussed later in the Valuation overview section of the Quarterly, we expect a number of REITs and REOCs will be taking 2016 fair value markdowns on components of their investment property portfolios so too might some of the pension funds.

Private buyers step up Private buyers and syndicates stepped up, materially, last year. When the final tally arrives, we expect they will represent 45–50% of total transaction activity. By comparison, private buyers and syndicates represented 27% of 2014 transactions and 29% of long-term annual turnover.

Foreign buyers continue to represent modest market share; yet, in 2015, they also established some formerly unseen valuation metrics Foreign buyers continue to be only a small part of the market. When tallied, we estimate that they will represent 7% of 2015 activity, down from 9% in 2014. While only a small part of the market, it was clear to us that foreign buyers established some very lofty and outright unseen valuation levels on certain 2015 property trades. Those that immediately come to mind are the $110 million price tag for 70 York Street, Toronto (4.3% cap rate; Anbang Asset Management of China) and the $60 million sales price (4.8% cap rate) achieved for King James Place, Toronto (133-145 King Street East), which was purchased by a German high net worth investor. Early this year, we believe there will be additional purchases by foreign investors in Vancouver and/or Toronto and that many will see the valuation metrics as stunning.

Expecting still solid, yet slightly lower turnover in 2016 Looking ahead, we expect 2016 direct market turnover will be in the $22–23 billion range. We believe REITs and REOCs might only represent a 12–15% share of total 2016 turnover.

January 7, 2016 167


Our 2016 turnover forecast represents a decline of approximately 4% from 2015’s estimated $23–24 billion. We see annual turnover of $20 billion or more as a healthy and liquid market.

Exhibit 164: Canadian direct property market transaction volume ($B) (1995 to 2016E)

0

5

10

15

20

25

30

35

1995 1998 2001 2004 2007 2010 2013 2016E

Hotel Industrial Land Office Residential Retail Projected

Source: Colliers, CBRE, and RBC Capital Markets estimates

Exhibit 165 below summarizes year-end cap-rate survey data provided by Altus Group (“Altus”) for the last eight years for various property segments in the Greater Toronto Area (“GTA”). Thereafter, Exhibits 166 to 169 graphically depict long-term historical cap-rate trends for these property classes, as well as five-year mortgage yields and the spread between the two.

Exhibit 165: Selected historical cap-rate survey data (Toronto)

Q4/08 Q4/09 Q4/10 Q4/11 Q4/12 Q4/13 Q4/14 Q4/15 Suburban Apartment 6.5% 6.5% 6.1% 5.5% 5.0% 4.7% 4.5% 4.3% CDB Office 6.6% 6.8% 6.1% 5.7% 5.2% 5.1% 5.1% 4.7% M/T Industrial 7.5% 7.9% 7.1% 6.6% 6.2% 6.4% 6.0% 5.8% Neighbourhood Centre 7.1% 7.5% 6.9% 6.3% 5.9% 5.9% 5.9% 5.5% Regional Mall 6.1% 6.4% 5.7% 5.4% 5.0% 4.7% 4.6% 4.4% Y/Y Change (bps): Suburban Apartment 40 0 -40 -60 -50 -30 -20 -20 CDB Office 70 20 -70 -40 -50 -10 0 -40 M/T Industrial 90 40 -80 -50 -40 20 -40 -20 Neighbourhood Centre 75 40 -65 -60 -35 0 0 -40 Regional Mall 60 30 -70 -30 -40 -30 -10 -20

Source: Altus Group and RBC Capital Markets estimates

From the data above, we make the following observations:

• Cap rates moved moderately lower across all of the five property segments through 2015;

• The yield declines were on the heels of cap rates seemingly showing some signs of bottoming (flattening) in certain property segments in 2013 through 2014; and,

• CBD Office and neighbourhood retail centres demonstrated the most significant yield compression (and hence value appreciation) last year according to the survey data.

We expect 2016 investment trading volume to be down by ~4% relative to 2015’s $23–24 billion in estimated turnover.

The degree of yield compression has slowed materially relative to the 2010–2012 timeframe, but…major-market yields have indeed continued to compress.

January 7, 2016 168


Exhibit 166: GTA multi-unit residential cap rates vs. 5-year mortgage rates (Q4/93–Q4/15)

(2%)

0%

2%

4%

6%

8%

10%

12%

Q4/93 Q4/96 Q4/99 Q4/02 Q4/05 Q4/08 Q4/11 Q4/14

Suburban apartments Normalized 5-year CMHC insured mortgage rate Spread

Note: For illustrative purposes, our “Normalized” 5-year CMHC insured mortgage rate has been derived via the application of a constant +75 bps spread over the Government of Canada benchmark yield. Source: Altus Group and RBC Capital Markets estimates

Exhibit 167: GTA CBD office cap rates vs. 5-year mortgage rates (Q4/93 – Q4/15)

(2%)

0%

2%

4%

6%

8%

10%

12%

Q4/93 Q4/96 Q4/99 Q4/02 Q4/05 Q4/08 Q4/11 Q4/14

CBD Office 5-year commercial mortgage rate Spread Source: Altus Group and RBC Capital Markets estimates

Cap rate – 4.3% Normalized 5-year CMHC insured mortgage – 1.5% Spread – 280 bps

Cap rate – 4.7% 5-year commercial mortgage rate – 2.6% Spread – 210 bps

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Exhibit 168: GTA industrial cap rates vs. 5-year mortgage rates (Q4/93 – Q4/15)

(2%)

0%

2%

4%

6%

8%

10%

12%

Q4/93 Q4/96 Q4/99 Q4/02 Q4/05 Q4/08 Q4/11 Q4/14

M/T Industrial 5-year commercial mortgage rate Spread


Exhibit 169: GTA retail cap rates vs. 5-year mortgage rates (Q4/93 – Q4/15)

(2%)

0%

2%

4%

6%

8%

10%

12%

Q4/93 Q4/96 Q4/99 Q4/02 Q4/05 Q4/08 Q4/11 Q4/14

Convenience centre 5-year commercial mortgage rate Regional mall Note: Dotted lines represent respective spreads over the commercial mortgage rate. Source: Altus Group and RBC Capital Markets estimates

Transactional data generally supports survey results Moving beyond the Altus survey, in Appendix VI, we provide a detailed listing of actual property transactions for 2015. In our view, this data set includes largely “institutional-calibre” investment sales, which have been segregated into two categories: 1) property trades with a value in excess of $25 million; and, 2) transactions with a value between $15–25 million. The 2015 database is extensive, as it covers more than $16 billion in actual property trades. This compares similarly to the 2012 to 2014 annual coverage volumes ranging between $16–23 billion.

Exhibit 170 summarizes selected aspects of RBC Capital Markets’ 2015 property transaction database (see Appendix VI) and the Altus Group survey.

Cap rate – 5.8% 5-year commercial mortgage rate – 2.6% Spread – 320 bps

Cap rates: Convenience centre – 5.5% Regional mall – 4.4% 5-year commercial mortgage rate – 2.6% Spreads: Convenience centre – 290 bps Regional mall – 180 bps

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Exhibit 170: RBC CM market transactional data versus cap rate survey data (2014 vs 2015)

Cap rates YoY change in Q4 cap rates (bps) Property type RBC CM1 Altus Q4/15 Δ (bps) RBC CM1 Altus Δ Apartment 4.7% 4.3% 44 (36) (20) (16) CBD office 5.0% 4.7% 35 (34) (40) 6 Industrial 6.4% 5.8% 56 (41) (20) (21) Strips 6.0% 5.5% 54 10 (40) 50 Mall 5.2% 4.4% 80 (67) (20) (47)

Note: 1) The RBC CM values denoted above are the annual averages derived from the information included in property transaction database. The 2015 version of this database is included in Appendix VI. Source: Company reports and RBC Capital Markets estimates

Comparing the 2015 RBC Capital Markets transactional database statistics with the Altus survey, we note the following:

1) The average cap-rate data from our transaction database were in all cases higher than the Altus Group Q4/15 data. The divergence between the two data sets was the narrowest for CBD office (35 bps) and the widest for malls (80 bps).

2) Directionally, the data from the Altus Group indicate that cap rates compressed year over year in all the asset classes listed above. By and large, our property transaction database offers a picture that is directionally congruent, yet illustrating even greater yield compression than the survey data within the apartment, industrial, and mall markets segments. Transactional cap-rate compression within CBD office was roughly equal to that suggested by the survey data. Strip centres data from our transactional data exhibited 10 bps of cap-rate expansion, which we believe was a function of the quality and locational attributes of the 2015 trades relative those in 2014.

Certain disconnects between the transactional data and the survey data with respect to the nominal cap rate for a particular property segment and/or the direction and magnitude of the year-over-year change in yields can generally be explained by factors such as:

1) The national scope of the RBC Capital Markets database, versus the Greater Toronto Area focus of the Altus survey;

2) Property quality adjustments required to equate the actual transaction data to the “hypothetical” survey data; and,

3) Timing differences (we reference the Q4/15 Altus survey data vis-à-vis the average data point in our 2015 database).

We believe factors 1) and 2) to be most acute within the context of the differentials between the survey and transactional data points. The survey data are derived via a questionnaire that specifically asks participants for their view on benchmark property trades within the specified property class and market (in this case, Toronto). As discussed in more detail later in this section, 2015 was a year when there was an under-representation of high-quality property transactions. Thematically, for the second consecutive year, we describe the activity as being dominated by “meat and potatoes” institutional calibre real estate, with few prime or “AA” properties changing hands.

January 7, 2016 171


Direct property landscape: Three investment themes We see three interesting themes inherent in the current direct property investment market climate:

1) A country of three investment markets: Hot, cold, and (mostly) warm We currently see significant divergence across the country with respect to investor appetite for real property. While we are clearly providing a degree of generalization, in some ways, Canada has become a country of three investment markets: i) Toronto and Vancouver, which are “well bid” to extremely “well bid”; ii) Alberta, which is suffering from a weak to “no bid”; and, iii) everywhere else, which in generic terms, are somewhere in between Toronto and Vancouver, and Alberta.

i) Hot: Toronto and Vancouver – Domestic institutional property investors generally view Canada’s VECTOM cities (Vancouver, Edmonton, Calgary, Toronto, Ottawa, and Montreal) as the core investment markets. Global investors clearly have a narrower view, and from our lens, this really only includes Toronto and Vancouver as “core” in the context of global cities. The status of the two markets is presenting interesting dynamics with respect to property yields for the highest-quality and most-urban properties. In short, yields for the prime properties have definitively declined to all-time lows, and we believe this valuation push has been led by foreign investors. We previously cited the 70 York Street, Toronto and King James Place transactions, which spanned the low- to high-4% cap-rate range. We believe there are one or more pending trades with foreign investors on the buy-side that will break below the 4% cap-rate threshold. Outside of the exceptional bid for Toronto and Vancouver core properties, we characterize the overall investment demand and pricing for both markets as still being “strong”. To generalize: Moving from the CBD to mid-town (i.e., Yonge/St Clair or Yonge/Eglinton), cap rates rose from the 4s into the 5s. Shifting to good-quality, sizable assets in stronger suburban nodes, commercial cap rates then shift into the 6s. And, for lesser-quality suburban assets, including those located with less than ideal transit access, property yields may well exceed 7%.

ii) Cold: Alberta – The significant decline in oil and gas prices and the contracting economy have made real estate valuation a challenging exercise. Prospective buyers are understandably in wait-and-see mode. Potential vendors have not yet begun to see substantial NOI erosion, have yet to deal with significant debt maturities, and generally would prefer not to have to transact. Our RBC Capital Markets transaction database shows that turnover, by number of trades, has declined by 60% since 2013. While we believe that selective assets will trade this year, they are most likely to be apartments, retail properties, and industrial properties. With the severe demand destruction and still looming new supply pipeline in both Calgary and Edmonton, we see office properties as largely “no-bid” through at least H1/16.

iii) Mostly warm: Everywhere else (OK, almost everywhere else) – Canada’s other primary and secondary markets are not as large and liquid as Toronto, not nearly as well bid as Vancouver, yet clearly also not dislocated like Calgary and Edmonton. We believe most are priced well and are benefitting from lower cap rates that have been seen in the past. Yet NOI growth in most property classes in most markets is not robust. We have long-term concerns with respect to the depth of the tenant base for certain property classes in certain markets (e.g., enclosed malls in secondary and tertiary cities), and overall, we believe that the direction of valuation metrics across the “everywhere else” markets could prove mixed in 2016.

January 7, 2016 172


2) The future has little to no value Tepid economic, demand, and NOI growth in many markets is such that prospective investors typically place very little, and in some cases no, value on vacant space. We believe this is perhaps more evident in retail than in other property classes. The failure of Target Canada nearly one-year ago and weakness within a number of fashion retailers has heightened scepticism with respect to “lease-up” assumptions. We believe the sale of a 50% interest in Devonshire Mall located in Windsor Ontario is a transaction whereby a ~125,000 sf vacant store formerly occupied by Target Canada garnered little to no value within the $128 million transaction price (5.8%) cap rate. A corollary to “the future has little to no value” is that very high-quality income in place (even if it offers little to no growth potential for many years) attracts a sizeable premium. The $96 million sale (4.7% cap rate) of Credit Ridge Commons, a new, high-quality power centre in Brampton (northwest GTA) is case in point.

3) The exception: Willing to pay up for future intensification potential in ultra-urban environments on rapid-transit nodes Another observable theme in 2015’s investment activity has been the willingness on the part of investors to assign high valuations (i.e., low cap rates) to sites with up-zoning potential.

We see Allied Properties’ June 2015 purchase of 511-539 King Street West for $100 million (estimated 2.8% cap rate) as perhaps the prime example in this regard. Despite the very low yield on income in place, we viewed this as a highly strategic deal for the REIT. For greater details on the transaction and our take on it, we refer readers to Appendix I of our May 10, 2015 report entitled, A slightly untidy Q1; strong leasing and development execution value-drivers intact.

We note that the willingness to “pay-up” for future opportunity is not limited to the core—it is also squarely following the lines of urban rapid transit in large cities such as Vancouver, Calgary, and Toronto. As a case in point, in December 2015, a joint venture between Canderel and KingSett Real Estate Growth LP No.5 (“KingSett”) invested $26 million to purchase 1243 Islington Avenue in Etobicoke (“1243”). To the ordinary onlooker, 1243 Islington Avenue is nothing more than a 12-storey, mundane circa-1972 class “B” office building.

Exhibit 171: 1243 Islington Avenue, Etobicoke

Source: Company reports, Google maps, and RBC Capital Markets

1243 Islington Avenue; 12 stories

TIC subway and bus terminal Mississauga transit bus terminal

Luxury condos Tridel’s “Islington Terrace”

3 high-rise condos plus town homes

High-rise residential (all orange boxes)

Adjacent Class B office building 56 Aberfoyle Crescent; 8 stories

Sun Life Financial Centre 3-tower mixed-used (office/retail) complex

~840,000 sf

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https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_A10B9A785C3B049D102B64387E17037C

https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_A10B9A785C3B049D102B64387E17037C


So why would two sophisticated investors pay $232/sf (4.9% cap rate) for this property? We believe moderate holding period income and long-term upside optionality on higher better use and/or residential conversion is the investment thesis.

To provide context: 1243 Islington Avenue is located within a west-end Toronto transit node, which will likely be subject to massive intensification over the next decade. Immediately adjacent to the west is the Toronto Transit Commission’s (“TTC”) Islington subway station. This station connects directly to the TTC bus network as well as the Mississauga transit system (buses). Directly to the south of 1243 is the 840,000 sf Sun Life Financial Centre office and retail complex. To the east of 1243 are high-rise rental residential and luxury condos. High-rise residential is also located to the northwest. It is this area—specifically the TTC Cordova Lot—where Tridel Group of Companies (one of the country’s larger condominium developers) will be constructing Islington Terrace, a multi-year, multi-phase residential project that will ultimately include three high-rise towers plus townhomes. Tridel is currently marketing the first tower, (45 storeys and more than 449 units), which is slated for 2018 completion. Over time, we also see other intensification opportunities in the node, specifically on land directly adjacent to the west and/or north of the TTC station.

Highlighting 2015’s “benchmark” trades Exhibit 172 contains a sampling of trades, which we believe serve as good valuation proxies for marquee assets within their respective property classes.

Exhibit 172: 2015’s market-leading or “benchmark” investment transactions

Property Location Type '000 sf

or Units $ Value (MM)

$/sf or suite

Cap Rate Buyer

Toronto Dominion Centre (30% non-managing interest)

Toronto CBD office 4,494 881 653 4.0% Ontario Pension Board

FDL portfolio Montreal Apartment 3,661 490 133,800 4.5% CAPREIT

Credit Ridge Commons

Brampton Power Centre 377 94 249 4.7% GWL Realty Advisors

Devonshire Mall and Quinte Mall (50% interests)

Windsor and Belleville

Regional Mall 1,342 241 359 5.6% HOOPP

2189 Speers Rd Oakville Industrial 250 28 112 5.6% Rodenbury Investments

Source: Industry reports, RBC Capital Markets

Only one of the six transactions highlighted above included a listed-property entity. The remaining purchasers consisted of an insurance company (Manulife Financial), a pension fund (Ontario Pension Board), and investment managers (Crown Realty Partners and GWL Realty Advisors).

Commentary and context: “Benchmark” versus “trophy” status For the second consecutive year, 2015 saw a clear under-representation of truly marquee properties across the major asset classes. Not to be disparaging in any way, we believe that many good quality properties transacted. Yet we would hold out very few as meeting the proverbial “trophy” status, with the lone exception being the 30% stake in the TD Centre, Toronto, which was selected as our “benchmark” CBD office transaction.

CBD office – TD Centre (Toronto) Traditionally, our property transaction database has included a handful of core, high-rise Class “A–AAA” CBD office sales from which we could select a benchmark trade or two. Prior

January 7, 2016 174


years’ mentions have included the likes of 50% of Place Ville Marie, Montreal (2013 – $413 million, 5.3% cap rate), Scotia Plaza, Toronto (2012 – $1,266 million, 5.2% cap rate), 50% of RBC Centre, Toronto (2012 – $300 million, 4.9% cap rate), or Bentall V, Vancouver (2012 – $400 million, 5.0% cap rate).

From the 2015 transaction list, we selected Ontario Pension Board’s (“OPB”) October investment of $881 million to acquire a 30%, non-managing interest in the iconic Toronto Dominion Centre (“TD Centre”) from The Cadillac Fairview Corporation Limited (“CF”).

TD Centre encompasses six Class AAA office towers housing nearly 4.5 million sf of office and retail GLA across approximately six acres in the heart of Toronto’s financial district. Among the six towers, TD Bank Tower (66 Wellington Street West) was the first to be completed in the spring of 1967. The remaining five towers were completed between 1969 and 1991. TD Centre has been exceptionally well maintained and upgraded over the years, and its location is second to none. Each of the six Class AAA office towers offers direct access to Toronto’s underground pedestrian walkway dubbed “the PATH”. The extensive PATH network includes approximately 30 kilometres and features 4 million sf of retail space. Under its ownership, CF has invested hundreds of millions of dollars to upgrade the quality and energy efficiency of TD Centre’s office towers, and to step up the quality of the retail space significantly.

The yield on this trade has established a new low. Highlighting the significant premium, well located, trophy assets major cities command, OPB’s purchase price equated to a cap rate of about 4.0% (~$653/sf). We believe a 50% managing interest or a sale of the entire complex would have garnered an even higher price/sf and lower cap rate.

Exhibit 173: TD Centre, Toronto1

Notes: 1) Pictured above are Ernst and Yonge Tower (222 Bay Street), TD Bank Tower (66 Wellington Street W), and TD North Tower (77 King Street W). Source: Company reports and RBC Capital Markets

Multi-residential – the “FDL” portfolio (Montreal) In September, Canadian Apartment REIT (“CAPREIT”) completed the acquisition of a 16-property portfolio in Montreal for $490 million (“FDL portfolio”). The portfolio included 3,661 apartment suites and approximately 194,000 sf of commercial GLA. The purchase price implied a 4.5% cap rate based on annualized in-place income and a per suite value of $134,000 (or ~$129,000/suite, adjusting for the commercial GLA at an assumed $100/sf value).

TD Centre includes: 66 Wellington Street West, TD Bank Tower (56-storeys; 1.3MM sf) 77 King Street West, TD North Tower (46-storeys; 1.0MM sf) 100 Wellington Street West, TD West Tower (32-storeys; 0.5MM sf) 79 Wellington Street West, TD South Tower (38-storeys; 0.7MM sf) 222 Bay Street Ernst & Young Tower (31-storeys; 0.5MM sf) 95 Wellington Street West (23-storeys; 0.3MM sf)

January 7, 2016 175


The properties are principally located in central Montreal, including the Côte-des-Neiges and Notre-Dame-de-Grace neighbourhoods. Over 95% of the suites are situated within an eight-kilometre radius, and roughly 50% of the suites are closely located in the downtown core. By category, the portfolio includes 1,588 (43%) luxury suites, 1,356 (37%) mid-tier suites, and 717 (20%) suites in the affordable segment. Two-thirds of the suites are in larger buildings of more than 100 suites, and many of the buildings are high-rise concrete constructions.

Our database of major market apartment trades includes a wide range of cap rates and price/suite values, spanning from ~3% to ~6% and $80,000 to $550,000, respectively.

Providing historical context, our selected benchmark trades in the apartment sector segment during the previous three years have consistently been at cap rates in the 5.0–5.3% range. The 4.5% cap rate on the FDL portfolio falls below this historical range; however, through strategies that we outlined in our October 19 note, entitled Rounding out 2015 with $660MM of new apartment investments; Outperform reiterated, we believe CAPREIT should be able to achieve 50–100 bps of yield enhancement over the next two to five years. As detailed in Appendix VI, we also note that there have been a number of individual Montreal apartment transactions over the course of the past year at cap rates below 4.5%.

Exhibit 174: Selected properties – 135 Sherbrooke East (LHS) and 1350 du Fort (RHS)


Power centre – Credit Ridge Commons (Brampton) In October 2015, GWL Realty Advisors acting on behalf of one of its institutional clients purchased Credit Ridge Commons (“Credit Ridge”) in Brampton for $94 million. The property was sold by a joint venture that included Canadian Real Estate Investment Trust (“CREIT”) (25%), North American Development Group (25%), and Senator Homes (50%). The purchase price implied a cap rate of 4.7% and $249/sf.

Credit Ridge is a new-generation power centre that encompasses roughly 377,000 sf of GLA that sits on about 36 acres of land at the intersection of Williams Parkway and Mississauga Road in Brampton. This is a high-growth, northwest quadrant of the GTA. Located in close

FDL portfolio: Purchase price: $490MM Interest: 100% Cap rate: 4.5% Price per suite: $134,000

January 7, 2016 176




proximity to neighbouring new housing developments, the property features an impressive roster of tenants that include Walmart, Home Depot, Dollarama, McDonalds, and an LCBO.

Providing historical context, our selected benchmark trades in this property segment during the previous three years have consistently been at cap rates in the 5.5–6.0% range. Against these metrics, Credit Ridge’s transaction metrics certainly stand out. In our view, the transaction supports our view that investors are willing to “pay-up” for the highest-quality, most-stable, and reliable cash flows, even in a tenuous retail environment.

Exhibit 175: Credit Ridge Commons, Brampton, ON


Regional mall – Devonshire Mall and Quinte Mall (50% interests) In January 2015, Healthcare of Ontario Pension Plan (“HOOP”) acquired half interests in two Ontario enclosed shopping centres, Devonshire Mall in Windsor and Quinte Mall in Belleville, from Ivanhoé Cambridge for approximately $241 million.

Devonshire Mall encompasses 714,000 sf, excluding anchor-owned space that amounts to roughly 270,000 sf (HBC ~170,000 sf and Sears ~200,000 sf). HOOP purchased the property interest for $128 million, which equated to a cap rate of about 5.8% and $359/sf. At the time of its sale, the mall had a vacant Target store (~125,000 sf). It is our understanding that little to no value was ascribed to the empty store. This fact reinforces the previously highlighted view that the current environment has made investors place a premium on income in place.

Quinte Mall encompasses 628,000 sf of GLA and offers over 3,500 parking spaces. The mall’s tenants include HomeSense, Toys “R” US, Shoppers Drug Mart, and Sears. HOOP purchased Quinte Mall for roughly $113 million, which implied a cap rate of 5.3% and $358/sf value.

Both are solid institutional calibre properties albeit in secondary markets. This is reflected in the higher cap rates and materially lower price/sf values than would otherwise be expected to be seen on properties of equivalent size and quality located within a primary market.

Credit Ridge Commons: Purchase price: $94MM Interest: 100% Cap rate: 4.7% Price per sf: $249

January 7, 2016 177


Exhibit 176: Devonshire Mall (LHS) and Quinte Mall (RHS)


Honourable mention: Oakville Place and Georgian Mall and the RioCan/HBC JV In July 2015, RioCan REIT (“RioCan”) completed the vend-in of half ownership interests in two of its enclosed regional malls into a joint -venture with HBC. The two malls were Oakville Place in Oakville, Ontario and Georgian Mall in Barrie, Ontario.

Oakville Place is a 470,000 sf mall that features retailers such as HBC, H&M, and Nine West. Oakville Place transacted for $125 million (50%), which equated to a cap rate of 5.0% and a per sf value of $531.

Offering about 512,000 sf of GLA, Georgian Mall is the largest fashion shopping centre in Barrie. The mall’s tenant roster includes national retailers such as SportCheck, HBC, and H&M. Georgian Mall was sold for $174 million (50%) and a $681/sf value.

Under differing circumstances, we might very well have selected Oakville Place or Georgian Mall as benchmark trades. However, in our view, these transactions came as a result of a broader real estate strategy rather than a decision on RioCan’s part to sell. In our February 25 note, entitled A key part of HBC’s real estate solution, we provided a review and high-level analysis of the transaction. Additionally, our colleague and retail analyst, Sabahat Khan, discussed the implications to HBC in his February 26 note, entitled Making it real: HBC announces real estate JVs.

Exhibit 177: Oakville Place (LHS) and Georgian Mall (RHS)


Industrial – 2189 Speers Road, Oakville In October 2015, Rodenbury Investments Limited invested $28 million to purchase 2189 Speers Road, in Oakville, Ontario. The property’s vendors were institutional investor Montez Corporation and private developer Cooper Construction. Offering 30-foot clear ceilings, this 250,000 sf multi-tenant property was constructed in 2008. The building features 12 truck-

Devonshire Mall: Purchase price: $128MM Interest: 50% Cap rate: 5.8% Quinte Mall: Purchase price: $113MM Interest: 50% Cap rate: 5.3%

Oakville Place: Purchase price: $125MM Interest: 50% Cap rate: 5.0% Georgian Mall: Purchase price: $174MM Interest: 50% Cap rate: 5.3%

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https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_F69CB081636EC54C02B6C8FE7D647BA8

https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_B3254FEC4F2C9B7D6DF35425F77F6897

https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_B3254FEC4F2C9B7D6DF35425F77F6897


level doors and one drive-in door. The property sits on roughly 15 acres of land and is approximately 37% covered. The $28 million transaction equated to a value of $112/sf and an estimated going-in cap rate of 5.6%.

Providing historical context, our selected benchmark trades in the industrial property segment during the past three years consistently transacted at cap rates in the 5.3–6.2% range.

Exhibit 178: 2189 Speers Road, Oakville, ON


Our NAV analysis in context In our ongoing endeavour to encapsulate private-market pricing parameters into our valuation work on a real-time and reasonable basis, we continually monitor market fundamentals, credit conditions, and actual property transactions. Accordingly, we adjust our valuation inputs and cap rates as we see market conditions change. Over the course of the past year, we note that:

• On balance, we held our cap-rate assumptions employed in our NAV derivations of entities within the lodging sector constant, while our cap-rate assumptions on the multi-res sector decreased by approximately 20 bps;

• In the seniors housing sector, M&A activity contributed to a roughly 50 bps decrease in in our cap-rate assumptions;

• Changes in our sector-average valuation inputs across the office, industrial, and retail property segments (including diversified entities) ranged from decreases of 25 bps to increases of 15 bps over the last 12 months; and,

• On average, NAV/unit (or per share) estimates increased by ~4% in 2015. Our sector average P/NAV reading was a 6% discount at the outset of 2015. Rolling forward last year’s 4% average NAV/unit (or share) growth and 2015’s 4% average price, deterioration rolls forward to December 31, 2015’s group-average 13% discount to NAV. Exhibit 193 in the Valuation overview section of the Quarterly rolls forward these figures in tabular format. Also within the Valuation overview section of the report, we examine top-down sector valuation indicators such as P/NAV, GOC, and corporate bond yield spreads, and relative earnings multiples vis-à-vis other segments of the equity market. Within Appendix VII of the report, we provide our summarized NAV work for each REIT in our coverage universe.

2189 Speers Road: Purchase price: $28MM Interest: 100% Cap rate: 5.6% (est.) Price per sf: $112

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Capital recycling becoming more central to operating strategies, as portfolios achieve size and scale, and business models evolve The goal of every listed REIT and REOC should be to end the calendar year with a better-quality and more-valuable business than at the outset of the year. It is only natural that as a company grows in size, scale, and quality, properties that it acquired many years prior no longer meet the higher standards of the enterprise. Hence, we see capital recycling via non-core asset sales as a means to the goal of continuous quality improvement. As capital is a precious resource, we also believe the process instills asset-management discipline.

What is interesting to us is that leading up to the prior investment cycle peak (i.e., 2007), the listed property sector was in aggressive asset-aggregation mode. This was despite high property prices (low cap rates), and in some instances, debt yields that were in line with cap rates (i.e., a lack of “positive leverage”). Through this period, REITs and REOCs sold very few properties.

In support of this statement, in Exhibit 179 below, we have summarized asset sales by seven mostly larger-cap REITs and REOCs. Collectively over the four years ended 2007, our records show that these entities sold a $736 million of real property, in aggregate.

Exhibit 179: Selected REIT and REOC asset sales: “Then” versus “now“($MM, unless noted)

Asset Sales (by time period; $MM) REIT or REOC 2004-2007 2012-2015 Boardwalk REIT 63 290 SmartREIT 84 251 Canadian REIT 122 84 First Capital Realty 16 814 H&R REIT 189 1,442 Pure Industrial REIT - 149

RioCan REIT1 263 3,923 Total 736 6,952

Note: 1) Included in the 2012–2015 total is the announced sale of RioCan REIT’s entire US property portfolio for approximately $2.7 billion. Source: RBC Capital Markets estimates

In contrast, the sector seems to be demonstrating a new discipline. During the (nearly) four-year period spanning from 2012 through Q3/15, these same seven REITs and REOCs have collectively sold (or agreed to sell) nearly $7 billion of real property. All seven have larger businesses today than pre-GFC, and their collective 2015 NOI will be approximately $2.8 billion, up 85% from $1.5 billion in 2007. Yet their capital recycling activity has expanded nearly 10-fold.

REITs and REOCs that we expect to sell non-core assets or pursue other capital-recycling strategies (such as joint ventures) in 2016 include: Boardwalk REIT, Canadian Apartment Properties REIT, Chartwell Retirement Residences, Brookfield Office Properties, Dream Office REIT, Granite REIT, Pure Industrial REIT, Crombie REIT, SmartREIT, First Capital Realty, Plaza Retail REIT, RioCan REIT, OneREIT, Artis REIT, Canadian Real Estate Investment Trust, Cominar REIT, H&R REIT, and Morguard REIT.

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In the extra-innings phase of the yield-compression cycle; but significant cap-rate expansion is not a foregone conclusion Interest rates are low. Direct market fundamentals are broadly stable, with most sectors posting modest like-for-like property NOI growth. Real estate owners have access to reasonably priced credit. Capital flows from pension funds and institutional investors remain robust, backfilling the listed REITs and REOCs, which have been less-active acquirers over the past three years. These are all factors supporting values and keeping capitalization rates low, relative to all historical contexts.

There is little doubt in our minds that the sector could prove highly sensitive to interest rates. Each 25 bps change in the five-year (0.7%) or 10-year (1.4%) Government of Canada bond yield truly matters, as it represents percentage changes of 36% and 18%, respectively, off these low base rates.

The “Fed” has begun to tighten; view is that Canada will follow suit but not until later this year With the passage of time, we believe that short- and longer-term interest rates will directionally shift toward their more normalized relationships relative to inflation. Based on the improvement seen in the US economy, the US Federal Reserve Board (“Fed”) took the initial step to break away from its zero interest rate policy. On December 16, 2015, the Fed announced a 25 bps increase (to 0.50%) to the fed funds rate. Since the last increase was on June 26, 2006, the upward move marked the first in roughly a decade. RBC Economics forecasts that by way of quarterly 25 bps increases, the fed funds rate will be 1.50% by year end. Thereafter, in 2017, via quarterly 50 bps increments, the fed funds rate is estimated to be 3.50% by Q4/17.

Domestically, RBC Economics expects the Bank of Canada will make a tightening move of 50 bps (to 1.00%) in Q4/16. In 2017, through quarterly 25 bps increases, the overnight rate is forecasted to be 2.00% by Q4/17.

Moving out the curve, RBC Economics forecasts that the five-year GOC benchmark yield will increase to 2.10% by the end of 2016. This represents a sizable 137 bps interest rate increase from Q4/15’s 0.72%. The forecast also suggests that the 10-year GOC yield will round out this year at 2.60% (+121 bps from Q4/15’s 1.39%). With that as the backdrop, which we believe is an improbably upward shift in the yield curve, we believe it is valuable to examine the collective view of fixed-income investors. With the help of Bloomberg, as seen in Exhibit 180 below, we generated a matrix of interest rate forwards.

Exhibit 180: Interest rate forwards (3-month Canada T-bills to 30-year GOCs) es

Source: Bloomberg, as of December 31, 2015

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Bloomberg data confirm that bond investors also have a view that interest rates are headed higher. However, the magnitude of the expected move is dramatically more benign than RBC Economics’ forecast. For instance, the Bloomberg screenshot shows a 1.55% one-year forward yield on the 10-year Canada bonds. This is a mere 15 bps premium over December 31, 2015’s actual 10-year GOC yield of 1.39%. At shorter-term durations, there is also an upward bias to one-year forward yields, and the shift is slightly greater than the 10-year GOC. For instance, the one-year forward yield on a five-year GOC is 0.95%, or 23 bps above the 0.72% five-year GOC yield as of Q4/15.

Exhibit 181 graphically depicts the implied 10-year GOC benchmark yield (shown previously in Exhibit 180) from December 31, 2015 to December 31, 2025. From an expected yield of 1.55% at the end of 2016, the collective view among bond investors is that longer-term interest rates will continue to rise gradually.

Exhibit 181: Implied 10-year GOC forward rate (2015–2025)

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2015 2016 2017 2018 2019 2020 2025 Source: Bloomberg, as of December 31, 2015

Property yield spreads over mortgage rates remain well above long-term averages, thus suggesting a potential cushion against higher rates As summarized in the right-hand column of Exhibit 182, Q4/15 cap rates (for major property classes) remain wider than average premiums over mortgage rates. These spreads are typically in the 50–70 bps range currently.

Through 2015 our five-year benchmark commercial mortgage rate declined by roughly 20 bps to 2.6%. Over the course of last year, the cap rate to mortgage rate yield premium were for industrial, and mall properties were unchanged, as cap rates declined in tandem with mortgage rates. For CBD office properties and strip shopping centres, the spreads narrowed as cap rates declined more than mortgage rates. Cap rate data below is derived from Exhibits 165 to 169.

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Exhibit 182: Surveyed cap rate versus 5-year mortgage rate (spreads): Q4/15, Q4/14, and LTA

Cap rate minus 5-year mortgage rate YoY Change

Q4/15 vs. LTA Q4/14 Q4/15 LTA

Industrial 320 bps 320 bps 249 bps 0 bps 71 bps Mall 180 bps 180 bps 119 bps 0 bps 61 bps CBD Office 230 bps 210 bps 149 bps -20 bps 62 bps Strips 310 bps 290 bps 242 bps -20 bps 49 bps


Currently, the spread between property yields and the five-year mortgage ranges from 180 bps (super regional malls) to 320 bps (industrial). These generous spreads are in stark contrast to mid-2007, when the delta was often less than 50 bps. We believe that the current spreads are reflective of today’s ultra-low interest rates and the outlook for very modest income growth across most property classes. In the future, under a higher rate and presumably somewhat improved growth environment, there would, therefore, seemingly be the potential for cap rates to prove “sticky” and absorb a sizable portion of the early stages of an upward yield shift.

Corporate actions (Strategic reviews + M&A + stock buybacks) Since the 2013 “taper tantrum” (May to August 2013), the listed property sector has traded at no better than 100% of NAV. More specifically, over the past two and a half years, the sector has traded at an average discount to NAV of 6%. The broad-based pullback in listed property prices last year placed the sector at a 13% discount at the end of 2015.

In the context of tepid economic growth, eking out revenue and NOI growth is a grind for many companies. This is unlikely to be a “fun” operating environment for corporate real estate managers, but conditions also seem insufficient to induce elements of distress. Coupled with valuations across a wide range of REIT and REOC unit or share prices, which we believe inadequately reflect underlying portfolio values, this environment has resulted in what we see as growing signs of board and management fatigue.

More specifically, over the course of last year, there has been increasing instances whereby boards have taken action to surface potentially underappreciated intrinsic value. Examples include: 1) the commencement of a series of “strategic reviews”; 2) accelerating M&A and privatizations; and, 3) stepped up unit/share repurchases. We elaborate on each in further detail:

1) Mounting strategic reviews Last year, three strategic review processes were commenced by listed REITs: two in H1/15 and one in August. Only one has reached a formal conclusion to date:

WPT Industrial REIT – On May 18, 2015, WPT Industrial REIT announced that the Board of Trustees had formed a Special Committee to explore strategic alternatives. This review has not reached a formal conclusion. Please refer to page 251 for additional details.

Granite REIT – On June 12, Granite REIT announced that it had been exploring a possible sale of certain assets to interested parties, and that during this process, the REIT’s trustees concluded that it would be in the best interests of Granite REIT to conduct a comprehensive review of strategic alternatives available to enhance the long-term interests of Granite REIT and all of its stakeholders. This review has not reached a formal conclusion. Please refer to page 246 for additional details.

RioCan REIT – In August, RioCan commenced a strategic review specifically centred on its US operations. In mid-December, a conclusion was reached whereby RioCan agreed to sell its

January 7, 2016 183


entire US portfolio (49 properties) to Blackstone Real Estate Partners VIII for $2.7 billion (US$1.9 billion). We refer interested readers to our December 20, 2015 publication entitled, Adios America; RioCan to be a Canadian pure-play for additional details and analysis.

In our view, it is highly likely the WPT Industrial REIT and Granite REIT strategic reviews reach finality in Q1/16. We believe WPT Industrial REIT could be sold outright. We have less conviction with respect to Granite REIT. We also see a decent probability (better than even chance) that one or more REITs will initiate a “strategic review” process this year. (See Exhibit 184 below).

2) Acceleration in M&A and privatization activity Last year, there were four Canadian REIT/REOC M&A transactions totalling approximately $4 billion. This annual volume was roughly two times the five-year average. One deal was completed in H1/15 and the other three in H2/15.

Exhibit 183: 2015 M&A activity

Date announced Target (Ticker1) Acquiror (Ticker2)

Transaction value ($MM) Premium to prior

close Implied cap rate

Net debt / EV

FTM AFFO EV Equity Net debt

Mar-15 Northwest Int'l Healthcare Prop. REIT (TSXV: MOB.un)2

Northwest Healthcare Prop. REIT (NWH.un) 1,274 5923 682 -1% 8.7% 54% n/a

Jun-15 Regal Lifestyle Communities Inc. (RLC)

Health Care REIT / Revera Inc. (NYSE: HCN) 766 407 359 27% 6.1% 47% 15.0x

Aug-15 True North Apartment REIT (TN.un) Northern Property REIT (NPR.un) 829 299 530 16% 5.6% 64% 14.4x

Sep-15 Amica Mature Lifestyles (ACC) BayBridge Seniors Housing Inc. (Private: OTPPB) 935 582 353 113% 5.3%4 38% 27.0x

Totals / simple averages 3,804 1,880 1,924 6.4% 51% 18.8x

Notes: 1) Companies trade on the TSX unless otherwise noted. 2) NWI figures presented on a consolidated basis (all other companies are presented on a proportionate basis). 3) NWI’s equity includes non-controlling interest at estimated fair value. 4) Adjusted for assumed lease-up and excess density value at Arbutus Manor, Vancouver. Implied cap rate on run-rate NOI and adjusting for density value at Arbutus Manor was ~4.7%. Source: RBC Capital Markets estimate

Northwest International Healthcare Properties REIT – On May 15, 2015, Northwest Healthcare Properties REIT (“NWH”) completed the acquisition of Northwest International Healthcare REIT (formerly TSX-Venture listed MOB.un) to form a global and diversified healthcare REIT. The all-equity deal was set at an exchange price of 0.208 NWH units per MOB.un unit. Historical deal metrics are provided in Exhibit 183. For additional details regarding the transaction, we refer interested readers to our March 11 publication entitled, Going global via proposed merger with NWI.

Formerly known as GT Canada Capital Corporation, Northwest International Healthcare Properties (“NWI”) began trading on the TSX Venture under the ticker MOB.P in August 2008, after completing its IPO as a capital pool corporation. In December 2010, the company converted to a REIT structure (TSXV: MOB.UN) and in November 2012 changed its name to Northwest International Healthcare Properties REIT. NWI was formed to provide investors with exposure to sustainable monthly cash flows via ownership in a diversified portfolio of international healthcare real estate.

Regal Lifestyles Communities Inc. – On October 26, 2015, a 75/25 joint venture between Welltower Inc. (NYSE: HCN) and Revera Inc. completed the acquisition of Regal Lifestyle Communities Inc. (“Regal”) at a price of $12/share. The offer price implied an enterprise value of approximately $766 million and represented a 26% premium relative to the 20-day VWAP.

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https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_99C4DD8B665B29906E27D42808F8C535


Regal completed its IPO October of 2012 and commenced operations with 10 private-pay retirement communities located in Ontario (eight properties), Saskatchewan (one property), and Newfoundland and Labrador (one property). The initial portfolio encompassed 1,418 suites that offered independent serviced living, assisted living, and other personalized services. Over its life as a listed entity, Regal’s portfolio grew to include 23 private-pay retirement communities housing over 3,600 suites and expanded its geographic footprint to include properties in British Colombia and Quebec.

Based on the takeout price of $12/share, we estimate the acquisition price equated to a ~15x multiple forward 12-month AFFO. Other relevant deal metrics are included in Exhibit 183.

True North Apartment REIT – On October 30, 2015, Northern Property REIT (“Northern” or “NPR”) completed the acquisition of True North Apartment REIT (“True North” or “TN”) at an exchange ratio that implied $9.00 per TN unit. On the same date, NPR also completed the acquisition of an apartment portfolio from Starlight Investments Limited (“Starlight”) as well as a joint venture between Starlight and Public Sector Pension Investment Board for $535 million (5.5% cap rate). The completion of two transactions created a $3 billion national apartment company owning ~25,000 units that was renamed Northview Apartment REIT (TSX: NVU.un). We refer interested readers to our August 10 note entitled, Rolling out the forecasts for Northview Apartment REIT; Sector Perform reiterated for additional details and analysis.

True North was created by way of a capital pool company called Wand Capital Corporation (“Wand”) that completed its IPO in March 2012. Later that year, in June, Wand successfully converted to a REIT and changed its named to True North Apartment REIT. By the time it was acquired, True North’s portfolio encompassed 8,908 residential suites and generated the majority of its net operating income from Ontario (57%) and Quebec (22%). Other regions, namely Alberta (11%), Nova Scotia (6%), and New Brunswick (4%), made up the rest of the portfolio.

Amica Mature Lifestyles Inc. – On December 17, 2015, BayBridge Seniors Housing Inc., which is a wholly owned subsidiary of Ontario Teachers’ Pension Plan Board, completed the acquisition of Amica Mature Lifestyles Inc. (“Amica”) for $18.75/share. The offer price implied an enterprise value of $0.9 billion (based on our estimate for the market value of the non-controlling interest) and represented a 125% premium to the 20-day VWAP.

Amica’s roots date back to 1993 when it was founded by the Manji family. Amica focused on high-end luxury properties. At the time of its acquisition, Amica’s 3,175 suites were 82% weighted to independent living with the balance offering assisted living accommodations.

At current quotes, there is likely more M&A in store; nobody’s back is against the wall, so we do not see things playing out rapidly Our base-case forecast through 2017 essentially assumes that overall industry operating fundamentals (across the major property classes) remain sluggish but do not deteriorate. In this context, if aggregate price levels remain static (i.e., valuations remain essentially unchanged), then we believe that the listed property sector will be more likely to contract than grow over the next two years. We specifically see contraction in the number of names, although aggregate market cap may be less affected.

As there are no REITs or REOCs of consequence with obvious liquidity constraints or significantly over-levered balance sheets, we do not see the pre-conditions for a rapid play out of this scenario, because nobody’s “back is against the wall”.

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https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_7CD326E975D18AE63572E663F2729E1E


Better than even odds that one or more core names disappear this year or next It is very difficult to predict “who” and “when”, but in light of overall private-market demand for real property investments and more than two years of broadly languishing unit prices, we believe there are now better than even odds that one or more core names will disappear this year or next.

In a broad sense, Exhibit 184 below provides a list of potential M&A or privatization catalysts. It also includes certain REITs, several of which we deem to be “core names” that might fit the criteria.

Notably, all but two of the entities listed in Exhibit 184 (Chartwell Retirement Residences and WPT Industrial REIT) are trading at a discount to their estimated NAV and/or pre-tax IFRS book value, if applicable.

Exhibit 184: Potential corporate actions catalyst matrix, with categorizations of “best fit”

Category of potential fit are denoted with an "X"

Prem / (Disc) to

NAV1

"Platform value" and absent a control block

Synergistic merger

candidate Potentially motivated2

Major discount to NAV3

Agellan Commercial REIT (D)

X Allied Properties REIT (D) X Artis REIT (D) X X Boardwalk REIT (D)

X (CAR.un; KMP.un) X

CAPREIT (D) X X (BEI.un; KMP.un) Chartwell Ret. Residences P X CREIT (D) X Dream Office REIT (D)

X

Killam Apartment REIT (D) X X (BEI.un; CAR.un) Granite REIT (D)

X

Morguard REIT (D)

X Morguard NA Resi REIT (D)

X

One REIT (D)

X (PLZ.un) X Pure Industrial REIT (D) X

WPT Industrial REIT P

X

Notes: 1 Refers to a Premium ("P") or Discount ("D") to our current NAV estimates. Our NAVs do not include portfolio or platform premiums. 2 Denotes a REIT or REOC with a potentially motivated and sizable investor and/or Board or management team which we believe would be amenable to M&A. 3 Denotes entities which trade at a discount to current NAV in excess of 25%, albeit with an NAV/unit that is seemingly subject to above-average risk of near-term deterioration. Source: RBC Capital Markets

“Platform value” or “portfolio premium” entities – Within the list above, we note that there are six names that we see as offering potential “platform value” or a portfolio premium to a motivated acquirer. The former term is usually defined in the context of people, systems, operating capabilities, and a structure that can handle future growth with scale. The latter usually refers to the cohesiveness of the property portfolio.

Synergistic merger candidates – We see a handful of entities where we believe there could be synergistic and logical business fits with another listed REIT. We believe the most obvious impediment to merger scenarios suggested above is “will” not “way”. While each of the the enterprises listed within the “Synergistic merger candidate” column is subject to its own unique business opportunities and challenges, each is currently operating autonomously and has been for many years.

Potentially motivated sellers – We see three enterprises where we believe insiders (e.g., major investors or the Board) may be motivated or open to the idea of a corporate merger or

To the right, we specifically selected the category of potential“best fit”. In a number of instances, we believe there might be more than one relevant corporate actions catalyst.

January 7, 2016 186


sale. Two of the three formally commenced strategic reviews last year, and the third (Agellan Commercial REIT) appears intent on focusing its business on US, which is a move that might simplify a future transaction.

Shrink to drive value – In the fourth column, we list five entities that are trading at 75% or less than the current NAV estimates. We note that that operating conditions or other circumstances place some of these entities at above-average risk of NAV-erosion over the next several years. Nonetheless, absent liquidity concerns, the steep discounts to NAV might suggest that these REITs are prime asset sale candidates, even if asset sales yield values are somewhat off the fair value marks.

International property owners performed much better in 2015; we still think some will disappear in time One group in which we see better than average M&A or privatization potential is those with international portfolios. It is not without coincidence that this roster of companies also carries a smaller than average equity market cap of ~$600 million.

From mid-2011 through April 2013, there was somewhat of an IPO land rush, with more than half a dozen TSX initial public offerings of REITs, which had all or a sizable percentage of their property portfolios located outside of Canada.

Exhibit 185 below summarizes three years of total return performance for a roster of these REITs. Calendar 2013 was a difficult year for these entities. A number suffered unit price declines, and many struggled to maintain an attractive cost of capital. 2014 aggregate price and total return performance were better in absolute terms and relative to the REIT Index. The 2015 group-average nominal return was also sizably positive and in line with 2014’s return. Aggregate 2015 total return performance was also very good relative to the REIT Index (~19 percentage points of outperformance).

Exhibit 185: REITs with sizable foreign-property holdings: 2013–2015 total return metrics

IPO date Ticker December 31 price Total return

2013 2014 2015 2013 2014 2015 Aug-11 DRG.un 8.42 8.57 8.66 (16%) 11% 10% Apr-12 MRG.un 9.41 10.02 10.67 (11%) 13% 13% Jun-12 HLP.un 9.79 14.19 n.a. (4%) 52% n.a. Jan-13 ACR.un 8.70 8.67 8.84 (5%) 9% 11% Feb-13 HOT.un 10.59 10.03 10.65 7% 3% 16% Mar-13 MST.un 9.44 12.22 15.05 (0%) 36% 29% Apr-13 INO.un 8.81 8.88 9.37 (5%) 10% 16% Apr-13 WIR.u 8.69 10.95 11.95 (8%) 34% 16% n.a.1 SRT.u n.a. 10.49 10.40 n.a. (1%) 6% Average of above (5%) 19% 15% S&P/TSX Capped REIT Index (6%) 10% (5%) vs. REIT Index 20 bps 826 bps 1,920 bps

Notes: 1) Slate Retail REIT completed its amalgamation transaction in April of 2014. Previously, the company had existed in the form of three non-listed funds holding US retail properties. Source: RBC Capital Markets estimates

Importantly, we note that much of the 2015 performance was derived from foreign currency translation impacts. In this regard, we note that the US dollar appreciated by 19% versus the Canadian dollar last year. The euro also gained 7%. Hence, for a number of these REITs, underlying P/NAV valuations did not improve at all.

January 7, 2016 187


To comprehend the proposition with these entities fully, investors must not only understand the operating trends, capital trends, property valuation metrics, and the M&A environment in the foreign market(s) in which each REIT operates, but they must also have a grasp of the asset management, governance, and tax structures for each REIT.

Despite the group’s strong aggregate 2015 return performance, valuations are still seemingly inexpensive. The average discount to NAV for the group is 17%. At least one (WPT Industrial REIT) trades at a premium to NAV, yet most are at discounts, with some as steep as ~40%. We believe some element of the valuation discount may indeed be structural, as referenced above. Yet, given the magnitude of the gap between unit price and intrinsic value, we continue to see the potential for “corporate actions” within this group—whether it is M&A, a re-listing on a local stock exchange, or other alternatives.

3) Share and unit buyback activity The theory behind unit of share buybacks is simple: When an entity’s units are trading below intrinsic value, equity could be repurchased and/or cancelled as a means of deploying capital on a value basis, while rendering each remaining outstanding unit more valuable. Proponents also point to the possible “signalling” effect, whereby management and the board are pointing to their conviction in the value and prospects for the underlying business.

This is the theory; we see the practical application as being more complex.

Notably, due to high AFFO payout ratios, listed REITs and REOCs generally have little to no retained annual cash flow. And this is in light of capital structures that carry heavy indebtedness relative to almost any other industry. Moreover, the transparency of the REIT vehicle, as well as direct real estate markets, is such that the very wide discounts to intrinsic value, which would otherwise make buyback activity very attractive, are rarely attained.

Therefore, for most REITs and REOCs, buybacks are typically not prudent uses of finite capital, in our view. We see genuine exceptions where REIT or REOC buybacks may be warranted, if supported by the following pre-conditions: 1) strong corporate liquidity; 2) low leverage; 3) low payout and/or significant retained earnings; and, 4) sufficient in-place funding to complete all in-progress or potential high-return portfolio investments (or an outright lack of investment opportunities within the existing portfolio).

Moreover, if a business has sufficient size and scale (and all pre-conditions are also present), we also support the idea of selling properties for purposes of deploying the liberated equity into unit or share buybacks.

2015 Normal Course Issuer Bid (“NCIB”) repurchases topped $300MM Exhibit 186 summarizes aggregate monthly NCIB activity against our group-average discount to NAV reading. The pattern seems clear—as the sector’s P/NAV valuation continued to erode over the course of the year, NCIB activity generally accelerated. Collectively in 2015, TSX-listed REITs and REOCs deployed $315 million toward the repurchase and cancellation of outstanding units or shares. Just under two-thirds or $201 million of the total activity occurred in the back half of last year.

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Exhibit 186: Aggregate 2015 NCIB activity for TSX-listed REITs and REOCs 1,2 ($MM)

24

9

15 13 13

39

26

61

33

18

49

15

(14%)

(12%)

(10%)

(8%)

(6%)

(4%)

(2%)

0%

0

10

20

30

40

50

60

70

Jan 15 Mar 15 May 15 Jul 15 Sep 15 Nov 15

Aggregate purchases (LHS) Sector premium/(discount) to NAV (RHS) Notes: 1) The activity summarized above only includes the repurchase of an issuer’s outstanding equity. The repurchase of outstanding convertible debentures was not included. 2) Transactions with filing dates after December 31, 2015 were not included. Source: SEDI, DisclosureNet, and RBC Capital Markets

10 REITs/REOCs dominate NCIB activity; Dream Office REIT and Morguard Corporation have been the most aggressive The 10-most active entities accounted for 93% of the sector’s total buyback activity. The Dream Office REIT (“Dream”) was the most active entity, repurchasing 4.3 million units or (~4% of the total outstanding units) at a weighted-average unit price of $23.50, representing a $101 million investment. Morguard Corporation (“Morguard” or “MRC”) was the second-most active, repurchasing 0.4 million shares (~3% of the total outstanding shares) at a weighted-average share price of $145.90, representing a total investment of $54 million.

Exhibit 187: Trailing 12-month NCIB activity for selected REITs and REOCs

REIT/REOC Ticker Last

trade Quantity

(MM)

NCIB price NAV

(rounded) Avg/ NAV

Total Value

($MM) % of

outstanding High Low Avg1 Dream Office REIT D.un Dec 31 4.3 $28.30 $17.17 $23.50 $32 (27%) 101 4% Morguard Corp. MRC Dec 11 0.4 $154.51 $135.00 $145.90 $262 (44%) 54 3% Brookfield Property Partners2 BPY.un Nov 30 1.1 $40.90 $27.65 $32.82 $40 (18%) 37 0% Boardwalk REIT BEI.un Nov 30 0.5 $55.65 $46.53 $51.73 $66 (22%) 27 1% Morguard REIT MRT.un Dec 10 1.3 $17.34 $13.45 $15.06 $23 (33%) 20 2% CREIT REF.un Nov 19 0.4 $43.71 $40.03 $41.54 $46 (10%) 16 1% Slate Retail REIT2 SRT.un Nov 30 1.2 $11.39 $7.62 $10.63 $16 (34%) 13 4% Mainstreet Equity Corp.3 MEQ Nov 26 0.3 $38.45 $28.35 $34.86 $49 (29%) 12 3% Dream Unlimited Corp. DRM Sep 29 0.8 $9.76 $7.14 $8.38 n.a. n.a. 7 1% Extendicare Inc. EXE Jul 07 1.1 $7.50 $6.48 $7.19 $9 (20%) 8 1% Top ten: Total or simple average

(26%) 293

Other entities

(20%) 21 Total

(23%) 315

Notes: 1) Repurchases made in USD were translated at the exchange rate in effect on the date of the transaction. 2) We derive our NAVs for both BPY and SRT’u in US dollars. Above, we have translated our NAV estimates using a 1.39 exchange rate. 3) Consensus as per SNL. Source: SEDI, DisclosureNet, and RBC Capital Markets

January 7, 2016 189


Based on our current NAV/unit estimate of $32, Dream’s weighted-average repurchase price represents a 27% discount. Dream is one entity in which we expect NAV/unit will erode over the next 12 months. The weighted-average repurchase price, therefore, represents a ~20% discount to our NAV/unit estimate one-year hence.

Based on our current NAV/share estimate of $262, Morguard’s weighted-average repurchase price represents a 44% discount. Due primarily to strong earnings retention, we expect Morguard’s NAV/share to increase over the 12 months; therefore, the weighted-average repurchase price represents a ~47% discount to our NAV/unit estimate one-year hence.

Earnings growth: In line with long-term average; further (modest) deceleration likely Aggregating the data for all covered companies, we derive a “trend-line” earnings growth metric for the listed property sector. In determining the trend line, we exclude the highly volatile lodging REITs, as well as individual REIT or REOC results that are major outliers (which are often the product of non-recurring income and/or expense items) in each period. Exhibit 188 illustrates year-over-year trend-line earnings growth from 1999 through to our 2017 forecasts.

With nine months of reported results posting a growth rate of approximately 4%, we estimate the group is on target to deliver 4% trend-line earnings growth in 2015. In aggregate, organic top-line revenue and NOI growth figures last year were a tad softer than expected. This was largely a function of very weak economic conditions in energy-centric regions. Unplanned foreign currency translation tailwinds from a number of REITs with US property interests helped trend-line earnings growth, as did the accrual of greater than previously expected interest rate savings on normal course debt refinancings. Contributions from acquisitions, for most REITs and REOCs, also proved to be de minimus.

Placing the 2015 figures into context, the sector’s recent earning growth peak was at 8% in 2012. This has been followed by a generally decelerating trend to 5% in 2013 then 4% annually thereafter. The sector’s long-term average trend-line earnings growth is in the 3–4% range.

Exhibit 188: “Trend-line” earnings growth (1999 to 2014 and 2015E to 2017E)

6%

4%

1%

6%

3%

1%1%

4%

8%

5%

-2%

-1%

2%

8%

5%

4% 4% 4%

3%

-4%

0%

4%

8%

1999 2001 2003 2005 2007 2009 2011 2013 2015E 2017E Note: Excludes lodging REITs. Source: Company reports and RBC Capital Markets estimates

January 7, 2016 190


Real estate: Part of the infrastructure for the economy; improving yet tepid aggregate growth expected in 2016 At its most basic level, real estate is an integral component of the infrastructure for any economy. While many investors seem to focus on the effect of interest rates on the property sector, we note that (holding all else equal) real estate earnings growth is bound to be higher in a stronger economy and weaker in a slower growth (or contracting) economy. With the sharp decline in WTI crude oil prices from the June 2014 highs of ~US$105/barrel to the current levels of ~US$37/barrel, much has been made of the potential adverse consequences for GDP growth in regions with significant oil and gas production.

Regional differences are expected to persist but narrow this year 2015 growth was divided between the oil-producing and oil-consuming provinces. While final figures for 2015 have not yet been tallied, RBC Economics forecasts that national economic growth will register 1.2%. GDP growth in Alberta, Saskatchewan, and Newfoundland and Labrador are expected to contract by 1.3%, 0.6%, and 3.5%, respectively. While the main regional engines of growth within the 2015 aggregate GDP are expected to be British Columbia (2.9%), Ontario (2.1%), Manitoba (1.8%), and Quebec (1.3%).

Exhibit 189 provides a regional breakdown of the 2015 and 2016 growth estimates.


2015 estimates

-1.3%-0.6%

-0.2%

1.2% 1.3%1.8%

2.1%

2.9%

-2%

0%

2%

4%


2016 estimates

0.9% 1.2%1.9%

2.2% 2.4% 2.5% 2.5%3.1%

-2%

0%

2%

4%



RBC Economics expects diverging conditions between oil-producing and oil-consuming provinces will persist for the most part in 2016. It also expects that aggregate growth will improve yet still only post a tepid 2.2% gain. Regional growth contrasts are unlikely to be as sharp as in 2015, as oil prices are expected to trend modestly higher. The drastic cuts in capital spending in the energy sector are likely to ease in 2016, thereby lessening a major source of weakness in oil-producing provinces. RBC Economics believes the benefits from lower oil prices, the weaker value of the Canadian dollar, and solid growth in the US economy will accrue more substantially in 2016, thereby promoting moderately faster rates of expansion in the majority of oil-consuming provinces in 2016. Oil-exporting provinces are also expected to return to modest growth this year.

We believe 2016 trend-line earnings growth will register approximately 4%. Thereafter, in 2017, our earnings estimates imply modest deceleration to ~3%. Given the near-term tepid economic growth prospects and the lagging nature of the property sector, we continue to see a bias toward modest downside to our estimated growth rates.


January 7, 2016 191


Readers seeking an economic review and outlook of greater depth can refer to the section entitled “The broader economic backdrop: US and global growth set to accelerate in 2016, improved yet still tepid growth North of 49°” within this edition of the Quarterly.

Number of payout increases declines; magnitude holds consistent Through 2015, 10 REITs and REOCs boosted their cash payouts. This total was down substantially from the widespread increases seen in 2014 (17) and 2013 (14). Increases during 2015 were provided by: Allied Properties REIT, CAPREIT, Chartwell Retirement Residences, CREIT, CT REIT, InterRent REIT, Plaza Retail REIT, Slate Retail REIT, SmartREIT, and WPT Industrial REIT. On balance, distribution increases were modest. The average hike in 2015 was approximately 4%, which was consistent with the average increase provided in 2014 and 2013.

Exhibit 190: Distribution increases/cuts and group-average AFFO payout ratio (1998–2016E)

16

11

4

1

9 9

1716

14

17

8

24

6

14 14

17

10

15

4

21

23

98

21 2

1

2 2

80%

90%

100%

110%

120%

0

5

10

15

20

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016E

Distribution Increases Distribution Cuts AFFO Payout Ratio (RHS)

Source: Company reports and RBC Capital Markets estimates

Getting the house in order: AFFO payout ratios continues to move lower The group’s AFFO payout ratio has ground down to ~83% of 2015 AFFO. We believe the sector’s mantra will be to continue to pass along a portion of its earnings growth in the form of higher cash payments, while simultaneously striving to push its payout ratio lower. We see this as a reasonable approach. Yet we note that it also means the sector’s payout ratio can only decline very gradually each year.

We expect the recent trend of modest payout growth to continue into 2016. To date, four entities (Allied Properties REIT, Choice Properties REIT, Milestone Apartments REIT, and Plaza Retail REIT) have announced distribution increases effective this year, representing an average increase of approximately 4%. With respect to the rest of the sector, we expect 2016 distribution and dividend increases from approximately 11 companies in total. We expect increases to average between 3–4%. One-year hence, we forecast the group-average AFFO payout ratio will decline to ~81–82%.

January 7, 2016 192


Valuation overview Within this section of the Quarterly, we review the valuation attributes of the listed property sector on a number of fronts: 1) net asset value; 2) P/AFFO; 3) AFFO yield and AFFO yield spreads; and 4) relative earnings multiples. We also examine our return expectations, including upside/downside and bear-case scenarios.

Net asset values (“NAVs”) NAVs provide investors with an indication of the underlying value of a REIT’s assets less its liabilities, based on private-market valuations. NAVs do not attribute any value to management’s ability to create unitholder value over time. Investors should remember that REITs are legitimate “going concerns” (i.e., they are operating businesses, not just collections of assets); therefore, an assessment of management is important. So too are structural considerations for that matter. NAVs are only one of several important valuation tools that can be used in assessing a real estate operating company or REIT. Managers who have a superior track record of creating value for unitholders will see a rising NAV over time. Over the longer term, there should be a one-to-one correlation between NAV/unit growth and unit price appreciation.

Sector P/NAV indicator rounds out 2015 at a 13% discount Our estimates place the group-average discount to NAV at 13% on December 31, 2015. This is significantly below the long-term group-average premium of 3%. The year-end 2015 valuation widened substantially from the 6% discount to NAV reading at the outset of the year. Monthly readings throughout 2015 ranged from a 1% discount to NAV (February 2015) to a 13% discount to NAV (December 2015). On an intra-month basis, the sector’s P/NAV “bottomed” in December at a 15% discount.

Exhibit 191: Group average premium/(discount) to estimated NAV (Jan-1996 to Dec-2015)

(17%)

28%

(11%)(15%)

21%17%

(13%)

(27%)

12%

4%

(13%)

(40%)

(30%)

(20%)

(10%)

0%

10%

20%

30%

40%


(13%)

Note: Shaded area spanning 100% of NAV to 110% of NAV is referred to as our “band of fair value”. Source: Thomson One and RBC Capital Markets

Given the degree of subjectivity involved in determining NAVs, we generally view a fair trading range as being NAV-parity up to a 10% premium (see shaded band in Exhibit 191). Historically, valuations that lie notably outside of these low/high levels tend to be good buy/sell signals. Overall, based on this metric, the year-end 2015 reading suggested that REITs appear to be significantly undervalued.

Our overall P/NAV metric suggests that REITs are significantly undervalued relative to private market property valuation benchmarks.

January 7, 2016 193


Through 2015, 10-year GOC bond yields declined by ~40 bps, from Q4/14’s 1.8% to Q4/15’s 1.4%. Often cited commentary would suggest these lower yields should have provided strong valuation support for REIT and REOC prices over the past year. We do not dispute this. Yet, to provide added context, we suggest that the valuation support was possibly less than many expected, given that economic growth was tepid overall, and indeed negative in some regions (e.g., Alberta).

Yield compression and US exposure buoy average 2015 NAV/unit growth to the top end of our expectations Since the Global Financial Crisis in 2008, the sector has posted cumulative average NAV/unit (or share) growth of ~66%. On an annualized basis, NAV/unit growth has averaged ~7.5%. We estimate that roughly three-quarters (~50%) of this value appreciation was driven by cap-rate compression, as the average cap rate employed in our NAV derivations decreased from 8.0% in December 2008 to 6.4% in December 2015.

As illustrated on the prior page in Exhibit 191, from November 2008 to December 2012, underlying NAV growth was more than offset by appreciation in unit price, as the sector average P/NAV moved from a discount of 27% to a 3% premium. Following hints that the Fed might begin to taper its bond purchases in Q2/13, the group average P/NAV subsequently (and rapidly) declined to a material 13% discount to NAV by August 2013.

Exhibit 192 below illustrates group-average NAV/unit growth from 1996 through to our 2016 estimates.

Exhibit 192: Average annual net asset value per unit (or share) growth (1996 to 2016E)

3%5%

3%0% 1%

0%

1%6%

14%16%

22%

8%

-34%

9%

18%

9%12%

1% 1%4%

2%

-5%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016E Source: RBC Capital Markets estimates

Coming off two consecutive years of weak 1% NAV/unit growth, 2015 posted a respectable average gain of 4%. The outcome achieved the upper end of our expectations for the year, whereby our stated range was between -2% and +4%. The sector achieved the high end of our 2015 NAV growth expectations principally due to three factors: 1) modest organic NOI growth, as expected; 2) generally steady cap rates for properties of the calibre and character owned by listed

REITs and REOCs, with the key and notable exception being sizable yield compression within the relatively small private-pay seniors housing sector; and

3) US dollar translation, whereby the weaker Canadian dollar (~19% US dollar appreciation versus the Canadian dollar last year) drove significant value appreciation in US property interests.

January 7, 2016 194


Exhibit 193: The 2015 total return construct and P/NAV roll-forward

Total return composition: REIT Index

Average1 Price change -10.1%

-3.8%

Yield 5.5%

8.2% Total return -4.6%

4.4%

Sector P/NAV roll-forward: Prem/(Disc) to NAV Dec-2014

-5.7% Average NAV growth

-3.7%

Average price change (above)

-3.8% Rounding / other sample set differences

0.5%

Prem/(Disc) to NAV Dec-2015

-12.7%

Notes: 1 Simple average excluding Amica Mature Lifestyles Inc. which generated an exceptional return in 2015 and was not part of our coverage universe. The very high yield on the average is in part explained by Lanesborough REIT, which closed the year at $0.14/unit, yet was required (for tax purposes) to make a special year-end distribution (all paid in the form of additional units) of $0.435/unit. Lanesborough was not within our coverage universe in 2015. Source: RBC Capital Markets estimates

NAV growth outlook: We see a slightly asymmetrical and negatively skewed upside/downside, which may have legs beyond just this year Looking ahead, we believe that the cap-rate compression cycle has likely run its course. As such, we believe that organic income growth and value-add activities must take the lead as the prime NAV drivers for 2016 and beyond. Unfortunately for the year ahead, we see continued tepid economic growth as the obstacle to robust NOI growth and demand for new developments.

Our 2016 outlook is for NAV/unit growth within a range of -5% to +2%. Components of the forecast are:

1) same-property NOI growth averaging ~2%; 2) modest earnings retention (AFFO payout ratios have moved into the low 80s); 3) modest value creation, typically within the larger and more seasoned REITs and REOCs;

offset by the potential for 4) disparate trends in capitalization rates, by asset class, and geography based on the

prospects for income growth (stemming from market rent estimates and leasing/re-leasing assumptions, including down time, capex, and tenant-installation costs), and non-recoverable capital requirements.

In light of the top-down economic outlook for Canada (please refer to “The broader economic backdrop” section of the Quarterly) and absent a sharp rebound in the price of oil, we believe these trends may run beyond 2016. Overall, we believe asymmetrically skewed upside/downside outlook is already incorporated in the current 13% group-average discount to NAV.

Tracking aggregate IFRS fair-value gains/losses; net markdowns a genuine possibility for 2016 Cumulatively through to 2013 (from the 2010 transition to IFRS), upward fair value marks were the norm. These were congruent with our view of strong NAV growth. For the nine months ended September 30, 2015, our REIT and REOC coverage universe recorded estimated net fair value marks of $1.5 billion, down 67% from $4.7 billion in calendar 2014.

As illustrated in Exhibit 194 below, Brookfield Property Partners LP (“BPY”) was a major driver of the upward net fair value marks in both 2014 and 2015. Specifically, BPY was responsible for $4.1 billion of the total $4.7 billion net fair value gains in 2014 and virtually all of the nine-month 2015 amount.

January 7, 2016 195


On a same-REIT/REOC basis (19 issuers), aggregate upward fair value marks peaked in 2012 at $4.4 billion (~5% of gross asset value), up from $3.2 billion (~4% of gross asset value) in the prior year. This activity was largely driven by the retail and multi-res sub-sectors. Since 2012, net fair value markups have been diminishing, as has the number of REITs and REOCs posting such gains. By way of example, within the 2012 data, all 19 of the entities in our same-REIT/REOC group posted net fair value gains ($4.4 billion). In 2013, 15 recorded gains ($919 million; ~1% of gross asset value), and by 2014, only 11 posted upward marks ($304 million; 0.3% of gross asset value).

For the nine months ended September 2015, the same REIT/REOC sample has posted net fair value losses of $128 million. And, when the full-year 2015 figures are available, we expect additional Q4/15 net markdowns potentially to drive full-year net markdowns to more than $500 million.

Exhibit 194: REIT/REOC sector1 net IFRS fair value gains/(losses) by year ($MM)

-500

500

1,500

2,500

3,500

4,500

2011 2012 2013 2014 2015 9M

Same-REIT/REOC Other REIT/REOC

$1.5 Bis BPY

$4.1 Bis BPY

$760 MMis BPY

Notes: 1 REIT/REOC sector excludes MRC, MRD, and BAM. The same REIT/REOC sample includes 19 entities that have applied IFRS accounting since 2011. The Other REIT/REOC sample includes 11 entities that have been added to our coverage since 2011. Source: RBC Capital Markets estimates

In light of our expectations for NAV growth between -5% and 2%, we expect 2016 fair value adjustments to be consistent with the downward trend exhibited over the past three years. Specifically, we expect downward marks in: 1) Calgary and Edmonton CBD office properties; 2) suburban office properties somewhat more generally; and 3) an array of properties across other asset classes, primarily those located in secondary and tertiary markets.

Side-by-side NAV summary We continually evaluate the data points arising from participants in the direct property investment markets, property brokers, advisors, lenders, and the like. From this, we adjust cap rates and other factors specific to our individual REIT/REOC NAV models. Appendix VII provides a summary of the metrics and recent changes behind our NAV/unit estimates for all REITs/REOCs under coverage, including:

1) An implied and applied capitalization rate for each entity under coverage; 2) Our NAV per unit or share estimate and the P/NAV at which the listed equity trades; 3) A NAV roll-forward, which allows the reader to determine the change in each NAV from

the prior quarter, and key drivers behind the change (i.e., revised valuation parameters versus improvements in operating performance or accretive equity raises, etc.); and

January 7, 2016 196


4) A leverage analysis, which quantifies balance sheet leverage (i.e., debt + convertible debentures to enterprise value) and income statement leverage (i.e., the degree to which our diluted FFO and AFFO per unit estimates are levered).

AFFO yields and analysis Adjusted FFO (“AFFO”) is a proxy for a REIT or REOC’s operating earnings. It can be both a key gauge of distribution capacity and a useful valuation metric. AFFO has several shortcomings, including but not limited to the fact that it can be dramatically altered through varying degrees of financial leverage, and the potentially subjective elements in its determination (i.e., capex reserves and other factors involve judgment). However, we believe AFFO to be sound in theory and pragmatic in application, particularly when used in conjunction with other metrics.

For equity investors, price/earnings multiples are a commonly used valuation metric. Conceptually, we do the same thing with REIT and REOC AFFO, thus deriving the real-estate equivalent to P/E. Inverting a price/AFFO multiple generates an AFFO yield. This yield can easily be compared to the earnings yield from the broader stock market or any particular sub-sector, such as pipelines and utilities, for example. The AFFO yield can also be benchmarked against the income yield from Government of Canada or corporate bonds.

AFFO-GOC yield spread remains well above the LTA Exhibit 195 illustrates more than 15 years of data for the group-average (ex-lodging) AFFO yield, the 10-year GOC bond yield, and the spread between these yields. The sector’s December 31, 2015 AFFO yield of 7.4% was 57 bps higher than at the beginning of the year. In comparison, the 10-year GOC benchmark yield of 1.4% had declined by 39 bps over the same timeframe. Hence, the AFFO yield spread increased by 97 bps from 500 bps at the outset of the year to 597 bps as of December 31, 2015.

The December 2015 spread compares to the March 2009 all-time high of 816 bps and the all-time low of 98 bps registered in May 2007. Moreover, it remained 237 bps above the long-term average of 360 bps and above the +1 standard deviation level of 481 bps. Statistically, the current spread is indicative of a valuation, which suggests that REITs are “cheap” relative to 10-year Government of Canada bond yields.

When examined in the context of an earnings multiple, we note the December 31, 2015 AFFO yield of 7.4% equates to a 13.6x multiple. Comparatively, this was:

• 4.4x above the cyclical trough of 9.2x in March 2009; • 5.9x below the cyclical peak of 19.5x in February 2007; • 0.3x below the long-term average of 13.9x; and • 0.9x below the 14.5x trading multiple of one year ago.

January 7, 2016 197


Exhibit 195: AFFO yields versus 10-year bond yields (Dec-1997 to Dec-2015)

5.5%

6.5%

4.5%

2.8% 3.4%

6.9%

11.7%

5.5%

10.9%

5.8%

0%

2%

4%

6%

8%

10%

12%


10 Year Bond Yields REIT AFFO Yield

7.4%

1.4%

147 bps

558 bps

98 bps

816 bps

250 bps

360 bps

0

200

400

600

800


Spread (basis points) Average

597 bps

Source: Thomson One and RBC Capital Markets

AFFO-corporate bond yield spread also remains higher than the LTA Exhibit 196 compares the REIT AFFO yield to a broad index of investment-grade corporate bonds, specifically the Moody’s Corporate BAA Bond Index yield. On December 31, 2015, the Moody’s BAA Index carried a 5.5% yield. This was about 100 bps below its 6.5% long-term average. The trough yield during the current cycle was 4.3% and was achieved in January 2015. In contrast, the peak of cycle yield of 9.5% was hit in October 2008.

The December 31, 2015 AFFO yield of 7.4% represented a 183 bps spread over the Moody’s Corporate BAA Bond Index yield. This spread is 87 bps above the long-term average of 96 bps. The year-end spread was also:

• 66 bps below the recent peak of 249 bps (February 2009) and 159 bps below the all-time high of 342 bps (February 2000); and

• 295 bps above the all-time low yield spread of negative 112 bps (February 2007, which was the peak of cycle valuation point for Canadian REITs).

A one standard deviation reading on this AFFO yield versus Moody’s BAA Index yield is 183 bps. The year-end spread of 183 bps suggests that REITs are now statistically “cheap” relative to corporate bond yields.

January 7, 2016 198


Exhibit 196: AFFO yields versus Moody’s BAA yield (Dec-1997 to Dec-2015)

6.9%

9.0%

11.7%

9.0%

5.2%

10.9%

4%

6%

8%

10%

12%


BAA Bond Yield REIT AFFO Yield

5.5%

7.4%

-31 bps

244 bps342 bps

224 bps

-112 bps

249 bps

96 bps

-200

0

200

400


Spread (basis points) Average

183 bps


2015: Above-average volatility and a persistent discount to NAV environment The S&P/TSX Capped REIT Index (the “REIT Index” or the “Index”) opened the year at a reading of 158. It touched its intra-year high of 174 on February 5. More recently, it bottomed out with its December 14 low of 139 and at year-end settled near the bottom of the intra-year range at 142. Point-to-point, the Index thus posted a negative 10% price return. Interestingly, it also marked a relatively volatile year, with the differential between the annual price low and high being 36 points or 26%. Exhibit 197 below graphically depicts the annual closing price and intra-year high/low trading range history of the Index.

A variable year for the REIT Index; slightly less so for the TSX Index despite wide sector variances Overall, 2015 was a year when REIT/REOC prices recorded negative price returns, which were well below the long-term average price appreciation of 4%. Statistically speaking, 2015 was the eighth-most variable year of the 18 years of data for the REIT Index. The high/low range has not been as wide since 2010. The Index’s 2015 high/low range of 26% is well above the 19% average from the prior five years (2010–2014).

Price return data for the S&P/TSX Composite Index illustrated lower peak-to-trough volatility than the REIT Index. That said, with a reading of 13,010 or -11%, the TSX Index ended 2015 with fractionally weaker price performance. The TSX’s point-to-point depreciation from 14,632 compared to the 18-year average price return of 5%, and it marked the worst return performance since 2011 (-11%). Last year’s high-to-low range was 22%, less than that of the

January 7, 2016 199


REIT Index, roughly in line with the prior five-year average (20%), and well below the 34% long-term average. The aggregate decline in the TSX Index price level masked significant variability in market “internals”, whereby the Healthcare sector suffered price deterioration of 16% while Information Technology gained 15%.

Exhibit 197: S&P Capped REIT Index: Annual closing price and trading range (1998 to 2015)

74

160

81

170158

142

0

20

40

60

80

100

120

140

160

180

200

1998 2000 2002 2004 2006 2008 2010 2012 2014

High / Low Range S&P/TSX Capped REIT Index Source: Thomson One and RBC Capital Markets

Broader equity market internals: REIT relative valuations As illustrated on the prior pages, REIT/REOC valuations appear statistically cheap relative to both risk-free yields (i.e., 10-year GOC bonds) and corporate bond yields. Direct property market valuation benchmarks supporting our NAV estimates also suggest that REITs are below long-term valuation norms. These outcomes have arisen due to declining REIT prices (-10%) over the course of the past year, yet with rising NAVs and modestly declining risk-free yields.

Having said this, we recognize that investors have many options, including sector allocation across the broader equity market. Thus, a relevant analysis for many investors is the valuation of REITs versus other sectors across the broader equity market. More specifically, we explore the historical relationships between REIT/REOC trading multiples (for which we employ P/AFFO multiples) relative to four other sectors: 1) Banks; 2) Consumer Staples (“Staples”); 3) Telecommunications Services (“Telecom”); and 4) Utilities (“Utes”). In each instance, we examine the current relative earnings multiple versus its respective long-term averages and how each sector has performed over the past year against REITs.

We have chosen these four sectors based primarily on two factors: 1) our view that, just like REITs, each is primarily exposed to Canada’s domestic economy (unlike energy, base metals, or other commodity-focused sectors, which are subject to the greater influences of global supply/demand forces); and 2) our view that each has been viewed as a historically reliable source of dividends for equity-income-focused investors.

REITs underperform Staples, Telecom, Banks, and Utilities in 2015 By most accounts, 2015 was a challenging year for Canadian equity returns. Canadian REITs posted a -10.1% price return, lagging Banks, Utilities, Telecom, and Consumer Staples (-8.5%, -7.8%, -1.0%, and 11.0%, respectively). With the benefit of a generous cash yield, listed real estate recorded a total return -4.6%, thus underperforming Staples (12.4%) by 1,710 bps, Telecom (3.6%) by 820 bps, Utilities (-3.5%) by 120 bps, and Banks (4.4%) by 20 bps. Due to

January 7, 2016 200


sizable negative returns from the resource complex specifically, REIT returns exceeded the S&P/TSX Composite Index (-8.3%) by 370 bps.

Multiples contract across the board Over the course of 2015, REIT multiples contracted by 1.1x (-7.8%) from 14.7x to 13.6x as of December 31, 2015. This compares to a 1.0x (6.0%) decrease in the S&P/TSX Composite Index’s year-end 2015 P/E ratio of 15.3x. Across the four domestically exposed industry sectors, P/E multiple contraction was also the norm last year, as follows: Banks (-1.4x; -11.7%), Staples (-0.9x; -4.7%), Telecom (-0.8x; -5.2%), and Utes (-2.8x; -12.5%).

Exhibit 198: Summarized returns and multiple change, by sector

TSX REITs Banks

Consumer Staples Telecom Utilities

Price (11.1%) (10.1%) (8.5%) 11.0% (1.0%) (7.8%) Yield 2.8% 5.5% 4.1% 1.4% 4.6% 4.3% Total (8.3%) (4.6%) (4.4%) 12.4% 3.6% (3.5%) REITs-relative +370 bps – -20bps -1,710bps -820bps -120bps Multiple Dec-2014 16.3x 14.7x 11.8x 19.6x 16.0x 22.1x Multiple Dec-2015 15.3x 13.6x 10.4x 18.7x 15.2x 19.3x Multiple change (1.0x) (1.1x) (1.4x) (0.9x) (0.8x) (2.8x) YoY multiple change in % (6.0%) (7.8%) (11.7%) (4.7%) (5.2%) (12.5%) REITs-relative (0.2x) n.a. 0.2x (0.2x) (0.3x) 1.6x

Source: Bloomberg and RBC Capital Markets estimates

REITs in “undervalued” territory relative to Utilities, yet “neutral” relative to Banks, Staples, and Telecom REIT valuation multiples relative to other domestically exposed equity-income sectors have showed mixed results over the past 12 months. Relative to Banks and Utilities, REITs have strengthened while relative to Consumer Staples and Telecom, REIT multiples have lost ground. Despite the sector shifts, relative to these four other sectors, the big picture is such that REITs generally continue to trade within the fair-value band of plus/minus one standard deviation from the long-term norm. More specifically, we note:

1) REIT multiples relative to Utilities are slightly above the plus/minus one standard deviation threshold, suggesting that REITs are slightly in “undervalued” territory; and

2) Relative to Banks, Consumer Staples, and Telecom, REIT multiples are squarely in “neutral” territory relative to their long-term averages (i.e., REITs appear neither undervalued nor overvalued).

More specific details on the sector-by-sector comparisons include:

Banks Over the past 18 years, Banks have traded at an average P/E ratio of 11.6x versus the REIT P/AFFO average of 13.9x. This equates to a long-term average relative multiple of 1.2x. Currently, Banks trade at a P/E of 10.4x versus the REIT P/AFFO multiple of 13.6x, for a relative multiple of 1.3x. This relative multiple is slightly higher than the year-ago level.

January 7, 2016 201


Exhibit 199: Forward Banks multiples (P/E) relative to REITs (P/AFFO)

1.1x

0.9x

1.5x

0.9x

1.8x

1.5x

1.3x

Average 1.2x

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x

1.6x

1.8x

2.0x

2.2x

1998 2000 2002 2004 2006 2008 2010 2012 2014

-1 std. dev. (1.0x)

+1 std. dev. (1.4x)

REITs "expensive" / Banks "cheap"

REITs "cheap" / Banks "expensive"


The relative valuation of REITs versus Banks has been range-bound for the better part of two years. The earnings outlook for both sectors has been generally stable, with only slight downward revisions over time. The trajectory of stock prices has also been similar. Through 2015, the S&P/TSX Capped REIT Index posted a decline of approximately 10%. The same performance statistics for TSX Banks (market-weighted index) was down 9%. The only notable yet short-term performance disparity between REITs and Banks was the month of January 2015, when the REIT Index posted a monthly price gain of 9% relative to a price decline of 10% from banks. This is visibly evident in Exhibit 199, with the sharp spike in the relative multiple from ~1.2x to 1.5x in early 2015.

Our outlooks suggest that both REIT and Bank12 earnings growth this year will be mundane, at 4% and 1%, respectively. Having noted that, our outlook for REITs is essentially in line with the long-term average, while Banks are sub-par. By 2017, our growth outlook will be more divergent, in favour of Banks (a 7% improvement) over REITs (a 3% increase). The divergence in the mid-term growth rates is founded largely on the view that interest rates gradually move upward (driving net interest margin expansion for the banks yet creating a marginal earnings headwinds for the REITs) and the expectation that Bank credit losses will remain low.

On the dividend yield front, major Bank dividend yields currently range from 3.7% to 5.4% on a group payout ratio in the 45–50% range. We expect Bank dividend growth to average 8% over the next 12 months. This will, in turn, push the Bank payout ratio roughly into the 50–55% band. Nonetheless, we expect Bank dividend growth to exceed the roughly 2% expected average growth in REIT distributions.

Overall, REITs are currently trading within the minus-one standard deviation threshold, thus suggesting that REITs are trading within “fair value” relative to Banks.

12 References to Banks earnings and dividend growth are sourced from RBC Capital Markets’ Canadian Financials Analyst Darko Mihelic and team. The Canadian Financials team forecasts core EPS growth of 1% in 2016 for the major Canadian banks and 7% in 2017.

January 7, 2016 202


Consumer Staples Over the past 18 years, Consumer Staples have traded at an average P/E ratio of 16.8x. REITs, with a long-term average P/AFFO multiple of 13.9x, have an average relative historical multiple of 0.9x Consumer Staples. Currently, REITs trade at 13.6x AFFO and Consumer Staples at a P/E ratio of 18.7x, for a relative multiple of 0.7x.

The current relative multiple is below the long-term average and has decreased by 0.6x (-46%) since reaching a peak of 1.3x in September 2012. Over this three-plus-year horizon, REIT multiples compressed by 4.6x (-25%), while Consumer Staples multiples expanded by 4.8x (+34%). Yet the current relative multiple of 0.7x appears to still be within the minus-one standard deviation threshold of 0.6x. Hence, REITs currently appear to be within “fair value” territory relative to the Consumer Staples.

Exhibit 200: Forward Consumer Staples multiples (P/E) relative to REITs (P/AFFO)

0.5x

1.1x

0.6x

1.1x

1.3x

0.7xAverage 0.9x

0.0x

0.2x

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x

1.6x

1.8x

2000 2002 2004 2006 2008 2010 2012 2014

-1 std. dev. (0.6x)

+1 std. dev. (1.1x)

REITs "cheap" / Staples "expensive"

REITs "expensive" / Staples "cheap"


Telecom Services Since 2003, the Telecom sector has traded at an average multiple of 15.0x (prior to 2003, valuations were heavily influenced by the tech “bubble”) compared with the REIT average of 14.9x (over the comparable timeframe). Accordingly, the long-term average relative multiple between the two sectors is 1.0x. Currently, the Telecom sector trades at a P/E of 15.2x versus the REIT P/AFFO multiple of 13.6x, for a relative multiple of 0.9x.

The current relative multiple is testing the minus-one standard deviation level of 0.8x and has remained flat over the past 12 months. As such, REITs appear to be within our parameters of “fair value”.

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Exhibit 201: Forward Telecom Services multiples (P/E) relative to REITs (P/AFFO)

0.9x

1.1x

0.8x

1.4x

1.0x 0.9xAverage 1.0x

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x

1.6x

2003 2005 2007 2009 2011 2013 2015

-1 std. dev. (0.8x)

+1 std. dev. (1.2x)

REITs "cheap" / Telecom "expensive"

REITs "expensive" / Telecom "cheap"


Utilities Of the four sectors subject to comparison, Utilities may be the most “REIT-like”. Utility earnings are traditionally very defensive and stable (owing to the regulated nature of their businesses), and investors typically own the shares primarily for dividend yield. Over a long period of declining interest rates, Utilities’ multiples have expanded with the passage of time, and investors have generally benefitted from solid long-term value appreciation, similar to the REIT sector (at least up to 2013).

Since 1998, the long-term average P/E for the Utilities sector is 17.0x versus the REIT average multiple of 13.9x. This equates to a long-term average relative multiple of 0.8x. Currently, Utilities trade at a P/E of 19.3x versus the REIT P/AFFO multiple of 13.6x, for a relative multiple of 0.7x. Over the past 12 months, the relative multiple between Utilities and REITs has stayed largely flat. The current relative valuation is slightly below the minus-one standard deviation level of 0.7x. Accordingly, we conclude that the REITs are slightly undervalued relative to Utilities.

Exhibit 202: Forward Utilities multiples (P/E) relative to REITs (P/AFFO)

0.7x

0.9x

0.6x

1.1x

0.7x

0.9x1.0x

0.7x

Average 0.8x

0.7x

0.4x

0.6x

0.8x

1.0x

1.2x

1998 2000 2002 2004 2006 2008 2010 2012 2014

-1 std. dev. (0.7x)

+1 std. dev. (0.9x)

REITs "cheap" / Utilities "expensive"

REITs "expensive" / Utilities "cheap"


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Summary and conclusions In summary, REIT valuation multiples relative to other domestically exposed equity-income sectors moved modestly lower over the past 12 months. The exception is REITs relative to Utilities, where relative multiples have stayed largely flat.

Despite the trend whereby REIT multiples have been generally “losing ground”, the sector is still trading broadly within the plus or minus one standard deviation (from the norm) band. REIT valuations relative to Utilities have dropped modestly into “undervalued” territory.

Meet-me-in-the middle: Our total return prospects in context of interest rates sensitivities and AFFO yield spread requirements In formulating our total return expectations for the sector, we consider three key variables:

1) Cash yield (distribution or dividend); 2) Expected earnings growth (2016, and beyond); and 3) Potential multiple expansion/contraction (i.e., the current AFFO multiple versus future

potential multiple and the current P/NAV versus future potential P/NAV). We have generally high visibility with respect to the first two variables. Current distribution rates are already established. Only in dire circumstances have we seen more than a few cuts in any given year. What is more, based on the round of 2015 increases and our outlook for 2016 earnings growth and payout ratios, we expect modest distribution or dividend increases this year from more than a dozen names across our coverage universe.

With respect to the second variable, REITs/REOCs probably have better earnings (i.e., FFO) predictability than most other sectors. This is not to say that there are no material variances between our point estimates and actual results for individual issuers. However, a review of more than 15 years of historical data shows that aggregate earnings data have been highly predictable. Over the past 13 years specifically, Exhibit 188 on page 190 shows that the group’s average annual per unit (or per share) earnings growth has not exceeded 8%, nor has it declined by greater than 2%.

In contrast, the degree of valuation change (i.e., AFFO multiple expansion or contraction) in any particular year tends to be much less predictable than yield or earnings growth. By way of evidence, the extreme points of the valuation data show trough AFFO multiples below 9x and greater than 19x at the peak. There have been individual calendar years when the AFFO multiple actually expanded or contracted by 5x.

The AFFO yield spread matrix As of December 31, 2015, the 10-year GOC yield was 1.4%. The AFFO yield of 7.4% exceeded this by 597 bps, which equated to an AFFO multiple of 13.6x. This is our reference point.

Quantifying changes in 10-year GOC yields and AFFO yield spreads and their impact on AFFO multiples is rudimentary math. Our sensitivity matrix (in which all figures move in 25 bps increments) is shown below in Exhibit 203. In using this matrix, a range of 10-year GOC yields is provided across the top of the matrix while the range of AFFO yield spreads is on the vertical axis to the left.

By way of just one example, start at the middle of the matrix and assume a 75 bps increase (to 2.15%) in the 10-year GOC yield (dotted line, move to the right), accompanied by a 25 bps narrowing (to 5.70%) in the AFFO yield spread (dotted line, move upward). The outcome shows that this results in the AFFO multiple contracting to 12.7x from the December 31, 2015 value of 13.6x.

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Exhibit 203: AFFO multiples versus changes in 10Y GOC yields & AFFO yield spread (Δ25 bps)

0.40% 0.65% 0.90% 1.15% 1.40% 1.65% 1.90% 2.15% 2.40%

4.70% 19.6x 18.7x 17.9x 17.1x 16.4x 15.7x 15.2x 14.6x 14.1x4.95% 18.7x 17.9x 17.1x 16.4x 15.7x 15.2x 14.6x 14.1x 13.6x5.20% 17.9x 17.1x 16.4x 15.7x 15.2x 14.6x 14.1x 13.6x 13.2x5.45% 17.1x 16.4x 15.7x 15.2x 14.6x 14.1x 13.6x 13.2x 12.7x5.70% 16.4x 15.7x 15.2x 14.6x 14.1x 13.6x 13.2x 12.7x 12.3x5.95% 15.7x 15.2x 14.6x 14.1x 13.6x 13.2x 12.7x 12.3x 12.0x6.20% 15.2x 14.6x 14.1x 13.6x 13.2x 12.7x 12.3x 12.0x 11.6x6.45% 14.6x 14.1x 13.6x 13.2x 12.7x 12.3x 12.0x 11.6x 11.3x6.70% 14.1x 13.6x 13.2x 12.7x 12.3x 12.0x 11.6x 11.3x 11.0x6.95% 13.6x 13.2x 12.7x 12.3x 12.0x 11.6x 11.3x 11.0x 10.7x7.20% 13.2x 12.7x 12.3x 12.0x 11.6x 11.3x 11.0x 10.7x 10.4x

Target AFFO Multiple

Range of 10-Year Government of Canada Bond Yields

Rang

e of

AFF

O Y

ield

Spr

eads

Notes: Concentric shading stems from 13.6x AFFO (December 31, 2015 reference point) and reflects the combined effect of changes in 10Y GOC bond yields and changes in AFFO yield spreads in +/- intervals of: 1) up 25 bps; 2) up to 50 bps; and, 3) and up to 100 bps. Green-shaded cells denote the narrowing AFFO yield spread required to maintain the Q4/15 AFFO multiple in the event of an upward move in 10Y GOC yields. Red-shaded cells indicate multiple contraction required to generate at 20% price correction, which the commonly referenced price decline that equates to a “bear market”. Source: RBC Capital Markets estimates

The “trick” of course to making good on the forecast is to predict the appropriate future combination of factors. For example, if 10-year GOC yields rise (or fall), then by what amount will AFFO yield spreads narrow (or widen)?

The answer or course is a very firm: It depends. The relationship among interest rates, property capitalization rates, and AFFO yields is simply not linear. A myriad of factors, including property market fundamentals, funds flows/institutional allocations, the overall state of the economy, credit spreads, and other variables are all quantitative and qualitative dynamics within the equation.

Our 2016 total return range of reasonableness: 4% to 18%; A “Meet-me-in-the middle” 11% total return is our point forecast Exhibit 204 summarizes our “low” to “high” total return outcomes for what we believe to be a “range of reasonableness” for 2016.

In our base case, we assume no change in the year-end AFFO multiple of 13.6x. This base case outlook is predicated on modestly higher interest rates one year hence. It also squares off with our view that current REIT/REOC valuations already incorporate somewhat higher interest rates and the potential for modest NAV erosion. To provide P/NAV context, coupling with the midpoint of our expected average NAV/unit growth -5% to +2% “range of reasonableness”, our base case total return framework equates to a ~7% sector-average discount/NAV one year hence. This represents a narrowing of the December 2015 reading by a sizable ~600 bps. Notably, it does not equate to elimination of the discount, nor the reversion to long-term average (i.e., 3% premium) in just one year.

In essence, this is the “meet-me-in-the-middle” outcome, where by REIT/REOC prices rise modestly in aggregate, yet NAVs also collectively “leak” lower. This scenario still provides a solid total return potential of ~11%, stemming from the benefit of a high/stable cash group-average cash yield (averaging ~6.5% currently) and 4% forward 12-month earnings growth.

Our “low” return scenario assumes a 50 bps increase in the AFFO yield spread requirement. Notably, this is from an already elevated (597 bps) AFFO yield spread over the 10-year GOC yield spread. The low-return scenario outcome could occur via combination of multiple contraction and/or an increase in 10-year GOC yields. If the outcome was produced solely by

January 7, 2016 206


multiple contraction (i.e., static 10-year GOC yields of 1.4% through 2016), then the result would be a 0.9 multiple point reduction (~7% decline) in the year-end 2016 AFFO multiple, to 12.7x. Under this scenario, the group’s 6% cash yield and 4% earnings growth overcome the valuation contraction, thus allowing for a ~4% total return expectation.

Our “high” return scenario assumes a 50 bps decrease in the AFFO yield spread requirement. In light of the already elevated (597 bps) AFFO yield over the 10-year GOC yield spread, we see some AFFO yield spread contraction as a likely outcome. This result could occur via combination of multiple expansion and/or a decrease in 10-year GOC yields. If the outcome was produced solely by multiple expansion (i.e., static 10-year GOC yields of 1.4% through 2016), then the result would be a 1.0 multiple point (~7% increase) increase in the year-end 2016 AFFO multiple to 14.6x. Under this scenario, the valuation lift, the group’s 6%-plus cash yield and 4% earnings growth produce a total potential return of 18%.

Exhibit 204: 2016 total returns: our range of reasonable possible outcomes

Range of Reasonableness1

"Bear" Case2 Low Base-case High

Forecast 2016 group-average earnings growth 4% 4% 4% 0% Group-average cash yield 7% 7% 7% 7% Contribution from potential AFFO multiple change -6% 0% 7% -19% Range of total return expectations 4% 11% 18% -13%

Dec-31-15 AFFO multiple 13.6x 13.6x 13.6x 13.6x Expected Dec-31-16 AFFO multiple 12.7x 13.6x 14.6x 11.0x Expected Dec-31-16 Prem/(Disc) to NAV3 -13% -7% 1% n.a.

S&P/TSX Capped REIT Index:

Dec-31-15 142 142 142 142

Dec-31-16 - expected value 139 148 158 115 Price change (in percent) -2% 4% 11% -19%

S&P/TSX Capped REIT Total Return Index:

Dec-31-15 344 344 344 344

Dec-31-16 - expected value 359 381 406 301

Notes: 1 Expected Range of AFFO Multiples based on an AFFO yield range of 6.9% and 7.9% (7.4% at the midpoint). 2 AFFO Yield under the "bear" case increases by 175bps and earnings growth is nil. 3 Assuming midpoint outcome (-2%) to 2016 outlook for NAV/unit growth range of -5% to +2%. Source: RBC Capital Markets estimates

The ~20% price correction (i.e., the “bear case”) scenario seems remote Our “bear case” assumes that GOC bond yields and AFFO yield spread requirements rise more dramatically to a combined effect of 175 bps. Under this dire scenario, valuation contraction knocks ~20% from capital values (which is congruent with the common definition of a “bear” market), and the benefits of yield and total return cannot sufficiently compensate. If in this scenario, we also assume that 2016 earnings growth is nil (over the course of more than 15 years, we do not believe that our aggregate forecast has ever been off by this order of magnitude), then the outcome is a decidedly negative 13% total return.

To be clear, we are not predicting this “bear-case” outcome. Rather, we are attempting to illustrate downside risk to investors in the context of the current environment.

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Conclusions: Value not momentum is the theme, yet we see attractive risk-adjusted return potential We expect 4% group trend-line earnings growth this year, with deceleration to 3% next. With the cap-rate compression cycle having likely run its course, it appears that organic income growth and value-add activities will have to be the prime drivers of 2016 NAV growth. Tepid economic growth, regional disparities, unfavourable supply-side dynamics in certain property classes, and other factors are such that organic growth and value-creation endeavors are likely to be more, not less, challenging this year. Reflecting these factors, our 2016 group-average NAV growth expectation of 2% to -5% is slightly asymmetrical and negatively skewed. We also note this NAV growth trend may continue beyond just this year. Hence, the group lacks any significant earnings or value-growth momentum.

Yet we believe REIT and REOCs prices have adjusted to attractive valuations. Consider the following:

Wide earnings yield spreads The Q4/15 forward-12-month AFFO multiple of 13.6x is a modest 0.3x below the LTA of 13.9x. Alternately stated, the year-end 7.4% AFFO yield is 10 bps below the LTA. In the context of risk-free rates (10Y GOC yields), the AFFO yield spread (+597 bps) remains materially above the LTA (+360 bps). Compared to “risky” corporate credits, the AFFO yield spread (+183 bps) is also nearly twice the LTA (+95 bps).

A low sector-average P/NAV The sector rounded out 2015 at a 13% discount to NAV, which is below our “band of fair value” and the group-average LTA premium of approximately 3%. Through 2015, NAV growth averaged 4%. As noted, this is unlikely to be repeated in 2016, with this year’s outlook being slightly asymmetrical and negatively skewed within the +2% to -5% range.

Current unit prices equated to an average implied property yield (i.e., cap rate) of approximately 6.9% (commercial property sector ~6.9%; apartments ~6.4%; seniors housing ~7.1%; and, lodging ~8.0%). Although our coverage list has changed slightly over the course of the past 12 months (thus making the comparisons not entirely “apples-to-apples”), the overall group-average average implied cap rate is identical to where it was one year ago, yet 10-year Government of Canada bond yields have declined by 39 bps.

Offering attractive risk-adjusted return prospects While lacking earnings and value-growth momentum, valuation is the key. We believe the group is priced to deliver an attractive risk-adjusted return within the high-single-digit/low-double-digit realm. Our 2016 base-case total return point estimate is 11%.

Exhibit 205 provides a simplified recap of year-end REIT valuations as of December 31, 2009 through to December 31, 2015.

Exhibit 205: Industry valuation recap – year-end 2009 through 2015

Metric 2010 2011 2012 2013 2014 2015 LTA1

AFFO Yield 6.4% 5.9% 5.5% 6.7% 6.9% 7.4% 7.5% Premium Vs. 10Y GOC (bps) 325 398 375 394 509 597 356 Premium Vs. Moody’s BAA (bps) 39 74 97 137 219 183 94 Price/AFFO 15.7x 16.9x 18.0x 14.9x 14.5x 13.6x 13.9x NAV Premium/(Discount) 8% 4% 3% (8%) (6%) (13%) 3%

Note: 1 Long-term average is derived from approximately 18 years of historical data. Source: Thomson One and RBC Capital Markets

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Investment risks and uncertainties As with any equity investment, REITs carry a number of potential risks. These risks include, but are not necessarily limited to, the following:

Risks inherent in the ownership of real property All Canadian REITs are involved, in one form or another, in the ownership and management of residential, commercial, and in some cases, specialized (i.e., long-term care facilities, lodging, and convention facilities) real-property investments. All real-property investments are subject to elements of risk. Such investments are affected by, among other various items:

• General economic conditions, • Local real estate markets, • Financial strength (credit risk) of tenants, • Supply and demand for leased premises, • Competition from other available premises, • Interest rate fluctuations, and • Legislative changes. Furthermore, certain classes of real estate, such as hotels, generate cash flows that have a greater immediate sensitivity to general economic conditions than other types of real estate, particularly those subject to long-term leases.

Liquidity is always an issue for real estate investors, because real estate by its very nature tends to be less liquid than many investment alternatives. While REITs are typically not active ‘traders’ of their property portfolios, investors must be aware of the potential inability of any REIT to monetize individual properties, small portfolios, or even their entire operations, within short periods of time. Furthermore, since property markets are typically somewhat illiquid and portfolios are not continuously re-valued for accounting purposes, there is always the potential in a liquidation scenario that a REIT’s net realizable disposition proceeds would be lower than the net carrying value on its financial statements.

In the near to intermediate term, the greatest risks that we foresee for the sector include the possibility of an unexpected setback in economic growth (i.e., recession) and/or deterioration in credit availability and pricing.

Impediments to achievement of price targets Impediments to the achievement of our price objectives relate primarily to the risks associated with the ownership of real property. In addition, fluctuations in unit values over the short term (which, by a conventional real estate investor’s time horizon, may include time periods extending up to several years in duration) tend to be influenced to a great degree by funds flow. In this regard, we primarily refer to funds flow among REITs and common stocks, REITs and bonds, REITs and direct property investments, and REITs and money-market instruments. We believe the principal risks to REIT values currently include any event that might cause a substantial increase in inflation (and hence interest-rate expectations) or conversely any excessive deceleration in economic growth, which might cause financial distress amid the tenant base of the REIT industry. Interest rates remain low and so too are cap rates. Hence, equity values are sensitive to small (i.e., even 25 basis point) changes in 10-year Government of Canada bond yields and an increase in GOC yields could have a negative effect on REIT/REOC prices. While trading multiples have retrenched from cycle highs, any factor that might cause a reduction in the outlook for earnings and cash flow growth could subject the sector to further multiple (and valuation) contraction. Lastly, the occurrence of any potential exogenous global shock could change our outlook for the group.

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REITs and REOCs in review In the following sections of this document, we have provided a brief description of each REIT covered by RBC Capital Markets Equity Research, a review and update on its recent business activities and our recommended investment action.

Apartments Boardwalk Real Estate Investment Trust ................................................................................................ 212 Canadian Apartment Properties REIT ..................................................................................................... 214 Killam Apartment REIT ............................................................................................................................ 216 Milestone Apartments Real Estate Investment Trust ............................................................................. 218 Morguard North American Residential REIT ........................................................................................... 220 Northview Apartment Real Estate Investment Trust .............................................................................. 221

Seniors’ Housing Chartwell Retirement Residences........................................................................................................... 223 Extendicare Inc ....................................................................................................................................... 225 Sienna Senior Living Inc .......................................................................................................................... 226

Commercial Property – Retail Choice Properties Real Estate Investment Trust..................................................................................... 227 Crombie Real Estate Investment Trust ................................................................................................... 228 CT Real Estate Investment Trust ............................................................................................................. 229 First Capital Realty Inc ............................................................................................................................ 230 One Real Estate Investment Trust .......................................................................................................... 232 Plaza Retail Real Estate Investment Trust............................................................................................... 233 RioCan Real Estate Investment Trust ...................................................................................................... 234 Slate Retail Real Estate Investment Trust ............................................................................................... 236 Smart Real Estate Investment Trust ....................................................................................................... 237

Commercial Property – Office and Industrial Allied Properties Real Estate Investment Trust ...................................................................................... 238 Brookfield Canada Office Properties ...................................................................................................... 240 Brookfield Property Partners .................................................................................................................. 242 Dream Office Real Estate Investment Trust ............................................................................................ 244 Granite Real Estate Investment Trust ..................................................................................................... 246 NorthWest Healthcare Properties REIT .................................................................................................. 247 Pure Industrial Real Estate Investment Trust ......................................................................................... 249 WPT Industrial Real Estate Investment Trust ......................................................................................... 251

Commercial Property – Diversified Agellan Commercial Real Estate Investment Trust ................................................................................. 252 Artis Real Estate Investment Trust ......................................................................................................... 253 Canadian Real Estate Investment Trust .................................................................................................. 254 Cominar Real Estate Investment Trust ................................................................................................... 256 H&R Real Estate Investment Trust .......................................................................................................... 257 Melcor Real Estate Investment Trust ..................................................................................................... 259 Morguard Real Estate Investment Trust ................................................................................................. 260

Lodging InnVest Real Estate Investment Trust ..................................................................................................... 261

Asset Managers and Other Brookfield Asset Management Inc.......................................................................................................... 263 Melcor Developments Ltd ...................................................................................................................... 265 Morguard Corporation ........................................................................................................................... 266 Tricon Capital Group Inc ......................................................................................................................... 267

All listings are hyperlinked for the reader's convenience.

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Boardwalk Real Estate Investment Trust (BEI.UN - $47.45) Stock rating: Outperform One-year target: $63.00 Current yield: 4.3%

Overview and business description Boardwalk REIT (“BEI”) is one of Canada’s larger owners of multi-residential real estate, with a portfolio of over 32,000 residential rental suites encompassing ~28 million net rentable sf concentrated in Alberta, Saskatchewan, Quebec and Ontario. Vertically integrated, with more than 1,400 associates, Boardwalk’s principal objective is to provide its residents with the best-quality communities and superior customer service, while providing unitholders with sustainable monthly cash distributions and an increasing unit value. The REIT has a track record of generating strong unitholder returns over its 12-year history as a listed REIT (converted from a C-corp in 2004) and prior (publicly listed in 1994).

WTI crude oil price slump points to potential earnings decline through 2016–2017 This cycle, the price of West Texas Intermediate crude oil (“WTI”) has declined by more than 60% from its June 2014 high of US$107/barrel to a current price of ~US$37/barrel. Boardwalk’s exposure to Alberta is high, at approximately 68% of NOI. Another 13% comes from Saskatchewan, whose economy also benefits from higher oil prices. RBC Economics is forecasting 2016 real GDP growth for Alberta of 0.9%, a modest return to growth from last year’s estimated negative 1.3%.

However, the forecast implies an average WTI price of US$57 in 2016 (up from US$49 in 2015). As such, we see some degree of downside risk to the forecast. Largely reflecting the squeeze on oil and gas firms’ capital spending, last year’s contraction has pressured the province’s labour markets, which naturally has a ripple effect through the economy. We believe the lag effect of the oil-patch capital spending cycle and the risk that this year’s average WTI price could be below RBC Economics’ outlook are such that we see the rising possibility of further economic contraction in the Province of Alberta in 2016. We believe these market dynamics, combined with some dilution related to property sales, could result in a modest decline in Boardwalk’s FFO/unit in each of 2016 and 2017.

Occupancy “grind” very likely to continue; overall AB housing fundamentals appear to have more favourable supply/demand dynamics this cycle versus last In the context of Alberta’s economic environment, Boardwalk’s realized revenue growth in 9M/15 was encouraging. Notably, we see better overall supply/demand in Alberta housing fundamentals this cycle (2011-?) versus last (2005-2010). While weak macro-economic conditions are likely to result in occupancy leakage from what were very high levels by mid-2014, we forecast modest NOI erosion (same property) over the next 12–18 months as occupancy deterioration is somewhat offset by realized rent growth. Through this recent up-cycle, rent growth has been strong in the West. However, rents did not “spike” the way they did in the former up-leg (2005-2007). Moreover, declining Alberta housing starts appear to indicate that the new supply equation seems to be much more in-check this cycle.

Many of the key attributes we seek in a REIT For many years, the REIT’s high exposure to oil-centric markets was a favourable macro-factor that contributed to growth. Just as this exposure was an external and uncontrollable one then, so too is it now that the commodity price has weakened. The constant is that Boardwalk has many of the attributes that we look for in a REIT, including:

1) Moderate financial leverage; 2) A prudent payout ratio; 3) A fully internalized structure;

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4) A financially aligned management team (CEO Sam Kolias and his brother own approximately 25% of the outstanding units);

5) Good quality assets; and 6) A long track record of FFO, NAV and distribution per unit growth.

Valuation seemingly includes a wide margin of safety We currently carry a $66 NAV/unit estimate for Boardwalk. With the expected deterioration in NOI through 2016-17, we expect our NAV/unit to decline to $63, one year hence. Thus, the current unit price of $47.45 equates to a discount of 28% to the current NAV and 25% to our NAV outlook one year hence. On this basis, we see a wide margin of safety already incorporated into the current valuation.

Estimates, price target, and rating Boardwalk REIT’s FFO/unit for 2014 was $3.37. Our FFO/unit estimates for 2015, 2016 and 2017 are $3.56, $3.46 and $3.37, respectively. Our one-year price target of $63 equates to parity with our expected NAVPU estimate one year hence, and implies a 21x multiple to our 2017 AFFO/unit estimate. Supported largely by Boardwalk’s greater-than-average size, scale, balance sheet flexibility (low leverage) and corporate liquidity, the target multiple continues to represent a premium to the average we apply to its multi-family peers. Overall, we believe that apartments as an asset class should generally continue to garner a premium to group-average multiples, based on the historically more defensive nature of the asset class and due to the typically low property yields (cap rates) observed on private-market transactions. Based on relative return expectations, we rate the units Outperform.

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Canadian Apartment Properties REIT (CAR.UN - $26.84) Stock rating: Outperform One-Year target: $31.00 Current yield: 4.5%

Overview and business description Canadian Apartment Properties Real Estate Investment Trust (“CAPREIT”) owns and manages interests in ~40,000 apartment and townhouse suites, and ~6,300 manufactured home community (“MHC”) sites. The largest concentration of CAPREIT’s properties (~40%) is in the Greater Toronto Area (“GTA”) (~15,500 suites); however, its operations stretch from coast to coast, with buildings located from Halifax to Vancouver. CAPREIT owns a 15.7% equity interest and serves as the property and asset manager for Dublin Stock Exchange-listed Irish Residential Properties REIT (“IRES”).

Hands-on management style and portfolio diversification should allow for ~2% organic growth this year CAPREIT has been a multi-year margin improvement story stemming from its ancillary revenue programs, significant investments in energy efficiency initiatives, its focus on cost savings and procurement and electricity sub-metering in Ontario. These strategies have extended the REIT’s ability to drive returns via acquisition integration within its national and scalable platform. We expect ~2% portfolio organic growth in 2016, driven by: 1) the capture of higher rent growth in Ontario and British Columbia, where the 2016 “guideline” increases are 2.0% and 2.9%, respectively (versus 1.6% and 2.0% in 2015); and 2) low (~8%) NOI exposure to Alberta and Saskatchewan.

$1 billion of capital improvements in 10Y has improved portfolio quality and NOI margin; pace of margin expansion expected to taper CAPREIT’s NOI margin has been expanding for approximately nine years. These gains have been driven by: 1) a gradual shift in the portfolio’s geographic mix away from lower-margin regions such as Ontario; 2) changes in the portfolio composition (i.e., a greater proportion of upscale/higher-rent properties); 3) the addition of MHCs to the portfolio; and 4) the beneficial revenue (increase) and expense (reduction) impact of multi-property, multi-year capital improvement programs addressing everything from boilers, lighting, in-suite renos, curb appeal programs and beyond.

In aggregate, CAPREIT’s capital improvement programs have exceeded $700 million in the past five years and $1 billion in the past decade. This equates to an average investment of ~$35,000 per owned suite over the past 10 years.

With 860 bps of margin gained over the last 10 years (from 51.4% in 2005 to 62.4% in Q3/15), we believe the rate of margin expansion will taper in 2016 as portfolio shifts become less pronounced and capex programs begin to normalize, to some degree. That said, tangible results from the REIT’s capex programs have delivered all-time-high margins in the 62.3% to 62.4% range over the past two quarters. We believe the “new norm” and target should perhaps be an annual NOI margin of 60%, or higher.

The rollout of electricity sub-metering across Alberta and Ontario is likely to be a key driver behind continuing NOI margin expansion. We believe this program, which is now slightly more than half complete (53% of the ~15,600 sub-metered suites in Alberta, Ontario and Nova Scotia pay hydro charges directly) will largely be completed over the next three years, thus driving NOI margins gradually higher over this same time period.

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Estimates, price target, and rating CAPREIT’s FFO/unit for 2014 was $1.65. Our estimates for 2015, 2016 and 2017 are $1.68, $1.75 and $1.80, respectively. Our one-year price target of $31 is derived via the application of a ~5% premium to our NAVPU estimate one year hence (assuming capitalization rates remain unchanged) and implies an 18x multiple to our 2017 AFFO/unit estimate. We think this target multiple is reasonable in light of CAPREIT’s financial leverage, improving operating trends, and overall franchise value, along with the robust private-market pricing parameters (i.e., low cap rates) for apartment properties. Based on relative risk-adjusted return expectations, we rate CAPREIT’s units Outperform.

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Killam Apartment REIT (KMP.UN - $10.51) Stock rating: Outperform One-year target: $12.00 Current yield: 5.7%

Overview and business description Killam Apartment REIT (“Killam”) is a TSX-listed REIT focused on the acquisition, redevelopment, and management of multi-family residential apartments and manufactured home communities (“MHCs”). Killam converted from a REOC to a REIT on January 1st of this year. Since its initial acquisition in February 2002, the REIT has become the dominant owner of apartments in Atlantic Canada and the second-largest owner of MHCs nationwide. Killam’s portfolio includes over 170 apartment properties totalling ~13,700 suites, located primarily in Atlantic Canada, and 35 MHCs encompassing ~5,200 sites, located in four provinces from Newfoundland to Ontario.

Go east, young man: Supportive economic environment in Atlantic Canada A number of large infrastructure and industrial projects are underway in Atlantic Canada. Collectively, these should contribute positively to job growth and the economy at large. In Halifax, Irving Shipbuilding Inc. began production on phase one of the 25-year $25 billion contract for the Canadian government. Ongoing weakness in Alberta’s oil patch (with WTI at ~US$37 versus ~$100 18 months ago) should aid resident retention in Atlantic Canada and potentially contribute to eastward migration.

Favourable near-term demand/supply dynamics in Halifax; mid-term caution Halifax is Killam’s largest rental market (~40% of apartment NOI) and the city has a rental inventory of ~40,000 units. Apartment development completions were in the ~1,000-unit range last year (unchanged from 2014) and they continue to run well above historical levels (an average of 650 units annually from 1999-2010). Having said this, the demographic shifts are changing the mix of multiple versus single family dwelling starts and population growth and the baby boomer demographics are showing a greater propensity toward apartment living versus home ownership. Near term (2016), the supply/demand equation looks favourable. Rising apartment development starts (once again) of ~1,300 units during 9M/15 warrant attention, mostly for 2017 occupancy and AMR growth.

Natural gas pricing remains an uncertainty for several years Natural gas capacity constraints in the Atlantic region have been an ongoing challenge for Killam for the past three winters. In 2014, for example, same-property natural gas expenses increased by a massive 25%. While new infrastructure projects are in the works, including a natural gas storage facility and pipeline expansion, price stabilization may not come until 2018/2019. For the 2015/2016 winter season, Killam has entered supply contracts for the majority (~65%) of its natural gas needs. This will reduce seasonal price volatility but also ensure historically high prices, similar to those seen last year. Looking ahead, Killam expects natural gas prices will fluctuate during the winter months until longer-term infrastructure solutions are completed; however, price increases are expected to be less severe than in 2013 and 2014. Management believes natural gas prices could moderate as early as Q4/16, continuing through 2018 as new infrastructure and storage capacity comes online.

Geographic diversification a key part of the agenda Last year’s acquisition activity was focused on selective tuck-ins (Halifax) that provide long-term development potential via excess land. Going forward, we expect near-term acquisition activity to focus on geographic diversification into Ontario and Western Canada. Over the longer term, management’s strategic goal is to derive approximately 50% of its NOI from Alberta and Ontario. Currently, Killam generates ~86% of total NOI from the Atlantic provinces, 10% from Ontario and only 4% from Alberta.

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http://www.killamproperties.com/

http://www.killamproperties.com/


Creating value through development pipeline We see the development of new rental product as being an important element to maintaining the quality of Killam’s portfolio and a key component to its growth strategy. Killam’s land bank has a development potential of 1,000+ multi-family residential units with the ability to commence construction on 200+ units within the next 12 months. Management expects a 6% stabilized development yield on these projects, which is estimated to be at a premium of approximately 100bps-150bps over the yield on acquisitions for similar-quality assets. Potential projects include downtown Halifax, Mississauga, Cambridge, St. John’s and Moncton.

Estimates, price target, and rating Killam’s FFO/share for 2014 was $0.72. Our FFO/share estimates for 2015, 2016 and 2017 are $0.78, $0.82 and $0.85, respectively. Our one-year price target of $12 is derived by applying a ~5% discount to our NAV/share estimate one year hence, which implies a 16x multiple to our 2017E AFFO/share. Our target valuation metrics represent modest discounts to that which we apply to Killam’s large, and in some cases, more conservatively levered peers. Conversely, in recognizing the historical stability of rental residential properties (including MHCs) as an asset class, the target multiple applied to Killam’s shares remains above the average that we apply to both the Canadian seniors’ housing REITs and the Canadian commercial property REITs. Based on relative risk-adjusted return expectations, we rate KMP shares Outperform.

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Milestone Apartments Real Estate Investment Trust (MST.UN - $15.05) Stock rating: Outperform One-year target: $18.00 Current yield: 5.1%

Overview and business description Milestone Apartments REIT (“MST”) is an unincorporated, open-ended real estate investment trust that owns and manages a portfolio of multi-family properties in the “sun belt” of the United States. Including pending acquisitions/dispositions, the REIT’s 72 communities consist of ~22,500 rental suites located throughout the Southeastern and Southwestern United States in 14 major, high-growth metropolitan markets. The portfolio consists primarily of “garden-style” apartments, which typically cater to the mid-market renter. MST is the largest REIT listed on the Toronto Stock Exchange that is focused solely on the US multi-res sector. The REIT completed its IPO in March 2013.

(All figures other than unit price are in $US, unless noted.)

Lingering Houston concerns with WTI at ~$37/barrel, but investment thesis intact, in our view The significant decline in West Texas Intermediate crude oil has been a closely monitored factor by Milestone unitholders. Pro forma the pending $502 million “Landmark” transaction, Milestone will own ~4,300 suites (19% of total) in Houston. While WTI’s continued slide down through to ~$37 per barrel is likely to hinder Houston’s near-term growth potential, we believe the REIT’s very solid 9M/15 results were a positive indicator of the market’s resilience. Every bit as importantly, we believe the broader US macro-economic picture should help to counter-balance risks of softer operating results related to the Houston exposure. Overall, US job growth, lower gas prices and the Millennials’ propensity to rent form the constructive backdrop for MST’s business. The key themes we’ve highlighted in the past continue to be working for MST. These are:

High-growth markets; favorable trends – The markets that MST operates in are expected to exhibit cumulative, weighted-average population growth of 8% over the next five years, well ahead of the expected ~5% US national average. Similarly, the portfolio’s weighted-average, forecasted five-year employment growth figure of ~10% is materially higher than the expected growth in national employment of ~7%. These market dynamics should provide a favourable operating environment for the REIT in the near and medium term.

Integrated platform and proven track record, aligned management – Over the better part of a decade prior to creating MST, senior management, working together, delivered an annual average gross IRR in excess of 30% on its multifamily investments. Working collaboratively, the external asset manager and the wholly owned property management arm offer MST the benefit of vertical integration, providing expertise across the full spectrum of real estate investment management disciplines. The advisor receives a performance-based fee (based on AFFO/unit growth) and it owns ~7% of MST’s equity, thus providing alignment with unitholders.

Internalized property management – MST’s internalized property management platform employs 900 people overseeing ~35,000 suites across the US. The operations contribute financially (the third-party business contributes ~3% of annualized AFFO) and to the scale and intelligence of the business.

Proprietary acquisition pipeline; strong external growth potential – MST has a right of first offer on an estimated ~12,000 units which the asset manager owns or manages through finite-life partnerships. Over the next few years, this may provide opportunities for MST to acquire additional properties. MST also expects that its extensive relationships in key US

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markets and the sheer size of investment class (~$100 billion in apartments trade annually in the US.) should provide ample acquisition opportunities. Post its March 2013 IPO, MST has acquired or agreed to acquire ~8,200 suites via 11 transactions, valued at $1 billion.

Acquisition activity adds quality to the portfolio MST’s targeted growth-by-acquisition strategy focuses on acquiring newer, higher-quality properties and trimming older, smaller, lower-quality properties. In 2015, Milestone acquired five properties (1,443 units) for a total cost of $178 million. Last year’s transaction activity culminated with the October 22 announcement of a JV with Starwood Capital Group in which MST acquired a 15-property portfolio (4,172 units) for $502 million from Landmark Apartment Trust, a non-traded US REIT. The acquisition properties are, on average, 10 years of age and carry AMR of $958 versus Milestone’s overall portfolio which, as at Q3/15, had a 25-year average age and an $871 AMR.

Shift to US$-pay format; low (and prudent) payout policy Effective January 16, Milestone unitholders will receive a US$-denominated distribution by default, and at their election, may receive C$-denominated distributions. The shift to a US$-pay format was also accompanied by a change in the distribution rate to $0.55/unit annualized from the former rate of C$0.65. We believe the new US$-denominated distribution simplifies the REIT’s payout policy by aligning with the business’s underlying functional currency. Milestone’s payout ratio (55% on 2016E AFFO/unit) remains low relative to the Canadian peer set. Allowing for significant retained AFFO (more than $30 million, annually), the low payout should be valuable in light of potential value-enhancing capex on the heels of the pending portfolio purchase and the step up in financial leverage, post transaction. The low payout also provides comfortable “headroom” for future distribution increases in the face of what could be moderation in future AFFO/unit growth as the REIT seeks to potentially trim financial leverage.

Strong candidate for 2016 Index inclusion When the subscription receipts (issued to fund the Landmark Apartment Trust transaction) are converted to units later this quarter, Milestone’s float will tally 58 million units and its total unit count will be 76 million. Based on the current unit price, the float value and fully distributed market cap values will be $0.9 billion and $1.1 billion, respectively. The former is clearly of interest as the criteria for inclusion in the S&P/TSX Composite Index (and by default, the S&P/TSX Capped REIT Index) is a float value of approximately $1 billion. Hence, we believe Milestone’s units are becoming a very strong candidate for 2016 index inclusion. RBC CM’s Global Program Trading Group estimates 4 million MST.un units of potential demand should Milestone be added to the S&P/TSX Composite.

Estimates, price target, and rating Milestone REIT’s FFO/unit for 2014 was $1.01. Our FFO/unit estimates for 2015, 2016 and 2017 are $1.07, $1.13 and $1.15, respectively. Our one-year price target of C$18.00 is derived by applying a 10% discount to our NAVPU estimate one year hence and implies a ~13-14x multiple to our 2017 AFFO/unit estimate. The P/NAV and P/AFFO valuation metrics ascribed in deriving our MST price target are at a discount to the Canadian multi-res sector average. We believe our target valuation is reasonably reflective of MST’s asset calibre, financial leverage, small unit float, the degree of significant influence that is retained by its two sponsoring unitholders, and the terms and expense ratios associated with its external advisory contract. Based on relative risk-adjusted return expectations, we rate MST’s units Outperform.

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Morguard North American Residential REIT (MRG.UN - $10.67) Stock rating: Outperform One-year target: $12.00 Current yield: 5.6%

Overview and business description Morguard North American Residential Real Estate Investment Trust (“MRG”) is an unincorporated, open-ended, real estate investment trust established in Ontario. The REIT’s units are listed on the TSX under the symbol “MRG.un”. MRG owns interests in 44 properties encompassing 13,102 units with 37% (4,905 suites) in Canada and 63% (8,197 suites) in the United States. The largest regional concentrations are Ontario (35%), principally the GTA, and the US Southeast (45%). Within the latter, Florida (~19%) is the largest concentration. Suite composition includes 92% of the portfolio as one- and two-bedroom units, with the balance being three-bedroom apartments.

US diversification is attractive; US$ translation likely a H1/16 tailwind With an estimated 64% of NOI being derived from the US portfolio, MRG is positioned to potentially capture greater income growth from south of the border, where the multi-res segment appears to be posting stronger growth than many Canadian regions. Recent strength in the US dollar versus the Canadian dollar has, and is likely to continue to favourably impact MRG’s Canadian dollar denominated NOI, FFO, AFFO and NAV through H1/16. Overall, the portfolio allocation provides MRG with the benefit of income diversification and stability by virtue of its exposure to a range of geographies, local economies, and currencies, and properties of varied product types, price points, and tenant profiles.

Persistent discount to NAV; appears not to be management’s focus We’ve previously noted MRG’s units have consistently traded at a discount to our NAV and their IFRS book value. With the units currently trading at a 41% discount, this wide discount does not appear to be receiving much focus by management.

We believe that MRG’s high financial leverage (LTV of 56% compared with a peer average of 51%) means the balance sheet is fully invested, limiting capital deployment capacity. Moreover, the units trade too far below NAV to consider issuing equity to grow by acquisition. Thus we continue to believe that repurchasing units, even on a modest scale, would be a superior capital allocation decision relative to acquiring more apartment properties via competitive bid process (to the extent that MRG can negotiate off-market, low-basis, or structured NAV-to-NAV deals, then those may have merit).

Estimates, price target, and rating MRG’s FFO/unit in 2014 was $0.94. Our estimates for 2015, 2016 and 2017 are $1.06, $1.15 and $1.18, respectively. Our one-year $12.00 price target is derived via a 35% discount to our NAVPU estimate one year hence, which implies a 13x multiple to our 2016 AFFO/unit estimate. The P/NAV and P/AFFO valuation metrics ascribed in deriving our MRG price target are at a discount to the multi-res sector average, which we believe is reasonable in light of: 1) the REIT’s above-average financial leverage; 2) lack of control premium and its controlling unitholder; and 3) the characteristics of the external management and advisory arrangements. Based on relative risk-adjusted return expectations, we rate Morguard Residential REIT’s units Outperform.

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Northview Apartment Real Estate Investment Trust (NVU.UN - $17.56) Stock rating: Sector Perform One-year target: $22.00 Current yield: 9.3%

Overview and business description Northview Apartment Real Estate Investment Trust ("NVU") was formed in 2015 following a transaction which brought together Northern Property REIT (“NPR”), True North Apartment REIT (“TN”) and a number of privately held residential properties. Today, NVU owns over 24,000 residential suites in more than 60 markets across eight provinces and two territories. NVU is Canada's third largest publicly traded multi-family REIT. The residential portfolio consists primarily of multi-family residential property, including apartments, townhomes and single family apartment buildings. The REIT also owns and manages 419 execusuites and hotel rooms (where the rental period ranges from a few days to several months) as well as ~1.2 million sf of commercial properties across Canada.

Size, scale and a national presence offer potential benefits On October 30, 2015, Northview Apartment REIT was formed, creating a $3 billion property portfolio that benefits from:

1) A national platform – With its $3 billion portfolio comprising ~24,000 residential suites, NVU is the third largest publicly traded multi-family REIT. The nationwide asset and property management platform includes ~800 employees operating out of its Calgary head office with regional offices across Canada.

2) Portfolio diversification – NVU’s portfolio is diversified across more than 60 Canadian markets, including the GTA and Montreal. This should further enhance financial stability for NVU unitholders through what continues to be a very soft commodity cycle. NVU will continue to have significant presence in some of NPR’s traditional northern Canadian markets, including Yellowknife and Iqaluit, which we believe will provide strong long-term returns.

3) Improved access to capital and greater unitholder liquidity – With an equity market cap of ~$916 million, the larger market cap and unit float (versus NPR) are highly likely to improve unitholder liquidity via larger market float and average daily trading volumes. The significantly larger balance sheet may also broaden and deepen the REIT’s access to capital.

4) A new key investor relationship – Through his ownership in NVU Class B LP Units, Mr. Daniel Drimmer (Chairman of TN and founder and Chief Executive Officer of Starlight Investments Ltd.) is the REIT’s largest unitholder with 7.6 million units (a ~14.5% effective interest), worth ~$133 million. Together with Mr. Drimmer’s Board nomination rights (two members, of a Board comprised of 10 members) and the transitional service agreement, Mr. Drimmer will be incentivized to drive the new REIT’s success. Moreover, through Starlight's broad market presence it may be able to assist NVU with acquisition opportunities that it might not otherwise have access to.

5) Internalized management team – NVU benefits from the combined experience of both NPR and TN’s senior management teams. In the near term, via a fee for service transitional arrangement with Starlight (lasting up to three years), NVU benefits from continuity in the oversight and management of the acquired properties.

6) Enhanced opportunities for long-term growth – NVU may have access to additional acquisition and development opportunities relative to that which NPR enjoyed. The scale of the combined business may also enable NVU to undertake value-add investments in existing properties without materially impacting short-term financial performance. Management has identified a number of growth areas which include: 1) a suite-renovation program; 2) rolling AMRs to market; 3) cost synergies through property management internalization; and 4) development and potential acquisition opportunities through Starlight.

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Drawbacks of the transactions In our view, the size and scale benefits of NVU did come with near-term “costs”. We believe potential drawbacks of the transactions include:

1) Increasing the debt burden – The transactions increased financial leverage from 52% D/GBV at NPR Q3/15 to 59% pro forma at Northview. The stepped-up debt arises out of the transaction metrics, which essentially occurred via the use of 67–68% debt.

2) NAV dilution – The pricing on the equity component of the transaction financing at $23.03 was approximately $3 lower than NPR REIT’s $26.20 IFRS book value. As such, we expect roughly $1.50 of unit dilution was magnified by what we believe were sizable ($35 million, or more) transactions costs, including legal, advisory, land transfer and acquisition and/or incentive fees payable to Starlight for both deals.

3) Elusive accretion – Despite the higher debt load, NPR cited pro forma “run-rate FFO per unit” consistent with its 2015 expectation of $2.38–2.43. With the deals closing in Q4/15, this statement implies modest near-term dilution per unit relative to our former 2016 estimates. Extrapolating the figures, and taking into consideration the dilutive impact (due to NVU’s larger combined balance sheet) from higher-return development initiatives (typically 7%-plus unlevered and double digit, with leverage) along with the potential need for de-levering, the transactions resulted in downward revisions to our 2016 and 2017 FFO estimates of ~10% and ~11%, respectively.

Estimates, price target, and rating The REIT’s FFO/unit in 2014 was $2.37. Our 2015, 2016 and 2017 FFO/unit estimates are $2.41, $2.42 and $2.51, respectively. Our one-year price target of $22 equates to a 10% discount to our expected NAVPU one year hence and implies a ~11x multiple to our 2017 AFFO/unit estimate.

NPR’s units have often traded at a premium to NAV. And we have often applied a 10–20% premium to our expected one-year forward NAV/unit as our price target derivation methodology. Currently, we believe ongoing uncertainty with respect to the commodity (down) cycle as well as post-merger unitholder turnover and heightened investor sensitivity to the REIT’s stepped-up financial leverage are factors which may preclude the units from trading at NAV parity. Based on relative risk-adjusted return expectations, we rate NVU’s units Sector Perform.

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Chartwell Retirement Residences (CSH.UN - $12.70) Stock rating: Sector Perform One-year target: $14.00 Current yield: 4.3%

Overview and business description Chartwell Retirement Residences (“Chartwell”) is a listed trust which is a fully integrated owner/manager of seniors housing facilities. Including properties under development, the REIT owns interests in or manages ~185 facilities encompassing more than 25,000 suites across Canada. Chartwell operates across the full spectrum of the seniors housing industry, which ranges from independent living (IL) facilities to long-term care (LTC) facilities.

Long-term demographics remain in Chartwell’s favour 2014 Statistics Canada data estimated that 5.5% of Canadians were above the age of 75. This number is expected to increase to 8.9% by 2030, representing a growth rate that is more than five times that of the overall population. In aggregate terms, the over-75 population should increase by 1.7 million (+86%) to 3.7 million in 2030.

Acquisitions: Sticking to the quality discipline; quantum and pricing higher than expected Since completing the sale of its entire US portfolio in June of last year, in a transaction which netted more than $400 million of cash, Chartwell has wasted no time in redeploying the funds. Through a combination of acquisitions (portfolio and tuck-in), development and debt repayment, Chartwell has acted quickly and decisively to curb the short-term earnings dilution. Notably, Chartwell’s acquisition program has been very active, and from a thematic perspective, we note the following:

1) Chartwell has acquired high-quality assets – In 2015, and to the date of this report, Chartwell has acquired 13 properties encompassing 1,629 suites. In our view, the properties have been well located and for the most part newer generation, offering large suite sizes and a wide array of common-area amenities. Overall, we believe Chartwell’s acquisition program has added properties which are complementary and additive to the portfolio’s quality standard.

2) The pace of capital redeployment has surpassed our expectations – Chartwell’s 2015 acquisition program equated to a gross investment of approximately $587 million via a combination of portfolio and tuck-in transactions. While we fully expected Chartwell to be active on the acquisition front given its “reloaded” mid-year balance sheet, the pace at which the company redeployed the repatriated equity surpassed our expectations. Looking ahead, within the confines of a ~50% target loan-to-value ratio, we estimate Chartwell has an additional $300 million of additional acquisition and investment capacity.

3) Private-pay seniors housing properties have been subject to substantial cap-rate compression – 2015 was an active year for M&A in the private-pay seniors housing sector. More specifically, we believe that the valuations achieved on the acquisitions of: 1) Regal Lifestyles Communities Inc. ($0.8 billion enterprise value; 6.1% implied cap rate); and 2) Amica Mature Lifestyles Inc. ($0.9 billion enterprise value; estimated 5.3% implied cap rate) demonstrate the exceptional demand for private-pay seniors housing properties.

4) While all properties are not created equally, competitive pricing dynamics are evident, on a trend-line basis, when examining Chartwell’s recent investment activity. In H1/15, Chartwell completed acquisitions at cap rates in the 7% or higher range, implying per suite values between $235,000 to $325,000 (e.g., Pickering City Centre Retirement Residence and Valley Vista Retirement Residence). Transactions completed later in the year carried cap rates in the low- to mid-6% and per suite valuations of $375,000 to over $400,000 (e.g., the MTCO and Signature portfolios).

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A company at its finest; are sector valuations pushing cyclical limits? In our view, Chartwell’s business has never been better. We believe:

1) The portfolio quality is as high as it’s ever been; 2) The company’s balance sheet and financial liquidity positions are solid; 3) Its development pipeline is larger than at any point in the past; 4) Its AFFO/unit is growing; 5) Its mid-70s payout renders room for annual distribution growth; and 6) Corporately, we see an operations and resident-care focused culture. Yet, we can’t help but wonder whether seniors housing valuations are pushing cyclical limits. Cap rates have come down a lot over the past 12 months and suite values are up. Merger and acquisition activity has been a major driver. While we see differences between Chartwell and the “big three” US healthcare REITs (Ventas Inc., Welltower Inc., and HCP Inc.), we also note that the latter suffered an 11% average share price decline in 2015. This is bound to curb their growth-by-acquisition appetite as we look ahead into the balance of 2016.

If (or when) rates rise – the impact on the seniors housing cycle should be more balanced than for other sectors Seniors rely heavily on pension (government and employer) income and investment income. The latter is often from a very conservative investment mix, heavily geared to interest-bearing investments, which in many cases, have been purchased with the equity released from the sale of their homes. Hence, while higher interest rates generally have negative valuation implications for real property (and hence property stocks), in the case of seniors housing, an offsetting factor may be stronger demand (and greater affordability) for current and prospective tenants, due to their higher interest income. Moreover, with the business having annual and/or month-to-month leases, the owner/manager has the ability to capture rent increases more quickly than businesses with fixed-rate, long-term leases.

Estimates, price target, and rating Chartwell’s FFO/unit was $0.80 in 2014. Our 2015, 2016 and 2017 FFO/unit estimates are $0.80, $0.84 and $0.88, respectively. Our $14 price target equates to a ~20% premium to our NAVPU estimate one year hence and implies a ~17-18x target multiple to our 2017 AFFO/unit. Overall, we believe our target multiple reasonably reflects considerations related to Chartwell’s financial leverage, its mix of property, mezzanine loan interest, fee income, and overall “franchise value”. Based on relative performance considerations, we rate Chartwell’s units Sector Perform.

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Extendicare Inc. (EXE - $9.65) Stock rating: Sector Perform One-year target: $9.00 Current yield: 5.0%

Overview and business description Extendicare Inc. is a fully integrated owner/operator of skilled nursing and long-term care (“LTC”) facilities in Canada. The company’s owned and leased portfolio consists of 62 facilities with a resident capacity of approximately 8,500. Extendicare also manages 54 facilities on behalf of third parties with a resident capacity of approximately 6,300. Extendicare’s operations are predominately carried out in Ontario but also include properties and businesses in Alberta, Saskatchewan, and Manitoba.

Back to basics: Focusing on Canada and simplifying the “story” Following the sale of its US business in July 2015, Extendicare’s focus has been on improving and growing its Canadian business. In our view, selling the US business not only simplifies the company but also takes a lot of risk out of the business and therefore the stock. In our view, better visibility leads to a much improved risk-reward proposition. In addition, the construction funding subsidy policy for the rebuilding of Ontario LTC Class C homes has now been established and, although the economics are tight, this will provide the company with the opportunity to renew its portfolio.

Working hard to mitigate near-term FFO dilution Since the sale of the US business was announced, Extendicare has been working hard to mitigate associated earnings dilution through a combination of acquisitions, share buybacks and planned developments. To date, the company has redeployed the vast majority of the proceeds through completed and committed investments that total $311 million, including: 1) the acquisition of Revera Home Health for $83 million in January 2015; 2) six completed and pending retirement home acquisitions with 506 suites for $139 million, with a weighted average yield of 7.0%; 3) three on-going retirement home developments totalling $81 million; and 4) share repurchases totalling $8 million.

Development and redevelopment plans on the horizon Extendicare is balancing a competitive acquisition environment with the development of three private-pay retirement centres in Ontario with a total of 304 beds. Cumulatively, the projects are expected to cost $81 million with stabilized yield of approximately 7.4%. Extendicare’s plan is to finance the homes with up to 65% leverage during construction. In addition, the company is working toward the redevelopment of two of its Class C centres and is assessing the viability of redeveloping the balance of its homes on a case-by-case basis.

Estimates, price target, and rating Extendicare’s FFO per share in 2014 was $0.75. Our estimates for 2015-17 are $0.61, $0.60 and $0.62, respectively. Our price target is derived through parity to our NAV per share estimate one year hence, which implies a 14x target multiple to our 2017 AFFO per share estimate. Our target multiple is lower than the peer group because Extendicare is still going through a transition to become a pure-play Canadian seniors’ company, it is only starting to build its private-pay retirement business and rebuilding its Class C LTC homes is a challenging endeavour. Based on relative risk-adjusted, total return considerations, we rate EXE shares Sector Perform.

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Sienna Senior Living Inc. (SIA - $16.14) Stock rating: Sector Perform One-year target: $17.50 Current yield: 5.6%

Overview and business description Sienna Senior Living Inc. (formerly Leisureworld Senior Care Corp.) is an owner/operator of long-term care (“LTC”) homes and retirement homes in the provinces of Ontario and British Columbia. The company’s portfolio includes 35 LTC homes (~5,700 licensed beds) and 11 retirement homes (~1,200 suites). Through an operating subsidiary, Sienna also provides home health care services in Ontario.

An operating business with a solid platform Management is focused on strengthening its operating platform; as part of the exercise, the company was re-branded to Sienna Senior Living in May 2015. The company is focused on improving the resident experience, creating a culture of employee engagement and improving support functions. In our view, these are important initiatives given the operating nature of the business.

Class C LTC redevelopment plans are beginning to take shape Following a planned increase in construction funding for the Ministry of Health and Long-Term Care’s (“MOHLTC”) Enhanced LTC Renewal Strategy, management notes that its planned redevelopment of Class C homes "will be mostly greenfield projects." While this approach will likely involve buying land, it will importantly give the company a "clean slate" to build campus-style communities, spanning the continuum of care from independent living to long-term care. The company is working through detailed feasibility analyses and highlighted that the process will likely involve an extended period of time for both planning and approvals. Overall, we believe Sienna is well positioned to economically renew its portfolio of ~1,800 Class C beds (~31% of LTC), over the next 5-10 years.

Increase in MOHLTC preferred accommodation rates will drive profit growth Following the MOHLTC’s fourth consecutive year of increases to the preferred accommodation rate paid by LTC residents, we believe preferred accommodation premiums are becoming a key profit driver. These premiums are retained by the operator and are not a component of any flow-through envelope. Management continues to convert residents to higher private accommodation rates and with incremental resident turn expected through this year and next, it seems to us that LTC profitability should be on a favourable trajectory.

Retirement segment offers avenue for growth The company’s retirement home segment continues to be its biggest source of growth despite the headwinds of an industry-wide trend of higher attrition and oversupply in certain markets. We anticipate a slow but nonetheless upward grind in occupancy, which would fuel moderating, albeit positive, organic growth. We also believe the company will continue to make select acquisitions in the retirement space.

Estimates, price target, and rating Sienna reported FFO per share of $1.12 in 2014. Our estimates for 2015-17 are $1.14, $1.21 and $1.25, respectively. Our price target is derived by applying a 15% premium to our NAVPS estimate one year hence, which implies a 13x target multiple to our 2017 AFFO per share estimate. We believe our target premium to NAV reasonably reflects such factors as: 1) above-average financial leverage; and 2) exposure to Class “B” and “C” beds. Based on relative risk-adjusted, total return considerations, we rate SIA shares Sector Perform.

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Choice Properties Real Estate Investment Trust (CHP.UN - $11.80) Stock rating: Sector Perform One-year target: $12.00 Current yield: 5.7%

Overview and business description Choice Properties REIT (“CHP”) owns more than 500 properties with ~41 million sf of GLA, consisting primarily of Loblaw-anchored, single-tenant stores and shopping centres. Loblaw Companies Ltd. spun out Choice Properties in 2013 as part of a strategy to maximize the value of its real estate holdings used in its food retail operations. As a tenant, Loblaw (under its many different conventional and discount food retail banners) represents 91% of annual minimum rent (“AMR”). Loblaw retains a ~83% equity stake in Choice Properties, while Loblaw’s parent, George Weston Ltd., owns a further ~5% direct equity stake in CHP.

A high-quality yield with a modest organic growth outlook CHP offers investors a high-quality yield based on its low 84% 2016E payout ratio, long-term lease structure, and high credit-quality tenant base. The portfolio features limited lease rolls, plus the gradual phase-in of rent steps on Loblaw’s leases over a five-year period (i.e., ~20%/year), which will ultimately deliver organic growth of ~1.5% by 2018. In addition, FFO per unit growth is being augmented by capitalizing on growth opportunities through intensifications, acquisitions and development.

Well positioned to capitalize on acquisition and development opportunities Since its IPO in 2013, the REIT has acquired more than 100 properties with roughly six million sf of GLA through vend-ins and third-party transactions for a total investment of more than $1 billion. The remaining pipeline from Loblaw totals 5.5 million sf of GLA, a portion of which will likely be vended-in on a regular basis – likely in increments of roughly one million sf with a purchase price of roughly $175 million to $225 million. In addition, the REIT has approximately 3.5 million sf of at-grade expansion potential, with more than one million slated for development over the next three years.

Shoppers Drug Mart presents opportunity In our view, Loblaw’s acquisition of Shoppers Drug Mart during early 2014 was positive, as the Shoppers brand is a big draw to retail properties. Development and expansion opportunities with Shoppers Drug Mart likely will include new pad developments from either expansions or relocations of Shoppers Drug Mart stores to the REIT’s properties. Prior to the acquisition, the Loblaw leases contained restrictive use clauses, which will no longer be a factor for Shoppers Drug Mart.

Estimates, price target, and rating Choice Properties’ reported FFO per unit of $0.91 in 2014; our estimates for 2015-17 are $0.96, $0.99 and $1.02, respectively. Our one-year price target of $12.00 is derived by applying a ~5% premium to our NAV per unit one year hence, which implies a 14x multiple to our 2017 AFFO per unit estimate. We believe that our target valuation for CHP appropriately reflects its financial leverage, portfolio attributes, developing large-cap liquidity, a developing public market track record, and a controlling unitholder discount. Based on relative risk-adjusted return expectations, we rate CHP’s units Sector Perform.

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Crombie Real Estate Investment Trust (CRR.UN - $12.80) Stock rating: Sector Perform One-year target: $14.50 Current yield: 7.0%

Overview and business description Crombie REIT’s portfolio includes more than 250 properties with over 17 million sf, consisting primarily of Sobeys-anchored shopping centres. Empire Co. Ltd. created Crombie in 2006 as part of a strategy to maximize the value of its real estate holdings and to facilitate the expansion of Sobeys to Central and Western Canada. Sobeys is Crombie’s largest tenant, representing roughly 50% of annual minimum rent. Sobeys is a wholly owned subsidiary of Empire Co., which operates a number of full, discount and other food service banners.

Leveraging a valuable relationship Crombie benefits from a strategic relationship with Empire, which owns 100% of Sobeys Inc. and approximately 42% of Crombie REIT. Between its 2006 IPO and 2014, Crombie sourced approximately 74% of its acquisitions through Empire, totalling roughly $2.0 billion. The relationship has proven to be a significant growth driver, with new development generally done by Sobeys and the REIT having a Right of First Offer (“ROFO”). The upshot of the development arrangement, lease structure, and above-average small-market exposure is stable income but with lower long-term growth.

Sobeys is a successful, top-tier tenant Sobeys is critically important to Crombie because its success depends to a great extent on the success of the retailer. For the 10 years ending in 2014, Sobeys has grown revenue at a 6.6% CAGR, aided by acquisitions (including Canada Safeway in 2013) and outperforming sales growth in the Canadian grocery industry, which has grown at a 2.4% CAGR, according to Statistics Canada. Importantly, Sobeys’ same-store sales growth averaged 2.0% for the 10 years ending in 2014, exceeding the industry average of 1.5%.

Working on identifying development opportunities We think Crombie’s acquisition of 70 Safeway-anchored properties at the end of 2013 was transformational. The acquisition provided Crombie with: 1) much needed exposure to Western Canada; 2) intensification and development projects; and 3) exposure to urban markets. The REIT continues to focus on identifying development opportunities within its portfolio, and while in its early stages, Crombie is starting to explore urban, mixed-used development, largely within its Safeway portfolio. In this regard, management notes that the development of multi-family residential units on surplus density could eventually total approximately 4,700 suites – with rentals generally preferred over condos. In addition, management indicates that the pipeline will likely include opportunities over the near, medium and long term.

Estimates, price target, and rating Crombie reported 2014 FFO per unit of $1.10. Our estimates for 2015-17 are $1.13, $1.18 and $1.23, respectively. Our $14.50 price target reflects parity to our NAV per unit estimate one year hence, which implies a 14x multiple on our 2017 AFFO per unit estimate. We use a slightly lower P/NAV ratio than we apply to Crombie’s larger, more liquid, and diversified peers because of higher leverage, small-market exposure, and modest long-term growth profile. Based on our risk-adjusted return expectations, we rate CRR units Sector Perform.

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CT Real Estate Investment Trust (CRT.UN - $13.00) Stock rating: Sector Perform One-year target: $13.50 Current yield: 5.2%

Overview and business description CT Real Estate Investment Trust (“CT REIT”) owns a portfolio consisting of more than 275 retail properties, two distribution centres, and three development properties with GLA in excess of 20 million sf, consisting primarily of Canadian Tire-anchored, single-tenant stores and shopping centres. In addition, the REIT owns a one-third interest in Canadian Tire Corporation’s (“CTC”) head office at Canada Square in Toronto, ON. The property represents a significant long-term redevelopment opportunity, which will benefit from on-going intensification in the area and direct access to the new Crosstown LRT line.

Canadian Tire spun out CT REIT in 2013 as part of a strategy to maximize the value of its real estate holdings used in its general merchandiser operations. As a tenant, Canadian Tire (along with its various sporting goods, apparel, and automotive banners) represents 96% of base minimum rent. CTC retains an approximately 84% equity stake in CT REIT and holds the vast majority of the REIT’s debt.

Solid growth effectively “locked in” The REIT’s portfolio has a strong occupancy and a long weighted-average lease term of approximately 15 years, which features contracted annual rent growth of +1.5%. With roughly half of total capital in fixed-rate, long-term, preferred equity, common equity has structurally “locked in” ~3% AFFO per unit growth for an extended period. We believe this visibility and growth allows CT REIT to pursue growth opportunities such as intensifications and acquisitions, and more easily manage interest risk.

CTC pipeline totals approximately four million sf CTC owns ~six million square feet of GLA, of which ~four million sf (~50-60 properties) is suitable for sale to CT REIT in the future. In 2016, we expect to see continued vend-in acquisitions on a regular basis, likely quarterly. These acquisitions will most likely happen when CT REIT has cost-effective access to debt capital and/or when its units are trading at a premium to NAV. We highlight that CTC, as the largest equity investor and debtholder, will have input in deciding when to execute the transactions.

Sourcing both internal and external investment opportunities Since its IPO in 2013, the REIT has sourced investment opportunities totalling more than $600 million from a variety of sources, including intensification and development opportunities from within its existing portfolio, as well as acquisitions from third parties and through CTC. Overall, CT REIT continues to leverage its relationship with CTC to add value to the REIT, while sourcing additional opportunities from within its portfolio and through third-party acquisitions.

Estimates, price target, and rating CT REIT’s 2014 FFO per unit was $0.98. Our estimates for 2015-17 are $1.04, $1.10 and $1.15, respectively. Our $13.50 price target is derived by applying a ~10% premium to our NAV per unit estimate one year hence, which implies an approximately 15x multiple to our 2017 AFFO per unit. Our target multiple represents a more modest premium than we apply for some of CRT’s Canadian large-cap retail peers, reflecting the REIT’s modest float, controlling unitholder, tenant diversification, growth prospects, and development pipeline. Based on our risk-adjusted return expectations, we rate CRT units Sector Perform.

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First Capital Realty Inc. (FCR - $18.35) Stock rating: Outperform One-year target: $21.00 Current yield: 4.7%

Overview and business description First Capital Realty Inc. (“FCR” or “First Capital”) is a fully integrated Canadian real estate operating company, with a focus on the ownership, management, acquisition, and development of neighbourhood and community shopping centres. Its centres are most commonly anchored by grocery stores. Because FCR’s tenant base provides consumers with goods and services essential to everyday life, the company’s properties are of the type that tend to be weekly destinations for most Canadian households. The company owns interests in more than 150 properties (including development sites) with over 24 million sf of GLA.

A high franchise-value company First Capital has a top-tier platform fully equipped to create value and drive performance. Redevelopment, repositioning and expansions in an urban setting are both difficult and time consuming. Success requires not only a skilled leadership team but also a corporate culture conducive to creating value – one that understands and is committed to the game plan. In our view, First Capital’s strategy, in combination with a skilled and engaged employee base, makes FCR a high franchise-value company, which, all else equal, should drive above-average long-term NAV growth. This difficult-to-duplicate skill set includes: 1) the company’s ability to create value through repositioning and development; 2) strong capital allocation; 3) dominance in its particular niche; and 4) employee talent and corporate culture.

A distinctly urban footprint First Capital is intensely focused and well positioned to capitalize on the significant urbanization trends in Canada. This is important because we see urbanization as a megatrend and believe it will be one of the most important drivers of outperformance in the real estate sector. There are two principal reasons for this: 1) because of higher population growth/densities, tenants have higher sales and can afford above-average rental increases; and 2) urbanization brings about intensification opportunities such as redevelopment, repositioning and expansions.

First Capital has sufficient investment opportunities within its pipeline to invest over $1 billion into intensification projects, developments and redevelopments over the next five years. We believe this will benefit shareholders in three ways: 1) the quality and stability of income (NOI) will improve; 2) value creation through development and intensification will drive NAV growth; and 3) improved long-term NOI growth potential due to an improved competitive position in markets with higher barriers to entry.

A residential pipeline of 14,000 to 16,000 suites Urban municipalities continue to focus on increasing density to maximize existing infrastructure and are encouraging higher densities in mixed-use projects that frequently include multi-family residential. With the urban nature of First Capital’s portfolio, management believes there is an opportunity to build up to 11 million sf of residential space across its portfolio. We estimate that this would translate into 14,000 to 16,000 suites at an average unit size of 700 sf to 800 sf. In our view, mixed-use development including multi-family rentals is a sensible extension of First Capital’s strategy given the reality and upside potential of urban developments. Indeed, we would argue that mixed-use urban developments are one of the most important secular themes in the Canadian real estate sector.

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A concentrated focus on high quality income growth One of our key investment principles for the real estate universe is differentiating the quality of income growth – on this front, we believe that First Capital continues to be a leader. We strongly assert that value creators with multiple sources of organic growth, including intensification, redevelopment, and expansion, will outperform those solely reliant on growth driven by spread investing. In our view, investors continue to place increasing emphasis on the quality of earnings and differentiation among high-, medium- and low-quality REITs/REOCs. Indeed, after several years of total returns that were largely in line with the index, First Capital has outperformed on a one- and three-year basis by 7% and 4%, respectively, as investors appear receptive to the company’s greater emphasis on FFO growth per share.

FCR’s capital-recycling program is winding down Rather than issue equity to fund value-creation projects and strategic acquisitions, we expect First Capital will continue its capital-recycling program in 2016, albeit at a reduced pace. Overall, we believe recycling capital into core urban assets and redevelopments will drive long-term NAV and share price growth. In essence, the company’s overall portfolio strategy continues to position the portfolio to be “where the people are,” with the goal of being ahead of potential demographic shifts, which may ultimately result in potential changes in shopping and lifestyle preferences of the younger consumer.

First Capital at an inflection point We believe that the bulk of the company's portfolio re-positioning (i.e., recycling capital from small markets to urban markets) and de-levering activities are behind it. At the same time, following management changes over the course of 2015 (CEO Adam Paul and CFO Kay Brekken), there is a clear emphasis on completing existing development projects and driving FFO growth per share. Still, it will take time for the projects to make their way through the process and we would expect to see increased growth in the back half of 2016.

A strong (and strengthening) balance sheet First Capital is in a strong financial position with conservative leverage and ample liquidity. A strong balance sheet is a core tenet of the company’s financial management strategy. The company’s efforts to create financial strength have been rewarded with one of the highest unsecured debt credit rating within the Canadian REIT/REOC sector. Over time as developments are completed, we expect the company’s leverage ratios will improve, particularly its net debt-to-EBITDA ratio.

Estimates, price target, and rating First Capital’s FFO per share in 2014 was $0.98. Our 2015-17 FFO per share estimates are $0.98, $ 1.10 and $1.17, respectively. Our $21.00 price target is derived by applying a ~10% premium to our NAV per share estimate one year hence, which implies an 18x multiple to our 2017 AFFO per share estimate. Our target multiple continues to represent a premium to the average that we apply to the peer group, which we believe is justified in light of the high-quality and defensive characteristics inherent in the portfolio as well as its urban focus, sizable value-add development pipeline, track record of NAV growth, strong capital structure and overall franchise value. Based on relative risk-adjusted return expectations, we rate FCR shares Outperform.

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One Real Estate Investment Trust (ONR.UN - $3.32) Stock rating: Sector Perform One-year target: $3.75 Current yield: 9.0%

Overview and business description OneREIT (formerly Retrocom REIT) owns a portfolio of more than seven million sf of enclosed community malls, open community plazas, and enclosed regional malls located primarily in secondary and tertiary markets across Canada. The REIT’s portfolio is externally managed, and Penguin Investments Inc. (formerly SmartCentres) provides leasing and development expertise.

The turnaround is complete We think the June 2015 distribution cut and new name aptly mark the end of OneREIT’s successful ~five-year turnaround. Two of three remaining Zellers-anchored properties have been sold and the third is on the market. The turnaround began with the reverse takeover of the REIT by the Goldhar Group/Mitch Goldhar in 2008 and accelerated in the summer of 2010 after a pause due to the credit crisis. The results of the repositioning include a new management team, a new board, a new shared head office with SmartREIT, a much improved asset base, and larger size and liquidity.

A new name and a new payout ratio We support the board’s decision to cut the distribution by 33% and are pleased to see the REIT change its name to OneREIT. We think the board had little choice but to cut given the high payout ratio and the REIT’s trading price. Changing the name of the REIT, while more symbolic, is nonetheless an important decision; in our view, it shows the REIT has successfully completed its turnaround. Leverage is still too high, but we believe it will slowly decline over the next few years. In the meantime, the new yield is supported by a strong roster of tenants and we believe that the REIT is now in a far better position to increase its institutional investor base.

Turnaround can be seen in improved income quality from top tenants As part of its turnaround strategy, OneREIT has grown and diversified its business by acquiring well occupied, highly stable shopping centres located primarily in secondary markets. The acquisition of two Walmart-anchored centres ($68 million, Sep 2014) and the $111 million SmartREIT portfolio (Oct 2014) are prime examples of this strategy at work. In our view, the dramatic improvement in the REIT’s top tenants reinforces OneREIT as a successful turnaround story (see sidebar for top tenants roster). This is clearly evident from its top-five tenants, led by Walmart. That being said, it is hard to see the REIT making similar acquisitions in the near to medium term as OneREIT has little capacity to add debt and its units trade at a significant discount to its NAV.

Estimates, price target, and rating OneREIT generated FFO per unit of $0.44 in 2014. Our 2015-17 FFO per unit estimates are $0.44, $0.45 and $0.46, respectively. Our $3.75 price target is derived by applying a 15% discount to our NAV per unit estimate one year hence, which implies a 10x target multiple to our 2017 AFFO per unit estimate. We believe our target multiple reasonably reflects factors such as the REIT’s financial leverage, asset calibre, trading liquidity, secondary and tertiary market exposure and overall franchise value. Based on risk-adjusted relative return considerations, we rate ONR units Sector Perform.

Top-five tenants By percentage of annualized gross revenue Start of 2011 Q3/15 6% Zellers 19% Walmart 5% Shoppers 7% Loblaw 3% Cineplex 6% Canadian Tire 3% Walmart 3% Sobeys 3% Food Basics 3% Metro

Source: Company reports

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Plaza Retail Real Estate Investment Trust (PLZ.UN - $4.70) Stock rating: Outperform One-year target: $5.00 Current yield: 5.5%

Overview and business description Plaza Retail REIT owns interests in more than 300 retail properties encompassing approximately 7.0 million sf. Approximately 58% of GLA is in Atlantic Canada, 41% in Quebec and Ontario, and the remainder in Western Canada. Plaza’s business model is almost entirely predicated on value creation. Indeed, with only one exception – the acquisition of KEYreit in 2013 – Plaza only makes acquisitions where there is an opportunity for management to use its competitive strengths to create value.

A value-add business model Plaza’s value-add business model provides the foundation for potential double-digit returns through the combination of: 1) a well covered distribution yield; 2) base-line NAV growth of 2% to 4%, driven by a combination of development profits and retained AFFO; and 3) additional NAV growth of 1% to 2% driven by modest same-property NOI growth through normal course leasing and renewals. For additional details, please see our note entitled “Using retained AFFO to drive NAV growth.”

An “Outsider” CEO: Michael Zakuta In his book “The Outsiders,” author William Thorndike, Jr. makes the case that “CEOs need to do two things well to be successful: run their operations efficiently and deploy the cash generated by those operations." We believe that Plaza’s CEO, Michael Zakuta, meets these criteria for several reasons. First, we think it starts with independent thinking, which is an important trait highlighted in the book. We believe this characteristic shows up unmistakably in Plaza’s business model, which is unique in Canada, being 100% focused on value-add acquisitions. In particular, Plaza’s business model is not about getting bigger but rather about growing intrinsic value and cash flow per unit.

Second, is the all-important ability to allocate capital skillfully. Plaza is one of only two REITs that have increased its distribution every year for the past 13 years and Plaza’s distribution growth has been by far the fastest. Indeed, Plaza’s track record for returning capital to unitholders through distribution increases is the highest in the sector – a true outlier. Importantly, Mr. Zakuta owns a significant stake in Plaza, has never sold a share and continues to buy.

Finally, Mr. Thorndike uses long-term returns to assess the performance of Outsider CEOs and states “What matters isn’t the absolute rate of return but the return relative to peers and the market.” On this front, too, we think Plaza is also a clear outlier with a 15-year total return CAGR of 19% vs. 11% for the S&P/TSX Capped REIT Index.

Estimates, price target, and rating Plaza generated FFO per unit of $0.30 in 2014. Our 2015-17 FFO per unit estimates are $0.32, $0.34 and $0.36, respectively. Our $5.00 price target is based on a 5% premium to our NAV per unit estimate one year hence, which implies a 15x multiple to our 2017 AFFO per unit estimate. We believe our target valuation reasonably reflects such considerations as: 1) a strong dividend growth track record; 2) significant insider sponsorship (~22% of outstanding units); and 3) value-creation potential. These factors are weighed against portfolio concentration in secondary and tertiary markets, and the low trading liquidity inherent in the share float. Based on risk-adjusted relative return considerations, we rate PLZ’s units Outperform.

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https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_2C7FF0A42AED90D4300ADB4829FCCF7A


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RioCan Real Estate Investment Trust (REI.UN ‐ $23.69)

Stock rating: Outperform One‐year target: $28.00 Current yield: 6.0%

Overview and business description

Pro forma the sale of the US business, RioCan will own interests in a portfolio of more than 300 retail centres across Canada encompassing approximately 43 million sf at RioCan’s interest, including 15 development properties. RioCan's stated goal is “the long‐term maximization of cash flow and capital appreciation in its portfolio”, which it seeks to achieve by pro‐actively managing its assets. The REIT’s size offers: 1) scale; 2) diversification; 3) the ability to attract and retain high calibre human talent; 4) significant access to capital; and, 5) liquidity for large investors.

US sale strengthens balance sheet and returns REI to a pure‐play Canadian REIT

Following a five year foray in the US, RioCan has agreed to sell is US portfolio to Blackstone Real Estate Partners VIII for C$2.7 billion (US$1.9B), falling C$0.2 billion (C$0.59/unit) short of the REIT's IFRS value as at Q3/15. Although the sale price missed expectations, RioCan's US foray has created meaningful unitholder wealth and has been an overall positive. In our view, RioCan's competitive position has improved with a stronger balance sheet and a pure Canadian focus. In particular, RioCan has a valuable intensification pipeline which we think will provide significant opportunity for NAV growth.

Capitalizing on an important opportunity

With the urbanization trend that is happening across the country, RioCan is well positioned to capitalize on the opportunity with a portfolio concentrated in Canada’s six major markets. In our view, mixed‐use development including multi‐family rentals is a sensible extension of RioCan’s strategy given the reality of urban developments and the inherent upside potential. Indeed, we would argue that mixed‐use urban developments are one of the most important secular themes in the Canadian real estate sector.

Focused on surfacing value in the development and intensification pipeline

RioCan expects the total cost of its active projects will be approximately $1.6 billion through 2018 and beyond, including: 1) greenfield developments; 2) urban intensifications; and 3) expansions and redevelopments. RioCan estimates these projects will add approximately six million sf at its interest, including roughly two million sf of redevelopments and expansions. In order to phase in growth and balance capital spending, management is systematically laddering its developments over the next 7‐10 years. As RioCan continues to direct more capital toward development opportunities, we believe the REIT will seek to fund development through a combination of select dispositions in small markets and retained earnings.

Rental residential strategy set to layer on additional long‐term growth

RioCan continues to make progress refining its long‐term rental residential strategy, which is expected to total approximately 18,000 apartments over the next 10 years. Management estimates that the development pipeline represents a cumulative investment of roughly $6 billion at a development yield of approximately 6%. To date, RioCan has identified 46 sites which it deems strong intensification opportunities, located predominately on transit‐oriented sites in the Greater Toronto Area (“GTA”) but also in Calgary, Ottawa, Vancouver and Edmonton.

Why rental residential?

RioCan believe it has several advantages as it pursues its rental residential strategy, including: 1) inexpensive underutilized land located at urban, transit‐oriented sites; 2) the


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scale to create management efficiencies; and 3) excellent marketing opportunities as Canada’s largest retail landlord. In addition, management believes that because there are so few newly built rental residential buildings, its biggest competition would be condo owners who rent their units. Overall, management notes that intensification replaces old stock with dynamic, high‐demand space – attracting the highest class of tenants – and delivers higher yields aided by the low cost of the underlying land.

Moving past Target with a $92 million settlement and quick re‐leasing progress

In November 2015, RioCan concluded a settlement with Target Corp. for $92 million at its share. Closing the books on the Target Canada saga via the settlement allows the RioCan to more pro‐actively address the re‐leasing of the former Target space and to freely communicate this progress with investors and tenants alike. Importantly, all future leasing successes will now accrue only to REI unitholders; no‐longer will these successes be potentially valuable to Target Corp in its desire to reduce its settlement. To‐date, roughly 68% of the former Target Canada space is: 1) leased to new tenants who purchased former Target Canada leases; 2) committed through the REIT’s re‐leasing efforts; or, 3) under conditional agreements or advanced negotiations. Importantly, this would replace almost all of the lost rent which will come back online as the space is renovated and tenants take possession over the next two years. We see upside as the remaining space is leased to new tenants at new rents that should be on average 40% to 50% higher than former Target Canada rents of just $6.62 psf.

Major market exposure reaches 74%; making progress toward goal of 80%

As a result of its capital‐recycling program, RioCan has improved its exposure to Canada’s major markets to over 74%, up from approximately 65% in 2010. These “Big Six” cities, alternatively referred to as “VECTOM,” include Vancouver, Edmonton, Calgary, Toronto, Ottawa and Montreal. Over the intermediate to long term, the higher exposure to major markets should drive better same‐property NOI growth because of higher population growth, barriers to entry, and their positive influence on tenant sales and rent growth. RioCan expects its exposure to VECTOM to increase to ~80% as it continues to dispose of properties located in secondary markets and make acquisitions in the six major markets.

Equity self‐sufficient

Between the REIT’s DRIP program and potential asset sales, we believe that RioCan is equity self‐sufficient, barring any major acquisitions. The REIT’s DRIP participation rate is approximately 35%, thus allowing for the effective retention of more than $150 million of equity annually. This annual capital reinvestment alone allows the REIT to grow its enterprise value via acquisition by upwards of $300 million (based on 40–50% leverage).

Estimates, price target, and rating

RioCan generated FFO per unit of $1.68 in 2014. Our 2015‐17 FFO per unit estimates are $1.72, $1.74 and $1.83, respectively. Our $28.00 price target is derived by applying a 15% premium to our NAV per unit one year hence, which implies a multiple of 18x to our 2017 AFFO per unit estimate. Overall, our target multiple represents a modest premium to that which we apply to RioCan’s Canadian peers. We believe this is warranted in light of RioCan’s above‐average market cap, its strategic focus on Canada’s six largest cities, its sizable value‐add development pipeline, and its overall franchise value. We continue to view RioCan’s units as one of the six core holdings within the REIT sector. Based on risk‐adjusted relative return considerations, we rate REI units Outperform.


Slate Retail Real Estate Investment Trust (SRT’U: US$10.40; SRT.UN: C$14.46) Stock rating: Sector Perform One-year target: US$10.75 Current yield: 7.5%

Overview and business description Slate Retail REIT is focused on US grocery-anchored real estate, with a portfolio that includes more than 60 properties, encompassing over seven million sf. Geographically, roughly half of the REIT’s total leasable area is situated in the Southern states, while the remaining portfolio is spread over mostly the Midwestern and Northeastern states.

Slate trades on the TSX and has a high relative yield that is paid monthly in US dollars. Because of the stability of the property type underpinning the income and the REIT’s sensible payout ratio, we believe the yield is sustainable over the long term and potentially will feature modest growth. This makes an investment in SRT convenient for Canadian investors looking for an easy way to obtain reliable USD income.

Primarily a growth-through-acquisitions strategy Slate’s strategy is to capitalize on the large investment landscape in the United States by building scale through a roll-up strategy of grocery-anchored retail centres in large but secondary markets. The acquisition opportunities are far greater in the US than Canada, as 51 of the urban centres in the US have populations that exceed one million compared to only six in Canada, and there are 37,000 grocery stores with highly fragmented ownership. In addition, the US real estate market is recovering, offering the potential for additional growth through rental increases/cap-rate compression.

An old-school design Slate Asset Management, the REIT’s external asset manager, has a good track record and has assembled a talented team of individuals, but we believe that these positive attributes are overshadowed by the fact that Slate is: 1) externally managed; and 2) the structure of the asset management contract is perpetual for all practical purposes, in our view. We think that a REIT with perpetual external management is somewhat akin to a sleek new car that features a cassette player for a music system. We believe it’s an old-school design that investors will most likely discount.

Capital-allocation risk Slate is fundamentally a roll-up story but it has little capacity to add debt and trades below our NAV estimate. As such, we believe Slate does not currently have an appropriate cost of capital to execute its business plan. We believe unitholders face NAV dilution risk should Slate issue equity below NAV to fund acquisitions. However, we think the chance of this occurring is diminishing based on management's recent commentary and actual unit buybacks.

Estimates, price target, and rating Slate completed its combination transaction in April 2014 and generated FFO per unit of US$0.72 during the remaining portion of 2014. Our 2015-17 FFO per unit estimates are US$1.32, US$1.35 and US$1.38, respectively. Our US$10.75 price target is derived by applying a 10–15% discount to our NAV per unit one year hence, which implies a multiple of 9x to our 2017 AFFO per unit estimate. Overall, our target multiple represents a discount to that which we apply to Slate’s Canadian peers. We believe this is warranted primarily because of the external management structure but also because of above-average leverage, low trading liquidity and capital-allocation risk. We reiterate our Sector Perform rating.

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Smart Real Estate Investment Trust (SRU.UN - $30.19) Stock rating: Outperform One-year target: $34.00 Current yield: 5.5%

Overview and business description SmartREIT (formerly Calloway REIT) owns interests in approximately 150 predominately Walmart-anchored shopping centres, comprising more than 30 million sf of GLA and located across all 10 Canadian provinces. The REIT’s property-expansion and development pipeline encompasses almost five million sf of development potential, including the first phase of the Vaughan Metropolitan Centre (“VMC”), which totals 189,000 sf of office space, at SRU’s share. Over the long term, the VMC is a 50/50 joint venture with Mitch Goldhar (via the Penguin Group of Companies) that will total approximately six million sf on 53 acres of development when completed. Walmart represents approximately 27% of the REIT’s gross revenue.

Transformative $1.2-billion transaction leads to SmartREIT re-branding In May 2015, the REIT completed the $55 million acquisition of SmartCentres’ operating platform and a $1.1 billion portfolio of predominately Walmart-anchored centres. The transaction internalized a number of key functions such as development and leasing, which in our view, enhances the overall appeal of the REIT. As part of the transaction, Calloway REIT was rebranded as SmartREIT to reflect its enhanced capabilities and to capitalize on the brand recognition of SmartCentres, including its trademark penguins (see image at left).

Increases alignment with unitholders; Mitch Goldhar’s interest now totals >$1 billion As part of the above-noted transaction, Mitch Goldhar, the owner of SmartCentres and trustee of the REIT, increased his stake by 4.9 million Class B LP units (~$140 million) to 23% of total units outstanding, with a value of more than $1 billion. Mr. Goldhar brings visionary development expertise and a deep relationship with Walmart, the REIT’s largest tenant. As part of the transaction, Mr. Goldhar will provide a variety of master planning, support and advice for five years for $3.5 million annually. While there were several puts and takes, in our view, the transaction enhances the REIT’s long-term growth potential, increases alignment and creates a bigger, better REIT. For additional details please see our note, “SmartREIT, smart move; Moving to Outperform.”

A stable, defensive business in a competitive retail sector SmartREIT’s relationship with Walmart has enabled it to achieve a highly stable earnings growth and occupancy track record. Indeed, over the past decade overall portfolio occupancy did not dip below 98%, even during the 2008/09 recession. While SmartREIT continues to post positive results on the back of its stable portfolio, management continues to execute on multiple initiatives to layer on additional growth.

Estimates, price target, and rating SmartREIT reported 2014 FFO per unit of $1.95. Our FFO per unit estimates for 2015-17 are $2.10, $2.20 and $2.28, respectively. We derive our $34.00 price target by applying a 10% premium to our NAV per unit estimate one year hence, which implies a 16x 2017E AFFO per unit multiple. We believe our target multiple is supported by factors such as market cap, trading liquidity and financial leverage, and its stable portfolio of value-oriented retail centres. These positive factors are mildly tempered by the fixed-rate long duration inherent in its Walmart leases. Based on relative risk-adjusted return expectations, we rate SmartREIT’s units Outperform.

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Allied Properties Real Estate Investment Trust (AP.UN - $31.57) Stock rating: Outperform One-year target: $41.00 Current yield: 4.8%

Overview and business description Allied Properties REIT (“Allied” or “AP”) is a leading owner, manager and developer of urban office environments in Canada’s major cities. The portfolio’s largest concentrations are in Toronto, Montreal and Calgary, with clusters of properties also located in Quebec City, Ottawa, Kitchener, Winnipeg, Edmonton, Vancouver and Victoria. Allied specializes in an office format created through the adaptive re-use of light industrial structures in urban areas that has come to be known as Class I, the “I” stemming from the original industrial nature of the structures. This format typically features high ceilings, abundant natural light, exposed structural frames, interior brick and hardwood floors.

Canada’s best real estate “play” on the secular urban intensification trend Urban intensification and infill development is a secular theme within the property sector. We see Allied Properties REIT as being the best-positioned listed vehicle by which to participate in this long-term trend. As we have previously articulated, we believe that value-add initiatives (e.g., The Breithaupt Block, 5445 and 5455 de Gaspe, 6300 Avenue du Parc, 250 Front Street, QRC West Phase I, etc.) should continue as near- to medium-term growth drivers for NOI, FFO, and AFFO/unit. Based on our estimates, Allied’s FFO per unit from 2015 to 2017 is forecast to grow by 4%, 7% and 4%, respectively. On this basis, we note that Allied’s three-year growth rate (~5% annualized) is at ~140% of the overall industry over the same time frame.

Transitory factors hit 2015 organic growth; outlook for 2016 indicates a rebound back into positive territory For 13 consecutive quarters (Q4/11 – Q4/14), Allied recorded an impressive streak of generating positive organic growth (~10% on average). Last year, factors that we would term as generally transitional in nature weighed on these results. More specifically: 1) transitory leasing issues in Vancouver; 2) a reduction in recoveries charged to tenants; and 3) weakness in Calgary street-front retail were main drivers of 2015’s negative comps (Q1/15: -4.2%; Q2/15: -1.6%; Q3/15: -4.7%).

In our view, the first two issues have, or will be addressed in short order. With respect to the latter, we believe the situation in Calgary is likely to get worse before it gets better. Despite these headwinds, we see return to positive organic growth based on the following factors: 1) higher rents achieved on re-leasing; 2) occupancy improvements; and 3) the “conversion” of properties under development to income-producing status (e.g., QRC West, Phase I, 250 Front Street, and 5445 de Gaspe).

The focus on value-creation initiatives continues; setting the table for 2016 development priorities Looking ahead and assuming pre-leasing thresholds are met, Allied intends to commence construction on several new developments in 2016. Probability-weighting the project pipeline, we expect new development starts to include 1) the King & Portland JV (180–200,000 sf at share; 50/50 with RioCan); and 2) Adelaide & Duncan (200,000 sf at share; 50/50 with Westbank). We provide a more details with respect to each in our August 5, 2015 note entitled, “Largely in-line Q2 results; increasingly focused on '16 new development launches.”

Formerly we had expected that Allied would also commence construction of QRC West Phase II (~74,000 sf; 100%-owned) this year. We now believe the project may be deferred for

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several years such that 1) the development of the new downtown Toronto Mountain Equipment Co-op (“MEC”) may proceed on the north side of Queen Street, directly across from QRC West Phase II; and 2) so that Allied can continue to receive the benefit of the solid income in place from the existing GLA. We see logic in delaying, in light of: 1) the construction disruption of two adjacent projects; and 2) the strong future consumer draw to the neighbourhood which we anticipate from the newly opened MEC store.

We also believe that Allied and its partners (RioCan REIT and Diamond Corp) will be in a position this year to make some more formal planning announcements with respect to The Well. This large-scale (3.1 million sf) mixed-use project in downtown Toronto (Front Street West) is a 40%/40%/20% three-way deal.

Estimates, price target and rating The REIT’s FFO/unit in 2014 was $2.09. Our 2015, 2016 and 2017 FFO/unit estimates are $2.17, $2.32 and $2.43, respectively. Our $41 price target is derived by applying a 15% premium to our NAVPU estimate one year hence, and implies a ~20x target multiple to our 2017 AFFO/unit estimate. Overall, we believe the premium to group-average target multiple applied to Allied Properties’ units appropriately reflects: 1) Allied’s significant presence in high-barrier-to-entry urban markets (including its dominant presence in the niche Class “I” office category); 2) the inherent long-term potential for value-enhancing intensification, development and redevelopment in the portfolio; 3) the REIT’s low financial leverage; and 4) the overall “franchise value” of the business (including its internal, aligned, and entrepreneurial management team). Based on relative return and risk considerations, we continue to rate Allied’s units Outperform.

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Brookfield Canada Office Properties (BOX.UN - $26.06) Stock rating: Sector Perform One-year target: $30.00 Current yield: 4.8%

Overview and business description Brookfield Office Properties Canada (“BOX”) owns premier office properties in high-barrier-to-entry markets. The REIT’s portfolio is focused on Class “A” and “AAA” properties in four of Canada’s largest office markets, including 26 properties and 16.2 million sf of GLA (excluding parking), of which the REIT’s net owned interest is 9.2 million sf.

Canada’s only class “A” office play BOX owns the highest quality publicly listed office portfolio in Canada, in our view. This calibre of commercial real estate is often only available to the pension funds.

Industry-leading occupancy and stability Owing to its high-quality assets and long-term lease profile, BOX’s portfolio tends to generate stable operating results. The most recently disclosed portfolio occupancy of 95.5% (Q3/15) marked a 40 bps increase over the prior-year period. Occupancy has remained stable over the past three years, ranging between 94% and 97%, while significantly outperforming the national office occupancy of 89.8% in Q3/15.

Tale of two cities: Toronto (manageable) vs. Calgary (challenging) Collectively, Toronto and Calgary are BOX’s largest markets, making up over 90% of the REIT’s NOI. Based on recently disclosed figures (Q3/15), each market contributed 52% and 40% of NOI on a proportionate basis.

Last year, Toronto office fundamentals (central area; all classes of space) surprised to the upside. Based on Cushman and Wakefield statistics, nine-month absorption was approximately 1 million sf against minimal supply, thus pushing vacancy to 4.8% (5.0% at Q4/14). Looking ahead, an estimated 2.3 million sf of inventory will be added this year (CBD construction completions). Overall, we expect these supply deliveries to modestly increase vacancy as tenants relocate to the new office towers. However, we do not anticipate a material impact to BOX’s Toronto portfolio.

In Calgary, market conditions have shifted over the course of 2015 from difficult to more difficult. And the view for 2016 is further deterioration. Last year, roughly 2.6 million sf of space was put back by tenants. This represented a stunning 500bps on the 49 million sf of central inventory and it pushed the market’s vacancy to 12.2% (6.2% at Q4/14). While we are hopeful the pace of demand destruction in Calgary will subside, the 24-month supply pipeline remains a daunting 4.2 million sf (~850 bps of central area stock).

Another component of the Calgary story is the approximately 3 million sf of sublet space currently on the market. While BOX reports very little sublet space across its portfolio (estimated at 75,000 sf), the sizeable quantum of sublet space has placed significant downward pressure on rental rates. Highlighting this fact, we note that at Q3/15, BOX’s estimated market rent for Calgary was $28 per sf. This result marked a 22% decline from 12 months prior (Q3/14: $36/sf) and compared to in-place rents of $33/sf, equated current rents being approximately 14% above market.

70 York Street (Toronto) trade “proves up” the NAV and the embedded discount; more dispositions in store for 2016 Late last year BOX sold HSBC Bank Building (70 York Street, Toronto) for $110 million (US$87 million). Deal metrics equated to a 4.3% cap rate and $570 per sf. We see 70 York Street as a

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“gem” of a property. But, it is in no way the best of BOX’s portfolio. Considering BOX’s current implied cap rate of 5.8% we believe the sale highlights the embedded discount to NAV inherent in BOX units.

BOX has formally stated its plans to sell its Royal Centre, Vancouver (1055 West Georgia) property. We believe this property will have a value of $350 million, or more. And, due to its location in a high-barrier-to-entry market (the Vancouver CBD) and its low average in-place rents, we expect the selling price will equate to a yield of ~4%.

Around the globe (US, UK, Australia), the Brookfield Property Group appears to be moving expeditiously to sell (or JV) assets in order to capitalize on direct market pricing that appears to be broadly more robust than listed values.

Looking ahead, we also believe that BOX should consider monetizing its 25% interests in the Ottawa properties (Place de Ville I/II and Jean Edmonds Tower). While further asset sales will dilute FFO/unit growth (due to de-leveraging) and potentially hurt near-term distribution/ unit growth from what it otherwise might have been, each could well prove NAV-accretive, thus making each BOX unit intrinsically more valuable.

Estimates, price target and rating Brookfield Canada Office Properties generated FFO/share of $1.70 in 2014. Our FFO/share estimates for 2015, 2016 and 2017 are $1.57, and $1.76 and $1.82, respectively. We derive our price target from a ~20% discount to our NAV/unit estimate one year hence, which implies a 21x target multiple to our 2017E AFFO/unit. Our target multiple represents a substantial premium to the average P/AFFO target multiple applied to our commercial property coverage universe. We view our target multiple as being appropriate in light of the REIT’s superior quality property portfolio, low financial leverage and other factors, such as its overall franchise value and its modest unit float.

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Brookfield Property Partners (BPY - USD $23.24) Stock rating: Outperform One-year target: USD $26.00 Current yield: 4.6%

Overview and business description Brookfield Property Partners (BPY) is a global owner and operator of high-quality real property spanning a range of sectors, including office, retail, industrial, multi-family, hotels and net-lease. The company was established on January 3, 2013, as a Bermuda-exempted limited partnership. BPY was created by Brookfield Asset Management (BAM or Brookfield) in order to serve as its primary vehicle for global real estate investing. The company’s limited partnership (LP) units are dual-listed on the New York Stock Exchange (NYSE) under the ticker BPY and the Toronto Stock Exchange (TSX) under the ticker symbol BPY.un.

A multi-sector, global capital allocator: breadth of mandate provides advantage BPY and its predecessor entities have for many years capitalized on the fact that the real estate industry is cyclical and that regions or asset classes do not move synchronously. Hence, a diversified (property type; geography) portfolio should demonstrate greater long-term stability than one with a specific geographic or property focus. Moreover, BPY’s flexibility to shift capital to/from sectors and geographies that are out/in favour, should give it an edge in the quest to deliver premium risk-weighted returns.

Key value drivers could push NAV/unit upwards by $17 over five years Separate and distinct from BPY’s ability to arbitrage values and capital flows globally, we see three key “internal” drivers of value growth: 1) lease rate mark-to-market via contractual steps and spread capture on rolls; 2) office occupancy normalization (+200bps, to 95%); and 3) developments and redevelopments (the current active project list has a ~$10 billion total cost and a potential completed fair value of ~$14 billion). Over a five-year horizon, we believe these drivers collectively have the potential to add approximately $17 in NAV/unit or more than 50% upside. Relative to our current NAV/unit of $29, this equates to compounded annualized growth of ~8–10%.

FFO and distribution profile BPY currently distributes at an annualized rate of $1.06/unit, +6% from $1.00 in 2015. BPY’s payout ratio was 88% of 2014 FFO, and, we estimate, well in excess of AFFO. With office leases representing approximately $140 million ($0.20/unit) in annualized rent signed, but not producing NOI, we have high confidence in FFO/unit growth over the next two years. We expect distribution/unit growth will continue at ~6% annually and within two to three years (i.e., to 2017 or 2018), we believe FFO/unit growth should be sufficient to allow the payout ratio to reach the 80% target.

Deleveraging and asset sales continue to be priorities Direct investment market demand for high quality real property remains exceptional. In light of this strong “bid” and BPY’s 1) “fully invested” balance sheet/goal of reducing leverage; 2) large value-add (development and redevelopment) pipeline; and 3) discount to NAV inherent in the trading price of its units, BPY continues to vigorously push forth with property sales. Asset sales and JV partnerships completed late last year were executed at sub-5% cap rates, evidencing the strong values ascribed to class “A” assets in major markets. We believe that during Q4/15, BPY’s disposition activity generated approximately $800 million in net proceeds. In addition, the sale of partial interests in mature/core assets (US, Canada and Australia) by H1/16 should provide a further $1 billion in net proceeds.

Despite the likely (modest) FFO/unit dilution, monetizing partial interests in core properties should allow BPY to: 1) maintain size and scale in its operating platform; 2) repay a good

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chunk of corporate debt; and 3) earn more fee income. Monetizing interests in development properties could also more meaningfully benefit BPY’s high debt/EBITDA ratio (~15x).

Estimates, price target and rating BPY’s FFO per unit was US$1.11 in 2014. Our FFO estimates for 2015, 2016 and 2017 are US$1.15, US$1.34 and US$1.44. Our $26 price target equates to a ~15% discount to our NAVPU estimate one year hence and implies a ~24x multiple on our 2017 AFFO/unit estimate. The P/NAV target valuation metrics ascribed in deriving our BPY price target is at a discount to the peer valuation average, while the P/AFFO valuation metric is at a premium to the forward-12-month peer average. We believe our target valuation metrics reasonably reflect BPY’s structural (high G&A expense ratio; MSA with BAM), risk (high financial leverage; high payout ratio), quality (mostly “premier” properties), and growth/total return (high-single-digit NAV/unit and FFO/unit growth, over a multi-year period) attributes.

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Dream Office Real Estate Investment Trust (D.UN - $17.37) Stock rating: Sector Perform One-year target: $23.00 Current yield: 12.9%

Overview and business description DREAM Office REIT (“Dream”) is one of Canada's leading providers of high-quality, affordable business premises. It is focused on acquiring, owning and operating mid-sized urban and suburban office properties. The REIT’s income-producing portfolio comprises roughly 23 million sf.

Office sector sentiment and Western Canada exposure weigh on unit price 2015 was the third consecutive year of disappointing returns for Dream unitholders. Last year, the REIT’s units generated a total return of -22%, well behind the -4.6% from the S&P/TSX Capped REIT Index (“REIT Index”). In the two years prior (2013 and 2014), Dream’s total return of -17% and -5% compared to REIT Index’s -5% and +10%, respectively.

Principally, we attribute last year’s unit price performance to: 1) negative sentiment regarding the office sector; and 2) Western Canada exposure, in light of the decline in energy prices. As we have previously stated, we expect the fundamentals within the office sector to remain challenging over the next several years in the face of a significant inventory build within Canada’s major markets (Vancouver, Toronto, Calgary, and Montreal). In addition, Dream’s exposure to Western Canada (~40% of NOI), in our view, provided an additional source of downside pressure.

Bridging the value gap: Non-core asset sales and an active NCIB; more to come? With the singular goal of driving intrinsic value per unit, last year’s property sales (through to October) totalled $154 million, liberating $85 million after expenses and debt repayment. By H1/16, a further $100 million of non-core assets are slated to be sold. Dream’s chosen avenues for redeployment have been property-level reinvestment and unit repurchases. We note that last year, Dream invested $101 million to repurchase 4.3 million units at a weighted average price of $23.50.

Overall, within the context of a challenging operating environment, and considering the REIT’s limited investment opportunities (given that the price is well below NAV), we believe the REIT is employing the right strategies within the current environment.

Dream’s business is a prime example of the dichotomy which exists between the challenging (but manageable) real estate operating environment and the investment market, which is extremely well-bid for quality properties. As such, we openly wonder whether 2016 will be the year in which Dream brings a joint-venture partner into a high-profile Toronto CBD property.

We believe there are three key Toronto properties which could be prime candidates from which the REIT could extract capital, including:

1) the wholly-owned, 655,000 sf Adelaide Place complex; 2) the 455,000 sf, wholly-owned State Street Financial Centre; or 3) the flagship, Scotia Plaza complex which is 67% owned and includes the 68-storey 1.6

million sf 44 King Street West tower and the 26-storey, 401,000 sf 44 King Street West tower. The latter is 33% owned by H&R REIT, which we believe would consider selling its entire stake.

We also believe that Dream might consider extracting capital via the formation of a 50/50 joint venture on a portfolio of smaller CBD Toronto properties.

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Regardless, we see a number of levers that management may be able to “pull” in order to extract capital from assets at valuations which are well in excess of that implied by the current unit price.

Double-digit distribution yield; handicapping the “hold the line” or the cut… we can’t comfortably take a side Dream Office’s $2.24/unit annual payout slightly exceeds our AFFO estimates this year and next (104% and 106% AFFO payout, respectively). Yet, we are of the view that the REIT’s capital improvement program in 2016 and 2017 will be materially in excess of its “normalized” capex and therefore Dream will be required to borrow additional funds (excluding DRIP proceeds) in order to fund the expected capex.

The current distribution of $2.24/unit equates to an annualized yield of 12.9% on the current $17.37 unit price. Some might argue that the business would be better served by retaining additional capital to fund the improvement program and to maintain balance sheet flexibility. Others would suggest that if the REIT can continue to pay the current distribution then it should do precisely that. Through the prior cycle, from its 2007 peak, through the 2008 GFC and the subsequent recovery years to 2012, Dream’s unit price ranged from a high of $47/unit to a low of $7 to a post GFC recovery high of $40. Through this entire time frame the REIT’s payout of $2.18/unit annually was unchanged and thus the unit yield ranged from a low of less than 5% to a high of just over 30%!

The prior (2007-2009) down-cycle was subject to a very swift and material deterioration in credit conditions, along with a rapid deterioration in office fundamentals. And at the time, Dream’s business was much smaller, had very heavy Western Canadian concentration, higher financial leverage and less liquidity than we see currently. Notably, however, the recovery cycle returned quickly and was in the form of strong rebound. This cycle we see a larger, stronger, more conservatively levered business which has better corporate liquidity. But we are also cognizant of the fact that this office down-cycle (particularly in Calgary and Edmonton and other Western Canadian markets) could be quite protracted.

With these factors as the current fundamental setting, and knowing the REIT’s historical propensity to hold the line on the distribution, we have a distinct discomfort in taking a side as to whether the REIT is likely to cut its distribution per unit in 2016–2017 or not.

Estimates, price target and rating Dream Office’s FFO/unit (diluted) was $2.87 in 2014. Our 2015, 2016 and 2017 FFO/unit estimates are $2.81, $2.71 and $2.67, respectively. Our $27 price target is derived via a 25% discount to our NAVPU estimate one year hence, which implies a 10-11x multiple to our 2017E AFFO/unit. The multi-year supply/demand outlook within the office sector and Dream's stepped-up capex program and high payout ratio all suggest that the NAV/unit may continue to “leak” lower over time. As such, we've provided for a slightly widened discount-to-NAV valuation metric in the re-calibration of our price target. Overall, we believe our target valuation parameters are reasonably reflective of D’s asset calibre, financial leverage, and potentially more cyclical asset base. Based on relative return expectations, we rate D’s units Sector Perform.

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Granite Real Estate Investment Trust (GRT.UN - $37.96) Stock rating: Sector Perform One-year target: $45.00 Current yield: 6.1%

Overview and business description Granite REIT (“Granite”) is a Canada-based REIT that owns a portfolio comprising interests in more than 100 industrial and office properties encompassing 30 million sf. A large majority (over 80 properties representing approximately 81% of annualized lease payments) are leased on a triple-net basis to subsidiaries of Magna International Inc. (“Magna”), a leading diversified automotive supplier. With properties located in eight countries (primarily Canada, the US, Germany and The Netherlands), Granite has a global presence.

Ability to allocate capital across geographies is a strength of the business model In our view, the clear strengths of Granite’s business model is the ability to be a capital allocator across varying countries/geographies and its willingness and ability to invest on a (risk-adjusted) IRR-basis, as opposed to strictly going-in yield. The latter allows the REIT to make real property investments other than those with in-place stable yields where substantially all of the value creation has already occurred.

Growth by subtraction; "quality" is the mantra In its efforts to enhance the portfolio quality, GRT has been selling non-core properties. Last year saw the sale of six non-core assets for $16 million. In the year prior (2014), dispositions totalled $153 million and included an eight-property, 2.4 million sf Magna-occupied Mexican portfolio and a small land parcel in Austria. We believe that over the course of the next 12 to 24 months, GRT intends to sell upwards of 20 more smaller properties located in the US, Canada, and Europe (several of which are vacant) having a value in the $40 million to $65 million range.

Strategic review, potentially precursor to a complete sale, but potentially not… On June 12, 2015, Granite announced that it had launched a strategic review aimed at exploring the sale of certain assets to interested parties. While the initiation of strategic reviews is often synonymous with the exploration of an outright sale, in this instance we believe it is also plausible that a large portfolio sale is also being contemplated.

Currently Magna represents approximately 81% of annualized lease payments (“ALP”). This compares to about 95% four years ago. Management’s stated goal had been to reduce this exposure to 50% over a multi-year period. A large property divestiture would accelerate the progress toward this objective. In our view, Magna is a very reasonable buyer of some of Granite’s assets. Within Granite’s portfolio are 12 properties categorized as “special purpose”. These properties, which are all currently occupied by Magna, are deemed to be special purpose in light of their unique design features and/or their location in secondary or rural markets. We believe these assets are highly strategic to Magna; as such, a sale of all or some of these assets is plausible. We note that in aggregate the 12 properties encompass 12.9 million sf and accounted for approximately 49% of ALP.

Estimates, price target and rating Granite generated FFO/share of $3.27 in 2014. Our FFO/share estimates for 2015, 2016 and 2017 are $3.37, $3.49 and $3.57, respectively. Our target approximates parity with our NAVPU estimate one year hence, and implies a 13x multiple to our 2017 AFFO/share estimate. Overall, we believe our target valuation metrics are reasonably reflective of factors such as Granite’s property portfolio mix, geographically diversified footprint, tenant concentration, tax efficiency, low financial leverage, and overall franchise value. Based on relative valuation and risk-adjusted return considerations to our price target, we reiterate our Sector Perform rating on Granite REIT’s units.

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NorthWest Healthcare Properties REIT (NWH.UN - $8.93) Stock Rating: Sector Perform One-Year Target: $9.50 Current Yield: 9.0%

Overview and business description NorthWest Healthcare Properties Real Estate Investment Trust (“NorthWest”, “NorthWest REIT”, “NWH” or “the REIT”) is an unincorporated, open-ended real estate investment trust established in Ontario. NWH provides investors with access to a portfolio of high quality international healthcare real estate infrastructure comprised of interests in a diversified portfolio of 123 properties and 8.0 million sf of GLA (100% basis) located throughout major markets in Canada, Brazil, Germany, Australia and New Zealand. The REIT’s portfolio of medical office buildings (“MOB”), clinics, and hospitals is characterized by long-term indexed leases and stable occupancies.

From 2004 to 2015 the REIT and its predecessor entities focused their property investment and management activities on healthcare real estate in Canada where it became the largest private owner and manager of MOBs and healthcare focused real estate in the country via its 4.6 million sf portfolio of 73 MOBs and healthcare properties located across six provinces. In May 2015 NWH combined with publicly listed NorthWest International Healthcare Properties to form a global business spanning five countries.

Leading Canadian MOB owner/manager; room to grow globally NorthWest is Canada’s leading owner/manager of MOBs and private sector healthcare real estate. The needs-driven nature of patient visits to MOBs means that tenants are relatively unaffected by the ebbs and flows of the general economy. Thus, we view this as a defensive asset class. Across international healthcare real estate markets, NWH has identified three regions, outside of Canada for growth: 1) Brazil – a high-growth albeit potentially higher-volatility market where NWH owns hospitals which are subject to long-term, inflation-indexed, triple-net leases with experienced operators; 2) Germany – a fragmented market where NWH is working to establish first mover advantage by building scale (similar to Canada 10-years ago); and 3) Australia & New Zealand (“Australasia”) – an established market with consolidation opportunities and inflation-indexed, triple-net rents, where NWH’s exposure is via its 24% stake in publicly listed Vital Healthcare Property Trust.

A multi-regional capital allocator; likely to “trim” Canada and increase German exposure Not all property markets move synchronously and there are varying attributes to healthcare real estate across the regions in which NWH operates. Relative to most TSX-listed REITs, we believe NWH’s geographical breadth provide it with unique capital allocation flexibility through which to drive returns. We see several higher-return development opportunities (some are already work-in-progress) in Canada, Brazil & Australasia. On the acquisition front, we believe NWH is more likely to be a net seller in Canada through 2016, with capital redeployment directed primarily to acquisition-oriented growth in Germany.

Fully internalized asset manager Adhering to “best practices” in organizational and operating structure, NorthWest REIT features fully internalized asset management and property management platforms. Hence, all value-creation accrues directly to unitholders. The REIT also owns 100% of the management company for Vital Trust. This is a valuable fee-based business for NWH.

Higher-than-peer financial leverage NWH’s D/GBV ratio is 63%, including all convertible debentures as debt (5 series; $172 million par value). We see this as consistent with our 63% LTV ratio, which measures 52%, ex-

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converts. With gearing well above the sector average (in the low 50s) this may present a constraint on per-unit growth relative to peers.

Estimates, price target and rating NWH generated FFO/unit of $0.98 in 2014. Our FFO/unit estimates for 2015, 2016 and 2017 are $0.82, $0.84 and $0.85, respectively. Our target is derived through the application of a 5% discount to our NAV/unit estimate one year hence, and implies a 12x multiple to our 2017 AFFO/unit estimate. Overall, we believe our target multiple appropriately reflects the REIT’s dominant position in the Canadian MOB segment, the generally defensive nature of healthcare-related real estate, the risk/reward ratio associated with global expansion and the REIT’s relatively high financial leverage. Based on risk-adjusted return considerations to our target price, we rate NWH’s units Sector Perform.

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Pure Industrial Real Estate Trust (AAR.UN - $4.37) Stock rating: Sector Perform One-year target: $5.25 Current yield: 7.1%

Overview and business description Pure Industrial REIT (“PIRET”) was established in mid-2007 as a pure-play industrial REIT. The portfolio currently includes 170 properties (plus two under development), which encompass approximately 17.4 million sf (gross), located in New Brunswick, Quebec, Ontario, Manitoba, Saskatchewan, Alberta, British Columbia and the US. The REIT’s strategy is to build critical mass in four major target markets: Greater Vancouver, Edmonton, Calgary and the Greater Toronto Area, with an opportunistic approach to adding select US market exposure.

Canada’s only fully internalized pure-play industrial REIT PIRET is Canada’s only pure-play industrial REIT which has fully internalized property management and asset management platforms.

Delivering solid operating metrics and lowering leverage The REIT’s portfolio carries a high occupancy and should provide a predictable income stream over our forecast period and beyond. Empirical data from MSCI, which examines income and value growth in the major direct commercial property asset classes (office, retail, industrial) suggests that the industrial segment is capable of providing strong and steady income-based returns over time.

PIRET took a major step to de-lever through its mid-2014 $178 million equity raise (38.8 million trust units at $4.60). The direct impact of this financing was to cut the REIT’s D/GBV ratio from 53% to 47%. The deleveraging resulted in FFO per unit dilution as the $0.37 recorded in 2014 was $0.03 or 8% lower than the $0.40 generated in 2013. By Q3/15 PIRET had partially re-levered/reinvested, to drive D/GBV to 49%.

Leasing lag; rents holding nicely but everything just takes time Overall, we see balanced industrial property supply and demand fundamentals and we expect modest and generally steady organic growth from the sector overall. Management cites a very active leasing pipeline. However, like other industrial landlords, it seems that 2015’s sluggish economic environment has caused the REIT to experience higher tenant churn relative to 2014 (Q3/15 vacancy of 94% was +280 bps Y/Y) and the backfilling of vacancy has also taken more time than in prior years.

Assuming prospects convert to leases by the end of the first quarter, we assume a pick-up in cash rent should follow by mid-year 2016. This year there are two “chunky” lease exposures including: 1) Proctor & Gamble, which rents 350,000 sf in North Carolina; and 2) Smuckers, which occupies 190,000 sf in Calgary. In each instance, AAR is well positioned with the quality of the space and a below market in-place rent or tenant option.

Capital recycling and value-arbitrage to continue Through to Q3/15, AAR sold 10 typically smaller, older non-core properties for $35.5 million (gross). GLA and income disclosures were not provided, but we expect the NOI yield averaged sub-5%. Last year, AAR repurchased 1.4 million units for $6.1 million, equating to a weighted-average price of $5.15/unit. Given the strong demand within the investment market, management’s messaging was that more dispositions were likely to occur.

JV with Fiera enhances the platform In September of last year, PIRET struck a new 50%/50% joint-venture (“JV”) with real estate investment advisor Fiera Properties (“Fiera”). The JV acquired a three-property, 192,000-sf

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portfolio located in Alberta and Manitoba for $33 million ($16.5 million at AAR’s share). Looking ahead, management is of the view that Fiera can grow to become that REIT’s largest partner.

Estimates, price target and rating PIRET’s FFO/unit in 2014 was $0.37. Our estimates for 2015, 2016 and 2017 are $0.39, $0.42 and $0.45, respectively. Our $5.25 price target is derived via the application of a ~5% premium to our NAV/unit estimate one year hence and implies a ~13x multiple to our 2017 AFFO/unit estimate. Overall, we believe our target reasonably reflects PIRET’s financial leverage, building track record, portfolio quality, and overall franchise value. Based on risk-adjusted relative return expectations, we reiterate our Sector Perform rating.

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WPT Industrial Real Estate Trust (WIR.U - $11.95) Stock rating: Outperform One-year target: $13.25 Current yield: 6.4 %

Overview and business description WPT Industrial REIT (“WPT”) was formed to own and operate an institutional-quality portfolio of primarily industrial properties located in the United States, with a particular focus on warehouse and distribution industrial real estate. WPT Industrial, LP (the REIT’s operating subsidiary) indirectly owns a portfolio of properties consisting of ~15 million sf with properties located in 13 US states. Welsh Property Trust, LLC is the external asset manager and property manager of the REIT.

Conveniently packaged for Canadians We see WPT REIT as a conveniently packaged investment opportunity whereby Canadian investors can gain exposure to several favourable industrial real estate sector trends, including: 1) an improving US economy (with higher expected GDP growth than Canada); 2) strengthening property sector fundamentals (vacancy is trending down; market rents remain below pre-GFC levels); 3) e-commerce (it is driving on-line sales and warehouse/DC demand); and 4) the re-emergence of US manufacturing (more US production means more goods to move/store).

Modest organic growth; targeting ongoing growth-by-acquisition Warehouse/DC properties should offer cash flow stability via high occupancy, high tenant retention, and low capex and re-tenanting costs. But, they’re not “growthy” assets. Contracted rent escalations within WPT’s portfolio should average ~1.4% annually, thus delivering ~2% growth to the “bottom-line”. Conversely, the external growth-by-acquisition opportunity could be significant over the fullness of time. While market conditions are currently intensely competitive, WPT is the proverbial “small fish within a large pond” of a 14 billion sf US industrial property market.

Thinking about “Plan B”; decides to explore strategic alternatives On May 18, 2015, WPT announced that the Board of Trustees had formed a Special Committee to explore strategic alternatives. While the reasoning behind the formation of the committee was not disclosed, we believe it was a directive straight from the top, an idea we provide further context to in our May 28, 2015 note entitled, “A directive straight from the top? Raising price target to $13.25.” Recent trades of large industrial portfolios have attracted premium valuations and while WPT’s portfolio is much smaller, we believe its quality measures up. We believe the REIT’s operating and financial performance has been solid and that the unit price had been generally been reflective of this. As such, we believe there is a bright future for WPT as a listed REIT. Nonetheless, in light of the portfolio’s structural simplicity and size, we now believe that strategic review process is such that there is a high (75%) probability that the company will be sold/(privatized).

Estimates, price target and rating WPT Industrial’s FFO/unit in 2014 was $1.00. Our estimates for 2015, 2016 and 2017 are $1.00, $1.05, and $1.07, respectively. Our $13.25 price target equates to a ~15% premium to our NAV/unit estimate one year hence and implies a 15x target multiple to our 2017 AFFO/unit estimate. This price target equates to a ~6.25% to ~6.5% cap rate on FTM forecast NOI and is congruent with the value which we see as being reasonably attainable through the sale of the REIT’s portfolio on an en-bloc basis.

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https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_58CDD819A49134FDC860A15184693471

https://www.rbcinsight.com/CM/Share/ResearchViewer/?SSS_58CDD819A49134FDC860A15184693471


Agellan Commercial Real Estate Investment Trust (ACR.UN - $8.84) Stock rating: Sector Perform One-year target: $9.50 Current yield: 8.8%

Overview and business description Agellan Commercial REIT’s (“Agellan” or “ACR”) portfolio consists of more than 30 properties with over 4.5 million sf of GLA. The portfolio is primarily comprised of office, industrial and flex-industrial. Approximately 72% of NOI is derived from assets located in the US with the balance in Canada. The portfolio is anchored by two large suburban office properties located in Toronto and Chicago, and the REIT’s industrial portfolio in Texas – together, these assets account for 65% of GLA. Agellan Capital Partners Inc. is the external asset manager and one of the REIT’s property managers.

A good plan but the market has changed… something’s gotta give A principal tenet of Agellan’s strategy is to grow through acquisitions in the United States. To do this, Agellan would need to be in a position to issue equity on a regular basis, as we believe that the REIT does not have the capacity to increase debt in any meaningful way. Without an acquisition currency, in the form of a high unit price, the REIT will likely continue to focus all of its efforts on driving NAV growth. Regardless of whether management is successful in driving additional NAV growth or not, if the trading price of the REIT does not respond positively, we think Agellan could make an attractive privatization target because many of its assets are well positioned to benefit from the US real estate recovery.

Moving to simplify the strategy by becoming a US pure play In early 2015, Agellan announced its intention to sell all or substantially all of the REIT’s Canadian assets in an effort to become a US pure play. Following the board’s approval, management has started the process to sell all or substantially all of the REIT’s Canadian properties, which made up 30% of its IFRS portfolio value as at Q3/15. Going forward, Agellan plans to reinvest the proceeds into US assets that offer attractive relative valuations through its “opportunity driven growth strategy.” Overall, we believe that sharpening its focus on the US will help make the story more appealing.

Now it’s all about execution With the “for sale” sign on the Canadian business now erected, it’s all about execution. Overall, we’re pleased to see the REIT recycling capital but believe the bigger challenge will be the sale of its largest asset, Parkway Place, which we estimate accounts for roughly 90% of the IFRS book value of the three remaining Canadian properties. We believe that selling Parkway Place will significantly de-risk the business and would be a meaningful positive for the Agellan story. We also believe that obtaining a price at or close to IFRS value is critical from a valuation and reputation perspective.

Estimates, price target, and rating Agellan’s FFO per unit in 2014 was $1.15. Our 2015-17 FFO per unit estimates are $1.23, $1.31 and $1.36, respectively. Our $9.50 price target is derived by applying a 25% discount to our NAV per unit estimate one year hence, which implies a 10x target multiple to our 2016 AFFO per unit estimate. Our target P/NAV ratio is lower than what we use to value other diversified peers because of asset and tenant concentration, debt-renewal risk, leverage, liquidity, the IPO head leases and the external asset management structure. Based on relative return expectations, we continue to rate ACR units Sector Perform.

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Artis Real Estate Investment Trust (AX.UN - $12.80) Stock rating: Sector Perform One-year target: $16.00 Current yield: 8.4%

Overview and business description Artis owns a portfolio comprising over 240 commercial properties with approximately 25 million sf of gross leasable area (“GLA”). The portfolio is heavily weighted to the four provinces of Western Canada, which account for ~63% of NOI. The balance of the portfolio is made up of the United States at 27% and Ontario at 10%. Through acquisitions and selected development, Artis’s goal is to continue to grow and improve its portfolio.

Oil patch exposure within the office sector is a headwind With the steep decline in oil prices and its impact on economic growth in Western Canada, exposure to the region in certain asset classes is a clear headwind. In total, Artis derives 16% of NOI from the Calgary office segment. Factoring in upcoming lease maturities, lower rents and a further 6–8% increase in Calgary office vacancy (currently ~14%), we estimate the potential negative FFO impact at roughly $0.04–0.05/unit. We expect fundamentals for retail and industrial in Alberta to hold in better than the office sector. Still, if oil prices remain low for an extended period we believe that the industrial sector could be the “next shoe to drop.”

US exposure provides natural hedge to oil patch exposure Artis has somewhat of a natural hedge with its US exposure, as further weakness in oil prices would likely be accompanied by additional weakness in the Canadian dollar. Unitholders are benefiting from both FX and strong real estate fundamentals. In addition, the REIT continues to see cap-rate compression in its US properties. We expect continuing FX tailwinds and improving real estate fundamentals in the US. Notably, the REIT recently increased its US target weight to 35% of NOI, up from 30% previously.

Development program beginning to drive more meaningful value creation Since inception, Artis has grown primarily via acquisitions. However, property development is not new to the REIT’s management team. As the size of the REIT and its financial capacity have grown considerably over the past few years, management has prudently added a pipeline of new development projects, which we believe will be value drivers.

We expect capital recycling to step up Management has announced plans to step up its capital-recycling initiatives. We believe this could include recycling assets in the US and possibly selling one-off properties that the REIT owns in New York and Florida. We believe that focusing on a few select markets in the US will make the Artis story more appealing to investors. In our view, Artis is well positioned in the Twin Cities Area, MN and Phoenix Metropolitan Area. Should the REIT successfully recycle assets and sharpen its focus in the US, we believe it will be rewarded with a higher trading multiple.

Estimates, price target, and rating Artis’ FFO per unit in 2014 was $1.42. Our 2015-17 FFO per unit estimates are $1.51, $1.53 and $1.61, respectively. Our $16.00 price target is derived by applying a 10% discount to our NAV per unit estimate one year hence, which implies an 11x target multiple to our 2017 AFFO per unit estimate. We believe this multiple reasonably reflects Artis’ financial leverage, asset quality, and overall franchise value. Based on relative return expectations, we continue to rate AX units Sector Perform.

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Canadian Real Estate Investment Trust (REF.UN - $42.06) Stock rating: Outperform One-year target: $52.00 Current yield: 4.3%

Overview and business description Canadian REIT (“CREIT”) holds a diversified portfolio of retail, office, and industrial real estate located in nine provinces and one state. CREIT owns interests in more than 180 properties, which includes ~22 million sf of owned GLA. The tenant base is highly diversified, as no tenant accounts for more than 7% of revenue. CREIT has one of the longest track records of any Canadian REIT (TSX-listed in September 1993). CREIT’s development pipeline (active and future) exceeds $600 million (at its share) and encompasses more than 3 million sf of retail and industrial properties.

In many ways, the “model” REIT trading at an attractive valuation CREIT remains one of our core REIT recommendations, primarily driven by our favourable view toward CREIT’s business model. Broadly speaking, CREIT’s model differentiates itself from the broad “pack” through the combination of six factors: 1) low financial leverage; 2) low AFFO payout ratio; 3) a fully internalized and aligned management structure; 4) a good quality property portfolio; 5) a value-add business model; and 6) long-term track record of strong unit holder returns.

Currently, REF units trade at a 9% discount to our NAV per unit estimate, which compares to the long-term average (since Jan-96) ~4% premium to NAV. Understandably, the units may very well lack a near-term catalyst; however, given the six factors noted above, we view the current valuation as an attractive entry point for investors with a long time horizon. Last August, CREIT received approval of the renewal of its NCIB. Since commencing the program on August 13th, CREIT has repurchased 0.4 million units at a weighted-average price of $41.54 representing a total investment of $16 million.

2016 operating outlook: More of the same from last year This year, we believe the operating outlook for CREIT will closely resemble that of last year’s. In the office sector, where the REIT generates 22% of its NOI, supply headwinds and softer demand as a result of lower oil prices have made operating within in the asset class challenging. Particularly in Calgary, which accounts for ~43% of office NOI and ~10% of overall NOI, the combination of new supply, lower tenant demand and the increase in the amount of sublet space is likely to continue to put pressure on local rents.

With respect to Retail, the landscape has become somewhat more tenuous, with the closures of some high-profile consumer brands (i.e., Target/Mexx/Jacob/Bombay/SmartSet). Given the quality of CREIT’s retail portfolio (consistently ~97% leased, or greater, for 20 years) and strong leasing team, management remains confident that any vacancies in the retail property segment will be short-lived.

For the Industrial segment, despite the downdraft in WTI crude oil prices CREIT seems reasonably upbeat with respect to its prospects in Calgary and Edmonton. Most of the portfolio’s industrial GLA in these markets is warehouse and retail distribution space. Direct exposure to tenants in the energy- or energy-service sector is only about 7–10% of the total GLA. Moreover, in the GTA-west market, where CREIT is now “in the ground” on its spec-build “Milton II” project (565,000 sf at 36-ft clear height), management cites extremely strong demand for this type of large-bay modern distribution space. In the near term, two vacancies in Brampton (110,000 sf) and Calgary (195,000 sf) will provide a modest drag to the segment’s results. We estimate impact will be a roughly $3 million ($0.04/unit) annualized rental revenue loss. In both instances, CREIT has a quality building available for let and we believe the drag on earnings will be measured by two to four quarters, not longer.

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Substantial leasing progress 2016 expiries CREIT has addressed a significant portion of the 3 million sf subject to contractual expiry this year. Within the Retail portfolio, expiries total 1.1 million sf of which ~0.9 million sf (~85%) have renewed or have high renewal probability. In the Industrial portfolio, lease expiries amount to 1.5 million sf. Based on its most recently released results, CREIT has completed or is in advanced negotiations on ~0.5 million sf (~35%). As previously noted, Office is the sector facing the weakest demand/supply dynamics. CREIT’s 2016 Office lease maturities total 0.3 million sf, with leases covering ~0.3MM sf (~70%) secured or in advanced negotiations to date. CREIT expects 2016 office renewal rents to roughly equal expiring rents.

Estimates, price target, and rating CREIT generated FFO/unit of $2.96 in 2014. Our estimates for 2015, 2016 and 2017 are $3.04, $3.06 and $3.15, respectively. Our one-year price target is based on applying a ~10% premium to our NAVPU estimate one year hence, which implies a 20x multiple to our 2017 AFFO/unit estimate. Our target multiple represents modest to moderate premiums to the average target multiple applied to the group of comparable Canadian commercial-property REITs, which we believe is warranted by CREIT’s low financial leverage, longer-than-average history, proven management, and high quality (and improving) property portfolio, relatively large market capitalization, and overall franchise value. CREIT remains one of our core REIT holdings and we rate the units Outperform.

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Cominar Real Estate Investment Trust (CUF.UN - $14.71) Stock rating: Sector Perform One-year target: $17.50 Current yield: 10.0%

Overview and business description Cominar owns and manages a diversified portfolio of approximately 560 properties located in Québec (Greater Montréal, Québec City), Ontario (primarily the National Capital Region), the Atlantic Provinces, and Western Canada, totalling over 45 million sf of leasable area. Cominar was the first Canadian REIT to operate as a fully integrated entity, with both asset management and property management conducted in-house by its own employees. The Dallaire family, Cominar’s founders, continues to have a significant investment in the REIT.

Regional play on Quebec Cominar REIT is largely a regional play on commercial property in the Province of Québec. The REIT derives greater than 70% of its NOI from Québec with its largest markets in the province being Montréal (>50%) and Québec City (>20%). Cominar’s operations outside of Québec are largest in Ontario, followed by Western and Atlantic Canada.

A challenging operating environment with both retail and office headwinds We expect the operating environment will remain challenging, with headwinds in both the office and retail sectors. On the retail front, most of Cominar’s seven former Target stores are located in enclosed malls in secondary markets, where we believe the re-tenanting process will likely prove challenging, while weak fundamentals continue to linger on the office front, with significant vacancy in both Montréal and Ottawa. On a positive note, Cominar seems to be making good progress backfilling the former Target Canada space with: 1) two leases purchased by Canadian Tire, which is expanding and moving its store at both centres; 2) grocery retailer Metro taking up ~50% of the former Target space at Carrefour Saint-Georges de Beauce, which replaces all of the lost Target income; and 3) “meaningful discussions” at all of the remaining centres, including the potential sale of a stand-alone store in St. John’s, NL. In addition, the REIT continues to prudently de-lever its balance sheet through asset sales, with a third tranche of $100 million identified for sale in the first half of 2016.

Good long-term track record of value creation Cominar has a solid track record and history of value creation through its development pipeline. This is evidenced by the $225 million of properties that it has transferred into income-producing status between 2010 and 2014. In 2014, the REIT completed Place Laval – Phase 5 and achieved an 8.1% development yield on the fully leased, 310,000 sf office complex. Cominar’s current development pipeline has a value of more than $60 million at the REIT’s interest.

Estimates, price target, and rating Cominar generated FFO per unit of $1.86 in 2014. Our FFO per unit estimates for 2015-17 are $1.79, $1.77 and $1.84, respectively. Our price target is derived by applying a ~10% discount to our NAV per unit estimate one year hence, which implies an 11x target multiple to our 2017 AFFO per unit estimate. We believe our target multiple reasonably reflects such considerations as Cominar’s financial leverage, the increased size and scale of its business, its improved access to capital, its long-term track record of FFO and intrinsic value per unit growth, its market concentration risks and asset quality, and its overall “franchise” value. Based on relative risk-adjusted return expectations, we rate CUF units Sector Perform.

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H&R Real Estate Investment Trust (HR.UN - $20.05) Stock rating: Sector Perform One-year target: $25.00 Current yield: 6.7%

Overview and business description H&R Real Estate Investment Trust (H&R) owns a ~$14 billion commercial property portfolio (at its proportionate share, at estimated fair value) comprising of interests in 39 office properties, 362 retail properties and 105 primarily single tenant industrial properties, eight rental apartment properties, and several development properties. By area, approximately 68% of the 47 million pro-rata owned GLA is located in Canada, with the balance in the US. Within the figures above is the REIT’s 33.6% interest in ECHO Realty LP, which owns 201 primarily food-store anchored retail properties representing 2.9 million sf of GLA, at the REIT’s share.

Large + stable + diversified = HR.un The size, regional and cross-border diversification (office, industrial, retail and more recently, apartment properties), strong financial position and increasing diversification (by property class) make it the “super tanker” of the Canadian REIT industry. These attributes are such that it is a challenge for H&R to post FFO/unit growth that is above the peer average. But the sheer size, momentum and diversification attributes are such that it is hard to knock H&R off its trajectory, thus producing any year in which the FFO/unit is unlikely to decline materially. The business model continues to evolve, principally through JVs and developments in such a fashion that H&R is striving to enhance the returns generated by its large/stable core property.

Target update: Solid progress on the leasing front Through the Primaris retail platform H&R owns interests in nine former Target locations, which net of co-owners’ interests, equates to an equivalent exposure of seven stores. Last year, the lease at the half-owned Grant Park Shopping Center in Winnipeg was assumed by Canadian Tire Corporation. The remaining eight leases, which encompass 771,000 sf of GLA at HR’s share and carried average rents of $5.58/sf, were disclaimed.

At this juncture, the REIT has shown good progress in its efforts to backfill the vacant space. Management has noted that it is in active negotiations on approximately 600,000 sf (78%) of the space with a variety of tenants. The expectation is that by the end of the first quarter, HR will have binding leases subject to development permits.

Assuming $150/sf to remerchandise the space (permits, demo, construction, leasing costs etc.) this could be a $90 million investment. We see the potential for $15/sf net rents on the new space, albeit on less net rentable area due to subdivision, and an annualized incremental gross revenue impact of $10 million to $15 million by H2/17.

Office oil patch exposure limited to one lease; the rest essentially has no relevance H&R has ownership interests in five Calgary office properties. These drive approximately 17% of total NOI. Yet, two properties represent 91% of this income and they have very high credit tenants subject to long-term leases, including: 1) The Bow: 100% leased to Encana until 2038; and 2) The TransCanada Pipelines Tower, leased to its namesake tenant to 2031.

At H&R’s 50%-owned Telus Tower, the major tenant will vacate 373,000 sf (187,000 sf at share) in mid-year. Very challenging market conditions render limited backfill prospects for this exposure, which we estimate equates to $8 million in gross rent, at HR’s share (~$0.03/unit annualized). Outside of these three buildings, the remainder of the Calgary office portfolio is completely immaterial.

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Seeking to increase the multi-res suite count H&R launched its residential strategy in late 2014 and presently the residential portfolio includes eight properties that encompass 2,586 suites and account for ~3% of both NOI and portfolio value. H&R continues to suggest that quality office, retail and industrial acquisition opportunities across North America are few and far between. Those priced attractively are even rarer. As such, it is working harder than ever to find avenues of growth, while also staying disciplined. The US multi-residential market is very large and management sees it as one property class where it might find a few investment opportunities. We believe the REIT will continue to focus its US multi-res growth initiatives on Texas and Florida (where it already established a presence) and perhaps a handful of other “sunbelt” states.

Estimates, price target and rating H&R REIT’s FFO/unit in 2014 was $1.86. Our FFO/unit estimates for 2015, 2016 and 2017 are $1.93, $1.93 and $2.00, respectively. Our $25 price target equates to parity with our NAVPU estimate one year hence and implies a ~15x-16x target multiple on our 2017 AFFO/unit estimate. Overall, we believe our target multiple reasonably reflects factors such as H&R’s larger-than-average market cap and trading liquidity, portfolio quality, and overall franchise value. Based on relative valuation and return expectations to our price target, we continue to rate H&R REIT’s units Sector Perform.

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Melcor Real Estate Investment Trust (MR.UN - $7.21) Stock rating: Sector Perform One-year target: $8.50 Current yield: 9.4%

Overview and business description Melcor REIT (“Melcor”) owns a diversified portfolio of mainly retail and office properties. The portfolio totals 38 properties encompassing approximately 2.7 million sf of GLA located in Alberta, Saskatchewan, and British Columbia. Melcor Developments Limited (TSX: MRD) owns a 57% interest in Melcor REIT. MRD and its predecessor companies have operated in the real estate industry under the direction and principal ownership of the Melton family since 1923. The Melton family has a ~53% interest in MRD and for all intents and purposes controls both Melcor REIT and MRD.

In addition to its ownership stake in the REIT, Melcor Developments is the REIT’s external manager. The majority of the assets within Melcor’s portfolio have been previously owned or developed by MRD. In fact, prior to the formation of the REIT, Melcor Developments had owned and managed the properties included within the REIT’s initial portfolio for more than 12 years.

Good REIT, tough market With 89% exposure to Alberta and 48% to office, Melcor is facing steady but growing operating headwinds and already significant sentiment headwinds. Fortunately, Melcor’s top tenants consist largely of government agencies, retailers and major Canadian banks. Still, we believe the waiting game has begun. The office market is facing supply headwinds and soft demand as a result of lower oil prices, which have made operating in the asset class challenging.

Strategic relationship likely to be a source of future growth We anticipate Melcor’s continuing relationship with MRD (formalized via various agreements) will continue to provide opportunities to make additional investments over time. In 2014, as result of the strategic relationships established with MRD, the REIT acquired eight properties totalling 794,000 sf of GLA for ~$152 million. Melcor Developments has approximately 200,000 sf in its active development pipeline and more than three million sf in its long-term pipeline. While it will likely take a number of years to pre-lease and develop much of this space, we believe this pipeline will provide the REIT with the bulk of its future growth opportunities, provided it has sufficient capital and the capital markets cooperate.

In our view, Melcor is a well-run, quality REIT but is unlikely to trade close to its NAV in the near term. We like Melcor for its entrepreneurial management, insider ownership and association with MRD. We would consider a positive re-rating of the REIT when there is better visibility on an improved outlook for Alberta and crude prices.

Estimates, price target, and rating Melcor REIT’s FFO per unit in 2014 was $0.87. Our estimates for 2015-17 are $1.00, $0.98 and $1.01, respectively. Our one-year price target of $8.50 is derived by applying a 20% discount to our NAV per unit estimate one year hence, which implies a multiple of 10x on our 2017 AFFO per unit estimate. We believe our target valuation metrics reasonably reflect Melcor REIT’s portfolio attributes, building pubic market track record, smaller-cap stature and equity float. Based on relative risk-adjusted return expectations, we rate MR units Sector Perform.

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Morguard Real Estate Investment Trust (MRT.UN - $13.62) Stock rating: Sector Perform One-year target: $16.00 Current yield: 7.0%

Overview and business description Morguard REIT (“Morguard”) owns a diversified portfolio totalling more than 8.5 million sf encompassing 21 retail, 24 office, and 5 industrial and other properties located in six provinces. The REIT was established in June 1997 through the acquisition of its initial portfolio (60 properties containing 4.6 million sf) from Pensionfund Properties. In August 1999, the REIT acquired the assets of mall owner and developer Devan Properties Limited, and it has since continued to grow its asset base through a number of smaller portfolio acquisitions.

Target exposure will be a challenge Because Morguard's former Target stores were located largely in enclosed malls in secondary markets, we believe the re-tenanting process may prove challenging. While early indications were promising, with Lowe’s, Walmart and Canadian Tire assuming leases at three of the seven locations, the remaining four locations went dark during Q2/15. The REIT has elected to stop recognizing revenue on three disclaimed leases which carry guarantees from the retailer’s US parent – we anticipate a cash settlement with Target Corp. in H1/16. In addition, we believe that the operating environment will remain challenging and that the repositioning and re-tenanting of Target stores will likely take 18 to 24 months. While we believe the REIT can manage through Target store re-positionings and operational headwinds, it will not be quick or easy.

The office sector will be tough too The REIT generates 47% of its NOI from the office sector, which is facing supply headwinds and softer demand as a result of lower oil prices, which have made operating in the asset class challenging. Particularly in the Calgary office market (~12% of GLA), where the combination of new supply, lower tenant demand, and the increase in the amount of sublet space is likely to put pressure on local rents.

Insider activity and repurchases pick up following a steep unit price decline In 2015, insider purchases totalled 3.5 million units at a weighted average price of $15.43, made up almost entirely of CEO Rai Sahi and Morguard Corp (which is 56% owned by Rai Sahi), up from 0.8 million units at a weighted average price of $17.73 in 2014. While we like to see increased insider ownership, even if it means lower liquidity, we prefer to see share buybacks as all unitholders benefit from this course of action. In this regard, the REIT re-purchased 1.3 million units in 2015 at an average price of $15.06 (vs. 0.1 million units at $16.70 in 2014). We believe that if the trading price of MRT units remains in the teens, then all or a portion of proceeds from any non-core property sales may be used for further unit buybacks.

Estimates, price target, and rating Morguard REIT’s FFO per unit in 2014 was $1.67. Our estimates for 2015-17 are $1.63, $1.63 and $1.67, respectively. Our $16.00 price target is derived by applying a ~30% discount to our NAV per unit estimate one year hence and implies a target multiple of 13x to our 2016 AFFO per unit estimate. We believe our target valuation metrics are reasonable in light of Morguard’s above-average Western Canadian and Target exposure, portfolio quality, trading liquidity, balance sheet strength, and overall franchise value. We continue to rate MRT units Sector Perform.

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InnVest Real Estate Investment Trust (INN.UN - $5.13) Stock rating: Outperform One-year target: $6.25 Current yield: 7.7%

Overview and business description With 109 properties encompassing over 14,000 guest rooms, InnVest REIT owns Canada’s largest hotel portfolio, based on room count. As at September 30, 2015, the REIT considered 102 properties (~12,560 rooms) to be “core” with five hotel properties (~650 rooms) as “non-core” and available for sale. The portfolio is comprised of a mix of limited-service, mid-market full-service and several luxury hotels. Nearly all properties are flagged with internationally recognized brands such as Comfort Inn, Quality Inn/Hotel/Suites, Travelodge, Best Western, Holiday Inn Express, Ramada Inn, Delta, Sheraton, Hilton and Fairmont. InnVest also owns a 50% interest in Choice Hotels Canada, the country's largest hotel franchiser, with more than ~300 locations and 30,000 guest rooms and a 20% non-managing interest in Toronto’s Fairmont Royal York Hotel.

Corporate improvement story has room to run InnVest specifically is a corporate improvement story, whereby major and multi-year capital improvements and a renewed “owners-on-site”, day-to-day focus is driving results. INN’s H2/14 through Q3/15 results have showed what we view as convincing signs that renovations are driving higher operating cash flows. We see the potential for out-sized revenue and GOP growth (versus the industry averages) over the next 12 to 18 months.

Macro-picture seems to be coming together; lower $C and lower fuel prices are positives Canada’s macro-economic picture was subject to numerous downward revisions last year, which is not ideal for an economically sensitive sector such as hotels. While Alberta was in a recession, other parts of the country posted economic growth. When combined with lower gas prices and a weaker $CAD, this allowed the overall lodging sector to post profitability gains in 2015. We expect this trend to continue in 2016 as the low $CAD continues to entice cross-border visitors, particularly from the US and Asian countries. Gateway cities such as Vancouver, Toronto and Montreal are likely to capture most of the cross-border traffic. Yet demand from an increasingly captive domestic consumer (“staycation” behavior) should also benefit secondary markets and Alberta, in particular.

High grading the portfolio At the outset of 2013, INN’s portfolio included 143 hotels encompassing almost ~19,000 guest rooms. Three years of non-core asset sales, significant capex and strategic acquisitions including 1) the December 2014, $140 million purchase of the 644-room Vancouver Hyatt Regency; 2) the February 2015 investment of $37 million to purchase a 20% stake in Toronto's Fairmont Royal York Hotel; and 3) the $70 million Q3/15 acquisition of ownership interests in Hotel Saskatchewan in Regina and downtown Toronto’s Courtyard by Marriott have repositioned INN as a smaller but better hotel company. Five hotels (653 rooms) were classified as “non-core” and available for sale at September 30, 2015, which are expected to generate gross proceeds of $27 million. The program’s expected net proceeds of $20 million combined with retained FFO and up-financing proceeds should allow for $60 million to $80 million of capital improvements to further “high grade” the core portfolio through 2016.

Capital structure provides leverage to lodging sector recovery With a debt to enterprise value of roughly 60%, we believe that InnVest remains too highly levered, thus rendering its equity to a large degree as a “call option” on 1) a cyclical recovery of the lodging industry; and 2) management’s ability to continue to execute on its “Strategic Plan”. As one might suspect, the seasonal, cyclical, and capital-intensive nature of the hotel

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business, coupled with InnVest’s high operating leverage, make the units a higher-than-average-risk investment. Notably, InnVest continues to make strides reducing leverage to its stated target of below 60% D/GBV ratio. At Q3/15, leverage was 58.1% representing a 770 bps improvement from 65.8% at Q3/14.

Estimates, price target, and rating InnVest’s 2014 FFO/unit (diluted) was $0.57. Our estimates for 2015, 2016 and 2017 are $0.60, $0.63 and $0.68, respectively. Our $6.25 price target is derived by applying a ~0% premium to our NAV/unit estimate one year hence, which implies an 11x target multiple on our 2017 AFFO/unit estimate. We believe our target multiple reasonably reflects factors relating to InnVest’s relative franchise value, trading liquidity, cash yield, operating leverage, and financial leverage. We reiterate our view that the units are only suitable for more risk-tolerant investors. Based on relative risk and return considerations, we rate InnVest’s units Outperform.

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Brookfield Asset Management Inc. (BAM - US$31.53) (US$, unless noted) Stock rating: Outperform One-year target: $40.00 Current yield: 1.5%

Overview and business description Brookfield Asset Management Inc. (“BAM”) is a global alternative asset manager with ~$200 billion of assets under management (~$95 billion of which are fee-bearing). Focused on property, power and infrastructure assets and various private-equity investments, BAM has a history of more than 100 years of owning and operating assets within three core operating businesses. BAM’s shares are inter-listed on the New York and Toronto Stock Exchanges as well as Euronext.

BAM’s business model seeks to utilize its global reach to identify and acquire high quality “real” assets at favourable valuations and finance them on a long-term, low-risk basis. Operating expertise is applied to enhance the cash flows and values, such that BAM can earn reliable, attractive long-term total returns for the benefit of its capital partners and its own account. BAM has a range of public and private investment vehicles, which provide competitive advantages in the markets where it operates.

Globally positioned to execute Being large, global and diversified, BAM is the consummate capital allocator and is not tied to any one asset class, business or region. On many fronts, BAM appears well positioned to execute on its objective of delivering strong investment returns on client and principal (LP) capital, and a growing stream of asset management fees for shareholders (GP). Moreover, BAM is able to remain strongly competitive in this global market as it holds a number of key competitive advantages including: 1) being a truly global operation (100 office or locations); 2) has size/scale (~$95 billion of fee-bearing capital – “FBC”); 3) has substantially established the structure, via three “perpetual” flagship listed funds (property, renewable energy, and infrastructure) plus private funds (offering long-term institutional capital and “blank cheque” investment funding certainty via commitments) and 4) a strong investment track record (long-term gross IRRs of 16–18% on flagship listed funds and 12–26% on private funds).

A long runway ahead for the asset management platform From our perspective, we can say with confidence that the value of the Asset Management business has been, by a wide margin, the fastest growing component of our intrinsic value per share estimate. We currently value the asset management business at ~$11 billion, or $11/share. The environment (low global sovereign yields, increased institutional and sovereign fund allocations to real assets, governments and corporates considering asset divestitures, BAM’s track record) seems very conducive to further growth in the value of the Asset Management platform over time.

Positioning as global alternative asset manager is, if anything, strengthening It has taken time, but post the 2008 Global Financial Crisis, there has been a rationalization in the industry. This has resulted in a handful of alternative asset managers that appear to be separating from the pack. Each typically has 1) global reach; 2) size/scale; 3) strong investment track records; and 4) multiple funds/strategies. These attributes allow for a wide range of investment offerings to clients and they help clients consolidate their manager lists. BAM cites a growing and diversified client base which now includes over 320 global private fund investors (up from 280 last year) at average commitments of ~$80 million. Today ~40% of BAM’s client base invests in multiple funds leaving meaningful growth potential over time.

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The fourth listed flagship LP: Brookfield Business Partners On October 7, 2015 BAM announced its intention to spin off an approximate 35% interest in Brookfield Business Partners L.P. ("BBP”). The distribution of the fractional interest in the business will occur via special dividend of BBP limited partnership units to BAM shareholders. Brookfield estimates the special dividend to be worth approximately $500 million, or ~$0.50 per BAM share. Brookfield will retain the (remaining) 65% equity interest and general partner interest.

BBP will serve as the primary listed investment vehicle through which BAM will own/operate services and industrial-oriented businesses. Initially holding most of BAM’s businesses which fit these criteria, BBP will adopt key elements of BAM’s current private equity business strategy, including: 1) making opportunistic acquisitions of high quality businesses (some of which have made poor capital structure decisions); 2) focusing on mid-market acquisitions (and from time to time, larger-scale deals); 3) applying active management with the goal of enhancing cash flow and values; and 4) selectively recycling capital from mature businesses. We refer interested readers to our October 13, 2015 note entitled, “Previewing Brookfield Business Partners: A sneak peek at the 4th flagship listed LP” for additional information.

Fundraising has momentum As we discussed in our February 16, 2015 note entitled, “Fee Machine: Decent Q4/14 results and a favourable outlook; Price Target to $62” BAM kicked off a new round of private fundraising in the back half of 2014. The targets set included approximately $20 billion of new private fund commitments to be secured over a timeframe of approximately 18 months (i.e., to the end of last year). While we see a time-line that appears to be slightly behind our initial understanding, momentum is strong with a fundraising target of $23 billion by the end of this year. In addition, BAM is seeking to launch a further three private funds over the next 12 months.

Entering an investment phase: Eyeing three thematic investment opportunities Having seemingly achieved good fund-raising momentum, BAM also believes that it is entering an investment cycle in which there appear to be attractive opportunities. Thematically, management is citing three: 1) energy infrastructure and private equity opportunities related to crude oil; 2) Brazil, where access to capital is highly constrained for many corporates and institutions; and 3) commodity-related infrastructure, where operators may be looking to divest of such assets.

Estimates, price target, and rating BAM’s reported FFO/share was US$1.51 in 2014. Excluding major transactional gains/income inclusions, our operating FFO estimates for 2015, 2016 and 2017 are US$1.52, and US$1.83 and $2.01, respectively. Our $40 price target is equates to parity with our Intrinsic Value one year hence and implies a ~20x multiple on our 2016 Operating FFO. Overall, we believe our target valuation is appropriate in light of BAM’s high-quality asset base and the growing profitability of its asset management platform. We believe there are few if any companies that are truly comparable to Brookfield Asset Management and we continue to view BAM’s shares as a “core holding”. Based on risk-adjusted relative return prospects, we rate BAM’s shares Outperform.

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Melcor Developments Ltd. (MRD - $14.56) Stock rating: Outperform One-year target: $18.00 Current yield: 4.1%

Overview and business description We believe that Melcor Developments (“Melcor”) represents an attractive way to play Alberta’s land and commercial development market while investing shoulder-to-shoulder with a local family that has a significant investment and long history of success. Melcor is a diversified real estate developer, owner, and operator focused on Alberta and to a far lesser extent on Saskatchewan, BC, and the Southwestern United States. The company’s operations span the full “life cycle” of real estate development, including acquiring raw land (usually from farmers), community planning, development, and managing income-producing properties. Melcor operates five divisions, which encompass two main business lines:

1) Community Development: Develops raw land into predominately residential lots, which are sold to third-party homebuilders (88%), and commercial land for development and sale (12%). In 2014, this division generated 48% of overall revenue.

2) Commercial Properties: There are three major divisions in this broad line of business: Investment Properties, MR-REIT, and Property Development. This segment manages and leases 3.5 million sf of GLA of predominantly retail, office, and industrial properties, and approximately 200,000 sf of ongoing commercial developments, at Melcor’s interest. Combined, the segment generated 52% of revenue in 2014.

A bargain at current trading levels Melcor’s land-development business has a book value of $17.77 per share. Major assets include ~10,000 acres of raw land with a book value of roughly $34,000/acre (recent purchases at ~$70,000–95,000/acre) and a significant amount of developed, ready-to-go land, which regularly realizes margins of ~40%. We estimate the average age of the company’s land at about 10 years and believe that its true value is materially higher than book. As a whole, we believe the intrinsic value of Melcor’s land-development business is at least 1.5x book. Owing to the recent selloff induced by drop in oil prices, MRD is trading below the book value of the land-development business alone. At these levels, investors are getting the land-development business well below the division’s book value of $17.77 and the commercial properties segment essentially for free (IFRS NAV of $11.63; BVPS of $9.41).

An even simpler valuation argument MRD is trading at a 46% discount to our adjusted book value of $27.18. Therefore, with an investment in Melcor Developments investors are getting the company’s land-development business at a 46% discount to historical cost and its commercial properties at a 46% discount to IFRS NAV, which is very compelling, in our opinion.

Estimates, price target, and rating Melcor generated FFO per share of $2.61 in 2014. Our FFO estimates for 2015-17 are $1.61, $1.73 and $1.86, respectively. Our one-year target price of $18.00 is derived through a sum-of-the-parts valuation. We use a ~0.60x ($11.00) price-to-book multiple for Melcor’s land-development business and a 0.60x P/NAV ratio ($7.00) to value Melcor’s commercial property business. We believe our target valuation metrics reasonably reflect negative investor sentiment due to oil patch exposure, Melcor’s extensive public market track record, land development cyclicality, smaller-cap stature, equity float, and geographic concentration. Based on relative risk-adjusted return expectations, we rate MRD shares Outperform.

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Morguard Corporation (MRC - $133.00) Stock rating: Sector Perform One-year target: $175.00 Current yield: 0.5%

Overview and business description Morguard Corporation is one of Canada’s largest integrated real estate companies with a diversified portfolio of owned and managed properties worth ~$19 billion. The company’s principal operating divisions include: 100%-owned Morguard Residential ("MRI"); 49%-owned Morguard North American Residential REIT; 100%-owned Morguard Investments Limited (“MIL”); 100%-owned Morguard Financial (“MF”); ~49%-owned Morguard REIT (“MREIT”); and directly owned properties in Canada and the United States. Morguard Corporation employs approximately 1,450 people in Canada and the United States with dedicated management teams in eight Canadian cities (Victoria, Vancouver, Edmonton, Calgary, Winnipeg, Toronto, Ottawa, and Montreal) and three states (New York, Louisiana, and Florida). Morguard’s Chief Executive Officer, Rai Sahi, is regarded as a value investor who takes a long-term view. Mr. Sahi is the company’s largest shareholder, owning ~6.7 million common shares (representing ~56% of the outstanding) having a value of ~$900 million.

Confident in long-term FFO/share and NAVPS growth MRC is currently trading at a significant discount (~49%) to NAV and a reasonable AFFO multiple (~9.5x 2017 estimated AFFO; relative to the REIT universe average of ~13.6x). Investing at a discount to NAV provides the shareholder leverage to growth in the NAV. While the low dividend yield and the poor trading liquidity of the shares may mean that return predictability is sub-par (versus, say, the average REIT which provides a consistent and high cash distribution yield, paid monthly), we see the potential for continued long-term value appreciation via NAV compounding as being very attractive. Based on the value-add business model, diversified asset base, and very high earnings retention (i.e., AFFO payout ratio of sub-10%), we continue to view MRC’s shares as a good long-term store of value. Additionally, we believe that they should demonstrate better-than-industry-average resiliency in the face of potentially higher interest rates over time.

Stable dividend; truly about long-term value appreciation We expect MRC to maintain its annualized dividend of $0.60 (0.5% yield) through our forecast horizon. While the earnings power of the business shows that the company has the ability to pay a substantially higher dividend (10x the current level, or more), we believe it will continue to be managed with a very low payout policy and a view toward long-term value appreciation.

Estimates, price target, and rating MRC’s 2014 FFO/share (at its proportionate interest) was $12.14. Our estimates for 2015-17 $14.02, $15.84 and $16.71, respectively. Our one-year price target is derived via a blend of a ~40% discount to our forward 12-month NAVPS estimate (pre-tax) and a 13x multiple on our 2017E AFFO/share. Overall, our P/AFFO and P/NAV target-derivation metrics remain notably below those which we apply to most names within our coverage universe, largely reflecting factors such as MRC’s low dividend payout ratio, low trading liquidity, (cash) taxable status, and our belief that these variables are likely to keep the shares trading at an implied valuation that is lower than the broad group average. We believe the shares are suitable only for the most patient investors, and on the basis of near-term (i.e., one-year) total return expectations, we rate the shares Sector Perform.

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Tricon Capital Group Inc. (TCN - $9.06) Stock rating: Outperform One-year target: $13.00 Current yield: 2.6%

Overview and business description Tricon Capital Group (“Tricon”) is a diversified North American residential real estate investment company. Tricon’s key businesses include investments in homebuilding and land development (through its private equity funds and separate accounts); US single-family rental homes; US manufactured housing rentals; and multi-unit rental developments. Tricon’s private equity funds also give investors exposure to an asset management business and carried interest/performance fees. Tricon’s investments are concentrated mainly in various major markets in the US (California, Phoenix, Texas, Florida, Atlanta, Charlotte and Nevada) and in Canada (Toronto, Vancouver, Calgary, and Edmonton).

A Canadian company but fundamentally a US housing play We believe Tricon is an attractive way to play a gradual US housing recovery, offering diversified exposure through homebuilding/land development investments, single-family rental (~6,800 home portfolio), manufactured housing communities and multi-unit rental developments, along with potential upside from the growth of its asset management business and related performance fees. We believe there is significant valuation upside in Tricon’s shares, particularly for investors with a longer-term investment horizon as there remains multiple potential catalysts that are not factored into our target price (e.g., additional securitization of single family rental cash flows, AUM growth). Additionally Tricon currently provides investors with a ~2.6% dividend yield and has high US$ exposure as almost 100% of the balance sheet are investments in US real estate.

Diversified business model can perform in various scenarios Investor concerns regarding the pace of the US housing recovery such as high home prices and lack of credit availability are actually positive for TCN’s single-family rental business (which makes up ~50% of NAV and has been profitable for ~11 quarters now) as well as the manufactured housing and multi-unit rental development businesses (~10% of NAV). As housing conditions and sales activity gradually improve, TCN’s US land development/ homebuilding business (~40% of NAV) should help drive NAV growth.

Tricon is an NAV, not an earnings story We believe Tricon’s share price is driven primarily by expectations about investment returns in its homebuilding/land development and SFR businesses and not by quarterly EPS. Quarterly earnings can fluctuate due in part to potential significant variances between actual changes in the fair value of investments (e.g., home prices) vs. our forecasts. We believe investors should focus more on performance measures such as financial and operational disclosure regarding the SFR business, FCF generation from land/homebuilding co-investments and trends in IRR and ROI reported for co-investments.

Estimates, price target, and rating We value Tricon using an NAV approach, separately valuing: 1) co-investments using a 1.5x P/BV multiple; 2) US SFR with a 5.25% cap rate; 3) US manufactured housing using a 6.5% FFO yield; 4) the multi-unit rental developments using a 15% annual growth assumption; 5) the asset management business at 10.0x our blend 2017E Base Business EBITDA; and 6) performance fees with a discounted cash flow.

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Appendix I: Summarized financial models Apartments Boardwalk Real Estate Investment Trust ................................................................................................ 270 Canadian Apartment Properties REIT ..................................................................................................... 271 Killam Apartment REIT ............................................................................................................................ 272 Milestone Apartments Real Estate Investment Trust ............................................................................. 273 Morguard North American Residential REIT ........................................................................................... 274 Northview Apartment Real Estate Investment Trust .............................................................................. 275

Seniors’ Housing Chartwell Retirement Residences........................................................................................................... 276 Extendicare Inc ....................................................................................................................................... 277 Sienna Senior Living Inc .......................................................................................................................... 278

Commercial Property – Retail Choice Properties Real Estate Investment Trust..................................................................................... 279 Crombie Real Estate Investment Trust ................................................................................................... 280 CT Real Estate Investment Trust ............................................................................................................. 281 First Capital Realty Inc ............................................................................................................................ 282 One Real Estate Investment Trust .......................................................................................................... 283 Plaza Retail Real Estate Investment Trust............................................................................................... 284 RioCan Real Estate Investment Trust ...................................................................................................... 285 Slate Retail Real Estate Investment Trust ............................................................................................... 286 Smart Real Estate Investment Trust ....................................................................................................... 287

Commercial Property – Office and Industrial Allied Properties Real Estate Investment Trust ...................................................................................... 288 Brookfield Canada Office Properties ...................................................................................................... 289 Brookfield Property Partners .................................................................................................................. 290 Dream Office Real Estate Investment Trust ............................................................................................ 291 Granite Real Estate Investment Trust ..................................................................................................... 292 NorthWest Healthcare Properties REIT .................................................................................................. 293 Pure Industrial Real Estate Investment Trust ......................................................................................... 294 WPT Industrial Real Estate Investment Trust ......................................................................................... 295

Commercial Property – Diversified Agellan Commercial Real Estate Investment Trust ................................................................................. 296 Artis Real Estate Investment Trust ......................................................................................................... 297 Canadian Real Estate Investment Trust .................................................................................................. 298 Cominar Real Estate Investment Trust ................................................................................................... 299 H&R Real Estate Investment Trust .......................................................................................................... 300 Melcor Real Estate Investment Trust ..................................................................................................... 301 Morguard Real Estate Investment Trust ................................................................................................. 302

Lodging InnVest Real Estate Investment Trust ..................................................................................................... 303

Asset Managers and Other Brookfield Asset Management Inc.......................................................................................................... 304 Melcor Developments Ltd ...................................................................................................................... 305 Morguard Corporation ........................................................................................................................... 306 Tricon Capital Group Inc ......................................................................................................................... 307

All listings are hyperlinked for the reader's convenience.

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Boardwalk REIT Price: SUMMARIZED FINANCIAL INFORMATION (C$MM)

December 31, 2015 Primary Analyst: Neil Downey, CPA, CA, CFA, (416) 842-7835 2013A 2014A 2015E 2016E 2017E

Income Statement:Gross Rental Revenue 462.0 476.8 477.3 464.6 457.9Net Operating Income (NOI) 290.0 294.3 295.1 285.3 279.8Corporate G&A 32.2 33.7 34.8 35.1 35.8EBITDA 257.8 260.5 260.3 250.2 243.9Interest Expense 89.6 84.7 76.3 70.6 69.1IFRS FV (Gain)/Loss & Other (183.1) (95.4) 223.1 236.1 72.4Non-Operating Items / Other 4.2 9.1 11.6 5.0 5.0Income Tax Expense/(Recov) 0.5 0.0 0.2 0.0 0.0Net Income To Common 346.6 262.2 (50.8) (61.5) 97.4

Cash Flow Statement:Net Income To Common 346.6 262.2 (50.8) (61.5) 97.4Depreciation & Amortization 4.2 4.6 4.8 5.0 5.0Deferred Taxes 0.5 0.0 0.1 0.0 0.0IFRS FV (Gain)/Loss & Other (183.1) (91.0) 229.9 236.1 72.4Funds From Operations 168.2 175.8 184.0 179.5 174.8Maintenance Capex Reserve (16.8) (16.6) (17.0) (17.3) (18.1)Other Adjustments (s/l rent, other) 0.0 0.0 0.0 0.0 0.0Adjusted FFO 151.4 159.3 167.0 162.2 156.7Acquisitions/Dispositions & Capex 95.7 (40.6) (15.1) 90.0 80.0Dividends/Other Distributions 103.2 97.0 212.3 105.7 105.7Financing (debt + equity, net) 12.4 (131.4) 62.1 (79.0) (5.0)

VALUATION METRICS (C$ unless otherwise specified) Net Free Cash Flow (18.3) (12.0) 48.9 (95.2) (15.9)

KEY INFORMATION 2013A 2014A 2015E 2016E 2017E Balance Sheet:Stock Rating: Outperform - O Earnings/Unit - Diluted 6.22 5.17 2.45 2.40 2.32 Current Assets 180.0 193.2 238.8 148.0 136.6

P/E - Diluted 9.7x 12.8x 22.4x 19.8x 20.5x Investments & Other Assets 0.5 0.4 0.1 (0.3) 0.21 Year Target Price: $63.00 FFO/Unit - Basic 3.21 3.37 3.56 3.46 3.37 Properties 5,745.2 5,778.1 5,457.5 5,382.5 5,407.5Annualized Distribution: $2.04 Indicated Yield: 4.3% FFO/Unit - Diluted 3.21 3.37 3.56 3.46 3.37 Total Assets 5,925.7 5,971.6 5,696.5 5,530.3 5,544.4

P/FFO - Diluted 18.9x 18.0x 15.4x 13.7x 14.1x Current Liabilities 85.2 160.0 85.4 85.4 85.4Units O/S - Basic (MM): 51.8 Market Cap - Basic ($MM): 2,459 EBITDA/Unit 4.92 4.99 5.01 4.83 4.71 Debt Due In <1 Year 0.0 0.0 0.0 0.0 0.0Units O/S - Diluted (MM): 51.8 Market Cap - Diluted ($MM): 2,459 Total Value/Unit 101.48 105.37 94.64 87.72 87.94 Long Term Debt 2,273.1 2,178.2 2,255.2 2,180.2 2,180.2Float - Basic (MM): 38.7 Market Cap - Float ($MM): 1,835 Total Value/EBITDA 20.6x 21.1x 18.9x 18.2x 18.7x Preferreds + Convertible Debs 0.0 0.0 0.0 0.0 0.0

NAV/Unit - Diluted 67.00 70.00 66.00 63.00 n.a. Minority Interest & Other L-T Liab 0.1 0.0 0.0 0.0 0.0Major Unitholders: Management 25% Price/NAV 90% 95% 83% 75% n.a. Common Equity 3,567.4 3,633.4 3,355.8 3,264.6 3,278.7

AFFO/Unit - Diluted 2.89 3.04 3.23 3.13 3.02 Total Liabilities & Equity 5,925.7 5,971.6 5,696.5 5,530.3 5,544.4P/AFFO - Diluted 20.9x 21.8x 17.0x 15.2x 15.7x

Notes: Distribution/Unit 1.98 3.44 3.04 2.04 2.04 Ratios:Yield 3.3% 5.2% 5.5% 4.3% 4.3% NOI Margin 63% 62% 62% 61% 61%

EBITDA Margin 56% 55% 55% 54% 53%EBITDA/Interest Expense 2.9x 3.1x 3.4x 3.5x 3.5x

FOUR-YEAR CAGRS (2013A - 2017E) Net Debt+Converts/EBITDA 8.3x 7.8x 8.0x 8.3x 8.6xEBITDA (1.4%) EBITDA/Unit (1.1%) Debt+Converts/GBV 38% 36% 41% 41% 41%

Source: Company reports, RBC Capital Markets estimates FFO/Unit 1.2% AFFO/Unit 1.1% AFFO Payout Ratio 68% 113% 94% 65% 67%

$47.45

Net Income To Common and Earnings/Unit (diluted) includes IFRS fair value adjustment and other non-operating items.

COMPANY PROFILEBoardwalk REIT is Canada's largest owner of multi-residential real estate, with a portfolio of over 32,900 residential rental suites encompassing ~28 million net rentable square feet (sf) concentrated in Alberta, Saskatchewan, Ontario, and Quebec. The REIT has established an impressive long-term track record of creating value for both shareholders and tenants by purchasing, renovating, and improving previously under-managed properties.

VALUATIONOur one-year price target equates to parity with our NAVPU estimate one-year hence and implies a ~21x multiple on our 2017E AFFO/unit. We believe our target multiple fairly reflects Boardwalk’s greater than average size, scale, balance sheet flexibility (low leverage), and corporate liquidity. Overall, we believe that apartments as an asset class should continue to garner a premium to group-average multiples, based on the historically more defensive nature of the asset class and due to the typically low property yields (cap rates) observed on private-market transactions. Based on relative return expectations, we rate Boardwalk’s units Outperform.

BOARDWALK REIT Rel. S&P/TSX CAPPED REIT INDEX

88.00

96.00

JAN15 FEB15 MAR15 APR15 MAY15 JUN15 JUL15 AUG15 SEP15 OCT15 NOV15 DEC1513 27 10 25 11 25 9 23 7 22 5 19 6 20 4 18 1 16 30 15 29 12 26 10 24

BOARDWALK REIT

46.00 48.00 50.00 52.00 54.00 56.00 58.00 60.00 62.00

500

1000

January 7, 2016 270


CAP REIT Price: SUMMARIZED FINANCIAL INFORMATION (C$MM)


Income Statement:Gross Rental Revenue 477.0 506.4 534.3 584.0 595.7Net Operating Income (NOI) 273.9 303.9 325.5 356.1 363.4Corporate G&A 21.8 23.9 27.7 27.7 28.3Other Income (mezz loans, fees) 0.0 0.0 0.0 0.0 0.0EBITDA 252.0 280.0 297.7 328.4 335.1Interest Expense 98.7 103.5 107.1 115.5 115.8IFRS FV (Gain)/Loss & Other (114.4) (141.5) (81.8) (55.0) (74.7)Income Taxes (recovery) 0.0 0.0 0.0 0.0 0.0Net Income To Common 267.7 318.0 272.5 267.8 294.0

Cash Flow Statement: Net Income To Common 267.7 318.0 272.5 267.8 294.0Depreciation & Amortization 5.4 5.7 6.1 6.3 6.4Deferred Taxes 0.0 0.0 0.0 0.0 0.0IFRS FV (Gain)/Loss & Other (113.7) (140.4) (77.0) (49.8) (69.8)Funds From Operations 159.4 183.4 201.6 224.3 230.6Maintenance Capex Reserve (15.1) (15.4) (16.2) (17.7) (17.7)Other Adjustments (s/l rent, other) 2.5 4.3 4.9 5.0 5.0Adjusted FFO 146.8 172.3 190.4 211.6 217.9Acquisitions/Dispositions & Capex 574.9 199.9 1,072.3 160.0 130.0Dividends/Other Distributions 88.2 86.9 109.1 156.5 160.3Financing (net) & Other 540.4 (11.4) 906.8 82.2 49.7

VALUATION METRICS (C$ unless otherwise specified) Net Free Cash Flow 36.6 (114.9) (73.0) (10.0) (10.0)


P/E - Diluted 8.9x 8.1x 12.1x 12.9x 11.7x Investments & Other Assets 0.0 0.0 0.0 0.0 0.01 Year Target Price: $31.00 FFO/Unit - Basic 1.56 1.68 1.71 1.77 1.82 Properties 5,465.4 5,755.4 6,753.4 6,963.4 7,163.4Annualized Distribution: $1.22 Indicated Yield: 4.5% FFO/Unit - Diluted 1.54 1.65 1.68 1.75 1.80 Total Assets 5,558.9 5,926.2 6,972.2 7,178.7 7,374.9

P/FFO - Diluted 15.0x 14.1x 16.4x 15.4x 14.9x Current Liabilities 42.5 36.8 47.9 52.9 57.9Units O/S - Basic (MM): 126.8 Market Cap - Basic ($MM): 3,403 EBITDA/Unit 2.47 2.56 2.52 2.59 2.64 Debt Due In <1 Year 187.0 113.2 165.9 252.4 306.4Units O/S - Diluted (MM): 129.1 Market Cap - Diluted ($MM): 3,465 Total Value/Unit 48.99 48.66 54.86 53.48 53.90 Long Term Debt 2,457.2 2,658.5 3,059.4 3,059.4 3,059.4Float - Basic (MM): 122.7 Market Cap - Float ($MM): 3,294 Total Value/EBITDA 19.8x 19.0x 21.8x 20.6x 20.4x Minority Interest & Other L-T Liab 111.3 134.6 139.8 139.8 139.8

NAV/Unit - Diluted 24.00 28.00 29.00 29.50 n.a. Common Equity 2,760.9 2,983.1 3,559.1 3,674.1 3,811.4Major Unitholders: Management & Directors 5% Price/NAV 96% 83% 95% 91% n.a. Total Liabilities & Equity 5,558.9 5,926.2 6,972.2 7,178.7 7,374.9

AFFO/Unit - Diluted 1.42 1.55 1.59 1.65 1.70P/AFFO - Diluted 16.3x 15.0x 17.4x 16.3x 15.8x



FOUR-YEAR CAGRS (2013A - 2017E) Net Debt+Converts/EBITDA 10.5x 9.9x 10.8x 10.1x 10.0xEBITDA 7.4% EBITDA/Unit 1.7% Debt+Converts/GBV 48% 47% 46% 46% 46%


$26.84

Net Income To Common includes IFRS Fair Value Items.

COMPANY PROFILECanadian Apartment Properties Real Estate Investment Trust ("CAP REIT") owns and manages interests in ~40,000 apartment and townhouse suites and ~6,300 manufactured home communities ("MHC") sites. The largest concentration of CAP REIT's properties (~40%) is in the Greater Toronto Area (approximately 15,500 suites); however, its operations stretch from coast to coast, with buildings located from Halifax to Vancouver. CAP REIT owns a 15.7% equity interest and serves as the property and asset manager for Dublin Stock Exchange-listed Irish Residential Properties REIT ("IRES").

VALUATIONOur price target equates to a 5% premium to our NAVPU estimate one-year hence (assuming capitalization rates remain unchanged) and implies an 18x target multiple on our 2017 AFFO/unit estimate. Overall, we believe our target is reasonable in light of CAP REIT’s financial leverage, improving operating trends, and overall franchise value, along with the robust private-market pricing parameters (i.e., low cap rates) for apartment properties.

CAN APARTMENT PROP REAL ESTA Rel. S&P/TSX CAPPED REIT INDEX

100.00

110.00

120.00


CAN APARTMENT PROP REAL ESTA

25.00

26.00

27.00

28.00

29.00

30.00

400

800

1200

January 7, 2016 271


Killam Apartment REIT Price: SUMMARIZED FINANCIAL INFORMATION (C$MM)


Income Statement:Gross Rental Revenue 141.1 147.5 166.7 174.5 177.7Net Operating Income (NOI) 83.0 84.6 97.4 102.1 104.1Home Sales Operations (net) 0.3 0.1 0.0 0.0 0.0Corporate G&A and Capital Tax 7.9 8.5 10.0 10.4 10.7EBITDA 75.5 76.1 87.4 91.6 93.3Interest Expense (inc converts) 34.5 33.4 35.7 36.2 36.2Income Taxes 10.8 12.0 14.4 0.0 0.0IFRS FV (Gain)/Loss & Other (10.7) (2.0) (0.9) (6.2) (12.2)Net Income To Common 40.9 32.7 38.1 61.7 69.4

Cash Flow Statement:Net Income To Common 40.9 32.7 38.1 61.7 69.4Depreciation & Amortization 0.0 0.0 0.0 0.0 0.0Future Income Taxes 9.4 13.5 14.4 0.0 0.0IFRS FV (Gain)/Loss & Other (11.5) (5.9) (4.1) (10.1) (16.2)Funds From Operations 38.8 40.2 48.3 51.5 53.2Maintenance Capex Reserve (6.0) (6.1) (6.4) (6.4) (6.4)Other Adjustments (s/l rent, other) 0.0 0.0 0.0 0.0 0.0Adjusted FFO 32.8 34.1 41.9 45.1 46.8Acquisitions/Dispositions (net) 120.5 197.8 85.6 38.4 31.4Dividends/Other Distributions 28.1 30.6 32.4 38.2 38.7Financing (net) & Other 76.3 164.4 76.7 18.0 13.0

KEY INFORMATION VALUATION METRICS (C$ unless otherwise specified) Net Free Cash Flow (33.5) (23.7) 7.0 (7.1) (3.9)

2013A 2014A 2015E 2016E 2017E Balance Sheet:Stock Rating: Outperform - O Recurring EPS - Diluted 0.69 0.52 0.56 0.91 1.06 Current Assets 44.8 41.3 38.8 34.7 33.9

P/E - Diluted 15.2x 20.0x 18.2x 11.6x 9.9x Investments & Other Assets 0.0 0.0 0.0 0.0 0.01 Year Target Price: $12.00 FFO/Share - Basic 0.72 0.73 0.78 0.82 0.85 Properties 1,476.1 1,733.9 1,835.7 1,883.1 1,929.5Annualized Dividend: $0.60 Indicated Yield: 5.7% FFO/Share - Diluted 0.71 0.73 0.78 0.82 0.85 Total Assets 1,532.4 1,775.2 1,874.5 1,917.8 1,963.4

P/FFO - Diluted 14.8x 14.4x 13.2x 12.8x 12.3x Current Liabilities 22.7 30.0 26.9 26.9 26.9Shares O/S - Basic (MM): 62.7 Market Cap - Basic ($MM): 658 EBITDA/Share 1.39 1.37 1.41 1.46 1.49 Debt Due In <1 Year 14.8 31.9 20.0 20.0 20.0Shares O/S - Diluted (MM): 70.1 Market Cap - Diluted ($MM): 737 Total Value/Share 26.01 27.78 26.85 27.47 27.75 Long Term Debt 699.1 844.7 916.9 936.3 950.7Float - Basic (MM): 53.9 Market Cap - Float ($MM): 567 Total Value/EBITDA 18.7x 20.2x 19.0x 18.8x 18.6x Preferreds + Convertible Debs 96.4 98.0 99.2 99.2 99.2

NAV/Share - Diluted 12.00 12.00 12.00 12.50 n.a Minority Interest & Other L-T Liab 93.2 106.0 120.3 0.0 0.0Major Shareholders: Management and Insiders 4% Price/NAV 96% 88% 85% 84% n.a Common Equity 604.1 662.7 685.5 829.8 861.0

KingSett Real Estate Growth LP and AIMCo 10% AFFO/Share - Diluted 0.60 0.61 0.67 0.72 0.75 Total Liabilities & Equity 1,532.4 1,775.2 1,874.5 1,917.8 1,963.4P/AFFO - Diluted 19.2x 17.1x 15.2x 14.6x 14.0x

Notes: Dividends/Share 0.58 0.60 0.60 0.61 0.62 Ratios:Yield 5.0% 5.7% 5.9% 5.8% 5.9% NOI Margin 59% 57% 58% 59% 59%


FOUR-YEAR CAGRS (2013A - 2017E) Net Debt+Converts/EBITDA 10.4x 12.6x 11.8x 11.5x 11.4xEBITDA 5.5% EBITDA/Share 1.7% Debt+Converts/GBV 53% 55% 55% 55% 54%

Source: Company reports, RBC Capital Markets estimates FFO/Share 4.6% AFFO/Share 5.6% AFFO Payout Ratio 96% 98% 89% 85% 83%


$10.51

COMPANY PROFILEKillam Apartment REIT is a TSX-listed real estate investment trust focused on the acquisition, re-development, and management of multi-family residential apartments and MHCs. Since its initial acquisition in February 2002, the company has become the dominant owner of apartments in Atlantic Canada and the second-largest owner of MHCs nationwide. Killam's portfolio includes 170 apartment properties totalling ~13,700 suites, primarily located in Atlantic Canada, and 35 MHCs encompassing ~5,200 sites, located in four provinces from Newfoundland to Ontario.

VALUATIONOur one-year price target is derived via the application of a 5% discount to our NAV/ share estimate one-year hence and implies a ~16x multiple to our 2017E AFFO/unit. Our target valuation metrics represent modest discounts to what we apply to Killam's large and, in some cases, more conservatively levered peers. Conversely, in recognizing the historical stability of rental residential properties (including MHCs) as an asset class, the target multiple applied to Killam's shares remains above the average that we apply to both the Canadian seniors' housing REITs and the Canadian commercial property REITs.

KILLAM PROPERTIES Rel. S&P/TSX CAPPED REIT INDEX

104.00

112.00


KILLAM PROPERTIES

9.40 9.60 9.80

10.00 10.20 10.40 10.60 10.80 11.00

800

1600

January 7, 2016 272


Milestone Apartments REIT Price: SUMMARIZED FINANCIAL INFORMATION (US$MM)


Income Statement:Gross Rental Revenue 130.6 179.8 212.6 264.5 269.8Net Operating Income (NOI) 67.7 95.6 116.0 145.7 148.4Corporate G&A 7.6 12.7 16.5 18.9 19.8Other Income (mezz loans, fees) 1.2 1.5 0.9 2.2 2.2EBITDA 61.4 84.4 100.4 129.1 130.7Interest Expense 19.5 27.8 32.3 41.9 41.5IFRS FV (Gain)/Loss & Other (67.0) (78.0) (132.3) (49.7) (39.6)Income Taxes (recovery) 0.7 0.7 1.4 2.0 2.0Net Income To Common 108.2 134.0 199.1 134.9 126.8

Cash Flow Statement:Net Income To Common 108.2 134.0 199.1 134.9 126.8Depreciation & Amortization 0.6 0.7 0.7 0.7 0.7Deferred Taxes (0.2) (0.3) (0.2) 0.0 0.0IFRS FV (Gain)/Loss & Other (67.0) (78.0) (132.3) (49.7) (39.6)Funds From Operations 40.3 56.2 68.5 85.4 87.4Maintenance Capex Reserve (5.6) (7.3) (7.9) (8.9) (9.0)Other Adjustments (s/l rent, other) (1.9) (2.0) (1.0) (1.1) (1.1)Adjusted FFO 32.9 46.8 59.6 75.4 77.3Acquisitions/Dispositions & Capex 1,206.3 179.7 179.1 432.0 20.0Dividends/Other Distributions 0.0 32.6 33.3 41.7 43.8Financing (net) & Other 1,149.6 131.3 79.5 323.3 (55.4)

KEY INFORMATION2 VALUATION METRICS3 Net Free Cash Flow (16.4) (24.8) (64.5) (65.1) (31.7)

2013A1 2014A 2015E 2016E 2017E Balance Sheet:Stock Rating: Outperform - O Earnings/Unit - Diluted 2.10 2.88 3.29 1.90 1.79 Current Assets 16.0 24.0 57.6 32.9 41.1


P/FFO - Diluted 11.8x 9.8x 10.3x 9.7x 9.4x Current Liabilities 35.0 45.4 52.5 52.5 52.5Units O/S - Basic (MM): 75.8 Market Cap - Basic ($MM): 1,141 EBITDA/Unit 1.23 1.52 1.56 1.70 1.72 Debt Due In <1 Year 42.5 0.0 0.0 0.0 0.0Units O/S - Diluted (MM): 75.8 Market Cap - Diluted ($MM): 1,141 Total Value/Unit 24.17 25.06 24.87 26.57 26.27 Long Term Debt 688.2 859.8 944.6 1,204.7 1,190.9Float - Basic (MM): 58.2 Market Cap - Float ($MM): 876 Total Value/EBITDA 19.6x 16.5x 15.9x 15.6x 15.2x Preferreds + Convertible Debs 0.0 0.0 0.0 0.0 0.0

NAV/Unit - Diluted 11.50 12.50 14.00 15.00 n.a Minority Interest & Other L-T Liab 0.0 0.0 0.0 0.0 0.0Major Unitholders: Milesouth (Invesco) 16% Price/NAV n.a. 79% 78% 73% n.a Common Equity 538.3 776.3 1,003.9 1,211.1 1,303.3

MST Investors LLC (Management) 7% AFFO/Unit - Diluted 0.66 0.84 0.93 0.99 1.02 Total Liabilities & Equity 1,304.0 1,681.5 2,001.1 2,468.4 2,546.6Notes: P/AFFO - Diluted 14.5x 11.7x 11.8x 10.9x 10.7x

Distribution/Unit4 0.53 0.65 0.65 0.55 0.58 Ratios:Yield 5.4% 6.0% 4.6% 5.1% 5.3% NOI Margin 52% 53% 55% 55% 55%


THREE-YEAR CAGRS (2014A - 2017E) Net Debt+Converts/EBITDA 11.8x 10.0x 8.9x 9.1x 8.8xEBITDA 15.7% EBITDA/Unit 4.3% Debt+Converts/GBV 56% 51% 47% 49% 47%FFO/Unit 4.5% AFFO/Unit 6.6% AFFO Payout Ratio 78% 70% 55% 55% 57%

4Commencing in 2016, distributions/unit are denominated in USD.Prior to 2016, distributions/unit were denominated in $CAD.Source: Company reports, RBC Capital Markets estimates

3All financial numbers are denominated in USD, the functional currency. All multiples and ratios have been adjusted to reflect the relevant foreign exchange rate.

$15.05

Net Income To Common includes IFRS Fair Value Items12013A represents the period between Mar-6-13 - Dec-31-13.2Stock price and market cap denominated in $CAD. All figures and forecast pro-forma the issuance of 9.1MM subscription receipts and the acquisition of the Landmark properties

COMPANY PROFILEMilestone Apartments REIT ("MST") owns and manages garden-style apartment communities ingrowing major metropolitan markets throughout the Southeast and Southwest United States. The REIT's platform employs ~900 personnel nationwide with corporate offices in Dallas, TX and New York, NY, and 10 regional acquisition and management offices throughout the US. Including properties owned or under contract, the REIT’s portfolio comprises multi-family garden-style residential properties, comprising ~22,500 units that are located in 14 major metropolitan markets. The REIT is externally advised subject to a fee-for-service asset management contract with TMG Partners LP (the “Asset Manager”) while it wholly owns its property manager Milestone Management, LP. The property manager is one of the top-50 apartment managers in the United States, with more than 35,000 units under management (including the REIT's portfolio), and it acts as a profit centre.

VALUATIONOur price target equates to a ~10% discount to our NAVPU estimate one-year hence and implies a ~13–14x multiple on our 2017E AFFO/unit estimate. We believe our target valuation parameters are reasonably reflective of MST's asset calibre, financial leverage, small unit float, the degree of significant influence that is retained by its two sponsoring unitholders, and the terms and expense ratios associated with its external advisory contract.

MILESTONE APARTMENTS REAL ES Rel. S&P/TSX CAPPED REIT INDEX

100.00

120.00

140.00


MILESTONE APARTMENTS REAL ES

11.90

12.60

13.30

14.00

14.70

15.40

800

1600

January 7, 2016 273


Morguard North American Residential REIT Price: SUMMARIZED FINANCIAL INFORMATION (C$MM)


Income Statement:Gross Rental Revenue 142.9 174.8 197.3 208.6 212.4Net Operating Income (NOI) 73.5 90.2 102.4 108.4 110.4Corporate G&A 6.2 8.5 10.2 10.9 11.4Other Income 0.7 1.5 0.3 0.0 0.0EBITDA 68.0 83.3 92.5 97.5 99.0Interest Expense (incl converts) 32.8 38.0 41.2 42.9 42.8Income Taxes 8.5 26.2 33.9 34.1 35.2IFRS FV (gain)/loss & other (29.7) (19.0) (26.7) (5.1) (3.2)Net Income To Common 56.4 38.2 44.2 25.4 24.2

Cash Flow Statement:Net Income To Common 56.4 38.2 44.2 25.4 24.2Depreciation & Amortization (0.0) (0.1) (0.1) 0.0 0.0Deferred Taxes 8.5 26.1 33.7 34.0 35.0Other (30.9) (20.1) (27.5) (4.4) (2.4)Funds From Operations 34.0 44.1 50.4 55.0 56.8Maintenance Capex Reserve (4.9) (5.7) (5.7) (5.8) (5.8)Other Adjustments (s/l rent, other) (3.6) (6.5) (6.1) (6.3) (6.3)Adjusted FFO 25.5 31.9 38.6 43.0 44.7Acquisitions/Dispositions (net) 675.8 24.2 16.6 28.0 25.0Dividends/Other Distributions 26.7 27.9 30.7 27.9 27.9Financing (debt + equity, net) 652.4 31.3 11.3 0.0 (5.0)

VALUATION METRICS (C$ unless otherwise specified) Net Free Cash Flow (16.2) 23.2 14.3 (0.9) (1.2)



P/FFO - Diluted 13.5x 10.6x 9.7x 9.3x 9.0x Current Liabilities 15.5 0.0 13.0 13.0 13.0Units O/S - Basic (MM): 46.6 Market Cap - Basic ($MM): 496.7 EBITDA/Unit 1.50 1.76 1.98 2.09 2.13 Debt Due In <1 Year 30.5 28.4 32.1 32.1 32.1Units O/S - Diluted (MM): 50.4 Market Cap - Diluted ($MM): 538.0 Total Value/Unit 29.82 29.74 32.35 32.77 32.67 Long Term Debt 772.9 863.8 943.6 943.6 938.6Float - Basic (MM): 23.9 Market Cap - Float ($MM): 254.8 Total Value/EBITDA 19.9x 16.9x 16.3x 15.7x 15.4x Convertible Debentures 57.9 58.3 58.5 58.5 58.5

NAV/Unit - Diluted 14.50 14.50 18.00 18.75 n.a. Minority Interest & Other LT Liab 121.5 148.4 185.0 219.0 254.1Major Unitholders: Morguard Corporation 49% Price/NAV 72% 69% 57% 57% n.a. Common Equity 673.1 733.4 824.4 850.2 874.9

AFFO/Unit - Diluted 0.58 0.67 0.83 0.91 0.94 Total Liabilities & Equity 1,671.2 1,832.3 2,056.7 2,116.5 2,171.2Notes: P/AFFO - Diluted 17.8x 14.9x 12.4x 11.8x 11.3x

Distribution/Unit 0.60 0.60 0.60 0.60 0.60 Ratios:Yield 5.8% 6.0% 5.8% 5.6% 5.6% NOI Margin 51% 52% 52% 52% 52%




$10.67

Net Income to Common includes IFRS fair value adjustment and other non-operating items.

COMPANY PROFILEMorguard North American Residential Real Estate Investment Trust (“MRG”) is an unincorporated, open-ended real estate investment trust established in Ontario. The REIT’s units are listed on the Toronto Stock Exchange under the ticker symbol “MRG.un”. Morguard Residential owns interests in 44 properties encompassing 13,102 units with 37% (4,905 suites) in Canada and 63% (8,197 suites) in the United States. The largest regional concentrations are Ontario (35%), principally the Greater Toronto Area, and the US Southeast (45%). Within the latter, Florida (~19%) is the largest concentration. Suite composition includes 92% of the portfolio as one- and two-bedroom units, with the balance being three-bedroom apartments.

VALUATIONOur price target price is derived via the application of a ~35% discount to our NAV/unit estimate one-year hence and implies a 13x multiple to our 2017 AFFO/unit estimate. The P/NAV and P/AFFO valuation metrics ascribed in deriving our Morguard Residential target price are at a discount to the multi-res sector average, and we believe reasonable in light of: 1) the REIT’s above-average financial leverage; 2) lack of control premium and its controlling unitholder; and, 3) the characteristics of the external management and advisory arrangements. Based on relative risk-adjusted return expectations, we rate Morguard Residential REIT’s units

MORGUARD NORTH AMERICAN RESIDENTIAL REAL ESTATE INVESTMENT TRUST Rel. S&P/TSX CAPPED REIT INDEX

100.00

110.00


MORGUARD NORTH AMERICAN RESIDENTIAL REAL ESTATE INVESTMENT TRUST

9.80

10.00

10.20

10.40

10.60

10.80

100

200

January 7, 2016 274


Northview Apartment REIT Price: SUMMARIZED FINANCIAL INFORMATION (C$MM)


Income Statement:Gross Rental Revenue 175.3 187.8 216.6 329.5 335.4Net Operating Income (NOI) 104.8 109.6 128.0 195.3 199.7Corporate G&A 7.4 6.6 8.4 11.4 11.6EBITDA 97.4 103.0 119.6 183.9 188.1Interest Expense 25.1 27.9 36.0 59.2 58.6Preferred Divs & Convert Int. 0.0 0.0 0.0 0.0 0.0IFRS FV (Gain)/Loss & Other (16.2) 0.2 93.0 3.6 (6.4)Income Taxes 1.4 0.6 0.0 0.0 0.0Net Income To Common 87.1 74.3 (9.4) 121.1 135.9

Cash Flow Statement:Net Income To Common 87.1 74.3 (9.4) 121.1 135.9Depreciation & Amortization 4.5 4.5 4.7 4.7 4.8Deferred Taxes 0.0 0.4 0.0 0.0 0.0IFRS FV (Gain)/Loss & Other (20.1) (3.7) 89.3 0.1 (10.1)Funds From Operations 71.5 75.5 84.6 125.9 130.6Maintenance Capex & Leasing Costs (13.4) (14.3) (17.2) (25.2) (25.2)Other Adjustments (s/l rent, other) (1.0) (1.1) (1.7) (2.1) (2.1)Adjusted FFO 57.1 60.0 65.7 98.6 103.3Acquisitions/Dispositions (net) (76.7) (42.5) (1,469.9) 0.0 0.0Dividends/Other Distributions (49.3) (50.4) (57.2) (84.9) (86.0)Financing (debt + equity, net) 120.9 103.4 1,520.5 0.0 0.0

KEY INFORMATION VALUATION METRICS (C$ unless otherwise specified) Net Free Cash Flow 66.4 85.9 77.9 41.0 44.6

2013A 2014A 2015E 2016E 2017E Balance Sheet:Stock Rating: Sector Perform - SP Earnings/Unit - Diluted 2.72 2.32 (0.27) 2.33 2.61 Current Assets 12.6 11.0 8.9 13.5 22.0

P/E - Diluted 10.7x 11.5x n.m. 7.6x 6.7x Investments & Other Assets 92.2 73.1 76.4 72.9 69.31 Year Target Price: $22.00 FFO/Unit - Basic 2.23 2.37 2.41 2.42 2.51 Properties 1,412.1 1,582.0 3,033.5 3,073.0 3,122.5Annualized Distribution: $1.63 Indicated Yield: 9.3% FFO/Unit - Diluted 2.23 2.37 2.41 2.42 2.51 Total Assets 1,516.8 1,666.2 3,118.8 3,159.4 3,213.8

P/FFO - Diluted 13.0x 11.3x 8.8x 7.3x 7.0x Current Liabilities 38.8 42.8 38.7 38.7 38.7Units O/S - Basic (MM): 52.2 Market Cap - Basic ($MM): 916 EBITDA/Unit 3.04 3.23 3.40 3.53 3.61 Debt Due In <1 Year 25.5 52.1 465.5 165.5 165.5Units O/S - Diluted (MM): 52.2 Market Cap - Diluted ($MM): 917 Total Value/Unit 49.58 51.38 73.51 52.97 52.86 Long Term Debt 631.3 734.6 1,374.6 1,677.0 1,679.5Float - Basic (MM): 38.9 Market Cap - Float ($MM): 682 Total Value/EBITDA 16.3x 15.9x 21.6x 15.0x 14.6x Preferreds + Convertible Debs 0.0 0.0 0.0 0.0 0.0

NAV/Unit - Diluted 27.00 27.00 24.00 25.00 n.a Minority Interest & Other L-T Liab 1.9 1.6 1.4 1.5 1.4Major Unitholders: Management & Insiders 1% Price/NAV 108% 99% 88% 70% n.a Common Equity 819.4 835.1 1,238.6 1,276.7 1,328.8

Daniel Drimmer 15% AFFO/Unit - Diluted 1.78 1.88 1.87 1.89 1.98 Total Liabilities & Equity 1,516.8 1,666.2 3,118.8 3,159.4 3,213.8PSP Investments 10% P/AFFO - Diluted 16.3x 14.2x 11.3x 9.3x 8.9x





$17.56

Net Income To Common includes IFRS fair value adjustment and other non-operating items.

COMPANY PROFILENorthview Apartment Real Estate Investment Trust ("NVU") was formed in 2015 following a transaction that brought together Northern Property REIT, True North Apartment REIT, and a number of privately held residential properties, Today, NVU owns over 24,000 residential suites in more than 60 markets across eight provinces and two territories. NVU is Canada's third-largest publicly traded multi-family REIT. The residential consists primarily of multi-family residential property, including apartments, townhomes, and single-family apartment buildings. The REIT also owns and manages 419 execusuites and hotel rooms (where the rental period ranges from a few days to several months) as well as ~1.2 million sf of commercial properties across Canada.

VALUATIONOur price target equates to a ~10% discount to our expected NAV/unit one-year hence and implies an ~11x target multiple to our 2017 AFFO/unit estimate. The P/NAV and P/AFFO valuation metrics ascribed in deriving our NVU target price are at a discount to the multi-res sector average, and we believe reasonable in light of: 1) the REIT’s above-average financial leverage; 2) asset quality; and, 3) meaningful exposure to high artic and small communities. Based on relative risk-adjusted return expectations, we rate Northview Apartment REIT's units Sector Perform.

NORTHVIEW APARTMENT REAL ESTAT Rel. S&P/TSX CAPPED REIT INDEX

80.00

90.00

100.00


NORTHVIEW APARTMENT REAL ESTAT

18.00

20.00

22.00

24.00

400

800

1200

January 7, 2016 275


Chartwell Retirement Residences Price: SUMMARIZED FINANCIAL INFORMATION (C$MM)


Income Statement:Revenue 934.8 945.3 880.4 854.4 871.3Net Operating Income (NOI) 271.4 270.6 254.7 247.3 253.0Corporate G&A 31.0 31.6 30.7 31.0 31.6Other Income (mezz loans, fees) 12.2 17.5 11.7 12.7 12.7EBITDA 252.6 256.6 235.7 228.9 234.0Interest Expense 118.8 115.8 90.6 75.0 73.3IFRS FV (Gain)/Loss, Depr. & Other 109.6 151.0 (217.0) 152.1 152.1Income Taxes/(Recovery) 0.3 (1.9) 0.2 0.0 0.0Net Income To Common 23.9 (8.3) 361.8 1.9 8.7

Cash Flow Statement:Net Income To Common 23.9 (8.3) 361.8 1.9 8.7Depreciation & Amortization 171.6 172.2 128.1 132.0 132.0Deferred Taxes 0.0 0.0 0.0 0.0 0.0Other (62.0) (20.9) (344.8) 20.2 20.2Funds From Operations 133.5 143.0 145.1 154.0 160.9Maintenance Capex Reserve (18.5) (18.6) (17.4) (16.8) (17.2)Other Adjustments (s/l rent, other) 4.1 4.0 5.0 4.9 5.0Adjusted FFO 119.1 128.5 132.7 142.1 148.7Acquisitions/Dispositions (net) 69.3 8.5 (430.3) 36.8 37.2Dividends/Other Distributions 72.8 75.8 81.8 99.7 102.7Financing (debt + equity, net) 17.4 (37.6) (459.6) (20.1) (21.1)

KEY INFORMATION VALUATION METRICS (C$ unless otherwise specified) Net Free Cash Flow 8.7 21.1 33.9 (2.6) (0.1)

2013A 2014A 2015E 2016E 2017E Balance Sheet:Stock Rating: Sector Perform - SP Earnings/Unit - Diluted 0.14 (0.05) 1.94 0.01 0.05 Current Assets 66.8 78.3 61.3 61.1 63.3

P/E - Diluted n.m. n.m. n.m. n.m. n.m. Investments & Other Assets 71.2 71.8 73.0 73.0 73.01 Year Target Price: $14.00 FFO/Unit - Basic 0.76 0.81 0.81 0.86 0.89 Properties 2,725.2 2,584.2 2,510.4 2,414.5 2,318.9Annualized Distribution: $0.55 Indicated Yield: 4.3% FFO/Unit - Diluted 0.75 0.80 0.80 0.84 0.88 Total Assets 2,863.2 2,734.3 2,644.8 2,548.6 2,455.3


NAV/Unit - Diluted 10.00 10.50 11.50 12.00 n.a. Minority Interest & Other L-T Liab 0.0 6.1 13.8 13.8 13.8Major Unitholders: Management & Insiders 1% Price/NAV 103% 105% 104% 106% n.a. Common Equity 525.8 453.2 746.7 657.2 571.7




FOUR-YEAR CAGRS (2013A - 2017E) Net Debt+Converts/EBITDA 8.7x 8.3x 7.5x 7.7x 7.5xEBITDA (1.9%) EBITDA/Unit (2.6%) Debt+Converts/GBV 57% 55% 50% 49% 48%


$12.70


COMPANY PROFILEChartwell Retirement Residences ("CHS") is a listed trust thsat is a fully integrated owner and manager of seniors' housing facilities. Including properties under development, the REIT owns interests in or manages ~185 facilities encompassing more than 25,000 suites across Canada. Chartwelloperates across the full spectrum of the seniors housing industry, whichranges fromindependent living ("IL") facilities to long-term care ("LTC") facilities.

VALUATIONOur price target equates to a ~20% premium to our NAVPU estimate one-year hence and implies a ~17–18x target multiple to our 2017 AFFO/unit estimate. We believe our target P/NAV ratio and P/AFFO multiple reflect our constructive view on seniors housing fundamentals, the associated earnings, and NAV upside potential in CSH's units. Overall, we believe our target multiple reasonably reflects considerations related to Chartwell’s financial leverage, its mix of property, mezzanine loan interest, fee income, and overall “franchise value”. Based on relative performance considerations, we rate Chartwell’s units Sector Perform.

CHARTWELL RETIREMENT RESIDENCE Rel. S&P/TSX CAPPED REIT INDEX

100.00

110.00


CHARTWELL RETIREMENT RESIDENCE

11.00

11.50

12.00

12.50

13.00

5000

10000

January 7, 2016 276


January 7, 2016 277

Extendicare Inc. Price: SUMMARIZED FINANCIAL INFORMATION (C$MM)

December 31, 2015 Primary analyst: Michael Smith, CFA, (416) 842‐7805 2013A 2014A 2015E 2016E 2017E

Income statement:

Revenue 2,024.5 2,153.8 1,630.1 1,060.4 1,094.7

Net operating income (NOI) 231.1 254.9 186.6 146.0 155.2

Corporate G&A (64.3) (66.1) (59.7) (39.8) (40.5)

Other (11.1) (11.3) (9.9) (7.3) (7.3)

EBITDA 155.7 177.5 117.0 98.9 107.4

Interest expense (62.2) (64.4) (44.7) (16.6) (17.7)

Depreciation, F/X and other (84.8) (120.1) 212.1 (28.0) (28.0)

Income taxes (3.5) (11.8) (54.2) (17.4) (18.7)

Net income to common 5.3 (18.8) 230.2 36.9 43.0

Cash flow statement:

Net income to common 5.3 (18.8) 230.2 36.9 43.0

Depreciation & amortization 77.9 68.1 26.6 28.0 28.0

Deferred taxes (1.2) (6.7) (10.8) 0.0 0.0

Other (15.2) 24.8 (195.6) (12.6) (13.6)

Funds from operations 66.8 67.4 50.4 52.3 57.4

Additional maintenance capex (6.2) (3.6) (9.7) (5.7) (6.2)

Other adjustments (s/l rent, other) 10.5 10.2 8.6 8.2 8.2

Adjusted FFO 71.1 74.0 49.3 54.8 59.5

Acquisitions/(dispositions), net 52.1 35.3 (1,045.6) 67.6 67.6

Dividends/other distributions 45.5 35.6 38.9 35.8 35.8

Financing (debt + equity, net) 20.1 (12.9) (643.3) 0.0 0.0

KEY INFORMATION VALUATION METRICS (C$ unless otherwise specified) Net free cash flow (10.7) (16.3) 413.8 (51.0) (45.9)

2013A 2014A 2015E 2016E 2017E Balance sheet:

Stock rating: Sector Perform ‐ SP Earnings/share ‐ diluted 0.06 ‐0.21 2.62 0.42 0.47 Current assets 404.3 96.0 248.4 238.0 205.6

P/E ‐ diluted n.m. n.m. 3.1x 22.9x 20.4x Investments & other assets 292.8 233.6 391.3 391.3 391.3

1 year target price: $9.00 FFO/share ‐ basic 0.77 0.77 0.57 0.60 0.66 Properties 1,152.0 1,585.7 416.4 428.0 467.6

Annualized dividend: $0.48 Indicated yield: 5.0% FFO/share ‐ diluted 0.76 0.75 0.61 0.60 0.62 Total assets 1,849.1 1,915.3 1,056.1 1,057.2 1,064.5

P/FFO ‐ diluted 9.2x 10.0x 13.3x 16.2x 15.6x Current liabilities 284.2 138.9 168.3 168.3 168.3

Shares O/S ‐ basic (MM): 87.6 Market cap ‐ basic ($MM): 845 EBITDA/share 1.80 2.02 1.33 1.23 1.23 Debt due in <1 year 148.1 25.8 0.0 0.0 0.0

Shares O/S ‐ diluted (MM): 98.9 Market cap ‐ diluted ($MM): 954 Total value/share 19.28 25.44 11.71 13.89 14.26 Long term debt 1,016.8 1,584.0 458.6 458.6 458.6

Float ‐ basic (MM): 87.6 Market cap ‐ float ($MM): 845 Total value/EBITDA 10.7x 12.6x 8.8x 11.3x 11.6x Preferreds + convertible debs 0.0 0.0 0.0 0.0 0.0

NAV/share ‐ diluted 8.00 8.25 9.00 9.00 n.a. Minority interest & other LT liab 362.2 169.1 256.1 256.1 256.1

Major shareholders: Price/NAV 87% 91% 90% 107% n.a. Common equity 37.9 (2.5) 173.1 174.3 181.5

AFFO/share ‐ diluted 0.78 0.80 0.59 0.63 0.64 Total liabilities & equity 1,849.1 1,915.3 1,056.1 1,057.2 1,064.5

P/AFFO ‐ diluted 8.9x 9.4x 13.8x 15.4x 15.1x

Notes: Dividend/share 0.60 0.48 0.48 0.48 0.48 Ratios:

Yield 8.6% 6.4% 5.9% 5.0% 5.0% NOI margin 11.4% 11.8% 11.4% 13.8% 14.2%

EBITDA margin 7.7% 8.2% 7.2% 9.3% 9.8%

EBITDA/Interest expense 2.5x 2.8x 2.6x 5.9x 6.1x

FOUR‐YEAR CAGRS (2013A ‐ 2017E) Net debt+converts/EBITDA 6.9x 8.9x 2.7x 3.8x 3.8x

EBITDA (8.9%) EBITDA/share (9.1%) Debt+converts/GBV 48% 61% 43% 56% 57%

Source: Company reports, RBC Capital Markets estimates FFO/share (4.9%) AFFO/share (5.0%) AFFO payout ratio 77% 60% 82% 77% 75%

$9.65

EXTENDICARE INC Rel. S&P/TSX CAPPED REIT INDEX

120.00

150.00


EXTENDICARE INC

6.50

7.00

7.50

8.00

8.50

9.00

9.50

400

800

COMPANY PROFILEExtendicare Inc. is a fully integrated owner and operator of skilled nursing and long‐term care facilities in Canada. The company's owned and leased portfolio consists of 62 facilities with a resident capacity of approximately 8,500. Extendicare also manages 54 facilities on behalf of third parties, with a resident capacity approximately 6,300. Extendicare's operations are predominantly carried out in Ontario but also include properties and businesses in Alberta, Saskatchewan, and Manitoba.

VALUATIONOur one‐year price target is derived through parity to our NAV per share estimate one‐year hence, which implies a 14x target multiple to our 2017 AFFO per share estimate. Our target multiple is lower than the peer group, because Extendicare is still going through a transition to become a pure‐play Canadian seniors company, it is only starting to build its private‐pay retirement business, and rebuilding its Class C LTC homes is a challenging endeavour.


January 7, 2016 278

Sienna Senior Living Inc. Price: SUMMARIZED FINANCIAL INFORMATION (C$MM)


Income statement:

Revenue 353.3 456.8 469.4 480.8 488.6


Corporate G&A (22.6) (18.7) (18.6) (18.1) (18.2)

Other income (mezz loans, fees) 0.0 0.0 0.0 0.0 0.0

EBITDA 40.7 63.1 66.6 70.2 71.6


Depreciation & other (28.8) (39.5) (34.5) (32.0) (32.0)

Income taxes 0.9 6.2 (3.0) (5.1) (5.1)

Net income to common (9.4) (15.8) 8.1 12.4 13.8


Net income to common (9.4) (15.8) 8.1 12.4 13.8


Deferred taxes (1.5) (4.5) 0.5 0.0 0.0

Other 13.0 22.6 (0.5) 1.5 1.5


Maintenance capex reserve (1.9) (3.8) (4.5) (4.6) (4.7)

Other adjustments (s/l rent, other) 8.1 10.4 10.4 10.3 10.3

Adjusted FFO 37.1 48.3 48.5 51.6 53.0

Acquisitions/(dispositions), net 164.8 (0.1) 0.6 (13.1) (13.1)

Dividends/other distributions 26.4 32.2 31.0 32.8 32.8

Financing (debt + equity, net) 168.7 17.1 (18.5) 0.0 0.0

KEY INFORMATION VALUATION METRICS (C$ unless otherwise specified) Net free cash flow 8.5 26.9 (7.5) 26.2 27.6


Stock rating: Sector Perform ‐ SP Earnings/share ‐ diluted ‐0.23 ‐0.36 0.24 0.35 0.39 Current assets 33.8 50.8 51.9 77.8 105.1

P/E ‐ diluted n.m. n.m. n.m. n.m. n.m. Investments & other assets 204.8 192.7 182.5 169.4 156.4

1 year target price: $17.50 FFO/share ‐ basic 1.04 1.15 1.17 1.26 1.30 Properties 738.4 703.3 673.7 641.7 609.7

Annualized dividend: $0.90 Indicated yield: 5.6% FFO/share ‐ diluted 0.91 1.12 1.14 1.21 1.25 Total assets 977.0 946.8 908.1 888.9 871.2


Shares O/S ‐ basic (MM): 36.4 Market cap ‐ basic ($MM): 588 EBITDA/share 1.36 1.74 1.83 1.93 1.97 Debt due in <1 year 0.0 0.0 0.0 0.0 0.0

Shares O/S ‐ diluted (MM): 39.2 Market cap ‐ diluted ($MM): 632 Total value/share 31.64 29.87 32.53 33.87 33.87 Long term debt 598.7 620.8 602.8 602.8 602.8

Float ‐ basic (MM): 36.4 Market cap ‐ float ($MM): 588 Total value/EBITDA 23.2x 17.2x 17.8x 17.6x 17.2x Preferreds + convertible debs 0.0 0.0 0.0 0.0 0.0

NAV/share ‐ diluted 10.75 13.25 14.25 15.25 n.a Minority interest & other LT liab 65.2 58.7 59.4 59.4 59.4

Major shareholders: Price/NAV 108% 96% 112% 106% n.a Common equity 252.5 199.2 177.2 158.0 140.3

AFFO/share ‐ diluted 1.08 1.29 1.29 1.36 1.39 Total liabilities & equity 977.0 946.8 908.1 888.9 871.2


Notes: Dividend/share 0.90 0.90 0.90 0.90 0.90 Ratios:

Yield 7.8% 7.1% 5.6% 5.6% 5.6% NOI margin 17.9% 17.9% 18.1% 18.4% 18.4%

EBITDA margin 11.5% 13.8% 14.2% 14.6% 14.7%



EBITDA 15.2% EBITDA/share 9.6% Debt+converts/GBV 55% 56% 54% 53% 52%

Source: Company reports, RBC Capital Markets estimates FFO/share 8.3% AFFO/share 6.6% AFFO payout ratio 83% 70% 70% 66% 65%

$16.14

SIENNA SENIOR LIVING INC Rel. S&P/TSX CAPPED REIT INDEX

100.00

120.00


SIENNA SENIOR LIVING INC

14.00

14.70

15.40

16.10

16.80

17.50

100

200

300

COMPANY PROFILESienna Senior Living is an owner and operator of LTC homes and retirement homes in the provinces of Ontario and British Columbia. The company’s portfolio includes 35 LTC homes (~5,700 licensed beds) and 11 retirement homes (~1,200 suites). Through an operating subsidiary, Sienna also provides home health care services in Ontario.

VALUATIONOur one‐year price target is derived through the application of a 15% premium to our NAV per share estimate one‐year hence, which implies a 13x target multiple to our 2017 AFFO per share estimate. Our target multiple is in line with the company's closest peer. We believe our target premium to NAV reasonably reflects such factors as: 1)above‐average financial leverage; and, 2)exposure to Class B and C beds.


Price: SUMMARIZED FINANCIAL INFORMATION (C$MM)

December 31, 2015 Primary analyst: Michael Smith, CFA, (416) 842-7805 2013A1 2014A 2015E 2016E 2017E

Income statement:Revenue 318.5 682.9 739.5 792.4 861.6Net operating income (NOI) 238.8 510.4 549.3 590.0 640.9Corporate G&A (12.2) (23.3) (22.2) (20.3) (20.7)Other income (mezz loans, fees) 0.0 0.0 0.0 0.0 0.0EBITDA 226.5 487.1 527.1 569.7 620.2Interest expense (inc. Class C units) (67.2) (189.4) (142.0) (155.4) (173.0)Depreciation (0.5) (0.4) (0.8) (0.9) (0.9)Other (3.1) 93.6 (331.0) 0.0 0.0Net Income to common 155.8 390.9 53.3 413.4 446.3

Cash flow statement:Net Income to common 155.8 390.9 53.3 413.4 446.3Deferred taxes 0.0 0.0 0.0 0.0 0.0Depreciation & amortization 0.0 0.0 0.0 0.0 0.0IFRS FV (gain)/loss & other 3.1 (93.4) 332.8 0.0 0.0Funds from operations 158.9 297.5 386.0 413.4 446.3Non-recov. capex & leasing (15.9) (32.3) (40.9) (43.7) (47.4)Other adjustments (s/l rent, other) (12.1) 20.1 (36.1) (35.9) (35.1)Adjusted FFO 130.9 285.2 309.0 333.9 363.8Acquisitions/(dispositions), net 97.2 220.5 316.4 607.4 557.5Dividends/other distributions (22.0) (114.9) (286.4) (279.6) (298.3)Financing (debt + equity, net) (11.0) (114.8) 242.5 379.5 384.5

KEY INFORMATION VALUATION METRICS (C$ unless otherwise specified) Net free cash flow 28.6 (152.8) 25.8 (94.1) (24.9)

2013A1 2014A 2015E 2016E 2017E Balance sheet:Stock rating: Sector Perform - SP Earnings/unit - diluted 0.43 1.02 0.13 0.99 1.02 Current assets 67.9 20.9 72.1 91.6 194.2

P/E - diluted n.m. 10.5x 85.6x 11.9x 11.6x Investments & other assets 92.1 265.6 219.9 219.9 219.91 year target price: $12.00 FFO/unit - basic 0.44 0.78 0.96 0.99 1.02 Properties 7,287.8 7,906.0 8,442.3 9,093.4 9,698.3Annualized distribution: $0.67 Indicated yield: 5.7% FFO/u - diluted ex-items 0.44 0.91 0.96 0.99 1.02 Total assets 7,447.7 8,192.4 8,734.3 9,405.0 10,112.5

P/FFO - diluted n.m. 11.7x 11.8x 11.9x 11.6x Current liabilities 211.5 390.0 341.2 341.2 341.2Units O/S - basic (MM): 406.4 Market cap - basic ($MM): 4,795 EBITDA/unit n.m. 1.27 1.31 1.36 1.41 Debt due in <1 year 0.0 120.2 183.0 517.8 820.2Units O/S - diluted (MM): 409.7 Market cap - diluted ($MM): 4,834 Total value/unit n.m. 20.00 20.91 21.87 10.30 Long term debt 2,537.3 2,557.1 2,802.2 2,802.2 2,802.2Float - basic (MM): 49.9 Market cap - float ($MM): 589 Total value/EBITDA n.m. 15.7x 16.0x 16.1x 7.3x Preferreds + convertible debs 0.0 0.0 0.0 0.0 0.0

NAV/unit - diluted 10.10 10.50 11.00 11.50 n.a. Minority interest & other LT liab 838.9 879.5 881.2 881.2 881.2Major unitholders: Loblaw Companies Ltd. 83% Price/NAV 101% 102% 103% 103% n.a. Common equity 3,860.1 4,245.6 4,526.7 4,862.6 5,267.7

George Weston Ltd. 6% AFFO/unit - diluted 0.36 0.75 0.77 0.80 0.83 Total liabilities & equity 7,447.7 8,192.4 8,734.3 9,405.0 10,112.5P/AFFO - diluted n.m. 14.3x 14.8x 14.8x 14.2x

Notes: Distribution/unit 0.32 0.65 0.65 0.67 0.68 Ratios:Yield n.m. 6.1% 5.8% 5.7% 5.8% NOI margin 75% 75% 74% 74% 74%

EBITDA margin 71% 71% 71% 72% 72%EBITDA/Interest expense 3.4x 2.6x 3.7x 3.7x 3.6x

THREE-YEAR CAGRS (2014A - 2017E) Net debt+converts/EBITDA 14.9x 7.3x 7.3x 7.4x 7.3xEBITDA 8.4% EBITDA/unit 3.6% Debt+converts/GBV 47% 44% 45% 45% 45%

Source: Company reports, RBC Capital Markets estimates FFO/unit 3.7% AFFO/unit 3.6% AFFO payout ratio 88% 87% 85% 84% 82%

Choice Properties REIT $11.80

1 2013A is a 6-month stub-year commencing July 1, 2013 through to December 31, 2013. Multiples and yield are therefore not meaningful.

CHOICE PROPERTIES REIT Rel. S&P/TSX CAPPED REIT INDEX

100.00

110.00

120.00


CHOICE PROPERTIES REIT

10.60 10.80 11.00 11.20 11.40 11.60 11.80 12.00

900

1800

COMPANY PROFILEChoice Properties REIT ("CHP") owns more than 500 properties with approximately 41 million sf of GLA, consisting primarily of Loblaw-anchored single-tenant stores and shopping centres. Loblaw Companies Limited spun out Choice Properties in 2013 as part of a strategy to maximize the value of its real estate holdings used in its food retail operations. As a tenant, Loblaw (under its many different conventional and discount food retail banners) represents 91% of annual minimum rent. Loblaw retains an ~83% equity stake in Choice Properties, while Loblaw's parent, George Weston Limited, owns a further ~5.5% direct equity stake in Choice Properties.

VALUATIONOur price target is derived by applying a ~5% premium to our NAV per unitestimate one-year hence, which implies a ~14x target multiple to our 2017 AFFO per unit estimate. We believe that our target valuation for CHP appropriately reflects its portfolio attributes, developing large-cap liquidity, still to be established public-market track record, and a controlling-shareholder discount.

January 7, 2016 279


Crombie REIT Price: SUMMARIZED FINANCIAL INFORMATION (C$MM)

December 31, 2015 Primary analyst: Michael Smith, CFA, (416) 842-7805 2013A 2014A 2015E 2016E 2017E

Income statement:Revenue 296.6 358.1 363.8 371.2 381.2Net operating income (NOI) 189.9 248.4 252.1 258.4 264.7Corporate G&A (13.7) (14.7) (14.6) (15.1) (15.5)Other income (mezz loans, fees) 0.0 0.0 0.0 0.0 0.0EBITDA 176.2 233.7 237.5 243.3 249.1Interest expense (82.4) (99.5) (98.5) (97.8) (97.4)Depreciation & other (59.0) (65.3) (67.8) (67.6) (67.7)Income taxes/(recovery) 1.7 2.4 (1.1) (1.1) (1.1)Net income to common 36.6 71.4 70.1 76.8 82.9

Cash flow statement:Net income to common 36.6 71.4 70.1 76.8 82.9Depreciation & amortization 58.1 71.7 76.0 76.6 77.0Deferred taxes (1.7) (2.4) 0.3 1.1 1.1Other 9.4 1.4 5.3 0.0 0.0Funds from operations 102.3 142.1 151.7 154.6 161.1Maintenance capex reserve (15.2) (15.2) (15.2) (14.9) (14.9)Other adjustments (s/l rent, other) (1.7) (8.6) (8.2) (8.0) (7.8)Adjusted FFO 85.5 118.2 128.3 131.7 138.4Acquisitions/(dispos'ns) net 1,226.3 123.1 87.7 74.5 74.8Dividends/other distributions (86.6) (113.9) (116.5) (116.7) (116.7)Financing (debt + equity, net) 1,224.5 108.3 (58.5) 54.2 48.2

KEY INFORMATION VALUATION METRICS (C$ unless otherwise specified) Net free cash flow 13.9 13.4 (111.0) 17.6 17.8

2013A 2014A 2015E 2016E 2017E Balance sheet:Stock rating: Sector Perform - SP Earnings/unit - diluted 0.38 0.56 0.54 0.59 0.63 Current assets 9.0 47.8 13.8 13.8 13.8

P/E - diluted 37.6x 23.2x 24.3x 21.8x 20.2x Investments & other assets 168.1 169.5 184.7 185.8 186.91 year target price: $14.50 FFO/unit - basic 1.09 1.12 1.14 1.18 1.23 Properties 3,168.1 3,196.1 3,265.9 3,279.1 3,292.5Annualized distribution: $0.89 Indicated yield: 7.0% FFO/unit - diluted 1.09 1.10 1.13 1.18 1.22 Total assets 3,345.2 3,413.4 3,464.4 3,478.8 3,493.2

P/FFO - diluted 13.0x 11.8x 11.6x 10.9x 10.5x Current liabilities 0.0 0.0 0.0 0.0 0.0Units O/S - basic (MM): 131.1 Market cap - basic ($MM): 1,678 EBITDA/unit 1.67 1.70 1.74 1.86 1.85 Debt due in <1 year 89.8 70.3 77.4 77.4 77.4Units O/S - diluted (MM): 138.4 Market cap - diluted ($MM): 1,772 Total value/unit 36.20 29.88 30.15 17.48 17.85 Long term debt 1,868.1 1,898.1 2,028.5 2,082.7 2,130.9Float - basic (MM): 76.7 Market cap - float ($MM): 982 Total value/EBITDA 21.7x 17.6x 17.4x 9.4x 9.6x Preferreds + convertible debs 174.9 175.2 131.4 131.4 131.4

NAV/unit - diluted 14.00 14.25 14.25 14.50 n.a. Minority interest & other LT liab 88.0 86.4 84.7 84.7 84.7Major unitholders: Empire Company Ltd. 42% Price/NAV 101% 91% 92% n.a. n.a. Common equity 1,124.3 1,183.3 1,142.5 1,102.7 1,068.9

AFFO/unit - diluted 0.93 0.93 0.95 1.00 1.03 Total liabilities & equity 3,345.2 3,413.4 3,464.4 3,478.8 3,493.2P/AFFO - diluted 15.2x 14.1x 13.8x 12.7x 12.5x

Notes: Distribution/unit 0.89 0.89 0.89 0.89 0.89 Ratios:Yield 6.3% 6.8% 6.8% 7.0% 7.0% NOI margin 64% 69% 69% 70% 69%


FOUR-YEAR CAGRS (2013A - 2017E) Net debt+converts/EBITDA 12.6x 9.5x 9.8x 9.8x 9.7xEBITDA 9.0% EBITDA/unit 2.7% Debt+converts/GBV 53% 53% 53% 54% 55%


$12.80

CROMBIE REAL ESTATE INVESTMENT TRUST Rel. S&P/TSX CAPPED REIT INDEX

96.00

102.00

108.00


CROMBIE REAL ESTATE INVESTMENT TRUST

12.40

12.60

12.80 13.00 13.20 13.40 13.60 13.80

1000

2000

COMPANY PROFILECrombie REIT ("Crombie" or "CRR") owns more than 250 properties with over 17 million sf of GLA, consisting primarily of Sobeys-anchored shopping centres. Empire Company Limited ("Empire") spun out Crombie in 2006 as part of a strategy to maximize the value of its real estate holdings used in its food retail operations. Sobeys retailer is Crombie's largest tenant representing roughly 50% of annual minimum rent. Empire retains an ~42% equity stake in Crombie. The retailer is a wholly owned subsidiary of Empire that operates a number ofdifferent full, discount, and other food-service banners.

VALUATIONOur one-year price target is derived based on parity to our NAV per unit estimate one-year hence, which implies a 14x AFFO multiple to our 2017 AFFO per unit estimate. This is a more modest P/NAV ratio than some of the Crombie’s more diversified large-cap peers—we believe our target valuation for CRR reflects its portfolio attributes, financial leverage, established public-market track record, overall franchise value, and a reduced float due to Empire’s retained interest. Based on our risk-adjusted return expectations versus its peers, we rate CRR units Sector Perform.

January 7, 2016 280




Income statement:Revenue 63.0 344.8 377.5 397.5 415.9Net operating income (NOI) 49.3 268.1 290.3 307.1 321.4Corporate G&A (2.2) (8.4) (9.2) (9.0) (9.2)Other income (mezz loans, fees) 0.0 0.0 0.0 0.0 0.0EBITDA 47.0 259.7 281.1 298.1 312.2Interest expense (15.6) (82.6) (87.3) (88.4) (90.6)Income taxes/(recovery) 0.0 0.0 0.0 0.0 0.0IFRS FV (gain)/loss & other (0.5) 141.2 27.2 0.0 0.0Net income to common 31.0 318.3 221.0 209.7 221.6

Cash flow statement:Net income to common 31.0 318.3 221.0 209.7 221.6Depreciation & amortization 0.0 0.0 0.0 0.0 0.0Deferred taxes 0.0 0.0 0.0 0.0 0.0IFRS FV (gain)/loss & other 0.5 (141.5) (27.0) 0.0 0.0Funds from operations 31.5 176.8 194.1 209.7 221.6Maintenance capex reserve (2.8) (15.5) (17.0) (17.8) (18.6)Other adjustments (s/l rent, other) (5.2) (28.5) (25.7) (25.4) (25.2)Adjusted FFO 23.5 132.9 151.4 166.5 177.8Acquisitions/(dispos'ns) (net) 250.4 106.7 48.7 0.0 0.0Dividends/other distributions 12.5 115.6 122.8 130.4 134.9Financing (debt + equity, net) 278.1 (5.0) (1.9) 234.9 51.0

KEY INFORMATION VALUATION METRICS (C$ unless otherwise specified) Net free cash flow 46.7 (50.4) 20.7 314.2 137.8


P/E - diluted n.m. 9.6x 13.5x 14.6x 14.0x Investments & other assets 7.7 4.5 18.0 18.0 18.01 year target price: $13.50 FFO/unit - basic 0.18 0.98 1.04 1.10 1.15 Properties 3,547.9 3,999.8 4,256.2 4,274.0 4,292.6Annualized distribution: $0.68 Indicated yield: 5.2% FFO/unit - diluted 0.18 0.98 1.04 1.10 1.15 Total assets 3,611.2 4,017.4 4,358.4 4,761.4 4,990.2

P/FFO - diluted n.m. 11.8x 12.0x 11.9x 11.3x Current liabilities 30.9 31.5 63.6 63.6 63.6Units O/S - basic (MM): 189.6 Market cap - basic ($MM): 2,464 EBITDA/unit 0.26 1.44 1.50 1.56 1.62 Debt due in <1 year 0.0 78.0 0.0 0.0 0.0Units O/S - diluted (MM): 189.6 Market cap - diluted ($MM): 2,464 Total value/unit 20.68 22.54 23.53 25.37 12.82 Long term debt 0.0 58.5 420.9 696.9 807.4Float - basic (MM): 30.6 Market cap - float ($MM): 398 Total value/EBITDA n.m. 15.7x 15.7x 16.3x 7.9x Preferreds + convertible debs 0.0 0.0 0.0 0.0 0.0

NAV/unit - diluted 10.85 11.00 11.75 12.25 n.a Minority interest & other LT liab 1,800.0 1,847.3 1,670.4 1,670.4 1,670.4Major unitholders: Canadian Tire Corporation 84% Price/NAV 98% 105% 105% 106% n.a Common equity 1,780.4 2,002.2 2,203.6 2,330.5 2,448.8

AFFO/unit - diluted 0.13 0.74 0.81 0.87 0.92 Total liabilities & equity 3,611.2 4,017.4 4,358.4 4,761.4 4,990.2P/AFFO - diluted n.m. 15.7x 15.3x 14.9x 14.1x



THREE-YEAR CAGRS (2014A - 2017E) Net debt+converts/EBITDA n.m. 7.6x 7.2x 6.5x 6.0xEBITDA 6.3% EBITDA/unit 4.0% Debt+converts/GBV 50% 49% 48% 50% 50%


CT REIT $13.00

1 2013A is a 2-month period from the REIT's IPO on October 23, 2013 through to December 31, 2013. Multiples and yield are therefore not meaningful.

CT REAL ESTATE INVESTMENT TRUST Rel. S&P/TSX CAPPED REIT INDEX

100.00

110.00


CT REAL ESTATE INVESTMENT TRUST

11.60

12.00

12.40

12.80

13.20

40.00

80.00

COMPANY PROFILECT Real Estate Investment Trust ("CT REIT" or "CRT") owns over 275 retail properties, two distribution centres, and three development properties with GLA in excess of 20 million sf, consisting primarily of Canadian Tire-anchored single-tenant stores and shopping centres. Canadian Tire Corp. ("CTC") spun out CT REIT in 2013 as part of a strategy to maximize the value of its real estate holdings used in its general merchandiser operations. As a tenant, Canadian Tire (along with its various sporting goods, apparel, and automotive banners) represents ~96% of base minimum rent. CTC retains an ~84% equity stake in CT REIT, and holds the vast majority of the REIT's indebtedness.

VALUATIONOur one-year price target is derived by applying a ~10% premium to our NAV per unit estimate one-year hence, which implies a ~15x multiple to our 2017 AFFO per unit estimate. We believe that our target valuation for CRT reflects its portfolio attributes, its developing large-cap liquidity, its still to be established public-market track record, and a controlling-unitholder discount. Based on our risk-adjusted return expectations versus its peers, we rate CRT units Sector Perform.

January 7, 2016 281


First Capital Realty Inc. Price: SUMMARIZED FINANCIAL INFORMATION (C$MM)


Income statement:Gross rental revenue 635.9 653.6 663.8 679.0 703.9Net operating income (NOI) 401.0 410.5 415.6 424.8 440.8Corporate G&A (25.2) (30.9) (34.4) (34.0) (35.6)Other income (mezz loans, fees) 12.0 11.8 12.5 14.9 14.9EBITDA 387.7 391.4 393.7 405.6 420.0Interest expense (incl. converts.) (165.4) (173.8) (162.7) (160.6) (158.6)IFRS FV gain/(loss) & other 44.2 26.8 37.5 (3.0) (3.0)Income taxes (51.4) (47.7) (51.3) (22.6) (24.1)Net income to common 215.0 196.8 217.3 219.4 234.3

Cash flow statement:Net income to common 215.0 196.8 217.3 219.4 234.3Depreciation & amortization 0.0 0.0 0.0 0.0 0.0Deferred taxes 51.4 47.7 51.3 22.6 24.1IFRS FV (gain)/loss & other (50.9) (35.4) (46.4) 8.0 8.2Funds from operations 215.5 209.0 222.1 250.0 266.6Non-recov. capex & leasing (14.1) (15.6) (17.6) (17.4) (18.1)Other adjustments (s/l rent, other) 23.8 36.4 41.7 25.9 27.2Adjusted FFO 225.2 229.8 246.2 258.5 275.7Acquisitions/(dispositions), net 343.7 322.4 257.3 57.4 78.1Dividends/other distributions 174.1 177.9 190.4 194.3 195.0Financing (debt + equity, net) 246.2 243.6 205.8 16.9 16.9

KEY INFORMATION VALUATION METRICS (C$ unless otherwise specified) Net free cash flow (56.1) (47.7) (19.7) 15.2 10.5

2013A 2014A 2015E 2016E 2017E Balance sheet:Stock rating: Outperform - O Earnings/share - diluted 1.01 0.92 0.96 0.97 1.03 Current assets 84.5 87.6 81.6 89.0 89.9

P/E - diluted 18.3x 19.8x 19.3x 18.9x 17.8x Investments & other assets 170.8 180.1 157.5 157.5 157.51 year target price: $21.00 FFO/share - basic 1.04 0.99 0.99 1.10 1.17 Properties 7,341.0 7,623.7 7,988.3 8,023.0 8,078.4Annualized dividend: $0.86 Indicated yield: 4.7% FFO/share - diluted 1.03 0.98 0.98 1.10 1.17 Total assets 7,596.3 7,891.4 8,227.4 8,269.5 8,325.8

P/FFO - diluted 17.9x 18.5x 18.9x 16.6x 15.7x Current liabilities 670.7 714.9 750.8 750.8 750.8Shares O/S - basic (MM): 225.2 Market cap - basic ($MM): 4,132 EBITDA/share 1.86 1.85 1.75 1.79 1.85 Debt due in <1 year 0.0 0.0 0.0 0.0 0.0Shares O/S - diluted (MM): 243.5 Market cap - diluted ($MM): 4,468 Total value/share 35.89 35.71 35.11 35.08 35.00 Long term debt 3,228.5 3,333.0 3,479.0 3,479.0 3,479.0Float - basic (MM): 116.2 Market cap - float ($MM): 2,133 Total value/EBITDA 19.3x 19.3x 20.1x 19.6x 18.9x Convertible debentures 374.0 373.3 327.8 327.8 327.8

NAV/share - diluted 17.75 18.00 18.00 19.00 n.a Minority interest & other LT liab 0.0 0.0 0.0 0.0 0.0Major shareholders: Gazit-Globe Ltd. 42% Price/NAV 104% 101% 104% 97% n.a Common equity 3,323.0 3,470.3 3,654.0 3,696.1 3,752.4

Alony-Hetz Properties & Investments Ltd. 6% AFFO/share - diluted 1.00 1.01 1.03 1.07 1.14 Total liabilities & equity 7,596.3 7,891.4 8,227.4 8,269.5 8,325.8P/AFFO - diluted 18.4x 18.1x 18.1x 17.1x 16.1x

Notes: Dividend/share 0.84 0.85 0.86 0.86 0.86 Ratios:Yield 4.5% 4.7% 4.6% 4.7% 4.7% NOI margin 63% 63% 63% 63% 63%

EBITDA margin 61% 60% 59% 60% 60%EBITDA/interest expense 2.3x 2.3x 2.4x 2.5x 2.6x

FOUR-YEAR CAGRS (2013A - 2017E) Net debt+converts/EBITDA 9.3x 9.5x 9.7x 9.4x 9.1xEBITDA 2.0% EBITDA/share (0.2%) Debt+converts/GBV 43% 42% 42% 42% 42%

Source: Company reports, RBC Capital Markets estimates FFO/share 3.2% AFFO/share 3.3% AFFO payout ratio 84% 85% 84% 80% 75%

$18.35

Net income to common includes IFRS fair value adjustment and other non-operating items.

FIRST CAPITAL REALTY INC Rel. S&P/TSX CAPPED REIT INDEX

96.00

104.00

112.00


FIRST CAPITAL REALTY INC

17.00

17.50

18.00

18.50

19.00

19.50

20.00

1000

2000

3000

4000

COMPANY PROFILEFirst Capital Realty Inc ("FCR") is a fully integrated Canadian real estate operating company, with a focus on the ownership, management, acquisition, and development of neighbourhood and community shopping centres. Its centres are most commonly anchored by grocery stores, junior department stores, or drug stores. As FCR's tenant base provides consumers with goods and services essential to everyday life, the company's properties are of the type that tend to be weekly destinations for most Canadian households. The company currently owns interests in more than 150 properties (including development sites) with over 24 million sf of GLA.

VALUATIONOur one-year price target is derived by applying a ~10% premium to our $19.00 NAV per share estimate one-year hence, which implies a 18x multiple to our 2017 AFFO per unit estimate. Our target continues to represent a premium to the group average, which we believe is warrantedbased on First Capital Realty's stable and improving operating results, its value-added business model, and the underlying NAV per share. We rate FCR shares Outperform.

January 7, 2016 282




Income statement:Gross rental revenue 104.1 113.9 124.5 126.0 126.0Net operating income (NOI) 62.6 65.8 73.7 74.5 74.5Corporate G&A (4.5) (4.6) (4.6) (4.9) (4.9)Other income (mezz loans, fees) 0.0 0.0 0.0 0.0 0.0EBITDA 58.2 61.2 69.0 69.6 69.6Interest expense (incl converts) (24.2) (28.3) (32.8) (31.6) (30.7)Income taxes 0.0 0.0 0.0 0.0 0.0IFRS FV (gain)/loss & other 0.8 (24.3) (5.0) (2.3) (2.3)Net income to common 34.8 8.6 31.3 35.7 36.6

Cash flow statement:Net income to common 34.8 8.6 31.3 35.7 36.6Depreciation & amortization 0.0 0.0 0.0 0.0 0.0Deferred taxes 0.0 0.0 0.0 0.0 0.0Other 1.8 25.5 6.1 3.4 3.4Funds from operations 36.6 34.1 37.4 39.1 40.0Non-recov. capex & leasing (4.9) (5.2) (5.9) (5.9) (5.9)Other adjustments (s/l rent, other) (1.4) (0.8) (0.3) (0.3) (0.3)Adjusted FFO 30.3 28.1 31.2 32.9 33.8Acquisitions/(dispositions), net 218.0 106.6 (4.5) 0.0 0.0Dividends/other distributions 26.9 30.9 30.3 25.9 25.9Financing (debt + equity, net) 190.6 108.1 7.1 0.0 0.0

KEY INFORMATION VALUATION METRICS (C$ unless otherwise specified) Net free cash flow (17.7) 4.7 18.7 13.3 14.2


P/E - diluted 9.5x 38.8x 9.7x 8.0x 7.8x Investments & other assets 2.3 2.7 6.1 6.4 6.71 year target price: $3.75 FFO/unit - basic 0.56 0.44 0.44 0.45 0.46 Properties 971.3 1,149.2 1,144.5 1,144.5 1,144.5Annualized distribution: $0.30 Indicated yield: 9.0% FFO/unit - diluted 0.56 0.44 0.44 0.45 0.46 Total assets 1,009.1 1,179.7 1,188.6 1,198.5 1,209.2

P/FFO - diluted 9.1x 9.8x 8.1x 7.3x 7.2x Current liabilities 32.4 35.8 42.6 42.6 42.6Units O/S - basic (MM): 86.3 Market cap - basic ($MM): 286 EBITDA/unit 0.89 0.80 0.80 0.81 0.81 Debt due in <1 year 23.8 19.0 23.5 23.5 23.5Units O/S - diluted (MM): 86.3 Market cap - diluted ($MM): 286 Total value/unit 13.30 13.16 11.51 11.27 11.27 Long term debt 434.4 578.8 593.3 593.3 593.3Float - basic (MM): 70.3 Market cap - float ($MM): 234 Total value/EBITDA 15.0x 16.6x 14.3x 14.0x 14.0x Preferreds + convertible debs 84.0 82.5 69.5 69.5 69.5

NAV/unit - diluted 5.80 4.75 4.50 4.50 n.a Minority interest & other LT liab 0.0 0.0 0.0 0.0 0.0Major unitholders: Mitchell Goldhar and affiliates 18% Price/NAV 87% 91% 78% 74% n.a Common equity 434.5 463.6 459.8 469.7 480.4




FOUR-YEAR CAGRS (2013A - 2017E) Net debt+converts/EBITDA 7.8x 9.7x 8.9x 8.7x 8.5xEBITDA 4.6% EBITDA/unit (2.3%) Debt+converts/GBV 54% 58% 58% 57% 57%

Source: Company reports, RBC Capital Markets estimates FFO/unit (4.5%) AFFO/unit (4.0%) AFFO payout ratio 97% 123% 103% 79% 77%

OneREIT $3.32

Net Income To Common includes IFRS fair value adjustment and other non-operating items. Excluding one-times items related to the Zellers lease termination and legal dispute, 2013A FFO and AFFO per unit were $0.47 and $0.37, respectively

ONEREIT Rel. S&P/TSX CAPPED REIT INDEX

84.00

90.00 96.00


ONEREIT

3.00

3.20

3.40

3.60

3.80

4.00

300

600

COMPANY PROFILEOneREIT owns a portfolio of approximately 7 million sf of enclosed community malls, open community plazas, and enclosed regional malls located primarily in secondary and tertiary markets across Canada. The REIT’s portfolio is externally managed, and SmartCentres provides leasing and development expertise.

VALUATIONOur price target is derived by applying a 15% discount to our $4.50 NAV per unit estimate one-year hence, while holding cap rates constant, which implies a 10x target multiple to our 2017 AFFO per unit estimate. We believe our target multiple reasonably reflects factors such as the REIT's financial leverage, asset calibre, secondary and tertiary market exposure, and overall franchise value.

January 7, 2016 283




Income statement:Revenue 83.1 93.4 95.6 98.6 103.5Net operating income (NOI) 52.5 59.8 60.8 63.5 66.6Corporate G&A (8.4) (8.9) (8.6) (8.1) (8.2)Other inc. (mezz loans, fees) 3.0 4.6 3.9 4.0 4.0EBITDA 47.1 55.5 56.1 59.4 62.4Interest expense (27.2) (27.2) (27.6) (28.3) (28.9)Income taxes 0.1 57.4 (0.7) 0.0 0.0IFRS FV (gain)/loss & other (31.6) (0.4) 12.6 (0.4) (0.4)Net income to common (11.6) 85.3 40.4 30.6 33.1

Cash flow statement:Net income to common (11.6) 85.3 40.4 30.6 33.1Depreciation & amortization 0.0 0.0 0.0 0.0 0.0Deferred taxes 0.7 (57.3) 0.6 0.0 0.0IFRS FV (gain)/Loss & other 30.2 (0.7) (11.1) 1.3 1.2Funds from operations 19.3 27.2 29.9 32.0 34.3Maintenance capex reserve (1.7) (2.3) (2.9) (2.5) (2.2)Other adj. (s/l rent, other) 0.9 (0.8) 0.6 (1.4) (1.4)Adjusted FFO 18.5 24.1 27.7 28.1 30.7Acquisitions/(dispositions) net 17.5 (10.8) 40.0 35.0 20.0Dividends/other distributions 16.0 22.0 23.6 24.8 25.8Financing (debt + equity, net) 121.1 (34.5) 37.2 23.4 30.8

KEY INFORMATION VALUATION METRICS (C$ unless otherwise specified) Net free cash flow 106.9 (18.4) 3.6 (4.5) 19.3

2013A 2014A 2015E 2016E 2017E Balance sheet:Stock rating: Outperform - O Earnings/unit - diluted -0.16 0.93 0.43 0.33 0.35 Current assets 75.7 60.5 88.6 82.8 100.9

P/E - diluted n.m. 5.0x 10.9x 14.4x 13.4x Investments & other assets 0.0 0.0 0.0 0.0 0.01 year target price: $5.00 FFO/unit - basic 0.26 0.30 0.32 0.34 0.36 Properties 900.2 889.8 939.3 974.3 994.3Annualized distribution: $0.26 Indicated yield: 5.5% FFO/unit - diluted 0.26 0.30 0.32 0.34 0.36 Total assets 975.8 950.3 1,027.8 1,057.0 1,095.2


NAV/unit - diluted 4.60 4.30 4.60 4.75 n.a Minority int. & other LT liab 61.9 5.0 5.5 5.5 5.5Major unitholders: Management and insiders 22% Price/NAV 93% 99% 93% 99% n.a Common equity 327.6 407.4 426.8 432.6 439.9

AFFO/unit - basic 0.25 0.26 0.29 0.30 0.33 Total liabilities & equity 975.8 950.3 1,027.8 1,057.0 1,095.2Notes: AFFO/unit - diluted 0.25 0.26 0.29 0.30 0.33

P/AFFO - diluted 17.2x 16.1x 14.6x 15.7x 14.4x Ratios:Distribution/unit 0.23 0.24 0.25 0.26 0.27 NOI margin 63% 64% 64% 64% 64%Yield 5.3% 5.7% 5.8% 5.5% 5.8% EBITDA margin 57% 59% 59% 60% 60%

EBITDA/interest expense 1.7x 2.0x 2.0x 2.1x 2.2xFOUR-YEAR CAGRS (2013A - 2017E) Net debt+converts/EBITDA 11.6x 9.3x 10.2x 10.2x 9.9xEBITDA 7.3% EBITDA/unit 1.2% Debt+converts/GBV 49% 49% 50% 51% 52%


Plaza Retail REIT $4.70


PLAZA RETAIL REIT Rel. S&P/TSX CAPPED REIT INDEX

100.00

110.00

120.00


PLAZA RETAIL REIT

4.00

4.20

4.40

4.60

600

1200

COMPANY PROFILEPlaza Retail REIT owns interests in more than 300 retail properties encompassing approximately 7.0 million sf. Approximately 58% of GLA is in Eastern Canada, with 41% in Quebec and Ontario, and the remainder in Western Canada. The company’s "value-added" business model has traditionally favoured growth via development over acquisitions, but the company will pursue acquisitions where it sees opportunity (e.g., the acquisition of KEYreit in 2013).

VALUATIONOur one-year price target is based on a 5% premium to our NAV per unit estimate one-year hence and implies a 15x target multiple on our 2017 AFFO per unit estimate. We believe our target multiple appropriately reflects: 1) strong dividend growth track record; 2) significant insider sponsorship; and, 3) value-creation potential. These factors are weighed against portfolio concentration in secondary and tertiary markets, and the low trading liquidity inherent in the share float.

January 7, 2016 284


January 7, 2016 285



Income statement:

Gross rental revenue 1,163.2 1,205.7 1,277.9 1,170.8 1,120.3


Corporate G&A (53.9) (69.0) (74.7) (64.0) (61.4)

Other income (mezz loans, fees) 31.4 29.1 36.5 32.0 32.0

EBITDA 735.4 742.9 777.2 721.8 695.8


IFRS FV (gain)/loss & other 217.0 156.6 (84.9) 0.0 0.0

Income taxes 0.3 (0.1) 0.1 0.0 0.0

Net income to common 709.5 663.3 454.1 516.0 522.1


Net income to common 709.5 663.3 454.1 516.0 522.1


Deferred taxes (0.3) 0.1 (0.1) 0.0 0.0

IFRS FV (gain)/loss & other (216.8) (145.9) 96.9 10.4 10.4


Non‐recov. capex & leasing (45.0) (50.0) (50.8) (51.0) (54.5)

Other adjustments (s/l rent, other) (0.7) (3.8) (6.6) (7.0) (4.0)

Adjusted FFO 446.7 463.6 493.6 468.4 474.0

Acquisitions/(dispositions), net 182.0 378.0 993.0 (2,504.3) 225.0

Dividends/other distributions (440.0) (447.0) (459.9) (452.7) (452.7)

Financing (debt + equity, net) 174.0 482.0 1,006.6 0.0 50.0

KEY INFORMATION VALUATION METRICS (C$ unless otherwise specified) Net free cash flow 44.4 174.4 104.7 2,578.0 (95.2)


Stock rating: Outperform ‐ O Earnings/unit ‐ diluted 2.29 2.10 1.38 1.56 1.58 Current assets 178.0 454.0 580.1 3,092.5 2,931.2

P/E ‐ diluted 11.6x 12.5x 19.0x 15.2x 15.0x Investments & other assets 257.0 145.0 137.6 137.6 137.6

1 year target price: $28.00 FFO/unit ‐ basic 1.63 1.68 1.73 1.64 1.66 Properties 13,119.0 14,121.0 15,327.8 12,862.5 13,130.0

Annualized distribution: $1.41 Indicated yield: 6.0% FFO/unit ‐ diluted 1.62 1.68 1.72 1.64 1.65 Total assets 13,554.0 14,720.0 16,045.5 16,092.6 16,198.8


Units O/S ‐ basic (MM): 321.1 Market cap ‐ basic ($MM): 7,606 EBITDA/unit 2.33 2.32 2.32 2.15 2.07 Debt due in <1 year 0.0 0.0 510.4 510.4 510.4

Units O/S ‐ diluted (MM): 330.1 Market cap ‐ diluted ($MM): 7,819 Total value/unit 47.08 48.03 50.19 39.72 40.38 Long term debt 5,988.0 6,483.0 6,931.0 6,931.0 6,981.0

Float ‐ basic (MM): 321.1 Market cap ‐ float ($MM): 7,606 Total value/EBITDA 20.2x 20.7x 21.6x 18.5x 19.5x Preferreds + convertible debs 265.0 265.0 265.5 265.5 265.5

NAV/unit ‐ diluted 25.00 25.50 23.50 24.50 n.a. Minority interest & other LT liab 0.0 0.0 0.8 0.8 0.8

Major unitholders: Price/NAV 106% 103% 111% 97% n.a. Common equity 6,996.0 7,603.0 7,909.1 7,956.2 8,012.4

AFFO/unit ‐ diluted 1.47 1.50 1.54 1.46 1.47 Total liabilities & equity 13,554.0 14,720.0 16,045.5 16,092.6 16,198.8


Notes: Distribution/unit 1.41 1.41 1.41 1.41 1.41 Ratios:

Yield 5.3% 5.4% 5.4% 6.0% 6.0% NOI margin 65% 65% 64% 64% 65%

EBITDA margin 63% 62% 61% 62% 62%



EBITDA (1.4%) EBITDA/unit (2.9%) Debt+converts/GBV 44% 44% 46% 46% 46%

Source: Company reports, RBC Capital Markets estimates FFO/unit 0.5% AFFO/unit (0.0%) AFFO payout ratio 96% 94% 91% 97% 96%

RioCan REIT $23.69

Net income to common includes IFRS fair value adjustment and other non‐operating items.

RIOCAN REAL ESTATE INVST TR Rel. S&P/TSX CAPPED REIT INDEX

99.00

102.00


RIOCAN REAL ESTATE INVST TR

24.00

26.00

28.00

600

1200

COMPANY PROFILEPro forma the sale of the U.S. business, RioCan will own interests in a portfolio of more than 300 retail centres across Canada encompassing approximately 43 million sf at RioCan’s interest, including 15 development properties. RioCan's stated goal is “the long‐term maximization of cash flow and capital appreciation in its portfolio,” which it seeks to achieve by proactively managing its assets.

VALUATIONOur price target is derived through the application of a 15% premium to our NAV per unit estimate one‐year hence, which implies a multiple of 18x to our 2017 AFFO per unit estimate. Our target multiple represents a premium to what we apply to RioCan's Canadian peers, which we believe is warranted in light of RioCan's above‐average liquidity, its strategic focus onCanada's six‐largest cities, its sizable, value‐added development pipeline, and its overall franchise value. On the basis of expected risk‐adjusted returns, we rate RioCan units Outperform.


Slate Retail REIT Price: SUMMARIZED FINANCIAL INFORMATION (US$MM)

December 31, 2015 Primary analyst: Michael Smith, CFA, (416) 842-7805 2013A 2014A1 2015E 2016E 2017E

Income statement:Revenue n/a 35.8 79.5 93.1 94.8Net operating income (NOI) n/a 25.5 57.7 66.1 67.3Corporate G&A n/a 4.7 6.0 5.7 5.9Other income n/a 0.0 0.0 0.0 0.0EBITDA n/a 20.8 51.7 60.4 61.3Interest expense n/a (10.0) (14.2) (16.9) (16.9)Income taxes n/a (12.5) (16.4) (17.1) (17.8)IFRS FV gain/(loss) & other n/a 19.0 (15.3) (25.2) (25.2)Net income to common n/a 17.4 5.8 1.2 1.5

Cash flow statement:Net income to common n/a 17.4 5.8 1.2 1.5Depreciation & amortization n/a 0.0 0.0 0.0 0.0Deferred taxes n/a 12.5 16.4 17.1 17.8IFRS FV (gain)/loss & other n/a (17.4) 15.3 25.2 25.2Funds from operations n/a 12.4 37.5 43.5 44.5Maintenance capex reserve n/a (1.8) (4.0) (4.6) (4.7)Other adjustments (s/l rent, other) n/a 2.5 (1.4) (1.1) (1.1)Adjusted FFO n/a 13.2 32.1 37.7 38.7Acquisitions/(dispos'ns) net n/a 151.3 109.8 0.0 0.0Dividends/other distributions n/a 7.7 20.1 25.2 25.2Financing (debt + equity, net) n/a 150.2 84.7 (12.1) (13.1)

VALUATION METRICS (US$ unless otherwise specified) Net free cash flow n/a 3.7 (7.7) 6.2 6.2

KEY INFORMATION 2013A 2014A1 2015E 2016E 2017E Balance sheet:Stock rating: Sector Perform Earnings/unit - diluted n.a. 1.01 0.21 0.04 0.05 Current assets n/a 19.8 23.1 23.1 23.1

P/E - diluted n.a. n.m. 51.5x 273.2x 220.4x Investments & other assets n/a 6.1 6.2 6.2 6.21 year target price: $10.75 FFO/unit - basic n.a. 0.72 1.32 1.35 1.38 Properties n/a 622.3 952.9 959.1 965.3Annualized distribution: $0.78 Indicated yield: 7.5% FFO/unit - diluted n.a. 0.72 1.32 1.35 1.38 Total assets n/a 648.2 982.2 988.4 994.6

P/FFO - diluted n.a. n.m. 8.0x 7.7x 7.6x Current liabilities n/a 2.4 14.0 14.0 14.0Units O/S - basic (MM): 32.0 Market cap - basic ($MM): 333 EBITDA/unit n.a. 1.21 1.82 1.87 1.90 Debt due in <1 year n/a 0.0 0.0 0.0 0.0Units O/S - diluted (MM): 32.0 Market cap - diluted ($MM): 333 Total value/unit n.a. 32.31 29.97 27.75 28.12 Long term debt n/a 369.8 547.9 560.9 573.0Float - basic (MM): 27.9 Market cap - float ($MM): 290 Total value/EBITDA n.a. n.m. 16.4x 14.9x 14.8x Preferreds + convertible debs n/a 0.0 0.0 0.0 0.0

NAV/unit - diluted n.a. n.a. 11.25 12.28 n.a. Minority interest & other LT liab n/a 43.4 69.0 86.0 103.8Major unitholders: Slate Asset Management 1.6% Price/NAV n.a. n.a. 94% 85% n.a. Common equity n/a 232.6 351.4 327.5 303.8

Welch brothers 4.9% AFFO/unit - diluted n.a. 0.77 1.13 1.17 1.20 Total liabilities & equity n/a 648.2 982.2 988.4 994.6P/AFFO - diluted n.a. n.m. 9.4x 8.9x 8.7x

Notes: Distribution/unit n.a. 0.52 0.76 0.78 0.78 Ratios:Yield n.a. n.m. 7.1% 7.5% 7.5% NOI margin n/a 71% 73% 71% 71%

EBITDA margin n/a 58% 65% 65% 65%EBITDA/Interest expense n/a 2.1x 3.6x 3.6x 3.6x

TWO-YEAR CAGR (2015E- 2017E) Net debt+converts/EBITDA n/a n/m 10.3x 9.1x 9.1xEBITDA 8.9% EBITDA/unit 1.9% Debt+converts/GBV n/a 57% 56% 57% 58%

Source: Company reports, RBC Capital Markets estimates FFO/unit 1.9% AFFO/unit 2.8% AFFO payout ratio n/a 67% 67% 67% 65%

US$10.40

1The REIT completed its combination transaction on April 15, 2014. All 2014A figures are for the partial year, and as such, P/FFO and P/AFFO shown are not relevant.

SLATE RETAIL REIT Rel. S&P/TSX CAPPED REIT INDEX

100.00 110.00 120.00 130.00


SLATE RETAIL REIT

12.00

12.50

13.00

13.50

14.00

14.50

100

200

300

COMPANY PROFILESlate Retail REIT ("Slate") is a TSX-listed REIT with a focus on US grocery-anchored real estate. Its portfolio totals more than 60 properties, including pending acquisitions encompassing over 7.0 million sf across 20 states in secondary markets. Geographically, roughly half of the REIT’s total leasable area is situated in the Southern states, while the remaining portfolio is spread over mostly the Midwestern and Northeastern states. Slate has an external management structure where asset management services are performed by the REIT's external manager, Slate Asset Management LP ("Slate AM").

VALUATIONOur one-year price target reflects a 10–15% discount to our NAV per unit one-year hence, which implies a 9x multiple to our 2017 AFFO estimate. Our P/NAV ratio is lower than whast we apply to Slate's retail peers, primarily because of the REIT's external management structure but also because of above-average leverage and low trading liquidity.

January 7, 2016 286


SmartREIT Price: SUMMARIZED FINANCIAL INFORMATION (C$MM)

December 31, 2015 Primary Analyst: Michael Smith, CFA, (416) 842-7805 2013A 2014A 2015E 2016E 2017E

Income statement:Gross rental revenue 571.2 607.8 664.6 700.9 717.5Net operating income (NOI) 373.2 394.8 433.4 461.7 472.5Corporate G&A (9.8) (10.6) (18.0) (20.3) (20.8)Other income (mezz loans, fees) 0.0 0.0 0.0 0.0 0.0EBITDA 363.4 384.1 415.4 441.3 451.7Interest expense (incl converts) (122.5) (127.4) (118.4) (112.2) (109.6)Preferred divs 0.0 0.0 0.0 0.0 0.0IFRS FV gain/(loss) & other 75.8 7.0 8.2 0.0 0.0Net income to common 316.6 263.7 305.2 329.2 342.1

Cash flow statement:Net income to common 316.6 263.7 305.2 329.2 342.1Depreciation & amortization 0.0 0.0 0.0 0.0 0.0Deferred taxes 0.0 0.0 0.0 0.0 0.0IFRS FV (gain)/loss & other (69.8) 1.2 3.6 9.5 9.5Funds from operations 246.8 264.9 308.8 338.7 351.6Non-recov. capex & leasing (10.5) (13.1) (15.8) (16.5) (16.9)Other adjustments (s/l rent, other) (3.4) (1.3) (2.1) (2.3) (2.1)Adjusted FFO 232.8 250.5 290.9 319.9 332.5Acquisitions/(dispositions) net 369.6 97.6 467.1 96.3 120.0Dividends/other distributions (180.2) (183.1) (209.1) (255.5) (263.2)Financing (debt + equity, net) 401.5 (21.2) 484.6 48.1 60.0

VALUATION METRICS (C$ unless otherwise specified) Net free cash flow 98.5 (37.0) 117.2 35.0 28.4KEY INFORMATION 2013A 2014A 2015E 2016E 2017E Balance sheet:Stock rating: Outperform - O Earnings/unit - diluted 2.33 1.91 2.06 2.14 2.22 Current assets 374.2 308.2 409.0 431.3 446.8


P/FFO - diluted 14.7x 13.5x 14.3x 13.7x 13.2x Current liabilities 164.4 157.8 162.4 162.4 162.4Units O/S - basic (MM): 153.7 Market cap - basic ($MM): 4,641 EBITDA/unit 2.73 2.84 2.84 2.88 2.94 Debt due in <1 year 1.0 18.1 23.0 23.0 23.0Units O/S - diluted (MM): 154.4 Market cap - diluted ($MM): 4,662 Total value/unit 49.46 48.38 55.93 55.08 25.16 Long term debt 3,012.4 2,927.7 3,861.1 3,908.6 3,967.9Float - basic (MM): 118.9 Market cap - float ($MM): 3,589 Total value/EBITDA 18.1x 17.0x 19.7x 19.1x 8.5x Preferreds + convertible debs 57.2 58.8 0.0 0.0 0.0

NAV/unit - diluted 29.50 30.00 30.50 31.00 n.a. Minority interest & other LT liab 0.0 0.0 0.0 0.0 0.0Major unitholders: Mitchell Goldhar & affiliates 23% Price/NAV 92% 88% 98% 97% n.a. Common equity 3,812.3 3,914.9 4,474.9 4,549.6 4,629.5






$30.19


SMART REAL ESTATE INVESTMENT T Rel. S&P/TSX CAPPED REIT INDEX

100.00

110.00

120.00


SMART REAL ESTATE INVESTMENT T

28.00

28.80

29.60

30.40

31.20

32.00

1000

2000

3000

COMPANY PROFILESmartREIT (formerly Calloway REIT) owns interests in over 150 shopping centres comprising more than 30 million sf of GLA, located across all 10 Canadian provinces. The REIT also has a property-expansion and development pipeline that encompasses almost 5 million sf of development potential. From modest beginnings in 2002, SmartREIT grew rapidly through acquisitions to become the dominant owner of new-format, Walmart-anchored retail centres in Canada. Walmart represents ~27% of the REIT’s gross revenue.

VALUATIONOur price target is derived through the application of a 10% premium to our NAVPU one-year hence, which implies a 16x target multiple to our 2017 AFFO per unit estimate. We believe our premium to NAV and target multiple are supported by factors such as SmartREIT's larger than average market cap, its trading liquidity and financial leverage, and its stable portfolio of value-oriented retail centres. These positive factors are mildly tempered by the fixed-rate long-duration inherent in its Walmart leases. Based on relative risk-adjusted return expectations, we rate SRU units Outperform.

January 7, 2016 287


Allied Properties REIT Price: SUMMARIZED FINANCIAL INFORMATION (C$MM)


Income Statement:Gross Rental Revenue 302.0 337.7 365.5 393.2 405.6Net Operating Income (NOI) 175.4 198.5 215.5 234.0 243.4Corporate G&A 7.1 7.7 8.7 9.1 9.4Other Income (mezz loans, fees) 5.0 6.2 8.0 9.0 9.0EBITDA 163.3 184.6 198.8 215.9 225.0Interest Expense 44.6 53.7 53.2 57.3 58.1Preferred Divs & Convert Int. 0.0 0.0 0.0 0.0 0.0IFRS FV (Gain)/Loss & Other (119.9) (20.9) (121.4) (90.0) (86.0)Net Income To Common 238.6 151.8 267.0 248.6 252.9

Cash Flow Statement:Net Income To Common 238.6 151.8 267.0 248.6 252.9Depreciation & Amortization 13.0 17.9 23.2 23.2 23.0Deferred Taxes 0.0 0.0 0.0 0.0 0.0IFRS FV (Gain)/Loss & Other (119.9) (20.9) (121.4) (90.0) (86.0)Funds From Operations 131.7 148.8 168.8 181.8 189.9Capex & Leasing Costs (27.4) (30.3) (47.3) (18.0) (18.0)Other Adj. (s/l rent, other) 10.3 11.7 18.6 (11.8) (11.8)Adjusted FFO 114.5 130.2 140.1 152.0 160.1Acquisitions/Dispositions (net) 337.9 402.3 406.8 98.0 98.0Dividends/Other Distributions 69.4 71.3 88.1 117.2 121.3Financing (debt + equity, net) 252.8 320.8 332.5 40.0 40.0

VALUATION METRICS (C$ unless otherwise specified) Net Free Cash Flow (50.2) (34.3) (41.0) (11.4) (7.4)




NAV/Unit - Diluted 31.00 33.00 34.00 36.00 n.a. Minority Interest & Other L-T Liab 0.0 0.0 0.0 0.0 0.0Major Unitholders: None Price/NAV 104% 107% 106% 88% n.a. Common Equity 2,068.7 2,330.0 2,594.4 2,728.2 2,862.2






$31.57


COMPANY PROFILEAllied Properties REIT (“Allied”) is a leading owner, manager, and developer of urban office environments in Canada’s major cities. The portfolio's largest concentrations are in Toronto, Montreal, and Calgary, with clusters of properties also located in Quebec City, Ottawa, Kitchener, Winnipeg, Edmonton, Vancouver, and Victoria. Allied specializes in an office format created through the adaptive re-use of light industrial structures in urban areas that has come to be known as Class I, the "I" stemming from the original industrial nature of the structures. This format typically features high ceilings, abundant natural light, exposed structural frames, interior brick, and hardwood floors.

VALUATIONOur price target is derived through the application of a ~15% premium to our NAVPU estimate one-year hence, implying a ~20x target multiple to our 2017 AFFO/unit estimate. Overall, we believe our target valuation multiple reasonably reflects: Allied's significant presence in high barrier to entry urban markets (including its dominant presence in the niche Class I office category); the inherent long-term potential for value-enhancing intensification, development, and redevelopment in the portfolio; industry-leading low financial leverage; and the overall "franchise value" of the business (including its internal, aligned, and entrepreneurial management team). Reflecting relative risk and return expectations, we rate Allied Properties REIT's units Outperform.

ALLIED PROPERTIES REIT Rel. S&P/TSX CAPPED REIT INDEX

94.00 96.00 98.00

100.00 102.00


ALLIED PROPERTIES REIT

32.00

34.00

36.00

38.00

40.00

400

800

January 7, 2016 288


Brookfield Canada Office Properties Price: SUMMARIZED FINANCIAL INFORMATION (C$MM)


Income Statement:Total Operating Revenue 522.8 514.5 512.4 539.9 553.4Net Operating Income (NOI) 271.9 269.3 250.6 273.2 280.0Other Income 0.9 1.1 0.0 0.0 0.0G&A 25.4 22.5 23.5 25.4 26.5EBITDA 247.4 247.9 227.1 247.7 253.5Interest Expense 105.2 91.9 82.9 85.5 86.0IFRS FV (Gain)/Loss (22.6) 39.9 (146.7) (70.0) (70.0)Income Taxes 0.0 0.0 0.0 0.0 0.0Net Income 164.8 116.1 290.9 232.2 237.5

Cash Flow Statement:Net Income 164.8 116.1 290.9 232.2 237.5Depn & Amortization 0.0 0.0 0.0 0.0 0.0Future Income Taxes 0.0 0.0 0.0 0.0 0.0Other (20.1) 42.1 (144.8) (68.0) (68.0)Funds From Operations 144.7 158.2 146.1 164.2 169.5Maintenance Capex Reserve (25.6) (28.0) (30.3) (30.4) (30.4)Other Adjustments (5.1) (0.8) (3.3) (3.0) (3.0)Adjusted FFO 114.0 129.4 112.5 130.8 136.1Acqn/Dispositions (net) 253.4 452.2 145.0 (20.0) 330.0Dividends/Distributions 108.1 111.6 114.2 119.3 126.0Financing (debt + equity, net) 340.1 291.7 73.3 0.0 300.0

VALUATION METRICS (C$ unless otherwise specified) Net Free Cash Flow 123.3 (113.9) (39.8) 64.9 13.4

KEY INFORMATION 2013A 2014A 2015E 2016E 2017E Balance Sheet:Stock Rating: Sector Perform - SP EPU - Diluted 1.77 1.24 3.12 2.49 2.54 Current Assets 218.6 102.1 34.1 76.0 66.5


P/FFO - Diluted 18.7x 16.0x 17.2x 14.8x 14.4x Current Liabilities 161.6 196.9 193.9 193.9 193.9Units O/S - Basic (MM): 93.3 Market Cap - Basic ($MM): 2,432 EBITDA/Unit 2.65 2.66 2.43 2.65 2.72 Debt Due In <1 Year 0.0 0.0 0.0 0.0 0.0Units O/S - Diluted (MM): 93.3 Market Cap - Diluted ($MM): 2,433 Total Value/Unit 52.23 54.92 55.36 54.94 58.29 Long Term Debt 2,354.9 2,650.2 2,727.6 2,730.8 3,034.0Float - Basic (MM): 15.7 Market Cap - Float ($MM): 409 Total Value/EBITDA 19.7x 20.7x 22.8x 20.7x 21.5x Pref Shares + Other 0.0 0.0 0.0 0.0 0.0

NAV/Unit - Diluted 33.00 33.00 35.00 37.00 n.a. Minority Interest & Other L-T 0.0 0.0 0.0 0.0 0.0Major Unitholders: Brookfield Property Partners ~83% Price/NAV 88% 82% 77% 70% n.a. Common Equity 3,092.3 3,096.3 3,272.3 3,382.2 3,490.7 AFFO/Unit - Diluted 1.22 1.39 1.21 1.40 1.46 Total Liabilities & Equity 5,608.8 5,943.4 6,193.8 6,306.9 6,718.6Notes: P/AFFO - Diluted 23.8x 19.6x 22.3x 18.6x 17.9x



FOUR-YEAR CAGRS (2013A - 2017E) Net Debt/EBITDA 8.7x 10.5x 12.0x 10.8x 11.8xEBITDA 0.6% EBITDA/Unit 0.6% Debt/GBV 42% 45% 44% 43% 45%


$26.06


COMPANY PROFILEBrookfield Canada Office Properties owns premier office properties in high barrier to entry markets. The REIT’s portfolio is focused on Class “A” and “AAA” properties in three of Canada’s largest office markets, including 26 buildings and 16.2 million sf of GLA (excluding parking), of which the REIT’s net owned interest is 9.2 million sf.

VALUATIONOur one-year price target equates to a ~20% discount to our NAVPU estimate one-year hence (assuming capitalization rates remain unchanged) and implies a 21x target multiple on our 2017 AFFO/unit estimate. Our target multiple represents a substantial premium to the average P/AFFO target multiple applied to our commercial property coverage universe. We view our target multiple as being appropriate, in light of the REIT's superior-quality property portfolio, moderate financial leverage, and other factors, such as its overall franchise value and modest unit float.

BROOKFIELD CANADA OFFICE PROPE Rel. S&P/TSX CAPPED REIT INDEX

95.00 100.00 105.00 110.00


BROOKFIELD CANADA OFFICE PROPE

24.00

26.00

28.00

30.00

20.00

40.00

60.00

January 7, 2016 289


Brookfield Property Partners LP Price: SUMMARIZED FINANCIAL INFORMATION1 (US$MM)

December 31, 2015 Analyst: Neil Downey, CPA, CA, CFA, (416) 842-7835 2013A 2014A 2015E 2016E 2017E

Income Statement:Property Operating Revenues 2,682 3,726 4,436 4,792 4,870Net Operating Income (NOI) 1,573 2,166 2,579 2,779 2,867Corporate G&A 248 393 526 500 515Investment, Fee & Other Income 118 222 207 168 174EBITDA 1,443 1,995 2,260 2,447 2,527Interest Expense 809 1,148 1,427 1,432 1,432Other Items 137 173 186 171 175IFRS FV (Gain)/Loss (757) (4,066) (1,675) (1,980) (1,950)Income Taxes 259 1,006 -51 604 616Net Income to Common 995 3,734 2,373 2,220 2,254

Cash Flow Statement:Net Income to Common 995 3,734 2,373 2,220 2,254Depreciation & Amortization 56 69 86 76 79Income Taxes 259 1,006 (51) 604 616IFRS FV (Gain)/Loss (757) (4,066) (1,675) (1,980) (1,950)Other Adjustments 20 (4) 89 40 40Funds from Operations 573 739 822 960 1,039Capex & leasing Costs (110) (152) (168) (181) (186)Other Adj. (S/L rent, other) (43) (99) (130) (114) (73)Adjusted FFO 420 488 524 665 780Investments, net (2,133) (8,591) (2,530) (695) (559)Distributions/Other Redemptions (465) (923) (755) (798) (841)Financing (debt + equity, net) 2,156 9,004 2,433 - -

KEY INFORMATION VALUATION METRICS (US$ unless otherwise specified) Net Free Cash Flow 21 77 (197) (713) (547)

Stock Rating: Outperform - O 2013A 2014A 2015E 2016E 2017E Balance Sheet:1 Year Target Price: $26.00 Earnings/unit - Diluted 2.10 5.59 2.89 2.70 2.74 Current Assets 3,685 8,065 6,019 5,487 5,126Annualized Distribution: $1.06 Indicated Yield: 4.6% P/E - Diluted 10.1x 3.8x 8.0x 8.6x 8.5x Investments & Other Assets 1,027 1,265 - - -

FFO/Unit - Basic 1.21 1.11 1.15 1.34 1.44 Properties 31,053 49,605 59,291 61,671 63,921Shares O/S - Basic (MM): 712.4 Market Cap - Basic ($MM): 16,557 FFO/Unit - Diluted 1.21 1.11 1.15 1.34 1.44 Total Assets 35,765 58,935 65,310 67,158 69,047Shares O/S - Diluted (MM): 782.4 Market Cap - Diluted ($MM): 18,184 P/FFO - Diluted 17.6x 19.1x 20.1x 17.4x 16.1x Current Liabilities 1,534 3,203 3,806 3,806 3,806Float - Basic (MM): 217.1 Market Cap - Float ($MM): 5,044 EBITDA/Unit 3.05 2.99 3.17 3.43 3.55 Corporate Borrowings 839 3,870 4,482 4,482 4,482

Total Value/Unit 60.92 68.97 68.07 68.42 68.86 Asset-level Borrowings 15,455 23,275 27,732 27,732 27,732Major Shareholders3: Brookfield Asset Management 62% Total Value/EBITDA 20.0x 23.1x 21.5x 19.9x 19.4x Capital Securities 1,559 3,368 3,320 3,320 3,320(diluted ownership) Qatar Investment Authority 9% NAV/Unit - Diluted 24.98 28.00 29.00 31.00 n.a. Minority Interest & Other 2,754 5,011 4,620 4,620 4,620

BPO Exchange LP4 2% Price/NAV 85% 75% 80% 75% n.a. Common Equity 13,624 20,208 21,350 23,198 25,087Notes: AFFO/Unit - Diluted 0.89 0.73 0.74 0.94 1.09 Total Liabilities & Equity 35,765 58,935 65,310 67,158 69,047

P/AFFO - Diluted 23.98 28.90 31.56 24.64 21.23Distribution/unit 0.88 1.00 1.06 1.12 1.18 Ratios and Other:Yield 4.1% 4.7% 4.6% 4.8% 5.1% NOI Margin 59% 58% 58% 58% 59%

EBITDA Margin 54% 54% 51% 51% 52%FOUR-YEAR CAGRS (2013A - 2017E) EBITDA/Interest Expense 1.8x 1.7x 1.6x 1.7x 1.8xEBITDA 15.0% EBITDA/Unit 3.9% Debt/GBV 46% 47% 50% 48% 47%


US$23.24

1All figures shown on a proportionately consolidated basis.2No historical price data available prior to April 2013 spin-off from BAM.3Percentage ownership presented on a fully-exchanged basis. 4In connection with BPY's Q2/14 acquisition of Brookfield Office Properties ("BPO") , exchangeable units were issued to BPO unitholders via BPO Exchange LP.

COMPANY PROFILEBrookfield Property Partners (the “company” or “BPY”) is a global owner and operator of high-quality real property spanning a range sectors, including office, retail, industrial, multi-family, hotels, and net-lease. The company was established on January 3, 2013 as a Bermuda-exempted limited partnership. BPY was created by Brookfield Asset Management (“BAM” or “Brookfield”) in order to serve as its primary vehicle for global real estate investing. The company’s limited partnership (“LP”) units are dual-listed on the New York Stock Exchange (“NYSE”) under the ticker “BPY” and the Toronto Stock Exchange (“TSX”) under the ticker symbol “BPY.un”.

VALUATIONOur price target equates to a ~15% discount to our NAVPU estimate one-year hence and implies a ~24x multiple on our 2017 AFFO/unit estimate. The P/NAV target valuation metrics ascribed in deriving our BPY price target are at a discount to the peer valuation average, while the P/AFFO valuation metric is at a premium to the forward 12-month peer average. We believe our target valuation metrics reasonably reflect BPY’s structural (high G&A expense ratio; asset management agreement with BAM), risk (high financial leverage; high cash AFFO payout ratio), quality (mostly “premier" properties), and growth/total return (high single-digit NAV/unit and FFO/unit growth, over a multi-year period) attributes.

BROOKFIELD PROPERTY PARTNERS LP Rel. MSCI US REIT INDEX

96.00

104.00


BROOKFIELD PROPERTY PARTNERS LP

20.00

21.00

22.00

23.00

24.00

25.00

26.00

600

1200

January 7, 2016 290


Dream Office REIT Price: SUMMARIZED FINANCIAL INFORMATION (C$MM)


Income Statement:Gross Rental Revenue 687.2 705.3 800.9 765.0 757.1Net Operating Income (NOI) 391.5 401.5 446.7 428.4 424.0Corporate G&A 23.8 24.4 12.9 10.6 10.9Other Income (mezz loans, fees) 0.0 0.0 0.0 0.0 0.0EBITDA 367.7 377.1 433.8 417.8 413.1Interest Expense 125.5 131.8 146.1 141.8 142.2Preferred Divs & Convert Int. 0.0 0.0 0.0 0.0 0.0IFRS FV (Gain)/Loss & Other (210.8) 81.4 256.3 292.0 192.1Net Income To Common 452.9 163.9 27.2 (19.0) 75.8

Cash Flow Statement:Net Income To Common 452.9 163.9 27.2 (19.0) 75.8Depreciation & Amortization 2.5 3.0 2.9 3.0 3.0Deferred Taxes 0.3 0.6 1.2 0.0 0.0IFRS FV (Gain)/Loss & Other (149.5) 145.3 285.4 324.0 224.5Funds From Operations 306.2 312.8 316.7 308.0 303.3Non-Recov. Capex & Leasing (37.7) (49.1) (54.1) (55.0) (55.0)Other Adjustments (s/l rent, other) (17.1) (11.7) (9.9) (10.4) (10.5)Adjusted FFO 251.5 252.0 252.7 242.6 237.7Acquisitions/Dispositions (net) 521.2 17.7 (106.9) 80.0 75.0Dividends/Other Distributions 180.4 181.1 184.0 253.2 253.2Financing (debt + equity, net) 491.7 (60.3) (138.9) 85.0 90.0

VALUATION METRICS (C$ unless otherwise specified) Net Free Cash Flow 96.4 53.8 100.7 59.8 65.1

KEY INFORMATION 2013A 2014A 2015E 2016E 2017E Balance Sheet:Stock Rating: Sector Perform - SP Earnings/Unit - Diluted 4.08 1.37 0.12 (0.30) 0.53 Current Assets 68.9 36.1 59.3 50.7 47.5

P/E - Diluted 8.1x 19.6x 188.8x (58.8x) 32.6x Investments & Other Assets 287.1 109.8 215.2 263.8 312.11 Year Target Price: $23.00 FFO/Unit - Basic 2.89 2.88 2.83 2.72 2.68 Properties 6,768.9 6,863.9 7,099.4 6,867.8 6,730.9Annualized Distribution: $2.24 Indicated Yield: 12.9% FFO/Unit - Diluted 2.87 2.87 2.81 2.71 2.67 Total Assets 7,124.9 7,009.8 7,373.8 7,182.3 7,090.5

P/FFO - Diluted 11.6x 9.4x 8.0x 6.4x 6.5x Current Liabilities 127.1 96.5 147.9 147.9 147.9Units O/S - Basic (MM): 113.0 Market Cap - Basic ($MM): 1,963.1 EBITDA/Unit 3.46 3.48 3.87 3.70 3.66 Debt Due In <1 Year 104.8 0.5 233.8 318.8 408.8Units O/S - Diluted (MM): 113.0 Market Cap - Diluted ($MM): 1,963.1 Total Value/Unit 62.53 55.33 53.28 49.04 49.85 Long Term Debt 2,992.4 3,045.7 3,202.8 3,198.4 3,194.0Float - Basic (MM): 107.0 Market Cap - Float ($MM): 1,858.7 Total Value/EBITDA 18.1x 15.9x 13.8x 13.3x 13.6x Preferreds + Convertible Debs 51.9 51.2 51.0 51.0 51.0

NAV/Unit - Diluted 35.00 34.00 32.00 30.00 n.a. Other L-T Liab 23.7 23.3 74.9 74.9 74.9Major Unitholders: Dream Unlimited Corp 5% Price/NAV 95% 79% 70% 58% n.a. Common Equity (incl. MI) 3,825.1 3,792.7 3,663.5 3,391.3 3,213.9



EBITDA Margin 54% 53% 54% 55% 55%Notes: EBITDA/Interest Expense 2.9x 2.9x 3.0x 2.9x 2.9x


Source: Company reports, RBC Capital Markets estimates FFO/Unit (1.8%) AFFO/Unit (2.9%) AFFO Payout Ratio 94% 97% 100% 105% 106%

$17.37


COMPANY PROFILEDream Office REIT is one of Canada's leading providers of high-quality, affordable business premises. It is focused on acquiring, owning, and operating mid-sized urban and suburban office properties. The REIT's income-producing portfolio comprises roughly 23 million sf.

VALUATIONOur price target is derived via a ~25% discount to our NAVPU estimate one-year hence, and it implies a 10–11x multiple to our 2017 AFFO/unit estimate. The multi-year supply/demand outlook within the office sector and Dream's stepped-up capex program and high payout ratio suggest that the NAV/unit may continue to "leak" lower over time. As such, we have provided for a slightly widened discount-to-NAV valuation metric in the re-calibration of our price target. Overall, we believe our target-valuation parameters are reasonably reflective of Dream's asset calibre, financial leverage, and potentially more cyclical asset base. Based on relative return expectations, we rate Dream's units Sector Perform.

DREAM OFFICE REAL ESTATE INVES Rel. S&P/TSX CAPPED REIT INDEX

80.00

90.00

100.00


DREAM OFFICE REAL ESTATE INVES

18.00

20.00

22.00

24.00

26.00

28.00

400

800

1200

January 7, 2016 291


Granite REIT Price: SUMMARIZED FINANCIAL INFORMATION (US$MM)


Income Statement:Gross Rental Revenue 203.2 214.5 217.4 225.0 229.4Net Operating Income (NOI) 197.7 207.5 210.4 217.8 222.0Corporate G&A 27.3 28.1 28.7 29.2 29.7Other Income 0.0 0.0 0.0 0.0 0.0EBITDA 170.4 179.5 181.6 188.6 192.3Interest Expense 20.6 24.0 18.9 18.5 18.4Depreciation and Other 36.1 75.9 (61.8) (39.3) (39.2)Income Taxes/(Recovery) (31.3) 9.6 41.7 33.2 33.2Net Income To Common 145.0 70.0 182.9 176.2 179.9

Cash Flow Statement:Net Income To Common 145.0 70.0 182.9 176.2 179.9Depreciation & Amortization 0.0 0.0 0.0 0.0 0.0Deferred Taxes (42.0) 4.0 37.8 28.0 28.0Other 39.5 79.8 (62.1) (40.0) (40.0)Funds From Operations 142.5 153.9 158.6 164.2 167.9Non-Recov. Capex & Leasing (8.0) (10.6) (10.8) (11.2) (11.4)Other Adjustments 1.2 4.6 5.3 5.6 5.0Adjusted FFO 135.8 147.8 153.1 158.6 161.6Acquisitions/(Dispositions), net 261.5 (20.1) 16.2 50.0 50.0Dividends/Other Distributions 90.3 103.2 108.3 112.8 117.5Financing (debt + equity, net) 252.5 12.5 (11.7) 0.0 0.0

VALUATION METRICS (C$ unless otherwise specified) Net Free Cash Flow 43.2 83.3 22.2 1.4 0.4

KEY INFORMATION 2013A 2014A 2015E 2016E 2017E Balance Sheet:Stock Rating: Sector Perform - SP Earnings/unit - Diluted 3.85 3.09 2.56 2.90 2.98 Current Assets 104.7 126.1 160.0 170.9 180.3

P/E - Diluted 9.9x 12.3x 16.1x 13.1x 12.8x Other Assets 12.1 11.3 8.5 7.8 7.01 Year Target Price: $45.00 FFO/unit - Basic 3.04 3.27 3.37 3.49 3.57 Properties 2,351.9 2,310.4 2,551.1 2,635.5 2,720.5Annualized Distribution: $2.30 Indicated Yield: 6.1% FFO/unit - Diluted 3.04 3.27 3.37 3.49 3.57 Total Assets 2,468.6 2,447.8 2,719.6 2,814.2 2,907.8

P/FFO - Diluted 12.2x 12.2x 12.2x 10.9x 10.6x Current Liabilities 61.7 65.6 91.0 94.2 97.4Units O/S - Basic (MM): 47.0 Market Cap - Basic ($MM): 1,785 EBITDA/unit 3.63 3.82 3.86 4.01 4.09 Debt Due In <1 Year 53.2 62.6 44.2 44.2 44.2Units O/S - Diluted (MM): 47.3 Market Cap - Diluted ($MM): 1,794 Total Value/unit 47.29 49.85 50.44 47.35 47.15 Long Term Debt 503.9 513.1 539.9 539.9 539.9Float - Basic (MM): 47.0 Market Cap - Float ($MM): 1,785 Total Value/EBITDA 13.0x 13.1x 13.1x 11.8x 11.5x Preferreds + Convertible Debs 0.0 0.0 0.0 0.0 0.0

NAV/unit - Diluted 39.00 40.00 45.00 46.00 n.a. Minority Interest & Other 173.3 170.1 216.2 244.2 272.2Price/NAV 95% 100% 92% 83% n.a. Common Equity 1,676.5 1,636.2 1,828.3 1,891.7 1,954.0AFFO/unit - Diluted 2.89 3.14 3.25 3.37 3.43 Total Liabilities & Equity 2,468.6 2,447.8 2,719.6 2,814.2 2,907.8P/AFFO - Diluted 12.8x 12.7x 12.7x 11.3x 11.1xDistribution/unit 2.11 2.20 2.30 2.40 2.50 Ratios:

Notes: Yield 5.7% 5.5% 5.6% 6.3% 6.6% NOI Margin 97% 97% 97% 97% 97%EBITDA Margin 84% 84% 84% 84% 84%EBITDA/Interest Expense 8.3x 7.5x 9.6x 10.2x 10.5x

FOUR-YEAR CAGRS (2013A - 2017E) Net Debt+Converts/EBITDA 2.7x 2.6x 2.4x 2.2x 2.2xEBITDA 3.1% EBITDA/unit 3.0% Debt+Converts/GBV 23% 24% 21% 21% 20%

Source: Company reports, RBC Capital Markets estimates FFO/unit 4.1% AFFO/unit 4.4% AFFO Payout Ratio 73% 70% 71% 71% 73%

$37.96

COMPANY PROFILEGranite Real Estate Inc. is a Canadian-based Real Estate Investment Trust that owns a portfolio comprising interests in more than 100 industrial and office properties encompassing 30 million sf. A large majority (over 80 properties representing approximately 81% of annualized lease payments) is leased on a triple-net basis to subsidiaries of Magna International Inc., a leading diversified automotive supplier. With properties located in eight countries (primarily Canada, the United States, Germany, and Netherlands), Granite has a global presence.

VALUATIONOur price target approximates parity with our NAVPU estimate one-year hence and implies a 13x target multiple on our 2017 AFFO/unit estimate. Overall, we believe our target valuation metrics are reasonably reflective of factors such as Granite’s property portfolio mix (special purpose properties, multi-purpose properties, and modern logistics and warehouse and/or distribution properties), geographically diversified footprint, tenant concentration, tax efficiency, low financial leverage, and overall franchise value. Based on relative valuation and risk-adjusted return considerations to our price target, we reiterate our Sector Perform rating on Granite REIT’s units.

GRANITE REAL ESTATE INVESTME Rel. S&P/TSX CAPPED REIT INDEX

98.00

105.00


GRANITE REAL ESTATE INVESTME

38.00

40.00

42.00

44.00

200 400 600 800

1000

January 7, 2016 292


NorthWest Healthcare Properties REIT Price: SUMMARIZED FINANCIAL INFORMATION (C$MM)

December 31, 2015 Primary Analyst: Neil Downey, CA, CFA, (416) 842-7835 2013A 2014A 2015E 2016E 2017E

Income Statement:Gross Rental Revenue 149.3 150.3 209.8 256.3 261.4Net Operating Income (NOI) 80.7 80.6 141.5 177.1 180.9Corporate G&A 3.6 4.1 19.3 24.2 25.2Other Income (mezz loans, fees) (0.8) (0.2) (0.0) 0.0 0.0EBITDA 77.9 76.7 122.3 152.9 155.6Interest Expense (incl converts) 31.2 31.9 61.4 68.6 69.1IFRS FV (Gain)/Loss & Other 10.2 67.0 (70.1) 3.1 12.2Income Taxes 0.0 0.0 23.6 14.3 14.9Net Income To Common 36.5 (22.2) 107.3 66.8 59.4

Cash Flow Statement:Net Income To Common 36.5 (22.2) 107.3 66.8 59.4Depreciation & Amortization 0.0 0.0 0.0 0.0 0.0Deferred Taxes 0.0 0.0 23.0 10.5 11.0IFRS FV (Gain)/Loss & Other 10.2 68.5 (79.5) (15.6) (7.4)Funds From Operations 46.7 46.3 50.8 61.8 63.0Non-Recov. Capex & Leasing (6.7) (9.0) (9.6) (10.8) (10.9)Other Adj. (s/l rent, other) (0.6) 1.4 7.7 6.3 6.9Adjusted FFO 39.4 38.8 49.0 57.2 59.0Acquisitions/(Dispositions) (net) (26.0) (20.2) (64.6) 0.0 0.0Dividends/Other Distrbt'ns (28.5) (34.4) (34.5) (42.0) (42.0)Financing (debt + eq, net) 26.7 (1.6) 102.0 (33.1) (15.4)

VALUATION METRICS (C$ unless otherwise specified) Net Free Cash Flow 19.0 (9.8) 53.6 (13.3) 5.7

KEY INFORMATION 2013A 2014A 2015E 2016E 2017E Balance Sheet:Stock Rating: Sector Perform - SP Earnings/Unit - Diluted 0.79 -0.48 1.48 0.90 0.82 Current Assets 23.7 21.2 180.4 164.6 201.6

P/E - Diluted 11.4x -18.7x 5.9x 9.9x 11.0x Investments & Other Assets 4.5 0.0 88.4 88.4 88.41 Year Target Price: $9.50 FFO/Unit - Basic 1.01 1.00 0.83 0.86 0.88 Properties 1,286.8 1,223.4 2,306.5 2,390.3 2,456.3Annualized Distribution: $0.80 Indicated Yield: 9.0% FFO/Unit - Diluted 1.00 0.98 0.82 0.84 0.85 Total Assets 1,315.0 1,244.6 2,575.3 2,643.4 2,746.4

P/FFO - Diluted 11.8x 9.8x 10.7x 10.7x 10.5x Current Liabilities 28.9 27.4 146.2 160.2 174.6Units O/S - Basic (MM): 71.7 Market Cap - Basic ($MM): 640 EBITDA/Unit 1.69 1.65 1.99 2.13 2.17 Debt Due In <1 Year 0.0 0.0 0.0 0.0 0.0Units O/S - Diluted (MM): 88.1 Market Cap - Diluted ($MM): 786 Total Value/Unit 26.88 24.34 35.47 32.46 32.71 Long Term Debt 658.4 647.8 1,238.9 1,236.0 1,233.2Float - Basic (MM): 47.0 Market Cap - Float ($MM): 420 Total Value/EBITDA 16.0x 14.7x 17.8x 15.2x 15.1x Preferreds + Conv. Debs 40.3 40.9 170.0 170.0 170.0

NAV/Unit - Diluted 12.00 10.50 9.50 10.00 n.a Min. Int. & Other L-T Liab 0.0 0.0 398.1 415.9 485.0Major Unitholders: NorthWest Value Partners 34% Price/NAV 98% 91% 92% n.a n.a Common Equity 587.5 528.6 622.1 661.3 683.5





Source: Company reports, RBC Capital Markets estimates FFO/Unit (3.9%) AFFO/Unit (1.3%) AFFO Payout Ratio 95% 97% 102% 102% 100%


$8.93

COMPANY PROFILENorthWest Healthcare Properties Real Estate Investment Trust ("NorthWest", "NorthWest REIT", or "the REIT") is an unincorporated, open-ended real estate investment trust established in Ontario. The REIT provides investors with access to a portfolio of high-quality international healthcare real estate infrastructure comprised of interests in a diversified portfolio of 123 properties and ~8 million square feet of gross leasable area located throughout major markets in Canada, Brazil, Germany, Australia, and New Zealand. The REIT's portfolio of medical office buildings, clinics, and hospitals is characterized by long-term indexed leases and stable occupancies. In May 2015, NorthWest combined with publicly listed NorthWest International Healthcare Properties to form a global business spanning five countries.

VALUATIONOur $9.50 price target is derived through the application of a 5% discount to our NAVPU estimate one-year hence and implies a 12x target multiple to our 2017 AFFO/unit estimate. Overall, we believe our target multiple appropriately reflects the REIT’s dominant position in the Canadian Medical Office Building ("MOB") segment, the generally defensive nature of healthcare related real estate, the risk/reward ratio associated with global expansion, and the REIT's relatively high financial leverage. Based on risk-adjusted return considerations to our target price, we rate NWH's units Sector Perform.

NORTHWEST PROP REIT Rel. S&P/TSX CAPPED REIT INDEX

90.00

100.00


NORTHWEST PROP REIT

7.50

8.00

8.50

9.00

9.50

200

400

January 7, 2016 293


Pure Industrial REIT Price: SUMMARIZED FINANCIAL INFORMATION (C$MM)


Income Statement:Gross Rental Revenue 108.8 142.8 168.0 180.6 188.5Net Operating Income (NOI) 78.9 101.0 118.2 126.5 132.0Corporate G&A 4.1 5.2 7.1 6.1 6.2Other Income (mezz loans, fees) 0.0 0.0 0.0 0.0 0.0EBITDA 74.9 95.9 111.1 120.4 125.8Interest Expense 26.0 33.2 36.6 39.4 40.5IFRS FV (Gain)/Loss & Other 13.7 (39.2) (76.7) (20.0) (20.0)Income Taxes 0.0 0.2 15.2 1.2 0.4Net Income To Common 35.2 101.7 135.9 99.8 104.9

Cash Flow Statement:Net Income To Common 35.2 101.7 135.9 99.8 104.9Depreciation & Amortization 0.5 1.1 1.1 0.9 0.9Deferred Taxes 0.0 0.0 13.9 0.0 0.0Other 13.7 (39.2) (76.6) (20.0) (20.0)Funds From Operations 49.4 63.6 74.4 80.7 85.8Non-Recov. Capex & Leasing (2.4) (4.8) (5.0) (5.1) (5.3)Other Adjustments (s/l rent, other) (3.6) (4.9) (2.7) (2.4) (2.4)Adjusted FFO 43.4 54.0 66.7 73.2 78.1Acquisitions/Dispositions (net) 571.2 275.3 67.0 6.2 6.5Dividends/Other Distributions 37.6 53.4 59.7 60.4 63.1Financing (debt + equity, net) 549.3 338.5 107.8 (17.6) (38.7)

KEY INFORMATION VALUATION METRICS (C$ unless otherwise specified) Net Free Cash Flow (10.1) 73.4 55.5 (3.5) (22.5)

2013A 2014A 2015E 2016E 2017E Balance Sheet:Stock Rating: Sector Perform - SP Earnings/Unit - Diluted 0.27 0.59 0.71 0.52 0.55 Current Assets 16.0 34.1 41.3 46.4 53.6


P/FFO - Diluted 11.8x 12.3x 12.1x 10.3x 9.7x Current Liabilities 28.2 33.3 54.2 55.4 56.6Units O/S - Basic (MM): 190.7 Market Cap - Basic ($MM): 833 EBITDA/Unit 0.30 0.44 0.50 0.58 0.63 Debt Due In <1 Year 0.0 0.0 0.0 0.0 0.0Units O/S - Diluted (MM): 192.1 Market Cap - Diluted ($MM): 839 Total Value/Unit 10.43 9.43 8.60 9.66 9.76 Long Term Debt 727.7 865.5 1,014.7 1,037.4 1,040.1Float - Basic (MM): 188.2 Market Cap - Float ($MM): 822 Total Value/EBITDA 35.2x 21.6x 17.1x 16.6x 15.5x Preferreds + Convertible Debs 0.0 0.0 0.0 0.0 0.0

NAV/Unit - Diluted 4.75 4.50 5.15 5.25 n.a. Other Liabilities 0.0 0.0 14.9 14.9 14.9Major Unitholders: Mgmt & Insiders effective interest 1% Price/NAV 99% 101% 91% 83% n.a. Common Equity 588.0 884.7 980.7 1,020.1 1,061.9





Source: Company reports, RBC Capital Markets estimates FFO/Unit 3.2% AFFO/Unit (1.7%) AFFO Payout Ratio 90% 100% 90% 82% 81%

$4.37


COMPANY PROFILEPure Industrial REIT ("PIRET") was established in mid-2007 as a pure-play industrial REIT. The portfolio currently includes 170 properties (plus two under development), which encompass approximately 17.4 million sf (gross), located in New Brunswick, Quebec, Ontario, Manitoba, Saskatchewan, Alberta, British Columbia, and the US. The REIT's strategy is to build critical mass in four major target markets: Greater Vancouver, Edmonton, Calgary, and the Greater Toronto Area, with an opportunistic approach to adding select US-market exposure.

VALUATIONOur price target equates to expected parity with our NAV/unit estimate one-year hence and implies a ~13x multiple to our 2017 AFFO/unit estimate. Overall, we believe our target multiple reasonably reflects PIRET’s financial leverage, building track record, portfolio quality, and overall franchise value. Based on risk adjusted relative return expectations, we rate the units Sector Perform.

PURE INDUSTRIAL REAL ESTATE TRUST Rel. S&P/TSX CAPPED REIT INDEX

100.00 104.00 108.00


PURE INDUSTRIAL REAL ESTATE TRUST

4.20

4.40

4.60

4.80

5.00

5.20

4000

8000

12000

January 7, 2016 294


WPT Industrial REIT Price: SUMMARIZED FINANCIAL INFORMATION (US$MM)

December 31, 2015 Primary Analyst: Neil Downey, CPA, CA, CFA, (416) 842-7835 2013A1 2014A 2015E 2016E 2017E

Income Statement:Gross Rental Revenue 33.7 57.4 69.4 71.6 72.4Net Operating Income (NOI) 25.0 43.3 52.7 54.4 55.0Corporate G&A 2.8 4.1 5.9 5.2 5.6Other Income 0.0 0.0 0.0 0.0 0.0EBITDA 22.3 39.2 46.7 49.1 49.4Interest Expense 6.8 11.9 13.6 13.7 13.5IFRS FV (Gain)/Loss & Other 1.8 16.0 16.7 8.0 8.0Income Taxes 0.0 0.0 0.0 0.0 0.0Net Income To Common 17.2 43.4 49.9 43.5 43.9

Cash Flow Statement:Net Income To Common 17.2 43.4 49.9 43.5 43.9Depreciation & Amortization 0.0 0.0 0.0 0.0 0.0Deferred Taxes 0.0 0.0 0.0 0.0 0.0IFRS FV (Gain)/Loss & Other (1.8) (15.9) (16.4) (8.0) (7.7)Funds From Operations 15.4 27.5 33.4 35.5 36.2Non-Recov. Capex & Leasing (2.2) (3.5) (4.6) (4.7) (4.7)Other Adjustments (s/l rent, other) (1.3) (1.4) (0.3) (1.5) (1.5)Adjusted FFO 11.9 22.6 28.5 29.2 30.0(Acquisitions)/Dispositions (net) 64.4 98.7 87.9 0.0 0.0Dividends/Other Distributions 10.6 19.2 23.9 25.6 25.6Financing (debt + equity, net) 56.5 70.8 61.3 (15.8) (16.0)

KEY INFORMATION VALUATION METRICS (US$ unless otherwise specified) Net Free Cash Flow (3.1) (19.5) (17.1) (6.0) (5.5)

2013A1 2014A 2015E 2016E 2017E Balance Sheet:Stock Rating: Outperform - O Earnings/Unit - Diluted 0.74 1.58 1.49 1.29 1.30 Current Assets 7.7 7.8 10.4 10.9 11.7

P/E - Diluted n.m. 6.2x 8.0x 9.3x 9.2x Other Assets 3.3 2.1 1.7 1.7 1.71 Year Target Price: $13.25 FFO/Unit - Basic 0.66 1.00 1.00 1.05 1.07 Properties 493.0 633.1 743.6 758.8 774.0Annualized Distribution: $0.76 Indicated Yield: 6.4% FFO/Unit - Diluted 0.66 1.00 1.00 1.05 1.07 Total Assets 503.9 642.9 755.7 771.4 787.4

P/FFO - Diluted n.m. 9.9x 11.7x 11.4x 11.1x Current Liabilities 9.4 12.0 16.1 16.1 16.4Units O/S - Basic (MM): 33.7 Market Cap - Basic ($MM): 403 EBITDA/Unit 0.95 1.42 1.40 1.46 1.46 Bank Debt 43.3 56.5 46.5 46.5 46.5Units O/S - Diluted (MM): 33.7 Market Cap - Diluted ($MM): 403 Total Value/Unit 19.92 21.39 22.35 22.41 22.31 Long Term Debt 220.2 266.7 315.6 313.4 310.9Float - Basic (MM): 17.8 Market Cap - Float ($MM): 212 Total Value/EBITDA n.m. 15.0x 16.0x 15.4x 15.2x Preferreds + Convertible Debs 0.0 0.0 0.0 0.0 0.0

NAV/Unit - Diluted 10.00 10.50 11.00 11.50 n.a. Other Liabilities 0.0 0.0 0.0 0.0 0.0Major Unitholders: Welsh Property Trust LLC 47% Price/NAV 89% 94% 107% 104% n.a. Common Equity (Units & LP Units) 231.0 307.8 377.5 395.3 413.5

AFFO/Unit - Diluted 0.51 0.82 0.85 0.87 0.89 Total Liabilities & Equity 503.9 642.9 755.7 771.4 787.4P/AFFO - Diluted n.m. 12.0x 13.8x 13.8x 13.5x

Notes: Distribution/Unit 0.48 0.70 0.72 0.76 0.76 Ratios:

Yield n.m. 7.1% 6.1% 6.4% 6.4% NOI Margin 74% 76% 76% 76% 76%EBITDA Margin 66% 68% 67% 69% 68%EBITDA/Interest Expense 3.3x 3.3x 3.4x 3.6x 3.7x

THREE-YEAR CAGRS (2014E - 2016E) (2013 is a stub year) Net Debt+Converts/EBITDA 11.6x 8.1x 7.6x 7.2x 7.0xEBITDA 8.0% EBITDA/Unit 0.9% Debt+Converts/GBV 53% 51% 49% 47% 46%


$11.95

12013A results are for a stub-year with 249 days of operating results.

COMPANY PROFILEWPT Industrial REIT (“WPT”) was formed to own and operate an institutional-quality portfolio of primarily industrial properties located in the United States, with a particular focus on warehouse and distribution industrial real estate. WPT Industrial, LP (the REIT's operating subsidiary) indirectly owns a portfolio of properties consisting of ~15 million sf with properties located in 13 US states. Welsh Property Trust, LLC is the external asset manager and property manager of the REIT. On May 18, 2015, WPT announced that it is exploring strategic alternatives.

VALUATIONOur $13.25 price target equates to a ~15% premium to our NAV/unit estimate one-year hence and implies a 15x target multiple to our 2017 AFFO/unit estimate. This price target equates to a ~6.25–6.50% cap rate on FTM forecast NOI and is congruent with the value that we see as being reasonably attainable through the sale of the REIT's portfolio on an en-bloc basis. Based on relative risk-adjusted return expectations, we rate WPT Industrial REIT’s units Outperform.

WPT INDUSTRIAL REAL ESTATE INVESTMENT TRUST Rel. S&P/TSX CAPPED REIT INDEX

100.00

110.00


WPT INDUSTRIAL REAL ESTATE INVESTMENT TRUST

11.00

11.50

12.00

12.50

100

200

300

January 7, 2016 295


Agellan Commercial REIT Price: SUMMARIZED FINANCIAL INFORMATION (C$MM)


Income statement:Revenue 58.2 75.0 84.2 87.9 89.9Net operating income (NOI) 34.7 43.3 48.4 50.5 51.6Corporate G&A (2.8) (4.0) (4.8) (4.8) (5.0)Other income 0.0 0.0 0.0 0.0 0.0EBITDA 31.8 39.3 43.6 45.7 46.6Interest expense (9.9) (13.4) (17.0) (14.9) (14.6)Income taxes/(recovery) 0.0 0.0 0.0 0.0 0.0Other 8.6 (6.7) (6.8) (7.7) (8.0)Net income to common 30.6 19.2 19.8 23.1 24.0

Cash flow statement:Net income to common 30.6 19.2 19.8 23.1 24.0Depreciation & amortization 0.0 0.0 0.0 0.0 0.0Deferred taxes 2.5 6.9 10.1 7.7 8.0Other (10.7) 0.7 (0.9) 0.0 0.0Funds from operations 22.4 26.8 29.0 30.8 32.0Maintenance capex reserve (1.1) (1.5) (2.8) (6.3) (6.5)Other adjustments (s/l rent, other) (5.2) (5.4) (3.9) (1.0) (1.1)Adjusted FFO 16.1 20.0 22.3 23.5 24.4Acquisitions/(dispos'ns) net 370.2 20.6 29.9 0.0 0.0Dividends/other distributions 12.7 16.1 17.1 18.2 18.2Financing (debt + equity, net) 380.1 (16.3) (17.2) 4.4 4.2

KEY INFORMATION VALUATION METRICS (C$ unless otherwise specified) Net free cash flow 19.6 (26.2) (35.3) 17.0 18.0


P/E - diluted n.m. 10.8x 10.8x 9.0x 8.7x Investments & other assets 0.0 0.0 0.0 0.0 0.01 year target price: $9.50 FFO/unit - basic 1.11 1.15 1.23 1.31 1.36 Properties 524.8 564.5 644.2 654.6 665.4Annualized distribution: $0.78 Indicated yield: 8.8% FFO/unit - diluted 1.11 1.15 1.23 1.31 1.36 Total assets 555.6 597.5 659.1 679.7 701.2

P/FFO - diluted n.m. 7.7x 7.4x 6.8x 6.5x Current liabilities 18.1 31.2 47.6 55.3 63.3Units O/S - basic (MM): 23.4 Market cap - basic ($MM): 207 EBITDA/unit 1.57 1.68 1.85 1.94 1.98 Debt due in <1 year 0.0 0.0 0.0 0.0 0.0Units O/S - diluted (MM): 23.6 Market cap - diluted ($MM): 208 Total value/unit 24.07 22.42 23.66 23.55 23.81 Long term debt 303.4 317.6 342.2 348.6 354.7Float - basic (MM): 19.8 Market cap - float ($MM): 175 Total value/EBITDA n.m. 13.4x 12.8x 12.1x 12.0x Preferreds + convertible debs 0.0 0.0 0.0 0.0 0.0

NAV/unit - diluted n/a 10.75 12.00 12.50 n.a. Minority interest & other LT liab 0.0 0.0 0.0 0.0 0.0Major unitholders: CarVal Investors 16% Price/NAV n/a 82% 76% 71% n.a. Common equity 234.0 248.7 269.3 275.8 283.2

AFFO/unit - diluted 0.79 0.85 0.96 1.00 1.04 Total liabilities & equity 555.6 597.5 659.1 679.7 701.2P/AFFO - diluted n.m. 10.4x 9.5x 8.8x 8.5x



THREE-YEAR CAGRS (2014A - 2017E) Net debt+converts/EBITDA 9.2x 7.8x 7.4x 7.0x 7.6xEBITDA 5.9% EBITDA/unit 5.7% Debt+converts/GBV 55% 53% 52% 51% 51%


$8.84

AGELLAN COMMERCIAL REAL ESTATE INVESTMENT TRUST Rel. S&P/TSX CAPPED REIT INDEX

100.00

105.00

110.00


AGELLAN COMMERCIAL REAL ESTATE INVESTMENT TRUST

8.40

8.60

8.80

9.00

9.20

9.40 9.60 9.80

50.00

100.00

COMPANY PROFILEAgellan Commercial REIT (“Agellan” or "ACR") owns 32 properties with over 4.5 million sf of GLA. The portfolio is primarily comprised of office, industrial, and flex-industrial. Approximately 70% of the NOI at the property level is derived from assets located in the US with the balance in Canada. The portfolio is anchored by two suburban office properties located in Toronto and Chicago, and the REIT’s industrial portfolio in Texas. Together, these assets account for approximately two-thirds of GLA. Agellan Capital Partners Inc. ("ACPI") is the REIT's external asset manager and one of the REIT's property managers.

VALUATIONOur price target is based on a 25% discount to our $12.50 NAV per unit one-year hence, which implies an 10x multiple to our 2016 AFFO per unit estimate and reasonably reflects considerations such as debt renewal risk, asset and tenant concentration, leverage, liquidity, the IPO head leases, and the external asset management structure. Based on relative return expectations, we rate ACR units Sector Perform.

January 7, 2016 296


Artis REIT Price: SUMMARIZED FINANCIAL INFORMATION (C$MM)


Income statement:Gross rental revenue 463.4 500.6 534.5 552.2 563.9Net operating income (NOI) 296.9 312.8 333.0 340.2 347.9Corporate G&A (9.2) (9.7) (10.5) (10.6) (10.8)EBITDA 287.7 303.2 322.5 329.6 337.2Other income (mezz loans, fees) 6.9 (4.6) 4.5 (0.7) (0.7)Interest expense (inc. converts) (100.6) (106.7) (108.9) (105.7) (101.4)IFRS FV gain (loss) & other (16.9) (11.6) (163.1) (17.2) (17.2)Income taxes 0.0 0.0 0.0 0.0 0.0Net income to common 177.2 180.2 55.1 205.9 217.9

Cash flow statement:Net income to common 177.2 180.2 55.1 205.9 217.9Depreciation & amortization 0.0 0.0 0.0 0.0 0.0Deferred taxes 0.0 0.0 0.0 0.0 0.0IFRS FV (gain)/loss & other 6.3 13.2 158.1 11.5 11.0Funds from operations 183.5 193.5 213.2 217.4 228.9Non-recov. capex & leasing (22.9) (25.5) (27.2) (27.5) (27.3)Other adjustments (s/l rent, other) (3.8) (3.2) (0.7) 1.6 1.6Adjusted FFO 156.8 164.8 185.3 191.6 203.1Acquisitions/(dispositions), net 263.0 123.1 7.1 20.0 20.0Dividends/other distributions 145.6 161.5 166.8 166.5 166.5Financing (debt + equity, net) 315.3 202.8 87.0 10.0 10.0

KEY INFORMATION VALUATION METRICS (C$ unless otherwise specified) Net free cash flow 90.2 111.7 126.3 40.9 52.3




NAV/unit - diluted 17.00 17.00 17.00 17.50 n.a. Minority interest & other LT liab 0.1 1.1 2.4 2.4 2.4Major unitholders: Price/NAV 90% 89% 81% 73% n.a. Common equity 2,158.6 2,403.4 2,462.1 2,541.0 2,631.8






$12.80


ARTIS REAL ESTATE INVESTMENT T Rel. S&P/TSX CAPPED REIT INDEX

92.00

96.00

100.00


ARTIS REAL ESTATE INVESTMENT T

11.90

12.60

13.30

14.00

14.70

15.40

1000

2000

COMPANY PROFILEArtis owns a portfolio of over 250 commercial properties encompassing approximately 26 million sf. The portfolio is heavily weighted to the four provinces of Western Canada, but it also includes properties in Ontario and the United States. Through acquisitions and selected development, Artis’ goal is to continue to grow and improve its portfolio.

VALUATIONOur price target is derived by applying a ~10% discount to our NAV per unit estimate one-year hence, which implies an 11x target multiple to our 2017 AFFO per unit estimate. We believe this multiple reasonably reflects Artis' financial leverage, asset quality, and overall franchise value. Based on relative return expectations, we continue to rate the units Sector Perform.

January 7, 2016 297


Canadian REIT Price: SUMMARIZED FINANCIAL INFORMATION (C$MM)


Income Statement:Gross Rental Revenue 408.5 426.0 443.2 449.9 457.0Net Operating Income 274.1 285.1 293.0 294.2 299.5Corporate G&A 15.3 15.2 17.1 17.6 17.9Fee Income & Termination Inc 5.2 4.8 4.4 4.1 4.2EBITDA 264.0 274.7 280.4 280.7 285.7Interest Expense 88.6 91.3 88.2 86.4 84.9Interest Income (14.9) (17.6) (25.6) (25.7) (25.7)IFRS FV (Gain)/Loss & Other 104.8 59.1 92.3 25.0 (50.0)Income Taxes/(Recovery) 0.4 4.1 1.4 0.8 0.8Net Income To Common 84.9 137.8 124.1 194.2 275.7

Cash Flow Statement:Net Income To Common 84.9 137.8 124.1 194.2 275.7Depreciation & Amort. 109.3 0.0 0.0 0.0 0.0Deferred Taxes 0.1 3.3 0.6 0.0 0.0Other 0.3 64.5 96.3 29.0 (46.0)Funds From Operations 194.6 205.6 221.0 223.2 229.7Non-Rec. Capex & Leasing Costs (24.7) (30.2) (38.7) (40.0) (37.0)Other Adjustments (2.7) (1.3) (2.9) (2.9) (2.9)Adjusted FFO 167.3 174.2 179.4 180.3 189.8Acquisitions/Dispositions (net) 128.2 166.5 (30.5) 0.0 0.0Distributions 79.8 88.0 101.3 132.6 136.2

KEY INFORMATION VALUATION METRICS (C$ unless otherwise specified) Financing (debt + equity) 100.3 144.2 (0.6) (48.0) (55.0)Net Free Cash Flow 87.0 95.3 149.7 42.6 38.4

2013A 2014A 2015E 2016E 2017E Balance Sheet:Stock Rating: Outperform - O Earnings/Unit - Diluted 1.24 1.98 1.70 2.67 3.78 Current Assets 76.2 60.9 83.5 86.1 87.6


P/FFO - Diluted 15.4x 15.5x 14.5x 13.7x 13.3x Current Liabilities 130.0 139.6 153.5 153.5 153.5Units O/S - Basic (MM): 72.9 Market Cap - Basic ($MM): 3,064 EBITDA/Unit 3.85 3.95 3.85 3.85 3.92 Debt Due In <1 Year 36.6 154.9 70.8 70.8 70.8Units O/S - Diluted (MM): 72.9 Market Cap - Diluted ($MM): 3,064 Total Value/Unit 73.16 75.53 71.79 69.45 68.71 Long Term Debt 1,994.5 1,951.5 1,992.3 1,944.3 1,889.3Float - Basic (MM): 72.9 Market Cap - Float ($MM): 3,064 Total Value/EBITDA 19.0x 19.1x 18.6x 18.0x 17.5x Minority Interest & Other L-T Liab 9.8 27.9 32.7 32.7 32.7

NAV/Unit - Diluted 45.00 46.00 46.00 47.00 n.a. Common Equity 1,708.2 3,233.1 3,245.6 3,311.2 3,454.7Major Unitholders: Price/NAV 98% 99% 96% 89% n.a. Total Liabilities & Equity 3,879.1 5,507.0 5,494.9 5,512.5 5,601.0

AFFO/Unit - Diluted 2.44 2.50 2.46 2.47 2.60P/AFFO - Diluted 18.0x 18.3x 17.9x 17.0x 16.1x Ratios:

Notes: Distribution/Unit 1.61 1.74 1.78 1.82 1.87 NOI Margin 67% 67% 66% 65% 66%Yield 3.7% 3.8% 4.0% 4.3% 4.4% EBITDA Margin 65% 64% 63% 62% 63%

EBITDA/Interest Expense 3.0x 3.0x 3.2x 3.2x 3.4xFOUR-YEAR CAGRS (2013A - 2017E) Net Debt+Converts/EBITDA 7.6x 7.5x 7.2x 7.0x 6.7xEBITDA 2.0% EBITDA/Unit 0.4% Debt+Converts/GBV 48% 39% 38% 37% 36%


$42.06

COMPANY PROFILECanadian REIT (“CREIT”) holds a diversified portfolio of retail, office, and industrial real estate located in nine provinces and one state. CREIT owns interests in more than 180 properties, which include ~22 million sf of owned GLA. The tenant base is highly diversified, as no tenant accounts for more than 6% of revenue. CREIT has one of the longer track records of any Canadian REIT (TSX listed in September 1993). CREIT’s development pipeline (active and future) exceeds $560 million (at its share) and encompasses ~3 million sf of retail and industrial properties.

VALUATIONOur one-year price target is based on applying a ~10% premium to our NAVPU estimate one-year hence, equating to a ~20x multiple to our 2017 AFFO/unit. Our target multiples represents a premium to the average target multiple applied to the group of comparable Canadian commercial-property REITs, which we believe is warranted by CREIT's low financial leverage, longer than average history, proven management, high-quality (and improving) property portfolio, relatively large-market capitalization, and overall franchise value. CREIT remains one of our core REIT holdings, and we rate the units Outperform.

CDN REIT Rel. S&P/TSX CAPPED REIT INDEX

95.00

100.00


CDN REIT

40.00

42.00

44.00

46.00

48.00

200

400

600

January 7, 2016 298


Cominar REIT Price: SUMMARIZED FINANCIAL INFORMATION (C$MM)


Income statement:Gross rental revenue 662.1 748.7 895.6 852.7 859.3Net operating income (NOI) 368.2 416.2 490.0 472.3 476.2Corporate G&A (11.4) (12.1) (14.8) (14.4) (14.5)Other income (mezz loans, fees) 0.0 0.0 0.0 0.0 0.0EBITDA 356.8 404.1 475.1 457.9 461.7Interest expense (131.8) (151.8) (179.0) (162.2) (153.6)Depreciation, preferred divs (2.4) (0.6) (1.5) (1.8) (1.9)IFRS FV (gain)/loss & other 32.4 (52.2) 0.0 0.0 0.0Net income to common 255.0 199.5 294.7 293.9 306.2

Cash flow statement:Net income to common 255.0 199.5 294.7 293.9 306.2Depreciation & amortization 0.0 0.0 0.0 0.0 0.0Deferred taxes 1.7 (0.2) 0.5 0.7 0.8Other (30.9) 55.9 6.1 7.3 7.3Funds from operations 225.9 255.2 301.3 301.9 314.2Capex & leasing costs (21.5) (24.6) (29.2) (29.1) (29.1)Other adjustments (s/l rent, other) (9.6) (10.2) (11.6) (10.7) (10.7)Adjusted FFO 194.8 220.4 260.6 262.1 274.4Acquisitions/(dispositions), net 353.6 2,007.3 (98.6) (71.8) 0.0Dividends/other distributions 137.7 142.5 156.3 171.0 170.8Financing (debt + equity, net) 266.2 1,872.3 (18.6) (294.4) (164.4)

KEY INFORMATION VALUATION METRICS (C$ unless otherwise specified) Net free cash flow 0.8 (22.3) 225.0 (91.7) (21.0)




NAV/unit - diluted 20.00 19.75 18.75 19.25 n.a. Minority interest & other LT liab 10.5 10.3 10.8 11.5 12.3Major unitholders: Dallarie family 5% Price/NAV 104% 95% 91% 76% n.a. Common equity 2,825.4 3,410.4 3,682.9 3,721.4 3,772.3

Ivanhoé Cambridge n.a. AFFO/unit - diluted 1.54 1.61 1.55 1.53 1.61 Total liabilities & equity 5,997.3 8,164.1 8,279.0 8,109.9 8,083.2P/AFFO - diluted 13.5x 11.7x 11.1x 9.6x 9.2x



FOUR-YEAR CAGRS (2013A - 2017E) Net debt+converts/EBITDA 8.6x 11.4x 9.0x 9.1x 9.0xEBITDA 6.7% EBITDA/unit (1.3%) Debt+converts/GBV 51% 56% 54% 52% 51%


$14.71


CUF.IR T Rel. S&P/TSX CAPPED REIT INDEX

90.00

96.00


CUF.IR T

15.00

16.00

17.00

18.00

19.00

500

1000

COMPANY PROFILECominar owns and manages a diversified portfolio of approximately 560 properties located in Quebec (Greater Montreal and Quebec City), Ontario (primarily the National Capital Region), the Atlantic Provinces, and Western Canada, totalling over 45 million sf of leasable area. Cominar REIT was the first Canadian REIT to operate as a fully integrated entity, with both asset management and property management conducted in house by its own employees. The Dallaire family, Cominar's founders, continues to have a significant investment in the REIT.

VALUATIONOur price target is derived by applying a ~10% discount to our NAV per unit estimate one-year hence while holding cap rates constant; this implies an 11x target multiple to our 2017 AFFO per unit estimate. We believe our target multiple reasonably reflects such considerations as Cominar's financial leverage, the increased size and scale of its business, its improved access to capital, its long-term track record of FFO and intrinsic-value growth (on a per unit basis), its market concentration risks and asset quality, and its overall "franchise" value. Based on relative return expectations, we continue to rate CUF units Sector Perform.

January 7, 2016 299


H&R REIT Price: SUMMARIZED FINANCIAL INFORMATION (C$MM)


Income Statement:Gross Rental Revenue 1,208.1 1,332.4 1,326.3 1,343.7 1,374.7Net Operating Income (NOI) 792.3 869.7 867.4 873.4 893.6Corporate G&A 5.4 11.3 10.7 14.8 16.0Other Income (mezz loans, fees) 0.0 0.5 0.2 0.0 0.0EBITDA 786.9 858.9 856.9 858.6 877.6Interest Expense 320.8 342.8 316.3 320.7 314.7Taxes 29.7 44.8 31.8 0.8 1.0IFRS FV (Gain)/Loss & Other 112.9 46.7 18.3 33.3 (123.3)Net Income To Common 323.5 424.7 490.4 503.7 685.2

Cash Flow Statement:Net Income To Common 323.5 424.7 490.4 503.7 685.2Depreciation & Amortization 7.8 0.0 0.0 0.0 0.0Deferred Taxes 29.2 43.7 29.5 0.0 0.0IFRS FV (Gain)/Loss & Other 112.2 74.6 52.0 72.8 (89.8)Funds From Operations 472.8 543.0 571.8 576.5 595.5Non-Recov. Capex & Leasing (52.5) (71.1) (79.1) (80.0) (80.0)Other Adjustments (s/l rent, other) (40.9) (31.0) (43.5) (39.6) (33.8)Adjusted FFO 379.4 440.8 449.2 456.9 481.7Acquisitions/Dispositions (net) 3,439.3 223.1 418.7 80.0 80.0Dividends/Other Distributions 270.7 304.6 316.1 397.5 421.1Financing (debt + equity, net) 3,000.8 (597.1) (54.5) 1.1 0.1

KEY INFORMATION VALUATION METRICS (C$ unless otherwise specified) Net Free Cash Flow (236.5) (581.8) (217.4) 100.1 94.5

2013A 2014A 2015E 2016E 2017E Balance Sheet:Stock Rating: Sector Perform - SP Earnings/Unit - Diluted 1.21 1.43 1.66 1.69 2.29 Current Assets 92.2 146.4 230.2 251.8 284.1

P/E - Diluted 16.6x 14.0x 12.1x 11.8x 8.8x Investments & Other Assets 558.1 1,000.0 1,085.5 1,085.5 1,085.51 Year Target Price: $25.00 FFO/Unit - Basic 1.82 1.88 1.95 1.96 2.02 Properties 12,932.7 12,222.0 12,678.8 12,818.8 13,088.8Annualized Distribution: $1.35 Indicated Yield: 6.7% FFO/Unit - Diluted 1.79 1.86 1.93 1.93 2.00 Total Assets 13,583.0 13,368.4 13,994.5 14,156.0 14,458.3


NAV/Unit - Diluted 23.50 24.00 25.00 25.00 n.a. Minority Interest & Other L-T Liab 83.4 205.2 188.5 188.5 188.5Major Unitholders: Management & Insiders 6% Price/NAV 97% 93% 87% 80% n.a. Common Equity 6,273.8 6,527.7 6,899.5 7,052.6 7,366.1


Notes: Distribution/Unit 1.35 1.35 1.35 1.35 1.43 Ratios:AFFO Payout 94% 89% 89% 88% 88% NOI Margin 66% 65% 65% 65% 65%Yield 5.9% 6.0% 6.2% 6.7% 7.1% EBITDA Margin 65% 64% 65% 64% 64%

EBITDA/Interest Expense 2.5x 2.5x 2.7x 2.7x 2.8xFOUR-YEAR CAGRS (2013A - 2017E) Net Debt+Converts/EBITDA 8.9x 7.5x 7.8x 7.8x 7.6xEBITDA 2.8% EBITDA/Unit (0.4%) Debt+Converts/GBV 49% 46% 46% 45% 44%


$20.05


COMPANY PROFILEH&R Real Estate Investment Trust ("H&R") owns a ~$14 billion commercial property portfolio (at its proportionate share and estimated fair value) comprising of interests in 39 office properties, 362 retail properties, 105 primarily single-tenant industrial properties, eight rental apartment properties (2,586 suites), and several development properties. By area, approximately 68% of the 47 million pro-rata owned GLA is located in Canada, with the balance in the US. Within the figures above is the REIT's 33.6% interest in ECHO Realty LP, which owns 201 primarily food-store anchored retail properties representing 2.9 million sf of GLA, at the REIT's share.

VALUATIONOur price target equates to parity with our NAVPU estimate one-year hence and implies a ~15–16x target multiple on our 2017 AFFO/unit estimate. Overall, we believe our target multiple is reasonably reflective of factors such as H&R's larger than average market cap and trading liquidity, portfolio quality, and overall franchise value. Based on relative valuation and return expectations to our price target, we rate H&R REIT's units Sector Perform.

H&R REIT Rel. S&P/TSX CAPPED REIT INDEX

100.00 102.00 104.00


H&R REIT

19.00

20.00

21.00

22.00

23.00

24.00

600

1200

1800

January 7, 2016 300




Income Statement:Revenue 39.3 44.5 64.6 66.2 66.9Net operating income (NOI) 23.4 26.6 39.4 39.7 40.3Corporate G&A (1.7) (2.1) (2.6) (3.2) (3.3)Other income (mezz loans, fees) 0.0 0.0 0.0 0.0 0.0EBITDA 21.7 24.5 36.8 36.5 37.0Net interest expense (8.1) (9.1) (14.1) (14.3) (14.2)IFRS FV gain/(loss) & other 8.9 3.0 4.9 (9.9) (9.9)Income taxes 40.3 0.0 0.0 0.0 0.0Net income to common 62.7 18.3 27.6 12.3 13.0

Cash flow statement:Net income to common 62.7 18.3 27.6 12.3 13.0Depreciation & amortization 2.3 2.5 3.3 3.2 3.1Deferred taxes (40.3) 0.0 0.0 0.0 0.0IFRS FV (gain)/loss & other (8.9) (3.0) (4.9) 9.9 9.9Funds from operations 15.9 17.9 26.0 25.4 26.0Non-recov. capex & leasing (2.2) (2.5) (3.8) (3.9) (3.9)Other adjustments (s/l rent, other) 0.2 0.2 (0.7) (0.7) (0.6)Adjusted FFO 13.9 15.6 21.4 20.9 21.5Acquisitions/(dispositions), net 25.9 49.6 15.3 0.0 0.0Dividends/other distributions 11.6 6.7 7.6 7.6 7.6Financing (debt + equity, net) 41.2 55.2 9.9 0.0 0.0


2013A1 2014A 2015E 2016E 2017E Balance Sheet:Stock rating: Sector Perform - SP Earnings/unit - diluted 3.37 0.79 1.04 0.50 0.52 Current assets 25.6 27.8 24.8 31.5 38.9

P/E - diluted 3.1x 12.8x 7.9x 14.5x 13.9x Investments & other assets 0.0 0.0 0.0 0.0 0.01 year target price: $8.50 FFO/unit - basic 0.85 0.87 1.00 0.98 1.01 Properties 429.1 630.0 639.9 638.2 636.5Annualized distribution: $0.68 Indicated yield: 9.4% FFO/unit - diluted 0.85 0.77 0.99 0.96 0.98 Total assets 454.7 657.8 664.7 669.8 675.5


NAV/unit - diluted 11.50 11.50 10.50 10.63 n.a. Minority interest & other LT liab 0.0 0.0 0.0 0.0 0.0Major unitholders: Melcor Developments 56.7% Price/NAV 89% 88% 78% 68% n.a. Common equity 229.7 304.7 302.0 307.4 313.5

AFFO/unit - diluted 0.75 0.68 0.83 0.80 0.82 Total liabilities & equity 454.7 657.8 664.7 669.8 675.5P/AFFO - diluted 13.8x 15.0x 10.0x 9.0x 8.8x


EBITDA margin 55% 55% 57% 55% 55%EBITDA/Net interest expense 2.7x 2.7x 2.6x 2.6x 2.6x


Source: Company reports, RBC Capital Markets estimates FFO/unit 3.4% AFFO/unit 2.3% AFFO payout ratio n.m. 100% 82% 85% 83%

Melcor REIT $7.21

1 IPO completed May 1, 2013. 2013 figures are presented on a continuity of interest basis. 2013 distributions per unit are from the IPO date to December 31, 2013, and therefore yield and AFFO payout ratio are therefore not meaningful (i.e. not annualized).

MELCOR REAL ESTATE INVESTMENT TRUST Rel. S&P/TSX CAPPED REIT INDEX

84.00

90.00 96.00


MELCOR REAL ESTATE INVESTMENT TRUST

7.00

7.50

8.00

8.50

9.00

40.00

80.00

120.00

COMPANY PROFILEMelcor REIT (“Melcor”) owns a diversified portfolio of mainly retail and industrial properties. The REIT’s portfolio totals 38 properties encompassing approximately 2.7 million sf of GLA located in Alberta, Saskatchewan, and British Columbia. Melcor Developments Limited (TSX: MRD; rated Outperform) owns a ~56% interest in Melcor REIT. MRD and its predecessor companies have operated in the real estate industry under the direction and principal ownership of the Melton family since 1923. The Melton family has a ~57% interest in MRD and, for all intents and purposes, controls both Melcor REIT and MRD. In addition to its ownership stake in the REIT, MRD is the REIT’s external manager.

VALUATIONOur one-year price target is derived by applying a 20% discount to our NAV per unit estimate one-year hence, which implies a multiple of 10x on our 2017 AFFO per unit estimate. We believe our target valuation metrics reasonably reflect Melcor REIT’s portfolio attributes, building pubic-market track record, smaller-cap stature, and equity float. Based on relative risk-adjusted return expectations, we rate Melcor REIT’s units Sector Perform.

January 7, 2016 301


Morguard REIT Price: SUMMARIZED FINANCIAL INFORMATION (C$MM)


Income statement:Gross rental revenue 287.5 303.6 293.3 291.7 296.8Net operating income (NOI) 166.5 174.9 166.8 166.6 169.6Corporate G&A 4.6 5.4 5.6 5.6 5.7Other income (mezz loans, fees) 0.0 0.0 0.0 0.0 0.0EBITDA 161.9 169.5 161.2 161.0 163.8Interest expense 61.1 61.9 58.9 58.4 58.2Preferred divs & convert int. 0.0 0.0 0.0 0.0 0.0IFRS FV (gain)/loss & other (111.6) (11.4) 55.3 0.0 0.0Net income to common 212.4 119.0 47.0 102.6 105.7

Cash flow statement:Net income to common 212.4 119.0 47.0 102.6 105.7Depreciation & amortization 0.0 0.1 0.1 0.3 0.3Deferred taxes 0.0 0.0 0.0 0.0 0.0IFRS FV (gain)/loss & other (111.6) (12.4) 55.7 0.0 0.0Funds from operations 100.8 106.7 102.9 102.9 106.0Non-recov. capex & leasing (32.8) (24.9) (25.2) (26.0) (26.9)Other adjustments (s/l rent, other) (2.6) (2.4) (1.6) (2.1) (2.1)Adjusted FFO 65.3 79.4 76.1 74.7 76.9Acquisitions/(dispositions), net 154.1 16.4 26.3 0.0 0.0Dividends/other distributions 60.1 52.9 39.7 58.9 58.9Financing (debt + equity, net) 126.2 4.8 (23.3) 0.0 0.0


2013A 2014A 2015E 2016E 2017E Balance Sheet:Stock rating: Sector Perform - SP Earnings/unit - diluted 3.35 1.91 0.77 1.67 1.72 Current assets 28.5 55.2 84.3 102.6 123.2


P/FFO - diluted 11.3x 10.6x 9.6x 8.3x 8.2x Current liabilities 47.7 50.7 57.2 57.1 57.1Units O/S - basic (MM): 61.4 Market cap - basic ($MM): 836 EBITDA/unit 2.55 2.73 2.63 2.62 2.67 Debt due in <1 year 5.0 0.0 0.0 0.0 0.0Units O/S - diluted (MM): 67.5 Market cap - diluted ($MM): 919 Total value/unit 39.17 39.76 37.55 35.21 34.92 Long term debt 1,233.4 1,242.3 1,219.4 1,221.1 1,222.9Float - basic (MM): 31.4 Market cap - float ($MM): 428 Total value/EBITDA 15.3x 14.6x 14.3x 13.4x 13.1x Preferreds + convertible debs 147.0 148.1 149.2 150.3 151.3

NAV/unit - diluted 23.00 23.50 22.50 22.50 n.a. Minority interest & other LT liab 0.0 0.0 0.0 0.0 0.0Major unitholders: Morguard Corporation 49% Price/NAV 76% 75% 70% 61% n.a. Common equity 1,551.2 1,605.6 1,596.3 1,640.0 1,686.7






$13.62

Net income to common includes IFRS fair value adjustment and other non-operating items.CEO Rai Sahi owns approximately 54% of Morguard Corporation.

MRT.IR T Rel. S&P/TSX CAPPED REIT INDEX

80.00

90.00


MRT.IR T

13.00

14.00

15.00

16.00

17.00

18.00

400

800

1200

COMPANY PROFILEMorguard REIT owns a diversified portfolio totalling more than 8.5 million sf and consisting of 21 retail, 24 office, and five industrial and other properties located in six provinces. The REIT was established in June 1997 through the acquisition of its initial portfolio (60 properties containing 4.6 million sf) from Pensionfund Properties. In August 1999, the REIT acquired the assets of mall owner and developer Devan Properties Limited, and it has since continued to grow its asset base through a number of smaller portfolio acquisitions.

VALUATIONOur one-year price target is derived by the application of a ~30% discount to our NAV per unit estimate one-year hence and implies a target multiple of 13x target multiple to our 2017 AFFO per unit estimate. We believe our target valuation metrics are reasonable in light of Morguard's portfolio quality, liquidity, balance sheet strength, and overall franchise value. We rate MRT units Sector Perform.

January 7, 2016 302


InnVest REIT Price: SUMMARIZED FINANCIAL INFORMATION (C$MM)


Income Statement:Revenue 592.3 540.5 573.9 576.3 598.4Net Operating Income (NOI) 133.8 129.2 151.4 155.7 163.3Corporate G&A 5.0 6.7 11.7 12.3 12.7Choice Hotels Cda & Other 5.7 4.6 4.6 8.6 9.5EBITDA 134.6 127.1 144.3 151.9 160.1Interest Expense 70.7 68.7 63.5 61.7 61.7FV (Gain)/Loss & Other 120.9 73.2 86.5 92.1 92.1Income Taxes (2.1) 0.0 0.0 0.0 0.0Net Income To Common (55.0) (14.7) (5.6) (1.9) 6.3

Cash Flow Statement:Net Income To Common (55.0) (14.7) (5.6) (1.9) 6.3Depreciation & Amortization 82.5 81.1 88.5 92.0 92.0Deferred Taxes (2.1) 0.0 0.0 0.0 0.0FV (Gain)/Loss & Other 38.3 (8.0) (2.6) (0.7) (0.7)Funds From Operations 63.8 58.4 80.3 89.5 97.7FF&E Reserve (24.6) (22.6) (25.6) (25.5) (26.4)Other Adjustments (s/l rent, other) 7.0 8.5 10.1 7.8 7.8Adjusted FFO 46.2 44.4 64.7 71.7 79.0Acquisitions/Dispositions (net) 60.3 137.4 145.2 59.1 45.0Dividends/Other Distributions 37.0 35.3 46.0 53.1 53.1Financing (debt + equity, net) (54.2) 25.7 46.7 23.0 0.0

VALUATION METRICS (C$ unless otherwise specified) Net Free Cash Flow (87.6) (88.5) (64.2) 0.3 (0.4)

KEY INFORMATION 2013A 2014A 2015E 2016E 2017E Balance Sheet:Stock Rating: Outperform - O Earnings/Unit - Diluted (0.59) (0.15) (0.04) (0.01) 0.05 Current Assets 64.7 88.5 34.2 34.5 34.1

P/E - Diluted n.m. n.m. n.m. n.m. n.m. Investments & Other Assets 65.1 17.0 55.6 55.6 55.61 Year Target Price: $6.25 FFO/Unit - Basic 0.68 0.61 0.64 0.67 0.73 Properties 1,150.7 1,223.7 1,239.2 1,206.3 1,159.3Annualized Distribution: $0.40 Indicated Yield: 7.8% FFO/Unit - Diluted 0.62 0.57 0.60 0.63 0.68 Total Assets 1,280.5 1,329.3 1,329.0 1,296.4 1,249.0

P/FFO - Diluted 7.2x 9.3x 9.1x 8.1x 7.5x Current Liabilities 0.0 0.0 0.0 0.0 0.0Units O/S - Basic (MM): 133.0 Market Cap - Basic ($MM): 683 EBITDA/Unit 1.44 1.32 1.14 1.14 1.20 Debt Due In <1 Year 105.4 98.9 99.4 99.4 99.4Units O/S - Diluted (MM): 159.2 Market Cap - Diluted ($MM): 817 Total Value/Unit 16.03 16.29 14.19 13.66 13.70 Long Term Debt 674.1 784.3 795.4 823.2 828.0Float - Basic (MM): 74.5 Market Cap - Float ($MM): 382 Total Value/EBITDA 11.2x 12.4x 12.4x 12.0x 11.4x Preferreds + Convertible Debs 329.0 235.0 201.9 201.9 201.9

NAV/Unit - Diluted 4.50 5.25 5.50 6.25 n.a. Minority Interest & Other L-T Liab 30.7 9.1 0.0 0.0 0.0Major Unitholders: Westmont Hospitality Group 7% Price/NAV 100% 101% 100% 82% n.a. Common Equity 141.5 202.0 232.4 171.9 119.7

Orange Capital LLC 9% AFFO/Unit - Diluted 0.46 0.44 0.50 0.52 0.56 Total Liabilities & Equity 1,280.5 1,329.3 1,329.0 1,296.4 1,249.0KingSett Capital 18% P/AFFO - Diluted 9.7x 12.1x 11.1x 9.9x 9.1x



FOUR-YEAR CAGRS (2013A - 2017E) Net Debt+Converts/EBITDA 8.0x 8.3x 7.6x 7.4x 7.0xEBITDA 4.4% EBITDA/Unit (4.3%) Debt+Converts/GBV 66% 62% 61% 60% 58%


$5.13


COMPANY PROFILEWith 109 properties encompassing ~14,100 guest rooms, InnVest REIT owns Canada's largest hotel portfolio, based on room count. As of September 30, 2015, the REIT considered 102 properties (12,563 rooms) to be "core" with five hotel properties (~653 rooms) as "non-core" and available for sale. The portfolio is comprised of a mix of limited-service, mid-market full-service, and several luxury hotels. Nearly all properties are flagged with internationallyrecognized brands such as Comfort Inn, Quality Inn/Hotel/Suites, Travelodge, Best Western, Holiday Inn Express, Ramada Inn, Delta, Sheraton, Hilton, and Fairmont. InnVest also owns a 50% interest in Choice Hotels Canada, the country's largest hotel franchiser, with more than ~300 locations and 30,000 guest rooms, a 20% non-managing interest in Toronto's Fairmont Royal York Hotel, and a 33% interest in Toronto Courtyard by Marriott (downtown).

VALUATIONOur price target equates to parity with our NAVPU estimate one-year hence, which implies an 11x target multiple to our 2017E AFFO/unit estimate. We believe our target multiple reasonably reflects factors relating to InnVest's relative franchise value, trading liquidity, cash yield, operating leverage, and financial leverage. We reiterate our view that the units are suitable only for more risk-tolerant investors. Based on relative risk and return considerations, we rate InnVest's units Outperform.

INNVEST REAL ESTATE INNVEST REIT Rel. S&P/TSX CAPPED REIT INDEX

84.00

90.00

96.00 102.00


INNVEST REAL ESTATE INNVEST REIT

4.60 4.80 5.00 5.20 5.40 5.60 5.80 6.00 6.20 6.40

400

800

1200

January 7, 2016 303


Brookfield Asset Management Price: SUMMARIZED FINANCIAL INFORMATION (US$MM)


Segmented OFFO1:Asset Mgmt2 300 378 488 552 619 Services (Const'n and prop. Mngt) 157 152 166 165 170 Commercial Property 526 554 582 715 736 Renewable Power 271 313 210 250 263 Infrastructure 222 222 247 266 274 Private Equity 296 130 113 100 105 Residential Development 46 164 80 130 143 Investment Income 159 40 71 94 152 FFO - Operating Segments 1,977 1,953 1,957 2,271 2,462 Corporate Interest Expense (304) (232) (223) (220) (220) Corporate Exp. & Cash Taxes (157) (133) (117) (126) (131) Funds From Operations 1,516 1,588 1,617 1,925 2,111 Disposition Gains & Other 1,295 569 600 500 500 Reported FFO 2,811 2,157 2,217 2,425 2,611 Adjustments To Net Income (net) 468 3,049 1,974 280 250 Net Income 3,279 5,206 4,191 2,705 2,861 Cash Flow Statement:CFFO (after net chg in WC) 2,260 2,574 2,691 2,425 2,611 Debt Arranged/Repaid (Net) 2,400 4,927 (76) (2,000) (2,000) Shareholder Distribution (& Other) (1,451) (2,887) (1,338) (630) (650) Other Financing Activities 1,761 4,593 1,849 - - Acquisitions (10,326) (8,617) (8,724) - - Dispositions 6,301 6,788 3,773 - -

KEY INFORMATION VALUATION METRICS (US$ unless otherwise specified) Other Investing Activities 2 (7,767) 1,778 - -

Stock Rating: Outperform - O 2013A 2014A 2015E 2016E 2017E Balance Sheet:1 Year Target Price: $40.00 OFFO/Share 1.45 1.51 1.52 1.83 2.01 Current Assets 15,276 17,844 14,786 14,593 14,554 Annualized Distribution: $0.48 Indicated Yield: 1.5% Disposition gains/share 1.37 0.60 0.61 0.51 0.51 Investments (PPE)3 89,425 104,489 113,744 115,744 117,744

Realized carried int./share 0.60 0.00 0.03 0.00 0.00 Intangibles And Other 8,044 7,147 7,355 7,355 7,355 Shares O/S - Basic (MM): 957 Market Cap - Basic ($B): 30.2 Reported FFO 3.43 2.12 2.17 2.34 2.52 Total Assets 112,745 129,480 135,885 137,692 139,653 Shares O/S - Diluted (MM): 1,011 Market Cap - Diluted ($B): 31.9 P/OFFO 17.0x 19.2x 22.6x 17.3x 15.7x Current Liabilities 10,316 10,408 11,293 11,293 11,293 Float - Basic (MM): 759 Market Cap - Float ($B): 23.9 P/FFO 7.2x 13.7x 15.9x 13.5x 12.5x Corporate Borrowings 3,975 4,075 4,426 4,426 4,426

Tangible NAV/Share 23.00 24.00 25.00 27.00 n.a. Non-Recourse Borrowings 42,887 48,693 55,015 55,015 55,015 Major Shareholders: Partners Limited 20% Asset Mgt Value/share 7.00 9.00 11.00 12.00 n.a. Perfs & Capital Securities 3,889 7,090 6,905 6,905 6,905

Intrinsic Value/share 30.00 33.00 36.00 39.00 n.a. Minority Interest & Other 33,897 39,061 37,469 37,469 37,469 Notes: Price/NAV 108% 121% 138% 117% n.a. Common Equity 17,781 20,153 20,777 22,584 24,545

Price/Intrinsic Value 83% 88% 96% 81% n.a. Total Liabilities & Equity 112,745 129,480 135,885 137,692 139,653 Dividend/Share 0.43 0.43 0.47 0.51 0.55Yield 1.7% 1.5% 1.4% 1.6% 1.7% Ratios and Other:

3Property, Plant and Equipment Realized Performance Fees 565 3 32 - - Accrued Performance Fees4 200 314 - - -

FOUR-YEAR CAGRS (2013A - 2017E) Operating Margins 49% 50% 54% 56% 58%OFFO/Share 8.4% Tang. NAV/Share 5.5% Total Debt/Assets 51% 49% 52% 51% 51%

Source: Company reports, RBC Capital Markets estimates Reported FFO/Share (7.4%) Dividend/Share 6.6% Operating FFO Growth 47% 4% 1% 20% 10%

US$31.53

1Operating Funds From Operations ("OFFO") is reported FFO, prior to disposition gains and other transactional items. 2Includes realized carried interests (see "Ratios and other" heading)

4Shown on a net basis - ie. Gross accrued fees less expected costs to be incurred (primarily manager compensation) upon realization.

COMPANY PROFILEBrookfield Asset Management Inc. ("BAM") is a global alternative asset manager focused on property, power, and infrastructure assets. The company has over $200 billion of assets under management (~$95 billion of which are fee-bearing), including premier office properties, power-generating plants, electricity transmission, transportation and distribution assets, and various private-equity funds. BAM is co-listed on the New York and Toronto Stock Exchanges as well as Euronext.

VALUATIONOur price target equates to parity with our estimated intrinsic value per share one-year hence and implies a ~20x multiple on our 2017 operating FFO estimate. Overall, we believe our target-valuation metrics are appropriate in light of BAM’s high-quality asset base and the growing profitability of its asset management platform. We believe there are few if any companies that are truly comparable to Brookfield Asset Management and we continue to view BAM’s shares as a “core holding”. Based on risk-adjusted relative return prospects, we rate BAM’s shares Outperform.

BROOKFIELD ASSET MANAGEMENT IN Rel. S&P 500

95.00

100.00 105.00 110.00


BROOKFIELD ASSET MANAGEMENT IN

30.00

32.00

34.00

36.00

38.00

5000

10000

January 7, 2016 304




Income statement:Revenue 303.7 313.0 259.2 241.3 251.7Gross margin 134.8 150.2 112.1 113.9 120.2Corporate G&A 30.3 24.8 21.3 19.0 19.9Other income (mezz loans, fees) 0.0 0.0 0.0 0.0 0.0EBITDA 104.5 125.4 90.8 94.9 100.3Interest expense 16.4 20.2 24.6 24.5 24.2IFRS FV (gain)/loss & other 31.7 17.9 19.0 (4.9) (4.9)Income taxes/(recovery) 21.2 22.4 21.6 11.8 12.8Net income to common 98.6 100.7 63.6 53.7 58.3

Cash flow statement:Net income to common 98.6 100.7 63.6 53.7 58.3Depreciation & amortization 1.4 1.6 1.4 0.0 0.0Deferred taxes (3.3) 0.1 6.3 0.0 0.0IFRS FV (gain)/loss & other (38.9) (16.9) (17.9) 1.7 1.7Funds from operations 57.9 85.5 53.4 55.4 60.0Acquisitions/(dispos'ns) (net) 142.3 127.6 29.9 10.0 10.0Dividends/other distributions 30.7 18.6 19.9 19.9 19.9Financing (debt + equity, net) 107.9 60.2 (24.2) (44.5) (44.5)Net free cash flow (7.2) (0.4) (20.7) (19.0) (14.4)

VALUATION METRICS (C$ unless otherwise specified)

KEY INFORMATION 2013A 2014A 2015E 2016E 2017E Balance sheet:Stock rating: Outperform - O Earnings/share - diluted 3.05 3.06 1.90 1.60 1.74 Current assets 234.4 211.1 204.4 202.6 201.1

P/E - diluted 6.1x 7.4x 8.5x 9.1x 8.4x Investments & other assets 1,477.6 1,635.3 1,690.1 1,701.1 1,712.01 year target price: $18.00 FFO/share - basic 1.90 2.70 1.63 1.74 1.88 Properties 15.9 16.8 16.5 16.5 16.5Annualized distribution: $0.60 Indicated yield: 4.1% FFO/share - diluted 1.82 2.61 1.61 1.73 1.86 Total assets 1,727.9 1,863.3 1,911.0 1,920.2 1,929.6

P/FFO - diluted 10.2x 8.7x 10.0x 8.4x 7.8x Current liabilities 0.0 0.0 0.0 0.0 0.0Shares O/S - basic (MM): 33.2 Market cap - basic ($MM): 483 EBITDA/share 3.17 3.77 2.71 2.83 2.99 Debt due in <1 year 71.9 61.3 43.9 43.9 43.9Shares O/S - diluted (MM): 33.5 Market cap - diluted ($MM): 488 Total value/share 42.59 40.92 35.25 34.49 33.59 Long term debt 574.3 621.3 639.7 615.1 586.2Float - basic (MM): 15.5 Market cap - float ($MM): 225 Total value/EBITDA 13.4x 10.9x 13.0x 12.2x 11.2x Preferreds + convertible debs 0.0 0.0 0.0 0.0 0.0

BVPS 25.03 27.22 28.93 29.95 31.10 Minority interest & other LT liab 312.5 279.3 267.0 267.0 267.0Major shareholders: Melton family 53% P/BVPS 0.7x 0.8x 0.6x 0.5x 0.5x Common equity 769.2 901.3 960.3 994.1 1,032.5

Dividend/share 0.50 0.58 0.60 0.60 0.60 Total liabilities & equity 1,727.9 1,863.3 1,911.0 1,920.2 1,929.7Yield 2.7% 2.6% 3.7% 4.1% 4.1%

Notes: Ratios:Gross margin 44% 48% 43% 47% 48%EBITDA margin 34% 40% 35% 39% 40%EBITDA/Interest expense 6.4x 6.2x 3.7x 3.9x 4.1x

FOUR-YEAR CAGRS (2013A - 2017E) Net debt+converts/EBITDA 7.6x 6.5x 8.8x 8.1x 7.4xEBITDA (1.0%) EBITDA/share (1.4%) Debt+converts/GBV 43% 39% 39% 37% 36%

Source: Company reports, RBC Capital Markets estimates FFO/share 0.6% Dividend/share 4.7% FFO payout ratio 28% 22% 37% 35% 32%

Melcor Developments Ltd. $14.56

MELCOR DEVELOPM Rel. S&P/TSX CAPPED REIT INDEX

80.00

90.00

100.00


MELCOR DEVELOPM

14.00

16.00

18.00

20.00

40.00

60.00

COMPANY PROFILEMelcor is a diversified real estate development and management company operating in Alberta and to a lesser extent Saskatchewan, British Columbia, and the Southwestern US. The company’s operations span the full life cycle of real estate development, including: acquiring raw land, community planning, development, and managing investment properties.

VALUATIONOur one-year price target of $18.00 is derived through a sum-of-the-parts valuation, which includes: 1) an $11.00 value for Melcor's Community Development division, derived though a ~0.60x price-to-book ratio, a discount to peers reflecting negative investor sentiment due to the company’s exposure to the oil patch; and 2) a $7.00 value for the company's Commercial Properties portfolio, derived though a 0.60x multiple to our NAV per share estimate, whichreflects a holding company discount.

January 7, 2016 305


Morguard Corporation Price: SUMMARIZED FINANCIAL INFORMATION (C$MM)


Income Statement:Total Revenue 502.5 551.4 872.9 907.0 925.1Gross Rental Revenue 415.1 472.8 803.2 834.0 848.6Net Operating Income (NOI) 220.4 249.4 431.0 445.2 453.2Corporate G&A 63.9 69.0 73.1 73.8 75.3Other Income (mezz loans, fees) 78.4 75.0 64.6 67.8 71.1EBITDA 234.9 255.4 422.5 439.2 449.0Interest Expense (incl. converts.) 93.3 107.7 151.7 159.6 159.6Taxes 56.7 66.6 78.9 78.8 82.7IFRS FV (Gain)/Loss & Other (201.4) (64.4) 100.5 29.3 16.4Net Income To Common 286.4 145.5 91.4 171.6 190.2Cash Flow Statement:Net Income To Common 286.4 145.5 91.4 171.6 190.2Depreciation & Amortization 0.1 0.1 0.0 0.0 0.0Deferred Taxes 35.1 46.0 57.5 54.8 57.5IFRS FV (Gain)/Loss & Other (168.4) (30.7) 37.8 (35.4) (46.3)Funds From Operations 153.2 160.8 186.7 190.9 201.5Non-Recov. Capex & Leasing (29.2) (26.3) (26.5) (27.8) (28.1)Other Adjustments (s/l rent, other) (2.3) (2.5) (5.7) (4.8) (4.5)Adjusted FFO 121.8 132.0 154.4 158.4 168.9Acquisitions/Dispositions (net) 517.3 132.6 314.9 60.0 60.0Dividends/Other Distributions 7.8 8.8 7.3 7.2 7.2Financing (debt + equity, net) 405.5 (47.5) (2.0) (200.0) (160.0)

KEY INFORMATION VALUATION METRICS (C$ unless otherwise specified) Net Free Cash Flow 33.7 (28.0) (137.5) (76.3) (25.8)

2013A 2014A 2015E 2016E 2017E Balance Sheet:Stock Rating: Sector Perform - SP Earnings/Share - Diluted 22.58 10.92 6.21 14.23 15.78 Current Assets 186.3 171.7 117.1 119.7 175.2

P/E - Diluted 5.3x 12.7x 23.2x 9.3x 8.4x Investments & Other Assets 1,020.4 368.8 557.8 547.3 536.81 Year Target Price: $175.00 FFO/Share - Basic 12.08 12.14 14.02 15.84 16.71 Properties 4,246.3 7,453.2 7,783.6 7,901.6 8,029.6Annualized Distribution: $0.60 Indicated Yield: 0.5% FFO/Share - Diluted 12.08 12.14 14.02 15.84 16.71 Total Assets 5,453.0 7,993.7 8,458.6 8,568.6 8,741.7

P/FFO - Diluted 10.0x 11.4x 10.3x 8.4x 8.0x Current Liabilities 140.9 179.4 199.3 199.3 199.3Shares O/S - Basic (MM): 12.1 Market Cap - Basic ($MM): 1,603 EBITDA/Share 18.52 20.40 34.63 36.43 37.25 Debt Due In <1 Year 0.0 0.0 0.0 0.0 0.0Shares O/S - Diluted (MM): 12.1 Market Cap - Diluted ($MM 1,603 Total Value/Share 297 432 421 409 391 Long Term Debt 2,371.8 3,794.0 4,029.2 3,829.2 3,669.2Float - Basic (MM): 5.4 Market Cap - Float ($MM): 713 Total Value/EBITDA 16.0x 21.2x 12.2x 11.2x 10.5x Convertible Debentures 0.0 0.0 0.0 0.0 0.0

NAV/Share - Diluted 216 238 263 281 n.a. Minority Interest & Other L-T Liab 594.7 1,521.7 1,580.9 1,726.6 1,876.6Major Shareholders: Rai Sahi 56% Price/NAV 56% 58% 51% 47% n.a. Common Equity 2,345.5 2,498.6 2,649.3 2,813.6 2,996.6

AFFO/Share - Diluted 9.60 9.84 11.37 13.14 14.01 Total Liabilities & Equity 5,453.0 7,993.7 8,458.6 8,568.6 8,741.7P/AFFO - Diluted 12.5x 14.1x 12.7x 10.1x 9.5x

Notes: Dividend/Share 0.60 0.60 0.60 0.60 0.60 Ratios:Yield 0.5% 0.4% 0.5% 0.5% 0.5% NOI Margin 53% 53% 54% 53% 53%

EBITDA Margin 47% 46% 48% 48% 49%FOUR-YEAR CAGRS (2013A - 2017E) EBITDA/Interest Expense 2.5x 2.4x 2.8x 2.8x 2.8xEBITDA 17.6% EBITDA/Share 19.1% Net Debt+Converts/EBITDA 10.6x 15.4x 9.8x 8.9x 8.3xFFO/Share 8.5% AFFO/Share 9.9% Debt+Converts/GBV 41% 46% 46% 43% 40%

Source: Company reports, RBC Capital Markets estimates AFFO Payout Ratio 6% 6% 5% 5% 4%

$133.00


COMPANY PROFILEMorguard Corporation is one of Canada's larger integrated real estate companies with a diversified portfolio of owned and managed properties worth ~$19 billion. The company's principal operating divisions include: 100%-owned Morguard Residential ("MRI"); 49%-owned Morguard North American Residential REIT; 100%-owned Morguard Investments Limited ("MIL"); 100%-owned Morguard Financial ("MF"); ~49%-owned Morguard REIT ("MREIT"); and directly owned properties in Canada and the United States. Morguard Corporation employs approximately 1,450 people in Canada and the United States with dedicated management teams in eight Canadian cities (Victoria, Vancouver, Edmonton, Calgary, Winnipeg, Toronto, Ottawa, and Montreal) and three states (New York, Louisiana, and Florida). Morguard's Chief Executive Officer, Rai Sahi, is regarded as a value investor who takes a long-term view. Mr. Sahi is the company's largest shareholder, owning ~6.7 million common shares (representing ~56% of the outstanding) having a value of ~$900 million.VALUATIONOur one-year price target is derived via a blend of a 13x multiple on our 2017E AFFO/share and a ~40% discount to our NAVPS estimate one-year hence (pre-tax). Overall, our P/AFFO and P/NAV target-derivation metrics remain notably below those which we apply to most names within our coverage universe, largely reflecting factors such as Morguard's low dividend payout ratio, low trading liquidity, and (cash) taxable status. Based on near-term total-return expectations, we rate the shares Sector Perform.

MORGUARD CORP Rel. S&P/TSX CAPPED REIT INDEX

91.00

98.00


MORGUARD CORP

130.00

135.00

140.00

145.00

150.00

155.00

10.00 20.00 30.00 40.00

January 7, 2016 306


Tricon Capital Group Price: SUMMARIZED FINANCIAL INFORMATION (C$MM for 2013-14; US$MM for 2015-17)

December 31, 2015 Primary Analyst: Geoffrey Kwan, CFA, (604) 257-76575 76575 2013A 2014A 2015E 2016E 2017E

Income Statement: C$MM C$MM US$MM US$MM US$MMManagement & Performance fees $18.3 $28.9 $25.3 $27.9 $31.9Investment income - non-SFR 34.5 72.6 21.7 37.6 35.0Investment income - SFR 37.2 85.6 55.4 52.2 66.2Interest & other revenues 1.3 0.1 0.1 0.3 0.5Employee compensation (16.1) (31.3) (21.2) (30.8) (36.3)G&A and other OpEx (3.6) (6.3) (6.1) (5.5) (5.9)Depreciation & amortization (0.8) (4.6) (6.4) (6.0) (6.1)Interest expense (12.7) (15.6) (14.7) (10.0) (10.0)Other items (9.1) 3.6 (1.5) 0.0 0.0Minority interest 0.0 (1.8) (0.8) (2.4) (2.5)Income taxes (12.9) (20.8) (13.1) (16.8) (19.3)Net income - reported $36.1 $110.4 $38.8 $46.6 $53.6Adjusted net income 34.7 64.3 62.2 56.1 64.9

Cash Flow Statement:Net Income To Common 36.1 112.2 39.5 49.0 56.1Depreciation & Amortization: 0.8 4.6 6.4 6.0 6.1Deferred Taxes: 8.1 5.0 5.7 (1.2) (1.1)Investment (income)/loss (71.6) (158.2) (77.1) (89.8) (101.3)Distributions received 55.7 75.7 174.2 106.6 50.0Other 25.9 16.8 3.1 12.2 13.3Cash Flow From Operations: 55.0 56.2 151.8 82.8 23.1Change in Non-Cash Working Capital: 2.9 1.1 (20.6) 0.0 0.0

KEY INFORMATION VALUATION METRICS (C$ unless otherwise specified) Capex: (0.4) (0.3) (0.2) (0.4) (0.4)2013A 2014A 2015E 2016E 2017E Common Dividends: (12.0) (19.0) (15.8) (19.4) (19.4)

Stock Rating: Outperform - O C$ C$ US$ US$ US$ Free Cash Flow: 39.7 35.9 156.4 62.9 3.23rd Party AUM 982 1,245 1,230 1,285 1,344 Investments 370.6 87.3 130.4 26.3 1.4

1 Year Target Price: $13.00 Co-invest. (US$MM) 311 317 289 237 263 Cash Flow From Financing: 313.5 41.8 62.9 0.0 0.0Annualized Dividend: $0.24 Indicated Yield: 2.6% SFR - # of homes 3,256 4,991 7,109 8,509 9,909 Net Free Cash Flow (17.4) (9.6) 88.9 36.6 1.9

SFR - Op. Income 11.1 22.2 36.6 54.5 71.7Shares O/S - Basic (MM): 104.2 Market Cap - Basic ($MM): 944 SFR - Cap. Inv. (US$MM) 410 624 916 1,091 1,266 Balance Sheet:Shares O/S - Diluted (MM): 122.0 Market Cap - Diluted ($MM): 1,105 MHC - Assets (US$MM) - 15 86 86 86 Cash & short-term investments 13.1 5.7 52.7 89.3 91.2Float - Basic (MM): 95.4 Market Cap - Float ($MM): 864 Base EBITDA 2.9 5.4 3.2 3.4 3.5 Other current assets 3.3 7.8 17.1 17.1 17.1

Adjusted EPS 0.57 0.59 0.57 0.48 0.56 U.S. single family residential 287.1 399.3 394.4 446.6 512.8Major Shareholders: Management and Insiders 9% Dividends / Share 0.24 0.24 0.24 0.24 0.24 U.S. manufactured housing 0.0 4.9 10.2 12.3 14.7

Multi-unit rental development 0.0 0.0 3.5 3.5 3.5FOUR-YEAR CAGRS (2013A - 2017E) Co-Investments - land/homebuilding 332.6 367.8 290.9 246.1 230.1

Notes: Adjusted EPS n.a (due to change in Goodwill & intangibles & other 6.9 52.0 41.8 36.1 30.5reporting currency) Total Assets 642.9 837.5 810.6 851.1 899.9

Debt 4.4 54.3 0.0 0.0 0.0Convertible debentures 149.8 150.2 61.3 66.3 71.3Minority Interest & Other Liab. 32.0 85.9 67.4 73.3 80.5Shareholders' equity 456.8 547.2 681.9 711.5 748.1

Source: Company reports, RBC Capital Markets estimates Total Liabilities & equity 642.9 837.5 810.6 851.1 899.9

Adjusted net income includes changes in the fair value of the TCN’s investments, but excludes both non-recurring and non-cash Items,including F/X gains or losses, long-term incentive plan expense and the net change in fair value of derivatives.

$9.06

COMPANY PROFILETricon is a diversified North American residential real estate investment company. Tricon’s key businesses include investments in homebuilding and land development (through its private-equity funds and separate accounts); US single-family rental homes; US-manufactured housing rentals; and multi-unit rental developments. Tricon’s private-equity funds also give investors exposure to an asset-management business and carried interest/performance fees. Tricon’s investments are concentrated mainly in various major markets in the US (California, Phoenix, Texas, Florida, Atlanta, Charlotte, and Nevada) and in Canada (Toronto, Vancouver, Calgary, and Edmonton).

VALUATIONWe value Tricon using an NAV approach, separately valuing: (1) co-investments using a 1.5x P/BV multiple; (2) US SFR with a 5.25% cap rate; (3) U.S. manufactured housing using a 6.5% FFO yield; (4) the multi-unit rental developments using a 15% annual growth assumption; (5) the asset management business at 10.0x our 2017 Base Business EBITDA; and (6) performance fees with a discounted cash flow.

TRICON CAPITAL GROUP INC Rel. S&P/TSX COMPOSITE INDEX

110.00 120.00 130.00 140.00


TRICON CAPITAL GROUP INC

8.50

9.00

9.50

10.00

10.50

11.00 11.50

2000

4000

6000

January 7, 2016 307


Appendix II: Listing of office properties under construction

Projects under construction - 2016–2018 new supply analysis

Existing Inventory

(Q3/15) Central (000 sf)

Suburbs (000 sf)

Total (000 sf)

Supply Increase

Calgary 65,740 4,170 739 4,909 7% Edmonton 24,159 1,793 0 1,793 7% Halifax 10,660 300 198 498 5% Montreal 95,590 822 1,157 1,979 2% Ottawa 43,057 65 0 65 0% Quebec City 18,607 0 145 145 1% St. John's 2,718 0 0 0 0% Toronto 175,091 3,592 1,411 5,003 3% Vancouver 55,339 549 791 1,340 2% Winnipeg 11,191 0 0 0 0%

Total Under Construction 502,152 11,292 4,441 15,733 3%

Region Building Name / Address Developer / Owner Central (000 sf)

Suburbs (000 sf) Pre-Leased Storeys

2016: Calgary Calgary City Centre Cadillac Fairview Corporation Limited 811 80% 34 Calgary Harvest Hills Office Park - Building B Qualico Developments West Ltd. 74 52% 3 Calgary Westland Professional Centre 53 44% 3 Calgary Imperial Oil Building A Remington Development Corp. (Alberta) 140 100% 4 Calgary Imperial Oil Building B Remington Development Corp. (Alberta) 180 100% 5 Calgary Seton Professional Centre - East Tower Brookfield Residential 44 91% 3 Calgary Seton Professional Centre - West Tower Brookfield Residential 53 31% 3 Calgary Odeon Building Ronmor Developers Inc. 35 34% 4 Calgary 1543 17th Avenue SE 27 0% 2 Calgary Mount Royal Village West York Realty Inc. 60 50% 3 Edmonton The Edmonton Brewery District - Building 9 63 0% 5 Edmonton The Edmonton Brewery District - Building 11 24 0% 4 Edmonton EAD Office Tower WAM Development Group 573 77% 27 Edmonton Kelly Ramsey Building John Day Developments 534 86% 25 Halifax Wright & Burnside Business Campus - Phase 2 Hardman Group, The 60 0% 3 Halifax 145 Hobson's Lake Drive 138 81% 4 Montreal Jonxion - Phase 3 Galion Gestion Dévelop. Immobilier inc. 136 0% 8 Montreal Tour SSQ SSQ Société d'assurance inc. 215 77% 12 Montreal 9310-9320 Saint-Laurent Boulevard 133 5% 11 Montreal 3500 Saint-Jacques Street Groupe Mach 228 48% 7 Montreal 7450 Mile End Kevric Real Estate Corporation Inc. 80 100% 2 Montreal 3555 Saint-Antoine Street Hakim Construction 195 0% 6 Quebec City Complexe Pôle Sud - Building B Logisco 70 42% 5 Quebec City 5750 J.B. Michaud Street 30 0% 3 Quebec City Place Robert-Bourassa - Phase II 45 0% 3 Toronto Canon Canada Inc. Headquarters Bird Construction 190 100% 5 Toronto 1213 International - Building A Fengate Property Management 27 0% 1 Toronto 1213 International - Building B Fengate Property Management 53 0% 1 Toronto Gateway Meadowvale I Carttera Private Equities Inc. 147 0% 6 Toronto Red Diamond Corporate Centre JG Capital Realty 93 20% 6 Toronto 610 Chartwell Road First Gulf Corp 104 50% 4 Toronto Bay-Adelaide Centre - East Tower Brookfield Properties 1,002 67% 44 Toronto The Globe and Mail Centre First Gulf Corp 450 94% 17 Toronto One York Street Menkes Developments Ltd. 800 68% 35 Toronto KPMG Tower Calloway REIT 308 51% 15 Toronto Offices at Centro Square Liberty Development Corporation 136 0% 10 Vancouver SOLO District Appia Group of Companies 228 0% 14 Vancouver Modello - Podium Boffo Developments 45 0% 4 Vancouver Suter Brook Village 139 0% 9 Vancouver Gateway Place Bosa Properties / Industrial Alliance 56 0% 5 Vancouver 1249-1257 East Pender Street 21 0% 7

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January 7, 2016 308



Suburbs (000 sf) Pre-Leased Storeys

Vancouver Ormidale Block Century Group 24 0% 5 Vancouver Renfrew Centre Blackwood Partners Property Corporation 162 0% 7 Vancouver 380 West 5th Avenue 76 100% 4 Vancouver Q4 Block 27 0% 5

2016 Subtotal / Average 4,466 3,620 58% 2017: Calgary PLACE 10 - East Tower Centron Group of Companies 323 38% 14 Calgary Eau Claire Tower Oxford Properties Group 588 77% 25 Calgary 707 5th Street SW Manulife Real Estate 523 50% 27 Calgary 3770 33rd Street NW Remington Development Corp. (Alberta) 90 100% 3 Calgary The Windsor Arlington Street Investments 70 0% 5 Calgary Brookfield Place Calgary - East Tower Brookfield Properties 1,400 72% 56 Calgary Telus Sky Westbank/Allied Properties/Telus 439 38% 28 Halifax BMO Tower Rank Incorporated 300 17% 19 Montreal L/Avenue Broccolini Construction Inc 76 0% 8 Montreal Sommer Building - Extension Rester Management Services 275 100% 11 Montreal 900 de Maisonneuve boulevard West Ivanhoé Cambridge 471 58% 27 Montreal ABB HQ Broccolini Construction Inc 169 100% 6 Ottawa 200 Laurier Avenue West Gillin Engineering & Construction Ltd. 65 0% 8 Toronto 7980 Birchmount Road Remington Group Inc. (Toronto) 353 85% 12 Toronto EY Tower Oxford Properties Group 899 87% 40 Toronto 20 Wellington Street East Concert Realty Services Ltd. 43 0% 5 Toronto Daniels Waterfront - West Tower Daniels Corporation 307 11% 13 Toronto Daniels Waterfront - East Tower Daniels Corporation 91 0% 10 Vancouver The Exchange Credit Suisse 354 10% 31 Vancouver 510 Seymour Street Serracan Properties 71 92% 10 Vancouver Containers Phase Two Rize 138 100% 7

2017 Subtotal / Average 6,225 821 60% 2018: Edmonton Stantec Tower WAM Development Group 600 74% 28

2018 Subtotal / Average 600 0 74%

Total Under Construction/Average 11,292 4,441 59%

Summary of Office Properties Available for Pre-Leasing Central (000 sf)

Suburbs (000 sf) Total

Calgary 4,236 3,581 7,818 Edmonton 0 1,047 1,047 Montreal 0 0 0 Ottawa 1,737 478 2,215 Toronto 11,526 525 12,051 Vancouver 2,127 785 2,912

Total in Pre-Leasing 19,626 6,417 26,042


Suburbs (000 sf) Storeys

Calgary Brookfield Place Calgary - West Tower Brookfield Properties 1,000 41 Calgary First Canadian Centre East Tower GWL Realty Advisors Inc. 725 28 Calgary Palliser West Tower Aspen Properties 464 26 Calgary Palliser East Tower Aspen Properties 464 26 Calgary Keynote Tower 4 Triovest Realty Advisors 329 17 Calgary PLACE 10 - West Tower Centron Group of Companies 304 14 Calgary 4832 Richard Road SW GWL Realty Advisors Inc. 272 8 Calgary Epic at Interplex EPIC Realty Partners Inc. 261 11 Calgary Interplex Gold H&R REIT 250 7 Calgary 3 Eau Claire Bentall Kennedy 246 12 Calgary 999 Phase II Triovest Realty Advisors 240 16

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January 7, 2016 309



Suburbs (000 sf) Storeys

Calgary Barron Building Strategic Group 220 11 Calgary Barron Building Strategic Group 220 11 Calgary Quarry Crossing - Building C Remington Development Corp. (Alberta) 181 4 Calgary Quarry Crossing - Building E Remington Development Corp. (Alberta) 181 4 Calgary Southcentre Executive Tower 2 Oxford Properties Group 167 8 Calgary Airport Crossing Office Building 3 Enright Capital 160 4 Calgary 608 7th Street SW 159 16 Calgary Quarry Crossing - Building D Remington Development Corp. (Alberta) 150 4 Calgary Curtis Block 144 10 Calgary Q2 Block 120 9 Calgary Airport Crossing Office Building 1 Enright Capital 105 4 Calgary Airport Crossing Office Building 2 Enright Capital 105 4 Calgary Quarry Station - Building A Remington Development Corp. (Alberta) 101 3 Calgary Quarry Station - Building B Remington Development Corp. (Alberta) 101 3 Calgary Stonegate Landing Corporate Centre - Phase 1 WAM Development Group 100 3 Edmonton Blackmud Creek - Proposed New Building Melcor Developments Limited 200 4 Edmonton Blackmud Creek - Future Building A Melcor Developments Limited 180 3 Edmonton Blackmud Creek - Phase 2 Melcor Developments Limited 120 4 Edmonton Blackmud Creek - Future Building B Melcor Developments Limited 106 3 Edmonton Blackmud Creek - Future Building D Melcor Developments Limited 106 3 Edmonton Blackmud Creek - Future Building C Melcor Developments Limited 105 3 Ottawa 300 Queen Street Brookfield Properties 578 17 Ottawa Bank and Slater Tower III Morguard 381 18 Ottawa 170 Slater Street GWL Realty Advisors Inc. 378 19 Ottawa Place de Ville Podium - Addition Brookfield Properties 300 18 Ottawa 405 Terminal Ave Ottawa Train Yards Inc. 150 9 Ottawa Complexe 250 Phase 2 102 7 Ottawa 88 Metcalfe Street Metcalfe Realty Company Limited 100 10 Toronto 160 Front Street West Cadillac Fairview Corporation Limited 1,423 54 Toronto 141 Bay Street Ivanhoé Cambridge 1,360 48 Toronto 81 Bay Street Ivanhoé Cambridge 1,284 48 Toronto Union Centre Allied Properties REIT 1,238 47 Toronto 30 Bay Street Oxford Properties Group 944 45 Toronto York Centre Cadillac Fairview Corporation Limited 830 32 Toronto The Well Allied Properties REIT 800 34 Toronto 388 King - Future Development Allied Properties REIT 755 33 Toronto Innovation Square 370 15 Toronto Waterfront Innovation Centre Menkes Developments Ltd. 350 9 Toronto 42 Fraser Avenue-Phase 1 York Heritage Properties Ltd. 300 6 Toronto Atrium on Bay - Proposed Expansion H&R REIT 294 20 Toronto 25 Liberty Street The Fueling Station 260 12 Toronto King Portland Centre Allied Properties REIT 254 13 Toronto 489-499 King - Future Development Allied Properties REIT 220 12 Toronto Queens Quay Place at Bayside - Building 1 208 9 Toronto Queens Quay Place at Bayside - Building 2 208 9 Toronto 105 Berkeley Street 150 6 Toronto 3250 South Service Road West - Phase 2 Melrose Investments Inc. 150 6 Toronto West Block Choice Properties REIT 130 7 Toronto 99 Atlantic - Proposed Tower Kevric Real Estate Corporation Inc. 127 8 Toronto 494-520 Richmond Street East 100 10 Vancouver 1090 West Pender Street Bentall Kennedy 450 30 Vancouver 1133 Melville Street - Future Development Oxford Properties Group 400 20 Vancouver Waterfront Tower Cadillac Fairview Corporation Limited 374 26 Vancouver 320 Granville Street Carrera Management Corporation 350 25 Vancouver 753 Seymour Street GWL Realty Advisors Inc. 340 34 Vancouver Discovery Parks Vancouver - Phase II Discovery Parks 219 9 Vancouver 601 West Hastings Street Morguard 213 25 Vancouver Discovery Parks Vancouver - Phase II Discovery Parks 219 9 Vancouver Burrard Gateway Reliance Properties Ltd. 129 13 CBD (3)/Suburban (29) and other small projects in aggregate 181 1,835 148 Total In Pre-Leasing 19,626 6,417 1,244

Source: Altus (properties obtained from Data Import Tab)

January 7, 2016 310


Appendix III: RBC Economics’ interest rate and economic forecast Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15E Q1/16E Q2/16E Q3/16E Q4/16E Q1/17E Q2/17E Q3/17E Q4/17E 2012 2013 2014 2015E 2016E 2017E Interest rates & the dollar Canada: 3-month T-bills 0.9 0.9 0.9 0.9 0.6 0.6 0.4 0.4 0.5 0.6 0.6 1.1 1.3 1.6 1.8 2.1 1.1 0.9 0.9 0.4 1.1 2.1 5-year GoC bonds 1.7 1.5 1.6 1.3 0.8 0.8 0.8 1.0 1.2 1.3 1.5 2.1 2.4 2.6 2.8 3.0 1.3 1.5 1.3 1.0 2.1 3.0 10-year GoC bonds 2.5 2.2 2.2 1.8 1.4 1.7 1.4 1.8 1.9 1.9 2.2 2.6 2.8 2.9 3.2 3.3 1.8 2.0 1.8 1.8 2.6 3.3 United States: 3-month T-bills 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.5 0.7 0.7 1.0 1.5 2.1 2.7 3.2 0.1 0.1 0.0 0.2 1.0 3.2 5-year Treasury notes 1.7 1.6 1.8 1.7 1.4 1.6 1.4 1.9 2.1 2.2 2.3 2.6 3.0 3.4 3.8 4.0 0.7 1.6 1.7 1.9 2.6 4.0 10-year Treasury notes 2.7 2.5 2.5 2.2 1.9 2.4 2.0 2.5 2.6 2.7 2.9 3.1 3.4 3.7 4.0 4.2 1.7 2.3 2.2 2.5 3.1 4.2 Cda - US yield spreads (bps): 3-month T-bills 85 90 90 87 51 55 43 20 5 -10 -10 15 -20 -50 -85 -115 96 85 87 20 15 -115 5-year -3 -9 -15 -31 -60 -82 -57 -85 -90 -90 -80 -45 -60 -75 -95 -105 60 -15 -31 -85 -45 -105 10-year -27 -29 -37 -38 -57 -66 -61 -70 -75 -80 -65 -45 -65 -75 -80 -85 5 -35 -38 -70 -45 -85 USD/CAD exchange rate $1.11 $1.07 $1.12 $1.16 $1.27 $1.25 $1.33 $1.33 $1.36 $1.38 $1.36 $1.33 $1.31 $1.29 $1.27 $1.25 $0.99 $1.06 $1.16 $1.33 $1.33 $1.25 Key economic indicators Canadian growth rates: Real GDP 0.5 3.7 2.1 3.4 -0.7 -0.3 2.3 1.3 2.2 2.4 2.6 2.7 2.9 2.8 2.6 2.0 1.7 2.2 2.5 1.2 2.2 2.7 Consumer spending 1.0 4.2 2.9 2.4 0.4 2.3 1.8 2.5 2.3 2.3 2.4 2.1 2.1 2.0 1.8 1.7 1.9 2.4 2.6 2.0 2.3 2.1 - Durables -0.3 14.5 8.2 3.3 -4.7 6.4 9.7 1.8 3.0 2.2 1.5 1.5 1.5 1.5 1.5 1.0 2.8 4.0 4.3 3.7 3.3 1.5 - Semi-durables -5.7 8.3 3.7 2.8 0.6 3.7 0.7 2.8 2.1 2.5 2.8 3.1 2.5 2.1 1.8 1.8 3.1 2.7 3.1 2.6 2.4 2.4 - Non-durables 2.6 -0.3 0.0 2.3 2.7 -2.6 0.9 2.8 2.1 2.5 3.3 2.2 2.2 2.2 2.0 2.0 0.5 2.1 2.4 0.9 2.0 2.3 - Services 1.4 3.6 3.0 2.2 0.5 3.4 0.6 2.5 2.3 2.2 2.1 2.1 2.2 2.0 1.8 1.8 2.2 2.2 2.3 2.0 2.1 2.1 Business investment -2.8 4.1 5.9 0.6 -11.4 -7.3 -3.0 1.7 -1.2 0.9 1.2 1.9 1.8 2.3 2.1 2.5 6.6 0.7 0.4 -3.6 -0.4 1.9 - Residential -1.5 9.8 10.3 -0.5 6.3 0.1 2.5 7.1 0.1 -4.5 -6.7 -5.0 -3.8 -1.3 -1.4 0.1 5.6 -0.4 2.5 4.1 -0.4 -3.5 - Non-residential structure -2.6 -0.7 0.1 -2.2 -24.7 -9.3 -6.5 -1.0 -1.5 3.8 6.3 6.4 5.3 4.8 4.5 4.0 12.4 7.8 -0.4 -9.7 -0.2 5.3 - Machinery and equip. 0.3 8.3 14.4 7.2 -5.9 -14.5 -4.5 -2.5 -2.5 4.8 6.3 6.4 5.2 4.5 4.3 4.0 2.7 -6.7 1.0 -1.7 -0.6 5.2 Government spending -0.4 0.6 -0.6 -0.3 3.8 1.7 -1.6 2.0 1.5 2.0 2.5 2.0 1.8 1.5 1.5 1.5 0.7 0.3 0.3 1.1 1.5 1.8 Exports -1.4 20.7 6.9 -0.2 -1.0 1.9 9.4 2.3 6.6 6.0 5.8 5.8 6.3 5.9 5.6 4.8 2.6 2.8 5.3 3.4 5.6 5.9 Imports -3.5 10.3 4.7 0.3 0.4 -1.9 -2.9 7.5 4.8 4.3 4.8 4.1 3.6 3.6 3.6 4.0 3.6 1.5 1.8 1.0 3.7 3.9 Final domestic demand -0.1 3.6 2.9 1.7 -1.3 0.2 0.0 2.2 1.5 2.0 2.2 2.1 2.0 2.0 1.8 1.9 2.4 1.3 1.6 0.8 1.6 2.0 Productivity 1.5 2.6 2.3 2.0 1.8 -0.4 -0.3 -0.6 0.1 1.1 1.4 1.7 1.7 1.7 1.8 1.7 -0.1 1.2 2.1 0.1 1.1 1.7 Consumer prices (YoY%) 1.4 2.2 2.1 1.9 1.1 0.9 1.2 1.4 2.2 2.0 2.1 2.2 2.0 1.9 1.9 1.9 1.5 0.9 2.0 1.1 2.1 1.9 Core cons. prices (CPIX) (YoY%) 1.3 1.7 2.0 2.2 2.2 2.2 2.2 2.2 2.1 2.1 2.0 2.0 2.0 2.0 2.0 2.0 1.7 1.3 1.8 2.2 2.0 2.0 Pre-tax corp. profits (YoY%) 4.0 9.6 9.0 5.6 -13.5 -15.6 -19.2 -19.4 -2.3 0.2 4.6 11.1 12.3 12.3 11.2 8.1 -5.3 0.8 7.0 -16.9 3.3 10.9 Other: Housing starts (000's) 176 196 199 184 175 193 213 200 195 189 183 179 175 175 170 170 215 188 189 195 186 172 Motor vehicles (MM) 1.76 1.87 1.96 1.95 1.82 1.92 2.00 1.97 1.95 1.88 1.87 1.87 1.87 1.87 1.87 1.87 1.72 1.78 1.89 1.93 1.89 1.87 Current acct. balance (% GDP) -2.3 -1.9 -2.0 -2.9 -3.9 -3.3 -3.2 -3.8 -3.4 -3.1 -2.8 -2.3 -1.7 -1.5 -1.3 -1.1 -3.6 -3.2 -2.3 -3.6 -2.9 -1.4 Change in inventories ($B) 19.6 9.4 1.3 9.2 12.8 5.4 0.7 4.6 5.4 5.2 5.8 6.2 6.2 6.6 7.5 7.1 6.2 15.5 9.9 5.9 5.6 6.8 Unemployment rate (%) 7.0 7.0 7.0 6.7 6.7 6.8 7.0 7.0 6.9 6.8 6.7 6.6 6.5 6.4 6.3 6.2 7.2 7.1 6.9 6.9 6.8 6.4

Source: RBC Economics estimates and RBC Capital Markets

January 7, 2016 311


Appendix IV: REIT returns Total Returns Symbol 2010 2011 2012 2013 2014 Q4/15 2015 EPRA/NAREIT Global REIT Indices EPRA/NAREIT Global (US$) 20.4% -5.8% 28.7% 4.4% 15.9% 4.4% 0.1% EPRA/NAREIT North America (US$) 28.6% 8.2% 18.1% 1.3% 28.1% 6.7% 1.8% EPRA/NAREIT Europe (US$) 9.2% -12.3% 30.7% 16.2% 10.4% 0.1% 6.7% EPRA/NAREIT Asia (US$) 17.2% -19.6% 45.5% 4.4% 0.2% 2.5% -7.2% EPRA/NAREIT Europe (€) 16.8% -9.4% 28.7% 11.2% 25.7% 2.8% 18.8% EPRA/NAREIT Asia (¥) 2.1% -23.7% 63.5% 26.9% 14.3% 3.0% -6.9%

Canadian and US REIT and Broad Market Indices S&P/TSX Composite Index 17.6% -8.7% 7.2% 13.0% 10.6% -1.4% -8.3% S&P 500 Composite Index 15.1% 2.1% 16.0% 32.4% 14.1% 7.1% 1.4% S&P/TSX Capped REIT Index 22.6% 21.7% 16.4% -5.5% 10.4% -3.6% -4.6% MSCI US REIT Index 28.9% 8.3% 17.8% 2.5% 30.4% 7.1% 2.5%

REITs and REOCs Agellan Commercial REIT ACR.UN n/a n/a n/a n/a 8.6% 5.7% 10.9% Allied Properties REIT AP.UN 18.2% 23.5% 35.8% 3.4% 18.6% -8.6% -11.8% Amer. Hotel Income Prop. REIT HOT.UN n/a n/a n/a n/a 3.2% 9.7% 15.2% Amica Mature Lifestyles Inc. ACC 24.0% 19.9% 22.8% -7.4% -8.1% 2.0% 171.2% Artis REIT AX.UN 25.6% 14.1% 19.5% 1.9% 2.7% 3.1% -2.1% Automotive Properties REIT APR.UN n/a n/a n/a n/a n/a -13.2% -13.9% Boardwalk REIT BEI.UN 16.3% 26.6% 31.7% -4.2% 8.6% -10.7% -18.0% Brookfield Asset Management BAM 52.4% -15.9% 35.4% 11.0% 30.9% 0.7% -4.3% Brookfield Canada Office Properties BOX.UN 14.5% 17.3% 24.9% -5.1% 5.9% 7.0% 1.3% Brookfield Property Partners BPY-US n/a n/a n/a n/a 19.7% 9.5% 6.3% BTB REIT BTB.UN 19.8% 28.1% 4.7% 14.1% 15.2% 6.2% 2.1% CAPREIT CAR.UN 29.6% 36.5% 16.5% -10.1% 23.8% -4.4% 11.6% Choice Properties REIT CHP.UN n/a n/a n/a n/a 5.8% 4.0% 18.8% Cominar REIT CUF.UN 15.1% 12.7% 9.0% -11.9% 8.8% -6.5% -13.1% CREIT REF.UN 19.6% 18.6% 26.6% 3.7% 9.6% 3.8% -4.3% Crombie REIT CRR.UN 25.7% 16.9% 11.6% -2.2% 2.0% 1.6% 6.0% CT REIT CRT.UN n/a n/a n/a n/a 18.7% 2.4% 11.0% Chartwell Retirement Residences CSH.UN 24.0% 10.5% 34.2% -3.1% 24.6% 4.5% 11.2% Dream Industrial REIT DIR.UN n/a n/a -0.7% -14.8% 3.1% -6.8% -6.4% Dream Global REIT DRG.UN n/a n/a 10.4% -15.6% 11.3% 0.2% 10.4% Dream Office REIT D.UN 56.1% 15.5% 21.3% -17.0% -5.0% -15.4% -22.0% Extendicare EXE 5.3% 1.7% -0.1% -3.0% 2.6% 22.0% 55.4% First Capital Realty FCR 17.5% 19.8% 13.5% -1.4% 10.2% -0.7% 2.9% Granite REIT GRT.UN 114.1% 23.3% 22.0% 7.5% 12.4% 2.5% -2.4% H&R REIT HR.UN 30.9% 35.7% 8.7% -5.6% 7.9% -0.9% -1.5% Holloway Lodging HLC -25.0% -72.7% 7.6% 8.1% 61.6% 15.0% -15.9% InnVest REIT INN.UN 36.3% -31.7% 9.7% 22.8% 36.6% 5.0% -7.5% Inovalis REIT INO.UN n/a n/a n/a n/a 10.2% 8.7% 14.8% InterRent REIT IIP.UN 6.7% 123.0% 68.7% 5.8% 15.8% 1.8% 13.2% Killam Apartment REIT KMP.UN 25.1% 16.2% 13.0% -11.4% 3.6% 7.1% 8.3% Lanesborough REIT LRT.UN -46.3% -4.6% 44.6% 78.3% -56.1% 232.1% 20.1% Melcor Developments MRD 33.5% -8.6% 23.0% 33.7% 0.9% -2.6% -22.8% Melcor REIT MR.UN n/a n/a n/a 8.5% -2.5% -7.2% -16.6% Morguard Corporation MRC 47.5% 57.6% 51.9% 9.9% 20.1% -1.4% -10.9% Morguard REIT MRT.UN 19.5% 14.9% 20.2% -4.8% 16.2% 1.4% -19.7% Morguard North American Residential REIT MRG.UN n/a n/a n/a -$0.11 12.9% 6.1% 12.5% Milestone Apartments REIT MST.UN n/a n/a n/a n/a 36.3% -0.8% 28.5% Northview Apartment REIT NVU.UN 38.9% 8.1% 11.0% -5.2% -8.6% -8.9% -19.3% NorthWest Healthcare Properties REIT NWH.UN 23.1% 5.1% 15.6% -9.9% -3.4% 14.1% 4.8% OneREIT ONR.UN 82.5% 8.9% 16.7% -9.1% -6.2% 9.5% -5.7% Partners REIT PAR.UN 40.3% 15.2% 15.9% -23.0% -24.0% -0.8% -4.6% Plaza Retail REIT PLZ.UN 47.7% 14.5% 11.1% -6.4% -0.2% 7.5% 21.3% Pure Industrial REIT AAR.UN 41.8% 0.2% 27.4% 1.6% -0.4% 0.2% 5.5% Regal Lifestyle Communities RLC n/a n/a n/a -$0.11 30.8% 0.5% 37.6% RioCan REIT REI.UN 17.8% 26.4% 9.5% -5.0% 12.4% -5.6% -5.0% Sienna Senior Living SIA 13.6% 13.4% 18.8% -1.8% 30.4% -2.8% 21.8% Slate Office REIT SOT.UN n/a n/a n/a -5.5% -4.1% 0.7% 2.9% Slate Retail REIT SRT'U n/a n/a n/a n/a -1.1% 2.3% 6.4% SmartREIT SRU.UN 27.7% 21.2% 13.9% -7.7% 14.7% 0.1% 16.5% Summit II REIT SMU.UN n/a n/a n/a n/a 9.6% 3.5% 13.7% True North Apartment REIT TN.UN n/a n/a n/a n/a 6.1% -3.2% 1.4% Tricon Capital Group TCN n/a -11.4% 59.2% 23.6% 16.2% -11.4% 6.7% WPT Industrial REIT WIR'U n/a n/a n/a n/a 34.1% 6.4% 15.7% Unweighted REIT Average 19.4% 10.3% 19.8% -0.7% 10.7% 6.6% 2.3% Unweighted Group Average 29.1% 13.7% 21.9% 0.7% 10.4% 5.6% 6.8%

January 7, 2016 312


Appendix IV: REIT returns (continued) Period-End Price Cash Distributions Symbol 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 Q4/15 2015 FTSE EPRA/NAREIT Global REIT Indices Global (US$) 2,905.7 2,736.6 3,520.7 3,675.2 4,259.2 4,261.5 n/a n/a n/a n/a n/a n/a n/a North America (US$) 3,564.1 3,855.9 4,555.4 4,613.3 5,911.9 6,019.0 n/a n/a n/a n/a n/a n/a n/a Europe (US$) 2,858.1 2,505.3 3,274.5 3,805.3 4,201.3 4,481.4 n/a n/a n/a n/a n/a n/a n/a Asia (US$) 2,419.3 1,944.8 2,830.1 2,953.8 2,960.2 2,745.7 n/a n/a n/a n/a n/a n/a n/a Europe (€) 2,145.6 1,943.8 2,501.7 2,781.6 3,497.1 4,155.2 n/a n/a n/a n/a n/a n/a n/a Asia (¥) 1,917.1 1,461.9 2,390.8 3,033.1 3,467.4 3,226.9 n/a n/a n/a n/a n/a n/a n/a

Canadian and US REIT and Broad Market Indices Composite 36,480.6 33,303.0 35,696.7 40,334.4 44,591.1 40,881.8 n/a n/a n/a n/a n/a n/a n/a S&P 500 2,114.3 2,158.9 2,504.4 3,315.6 3,769.4 3,822.2 n/a n/a n/a n/a n/a n/a n/a REIT 243.5 296.2 344.9 327.3 361.3 344.5 n/a n/a n/a n/a n/a n/a n/a MSCI US REIT 1,003.2 1,086.9 1,280.0 1,311.6 1,710.1 1,753.2 n/a n/a n/a n/a n/a n/a n/a

REITs and REOCs ACR.UN n/a n/a n/a $8.70 $8.67 $8.84 n/a n/a n/a $0.72 $0.77 $0.19 $0.77 AP.UN $21.54 $25.28 $33.00 $32.76 $37.44 $31.57 $1.32 $1.32 $1.32 $1.36 $1.41 $0.37 $1.46 HOT.UN n/a n/a n/a $10.59 $10.03 $10.65 n/a n/a n/a $0.77 $0.90 $0.23 $0.90 ACC $6.81 $7.80 $9.15 $8.09 $7.03 $18.75 $0.25 $0.36 $0.42 $0.42 $0.42 $0.00 $0.32 AX.UN $13.21 $13.99 $15.64 $14.86 $14.18 $12.80 $1.08 $1.08 $1.08 $1.08 $1.08 $0.27 $1.08 APR.UN n/a n/a n/a n/a n/a $8.25 n/a n/a n/a n/a n/a $0.20 $0.36 BEI.UN $41.25 $50.44 $64.53 $59.85 $61.54 $47.45 $1.85 $1.80 $1.88 $1.98 $3.44 $1.51 $3.04 BAM $33.29 $27.48 $36.65 $38.83 $50.13 $31.53 $0.52 $0.52 $0.55 $1.84 $0.68 $0.12 $0.45 BOX.UN $17.53 $15.64 $17.01 $19.25 $26.96 $26.06 $0.56 $0.56 $0.56 $0.56 $1.21 $0.31 $1.24 BPY-US n/a n/a n/a $19.94 $22.87 $23.24 n/a n/a n/a $0.63 $1.00 $0.27 $1.06 BTB.UN $3.80 $4.45 $4.26 $4.46 $4.73 $4.41 $0.40 $0.40 $0.40 $0.40 $0.41 $0.11 $0.42 CAR.UN $17.14 $22.31 $24.90 $21.25 $25.13 $26.84 $1.08 $1.08 $1.09 $1.14 $1.17 $0.31 $1.21 CHP.UN n/a n/a n/a $10.52 $10.48 $11.80 n/a n/a n/a $0.32 $0.65 $0.16 $0.65 CUF.UN $20.83 $22.03 $22.57 $18.44 $18.61 $14.71 $1.44 $1.44 $1.44 $1.44 $1.45 $0.37 $1.47 REF.UN $31.05 $35.40 $43.36 $43.37 $45.79 $42.06 $1.40 $1.43 $1.47 $1.61 $1.74 $0.45 $1.78 CRR.UN $12.75 $14.02 $14.76 $13.54 $12.92 $12.80 $0.89 $0.89 $0.89 $0.89 $0.89 $0.22 $0.89 CRT.UN n/a n/a n/a $10.92 $12.31 $13.00 n/a n/a n/a $0.12 $0.65 $0.17 $0.66 CSH.UN $8.18 $8.50 $10.87 $9.99 $11.91 $12.70 $0.54 $0.54 $0.54 $0.54 $0.54 $0.14 $0.55 DIR.UN n/a n/a $11.20 $8.85 $8.42 $7.18 n/a n/a $0.01 $0.69 $0.70 $0.17 $0.70 DRG.UN n/a $10.00 $10.93 $8.42 $8.57 $8.66 n/a n/a $0.11 $0.80 $0.80 $0.20 $0.80 D.UN $30.20 $32.67 $37.43 $28.82 $25.15 $17.37 $2.20 $2.20 $2.20 $2.23 $2.24 $0.56 $2.24 EXE $9.18 $8.50 $7.65 $6.82 $6.52 $9.65 $0.84 $0.84 $0.84 $0.60 $0.48 $0.12 $0.48 FCR $15.11 $17.30 $18.82 $17.71 $18.66 $18.35 $0.80 $0.80 $0.82 $0.84 $0.85 $0.22 $0.86 GRT.UN $27.08 $32.59 $37.76 $38.66 $41.26 $37.96 $0.50 $0.80 $2.00 $1.93 $2.21 $0.58 $2.30 HR.UN $19.43 $23.26 $24.10 $21.40 $21.73 $20.05 $0.79 $0.98 $1.18 $1.35 $1.35 $0.34 $1.35 HLC $0.33 $0.09 $3.81 $3.98 $6.29 $5.15 $0.00 $0.00 $0.07 $0.14 $0.14 $0.04 $0.14 INN.UN $6.75 $4.13 $4.13 $4.67 $5.98 $5.13 $0.50 $0.48 $0.40 $0.40 $0.40 $0.10 $0.40 INO.UN n/a n/a n/a $8.81 $8.88 $9.37 n/a n/a n/a $0.60 $0.83 $0.21 $0.83 IIP.UN $1.48 $3.18 $5.23 $5.35 $5.99 $6.56 $0.12 $0.12 $0.13 $0.18 $0.20 $0.06 $0.22 KMP.UN $10.45 $11.57 $12.49 $10.48 $10.26 $10.51 $0.56 $0.57 $0.58 $0.58 $0.60 $0.15 $0.60 LRT.UN $0.44 $0.42 $0.60 $1.07 $0.47 $0.13 $0.00 $0.00 $0.00 $0.00 $0.00 $0.43 $0.43 MRD $14.85 $13.17 $15.75 $20.05 $19.65 $14.56 $0.35 $0.40 $0.45 $1.00 $0.58 $0.15 $0.60 MR.UN n/a n/a n/a $10.40 $9.46 $7.21 n/a n/a n/a $0.45 $0.68 $0.17 $0.68 MRC $48.50 $75.83 $114.60 $125.39 $150.00 $133.00 $0.60 $0.60 $0.60 $0.60 $0.60 $0.15 $0.60 MRT.UN $14.71 $16.00 $18.28 $16.45 $18.16 $13.62 $0.90 $0.90 $0.95 $0.96 $0.96 $0.24 $0.96 MRG.UN n/a n/a n/a $9.41 $10.02 $10.67 n/a n/a $0.42 $0.60 $0.60 $0.15 $0.60 MST.UN n/a n/a n/a $9.44 $12.22 $15.05 n/a n/a n/a $0.53 $0.65 $0.16 $0.65 NVU.UN $28.92 $29.72 $30.90 $27.75 $23.77 $17.56 $1.50 $1.53 $2.09 $1.55 $1.59 $0.41 $1.63 NWH.UN $11.69 $11.49 $12.48 $10.44 $9.28 $8.93 $0.62 $0.80 $0.80 $0.80 $0.80 $0.20 $0.80 ONR.UN $5.19 $5.20 $5.62 $4.66 $3.92 $3.32 $0.45 $0.45 $0.45 $0.45 $0.45 $0.08 $0.38 PAR.UN $6.88 $7.24 $7.75 $5.35 $3.67 $3.25 $0.64 $0.64 $0.64 $0.62 $0.40 $0.06 $0.25 PLZ.UN $4.24 $4.65 $4.95 $4.35 $4.08 $4.70 $0.19 $0.21 $0.22 $0.28 $0.26 $0.06 $0.25 AAR.UN $4.45 $4.16 $5.00 $4.77 $4.44 $4.37 $0.30 $0.30 $0.30 $0.31 $0.31 $0.08 $0.31 RLC n/a n/a n/a $7.49 $9.10 n/a n/a n/a n/a $0.70 $0.70 $0.00 $0.52 REI.UN $22.00 $26.43 $27.56 $24.77 $26.43 $23.69 $1.38 $1.38 $1.38 $1.41 $1.41 $0.35 $1.41 SIA $10.70 $11.28 $12.55 $11.42 $13.99 $16.14 $0.66 $0.85 $0.85 $0.90 $0.90 $0.23 $0.90 SOT.UN n/a n/a n/a $8.69 $7.58 $7.05 n/a n/a n/a $0.76 $0.75 $0.19 $0.75 SRT'U n/a n/a n/a n/a $10.49 $10.40 n/a n/a n/a n/a $0.52 $0.19 $0.76 SRU.UN $23.37 $26.77 $28.95 $25.16 $27.30 $30.19 $1.55 $1.55 $1.55 $1.55 $1.56 $0.41 $1.61 SMU.UN n/a n/a n/a $5.73 $5.78 $6.05 n/a n/a n/a $0.41 $0.50 $0.13 $0.52 TN.UN n/a n/a n/a $8.00 $7.79 n/a n/a n/a n/a $0.70 $0.70 $0.06 $0.58 TCN $5.00 $4.19 $6.43 $7.71 $8.72 $9.06 n/a $0.24 $0.24 $0.24 $0.24 $0.06 $0.24 WIR'U n/a n/a n/a $8.69 $10.95 $11.95 n/a n/a n/a $0.48 $0.70 $0.19 $0.72


January 7, 2016 313


Appendix V: 2015 REIT and REOC equity and equity-related issuances

Date Issuer Type Exch1 Offering

Type2

Total Units (MM)

Public Units (MM) Price

Total Issue Size

($MM)

Public Issue Size3

($MM) Closed Structure4

U/W Option

Notes Available Exercised

Q1 WPT Industrial REIT REIT T TU 4.3 4.3 US$10.80 $58 $58 28-Jan-15 BD 15% 15% Q1 Cominar REIT REIT T TU 7.9 7.9 $19.65 $155 $155 30-Jan-15 BD 15% 15% Q1 Allied Properties REIT REIT T TU 2.2 2.2 $39.00 $86 $86 02-Feb-15 BD 15% 15% Q1 First Capital Realty Corp T CS 4.4 4.4 $19.80 $87 $87 03-Feb-15 BD 15% 15% Q1 InterRent REIT REIT T TU 11.7 11.7 $6.40 $75 $75 19-Feb-15 BD 15% - Q1 Slate Retail REIT REIT T TU 4.9 4.1 $13.00 $64 $54 19-Mar-15 BD/PP 15% 11% Concurrent private placement ($10MM of Class B LP Units) Q1 CAPREIT REIT T TU 5.6 5.6 $27.85 $155 $155 25-Mar-15 BD 10% 10%

Q1 subtotal $680 $670 Q2 SmartREIT REIT T SR 14.1 8.0 $28.70 $404 $230 27-Apr-15 BD/PP 15% 15% Concurrent private placement ($174MM of Class B LP Units) Q2 American Hotel Income Properties

REIT LP REIT T TU 6.2 6.2 $10.70 $66 $66 28-Apr-15 BD 15% 15%

Q2 Pure Multi-Family REIT REIT V TU 6.9 6.9 $6.26 $43 $43 08-May-15 BD 15% 15% Q2 Milestone Apartments REIT REIT T TU 6.9 6.9 $13.70 $95 $95 26-May-15 BD 15% - $60MM from treasury and $35MM used to redeem all Class B

LP units held by Milesouth (Invesco). Milesouth also sold 2.2MM units for $30MM to bring total equity purchased by the public to $125MM.

Q2 PROREIT REIT V TU 8.1 7.6 $2.30 $19 $18 09-Jun-15 BD/PP - - Concurrent private placement ($1.2MM of Class B LP Units) Q2 Slate Office REIT REIT T SR 15.5 10.8 $7.40 $115 $80 10-Jun-15 BD/PP 15% - Concurrent private placement ($35MM of Trust Units)

Q2 subtotal $742 $532 Q3 InnVest REIT REIT T TU 9.7 6.9 $5.00 $48 $35 15-Jul-15 BD/PP 15% 15% Concurrent private placement ($13MM of Trust Units) Q3 Automotive Properties REIT REIT T TU 18.1 8.1 $10.00 $181 $81 14-Aug-15 IPO 15% 6% 55% retained by sponsors (Dilawri Group) Q3 American Hotel Income Properties

REIT LP REIT T TU 4.2 4.2 $10.15 $43 $43 31-Aug-15 BD 15% 7%

Q3 subtotal $272 $159 Q4 Northwest Healthcare REIT REIT T CD 4.7 4.7 $11.25 $53 $53 09-Oct-15 BD 15% 4% 5.50% coupon; due October 31, 2020; $11.25 conversion price Q4 CAPREIT REIT T TU 8.7 8.7 $28.70 $250 $250 09-Oct-15 BD 15% - Q4 Temple Hotels Inc. Corp T CS 36.4 36.4 $1.10 $40 $40 30-Oct-15 RO - - Rights offering. Fully subscribed. Q4 Partners REIT REIT T TU 6.6 6.6 $3.10 $21 $21 22-Oct-15 RO - - Rights offering. Fully subscribed. Q4 Milestone Apartment REIT REIT T SR 9.6 9.6 $15.00 $144 $144 30-Oct-15 BD 15% 15% Q4 BTB REIT REIT V CD 4.4 4.4 $5.65 $25 $25 04-Dec-15 BD 15% - 7.15% coupon; due December 31, 2020; $5.65 conversion price Q4 Pure Multi-Family REIT REIT V TU 7.3 7.3 $7.19 $52 $52 11-Dec-15 BD 15% 7%

Q4 subtotal $585 $585

2015 total $2,279 $1,945

Notes: 1 T = TSX, V = Venture Exchange 2 CS- Common Shares, TU- Trust Units, CD - Convertible Debentures, SW - Special Warrants, U - Units, PS - Preferred Shares, PU - Preferred Units, SR - Subscription Receipts, LP - Limited Partership Units 3 Only includes portion of deals sold to the public market or taken back by arms-length property owners - does not include positions taken by majority shareholders 4 BD = Bought Deal, R = Rights Offering, PP = Private Placement Source: Company reports and RBC Capital Markets

January 7, 2016 314


Appendix VI: 2015 property transactions

Month Property City Type

Area 000s sf

or Suites Price

($MM)

Price per sf

or Suite Int. Purchaser Vendor Cap Rate

Purchaser Type

Vendor Type

Firm 1055 West Georgia St. (Royal Centre) Vancouver Office 853 TBD TBD 100% n.a. Brookfield Canada Office Properties TBD n.d. REIT

Firm Slate Manitoba Portfolio Winnipeg Ind 516 47 $91 100% n.d. Slate Office REIT n.d. n.d. REIT

Firm Ottawa Marriott Hotel Ottawa Hotel 489 115 $235,200 100% InnVest REIT Private 6.5% REIT Private

Dec-15 15, 19, 21, 27 Allstate Parkway Markham Office 575 150 $261 100% Crown Realty Partners, Crestpoint Allstate Corp 6.5% Institutional Corporate

Dec-15 Traditions of Durham Oshawa Senior 140 37 $264,300 100% Sienna Senior Living Inc. n.d. n.d. REOC n.d.

Dec-15 444 St Mary Avenue Winnipeg Office 188 40 $210 100% Alberta Teachers' Retirement Fund HOOP 5.0% Fund Fund

Dec-15 200 Graham Avenue Winnipeg Office 148 45 $306 100% GWL Realty Advisors HOOP, Sun Life Assurance Company of Canada

5.8% Institutional Fund, Life Co

Dec-15 5000, 5100, 5400 and 5500 Clover Bar Road (Emerald Hills)

Sherwood Park Apart 208 46 $221,600 100% Skyline Apartment REIT n.d. n.d. REIT n.d.

Dec-15 CAPREIT Victoria, BC Portfolio (four properties) Victoria Apart 169 29 $171,600 100% CAPREIT n.d. n.d. REIT n.d.

Dec-15 20 King Street West Toronto Office 250 42 $333 50% NUYORK Investments Ltd. NASJJEC Investments Limited n.d. Private Private

Dec-15 105 Gordon Baker Road North York Office 153 26 $167 100% Private (foreign) Morguard Investments 7.4% Private Institutional

Dec-15 Starlight Vancouver and Victoria Portfolio Various Apart 1,026 260 $253,400 100% Starlight Investments n.d. n.d. Institutional n.d.

Dec-15 1243 Islington Avenue Etobicoke Office 111 26 $232 100% KingSett Capital & Canderel Callan Property Management 4.9% Institutional Private

Dec-15 Renessa Retirement Residence Newmarket Senior 158 64 $405,100 100% Revera Inc. The Forrest Group 6.8% Private Private

Nov-15 InterRent Hamilton Portfolio Hamilton Apart 618 51 $82,500 100% InterRent REIT n.d. n.d. REIT Private

Nov-15 555 Robson Street (The Telus Building) Vancouver Office 135 42 $311 100% Avigilon Corporation Telus Communications Inc. n.d. Corporate Corporate

Nov-15 3045 Queen Frederica Drive Mississauga Apart 132 31 $234,400 100% Onrock Inc. Starlight Investments n.d. Private Institutional

Nov-15 3480 Havenwood Drive & 1485 Williamsport Dr. Mississauga Apart 264 50 $190,300 100% Starlight Investments Homestead Land Holdings Ltd. n.d. Institutional Private

Nov-15 Lougheed Village Burnaby Apart 528 160 $303,000 100% Starlight Investments Loughheed Village Holdings Inc. n.d. Institutional Private

Nov-15 2 Bloor Street West Toronto Office 455 262 $575 100% KingSett Capital, Greystone Oxford Properties Group 4.7% Institutional Fund

Nov-15 Best Western Plus Downtown Vancouver Vancouver Hotel 222 40 $180,200 100% CIBT Education Group n.d. n.d. Corporate n.d.

Nov-15 Loblaws Portfolio November 2015 Various Retail 161 46 $283 100% Choice Properties REIT Loblaw Companies Limited 5.9% REIT Private

Nov-15 1090 Lougheed Highway Coquitlam Retail 68 31 $459 100% Dava Developments Barnes Wheaton n.d. Private Private

Nov-15 30 & 38 Leek Crescent, 95 Mural Street Richmond Hill Office 307 71 $232 100% Dorsay Development Corporation HOOP 7.2% Private Fund

Nov-15 8000 Decarie Montreal Office 135 28 $208 100% Holand Leasing HOOP 7.5% Private Fund

Nov-15 Alberta Teachers' Retirement Fund Industrial Portfolio

Various Ind 152 33 $219 100% Alberta Teachers' Retirement Fund English Bay Batter Inc. n.d. Fund Private

Nov-15 Chartwell Ontario Portfolio Various Senior 616 254 $412,200 100% Chartwell Retirement Residences Signature Retirement Living Corporation 6.0% REIT n.d.

Nov-15 140 6th Street (Royal Towers) New Westminster Apart 139 28 $201,400 100% Private Royal Towers Apartments Corp. n.d. Private Private

Nov-15 The Westin Bayshore Resort & Marina Vancouver Hotel 511 270 $528,400 100% Condord Pacific Developments Starwood Capital Group n.d. Private Institutional

Oct-15 2189 Speers Road Oakville Ind 251 28 $112 100% Rodenbury Investments Limited Montez and Cooper Construction Limited

5.6% Private Institutional/ Private

Oct-15 Dream Office Québec City Portfolio Quebec City Office 634 95 $150 100% Groupe Mach Dream Office REIT 7.1% Private REIT

Oct-15 Credit Ridge Commons Brampton Retail 377 94 $249 100% GWL Realty Advisors CREIT (25%), NADG (25%), Senator Homes (50%)

4.7% Institutional REIT/Private

Oct-15 2601 Fourteenth Avenue Markham Ind 232 29 $125 100% Epic Realty Partners DST Systems Inc. 6.0% Private Private

Oct-15 RBC Meadowvale Campus Mississauga Office 812 278 $343 100% Northam Realty Advisors, Triovest Bentall 5.6% Institutional Institutional

Oct-15 Edward Village Hotel Markham Hotel 204 28 $137,300 100% Private (foreign) Nor-Sham Hotels Inc. n.d. Private Private

Oct-15 Evergreen Retirement Living Calgary Senior 154 53 $345,300 100% Revera Inc. & Welltower Inc. Symphony Senior Living n.d. Private/REIT Private

Appendix VI continues for the next eight pages. January 7, 2016 315



Area 000s sf

or Suites Price

($MM)

Price per sf


Purchaser Type

Vendor Type

Oct-15 ALRE Properties Inc. Retail Portfolio Various Mixed 174 61 $350 100% Fiera Properties ALRE Properties Inc. 6.0% Institutional Private

Oct-15 Westdell - Adgar Invest. GTA Office Portfolio Various Office 243 49 $200 100% Adgar Investments & Development Westdell Corp 6.5% Private Private

Oct-15 RioCan-Kimco JV - Canadian Property Portfolio Various Retail 2,835 715 $504 50% RioCan Kimco Realty Crop. 6.3% REIT REIT

Oct-15 Westmount Square Montreal Mixed 329 92 $280 100% Creccal Investments Elad Group 3.5% Private Institutional

Oct-15 Jardins Radisson and Jacques Cartier Aparts. Gatineau Apart 871 90 $103,400 100% Skyline Apartment REIT Oxford Properties n.d. REIT Fund

Oct-15 2655 Bristol Circle Oakville Office 95 37 $391 100% Fiera Properties Pelmorex Properties Inc. 5.0% Institutional Private

Oct-15 581-589 Davis Drive Newmarket Office 165 86 $524 100% Constantine Enterprises Beswick Properties 5.3% Corporate Private

Oct-15 70 York Street (HSBC Building) Toronto Office 194 110 $567 100% Anbang Asset Management Brookfield Canada Office Properties 4.3% Life Co REOC

Oct-15 Toronto-Dominion Centre Toronto Office 4,494 881 $653 30% Ontario Pension Board Cadillac Fairview 4.0% Fund Fund

Oct-15 PIRET Western Portfolio (three properties) Various Ind 192 33 $172 100% PIRET & Fiera (JV) n.d. 6.6% REIT/Institutional n.d.

Oct-15 600 Cochrane Drive Markham Office 100 30 $303 100% 0910448 B.C. Limited Crown Realty Partners 5.9% Private Fund

Sep-15 8400-8500 Decarie & 2105 23rd Avenue Montreal Mixed 721 98 $136 100% Dynamite Group, Carbon-Leo Cominar REIT 7.0% Private REIT

Sep-15 3500 Steeles Avenue East (Liberty Centre) Markham Office 552 112 $202 100% Fiera Properties IBM Canada 5.8% Institutional Corporate

Sep-15 FDL Multi-Residential Portfolio Montreal Apart 3,661 490 $133,800 100% CAPREIT FDL Compagnie Ltee 4.5% REIT Private

Sep-15 Skyline Commercial REIT Industrial Portfolio Saint Jean-sur-Richelieu

Ind 692 58 $84 100% Skyline Commercial REIT Merrimac Manufacturing Co. 7.0% REIT Private

Sep-15 552 - 560 King Street West Toronto Retail 24 28 $1,147 100% Allied Properties REIT Fashion House Limited Partnership 5.0% REIT Private

Sep-15 600-640 West Broadway; 2525 Ash Street Vancouver Retail 35 39 $1,120 100% Private Private n.d. Private Private

Sep-15 Greater Vancouver Area Portfolio Various Apart 919 170 $185,000 100% CAPREIT n.d. n.d. REIT n.d.

Sep-15 Chartwell / MTCO Holdings Portfolio Various Senior 447 171 $381,900 100% Chartwell Retirement Residences MTCO Holdings Inc. 6.6% REIT Private

Sep-15 601 - 605 Rogers Road Toronto Retail 160 26 $161 100% Paradise Homes Medi Power Canada Inc. n.d. Private Private

Sep-15 Boardwalk Windsor Multi-Res Portfolio Windsor Apart 1,685 136 $80,800 100% Skyline Apartment REIT Boardwalk REIT 5.4% REIT REIT

Sep-15 Copeman Healthcare Centre Vancouver Office 42 26 $607 100% Bene Development Ltd. n.d. n.d. Private n.d.

Sep-15 Hotel Saskatchewan Regina Hotel 224 37 $165,200 100% InnVest REIT Temple Hotels Inc. 7.0% REIT REIT

Sep-15 600 De Maisonneuve (KPMG Tower) Montreal Office 649 183 $282 100% Bentall Oxford Properties & CPPIB 5.5% Institutional Fund

Sep-15 Delta Lodge at Kananaskis Kananaskis Hotel 412 43 $103,200 100% Pomeroy Lodging The Lodge at Kananaskis Limited Partnership

n.d. Private REIT

Sep-15 Riverport Entertainment & Business Park Richmond Retail 314 103 $328 100% Private H&R REIT 6.0% Private REIT

Aug-15 2200-2204 Walkley Road Ottawa Office 159 29 $179 100% BTB REIT Dream Office REIT n.d. REIT REIT

Aug-15 Westin Prince Hotel North York Hotel 395 70 $177,200 100% Private (foreign) Westmont Hospitality Group 5.7% Private Private

Aug-15 CalEast Global Logistics - Rathcliffe Properties Portfolio

Mississauga Ind 108 25 $233 100% Rathcliffe Properties CalEast Global Logistics n.d. Private Private

Aug-15 Courtyard by Marriott Hotel Toronto Hotel 575 99 $172,200 100% InnVest REIT & KingSett Capital Jesta Group n.d. REIT/Institutional Private

Aug-15 1210 Wellington Road (Wellington Commons) London Retail 136 44 $320 100% Triovest Sun Life Assurance Company of Canada 6.2% Fund Life Co

Aug-15 5880 No. 3 Road & 8200 Ackroyd Road (Ackroyd Plaza)

Richmond Retail 107 102 $951 100% Private Dava Developments n.d. Private Private

Aug-15 Key West Business Centre Richmond Ind 271 35 $127 100% Crestpoint Ikea Properties Ltd. n.d. Institutional Corporate

Aug-15 1665 & 1695 The Collegeway Mississauga Mixed n.d. 40 n.d. 100% Shannex Retirement Life Communities n.d. Private Private

Aug-15 111 Lawton Boulevard Toronto Apart 152 46 $302,600 100% Akelius MLT Properties Limited 3.1% Institutional Private

Aug-15 1570 Filion Avenue (St. Lambert Portfolio) Saint Lambert Apart 258 26 $99,800 100% Akelius Saint-Lambert Apartments Inc. n.d. Institutional Private

Jul-15 3755 6th Avenue (The Highbury) Vancouver Apart 106 40 $378,300 100% Private Private 3.0% Private Private

Jul-15 Haney Place Mall Maple Ridge Retail 227 58 $256 100% SmartREIT Narland Properties Ltd. 5.1% REIT Private

January 7, 2016 316



Area 000s sf

or Suites Price

($MM)

Price per sf


Purchaser Type

Vendor Type

Jul-15 Chartwell Grenadier Retirement Residence Toronto Senior 257 85 $330,700 100% Chartwell Retirement Residences Private 7.1% REIT Private

Jul-15 New Brunswick Office Portfolio Fredericton Office 233 35 $150 100% True North Commercial REIT n.d. 7.1% REIT n.d.

Jul-15 8450 Boston Church Road (Target Distribution Centre)

Milton Ind 1,300 125 $96 100% Lowe's Companies Canada Target Canada (CCAA asset sale) n.d. Corporate Corporate

Jul-15 King James Place (133-145 King Street East) Toronto Office 79 60 $752 100% Northam Realty Advisors Woodcliffe Corporation 4.8% Institutional Private

Jul-15 Graham Portfolio Various Ind 324 74 $305 75% Artis REIT Graham Group Ltd. 6.4% Artis n.d.

Jul-15 8100 Granville Avenue (Richmond Place) Richmond Office 95 30 $318 100% Private Dream Office REIT 6.0% Private REIT

Jul-15 2601-2609 Granville Street; 1540 West 10th Ave. Vancouver Office 46 41 $900 100% Peterson Investment Group Bank of Montreal n.d. Private Corporate

Jul-15 3500 & 3580 No. 3 Road Richmond Retail 54 38 $706 100% Kingswood Capital Canadian Tire Corporation n.d. Institutional Corporate

Jul-15 Georgian Mall Barrie Retail 512 174 $681 50% RioCan-HBC JV RioCan REIT 5.3% REIT/Corporate REIT

Jul-15 Oakville Place Oakville Retail 470 125 $531 50% RioCan-HBC JV RioCan REIT 5.0% REIT/Corporate REIT

Jul-15 2323 Yonge St., 5075 Yonge St., 1 St. Clair Ave Toronto Office 239 94 $391 100% Slate Properties Inc. Evton Capital Partners 6.2% Institutional Private

Jul-15 15715 Croydon Drive (Morgan Crossing) Surrey Retail 398 167 $418 100% AIMCo Morgan Crossing Properties Ltd. 5.8% Fund Private

Jun-15 Commercial Portfolio (Maritimes and Ontario, 7 properties)

Various Mixed 417 41 $97 100% PRO REIT n.d. 7.5% REIT n.d.

Jun-15 Slate Office - Fortis Atlantic Portfolio Various Mixed 2,800 430 $154 100% Slate Office REIT Fortis Properties Corporation 8.2% REIT Private

Jun-15 High Park Village Buildings 2, 4, & 6 Toronto Apart 750 105 $232,400 60% CPPIB Minto Group n.d. Institutional Private

Jun-15 Standard Life - Manulife Portfolio Various Office 634 74 $116 100% Manulife Financial Standard Life n.d. Life Co Life Co

Jun-15 511-539 King Street West Toronto Retail 62 100 $1,601 100% Allied Properties REIT Wookey family 2.8% REIT Private

Jun-15 Sun Life - Menkes GTA Industrial Portfolio 2015 Various (GTA) Ind 149 25 $169 100% Menkes Developments Sun Life Assurance Company of Canada 5.9% Private Life Co

Jun-15 1045 Howe Street Vancouver Office 101 48 $470 100% n.d. Artis REIT 4.9% n.d. REIT

Jun-15 621, 627, 631 MacDonald Avenue Sault Ste. Marie Apart 271 30 $108,900 100% Skyline Apartment REIT n.d. n.d. REIT n.d.

Jun-15 626 West Pender St. (The London Building) Vancouver Office 55 28 $498 100% Crestpoint Private n.d. Institutional Private

Jun-15 The Brock Burlington Apart 115 40 $346,500 100% Homestead Land Holdings Ltd. Molinaro Group 4.3% Private Private

Jun-15 2770 Aquitaine Avenue Mississauga Apart 180 52 $290,600 100% Homestead Land Holdings Ltd. The England Group 4.5% Private Private

Jun-15 Sears Canada - Concord Pacific Sale Leaseback Various Mixed n.d. 140 n.d. 100% Concord Pacific Sears Canada n.d. Private Corporate

Jun-15 Loblaws 38 property small store/small market portfolio

Various Retail 1,467 201 $137 100% Choice Properties REIT Loblaw Companies Limited 7.2% REIT Corporate

Jun-15 Pickering City Centre and Valley Vista Various Senior 268 40 $299,300 50% Chartwell Retirement Residences Private 7.0% REIT Private

May-15 25 Promenade des Iles (Villagia de l'Ile Paton) Laval Senior 206 46 $221,200 100% RFA Vivacity Limited Partnership Villagia de l'Ile Paton Inc. 6.8% Institutional Private

May-15 SmartCentres Portfolio Various Retail 3,551 918 $259 25-100% SmartREIT SmartCentres Inc. 5.9% REIT Private

May-15 260199 High Plains Boulevard (Target Distribution Centre)

Rock View County Ind 1,311 50 $38 100% Sobeys Target Canada (CCAA asset sale) n.d. Corporate Corporate

May-15 106 Parkway Forest Drive North York Apart 95 26 $271,100 100% Homestead Land Holdings Ltd. El-Ad Canada 4.0% Private Private

May-15 11281-11299 Albert Hudon Montreal Ind 466 29 $62 100% Private Sobeys n.d. Private Corporate

Apr-15 InterRent Brittania Portfolio Ottawa Apart 286 28 $97,000 100% InterRent REIT Private 5.6% REIT Private

Apr-15 High Park Village Buildings 1, 3, 5, & 7 Toronto Apart 990 125 $251,800 50% GWL Realty Advisors Minto Group n.d. Institutional Private

Apr-15 25 Fisherville Road North York Apart 215 43 $199,000 100% Starlight Investments Marika Corporation 4.0% Institutional Private

Apr-15 Cominar Industrial Portfolio Lachine Ind 697 35 $49 100% Cominar REIT IGRI Industrial Fund GP Ltd. 8.1% REIT Private

Apr-15 Knightsbridge Business Park Richmond Ind 259 40 $155 100% Crestpoint GWL Realty Advisors 5.9% Institutional Institutional

Apr-15 15 - 28 Rockway & 2380 Baseline Rd. (Forest Ridge Portfolio)

Ottawa Apart 393 56 $143,100 100% InterRent REIT Andrews Brothers Construction 5.1% REIT Private

Apr-15 103 Avenue (Avenue Park Apartments, Yorkville) Toronto Apart 125 36 $289,600 100% Hollyburn Properties Estada Investments Ltd. 3.4% Private Private

January 7, 2016 317



Area 000s sf

or Suites Price

($MM)

Price per sf


Purchaser Type

Vendor Type

Apr-15 600 & 675 Cochrane Dr. (Trillium Executive Centre)

Markham Office 465 124 $266 100% Crown Realty Partners bcIMC Realty Corporation 6.3% Institutional Fund

Apr-15 Aldo Head Office Sale Leaseback Montreal Mixed 800 n.d. n.d. 100% CanPro Investments Aldo 5.7% Private Corporate

Apr-15 St. Laurent on the Parc Ottawa Apart 567 53 $92,600 100% Conundrum Capital Corporation n.d. 5.0% Fund n.d.

Mar-15 Tyandaga Park Drive Apartment Portfolio Burlington Apart 285 54 $188,500 100% CAPREIT KAF Development Ltd. 4.3% REIT Private

Mar-15 The Laurier Calgary Apart 144 50 $347,200 100% Minto Group Remington Properties Inc. n.d. Private Private

Mar-15 Sandwell Building Vancouver Office 100 47 $470 100% Westbank Projects Private n.d. Private Private

Mar-15 3600 Lysander Lane Richmond Office 150 33 $220 100% Private Private n.d. Private Private

Mar-15 240 - 250 Alton Towers Circle Scarborough Retail 136 26 $189 100% Laurier Homes & Paradise Homes Northam Realty Advisors n.d. Private Institutional

Mar-15 Hilton Mississauga (Delta Meadowvale Hotel & Conference)

Mississauga Hotel 374 40 $107,000 100% Private Private n.d. Private Private

Mar-15 5501 Adalbert (Hamilton House) Montreal Apart 280 32 $115,700 100% InterRent REIT Sun Life Assurance Company of Canada 5.6% REIT Life Co

Mar-15 5016 272nd Street Langley Ind 396 53 $134 100% Jim Pattison Group Beedie Group n.d. Private Private

Feb-15 Fairmont Hotel Vancouver Vancouver Hotel 556 180 $323,700 100% Larco Investments Ltd. Ivanhoe Cambridge 4.0% Private Fund

Feb-15 Summit GTA Industrial Portfolio Various Ind 339 25 $75 100% Summit Industrial Income REIT Art Heller Enterprises Ltd. 7.3% REIT Private

Feb-15 7911-7991 Alderbridge Way; 4935-4991 No. 3 Rd. Richmond Ind 169 63 $373 100% Private (foreign) CIC Equities Corp. n.d. Private Private

Feb-15 Summit Montreal Industrial Portfolio Montreal Ind 326 39 $240 50% Summit Industrial Income REIT Montoni Group 6.6% REIT Private

Feb-15 9999 111th Street (Grandin Tower) Edmonton Apart 126 31 $246,000 100% CAPREIT Starlight Investments n.d. REIT Institutional

Feb-15 CAPREIT North York Apartments Portfolio 2015 North York Apart 260 47 $180,800 100% Starlight Investments CAPREIT n.d. Institutional REIT

Feb-15 CTC Portfolio - November 2014 /February 2015 Various Retail 400 77 $193 100% CT REIT Canadian Tire Corporation 6.6% REIT Corporate

Feb-15 19 Duncan Toronto Retail 62 47 $759 100% Allied Properties REIT, Westbank Kaplan family n.d. REIT/Private n.d.

Feb-15 16255, 16265, 16275 51st Street Edmonton Apart 160 33 $206,300 100% Skyline Apartment REIT Highstreet Brintnell Landing Apartments 5.5% REIT Private

Feb-15 King's Heights Apartments Airdrie Apart 192 41 $213,500 100% Skyline Apartment REIT Highstreet King's Heights Aparts. Ltd. 5.2% REIT Private

Feb-15 1750 Pembina Highway Winnipeg Apart 273 45 $164,800 100% Private Green Leaf Meadows Investments 5.3% Private Private

Feb-15 1150 Douglas St. (The Bay Centre) Victoria Retail 407 105 $258 100% Standard Life LaSalle Inv. Mngt / The Westcliff Group of Companies

5.8% Life Co Institutional

Feb-15 Best Western Primrose Hotel & Student Residence

Toronto Hotel 342 51 $147,800 100% Knightstone, HOOPP Arsandco Investments Ltd. n.d. Institutional/Fund Private

Feb-15 Fairmont Royal York Hotel Toronto Hotel 1,363 149 $136,800 80% InnVest REIT & KingSett Capital Ivanhoe Cambridge 3.0% REIT/Institutional Fund

Feb-15 8600 Decarie Montreal Ind 240 29 $121 100% Groupe Dynamite Inc. Les Placements SP Canada n.d. Private Private

Feb-15 130, 140, 150 9th Avenue S.W. (Encana Place) Calgary Office 446 116 $260 100% Aspen Properties Encana, CP Rail 8.6% Private Corporate

Jan-15 1400 Church Street (Pickering Warehouse) Pickering Ind 921 81 $88 100% Choice Properties REIT H&R REIT 6.5% REIT REIT

Jan-15 Devonshire Mall Windsor Retail 714 128 $359 50% HOOPP Ivanhoe Cambridge 5.8% Fund Fund

Jan-15 Quinte Mall Belleville Retail 628 113 $358 50% HOOPP Ivanhoe Cambridge 5.3% Fund Fund

Jan-15 Viva Suites Hotel Vancouver Hotel n.d. 37 n.d. 100% CIBT Education Group n.d. n.d. Corporate n.d.

Jan-15 Orchard Villa Pickering Senior 233 28 $119,300 100% Southbridge Capital Inc. Community Lifecare Inc. n.d. Private Private

Jan-15 7800 - 8100 Boul Champlain (Place Lasalle) Lasalle Retail 205 26 $129 100% Econo-Malls Place Lasalle Property Corporation 6.2% Private Private

Jan-15 Mainstreet Estates Apartments Surrey Apart 331 34 $101,700 100% Private Private n.d. Private Private

Jan-15 662 - 670 Erb St. West (Westside Marketplace) Waterloo Retail 74 29 $388 100% Newvest Realty Corp Westside Realty Inc. 5.7% Private Private

Jan-15 151 Yonge St. (Yonge Richmond Centre) Toronto Office 297 154 $518 100% GWL Realty Advisors AIMCo, Brookfield Properties, CPPIB 5.4% Institutional Fund/REIT/Fund

Jan-15 3707 & 3711 Whitelaw Lane (Windermere Vill.) Edmonton Apart 126 29 $226,200 100% Centurion Apartment REIT Private n.d. REIT Private

Jan-15 Agincourt Mall Scarborough Retail 290 97 $334 100% Investors Group, PSP Investments, North American Development Group

Private 4.1% Institutional Private

January 7, 2016 318



Area 000s sf

or Suites Price

($MM)

Price per sf


Purchaser Type

Vendor Type

Jan-15 RioCan BMO branch portfolio Various Office 174 49 $569 50% RioCan REIT Bank of Montreal 5.5% REIT Corporate

Jan-15 Leaside Centre Toronto Retail 133 32 $474 50% RioCan REIT Kimco Realty Crop. 5.5% REIT REIT

Jan-15 Triovest Industrial Portfolio Laval Ind 401 32 $79 100% Triovest Private n.d. Private Private

Jan-15 Courtyard Marriott & Residence Inn Marriott Calgary Hotel 328 66 $201,200 100% JAR & Sons Enterprises Ltd. The Mitchell Group Alberta Inc. 7.4% Private Private

Jan-15 50 Spadina Road & 35 Walmer Road Toronto Apart 229 59 $257,600 100% Starlight Investments Jerry Hefner Holdings Ltd., Harry Hiller Investments, Hillross Builders Limited

3.7% Institutional Private

Jan-15 Langara Gardens Vancouver Apart 621 102 $328,000 50% Concert Properties Ltd. The Peterson Group n.d. Private Private

Jan-15 32nd Avenue Business Centre Calgary Ind 163 26 $161 100% Advent Commercial Real Estate Group Sun Life Assurance Company of Canada 5.7% Private Life Co

Jan-15 Airdrie Place Apartments Airdrie Apart 300 64 $214,300 100% Private Cidex Developments 6.3% Private Private

Jan-15 RioCan Cogir Retail Portfolio Various Retail 748 120 $161 100% Cogir RioCan REIT 6.8% Private REIT

Jan-15 333 First Commerce Dr & 24 State Farm Way Aurora Office 293 57 $196 100% Desjardins Group State Farm Insurance n.d. Life Co Life Co

Jan-15 1240 & 1244 Donald Street Ottawa Apart 237 52 $220,200 100% Q Residential Greenwin Inc. n.d. Private Private

Jan-15 100 - 136 Colonnade Road Ottawa Ind 152 29 $191 100% The Regional Group of Companies bcIMC Realty Corporation n.d. Private Fund

Dec-14 MRD Portfolio Various Mixed 738 138 $187 100% Melcor REIT Melcor Developments 7.1% REIT REOC

Dec-14 Galeries de Lanaudiere Lachenaie Retail 268 38 $280 50% First Capital Realty North American Development Group 6.4% REOC Private

Dec-14 5520, 5560 & 5660 Minoru Boulevard Richmond Ind 98 35 $362 100% Private Private n.d. Private Private

Dec-14 2915 10th Avenue N.E. Calgary Ind 195 28 $142 100% York Realty Inc. SPREIT Ltd. n.d. Private Fund

Dec-14 H&R Industrial Portfolio - Canada Portion Various Ind 13,100 560 $85 50% PSP Investments / Crestpoint R.E. Investments Ltd.

H&R REIT 7.0% Fund/Institutional REIT

Dec-14 True North Office Portfolio Various Office 241 61 $253 100% True North Commercial REIT n.d. 7.6% REIT n.d.

Dec-14 Kanata North Technology Park Ottawa Office 411 69 $168 100% Kanata Research Park Corp. Bentall 6.5% Private Institutional

Dec-14 Slate GTA Suburban Office Portfolio Various (GTA) Office 1,078 190 $176 100% FAM REIT Slate Properties Inc. 6.9% REIT Fund

Dec-14 25 & 35 Brownridge Road Halton Hills Ind 332 36 $109 100% Bentall KingSett Capital 5.4% Institutional Institutional

Dec-14 1405, 1425, 1465 North Service Rd (Joshua Creek Centre)

Oakville Office 121 35 $287 100% Nicola-Crosby Real Estate Investments Carterra Private Equities Inc. 6.3% Private Private

Dec-14 Park Hyatt Toronto Toronto Hotel 346 104 $301,900 100% Oxford Properties Hyatt Hotels Corporation 4.3% Fund Corporate

Dec-14 2001, 2005 & 2015 Sheppard Avenue East North York Office 281 65 $232 100% Redbourne LaSalle Investment Management 6.5% Private Institutional

Dec-14 3468 Drummond Montreal Apart 180 41 $227,500 100% Akelius Gestion Montreville Inc. 5.2% Institutional Private

Dec-14 Meadow Ridge Plaza Ajax Retail 112 30 $335 80% RioCan REIT Sun Life Assurance Company of Canada 5.6% REIT Life Co

Dec-14 Mayfield Common Edmonton Retail 430 27 $309 20% RioCan REIT Sun Life Assurance Company of Canada 5.7% REIT Life Co

Dec-14 PIRET - Western Portfolio Various Ind 138 42 $305 100% PIRET n.d. 7.1% REIT Private

Dec-14 Ontario Property Portfolio Various Apart 472 89 $251,100 75% Killam Apartment REIT, KingSett Capital, AIMCo

Kuwait Finance House 5.0% REIT/Institutional Private

Dec-14 County Fair Mall Summerside Retail 233 30 $129 100% Strathallen Capital Crombie REIT 8.5% Institutional REIT

Dec-14 Grid 5 Apartments Calgary Apart 307 50 $325,700 50% Killam Apartment REIT KingSett Capital, AIMCo 5.0% REIT Institutional/Fund

Dec-14 Hyatt Regency Vancouver Vancouver Hotel 644 140 $217,400 100% InnVest REIT Hyatt Hotels Corporation 7.5% REIT Corporate

Dec-14 Pyxis Montreal Downtown Portfolio Montreal Office 96 29 $303 100% LaSalle Investment Management Pyxis Real Estate Equities Inc. n.d. Institutional Private

Dec-14 Skyline Retail REIT Goodlife Fitness Portfolio Various Retail 151 28 $185 100% Skyline Retail REIT n.d. n.d. REIT n.d.

Dec-14 2620 - 2650 Lancaster Road Ottawa Ind 285 38 $133 100% LaSalle Investment Management Minto Group n.d. Institutional Private

Dec-14 35 Bosworth Court Brantford Ind 476 38 $79 100% HOOPP GWL Realty Advisors 6.4% Fund Institutional

Dec-14 6599 Glen Erin Mississauga Apart 232 40 $170,300 100% InterRent REIT Danau Aquitaine Ltd 5.3% REIT Private

Dec-14 First Capital Realty Portfolio - December 2014 Various Retail 255 80 $313 100% n.d. First Capital Realty n.d. n.d. REOC

January 7, 2016 319



Area 000s sf

or Suites Price

($MM)

Price per sf


Purchaser Type

Vendor Type

Nov-14 Gold Sky - Conundrum Toronto Apartment Portfolio 2014

North York Apart 400 85 $213,700 100% Conundrum Capital Corporation Gold Sky Properties Inc. 5.3% Fund Private

Nov-14 675 Richmond St London Apart 187 55 $294,100 100% CHC Realty Capital Corp Starlight Investments JV PSP Investments

5.0% Private Fund

Nov-14 Crowfoot Village Mall Calgary Retail 63 40 $629 100% Artis REIT Narland Properties Ltd. 6.0% REIT Private

Nov-14 Sobeys Inc. Portfolio – Nov./Dec. 2014 Various Retail 520 140 $269 100% Crombie REIT Sobeys 6.3% REIT Corporate

Nov-14 Delta Toronto East Scarborough Hotel 366 33 $89,500 100% Tarn Financial Corp Westmount Hospitality Group 5.5% Private Private

Nov-14 180 Wellington Street West Toronto Office 210 114 $544 100% Manulife Financial Royal Bank of Canada 4.7% Life Co Corporate

Oct-14 Calloway/Retrocom Portfolio of Seven Shopping Centres

Various Retail 640 111 $174 100% Retrocom REIT Calloway REIT n.d. REIT REIT

Oct-14 Keybridge Centre Richmond Ind 78 31 $400 100% Bene Development Ltd. Richmond Holdings Ltd. n.d. Private Private

Oct-14 PIRET - BMO Ontario / Quebec Indust. Portfolio Various Ind 654 61 $124 75% BMO Life Assurance Company PIRET 6.4% Corporate REIT

Oct-14 5000 Yonge Street Toronto Office 542 250 $460 100% Investors Group / GWL Realty Deutsche Bank Canada 5.8% Institutional Corporate

Oct-14 Enerflex Facility Calgary Ind 316 49 $155 100% Spire 47th Street SE Holdings York Realty Inc. n.d. n.d. Private

Oct-14 Crombie portfolio (NS, NB, NL) Various Retail 375 35 $93 100% n.d. Crombie REIT n.d. n.d. REIT

Oct-14 PRO REIT Portfolio 2014 (14 properties) Various Mixed 647 66 $101 100% PRO REIT Multiple 7.6% REIT Private

Oct-14 1816 Crowchild Trail N.W. Calgary Office 119 47 $392 100% Buildings One & Two Exec. Place Inc. GWL Realty Advisors n.d. Private Institutional

Oct-14 Quartier DIX30 Brossard Retail 2,300 n.d. n.d. 50% Oxford Properties Carbonleo n.d. Fund Private

Oct-14 Loblaws Portfolio 2014 Various Retail 1,266 212 $167 100% Choice Properties REIT Loblaw Companies Limited 6.6% REIT Corporate

Oct-14 Bell Canada Nun's Island Campus Montreal Office 840 n.d. n.d. 100% IGIS Asset Management KanAm Grund Group 5.5% Life Co Private

Oct-14 7634, 7676, 7686 & 7720 Kimbel Street and 2299 Drew Road

Mississauga Ind 396 27 $67 100% Desjardins Northam Realty Advisors 6.3% Life Co Institutional

Oct-14 Brookfield Place Calgary East Calgary Office 1,400 1,025 $732 100% Brookfield Canada Office Properties Brookfield Property Partners 5.5% REIT REOC

Oct-14 Ivanhoe Cambridge Portfolio 2014 Various Mixed 5,649 1,630 $289 100% Cominar REIT Ivanhoe Cambridge 6.5% REIT Fund

Oct-14 350 Sparks Street and 361 Queen Street Ottawa Mixed 170 38 $443 50% Morguard Corporation Morguard REIT n.d. REOC REIT

Oct-14 White Oaks Square Edmonton Mixed 158 31 $198 100% Melcor REIT Private 6.2% REIT Private

Oct-14 The Oaks North York Apart 1,214 93 $76,600 100% Greenwin Inc. Fishman Holdings North America Inc. 5.1% Private Private

Deals $15MM to $25MM:

Firm 200 Royale Boulevard Halifax Apart 83 19 $230,100 100% Killam Apartment REIT Private 5.6% REIT Private

Firm 1101 Rachel Street Montreal Apart 127 22 $169,700 100% InterRent REIT n.d. 4.6% REIT n.d.

Dec-15 455 Maple Avenue and 1259 - 1275 Brant Str. Burlington Apart 123 21 $170,700 100% InterRent REIT n.d. 4.1% REIT n.d.

Nov-15 425 University Avenue Toronto Office 48 16 $341 100% 425 University Avenue Inc. Beber Professional Corporation 4.7% Private Private

Nov-15 7110 Darcel Avenue Mississauga Apart 116 17 $147,000 100% Onrock Inc. Starlight Investments n.d. Private Institutional

Nov-15 750 Morningside Avenue Scarborough Apart 165 18 $110,600 100% Onrock Inc. Starlight Investments n.d. Private Institutional

Nov-15 The King George Development Building Vancouver Office 41 24 $580 100% Private Private n.d. Private Private

Nov-15 500 Division Street Cobourg Retail 64 17 $258 100% Skyline Retail REIT n.d. n.d. REIT n.d.

Nov-15 1051 Tapscott Road Scarborough Ind 255 16 $62 100% Private Canada Post Corporation n.d. Private Corporate

Nov-15 Willingdon Green Burnaby Office 47 17 $357 100% Redstone Enterprises Ltd. Artis REIT 5.5% Private REIT

Oct-15 6835 Century Avenue Mississauga Office 64 16 $242 100% Morguard Corporation LaSalle Investment Management 6.9% Institutional Institutional

Oct-15 5150 Spectrum Way (Hewlett Packard Building) Mississauga Office 246 22 $175 50% Greystone Hewlett-Packard n.d. Institutional Corporate

Oct-15 160 Traders Boulevard East Mississauga Office 92 16 $168 100% Hallmark Housekeeping Services Inc. Lisgar Development Limited 7.2% Corporate Private

January 7, 2016 320



Area 000s sf

or Suites Price

($MM)

Price per sf


Purchaser Type

Vendor Type

Oct-15 Park Inn Mississauga Hotel 100 18 $182,500 100% Private Ontario Superior Court of Justice n.d. Private Government

Oct-15 20 Holland Drive Caledon Ind 97 15 $157 100% Cavalier Transportation Services Inc. Bolton-Summerstown Inc. n.d. Private Private

Oct-15 1460 - 1490 Richmond Road Ottawa Retail 40 15 $377 100% Dalip Centre Holdco Inc. Toth Equity Ltd. 5.7% Private Private

Sep-15 Hotel Novotel Toronto North York North York Hotel 260 18 $69,200 100% Vrancor Group n.d. n.d. Private n.d.

Sep-15 The Monterey Vancouver Apart 54 19 $345,000 100% Hollyburn Properties Ltd. n.d. n.d. Private n.d.

Sep-15 7835 Highway No. 50 Vaughan Ind 90 18 $201 100% Zzen Group of Companies Limited The Woodbridge Farmers Company n.d. Private Private

Sep-15 Brant Power Centre Burlington Retail 114 20 $356 50% Desjardins RioCan REIT 5.8% Life Co REIT

Sep-15 72 Laval Street Gatineau Office 68 19 $271 100% Nobel REIT & private investor n.d. n.d. REIT/Private n.d.

Sep-15 1380 Jervis Street (Pacific Beach Apartments) Vancouver Apart 56 24 $419,600 100% Private Private n.d. Private Private

Sep-15 4671, 4691, 4693, 4700, 4720 & 4740 Vanguard Road

Richmond Ind 194 22 $113 100% South Street Development Group Carnarvon Properties Ltd. n.d. Private Private

Sep-15 13508 Victoria Trail NW (Belmont Town Centre) Edmonton Retail 56 24 $422 100% ICBC Properties Ltd. Redev Properties Ltd. 5.7% Private Private

Sep-15 505 Industrial Drive Milton Ind 259 23 $87 100% CanFirst Capital Management Inc. Slate Office REIT 7.2% Institutional REIT

Sep-15 8010 Saba Road Richmond Mixed 34 24 $723 100% Private Private 4.5% Private Private

Sep-15 1209 Jervis Street (Blenheim Court) Vancouver Apart 45 25 $553,300 100% Private Private n.d. Private Private

Aug-15 1110 Gateway Avenue Canmore Retail 49 21 $420 100% Private Private n.d. Private Private

Aug-15 4700 102nd Avenue S.E. Calgary Ind 29 22 $746 100% Edgefront REIT Private 7.6% REIT Private

Aug-15 65 North Bend Street Coquitlam Ind 122 19 $158 100% GFR Pharma Ltd. Sony of Canada n.d. Private Corporate

Aug-15 1428 Hwy W Courtice & 9186 Hwy 93 S Midland Various Retail 49 18 $374 100% Choice Properties REIT Loblaw Companies Limited 6.2% REIT Corporate

Aug-15 Canmore Canadian Tire Canmore Retail 50 21 $410 100% Crombie REIT n.d. 6.2% REIT n.d.

Aug-15 730 St. Clarens Avenue Toronto Apart 275 24 $87,300 100% Akelius Private 3.6% Institutional n.d.

Aug-15 2335 Speers Road Oakville Ind 261 20 $75 100% Monarch Plastics Group KingSett Capital, AIMCo n.d. Corporate Institutional/Fund

Jul-15 Centres Jacques Cartier Longueuil Retail 213 18 $83 100% Strathallen Capital RioCan REIT, Kimco 7.9% Institutional REIT

Jul-15 Yorkson Grove Langley Apart 58 17 $293,100 100% CAPREIT Yorkson Grove Holdings Ltd. 4.2% REIT Private

Jul-15 12091 88th Avenue Surrey Ind 196 18 $90 100% Pacific Press Properties Inc. n.d. n.d. Private n.d.

Jul-15 Days Hotel & Conference Centre Toronto Hotel 290 22 $74,100 100% n.d. n.d. n.d. n.d. n.d.

Jul-15 Linwood Place Langley Apart 192 21 $107,500 100% Private Private n.d. Private Private

Jul-15 Cranberry Lane Richmond Apart 88 22 $247,700 100% Private Private n.d. Private Private

Jul-15 Old Mill Toronto Toronto Hotel 57 21 $364,300 100% Frank De Luca Lark Hospitality / Michael Kalmar n.d. Private Private

Jun-15 Coronation Mall Duncan Retail 52 17 $329 100% n.d. True North Commercial REIT 5.6% n.d. REIT

Jun-15 3820 Shelbourne Street and Langley portfolio Various Apart 140 18 $129,300 100% CAPREIT n.d. n.d. REIT n.d.

Jun-15 Fish Creek Village Calgary Retail 53 20 $378 100% Lansdowne Equity Ventures Jack Carter Chevrolet Cadillac n.d. Private Private

Jun-15 8 William Kitchen Road Scarborough Retail 76 18 $243 100% Private LSB Group Limited n.d. Private Private

Jun-15 7150 Mississauga Road Mississauga Office 79 22 $276 100% The Regional Municipality of Peel Bentall n.d. Government Institutional

Jun-15 1225 East Keith Road (Keith Business Centre) Vancouver Ind 75 24 $315 100% Private Private n.d. Private Private

Jun-15 380 Gibb Street Oshawa Apart 126 19 $150,400 100% Timbercreek Asset Management Starlight Apartments 4.7% Private Institutional

May-15 230 & 240 Richmond Street West Toronto Office 119 18 $294 50% Hullmark OCAD University n.d. Private Corporate

May-15 1133 Yonge Street Toronto Office 63 22 $341 100% Clifton Blake Sheritt International Corporation n.d. Private Private

May-15 10 Sun Pac Boulevard Brampton Ind 350 25 $70 100% Lesmark Developments Menkes Developments n.d. Private Private

May-15 90 Wynford Drive North York Office 172 17 $96 100% Bank of Nova Scotia Imperial Oil Limited n.d. Corporate Corporate

May-15 1855 - 1911 Dundas Street East & 3025 Lenworth Drive

Mississauga Retail 154 21 $136 100% Zoran Properties Regent Star Investments Ltd. n.d. Private Private

January 7, 2016 321



Area 000s sf

or Suites Price

($MM)

Price per sf


Purchaser Type

Vendor Type

May-15 The Westin Bristol Place Toronto Airport Etobicoke Hotel 288 22 $76,400 100% The Easton Group The Blackstone Group n.d. Private Institutional

May-15 Isabella Retirement Living Thunder Bay Senior 94 22 $235,100 100% Chartwell Retirement Residences n.d. 7.1% REIT n.d.

Apr-15 17 Prince Arthur Avenue Toronto Office 20 16 $810 100% Private Peninsula Ee Associates Inc. n.d. Private Private

Apr-15 1030 King Street West Toronto Retail 18 25 $1,383 100% First Capital Realty Canderel Stoneridge Equity Group 3.5% REOC Private

Apr-15 Walnut Grove Town Centre Langley Retail 57 21 $376 100% Jim Pattison Group Private n.d. Private Private

Apr-15 KingSett/AIMCo - Sunpan Portfolio Scarborough Ind 283 24 $85 100% Sunpan Trading & Importing Inc. KingSett Capital, AIMCo n.d. Private Institutional/Fund

Apr-15 2 Hallcrown Place & 501 Consumers Road North York Ind 417 21 $49 100% Consumers Road Investments Inc. Hallmark Cards Inc. n.d. Private Corporate

Apr-15 6640 Vedder Road (The Village at Sardis Park) Chilliwack Retail 70 15 $217 100% Spire Development Private n.d. Private Private

Apr-15 Brewery Market & Keith Hall Halifax Mixed 158 22 $141 100% Killam Apartment REIT Halkirk Properties Limited 7.0% REIT Private

Mar-15 2400 & 2430 Royal Windsor Drive Mississauga Ind 292 19 $65 100% Panattoni Development Company The Sterling Group n.d. Private Private

Mar-15 Bayview North Centre Aurora Retail 49 20 $398 100% Liberty Development Corp. Sun Life Assurance Company of Canada 5.8% Private Life Co

Mar-15 Holiday Inn Express & Suites Spruce Grove Hotel 130 20 $157,300 100% n.d. n.d. n.d. n.d. n.d.

Mar-15 Best Western Plus Westwood Inn Edmonton Hotel 172 24 $139,500 100% n.d. n.d. n.d. n.d. n.d.

Feb-15 1867 West Broadway (CGA Building) Vancouver Office 32 16 $512 100% Austeville Properties Ltd. The CGA Association of BC n.d. Private Private

Feb-15 4501 Kingsway (Sovereign) Burnaby Office 30 15 $510 100% Canadian Office & Professional Employees Union

Bosa Properties n.d. Private Private

Feb-15 Hilton Bonaventure Montreal Hotel 395 23 $57,600 100% Private Private n.d. Private Private

Feb-15 239 Deguire Montreal Apart 185 19 $103,200 100% Skyline Apartment REIT Private 5.9% REIT Private

Feb-15 Whites Road Shopping Centre Pickering Retail 66 25 $379 100% Valiant Rental Properties Limited Linmar Investment Corporation Ltd. n.d. Private Private

Feb-15 Hilton Garden Inn Montreal Hotel 159 15 $94,300 100% Private Private n.d. Private Private

Feb-15 11480 River Road Richmond Ind 223 18 $79 100% PCI Group 615718 B.C. Ltd. 5.3% Private Private

Feb-15 750 Cambie St. (Centennial Building) Vancouver Office 70 22 $307 100% Private Private n.d. Private Private

Feb-15 301 Queen St South (Bolton Country Plaza) Caledon Retail 87 19 $214 100% Stonebridge Bolton Queen Inc. Gross Capital Group 5.7% Private Private

Feb-15 Plaza Delson Delson Retail 146 22 $148 100% BTB REIT First Capital Realty n.d. REIT REOC

Jan-15 802 - 818 16th Avenue S.W. Calgary Retail 40 23 $563 100% First Capital Realty William-Arnold Holdings Ltd. n.d. REOC Private

Jan-15 Sam Livingston Building Calgary Office 44 22 $498 100% Luxor Land Ltd. Canada Lands Company n.d. Private Private

Jan-15 440 Railside Drive Brampton Ind 250 19 $77 100% Northam Realty Advisors Sun Life Assurance Company of Canada 5.4% Institutional Life Co

Jan-15 STM Office Building (LH) Quebec City Office 76 17 $217 100% Cromwell Management STM,Ville de Québec and others 7.6% Private Government

Dec-14 Hi-Lo Investments Toronto Portfolio Toronto Apart 140 22 $157,100 100% Starlight Investments Hi-Lo Investments Inc n.d. Institutional Private

Dec-14 2931, 2951 & 2991 Walkers Line Burlington Office 55 24 $438 100% Shen Feng Investment Group Ltd. Boston Capital Inc. n.d. Private Private

Dec-14 6810 40th Street S.E. Calgary Ind 263 23 $87 100% Nicola-Crosby Real Estate Investments KingSett Capital 5.9% Private Institutional

Dec-14 350 Hazelhurst Road & 2549 Lakeshore Road West

Mississauga Ind 220 22 $101 100% Summit Industrial Income REIT Northam Realty Advisors 6.5% REIT Institutional

Dec-14 1300 - 1312 Harmony Road North Oshawa Retail 45 15 $334 100% H&T Holdings Ltd. Sun Life Assurance Company of Canada n.d. Private Life Co

Dec-14 The Maynards Block Vancouver Retail 20 15 $760 100% MIA BC Holdings Ltd. Private n.d. Private Private

Dec-14 National Fast Freight Building Calgary Ind 57 16 $277 100% Private Private n.d. Private Private

Dec-14 Le Begonia Montreal Apart 133 16 $123,000 100% Akelius Fastigheter AB Le Groupe VS Ahtnam Inc n.d. Private Private

Dec-14 4570-4590 Queen Mary Montreal Apart 135 19 $138,500 100% Akelius Montreal Ltd. Le Groupe V.S. Ahtnam n.d. Private Private

Dec-14 400 & 405 Boulevard des Grives Gatineau Apart 98 15 $155,100 100% Skyline Apartment REIT n.d. n.d. REIT n.d.

Dec-14 2220 - 2250 Midland Avenue Scarborough Ind 427 25 $58 100% Midland Industrial Mall Ltd. Northam Realty Advisors n.d. Private Institutional

Nov-14 27475 58th Crescent Langley Ind 162 22 $136 100% Manulife Financial Private 5.0% Life Co Private

Nov-14 165 Dundas Street West Mississauga Office 114 18 $157 100% Galaxy Towers Inc. Callan Property Management 7.8% Private Private

January 7, 2016 322



Area 000s sf

or Suites Price

($MM)

Price per sf


Purchaser Type

Vendor Type

Nov-14 Lotus Hotel Vancouver Apart 110 18 $162,700 100% Living Balance Property Investment Group

Heritage House Holdings Inc. n.d. Private Private

Nov-14 220 King Street West Toronto Office 25 19 $761 100% Halmont Properties Corporation KingSett Capital 4.6% Private Institutional

Oct-14 888 S.E. Marine Drive Vancouver Ind 179 18 $98 100% Onni Development Corp AMC Group n.d. Private Private

Oct-14 Fairfield Inn & Suites Toronto Airport Mississauga Hotel 170 20 $114,700 100% Manga Hotels Private 8.0% Private Private

Oct-14 Fraserview Court Surrey Apart 154 18 $118,500 100% Private Salient Investments Ltd. n.d. Private Private

Oct-14 192 Spadina Avenue Toronto Office 62 16 $258 100% Centre for Social Innovation Private n.d. Private Private

Oct-14 Cedarwood Station Airdrie Apart 87 15 $172,400 100% Private Private n.d. Private Private

Oct-14 6840-6860 No. 3 Road & Anderson Road Richmond Retail 36 19 $521 100% Private Grand Projects Inc. n.d. Private Private

Oct-14 Headon Plaza Burlington Retail 61 16 $258 100% Playacor Headon Investments Jovic Developments 6.4% Private Private

Oct-14 65 - 73 Huxley Road North York Ind 172 19 $110 100% Gay Lea Foods Co-operative Augend Investments Limited n.d. Corporate Private

Oct-14 Citadel West Calgary Office 78 19 $487 50% Morguard REIT n.d. n.d. REIT n.d.

Oct-14 1 Centrepointe Drive Ottawa Office 49 18 $357 100% First Capital Realty Mohawk Nepean Inc. n.d. REOC Private

Source: RBC Capital Markets, Company reports and Industry sources

Notes:

Descriptor Definition Examples

REIT/REOC Any publicly listed real estate investment trust, real estate operating company or any private real estate investment trust.

H&R REIT, First Capital Realty, Skyline Commercial REIT

Institutional Any investor acting in its capacity as a principal or as an advisor on behalf of groups of pension funds, endowment funds, high net worth individuals, institutions or others.

GE Real Esate, GWL Realty Advisors, Bentall, Bayfield Realty Advisors, KingSett Capital

Life Co Any life insurance company investing on behalf of its own account. Manulife

Fund Any pension fund investing on behalf of its own account or an individual manager acting on behalf of a specific pension fund group.

OMERS/Oxford, Cadillac Farview/OTPP, AIMCo, Ivanhoe Cambridge

Corporate Any corporate user of real estate. Shoppers Drug Mart, Canadian Tire Corporation, Sobeys

Private Any private real estate investor or developer.

Government Any federal, provincial, municipal government or their agencies. City of Surrey, Calgary Chamber of Commerce, Aeroport de Montreal

January 7, 2016 323


Appendix VII: Canadian REITs and REOCs — NAV summary

Office / Industrial REITs and REOCs Retail REITs and REOCs Lodging

REITs

Allied Prop. REIT

Brookfield Canada Office Props

Dream Office REIT

Granite REIT

NorthWest Healthcare

REIT

Pure Industrial

REIT

WPT Industrial

REIT8

Choice Properties

REIT Crombie

REIT CT

REIT

First Capital Realty

Plaza Retail REIT

One REIT

RioCan REIT

Slate Retail REIT8

Smart REIT

InnVest REIT

Premium/(Discount) to NAV: Unit Price – December 31, 2015 $31.57 $26.06 $17.37 $37.96 $8.93 $4.37 $11.95 $11.80 $12.80 $13.00 $18.35 $4.70 $3.32 $23.69 $10.40 $30.19 $5.13 Implied Cap Rate At Current Market Price 6.30% 5.80% 7.90% 9.80% 7.30% 6.90% 6.70% 6.00% 6.50% 6.00% 5.50% 6.70% 7.77% 5.80% 7.60% 6.10% 8.00% Cap Rate Assigned By RBC CM 6.00% 4.84% 6.10% 8.50% 7.11% 6.40% 7.00% 6.25% 6.25% 6.40% 5.60% 7.00% 7.00% 5.80% 7.40% 6.00% 7.8%/DCF RBC CM NAV Per Unit $34.00 $35.00 $32.00 $45.00 $9.50 $5.15 $11.00 $11.00 $14.25 $11.75 $18.00 $4.60 $4.50 $23.50 $11.25 $30.50 $5.50

Premium/(Discount) to NAV (7%) (26%) (46%) (16%) (6%) (15%) 9% 7% (10%) 11% 2% 2% (26%) 1% (8%) (1%) (7%)

Change In Valuation Parameters & Sensitivity: Previous Cap Rate2 6.10% 5.00% 6.25% 8.50% 6.75% 6.50% 7.00% 6.25% 6.25% 6.30% 5.60% 7.10% 7.00% 5.90% 7.40% 6.00% 7.8%/DCF Change In Cap Rate From Prior Quarter -0.10% -0.16% -0.15% 0.00% 0.36% -0.10% 0.00% 0.00% 0.00% 0.10% 0.00% -0.10% 0.00% -0.10% 0.00% 0.00% 0.00% $ Per Unit Sensitivity to 25bp Chg In Cap Rate $1.99 $3.06 $2.70 $1.66 $0.83 $0.39 $0.81 $0.86 $1.28 $0.91 $1.52 $0.35 $0.47 $1.59 $0.98 $2.16 $0.42

Percentage Sensitivity 6% 9% 8% 4% 9% 8% 7% 8% 9% 8% 8% 8% 10% 7% 9% 7% 8%

Quarterly Change In NAV Analysis: Previous NAV/Unit $33.00 $34.00 $32.00 $42.00 $10.50 $4.90 $11.00 $10.75 $14.25 $11.50 $18.00 $4.60 $4.50 $25.00 $11.25 $30.00 $5.50 Change $1.00 $1.00 $0.00 $3.00 ($1.00) $0.25 $0.00 $0.25 $0.00 $0.25 $0.00 $0.00 $0.00 ($1.50) $0.00 $0.50 $0.00 $ Change - Excluding Revaluation3 $0.20 ($0.96) ($1.62) $3.00 $0.20 $0.09 $0.00 $0.25 $0.00 $0.61 $0.00 ($0.14) $0.00 ($2.13) $0.00 $0.50 $0.00 $ Change - Due to Revaluation4 $0.80 $1.96 $1.62 $0.00 ($1.20) $0.16 $0.00 $0.00 $0.00 ($0.36) $0.00 $0.14 $0.00 $0.63 $0.00 $0.00 $0.00 Percentage Change Since Last Quarter 3% 3% 0% 7% (10%) 5% 0% 2% 0% 2% 0% 0% 0% (6%) 0% 2% 0% Percentage Change - Excluding Revaluation3 1% (3%) (5%) 7% 2% 2% 0% 2% 0% 5% 0% (3%) 0% (9%) 0% 2% 0% Percentage Change - Due to Revaluation4 2% 6% 5% 0% (11%) 3% 0% 0% 0% (3%) 0% 3% 0% 3% 0% 0% 0%

Other Metrics: Pre-Tax Book Value Per Unit $32.83 $34.34 $32.86 $42.75 $9.65 $5.12 $11.06 $10.94 $9.38 $11.51 $18.28 $4.58 $5.30 $24.58 $12.94 $29.00 $1.90 Price/Book 1.0x 0.8x 0.5x 0.9x 0.9x 0.9x 1.1x 1.1x 1.4x 1.1x 1.0x 1.0x 0.6x 1.0x 0.8x 1.0x 2.7x Debt/Enterprise Value - Balance Sheet Leverage5 41% 53% 65% 25% 64% 54% 47% 45% 56% 46% 48% 57% 71% 43% 62% 46% 60% Debt/Enterprise Value - FFO Leverage6 41% 53% 64% 25% 64% 54% 47% 45% 52% 46% 43% 51% 63% 43% 62% 46% 47%

Continued on next page.

January 7, 2016 324


Appendix VII: Canadian REITs and REOCs — NAV summary (continued)

Diversified REITs and REOCs Apartment REITs and REOCs Seniors Housing

Agellan Commecial

REIT Artis REIT

Brookfield Property Partners8 CREIT

Cominar REIT

H&R REIT

Melcor REIT

Morguard REIT

Boardwalk REIT

CAP REIT

Killam Apart. REIT

Milestone Apart. REIT7

Morguard Residential

REIT

Northview Apart. REIT

Chartwell Retirement Residences

Extendicare Inc.

Sienna Senior Living

Premium/(Discount) to NAV1: Unit Price – December 31, 2015 $8.84 $12.80 $23.24 $42.06 $14.71 $20.05 $7.21 $13.62 $47.45 $26.84 $10.51 $15.05 $10.67 $17.56 $12.70 $9.65 $16.14 Implied Cap Rate At Current Market Price2 8.90% 7.30% 5.30% 6.30% 7.30% 6.70% 7.60% 7.70% 6.20% 5.20% 6.00% 7.10% 6.70% 7.20% 6.30% 7.70% 7.40% Cap Rate Assigned By RBC CM 7.75% 6.50% 4.80% 5.90% 6.60% 6.04% 6.60% 6.20% 5.13% 5.00% 5.70% 6.30% 5.50% 6.40% 6.70% 8.30% 7.85% RBC CM NAV Per Unit $12.00 $17.00 $29.00 $46.00 $18.75 $25.00 $10.50 $22.50 $66.00 $29.00 $12.00 $14.00 $18.00 $24.00 $11.50 $9.00 $14.25

Premium/(Discount) to NAV (26%) (25%) (20%) (9%) (22%) (20%) (31%) (39%) (28%) (7%) (12%) (23%) (41%) (27%) 10% 7% 13%

Change in Valuation Parameters & Sensitivity: Previous Cap Rate2 7.75% 6.40% 4.80% 5.90% 6.60% 6.04% 6.60% 6.20% 5.00% 5.00% 5.75% 6.40% 5.50% 7.25% 6.70% 8.30% 7.85% Change In Cap Rate From Prior Quarter 0.00% 0.10% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.12% 0.00% -0.05% -0.10% 0.00% -0.85% 0.00% 0.00% 0.00% $ Per Unit Sens. to 25bp Chg In Cap Rate $0.87 $1.51 $3.42 $2.95 $1.67 $1.99 $0.93 $1.85 $5.50 $2.87 $1.30 $1.26 $1.99 $2.37 $0.81 $0.31 $0.94

Percentage Sensitivity 7% 9% 12% 6% 9% 8% 9% 8% 8% 10% 11% 9% 11% 10% 7% 3% 7%

Quarterly Change In NAV Analysis: Previous NAV/Unit $12.00 $17.00 $29.00 $46.00 $19.00 $25.00 $10.75 $22.50 $71.00 $29.00 $12.00 $13.50 $16.00 $26.00 $11.50 $8.75 $14.00 Change $0.00 $0.00 $0.00 $0.00 ($0.25) $0.00 ($0.25) $0.00 ($5.00) $0.00 $0.00 $0.50 $2.00 ($2.00) $0.00 $0.25 $0.25 $ Change - Excluding Revaluation3 $0.00 $0.60 $0.00 $0.00 ($0.25) $0.00 ($0.25) $0.00 ($2.25) $0.00 ($0.26) ($0.00) $2.00 ($10.05) $0.00 $0.25 $0.25 $ Change - Due to Revaluation4 $0.00 ($0.60) $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 ($2.75) $0.00 $0.26 $0.50 $0.00 $8.05 $0.00 $0.00 $0.00 Percentage Change Since Last Quarter 0% 0% 0% 0% (1%) 0% (2%) 0% (7%) 0% 0% 4% 13% (8%) 0% 3% 2% Percentage Change - Ex. Revaluation3 0% 4% 0% 0% (1%) 0% (2%) 0% (3%) 0% (2%) (0%) 13% (39%) 0% 3% 2% Percentage Change - Due to Revaluation4 0% (4%) 0% 0% 0% 0% 0% 0% (4%) 0% 2% 4% 0% 31% 0% 0% 0%

Other Metrics: Pre-Tax Book Value Per Unit $12.36 $17.69 $33.11 $45.24 $21.56 $25.09 $11.66 $25.60 $66.32 $28.04 $12.70 $14.81 $19.01 $25.43 $4.28 $2.97 $6.63 Price/Book 0.7x 0.7x 0.7x 0.9x 0.7x 0.8x 0.6x 0.5x 0.7x 1.0x 0.8x 0.7x 0.6x 0.7x 3.0x $3.25 2.4x Debt/Ent. Value - Balance Sheet Leverage5 62% 64% 62% 41% 63% 53% 65% 62% 49% 48% 61% 61% 69% 66% 44% 36% 51% Debt/Enterprise Value - FFO Leverage6 62% 60% 62% 41% 63% 51% 58% 55% 49% 48% 55% 61% 65% 66% 40% 26% 47%

Notes: 1) All calculations are derived from FTM estimated NOI from existing assets, after an appropriate adjustment for the value of non-NOI producing assets (i.e., properties under developments or mezzanine loans). 2) The capitalization rate applied in the determination of NAV/unit approximately three months ago. None of the changes this quarter are due to substantial shifts in portfolio composition, but rather they are reflective of small adjustments that we have implemented in order to more closely align our view of each REIT or REOC's portfolio with private market pricing for similar assets. 3) This line shows the component of the NAV/unit change that has occurred due to operating and financing parameters. 4) This line shows the component of the NAV/unit change that has occurred because we have changed our valuation parameters (i.e., due to cap rate change). 5) Debt includes all convertible debentures in this calculation. This calculation portrays the degree by which the balance sheet is levered. 6) Debt excludes all convertible debentures in this calculation. This portrays the degree by which FFO/share (diluted) is levered (because convertible debentures are notionally converted to equity in the derivations of diluted FFO & AFFO per share). 7) Milestone Apartments REIT stock price, distributions and market cap are denominated in CAD. All financial numbers are denominated in USD, the functional currency. All multiples and ratios have been adjusted to reflect the relevant foreign exchange rate. 8) WPT Industrial REIT, Slate Retail REIT and Brookfield Property Partners' unit price and financial numbers are denominated in USD. Source: RBC Capital Markets estimates, Thomson One and Company reports

January 7, 2016 325


Appendix VIII: Canadian REITs and REOCs — Convertible debenture comparable valuation table

Convertible Ticker

Market Price

Issue Date Coupon

Bond Maturity

Initial Term

Years Remaining

Current Yield

Yield To Call (YTC)

Yield To Maturity

(YTM) Conversion

Price

Units On Conversion

/$1000 Unit Price

Conversion Premium

Yield On

Units

Discount To Equity

Yield

Commercial Properties (listed by term to maturity) H&R REIT HR.DB.E 100.50 Nov-11 4.50% Dec-16 5.1 1.0 4.5% -2.1% 4.0% $25.70 38.9 $20.11 27.8% 6.7% 273bps Plaza Retail REIT PLZ.DB.B 101.75 Sep-11 8.00% Dec-16 5.3 1.0 7.9% -14.6% 6.1% $5.33 187.7 $4.59 16.1% 5.7% -48bps Dream Office REIT D.DB.H 100.00 Dec-11 5.50% Mar-17 5.3 1.2 5.5% 5.4% 5.5% $36.69 27.3 $17.05 115.2% 13.1% 765bps First Capital Realty FCR.DB.H 101.50 Feb-12 4.95% Mar-17 5.1 1.2 4.9% -1.3% 3.7% $23.75 42.1 $18.04 31.7% 4.8% 107bps Partners REIT PAR.DB.A 93.00 Sep-12 6.00% Sep-17 5.1 1.7 6.5% 16.4% 10.5% $10.35 96.6 $3.17 226.5% 7.9% -261bps Morguard REIT MRT.DB.A 101.40 Oct-12 4.85% Oct-17 5.0 1.8 4.8% 3.1% 4.0% $24.60 40.7 $13.75 78.9% 7.0% 294bps Plaza Retail REIT PLZ.DB.C 101.25 Dec-12 7.00% Dec-17 5.1 2.0 6.9% 5.7% 6.3% $4.67 214.1 $4.59 1.7% 5.7% -66bps Dream Industrial REIT DIN.DB 101.00 Oct-12 6.75% Nov-17 5.1 1.9 6.7% N/A 6.2% $12.37 80.8 $7.17 72.6% 9.8% 358bps First Capital Realty FCR.DB.G 101.54 Dec-11 5.25% Mar-18 6.3 2.2 5.2% -1.1% 4.5% $23.25 43.0 $18.04 28.9% 4.8% 25bps Partners REIT PAR.DB.B 89.50 Mar-13 5.50% Mar-18 5.1 2.2 6.1% 15.1% 10.9% $10.25 97.6 $3.17 223.3% 7.9% -302bps Northwest Healthcare REIT NWH.DB.A 101.00 Mar-13 6.50% Mar-18 5.0 2.2 6.4% 5.6% 6.0% $13.70 73.0 $8.81 55.5% 9.1% 307bps Artis REIT "G" AX.DB.U 99.15 Apr-11 5.75% Jun-18 7.2 2.5 5.8% 7.5% 6.1% $18.96 52.7 $12.75 48.7% 8.5% 235bps BTB REIT BTB.DB.D 100.02 Jul-11 7.25% Jul-18 7.1 2.6 7.2% 7.2% 7.2% $6.10 163.9 $4.30 41.9% 9.8% 253bps Dream Global REIT DRG.DB 99.00 Aug-11 5.50% Jul-18 7.0 2.6 5.6% 7.1% 5.9% $13.00 76.9 $8.66 50.1% 9.2% 332bps H&R REIT HR.DB.H 102.18 Jun-11 5.40% Nov-18 7.5 2.9 5.3% 2.9% 4.6% $24.73 40.4 $20.11 23.0% 6.7% 212bps Northwest Healthcare REIT NWH.DB.B 100.22 Aug-13 7.50% Sep-18 5.1 2.7 7.5% 7.4% 7.4% $11.54 86.7 $8.81 31.0% 9.1% 168bps Plaza Retail REIT PLZ.DB.D 100.01 Oct-13 5.75% Dec-18 5.2 3.0 5.7% 5.7% 5.7% $5.75 173.9 $4.59 25.3% 5.7% -8bps First Capital Realty FCR.DB.E 102.50 Apr-11 5.40% Jan-19 7.8 3.1 5.3% 3.0% 4.5% $22.62 44.2 $18.04 25.4% 4.8% 25bps First Capital Realty FCR.DB.F 102.00 Aug-11 5.25% Jan-19 7.5 3.1 5.1% 3.3% 4.5% $23.77 42.1 $18.04 31.8% 4.8% 22bps Northview Apartment REIT NVU.DB 100.50 Jun-14 5.75% Jun-19 5.0 3.5 5.7% 5.5% 5.6% $23.80 42.0 $18.04 31.9% 4.8% -82bps First Capital Realty FCR.DB.I 100.50 May-12 4.75% Jul-19 7.2 3.6 4.7% 4.4% 4.6% $26.75 37.4 $18.04 48.3% 4.8% 17bps Crombie REIT CRR.DB.D 103.52 Jul-12 5.00% Sep-19 7.2 3.7 4.8% N/A 4.0% $20.10 49.8 $12.95 55.2% 6.9% 290bps Northwest Healthcare REIT NWH.DB.C 100.00 Sep-14 7.25% Oct-19 5.1 3.8 7.3% 7.2% 7.2% $12.50 80.0 $8.81 41.9% 9.1% 184bps Dream Industrial REIT DIR.DB 99.50 Dec-12 5.25% Dec-19 7.1 4.0 5.3% 5.5% 5.4% $13.80 72.5 $7.17 92.5% 9.8% 437bps Melcor REIT MR.DB 100.50 Dec-14 5.50% Dec-19 5.1 4.0 5.5% 5.3% 5.4% $12.65 79.1 $10.37 22.0% 5.8% 43bps First Capital Realty FCR.DB.J 100.25 Feb-13 4.45% Feb-20 7.0 4.2 4.4% 4.3% 4.4% $26.75 37.4 $18.04 48.3% 4.8% 39bps BTB REIT BTB.DB.E 99.20 Feb-13 6.90% Mar-20 7.1 4.2 7.0% 7.3% 7.1% $6.15 162.6 $4.30 43.0% 9.8% 265bps Artis REIT AX.DB.F 101.21 Apr-10 6.00% Jun-20 10.2 4.5 5.9% 0.9% 5.7% $15.50 64.5 $12.75 21.6% 8.5% 278bps H&R REIT HR.DB.D 102.01 Jul-10 5.90% Jun-20 9.9 4.5 5.8% 1.8% 5.4% $23.50 42.6 $20.11 16.9% 6.7% 132bps OneREIT ONR.DB.C 90.00 May-13 5.50% Jun-20 7.1 4.5 6.1% N/A 8.2% $7.20 138.9 $3.27 120.2% 9.2% 97bps Northwest Healthcare REIT NWH.DB 97.00 Sep-13 5.25% Sep-20 7.1 4.7 5.4% 6.5% 6.0% $14.20 70.4 $8.81 61.2% 9.1% 310bps Northwest Healthcare REIT NWH.DB.D 98.00 Oct-15 5.50% Oct-20 5.1 4.8 5.6% 6.1% 6.0% $11.25 88.9 $8.81 27.7% 9.1% 310bps Crombie REIT CRR.DB.E 102.50 Aug-13 5.25% Mar-21 7.6 5.2 5.1% 4.2% 4.7% $17.15 58.3 $12.95 32.4% 6.9% 217bps BTB REIT BTB.DB.F 99.55 Dec-15 7.15% Dec-20 5.1 5.0 7.2% 7.3% 7.3% $5.65 177.0 $4.30 31.4% 9.8% 251bps Continued on next page.

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Convertible Ticker

Market Price

Issue Date Coupon

Bond Maturity

Initial Term

Years Remaining

Current Yield

Yield To Call (YTC)

Yield To Maturity

(YTM) Conversion

Price

Units On Conversion

/$1000 Unit Price

Conversion Premium

Yield On

Units

Discount To Equity

Yield

Lodging (listed by term to maturity) Temple Hotels Inc. TPH.DB.C 93.50 Nov-11 8.00% Dec-16 5.1 1.0 8.6% 97.7% 15.3% $5.82 171.8 $0.99 487.9% 30.3% 1497bps Temple Hotels Inc. TPH.DB.D 80.00 Mar-12 7.75% Jun-17 5.3 1.5 9.7% 60.8% 24.6% $7.04 142.0 $0.99 611.1% 30.3% 571bps Temple Hotels Inc. TPH.DB.E 75.01 Aug-12 7.25% Sep-17 5.1 1.7 9.7% 52.0% 26.0% $8.00 125.0 $0.99 708.1% 30.3% 434bps InnVest REIT INN.DB.E 100.00 Aug-10 6.00% Sep-17 7.1 1.7 6.0% 5.9% 6.0% $8.00 125.0 $5.21 53.6% 7.6% 161bps InnVest REIT INN.DB.F 99.50 Mar-11 5.75% Mar-18 7.0 2.2 5.8% N/A 6.0% $9.45 105.8 $5.21 81.4% 7.6% 161bps Temple Hotels Inc. TPH.DB.F 72.00 Feb-13 7.00% Mar-18 5.1 2.2 9.7% 37.1% 23.8% $7.80 128.2 $0.99 687.9% 30.3% 648bps InnVest REIT INN.DB.G 101.00 Feb-13 6.25% Mar-19 6.1 3.2 6.2% 5.8% 5.9% $7.50 133.3 $5.21 44.0% 7.6% 170bps Holloway Lodging REIT HLC.DB 87.00 Oct-14 6.25% Feb-20 5.3 4.2 7.2% 200.3% 10.2% $25.00 40.0 $5.00 400.0% 2.8% -736bps Holloway Lodging REIT HLC.DB.A 94.84 Sep-06 7.50% Sep-18 12.1 2.7 7.9% 77.8% 9.7% $25.00 40.0 $5.00 400.0% 2.8% -688bps Seniors' Housing (listed by term to maturity) Chartwell Seniors CSH.DB.B 119.95 Mar-12 5.70% Mar-18 6.1 2.2 4.8% -9.1% -2.9% $11.00 90.9 $12.88 -14.6% 4.3% 714bps Seinna Senior Living SIA.DB 106.00 Apr-13 4.65% Jun-18 5.2 2.5 4.4% 0.6% 2.2% $16.75 59.7 $16.32 2.6% 5.5% 335bps Extendicare EXE.DB.B 104.25 Sep-12 6.00% Sep-19 7.0 3.7 5.8% 3.5% 4.7% $11.25 88.9 $9.37 20.1% 5.1% 38bps Residential (listed by term to maturity) Morguard Residential MRG.DB 100.15 Mar-13 4.65% Mar-18 5.0 2.2 4.6% 4.5% 4.6% $15.50 64.5 $10.61 46.1% 5.7% 108bps Killam Apartment REIT KMP.DB.A 100.50 Nov-10 5.65% Nov-17 7.0 1.9 5.6% -1.0% 5.4% $13.40 74.6 $10.37 29.2% 5.8% 42bps Killam Apartment REIT KMP.DB.B 102.00 Jun-11 5.45% Jun-18 7.1 2.5 5.3% 1.3% 4.6% $14.60 68.5 $10.37 40.8% 5.8% 120bps


January 7, 2016 327


January 7, 2016 328

Appendix IX: Canadian REITs and REOCs — Valuation table Implied Units Mkt.

Unit Total 52 Week O/S Cap Run‐ Current Payout Funds From Operations/Unit Adjusted FFO/Unit3

Property Sector Symbol Analyst Price Target Return Rating Risk High Low MM $MM rate 14 15 16E Yield1

Ratio2 14 15E 16E 17E 14 15E 16E 17E

Boardwalk REIT BEI.un ND $47.45 $63.00 37% O ‐ $64.80 $44.77 51.8 2,459 $2.04 $3.44 $3.04 $2.04 4.3% 65% $3.37 $3.56 $3.46 $3.37 $3.04 $3.23 $3.13 $3.02CAP REIT CAR.un ND $26.84 $31.00 20% O ‐ $30.25 $24.90 129.1 3,465 $1.22 $1.17 $1.21 $1.24 4.5% 74% $1.65 $1.68 $1.75 $1.80 $1.55 $1.59 $1.65 $1.70Killam Apartment REIT KMP.un ND $10.51 $12.00 20% O ‐ $11.24 $9.21 62.7 658 $0.60 $0.60 $0.60 $0.61 5.7% 83% $0.73 $0.78 $0.82 $0.85 $0.61 $0.67 $0.72 $0.75Milestone Apartments REIT 7 MST.un ND $15.05 $18.00 25% O ‐ $16.22 $11.91 66.2 997 $0.55 $0.65 $0.65 $0.55 5.1% 56% $1.01 $1.07 $1.13 $1.15 $0.84 $0.93 $0.99 $1.02Morguard Residential REIT MRG.un ND $10.67 $12.00 18% O ‐ $10.95 $9.66 46.6 497 $0.60 $0.60 $0.60 $0.60 5.6% 66% $0.94 $1.06 $1.15 $1.18 $0.67 $0.83 $0.91 $0.94Northview Apartment REIT NVU.un ND $17.56 $22.00 35% SP ‐ $26.00 $16.10 52.2 916 $1.63 $1.58 $1.63 $1.63 9.3% 86% $2.37 $2.41 $2.42 $2.51 $1.88 $1.87 $1.89 $1.98Multi‐Unit Residential 5.8% 72%

Chartwell Retirement Residences CSH.un ND $12.70 $14.00 15% SP ‐ $13.25 $10.71 177.6 2,256 $0.55 $0.54 $0.55 $0.57 4.3% 71% $0.80 $0.80 $0.84 $0.88 4 $0.72 $0.74 $0.78 $0.81Extendicare Inc. EXE MS $9.65 $9.00 ‐2% SP ‐ $9.95 $6.21 87.6 845 $0.48 $0.48 $0.48 $0.48 5.0% 77% $0.75 $0.61 $0.60 $0.62 $0.80 $0.59 $0.63 $0.64Sienna Senior Living SIA MS $16.14 $17.50 14% SP ‐ $18.13 $13.79 36.4 588 $0.90 $0.90 $0.90 $0.90 5.6% 66% $1.12 $1.14 $1.21 $1.25 $1.29 $1.29 $1.36 $1.39Seniors Housing 5.0% 71%

Allied Properties REIT AP.un ND $31.57 $41.00 35% O ‐ $41.37 $30.71 78.1 2,466 $1.50 $1.41 $1.46 $1.50 4.8% 77% $2.09 $2.17 $2.32 $2.43 $1.83 $1.80 $1.94 $2.05Brookfield Cda Office Props BOX.un ND $26.06 $30.00 20% SP ‐ $30.68 $23.02 93.3 2,433 $1.24 $1.21 $1.24 $1.28 4.8% 88% $1.70 $1.57 $1.76 $1.82 $1.39 $1.21 $1.40 $1.46Dream Office REIT D.un ND $17.37 $23.00 45% SP ‐ $28.50 $16.54 113.0 1,963 $2.24 $2.24 $2.24 $2.24 12.9% 105% $2.87 $2.81 $2.71 $2.67 $2.31 $2.25 $2.14 $2.10Granite REIT GRT ND $37.96 $45.00 25% SP ‐ $45.93 $36.47 47.0 1,785 $2.30 $2.20 $2.30 $2.40 6.1% 68% $3.27 $3.37 $3.49 $3.57 $3.14 $3.25 $3.37 $3.43NorthWest Healthcare REIT NWH.un ND $8.93 $9.50 15% SP ‐ $10.05 $7.45 71.7 641 $0.80 $0.80 $0.80 $0.80 9.0% 102% $0.98 $0.82 $0.84 $0.85 $0.82 $0.78 $0.78 $0.80Pure Industrial REIT AAR.un ND $4.37 $5.25 27% SP ‐ $5.25 $4.14 190.7 833 $0.31 $0.31 $0.31 $0.32 7.1% 81% $0.37 $0.39 $0.42 $0.45 $0.31 $0.35 $0.38 $0.41WPT Industrial REIT 9 WIR.u ND $11.95 $13.25 17% O ‐ $12.90 $10.60 33.7 403 $0.76 $0.70 $0.72 $0.76 6.4% 88% $1.00 $1.00 $1.05 $1.07 $0.82 $0.85 $0.87 $0.89Office / Industrial 7.3% 87%

Choice Properties REIT CHP.un MS $11.80 $12.00 7% SP ‐ $12.16 $10.43 406.4 4,795 $0.67 $0.65 $0.65 $0.67 5.7% 84% $0.91 $0.96 $0.99 $1.02 $0.75 $0.77 $0.80 $0.83Crombie REIT CRR.un MS $12.80 $14.50 20% SP ‐ $13.87 $12.21 131.1 1,678 $0.89 $0.89 $0.89 $0.89 7.0% 89% $1.10 $1.13 $1.18 $1.23 $0.93 $0.95 $1.00 $1.06CT REIT CRT.un MS $13.00 $13.50 9% SP ‐ $13.50 $11.26 189.6 2,464 $0.68 $0.65 $0.66 $0.68 5.2% 78% $0.98 $1.04 $1.10 $1.15 $0.74 $0.81 $0.87 $0.92First Capital Realty FCR MS $18.35 $21.00 19% O ‐ $20.35 $16.93 225.2 4,132 $0.86 $0.85 $0.86 $0.86 4.7% 80% $0.98 $0.98 $1.10 $1.17 $1.01 $1.02 $1.07 $1.14Plaza Retail REIT PLZ.un MS $4.70 $5.00 12% O ‐ $4.82 $4.03 94.1 442 $0.26 $0.24 $0.25 $0.26 5.5% 87% $0.30 $0.32 $0.34 $0.36 $0.26 $0.29 $0.30 $0.33OneREIT ONR.un MS $3.32 $3.75 22% SP ‐ $4.23 $2.82 86.3 286 $0.30 $0.45 $0.38 $0.30 9.0% 79% $0.44 $0.44 $0.45 $0.46 $0.36 $0.36 $0.38 $0.39RioCan REIT REI.un MS $23.69 $28.00 24% O ‐ $30.25 $22.14 321.1 7,606 $1.41 $1.41 $1.41 $1.41 6.0% 97% $1.68 $1.72 $1.64 $1.65 $1.50 $1.54 $1.46 $1.47Slate Retail REIT SRT'u MS $10.40 $10.75 11% SP ‐ $11.49 $9.76 32.0 333 $0.78 $0.52 $0.76 $0.78 7.5% 67% $0.72 $1.32 $1.35 $1.38 $0.77 $1.13 $1.17 $1.20SmartREIT SRU.un MS $30.19 $34.00 18% O ‐ $32.75 $27.25 153.7 4,641 $1.65 $1.56 $1.61 $1.66 5.5% 79% $1.95 $2.10 $2.20 $2.28 $1.84 $1.98 $2.08 $2.16Retail 6.2% 82%

Agellan Commercial REIT ACR.un MS $8.84 $9.50 16% SP ‐ $9.90 $8.31 23.4 207 $0.78 $0.78 $0.78 $0.78 8.8% 78% $1.15 $1.23 $1.31 $1.36 $0.85 $0.96 $1.00 $1.04Artis REIT AX.un MS $12.80 $16.00 33% SP ‐ $15.86 $11.59 138.3 1,770 $1.08 $1.08 $1.08 $1.08 8.4% 79% $1.42 $1.51 $1.53 $1.61 5 $1.23 $1.33 $1.37 $1.45CREIT REF.un ND $42.06 $52.00 28% O ‐ $48.88 $39.25 72.9 3,064 $1.80 $1.74 $1.78 $1.82 4.3% 73% $2.96 $3.04 $3.06 $3.15 $2.50 $2.46 $2.47 $2.60Cominar REIT CUF.un MS $14.71 $17.50 29% SP ‐ $20.11 $14.10 169.8 2,497 $1.47 $1.45 $1.47 $1.47 10.0% 96% $1.86 $1.79 $1.77 $1.84 $1.61 $1.55 $1.53 $1.61H&R REIT HR.un ND $20.05 $25.00 31% SP ‐ $25.27 $18.38 294.9 5,913 $1.35 $1.35 $1.35 $1.35 6.7% 88% $1.86 $1.93 $1.93 $2.00 6 $1.52 $1.52 $1.54 $1.62Melcor REIT MR.un MS $7.21 $8.50 27% SP ‐ $9.58 $6.90 25.8 186 $0.68 $0.68 $0.68 $0.68 9.4% 84% $0.87 $1.00 $0.98 $1.01 $0.76 $0.83 $0.81 $0.83Morguard REIT MRT.un MS $13.62 $16.00 25% SP ‐ $18.90 $12.52 61.4 836 $0.96 $0.96 $0.96 $0.96 7.0% 78% $1.67 $1.63 $1.63 $1.67 $1.27 $1.24 $1.23 $1.27Diversified 7.8% 82%

All Commercial Property 7.0% 84%

InnVest REIT INN.un ND $5.13 $6.25 30% O ‐ $6.56 $4.49 133.0 683 $0.40 $0.40 $0.40 $0.40 7.7% 76% $0.57 $0.60 $0.63 $0.68 $0.44 $0.50 $0.52 $0.56Morguard Corporation MRC ND $133.00 $175.00 32% SP ‐ $159.99 $128.15 12.1 1,603 $0.60 $0.60 $0.60 $0.60 0.5% 5% $12.14 $14.02 $15.84 $16.71 $9.84 $11.37 $13.14 $14.01Melcor Developments MRD MS $14.56 $18.00 28% O ‐ $19.82 $12.36 33.2 483 $0.60 $0.58 $0.60 $0.60 4.1% N/A $2.61 $1.61 $1.73 $1.86 N/A N/A N/A N/ABrookfield Asset Mgt. 8 BAM‐US ND $31.53 $40.00 28% O ‐ $39.00 $29.83 957.1 30,177 $0.48 $0.43 $0.47 $0.51 1.5% 26% $2.12 $2.17 $2.34 $2.52 $1.51 $1.52 $1.83 $2.01Brookfield Property Partners 9 BPY‐US ND $23.24 $26.00 16% O ‐ $26.54 $19.89 712.9 16,567 $1.06 $1.00 $1.06 $1.12 4.6% 112% $1.11 $1.15 $1.34 $1.44 $0.73 $0.74 $0.94 $1.09Tricon Capital TCN GK $9.06 $13.00 46% O ‐ $12.11 $8.47 104.2 944 $0.24 $0.24 $0.24 $0.24 2.6% N/A $0.54 $0.57 $0.48 $0.56 N/A N/A N/A N/A

Stock Rating Legend: TP – Top Pick; O – Outperform; SP – Sector Perform; U – Underperform. Analyst Legend: ND – Neil Downey; MS ‐ Michael Smith; GK ‐ Geoff Kwan Risk Qualifier Legend: Spec – Speculative Risk.Note: R – Restricted from providing an investment opinion due to new issued distribution period or quiet period surrounding a "lock‐up" termination; UR – Under Review.

Cash Distributions / Unit

Continued on next page.


January 7, 2016 329

Appendix IX: Canadian REITs and REOCs — Valuation table (continued) Implied RBCCM Pre‐tax

Business Focus EV/ Cap Cap Price / Book Price / Tax Deferral FFO/Unit Multiples AFFO/Unit MultiplesProperty Sector (Estimated Sources of Income) EBITDA Rate Rate NAV

10 NAV Value10 Book 2013 2014 2015E 14 15E 16E 17E 14 15E 16E 17E

Boardwalk REIT Residential (by NOI: AB ~68%; SK ~13%; QC ~14%; ON ~5%) 18.4x 6.2% 5.1% $66.00 72% $66.32 0.7x 30% 40% 0% 14.1x 13.3x 13.7x 14.1x 15.6x 14.7x 15.2x 15.7xCAP REIT Residential (by NOI: ON ~58%; QC ~18%; BC ~10%; AB ~8%; Other ~6%) 21.0x 5.2% 5.0% $29.00 93% $28.04 1.0x 86% 73% 70% 16.3x 16.0x 15.3x 14.9x 17.3x 16.9x 16.3x 15.8xKillam Apartment REIT By NOI: ~86% Atlantic Cda, ~10% ON, ~4% AB (Apartments ~90%; MHCs ~10%) 18.8x 6.0% 5.7% $12.00 88% $12.70 0.8x N/A N/A N/A 14.4x 13.5x 12.8x 12.3x 17.1x 15.6x 14.6x 14.0xMilestone Apartments REIT 7 US garden‐style apartments in the Sun Belt (~55% in Texas) 16.3x 7.1% 6.3% $14.00 77% $14.81 0.7x 100% 100% 100% 13.5x 11.0x 9.6x 9.5x 16.2x 12.6x 11.0x 10.7xMorguard Residential REIT Residential (by NOI: US ~58%; Cdn ~42%) 16.6x 6.7% 5.5% $18.00 59% $19.01 0.6x 84% 89% 85% 11.3x 10.1x 9.3x 9.0x 15.9x 12.9x 11.7x 11.4xNorthview Apartment REIT By NOI: ~30% ON, ~19% AB, ~12% Atl. ~39% Other (Resi ~85%; Other ~15%) 14.6x 7.2% 6.4% $24.00 73% $25.43 0.7x 29% 50% 50% 7.4x 7.3x 7.3x 7.0x 9.3x 9.4x 9.3x 8.9xSimple Averages 17.6x 6.4% 5.7% 77% 0.7x 66% 70% 61% 12.8x 11.9x 11.3x 11.1x 15.2x 13.7x 13.0x 12.7x

Chartwell Retirement Residences Private‐pay focus (Cdn IL/RH ~82%; Cdn LTCs ~14%; fees ~4%) 18.3x 6.3% 6.7% $11.50 110% $4.28 3.0x 78% 78% 25% 15.9x 15.9x 15.1x 14.4x 17.6x 17.2x 16.3x 15.7xExtendicare Inc. Gov't Reimbursement (Cdn LTCs ~52%; Home Health ~31%; Other ~17%) 34.1x 7.7% 8.3% $9.00 107% $2.01 N/A N/A N/A N/A 12.9x 15.9x 16.2x 15.6x 12.1x 16.4x 15.4x 15.1xSienna Senior Living Gov't Reimbursement (NOI: 74% LTC; 22% RH; 4% HC) 18.0x 7.4% 7.9% $14.25 113% $6.63 2.4x N/A N/A N/A 14.4x 14.2x 13.3x 12.9x 12.6x 12.5x 11.9x 11.6x

23.5x 7.1% 7.6% 110% 2.7x 78% 78% 25% 14.4x 15.3x 14.9x 14.3x 14.1x 15.4x 14.5x 14.1x

Allied Properties REIT Class I Properties (Office ~71%; Telcom/IT ~14%; Retail ~12%;) 16.5x 6.3% 6.0% $34.00 93% $32.83 1.0x 59% 55% 50% 15.1x 14.5x 13.6x 13.0x 17.3x 17.5x 16.3x 15.4xBrookfield Cda Office Props Class "A" Office (ON ~59%; AB ~37%; BC ~4%) 19.1x 5.8% 4.8% $35.00 74% $34.34 0.8x 51% 55% 50% 15.4x 16.6x 14.8x 14.4x 18.8x 21.6x 18.6x 17.9xDream Office REIT Office 100%; Class A + B, CBD + Suburban 13.0x 7.9% 6.1% $32.00 54% $32.86 0.5x 54% 73% 70% 6.1x 6.2x 6.4x 6.5x 7.5x 7.7x 8.1x 8.3xGranite REIT Industrial (100%) 11.8x 9.8% 8.5% $45.00 84% $42.75 0.9x 21% N/A N/A 11.6x 11.3x 10.9x 10.6x 12.1x 11.7x 11.3x 11.1xNorthWest Healthcare REIT MOBs and Hospitals (Cda: ~55%, Brazil ~23%, Aust/NZ ~10%, Germany ~12%) 15.6x 7.3% 7.1% $9.50 94% $9.65 0.9x 100% 100% 100% 9.2x 11.0x 10.7x 10.5x 10.9x 11.4x 11.4x 11.1xPure Industrial REIT Industrial (100%) 15.4x 6.9% 6.4% $5.15 85% $5.12 0.9x 84% 57% 55% 11.8x 11.2x 10.3x 9.7x 13.9x 12.6x 11.4x 10.7xWPT Industrial REIT 9 Canadian domiciled with 100% U.S. Industrial (warehouse and DC) 16.6x 6.7% 7.0% $11.00 109% $11.06 1.1x 77% 77% 75% 12.0x 11.9x 11.4x 11.1x 14.6x 14.0x 13.8x 13.5x

15.4x 7.2% 6.6% 85% 0.9x 64% 70% 67% 11.6x 11.8x 11.2x 10.8x 13.6x 13.8x 13.0x 12.6x

Choice Properties REIT Primarily foodstore (Loblaws) anchored shopping centres (91%) 17.3x 6.0% 6.3% $11.00 107% $10.94 1.1x 23% 17% 20% 12.9x 12.3x 11.9x 11.6x 15.8x 15.4x 14.8x 14.2xCrombie REIT Significant foodstore (Sobeys) anchored shopping centres (~50%) 16.3x 6.5% 6.3% $14.25 90% $9.38 1.4x 90% 64% 60% 11.6x 11.3x 10.9x 10.4x 13.8x 13.5x 12.7x 12.1xCT REIT Primarily stand‐alone CTC locations; In total, 97% CTC credits 17.1x 6.0% 6.4% $11.75 111% $11.51 1.1x 42% 23% 20% 13.3x 12.6x 11.9x 11.3x 17.7x 16.1x 14.9x 14.1xFirst Capital Realty Primarily urban food store‐anchored strip retail 19.8x 5.5% 5.6% $18.00 102% $18.28 1.0x N/A N/A N/A 18.7x 18.7x 16.7x 15.7x 18.3x 17.9x 17.1x 16.1xPlaza Retail REIT Mostly strip plazas/single‐tenant; ~58% GLA located in Atlantic Canada 17.2x 6.7% 7.0% $4.60 102% $4.58 1.0x N/A 1% 15% 15.8x 14.8x 13.8x 13.0x 17.9x 15.9x 15.7x 14.4xOneREIT 100%‐A mix of formats, primarily in secondary/tertiary markets 13.8x 7.8% 7.0% $4.50 74% $5.30 0.6x 100% 100% 100% 7.5x 7.6x 7.3x 7.2x 9.1x 9.1x 8.7x 8.5xRioCan REIT Retail ~96%; Office ~4%; Canada/US is ~84%/~16% (US sale closing ~Apr/16) 19.4x 5.8% 5.8% $23.50 101% $24.58 1.0x 52% 52% 50% 14.1x 13.8x 14.4x 14.4x 15.8x 15.3x 16.2x 16.1xSlate Retail REIT Canadian domiciled with 100% U.S. grocery‐anchored assets 14.3x 7.6% 7.4% $11.25 92% $12.94 0.8x N/A N/A N/A 14.4x 7.9x 7.7x 7.6x 13.6x 9.2x 8.9x 8.7xSmartREIT Primarily Wal‐Mart anchored, Gross rev (~62% ON, ~14% QC) 17.1x 6.1% 6.0% $30.50 99% $29.00 1.0x 56% 35% 40% 15.5x 14.4x 13.7x 13.2x 16.4x 15.3x 14.5x 14.0x

16.9x 6.4% 6.4% 98% 1.0x 61% 42% 44% 13.8x 12.6x 12.0x 11.6x 15.4x 14.2x 13.7x 13.1x

Agellan Commercial REIT Office ~67%; Industrial ~32%; Retail ~1% (U.S. ~70%; Canada ~30%) 12.5x 8.9% 7.8% $12.00 74% $12.36 0.7x 53% 48% 45% 7.7x 7.2x 6.7x 6.5x 10.3x 9.2x 8.8x 8.5xArtis REIT Office ~50%; Retail ~27%; Industrial ~23% 14.1x 7.3% 6.5% $17.00 75% $17.69 0.7x 88% 84% 80% 9.0x 8.5x 8.4x 8.0x 10.4x 9.6x 9.3x 8.8xCREIT New Format/Strip Retail ~54%; Office ~23%; Industrial ~23% 16.9x 6.3% 5.9% $46.00 91% $45.24 0.9x 0% 1% 10% 14.2x 13.9x 13.7x 13.3x 16.8x 17.1x 17.0x 16.1xCominar REIT Retail ~37%; Office ~42%; Industrial ~21%; ~75% Quebec 14.1x 7.3% 6.6% $18.75 78% $21.56 0.7x 75% 82% 80% 7.9x 8.2x 8.3x 8.0x 9.1x 9.5x 9.6x 9.2xH&R REIT Net lease 75%/Malls 25% (Office ~50%; Retail ~40%; Industrial ~10%) 15.1x 6.7% 6.0% $25.00 80% $25.09 0.8x 50% 10% 20% 10.8x 10.4x 10.4x 10.0x 13.2x 13.2x 13.0x 12.4xMelcor REIT Office ~48%; Retail ~45%; Industrial ~5%; Other ~2%; All Western Canada 14.0x 7.6% 6.6% $10.50 69% $11.66 0.6x N/A N/A N/A 8.3x 7.2x 7.3x 7.2x 9.5x 8.7x 8.9x 8.7xMorguard REIT Malls/Retail ~51%; Office ~47%; Other ~2% 13.4x 7.7% 6.2% $22.50 61% $25.60 0.5x 48% 26% 30% 8.2x 8.3x 8.3x 8.2x 10.7x 11.0x 11.1x 10.7xSimple Averages 14.3x 7.4% 6.5% 75% 0.7x 52% 42% 44% 9.4x 9.1x 9.0x 8.7x 11.5x 11.2x 11.1x 10.6x

All Commercial Property 15.7x 7.0% 6.5% 87% 0.9x 59% 51% 51% 11.8x 11.3x 10.9x 10.5x 13.6x 13.2x 12.7x 12.2x

InnVest REIT Lodging (ful l‐service and l imited service hotels) 12.1x 8.0% 7.8% $5.50 93% $1.90 2.7x 5% 0% 0% 9.0x 8.6x 8.1x 7.5x 11.7x 10.3x 9.9x 9.2xMorguard Corporation REOC with portfolio of ~$19 bil lion owned and managed props. 12.7x N/A N/A $262.00 51% $261.78 0.5x N/A N/A N/A 11.0x 9.5x 8.4x 8.0x 13.5x 11.7x 10.1x 9.5xMelcor Developments Land & commercial developer mainly operating in Western Cda 16.3x N/A N/A N/A N/A $30.68 0.5x N/A N/A N/A 5.6x 9.0x 8.4x N/A N/A N/A N/A N/ABrookfield Asset Mgt. 8 Global asset manager of property, power and infrastructure N/A N/A N/A $36.00 88% $21.00 1.5x N/A N/A N/A 14.9x 14.5x 13.5x 12.5x 20.8x 20.7x 17.2x 15.7xBrookfield Property Partners 9 International portfolio of office, retail , and opportunistic properties 22.9x 5.3% 4.8% $29.00 80% $33.11 0.7x 63% 62% 60% 21.0x 20.1x 17.4x 16.1x 31.8x 31.6x 24.6x 21.2xTricon Capital N.A. real estate investment company with assets in the U.S./Can. N/A N/A N/A $11.55 78% N/A N/A N/A N/A N/A 16.8x 15.9x 18.9x 16.2x N/A N/A N/A N/A

Overall, Simple Averages 16.7x 6.9% 6.4% 86% 1.0x 59% 54% 50% 12.2x 11.9x 11.3x 10.9x 14.6x 14.0x 13.2x 12.6xOverall (Ex‐Lodging), Simple Averages 16.8x 6.9% 6.4% 87% 1.0x 61% 56% 52% 12.2x 11.8x 11.3x 11.0x 14.0x 13.5x 12.9x 12.5x Footnotes (all amounts are stated on a diluted basis): 1) Current distribution and yield are based on the current annualized monthly/quarterly distribution. 2) Payout Ratio = Run‐Rate Cash Distribution / 2016E AFFO. 3) Adjusted Funds From Operations = FFO, adjusted for non‐recoverable maintenance capital expenditures, significant straight‐line rent adjustments and other items. 4) Chartwell Retirement Residences – FFO/unit shown above excludes unrealized gains and losses on derivative financial instruments, unrealized foreign exchange gains and losses, and, writedowns on mezzanine loans. 5) Artis REIT ‐ FFO/unit shown above excludes the impact of FX beginning in 2010. 6) H&R REIT – FFO/unit shown above excludes non‐operating items. 7) Milestone Apartments REIT unit price and market cap are denominated in CAD. Commencing in 2016, distributions/unit are denominated in USD. Prior to 2016, distributions/unit are denominated in CAD. All financial numbers are denominated in USD, the functional currency. All multiples and ratios have been adjusted to reflect the relevant foreign exchange rate. 8) Brookfield Asset Management's AFFO/unit equates to BAM's FFO excluding disposition gains. BAM's unit price and financial numbers are denominated in USD. 9) WPT Industrial REIT, Brookfield Property Partners and Slate Retail REIT unit price and financial numbers are denominated in USD. 10) All NAV per unit (or per share) and book value per unit (or per share) figures are shown on a pre‐tax basis. Source: RBC Capital Markets estimates and Thomson One


Required disclosures Non-U.S. analyst disclosure Neil Downey, Michael Smith, Ben Halm, Matt Logan, Jeremy Osmar, Alexei Siniakov, Geoffrey Kwan, and Charan Sanghera (i) are not registered/qualified as research analysts with the NYSE and/or FINRA and (ii) may not be associated persons of the RBC Capital Markets, LLC and therefore may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

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Distribution of ratings RBC Capital Markets, Equity Research

As of 31-Dec-2015 Investment Banking

Serv./Past 12 Mos.

Rating Count Percent Count Percent BUY [Top Pick & Outperform] 933 52.59 271 29.05 HOLD [Sector Perform] 727 40.98 102 14.03 SELL [Underperform] 114 6.43 8 7.02

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research analyst's views of the longer-term (one year) prospects of the subject company, as a result of the differing time horizons, methodologies and/or other factors. Thus, it is possible that a subject company's common equity that is considered a long-term 'Sector Perform' or even an 'Underperform' might present a short-term buying opportunity as a result of temporary selling pressure in the market; conversely, a subject company's common equity rated a long-term 'Outperform' could be considered susceptible to a short-term downward price correction. Short-term trade ideas are not ratings, nor are they part of any ratings system, and the firm generally does not intend, nor undertakes any obligation, to maintain or update short-term trade ideas. Short-term trade ideas may not be suitable for all investors and have not been tailored to individual investor circumstances and objectives, and investors should make their own independent decisions regarding any securities or strategies discussed herein. Please contact your investment advisor or institutional salesperson for more information regarding RBC Capital Markets' research.

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