Industry Update Real Estate 22 July 2020 Canaccord Genuity Corp. (Canada) Real Estate ESG themes Mark Rothschild| Analyst - 1.416.869.7280 [email protected] Brendon Abrams, CPA, CA| Analyst - Key themes impacting the sector 1.416.687.5270 [email protected] Within the REIT sector, ESG programs have largely evolved from existing initiatives Christopher Koutsikaloudis| Associate - aimed at improving efficiency and operating in a more sustainable manner. However, 1.416.869.7307 as investor awareness relating to ESG has grown, this has become an increasing focus [email protected] for REITs, and ESG initiatives are now an element of most Canadian REITs’ public Michael Pennington| Associate - 1.416.869.7351 disclosure. The themes of these programs vary, but in general the focus is on: [email protected] • Reducing energy consumption and waste at properties; • Increasing the diversity of the REIT’s workforce, including senior management and the board; and, • Charitable giving and encouraging volunteerism among employees. Company Rating Price Target How do we measure company performance? Real Estate BAM-NYSE Buy US$34.30 US$42.50 There are a number of independent rating systems which have been established to Real Estate Investment Trusts provide assessments of companies’ ESG programs, mainly regarding environmental FCR.UN-TSX Buy C$13.62 C$17.50 sustainability. We highlight three of the most notable rating systems below: Priced as of close of business 20 July 2020 • Building Owners and Managers Association (BOMA) BEST, an independently verified building certification program with established standards for energy and environmental performance of existing buildings. • Leadership in Energy and Environmental Design (LEED), a rating system for buildings which evaluates performance based on location and transportation availability, sustainable site development, water savings, energy efficiency, materials selection and indoor environmental quality. • Global Real Estate Sustainability Benchmark (GRESB), a benchmark for the ESG performance of commercial property owners based on annual survey data. In addition to the above, most REITs report workforce diversity (including that of the board and senior management), which is expressed on a percentage basis and serves as an additional objective ESG-related measurement. Which companies are doing it best? Within our coverage universe, we highlight two names which stand out with respect to their commitment to ESG principles: Brookfield Asset Management and First Capital REIT. Within BAM’s property segment, it has achieved a number of certifications, including 48 LEED certifications in its North American office portfolio, 44 Energy Star certifications in the United States, and 52 BOMA 360 certifications in the United States and Canada. BAM is also the asset manager to, and owns a 57% interest in, Brookfield Renewable Partners, a renewable power company with US$47 billion of assets under management across the Americas, Europe and Asia. FCR is targeting a 9% reduction in greenhouse gas emissions between 2018 and 2021 and has announced that it will be upgrading all exterior lighting to LED lighting by the end of 2020. The REIT has achieved a BOMA BEST rating for properties amounting to 76% of its GLA and has obtained LEED certifications for properties amounting to 16%. In addition, over 50% of the REIT’s workforce is female, and all full-time employees are entitled to one paid day off annually to volunteer for a charity of their choice. Canaccord Genuity is the global capital markets group of Canaccord Genuity Group Inc. (CF : TSX) The recommendations and opinions expressed in this research report accurately reflect the research analyst's personal, independent and objective views about any and all the companies and securities that are the subject of this report discussed herein. 22 July 2020 10