Boardwalk Real Estate Investment Trust T.BEI.UN

CIBC Notes

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Other Key Themes

Interest Rates—Lower, Flatter, Higher? From what was historically a low interest
environment, we are starting to see countries across the globe begin to materially reverse
course over concerns of extended rising inflation. Although a factor in the performance of the
REIT sector, we believe that the path of REIT returns is determined more so by the
embedded term structure of the yield curve, rather than the absolute rate move in and of
itself. As COVID-19 continues to be addressed through 2022, we believe that the interest rate
environment will continue to be low (at least from a historical standpoint), which should
provide further support for real estate valuations. With that being said, we do highlight the fact
that during this period, many companies have taken advantage of the historically low rate
environment in the refinancing of their debt. With their terms coming due, refinancing risk will
most certainly become a concern for those that have not properly structured their debt, given
that long-term yields have expanded well in excess of 100 bps over the last year, and
significantly more so since the onset of the pandemic.

ESG—It Didn’t Go Away (Nor Do We Expect It To): Prior to the onset of the pandemic, the
topic of ESG was gaining an increasing level of importance with investors and issuers alike.
While the focus ostensibly shifted to front-page headlines with the onset of the pandemic, we
note that the substantial effort by many of the REITs in Canada to improve their ESG
disclosure continued unabated (and, in fact, ramped up). We expect that those efforts will be
recognized through 2022 and beyond as the issue of ESG is brought back into the fore
(where we believe it rightly belongs).

Momentum—On Again, Off Again: The real estate sector has been in and out of favour,
from a momentum perspective, over the past few years. Before the onset of the pandemic,
we had suggested that the sector was a direct beneficiary of the “momentum trade,” as we
believed that low-volatility and momentum funds had a real estate weighting that was well in
excess of Real Estate’s weighting in the broader composite index (as much as 10x higher at
its peak). Implicit in that assumption was that some of the premium afforded to many REITs
was a result of quantitative funds flows, and any increase in volatility and/or degradation in
momentum could manifest itself in a sell-side imbalance. This dynamic appears to have
played out through 2020, as real estate underperformed and the real estate weighting in such
strategies materially diminished. With all that said, real estate outperformed the broader index
through 2021, and, as a result, quant screens for momentum/low volatility may once again
increasingly skew towards the sector (time will tell on this front).

A Quantitative Approach To REIT Investing: Our analysis (in conjunction with our Strategy
group) suggests that net asset value, funds from operations, and dividend growth are
powerful quantitative metrics. Momentum and current dividend yields (inverse) are also
strong predictive factors of alpha. We, therefore, propose a five-factor quantitative model.
The top-quintile REITs (under our coverage) based on the model include: SVI, MEQ, BEI, IIP
and GRT.

Don’t Discount Development: With acquisition spreads narrowing over the past few years
(largely a reflection of declining cap rates), internal growth opportunities such as
development, re-development, and intensification have taken centre stage for many
Canadian REITs (especially across the retail sector). For the time being, we would expect
most development efforts to continue, but certain timelines are likely to be extended until the
COVID-19 situation dissipates. Over time, we expect many REITs to increase their focus
(and, indeed, disclosure) on these value-surfacing initiatives, which we wholeheartedly
welcome; what may remain a question, longer term, will ultimately be the funding mechanism
for the eventual completion of such plans and at what point the market will ultimately begin to
give credit for such.