BCI Annual Report


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Page 47 of 81

Real Estate OUR APPROACH QuadReal drives performance from actively managing Canadian properties and development opportunities, continuing to invest in Canada, and focusing on global cities and core asset classes, including industrial and logistics, residential, and alternative properties. Real estate investments are concentrated in the industrial and residential sectors, which offer a range of attractive opportunities, including logistics and last-mile facilities, purpose-built rentals, student housing, manufactured home communities and condominium developments. Retail allocations are purposefully below industry benchmarks, with most of those assets advanced or positioned for mixed-use densification. Additionally, QuadReal creates value for BCI's clients through their build-to-core program in outperforming markets and ownership of global operating companies in high-conviction property sectors. QuadReal management pursues resiliency through active asset allocation, developing next-generation real estate, and the ability to invest through either debt or equity. PERFORMANCE ANALYSIS Real estate assets reached $28.5 billion, representing 14.3 per cent of total assets under management. Despite the challenges of investing during a global pandemic, the portfolio is closer to reaching the objective of a 50/50 allocation between the Canadian and international real estate portfolios. After early-year volatility led to lingering uncertainty through much of the year, asset values stabilized and marginally rebounded in certain sectors and geographies late in the calendar year. There was a broadening rebound in both tenant and investment activity in the second half of 2020, with sizeable new commitments and acquisitions in Canada and internationally. The real estate program returned 0.1 per cent against its one-year benchmark of 6.8 per cent. The underperformance is attributed to the pandemic's negative impact on asset valuations at the start of 2020. Overweight positions in industrial and residential, combined with a very limited allocation to retail properties and an office portfolio centrally located in global cities, helped to buffer overall performance from negative returns for the calendar year. Tenants and residents are key stakeholders for QuadReal, along with their employees, communities, and clients. During the pandemic, ensuring the health, wellness, Managing and growing our $28.5 billion global real estate portfolio and safety of all stakeholders continued to be a top priority, and included implementing support systems for tenants to access government programs. Empathy for the situations of tenants and residents was balanced with the company's responsibilities to ensure contractual obligations were met or new agreements negotiated. A differentiating factor in 2020 was access to liquidity and highly cost-effective borrowing. QuadReal was able to take advantage of new opportunities that, without sufficient liquidity, would not have been as easily accessible. While maintaining low leverage levels, QuadReal accessed debt markets to capitalize on the low interest rate environment, including an inaugural $350.0 million green bond 10-year senior note offering. The bond, issued by BCI QuadReal Realty (BQR), has a coupon rate of 1.75 per cent, and is rated AA (low) with a stable trend by DBRS Limited. BQR is a QuadReal-managed entity in the real estate investment portfolio. A second green bond offering of a $400.0 million senior note with a coupon rate of 1.06 per cent, rated AA (low) with a stable trend by DBRS Limited, was issued by BQR in the fiscal fourth quarter. Proceeds of QuadReal's issuance of green bonds support qualifying expenditures on green buildings, renewable energy, resource and energy efficiency, pollution prevention, clean transportation, and climate change adaptation. QuadReal is one of the top three Canadian issuers of green bonds. 1 Assets in the real estate program are valued annually at December 31. Returns for the program are calculated on an internal rate of return basis and benchmarks are presented on a time-weighted rate of return basis. 2 0 2 0 - 2 0 2 1 C o r p o r a t e A n n u a l R e p o r t M a n a g e m e n t ' s D i s c u s s i o n a n d A n a l y s i s 4 5

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