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21 | 2023 Investment Outlook | December 12, 2022 GLOBAL LISTED REAL ASSETS ESG, Lending Recovery and Data Growth Have the Potential to Fuel REITs KEY POINTS Laurel Durkay A recovery in credit and lending markets has the potential to fuel M&A. Head of Global Listed 1 Real Assets Environmental, social and governance (ESG) and sustainability will significantly 2 influence the future risk and total return prospects of REITs. Early adopters of property technology (proptech) are well positioned to 3 mitigate future expenses. What We Are Seeing ƒ As real estate prices rise, property values tend to appreciate, while cash flow streams also generally benefit. Besides top line benefits, REITs typically have high margins and operating efficiency, so that their business models tend to be less impacted by the upward pressure on expenses that comes from inflation. ƒ The stabilizing interest rate environment expected in 2023 should bolster real estate investing. While U.S. REITs have historically underperformed U.S. equities during periods of large interest rate increases, they have outperformed three, six and 12 months after a significant rise in 1 interest rates. ƒ Office utilization rates have settled in at between 40% to 80% of pre-COVID levels, depending on the city and region. ƒ Landlords who have already invested in energy efficiency, best-in-class air filtration and water and waste reductions will be the best positioned. Obsolescence risk will increase substantially for “carbon stranded” buildings unable to achieve the greenhouse gas emissions reductions necessary to be aligned with a 1.5°C pathway. What We are Doing ƒ We focus on quality as measured not only by the attractiveness of a REIT’s assets, but also by the attractiveness of a REIT’s cash flows. We look for companies with defensive and growing earnings that trade at attractive relative multiples, and may offer attractive dividend yields. ƒ We have an underweight position to offices and continue to scale back. Work-from-home policies will likely continue to hinder office demand, and uncertainty over future office absorption is expected to linger. Meanwhile, labor markets are moderating, with increased layoffs and hiring freezes.

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