Q2 2026 Fund Commentary

Commentary and opinions are provided by GWL Realty Advisors Inc..

Market commentary

Higher oil prices, driven by conflict in the Middle East and supply chain challenges, contributed to renewed inflationary pressures during the quarter.

U.S. tariff and trade uncertainty weighed on investment sentiment in the second quarter, as companies deferred decisions pending greater trade clarity. Canadian gross domestic product contracted slightly in the first quarter, and broader economic stability continued to influence real estate demand from businesses across Canada.

Canada's population declined again in the first quarter (data lags by one quarter), marking the third consecutive quarter of population decline, with a drop of roughly 55,000 people or 0.1%. However, supply conditions remained constrained nationally, with construction starts continuing to slow and immigration levels remaining supportive of long-term housing demand.

Performance

The residential and industrial sectors contributed to performance, supported by improving occupancy fundamentals that strengthened valuations and income returns. The retail sector also contributed, particularly the grocery-anchored segment, which remains the Fund's primary focus.

4 King Street West, an office asset in downtown Toronto, contributed to performance. The property saw strong capital appreciation because of improvements in market leasing assumptions, paired with steady income returns. The development projects at Central Lonsdale in North Vancouver (140 West 19th Street) and the Princess Auto facility at Stoney North Logistics Centre also contributed to performance. Both assets advanced through key construction and leasing milestones during the quarter, further reducing execution risk and allowing additional value to be recognized.

The office sector detracted from performance. While fundamentals are broadly improving, select downtown office assets that have seen material improvements in occupancy experienced lease costs that weighed on capital growth. The suburban office segment and office assets in more challenged metros such as Calgary, Halifax and Winnipeg also detracted from performance. Canadian land values remained under pressure, as higher financing costs, slower housing starts and cautious developer sentiment limited transaction activity and weakened demand.

33 Yonge Street and 1 Adelaide, two Class A office properties in downtown Toronto that are both nearly fully leased, detracted from performance. While both properties experienced valuation gains during the quarter, leasing costs related to several recently completed major transactions were recognized in the second quarter. High Park Village, a multifamily community that includes a land component serving as excess density, also detracted from performance. The adjustment was driven by comparable land sales that reduced the estimated buildable value per square foot.

Portfolio activity

The sub-advisor reduced Ottawa multifamily and Calgary office exposure during the quarter.

Outlook

In the sub-advisor's view, the Fund's active portfolio management initiatives may continue to enhance portfolio quality and support long-term value creation. Strategic capital recycling helps the Fund remain focused on strengthening cash flow durability while maintaining flexibility to pursue emerging opportunities.

We believe that commercial real estate has historically shown resilience during inflationary periods, as higher replacement costs and rental growth can support both asset values and income generation. As the cost of delivering new supply rises, existing institutional-quality assets may benefit from greater scarcity, particularly in supply-constrained markets. While inflation has moderated from recent highs, signs of persistent price pressures remain, and construction and financing costs continue to be elevated. Together, these factors create barriers to new development across many sectors.

In our view, the Fund could continue to benefit from constrained new supply and supportive market fundamentals. The sub-advisor also continues to selectively pursue development opportunities where disciplined underwriting, strategic planning and fixed-cost construction arrangements may support attractive risk-adjusted returns while maintaining a prudent risk profile.