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March 30, 2020 Dividend Sustainability in Canada Dividend sustainability views under a “deep contraction” scenario Most Canadian companies are facing a severe set of operating and financial challenges amid what has become a global COVID-19 pandemic. These challenges are almost certain to have significant near-term (one or two quarters) impacts. Moreover, the time to return to a “new normal” and the more lasting consequences of this crisis are also currently very difficult to predict. EQUITY RESEARCH EQUITY The market reaction has been dramatic, including a ~30% price decline in the S&P/TSX Composite Index in a little over one month. Appropriately, companies have been swift to withdraw formerly provided earnings guidance, cut capital expenditure programs, and prioritize debt capital management and corporate liquidity initiatives.

In this vein, the question of dividend or cash distribution sustainability has become very topical for investors. This report attempts to directly address the question.

Herein we provide commentary on overall dividend sustainability across the sectors we cover, and company-specific commentaries and rankings for 214 issuers under our equity research coverage. In addressing the topic, our equity analysts were instructed to think about the sustainability of each company’s current dividend or distribution rate over the 2020–21 period in the context of a deep contraction in economic activity over the next three to six months, followed by a gradual recovery thereafter.

Sectors that we expect to be able to sustain dividends with a higher degree of confidence include: Consumer Staples, various Diversified Industrials, Energy Infrastructure, Fertilizers, Financials, Technology, and Telecommunications Services.

Sectors that we expect to face a greater risk in the sustainability of their dividends, with a number of companies that are indeed expected to reduce payments to shareholders, include: Base Metals, Integrated & Senior and Intermediate E&P companies.

Priced as of prior trading day's market close, EST (unless otherwise noted). Disseminated: Mar 30, 2020 00:45ET; Produced: Mar 29, 2020 22:36ET All values in CAD unless otherwise noted. For Required Non-U.S. Analyst and Conflicts Disclosures, see page 40.

Dividend Sustainability in Canada

Table of contents

Banks & Lifecos ...... 3

Base Metals ...... 5

Consumer Staples & Discretionary, Large Cap ...... 6

Consumer Staples & Discretionary ...... 7

Diversified Financials ...... 9

Diversified Industrials ...... 11

Diversified Industrials & Automotive...... 14

Energy Infrastructure ...... 15

Energy Infrastructure (continued) ...... 17

Fertilizers...... 19

Health Care ...... 20

Integrated & Senior E&P...... 21

Intermediate E&P ...... 22

Media ...... 23

Oilfield Services ...... 25

Paper, Packaging and Forest Products ...... 26

Precious Metals ...... 27

Real Estate ...... 30

Technology ...... 35

Telecommunications ...... 37

March 30, 2020 2

Dividend Sustainability in Canada

Banks & Lifecos Darko Mihelic, CFA (Analyst) (416) 842-4128; [email protected]

Canadian Banks Canadian banks have been very committed to their dividends, maintaining them during severe recessions and very difficult capital markets environments, whereas many foreign peers have historically been quicker to reduce dividends. Since the 1940s, only National Bank cut its dividend (in the early 1980s and again in the early 1990s) despite industry dividend payout ratios reaching more than 70% in the mid-1960s, 88% in late 1990, and 119% in early 1993. During the financial crisis and most recent recession, payout ratios were high for several banks, yet these banks maintained their dividends. We believe that the banks historically avoided cutting dividends because a significant portion of their shareholder base is made up of retail investors (we believe 40–50% of the total shareholder base), many of whom place a high value on dividends received. Investors should understand however; that under Basel III capital rules, it is possible that a bank would be forced to cut its dividend by the regulator should its capital ratios breach certain limits and these “controls” were not in place historically. Despite these new rules, we believe that banks would raise equity in lieu of actually cutting their dividend (even though this act could be potentially quite dilutive and not conventionally in keeping with “sound” financial theory). Therefore, we believe this sector’s dividend sustainability rating is High.

Canadian Lifecos Three of the four Canadian life insurance companies under coverage demutualized in the early 2000s and therefore we do not have a significant history of dividend payments like we do for the Canadian banks. Shortly after the financial crisis MFC cut its dividend – otherwise the other Canadian lifecos have maintained and grown dividends in a similar pattern to that of the Canadian banks. Dividend payout ratios vary within the group from 54% at GWO to as low as 30% at IAG. We believe the Canadian lifecos are modelling their dividend payment behaviour after the Canadian banks and given the extreme reaction to MFC’s dividend cut in 2009, we believe Canadian life insurance companies are very committed to their dividends. Although their earnings can be volatile we believe their very strong capital ratios and low leverage ratios combined with a strong commitment to shareholders suggests the dividend sustainability rating is High.

Exhibit 1: Banks and Lifecos Coverage

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability BMO most recently reported a payout ratio of 43.9% in Q1/20. We have assumed the dividend to remain stable in 2020 and grow moderately in 2021. We are Bank of Montreal BMO $4.24 High High forecasting a payout ratio of 57.8% in 2020 and 46.4% in 2021, in line with the bank’s targeted payout ratio of 40% to 50%. BNS most recently reported a payout ratio of 49.3% in Q1/20. We have assumed the dividend to remain stable in 2020 and grow moderately in 2021. We are Bank of Nova Scotia BNS $3.60 High High forecasting a payout ratio of 72.0% in 2020 and 52.2% in 2021, modestly higher than the bank’s targeted payout ratio of 40% to 50%. CM most recently reported a payout ratio of 44.4% in Q1/20. We have assumed Canadian Imperial the dividend to remain stable in 2020 and grow moderately in 2021. We are CM $5.84 High High Bank of Commerce forecasting a payout ratio of 62.3% in 2020 and 53.4% in 2021, modestly higher than the bank’s targeted payout ratio of ~50%.

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Dividend Sustainability in Canada

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability NA most recently reported a payout ratio of 41.7% in Q1/20. We have assumed the National Bank of dividend to remain stable in 2020 and grow moderately in 2021. We are NA $2.84 High High Canada forecasting a payout ratio of 53.7% in 2020 and 49.3% in 2021, in line with the bank’s targeted payout ratio of 40% to 50%. TD most recently reported a payout ratio of 44.7% in Q1/20. We have assumed the The Toronto- dividend to remain stable in 2020 and grow moderately in 2021. We are TD $3.16 High High Dominion Bank forecasting a payout ratio of 62.7% in 2020 and 53.5% in 2021, modestly higher than the bank’s targeted payout ratio of 40% to 50%.

CWB most recently reported a payout ratio of 33.6% in Q1/20. We currently have Canadian Western assumed modest dividend growth in our model. We are currently forecasting an CWB $1.16 High High Bank average payout ratio of 36% in 2020 and 2021 (vs. 35% in 2019), though we have not revised our forecasts since Q1/20 reporting (Feb 27). We believe LB is committed to its dividends. However, LB currently has a high dividend payout ratio (98.6% in Q1/20) and thus we believe it has relatively less Laurentian Bank of ability to handle credit losses and could potentially face relatively more erosion of LB $2.68 High Average Canada capital in a recessionary environment versus the large Canadian banks. LB most recently reported a CET 1 ratio of 9.0% vs. a regulatory minimum of 7.0% as LB is not designated as a Domestic Systemically Important Bank (D-SIB).

GWO’s payout ratio was 66.2% in 2019 and 51.9% in 2018. The company most Great-West Lifeco recently reported a total LICAT ratio of 135% at the operating company level, well GWO $1.75 High High Inc. above its targeted range of 110% to 120%. Operating company core LICAT ratio was 99%. GWO is well capitalized in our view.

IAG’s payout ratio was 26.7% in 2019 and 28.0% in 2018. The company most iA Financial recently reported a total LICAT ratio of 126% at the operating company level, well IAG $1.94 High High Corporation Inc. above its targeted range of 110% to 116%. Operating company core LICAT ratio was 89% based on our calculations. IAG has a strong capital position in our view.

MFC’s payout ratio was 36.1% in 2019 and 39.0% in 2018. The company most Manulife Financial recently reported total and core LICAT ratios of 140% and 104%, respectively, at MFC $1.12 High High Corporation the operating company level – well ahead of supervisory targets of 100% and 70% (respectively). MFC is well capitalized in our view.

SLF’s payout ratio was 47.7% in 2019 and 46.0% in 2018. The company most Sun Life Financial recently reported total and core LICAT ratios of 130% and 90%, respectively, at the SLF $2.20 High High Inc. operating company level – well ahead of supervisory targets of 100% and 70% (respectively). SLF has a solid capital position in our view.

Source: RBC Capital Markets estimates, Company reports

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Dividend Sustainability in Canada

Base Metals Sam Crittenden (Analyst) (416) 842-7886; [email protected] North American Base Metals With the dramatic decline in base metals prices we expect the miners to be at significant risk of cutting or suspending their dividends (as Freeport has already done). There is a great deal of uncertainty around the ultimate economic impact of the COVID-19 outbreak and how that will impact commodity markets longer term. With that, the focus for miners has clearly shifted to cash preservation through deferral of non-essential capital spending and via cost cutting initiatives. In addition to weaker commodity prices, the COVID-19 outbreak has put operations at risk of suspension to help contain the outbreak and we have seen some miners already reduce mining activity, or implement outright mine shutdowns. Miners with greater exposure to the bulk commodities may be more likely to continue to pay their dividends as iron ore and met coal have held up stronger than base metals during the outbreak. Exhibit 2: Base Metals Coverage

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability Freeport announced it suspended its Q1/20 $0.05/sh dividend to preserve liquidity and we expect there could be further cuts. The company is in a Freeport McMoRan FCX.N $0.20 Low Q1 div. cut transition year at its Grasberg mine with lower production, higher operating costs and significant capital investment. A review of financial and operating plans is expected to be communicated with Q1/20 results in April. First Quantum’s financial performance is strongly levered to copper which accounts for >90% of revenue. If the copper price remains at spot levels or lower First Quantum FM.TO $0.01 Low Cut Expected we expect FM could cut its dividend as the company is focused on ramping up Cobre Panama and deleveraging its balance sheet. Hudbay suspended operations at its Constancia mine due to difficulty operating while all non-essential businesses in Peru are shut down by order of the government for a two-week period. We expect Hudbay to preserve liquidity in Hudbay Minerals HBM.TO $0.02 Low Cut Expected the current commodity price environment and would not be surprised to see the dividend cut. However, the company is in a strong balance sheet position with $396M in cash as of 2019 year-end (dividend is ~$4M annually). Warrior generates nearly all its income from the sale of met coal, which is up 17% YTD and has remained firm despite the COVID-19 outbreak. We expect if prices fall significantly Warrior could cut or suspend its dividend to preserve Warrior Met Coal HCC.N $0.20 Low Lower liquidity but as of now we view that as unlikely considering the company’s strong cash position ($193M in cash and 0.4x net debt to forward EBITDA at spot prices) and leverage to met coal which continues to hold in well. We expect it is more likely that Warrior would suspend its Blue Creek development project first. Labrador Iron Ore’s dividend will depend on the operations at IOC which as of Labrador Iron Ore now are continuing at minimum levels in Quebec. We expect LIF to pay any LIF.TO $1.00 Low Cut Expected Royalty Corporation dividends the company is capable of as long as IOC operations continue. Special dividends we have seen in prior years are unlikely. Lundin is in a strong financial position with $251M in cash and $58M in net debt and in our view is more likely to sustain its dividend than other names under our Lundin Mining LUN.TO $0.12 Low Lower coverage, however under prolonged period of lower commodity prices we would expect the company to cut its dividend and preserve liquidity. Nexa’s dividend is dependent on the company’s market capitalization so we view Target 2% its suspension as less likely than other company’s under our coverage, however Nexa Resources NEXA of market Low Lower under a prolonged period of weaker commodity prices and with significant cap. capital spending budgeted for the Aripuana project we could see the company look to preserve capital and suspends its dividend. Teck has a strong balance sheet position with net debt to forward EBITDA at spot prices of ~1.0x and project financing in place for its QB2 project. Additionally, Teck Resources TECK’B $0.20 Low Lower met coal prices have remained firm (met coal accounts for ~48% of our estimate 2020 EBITDA) however under a prolonged period of weaker commodity prices we would expect Teck to preserve capital and cut or suspend its dividend. Source: Company reports, RBC Capital Markets estimates

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Dividend Sustainability in Canada

Consumer Staples & Discretionary, Large Cap Irene Nattel (Analyst) (514) 878-7262x; [email protected]

Safe haven from demand and cash flow perspectives The companies in our universe of coverage are characterized by stable demand, solid balance sheets and strong free cash flow generation and conversion. Payout ratios are below 40%, with management generally favouring share buybacks over generous dividend rates as a mechanism to return to shareholders excess free cash above and beyond the level needed to reinvest in the business. In prior downturns, dividends have remained stable (Canadian Tire, Loblaw, Couche-Tard, Maple Leaf) or increased modestly (Metro, Shoppers, Saputo); and there have been no dividend cuts. Looking at current balance sheets, cash flows, payout ratios and capital requirements, we would expect dividend rates to be maintained or modestly increased.

Exhibit 3: Consumer Staples and Discretionary, Large Cap

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability We expect strong FCF generation even under a 3-6 month recession. Alimentation $0.28 TSX:ATD.B High High Adj. Net Debt/EBITDA(R) @ 1.84x vs upper end of comfort range ~3.5x. Couche-Tard Inc. (USD) Base case FCF ~$1.7B to cover ~$0.2B in dividends. Even under our bear scenario (which also includes closures until mid-May), CTC would be cash generative on a consolidated basis. We also remind Canadian Tire investors that almost all of CTC’s retail leverage is actually operating leases TSX:CTC.A $4.55 High High Corporation capitalized under IFRS16. Expecting REIT distribution to CTC to remain stable, and the company could always resort to selling equity in the REIT to fund returns to shareholders temporarily. We believe a dividend cut is unlikely. We currently forecast FCF to be largely in line with dividend payments, however: i) the underlying business Casey’s General NASDAQ:CASY $1.28 High High generates strong FCF, the company could always limit its meaningful Stores, Inc. “growth” capex (M&A + new stores) in the case of a pronounced downturn, and ii) there is room on the B/S to add leverage. We expect strong FCF generation even under a 3-6 month recession. Dollarama Inc. TSX:DOL $0.18 High High Base case FCF >$500MM in F21 to cover ~$60MM in dividends. We expect strong FCF generation even under a 3-6 month recession. Base Empire Company TSX:EMP.A $0.48 High High case F21 FCF ~$450MM to cover ~$140MM in dividends + leverage capacity Limited on the B/S.

We expect strong FCF generation even under a 3-6 month recession. George Weston TSX:WN $2.10 High High Limited required capital at WNF going forward, while L and CHP distributions Limited are not at risk. Loblaw Companies We expect strong FCF generation even under a 3-6 month recession. Base TSX:L $1.26 High High Limited case C20 FCF ~$1.5B to cover ~$450MM in dividends. While MFI is expected to have net cash outflows over the next couple of years, the starting point in early 2018 was a balance sheet essentially free of Maple Leaf Foods TSX:MFI $0.64 High High debt. Major capital projects have been postponed, reducing substantially the Inc. likelihood of a dividend cut. Underlying business generating strong FCF in spite of investment in the plant-based segment. We expect strong FCF generation even under a 3-6 month recession. METRO INC. TSX:MRU $0.90 High High Base case NTM FCF >$600MM to cover ~$225MM in dividends. We expect strong FCF generation even under a 3-6 month recession + B/S in good position. Base case F21 FCF ~$800MM to cover ~$270MM in dividends. Saputo inc. TSX:SAP $0.68 High High We further note that SAP believes the current difficult environment could surface attractive M&A opportunities, with B/S capacity >$2B.

Source: Company reports, RBC Capital Markets estimates

March 30, 2020 6

Dividend Sustainability in Canada

Consumer Staples & Discretionary Sabahat Khan (Analyst) (416) 842-7880; [email protected]

Expecting dividend sustainability to be mixed across our coverage We believe that companies that exhibit low operating leverage, low financial leverage, and staples-oriented offerings are best positioned to sustain their dividend payments amidst the ongoing COVID-19 situation. Given their product offerings, JWEL and NWC are the best positioned with regards to their dividend outlook, in our view. On the other hand, we believe that companies in the discretionary sector, such as the restaurant operators, retailers, or those with elevated leverage, may look to potentially reduce their dividends to conserve cash should the COVID-19 situation persist for an extended period of time. Most recently, we would highlight that RECP announced the temporary suspension of its dividend as it has now temporarily suspended the collection of royalty fees and advertising payments. Given MTY’s relatively higher leverage and the recent announcement that it is also not collecting royalties for a period of time, we would not be surprised if it followed the same path with some form of a dividend reduction/suspension until the outlook improves. For additional details on our recent estimate revisions, analysis of fixed vs. variable costs in opex, and the outlook for leverage, we refer readers to our recently published industry note here.

Exhibit 4: Consumer Staples & Discretionary Coverage

Annual Sector Dividend Company Dividend Company Name Ticker Comments Dividend Sustainability Sustainability Gildan’s low leverage (low-1x) and access to meaningful liquidity (~$600MM including a sizable drawdown on its credit facility) provide the company with a meaningful buffer over the near term. However, given the immediate and Gildan Activewear significant drop in demand over the recent weeks, we would become TSX: GIL $0.62 Average Average Inc. concerned about the dividend if the cancellation of major events extends beyond the next month or so. The company’s NCIB has also been a meaningful use of cash, and a halt on repurchases will also save meaningful cash flow. HLF’s foodservice segment will be most impacted by COVID-19 as demand from restaurants and other institutional customers declines over the near term. Earlier this year, the company re-financed its credit facility and also High Liner Foods TSX: HLF $0.20 Average Lower announced a 65% reduction in its dividend. The retail channel, however, is Incorporated providing some offset in the near term. Extended challenges in the foodservice segment could lead the company to reconsider its dividend payout.

We believe that JWEL is one of the most defensively positioned names in our Jamieson Wellness TSX: JWEL $0.44 Average High coverage universe amidst the ongoing COVID-19 situation and believe that Inc. the dividend is sustainable given the stability of the underlying business.

Following the announcement by RECP to temporarily suspend its dividend, we see the potential for MTY to follow suit given the company has temporarily MTY Food Group Inc. TSX: MTY $0.74 Average Cut Expected suspended the collection of franchisee royalty fee amidst store closures. The company also has leverage above 3x EBITDA, which could lead the it to focus on conserving cash flow. We expect weakness in the food service business (~35% of sales, incl. Premium Brands sandwiches) to be partially offset by strength in the retail channel, driven by TSX: PBH $2.31 Average Average Holdings Corp consumer stock-piling in the grocery/mass channels. With respect to the company’s leverage profile, it is well within its covenant requirements.

March 30, 2020 7

Dividend Sustainability in Canada

Annual Sector Dividend Company Dividend Company Name Ticker Comments Dividend Sustainability Sustainability Recipe Unlimited In response to the ongoing COVID-19 situation, RECP has announced the TSX: RECP Suspended - - Corp temporary suspension of its dividend payment. ZZZ has a conservative balance sheet, which combined with the company’s mix of fixed (40-50%) and variable costs (50-60%), positions it well to absorb Sleep Country TSX: ZZZ $0.78 Average Average the near-term headwinds related to COVID-19. However, an extended period Canada Holdings Inc. of store closures or a significant economic downturn could lead the company to revisit its payout. Given NWC’s offering of consumer staples, and its positioning as the only sizable retail outlet in some of its markets, we believe that the company is The North West TSX: NWC $1.32 Average High currently not at risk of suspending its dividend. Concerns related to food Company Inc. shortages may actually have led to increased sales as consumers hoard food and other essential supplies.

Source: Company reports, RBC Capital Markets estimates

March 30, 2020 8

Dividend Sustainability in Canada

Diversified Financials Geoffrey Kwan, CFA (Analyst) (604) 257-7195; [email protected] We view dividends as largely sustainable within our coverage universe Overall, we think stocks within our coverage have sustainable dividends largely driven by lower dividend payout ratios (based on forecasts that were updated on March 19, 2020 or later) and healthy balance sheets. We go into more details on our coverage below, but regarding some specific sub-sectors we cover:  Asset Managers: We think it is unlikely that any asset manager within our coverage will reduce their dividend. o IGM: After significantly reducing our forecasts on March 19, 2020, we expect IGM’s dividend payout ratio to be in the low 90s in 2020 and 2021. Absent a major further decline in markets, the reasons we think IGM is unlikely to reduce its dividend are: (1) net debt is 1.35x our 2020E EBITDA forecast, so we think IGM would be willing to increase leverage to temporarily help fund the dividend if needed; (2) we think Power Corp. (owns 62% of IGM) does not want to reduce its dividend and in order to do so, having IGM sustain its dividend would help achieve this (IGM dividends represent ~25% of POW’s dividend); and (3) during the Global Financial Crisis, IGM was the only fundco within our coverage that did not cut its dividend, even though the dividend payout ratio reached 100%. o FSZ: We think that some of the weakness in Fiera’s share price as of late reflects some investor concern about the sustainability of its dividend (FSZ’s dividend yield is ~13%). On Fiera’s Q4/19 conference call on March 19, 2020, we think the company was relatively clear that it has performed various stress tests on the business and that it believes that it is able to sustain the current dividend. Fiera’s net debt to EBITDA covenant is currently 4.0x but declines to 3.5x at the end of June 2020 and that the Q4/19 ratio was 2.65x. Furthermore, based on our significantly reduced EPS estimates revised on March 19, 2020, the current dividend payout ratio is ~70% of our 2020 adjusted EPS forecast and slightly below that for 2021. o AGF: We updated our forecasts on March 26, 2020 and forecast the current dividend to represent ~70% of EPS in 2020 and slightly less than 70% in 2021. We think it would take a very significant further downturn in markets for a dividend cut to happen, but that is assuming the Smith & Williamson sale is not completed as if it is completed, AGF would be in a net cash position. o CIX: We view a dividend reduction as unlikely as we forecast a mid-30s dividend payout ratio for 2020 and 2021. o SII: We view a dividend reduction as unlikely as the company is in a net cash position.  Mortgage companies: While it is unclear what the deterioration in the economic environment will ultimately mean for mortgage losses for companies within our mortgage coverage universe, we think it is unlikely that any of the stocks we cover will need to reduce their dividend: o MIC: In our July 12, 2019 report (link here), we ran through various housing downturn scenarios and its impact on MIC’s capital. While a severe downturn could have a significant negative impact on EPS, it is unclear to us whether that would result in a dividend reduction given MIC’s capital position is likely to remain strong. o HCG: Home Capital does not pay a dividend. o EQB: We believe it is unlikely that EQB would need to reduce its dividend in part as its current dividend represents about 14% of our 2020 EPS forecast and 12% of our 2021 EPS forecast.

March 30, 2020 9

Dividend Sustainability in Canada

o FN: We believe it is unlikely FN would need to reduce its dividend as the vast majority of its EPS comes from relatively stable mortgage servicing and net interest income from insured mortgages with relatively low exposure to credit risk (most mortgages are sold non-recourse to financial institutions or are insured mortgages that are securitized). The current dividend also represents ~60% of our 2020 and 2021 EPS forecast.

Exhibit 5: Diversified Financials Coverage

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability We forecast a ~70% dividend payout ratio in 2020 and 2021. AGF Management AGF/B CN $0.32 Average Average Dividend sustainability would be much higher if Smith & Williamson monetization is successful. Brookfield Business BBU US US$0.25 High High BBU pays a nominal dividend and has no debt. Partners We forecast a mid-30s% dividend payout ratio based on the current CI Financial CIX CN $0.72 Average High dividend for 2020 and 2021. We forecast a 25% dividend payout ratio in 2020 and 20% in 2021 based ECN Capital ECN CN $0.10 High High on the current dividend. We forecast a <20% dividend payout ratio in 2020 and 2021 based on the Element Fleet EFN CN $0.18 High High current dividend. Furthermore, we think EFN is one of our most defensive stocks within our coverage (i.e., less vulnerable to earnings downside risk). We forecast a dividend payout ratio based on the current dividend of 14% Equitable Group EQB CN $1.48 High High in 2020 and 12% in 2021. On its Q4/19 earnings call, FSZ indicated it has stress tested the business and that it can sustain the current dividend. The current dividend implies a Fiera Capital FSZ CN $0.84 Average Average payout ratio of ~70% of our 2020 adjusted EPS forecast and slightly lower than that for 2021. We forecast a dividend payout ratio based on the current dividend of ~60% for our 2020 and 2021 EPS forecasts. FN generates significant FCF First National FN CN $1.95 High High with the vast majority of it coming from steady and recurring mortgage Financial servicing income and net interest income on prime insured securitized mortgages. We forecast a mid-40s dividend payout ratio in 2020 and 2021 based on the current dividend. MIC has an under-levered balance sheet and while a Genworth Canada MIC CN $2.16 High High downturn would be negative for earnings, we think MIC has a relatively strong capital position. We forecast a low 90s dividend payout ratio in 2020 and 2021 based on the current dividend. However, leverage is low at 1.35x net debt/EBITDA IGM Financial IGM CN $2.25 Average Average and we think a desire by POW to retain its dividend would likely see IGM not reduce its dividend unless absolutely necessary. We forecast a low 40s dividend payout ratio in 2020 and 2021 based on Intact Financial IFC CN $3.32 High High the current dividend. We think IFC is the most defensive stock within our coverage with company and industry fundamentals remaining positive. Onex ONEX CN $0.40 High High Onex pays a nominal dividend and has no debt. We think POW’s dividend will likely be sustained as its dividends are Power Corp. POW CN $1.79 High High largely driven by dividends received from its core investments, GWO (54% 2020E payout ratio) and IGM. We view the dividend as sustainable in part given SII is in a net cash Sprott SII CN $0.12 Average High position. We forecast a ~50% dividend payout ratio in 2020 based on the current dividend and closer to 40% in 2021. Leverage is reasonable at ~2x net TMX Group X CN $2.64 High High debt/EBITDA and the business has some defensive attributes (e.g., higher trading/clearing activity) that can partially mitigate potential earnings headwinds.

Source: Company reports, RBC Capital Markets estimates

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Dividend Sustainability in Canada

Diversified Industrials Walter Spracklin (Analyst) (416)-842-7877; [email protected] Waste We view dividends across our waste coverage as being well covered and currently view dividend sustainability as being very high. We see the waste sector as more defensive than most industrials given the essential service provided and the predictability of the earnings and cash flow streams. We note that FCF generation is anticipated to remain robust across our coverage in the near term, and while each of the waste majors had previously guided to another elevated year of acquisition activity, we view the ability of the waste co’s to pivot and temporarily push pause on M&A near term as serving to further bolster cash on hand and reduce the risk of having to cut their dividends.

Railroads: High dividend sustainability reflecting favourable industry fundamentals We view the railroad sector as having high dividend sustainability reflecting the industry’s favourable fundamentals. We point to high barriers to entry, limited competition as well as rational pricing behaviour that we expect to drive sustained cash flow during COVID-19 related disruptions. While we are modelling for a material drop in volumes in Q2 and Q3 we expect pricing to hold (as it did during the financial crisis) and for the rails to be able to take out significant costs from their networks, thereby somewhat protecting margins. The rails are typically viewed as having high fixed costs but we believe PSR strategies have made operating structures much more nimble. Moreover, leverage is conservative with TTM debt to EBITDA ratios ranging from 1.9x to 2.5x and pay-out ratios are expected to be well below 50% of 2020E earnings. Overall, we expect earnings to hold up relatively well in 2020 and view balance sheets as conservative; accordingly, we believe dividends are secure despite COVID-19 headwinds.

Plastics and Packaging We see the dividends for the plastics & packaging names under our coverage as being generally well covered, with each company expected to generate healthy FCFs and major capex programs largely complete. We would also note that despite the broader shutdown of business activity globally, our plastics and packaging names continue to run operations normally (there have yet to be any major plant closures as far as we are aware) and continue to see largely stable demand from customers (aside from certain pockets of softness). As such, we see payout ratios on a cash flow basis remaining reasonable, and coupled with solid liquidity; view this as supportive of continued dividend payments near-term.

Canadian Trucking: Volumes expected to be materially affected by COVID-19 We view the Canadian trucking sector as having low to modest dividend sustainability reflecting the material impact to volumes that COVID-19 is expected to have. We believe government mandated closures of non-essential businesses will have a material effect on shipments while they remain in place and accordingly view dividends as at risk. We highlight that MTL has already suspended its monthly dividend for 3-months beginning in April. We also characterize the trucking industry as very fragmented and competitive, which we expect to negatively impact pricing thereby compounding the expected drop in volume. And while we would have characterized leverage as reasonable as of last month, we expect a deterioration in Q2 and Q3 as volumes and pricing are impacted by COVID-19. Overall, our view is that capex budgets will be reduced and that shareholder returns likely affected (either dividends or buy backs) as COVID-19 significantly reduces trucking volumes.

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Dividend Sustainability in Canada

Specialized Transportation & Logistics and Diversified Industrials We view the Canadian specialized transportation & logistics and diversified industrials sectors as resilient in spite of COVID-19. Generally, revenues are expected to be less affected from government mandated non-essential business closures and as such we view the industry as having high dividend resiliency. While we note that leverage varies from company to company we do not believe there are any going concern issues and expect cash flows to remain relatively stable. Accordingly, we view dividends as safe.

Airlines & Aerospace In this sub-sector, only Chorus Aviation pays a dividend on its common shares (AC and BBD do not pay a dividend) and thus would be the only company we consider being at risk of a potential dividend cut. Given unprecedented measures taken by governments and airlines to reduce flights both internationally and domestically, we see this having a material impact on CHR’s near-term cash flows going forward. That said, we would rank dividend sustainability as low, and while we are not calling for an immediate cut to the dividend, we do think it could be a strong possibility particularly if conditions continue to worsen.

Exhibit 6: Diversified Industrials Coverage

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability Solid liquidity position and FCF generation to weather market volatility; we Waste Connections Inc. WCN $2.68 High High expect a payout ratio of 25.6% for 2020E and a FCF payout ratio of ~20%/share. Has a healthy payout ratio of 47.3%, and is well-positioned to generate Republic Services Inc. RSG $1.62 High High strong FCF in 2020 in our view.

Waste Management Solid payout ratio (42.3%), strong FCF generation bolstered by strategic WM $2.18 High High Inc. positioning within an inherently defensive sector.

Canadian Pacific We expect nimble operating model, low payout ratio, and organic growth CP $3.32 High High Railway Limited opportunities to drive sustained shareholder returns

Canadian National Diversified revenue mix, organic revenue opportunities, and the most CNR $2.30 High High Railway Limited conservative balance sheet in the rail sector.

PSR operating model should protect margins and cash flow as volumes drop CSX Corporation CSX $1.04 High High in our view. Low payout ratio of ~25%.

Union Pacific We think opportunity for margin improvement should partly offset effect of UNP $3.87 High High Corporation lower volumes on earnings and therefore protect dividend.

Norfolk Southern Despite high cost structure and negative volume outlook, we view dividend NSC $3.76 High High Corporation as stable reflecting strong rail industry fundamentals.

Currently, liquidity is not a major concern, with no major upcoming debt CCL Industries Inc. CCL.B $0.72 Average High obligations and healthy cash position.

Intertape Polymer Strong free cash flow generation with a focus on improving liquidity position ITP-T $0.59 Average Average Group and de-levering to 2.0x-2.5x.

Operational impact from COVID-19 has been limited so far, payout ratio as a Winpak Ltd. WPK $0.12 Average High % of FCF should remain modest in our view.

Monthly dividend suspended for 3 months beginning in April. Mullen Group Ltd. MTL None Low Suspended Interestingly however the company expects to maintain its buyback. We view railway tie and utility pole revenue as having low sensitivity to Stella-Jones Inc. SJ $0.60 High High COVID-19. The company has conservative leverage and a low payout ratio of ~25%. Mgmt notes that buybacks are on hold and capex is to be reduced. However, TFI International Inc. TFII $1.04 Low Average we view liquidity as sufficient despite weak volumes. TFII’s payout ratio as a % of FCF is ~20%.

March 30, 2020 12

Dividend Sustainability in Canada

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability Westshore has mainly take or pay contracts with customers and we expect Westshore Terminals WTE $0.64 High High demand to be mostly unaffected by COVID-19. Additionally, WTE has no Investment Corp. debt and a low payout ratio. Andlauer Healthcare Demand largely unaffected by COVID-19; payout ratio of ~25%; conservative AND $0.20 High High Group Inc. balance sheet.

Demand is increasing from COVID-19 due to positive impact on eCommerce CargoJet Inc. CJT $0.85 High High volumes and we are modelling for a FCF inflection in 2020. Is taking an active approach to combating the situation and should be able Chorus Aviation Inc. CHR $0.48 Low Low to meet its current debt obligations/covenants and has current liquidity position of ~544mm.

Source: Company reports, RBC Capital Markets estimates

March 30, 2020 13

Dividend Sustainability in Canada

Diversified Industrials & Automotive Steve Arthur, CFA (Analyst) (416) 842-7844; [email protected]

Diversified Industrials & Automotive We expect manufacturers of ‘big ticket’ discretionary items to be hit hard through this period of extreme uncertainty and looming recession – this includes autos, and to an even greater degree products like watercraft, ATVs and side-by-sides (BRP).

Our global auto production forecast (base case) reflects sharply lower production through March, Q2 & Q3, followed by a gradual recovery. Our stress cases examine ‘deeper for longer’ scenarios. By our calculation, the Canadian suppliers have the balance sheet capacity to survive the stress cases, and a high likelihood of being able to support the current dividend (MRE at highest relative risk).

BRP took early action, suspending its dividend on March 20th in the face of highly uncertain times for Powersports.

CAE is in a different position, with pilot training effectively an ‘essential service’ for airlines as they eventually emerge from this downturn. To stay flying, an airline needs trained pilots with regulated levels of training (6-9 months) – a structural factor supporting the resilience of CAE’s business model.

Exhibit 7: Diversified Industrials & Automotive Coverage

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability ~$4B in liquidity; no leverage covenants or significant near-term NYSE:MGA; Magna International US$1.46 Average High maturities; stress case indicates leverage peaking ~2.5x. Buyback TSX:MG paused.

~$770MM in available liquidity reported post Q4; stress case indicates Linamar TSX:LNR $0.48 Average Average leverage peaking ~2.5x, with sufficient CFO to support sustaining capex and the dividend (~$31MM/year).

~$500MM in available liquidity; est. leverage peaking 2.6-2.8x in stress cases, beginning to approach upper bounds for the sector. CFO should Martinrea TSX:MRE $0.18 Average Lower easily cover sustaining capex + dividend (~$15MM/yr), but could see dividend paused in extended downturn. TSX:DOO; BRP suspended their dividend on March 20th to conserve cash through BRP Inc. $0.40 Average Cut Nasdaq: DOOO this period. ~$1B in available liquidity; leverage 2.7x last quarter, seen peaking TSX:CAE; CAE Inc. $0.44 Average Average ~3.5-3.8x in stress cases, with covenant >4x; CFO less sustaining capex NYSE:CAE should handily support current dividend (~$110MM/year). Neo Performance $85MM net cash position, no debt; CFO in stress cases supports TSX:NEO $0.40 Average Average Materials sustaining capex + dividend.

Source: Company reports, RBC Capital Markets estimates

March 30, 2020 14

Dividend Sustainability in Canada

Energy Infrastructure Robert Kwan (Analyst) (604) 257-7611; [email protected] Maurice Choy (Analyst) (604) 257-7632; [email protected] Matthew McKellar (AVP) (604) 257-7064; [email protected] A myriad of choices for dividend stability (and annual future dividend growth) We believe the historical trend of dividend stability and regular annual growth is likely to continue for the vast majority of the companies that we cover. Further, with the decline in share prices, dividend yields are at some of the most attractive levels that we have observed since the global financial crisis over 10 years ago. Generally speaking, dividends in the sector are underpinned by a high degree of regulated and/or long-term contracted earnings and cash flow with creditworthy counterparties. For many stocks, we expect new contracted projects or regulated rate base additions will allow for regular future annual dividend growth. As examples, two regulated utilities in our coverage being Canadian Utilities and Fortis have raised their dividends every year for the past 48 years and 46 years, respectively. Exhibit 8: Regulated Utilities, Independent Power Producers and other Infrastructure Coverage

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability We remain comfortable with AltaGas Canada’s ability to deliver its dividend, AltaGas Canada ACI $1.04 High High although we believe the market’s focus remains on the completion of the pending acquisition of the company by PSPIB and ATRF.

While activities of the S&L business and Neltume Ports may be affected by ATCO ACO.X $1.74 High High the ongoing energy and macro concerns, around 95% of the company’s earnings come from ATCO’s roughly 52% stake in Canadian Utilities. We see BIP’s $3.0 billion total liquidity, including $1.9 billion at the corporate Brookfield level, as providing good financial flexibility to the partnership to manage FX Infrastructure BIP US$2.15 High High weakness (particularly BRL) as well as GDP-sensitive assets (e.g., container Partners ports, toll roads). Substantially all of CU’s earnings are based on regulated and long-term contracted businesses. Further, CU has increased its annual dividend for 48 Canadian Utilities CU $1.74 High High consecutive years, which is the longest track record of any Canadian publicly traded company. With a highly contracted generation portfolio and with near-term net cash flow requirements more than supported by available liquidity, we remain Capital Power CPX $1.92 High High comfortable with the company’s ability to deliver its target dividend growth rates. With an improved funding position following the completion of the sale of Emera Maine, and roughly 90% of its earnings coming from Canadian and Emera* EMA $2.45 High High U.S. regulated utilities, we are comfortable with Emera's dividend being covered out net income. Substantially all of Fortis’ assets (i.e., about 99%) are in regulated utility businesses, which we see as underpinning the company’s current dividend Fortis FTS $1.91 High High as well as its ability to deliver its roughly 6% dividend growth guidance to 2024. Backed by its assets that are almost entirely regulated electric utilities and its self-funded model for equity (i.e., no DRIP or ATM), we remain Hydro One H $0.97 High High comfortable with Hydro One’s ability to pay its current dividend and deliver annual growth in the roughly 5% range. We highlight TransAlta’s strong 7.5x dividend coverage on FCF and the need for a material and prolonged negative power price movement in Alberta, TransAlta TA $0.17 High High with no offsetting cost reductions, in order for its dividend to not be covered by cash flow.

* RBC Capital Markets is acting as Agent for the ATM Program of Emera Inc., announced on July 11, 2019. Source: Company reports, RBC Capital Markets estimates

March 30, 2020 15

Dividend Sustainability in Canada

Exhibit 9: Pipeline and Midstream Coverage

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability Relatively stable regulated utilities are expected to comprise approximately AltaGas ALA $0.96 High High 60% of 2020 EBITDA. Solid dividend coverage following December 2018 reduction result in a 48% utility-adjusted AFFO payout ratio.

Business is 98% contracted/regulated (including CTS) and counterparties are Enbridge ENB $3.24 High High 95% investment grade or equivalent. Self-funded for equity (i.e., no DRIP or ATM), with capex covered by available liquidity with room to spare.

Strong liquidity profile and conservative leverage position with no short- Gibson Energy GEI $1.36 High High term debt maturities. Dividend covered out of take-or-pay and fee-based cash flows with quality counterparties.

Dividend coverage could get tight with declining frac spreads. We expect the company to review its options, including: (1) a strategic dividend cut to turn Inter Pipeline IPL $1.71 High Low off the DRIP; (2) asset sales (including partial stakes); and/or (3) deferring capex (e.g., the Heartland PDH-PP project).

Although we believe the company can easily cover its dividend, we wonder Keyera KEY $1.92 High Average whether the board would consider a cut to turn off the DRIP and reduce dilution at current share price levels.

Quickly responded to downturn by deferring both significant capex and previously contemplated second increase to the dividend for 2020. Current Pembina PPL $2.52 High High dividend is well-covered from cost-of-service and take-or-pay contracts with no volume risk. Highly contracted/regulated assets (about 93% of 2019 EBITDA), low volumetric exposure (roughly 6% of 2019 EBITDA), and relatively strong TC Energy *^ TRP $3.24 High High counterparties. Self-funded with capex covered by available liquidity; healthy dividend coverage from earnings, which is rare for pipeline/midstream stocks.

Relatively more volume and commodity risk (via the Prince George Refinery) Tidewater TWM $0.04 High Average versus peers, although the modest current dividend rate and bare bones capital plan help free cash flow and coverage.

* RBC Capital Markets acted as a financial advisor to Ontario Power Generation Inc. on the purchase of a portfolio of combined-cycle natural gas-fired plants from TC Energy Corporation, as announced on July 30, 2019. ^ RBC Capital Markets is acting as exclusive Financial Advisor to TC Energy and as Global Coordinating Arranger on the project finance construction facility, as it relates to the sale of 65 per cent equity interest in the Coastal GasLink Pipeline Project to KKR and AIMCo, as announced on December 26, 2019.

Source: Company reports, RBC Capital Markets estimates

March 30, 2020 16

Dividend Sustainability in Canada

Energy Infrastructure (continued) Nelson Ng (Analyst) (604) 257-7617; [email protected] Trevor Bryan (Associate) (604) 257-7383; [email protected]

Contracted IPPs have limited direct exposure to COVID-19 With respect to the contracted independent power producers (IPPs), the generation facilities typically have the majority of energy production contracted long-term through power purchase agreements with utilities and government-related entities or through financial hedges with investment grade counterparties. Therefore with limited exposure to merchant power prices or electricity demand, we believe the dividends for the vast majority of our coverage space are highly sustainable.

Outside of the IPPs under our coverage, we see lower dividend sustainability for companies with higher levels of debt or higher exposure to the global economy (e.g., Methanex and Chemtrade logistics).

Exhibit 10: Contracted Independent Power Producers Coverage

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability Roughly 70% of Algonquin’s EBITDA is generated under its regulated utility business with limited exposure to volume demand, while the remaining 30% Algonquin Power & AQN US$0.56 High High is generated by contracted power-generation facilities, with approximately Utilities * 86% of the power being sold under long-term PPAs with an average term of 14 years. The majority of Boralex’s generation capacity is underpinned by medium- to long-term PPAs, with relatively low risk wind and hydro facilities contributing Boralex BLX $0.66 High High the majority of cash flows. Management targets a conservative payout ratio range of 40-60% of discretionary cash flows. The vast majority of the generation portfolio is contracted, and the majority of the portfolio consists of long-life, low-cost hydro facilities. The company’s Brookfield BEP US$2.17 High Medium payout ratio is elevated, and management expects to grow cash flows Renewable Partners (organic and M&A) to gradually reduce the payout. Further, the company currently has roughly US$2.7 billion of available liquidity.

Renewable assets generate a reliable source of long-term cash flows, with Innergex Renewable INE $0.70 High High the vast majority of generation facilities having long-term PPAs or hedges, Energy ** limiting exposure to demand and merchant power prices.

The company has an attractive portfolio of contracted renewable and gas-fired power generation facilities (~65% of 2020 EBITDA is generated Northland Power NPI $1.20 High High from offshore wind). The company has a conservative payout ratio, paying out 68% of free cash flow in 2019. Wind and solar portfolio with roughly 95% of cash flows underpinned by long-term contracts or regulatory framework. The company targets a payout TerraForm Power TERP US$0.81 High High ratio of 80-85%, which we view as conservative. We note that there is currently a merger agreement with Brookfield Renewable, which we expect shareholders to approve (likely close in Q3/20). TA Renewables’ portfolio is fully contracted under long-term PPAs with an TransAlta average remaining life of 11 years. The combination of fully contracted RNW $0.94 High High Renewables assets, an ~80% payout ratio, and geographic diversification leads to high dividend sustainability, in our view. * RBC Capital Markets is acting as Agent to Algonquin Power & Utilities Corp., in connection with their At-The-Market Equity Program, announced on March 1, 2019. ** RBC Capital Markets is acting as financial advisor to Hydro Quebec in connection with a private placement investment in public equity of Innergex Renewable Energy Inc., as announced on February 6, 2020.

Source: Company reports, RBC Capital Markets estimates

March 30, 2020 17

Dividend Sustainability in Canada

Exhibit 11: Other Energy Infrastructure Related Companies

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability Chemtrade Logistics recently announced a 50% distribution cut, which Chemtrade Logistics CHE-U $0.60 Average Average should provide some breathing room and allow the company to gradually improve the balance sheet.

Although we believe that Methanex is able to cover its dividend, we note that its financial results are very sensitive to methanol prices (currently Methanex MEOH US$1.44 Average Low depressed) and we also note that the ongoing development of the US$1.3-1.4 billion Geismar 3 project could put additional pressure on the balance sheet. Pinnacle has long-term take-or-pay contracts with price escalators for an estimated 99% of its production capacity through 2026. However, the company ran into operating headwinds (e.g., lower fibre availability, rail Pinnacle Renewable PL $0.60 High Low disruptions, and higher operating costs), has a large capital program (including 2 pellet facilities under construction), and has a high payout ratio that could strain its balance sheet. A dividend cut could gradually strengthen the balance sheet. Superior Plus generates the majority of its cash flows from propane distribution, which is more weather driven rather than economic/GDP Superior Plus SPB $0.72 Average High driven. We also estimate that the dividend payout ratio will be around 50% in 2020, which we view as highly sustainable.

Source: Company reports, RBC Capital Markets estimates

March 30, 2020 18

Dividend Sustainability in Canada

Fertilizers Andrew D. Wong (Analyst) (416) 842-7830; [email protected]

Agriculture and fertilizer fundamentals have held up relatively well We believe fertilizer market fundamentals and company financials should be relatively resilient which should result in high dividend sustainability. Crop prices have traded lower, but remain within the narrow band established since 2013 and US farm activity is expected to remain high. Nitrogen applications are non-discretionary and prices have actually performed better than expected, phosphate prices have held steady, and potash prices have been weaker, but should remain supportive due to solid agriculture demand and industry discipline. Overall, we expect fertilizer market fundamentals to support company cash flows and dividend payments, especially for Nutrien and CF Industries.

Exhibit 12: Fertilizer Coverage

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability Nutrien has diversified exposure across the agriculture and fertilizer markets and should be able to sustain dividend payouts even in an Nutrien NTR $1.80 High High extreme downside scenario due to the steady cash generation from the Retail distribution segment and low-cost fertilizer production. CF is a pure-play nitrogen producer with an excellent operating track record and access to low-cost domestic natural gas. The company has also CF Industries CF $1.20 High High made an effort to pay down debt in the past several years which has resulted in a solid balance sheet. We expect CF to be able to sustain dividend payments even in an extreme downside scenario. Nutrien has diversified exposure across the agriculture and fertilizer markets and should be able to sustain dividend payouts even in an Mosaic MOS $0.20 High High extreme downside scenario due to the steady cash generation from the Retail distribution segment and low-cost fertilizer production.

Source: Company reports, RBC Capital Markets estimates

March 30, 2020 19

Dividend Sustainability in Canada

Health Care Doug Miehm (Analyst) (416) 842-7823; [email protected]

Exhibit 13: Health Care Coverage

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability DR recently cut its dividend by 75% to $0.28 annually. While elective procedures are likely to decline precipitously near term, over the mid to Medical Facilities DR $0.28 N/A Average longer term the dividend should be sustainable with added help from the US/CDN exch. rate.

Source: Company reports, RBC Capital Markets estimates

March 30, 2020 20

Dividend Sustainability in Canada

Integrated & Senior E&P Greg Pardy, CFA (Equity Analyst, Co-Head Global Energy Research) (416) 842-7848; [email protected]

Canadian Integrated & Senior E&P Given the substantial retreat in benchmark commodity prices over the past month, we expect dividend sustainability will remain in sharp focus across our coverage universe for the balance of the year. While a number of intermediate producers have already announced reductions, to date dividends remain unchanged across our Canadian Integrated & Senior E&P coverage universe.

The majority of companies under our coverage with large annual dividend requirements maintain strong liquidity positions to weather the current storm in the short term. While we expect, and have seen, companies pull other levers such as capital spending levels, operating cost reductions and the elimination of share repurchases, ultimately dividends cannot be funded via the balance sheet on an indefinite basis. Should current conditions persist into the second-half of 2020, with few signs of improvements, we would expect companies under our coverage to begin looking harder at possible dividend cuts or suspensions.

Exhibit 14: Integrated & Senior E&P Coverage

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability One of the biggest takeaways from our recent discussion with the company post its 2020 guidance update is that Suncor will do the right Suncor Energy SU $1.86 Low Lower thing with respect to its dividend policy. Outright suspension is highly unlikely, but everything is on the table should oil market conditions warrant.

As a bitumen weighted upstream producer, with higher relative financial Cenovus Energy CVE $0.25 Low Lower leverage vis-à-vis our peer group, we believe CVE may look to adjust its dividend, should oil market conditions warrant.

Husky will look to fine-tune other levers (i.e. capital spending, operating costs) first to provide maximum flexibility for the dividend. We believe Husky Energy HSE $0.50 Low Lower outright suspension (as the company undertook in January 2016), is unlikely, but a cut from current levels is possible. Despite its bitumen weighted upstream production, we believe that IMO will be quite reluctant to adjust its dividend, in part given its balance sheet Imperial Oil IMO $0.88 Low Lower strength and liquidity. However, we cannot rule out an adjustment, should oil market conditions warrant.

CNQ is confident in the sustainability of its dividend, and estimates that it Canadian Natural CNQ $1.70 Low Lower can cover its 2020 capital spending program + dividend in the US$35 WTI Resources range (depending on differentials and FX assumptions).

At an annual outlay of about $97 million, Ovintiv’s dividend requirements Ovintiv OVV $0.38 Low Average are modest. The company cut its dividend significantly in December of 2015.

Source: Company reports, RBC Capital Markets estimates

March 30, 2020 21

Dividend Sustainability in Canada

Intermediate E&P Michael Harvey (Analyst) (403) 299-6998; [email protected] Greg Pardy, CFA (Equity Analyst, Co-Head Global Energy Research) (416) 842-7848; [email protected] Luke Davis (Analyst) (403) 299-5042; [email protected]

Survival Mode The recent collapse in oil prices has resulted in meaningful reductions to capital spending and dividends, with a number of companies now effectively in ‘survival mode’ as lower prices take a toll. Many producers have taken decisive action and shifted their messaging with a broad focus on reaching cash flow neutrality, reducing or suspending dividends until further notice. Ultimately, we think balance sheet strength takes priority and given significant uncertainty, we view activity and dividend reductions as prudent and necessary decisions.

Exhibit 15: Intermediate E&P Coverage

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability On March 13, ARX reduced its dividend to $0.24/share annually (down ARC Resources ARX $0.24 Low Average 60%), which we believe is now sustainable. We currently model a future 25% reduction to Birchcliff’s dividend as the Birchcliff Energy BIR $0.11 Low Low company looks to maintain financial flexibility. Crescent Point On March 16, CPG reduced its dividend to $0.01/share annually (down CPG $0.01 Low Average Energy 75%), which we believe is now sustainable. We currently model a future 50% reduction to Peyto’s dividend in order to Peyto Exploration PEY $0.24 Low Low maintain financial flexibility. Tourmaline Oil TOU $0.48 Low Average We see TOU’s dividend as stable and do not forecast a cut. On March 17, CJ suspended its dividend for several months, after which it Cardinal Energy CJ $0.18 Low Low will reevaluate. We do not see a reinstated dividend as likely if the current price environment persists. Freehold Royalties FRU $0.63 Low Low We currently model a 50% reduction to Freehold’s dividend. On March 16, PSK reduced its dividend to $0.24/share annually, down PrairieSky Royalty PSK $0.24 Low Average from $0.78/share representing a cut of 69%. On March 16, TORC reduced its dividend to $0.06/share annually, down TORC Oil & Gas TOG $0.06 Low Average from $0.30/share representing a cut of 80%. On March 17, WCP reduced its dividend to $0.017/share annually, down Whitecap Resources WCP $0.17 Low Average from $0.34/share representing a cut of 50%. Enerplus Enerplus significantly reduced its dividend in 2015. At $0.12 per share, the ERF $0.12 Low Average Corporation current outlay equates to a manageable annual outlay of circa $27 million. Vermilion has adjusted its common share dividend twice since the beginning of March, 2020. As such, we view the current run rate of $0.24 Vermilion Energy VET $0.24 Low Average per share (annual outlay of $37.5 million) as much more manageable than before. We view a dividend reduction as a fairly low probability event in the near Parkland Fuel term with management likely cutting growth capex as a first measure. PKI $1.19 Average Average Corporation However, an extended period of significant demand destruction could lead to a revision.

Note: Excludes companies with no dividends: CR, DEE LXE, PIPE, TVE, SRX, AAV, ATH, KEL, NVA, PONY, BTE, POU, VII. Source: Company reports, RBC Capital Markets estimates

March 30, 2020 22

Dividend Sustainability in Canada

Media Drew McReynolds (Analyst) (416) 842-3805; [email protected]

Dividend sustainability more complicated for the Canadian media sector We rank dividend sustainability for the Canadian media sector as average, and we see the balance sheet, liquidity and relative earnings resilience picture as a more complicated one versus that for the Canadian telecom sector. We believe Thomson Reuters and Transcontinental are well equipped to manage through almost all economic and banking/financial sector scenarios and sustain their respective current dividends given strong balance sheets and liquidity against the backdrop of relative earnings resilience, net cash positions and/or healthy FCF generation. On the other hand, we believe the other dividend paying companies under our media coverage (Corus, Stingray, Yellow Pages) could under certain negative economic outcomes in 2020-2021 prioritize debt repayment and maximizing liquidity over dividends given direct COVID-19 impacts and/or in some cases a high degree of revenue cyclicality.

Exhibit 16: Media Coverage

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability Despite a payout ratio of 64% of 2020E FCF that exceeds the company’s long- term target payout ratio range of 50%-60%, we believe dividend sustainability Thomson Reuters NYSE:TRI $1.52 Average High is high reflecting the company’s exceptionally defensive revenue mix along with strong balance sheet and liquidity position (1.9x net debt/EBITDA versus a target of 2.0x-2.5x, and US$3.8B in liquidity). Transcontinental’s dividend payout ratio is 30% of F2020E FCF. While we see downside risk to FCF generation in 2020-2021 with relatively resilient packaging revenues (50% of total revenues) and aggressive cost-efficiencies helping to mitigate pending pressure in printing revenues, the relatively low Transcontinental TSE:TCL.A $0.90 Average Average payout ratio should enable FCF to cover the dividend under most economic outcomes. Furthermore, the company has a strong balance sheet (2.0x net debt/EBITDA on a pre-IFRS 16 basis) and in our view sufficient liquidity ($800MM in cash and available liquidity with minimal refinancing requirements in F2020). Corus’ payout ratio is relatively low at 18% of F2020E FCF. With Corus already having to navigate ongoing structural headwinds (i.e., cord-cutting/cord- shaving) prior to COVID-19, we expect incremental direct and indirect COVID- Corus 19 impacts on television and radio advertising to result in material downward TSE:CJR.B $0.24 Average Average Entertainment revenue and EBITDA pressure in 2020-2021. Given the current challenging environment, we expect management to prioritize debt repayment (currently 2.8x net debt/LTM EBITDA on a pre-IFRS 16 basis) and business reinvestment over dividends in 2020-2021. Stingray’s payout ratio is reasonably low at 43% of F2020E FCF. Despite significant exposure to radio advertising (approximately 50% of revenues) and net debt/EBITDA of 3.4x in F2020E (post-IFRS 16), this low payout ratio along with a reasonably high level of recurring revenues and high EBITDA-to-FCF Stingray TSE:RAY.A $0.30 Average Average conversion rate should enable Stingray to sustain the current dividend under most economic outcomes in 2020-2021. Stingray recently expanded its NCIB from 2.9MM shares to 4.9MM shares signaling the company is likely to remain active on share repurchases.

March 30, 2020 23

Dividend Sustainability in Canada

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability The Board announced a quarterly dividend of $0.11/share concurrent with Q4/19 results marking the first dividend the company is paying in almost a decade. Although significant progress on debt repayment provides the company with the financial flexibility to diversify its capital return program, we Yellow Pages TSE:Y $0.44 Average Low also believe company revenues could be significantly pressured by the disruptive impact of COVID-19 on SMEs in Canada. As a result, we would not be surprised to see the Board pivot and re-prioritize remaining debt repayment over dividends.

Note*: Cineplex had an annualized dividend of $1.80 prior to its announced acquisition by Cineworld and the subsequent suspension of its dividend beyond February 28, 2020 Source: Company reports, RBC Capital Markets estimates

March 30, 2020 24

Dividend Sustainability in Canada

Oilfield Services Keith Mackey (Analyst) (403) 299-6958; [email protected]

Dividend reductions part of the self-preservation playbook In addition to oil demand destruction from the global COVID-19 response, the Saudi-Russia price war has intensified macro headwinds for the energy sector.

Canadian oilfield service companies have been proactive in reducing dividends to conserve cash in response to these headwinds. Over the last two weeks, we have seen four of the five dividend paying companies cut dividends by 75% to full suspension.

The refreshed dividends are largely symbolic and sustainable, mapping to 2-3% dividend yields with relatively diminutive cash commitments, in our view.

See here for our recent sector outlook.

Exhibit 17: In our view, revised dividends are largely sustainable, mapping to 2-3% yields with relatively small cash outlay

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability CEU cut its dividend to $0.015 annually (from $0.06) in conjunction with its 4Q earnings release on March 12. We view the current dividend is CES Energy CEU $0.015 Average High affordable as cash outlay maps to 5% of 2020 FCF. In addition to funding Solutions its dividend, CEU plans to allocate 70% of its FCF to debt reduction and 30% to share buybacks. EFX reduced its dividend 83% to $0.08 annually on March 17. We view the current dividend as affordable and forecast the dividend to represent 46% Enerflex EFX $0.08 Average High of 2020 FCF scaling down to 9% of 2021 FCF due to lower capex spending requirements. ESI currently trades at a 50% yield implying the market expects a large Ensign Energy reduction or suspension. Given leverage levels approaching or breaching ESI $0.24 Average Cut expected Services lending covenants, we believe the company is likely suspend the dividend alongside 1Q earnings.

SES reduced its dividend by 90% to $0.03 annually on March 24. We view Secure Energy SES $0.03 Average High the new dividend as affordable as payments represent 27% of 2020 FCF Services and step down to 6% of 2021 FCF.

Notes: 1. Remaining companies under coverage do not currently pay dividends (CFW, PD, SCL, STEP, TCW, TEV) 2. SCL suspended its dividend on March 16 Source: Company reports, RBC Capital Markets estimates

March 30, 2020 25

Dividend Sustainability in Canada

Paper, Packaging and Forest Products Paul Quinn (Analyst) (604) 257-7048; [email protected]

Dividend sustainability is mixed for the Canadian forest product industry In our view, the dividend sustainability for Canadian forest products comes down to: 1) end-market exposures; 2) current leverage; and, 3) size of the dividend commitment. With production curtailment announcements from wood product producers, we expect that cash flow will be poor until construction activity normalizes. Somewhere in the middle, we think that pulp and timberland companies will be able to manage through the downturn with a more modest dip, as paper, packaging, and tissue production has largely been deemed “essential”. Tissue producers remain the best positioned; we expect that all producers have been operating near capacity due to “unprecedented” demand.

Exhibit 18: Paper, Packaging and Forest Product Coverage

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability Liquidity was ~$11 million as of December 31st, while net debt to EBITDA was ~4x (higher than normal due to the buyout of the Brookfield management contract in Acadian Timber ADN $1.16 Average Lower September 2019). Management indicated that it had signed a term sheet with a Corp. lender to refinance its credit facility due in October 2020 during Q1; however, there has been no update from the company as of this report. Liquidity was ~$89 million as of December 31st, with manageable net debt to EBITDA at 0.8x. Although pulp markets have been weak over the past year, list Canfor Pulp CFX $0.25 Average Moderate pricing has moved higher, which should lead to better financial performance. We Products Inc. expect that Chinese pulp demand (Canfor Pulp’s key market) will rebound as the economy re-starts. Liquidity was $148 million as of December 31st (zero cash). With CanWel carrying a high debt burden, we think that it would be prudent to reduce the dividend in the CanWel Building CWX $0.56 Low Lower short term and conserve cash while construction activity is slow. Materials Group Ltd On the positive side, management has been very actively repurchasing shares over the past month. Cascades’ liquidity situation remains somewhat unclear, given that it has not yet filed its financial statements (expected before month end). However, all of the Cascades Inc. CAS $0.24 High High company’s operations are running normally after being deemed “essential businesses”. We expect that the company will be able to fund the dividend, and has been actively repurchasing shares. Kruger Products LP (“KPLP”) had liquidity of ~$330 million as of Dec. 31st. We see limited risk to the dividend given that 1) operations were deemed “essential”; KP Tissue Inc. KPT $0.72 High High 2) tissue demand has likely moved higher over the past month; and 3) many investors (including the controlling shareholder) opt to take the DRIP. We think capex on TAD Sherbrooke would be deferred before the dividend would be cut. Liquidity was US$272 million as of December 31st. Given that OSB markets have been relatively weak for the past year, net debt to EBITDA is slightly elevated at $0.80 4.6x; however; we expect that Q1 results will improve the balance somewhat. Norbord Inc. OSB Low Lower (variable) The company has announced plans to reduce capacity and capex; we expect that the board may reduce the variable dividend and focus on repurchasing shares opportunistically instead. Liquidity was $492MM as of December 31st. We expect COVID-19 will have a negative effect on wood product demand in the short term. West Fraser has West Fraser Timber WFT $0.80 Low Average curtailed lumber production capacity by nearly 40% currently and has also reduced Co. Ltd. plywood production materially. For 2020, West Fraser has also reduced its capital spending plans. Liquidity was $138 million as of Dec. 31st. The company is coming from a weaker position, given that the majority of its operations were out of commission last year Western Forest WEF $0.09 Low Average due to a long strike. Management has already taken actions to curtail production Products Inc. and reduce capital spending for 2020. While we think that Western could fund the dividend, it may be prudent to reduce it unless markets quickly bounce back.

Source: Company reports, RBC Capital Markets estimates

March 30, 2020 26

Dividend Sustainability in Canada

Precious Metals Josh Wolfson (Analyst) (416) 842-9893; [email protected] Mark Mihaljevic (Analyst) (416) 842-3804; [email protected] Wayne Lam (Analyst) (416) 842-7840; [email protected] Melissa Oliphant (Analyst) (416) 842-8934; [email protected]

North American Precious Metals We view dividend sustainability for North American Precious Metals equities as average to above-average in the current market environment, supported by elevated free cash flow generation at current gold prices (2020 FCF/EV of 5.5% at spot gold of $1,631/oz), policies in place which are manageable at lower gold prices (current policies represent a ~1-2% yield and are covered by 2020 FCF/EV of 1.7% at $1,200/oz), and favourable balance sheet health (net debt / EBITDA of 0.7x today for large cap producers, and declining where gold prices >$1,300/oz).

In our view, dividend sustainability issues that precious metals companies face today are mainly linked to the impact of operating interruptions from COVID-19. In our view, high-impact operating disruptions today such as suspensions, are expected to extend over a 1-2 quarter period, while lower-impact interruptions could potentially extend as long as 12-18 months until COVID-19 is fully resolved. In general, the sector is well-positioned to support maintaining existing dividend policies after accounting for this short-term uncertainty, although in select cases, above-average financial stress and outlook uncertainties could cause a minority of companies to defer interim payments or delay prior proposed or potential policy increases. We see minimal risk of the sector seeking to revise policies lower on a permanent basis, although this could materialize for select operators with high existing leverage and high operating interruption exposure.

Exhibit 19: Precious Metals Coverage

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability At spot gold prices, we calculate AEM’s dividend represents 40% of its 2020 FCF, and this would increase to >100% at $1,200/oz. The company last reported net debt / EBITDA of 1.4x, cash of $312m and total available liquidity of $1,812m. Relative to its peer producer group, AEM is exposed to above-average dividend sustainability risks. Agnico-Eagle AEM $0.80 Average Lower In February 2020, AEM increased its dividend to $0.80/yr, from $0.70/yr. Subsequently in March the company reported the suspension of operations in Quebec and reduction of operations in Nunavut, which combined affect ~80% of corporate output (77% of 2020E EBITDA). In conjunction, AEM is reviewing its capital spending outlook and has draw down of $1B in available credit. At spot gold prices, we calculate AGI's dividend represents 28% its 2020 FCF. The company last reported cash of $183m and total available liquidity of $629M with no Alamos Gold AGI $0.06 Average Average debt. Relative to its peer producer group, AGI is exposed to average dividend sustainability risks. Operations have been impacted by COVID-19 with a 14-day shutdown at Island (29% of 2020E EBITDA); other mines have yet to be affected. At spot gold prices, we calculate BTG's dividend represents 8% its 2020 FCF, and this would increase to 16% at $1,200/oz. The company last reported net debt / EBITDA of 0.2x, cash of $141M and total available liquidity of $541M. Relative to its peer B2Gold BTG $0.04 Average High producer group, BTG is exposed to below-average dividend sustainability risks. Operations at Masbate (17% of 2020E EBITDA) have been impacted by a temporary suspension of mining activities, while Fekola and Otjikoto continue to operate as expected.

March 30, 2020 27

Dividend Sustainability in Canada

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability At spot gold prices, we calculate GOLD’s dividend represents 28% of its 2020 FCF, and this would increase to 81% at $1,200/oz. The company last reported net debt / EBITDA of 0.4x, cash of $3,592m and total available liquidity of $6,592m. Relative to Barrick Gold GOLD $0.28 Average Average its peer producer group, we think GOLD is exposed to average dividend sustainability risks. In February 2020, GOLD increased its dividend to $0.28/yr, from $0.20/yr. Barrick notes it is closely monitoring the impact of the COVID-19 pandemic and guidance could be impacted if mines or projects are disrupted. Centerra re-instated a C$0.04/sh quarterly dividend on March 26, which had previously been suspended in Q4/16. The company reported Q4/19 cash of $71M, available credit of $500M, debt and lease obligations of $88M and net debt to EBITDA of 0.04x. Assuming no operational interruptions the ~$33M annual dividend Centerra Gold CG C$0.16 Average Average represents 13% of 2020E FCF at $1,600/oz gold and 48% at $1,300/oz gold. While operations at the Oksut mine in Turkey (5% of 2020E EBITDA) are being suspended for 2 weeks beginning March 31 as a result of COVID-19, the Kumtor and Mt. Milligan mines remain in operation, although we note portfolio concentration risk should these mines be impacted. Appears to us capable of sustaining recently introduced $0.02/sh quarterly dividend assuming no material operational interruptions, with management having indicated results to-date remain in line with full-year guidance. The dividend represents ~10% Dundee Precious DPM $0.08 Average Average of 2020E FCF at spot (38% at $1,200/oz Au and $2/lb Cu). Balance sheet is strong with Metals 0.04x Net Debt/EBITDA at Q4/19 and solid liquidity at year-end 2019 with $23M cash and $165M in capacity on its revolving credit facility. We estimate this could support the company through a ~1-year suspension of all operations. At spot gold prices, we calculate FNV’s dividend represents 23% its 2020 FCF, and this would increase to 30% at $1,200/oz. The company last reported cash of $132m and Franco-Nevada FNV $1.00 Average High total available liquidity of $1.15B. Relative to its peer producer group, FNV is exposed to below-average dividend sustainability risks. Unlikely to see any changes to company’s current $0.0025/sh quarterly dividend, given relatively small overall cash outflow of $5M/yr. Dividend represents ~20% of free cash flow at spot prices, including announced 20-day suspension of Casa Berardi (33% of 2020E EBITDA). While we forecast Hecla generating negative free cash flow Hecla Mining HL $0.01 Average Average at $1,200 Au and $13/oz Ag, we would expect the company to adjust spending in other areas before eliminating the dividend. Liquidity position appears sufficient with $62M in cash and equivalents (~$39M outflow in Q1/20 used to refinance the debt) along with a $250M undrawn revolving credit facility at end of 2019, although the balance sheet is fairly levered with Net Debt/EBITDA of 2.9x. At spot gold prices, we calculate KL’s dividend represents 21% its 2020 FCF, and this would increase to 58% at $1,200/oz. The company reported a net cash position of ~$500M as of March 2020, following an estimated ~$400m in share buybacks in 1Q. Kirkland Lake KL $0.44 Average High Relative to its peer producer group, we think KL is exposed to below-average dividend sustainability risks. Operations at Detour Lake (29% of 2020E EBITDA) have been transitioned to reduced operations through April 30 due to COVID-19. At spot gold prices, we calculate NEM’s dividend represents 26% of its 2020 FCF, and this would increase to 58% at $1,200/oz. The company last reported net debt / EBITDA of 1.4x, cash of $3,757m and total available liquidity of $6,697m. Relative to its peer producer group, we think NEM is exposed to above-average dividend Newmont NEM $1.00 Average Lower sustainability risks. In February 2020, NEM announced a planned increased to its dividend to $1.00/yr, from $0.56/yr, although this requires board approval, which is outstanding. NEM previously outlined the introduction of a $1B buyback in December 2019, of which ½ was utilized. In light of current uncertainties, the company has ceased buyback activity to emphasize cash preservation. Prior to operational interruptions related to COVID-19, the ~C$30M annual dividend represents 36% of our 2020 FCF estimate at $1,600/oz gold and 51% at $1,300/oz. Osisko has a solid liquidity position, with Q4/19 cash & equivalents of C$129M, Osisko Gold C$380M available on its C$400M credit facility, convertible debt of C$350M (C$50M OR C$0.20 Average Average Royalties maturing Feb 2021 and C$300M maturing Dec 2022) and net debt to EBITDA of 2.3x. Assets comprising approximately 50% of our EBITDA estimate are exposed to the current 3-week shutdown of Quebec non-essential businesses, including the Canadian Malartic mine.

March 30, 2020 28

Dividend Sustainability in Canada

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability Recently increased quarterly dividend of $0.05/sh (from $0.035/sh) appears sustainable based on our current assumptions around restart of the company’s suspended operations in Peru, Argentina, and Bolivia (~45% of 2020E EBITDA). Pan American Dividend represents ~20% of 2020E FCF at spot prices (including the suspensions), PAAS $0.20 Average Average Silver noting we would forecast negative free cash flow at $1,200/oz Au and $13/oz Ag. Balance sheet remains robust with cash of $121M, $118M in short-term investments, and $225M in undrawn capacity on its $500M credit facility at year-end. Net Debt/EBITDA sits at 0.4x (slightly net cash positive including investments). At spot gold prices, we calculate RGLD’s dividend represents 33% of its 2020 FCF, and this would increase to 47% at $1,200/oz. The company last reported net debt / Royal Gold RGLD $1.12 Average Lower EBITDA of 0.1x, cash of $70m and total available liquidity of $935m. Relative to its peer producer group, RGLD is exposed to below-average dividend sustainability risks. In November 2019, RGLD increased its dividend to $1.12/yr, from $1.06/yr. At spot gold prices, we calculate WPM’s dividend represents 24% of its 2020 FCF, and this would increase to 33% at $1,200/oz. The company last reported net debt / EBITDA of 1.4x, cash of $104m and total available liquidity of $1,229m. Relative to its peer producer group, WPM is exposed to below-average dividend sustainability risks. Wheaton WPM $0.41 Average High WPM’s dividend policy is based upon a variable calculation of trailing operating cash Precious Metals flow, which varies with commodity prices and production volumes. Hudbay recently announced the temporary suspension of operations at its Constancia mine in Peru, where WPM maintains a gold and silver stream (4% of WPM NAV; 5% of WPM EBITDA). At spot gold prices, we calculate AUY's dividend represents 14% its 2020 FCF, and this would increase to 40% at $1,200/oz. The company last reported net debt / EBITDA of 1.3x, cash of $179M and total available liquidity of $1.18B. Relative to its peer Yamana Gold * AUY $0.05 Average Lower producer group, AUY is exposed to above-average dividend sustainability risks. Production forecasts have been impacted by suspension of mining at Cerro Moro and Canadian Malartic (combined 57% of 2020E EBITDA). * RBC Capital Markets acted as financial advisor to Yamana Gold Inc. on the sale of its Royalty Portfolio to Guerrero Ventures, which announced on February 24, 2020.

Source: Company reports, RBC Capital Markets estimates

March 30, 2020 29

Dividend Sustainability in Canada

Real Estate Neil Downey, Associate Director of Canadian Equity Research (416) 842-7835; [email protected], Pammi Bir (Analyst) (416) 842-7805; [email protected], Matt Logan (Analyst) (416) 842-3770; [email protected]

Well positioned for distribution sustainability; an environment without precedent Over the past two decades, listed real estate investment trusts (“REITs”) and real estate operating companies (“REOCs”) have dramatically grown the size and scale of their businesses.

We believe that listed REITs and REOCs have sought to differentiate and strengthen their credit profiles versus other sectors, by stating their strong commitments to both their distributions and credit ratings, whereby they have generally continued along a multi-year path to:

1) Improve the size, scale and quality of their businesses; 2) Grow their total EBITDA and total equity balances; 3) Increase their unencumbered asset pools; 4) Increase their EBITDA/interest and debt-service coverage ratios; 5) Lower their AFFO payout ratios; 6) Reduce their D/GBV ratios; and, 7) Lower their debt/EBITDA multiples.

In our view, the sector has made significant long-term improvements with respect to points #1 through #5 above. The group’s weighted average AFFO payout ratio has a long, albeit gradual, track record of trending lower. In 2019, the group’s AFFO payout was 84%, down from 2018’s 87%, 2008’s 100%, and a high of 113% in 1999. Advances have also occurred with respect to lowering D/GBV ratios (point #6), and in general corporate liquidity across the sector remain solid. Where we believe the group could (and should) focus on further improvement is in reducing debt/EBITDA multiples (point #7).

In 2020, three entities have reduced distributions; some others at risk Over the past three months, three entities have taken the difficult (but in our view, warranted) action to reduce or suspend distributions, including: Melcor REIT (-47%), Melcor Developments (-17%), and AHIP REIT LP (suspended).

Looking ahead, we believe that property owners will be deploying liquidity via rent deferrals, rent abatement and other means in order to assist tenants in navigating a difficult operating environment. In the near term (Q2/20, in particular), we believe this assistance could stress payout ratios (in some cases payouts may exceed 100% of AFFO by a material amount).

REITs more heavily exposed to discretionary retail categories (unenclosed centres, and in particular, enclosed malls) and those with sizeable exposure to Alberta in particular are likely to face some of the greatest challenges. REITs and REOCS that meet this category have been identified with the Company Distribution Sustainability rating of “Lower” and they include: Boardwalk REIT, Brookfield Property Partners L.P., Cominar REIT, Melcor Developments, Morguard REIT, and Summit Industrial Income REIT.

Overall, we believe most of the REITs REOCs under our coverage will endeavor to hold cash distribution rates constant, while funding short-term deficits with available liquidity.

March 30, 2020 30

Dividend Sustainability in Canada

Exhibit 20: Canadian Listed Real Estate distribution or dividend sustainability1

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability In March 2020, AHIP announced the suspension of its monthly distribution beginning April 2020. This followed a 30% reduction just nine days earlier to HOT’u & Distribution AHIP REIT LP US0.00 Average US$0.46 annualized from US$0.65 annualized previously. We see the HOT.un suspended suspension of the distribution as prudent given significant headwinds facing the travel industry.

A payout ratio of 86% on 2019A AFFO/unit of $1.93. Financial leverage is low Allied Properties REIT AP.un $1.65 Average High (~30% LTV), liquidity is strong at $0.5 billion and we believe Allied’s very urban portfolio has strong long-term cash flow growth potential.

While Artis’s financial leverage is high (59% LTV), this is within the context of a portfolio that is diversified by geography and asset class (with no enclosed Artis REIT AX.un $0.54 Average High malls), adequate liquidity of $240MM (9% of total debt on a pro-forma basis) and a low payout ratio (51% on 2019A AFFO/unit of $1.05). APR’s portfolio remains 100% leased to Canada’s largest auto dealer groups under long-term leases. In the near term, we expect APR’s payout ratio will Automotive increase from 89% in 2019A (AFFO/unit of $0.91) as the REIT defers APR.un $0.80 Average Average Properties REIT acquisitions to preserve its strong balance sheet (LTV of 43%) and liquidity position (pro forma $91MM or 22% ratio). We continue to see the distribution as fully covered. Current payout ratio of 48% on 2019A AFFO/unit. While liquidity appears adequate at $235MM (8% of total debt) the major downdraft in WTI crude oil Boardwalk REIT BEI.un $1.00 Average Lower may have significant adverse consequences for Alberta employment and rental demand. Brookfield Asset Current payout ratio of 26% on 2019A CFPS of US$2.78. Significant retained BAM US$0.72 Average High Management earnings provides BAM with strong financial flexibility. Current payout ratio of 161% on 2019A AFFO/unit of US$0.84. Liquidity is strong at US$5B but this is set against high financial leverage (13x debt to Brookfield Property BPY US$1.33 Average Lower normalized EBITDA). Moreover, operating conditions in the Core Retail Partners LP portfolio may require significant liquidity support and take a prolonged period to return to 2019A NOI of $1.8B.

Current payout ratio of 81% on 2019A AFFO/unit of US$0.62. PF liquidity of HOM’u & BSR REIT US$0.50 Average High US$91MM or 16% ratio. LTV of 46%. Notwithstanding 2020 disruption (which HOM.un could be significant), we expect long-term growth in cash flows.

Current payout ratio of 80% on 2019A AFFO/unit of $1.72. PF liquidity of CAPREIT CAR.un $1.38 Average High $411MM or 10% ratio. LTV of 33%. Notwithstanding 2020 disruption (which could be significant), we expect long-term growth in cash flows.

Current payout ratio of 71% on 2019A AFFO/unit of $0.86. PF liquidity of Chartwell Retirement $415MM, or 17% ratio. LTV of 45%. Despite higher COVID-19 risks in seniors CSH.un $0.61 Average Average Residences housing, CSH’s low payout ratio provides a cushion to absorb lower anticipated occupancy. Choice Properties Current payout ratio of 87% on 2019A AFFO/unit of $0.85. PF liquidity of CHP.un $0.74 Average High REIT $1,446MM or 21% ratio. LTV of 42%.

1 All figures denominated in $CAD, unless otherwise noted Source: Company reports, RBC Capital Markets estimates

March 30, 2020 31

Dividend Sustainability in Canada

Exhibit 21: Canadian Listed Real Estate distribution or dividend sustainability1

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability Colliers Current payout ratio of 2% on 2019A adjusted EPS of US$4.67. Liquidity of International CIGI US$0.10 Average High US$533MM or 65% ratio. Significant retained earnings provides Colliers with Group Inc. strong financial flexibility.

Current payout ratio of 93% on 2019A AFFO/unit of $0.77. PF liquidity of Cominar REIT CUF.un $0.72 Average Lower $691MM or 19% ratio. LTV of 56%. Our principal concern relates to the enclosed malls where more significant pressures on tenants could arise.

Current payout ratio of 91% on 2019A AFFO/unit of $0.98. Despite the high Crombie REIT CRR.un $0.89 Average Average ratio, we see good cash flow support from it is predominantly Sobeys anchored portfolio. PF liquidity of $382MM or 18% ratio. LTV of 47%.

Current payout ratio of 78% on 2019A AFFO/unit of $1.01. PF liquidity of CT REIT CRT.un $0.79 Average High $602MM or 23% ratio. LTV is 43%. Income stability supported by long-term leases to CTC banners.

Current payout ratio of 106% on 2019A AFFO/unit of $0.66. Factoring in PF Dream Industrial DIR.un $0.70 Average Average liquidity of $644MM or 63% ratio. LTV is 23%. Low leverage and good liquidity REIT support financial flexibility.

Current payout ratio of 91% on 2019A AFFO/unit of $1.10. PF liquidity of $414MM or 36% ratio. LTV is 39%. We expect D’s Western Canadian properties Dream Office REIT D.un $1.00 Average Average will face higher pressure relative to the rest of its portfolio. However, exposure to the West has significantly declined.

Current payout ratio of 88% on 2019A AFFO/unit of €0.12. PF liquidity of European ERE.un €0.11 Average Average €105MM or 16% ratio. LTV is 47%. Notwithstanding 2020 disruption (which Residential REIT could be significant), we expect long-term growth in cash flows.

Current payout ratio of 84% on 2019A AFFO/unit of $0.57. PF liquidity of Extendicare EXE $0.48 Average Average $163MM or 29% ratio. LTV is 38%. We expect cash flows to remain supported by its largely government funded revenues.

Current payout ratio of 79% on 2019A AFFO/unit of $1.09. PF liquidity of $869MM or 19% ratio. LTV is 47%. We expect disruption in cash flow from First Capital REIT FCR.un $0.86 Average Average retail tenants, but see stronger relative support in FCR’s grocery anchored properties.

Current payout ratio of 20% on 2019A adjusted EPS of US$3.00. Liquidity of FirstService FSV US$0.60 Average High US$382MM or 50% ratio. Significant retained earnings provides FirstService Corporation with strong financial flexibility.

Current payout ratio of 82% on 2019A AFFO/unit of $3.52. PF liquidity of Granite REIT GRT.un $2.90 Average High $798MM or 67% ratio. LTV is 21%. Notwithstanding 2020 disruption (which could be significant), we expect long-term growth in cash flows.

1 All figures denominated in $CAD, unless otherwise noted Source: Company reports, RBC Capital Markets estimates

March 30, 2020 32

Dividend Sustainability in Canada

Exhibit 22: Canadian Listed Real Estate distribution or dividend sustainability1

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability Current payout ratio of 105% on 2019A AFFO/unit of $1.32. PF liquidity of $716MM or 11% ratio. LTV is 49%. Liquidity may be called upon to support H&R REIT HR.un $1.38 Average Average the Primaris Mall business in particular over the next few months. While contractually leased for 18 years, we think The Bow may have some binary risk to a rent re-set.

Current payout ratio of 72% on 2019A AFFO/unit of $0.43. PF liquidity of InterRent REIT IIP.un $0.31 Average High $114MM or 12% ratio. LTV is 34%. Notwithstanding 2020 disruption (which could be significant), we expect long-term growth in cash flows.

Current payout ratio of 85% on 2019A AFFO/unit of $0.80. PF liquidity of Killam Apartment KMP.un $0.68 Average High $27MM or 2% ratio. LTV is 44%. Notwithstanding 2020 disruption (which REIT could be significant), we expect long-term growth in cash flows.

Current payout ratio of 35% on 2019A FFO/unit of $1.15. PF liquidity of $88MM or 15% ratio. In March 2020, MRD reduced its annualized dividends Melcor by 17%, from $0.48 previously. While significant retained earnings provides MRD $0.40 Average Lower Developments MRD with financial flexibility, we believe MRD may elect to further reduce its dividend should employment and housing demand in Alberta continue to deteriorate following the downdraft in oil prices. Current payout ratio of 65% on 2019A AFFO/unit of $0.65. While MR has a below-average level of liquidity ($24MM or 5% ratio), the Board made the Melcor REIT MR.un $0.36 Average Average difficult (but in our view, warranted) action to reduce the distribution by 47% in March 2020 (from $0.68 and 97% payout). This will result in annualized cash savings of approximately $9MM. LTV is 63%.

Current payout ratio of 61% on 2019A AFFO/unit of $0.72. PF liquidity of Minto Apartment MI.un $0.44 Average High $111MM or 14% ratio. LTV is 38%. Notwithstanding 2020 disruption (which REIT could be significant), we expect long-term growth in cash flows.

Morguard Current payout ratio of 3% on 2019A AFFO/share of $19.38. PF liquidity of MRC $0.60 Average High Corporation $378MM or 6% ratio. LTV is 50%. Current payout ratio of 90% on 2019A AFFO/unit of $1.07. PF liquidity of $52MM or 4% ratio. LTV is 55%. With the recent rent reduction provided to Morguard REIT MRT.un $0.96 Average Lower Obsidian Energy and weaker expected results in its malls, we see elevated downside risks in the current distribution level.

Current payout ratio of 107% on 2019A AFFO/unit of $0.66. PF liquidity of Morguard NA MRG.un $0.70 Average High $138MM or 10% ratio. LTV is 46%. Notwithstanding 2020 disruption (which Residential REIT could be significant), we expect long-term growth in cash flows.

Northview NVU.un $1.63 Average Restricted Restricted Apartment REIT Current payout ratio of 99% on 2019A AFFO/unit of $0.81. PF liquidity of NorthWest $132MM or 6% ratio. LTV is 49%. This high payout ratio is set against a lease NWH.un $0.80 Average Average Healthcare REIT profile that has global diversification and significant term (18 year WALE) to tenants that are predominantly in the health care sector.

1 All figures denominated in $CAD, unless otherwise noted Source: Company reports, RBC Capital Markets estimates

March 30, 2020 33

Dividend Sustainability in Canada

Exhibit 23: Canadian Listed Real Estate distribution or dividend sustainability1

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability Current payout ratio of 81% on 2019A AFFO/unit of $0.35. PF liquidity of Plaza Retail REIT PLZ.un $0.28 Average Average $35MM or 6% ratio. LTV is 55%.

Current payout ratio of 84% on 2019A AFFO/unit of $1.71. PF liquidity of RioCan REIT REI.un $1.44 Average Average $810MM or 13% ratio. LTV is 42%. We expect disruption in cash flow from retail tenants, but capital recycling has improved cash flow durability.

Current payout ratio of 67% on 2019A AFFO/unit of $1.40. PF liquidity of $215MM or 22% ratio. LTV is 47%. Despite higher COVID-19 risks in seniors Sienna Senior Living SIA $0.94 Average Average housing, SIA’s low payout ratio provides a cushion to absorb lower retirement occupancy. As well, LTC facilities should continue to receive full government funding.

Current payout ratio of 91% on 2019A AFFO/unit of US$0.95. PF liquidity of SRT’u & Slate Retail REIT US$0.86 Average Average $227MM or 27% ratio. LTV is 63%. We view SRT’s grocery anchored portfolio SRT.un as defensive, but high leverage gives us some concern.

Current payout ratio of 95% on 2019A AFFO/unit of $1.95 (or 89% on recurring AFFO/unit). PF liquidity of $546MM or 13% ratio. LTV is 42%. SmartCentres REIT SRU.un $1.85 Average Average We expect disruption in cash flow from retail tenants in unenclosed centres, but expect the strength of Walmart’s draw to provide a partial offset in SRU’s portfolio. While SMU’s payout ratio remains elevated at 104% on 2019A AFFO/unit of $0.52, we see potentially mitigating factors that include: ample balance Summit Industrial sheet capacity (LTV of 44%), healthy liquidity (PF $142MM or 11% ratio), a SMU.un $0.54 Average Lower Income REIT growing unencumbered asset pool ($200MM+), modest DRIP participation (~7% in 2019A), and favourable sector trends (notwithstanding potentially significant near-term disruption). Payout ratio of 91% on 2019A AFFO/share of US$0.23 (~C$0.30). While TCN’s carries an above-average LTV (67%), we continue to see a pathway to Tricon Capital Group TCN $0.28 Average Average deleveraging and healthy levels of liquidity ($317MM or 9% ratio). Notwithstanding 2020 disruption (which could be significant), we expect long-term growth in cash flows. Current payout ratio of 116% on 2019A AFFO/unit of US$0.65. PF liquidity of WPT Industrial REIT WIR’u US$0.76 Average Average $73MM or 7% ratio. LTV is 43%.

1 All figures denominated in $CAD, unless otherwise noted Source: Company reports, RBC Capital Markets estimates

March 30, 2020 34

Dividend Sustainability in Canada

Technology Paul Treiber (Analyst) (416) 842-7811; [email protected]

Canadian Technology has high dividend sustainability In our view, Canadian technology companies have high dividend sustainability given that the majority of stocks that issue dividends have low dividend patio ratios, a high mix of recurring revenue, low leverage, and high free cashflow conversion. Among Canadian technology stocks, only 50% currently issue dividends to shareholders. Of the dividend-paying Canadian stocks, recurring revenue averages 46% of CY19 revenue, leverage averages 0.6x net debt / FTM EBITDA and dividend payout averages 54% of CY19 free cashflow and 53% of CY19 earnings.

Company specific In our universe, seven stocks (AIF, CMG, CSU, ENGH, ET, ISV, OTEX) issue regular dividends to shareholders and seven stocks (BB, CLS, GIB.A, KXS, SHOP, SWIR, DSGX) do not. Among the dividend paying stocks, we rate AIF, CSU, ENGH, and OTEX as having high sustainability of their current dividends, given their low dividend payout ratios and high mix of recurring revenue. We rate ET and ISV as having average sustainability of their current dividends, due to their higher payout ratios and lower mix of recurring revenue. For Computer Modelling Group (CMG), we believe that the sustainability of the company’s dividend is low, due to its already high dividend payout ratio (133% of CY19 free cashflow and 130% of CY19 earnings) and the potential headwind that the company may face due to the dislocation in global oil markets.

Exhibit 24: Technology Coverage

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability In CY19, Altus Group paid $19MM dividends, which represents 41% of free cashflow. With recurring revenue accounting for 27% of Altus’ revenue, Altus Group Limited AIF $0.60 High High $60MM cash as of Dec. 31, and the company’s low dividend payout ratio, we believe the sustainability of the company’s dividend is high. CMG paid $32MM dividends TTM, which represents 133% of free cashflow, the 16th consecutive quarter above 100%. We expect the dislocation in global oil Computer markets to negatively impact CMG as customers may reduce use of CMG’s Modelling Group CMG $0.40 High Low software or potentially go out of business. CMG had $37MM cash as of Ltd. Dec. 31. As a result of CMG’s dividend payout ratio above 100% and the potential headwind from the dislocation in global oil markets, we believe that the sustainability of CMG’s dividend is low. Excluding the US$20.00/share special dividend on April 5, Constellation Software paid US$85MM dividends CY19, which represents only 12% of free Constellation cashflow. We believe Constellation is likely to maintain its US$4.00/share CSU US$4.00 High High Software Inc. dividend given the low dividend payout ratio, the company’s high mix of recurring revenue, historical track record of paying its dividend, and consistent free cashflow performance Enghouse paid $23MM dividends TTM, which represents 31% of free cashflow. As of Jan. 31, Enghouse has $116MM cash. We believe the sustainability of Enghouse Systems Enghouse’s dividend is high, given the company’s low dividend payout ratio, ENGH $0.44 High High Limited high mix of recurring revenue, the company’s cash balance, and the potential for Enghouse to experience sustained or stronger demand for its contact centre and video conferencing software amidst COVID-19 related disruptions.

March 30, 2020 35

Dividend Sustainability in Canada

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability Excluding the $0.90/share special dividend on September 13, Evertz paid $55MM dividends TTM, which represents 73% of free cashflow. As of Jan. 31, Evertz has $52MM in cash. We believe the sustainability of Evertz’s current Evertz Technologies ET $0.72 High Average dividend is average, given the company’s higher than average dividend payout ratio, which is balanced against the company’s high free cashflow conversion, historical stability of operations and the dividend, and healthy February shipments and backlog disclosed on March 11. In CY19, ISC paid $14MM dividends, which represents 67% of free cashflow. We believe visibility to the sustainability of ISC’s current dividend is average, Information given the company’s higher than average payout ratio, which is balanced Services ISV $0.80 High Average against the company’s historical stability of operations and the dividend, high Corporation free cashflow conversion, and sufficient cash on hand ($24MM cash as of Dec. 31.). Open Text paid US$182MM dividends CY19, which represents 23% of free cashflow. As of Dec. 31, Open Text had US$680MM cash. We believe visibility Open Text OTEX US$0.70 High High to the sustainability of Open Text’s dividend is high, given 76% of total revenue Corporation is recurring, its low dividend payout ratio, and the company’s high cash balance.

Source: RBC Capital Markets estimates

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Dividend Sustainability in Canada

Telecommunications Drew McReynolds (Analyst) (416) 842-3805; [email protected]

Dividend sustainability high in Canadian telecom given defensive revenue mix, discretionary cost reductions and strong balance sheet and liquidity positions We rank dividend sustainability for the Canadian telecom sector as high. In our March 17, 2020 report "COVID-19 - Updating Outlook for the Canadian Telecom Sector", we argue that the Canadian telecom sector is a constructive place to hide for investors. Compared to other interest rate-sensitive sectors within the S&P/TSX Composite (banks, utilities and REITs), we believe Canadian telecom stocks currently rank well on relative earnings resilience and valuation. In addition to the sector’s defensive and dividend-paying characteristics in an exceptionally low interest rate environment, we see relatively manageable direct COVID-19 impacts. Furthermore, all Canadian telecom operators have strong balance sheets and substantial access to liquidity. In an economic scenario that puts considerably more downward pressure on revenues than what has historically been the case during recessions for the sector, we see the potential for each telecom operator to materially lower operating costs and/or capex in order to mitigate the impacts on EBITDA and FCF thereby sustaining current dividends.

Exhibit 25: Telecommunications Coverage

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability Dividend growth is a long-standing FCF priority for BCE with a reliable track record of ~5% annual dividend growth over the past decade while maintaining a Board-mandated FCF payout ratio of 65%-75%. Should revenues come under greater than expected pressure in 2020-2021 (particularly from the business BCE TSE:BCE $3.33 High High market and Bell Media), we see management realizing additional cost- efficiencies to mitigate the EBITDA impact and if necessary, reducing the company’s $4B annual capex budget to fully protect FCF. In a worst case scenario, we see the Board temporarily relaxing the 65%-75% payout ratio range. With dividend growth largely on hold over the past 5 years, Rogers has the lowest dividend payout ratio among the big three at 55% of 2020E FCF. With a Rogers TSE:RCI.B $2.00 High High relatively resilient asset mix (wireless and Internet account for an estimated 76% Communications of revenues), a strong balance sheet and liquidity position and >$4B in non-core telecom assets, we believe dividend sustainability is high. Despite a relatively higher dividend payout ratio (94% of F2020E FCF, or 62% after the DRIP), TELUS’ payout policy is among the most flexible (cash dividends/prospective FCF). With a relatively resilient asset mix (wireless and TELUS TSE:T $1.17 High High Internet account for an estimated 69% of revenues), capex intensity declining, 30%+ participation in the DRIP and a current commitment to increase the dividend by +7%-10% annually through 2022E, we believe TELUS has the growth and “fire power” to at minimum maintain if not grow the dividend in 2021-2022. While Shaw has a slightly elevated dividend payout ratio (89% of FCF in F2020E), an FCF inflection point for Shaw beginning in F2020E should enable the company Shaw TSE:SJR.B $1.19 High High to weather 2020-2021 while maintaining the dividend. Furthermore, Shaw has Communications the lowest leverage in the group (2.3x in F2020E versus a target of 2.5x-3.0x), ample access to liquidity and no refinancing requirements until November 2023. Quebecor is targeting a 30%-50% dividend payout ratio by 2022E. Following the recently announced dividend increase with Q4/19 results, we forecast a dividend Quebecor TSE:QBR.B $0.80 High High payout ratio of 31% in 2020E. Given the company’s relatively low payout ratio along with what should be resilient FCF generation in 2020-2021 (not unlike telecom peers), we see a high level of dividend sustainability.

March 30, 2020 37

Dividend Sustainability in Canada

Annual Sector Dividend Company Dividend Ticker Comments Company Name Dividend Sustainability Sustainability Cogeco has the lowest dividend payout ratio in the group at 25% of FCF in Cogeco F2020E. Given the company’s relatively low payout ratio along with what should TSE:CCA $2.32 High High Communications be resilient FCF generation in 2020-2021 (not unlike telecom peers), we see a high level of dividend sustainability. The Board assesses dividend payments on annual basis concurrent with Q1 Trilogy results and the AGM in May. Given the company’s nominal dividend and what International TSE:TRL $0.02 High Average will be a potentially more challenged balance sheet and liquidity position in Partners 2020-2021, we would not be surprised to see the Board not declare a dividend either in 2020 or 2021.

Source: Company reports, RBC Capital Markets estimates

March 30, 2020 38 Dividend Sustainability in Canada

Contributing Authors

RBC Capital Markets, LLC RBCCM Global Research (Global Research) (416) 842-7800 [email protected]

RBC Dominion Securities Inc. Steve Arthur (Analyst) (416) 842-7844 [email protected] Pammi Bir (Analyst) (416) 842-7805 [email protected] Maurice Choy (Analyst) (604) 257-7632 [email protected] Sam Crittenden (Analyst) (416) 842-7886 [email protected] Luke Davis (Analyst) (403) 299-5042 [email protected] Neil Downey (Associate Director of Canadian Research) (416) 842-7835 [email protected] Michael Harvey (Analyst) (403) 299-6998 [email protected] Sabahat Khan (Analyst) (416) 842-7880 [email protected] Geoffrey Kwan (Analyst) (604) 257-7195 [email protected] Robert Kwan (Analyst) (604) 257-7611 [email protected] Wayne Lam (Analyst) (416) 842-7840 [email protected] Matt Logan (Analyst) (416) 842-3770 [email protected] Keith Mackey (Analyst) (403) 299-6958 [email protected] Drew McReynolds (Analyst) (416) 842-3805 [email protected] Douglas Miehm (Analyst) (416) 842-7823 [email protected] Mark Mihaljevic (Analyst) (416) 842-3804 [email protected] Darko Mihelic (Analyst) (416) 842-4128 [email protected] Irene Nattel (Analyst) (514) 878-7262 [email protected] Melissa Oliphant (Analyst) (416) 842-8934 [email protected] Nelson Ng (Analyst) (604) 257-7617 [email protected] Greg Pardy (Co-Head Global Energy Research) (416) 842-7848 [email protected] Paul C. Quinn (Analyst) (604) 257-7048 [email protected] Walter Spracklin (Analyst) (416) 842-7877 [email protected] Paul Treiber (Analyst) (416) 842-7811 [email protected] Josh Wolfson (Analyst) (416) 842-9893 [email protected] Andrew D. Wong (Analyst) (416) 842-7830 [email protected]

March 30, 2020 39 Dividend Sustainability in Canada

Companies mentioned Acadian Timber Corp. (TSX: ADN CN; C$12.72; Sector Perform) AGF Management Limited (TSX: AGF/B CN; C$2.67; Sector Perform) Agnico Eagle Mines Limited (NYSE: AEM US; $38.79; Sector Perform) Alamos Gold Inc. (NYSE: AGI US; $5.32; Sector Perform) Algonquin Power & Utilities Corp. (NYSE: AQN US; $12.52; Outperform) Alimentation Couche-Tard Inc. (TSX: ATD/B CN; C$32.60; Outperform) Allied Properties Real Estate Investment Trust (TSX: AP-U CN; C$44.79; Outperform) AltaGas Canada Inc. (TSX: ACI CN; C$33.42; Sector Perform) AltaGas Ltd. (TSX: ALA CN; C$11.58; Sector Perform) Altus Group Limited (TSX: AIF CN; C$36.87; Outperform) American Hotel Income Properties REIT LP (TSX: HOT/U CN; $1.93; Sector Perform; Speculative Risk) Andlauer Healthcare Group Inc. (TSX: AND CN; C$23.57; Outperform) ARC Resources Ltd. (TSX: ARX CN; C$3.77; Outperform) Artis Real Estate Investment Trust (TSX: AX-U CN; C$7.63; Outperform) ATCO Ltd. (TSX: ACO/X CN; C$35.14; Sector Perform) Automotive Properties Real Estate Investment Trust (TSX: APR-U CN; C$7.43; Sector Perform) B2Gold Corp. (NYSE: BTG US; $3.29; Outperform) Bank of Montreal (TSX: BMO CN; C$66.66; Sector Perform) Barrick Gold Corporation (NYSE: GOLD US; $19.24; Outperform) BCE Inc. (TSX: BCE CN; C$53.68; Sector Perform) Birchcliff Energy Ltd. (TSX: BIR CN; C$0.65; Sector Perform; Speculative Risk) Boardwalk Real Estate Investment Trust (TSX: BEI-U CN; C$21.70; Outperform) Boralex Inc. (TSX: BLX CN; C$25.19; Sector Perform) Brookfield Asset Management Inc. (NYSE: BAM US; $42.27; Outperform) Brookfield Business Partners L.P. (NYSE: BBU US; $25.05; Outperform) Brookfield Infrastructure Partners L.P. (NYSE: BIP US; $36.55; Outperform) Brookfield Property Partners L.P. (NASDAQ: BPY US; $8.75; Outperform) Brookfield Renewable Partners L.P. (NYSE: BEP US; $41.21; Sector Perform) BRP Inc. (TSX: DOO CN; C$23.67; Outperform) BSR Real Estate Investment Trust (TSX: HOM/U CN; $9.26; Outperform) CAE Inc. (TSX: CAE CN; C$18.61; Outperform) Canadian Apartment Properties Real Estate Investment Trust (TSX: CAR-U CN; C$42.13; Sector Perform) Canadian Imperial Bank of Commerce (TSX: CM CN; C$77.51; Sector Perform) Canadian National Railway Company (TSX: CNR CN; C$103.25; Sector Perform) Canadian Natural Resources Limited (TSX: CNQ CN; C$13.32; Outperform) Canadian Pacific Railway Limited (TSX: CP CN; C$294.04; Outperform) Canadian Tire Corporation, Limited (TSX: CTC/A CN; C$86.11; Outperform) Canadian Utilities Limited (TSX: CU CN; C$32.06; Sector Perform) Canadian Western Bank (TSX: CWB CN; C$17.48; Sector Perform) Canfor Pulp Products Inc. (TSX: CFX CN; C$4.36; Outperform) CanWel Building Materials Group Ltd. (TSX: CWX CN; C$3.40; Outperform) Capital Power Corporation (TSX: CPX CN; C$25.66; Sector Perform) Cardinal Energy Ltd. (TSX: CJ CN; C$0.42; Sector Perform; Speculative Risk) Cargojet Inc. (TSX: CJT CN; C$94.01; Outperform) Cascades Inc. (TSX: CAS CN; C$11.75; Outperform) Casey's General Stores, Inc. (NASDAQ: CASY US; $132.24; Sector Perform) CCL Industries Inc. (TSX: CCL/B CN; C$38.64; Outperform) Cenovus Energy Inc. (TSX: CVE CN; C$2.35; Outperform) Centerra Gold Inc. (TSX: CG CN; C$8.81; Sector Perform) CES Energy Solutions Corp. (TSX: CEU CN; C$0.58; Outperform)

March 30, 2020 40 Dividend Sustainability in Canada

CF Industries Holdings, Inc. (NYSE: CF US; $25.55; Sector Perform) Chartwell Retirement Residences (TSX: CSH-U CN; C$8.48; Outperform) Chemtrade Logistics Income Fund (TSX: CHE-U CN; C$4.75; Sector Perform) Choice Properties Real Estate Investment Trust (TSX: CHP-U CN; C$11.98; Sector Perform) Chorus Aviation Inc. (TSX: CHR CN; C$3.32; Outperform) CI Financial Corp. (TSX: CIX CN; C$13.38; Sector Perform) Cogeco Communications Inc. (TSX: CCA CN; C$92.32; Sector Perform) Colliers International Group Inc. (NASDAQ: CIGI US; $50.55; Outperform) Cominar Real Estate Investment Trust (TSX: CUF-U CN; C$9.25; Sector Perform) Computer Modelling Group Ltd. (TSX: CMG CN; C$3.82; Sector Perform) Constellation Software Inc. (TSX: CSU CN; C$1,207.28; Outperform) Corus Entertainment Inc. (TSX: CJR/B CN; C$2.49; Sector Perform) Crescent Point Energy Corp. (TSX: CPG CN; C$0.91; Sector Perform) Crombie Real Estate Investment Trust (TSX: CRR-U CN; C$12.32; Sector Perform) CSX Corporation (NASDAQ: CSX US; $56.29; Sector Perform) CT Real Estate Investment Trust (TSX: CRT-U CN; C$11.55; Sector Perform) Dollarama Inc. (TSX: DOL CN; C$39.25; Outperform) Dream Industrial Real Estate Investment Trust (TSX: DIR-U CN; C$8.95; Outperform) Dream Office Real Estate Investment Trust (TSX: D-U CN; C$22.85; Sector Perform) Dundee Precious Metals Inc. (TSX: DPM CN; C$4.52; Outperform) ECN Capital Corp. (TSX: ECN CN; C$3.57; Sector Perform) Element Fleet Management Corp. (TSX: EFN CN; C$8.90; Top Pick) Emera Incorporated (TSX: EMA CN; C$50.61; Outperform) Empire Company Limited (TSX: EMP/A CN; C$27.33; Sector Perform) Enbridge Inc. (TSX: ENB CN; C$38.87; Outperform) Enerflex Ltd. (TSX: EFX CN; C$5.06; Outperform) Enerplus Corporation (TSX: ERF CN; C$1.83; Outperform) Enghouse Systems Limited (TSX: ENGH CN; C$42.59; Outperform) Ensign Energy Services Inc. (TSX: ESI CN; C$0.53; Sector Perform; Speculative Risk) Equitable Group Inc. (TSX: EQB CN; C$54.46; Underperform) European Residential Real Estate Investment Trust (TSXV: ERE-U CN; C$3.50; Outperform) Evertz Technologies Limited (TSX: ET CN; C$11.96; Sector Perform) Extendicare Inc. (TSX: EXE CN; C$5.55; Sector Perform) Fiera Capital Corporation (TSX: FSZ CN; C$6.71; Sector Perform) First Capital Realty Inc. (TSX: FCR-U CN; C$13.64; Top Pick) First National Financial Corporation (TSX: FN CN; C$25.43; Sector Perform) First Quantum Minerals Ltd. (TSX: FM CN; C$6.59; Outperform) FirstService Corporation (NASDAQ: FSV US; $78.65; Sector Perform) Fortis Inc. (TSX: FTS CN; C$49.70; Outperform) Franco-Nevada Corporation (NYSE: FNV US; $100.60; Sector Perform) Freehold Royalties Ltd. (TSX: FRU CN; C$2.60; Outperform) Freeport-McMoRan Inc. (NYSE: FCX US; $6.20; Sector Perform) Genworth MI Canada Inc. (TSX: MIC CN; C$29.92; Sector Perform) George Weston Limited (TSX: WN CN; C$97.31; Outperform) Gibson Energy Inc. (TSX: GEI CN; C$15.47; Outperform) Gildan Activewear Inc. (NYSE: GIL US; $12.76; Sector Perform) Granite Real Estate Investment Trust (TSX: GRT-U CN; C$55.25; Outperform) Great-West Lifeco Inc. (TSX: GWO CN; C$22.53; Sector Perform) H&R Real Estate Investment Trust (TSX: HR-U CN; C$8.43; Sector Perform) Hecla Mining Company (NYSE: HL US; $1.92; Underperform) High Liner Foods Inc. (TSX: HLF CN; C$6.05; Sector Perform) HudBay Minerals Inc. (TSX: HBM CN; C$2.40; Sector Perform) Husky Energy Inc. (TSX: HSE CN; C$3.21; Sector Perform)

March 30, 2020 41 Dividend Sustainability in Canada

Hydro One Limited (TSX: H CN; C$24.49; Sector Perform) iA Financial Corporation Inc. (TSX: IAG CN; C$42.76; Sector Perform) IGM Financial Inc. (TSX: IGM CN; C$22.80; Underperform) Imperial Oil Limited (TSX: IMO CN; C$13.31; Sector Perform) Information Services Corporation (TSX: ISV CN; C$13.75; Sector Perform) Innergex Renewable Energy Inc. (TSX: INE CN; C$19.02; Sector Perform) Intact Financial Corporation (TSX: IFC CN; C$116.99; Top Pick) Inter Pipeline Ltd. (TSX: IPL CN; C$8.46; Sector Perform) InterRent Real Estate Investment Trust (TSX: IIP-U CN; C$13.39; Sector Perform) Intertape Polymer Group Inc. (TSX: ITP CN; C$9.04; Sector Perform) Jamieson Wellness Inc. (TSX: JWEL CN; C$25.38; Outperform) Keyera Corp. (TSX: KEY CN; C$12.19; Outperform) Killam Apartment Real Estate Investment Trust (TSX: KMP-U CN; C$15.72; Outperform) Kirkland Lake Gold Ltd. (NYSE: KL US; $31.99; Outperform) KP Tissue Inc. (TSX: KPT CN; C$9.46; Outperform) Labrador Iron Ore Royalty Corporation (TSX: LIF CN; C$16.71; Sector Perform) Laurentian Bank of Canada (TSX: LB CN; C$30.05; Sector Perform) Linamar Corporation (TSX: LNR CN; C$28.10; Sector Perform) Loblaw Companies Limited (TSX: L CN; C$67.22; Outperform) Lundin Mining Corporation (TSX: LUN CN; C$5.19; Outperform) Magna International Inc. (NYSE: MGA US; $32.01; Outperform) Manulife Financial Corporation (TSX: MFC CN; C$15.76; Outperform) Maple Leaf Foods Inc. (TSX: MFI CN; C$22.77; Outperform) Martinrea International Inc. (TSX: MRE CN; C$6.41; Outperform) Medical Facilities Corporation (TSX: DR CN; C$3.25; Sector Perform) Melcor Developments Ltd. (TSX: MRD CN; C$7.26; Sector Perform) Melcor Real Estate Investment Trust (TSX: MR-U CN; C$3.10; Sector Perform) Methanex Corporation (NASDAQ: MEOH US; $12.22; Outperform) Metro Inc. (TSX: MRU CN; C$56.11; Sector Perform) Minto Apartment Real Estate Investment Trust (TSX: MI-U CN; C$19.87; Outperform) Morguard Corporation (TSX: MRC CN; C$126.00; Sector Perform) Morguard North American Residential Real Estate Investment Trust (TSX: MRG-U CN; C$12.54; Sector Perform) Morguard Real Estate Investment Trust (TSX: MRT-U CN; C$5.26; Sector Perform) MTY Food Group Inc. (TSX: MTY CN; C$20.98; Sector Perform) Mullen Group Ltd. (TSX: MTL CN; C$4.20; Outperform) National Bank of Canada (TSX: NA CN; C$50.07; Outperform) Neo Performance Materials Inc. (TSX: NEO CN; C$6.08; Sector Perform) Newmont Corporation (NYSE: NEM US; $46.35; Sector Perform) Nexa Resources S.A. (NYSE: NEXA US; $3.34; Sector Perform) Norbord Inc. (TSX: OSB CN; C$18.25; Top Pick) Norfolk Southern Corporation (NYSE: NSC US; $143.36; Underperform) Northland Power Inc. (TSX: NPI CN; C$26.72; Sector Perform) NorthWest Healthcare Properties Real Estate Investment Trust (TSX: NWH-U CN; C$8.92; Sector Perform) Nutrien Ltd. (NYSE: NTR US; $30.97; Outperform) Onex Corporation (TSX: ONEX CN; C$49.35; Outperform) Open Text Corporation (NASDAQ: OTEX US; $32.86; Outperform) Osisko Gold Royalties Ltd (TSX: OR CN; C$10.10; Sector Perform) Ovintiv Inc. (NYSE: OVV US; $2.66; Sector Perform) Pan American Silver Corp. (NASDAQ: PAAS US; $15.41; Outperform) Parkland Fuel Corporation (TSX: PKI CN; C$24.20; Outperform) Pembina Pipeline Corporation (TSX: PPL CN; C$24.14; Outperform) Peyto Exploration & Development Corp. (TSX: PEY CN; C$1.37; Sector Perform) Pinnacle Renewable Energy Inc. (TSX: PL CN; C$5.66; Outperform)

March 30, 2020 42 Dividend Sustainability in Canada

Plaza Retail REIT (TSX: PLZ-U CN; C$2.89; Sector Perform) Power Corporation of Canada (TSX: POW CN; C$20.90; Sector Perform) PrairieSky Royalty Ltd. (TSX: PSK CN; C$6.83; Sector Perform) Premium Brands Holdings Corporation (TSX: PBH CN; C$69.16; Sector Perform) Quebecor Inc. (TSX: QBR/B CN; C$29.90; Outperform) Recipe Unlimited Corp (TSX: RECP CN; C$8.15; Sector Perform) Republic Services, Inc. (NYSE: RSG US; $75.60; Sector Perform) RioCan Real Estate Investment Trust (TSX: REI-U CN; C$16.06; Sector Perform) Rogers Communications Inc. (TSX: RCI/B CN; C$53.81; Outperform) Royal Gold, Inc. (NASDAQ: RGLD US; $90.56; Underperform) Saputo Inc. (TSX: SAP CN; C$32.64; Outperform) Secure Energy Services Inc. (TSX: SES CN; C$0.94; Outperform) Shaw Communications Inc. (TSX: SJR/B CN; C$21.39; Outperform) Sienna Senior Living Inc. (TSX: SIA CN; C$11.94; Sector Perform) Slate Retail REIT (TSX: SRT/U CN; $4.50; Sector Perform) Sleep Country Canada Holdings Inc. (TSX: ZZZ CN; C$9.33; Sector Perform) SmartCentres Real Estate Investment Trust (TSX: SRU-U CN; C$18.88; Outperform) Sprott Inc. (TSX: SII CN; C$2.21; Sector Perform) Stella-Jones Inc. (TSX: SJ CN; C$29.50; Outperform) Stingray Group Inc. (TSX: RAY/A CN; C$3.52; Outperform) Summit Industrial Income REIT (TSX: SMU-U CN; C$8.50; Sector Perform) Suncor Energy Inc. (TSX: SU CN; C$16.43; Outperform) Sun Life Financial Inc. (TSX: SLF CN; C$42.38; Sector Perform) Superior Plus Corp. (TSX: SPB CN; C$7.52; Sector Perform) TC Energy Corporation (TSX: TRP CN; C$58.30; Outperform) Teck Resources Limited (TSX: TECK/B CN; C$9.07; Outperform) TELUS Corporation (TSX: T CN; C$21.25; Outperform) TerraForm Power, Inc. (NASDAQ: TERP US; $15.16; Sector Perform) TFI International Inc. (TSX: TFII CN; C$29.44; Outperform) The Bank of Nova Scotia (TSX: BNS CN; C$54.28; Sector Perform) The Mosaic Company (NYSE: MOS US; $9.90; Outperform) The North West Company Inc. (TSX: NWC CN; C$18.82; Sector Perform) The Toronto-Dominion Bank (TSX: TD CN; C$56.77; Sector Perform) Thomson Reuters Corporation (NYSE: TRI US; $62.21; Outperform) Tidewater Midstream and Infrastructure Ltd. (TSX: TWM CN; C$0.42; Outperform; Speculative Risk) TMX Group Limited (TSX: X CN; C$102.00; Sector Perform) TORC Oil & Gas Ltd. (TSX: TOG CN; C$0.57; Outperform) Tourmaline Oil Corp. (TSX: TOU CN; C$7.81; Outperform) TransAlta Corporation (TSX: TA CN; C$7.14; Outperform) TransAlta Renewables Inc. (TSX: RNW CN; C$13.80; Sector Perform) Transcontinental Inc. (TSX: TCL/A CN; C$11.78; Outperform) Tricon Capital Group Inc. (TSX: TCN CN; C$6.70; Outperform) Trilogy International Partners Inc. (TSX: TRL CN; C$1.46; Outperform; Speculative Risk) Union Pacific Corporation (NYSE: UNP US; $139.05; Outperform) Vermilion Energy Inc. (TSX: VET CN; C$3.76; Sector Perform) Warrior Met Coal, Inc. (NYSE: HCC US; $9.98; Sector Perform) Waste Connections, Inc. (NYSE: WCN US; $74.94; Outperform) Waste Management, Inc. (NYSE: WM US; $95.30; Outperform) Western Forest Products Inc. (TSX: WEF CN; C$0.61; Outperform) West Fraser Timber Co. Ltd. (TSX: WFT CN; C$27.38; Outperform) Westshore Terminals Investment Corporation (TSX: WTE CN; C$13.56; Outperform) Wheaton Precious Metals Corp. (NYSE: WPM US; $28.14; Outperform) Whitecap Resources Inc. (TSX: WCP CN; C$0.95; Outperform)

March 30, 2020 43 Dividend Sustainability in Canada

Winpak Ltd. (TSX: WPK CN; C$39.45; Sector Perform) WPT Industrial Real Estate Investment Trust (TSX: WIR/U CN; $9.55; Outperform) Yamana Gold Inc. (NYSE: AUY US; $2.97; Sector Perform) Yellow Pages Limited (TSX: Y CN; C$7.02; Sector Perform) Required disclosures Non-U.S. analyst disclosure Steve Arthur, Pammi Bir, Maurice Choy, Sam Crittenden, Luke Davis, Neil Downey, Michael Harvey, Sabahat Khan, Geoffrey Kwan, Robert Kwan, Wayne Lam, Matt Logan, Keith Mackey, Drew McReynolds, Douglas Miehm, Mark Mihaljevic, Darko Mihelic, Irene Nattel, Melissa Oliphant, Nelson Ng, Greg Pardy, Paul C. Quinn, Walter Spracklin, Paul Treiber, Josh Wolfson and Andrew D. Wong (i) are not registered/qualified as research analysts with the NYSE and/or FINRA and (ii) may not be associated persons of the RBC Capital Markets, LLC and therefore may not be subject to FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Conflicts disclosures This product constitutes a compendium report (covers six or more subject companies). As such, RBC Capital Markets chooses to provide specific disclosures for the subject companies by reference. To access conflict of interest and other disclosures for the subject companies, clients should refer to https://www.rbccm.com/GLDisclosure/PublicWeb/DisclosureLookup.aspx?entityId=1. These disclosures are also available by sending a written request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7 or an email to [email protected]. The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including total revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated by investment banking activities of the member companies of RBC Capital Markets and its affiliates. Distribution of ratings For the purpose of ratings distributions, regulatory rules require member firms to assign ratings to one of three rating categories - Buy, Hold/Neutral, or Sell - regardless of a firm's own rating categories. Although RBC Capital Markets' ratings of Top Pick/ Outperform, Sector Perform, and Underperform most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are not the same because our ratings are determined on a relative basis. Distribution of ratings RBC Capital Markets, Equity Research As of 31-Dec-2019 Investment Banking Serv./Past 12 Mos. Rating Count Percent Count Percent BUY [Top Pick & Outperform] 765 51.97 225 29.41 HOLD [Sector Perform] 625 42.46 127 20.32 SELL [Underperform] 82 5.57 5 6.10

Conflicts policy RBC Capital Markets Policy for Managing Conflicts of Interest in Relation to Investment Research is available from us on request. To access our current policy, clients should refer to https://www.rbccm.com/global/file-414164.pdf or send a request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7. We reserve the right to amend or supplement this policy at any time. Dissemination of research and short-term trade ideas RBC Capital Markets endeavors to make all reasonable efforts to provide research simultaneously to all eligible clients, having regard to local time zones in overseas jurisdictions. RBC Capital Markets' equity research is posted to our proprietary website March 30, 2020 44 Dividend Sustainability in Canada

to ensure eligible clients receive coverage initiations and changes in ratings, targets and opinions in a timely manner. Additional distribution may be done by the sales personnel via email, fax, or other electronic means, or regular mail. Clients may also receive our research via third party vendors. RBC Capital Markets also provides eligible clients with access to SPARC on the Firms proprietary INSIGHT website, via email and via third-party vendors. SPARC contains market color and commentary regarding subject companies on which the Firm currently provides equity research coverage. Research Analysts may, from time to time, include short-term trade ideas in research reports and / or in SPARC. A short-term trade idea offers a short-term view on how a security may trade, based on market and trading events, and the resulting trading opportunity that may be available. A short-term trade idea may differ from the price targets and recommendations in our published research reports reflecting the research analyst's views of the longer-term (one year) prospects of the subject company, as a result of the differing time horizons, methodologies and/or other factors. Thus, it is possible that a subject company's common equity that is considered a long-term 'Sector Perform' or even an 'Underperform' might present a short-term buying opportunity as a result of temporary selling pressure in the market; conversely, a subject company's common equity rated a long-term 'Outperform' could be considered susceptible to a short-term downward price correction. Short-term trade ideas are not ratings, nor are they part of any ratings system, and the firm generally does not intend, nor undertakes any obligation, to maintain or update short-term trade ideas. Short-term trade ideas may not be suitable for all investors and have not been tailored to individual investor circumstances and objectives, and investors should make their own independent decisions regarding any securities or strategies discussed herein. Please contact your investment advisor or institutional salesperson for more information regarding RBC Capital Markets' research. For a list of all recommendations on the company that were disseminated during the prior 12-month period, please click on the following link: https://rbcnew.bluematrix.com/sellside/MAR.action The 12 month history of SPARCs can be viewed at https://www.rbcinsightresearch.com. Analyst certification All of the views expressed in this report accurately reflect the personal views of the responsible analyst(s) about any and all of the subject securities or issuers. No part of the compensation of the responsible analyst(s) named herein is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the responsible analyst(s) in this report. Third-party-disclaimers The Global Industry Classification Standard ("GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard & Poor's Financial Services LLC (“S&P”) and is licensed for use by RBC. Neither MSCI, S&P, nor any other party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

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