Private alternative investments are distinguished amongst Canadian investments in recent years with their resiliency and stability, as they are generally uncorrelated from the stock markets and potential to enhance portfolio diversification— relevant amid the current landscape of market volatility. The private alternative investment space has a unique blend of growth potential and asset diversification. Within it, Real Estate Investment Trusts (REITs), particularly multi-residential REITs, stand out for their potential of steady income and growth prospect. Since 2006, Skyline Apartment REIT, a leading private Canadian REIT made up of multi-residential assets in secondary markets, has demonstrated the strength and consistency that investors seek in apartment real estate investing.
Skyline Apartment REIT has become one of Canada’s largest multi-residential portfolios. It offers a compelling option for those looking to strengthen their investments against the unpredictability of the public market, while adding historical stability and a track record of consistent returns. Access to this investment can be further explored at www.skylinewealthmanagement.ca or Fundserv code SKY2006.
Below, we explore three key aspects that make Skyline Apartment REIT an investment of choice for investors seeking exposure to the Canadian real estate housing market.
Historical Performance and Stability
Skyline Apartment REIT has a historically consistent track record, with just under $5 billion in investment property fair market value, and a stable occupancy rate of 95.88%. This is across over 22,000 units and 243 properties. Additionally, from September 2022 to September 2023, in what was a challenging market, the REIT saw an increase of 8% in the investment property fair market value.1
Since inception in 2006, the REIT has attracted investors and Advisor portfolios who value reliability, access to real estate, and stable performance in their holdings. Skyline Apartment REIT’s strategic focus within the Canadian multi-residential sector puts it in the medium-risk profile2, balancing potential returns with thoughtful risk management.
Skyline Apartment REIT’s strategic approach extends beyond market positioning in the REIT’s financial management, demonstrated by its strategic staggering of mortgage maturities. With most of the REIT’s mortgage debt maturing in 2025 and beyond, accounting for over 80% of its portfolio, the REIT has skillfully minimized exposure to the current fluctuating interest rate market. The weighted average mortgage interest rate of the REIT is 3.17%, with total debt to investment property fair market value (or LTV) standing at 57.40%. With a long-term view on rates, the weighted average mortgage term to maturity is 4.58 years.1
Strategic Advantages of Skyline Apartment REIT
Skyline Apartment REIT is focused within the secondary markets of the Canadian multi-residential sector. It has a strategically diversified portfolio across seven provinces and 60 communities in Canada. The geographical spread demonstrates the REIT’s substantial footprint in the national market and provides a hedge against regional economic fluctuations while providing a home to over 35,000 Canadians.
The strategic investment in secondary markets is a deliberate move that capitalizes on the typically lower acquisition costs in these markets, allowing for greater value maximization. These markets present a unique opportunity during Canada’s intensifying housing crisis. The demand for affordable housing solutions continues to grow, and Skyline Apartment REIT addresses this need effectively. Skyline Apartment REIT has historically maintained its stability and growth and is well-equipped to capitalize on the ongoing demand, asserting its role as a contributor to the multi-residential investment sector.
Financial Benefits and Tax Efficiency
Skyline Apartment REIT offers potential for a tax-efficient structure that is designed to enhance overall after-tax returns for investors. By focusing on value growth, capital gains efficiency, and Return of Capital (RoC), the REIT can optimize tax implications for many of its unitholders so their investments are productive and efficient from a tax perspective. The REIT facilitates redemptions on a monthly basis with no fees, allowing for greater liquidity and financial flexibility.
Benefits of Portfolio Efficiency
Skyline Apartment REIT has long seen the benefits of implementing environmental efficiencies at its properties and integrating sustainability into all levels of its business operations. The REIT aims to increase electricity conservation through retrofitting its buildings with high-efficiency equipment and submetering. It also mitigates the over-use of water through practices such as consumption tracking and monitoring, early water leak detection sensors, and other innovative technologies.
Notable environmental initiatives by the REIT and its parent entity, Skyline Group of Companies, include producing 38,299 MWh3 of electricity through solar assets (many of which are located at Skyline Apartment REIT properties); saving approximately 13,223 MWh through electrical submetering; avoiding an average of 67% in water loss/wastage monthly through continuous use of leak detection systems; diverting an anticipated 241,624 kg of compost from landfill through organic compost services; and diverting 10,434 lbs. of e-waste from landfill.4
Additionally, earlier in 2023, the REIT announced an EV (electric vehicle) installation program in partnership with Natural Resources Canada (NRCan) that will see over 900 EV charging stations installed at its properties by March 2024.
By facilitating these types of initiatives, programs, and policies, the REIT ultimately adds efficiency to its operations and value to its property portfolio, positioning the portfolio to achieve increases in value for its investors.
Conclusion
Skyline Apartment REIT offers advisors/dealers and their clients a focused and tax-efficient investment in the Canadian multi-residential sector. With its low MER and potential for greater liquidity, the REIT has proven a historically sound investment option that doesn’t sacrifice growth potential.
Promising yet challenging prospects may be ahead for the Canadian real estate market, with anticipated further surges in housing demand spurred by demographic shifts and sustained immigration. Skyline Apartment REIT stands ready to navigate these conditions.
1 As at September 30, 2023
2 Skyline Group of Companies has assessed the Skyline Apartment REIT as holding a medium risk rating. This rating is based on the Fund’s current structure, financial and historical performance and does not indicate future performance or rating.
3 MWh: A measurement of energy usage; the amount of energy one would use if keeping a 1,000-kilowatt machine running for an hour.
4 All figures in this paragraph are as of December 31, 2022.