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Private REITs Offer Stability in Uncertain Political Environments

Times of political uncertainty, like we are currently seeing with the upcoming transfer of power in the United States, can directly impact public market pricing, often resulting in increased volatility. While these fluctuations can significantly impact publicly-traded REITs, private REITs are not influenced by the daily fluctuations of sentiment or performance correlations between equity indexes and their underlying components. Instead, private REIT valuations are based on quantifiable metrics, such as the underlying value of real estate assets and the rental income they produce. As a result, they are not subject to the same volatility. In fact, during periods of uncertainty, private REITs can offer protection against these ups and downs.

In a new article for InvestmentExecutive.com and Advisor.ca, Skyline Wealth Management examines how private REITs can reduce portfolio volatility during public market turbulence.

The below article is a copy of the original published on InvestmentExecutive.com.

Private REITs Offer Stability in Uncertain Political Environments

Amid a backdrop of lower interest rates and improving economic growth, asset allocators have recently gravitated toward Real Estate Investment Trust (REIT) investments.1 However, the potential for ongoing political turmoil in the U.S. tied to presidential turnover is keeping the market on edge, fuelled by angst about a smooth transfer of power.2 This is causing heightened volatility in underlying U.S. equity indices where REIT issuers trade, which is a matter of great significance to Canadian investment portfolios.

The first thing to consider is an elevated correlation between performance in the S&P 500 and S&P/TSX Composite, which historically reaches 80%.3 The following chart suggests that Canadian equities will not be able to sidestep corresponding declines should markets roil down south.

S&P 500 and S&P/TSX Composite Index correlation, 2000-present

Further, there are considerable questions surrounding the Trump presidency’s impact on the Canadian economy related to foreign tariff policy, which could impact the bottom line of Canadian businesses. According to Randall Bartlett, senior director of Canadian economics at Desjardins, direct impacts of the 10 per cent or up to 20 per cent tariff could be applied to imports from Canada.4 Such a scenario would materially impact the bottom lines of domestic industrial heavyweights and impact their capital investment strategies.

While such correlations and uncertainties may unduly impact public REITs in Canada – many of which are dual-listed on U.S. exchanges – private REITs are not subject to the same volatility.

The key reason lies in the more stable valuations of private REITs, which are not influenced by the daily fluctuations of sentiment or performance correlations between equity indexes and their underlying components. Instead, private REIT valuations are based on quantifiable metrics, such as the underlying value of real estate assets and the rental income they produce. Additionally, the application of quarterly (or longer) appraisal-based valuation methods mean unit value changes are more adaptive over time and less subject to daily/weekly market variance.

Put another way, public market REITs are more influenced by investor emotion, analyst reports, and peer valuation correlations, while private market investments are based on data-driven calculations to reflect underlying unit value. The investment risks of each are not linear.

According to Wayne Byrd, Chief Financial Officer of Skyline Group of Companies, the difference between public and private REITs can be characterized as ‘emotional’ versus ‘computational’: “The value of the investments in the public markets is determined by the market, by sentiment, by market analysts, by the ‘buy, hold, sell’ rating and what the market decides the underlying assets are worth… [whereas] the value of the investment in the private market is determined by data under a Net Asset Value (NAV) per share calculation driven from the market value of the underlying assets, removal of emotion, and the ebbs and flows that we see in the public space.”5

Canadian Political Uncertainty Looms in 2025

Irrespective of the shifting power dynamics down south, Canada’s political landscape is bound for change in 2025. This may cause volatility to increase in Canadian markets similar to what has generally been seen in the U.S. during federal election years. Given the tenuous hold on power Justin Trudeau and the Liberal Party maintain in parliament,6 odds are elevated that a snap election could even take place before the mandatory October 20, 2025, electoral deadline.7

The makeup of the current Liberal government is a cause for present ongoing instability. In 2021, the Liberal Party won 160 seats (up from 155 seats in 2019) but fell short of the 170 seats needed for a majority in the House of Commons. The lack of electoral mandate led to the Liberals to enter into a Supply and Confidence Agreement with the New Democrat Party (NDP) in 2022, which was subsequently ended in 2024.8 This makes the Liberals subject to a no-confidence motion in parliament, fostering ongoing uncertainty in the marketplace.

Whether or not a snap election takes place, Trudeau’s hold on power appears shaky. In late October, at least twenty disgruntled backbenchers presented an ultimatum to Trudeau to decide whether he wants to stay on as party leader or face the prospect of a revolt.9 Although he survived this ultimatum with his power intact, the maneuver casts doubt about the Liberals’ ability to emerge victorious in the next general election.

Although we cannot predict which political party will take power next year on either side of the border, heightened uncertainty is expected. This uncertainty typically impacts public market pricing, particularly in election years, and public REITs are not immune to these fluctuations.

Skyline Private REITs: A Pure-Play Real Estate Investment Hedge

Skyline offers pure-play investments focusing on specific sectors known for their resilience, historical stability, and growth potential. We connect portfolio managers and institutional investors to several private alternative investment opportunities available through Fundserv. These include three REITs: Skyline Apartment REIT (SKY2006), Skyline Industrial REIT (SKY2012), and Skyline Retail REIT (SKY2013), as well as Skyline Clean Energy Fund (SKY2018). Our deep understanding of market dynamics, and our expertise in each of these sectors, has enabled us to identify resilient asset classes and investment opportunities that largely insulate our funds from market volatility.

Each segment aims to buffer against cyclical downturns by focusing on asset classes with high occupancy rates and insulated pricing power. These sectors, such as multi-residential real estate, logistics, essential retail, and renewable infrastructure, are often characterized by stable demand and the ability to withstand market fluctuations. By concentrating exclusively on these areas, we have developed a deep level of expertise, allowing us to manage risk more effectively.

Build a diversified portfolio with an investment strategy grounded in the needs of Canadians. Contact a Skyline representative today to learn more about Skyline’s private alternative investments and explore how dividend investing in these stable sectors can help quiet the noise of market volatility.

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1 Reits Rise 6.4% in August, Institutional Real Estate Inc. www.irei.com

2 Top Dem Jamie Raskin Warned That Congress Will Ban Trump If He Wins Presidential Election, Glenn Grunwald. www.youtube.com

3 Do U.S Elections Affect Canadian Markets? Raymond James. www.solustrust.ca

4 Second Trump presidency would put ‘meaningful drag’ on Canada’s economy: Desjardins, BNN Bloomberg. www.bnnbloomberg.ca

5 Investment opportunities in essential private alternatives, Investment Executive. www.investmentexecutive.com

6 Group of Liberal MPs plan to verbally ask Trudeau to step down next week, CTV News. www.ctvnews.ca

7 Canada’s government under threat as Trudeau’s parliamentary partner exits, Financial Times. www.ft.com

8 Singh ends Supply and Confidence Agreement with Liberals, NDP. www.ndp.ca

9 Justin Trudeau pressured to resign by backbench MPs within own party, The Guardian. www.theguardian.com

About Skyline Wealth Management

Skyline Wealth Management Inc. (“Skyline Wealth Management”) connects portfolio managers and institutional investors to several private alternative investments operating in the Canadian real estate and clean energy sectors and totaling $8.95 billion in assets under management. These private alternative investments are:

  • Skyline Apartment REIT (Fundserv code: SKY2006)
  • Skyline Industrial REIT (Fundserv code: SKY2012)
  • Skyline Retail REIT (Fundserv code: SKY2013)
  • Skyline Clean Energy Fund (Fundserv code: SKY2018)

Each investment comprises a portfolio of geographically diverse assets, offering clients strong historical performance and stable distribution, low MERs, and potential diversification solutions with lower relative volatility to the public markets.

Visit SkylineWealthManagement.ca. for more information.

For media inquiries, please contact:

Cindy Beverly
Vice President, Marketing & Communications
Skyline Group of Companies
5 Douglas Street, Suite 301
Guelph, ON N1H 2S8
519.826.0439 x602

Skyline Wealth Management Inc. (“Skyline Wealth Management”) is an Exempt Market Dealer registered in all provinces of Canada. The information provided herein is for general information purposes only and does not constitute an offer of securities. Sales of interests in any investments offered by Skyline Wealth Management are only made to certain eligible investors pursuant to regulatory requirements and available exemptions.

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