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Apartment REIT – Fund President Q1 2024 Update Transcript

Watch the Apartment REIT – Fund President Q1 2024 Update

Transcript

[00:00:55] Ray Punn:

I’m pleased to provide you with Skyline Apartment REIT‘s update for Q1 2024. Joining me today is Matt Organ. Matt, thanks for joining.

[00:01:02] Matthew Organ:

Thanks,Ray.

[00:01:03] Ray Punn:

Matt, let’s get right into the first question. Over the last couple of quarters, one of the hot topics from our investors has been, in terms of questions, we haven’t seen a change on the unit price on Skyline Apartment REIT. Let’s talk about that.

[00:01:17] Matthew Organ:

Ok. Our unit value, as you know, gets adjusted from time to time. What’s happened over 2023 is, as everyone knows, interest rates, been a hot topic. Interest rates have increased a lot through 2022, through 2023 and they’re currently sitting where they are today.

Interest rates impact what the value of the REIT is worth, in simple terms. So, when interest rates go up, cap rate goes up. When cap rate goes up, it means multiple of earnings comes down. So, effectively, the buildings are worth less when interest rates are higher. What we have to offset that is the income growth.

So, as we turn over suites month after month and we capture more income from the ingoing tenant than we were getting from the outgoing tenant, we generate income on this side. That income gets applied a multiple of earnings. Throughout 2023, what we lost in value because the interest rates went up, we gained in value because our income grew. Those two essentially formed a bit of a marriage. They ended kind of in the middle. So what happened is, you didn’t see our unit value go up, but you didn’t see our unit value go down.

[00:02:30] Ray Punn:

Matt, that’s a great explanation. You’ve talked about the increase in NOI (Net Operating Income) helping offset the increase in interest costs. Assuming that we’re at the top of the interest rate cycle, and assuming that we see interest rates coming down over the next 12 months in Canada, what does that mean for the REIT and the unit price?

[00:02:48] Matthew Organ:

Most economists do believe we’re at the top of the interest rate cycle. I believe we’re at the top of the interest rate cycle. Assuming that we hold interest rates where they are, we will hold our cap rates where they are. If we happen to get a decrease in interest rates, our cap rate will likely compress a little bit, which again increases the multiple of earnings of the value of the properties, and it contributes to unit value growth. Even if we’re holding interest rates where they are and the cap rates are staying where they are, which again, we’ve made that adjustment throughout 2023, taking our, if you want to call it a hit, we’ve taken that hit, we’ve absorbed that cap rate adjustment with our income growth like I talked about.

So, any income growth going forward should likely translate into unit value growth. And we do have very good income growth going on right now. We just finished Q1. We’re well ahead of budget on Q1 from an NOI standpoint, from a net income standpoint. Our vacancy is very good, our leasing is very strong. We’ve got very good income again throughout Q1, and we’ve got very good projections throughout the remainder of the year. So, we’re anticipating a lot of good income growth, which again, should likely translate into good unit value growth in 2024.

[00:04:04] Ray Punn:

Thanks for sharing that, Matt. We’ve talked about strong fundamentals in Q1. We talked about vacancy. We talked about interest rates. We know the multi-res space in Canada is emerging with immigration. Let’s talk about the rest of the year for Skyline Apartment REIT. Where do you see it going?

[00:04:20] Matthew Organ:

Yeah, lots of good things are happening in the space. Obviously, you mentioned immigration. Obviously, the interest rates again, working for us, against us in certain ways, but from a housing perspective, very difficult for people to buy homes, which is driving more people towards rentals. Right. It’s keeping more people in rentals from leaving.

So again, seeing really strong activity on leasing, seeing really good gains on our mark to market gap. Again, the tenants moving out versus tenants moving in, which are paying more money, which is driving the income, which again leads to unit value growth. So, Q1 recap, obviously we’ve had a very strong Q1, in terms of financially, we are looking for that same kind of momentum to continue out through Q2 with the income growth, and coming towards the end of Q2, we will revisit our unit valuations.

[00:05:07] Ray Punn:

Thanks, Matt, for joining me again today. After our discussion, I think it’s comfortable to share with our investors that there’s a strong outlook for the Fund for the rest of 2024. Skyline Apartment REIT is open for new investment. If you have any questions, please contact Skyline Wealth Management. Thank you for watching.

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