Watch the Apartment REIT – Fund President Q2 2024 Update
Transcript
00:19.250 — Ray Punn:
I’m pleased to provide you with Skyline Apartment REIT’s update for Q2 2024. Joining me here today is Matt Organ, President of the Skyline Apartment REIT. Matt, thanks for joining me today.
00:28.250 — Matthew Organ:
Thanks, Ray.
00:29.510 — Ray Punn:
Let’s get right into it. Matt, the first question, as usual, can you walk us through the last quarter and what happened with the Fund.
00:36.320 — Matthew Organ:
Last quarter, being Q2 of this year, has been very strong so far. As you’re aware of, we’ve raised the unit price from $27.75 to $28.50, and that’s basically built on the fundamentals that we continue to turn over units, capture more income upon every turn, and it’s translated into Unit Value increase. So, throughout Q2, and also through the entire first part of the year, we’ve been ahead on the income side of things, and obviously, expenses have come in under budget. So, we’ve got really strong fundamentals throughout the entire first half of the year, and we expect that to continue for the last half.
01:13.780 — Ray Punn:
Thanks for sharing that, Matt. And really good news on the Unit Price. I know our investors were really happy and pleased with a lot of communication that came back to us on the financial performance of the Fund. So, looking at Q1, you’ve talked a little bit about Q2, let’s look forward. What do investors have to look forward to for the rest of the year?
01:31.360 — Matthew Organ:
The rest of the year really, at this point, looks a lot like the first half of the year. We’ve had very good success, which you saw through the first half of the year, which facilitated the Unit Price increase in the last half of the year. We’ve still got a really good mark-to-market gap, so we’ve got about a $375 per door mark-to-market gap, which remains steady. Our turnover rate remains stable at 20%, meaning we’re still turning over about 20% of the units every year.
We’re capturing that income upon turnover, which is really what’s driving our value, right? That’s what’s leading to Unit Value increase and it’s leading to additional cash flow. So, we’re going to continue to do that, and we think we’ll see that throughout the remainder of the year. The market is strong, right? Immigration is still here. The demand for housing is rampant, and apartments are still a very affordable place for somebody to live, so we’re seeing very, very strong demand.
02:26.460 — Ray Punn:
Thanks for sharing that, Matt. We’ve seen two rate drops in 2024. There’s more, potentially, forecasted later this year. We’ll see how that shakes out. How has this impacted the Fund in the first two quarters, and how do you foresee this impacting the Fund into Q3 and Q4?
02:41.280 — Matthew Organ:
First of all, I think, there’s not an immediate impact on the Fund. I mean, to give reassurance to our investors, as you know, we ladder our mortgages very carefully across, so we have no more any about 15% of our mortgages maturing in any given year. Therefore, a slight rate increase or a slight decrease doesn’t move the dial significantly.
Certainly, what it does do is anything that we’re currently financing at this point, knowing that we’re getting sub-4 % rates, we’re seeing CMHC rates down in the 3.7 range right now on five-year mortgages. So, it’s absolutely positive. It’s less interest payments, it’s more cash flow than what we were getting when they were up at four and a half. We’ve stress-tested worst-case scenarios up into the five, five-and-a-half, six range. So, to have things back down in the, call it three-seven range, is very positive from a cash flow perspective, and obviously, it lowers our overall weighted average mortgage rate as we start to renew at these lower rates.
03:42.770 — Ray Punn:
Matt, to wrap this up, I’d like you to give our investors an indication or sort of a summary of what mark-to-market means. We talk about mark-to-market when we’re on the road, we’ve talked about it in webinars together, and we’re talking about it again today in our quarterly video. Tell our investors a little bit about what mark-to-market means specifically to Skyline Apartment REIT.
04:01.160 — Matthew Organ:
Yeah, certainly. It’s a phrase, obviously, we use internally all the time but it’s something that we measure on a daily basis. And it’s a very important part of a business and what it really illustrates is what the growth potential is in our Unit Value based on our mark-to-market gap. So, the mark-to-market gap is really, in essence, it’s the gap between in-place rents and what market rates are. So, for example, if we were to move out all 22,000 tenants tomorrow and move 22,000 new tenants into the suites, we would capture, on average, $375 per month more in income.
Bear in mind our expenses are already fixed; our property taxes remain the same, our grass-cutting contracts, snow plowing, etc. expense-wise, are fixed. So, this is pure income to the bottom line at $375 per month, per suite. When you extrapolate that out at a cap rate, call it a 4.95% cap, which is what we’ve got the Fund valued at right now. Really what that does is it takes our Unit Value from $28.50 to just north of $50. Okay. So, simply by operating the REIT and taking our 20% turnover rate every year, eventually, we’re going to be able to turn over all those units.
It’s not going to happen instantaneously. It doesn’t happen perfectly at a 20% rate, which means you’re capturing everything in a five-year period. But what it does show is that, again, simple operation. The business, on a month-to-month basis, an annual basis, you’re capturing more income, and you’re capturing a lot more income, and that’s going to drive Unit Value. And it means future Unit Value growth is coming every single month. That’s why, again, we had that Unit Value growth in Q2. And we will continue to look at that and monitor it and likely make further adjustments down the road.
05:53.670 — Ray Punn:
That was a great update. Thanks for joining me today.
05:55.380 — Matthew Organ:
Yeah, thanks for having me, Ray.
05:57.030 — Ray Punn:
Skyline Apartment REIT is currently open for new investment. If you have any questions, please contact your Relationship Manager at Skyline. Thanks for watching.