Transcript
[00:00:19] Wayne Byrd:
Hello, stakeholders of Skyline. As I’m sure you’re all aware, on Saturday, February 1, President Trump announced 25% tariffs to be imposed on all goods from Canada, with the exception of energy at 10%.
While this had been threatened for a couple of weeks, some had thought that President Trump was just a barking dog through a fence: our border. And on that same evening of Saturday, around 9 p.m., Prime Minister Trudeau stood up and barked back, threatening to impose a 25% counter-tariff on selected goods from the United States, which would have been imposed in two phases: the first round of which would have taken effect today, impacting $30 billion worth of U.S. goods; and the second round in three weeks, impacting $125 billion of U.S. goods— more specifically, those goods originating from red states.
Yesterday afternoon, through two consecutive meetings, Prime Minister Trudeau and President Trump met at the proverbial fence, and while still growling, their barks have paused—for now. They have agreed to pause any imposition of tariffs and counter-tariffs for a further 30 days, to continue trade discussions and negotiations to remove barriers and resolve.
If mutual resolve cannot be met and we land on these 25% tariffs, what could Canada expect? GDP would shrink. The dollar would weaken. There’s projected two million of lost jobs tied directly to export, and Canadian corporate investment would slow.
What effect could this trade war have on our Skyline investment funds? Let’s dig in.
For the Apartment [REIT], the immediate reaction is occupancy stability. In uncertain economic times, tenants hold on home ownership decisions [and] on relocation decisions. Energy costs could see an increase; however, much of the fund’s energy consumption has been hedged through forward fixed contracts.
Should these tariffs last for an extended period of time, small pockets of increased vacancy within our portfolio could occur. Our position within mid-market apartment rentals could see pockets of move-outs increase; however, offsetting move-ins [would] follow, albeit lagging to a degree. With over 21,000 different renters, geographically diversified and demographically diversified, this provides a hedge against these tariffs.
The Industrial REIT: slow decision-making for tenants on expansion, new location, and business development. [Tariffs would have] more of an impact on the manufacturing sector than Skyline’s distribution focus. However, with higher goods pricing, this will reduce spending on discretionary goods, which could then reduce goods being purchased and therefore shipped through distribution channels.
On the Retail REIT, tariffs will increase the cost of goods across the board, and an increase in grocery costs, a large proportion of which we import from the U.S., or Mexico via the United States, and this will place additional pressure on stretched household budgets. However, given our portfolio’s fundamental focus on retailers providing essential goods and services, it is anticipated demand for our tenants’ products will remain resilient as spending is diverted initially from discretionary items.
Clean Energy Fund: the Clean Energy Fund owns operating assets with fixed rate contracts and long-term debt, so we do not believe we will be negatively impacted operationally by any potential tariffs. The fund may see increased costs on equipment and exposure on foreign exchange due to a weakened Canadian dollar.
We will still continue to focus on repowering its solar assets, as there is still significant upside on this investment. With the potential increase in energy prices as a result of potential tariffs, this is a good opportunity for the fund to negotiate its energy offtake contracts and lease extensions with key stakeholders, as energy prices would likely be driven to rise.
SkyDev developments: reduction in housing starts are expected in the short term due to uncertainty and any potential job losses. Inflation from prolonged tariffs, coupled with the lack of housing supply, past interest rate cuts and recent changes in mortgage rules, could lead to higher-than-anticipated house prices and market rents.
Prolonged tariff exposure would expose new developments to increased material costs, to which we are reviewing alternative suppliers internationally to diversify our supply chains.
In the next 30 days, should a resolution not be landed on and a trade war begins, the economic impact would not only hit the Canadian economy, but also U.S. and Mexico. And if it were then to prolong, this could push the economy into inflation, which could turn the current declining interest rate climate upside down and send us back into rising rates before turning downward again into recession.
So, what are we doing now? We’re looking at early renewals of maturing mortgages. We’re looking at further hedging energy costs. We are looking at moving forward purchase of inputs for a portfolio investment that we want to make. And we are looking for alternative suppliers to diversify our contractors and supply chains.
Back to the barking dogs analogy. What did we see yesterday in the markets? Let’s look at the TSX and Dow. The dogs bark. Analysts comment. The public reacts. Chaos ensues and the markets decline.
And here we again land back at the public versus private debate. The resounding “see?” comes from us. See why private alternative investments in Skyline real estate and infrastructure are where your capital should be. The flight from risk and volatility to safety and stability.
Here forward, each day, our focus is to learn, understand, assess, and apply strategic maneuvers to prepare our funds to minimize threatened tariff impacts on them while still identifying opportunities for them. As we did through the pandemic, as developments will occur, we will communicate regularly to you.
Thank you once again for your continued support of our investment strategies. Please reach out if you have any questions or concerns.
Thank you.