September 20th, 2023 – Guelph, Ontario
The article speaks to Skyline Apartment REIT‘s historically strong returns and stable performance, which has been fueled by rising demand and tight supply in the rental housing industry. It also outlines the REIT’s strategy of acquiring properties in secondary and tertiary markets, where there is demand for housing but typically less competition to acquire or build.
The below article is a copy of the original published on InvestmentExecutive.com.
What’s driving strong returns for apartments?
With rising demand and tight supply, multi-residential real estate may deliver predictability, consistency, and stability to investment portfolios.
Canada set new records for immigration in 2021 and 2022, with a goal to add 465,000 permanent residents in 2023; 485,000 in 2024; and 500,000 in 2025. While the government says this is meeting nearly all of Canada’s growing labour needs, housing capacity isn’t keeping up — and high demand for housing is boosting investor interest in multi-residential investment opportunities.
“We’re about 500,000 homes short in Ontario alone,” says Matthew Organ, President of Skyline Apartment REIT, a Canadian private investment trust specializing in multi-residential real estate. “A report from a research company based at the University of Ottawa projects we will need 1.5 million homes constructed by 2031 to meet Ontario’s housing demand. So, the reality is that over the next decade, we’re going to remain in a housing shortage in this country, and that is fuelling the demand for any form of housing — but especially multi-residential, because it’s generally the most affordable.”
The 244 properties owned by Skyline Apartment REIT have a fair market value of $4.83 billion as at June 30, 2023. In total, they comprise 22,436 units diversified across 60 communities in seven provinces with an average monthly rent of $1,330. The REIT, which boasts a 14.51% three-year annualized return as at June 30, 2023,1 focuses on secondary and tertiary markets and holds a mix of established properties and new developments. Its historical performance record shows stability, with consistent monthly revenue and increasing rents leading to a steady flow of distributions to investors.
On the construction front, Organ favours partnerships with development-friendly municipal governments.
“The longer you have a piece of land tied up to get through zoning requirements, you’re sitting on something that isn’t producing any income, and, at the end of the day, the cost of the whole project increases,” he says “We’re generally looking for municipalities that are willing to work with us to get that development across the line faster.”
For Organ, successfully maintaining a positive relationship with a municipality means Skyline Apartment REIT has a higher likelihood of engaging in additional new development opportunities there. While it evaluates opportunities to enhance its presence in markets where it is established, the REIT also looks to enter new markets.
Buy what you know
For Organ, it makes sense to buy and build in secondary and tertiary markets, in part because there’s less competition from public REITs in those communities.
In addition, as experienced specialists in these markets, the Skyline Apartment REIT team draws from a deep knowledge base that enables them to identify the best opportunities. For example, they’re attuned to the trend of retired farmers planning to move to small towns but seeking an alternative to decades-old apartments. In larger secondary cities such as Windsor, Ontario, Organ says it’s equally critical to understand each particular market and know what’s fuelling demand in order to add what’s needed to the supply.
When considering a property acquisition, the typical “sweet spot” for the REIT is around four storeys, with anywhere between 50 and 500 units.
“We have a fairly extensive CapEx program,” says Organ. “When we purchase a property, we go through a comprehensive evaluation. For an older property, in addition to hallway or common-area renovations, it may need [work on] other aspects like the balconies, the roof, or the elevator.”
The REIT continues ongoing investment in its existing real estate holdings — for example, by adding EV chargers to many of its buildings.
“We’re looking five to 10 years down the road, thinking, if we can’t offer electric charging for vehicles, our tenants will move on to the next place that will,” Organ explains.
The goal is to get everything up to a modern-day standard to attract the next tenant, generating income and value growth for unitholders.
Prepared for further rate hikes
According to Organ, the multi-residential housing market’s predictability, consistency, and stability—due to its strong demand projected well into the future—are likely its primary attractors for investors. Rising interest rates further support demand for apartments by making it more difficult for homebuyers to purchase property — and variable mortgage rates are up from a low of 1.26% in December 2021 to more than 6% in August 2023.
Of course, rising interest rates affect Skyline Apartment REIT, too. However, Organ notes the portfolio’s mortgages are staggered, positioning the REIT to avoid having a significant portion of the debt mature in any one year.
“From an investment standpoint, the demand for apartments is not going away,” he says. “We see that in our mark-to-market rent gap. Every time we turn over a suite, we’re able to capture more rent and still stay within what would be considered a reasonably affordable living accommodation in Canada.”
1 The performance quoted represents the 3-year annualized return. Skyline Apartment REIT’s annualized returns including other periods are 10.46% 1-year, 14.51% 3-year, 17.74% 5-year, 14.69% 10-year, and 14.40% since inception on June 1, 2006. All of Skyline Apartment REIT’s numbers are as at June 30, 2023.
About Skyline Apartment REIT
Skyline Apartment REIT (the “REIT”) is a privately owned and managed portfolio of primarily multi-residential properties, focused on acquiring both established and newly developed properties in secondary and tertiary communities across Canada.
Skyline Apartment REIT is distributed as an alternative investment product through Skyline Wealth Management Inc. (“Skyline Wealth Management”), the preferred Exempt Market Dealer for the REIT. It is also available on Fundserv (Code: SKY2006).
Skyline Apartment REIT is committed to providing best in class apartment suites and service to its residential tenants, while surfacing value with a goal to deliver stable returns to its investors.
To learn more about Skyline Apartment REIT, please visit SkylineApartmentREIT.ca.
To learn about additional alternative investment products offered through Skyline Wealth Management, please visit SkylineWealth.ca.
Skyline Apartment REIT is operated and managed by Skyline Group of Companies.
About Skyline Wealth Management
Skyline Wealth Management Inc. (“Skyline Wealth Management”) is a Canadian investment firm offering a shelf of privately owned and managed alternative investments, specializing in real estate and clean energy assets.
Skyline Wealth Management is the preferred Exempt Market Dealer of four alternative investments:
- 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)
Skyline Wealth Management distributes institutional-quality investments to more than 5,700 investors, as well as Canadian investment Portfolio Managers and institutional investors, with ease of access to those who qualify.
To learn more about Skyline Wealth Management and its private investment offerings, please visit SkylineWealth.ca.
Skyline Wealth Management is part of Skyline Group of Companies.
For media inquiries, please contact:Jeff Stirling
Vice President, Corporate Marketing & Communications
Skyline Group of Companies
5 Douglas Street, Suite 301
Guelph, ON N1H 2S8