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Webinar Transcript: Diversifying wealth: Real estate investing through private alternatives


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Ray Punn: I’m Ray Punn, Vice President and head of Skyline Wealth Management, and I’m happy to be a part of today’s webinar, “Diversifying wealth with real estate investing through private alternatives. And this is brought to you by Skyline Wealth Management.

This is a pre-recorded event, recorded on September 15, 2023, exclusive to Investment Executive readers and organized by Newcom’s Media Content Solutions team. Joining me today is Mike Bonneveld. He is the President of Skyline Industrial REIT. Mike, welcome.

Mike Bonneveld: Hey, Ray. Thanks for doing this. Happy to be here.

Ray Punn: So, during the webinar, you can write questions for us by typing them into the “Questions” panel. This is located in the control panel on the upper right side of your screen. After this webinar, Mike or I will be personally connecting with you directly to respond to your questions. So, let’s get right into it, and perhaps the rise of private alternatives.

So, there’s different theories, approaches to investment mix, whether you follow an index, the traditional 60/40. Others follow a portfolio mix of institution, like large pension funds. But the end goal for every advisor and investor is to maximize portfolio returns to build wealth. Tax planning may be of importance to some, while taking on a level of risk that’s within the mandate.

Now, with the rise of interest rates to curb inflation, asset classes have sometimes performed erratically, and we’ve seen some deep swings in the last year and a half or so. Now, turning your attention to private alternative investments, by definition, are certain commodities, art, hedge funds, more recently crypto, real estate of course, debt funds – and all of these are not publicly traded. In 2021, through prospective exemption, so an offering memorandum, $175 billion was invested into private alts, and that was made up by about 98% institutional and 2% direct investor. So, the rise in popularity can be attributed to lower volatility and decorrelation to publicly traded securities that access an asset class that may not be publicly available, while benefiting from additional diversification to a portfolio or a fund.

The private capital market in North America was $7 trillion as of 2022, and this represents 57% of the global market. So, America is a real leader in this space. So, Mike, I want to hone in on the rise of real estate in the private alternative space. And in a few moments, Mike, I’d like to get your take on the rise of real estate and private holdings with larger institutional players in North America.

For some, home ownership is really the only real estate exposure that they have, and it may be seen as more of a family home rather than investment. So, those entering the real estate market for ownership, with new immigration to Canada, younger Canadians leaving the nest, housing supply shortage, the lack of savings that’s scraped together for a down payment, home ownership is no longer a milestone or a goal. It’s rather adopting more of that European or Asian culture of renting, and it’s quite acceptable and more within reach.

With that, growing wealth is equally important and having access to real estate and asset classes that fall under institutional quality would be unattainable for even a wealthy investor, should they look to have direct ownership – not to mention taking on the responsibility of being a landlord, which includes capital expenditure, managing contracts, lawyers, etc.

REITs have given investors access by way of pooled unit ownership, and now REITs can be public, or they can be private, but both hold similar benefits: tax efficiency, reduced volatility, fixed income returns by way of yield. Some argue that liquidity between public and private is sometimes the driving factor when investing, but others recognize that a more stable, historical performance with private alternative holdings outweighs liquidity, since this sleeve of investment really falls under buy-and-hold, and cash or cash equivalents are probably best suited for immediate liquidity.

On the private side, be aware of unreasonable redemption terms and fees, discounts to NAV at the redemption, minimum hold periods can be of concern. Also, take a look at the management team and the REIT structure, or the mixing of asset classes within a fund, which may water down your exposure to the underlying real estate asset class itself.

Mike, why don’t I hand it over to you, and maybe we can go over in a little bit more detail the benefits investors can take advantage of when exploring REITs and other private alternatives.

Mike Bonneveld: Sure, Ray. Yeah, I think traditionally, as you said, there’s really been five main ways that institutions, high-net-worth private investors, have been able to access alternative investments. That’s really been through hedge funds, private capital investment, natural resources, and then real estate and infrastructure.

And when you look at a lot of these avenues, it’s really been limited for a long time to the institutional investors. And if you look at that genesis for a lot of funds, there’s been a migration where institutions like some of these fund of funds have gone from being much more, you know, a public market securities and public debt investors, and then bringing in the concept of adding in private investment through one of these five avenues to really offset the volatility, as you said Ray, that comes along with public markets. You know, the rapid ups and downs that may or may not really be driven off of the asset class that someone’s investing in. And from a real estate standpoint, private REITs are one of the primary ones, at least in the US, that have given more higher net worth individuals access to this.

And in the US, like lots of investing concepts, this form was started decades ago in Canada. It’s that private REIT investment model has been much slower to develop, and that’s just availability of overall capital within those markets. But it’s definitely a way, as you said, where from an individual standpoint, as opposed to having that direct investment of the asset and the liability and requirements to be hands-on. It’s that middle ground between investing in a public security that still has that volatility based on the overall market dynamics, versus owning an industrial building or an apartment building directly, where, you know, when the bathroom’s not working, you get the call, when you have to walk around and collect the cheques yourself. So, it’s kind of that middle ground where I would say it’s a more hands-on approach from an investor standpoint, but still not where you’re having to deal with the day-to-day requirements of a living and breathing asset, like an apartment building, industrial building, or a shopping center.

Ray Punn: So, Mike, in 2023, we’ve seen the rise of private market funds, and they’re being launched by some of the larger dealer networks in the investment space. And in the last couple of months, I can think of four that I’ve come across. And this is really to give global and geographic private alt exposure in a single investment vehicle. And some see this as a pivot to not adding investments but [rather] adding assets to your portfolio. And you may get access to a higher-quality basket with compounding return. But with the introduction of funds like this and other REITs, this underscores the popularity of real assets to hedge against volatility.

Now, Mike, I know that this may be a relatively newer concept as these private funds and the offering by dealers in Canada, but it’s not new—and you just sort of touched on this, and maybe we can go a bit deeper on this—this is not a new concept south of the border in America. Why is their market so saturated? Why is their market so much bigger than ours? What’s making their market different than ours?

Mike Bonneveld: Well, I think, you know, Ray, on a lot of these things, the investment concept is – you know, a lot of these financial instruments or concepts come out of the US. The concept of a real estate investment trust, be it public or private, was a US concept and I think – and I’m guessing – it’s an early 70s concept that came out of a mutual fund trust kind of concept.

And in Canada, the true concept is really a closed-end mutual fund trust or an open-ended mutual fund trust. But really, the US, like lots of things, be it derivatives or any–like from a public market standpoint, a lot of this genesis comes from the US, and it’s really at the end of the day the amount of capital driving- trying to find a home, people trying to come up with different structures, more tax-efficient structures to get availability of capital and access different points of capital rather than just institutional money or private capital, right?

So, if you look at that more specifically on the US REIT market on the private side – and this is just private and [I] just did a Google search the other day on this – there’s about 1,100 private US REITs. 225 of those are registered with the SEC (the equivalent of the OSC), so there’s that gap between 1,100 or 225 is really, you know, smaller vehicles that fall under the radar of something that’s required to be regulated by the Securities Commission.

But even if you look at the 225 that are registered with the SEC, there’s some really substantial entities in here. I think people often think if something’s private, it’s small and something that’s kind of off to the side. If I just name four of largest ones on the private side – Prologis’ (again, just information I pulled the other day) assets under management about $88 billion. And Ali Capital Management, about $74 billion; AGNC, $61 billion; American Tower, $59 billion. And this is just the top four, right?

So, if you think of that amount of capital just in those four, and the duration of some of these entities, right? It’s a really meaningful part of an investment concept that’s available in the US. And again, if you look at Canada, there are really only a handful of private REITs. You could probably count them on two sets of hands and none of them are anywhere near the size of these US ones.

So, in Canada, it’s really a newer concept, but something that I think you see more and more demand for, as people want as part of their personal investment portfolios or corporate investment portfolios to have an investment option that is decorrelated, as you said, from the public markets. Something that is much, much closer to direct asset investing and provides them – in good times and in bad times – something that helps smooth their holdings as opposed to everything invested in public fixed income or equities, and you’re getting that rapid volatility, right?

Ray Punn: So, Mike, you talked about those four large players in America and even just within our own backyard in Canada, we see some of our competitors – a lot of our competitors, in fact, on the public and private side – being Canadian companies, but there is an exposure to US assets in those portfolios. Now, when we look at these US organizations, do they have a lot of exposure outside of the US market? So, to Europe and to Asia? Is that a thing?

Mike Bonneveld: Yeah, I know some of these companies- Prologis is obviously a very large, or the largest, private REIT in the US, is an industrial developer owner. They absolutely have assets outside of the US. The other three, I am not sure; I haven’t dug into that, but there are definitely private entities that are much more geographically focused, right? In the US, even if you look on the public side, a lot of the REITs, whatever the asset class might be, often have a specific geographic focus such as industrial in the Midwest, or office in the Northeast. So, if you go down the rabbit hole enough and your focus is you want to buy or invest in a private REIT that has exposure in Florida, or Sunbelt multi-family, there’s enough breadth of entities in the US that you can do that.

Canada, again, just in terms of the size comparison – like, you can fit all the population of Canada in California, right? So, it’s geographically a big country, but from an investment standpoint, a much, much smaller investment profile, right? So, of all the private REITs that I know of in Canada, none are that kind of geographically focused like you can find in the US; it’s much more on an asset level basis.

So, you know, “I want to invest in Canadian or domestic multi-family,” “I want to invest in domestic industrial” . . . and you have to invest on that concept. And the public market REITs are similar as well. There’s just not enough [breadth] of investment opportunities to be, you know, [for example] GTA strip retail.

Ray Punn: Yeah. Thanks for that, Mike. I nudged this topic a few minutes ago, and that was the traditional 60/40 portfolio mix. So, you know, equities, a fixed income approach to investing. And this portfolio modeling strategy to most advisors may be obsolete and has been for the greater part of 20 years, and at least in institutional investing.

Over the last 15 years or so, some of the largest investors in the public and private pension space have adjusted their weightings towards real estate and private equity investments, really moving away or descaling from public equity exposure for the most part. And in some cases, pension funds may buy a pooled fund, but often have direct ownership in the real estate, the underlying asset itself. Some banks and wealth managers, I think they’re playing catch-up. You know, for what I’ve seen is their exposure somewhere in the 3-to-5%, whereas the pension funds have grown to between 20 and 40% of its entire investment portfolio being exposed.

In other cases, institutional investing has driven retail activity, and that’s a common theory out there. CPPIB itself has about 51% or close to $300 billion of its portfolio in alternatives, and that includes private equities, infrastructure, and real estate. And that’s in 2023. Mike, what trends are you seeing in the pension space?

Mike Bonneveld: Yeah, you’re absolutely right, Ray. And you know, this isn’t a concept that’s changed in the post-COVID era, right? Going back even 20, 25 years ago where, real estate [was] an asset class for the majority of pension funds. They were trying to get exposure to it, a number of the larger ones, be it OMERS, CDPQ, Hospitals of Ontario, [Ontario] Teachers. . . Traditionally (going back to kind of early days in my career), those entities had public market exposure, so they were investing in large public companies, and also had direct asset investments. But it was really limited to the large, large, large pension funds at that time. And the exposure would have been somewhere in the mid-single digits in terms of overall asset allocation for real estate. Over time – and part of it driven obviously because the returns were strong, so pension funds look at it and say, okay, this is really working, let’s rebalance a bit. You look at some of the larger pension funds; their allocations for direct real estate investment or fund real estate investment is in that mid-teens range.

And then on top of that, you’re adding in investments in private equity, some of which will have ties to real estate as well. And then on top of that, they’ll have their public equities as well.

What’s changed really in that last 20, 25 years is the smaller and mid-sized pension funds have been much, much more active where they would have been more limited on the public side or part of a larger fund. A lot of these groups have now built their own teams to not only do direct investing, but also be part of pools. So again, if you look at the US, you look at some of the larger funds that do this- call it the Blackstones, the Apollos of the world, um, Goldman Sachs, all these guys have what are called closed-end fund vehicles. And what they’ll do is the advisor will go out and raise, you know, $2 billion for global CBD office investment. They’ll raise that capital through pension funds globally, through Lifecos that don’t have access or the ability to go and invest in [for example] London, England. You don’t have the ability to go and make direct investment in Sydney, Australia.

One of the things that the funds all want to do is also not only providing a breadth of investment opportunities, a part of it being real estate, but within each of those pockets, they want to have geographic exposure. And so, from a pension fund level where OMERS, and Teachers, and the Caisse are three of the largest global pension funds that exist. They have to look at, okay, I need an allocation for South America, I need an allocation for Europe. I need an allocation for Australasia. And some of the larger ones can do this on a direct basis, but they also do it through fund vehicles. And really in the last ten, 15 years, domestically, we’ve seen a significant increase in these fund of funds.

So, individuals using their pension fund contacts, getting direct investment from those pension funds and having a specific directed investment thesis, be it domestic office or development. Um, on the industrial side, it’s very focused so that an investor or the pension fund itself can say, okay, I need 10% real estate allocation and I want that divided a third, a third, a third between these asset classes.

Ray Punn: You know, what’s interesting, Mike, is that there’s always that topic of liquidity in the real estate space. And, you know, when you look at the larger pension funds, even the small and medium guys, these positions are buy and hold. They’re not necessarily looking for sort of a quick take here. They’re coming in, they’re taking a buy and hold position, and I think that really underscores a good investing lesson for other fund managers, or even a direct investor, where liquidity is important in a portfolio.

But in the private space, there’s been that negative noise that liquidity isn’t the same as the public market space, where in the public market, it’s quite immediate, T+1, T+2. But in the private space, it can be 30 days, it could be 60 days, it could be 90 days. But again, the underscore here is that when we look at the modeling of the big pension players, these are buy and hold strategies. This is not treated as cash or a cash equivalent sleeve.

REITs: we’ve briefly touched on these investments, Mike, a very popular investment vehicle for both institutional, for the dealer network, and direct investors. There’s a lot to unpack with REITs. I’ll start with the asset classes. So, there’s multi-res (which is apartments), commercial, hotel, medical, self-storage, I know data centers have taken off in in America – and this is just to name a few. Mike, if I’m researching REITs for a fund or for an investor, under the hood, what should I know? What should I be looking out for? And maybe you can also touch upon the asset management side of a REIT, as you’ve worn that hat for many years of your career.

Mike Bonneveld: Yeah, sure. And if you look at the REIT universe, Ray, if you go back to the genesis in Canada where initially a lot of the public REITs that were available, I would say were a bit more mixed-bag or diversified. The REIT universe was materially smaller even just 20 years ago. I saw a slide the other day that the public REIT universe is in the $70 billion range. Again, don’t quote me on that – it was a slide I saw. But that’s like multiples and multiples and multiples from when it really first started being a product that the banking institutions were taking public and bringing that concept out.

But where now it’s kind of shifted because the universe is so large, is that someone says, okay, I’m comfortable with the self-storage business. I want to put money in a self-storage business, and I want it to be focused on Canada. You have that ability now. And I think the view, and I think it’s rightly so, is that I want to invest in a management team that knows the self-storage business.

So, don’t tell me you’re buying six hotels and then you’re going to buy, you know, seniors’ houses in Florida, and then you’re going to go buy an apartment building in Amsterdam. I want a management team that is focused on an asset class so that you know it inside out. And that’s really where both the public and private REIT market has gone to being very professional and very focused on a core product for the most part.

And again, in the US, where it’s a much, much deeper pool of entities, it can even go down to, I want Californian industrial, north of LA, because again the depth and the availability of product is so large, you can have material size entities that have that kind of focus and laser vision on what they’re doing.

Ray Punn: So, Mike, on the asset manager side – put that hat back on for me. I know when you’re looking at real estate specifically for a REIT, as you’ve bought for many years, you probably bought hundreds of properties for various REITs. Cap rates is of course very important. It’s a very important measure in the real estate space. Can you talk a little bit about what a cap rate is, how you use the cap rate, and how you determine whether or not you’re acquiring or if you’re just dispositioning of an asset based on cap rate?

Mike Bonneveld: Sure. Generally, when you’re looking at how to value an asset, every asset you look at a little differently just because of the dynamics of how the cash flow is generated, and the durability of that cash flow coming out of that asset. A cap rate is a multiple of net profit on the asset before you take into account debt. It’s not 100% directly correlated, but very correlated, to interest rates for the most part.

The delta on that, though, is when there’s a material upside or downside in the net profit that’s coming out of an asset. And what I mean by that is if I own a building today and I’m earning $10 because I have a lease in place with a tenant. But market is $15 and I know, and the tenant I have is maturing in two years so I believe I can take the rent in that building from $10 to $15, I may be more aggressive in my cap rate because I can move the NOI (net operating income) from where it is today to there.

There’s risk in that, based on duration of time. I have to spend money to get that new tenant in, possibly. I may need to spend CapEx, but that might take my cap rate from a five-and-a-half cap to a five-cap or a four-and-three-quarter cap, because I know once I renew that tenant or put that new tenant in place and my NOI goes up by 50%, my stabilized running yield or cap on my investment looks more like a seven or something like that.

When you value real estate, and I’ve been doing it for a long time, everyone talks cap rates right now, but there is more that you have to look at under the hood. You look at what that going-in yield is and what that levered yield is, but we run a discounted cash flow analysis on everything we buy. And really what that is, it’s a ten-year horizon or a 10 to 15-year horizon, depending on the duration of the leases in place. And what you’re trying to do is model out from both a revenue and expense side as well as kind of below-the-line stuff like TIs, capital costs, leasing commissions, other things that have to be spent on the asset, and looking at, okay, if I invest $10 today and I borrow $15 to buy this asset, in 11 years what do I think that asset is worth? But then I present value that back to today.

So, I’m really trying to say, okay, what do I think the life duration of this asset looks like, because if you look at something, if I bought in the inverse of my example, if I buy an asset today and the rents $15 but the markets $10, then I need to really think about, okay, I can’t be buying it in place I have to buy it looking at what do I think I’m going to get down the road Because if I look at it and say, okay, I’ll pay a six cap for that asset, or a five cap just to make it easy, where it’s a 20 multiple of earnings and then the rent goes down by 33%, my multiple of earnings that I’ve paid for is very, very different once I get to that stabilized level. Right? So, the other thing that we also look at, and this goes for virtually any asset class, is what are you paying as a comparison to replacement cost?

Mike Bonneveld: If I had vacant land and I bought the land and I pay all the soft costs and I build the building and then I put the tenant in, what does that cost me versus what I’m paying, either per square foot for an office building, a retail building, industrial building, or per unit basis for an apartment building, a per door basis on a hotel. When we look at it, we’re looking at all these different metrics and to say how does that look, how is it going to look in five years, because we’re trying to protect investor capital and buy smartly so that it’s not only yielding what we need it to for our investors, because at the end of the day, all REITs are income vehicles. The capital appreciation is that bonus on top, but you’re really buying rates for that dividend and that stable cash flow that comes from it. But you got to make sure that you’re not buying a wasting asset that, you know, you paid $10 for today and in ten years from now it’s worth six.

Ray Punn: [00:33:24] So Mike in terms of, so we talked about valuation, and we think we recognize that incremental growth or increased value for a REIT is led by a few different things. And you touched on this one is the first one is just generally the valuation based on supply and demand and based on increasing NOI. And then the other one is of course acquisition, so the growth of the fund by adding more real assets to a portfolio. You really honed in on acquisition or buying, when does it make sense to build versus buy? For these sorts of portfolios and these REITs?

Mike Bonneveld: [00:33:58] So you know, from a REIT standpoint, being part of a development is a bit of a delicate balance because when an investor puts money into a REIT, the expectation is I’m getting a monthly distribution on the income or the capital that I’ve invested. And so from the REIT’s management standpoint, while I think at certain points in the cycle you want to be a part of the development side, it’s difficult to do it directly unless you have a very large platform and it’s also trying to manage the exposure from a capital standpoint because if you’re doing a greenfield development, depending on what the asset class is, it’s not quick. On the industrial side, because that’s what I’m most familiar with currently, you know, we’re 12 to 18 months from shovel in the ground to completion and hopefully leased. And that’s really because an industrial building, relative to other asset classes, is a relatively simple build. It’s concrete, it’s steel walls, it’s a roof, dividing walls and that’s it. Whereas if you look at someone who’s building a high-rise apartment building, not only are you building the infrastructure and the shell, you’re furnishing it, it’s all the plumbing and the electrical and the HVAC. It’s a much, much, much more complicated build.

Mike Bonneveld: [00:35:30] And you can think of, just from a logistics standpoint, in terms of all the components that if you were building a house, it’s not just I have to build the walls and the floor, and the tenant brings their stuff in. In a multifamily building, you’re installing the cabinetry, the toilets, the wallpaper, the lighting fixtures, and the sound system. It’s a much more involved process and so it takes longer. The REIT management needs to look at it and say, I have X percent of capital allocated, I’m doing it because I want to be buying best-in-class assets that are brand, brand new, I’m getting the best tenants in the markets, I’m building that in, but I still have to pay a distribution to my investors on the capital invested. So, as I said, in the REIT that I run, we have a small exposure to it, really to get access to best-in-class, but think for smaller REITs, it’s very difficult to do it unless the distribution you’re paying is relatively smaller so that you can manage that distribution and it’s not affected by having capital that’s sitting, not benefiting the unit holder until that development is completed.

Ray Punn: Thanks, Mike. So, we you talked about industrial. So, let’s hone in on the industrial real estate sector. This is one of the most sought-after asset classes in North America. This is industrial real estate. With the rise of online commerce, 3PL, the need for warehousing has ballooned in the last decade. And I would say more recently, even since 2020, since the beginning of the pandemic, supply and demand in this asset class are not in line, and rents in many markets have doubled per square foot just in the last couple of years, as we’ve seen. So, as an owner or investor in this asset class, there’s been some significant returns captured in the last three, four, five years. I would say a big part of that was through NOI and the increases in NOI based on rents and the lifting of the underlying value of the asset itself. Mike, you’re the President of Skyline Industrial REIT. This is a $1.6 billion fund in Canada, very close to the 10,000,000ft², 98% occupancy. You have 60 properties across five provinces and some of Canada’s top industrial tenants are in this REIT. Let’s talk about the rise of industrial assets.

Mike Bonneveld: Yeah, sure. You’re right. I would say as we came out of COVID, you know, from a real estate standpoint and focus, it’s really been bed, sheds and meds. Beds being multifamily, given the housing shortage. We’ve got sheds being industrial warehousing, logistics, and meds being that grocery, pharmacy anchored asset that everyone goes to 2 or 3 times a day. On the industrial side the trend was happening pre-COVID, but what COVID did was really put a crunch on that supply chain, not only domestically in Canada but globally. That combined with the push in online shopping and delivery and the growth of Amazon and Wayfair and a number of these new format retailers, not that Amazon is that new anymore. The domestic warehouse logistics sector, really driven by the consumer products groups or anybody who’s needing product, [for example] you’re a service provider installing HVAC units or selling HVAC units to businesses. We went from this just-in-time method of inventory, which anybody who’s taking Business 101 at university or college went through these business cases where you’re trying to keep that inventory down as little as possible to maximize your profits and turn it as quick as you can.

Mike Bonneveld: Well, post-COVID, if you don’t have that pair of shoes in the warehouse that your customer wants delivered to their house or is needed in the store, you can’t sell it and somebody else is going to provide it. So, we’ve gone from that just-in-time to just-in-case, where inventory levels and requirements from all forms of businesses, consumer products groups, has expanded in multiples simply for that fact that my real estate needs or warehousing requirements relative to that top line are quite small or have been quite small and so I want to make sure I can get that product in my customer’s hands or my client’s hands, so I need to have that available. So, we’ve gone through this boon in demand nationally, and I would argue globally, and as a result, where industrial rents really in Canada were relatively flat for 20, 25 years up until 2015, 2016, 2017, you started to see some escalations in demand and rent.

Mike Bonneveld: We’ve seen this massive increase in places like the GTA where ten years ago rent for a Class-A building would have been $6.50, now if you’re going for Class-A in Brampton, Mississauga Markham, you’re going to be high teens to low 20s. Montreal, another market that was flat, flat, flat, for forever and ever, we’ve gone from $5.50 to $15, $16, $17. It’s been a very rapid increase and we’re seeing new construction to fill some of this demand but if you look nationally, we’re at a twoish percent overall vacancy level, which is a million miles from what I would call a stabilized or balanced landlord and tenant market. That really is probably more in that five, six percent range where you’re going to see that stabilized rent level because tenants have some options to go somewhere, landlords are a little more, I would say, reasonable in the ask and what the rent is. But we’re a long way from that stabilized level in most Canadian markets.

Ray Punn: Thanks, Mike. In terms of your buy strategy, of course, your fund Skyline Industrial REIT holds 100% Canadian assets. Do you have any intention of looking south of the border or keeping this as a national product?

Mike Bonneveld: One of the unique things about Skyline industrial REIT right now is, if you look at our public peers, we are the only pure play Canadian industrial REIT. The three or four other public guys either have other asset classes mixed in the portfolio in some percentage, or a couple of the much, much larger public industrial REITs have material holdings in the US and Europe. And good companies, but again if someone’s looking, as we talked about before, to be “I want to invest in Canadian industrial”, you can’t do that on a pure play right now. So, from our standpoint when we look at our platform, for the near to medium term, we are absolutely a Canadian focused industrial real estate owner and operator. As I was talking about before, on the development side, we have a couple of development partnerships that we’ve been working on for a number of years. In turn, we’ve acquired out our partners on the first number of assets, one in Calgary, and two in Montreal. We’ve got three more that are now stabilized, built, leased, and we’re just working out the buyout structure with our partners on those. Those will get acquired in the next couple of quarters. If I kind of step back a bit Ray on our industrial REIT, as you said, we’re a nine-ish million square foot company right now.

Mike Bonneveld: We’re in six provinces from Alberta to Nova Scotia. We have an allocation on the development side, and I think our timing’s been quite good there. A lot of those projects are ahead of schedule and have really been accretive for our investors. Just to back up, we’ve also just finished what I would say is our asset recycling program. We disposed of a number of older non-core assets in the small bay space and have repatriated that capital into more institutional, newer, larger assets, larger tenants, but higher quality tenants in terms of covenant, and matching that with term debt that’s appropriate to the asset. As I look at where we are today and look at that next six months, because we were able to get ahead of the curve on that disposition strategy and complete that, from a balance sheet standpoint, we’re in a really good place right now, even with interest rates where they are, to be competitive and to take advantage of opportunities that are available across the country, where a lot of groups are sitting on their hands a bit. And this goes for both funds and public companies. I really like the way the next six, eight, 12 months are looking in terms of being able to access that.

Ray Punn: Thanks, Mike. So, Skyline Investments, under Skyline Group of Companies, is the manager, owner, and operator of over $8 billion of real estate assets in Canada packaged up into four investment funds. Mike has just provided quite a bit of intel and details on Skyline Industrial REIT. The second fund is Skyline Retail REIT. This is approximately a $1.7 billion fund in Canada, with assets anchored in grocery, pharmacy, and essential service businesses. These tenants are Canadian, nationally recognized brands that you and I would all recognize across the country. The one after that we have is Skyline Apartment REIT. This fund is close to $5 billion in assets with over 22,000 multires units across Canada and holds a very strong occupancy in and around that 95% mark. Our last fund is Skyline Clean Energy Fund. This fund is a $300 million portfolio of solar and biogas assets, and they are anchored by provincial government contracts. So, these funds are available in both A Series directly through Skyline Wealth Management for direct investors and also available in Series F for the dealer network and institutions purchasing on Fundserv.

Ray Punn: So, the Skyline Investment offering, they’re 100% Canadian hard assets,

there’s no composition of public equities, cash, or debt. So, in other words, these are pure play investments. Each has a strong historical performance since inception, and to date investors and portfolios have enjoyed stable monthly distributions as well as unit value growth. So, prior to starting our Q&A session, I’d like to give you an update on the following. CE Accreditation is powered by CE Corner. We will be applying to ICM, ICS, AAC, and the Institute for Continuing Education Credits. You’ll receive an email from CE Corner when your CE certificates are ready and that can take up to a month. This webinar will be available on within the next couple of weeks, so you can replay the webinar back at any time. With that, Mike, maybe what we can do is we have two questions that came in a little bit early and they’re quite common questions that we get in our business. Maybe I’ll pitch you the first question. The first question is how do rising interest rates affect real estate? And, more specifically, how does Skyline mitigate the increases in debt servicing costs?

Mike Bonneveld: Sure. I think this is relatively generic across all asset classes. Obviously, higher interest rates affect that cap rate or gross income or the multiple of earnings that you buy an asset on because you don’t want to have negative leverage on an asset you’re buying. So, as rates rise, it will affect what that yield requirement going in looks like. As everybody’s aware, obviously, we’re in this higher rate environment as the government combats inflation. The offset though is that real estate is one of the best hedges against inflation. If you think about how the capital stack of how a real estate asset works is interest makes up a much smaller component of that capital stack than does the revenue. And so, when I look at the Industrial REIT specifically, while our interest rate costs are creeping up on our next acquisition where we’re putting debt on or on a refinance of an existing asset, the growth in that top line, so that rent that we’re able to charge those tenants, is also going up as a result of the inflation.

Mike Bonneveld: And the other thing too that all of the Skyline REITs do, and most REITs do, is we really ladder the debt exposure in the portfolio. What that means is if we have $100 worth of debt in the vehicle, we don’t have $100 worth of debt maturing in any one year or any couple of years. Generally, we’ll have between 10 and 20% maturing in any year. We try and balance that out as we do refinancing of assets or even as we acquire assets and we’re deciding what kind of term of debt to put on that acquisition. And what that mitigates against is really when you get spikes like we’ve had in 2022 or 2023 in terms of interest rates, your rollover exposure from what the rate you were paying to what you have to pay now is watered down on a portfolio basis. So, when I look at our business, yes, we are going to see higher interest rate costs on debt as it rolls, but that said, as an overall impact to the overall portfolio cash flow or after debt on the portfolio, it’s really not a material impact on the next couple of years as I roll that out for sure.

Ray Punn: Okay. Thanks Mike. I suspect there may be more questions on that, but we’ll be happy to take those when they come into the Q&A. The next question, I think it’s geared towards me, so I’ll tackle this one, Mike. What is the difference between Series A and Series F funds for Skyline Investments? So, in short, both Series A and Series F have the same underlying assets, they both share the same Declaration of Trust, and they both have one-to-one voting rights. When you look at the Declaration of Trust and break that down further, redemption fee, schedule, all that, it’s all the same. The main difference between these two funds on the A and the F side is really the fee structure. There’s a slight difference in the fee structure and as a result of that difference in the fee structure, the Series F units hold a ten-basis point increase on the yield. So, you receive effectively ten basis points more on the yield. And that’s really the only difference between the funds structurally and I think I mentioned this earlier, but the A Series funds are available through Skyline Wealth Management and the F series are available exclusively through Fundserv. Hopefully that answers that question. We are now at the end of the webinar. I’d like to thank Mike for joining me today and sharing his insight. Mike, thanks again. If we haven’t been able to answer any questions that you may have, we’ll reach out to you directly by email once we receive your questions. You can also visit for more information on Skyline and its alternative investment offerings. Also, I’d like to invite participants to fill out a brief survey as we value your comments and feedback. Thank you, everyone, and have a great day.

Mike Bonneveld: Thanks, everyone.