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Watch the Skyline Industrial REIT Discussion

[00:00:19] Wayne Byrd:

Hello and welcome, valued Skyline investors. Thank you for your continued support of our investment objectives, and for tuning in today to get a quick update on Skyline Industrial REIT, its portfolio, and its strategies.

Launched in January 2012, Skyline Industrial REIT has gone through a bit of a facelift, so to speak, in 2021 and 2022, with a collection of strategic dispositions that set the Fund in a stronger position through economic downturns that we experienced recently.

I’m pleased to be joined today by Mike Bonneveld, President, Skyline Industrial REIT, to get his perspective on some highlights from 2023 and the REIT’s strategy going forward. Thanks for joining me, Mike.

[00:01:00] Mike Bonneveld:

Yeah, good to be here. Thanks, Wayne.

[00:01:02] Wayne Byrd:

Let’s jump right in here, Mike. Can you briefly speak about Skyline Industrial REIT’s strategy and some commentary on last year?

[00:01:08] Mike Bonneveld:

Yeah. No problem. The REIT really has undergone a bit of a transformation over the last couple of years. In 2021, 2022, and for part of 2023, we sold off a little over $500 million worth of real estate, a lot of which was older, smaller bay product, primarily in Ontario. We then took this capital, as it was brought in through those dispositions – of which I think we completed 16 or 17 different transactions – and took that capital and invested in newer, higher-quality, call it more institutional-grade assets across the country. We also took some of that capital and invested it into a development pipeline in a number of different cities, but primarily in Montreal and in Ottawa.

The core focus continues [for] the Industrial REIT to be located in core centres across the country, which is really a little different from the Apartment REIT or the Retail REIT. The reason for that being within the warehousing and distribution sectors, you want to be where those big companies want to warehouse their goods. So, you want to be where populations are heaviest around those concentration nodes, not only for the distribution of those goods to those companies, suppliers, or consumers, but also [within the] transportation nodes where it all comes in.

[00:02:46] Wayne Byrd:

Thanks, Mike. So, going forward, what are the opportunities of growth you see for Skyline Industrial REIT that investors might be interested in?

[00:02:53] Mike Bonneveld:

We’ve spent a lot of time reviewing and really focusing this year, and at the end of last year, on those revenue enhancement strategies, especially as we digest a lot of the acquisitions that we’ve made over the last couple of years. And there are really two main focuses that we’re spending a lot of our time on and have been chatting to investors about.

One is the development pipeline, which we’ve spent time talking about a little bit already. But we’ve got roughly three million square feet under development at various stages. And I would say, based on the rough chronology of how long a development takes from buying a piece of greenfield land to having a building built, leased, and stabilized, we’re probably 60% of the way through that process on average across all the developments we’ve got underway right now.

And so what that means from an investor standpoint is in a development, when you put money into the deal, we use construction financing from a lender to help build those assets as well, but the investor equity goes in first, and then the construction financing comes in afterwards, and then you lease and stabilize. So, the equity that the REIT has invested into these development projects doesn’t earn a return until it’s actually fully completed, and fully leased, and stabilized. And so that’s a reasonable period of time, depending on the province, the municipality, and the asset itself. And so, as these assets turn into income-producing properties and start to generate income – and when we buy these assets out from our partners, if that’s what we so choose – that’s when we’re going to see that significant positive impact on NOI (Net Operating Income) and cash flow in the entity.

While we have acquired five in total to date, at the same time, because the development process was ramping up on some other assets. So, while we were getting some of that equity back and it was making a return, we’re also reinvesting in some of the other projects. We’re now fully committed on all those projects. So, virtually all the equity required for our developments is already in place. So, as these next assets come to stabilization and start to produce income, then that will drop down straight to the bottom line, as opposed to somewhat being offset by reinvestment of some of that capital.

The other primary place where we’re going to see significant cash flow growth in the entity is really on a same-store sales lease rollover. And a lot of this is on the website ( in the investor presentation, and I would suggest that investors try and have a look at that, as it’s quite helpful, hopefully, to most of you. But it’s the rollover from existing rents in our portfolio to mark-to-market within the context of each asset and each city.

Roughly, as we sit today, our average rent in place is $8.37. Because we look at it on a quarterly basis with the leasing team, we’re about 30-35% under market on average for the portfolio. In 2024, we have about 500,000 square feet rolling over. And again, if you look at that 30% rough lift on those 500,000 square feet off of a, call it $8.36 rent – which isn’t exactly the case because those metrics are across the whole portfolio – but there’s some nice lift there. And again, that goes straight to bottom line. And really the only costs there are leasing commissions, tenant inducements, and then some capital where needed to help build out those spaces or refresh spaces on renewal tenants.

And then when I look at 2025, I believe we’re about 800,000 square feet, and there are some nice lumpy deals in there where we’ve got tenants that are, well, well under market. So, when we look at that from a “don’t do anything new” perspective, it’s a real significant uplift in what that cash flow will be to the investor that’s in place today, and really as we stretch through over the next 12 to 18 months.

[00:07:30] Wayne Byrd:

So, I think you did a great job there demonstrating the mark-to-market gap, that phrase, that investors will get an appreciation [that the] industrial sector right now is really a hot market. What’s your outlook on what our mark-to-market gap is today? Will that gap still exist in 2026, 2027, or is that going to start to soften?

[00:07:51] Mike Bonneveld:

Yeah, I think the thing with industrial leases, much like a retail lease or an office lease is generally tenants will sign 5 to 10-year leases. And so, in relative markets – and market rental rates for industrial change quite dramatically from Vancouver to Calgary to Toronto or Montreal – but that gap is still going to be there.

As I said, our $8.37 per square foot rent in place is well, well under market in virtually every market across the country. And even though, as everyone will see, there’s been probably a lot more development on the industrial side than what we’ve seen in the past, we’re still just keeping up with demand, really on a national level. And if you look at the amount of immigration you mentioned before, Wayne, the amount of immigration coming into Canada, the rough number I heard was every individual needs about 40 square feet of warehouse space for the myriad of goods that they buy that are shipped to your house that the grocery store brings in. So, if you look at that, and if there’s a million people coming into Canada on an annual basis, that’s 40 million square feet of space needed in addition to what we have right now, assuming that 40 square feet is correct.

Over the last couple of years, one year we’ve hit that peak nationally of building 40 million square feet. This year, I think the schedule number is more like 18 [million square feet]. And so, as this trend continues to occur, even if we get a, call it a slight softening in terms of what that top-level rent is in a market – let’s call it the Guelph/Kitchener-Waterloo area – where at a peak, deals were being done at $16.00-$16.50. Now it’s probably more like $15.00-$15.50, somewhere in there. When you’re coming off a base of $8.00 or somewhere in there, that gap – whether you’re going from $8.00 to $16.00 or $8.00 to $15.00, is still really material, especially within the context of our portfolio.

[00:10:10] Wayne Byrd:

Yeah, real valuable insight for our investors. We’ve touched a lot on active portfolio management here, as you’ve just laid out in the outlook. Here we are, we’re mid-way through 2024 now. And looking forward, what else would you like our investors to hear about with respect to the balance of 2024 or beyond?

[00:10:28] Mike Bonneveld:

Wayne, when I look at the rest of the year and really leading into early 2025, there’s a lot of parts of the business that have – the pieces have really been put in place over the last 24-36 months, as we’ve talked about, and it’s really a story of executing and seeing the results and the benefits of that plan. The net result of that for our investors, and new investors, will really be bottom-line growth, which should result in distribution increases. I’m really hopeful of that. It’s hard to – and I do get this question a lot from investors – it’s hard to think about what timing that looks like, but we can see it coming. It’s just a matter of some of the timing of some of those lease rollovers and the development projects.

The other part is, as interest rates – and I’m sure you’ve touched on this with some of the other [Fund] Presidents – as interest rates have stabilized now, and, I think we all hope, get a little bit of a softening over that next 6 to 12 months, is what the roll-on effect of that will be from a Unit Value or an asset value standpoint. It comes in two different components, one with the cost of interest in the portfolio, which again, we didn’t see a huge negative on the way up because of the way we ladder our mortgages and protect the investor. We won’t see that huge positive on the swing down either, but it will impact the net value of that asset. And because all of the leases that we’re putting in place on existing assets, as well as the development pipeline, all have annual escalators in them somewhere in the 2.5-4% range. When you start to accumulate those and add on what that compounding change is year over year over year, that’s going to net benefit again from an income standpoint for our investors and our portfolio, but also a net value basis.

[00:12:44] Wayne Byrd:

Yeah. Thanks, Mike. Plenty for our investors to look forward to and prospective and new investors to look forward to. A great runway ahead.

[00:12:51] Mike Bonneveld:


[00:12:52] Wayne Byrd:

Mike, thank you very much for the incredible insight and outlook and wealth of experience. I know we could probably talk about the Industrial REIT and the experiences and what to look forward to for much longer than this, but I encourage all of our investors to reach out, to reach out to you, reach out to their Wealth Advisor, anybody in the Wealth Management team for any further input, information, assistance.

Investors, thank you for joining us today. And as always, we appreciate your continued support of our investment strategies and mandates. Thank you.

[00:13:26] Mike Bonneveld:

Thanks very much.


The presentation is an overview of the operations and conditions for the year ended December 31, 2023 and should be read in conjunction with the Management’s Discussion and Analysis (“MD&A”) and the Skyline Industrial Real Estate Investment Trust’s (“Skyline Industrial REIT” or the “REIT”) audited consolidated financial statements. Certain statements in this presentation could be considered forward-looking information within the meaning of applicable securities legislation. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond the REIT’s control, which could cause actual results to differ materially from those disclosed in or implied by such forward-looking information. These risks and uncertainties include, but are not limited to, general and local economic and business conditions, the financial condition of tenants, our ability to refinance maturing debt, rental risks, including those associated with the ability to rent vacant suites, our ability to source and complete accretive acquisitions, and interest rates. The information in this presentation is based on information available to Management as of April 30, 2024, except where otherwise noted. Skyline Industrial REIT does not undertake to update any such forward-looking information whether as a result of new information, future events or otherwise. In some instances, forward-looking information can be identified by the use of terms such as “may”, “should”, “expect”, “will”, “anticipate”, “believe”, “intend”, “estimate”, “predict”, “potentially”, “starting”, “beginning”, “begun”, “moving”, “continue”, or other similar expressions concerning matters that are not historical facts. Forward-looking statements in this presentation include, but are not limited to, statements related to acquisitions or dispositions, development activities, future maintenance expenditures, financing and the availability of financing, tenant incentives, and occupancy levels.

Commissions, trailing commissions, management fees and expenses all may be associated with investments in exempt market products. Please read the confidential offering documents before investing. The indicated rate of return is the annualized return including changes in unit value and reinvestment of all distributions and does not consider sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. There is no active market through which the securities may be sold, and redemption requests may be subject to monthly redemption limits. The payment of distributions is not guaranteed and may fluctuate. The payment of distributions should not be confused with an exempt market product’s performance. Distributions paid as a result of capital gains realized by an exempt market product, and income and dividends earned are taxable in your hands in the year they are paid. Your adjusted cost base will be reduced by the amount of any returns of capital. If your adjusted cost base goes below zero, you will have to pay capital gains tax on the amount below zero. Exempt market products are not guaranteed, their values change frequently, and past performance may not be repeated.