Watch the Skyline Retail REIT Discussion
Wayne:
Hello and welcome. I’m Wayne Byrd, Chief Financial Officer at Skyline. Thank you for your continued trust and support.
Today, I’m joined by Craig Leslie, President of Skyline Retail [REIT], to share highlights from 2024 and what’s ahead for the REIT in 2025. Thanks for joining me, Craig.
Craig:
Thanks, Wayne.
Wayne:
Well, let’s jump into it. 2024 was a busy year for both you and the REIT. Looking back on 2024, how did Skyline Retail REIT perform in the face of ongoing challenges across the retail sector?
Craig:
Well, 2024 marked an important leadership transition for the REIT. After eight successful years undergoing [Gordon] Driedger’s leadership, I had the honour of stepping into the role of President.
Since then, we’ve maintained that strong foundation. We [have taken] meaningful steps to position the REIT for long-term growth.
The past year has reinforced to me what we’ve known all along—that essential retail is just that: it’s essential. The sector has remained resilient regardless of economic climate, and our focus on grocery and pharmacy-anchored everyday needs retail has [resulted in] another year of strong, stable performance.
In the past year, we saw resilience and growth across our core financial metrics. Funds from operations rose nearly 15% to $47.3 million. Total income and net operating income also saw growth, [with] those results reflecting disciplined portfolio management and cost control across the board.
We outperformed many of our publicly traded peers in multiple metrics. Our Class A units delivered a 6.62% total return, compared to a 5.41% average return from our closest public peers. Over longer-term time frames—three, five, 10 years—we also consistently outperformed with less volatility. That speaks volumes to the strength and stability of our model.
We ended 2024 with a 99% committed retail occupancy rate and a record in-place rent of $19.78 per square foot, up $0.55 year over year. These results reflect strong leasing demand and the ongoing relevance of grocery and pharmacy-anchored retail centres across the country.
Wayne:
Well, that’s great. In addition to this strong performance, the REIT portfolio went through a disposition strategy in 2024. Can you speak a little more to this?
Craig:
Absolutely. Last year, we sold a small number of non-core properties, capitalizing on strong demand in the private buyer market. On a weighted average basis, those assets were sold at prices 3.9% above their IFRS value, allowing us to realize gains and further strengthen our balance sheet.
These targeted sales freed up capital for reinvestment into higher-return opportunities and are a great example of how we actively manage the portfolio to drive long-term value.
Wayne:
Earlier, you spoke briefly about the occupancy and leasing performance for 2024. Skyline Retail REIT’s strategic foundation is built on essential-based retailers. Can you take us through the leasing market for grocery-anchored retail over the past year, and what you expect for 2025?
Craig:
Well, fundamentals remain strong. There’s limited new supply and robust demand in most cases. Availability remains tight as a result, and it’s supportive of continued rental growth within the portfolio.
We achieved average leasing spreads of 10.4% last year—a record for the REIT. For context, leasing spreads measure the difference between the rent on an expiring lease and the rent that we secure when the space is renewed or released.
Looking ahead, we expect solid portfolio performance, even in a softer economic environment. The span of our portfolio income comprises some of Canada’s strongest retailers who can adapt to changing consumer needs.
A good example is the major grocers pivoting toward smaller-format, discount-focused stores that align with today’s cost of living pressures. For example, Walmart’s committed $6.5 billion to opening new stores and supporting infrastructure; Loblaws is investing $2.2 billion this year to renovate and expand its retail footprint; while others, such as Sobeys and Metro, [are] focusing on expansion of their respective discount banners.
These investments highlight the continued strength of essential retail across the country, and not just in those major urban markets.
Wayne:
Well thanks, Craig. So, we’ve touched upon the market trends. Now let’s shift slightly to the broader economic environment. How has the interest rate environment impacted your strategy?
Craig:
We remained cautious and disciplined over the last 24 months on the acquisition side, as rates had remained elevated. Most of our debt was secured at favourable terms when rates were low, so we were well-insulated on the mortgage side, and have been focused instead on optimizing our portfolio and taking advantage of a favourable leasing environment.
For 2025, about 29% of our mortgages are maturing. With rates trending down, we’re well-positioned to refinance at lower than in-place costs, in many cases. That would lead to improved cash flow and give us added capacity to reinvest in the portfolio, putting us in a strong position to evaluate new growth opportunities.
Wayne:
As we continue to look at the year ahead, in addition to prudent debt management, what are your key priorities for 2025 and beyond?
Craig:
Our priority has to remain delivering consistent, stable returns for our investors. We’re maximizing our value across our 5.2 million square feet of essential retail, pursuing strategic acquisitions and development opportunities where they make sense for our investors, and maintaining that strong leasing momentum we’ve enjoyed over the last 12 months.
With improving market dynamics, we’re well-positioned for another year of healthy performance.
Wayne:
Any final thoughts for our investors?
Craig:
I really just want to emphasize that Skyline Retail REIT’s built for stability with a clear focus on long-term value creation. As the retail landscape continues to evolve, the outlook for grocery-anchored, necessity-based retail remains strong. We’re well-positioned to capitalize on that environment [by] growing strategically, managing our portfolio proactively, and continuing to deliver the consistent, reliable performance our investors have come to expect.
Wayne:
Appreciate the update, Craig, and thank you to our investors for tuning in.
Skyline Retail REIT continues to deliver stable performance in dynamic conditions. If you’d like to dive deeper into today’s topics, reach out to your Relationship Manager. We’re here to help you stay informed and confident in your investment.
Disclaimer
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 Retail Real Estate Investment Trust’s (“Skyline Retail 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 Retail 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.